Daily Current Affairs – 2020
Topic: For Prelims and Mains
External Benchmark Rate
Why in News?
The Reserve Bank of India has made it mandatory for all banks to link all new floating rate loans (i.e. personal/retail loans, loans to MSMEs) to an external benchmark with effect from 1st October 2019. The move is aimed at faster transmission of monetary policy rates.
- Banks can choose from one of the four external benchmarks — repo rate, three-month treasury bill yield, six-month treasury bill yield or any other benchmark interest rate published by Financial Benchmarks India Private Ltd.
- At present, interest rates on loans are linked to a bank’s marginal cost of fund-based interest rate, known as the Marginal Cost of Lending Rate (MCLR).
- Existing loans and credit limits linked to the MCLR, base rate or Benchmark Prime Lending Rate, would continue till repayment or renewal.
- Those customers wanting to switch to the repo-linked rate can do so on mutually acceptable terms.
- The interest rateunder the external benchmark shall be reset at least once every three months.
Fixed vs Floating Interest Rate:
- The fixed interest rateon loan means repayment of loans in fixed equal installments over the entire period of the loan. In this case, the interest rate doesn’t change with market fluctuations.
- Floating interest rate by name implies that the rate of interest varies with market conditions.The drawback with floating interest rates is the uneven nature of monthly installments.
Marginal Cost of Lending Rate: It came into effect in April 2016.
- It is a benchmark lending rate for floating-rate loans.
- This is the minimum interest rate at which commercial banks can lend.
- This rate is based on four components—the marginal cost of funds, negative carry on account of cash reserve ratio, operating costs and tenor premium.
- MCLR is linked to the actual deposit rates. Hence, when deposit rates rise, it indicates the banks are likely to hike MCLR and lending rates are set to go up.
Base Rate: Banks stopped lending on base rate from April 2016.
- Loans taken between June 2010 and April 2016 from banks were on base rate.
- During the period, base rate was the minimum interest rate at which commercial banks could lend to customers.
- Base rate is calculated on three parameters— the cost of fund, unallocated cost of resources and return on net worth. Hence, the rate depended on individual banks and they changed it whenever their cost of funds and other parameters changed.
Benchmark Prime Lending Rate:
BPLR was used as benchmark rate by banks for lending till June 2010.
- Under it, bank loans were priced on the actual cost of funds.
- However, the BPLR was subverted, resulting in an opaque system. The bulk of wholesale credit (loans to corporate customers) was contracted at sub-BPL rates and it comprised nearly 70% of all bank credit.
- Under this system, banks were subsidizing corporate loans by charging high interest rates from retail and small and medium enterprise customers.
The North East Council ( NEC):
Why in News?
At the 68th plenary session of the NEC in Guwahati, The home minister assured that the Centre would never touch Article 371 of the Constitution that grants special provisions to the region.
About the Article 371:
While Article 370, which limited purchase and inheritance of property to permanent residents, was scrapped for J&K, similar provisions are also provided under Article 371 in many states.
- Article 371Aprohibits anyone who is not a resident from buying land in Nagaland, which may only be bought by tribals who are residents of the state.
- Article 371Fbestows on Sikkim government the right of ownership of all land in the state, even if it was owned by private individuals prior to the state’s merger with India.
- The same Constitutional provision mandates a four-year termfor the Sikkim state assembly, though assembly elections in the state have violated that clause as they have been held every 5 years.
About the North East Council (NEC):
Headquarter : Shillong
Ministry : Ministry of Development of North Eastern Region
Chairman: Union Minister, Ministry of Development of North Eastern Region
Constituted : By an Act of Parliament in 1971 i.e it is an statutory body. The NEC act has been amended in 2002 to add Sikkim and restructure it as the regional planning body for the North Eastern Region.
Consists of: Eight states of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura.
The chief ministers and governors represent them.
What it does?
- The North Eastern Council is the nodal agency for the economic and social development of the North Eastern Region.
- It is an apex level body for securing balanced and coordinated development and facilitating coordination with states.
- The Council is an advisory body and may discuss any matter in which the north-eastern states have a common interest and advise the Central Government as to the action to be taken on any such matter.
- The funding of council mainly lies with the central government with small portions contributed by the state governments as well.
- It also approved that Minister of State (Independent Charge), Ministry of DoNER will serve as Vice Chairman of NEC.
- NEC now can perform tasks undertaken by various Zonal Councils to discuss such inter-State issues as smuggling of arms and ammunition, drug trafficking, boundary disputes etc.
- NEC will also have such powers as may be delegated to it by the Central Government.
Facts for Prelims:
- It is state animal of Tamil Nadu.
- It is endemic to Western Ghats from the Nilgiris to Kanyakumari.
- It is confined to a narrow belt of higher elevation (altitudes) of Shola Forests in Western Ghats.
IUCN in its red data book has classified it as Endangered (number fewer than 2,500 mature individuals).
Besides it is protected species under Schedule I of Wildlife (Protection) Act of 1972.