money supply, banking & financial institutions section 6 MCQ Questions & Answers Detailed Explanation

Answer: (a)

Answer: (b)

Answer: (c)

Answer: (a)

Answer: (b)

The LCR is calculated by dividing an institution (Banks/NBFCs) high-quality liquid assets (for example cash, govt. securities, securities issued or guaranteed by foreign governments etc.) by its total net cash flows, over a 30-day period.

In the background of the IL&FS and HDFL crisis, RBI on 24th May 2019 proposed introducing LCR for large NBFCs to help tackle liquidity issues in the sector.

NBFCs will have to maintain minimum high-quality liquid assets of 50% of total net cash outflows over the following 30 calendar days starting from Dec 1, 2020, and from Dec 1, 2024, 100%.

Suppose a bank's expected cash outflow/spending for the next 30 days is Rs. 150 and cash inflow is expected to be Rs. 50, which means net cash outflow for the next 30-day period is Rs. 100.

In such a case if the bank is holding cash and govt. securities (which are called High-Quality Liquid Assets) of Rs. 60,

then LCR = (High Quality Liquid Asset)/ (Banks Net cash outflow for 30-day period) = Rs. 60/ Rs. 100 = 60%.

Answer: (c)

Peer to Peer (P2P) Lending:

P2P intermediaries (regulated by RBI) are a class of NBFCs that provide the platform which pairs borrowers and individual lenders. With P2P lending, borrowers take loans from individual investors who are willing to lend their own money for an agreed interest rate.

The profile of a borrower is usually displayed on a P2P online platform where investors can assess these profiles to determine whether they want to risk lending money to a borrower.

The repayments are also made through the NBFC-P2P which processes and forwards the payments to the lenders who invested in the loan. P2P lending is also called social lending or crowdlending.

RBI guidelines regarding P2P lending:

Fund transfer between the participants on the Peer to Peer Lending Platform shall be· through escrow account (a temporary pass-through account held by a third party during the process of a transaction between two parties) mechanisms operated by the NBFC-P2P. All fund transfers shall be through and from bank accounts and cash transaction is strictly prohibited.

NBFC - P2P shall:

1. not raise deposits
2. not lend on its own
3. not provide any credit guarantee
4. not facilitate or permit any secured lending linked to its platform
5. shall not provide any assurance for the recovery of loans.
6. undertake due diligence on the participants;
7. undertake credit assessment and risk profiling of the borrowers and disclose the same to their prospective lenders;
8. require prior and explicit consent of the participant to access its credit information;
9. undertake documentation of loan agreements and other related documents;
10. provide assistance in disbursement and repayments of the loan amount;
11. render services for recovery of loans originated on the platform.
12. The total amount of money that an investor can invest across all P2P platforms is Rs. 50 lakhs