Volume
IV Issue 6
December 2007 MONETARY
AND CREDIT INFORMATION REVIEW Important
Banking and Financial Developments in 2007 January
- Guidelines
issued to banks for formulating policy for valuation of properties, revaluation
of their own properties and for empanelment of independent valuers.
- Fixed repo rate under the liquidity
adjustment facility (LAF) increased by 25 basis points to 7.50 per cent from January
31, 2007. The reverse repo rate under the LAF remained unchanged at 6.0 per cent.
- Banks advised that the standing
liquidity facilities provided to them (export credit finance) would be available
at the repo rate, i.e., 7.50 per cent from January 31, 2007.
- Banks permitted to undertake
short sale of central government dated securities, subject to the short position
being covered within a maximum period of five trading days, including the day
of trade.
- Provisioning
requirement increased from one per cent to two per cent for standard assets in
the real estate sector, outstanding credit card receivables, loans and advances
qualifying as capital market exposure and personal loans (excluding residential
housing loans).
- Interest
rate ceiling on non-resident (external) rupee (NRE) term deposits reduced from
100 basis points to 50 basis points above LIBOR/SWAP rates for US dollar of corresponding
maturity.
- Interest
rate ceiling on FCNR (B) deposits reduced from LIBOR/SWAP rates to 25 basis points
below LIBOR/SWAP rates for respective currency/maturity.
- Banks restrained from granting
fresh loans or renewing existing loans in excess of Rs. 20 lakh against NR (E)
RA and FCNR (B) deposits, either to depositors or to third parties. Banks also
advised not to undertake artificial slicing of the loan amount to circumvent the
ceiling.
- In
pursuance of the Clean Note Policy, currency chest holding banks advised to automate
the sorting of notes by installing note sorting machines at their currency chests.
The tolerance level of reissuable notes in the soiled banknote remittance to the
Reserve Bank changed from 10 per cent to 5 per cent of each remittance.
- Exporters permitted to open,
maintain and operate one or more foreign currency account/s in a currency/currencies
of their choice with inter-project transferability of funds in any currency or
country.
February
- Cash
reserve ratio (CRR) increased by one-half of one percentage point of banks’ net
demand and time liabilities (NDTL). Increase effected in two stages – 5.75 per
cent from February 17, 2007 and 6.00 per cent from March 3, 2007.
- Banks advised to lay down general
principles and broad parameters to be followed by them while offering "doorstep"
services to their customers and to ensure transparency in respect of the rights
and obligations of customers, uniformity in approach and to clearly delineate
the risks involved.
- FIIs
permitted to cancel and rebook forward contracts up to a limit of 2 per cent of
the market value of their entire investment in equity and/or debt in India.
March - As
Section 3 of the Reserve Bank of India (Amendment) Act, 2006 was not notified,
banks that breached the statutory minimum CRR level of 3 per cent between June
22, 2006 and March 2, 2007 on account of CRR exemptions reckoned for computation
of demand and time liabilities for CRR were exempted from payment of penal interest
and interest was payable on the eligible CRR balance at the rate of (a) 3.50 per
cent per annum for the period from June 24, 2006 to December 8, 2006; (b) 2.0
per cent from December 9, 2006 to February 16, 2007; and (c) 1.0 per cent from
February 17, 2007 till further notice.
- Starting
March 5, 2007 daily reverse repo absorptions limited to a maximum of Rs.3,000
crore each day, comprising Rs.2,000 crore in the first LAF and Rs.1,000
crore in the second LAF. Allocations to be made proportionately on a pro-rata
basis in case the tenders exceed these amounts.
- Banks/all India financial institutions
(FIs) 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
and should include information about the fees/charges, if any, payable for processing,
the amount of fees refundable in the case of non-acceptance of application, pre-payment
options and any other matter which affects the interest of the borrower.
- Banks advised that their inter-bank
liability should not exceed 200 per cent of their net worth as on March 31 of
the previous year.
- Status
holder exporters permitted to write-off outstanding export dues to the extent
of (i) 5 per cent of their average annual realisation during the preceding 3 financial
years or (ii) 10 per cent of the export proceeds due during the financial year,
whichever is higher.
- AD
Category I banks advised that they need not obtain credit report on overseas supplier
from his banker/reputed credit agency before processing import bills received
directly from overseas supplier, provided (i) the invoice value does not exceed
USD 100,000, and (ii) the bonafides of the transaction and track record of the
importer are satisfactory.
- Banks
advised to ensure that no loans are sanctioned for acquisition of/investing in
small savings instruments including Kisan Vikas Patras.
-
AD Category-I banks permitted to extend the period of realisation of export proceeds
beyond six months from the date of export, up to a period of six months at a time,
irrespective of the invoice value of the export.
April
- Fixed repo
rate under the LAF increased by 25 basis points to 7.75 per cent from 7.50 per
cent from March 31, 2007. Accordingly, the standing liquidity facilities provided
to banks (export credit refinance) (collateralised liquidity support) from the
Reserve Bank would be available at the repo rate i.e. at 7.75 per cent
from March 31, 2007.
- CRR
increased by one-half of one percentage point of banks’ NDTL. The increase to
be effected in two stages –0.25 per cent from April 14, 2007 and 0.25 per cent
from April 28, 2007.
- Ceiling
interest rate on NR(E)RA deposits reduced by 50 basis points to LIBOR/SWAP rates.
- Banks
advised to ensure that cheques/drafts issued by clients containing fractions of
a rupee are not rejected or dishonoured by them.
- Banks advised that in case
of infrastructure projects financed by them, the date of completion of the project
should be clearly spelt out at the time of financial closure of the project and
if the date of commencement of commercial production is extended beyond a period
of one year after the date of completion of the project, as originally
envisaged, the account should be treated as sub-standard.
- Guidelines on know your customer
(KYC) norms/anti-money laundering (AML) standards/combating financing of terrorism
– wire transfers issued, whereby banks instructed to obtain accurate and meaningful
originator information.
- Pursuant
to the recommendations of the Committee on Procedures and Performance Audit on
Public Services (CPPAPS) on easy operation of lockers, the Reserve Bank reviewed
all the guidelines issued earlier on safe deposit lockers/safe custody articles
and issued fresh guidelines.
- Maximum
interest rate payable on public deposits by NBFCs revised from 11.0 per cent to
12.5 per cent per annum from April 24, 2007.
- Pursuant
to the Government of India notifying on March 9, 2007 that the provisions of Section
3 of the Reserve Bank of India (Amendment) Act, 2006 shall come into force from
April 1, 2007, the statutory requirement of minimum CRR of 3 per cent of total
demand and time liabilities is removed. The Reserve Bank having regard to the
need of securing monetary stability in the country, could from time to time, prescribe
CRR for scheduled banks without any floor and ceiling rate. The Reserve Bank decided
to continue the status quo on the rate of CRR to be maintained by scheduled
banks and the extant exemptions. Consistent with the amendment, the Reserve Bank
will not pay any interest on the CRR balances maintained by scheduled banks from
the fortnight beginning March 31, 2007.
- Scheduled
banks advised that they would be exempted from maintaining average CRR with effect
from April 1, 2007 on (i) liabilities to the banking system in India as computed
under Clause (d) of the Explanation to Section (1) of the RBI Act, 1934; (ii)
credit balances in ACU (US$) accounts; (iii)
transactions in collateralised borrowing and lending obligation (CBLO) with Clearing
Corporation of India (CCIL); and (iv) demand and time liabilities in respect of
their offshore banking units (OBUs).
- Ceiling
interest rate on FCNR (B) deposits reduced by 50 basis points to LIBOR minus 75
basis points.
-
Banks advised to ensure that none of their bank branches/ staff refuse to accept
lower denomination notes and/or coins.
- Banks
advised to immediately dispense with the requirement of ‘no due’ certificate for
small loans up to Rs.50,000 to small and marginal farmers, share-croppers etc.,
and instead, obtain self-declaration from the borrower. Further,
banks can accept certificates provided by local administration/panchayati raj
institutions regarding the cultivation of crops in case of loans to landless labourers,
share-croppers and oral lessees.
- Risk
weight on loans up to Rs 1 lakh against gold and silver ornaments for all categories
of banks reduced to 50 per cent.
May
- Remittance limit under the
liberalised remittance scheme for resident individuals enhanced form USD 50,000
to 100,000 per financial year for any permitted current or capital account transactions
or a combination of both.
- Interest
subvention of 2 per cent per annum provided to public sector banks for short-term
production credit up to Rs 3 lakh provided to farmers.
- It was clarified that under
the senior citizens savings scheme (SCSS), 2004 where the depositor
has expired before the maturity of the deposit and the nominee/legal heir approaches
the banker for closure of the deposit account, the nominee/legal heir in such
cases is entitled to the benefit of saving bank rate of interest for the period
from the date of death of the depositor to the date of closure of the account.
- Risk
weight for housing loans up to Rs.20 lakh to individuals against the mortgage
of residential housing properties reduced from 75 per cent to 50 per cent. Similarly,
the risk weight for banks’ investment in mortgage backed securities, issued by
housing finance companies regulated by the National Housing Bank, also reduced
from 75 per cent to 50 per cent.
- Banks
advised to lay out appropriate internal principles and procedures so that usurious
interest, including processing and other charges, are not levied by them on loans
and advances.
- Urban
co-operative banks (UCBs) registered in states that have entered into MOU with
the Reserve Bank or are registered under the Multi State Co-operative Societies
Act, 2002 permitted to undertake insurance agency business as corporate agents
without risk participation provided, they have a minimum net worth of Rs 10 crore
or have not been classified as a Grade III or IV bank.
- AD category I banks permitted
to make remittances abroad on account of donations by Indian corporates for creation
of chairs in reputed educational institutes, to funds (not being an investment
fund) promoted by educational institutes or to a technical institution or body
of association in the field of activity of the donor company.
- Banks in India permitted to
extend funded and/or non-funded credit facilities to wholly owned step-down subsidiaries
of Indian companies (where the holding by the Indian company is more than 51 per
cent) abroad.
June
- Banks permitted to transact
in single-entity credit default swaps.
- Banks
advised to deduct tax at source on interest exceeding rupees ten thousand payable
during the financial year on 8 per cent Savings (Taxable) Bonds, 2003 from June
1, 2007.
- Loan
limit under the differential rate of interest (DRI) scheme raised from Rs. 6,500
to Rs.15,000 and limit of housing loan raised from Rs.5,000 to Rs.20,000 per beneficiary.
- RRBs permitted to participate
in consortium lending, within the extant exposure limits, with their sponsor banks
as also with other public sector banks and developmental financial institutions
(DFIs), subject to the condition that the project to be financed is in the area
of operation of the RRB and guidance and appraisal of the project is provided
by their sponsor bank.
- RRBs
allowed to set up service branches/central processing centres/back offices exclusively
to attend to back office functions, such as, data processing, verification and
processing of documents, issuance of cheque books, demand drafts, etc.,
and other functions incidental to their banking business. These offices would
have no interface with customers and would not be allowed to be converted into
general banking branches. These offices would be treated on par with a branch.
- RRBs permitted to accept FCNR
(B) deposits from NRIs/ PIOs.
- Guidelines
issued to UCBs for issuing ATM-cum-debit cards. Issuance of offline debit cards
and tie-up with non-bank entities, however, not permitted.
July
- Interest
subvention of 2 percentage points per annum provided to all scheduled commercial
banks in respect of rupee export credit to specified categories of exporters.
- Banks
permitted to undertake pension funds management through their subsidiaries set
up for the purpose.
- Guidelines
regarding remuneration payable to statutory central and branch auditors of public
sector banks from the year 2006-07 issued.
- UCBs
advised that investments made by them on or after April 1, 2007 in bonds issued
by NHB/HUDCO would not be eligible for classification under priority sector lending.
- UCBs
holding AD category I or II licence allowed to act as agents/sub-agents under
the money transfer service scheme subject to certain conditions. l UCBs registered
under the Co-operative Societies Act of the states that have signed MOU with the
Reserve Bank or under the Multi State Co-operative Societies Act, 2002 permitted
to open new branches/extension counters subject to certain conditions.
August
- Ceiling
of Rs. 3,000 crore on daily reverse repo under LAF withdrawn from August 6, 2007.
Second LAF withdrawn from August 6, 2007.
- CRR
increased by 50 basis points to 7 per cent from the fortnight beginning August
4, 2007.
- RRBs
allowed to extend, with the approval of their boards, direct finance to the housing
sector up to Rs. 20 lakh, irrespective of the area.
- Banks advised to invariably
furnish a copy of the loan agreement along with a copy each of all enclosures
quoted in the loan agreement to all borrowers at the time of sanction/disbursement
of loans.
- Reserve
Bank to consider requests of UCBs to shift their branches from one city to another
in their area of operation within the same state subject to the conditions that
–(i) the new centre is of the same or lower population group as the existing centre;
(ii) a branch located in underbanked district can be shifted to another centre
in underbanked district only; and (iii) The shifting should be beneficial to the
bank in terms of cost and business.
- Banks
advised to take necessary steps for strengthening the branch level committees
with greater involvement of customers. Further, as senior citizens usually form
an important constituency in banks, a senior citizen to be included in the committee.
September
- RRBs allowed
to set up extension counters at places of worship and market places.
- RRBs permitted to convert their
satellite offices into full-fledged branches after obtaining concurrence from
the Empowered Committee on RRBs.
- Commercial
banks advised to ensure that all their branches meticulously adhere to the Reserve
Bank’s instructions while extending home loans.
- The
restrictive provisions of Service Area Approach dispensed with.
- Limit for prepayment of external
commercial borrowing (ECB) without the Reserve Bank’s prior approval enhanced
from USD 400 million to USD 500 million.
- Limit
for total overseas investment of an Indian party in all its joint ventures/wholly
owned subsidiaries abroad has been increased to not exceeding 400 per cent of
its net worth.
- RRBs
allowed to shift branches in rural centres without obtaining the Reserve Bank’s
prior approval provided, both the existing and proposed centres are within the
same block, and the relocated branch would be able to cater adequately to the
banking needs of the villages served by the existing branch.
- RRBs permitted to shift their
branches at semi-urban centres within the same locality/municipal ward without
the Reserve Bank’s prior approval. The locality/ward, however, should not be rendered
unbanked due to the shifting of branch/es.
- Where
two loss making branches of any RRB are in close proximity to each other (i.e.,
within a distance of about 5 kms.), they may merge the two branches with a view
to rationalising the spatial spread and reducing establishment/operating costs.
October
- The remittance
limit for resident individuals under the liberalised remittance scheme enhanced
from USD 100,000 to USD 200,000 per financial year for any permitted current or
capital account transaction or a combination of both.
- All
commercial banks, all-India term lending and refinance institutions and NBFCs
(including residuary non-banking companies) advised that while selling non-performing
assets the net present value of the estimated cash flows associated with the realisable
value of the available securities should be worked out net of the cost of realisation.
- To enable small and medium
enterprises (SMEs), having direct and/or indirect exposures to foreign exchange
risk to manage their exposures effectively, AD Category – I banks permitted to
allow such entities to book/cancel/rebook/roll over forward contracts without
production of underlying documents and subject to certain conditions.
- CRR increased by 50 basis points
to 7.50 per cent of banks’ demand and time liabilities from the fortnight beginning
November 10, 2007.
- RRBs
fulfilling certain eligibility norms permitted to open currency chests.
November
- Reserve
Bank laid down specific ‘fit and proper’ criteria to be fulfilled by persons being
elected as directors on the boards of nationalised banks/associate banks of State
Bank of India.
- The
limit for direct receipt of import bills/documents enhanced from USD 100,000 to
USD 300,000 in the case of import of rough diamonds.
- Reiterating its earlier instructions
on interest paid on deposits, the Reserve Bank advised banks not to discriminate
between one deposit and another, accepted on the same date and for the same maturity,
whether such deposits are accepted at the same office or at different offices
of the bank.
- Reserve
Bank launched a financial education site on November 14, 2007 with the aim of
teaching basics of banking, finance and central banking to children in different
age groups and providing useful information to other target groups, such as, women,
rural and urban poor, defence personnel and senior citizens.
- Banks advised to invariably
ensure that once a case is filed before a court/DRT/BIFR, any settlement arrived
at with the borrower is subject to obtaining a consent decree from the court/DRT/BIFR.
December
- To encourage
banks to increase flow of credit to the infrastructure sector, banks allowed to
invest in unrated bonds of companies engaged in infrastructure activities within
the ceiling of 10 per cent for unlisted non-SLR securities.
- Banks advised to be judicious
in extending finance to mutual funds (MFs) and grant loans and advances to MFs
only to meet their temporary liquidity needs for the purpose of repurchase/redemption
of units within the ceiling of 20 per cent of the net asset of the scheme and
for a period not exceeding 6 months.
- RNBCs
advised that if they fail to repay the deposit along with interest on maturity
on the claim made by a depositor, they would be liable to pay interest as follows
(i) if the depositor was intimated about the maturity at least two months before
the date of maturity but he failed to submit his claim on maturity, then the RNBC
should pay interest at the rate as applicable to the deposit from the date of
claim till the date of repayment along with the amount due on maturity (ii) If
the RNBC did not intimate the depositor two months before the date of maturity,
then, as and when the depositor makes a claim, the RNBC should pay interest at
the rate as applicable to the deposit from the date of maturity till the date
of repayment along with the amount due on maturity.

Edited
and published by Alpana Killawala for the Reserve Bank of India,
Press Relations Division, 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 |