Monetary and Credit Information Review - આરબીઆઈ - Reserve Bank of India
Monetary and Credit Information Review
Volume IV MONETARY AND CREDIT INFORMATION REVIEW Engagement of Recovery Agents by Banks Based on the feedback received on the draft guidelines on recovery agents engaged by banks, placed by the Reserve. Bank on its website for public comments, the draft guidelines have been suitably revised and final guidelines issued. These are : Engagement of Recovery Agents While engaging recovery agents, banks should take into account the following specific considerations :
Methods followed by Recovery Agents Banks should ensure that the contracts with the recovery agents do not induce adoption of uncivilized, unlawful and questionable behaviour or recovery process. Banks should strictly adhere to the various guidelines issued by the Reserve Bank, such as, the Fair Practices Code for Lenders, the Guidelines on Credit Card Operations and also the Code of Banks’ Commitment to Customers formulated by the Banking Codes and Standards Board of India (BCSBI) during the loan recovery process. Training for Recovery Agents The Reserve Bank has requested the Indian Banks’ Association to formulate, in consultation with the Indian Institute of Banking and Finance (IIBF), a certificate course for direct recovery agents with a minimum of 100 hours training. Once the course is introduced by IIBF, banks should ensure that over a period of one year all their recovery agents undergo the training and obtain the certificate from IIBF. Taking possession of Mortgaged/Hypothecated Property Banks should follow legal remedies available under relevant statutes like the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Security Interest (Enforcement) Rules, 2002 for enforcing security interest and for auctioning the movable and immovable property after enforcing the security interest without intervention of the Courts. Where banks have incorporated a re-possession clause in the contract with the borrower and rely on such re-possession clause for enforcing their rights, they should ensure that the re-possession clause is legally valid, complies with the provisions of the Indian Contract Act in letter and spirit, and ensure that such repossession clause is clearly brought to the notice of the borrower at the time of execution of the contract. The terms and conditions of the contract should be strictly in terms of the Recovery Policy and should contain provisions regarding (a) notice period before taking possession; (b) circumstances under which the notice period can be waived; (c) procedure for taking possession of the security; (d) provision regarding final chance to be given to the borrower for repayment of loan before the sale/auction of the property; (e) procedure for giving repossession to the borrower; and (f) procedure for sale/auction of the property. Use of Lok Adalats Banks should use the forum of Lok Adalats for recovery of personal loans, credit card loans or housing loans with less than Rs.10 lakh as suggested by the Honourable Supreme Court. Utilisation of Credit Counsellors Banks may utilise the services of credit counsellors for providing suitable counselling to borrowers where particular borrowers deserve sympathetic consideration. Complaints against Banks/Recovery Agents Complaints received by the Reserve Bank regarding violation of these guidelines and adoption of abusive practices followed by banks’ recovery agents would be viewed seriously. The Reserve Bank may consider imposing a ban on a bank from engaging recovery agents in a particular area, either jurisdictional or functional, for a limited period. In case of persistent breach of these guidelines, the Reserve Bank may consider extending the period of ban or the area of ban. Similar supervisory action could be attracted when the High Courts or the Supreme Court pass strictures or impose penalties against any bank or its directors/officers/agents with regard to policy, practice and procedure related to the recovery process. Periodical Review Banks engaging recovery agents have been advised to undertake periodical reviews of the mechanism and also give suggestions to the Reserve Bank for improving the guidelines. Financial Inclusion – Business Facilitators/Business Correspondents Pursuant to the announcement made in the Budget Speech 2008-2009 by the Hon’ble Finance Minister, banks have now been permitted to engage retired bank employees, ex-servicemen and retired government employees as business correspondents (BCs) in addition to the entities already permitted, subject to appropriate due diligence. While appointing such individuals as BCs, banks should ensure that these individuals are permanent residents of the area in which they propose to operate as BCs and also institute additional safeguards as may be considered appropriate to minimise agency risk. Further, with a view to ensuring adequate supervision over the operations and activities of BCs, it has been decided that every BC should be attached to and be under the oversight of a specific bank branch to be designated as the base branch. The distance between the place of business of a BC and the base branch should not exceed 15 kms in rural, semi-urban and urban areas. In metropolitan centres, the distance could be up to 5 kms. In case a need is felt to relax the distance criterion, the bank may refer the matter to the district consultative committee (DCC) of the district concerned for approval. Where such relaxations cover adjoining districts, banks may seek clearance from the state level bankers’ committee (SLBC), which would also be the concerned forum for metropolitan areas. Such requests may be considered by the DCC/SLBC on merits in respect of under-banked areas or where the population is scattered over a large area and where the need to provide banking services is imperative but having a branch may not be viable. On a review of the evolving liquidity situation, the Reserve Bank has increased the cash reserve ratio (CRR) to be maintained by banks from 8.00 per cent to 8.25 per cent of their net demand and time liabilities from the fortnight beginning May 24, 2008. Valuation of Non-SLR Securities issued by GOI The matter of valuation of special securities issued by the Government of India (GOI) has been examined by the Reserve Bank and it has been decided that, for the limited purpose of valuation, all special securities issued by GOI directly to the beneficiary entities, which do not carry SLR status, should be valued at a spread of 25 basis points above the corresponding yield on GOI securities. These instructions would come into force from the financial year 2008–09. At present, such special securities comprise of oil bonds, fertiliser bonds, bonds issued to the State Bank of India (during the recent rights issue), Unit Trust of India, Industrial Financial Corporation of India Ltd., Food Corporation of India, Industrial Investment Bank of India Ltd., the erstwhile Industrial Development Bank of India and the erstwhile Shipping Development Finance Corporation. GCCs/Overdrafts Against ‘No-frills’ Accounts With a view to giving further impetus to financial inclusion, the Reserve Bank has advised all scheduled commercial banks (SCBs), including regional rural banks (RRBs), that they may classify 100 per cent of the credit outstanding under general purpose credit cards (GCCs) and overdrafts up to Rs. 25,000 (per account) granted against ‘no-frills’ accounts in rural and semi-urban areas, as indirect finance to agriculture sector under priority sector landing. It may be recalled that with a view to providing credit card like facilities in rural areas, with limited point-of-sale and limited automated teller machine (ATM) facilities, all SCBs, including RRBs, were advised in December 2005 to introduce a general credit card scheme for their constituents in rural and semi-urban areas, based on the assessment of income and cash flow of the household similar to that prevailing under normal credit cards. Banks also provide a small overdraft facility against basic banking ‘no-frills’ accounts. Earlier, 50 per cent of the credit outstanding under GCC was allowed to be classified as indirect finance to agriculture under priority sector. Rupee Export Credit Interest Rates The Reserve Bank has advised all scheduled commercial banks that the provision of interest subvention on export credit will continue for one more year, from April 1, 2008 till March 31, 2009. While allowing this benefit, however, banks should ensure that the interest rate after subvention does not fall below 7 per cent which is the rate applicable to agriculture sector under priority sector lending. Undertaking Insurance Business Primary urban co-operative banks (UCBs), other than those classified as Grade III and IV, and registered in states that have entered into MoU with the Reserve Bank or under the Multi-State Cooperative Societies Act, 2002, are not required to obtain the Reserve Bank’s prior approval to undertake insurance business as corporate agent, without risk participation. Individual Housing Loan Limits Enhanced The Reserve Bank has permitted Tier II UCBs to extend individual housing loans up to a maximum of Rs.50 lakh per beneficiary of a dwelling unit subject to extant prudential exposure limits. Selling of Loan Assets in Excess of Prescribed Exposure To enable greater flow of credit to the priority sectors, regional rural banks (RRBs) have been permitted to sell, to other banks, the loan assets held by them under priority sector categories in excess of the prescribed priority sector lending target of 60 per cent. According to the revised guidelines on lending to priority sector, scheduled commercial banks can undertake outright purchase of any loan asset eligible to be categorised under the priority sector from other banks and financial institutions and classify it under the respective categories of priority sector lending (direct or indirect), provided the loan purchased is held at least for a period of six months. Reiterating its earlier instruction, the Reserve Bank has advised banks to ensure that they have an effective machinery for redressal of grievances. Banks should have a suitable mechanism for receiving and addressing complaints from/to their customers/constituents with specific emphasis on resolving such complaints fairly and expeditiously regardless of the source of the complaint. Banks have also been advised to: (i) ensure that the complaints register is kept at a prominent place in their branches to enable customers to enter their complaints; Where the complaints are not redressed within one month, the concerned branch/controlling office should forward a copy of the complaint to the concerned nodal officer under the Banking Ombudsman Scheme and keep him updated regarding the status of the complaint. This would enable the nodal officer to deal with any reference received from the Banking Ombudsman regarding the complaint more effectively. Further, it is also necessary that the customer is made aware of his rights to approach the concerned Banking Ombudsman in case he is not satisfied with the bank’s response. As such, in the final letter sent to the customer regarding redressal of the complaint, banks should indicate that the complainant can also approach the concerned Banking Ombudsman. The details of the concerned Banking Ombudsman should also be included in the letter. Banks should also give wide publicity to the grievance redressal machinery through advertisements and should also place them on their websites. Annual Policy Statement for 2008-09 Dr. Y. Venugopal Reddy, Governor, in a meeting with chief executives of major commercial banks presented the Annual Policy Statement for 2008-09 on April 29, 2008. The highlights are: Stance
Monetary Measures
Developmental and Regulatory Policies
Edited and published by Alpana Killawala for the Reserve Bank of India, Press Relations Division (now 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 |