MCQ Test: Priority sector lending (PSL) - 2 - Bank Exams MCQ

Key Points

• The Reserve Bank has expanded the scope of priority sector lending to include startups funding up to Rs 50 crore and loans to farmers for installation of solar plants and compressed biogas plants.
• The Priority Sector Lending (PSL) guidelines have been comprehensively reviewed and revised to align them with emerging national priorities and bring a sharper focus on inclusive development.
• The guidelines should enable more credit flow to small and marginal farmers, who are largely outside the ambit of the formal credit system, and will also boost credit to the farmer-producer organizations and companies.
• Within agriculture credit, 10 percent should be mandatorily given by banks to small and marginal farmers over the next three years, starting 2020-21.
• Advances to weaker sections would now be 12 percent of the credit for scheduled commercial banks, and 12 percent for small finance banks.

​Important Points

• ANBC-
  • ​The technical definition of Adjusted Net Bank Credit (ANBC)- It is the net bank credit plus investments made by banks in non-SLR bonds held in the held-to-maturity category or credit equivalent amount of off-balance-sheet exposure, whichever is higher.
• CEOBE- Credit Equivalent of Off-Balance Sheet Exposures
  • Off-balance sheet exposures refer to activities that are effectively assets or liabilities of a company but do not appear on the company's balance sheet.

The correct answer is more than one hectare and up to two hectares.

For the purpose of computation of 8 percent target, Small and Marginal Farmers will include the following:-

• Farmers with landholding of up to 1 hectare are considered Marginal Farmers. Farmers with a landholding of more than 1 hectare and up to 2 hectares are considered Small Farmers.
• Landless agricultural labourers, tenant farmers, oral lessees, and share-croppers.
• Loans to Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual Small and Marginal farmers directly engaged in Agriculture and Allied Activities, provided banks maintain disaggregated data of such loans.
• Loans to farmers' producer companies of individual farmers, and co-operatives of farmers directly engaged in Agriculture and Allied Activities, where the membership of Small and Marginal Farmers is not less than 75 percent by number and whose land-holding share is also not less than 75 percent of the total land-holding.

Key Points

• Land Development Banks
  • Land Development Banks in India are of a quasi-commercial type.
    • Although they are all registered under the Co-operative Societies Act, they are associations of borrowers as well as non-borrowers organized on the principle of limited liability.

Additional Information

• The working capitals of LDBs are raised from share capital, deposits and debentures, and borrowings from the State Bank of India, commercial banks and the State Co-operative Banks.
  • However, a large part of their funds is raised through long-term debentures.
  • The debentures can be issued only by the Central Land Development Banks and not by the Primary Land Development Banks.

Disinvestment is defined as the deliberate sale of the capital stock of a company in order to raise capital and change the equity or management structure of the organization. Selling of the stake in a public sector undertaking by the government is known as the disinvestment.

Balance of Payment (BOP) is defined as the statement of all the transactions between a country and the rest of the world in a financial year. It basically gives us an idea regarding all the international transactions taking place in a year. Balance of Trade gives us a picture regarding the exports and imports of a country in a financial year.

Disinflation is defined as the situation where the inflation has slowed down temporarily. It is basically inflation at very slow rate. It can take place due to recession in the economy or tightening of the monetary policy by the central bank of the country. It is different from deflation due to the fact that it is only change in the rate of inflation.

GDP Deflator provides us a measure of the general price inflation of goods and services in an economy. It is obtained by dividing nominal GDP by real GDP and then multiplying the same by 100. Nominal GDP is the price of goods and services, unadjusted for inflation whereas in case of real GDP, the same is adjusted for inflation to give the real picture.

The Gross Domestic Product (GDP) is defined as the estimated value of the goods and services produced in a country in a financial year by the nationals as well as the foreigners. Therefore, GDP = Consumption + Investment + Government spending + Exports – Imports.

A post-dated cheque is issued to the beneficiary in order to meet any future obligation for payment. The cheque remains valid from the date of the cheque till three months. A self cheque is such that it can be used by the account holder to withdraw money whereas a bearer cheque is such that it is paid to any person who presents the instrument at the bank. A crossed cheque is defined as an instrument which can be issued to transfer funds directly to the account of the payee.

A cheque is a negotiable instrument that is used for payment and settlement in India. A stale cheque is such that it is presented for payment after three months from the date of such cheque. Such an instrument is honoured by the bank. In such case, the instrument has to be re-issued from the issuer of the cheque.

The NI Act 1881 is mainly concerned regarding the negotiable instruments such as cheques, demand drafts etc. Such instruments can be defined as the written orders or unconditional promises to pay a certain sum of money on demand or at a certain point of time. Section 138 of this act deals with the cheque dishonor cases and the subsequent issues whereas Section 6 of this act is regarding the cheques and demand drafts.

The Basel III norms were devised by the Basel Committee on Banking Supervision in order to take care of the systemic risks facing the banking sector of the country. These norms were first brought into public in 2010 by the BCBS. There are three main pillars of Basel III guidelines – capital adequacy requirements, supervisory review and market discipline. In India, this came into effect from April 01, 2013.

The Asset Reconstruction Companies (ARCs) are formed as per the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002. Any loan with an outstanding amount of Rs 1 lakh or more will come under the purview of ARCs. RBI has the authority to issue licenses to such companies. Asset Reconstruction Company of India Limited (ARCIL) is the first asset reconstruction company in India.

The Commercial Papers are unsecured money market instruments issued by corporates, primary dealers, all-India Financial Institutions etc. The minimum denomination of CPs should be Rs 5 lakhs and its multiples thereof. Individuals, banking companies, other corporate bodies, non-resident Indians and Foreign Institutional Investors can invest in the CPs.

Commercial Papers are unsecured money market instruments issued in the form of the promissory notes. This was first issued in India in the year 1990. These instruments can be issued by corporates, primary dealers and all India Financial Institutions such as NHB, NABARD, SIDBI, ECGC, EXIM Bank etc. CP can be issued for a minimum period of 7 days and the maximum period of a year.

Treasury Bills are issued by central government in order to raise funds from the market. There are three types of T-Bills in practice now – 91-day, 182-day and 364-days. There is no T-Bill issued by the state governments as of now. Such bills can be issued for a denomination of Rs 25000 and the multiples of that. These bills are issued at a discount and redeemed at par.

The money market can be tapped by the scheduled commercial banks except the regional rural banks, cooperative banks, primary dealers etc. The funds raised are mainly used to address the mismatch of funds. The money market is used for short term loans and trading and that is why the risk factor is very low here with the returns also being vey less. The participants in this market need to maintain a current account with RBI because of the short duration of trading in this market.

Money Market is mainly used in order to trade for duration of less than a year. Mainly unsecured loans are considered in this segment such as call money (money lent or borrowed for a day only), notice money (money lent or borrowed for 2 days to 14 days) and term money (Money lent or borrowed for more than 14 days to less than a year).

Any complaint filed with the Banking Ombudsman should be settled within 30 days from the date of such complaint, failing which, an award is passed by the ombudsman. In case of grievance against the decision of the ombudsman, one can approach the appellate authority within 30 days. The appellate authority is vested with one of the Deputy Governors of the RBI in this case.

Banking Ombudsman Scheme was introduced in 1995 as per Section 35A of the Banking Regulation Act 1949. Banking Ombudsman can be approached in order to register a complaint against deficiency in certain banking services. All scheduled banks are covered under this scheme. Now, the sale of third party products, complains regarding mobile and online banking services have also been covered under this scheme.