[Mission 2023] STATIC QUIZ, 22 May 2023 – Economy

Solution: c)

The incremental capital-output ratio (ICOR) is the amount of capital required to produce one unit of output. The higher the ICOR, the less efficient we are in the use of capital. 

ICOR is determined by a variety of factors including technology, skill of manpower, managerial competence and also macroeconomic policies. Thus, delays in the completion of projects, lack of complementary investments in related sectors and the non-availability of critical inputs can all lead to a rise in ICOR.

Solution: d)

Microfinance is a form of financial service which provides small loans and other financial services to poor and low-income households. 

Microcredit is delivered through a variety of institutional channels viz., (i) scheduled commercial banks (SCBs) (including small finance banks (SFBs) and regional rural banks (RRBs)) lending both directly as well as through business correspondents (BCs) and self-help groups (SHGs), (ii) cooperative banks, (iii) non-banking financial companies (NBFCs), and (iv) microfinance institutions (MFIs) registered as NBFCs as well as in other forms.

Solution: b)

The RBI can bank on the Contingency Fund in case of any emergency requirement. 

The RBI normally pays the dividend from the surplus income it earns on investments and valuation changes on its dollar holdings and the fees it gets from printing currency, among others.

The Reserve Bank of India (RBI) has developed an Economic Capital Framework (ECF) for determining the allocation of funds to its capital reserves so that any risk contingency can be met and as well as to transfer the profit of the RBI to the government.

Solution: a)

Writing off a loan essentially means it will no longer be counted as an asset. By writing off loans, a bank can reduce the level of non-performing assets (NPAs) on its books. An additional benefit is that the amount so written off reduces the bank’s tax liability.

The bank writes off a loan after the borrower has defaulted on the loan repayment and there is a very low chance of recovery. The lender then moves the defaulted loan, or NPA, out of the assets side and reports the amount as a loss.

After the write-off, banks are supposed to continue their efforts to recover the loan using various options. They have to make provisioning as well. The tax liability will also come down as the written-off amount is reduced from the profit.

However, the chances of recovery from written-off loans are very low.

Solution: c)

Keki Mistry-headed committee was set up by Sebi to review the share buyback regulations.