Banking and Financial Awareness December 2018: Week I

Banking and Financial Awareness December 2018: Week I

Mandatory Hedging cut to 70% from 100% for Foreign Loans by RBI

  • Relaxed norms will apply to the ECBs (external commercial borrowings) with a maturity period between 3 and 5 years. 
  • Relaxation in hedging is for Indian companies raising foreign currency-denominated ECBs under Track I which means to medium-term borrowings with average maturity. 
  • Aimed at reducing hedging costs for foreign loans, comes at a time when the economy faces liquidity issues, particularly for the non-banking financial companies (NBFC). 
  • Hedging – 
    • Risk management instrument which is used for reducing probability of loss from changing price of commodity, stocks, securities, etc. 
  • Reserve Bank of India 
    • Headquarters: Mumbai 
    • Governor: Urjit Patel 
    • Founded: 1st April 1935 

Government of India and Asian Development Bank (ADB) signed $200 Million Loan

  • To finance widening and upgrading of State Highways in Bihar to all-weather standards with road safety features. 
  • Improved roads will contribute to savings in 
    • vehicle operating cost and travel time, 
    • reduce vehicle emissions, 
    • improve road safety. 
  • Under the Project – 
    • A State-level Road Research Institute will establish to improve technical and management capacity of the Road Agency Staff. 
    • Also, for road design and maintenance, build institutional capacity of the State and incorporate appropriate new technologies in the State's road sub-sector. 
  • Asian Development Bank (ADB) 
    • Headquarters: Mandaluyong, Philippines 
    • Founded: 19 December 1966 
    • Membership: 67 countries 

Government of India and Asian Development Bank (ADB) inked $75 Million loan

  • For improving Urban Services in 4 coastal towns and Mangalore in Karnataka. 
  • Strengthen institutions for improving water use efficiency, water resource planning, monitoring and service delivery. 
  • Also, 24 x7 water supply will be provided in Karnataka’s four coastal towns of Kundapura, Mangalore Puttur and Udupi and improve sanitation infrastructure for Mangalore town. 
  • It will be tranche 2 loan agreement. 

RBI moves to make more liquidity for non-banking finance firms

  • To avail more liquidity available to non-banking finance firms, the Reserve Bank of India has relaxed the securitisation norms by relaxing the minimum holding period requirement. 
  • This move will follow a demand from the government for a special window for NBFCs, to provide them liquidity support. 
  • RBI relax the Minimum Holding Period (MHP) requirement for originating NBFCs. 
  • When the NBFC retains 20% of the book value relaxation on the minimum holding period will be allowed of these loans. 
  • NBFC sector is facing liquidity shortage after Infrastructure Leasing & Finance Services, a core investment company, started defaulting on loans. 

20-character LEI code mandatory for market participants: RBI

  • To improve the quality and accuracy of financial data systems for better risk management post the global financial crisis Reserve Bank of India (RBI) has decided to make Legal Entity Identifier (LEI) code mandatory for market participants. 
  • LEI is a 20-character unique identity code assigned to entities who are parties to a financial transaction. 
  • Participants of the implementation include - 
    • Government securities markets, 
    • Money markets 
    • Non-derivative forex markets. 

Net stable funding ratio (NSFR) norms for banks to be operational from April 2020: RBI

  • For maintaining a stable funding profile in relation to the composition of their assets and off-balance sheet activities. 
  • NSFR – 
    • amount of available stable funding relative to the amount of required stable funding defined as NSFR. 
  • Guidelines are in line with global norms prescribed by the Basel Committee. 
  • Applicable for Indian banks at the solo as well as consolidated level whereas for foreign banks operating as branches in India, on stand-alone basis (for Indian operations only).

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