RBI approved Modern Currency Chests to hike the rate of service charges
27, May 2019
Prelims level : Mains level :
- The Reserve Bank of Indiahas announced that it is to allow large modern currency chests to increase the service charges on cash deposited by non-chest bank branches from the existing rate of Rs.5 per packet of 100 pieces to a higher rate subject to a maximum of Rs.8 per packet.
- For this, only a currency chest (CC) that fulfills the minimum standards will be eligible to be classified as a large modern currency chest.
- The increased rates can be charged only after such classification by the issue office concerned.
What is a Currency Chest?
- Distribution of notes and coins throughout the country is done through designated bank branches, called chests. The chest is a receptacle in a commercial bank to store notes and coins on behalf of the Reserve Bank.
- Deposit into chest leads to the credit of the commercial bank’s account and withdrawal, debit.
Functions of Currency Chests:
- to meet currency requirement of public
- to withdraw unfit notes
- to provide an exchange facility from one denomination to another
- to make payment requirement of the Government
- to exchange the mutilated notes
- to avoid frequent movement of cash
- Apart from having its own chests at certain places, RBI also has arrangements with other banks which are entrusted with the custody of the currency notes and coins for the same purpose.
RBI proposes guidelines for large Non-Banking Financial Companies
- The Reserve Bank of India (RBI) released draft guidelines on liquidity risk management framework for non-banking financial companies (NBFCs) and core investment companies (CICs) with an aim to help them deal with severe liquidity problems and prevent re-occurrence of IL&FS type of debt crisis.
- The guidelines were released after an analysis of the recent developments in the NBFC sector.
- Liquidity Coverage Ratio (LCR) regime:
- The proposal said that a Liquidity Coverage Ratio (LCR) regime would be introduced in all deposit-taking Non-Banking Financial Companies (NBFCs) and non-deposit taking shadow banks with an asset size of Rs.5,000 crore and above in a phased manner.
- The LCR regime RBI will be implemented in a calibrated manner through a glide path over a period of four years commencing April 2020 and up to April 2024.
High-Quality Liquid Assets (HQLA):
- An NBFC shall maintain an adequate level of unencumbered High-Quality Liquid Assets (HQLA), so that under a significantly severe liquidity stress scenario that can be converted into cash to meet its liquidity needs for a 30 calendar-day time horizon.
- HQLA means liquid assets that can be readily sold or immediately converted into cash at little or no loss of value or used as collateral to obtain funds in a range of stress scenarios.
Asset Liability Management (ALM):
- The draft guidelines also cover the application of generic asset liability management (ALM) principles, granular maturity buckets in the liquidity statements and tolerance limits, liquidity risk monitoring tool and adoption of the ‘stock’ approach to liquidity.
Asset-Liability Management Committee (ALCO):
- RBI also proposed that Asset-Liability Management Committee (ALCO) consisting of the NBFC’s top management should be responsible for ensuring adherence to the risk tolerance/limits set by the Board as well as implementing the liquidity risk management strategy of the NBFC.
Why the guidelines:
- Since 2018, the IL&FS crisis erupted banks have been averse in lending to this sector, which has further put NBFC’s in a tight spot. There are rising concerns that NBFCs may run out of money, which will further lead to defaults.
- Many large NBFCs, such as DHFL and Indiabulls Finance came under severe liquidity pressure which compelled them to bring down their reliance on commercial papers (CPs). The CPS is a debt instrument which is issued by companies to raise funds for a time period of up to 1 year.
- As per estimates about Rs.l lakh crore of commercial papers (CPs) raised by NBFCs from investors will be coming up for redemption in the next 3 months. But since NBFCs are cash-strapped, there is a looming fear that they will default on CPs.
India projected to grow at 7.1%
- The World Economic Situation and Prospects (WESP) 2019 Mid-year Update was released by the United Nations on 21 May 2019.
- India’s economy is projected to grow at 7.1% in the fiscal year 2020.
- As per the report, the Indian economy, which generates two-thirds of the regional output in South Asia, expanded by 7.2% in 2018.
High-level panel pitches for ‘Elephant Bonds’
- A government-appointed advisory group has suggested issuance of ‘Elephant Bonds’ wherein people declaring undisclosed income will have to mandatorily invest half of that amount in these securities.
- These recommendations are part of a report prepared by the 12-member group, set up by the commerce ministry in September 2018.
Modern currency chests to hike service charges
- The Reserve Bank of India allowed large modern currency chests to increase the service charges on cash deposited by non-chest bank branches from the existing rate of ₹5 per packet of 100 pieces to a higher rate subject to a maximum of 8 per packet.
- For this, only a currency chest (CC) that fulfils the minimum standards will be eligible to be classified as a large modern CC.
Corporation Bank launches Corp SME Suvidha for MSMEs
- Corporation Bank launched ‘Corp SME Suvidha’, a product for GST-registered MSMEs.
- The product has been designed as part of the bank’s efforts to provide the best products to the MSME sector.
- PV Bharathi, Managing Director and Chief Executive Officer of the Corporation bank, launched the product in Mangaluru recently.