Banking and Financial News – 15 May 2014

RBI to launch plastic notes next year : Raghuram Rajan (The Mint) - Plastic currency notes would be launched in the country in 2015 after field trials, Reserve Bank of India (RBI) governor Raghuram Rajan said on Thursday. Plastic notes have an average life span of about five years and are difficult to imitate. Also, currency notes made of plastic are cleaner than paper notes.

Plastic notes were first introduced in Australia to safeguard against counterfeiting of currency. Several countries in the West have introduced plastic notes for their advantage over normal notes.

To a query on black money, Rajan said the RBI is not directly involved in curbing the menace and it was primarily a function of the government.

Investments in RIDF can be counted towards priority sector lending: RBI (The Mint) - The Reserve Bank of India (RBI) on Thursday said banks can count investments made in the Rural Infrastructure Development Fund (RIDF) maintained with the National Bank for Agriculture and Rural Development (Nabard) as part of their indirect agriculture lending under the so-called priority sector lending target.

Banks are required to lend 40% of their loans to agriculture, small industries and other economically weaker sectors. Of this, 18% should be for agriculture, with a break-up of 13.5% as direct lending to farmers and the remaining 4.5% as indirect lending.

When banks fail to meet the target, they invest an amount equal to the shortfall in RIDF. They earn a lower interest of about 6.5% on such investments, compared with the rate at which they give loans.

RBI has now allowed them to include the outstanding deposits in RIDF as part of indirect agriculture lending. The new guidelines will give banks some relief.

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Courtesy : The Mint