Static Quiz 07 October 2023 (Indian Economy)

Solution: a)
Justification: E-way is an electronic billing system for traders who are moving their goods for sale beyond 10 km radius. E-way is valid for all-India movement and transporters can generate the bill electronically and in self-service mode. Under the system, there is no need to visit any tax office and check post. While the mandatory compliance of inter-state E-way bill may roll-out soon once again, however, for intra-state, the date is June 1 2018. States such as Kerala, Rajasthan, Uttarakhand and Karnataka have already implemented the e-way bill system. However, some traders are not happy with the move. Traders are demanding simplification of the process for generation of these electronic receipts. Explaining that it will be more of a hindrance than compliance, traders say the move will force them to shut shops.

Solution: c)
Justification: It is the ratio of a bank’s capital in relation to its risk weighted assets and current liabilities. As credit creation (i.e. loan disbursals) of banks is highly risky business, the depositors’ money depends on the banks’ quality of lending. If the bank funding goes largely in risky projects such as infrastructure, chances of bank insolvency is high. Having adequate bank capital (compared to liabilities) helps to prevent bank failure, which arises in case the bank cannot satisfy its obligations to pay the depositors and other creditors. It is also a part of the overall Basel norms. Since the whole payment system, public as well as private, depends on banks, safeguarding banks is crucial to sound economic health.

Solution: a)
Justification: A large portion of bank loans remain linked to the base rate despite the introduction of the MCLR in April 2016. Weak monetary transmission during a rate cut cycle has been one of the central bank’s pet peeves. RBI has proposed to link the base rate for loans with the marginal cost of funds-based lending rate (MCLR) from 1 April to improve monetary policy transmission. Unlike base rate regime, these rates are expected to get revised on monthly basis along with the repo rate including other borrowing rates. Banks decide the actual lending rate based on the floating rate by adding the component of spread to MCLR which becomes the final lending rate. The MCLR system was introduced by the Reserve Bank to provide loans on minimal rates as well as market rate fluctuation benefit to customers. MCLR is calculated on the basis of incremental cost of funds, making it a more reliable benchmark rate as compared to the base rate, usually calculated by taking into account average cost of funds based on the borrower’s risk profile.

Solution: a)
Justification: Historically, the RBI had been sterilizing the effects of significant capital inflows on domestic liquidity by offloading parts of the stock of Government Securities held by it. The MSS was devised since continuous resort to sterilization by the RBI depleted its limited stock of Government Securities and impaired the scope for similar interventions in the future.
Statement 1: Under this scheme, the GoI borrows from the RBI (such borrowing being additional to its normal borrowing requirements) and issues Treasury-Bills/Dated Securities that are utilized for absorbing excess liquidity from the market. Therefore, the MSS constitutes an arrangement aiding in liquidity absorption, in keeping with the overall monetary policy stance of the RBI, alongside tools like the Liquidity Adjustment Facility (LAF) and Open Market Operations (OMO). The securities issued under MSS, termed as Market Stabilization Scheme (MSS) Securities/Bonds, are issued by way of auctions conducted by the RBI and are done according to a specified ceiling mutually agreed upon by the GoI and the RBI.
Statement 2: It was not launched with the objective of regulating or controlling government borrowing. It is just that the government securities are involved in the operation for offloading liquidity from the market.

Solution: d)
Justification: Statement 1: Banks and non-banking financial companies currently follow Indian generally accepted accounting principles (GAAP) standards. Other corporate entities started complying with IndAS with effect from 1 April 2016. The Financial Accounting Standards Board (FASB) issues GAAP. The international alternative to GAAP is the International Financial Reporting Standards (IFRS).
Statement 2: Since Companies already follow IndAS, it is the banks, and especially Public Sector Banks that need to follow IndAS. Ind AS or Indian Accounting Standards govern the accounting and recording of financial transactions as well as the presentation of statements such as profit and loss account and balance sheet of a company.
Indian Accounting Standard (abbreviated as Ind-AS) is the Accounting standard adopted by companies in India and issued under the supervision and control of Accounting Standards Board (ASB). For long, there has been a heated debate about Indian companies moving to the globally accepted International Financial Reporting Standards (IFRS) for their accounts. But firms have resisted this shift, stating that this will lead too many changes in the capture and reporting of their numbers. Ind AS has been evolved as a compromise formula that tries to harmonise Indian accounting rules with the IFRS. International Financial Reporting Standards (IFRS) is a set of accounting standards, developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements. The IASB is an independent accounting standards body, based in London