Course: Commercial Banking System and Role of RBI

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School for Continuing Education (NGA-SCE)

Course: Commercial Banking System and Role of RBI

Internal Assignment Applicable for December 2016 Examination

Assignment Marks: 30

Instructions:

·       All Questions carry equal marks.

·       All Questions are compulsory

·       All answers to be explained in not more than 1000 words for question 1 and 2 and for question 3in not more than 500 words for each subsection. Use relevant examples, illustrations as far aspossible.

·       All answers to be written individually. Discussion and group work is not advisable.

·       Students are free to refer to any books/reference material/website/internet for attempting theirassignments, but are not allowed to copy the matter as it is from the source of reference.

·       Students should write the assignment in their own words. Copying of assignments from otherstudents is not allowed.

Question. 1. The Reserve Bank of India announced a rate cut of 25 basis points (0.25%) bringing interest rates down to 6.5% from 6.75% earlier. This is the first rate cut in six months.

Policy repo rate = 6.5%                                                                                                    

Reverse repo rate = 6%

Bank rate = 7%

Please discuss the effect of these changes on banks ‘lending policy, interest rate etc. tokick-start economy. (Marks 10)

Answer: The Reserve Bank of India has the authority to take the necessary financial decision in the matter of taxes and financial changes in Indian market. According to the newly introduced RBI's Monetary Policy, there has been a significant rate cut. The rate cut of 25 basis points (0.25%) brought the interest rates down to 6.5% from 6.75% earlier. Most importantly, this is considered to be first rate cut in six months.

Policy repo rate = 6.5% 

Reverse repo rate = 6%

Question.2. Jaya Sales Corporation had a current account with Innova bank. The account was operated by the MD. The cheque book was in the custody of accountant. The accountant forged the signature of the MD in 40 cheques totalingRs 5 50 000 over a period of time. This was detected by another employee. The company immediately on detection of fraud demanded the amount from the bank. The bank refused payment saying they have to recover from their own employee, the accountant. The Company went to the court. Do you think the banker will win the case? Put forth your points. (Marks 10)

Answer:In this case, Jaya Sales Corporation opened Innova bank current account for business transactions. The account was completely managed and operated by the MD of Jaya Sales Corporation. MD handled the account but the cheque book was in the custody of accountant. So, to get unauthorized access to the company fund, the accountant of Jaya Sales Corporationforged the signature of company’s MD in total 40

Question.3. a) Discuss the importance and difficulties with regard to masala bonds? (Marks 5)

Answer:Bonds are always best investment sources. Masala bonds are highly popular bondswhich are directly linked to the rupee bonds. These bonds are issued mainly to the offshore investors but the settlement of these bonds happens in the terms of dollars. The main advantage that you can get from this bond is that the currency risk will not be tolerated by issuer. In fact, the issuer of masala bonds will worth a maximum amount of $750 million amount in one year and it is also the fact that the masala bonds should also have a maturity of

b) Radhika pledged her jewels worth Rs 1 lakh and got a loan of Rs 30000/. Radhika failed to repay the jewel loan. In the meantime, the bank shifted its premises and in that process it lost the jewels packet pledged by Radhika. The bank went to court to recover the dues. Please discuss what could be the decree. (Marks 5)

Answer: In this case, Radhika pledged her jewels worth Rs 1 lakh and got a loan of Rs 30000/. Due to some conditions, she failed to repay the jewel loan. In the meantime, the bank shifted its premises and in that process it lost the jewels packet pledged by Radhika. The bank went to court to recover the dues. This is a very complex situation where radhikaneeds to make a decision to handle the matter.

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