Insights Static Quiz -451, 2019–Economy

Solution: d)

Banking Correspondents (BCs) are individuals/entities engaged by a bank in India (commercial banks, Regional Rural Banks (RRBs) and Local Area Banks (LABs)) for providing banking services in unbanked / under-banked geographical territories. A banking correspondent works as an agent of the bank and substitutes for the brick and mortar branch of the bank.

BCs engage in

• identification of borrowers;
• collection and preliminary processing of loan applications including verification of primary information/data;
• creating awareness about savings and other products and education and advice on managing money and debt counselling;
• processing and submission of applications to banks;
• promoting, nurturing and monitoring of Self Help Groups/ Joint Liability Groups/Credit Groups/others;
• post-sanction monitoring;
• follow-up for recovery,
• disbursal of small value credit,
• recovery of principal / collection of interest
• collection of small value deposits
• sale of micro insurance/ mutual fund products/ pension products/ other third party products and
• receipt and delivery of small value remittances/ other payment instruments.

Solution: b)

Japan is not a member of AIIB.

Solution: c)

Marginal Standing Facility (MSF) was announced by the Reserve Bank of India (RBI) in its Monetary Policy (2011-12) and refers to the penal rate at which banks can borrow money from the central bank over and above what is available to them through the LAF window.

MSF, being a penal rate, is always fixed above the repo rate. The MSF would be the last resort for banks once they exhaust all borrowing options including the liquidity adjustment facility by pledging government securities, where the rates are lower in comparison with the MSF. The MSF would be a penal rate for banks and the banks can borrow funds by pledging government securities within the limits of the statutory liquidity ratio. The scheme has been introduced by RBI with the main aim of reducing volatility in the overnight lending rates in the inter-bank market and to enable smooth monetary transmission in the financial system.

MSF represents the upper band of the interest corridor with repo rate at the middle and reverse repo as the lower band.

Solution: c)

Warehouse Receipts are documents issued by warehouses to depositors against the commodities deposited in the warehouses, for which the warehouse is the bailee.

Warehouse Receipt is a proof of storage. It is an acknowledgement of the goods held by the warehouse keeper on behalf of the person named therein. It is a document issued by a warehouse keeper stating that he holds the goods mentioned in the receipt and is awaiting instructions from the person to whom it is addressed. It is a mere deposit receipt. Banker can accept it as a security to grant loans.

Solution: c)

What are small finance banks?

The small finance bank will primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.

What they can do?

• Take small deposits and disburse loans. Distribute mutual funds, insurance products and other simple third-party financial products.
• Lend 75% of their total adjusted net bank credit to priority sector.
• Maximum loan size would be 10% of capital funds to single borrower, 15% to a group.
• Minimum 50% of loans should be up to 25 lakhs.

What they cannot do?

• Lend to big corporates and groups.
• Cannot open branches with prior RBI approval for first five years.
• Other financial activities of the promoter must not mingle with the bank.
• It cannot set up subsidiaries to undertake non-banking financial services activities.
• Cannot be a business correspondent of any bank