Latest Financial Products with amendments For LIC,NICL,SBI,PNB,IBPS Preperation

Latest Financial Products with amendments 

For LIC,NICL,SBI,PNB,IBPS Preperation Payment of Penal Interest for delayed credit/refunds of NEFT economic times latest business news transactions and efficient functioning of Customer Facilitation Centres Interest Subvention Scheme Base Rate System Marginal Standing Facility (MSF) scheme Marginal Standing Facility will curb inter-bank lending volatility latest business and economic news

Payment of Penal Interest for delayed credit/refunds of NEFT transactions and efficient functioning of Customer Facilitation Centres 

RBI had earlier advised banks to refer the guidelines dated September 1, 2010 on bringing uniformity in the penal interest to be paid by the banks in case of delay in crediting the beneficiary customer’s account or in returning the uncredited amount to the remitter. Under the extant guidelines, banks are required to pay penal interest at the current RBI LAF Repo Rate plus two percent for the period of delay / till the date of refund as the case may be to the affected customers, without claim from the customers. These measures were instituted with the objective of enhancing the customer service and efficiency parameters of the system in view of large scale growth in electronic payment transactions. RBI has reiterated these instructions to be followed by the banks. Further, under the NEFT Procedural Guidelines, banks are required to establish dedicated Customer Facilitation Centres (CFCs) to handle customer queries/ complaints regarding NEFT transactions

Interest Subvention Scheme – 2 per cent interest subvention and 3 per cent additional subvention for short-term crop loans in 2011-12 

Government of India has already announced by interest subvention of 2 per cent on the condition that the effective rate of interest on short term production credit up to Rs. 0.3 million. Now the GOI will also provide additional interest subvention of 3 per cent p.a. to Public Sector Banks in respect of those prompt paying farmers who repay their short-term production credit within one year of disbursement/drawal of such loans. This subvention will be available to such farmers on the short-term production credit up to a maximum amount of Rs. 0.3 million availed of by them during the year, from the date of disbursement/drawal of the crop loan up to the actual date of repayment by farmers or up to the due date fixed by the bank for repayment of crop loan, whichever is earlier, subject to a maximum period of one year from the date of disbursement. This additional subvention will be available to Public Sector Banks on the condition that the effective rate of interest on short term production credit up to Rs. 0.3 million for such farmers will now be 4 per cent p.a. This benefi t would not accrue to those farmers who repay after one year of availing such loans.

(Source RBI Bulletin Feb 2012)

Base Rate System

Base Rate System is for the banks to set a level of minimum interest rates charged while giving out the loans. This Base Rate System has many advantages over the older method of Prime Lending Rate (PLR). One advantage is, in the Prime Lending Rate (PLR), one could sanction the loan for lower price for the preferred customer or the corporate bodies and retail customers may have to pay more for the same type of loans. In the base rate system, there will not be much variance on the loans.

However, the base rate system will not be applicable for the following type of loans:

Agricultural Loans

Loans given to own employees

Loans against deposit

Export Credit

Base rate system is arrived at taking into the account, the cost of deposits and cost of keeping aside cash to meet CRR and SLR. It is convenient for the banks to adjust the lending rates after the changes on policy rates by the RBI.

Transparency on Base Rate System

Another advantage of base rate system is transparency on calculation method to arrive the base rates. Every bank has to declare to the public how they have calculated the base rates. Fro example, SBI has calculated the base rate by taking into account of past six month deposits.

As per RBI, Base Rate shall include all those elements of the lending rates that are common across all categories of borrowers. While each bank may decide its own Base Rate, some of the criteria that could go into the determination of the Base Rate are: (i) cost of deposits; (ii) adjustment for the negative carry in respect of CRR and SLR; (iii) unallocatable overhead cost for banks such as aggregate employee compensation relating to administrative functions in corporate office, directors’ and auditors’ fees, legal and premises expenses, depreciation, cost of printing and stationery, expenses incurred on communication and advertising, IT spending, and cost incurred towards deposit insurance;and (iv) profit margin.

MARGINAL STANDING FACILITY SCHEME

The Reserve Bank of India (RBI) has introduced a new Marginal Standing Facility (MSF) scheme, which was announced to be implemented in its Monetary Policy for the year 2011-12. Under the new facility, banks will borrow overnight up to 1 per cent of net demand and time liabilities (NDTL) outstanding at the end of the second preceding fortnight. The MSF will be 100 basis points above the repo rate – the rate at which banks borrow from RBI. It needs to be noted that the repo rate has now become the only independent variable policy rate, marking a shift from earlier method of calibrating various policy rates separately. The reverse repo rate — the rate at which RBI borrows – will be kept 100 basis points lower than the repo rate. All scheduled commercial banks that have current account and subsidiary general ledger (SGL) account with RBI are eligible to participate in the MSF scheme. RBI will receive requests for a minimum amount of Rs 10 million and in multiples of Rs 10 million thereafter. The central bank has the right to accept or reject partially or fully, the request for funds under this facility.

Marginal Standing Facility will curb inter-bank lending volatility: The Reserve Bank of India’s new Marginal Standing Facility is expected to curb volatility in the overnight lending rates in the banking system. The banks will use Marginal Standing Facility to borrow overnight money only when they have exhausted all other existing channels like collateralized borrowing and lending obligation (CBLO) and liquidity adjustment facility (LAF).

Difference between Liquidity Adjustment Facility-Repo Rate and Marginal Standing Facility Rate: Banks can borrow from the RBI under LAF-Repo Rate by pledging government securities over and above the statutory liquidity requirement of 24 per cent. Though in case of borrowing from the marginal standing facility, banks can borrow funds up to one per cent of their net demand and time liabilities. However, it can be within the statutory liquidity ratio of 24 per cent.