Monetary and Credit Information Review - আৰবিআই - Reserve Bank of India
Monetary and Credit Information Review
Volume XIII MONETARY AND CREDIT INFORMATION REVIEW Banking Regulation Action Plan to implement the Banking Regulation (Amendment) Ordinance, 2017 The Reserve Bank, in a release issued on May 22, 2017, outlined the steps taken and those on the anvil post the promulgation of the Banking Regulation (Amendment) Ordinance, 2017. The amendments to the BR Act 1949, introduced through the Ordinance, and the notification issued thereafter by the Central Government, empower the Reserve Bank to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC). It also enables the Reserve Bank to issue directions with respect to stressed assets and specify one or more authorities or committees with such members as the Bank may appoint or approve for appointment to advise banking companies on resolution of stressed assets. Immediately upon the promulgation of the Ordinance, the Reserve Bank issued a directive bringing the following changes to the existing regulations on dealing with stressed assets:
Banks were also advised that non-adherence would invite enforcement actions. As part of the action plan, the Oversight Committee (OC), under the aegis of the Reserve Bank, would be reconstituted and enlarged to include more Members so that the OC can constitute requisite benches to deal with the volume of cases referred to it. Currently, the OC comprises of two members. While the current members will continue in the reconstituted OC, names of a few more will be announced soon. The Reserve Bank is planning to expand the scope of cases to be referred to the OC beyond those under S4A as required currently. The Reserve Bank is working on a framework to facilitate an objective and consistent decision making process with regard to cases that may be determined for reference for resolution under the IBC. The Reserve Bank has already sought information on the current status of the large stressed assets from the banks. The Reserve Bank would also be constituting a Committee comprised majorly of its independent Board Members to advise it in this matter. The current guidelines on restructuring are under examination for such modifications as may be necessary to resolve the large stressed assets in the banking system in a value optimising manner. The Reserve Bank envisages an important role for the credit rating agencies in the scheme of things and, with a view to preventing rating-shopping or any conflict of interest, is exploring the feasibility of rating assignments being determined by the Reserve Bank itself and paid for from a fund to be created out of contribution from the banks and the Reserve Bank. The Reserve Bank notes that the proper exercise of the enhanced empowerment would require coordination with and cooperation from several stakeholders including banks, asset reconstruction companies (ARCs), rating agencies, Insolvency and Bankruptcy Board of India (IBBI) and private equity (PE) firms, for which the Reserve Bank would be holding meetings in the near future with these stakeholders. (/en/web/rbi/-/press-releases/reserve-bank-of-india-outlines-the-action-plan-to-implement-the-banking-regulation-amendment-ordinance-2017-40518) Timelines for Stressed Assets Resolution To facilitate timely decision making with regard to finalising and implementing the Corrective Action Plan (CAP) under the Framework for Revitalising Distressed Assets in the Economy, the Reserve Bank on May 5, 2017, advised all scheduled commercial banks that henceforth, the decisions agreed upon by a minimum of 60 percent of creditors by value and 50 percent of creditors by number in the Joint Lenders’ Forum (JLF) would be considered as the basis for deciding the CAP, and will be binding on all lenders, subject to the exit (by substitution) option available in the Framework. Lenders shall ensure that their representatives in the JLF are equipped with appropriate mandates, and that decisions taken at the JLF are implemented by the lenders within the timelines. The Reserve Bank also emphasised that-
Background The Framework for Revitalising Distressed Assets in the Economy – Guidelines on Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP)”, aims at early identification of stressed assets and timely implementation of a CAP to preserve the economic value of stressed assets. In order to ensure that the CAP is finalised and formulated in an expeditious manner, the Framework specifies various timelines within which lenders have to decide and implement the CAP. The Framework also contains disincentives, in the form of asset classification and accelerated provisioning where lenders fail to adhere to the provisions of the Framework. Despite this, delays have been observed in finalising and implementation of the CAP, leading to delays in resolution of stressed assets in the banking system. In this context, it is reiterated that lenders must scrupulously adhere to the timelines prescribed in the Framework for finalising and implementing the CAP. (/en/web/rbi/-/notifications/timelines-for-stressed-assets-resolution-10957) Taking into account the suggestions/feedback received from the Government of India and other stakeholders, the Reserve Bank on May 18, 2017 issued final guidelines on ‘Banking Outlets’ as detailed under, which shall be operational with immediate effect. Banking Outlet/Part-time Banking Outlet A ‘Banking Outlet’ for a domestic scheduled commercial bank (DSCB), a small finance bank (SFB) and a payment bank (PB) is a fixed point service delivery unit, manned by either bank’s staff or its Business Correspondent where services of acceptance of deposits, encashment of cheques/ cash withdrawal or lending of money are provided for a minimum of 4 hours per day for at least five days a week. It carries uniform signage with name of the bank and authorisation from it, contact details of the controlling authorities and complaint escalation mechanism. The bank should have a regular off-site and on-site monitoring of the ‘Banking Outlet’ to ensure proper supervision, ‘uninterrupted service’ except temporary interruptions due to telecom connectivity, etc. and timely addressing of customer grievances. The working hours/days need to be displayed prominently. A banking outlet which does not provide delivery of service for a minimum of 4 hours per day and for at least 5 days a week will be considered a ‘Part-time Banking Outlet’. Unbanked Rural Centre An ‘Unbanked Rural Centre’ (URC) is a rural (Tier 5 and 6) centre that does not have a CBS-enabled ‘Banking Outlet’ of a scheduled commercial bank, a small finance bank, a payment bank or a regional rural Bank nor a branch of local area bank or licensed co-operative bank for carrying out customer based banking transactions. Opening of Banking Outlets – General Permission Domestic scheduled commercial banks (other than regional rural banks) are permitted to open ‘Banking Outlets’ in Tier 1 to Tier 6 centres (unless otherwise specifically restricted), without having the need to take permission from the Reserve Bank in each case. The opening of ‘Banking Outlets’ during a financial year will be subject to the following conditions:
Merger/Closure/ Shifting/Conversion of ‘Banking Outlets’
Grandfathering of MFI Structure of the Small Finance Banks
Manning of ATMs/E-kiosks/CDMs/BNAMs Banks are allowed to set up onsite/offsite Automated Teller Machines (ATMs/E-kiosks/CDMs/BNAMs) at centres/places identified by them, including Special Economic Zones (SEZs). Banks are permitted to post suitable staff member(s) to provide guidance to the customers using the services of these outlets. Such ATMs shall not be reckoned as ‘banking outlets’. Background In this regard, it may be recalled that in terms of announcement made in the first Bi-monthly Monetary Policy Statement 2016-17 on April 5, 2016, it was, inter alia, proposed to redefine branches and permissible methods of outreach keeping in mind the various attributes of the banks and the types of services that are sought to be provided. An Internal Working group (IWG) was constituted for the purpose and its Report was placed on RBI web-site. (/en/web/rbi/-/notifications/rationalisation-of-branch-authorisation-policy-revision-of-guidelines-10972) Partial Credit Enhancement to Corporate Bonds On a review of the capital requirement for partial credit enhancement (PCE), the Reserve Bank on May 18, 2017 has decided that:
Background Taking into account the feedback received, and with a view to encourage corporates to avail of bond financing, the Reserve Bank allowed banks to provide PCE to bonds issued by corporates /special purpose vehicles (SPVs) for funding all types of projects. While the draft guidelines included provisions for allowing PCE as a funded loan facility also, it was decided that, to begin with, banks will be allowed to offer PCE only in the form of a non-funded irrevocable contingent line of credit. A view on allowing the PCE as a funded loan facility will be taken in due course after reviewing the implementation and performance of the contingent PCE offered by banks. (/en/web/rbi/-/notifications/partial-credit-enhancement-to-corporate-bonds-10971) Non - Banking Regulation Keeping in view the greater role envisaged for Asset Reconstruction Companies (ARCs) in resolving stressed assets as also the recent regulatory changes governing sale of stressed assets by banks to ARCs, the Reserve Bank on April 28, 2017 decided to fix the minimum Net Owned Fund (NOF) requirement for ARCs at ₹ 100 crore on an ongoing basis. NOF shall be arrived at by reducing from Owned Fund (OF), the amounts representing Investments of the ARC in shares of –
The book value of debentures, bonds, outstanding loans and advances made to, and deposits with, -
All the ARCs which are already registered with the Reserve Bank as on April 28, 2017 and not having the revised minimum NOF as on date shall achieve a minimum NOF of ₹ 100 crore latest by March 31, 2019. ARCs shall submit a certificate from their Statutory Auditors periodically as evidence of compliance thereof. (/en/web/rbi/-/notifications/securitisation-and-reconstruction-of-financial-assets-and-enforcement-of-security-interest-act-2002-section-3-1-b-requirement-of-net-owned-fund-nof-for-asset-reconstruction-companies-10949) Co-operative Bank Regulation Issue of PPIs by Co-operative Banks The Reserve Bank on May 25, 2017 permitted all licensed co-operative banks having their own ATM network to issue semi-closed PPIs, provided there are no restrictions on acceptance or repayment of deposits. This is subject to the compliance with eligibility criteria and other guidelines as prescribed by Department of Payment and Settlement Systems (DPSS), Reserve Bank of India (RBI) from time to time. The Reserve Bank also permitted co-operative banks satisfying the above criteria to issue Open System PPIs. The banks should comply with the following additional regulatory requirements for this purpose: a) The bank should be Core Banking Solution(CBS) compliant; b) Capital to Risk (Weighted) Assets Ratio(CRAR) should not be less than 10% in the current and preceding financial year; c) Gross NPAs should be less than 7% and net NPAs should not be more than 3% in the current and preceding financial year; d) Assessed net-worth should be more than ₹.25 crore as per the last RBI inspection; e) There should not be any default in the maintenance of CRR/SLR during the current and preceding financial year; f) The bank should have made a net profit in the preceding financial year; g) Presence of two professional directors on the Board of the bank and prevalence of systems and control as under: (i) internal inspection/audit system for all the branches and the Head Office (ii) concurrent audit system in all major branches h) Satisfactory adherence to KYC/AML/Combating Financing of Terrorism guidelines issued by the Reserve Bank from time to time; i) No monetary penalty should have been imposed on the bank in last two financial years and during the year of submitting the application; j) The bank shall have satisfactorily implemented a comprehensive Board approved policy on Customer grievance redressal mechanism which includes escalation matrix for resolution of customer complaints. The issuance and operation of prepaid instruments shall also be guided by the instructions issued in this regard by DPSS, RBI from time to time. Eligible co-operative banks, desirous to issue PPIs, are required to obtain a No Objection Certificate from the respective Regional Office of Department of Co-operative Bank Supervision concerned before applying to DPSS, Central Office, Mumbai for authorisation. Merchant Acquisition for Card Transactions In order to encourage digital channels for financial transactions in co-operative banks, the Reserve Bank on April 28, 2017 has decided that all co-operative banks, not intending to act as Point of Sale (POS) acquiring bank are permitted to deploy third party POS terminals without prior approval of Reserve Bank subject to the bank fulfilling the following criteria:
All co-operative banks intending to act as POS acquiring bank are permitted to deploy their own POS terminals with prior approval of the Reserve Bank subject to the bank fulfilling the following criteria:
The banks shall comply with instructions and guidelines on Merchant Acquisition for card transactions and POS issued by Department of Payment and Settlement Systems, RBI from time to time. The co-operative banks desirous to deploy their own POS terminals and act as POS acquiring bank may approach the respective Regional Offices of the Reserve Bank for necessary permission in this regard, with requisite information/documents. Background Co-operative banks have been permitted to install both onsite/ offsite ATM networks and can issue debit cards on their own or through sponsor banks based on certain eligibility conditions. Also, all co-operative banks have been allowed to enter into credit card business on their own or co-branding arrangement with other banks, subject to fulfilment of the guidelines prescribed in this regard. (/en/web/rbi/-/notifications/guidelines-on-merchant-acquisition-for-card-transactions-10950) Payment and Settlement System NEFT to Settle at half-hourly intervals The Reserve Bank on May 8, 2017, introduced additional settlements in the National Electronic Funds Transfer (NEFT) system at half-hour intervals to enhance the efficiency of the system and add to customer convenience. The half hourly settlements would speed up the funds transfer process and provide faster credit to the destination accounts. Accordingly, it has been decided to introduce 11 additional settlement batches during the day (at 8.30 am, 9.30 am, 10.30 am 5.30 pm and 6.30 pm), taking the total number of half hourly settlement batches during the day to 23. The starting batch at 8.00 am and closing batch at 7.00 pm shall remain the same as hitherto. The return discipline shall also remain the same i.e., B+2 hours (Settlement batch time plus two hours) as per extant practice. The participating banks are, therefore, advised to carry out the required changes in their Core Banking System (CBS) to initiate the NEFT transactions for half hourly settlement as above, and also to accept and credit the inward NEFT transactions on half hourly basis. Institute for Development & Research in Banking Technology/Indian Financial Technology and Allied Services (IDRBT/IFTAS) will communicate the technical changes required to be carried out by participating banks and provide required support in implementing the same. The additional batches will be introduced from July 10, 2017 (Monday). Banks shall accordingly ensure their readiness in terms of technical and operational aspects. For efficient customer service, the participant banks in NEFT system were advised to send a positive confirmation to the remittance originator (customer) confirming the successful credit of funds to the beneficiary’s account. Accordingly, beneficiary / destination banks shall ensure strict adherence in sending the N10 messages to the originating banks, which in turn shall ensure sending the positive confirmation to the remitting customer advising status of credit to the beneficiary account. Background NEFT system presently settles the fund transfer requests of the participating banks on net basis at hourly intervals from 8:00 am to 7:00 pm on all working days. All participating banks have been advised to give the credit to the beneficiary customer only after the inter-bank settlement has been completed and the End-of-Batch (EOB) message is received by them. (/en/web/rbi/-/notifications/national-electronic-funds-transfer-neft-system-settlement-at-half-hourly-intervals-10958) Bharat Bill Payment System – Extension of Timeline The Reserve Bank on May 9, 2017 extended the last date, from May 31, 2017 to December 31, 2017, for entities undertaking billing business under the current scope of Bharat Bill Payment System (BBPS), to either become an agent of an authorised Bharat Bill Payment Operating Units (BBPOUs) or exit the business of bill payments. This time-line is applicable to the entities,
This extension is in view of the difficulties expressed by various entities in meeting the deadline. Depending on the developments, growth and expansion in the scope of BBPS, the Reserve Bank may consider re-opening the process of granting of approvals/ authorisation to operate as BBPOUs by inviting fresh applications at a future date. Background It may be recalled that as per the Guidelines for implementation of BBPS dated November 28, 2014, banks and non-bank entities presently engaged in the bill payment activities covered under the current scope of BBPS can participate in BBPS either as Bharat Bill Payment Operating Units (BBPOUs) or as an agent of an authorised BBPOU. (/en/web/rbi/-/press-releases/bharat-bill-payment-system-bbps-extension-of-timeline-40413) Edited and published by Alpana Killawala for the Reserve Bank of India, Department of Communication, Central Office, Shahid Bhagat Singh Marg, Mumbai - 400 001. MCIR can be accessed at www.mcir.rbi.org.in |