Monetary and Credit Information Review - આરબીઆઈ - Reserve Bank of India
Monetary and Credit Information Review
Volume VI
MONETARY AND CREDIT INFORMATION REVIEW POLICY Guidelines on the Base Rate The Reserve Bank has directed scheduled commercial banks to switch over to the new system of base rate in place of the existing benchmark prime lending rate (BPLR) system from July 1, 2010. The main highlights of the new base rate system are as follows:
It may be recalled that the draft guidelines on the system of base rate were placed on the Reserve Bank’s website in February 2010. Taking into consideration feedback/suggestions received, the final guidelines have been issued. It is expected that implementation of the base rate system would enhance transparency in lending rates of banks and would also lead to better assessment of transmission of monetary policy. Prudential Norms - Projects under Implementation In terms of the extant prudential norms on income recognition, asset classification and provisioning pertaining to advances (IRAC norms), a grace period of two years for infrastructure projects, and six months for industrial projects, is available for commencement of commercial operations after the original date of completion of the project, for the purpose of retaining the standard asset classification. The Reserve Bank has decided to modify the IRAC norms for project loans in view of several representations received to the effect that there are occasions when the completion of projects is delayed due to reasons beyond the control of the promoters. Some of the main highlights of revised guidelines are as follows : I. If an infrastructure project loan classified as ‘standard asset’ is restructured any time during the period up to two years from the original date of commencement of commercial operations (DCCO), it can be retained as a standard asset if the account continues to be serviced as per the restructured terms and the fresh DCCO is fixed within the following limits: (a) Infrastructure projects involving court cases- up to another 2 years beyond the existing extended period of 2 years i.e. total extension of 4 years. (b) Infrastructure projects delayed for other reasons- up to another 1 year beyond the existing extended period of 2 years i.e. total extension of 3 years. II. The application for restructuring should be received before the expiry of period of two years from the original DCCO and when the account is still standard.The other conditions applicable would be: (a) In cases where there is moratorium for payment of interest, banks should not book income on accrual basis beyond two years from the original DCCO. (b) Banks should maintain provisions of 0.40 per cent until two years from the original DCCO and 1.00 per cent during the third and the fourth year after the original DCCO on such accounts as long as these are classified as standard assets. III. In case of non-infrastructure projects, if the delay in commencement of commercial operations extends beyond the period of six months from the date of completion, banks can prescribe a fresh DCCO, provided the fresh DCCO does not extend beyond a period of twelve months from the original DCCO. The other conditions applicable would be: (a) In cases where there is moratorium for payment of interest, banks should not book income on accrual basis beyond six months from the original DCCO. (b) Banks should maintain provisions of 0.40 per cent until the first six months from the original DCCO and 1.00 per cent during the next six months on such accounts as long as these are classified as standard assets. IV. Any change in the repayment schedule of a project loan caused due to an increase in the project outlay on account of increase in scope and size of the project, would not be treated as restructuring if: (a) The increase in scope and size of the project takes place before commencement of commercial operations of the existing project. (b) The rise in cost excluding any cost-overrun in respect of the original project is 25 per cent or more of the original outlay. (c) The bank re-assesses the viability of the project before approving the enhancement of scope and fixing a fresh DCCO. (d) On re-rating, (if already rated) the new rating is not below the previous rating by more than one notch. These guidelines will, however, not be applicable to restructuring of advances classified as commercial real estate exposure, capital market exposure and consumer and personal advances which will continue to be dealt with in terms of the extant provisions in the IRAC norms. ‘Project Loan’ would mean any term loan which has been extended for the purpose of setting up of an economic venture. Banks must fix a DCCO for all project loans at the time of sanction of the loan/financial closure. Advances to Micro and Small Enterprises As per the extant policy, finance granted by banks to micro and small enterprises (MSEs) as defined under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, is eligible for classification under priority sector. The Reserve Bank has clarified that loans granted by commercial banks to MSEs (manufacturing and services) engaged in exports are also eligible for classification under priority sector, provided such enterprises satisfy the definition of MSE sector as contained in the MSMED Act irrespective of whether the borrowing entity is engaged in exports or otherwise. Some commercial banks had sought clarification in respect of classification of loans granted to MSEs engaged in exports, under priority sector. Know Your Customer (KYC) guidelines For the sake of clarity, the Reserve Bank, has laid down criteria for the customer identification procedure in case of accounts of proprietorship concerns. As per the new criteria, apart from following the extant guidelines on customer identification procedure as applicable to the proprietor, banks should call for and verify the following documents before opening of accounts in the name of a proprietary concern: i) Proof of the name, address and activity of the concern, like registration certificate (in the case of a registered concern), certificate/licence issued by the municipal authorities under the shops and establishment act, sales and income tax returns, central sales tax/value added tax certificate, certificate/registration document issued by sales tax/service tax/professional tax authorities, licence issued by the registering authority like certificate of practice issued by Institute of Chartered Accountants of India, Institute of Cost Accountants of India, Institute of Company Secretaries of India, Indian Medical Council, Food and Drug Control Authorities, etc. ii) Any two of the above documents would suffice. These documents should be in the name of the proprietary concern. These guidelines will apply to all new customers, while in case of accounts of existing customers, the banks should complete above formalities in a time bound manner before December 31, 2010. FEMA Foreign Institutional Investors As per the extant norms, foreign institutional investors (FIIs) are permitted to offer cash and foreign sovereign securities with AAA rating as collateral to the recognised stock exchanges in India for their transactions in the derivative segment. As per the extant Securities and Exchange Board of India (SEBI) norms, the FIIs are also required to post collaterals for their transactions in the cash segment of the market. The Reserve Bank has decided, in consultation with the Government of India and the SEBI, to permit the FIIs to offer domestic Government Securities (current limit being USD 5 billion), and foreign sovereign securities with AAA rating, as collateral to the recognised stock exchanges in India, in addition to cash, for their transactions in the cash segment of the market. However, cross-margining of Government Securities (placed as margins by the FIIs for their transactions in the cash segment of the market) shall not be allowed between the cash and the derivative segments of the market. The operational guidelines in this regard will be issued separately by the SEBI. The existing guidelines on collateral for the FIIs transactions in the derivative segment remain unchanged. Foreign Currency Convertible Bonds (FCCBs) The Reserve Bank has decided to consider applications for buyback of foreign currency convertible bonds (FCCBs) under the approval route until June 30, 2010, subject to issuers complying with all the terms and conditions of buyback/prepayment of FCCBs. Applications complying with the conditions may be submitted, together with the supporting documents, through the designated authorised dealer category- I (AD Category- I) banks to the Reserve Bank. It may be recalled that Indian companies were allowed to buyback the FCCBs issued by them both under the automatic route and approval route until December 31, 2009 and the buyback scheme was discontinued from January 1, 2010. The present extension under the approval route has been made in view of the representations made by the issuers of FCCBs. Overseas Investments As a measure of further liberalisation in overseas investments, the Reserve Bank has decided, in consultation with the Government of India, to allow Indian companies to participate in a consortium with other international operators to construct and maintain submarine cable systems on coownership basis under the automatic route. Accordingly, AD Category- I banks may allow remittances by Indian companies for overseas direct investment, after ensuring that the Indian company has obtained necessary licence to establish, install, operate and maintain international long distance services and also by obtaining a certified copy of the board resolution approving such investment. These transactions may be reported by the Indian entities investing in the consortium to the AD Category- I banks and by the AD Category- I banks to the Reserve Bank for allotment of the Unique Identification Number. Regional Rural Banks Investment in SLR Securities The Reserve Bank has extended the exemption granted up to the financial year 2008-09 to the regional rural banks (RRBs) from ‘mark to market’ norms in respect of their investments in SLR securities by one more year i.e. for the financial year 2009-10. Accordingly, RRBs will have the freedom to classify their entire investment portfolio of SLR securities under ‘Held to Maturity’ (HTM) for the financial year 2009-10 with valuation on book value basis and amortisation of premium, if any, over the remaining life of securities. Cheque Collection Policy The Reserve Bank has advised RRBs that their cheque collection policy should include instructions on immediate credit for local/outstation cheques in addition to the aspects of time frame for collection of local/outstation instruments and interest payment of delayed collection. It may be recalled that the Reserve Bank had in February 2009 advised RRBs to frame their cheque collection policies as per the time frame prescribed by the National Consumer Disputes Redressal Commission. Annual Policy Statement for 2010-11 Dr. D. Subbarao, Governor, Reserve Bank of India, in a meeting with chief executives of major commercial banks presented the Annual Policy Statement for 2010-11 on April 20, 2010. The highlights are: Projections
Challenges
Stance On the basis of the overall assessment, the stance of monetary policy in 2010-11 will broadly be:
Monetary Measures
Developmental and Regulatory Policies
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, Department of Communication, 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 |