Monetary and Credit Information Review - ಆರ್ಬಿಐ - Reserve Bank of India
Monetary and Credit Information Review
Volume V MONETARY AND CREDIT INFORMATION REVIEW POLICY Pursuant to the announcement made by the Hon’ble Finance Minister in his Budget Speech for 2008-09, the Government will provide interest subvention of 2 per cent to public sector banks in respect of short-term production credit up to Rs.3 lakh provided to farmers. The amount of subvention would be calculated on the amount of crop loan disbursed from the date of disbursement/drawal up to the date of payment or up to the date beyond which the outstanding loan becomes overdue i.e. March 31, 2009 for kharif and June 30, 2009 for rabi, respectively, whichever is earlier. This subvention would be available to public sector banks on the condition that they make available short-term credit at ground level at 7 per cent per annum.
In case of regional rural banks (RRBs) and co-operatives, a separate circular would be issued by the National Bank for Agriculture and Rural Development (NABARD). CRR increased
The Reserve Bank has advised banks to keep on hold their mobile payment services till it issues the final guidelines. It has also advised banks to dissociate themselves from any mobile based money transfer service which has not received the Reserve Bank’s explicit approval or is not covered by any of its guidelines. The Reserve Bank had constituted a working group (Chairman: Shri N.S.Vishwanathan) to examine the issues concerning raising of capital by urban co-operative banks (UCBs) and identifying alternate instruments/avenues for augmenting their capital funds. Based on the recommendations of the working group and in order to facilitate UCBs in raising capital funds (Tier I and Tier II) for complying with the prescribed capital adequacy norms, the Reserve Bank has permitted them to issue financial instruments. The financial instruments are: UCBs may raise term deposits for a minimum period of not less than 5 years, which would be eligible to be treated as Tier II capital. Share Linkage Norms As per the current regulatory prescriptions, borrowings from UCBs are linked to shareholdings of the borrowing members. At present, the shareholding requirement is 2.5 per cent for secured borrowings and 5 per cent for unsecured borrowings. Taking into account the recommendation of the working group and the feedback received in this regard, it has been decided that the extant share linking norm may be applicable for member’s shareholdings up to the limit of 5 per cent of the total paid up share capital of the bank. Where a member is already holding 5 per cent of the total paid up share capital of an UCB, it would not be necessary for him to subscribe to any additional share capital on account of the application of the extant share linking norms. In other words, a borrowing member may be required to hold shares for an amount that may be computed as per the extant share linking norms or for an amount that is 5 per cent of the total paid up share capital of the bank, whichever is lower. Classification of Capital Funds As per the extant instructions, capital funds are divided into Tier I capital and Tier II capital. Elements of Tier II capital are reckoned as capital funds up to a maximum of 100 per cent of Tier I capital. It has now been decided to further divide Tier II capital into upper and lower tiers. Perpetual cumulative preference shares, redeemable non-cumulative preference shares and redeemable cumulative preference shares would be treated as upper Tier II capital. Long term deposits would be treated as lower Tier II capital. PNCPS should not exceed 20 per cent of Tier I capital (excluding PNCPS). Long term deposit should not exceed 50 per cent of Tier I capital and the total Tier II capital should not exceed Tier I capital. The elements of Tier II capital are reckoned as capital funds up to a maximum of 100 per cent of Tier I capital. This restriction has now been kept in abeyance for a period of five years, i.e, up to March 31, 2013 for UCBs that are having capital to risk weighted assets ratio (CRAR) of less than 9 per cent in order to give them time to raise Tier I capital. In other words, Tier II capital would be reckoned as capital funds for capital adequacy purpose even if a UCB does not have Tier I capital. During this period, however, for the purpose of capital adequacy requirement, lower Tier II capital alone would be restricted to 50 per cent of the prescribed CRAR and the progressive discount in respect of Tier II capital would be applicable. UCBs may issue preference shares and long term deposits subject to compliance with their bye-laws/provisions of the Cooperative Societies Act under which they are registered and with the approval of the concerned Registrar of Co-operative Societies/Central Registrar of Co-operative Societies, wherever applicable, and the Reserve Bank. The central/state governments are being requested separately to make necessary amendments to the Multi-State Cooperative Societies Act/Co-operative Societies Acts/Rules, wherever necessary. In supersession of the definition/illustrations contained in the Reserve Bank’s circular of August 1, 2002, the term “wilful default” has been redefined as follows:
Further, it is reiterated that no additional facilities should be granted by any scheduled urban co-operative bank to the listed wilful defaulters. In addition, entrepreneurs/promoters of companies which have been identified for siphoning/ diversion of funds, misrepresentation, falsification of accounts and fraudulent transactions should be debarred from institutional finance for floating new ventures for a period of five years from the date the name of the wilful defaulter is published in the Reserve Bank’s wilful defaulters' list. Balances held with IDBI Bank Limited The Reserve Bank has advised all UCBs that the balance maintained by them in current account with IDBI Bank Limited would not be eligible for being reckoned as ‘net balance in current account’ for the purpose of cash reserve ratio (CRR)/ statutory liquidity ratio (SLR) under Section 18 and 24 of the Banking Regulation Act, 1949 (AACS). i) State Bank of India As a measure of rationalisation of the existing procedures, AD Category - I banks have been allowed to convey ‘no objection’ under the Foreign Exchange Management Act (FEMA), 1999 for creation of charge on immovable assets, financial securities and issue of corporate or personal guarantees in favour of overseas lender/security trustee, to secure external commercial borrowings (ECBs) to be raised by borrowers. Prior to according ‘no objection’ under FEMA, 1999, AD Category - I banks should ensure and satisfy themselves that (i) the underlying ECB is strictly in compliance with the extant ECB guidelines, (ii) the loan agreement contains a security clause which requires the borrower to create charge on immovable assets/financial securities/furnish corporate or personal guarantee, (iii) the loan agreement has been signed by both the lender and the borrower, and (iv) the borrower has obtained loan registration number (LRN) from the Reserve Bank. Creation of Charge on Immovable Assets AD Category - I banks may convey their ‘no objection’ under FEMA, 1999 for creation of charge on immovable assets either in favour of the lender or the security trustee, subject to the conditions that: (ii) The period of such charge on immovable assets is co-terminus with the maturity of the underlying ECB. (iii) Such ‘no objection’ is not to be construed as permission to acquire immovable asset (property) in India, by the overseas lender/security trustee. (iv) If the charge is enforced/invoked, the immovable asset (property) would have to be sold only to a person resident in India and the sale proceeds should be repatriated to liquidate the outstanding ECB. Creation of Charge over Financial Securities AD Category – I banks may convey their ‘no objection’ under FEMA, 1999 to the resident ECB borrower for pledge of shares of the borrowing company held by promoters as well as in domestic associate companies of the borrower to secure the ECB subject to the conditions that : (i) The period of such pledge is co-terminus with the maturity of the underlying ECB. (ii) If the pledge is invoked, the transfer shall be in accordance with the extant foreign direct investment (FDI) policy. (iii) A certificate is obtained from the company’s statutory auditor that the ECB proceeds have been/will be utilised for the permitted end-use/s. Issue of Corporate/Personal Guarantee The ‘no objection’ to the resident ECB borrower for issue of corporate or personal guarantee under FEMA, 1999 may be conveyed after – (i) Obtaining board resolution for issue of corporate guarantee from the company issuing such guarantees, specifying the names of the officials authorised to execute such guarantees on behalf of the company or in individual capacity. (ii) Obtaining specific requests from individuals to issue personal guarantee indicating details of the ECB. (iii) Ensuring that the period of the corporate or personal guarantee is co-terminus with the maturity of the underlying ECB. AD Category – I banks may invariably specify that the ‘no objection’ is issued from the foreign exchange angle under the provisions of FEMA, 1999 and should not be construed as an approval by any other statutory authority or government under any other laws/regulations. If further approval or permission is required from any other regulatory/statutory authority or government under the relevant laws/regulations, the applicant should take the approval of the authority concerned before undertaking the transaction. Further, the ‘no objection’ should not be construed as regularising or validating any irregularities, contravention or other lapses, if any, under the provisions of FEMA or any other laws or regulations. These amendments to the ECB guidelines have come into force from July 11, 2008. Overseas Direct Investment by Registered Trust/Society With a view to further liberalising the policy on overseas investments, registered trusts and societies engaged in manufacturing/educational sector have now been allowed to make investment in the same sector(s) in a joint venture or wholly owned subsidiary outside India, with the Reserve Bank’s prior approval. Registered trusts/societies which satisfy the below indicated criteria are eligible to apply for overseas investment : Criteria Trust Based on the complaints received by the Reserve Bank as also by the offices of the Banking Ombudsmen, a study was undertaken on the credit card operations of banks. The gist of the recommendations of the study together with existing RBI instructions, if any, and the action required to be taken by banks in this regard are placed on the RBI website www.rbi.org.in Unsolicited Cards Reiterating its earlier instructions, the Reserve Bank has advised banks that they should not issue unsolicited credit cards. In case an unsolicited card is issued and activated without the consent of the recipient and the latter is billed for the same, the card issuing bank should not only reverse the charges forthwith, but also pay a penalty without demur to the recipient amounting to twice the value of the charges reversed. Insurance Cover Where insurance cover is offered to credit card holders in tie-up with insurance companies, banks should obtain in writing from the credit card holder, the details of nominee/s for the insurance cover in respect of accidental death and disablement benefits. Banks should ensure that the relevant nomination details are recorded by the insurance company. Banks should also issue a letter to the credit card holder indicating the name, address and telephone number of the insurance company.. 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 |