Monetary and Credit Information Review - ಆರ್ಬಿಐ - Reserve Bank of India
Monetary and Credit Information Review
Volume V MONETARY AND CREDIT INFORMATION REVIEW Important Banking and Financial Developments in 2008 January • With the prior approval of the central government, the Reserve Bank notified mortgage guarantee companies as non-banking financial companies. Further, mortgage guarantee companies exempted from the provisions of Section 45-IA (requirement of registration), Section 45-IB (maintenance of liquid assets) and Section 45-IC (creation and transfer to Reserve Fund a certain percentage of the net profit) of the RBI Act. • Foreign institutional investors (FIIs) registered with the Securities Exchange Board of India (SEBI) and sub-accounts of FIIs permitted to short sell, lend and borrow equity shares of Indian companies subject to the conditions prescribed by the Reserve Bank/SEBI/other regulatory agencies. February • In view of loss of income suffered due to culling of birds as well as steep fall in the demand for poultry products and their prices, guidelines on relief measures to poultry industry issued. • Guidelines on registration and operations of mortgage guarantee companies and prudential norms and investment directions as applicable to them, issued. March • Banks advised to allow their customers to use their own ATMs for any purpose for free and to use any other bank’s ATM for balance enquiries for free. Furthermore, for use of other bank’s ATM for cash withdrawal, banks not to increase the charges prevailing as on December 23, 2007 and those charging more than Rs.20 per transaction to reduce the charge to a maximum of Rs.20 per transaction by March 31, 2008 and to be made free from April 1, 2009. • All commercial/co-operative banks advised to mandatorily route all payment transactions of Rs.1 crore and above between the Reserve Bank regulated entities, such as, banks/PDs and NBFCs through the electronic payment mechanism from April 1, 2008. Furthermore, all payments of Rs.1 crore and above in the Reserve Bank regulated markets, such as, money market, government securities market and foreign exchange market also to be routed through the electronic payment mechanism from April 1, 2008. • The definition of Tier I (primary urban co-operatve banks UCBs) amended. As per the new definition, the following three categories of UCBs to be treated as Tier I banks (i) unit banks i.e., UCBs having a single branch/head office and UCBs with deposits below Rs.100 crore, whose branches are located in a single district; (ii) UCBs with deposits below Rs.100 crore and having branches in more than one district, provided the branches are in contiguous districts and deposits and advances of branches in one district separately constitute at least 95 per cent of the total deposits and advances respectively of the bank; and (iii) UCBs with deposits below Rs.100 crore, whose branches were originally in a single district but subsequently, became multi-district due to reorganisation of the district. All other UCBs are Tier II. April • The income criteria for availing loans under the differential rate of interest (DRI) scheme revised. Accordingly, borrowers with annual family income of Rs.18,000 in rural areas and Rs.24,000 in urban areas would be eligible to avail this facility. • Guidelines on new self employment scheme for rehabilitation of manual scavengers announced. The scheme contains provisions for capital subsidy, concessional loans and capacity building for rehabilitation of manual scavengers in alternative occupations. • The limit for direct receipt of import bills/documents enhanced from USD 1,00,000 to USD 3,00,000 in the case of import of rough precious and semi- precious stones by non-status holder exporters. • The Reserve Bank issued detailed guidelines regarding the policy, practice and procedure involved in the engagement of recovery agents by banks. • For Tier I UCBs, the 180 day loan delinquency norm for non-performing assets (NPAs) extended by one year i.e., up to March 31, 2009 and the 12 month period for classification of a sub-standard asset in doubtful category made effective from April 1, 2009 instead of April 1, 2008. May • Banks advised to 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 under priority sector. • CRR to be maintained by scheduled banks increased to 8.25 per cent from the fortnight beginning May 24, 2008. • Banks advised to formulate a policy for settling the claims of missing persons • Branch licensing norms for well managed and financially sound UCBs in the states that have signed MoUs with the Reserve Bank and those registered under the Multi-State Coop Societies Act, 2002, liberalised. Approvals for branch expansion, including off-site ATMs, to be considered based on their annual business plans, subject to certain conditions. July • Instructions issued to banks on the issue of unsolicited credit cards and provision of insurance cover to credit card holders. • The fixed repo rate under the liquidity adjustment facility (LAF) increased by 50 basis points from 8.5 per cent to 9.0 per cent. • CRR to be maintained by scheduled banks increased by 25 basis points to 9.0 per cent from the fortnight beginning August 30, 2008. • Foreign companies permitted to open an additional foreign currency account for each project office (established under the Reserve Bank’s general/specific approval) subject to the same terms and conditions as applicable to the existing foreign currency account. August • The Reserve Bank advised that from November 1, 2008, all exchange earners’ foreign currency (EEFC) accounts would be permitted to be opened and maintained in the form of non-interest bearing current accounts. Earlier, in October 2007, as a temporary measure, exporters were permitted to earn interest on EEFC accounts to the extent of outstanding balances of USD 1 million per exporter. • Banks/FIs advised to ensure that all information relating to charges/fees for processing are invariably disclosed in the loan application forms. Banks/FIs also advised to inform ‘all-in-cost’ to the customer to enable him to compare the rates charged with other sources of finance. • The risk weights for banks’ claims on corporates, those secured by commercial real estate and the claims on NBFC-ND-SI revised. All unrated claims, long term as well as short term, regardless of the amount of claim, on corporates to attract a uniform risk weight of 100 per cent; claims secured by commercial real estate to attract a risk weight of 100 per cent as against the earlier risk weight of 150 per cent; and claims on rated as well as unrated NBFC-NDSI (other than AFCs), regardless of the amount of claim, to be uniformly risk weighted at 100 per cent. • The conditions applicable to regional rural banks (RRBs) for opening new branches modified. According to the revised conditions, to become eligible for opening new branch/es the RRB should (i) not have defaulted in maintenance of SLR and CRR during the last two years; and (ii) be making operational profits, its net worth should show improvement and its NPA ratio should not exceed 8 per cent. December • Interest subvention of 2 percentage points extended from December 1, 2008 till March 31, 2009 on pre and post shipment rupee export credit, for certain employment oriented export sectors, viz, textiles (including handloom), handicrafts, carpets, leather, gems and jewellery, marine products, and small and medium enterprises. Accordingly, banks to charge interest rate not exceeding BPLR minus 4.5 percentage points on pre-shipment credit up to 270 days and post-shipment credit up to 180 days on the outstanding amount for the period December 1, 2008 to March 31, 2009 to these sectors. • ADs Category I & II and FFMCs permitted to accept payments made by travellers through debit cards/credit cards/prepaid cards for travel abroad (for private visit or for any other purpose). • Loans granted by banks to housing finance companies (HFCs), approved by the National Housing Bank for refinancing, for on-lending to individuals for purchase/ construction of dwelling units to be classified under priority sector, provided the housing loans granted by HFCs do not exceed Rs.20 lakh per dwelling unit per family. However, the eligibility under this measure to be restricted to five per cent of the individual bank’s total priority sector lending, on an ongoing basis. RBI Measures for improving Domestic and Foreign Currency Liquidity In response to emerging global developments, the Reserve Bank took a number of measures to augment domestic and forex liquidity and to enable banks to continue to lend for productive purposes while maintaining credit quality so as to sustain the growth momentum.The measures were : • Cash reserve ratio (CRR) to be maintained by scheduled banks reduced to 6.5 per cent of their net demand and time liabilities from the fortnight beginning October 11, 2008. CRR further reduced by 100 basis points from 6.5 per cent to 5.5 per cent in two stages: by 50 basis points with effect from the fortnight beginning October 25, and by a further 50 basis points with effect from the fortnight beginning November 8, 2008. • Statutory liquidity ratio (SLR) reduced to 24 per cent of NDTL with effect from the fortnight beginning November 8, 2008. Earlier, on September 16, 2008, scheduled banks, as a temporary and ad hoc measure permitted to avail additional liquidity support under the LAF to the extent of up to one per cent of their NDTL and seek waiver of penal interest. • Repo rate under the LAF reduced by 100 basis points to 8.0 per cent from October 20, 2008. A further 50 basis points reduction effected in the repo rate from 8.0 per cent to 7.5 per cent from November 3, 2008. • Under a special refinance facility, all scheduled commercial banks (excluding RRBs) provided refinance from the Reserve Bank equivalent up to 1.0 per cent of their NDTL as on October 24, 2008 at the LAF repo rate up to a maximum period of 90 days. On November 1, 2008, on a purely temporary and ad hoc basis, subject to review, banks allowed to avail liquidity support under the LAF through relaxation in the maintenance of SLR to the extent of up to 1.5 per cent of their NDTL. This relaxation in SLR to be used exclusively for the purpose of meeting the funding requirements of NBFCs and MFs. • RBI conducted buy-back of market stabilisation scheme (MSS) dated securities so as to provide another avenue for injecting liquidity of a more durable nature into the system. • The mechanism of special market operations (SMO) for public sector oil marketing companies instituted in June-July 2008 taking into account the extraordinary situation then prevailing in the money and forex markets would be instituted when the oil bonds become available. • Special 14-day repo conducted every day up to a cumulative amount of Rs.60,000 crore (enhanced from earlier Rs.20,000 crore) with a view to enabling banks to meet the liquidity requirements of mutual funds. • SLAF conducted on a daily basis from September 17, 2008, till further notice. • To provide flexibility to Indian banks in managing their short-term funding requirements at their overseas offices, the Reserve Bank to provide forex liquidity to Indian public and private sector banks having foreign branches or subsidiaries, through forex swaps of tenors up to three months. This facility to be available on request from November 7, 2008 until further notice. • As a temporary measure, the Reserve Bank permitted systemically important non-deposit taking non-banking financial companies (NBFCs-ND-SI) to raise short term foreign currency borrowings under the approval route, subject to their complying with the prudential norms on capital adequacy and exposure norms. 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 |