Appendix Table I.3: Major Policy Announcements relating to Commercial Banking Sector - आरबीआई - Reserve Bank of India
Appendix Table I.3: Major Policy Announcements relating to Commercial Banking Sector
Announcement | Measures | |
Date | | |
1999 | | |
April | 20 | Banks were advised to classify a minimum of 75 per cent of their investment in approved securities |
as current investments for the year ended March 31, 2000. | ||
Banks were permitted to offer fixed rate term loans subject to conformity to ALM guidelines. | ||
The investment by a bank in Tier II bonds issued by other banks would be subject to a ceiling of | ||
10 per cent of the bank's total capital. | ||
The coverage of the priority sector was broadened to include incremental credit given to NBFCs | ||
by banks for on-lending to small road and water transport operators and to units in tiny sector of | ||
industry (after March 31, 1999) and investment in venture capital. | ||
A special cell was set up in the Reserve Bank, with a time frame of one year in order to liaise | ||
with NABARD and micro credit institutions for augmenting the flow of credit to this sector. | ||
In certain situations (e.g., cyclical downturns) where loans have been rescheduled, but borrowers | ||
have started servicing their loans on a regular basis after a short gap, the classification of loans | ||
as sub-standard for at least two years of satisfactory performance under the renegotiated or | ||
rescheduled terms was reduced to one year (or four quarters) if the interest and instalment of | ||
loans are serviced regularly as per the terms of rescheduling. | ||
23 | The Reserve Bank issued operational guidelines on financing of infrastructure projects to banks/ | |
FIs. Accordingly, banks were permitted to sanction term loans for technically feasible, financially | ||
viable and bankable projects undertaken by both public and private sector undertakings, subject | ||
to prescribed criteria. Banks were also permitted to issue inter-institutional guarantee subject to | ||
certain norms. | ||
24 | In order to encourage flow of finance for venture capital, the overall ceiling of investment by | |
banks in ordinary shares, convertible debentures of corporates and units of mutual funds, etc., of | ||
5 per cent of their incremental deposits of the previous year was enhanced to the extent of | ||
bank's investment in venture capital. | ||
Interest rates applicable to bank loans extended to micro-credit organisations were de-linked | ||
from direct small loans applicable to individual beneficiaries. | ||
May | 25 | The ceiling on bank credit, earlier linked to net owned fund (NOF), was removed in respect of |
all registered NBFCs and engaged in the principal business of equipment leasing, hire purchase, | ||
loan and investment activities. | ||
27 | The Reserve Bank issued guidelines for constitution of Settlement Advisory Committees (SAC) | |
and compromise settlement of NPAs of small-scale sector by the public sector banks. | ||
July | 1 | Banks were advised not to participate in the equity of any financial services venture such as |
portfolio investments in the equity of financial companies, including Stock Exchanges, depositories | ||
etc. without obtaining the prior approval of the Reserve Bank. | ||
17 | The Reserve Bank introduced the second tranche of DSB Returns to capture liquidity, interest | |
rate and foreign exchange risks on quarterly basis as on last reporting Friday of the quarter. The | ||
returns were (i) Statement of Structural Liquidity (Rupee), (ii) Statement of Interest Rate | ||
Sensitivity (Rupee), (iii) Statement of Maturity and Position (Forex), and (iv) Statement of Interest | ||
Rate Sensitivity (Forex). | ||
July | 17 | With a view to bringing in uniformity in the accounting practices of banks undertaking leasing |
activity departmentally, banks were advised to follow the "Guidance Note on Accounting for | ||
Leases" issued by the Institute of Chartered Accountants of India (ICAI). | ||
24 | The Reserve Bank developed a rating model for SCBs based on CAMELS factor and a rating | |
model of the foreign banks based on CACS factors. The prime purpose of introducing the system | ||
of supervisory rating of banks was to summarise the performance of individual banks and also to | ||
assess the aggregate strength and soundness of the banking system. | ||
August | 16 | Banks were advised not to provide loans to companies for buy-back of shares/securities. |
September | 7 | The Reserve Bank advised the Indian Banks' Association (IBA) and the Foreign Exchange Dealers |
Association (FEDAI) to totally dispense with the practice of fixing benchmark service charges | ||
on behalf of member banks including charges for forex transactions to give freedom to banks in | ||
prescribing service charges. | ||
15 | SCBs were advised to disclose the details of the maturity profile of deposits and borrowings, | |
loans and advances and investments, movements in provisions and lending to sensitive sectors as | ||
additional information in the 'Notes on Accounts' to the Balance sheet for the year ended March | ||
31, 2000. | ||
22 | The powers of Chairman and Managing Director of public sector banks for waiver/write-off of | |
loans was raised from Rs.10 lakh to Rs.50 lakh. | ||
30 | Banks were advised to include the flow of micro credit in their corporate strategy/plan and to | |
review progress thereof at the highest level on a quarterly basis. | ||
October | 5 | The Reserve Bank circulated detailed guidelines for the gold deposit scheme. |
7 | The Reserve Bank issued detailed guidelines for risk management system in banks. The guidelines | |
broadly cover management of credit, market and operational risks. The guidelines on risk | ||
management issued together with the ALM guidelines were purported to serve as a benchmark | ||
to the banks which were yet to establish an integrated risk management system. Banks operating | ||
in international markets were advised to develop by March 31, 2001 suitable methodologies for | ||
estimating and maintaining economic capital. Other banks should formulate a medium-term | ||
strategy to comply with these requirements. The Board of the banks are required to review the | ||
progress in implementation of the guidelines at half-yearly intervals. | ||
11 | The Reserve Bank advised that the facility of fixed rate term loans specially for project finance | |
would be available to banks for all term loans, repayable within a period of not less than three | ||
years, and for all purposes including small loans (up to Rs.2 lakh) subject to the conformity with | ||
the ALM guidelines. | ||
12 | RRBs were allowed to invest in Tier-II Bonds issued by sponsor banks or other banks/FIs only | |
to the extent of 10 per cent of RRBs owned funds. | ||
18 | Banks were advised to submit a Report to the Reserve Bank giving details of the issue of | |
subordinate debt for raising Tier-II capital, such as amount raised, maturity of instrument, rate of | ||
interest together with a copy of the offer document, soon after the issue is completed. | ||
October | 21 | It was decided that in respect of agricultural advances and advances for other purposes granted |
by banks to PACSs/FSSs under the on lending system, only that particular credit facility granted | ||
to a PACS/FSS which is in default for a period of two harvest seasons (not exceeding two half | ||
years/two quarters as the case may be), after it has become past due (one month after due date), | ||
will be classified as NPA and not all the credit facilities sanctioned. However, the other direct | ||
loans and advances if any, granted by banks to the member borrowers of PACS/FSS outside the | ||
on lending arrangements will become NPA even if one of the credit facilities granted to the same | ||
borrower becomes NPA. | ||
27 | With a view to strengthening the internal inspection/audit of banks, the Reserve Bank advised | |
them to formulate a comprehensive policy document for internal inspection/audit which requires | ||
to be reviewed periodically, keeping in view the changing environment, directives and guidelines | ||
of the Reserve Bank. | ||
29 | In line with the policy of minimising country's short term external borrowing liabilities, the | |
minimum maturity for FCNR(B) deposits was raised to one year from six months. | ||
November | 2 | With regard to bill finance for settlement of dues of SSI suppliers, the mandatory minimum 25 |
per cent for acceptance of bills was withdrawn. | ||
3 | It was decided that banks' investments in all securities including securities outside SLR, should | |
be assigned a risk weight of 2.5 per cent for market risk with effect from the year ending March | ||
31, 2001. This was also made applicable to investments in securities carrying 100 per cent risk | ||
weight, since in line with best practices, some capital cushion should also be provided for market | ||
risk in addition to credit risk. | ||
With a view to moving closer to the international standard of 15 per cent, in phases, the exposure | ||
ceiling in respect of an individual borrower was lowered from 25 per cent to 20 per cent of the | ||
bank's capital funds, effective April 1, 2000. Banks were advised that where the level of exposure | ||
as on October 31, 1999, was more than 20 per cent, they should reduce the exposure to 20 per | ||
cent of capital funds over a two year period (i.e. by end- October 2001). | ||
12 | The Reserve Bank issued guidelines to the banks for issuing debit cards and smart cards with a | |
view to helping banks to introduce appropriate schemes in issuing of electronic cards to ease | ||
pressure on physical cash. | ||
December | 3 | The Reserve Bank set up a working group on discounting of bills by banks to examine the |
possibility of extending bill discounting facility to services sector. The Committee submitted its | ||
report in September 2000. | ||
10 | The Reserve Bank set up a Standing Committee on International Financial Standards and Codes | |
to evolve sound standards based on recognized best practices in fiscal, financial and accounting | ||
areas, for adopting transparency while adhering to the codes. | ||
| | |
2000 | | |
January | 10 | The Reserve Bank decided to reduce the time lag for making provision against net debit balance |
in inter-branch accounts from three years to two years with effect from the accounting year | ||
ending March 31, 2001. Accordingly, banks were required to segregate the debit and credit | ||
entries in inter-branch accounts pertaining to the period up to March 31, 1998 and outstanding as | ||
on March 31, 2001 and arrive at the net position. In case of a net debit, a provision equivalent to | ||
100 per cent thereof may be made for 2000-01. | ||
25 | Keeping in view the importance of credit discipline for reduction in NPAs, banks were advised | |
to insist on a declaration from the account-holder, at the time of opening of current account, to | ||
the effect that he is not enjoying any credit facility with any other bank or a declaration giving | ||
particulars of credit facilities enjoyed with other banks. | ||
February | 7 | The Reserve Bank issued guidelines in respect of income recognition, asset classification and |
provisioning norms for export project finance. | ||
18 | Banks were advised that micro credit extended by them to individual borrowers either directly or | |
through any intermediary would be reckoned as part of their priority sector lending. | ||
29 | The Reserve Bank issued guidelines to banks on take-out finance in respect of the criteria for | |
assigning risk weight for calculation of capital adequacy ratio and prudential norms of income | ||
recognition, asset classification and provisioning. | ||
March | 2 | The Reserve Bank advised that the relaxation in group exposure norms with regard to financing |
of infrastructure projects would be available only in respect of four sectors, viz., roads, power, | ||
telecommunication and ports. | ||
7 | The Reserve Bank advised banks not to book as income any appreciation in the value of securities | |
on account of the method of valuation. Further, banks which adopted a more prudent method of | ||
valuation of securities than the one suggested were required to continue with the practice followed | ||
by them. | ||
April | 6 | All Indian banks having branches/offices/subsidiaries/joint ventures abroad were advised to |
dispense with RALOO statements from the quarter ended June 2000. Instead DSB(O) quarterly | ||
reporting system consisting of seven returns was introduced. | ||
24 | Banks were advised to assign risk weight of 100 per cent only on those State Government | |
guaranteed securities issued by the defaulting entities and not on all the securities issued or | ||
guaranteed by that State Government. Banks were advised to pay due regard to the record of the | ||
particular State Government in honouring their guarantees while processing any further requests | ||
for loans to PSUs in that State on the strength of State Government guarantee. | ||
No provision need be made for a period of one year in respect of additional credit facilities | ||
granted to SSI units which are identified as sick where rehabilitation packages/nursing programme | ||
have been drawn by the banks themselves or under consortium arrangements. | ||
Banks were advised to make general provision of 0.25 per cent on Standard Assets on global | ||
portfolio basis and not on domestic advances alone. The Provisions towards Standard Assets are | ||
to be shown separately as "Contingent Provisions against Standard Assets", and would not be | ||
eligible for inclusion in Tier II Capital. | ||
It was clarified to the banks that the extra provision needed in the event of a depreciation in the | ||
value of the investments should be debited to the Profit and Loss Account and if required, an | ||
equivalent amount may be transferred from the 'Investment Fluctuation Reserve Account' to the | ||
Profit and Loss Account as a 'below the line' item after determining the profit for the year. The | ||
above instructions are applicable for finalising the balance sheet, effective the year ended March | ||
31, 2000. | ||
Lending by banks to NBFCs for on-lending to agriculture should be reckoned as priority sector | ||
lending. | ||
27 | The Reserve Bank announced a move towards Risk-based supervision (RBS) of banks. The risk | |
based supervision approach entails the monitoring of banks by allocating supervisory resources | ||
and focusing supervisory attention according to the risk profile of each institution. | ||
May | 3 | On prudential considerations and in line with international standard, banks were advised that |
they may voluntarily build-in the risk weighted components of their subsidiaries into their own | ||
balance sheet on notional basis, at par with the risk weights applicable to the bank's own assets. | ||
Banks were further advised to earmark additional capital in their books over a period of time so | ||
as to obviate the possibility of impairment to their net worth when switchover to unified | ||
balance sheet for the group as a whole is adopted after some time. The additional capital | ||
required is to be provided in the bank's books in phases, beginning from the year ending March | ||
2001. | ||
Banks were advised to make the necessary in-house arrangement for gathering and collection of | ||
credit and other information in one place for transmitting it to the Credit Information Bureau, as | ||
and when it is established. | ||
5 | Taking into consideration the difficulties expressed by some of the banks, it was decided that, | |
details of the maturity profile of deposits and borrowings, loans and advances and investments, | ||
movements in provisions and lending to sensitive sectors may be disclosed as additional | ||
information in the 'Notes on Accounts' to the Balance sheet for the year ending March 2001 and | ||
not end-March 2000 as originally stipulated. | ||
12 | Banks were permitted to rediscount bills discounted by NBFCs arising from sale of two wheeler | |
and three wheeler vehicles subject to the conditions that the bills were to have been drawn by | ||
the manufacturers on dealers only. | ||
28 | RRBs having minimum working capital of Rs.25 crore and satisfying other criteria were authorised | |
to open/maintain NRE accounts in rupees. | ||
June | 12 | Banks were advised to review urgently the pendency of all suit filed cases relating to NPAs and |
convey to the functionaries at all levels, the need for close monitoring of suit filed and decreed | ||
cases on an ongoing basis. | ||
July | 20 | The issue of repatriation of the proceeds of GDRs/ADRs issued by banks was reviewed and |
banks were advised to repatriate the entire proceeds of GDRs/ADRs soon after the issue process | ||
is completed. This provision would also be applicable to direct investments in banks made by | ||
NRIs/OCBs, foreign banking companies or finance companies, including multilateral institutions. | ||
27 | The Reserve Bank issued modified guidelines to the public sector banks in order to provide a | |
simplified non-discretionary and non-discriminatory mechanism for recovery of stock of NPAs. | ||
These guidelines cover NPAs in all sectors up to Rs. 5 crore but do not cover cases of willful | ||
default, fraud and malfeasance. All NPAs categorized as doubtful or loss assets as on end-March | ||
1997 as well as sub standard assets as on that date which have become doubtful subsequently | ||
will also be covered. The amount of settlement arrived at should be paid within one year together | ||
with interest at the existing PLR from date of settlement up to the date of final payment. The | ||
guidelines would be operative up to end-March 2001. The Board of Directors of the banks were | ||
also advised that they could evolve detailed policy guidelines regarding one time settlement of | ||
NPAs over Rs.5 crore covering the computation formula, realizable amount, cut-off date and | ||
payment conditions, etc. as part of its loan recovery policy and decide individual cases in | ||
accordance with such policy. | ||
August | 14 | It was decided to scale down the balances in EEFC accounts to 50 per cent of the amount held |
on August 11, 2000. Accordingly, banks were permitted to credit i) 35 per cent of the inward | ||
remittances in the EEFC accounts of Export oriented units, units in Export Processing Zone, | ||
Software Technology Park or Electronic Hardware Technology Park; and ii) 25 per cent of inward | ||
remittances in respect of others. Further, future accretions would be permitted only up to 50 per | ||
cent of the currently eligible amount. Accretions should be maintained in liquid form as current/ | ||
savings accounts. Besides, credit facilities available against such accounts would be held in | ||
abeyance. | ||
October | 10 | General provision on standard assets was allowed to be included in Tier II capital. |
In order to bring more transparency to the balance sheets of public sector banks and as a further | ||
step towards consolidated supervision and to provide additional disclosures, it was decided that | ||
public sector banks should annex the balance sheet, Profit and Loss Account, Report of the | ||
Board of Directors and the Report of the Auditors in respect of each of their subsidiaries to their | ||
balance sheet beginning from the year ending March 31, 2001. | ||
The concept of "past due" (grace period of 30 days) which was incorporated into the two quarter | ||
delinquency norm on income recognition, asset classification and provisioning introduced in April | ||
1992, would be dispensed with, effective March 31, 2001. | ||
After a review of current practices regarding credit exposure limits vis-à-vis international best | ||
practices, it was decided to prepare a detailed Discussion Paper on the subject which is expected | ||
to be finalised by December 2000. Based on the comments and suggestions on the issues, and | ||
followed by an interaction with banks, the Reserve Bank would take a final view on the approach | ||
that should be adopted with a view to making it effective from March end 2002. | ||
The Reserve Bank annouced the final guidelines on bank financing of equities and investments | ||
in shares. | ||
On a review of the August 14, 2000 measure relating to EEFC accounts, it was decided to | ||
restore fully the earlier entitlement of i) 70 per cent of the inward remittances in the EEFC | ||
accounts of Export oriented units, units in Export Processing Zone, Software Technology Park or | ||
Electronic Hardware Technology Park; ii) and 50 per cent of inward remittances in respect of | ||
others. | ||
To provide further operational autonomy to the banks, banks were given freedom to decide on | ||
charging penal interest to borrowers. Banks may formulate transparent policy for charging penal | ||
interest rates, with the approval of their Boards. | ||
On a review of market conditions and with a view to providing flexibility to banks in prescribing | ||
margins, the prescription of minimum margin of 15 per cent under selective credit control on | ||
free sale sugar was withdrawn. Margins in respect of free sale sugar would be decided by the | ||
banks based on their commercial judgement. | ||
Public sector banks were advised to set monthly targets for issue of Kisan Credit Card to farmer | ||
Borrowers within the yearly target fixed for the bank and draw action plan for achieving the | ||
overall target. | ||
16 | The Reserve Bank circulated the final guidelines relating to categorisation and valuation of banks' | |
investment portfolio. The guidelines were effective from the half year ended September 30, 2000. | ||
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