Monetary and Credit Information Review - আরবিআই - Reserve Bank of India
Monetary and Credit Information Review
Volume V |
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MONETARY AND CREDIT INFORMATION REVIEW |
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POLICY |
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Operations of Indian Banks' Foreign Branches/Subsidiaries |
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he Reserve Bank has clarified the position regarding the applicability of various statutory and regulatory prohibitions/ restrictions to the operations of foreign branches and subsidiaries of Indian banks as indicated below : |
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Section 5 (b) of the Banking Regulation Act (B R Act), 1949 defines the business of banking and Section 6 (1) lays down the various forms of business which banking companies can engage in. These Sections are also applicable to public sector banks by virtue of a specific mention thereof in their respective statutes. Further, in terms of Section 19 (1) of the B R Act, a bank can form a subsidiary company only for (i) undertaking an activity which is permitted to the parent bank itself under Section 6 (1), ibid; (ii) carrying out the business of banking, exclusively outside India; and (iii) undertaking such other business, considered conducive to the spread of banking in India, that the Reserve Bank may permit in public interest. This Section too is applicable to public sector banks by virtue of the provisions of Section 51 of the B R Act. |
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If, however, foreign branches/foreign subsidiaries of Indian banks propose to handle structured financial products, banks should obtain the Reserve Bank’s prior approval for the purpose by furnishing full particulars of these products including their regulatory treatment prescribed by the host-country regulators (for capital adequacy, valuation, pricing, exposure norms, etc), as also the risk management systems in place in the branch/subsidiary to deal with such products. |
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Unhedged Forex Exposure | ||||||||||||||||||||||||||||||||||||
Reiterating its earlier instructions of December 2003, the Reserve Bank has advised banks that their Board policy should cover unhedged foreign exchange exposure of all their clients including small and medium enterprises (SMEs). Further, for arriving at the aggregate unhedged foreign exchange exposure of clients, their exposure from all sources, including foreign |
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currency borrowings and external commercial borrowings (ECBs) should be taken into account. | ||||||||||||||||||||||||||||||||||||
Banks which have large exposures to clients should monitor and review on a monthly basis, through a suitable reporting system, the unhedged portion of the foreign currency exposures of those clients, whose total foreign currency exposure is relatively large (about USD 25 million or its equivalent). The review of unhedged exposure for SMEs should also be done on a monthly basis. In all other cases, banks are required to put in place a system to monitor and review such position on a quarterly basis. In the case of consortium/multiple banking arrangements, the lead role in monitoring the unhedged foreign exchange exposure of clients, would have to be assumed by the consortium leader/bank having the largest exposure. |
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Financial Inclusion |
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In order to sustain the momentum for financial inclusion, banks have been advised to : |
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(i) ensure that steps are taken to provide banking services nearer to the location of the no-frills account holders through a variety of channels including satellite offices, mobile offices, business correspondents, etc.; |
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An evaluation of the progress made in the districts that had reported 100 per cent financial inclusion was taken up by independent external agencies. Accordingly, studies were conducted in 26 districts in the states of Andhra Pradesh, Gujarat, Himachal Pradesh, Karnataka, Orissa, Punjab, Rajasthan and West Bengal. The findings of the study reveal that although the state level bankers’ committees (SLBCs) have declared several districts as 100 per cent financially included, actual financial inclusion has not been to that extent in all the districts. Further, most of the accounts that have been opened as a part of the financial inclusion drive have remained inoperative due to various reasons. There is a need for SLBC/district consultative committees (DCCs) to actively step up the awareness with regard to ‘no frills’ accounts as this continues to be poor in many districts. | ||||||||||||||||||||||||||||||||||||
Internal Assignments by Statutory Auditors |
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The Reserve Bank has advised banks that audit firms should not undertake statutory audit assignment while they are associated with internal assignments in the bank during the same year. In case the audit firms are associated with internal assignment it should be ensured that they relinquish the internal assignment before accepting the statutory audit assignment during the year. | ||||||||||||||||||||||||||||||||||||
Banks to disclose Loan processing Fees/Charges | ||||||||||||||||||||||||||||||||||||
Reiterating its earlier instructions, the Reserve Bank has advised banks/financial institutions (FIs) to ensure that all information relating to charges/fees for processing are invariably disclosed in the loan application forms. Further, banks must inform the ‘all-in-cost’ to the customer to enable him to compare the rates charged with other sources of finance. It may be recalled that in March 2007, banks/FIs were advised that loan application forms in respect of all categories of loans, irrespective of the amount of loan sought by the borrower, should be comprehensive. Further, the form should include information about the fees/charges, if any, payable for processing, the amount of such fees refundable in the case of non-acceptance of application, pre-payment options and any other matter which affects the interest of the borrower, so that a meaningful comparison with that of other banks can be made and informed decision can be taken by the borrower. |
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CRR/Repo Rate/Reverse Repo Rate reduced | ||||||||||||||||||||||||||||||||||||
CRR | ||||||||||||||||||||||||||||||||||||
Cash reserve ratio (CRR) to be maintained by scheduled banks has been reduced by 50 basis points from 5.50 per cent to 5.00 per cent of their net demand and time liabilities (NDTL), effective from the fortnight beginning January 17, 2009. | ||||||||||||||||||||||||||||||||||||
Repo Rate |
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The fixed repo rate under the liquidity adjustment facility (LAF) has been reduced by 100 basis points from 6.5 per cent to 5.5 per cent from January 2, 2009 | ||||||||||||||||||||||||||||||||||||
Reverse Repo Rate |
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The reverse repo rate under the LAF has been reduced by 100 basis points from 5 per cent to 4 per cent from January 2, 2009. | ||||||||||||||||||||||||||||||||||||
UCBs | ||||||||||||||||||||||||||||||||||||
Delay in Cheque Collection | ||||||||||||||||||||||||||||||||||||
While disposing off a case filed before the National Consumer Dispute Redressal Commission, New Delhi under the Consumer Protection Act, 1986, wherein the complainant had invited attention to delays in cheque clearing and specifically, to the issue of float in local and inter-city clearing, the Commission observed that the Reserve Bank with its wide range of powers under the Payment and Settlement Act, 2007 would try to control the float, if any, arising due to delay in collection of cheques. |
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Collection of USD Denominated Cheques |
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Authorised dealer (AD) UCBs have been advised to initiate steps to provide customer friendly collection arrangements for USD denominated cheques. Accordingly, UCBs should - |
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i) make the US Dollar currency cheque collection scheme transparent and a part of their regular cheque collection policy. Various modes of collection along with the time period and charges for each mode should be appropriately covered in the policy; |
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Provisioning for Standard Assets/Risk Weights | ||||||||||||||||||||||||||||||||||||
Reviewing its prudential norms on provisioning for standard assets and risk weights for exposures to commercial real estate and non-banking finance companies (NBFCs), the Reserve Bank has advised UCBs that - | ||||||||||||||||||||||||||||||||||||
Provisioning | ||||||||||||||||||||||||||||||||||||
The provisioning requirements in case of Tier II UCBs for all types of standard assets have been reduced to a uniform level of 0.40 per cent except in the case of direct advances to the agricultural and SME sectors, which would continue to attract a provisioning of 0.25 per cent, as hitherto. Tier I UCBs should continue to make a general provision of 0.25 per cent on all their standard assets. The revised norms would be effective prospectively but the provisions held at present should not be reversed. In future, however, if by applying the revised provisioning norms, any provisions are required over and above the level of provisions currently held for the standard category assets, these should be duly provided for. |
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Risk Weights | ||||||||||||||||||||||||||||||||||||
The risk weights for advances to corporates secured by commercial real estate and to NBFCs have been revised as follows: | ||||||||||||||||||||||||||||||||||||
Commercial Real Estate |
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Loans and advances secured by commercial real estate would attract a risk weight of 100 per cent as against the earlier risk weight of 150 per cent. | ||||||||||||||||||||||||||||||||||||
NBFCs | ||||||||||||||||||||||||||||||||||||
As per extant guidelines, UCBs shall not finance NBFCs other than those engaged in hire-purchase/leasing. Such companies were re-classified as asset finance companies by the Reserve Bank in September 2008. The risk weight on exposure to such companies would remain unchanged at 100 per cent. | ||||||||||||||||||||||||||||||||||||
SLR Holdings in Government/other approved Securities | ||||||||||||||||||||||||||||||||||||
The proportion of UCB’s statutory liquidity ratio (SLR) holdings in the form of government and other approved securities as a percentage of their net demand and time liabilities (NDTL) have been increased as follows: | ||||||||||||||||||||||||||||||||||||
(i) Non-scheduled UCBs in Tier I shall maintain SLR in the form of government and other approved securities not less than 7.5 per cent of their NDTL by September 30, 2009 and 15 per cent of their NDTL by March 31, 2010. |
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All non-scheduled UCBs shall be required to maintain SLR in government and other approved securities up to 25 per cent of their NDTL from March 31, 2011 onwards. |
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FEMA | ||||||||||||||||||||||||||||||||||||
ECB Policy - Liberalised | ||||||||||||||||||||||||||||||||||||
Some aspects of the ECB policy have been modified as indicated below : | ||||||||||||||||||||||||||||||||||||
(i) As per the extant ECB policy, the all-in-cost ceilings for ECBs, in respect of both automatic as well as approval routes are as under: | ||||||||||||||||||||||||||||||||||||
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The all-in-cost Ceilings on ECB have been dispensed with until June 30, 2009. Accordingly, eligible borrowers proposing to avail of ECB beyond the permissible all-in-cost ceilings specified above, may approach the Reserve Bank under the approval route. This relaxation in all-in-cost ceiling would be reviewed in June 2009. |
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(ii) Corporates engaged in the development of integrated township, have now been permitted to avail of ECB under the approval route. Integrated township includes housing, commercial premises, hotels, resorts, city and regional level urban infrastructure facilities, such as, roads and bridges, mass rapid transit systems and manufacture of building materials. Development of land and providing allied infrastructure form an integrated part of a township’s development. The minimum area to be developed should be 100 acres for which norms and standards are to be followed as per the local bye-laws/rules. In the absence of such bye-laws/rules, a minimum of two thousand dwelling units for about ten thousand population will need to be developed. The policy would be reviewed in June 2009. |
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The modifications to the ECB guidelines have come into force from January 2, 2009. All other aspects of the ECB policy, such as, USD 500 million limit per company per financial year under the automatic route, eligible borrower, recognised lender, end-use, all-in-cost ceiling, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements remain unchanged. |
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Payment for Foreign Travel | ||||||||||||||||||||||||||||||||||||
ADs Category I & II and full-fledged money changers (FFMCs) have been permitted to accept payments made by travellers through debit/credit/pre-paid cards for travel abroad (for private visit or for any other purpose) provided - |
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(i) Know your customer (KYC)/anti-money laundering (AML) guidelines are complied with; |
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It may be recalled that in October 2000, ADs were permitted to accept payment in cash up to Rs. 50,000 against sale of foreign exchange for travel abroad (for private visit or for any other purpose). Wherever the sale of foreign exchange exceeds the amount equivalent to Rs.50,000, the payment must be received only by (i) a crossed cheque drawn on the applicant’s bank account, or (ii) a crossed cheque drawn on the bank account of the firm/company sponsoring the visit of the applicant, or (iii) a banker’s cheque/pay order/demand draft. |
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NBFCs | ||||||||||||||||||||||||||||||||||||
Regulation of Excessive Interest charged | ||||||||||||||||||||||||||||||||||||
The Reserve Bank has issued directions on interest rates to NBFCs as follows: | ||||||||||||||||||||||||||||||||||||
a) The Board of each NBFC should adopt an interest rate model taking into account relevant factors, such as, cost of funds, margin and risk premium, etc., and determine the rate of interest to be charged for loans and advances. The rate of interest and the approach for gradations of risk and rationale for charging different rate of interest to different categories of borrowers should be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter. b) The rates of interest and the approach for gradation of risks should also be made available on the web-site of the companies or published in the relevant newspapers. The information published in the website/newspapers should be updated whenever there is a change in the interest rates. c) The rate of interest should be the annualised rate so that the borrower is aware of the exact rate that would be charged to the account. |
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Edited and published by Alpana Killawala for the Reserve Bank of India, Department of Communication, Central Office, Shahid Bhagat Singh Marg, Mumbai - 400 001 and printed by her at Onlooker Press, 16, Sassoon Dock, Colaba, Mumbai - 400 005. For renewal and change of address please write to the Chief General Manager, Press Relations Division, Reserve Bank of India, Central Office Building, 12th floor, Fort, Mumbai - 400 001 without enclosing DD/cheque. MCIR is also available on Internet at www.mcir.rbi.org.in |