Announcement

Measures

Date

A) Commercial Banks

2004

April

10

•

Revised norms issued with regard to cheque Drop Box facility, delivery of cheque books over the

counter and statement of accounts/pass book.

19

•

All Scheduled Commercial Banks (SCBs) advised of the State/Union Territory-wise physical targets

for sanctioning and disbursing of loans under the Prime Minister Rozgar Yojana (PMRY) for the

purpose of their quarterly targets to be achieved by end-March 2005.

22

•

Banks advised to inform their account holders, at least one month in advance of any change in the

prescribed minimum balance and the charges that may be levied if the minimum balance is not

maintained.

23

•

Guidelines relating to the eligibility criteria (inclusive of minimum CRAR, non-performing asset

and regulatory compliance) for declaration of dividend by commercial banks without prior approval

of the Reserve Bank as well as the quantum of dividend payable (with a ceiling placed at 33 1/3 per

cent dividend payout ratio and methods of compilation of the ratio prescribed) modified.

30

•

Banks (excluding RRBs and LABs) advised to review at regular intervals policies and practices

relating to information system (IS) audit and place the audit reports before the top management.

Banks to adopt an IS Audit Policy appropriate to their level of computerisation, review the same at

regular intervals in tune with industry best practices and guidelines issued by the Reserve Bank.

•

Banks (excluding RRBs) advised to ensure strict compliance with the three accounting standards

(No. 24, 26 and 28) relating to discounting operations, intangible assets and impairment of assets,

respectively.

May

8

•

All SCBs advised that the subsidy under Swarna Jayanti Shahari Rozgar Yojana (SJSRY) would be

back-ended, with a lock-in period of 2 years.

12

•

SCBs advised to strictly maintain the confidentiality of information provided by the customer for

‘Know Your Customer’ (KYC) compliance.

15

•

Banks directed to scrupulously ensure that their branches do not open current accounts of entities

which enjoy credit facilities (fund based or non-fund based) without specifically obtaining a no-

objection certificate from the lending banks.

18

•

The requirement of margin/security for agricultural loans up to Rs.50,000 and in the case of agri-

business and agri-clinics for loans up to Rs.5 lakh waived.

20

•

The exemption granted to RRBs from ‘mark to market’ norms in respect of the SLR securities

extended for one more year, i.e., up to 2004-05.

June

11

•

To give boost to infrastructure lending, banks allowed to raise long-term bonds with a minimum

maturity of five years.

15

•

The risk weight in respect of exposure by banks to public financial institutions (PFIs) raised to 100

per cent for credit risk and 2.5 per cent for market risk effective April 1, 2005.

17

•

The extant limits on unsecured exposures by banks withdrawn, allowing banks to set their own

limits for unsecured exposures. Unsecured exposures were redefined and it was clarified that

unsecured sub-standard assets would attract 20 per cent provisioning.

•

The currency of the ad hoc Committees on Procedures and Performance Audit on Customer Services

in Banks was extended by six months and they were advised to complete the work within one year

from the date of their constitution and also to associate non-officials in the Committees.

•

The extant guidelines on country risk management extended to cover countries where a bank has net

funded exposure of one per cent or more of its assets with effect from the year ended March 31, 2005.

Annex: Chronology of Major Policy Developments (Continued)

Announcement

Measures

Date

2004

June

18

•

Banks advised to draw a roadmap for migration to Basel II norms by the end of 2004 and prepare

a quarterly review of the progress made.

21

•

Boards of banks to oversee furnishing of requisite information of all borrowers to CIBIL and report

compliance of the same to the Reserve Bank. The role of CIBIL in dissemination of credit information

was clarified. CIBIL to move towards a sufficiently diversified ownership structure with no single

entity owning more than 10 per cent of its paid-up capital.

•

Graded higher provisioning requirement according to the age of NPAs in ‘doubtful for more than

three years’ category introduced for SCBs, with effect from March 31, 2005. Similar norms made

applicable to RRBs on August 6, 2004.

•

It was clarified that the process of identifying wilful defaulters and the mechanism related to redressal

of grievances are two distinct processes. The borrower should be suitably advised before being

classified as a wilful defaulter.

•

Banks to fully adhere to the ‘Know Your Customer’ (KYC) policy adopted by their Boards: (i) for

opening new accounts; (ii) for the existing accounts, where any wrong-doing is suspected or

where the summation of the credit/debit transactions is more than Rs.10 lakh; and (iii) in

respect of all accounts belonging to trusts, intermediaries or those operated through a mandate

or power of attorney.

•

The vigilance procedure in public sector banks modified. Only such vigilance cases in which an

officer of the level of Scale V and above is involved are required to be referred to the Central

Vigilance Commission (CVC) for advice.

•

Boards of banks, under exceptional circumstances, allowed to raise single or group exposure limit

by 5 per cent of capital funds.

24

•

Banks to provide for capital charge for market risk in respect of trading book exposures (including

derivatives), effective March 31, 2005. Capital charge would be introduced for securities under

‘Available for Sale’ (AFS) category with effect from March 31, 2006.

•

Prudential norms on income recognition, asset classification and provisioning with respect to

agricultural advances modified with a view to aligning the repayment dates with harvesting of crops.

Effective September 30, 2004 a loan granted for short duration crops were required to be treated

as NPA if the instalment of the principal or interest thereon remains unpaid for two crop seasons

beyond the due date. A loan granted for long duration crops (with crop season longer than one

year) is to be treated as NPA, if the instalment of principal or interest thereon remains unpaid for

one crop season beyond the due date.

•

All commercial banks advised to implement the measures, announced by the Union Finance Minister,

for doubling the flow of credit to agriculture.

July

6

•

The types of instruments to be included in the prudential limit of bank’s aggregate investment in

Tier-II bonds widened.

20

•

Banks debarred from prescribing any minimum annual turnover for issuance of Gold Card since

the objective of the scheme was to cover all credit worthy exporters, including the SME segment.

•

Investment by banks in the mortgage backed securities (MBS) to be classified as direct lending to

housing within the priority sector lending, subject to certain conditions.

23

•

Additional measures relating to wilful defaulters introduced. These included: prohibition on

additional facilities, debarment from institutional finance for floating new ventures for a period

of five years, initiation of legal proceedings and foreclosure and also criminal proceedings,

wherever necessary, adoption of a proactive approach for a change of management of the wilfully

defaulting borrower unit, incorporation of a covenant in the loan agreement barring borrowing

companies to induct a person who is a director on the Board of a company which has been

identified as a wilful defaulter.

Annex: Chronology of Major Policy Developments (Continued)

Announcement

Measures

Date

2004

July

26

•

On the application of the Reserve Bank under Sub-Section (1) of Section 45 of the Banking Regulation

Act, 1949, the Government of India made an Order of Moratorium in respect of the Global Trust Bank

Ltd. under Sub-Section (2) of the said Section for the period from the close of business on the July 24,

2004 and inclusive of October 23, 2004. The Government of India also issued directions to the said

banking company under paragraph (2) thereof authorising payment of certain liabilities and obligations.

In order to effect an amalgamation of the Global Trust Bank Ltd. with Oriental Bank of Commerce, the

Reserve Bank, in exercise of the powers conferred on it by Sub-Section (4) of the said Section, prepared

a scheme and forwarded it, in draft, to each of the aforesaid banking companies for suggestions and

objections, if any, in terms of clause (a) of Sub-Section (6) of Section 45 ibid by August 7, 2004.

29

•

Banks to insist on a declaration from the account holder for opening of current accounts, stating that he/

she is not enjoying any credit facility with any other commercial bank or insist on a declaration giving

particulars of credit facilities enjoyed by him/her with any other commercial bank(s). Banks also to

ascertain whether he/she is a member of any other co-operative society/bank, if so, the full details thereof.

30

•

Norms for inclusion of Self Help Groups (SHGs) for assistance under Prime Minister Rozgar Yojana

(PMRY) modified.

August

3

•

The monetary ceiling of the cases to be referred to the Lok Adalats, organised by Civil Courts,

enhanced from Rs.5 lakh to Rs.20 lakh.

17

•

Banks to convert all their equity holding into dematerialised form by the end of December 2004.

26

•

Banks to ensure that the schedule of interest/instalment payable on advances on rural housing

granted to agriculturists under ‘Indira Awas Yojana and Golden Jubilee Rural Housing Finance

Scheme’ is linked to crop cycles.

28

•

Banks to initiate action at their level to get the Master Policy under Personal Accident Insurance

Scheme (PAIS) for KCC holders renewed for a period of one year, on the existing terms and conditions.

September

1

•

Banks to take remedial measures suggested by the Group on Frauds in the area of housing finance.

2

•

Banks permitted to exceed the 25 per cent limit under Held to Maturity (HTM) category provided

that the excess comprises only SLR securities and the total SLR securities held in the HTM category

are not more than 25 per cent of their NDTLs. To enable the above, banks were allowed to shift SLR

securities to the HTM category. However, no fresh non-SLR securities are permitted to be included

in the HTM category once more during the year 2004-05.

•

‘Yes Bank Limited’ included in the Second Schedule to the Reserve Bank of India Act, 1934 with

effect from August 21, 2004.

4

•

Some recommendations of the Ganguly Working Group on Flow of Credit to SSI Sector were accepted

and advised to banks for implementation. These include: (i) identification of new clusters and adoption of

cluster based approach for financing the SME sector; (ii) sponsoring specific projects as well as widely

publicising the successful working models of NGOs; (iii) sanctioning higher working capital limits to SSI

in the North East region for maintaining higher levels of inventory; and (iv) exploring new instruments for

promoting rural industry.

10

•

Banks to open branches having no interface with customers, and which will attend exclusively to data

processing, verification and processing of documents, issuance of cheque books, demand drafts etc. on

requests received from other branches and other functions incidental to banking business. The licence

for such branches to be issued under the 'Service Branch' category.

11

•

The CRR applicable in respect of SCBs increased by one-half of one percentage point of their Net Demand

and Time Liabilities (NDTL) in two stages - 4.75 per cent effective September 18, 2004 and 5.0 per cent

effective October 2, 2004.

October

4

•

Guidelines issued for implementing the revised Model KCC Scheme of NABARD to take care of the

investment credit as also working capital for agriculture and allied activities and a reasonable

component for consumption needs.

Annex: Chronology of Major Policy Developments (Continued)

Announcement

Measures

Date

2004

October

7

•

The Senior Citizens Saving Scheme (SCSS), 2004 being implemented through post offices also to be

operated through all the branches of public sector banks (PSBs) which are operating ‘PPF Scheme, 1968’.

14

•

Industrial Development Bank of India (IDBI) Ltd. included in the Second Schedule to the Reserve

Bank of India Act, 1934 with effect from October 11, 2004.

15

•

Banks to implement a few more recommendations of the Vyas Committee. These included: (i)

financing development of wasteland and fallow land; (ii) improving staffing in the rural areas to

promote retail lending to agriculture; (iii) relying on village functionaries for credit disbursal; (iv)

using individual volunteers, farmers’ clubs or NGOs/SHGs as direct selling agents; (v) building

synergy between good working primary agricultural credit societies and commercial banks; (vi)

using Information Technology (IT) in rural branches; (vii) working out appropriate incentive structure

for prompt repayment; (viii) making the rates of interest on small loans reasonable; and (ix) improving

the efficiency of credit delivery to small borrowers and association with contract farming.

•

Guidelines relating to the process of issue of Subordinated Debt Instruments under Tier-II and

Tier-III Capital issued.

19

•

Details of the levy of penalty on a bank to be put in the public domain in the interests of the

investors and depositors. The strictures or directions on the basis of inspection reports or other

adverse findings also to be placed in the public domain.

27

•

RRBs permitted to undertake insurance business as corporate agent without risk participation

subject to their fulfilling certain terms and conditions related to net worth, gross NPAs, profitability,

compliance with IRDA regulations and prudential norms and directions of the Reserve Bank.

November

1

•

Banks advised to formulate a comprehensive and transparent policy covering; (i) immediate credit

of local/outstation cheques; (ii) time frame for collection of local/outstation cheques; and (iii) interest

payment for delayed collection.

•

Banks allowed to reduce the minimum tenor of domestic/ NRO term deposits at their discretion,

even below Rs.15 lakh from 15 days to 7 days.

6

•

Banks advised to take immediate steps to ensure submission of periodical data to CIBIL and progress

reports to the Reserve Bank.

24

•

Banks advised to restructure crop loans and agricultural term loans only in respect of the overdue

instalments including interest thereon as on March 31, 2004. The farmers whose loans have

been restructured as above would be eligible for fresh loans. The rescheduled/restructured loans

as also the fresh loans to be issued to the farmers may be treated as current due and need not be

classified as NPA.

29

•

Comprehensive guidelines on ‘Know Your Customer’ norms and Anti-Money Laundering Measures

issued. Banks advised to frame their KYC policies incorporating the following four key elements:

(i) Customer Acceptance Policy; (ii) Customer Identification Procedures; (iii) Monitoring of Transactions;

and (iv) Risk Management. Similar guidelines were issued to RRBs on February 18, 2005.

December

8

•

The Service Area Approach (SAA) introduced in April 1989 was reviewed and it was decided to

dispense with the restrictive provisions of the scheme, while retaining the positive features such as

credit planning and monitoring of the credit purveyance.

•

The recommendations of the Ganguly Working Group with regard to evaluation of methods of

utilisation of deposits made by foreign banks with SIDBI for shortfall in their priority sector obligation

accepted. Accordingly, the amount of shortfall in priority sector obligation to be placed with SIDBI

for a tenor of three years and the funds so placed to have a graded interest rate structure.

15

•

Banks advised to align their priority sector lendings/ investments suitably so as to comply with the

extant guidelines.

16

•

Banks advised that the due diligence in respect of members of the Nomination Committee be carried

out by the Board itself.

Annex: Chronology of Major Policy Developments (Continued)

Announcement

Measures

Date

2004

December

21

•

Comprehensive guidelines issued to banks to play a proactive role in achieving the targets set

under the Swarnjayanti Gram Swarozgar Yojana (SGSY) scheme.

23

•

Risk weight on housing loans extended by SCBs increased from 50 per cent to 75 per cent and in

the case of consumer credit including personal loans and credit cards increased from 100 per cent

to 125 per cent.

24

•

Banks advised that the finance extended to employees for purchasing shares of their own companies

under ESOP would continue to be treated as banks' exposure to capital market within the overall

ceiling of 5 per cent, as hitherto.

27

•

Banks maintaining currency chests advised to direct all their branches to accept coins of all

denominations tendered at their counters either for exchange or for deposit in accounts.

30

•

Banks advised to enhance the amount of consumption loan for general purposes to Rs.3,000 for

people affected by Tsunami.

2005

January

4

•

Guidelines on receipt of foreign contributions by Associations/ Organisations in India under Foreign

Contribution (Regulation) Act, 1976 for Tsunami Relief issued to banks.

18

•

Banks advised to formulate suitable loan policies to finance second hand assets, both directly and

through NBFCs.

•

Banks advised to ensure acceptance of coins of all denominations without any restriction from the

members of the public by their branches.

February

15

•

Detailed prudential guidelines issued to banks on capital adequacy for implementation of the New

Capital Adequacy framework under Basel II. In order to maintain consistency and harmony with

international standards, banks were advised to adopt Standardised Approach for credit risk and

Basic Indicator Approach for operational risk with effect from March 31, 2007. The Reserve Bank

may consider allowing some banks to migrate to Internal Rating Based (IRB) approach after

developing adequate skills both in banks and at supervisory levels. Under the new framework,

banks adopting Standardised Approach would use the ratings assigned only by those credit rating

agencies which are identified by the Reserve Bank. Banks were also required to focus on formalising

and operationalising their internal capital adequacy assessment process (CAAP) which would serve

as a useful benchmark while undertaking the parallel run with effect from April 1, 2006.

28

•

Comprehensive guidelines issued on ownership and governance in private sector banks encompassing

the minimum capital requirement, diversified ownership, procedures for acquisition and transfer

of shares, ‘fit and proper’ criteria for the directors and important shareholders.

•

Roadmap for presence of foreign banks in India laid out in two phases. In the first phase (March

2005 to March 2009) foreign banks wishing to establish presence in India for the first time could

either choose to operate through branch presence or set up a 100 per cent wholly owned subsidiary

(WOS), following the one-mode presence criterion. For new and existing foreign banks, it was

proposed to go beyond the existing WTO commitment of 12 branches in a year. Initially entry of

foreign banks would be permitted only in private sector banks that are identified by the Reserve

Bank for restructuring, wherein foreign banks would be allowed to acquire a controlling stake in a

phased manner. In the second phase beginning April 2009, the experience with Phase I would be

reviewed and after due consultations with all stakeholders in the banking sector issues concerning

extension of national treatment to WOS, dilution of stake and permitting mergers and acquisitions

of any private sector banks in India by a foreign bank would be examined.

March

1

•

Master circular issued to SCBs (including RRBs/LABs) in regard to matters relating to lending to

the small scale industries sector.

3

•

SCBs to report to NABARD and the Reserve Bank the progress under micro credit on a half-yearly

basis as at the end of March and September of every year.

•

Effective March 31, 2005, SCBs to disclose a minimum framework on their risk exposure in derivatives.

Annex: Chronology of Major Policy Developments (Continued)

Announcement

Measures

Date

2005

March

11

•

Parameters on pilot implementation of Cheque Truncation Image Standards issued to banks.

•

Draft guidelines on implementation of the New Capital Adequacy Framework issued for comments

on management of operational risk.

29

•

Banks advised to exercise caution in outsourcing of their systems and ensure that risks in this regard are

minimised.

30

•

Banks advised to implement some recommendations of the Vyas Committee. These included:

(i) constitution of local advisory committee for all rural branches/group of branches; (ii) setting up of

micro-finance cells at banks, central offices; and (iii) encouraging SHGs to use local book writers in

association with concerned agencies promoting these SHGs for maintaining the quality of books of accounts.

April

4

•

Comprehensive draft guidelines issued on securitisation of standard assets.

7

•

The lending and deposit rates of interest restructured in the case of amounts disbursed on or

before October 31, 2003 out of RIDF IV to VII, effective April 16, 2005.

11

•

Detailed guidelines issued to banks on rural lending under Annual Credit Plans on the basis of

Potential Linked Plans (PLPs) prepared by NABARD.

•

Banks to pay compensation for delayed credit under ECS/EFT/SEFT suo moto.

12

•

Comprehensive draft guidelines issued on purchase / sale of non-performing assets.

13

•

The rate of interest to be charged on group loans under SGSY linked to per capita size of the loans.

15

•

Banks advised to put in place a Business Continuity Plan including a robust information risk

management system within a fixed time frame.

16

•

Banks advised to take necessary action to convert the existing ad hoc Committees on Procedures

and Performance Audit of Public Services (CPPAPS) into a Standing Committee on Customer Service.

19

•

Banks advised on the role of Customer Service Committee of the Board for monitoring the

implementation of awards under the Banking Ombudsman Scheme.

27

•

Banks permitted to shift their rural branches within the block/service area without obtaining prior

approval of the Reserve Bank, subject to their complying with certain conditions.

30

•

Banks allowed to formulate schemes for providing services at the premises of a customer within the

framework of Section 23 of the Banking Regulation Act, 1949 and submit to the Reserve Bank for approval.

•

Banks with capital of at least 9 per cent of the risk weighted assets for both credit risk and market

risk for both HFT and AFS category of investments may treat the balance in excess of 5 per cent of

securities included under HFT and AFS categories, in the IFR as Tier-I capital.

May

4

•

General permission granted to banks to declare dividends, subject to the fulfilment of certain

conditions, including observance of minimum CRAR and NPA ratio, subject to a ceiling of dividend

payout ratio of 40 per cent.

•

Effective quarter ended June 2005, the time limit for filing the monthly and quarterly off-site returns

changed to 15 days and 21 days, respectively, from the close of the relevant period for all categories

of banks.

6

•

Draft Guidelines on Corporate Debt Restructuring (CDR) proposed.

11

•

Detailed guidelines for merger/amalgamation of private sector banks issued laying down the process

of merger proposal, determination of swap ratios, disclosures, the stages at which Boards will get

involved in the merger process and norms of buying/selling of shares by the promoters before and

during the process of merger.

12

•

Comprehensive guidelines issued allowing all Regional Rural Banks (RRBs) to undertake insurance

business on a referral basis, subject to certain conditions.

Annex: Chronology of Major Policy Developments (Continued)

Announcement

Measures

Date

2005

May

13

•

The Vision Document on Payment and Settlement System 2005-08 released.

20

•

Banks advised to initiate early action with regard to scheme for "Small Enterprises Financial Centres"

(SEFCs) envisaged for forming a strategic alliance between branches of banks and SIDBI located in

the clusters for improving credit flow to the SSIs sector.

26

•

SCBs advised to put in all efforts to achieve the credit mobilisation targets under SGSY during

2005-06, including the minimum subsidy credit ratio fixed and maintain per family investment of

Rs.25,000.

June

7

•

Banks allowed to extend financial assistance to Indian companies for acquisition of equity in overseas

joint ventures/wholly owned subsidiaries or in other overseas companies, new or existing, as strategic

investment in terms of a Board approved policy, duly incorporated in the loan policy of the bank.

9

•

Instructions issued to banks, in supersession of all earlier instructions on settlement of claims in

respect of deceased depositors, covering aspects relating to (i) access to balance in deposit account;

(ii) premature termination of term deposit accounts; (iii) treatment of flows in the name of the

deceased depositor; (iv) access to the safe-deposit lockers/ safe custody articles; and (v) time limit

for settlement of claims.

•

Banks (both in private and public sectors) need not obtain approval of the Reserve Bank for

permitting any of their whole-time officers or employees (other than Chairmen/CEOs) to become

Director or a part-time employee of any other company.

14

•

Processing charges waived for all electronic products for transactions under EFT, SEFT and

ECS facility involving Rs.2 crore and above with effect from June 14, 2005 up to the period

ending March 31, 2006. This was in addition to the existing waiver on transactions involving

less than Rs.2 crore.

20

•

Banks advised that while furnishing data/information to the Government or other investigating

agencies they should satisfy themselves that the information is not of such a nature as will violate

the provisions of the laws relating to secrecy in banking transactions.

24

•

For the purpose of Section 20 of the Banking Regulation Act, 1949 the term "loans and advances"

shall not include line of credit/ overdraft facility extended by settlement bankers to National Security

Clearing Corporation Limited (NSCCL) to facilitate smooth settlement.

25

•

The banks going for rights issues should henceforth make complete disclosure of the regulatory

requirements in their offer documents.

29

•

Banks advised to have a Board mandated policy in respect of their real estate exposure covering

exposure limits, collaterals to be considered, margins to be kept, sanctioning authority/level, sector

to be financed. Banks also directed to report their real estate exposure under certain heads and

disclose their gross exposure to real estate sector as well as the details of the break-up in their

Annual Reports.

July

13

•

Banks advised to furnish information on pricing of services for products based on RTGS / SEFT/

EFT/ECS infrastructure.

•

Guidelines on sale/purchase of NPAs, including valuation and pricing aspects, and prudential and

disclosure norms.

20

•

Prior approval of the Reserve Bank not required for offering Internet Banking services, subject to

fulfilment of certain conditions.

23

•

The authority to grant permission to companies listed on a recognised stock exchange to hedge the

price risk in respect of any commodity (except gold, silver, petroleum and petroleum products) in

the international commodity exchanges/markets delegated to select commercial banks.

26

•

The risk weight for credit risk on capital market and commercial real estate exposures increased

from 100 per cent to 125 per cent.

Annex: Chronology of Major Policy Developments (Continued)

Announcement

Measures

Date

2005

July

29

•

Guidelines issued for relief measures by banks in areas affected by unprecedented rains and floods

in Maharashtra. Accordingly, banks were advised to consider granting consumption loans to the

affected persons up to Rs.5,000 without any collateral and Rs.10,000 at the discretion of the

branch manager, depending on the repaying capacity of the borrower.

August

2

•

Banks advised to issue necessary instructions to the Controlling Offices of currency chest branches

for ensuring verification of balances as per the minimum periodicity stipulated in this regard and

the essential safeguards in the internal control system (such as surprise verification/joint custody,

etc.) are adhered to.

•

In view of the natural calamity and the need to provide immediate succour, banks instructed to

observe minimum formalities for enabling such persons to open bank account quickly.

3

•

Banks advised to formulate a detailed mid-term corporate plan for branch expansion for a three-

year period with the approval of the Board. The plan should cover all categories of branches/offices

having customer contact, including specialised branches, Extension Counters and number of ATMs

etc. The plan should be formulated on district-wise basis giving number of branches proposed to

be opened in metropolitan/urban/semi-urban/rural areas. The proposal for branch expansion with

the above mentioned details should be submitted on an annual basis by December every year.

19

•

In pursuance to the announcement made by the Union Finance Minister for stepping up credit to

small and medium enterprises, public sector banks were advised to take measures to improve

the flow of credit to the sector. A reporting and monitoring system for the same was also

prescribed. Similar guidelines issued to private sector banks, foreign banks, RRBs and LABs

on August 25, 2005.

23

•

Banks advised to make all out efforts in achieving the targets set for increasing the credit flow to

SCs/STs under priority sector advances as well as under the Government Sponsored Schemes such

as SGSY, SJSRY, SLRS and PMRY. Banks also instructed to ensure that sufficient publicity is given

on the facilities extended to SCs/STs and all the instructions contained in the Master Circular on

Credit facilities to SC/STs are strictly followed.

•

The KYC procedure for opening accounts simplified further for those persons who intend to keep

balances not exceeding rupees fifty thousand (Rs.50,000) in all their accounts taken together and

the total credit in all the accounts taken together is not expected to exceed rupees one lakh

(Rs.1,00,000) in a year. Banks may open accounts with introduction from another account holder

(holding account for at least six months) who has been subjected to full KYC procedure or any

other evidence as to identify and address of the customer to the satisfaction of the bank. Similar

guidelines were also issued to RRBs.

31

•

Local Area Banks were advised to submit returns and statements to the departments / offices of RBI as

indicated in Annexure 'A' and 'B' enclosed to the circular issued to them on August 31, 2005.

•

Banks were advised that for the purpose of Section 20 of the Banking Regulation Act, 1949, the term

'Loans and advances' shall not include line of credit / overdraft facilities extended by settlement bankers

to Clearing Corporation of India Ltd. (CCIL) to facilitate smooth settlement.

September

1

•

Banks participating in the Pilot Cheque Truncation Project at New Delhi advised to address issues

requiring urgent action including finalisation the "point of truncation" for their outward presentations

and the point of processing for inward payments of the instrument, amendment of their existing

internal banking and clearing manuals, use of new processing tools, deciding upon the systems for

storage of inward and outward images, etc.

•

Guidelines on one time settlement scheme for SME accounts issued for recovery of NPAs below Rs.

10 crore.

•

Banks were advised that with respect to transactions matched on the NDS-OM module, since CCIL

is the central counterparty to all deals, exposure of any counterparty for a trade is only to CCIL and

not to the entity with whom a deal matches. However, all government securities transactions, other

than those matched on NDS-OM will continue to be physically confirmed by the back offices of the

counterparties, as hitherto.

Annex: Chronology of Major Policy Developments (Continued)

Announcement

Measures

Date

2005

September

5

•

Banks, which are nominated to import gold, were allowed to extend Gold (Metal) Loans to domestic

jewellery manufacturers, who are not exporters of jewellery, subject to certain conditions.

8

•

The policy for authorisation of the branches of banks in India liberalised and rationalised with a

framework for a branch authorisation policy which would be consistent with the medium-term

corporate strategy of banks and public interest. While considering applications for opening branches

weightage would be given to the nature and scope of banking facilities provided by banks to common

persons, particularly in underbanked areas, actual credit flow to the priority sector, pricing of

products and overall efforts for promoting financial inclusion, including introduction of appropriate

new products and the enhanced use of technology for delivery of banking services.

•

Banks advised to implement a debt restructuring mechanism for units in the SME sector. Detailed guidelines

were laid down relating to eligibility criteria for SMEs and accounts, viability criteria, prudential norms

for restructured accounts, treatment of additional finance, asset classification, repeated restructuring.

9

•

IDBI Bank Limited excluded from the Second Schedule to the Reserve Bank of India Act, 1934 with effect

from April 2, 2005.

24

•

Bank of Punjab merged with Centurion Bank with effect from October 1, 2005.

October

1

•

Conversion/rescheduling of loans in the case of natural calamities, when there is delay in declaration

of Annewari by the State Government, may be proceeded following such declaration from the District

Consultative Committee (DCC) which has representatives from banks as well as the State Government

and is headed by the District Collector.

9

•

The limit of consumption loan to be provided to the affected persons in the state of Jammu and

Kashmir and other parts of north India in the wake of the earthquake increased up to Rs.5,000

without any collateral. This limit may be enhanced to Rs.10,000 at the discretion of the branch

manager, depending on the repaying capacity of the borrower. Banks may also consider provision

of financial assistance for the purpose of repairs/reconstruction of dwelling units, etc. damaged on

account of earthquake.

10

•

Banks which have maintained capital of at least nine per cent of the risk weighted assets for both

credit risks and market risks for both HFT and AFS categories as on March 31, 2006 would be

permitted to treat the entire balance in the IFR as Tier-I capital. For this purpose, banks may

transfer the entire balance in the IFR ‘below the line’ in the Profit and Loss Appropriation Account

to Statutory Reserve, General Reserve or balance of Profit and Loss Account.

15

•

Revised guidance note on management of operational risk issued to banks. The design of risk

management framework should be oriented towards banks’ own requirements dictated by the size

and complexity of business, risk philosophy, market perception and the expected level of capital.

The risk management systems in the bank should, however, be adaptable to changes in business,

size, the market dynamics and introduction of innovative products by banks in future.

17

•

Banks advised to provide details to the customers in their Pass Book/Account Statement regarding

the credits effected through ECS. Similar approach may be adopted for capturing the sender/

remittance details for other electronic payment products such as EFT, SEFT, RTGS, etc., as well.

18

•

Banks advised to take appropriate action to ensure successful implementation of Swarnjayanti

Gram Swarozgar Yojana (SGSY) as per the recommendations of the Central Level Coordination

Committee (CLCC). The recommendations include; (i) delegation of powers to branch managers to

sanction SGSY applications; (ii) ensuring disposal of all the pending applications at the end of the

year in the first quarter of the succeeding year; (iii) utilising micro-finance institutions for bridging

the credit gap; (iv) achieving the desired credit to subsidy ratio of 1:3; (v) furnishing of status

report to Ministry of Rural Development on the under-performance of their branches; and

(vi) maintaining separate record for recovery of data in respect of SGSY distinct from IRDP.

25

•

Reverse repo rate and the repo rate under the liquidity adjustment facility (LAF) of the Reserve

Bank increased by 25 basis points each with effect from October 26, 2005 to 5.25 per cent and

6.25, respectively.

Annex: Chronology of Major Policy Developments (Continued)

Announcement

Measures

Date

2005

November

2

•

Banks advised that while considering granting advances against jewellery may keep in view the

advantages of hallmarked jewellery and decide on the margin and rates of interest thereon.

4

•

The general provisioning requirement for ‘standard advances’, with the exception of banks’ direct

advances to agricultural and SME sectors, increased from the present level of 0.5 per cent to 0.40

per cent.

B) Co-operative Banks

2004

April

15

•

Comprehensive guidelines issued for investment in non-SLR securities by Urban Co-operative Banks.

12

•

All State Co-operative Banks and Central Co-operative Banks advised that the interest rates on NRE

Deposits for one to three years maturity, contracted effective close of business in India on April 17,

2004, shall not exceed the LIBOR/SWAP rates for US dollar of corresponding maturity. Further, the

interest rate on NRE savings deposits has also been linked to LIBOR/SWAP rates with effect from close

of business in India on April 17, 2004. The interest rates on NRE savings deposits should not exceed

the LIBOR/SWAP rate for six months maturity on US dollar deposits and may be fixed quarterly on the

basis of the LIBOR/SWAP rate of US dollar on the last working day of the preceding quarter.

May

24

•

The UCBs advised to exercise due caution with regard to valuation while sanctioning loans and

advances against mortgage of house property.

26

•

The off-site surveillance system for UCBs already in place for the scheduled UCBs extended to all

non-scheduled UCBs having deposit size of Rs.100 crore and above.

29

•

UCBs advised to strictly maintain the confidentiality of information provided by the customer for

‘Know Your Customer’ (KYC) compliance.

July

12

•

All StCBs and CCBs advised that with effect from September 30, 2004, a loan granted for short

duration crops will be treated as NPA if the instalment of the principal or interest thereon remains

unpaid for two crop seasons beyond the due date. A loan granted for long duration crops will be

treated as NPA, if the instalment of principal or interest thereon remains unpaid for one crop

season beyond the due date.

13

•

No application for inclusion in the Second Schedule of the Reserve Bank of India Act, 1934 to be

considered till a proper legislative framework is put in place for the UCBs.

August

7

•

UCBs were advised that for the loans and advances (both secured and unsecured) sanctioned by

them, the directors and relatives are not eligible to stand as surety/guarantor.

19

•

UCBs were advised that Gilt Account holders are not entitled to undertake any sale transaction

unless the security sold is actually held in the Gilt Account of the constituent.

September

2

•

UCBs permitted to exceed the 25 per cent limit under HTM category provided the excess comprises

only SLR securities and the total SLR securities held in the HTM category do not exceed 25 per cent

of their NDTLs. In order to enable this, banks allowed to shift SLR securities to the HTM category.

However, no fresh non-SLR securities were permitted to be included in the HTM category once

more during the year 2004-05.

27

•

For advances identified as ‘doubtful for more than three years’, additional provisioning by UCBs

allowed to be phased over a five-year period commencing from the year ending March 31, 2005

instead of four years.

October

20

•

UCBs advised to follow similar practices as the illustrative best practices followed by well-managed

banks in the urban co-operative banking sector provided by the Reserve Bank as examples. UCBs,

however, are free to put in place any other practices, which would result in better customer service and

business development.

Annex: Chronology of Major Policy Developments (Continued)

Announcement

Measures

Date

2004

November

1

•

The requirement for UCBs invocation of State Government guarantee for deciding the asset

classification and provisioning of State Government guaranteed exposure was withdrawn and

such loans were subjected to the same norms as applicable to exposures not guaranteed by the

State Governments.

•

All StCBs and CCBs advised that the interest rates on NRE Deposits for one to three years maturity,

contracted with effect from November 1, 2004, shall not exceed the LIBOR/SWAP rates, as on the

last working day of the previous month, for US dollar of corresponding maturity plus 50 basis

points.

•

StCBs and CCBs advised to reduce, at their discretion, the minimum tenor of domestic/ NRO term

deposits even below Rs.15 lakh from 15 days to 7 days. However, the banks would continue to have

the freedom to offer differential rates of interest on term deposits of Rs.15 lakh and above, as

hitherto. The revised instructions would come into effect from November 1, 2004.

18

•

Scheduled or licensed StCBs and licensed CCBs permitted to undertake insurance business

as corporate agent without risk participation subject to their fulfilling certain terms and

conditions.

December

14

•

UCBs permitted to grant housing loan up to Rs.15 lakh as against the existing limit of Rs.10 lakh.

15

•

Comprehensive guidelines on ‘Know Your Customer’ norms and Anti-Money Laundering Measures

issued. UCBs advised to frame their KYC policies incorporating the following four key elements: (i)

Customer Acceptance Policy; (ii) Customer Identification Procedures; (iii) Monitoring of Transactions;

and (iv) Risk Management.

2005

January

4

•

Guidelines on receipt of foreign contributions by Associations/ Organisations in India under Foreign

Contribution (Regulation) Act, 1976 for Tsunami Relief issued to UCBs.

5

•

Risk weight on housing loans increased from 50 per cent to 75 per cent and from 100 per cent to

125 per cent in the case of consumer credit including personal loans and credit cards increased.

7

•

Guidelines on receipt of foreign contributions by Associations/Organisations in India under Foreign

Contribution (Regulation) Act, 1976 for Tsunami Relief issued to StCBs and CCBs.

20

•

Guidelines issued to StCBs and CCBs to delink the requirement of invocation of State Government

Guarantee for asset classification and provisioning.

24

•

Comprehensive guidelines issued allowing all UCBs to undertake insurance business on a referral

basis, subject to certain conditions.

February

2

•

Guidelines on merger/amalgamation for UCBs issued with the following pre-conditions: (i) net worth

of the acquiree bank is positive and the acquirer bank assures to protect entire deposits of all the

depositors of the acquired bank; (ii) when the net worth of acquiree bank is negative, the acquirer

bank on its own assures to protect deposits of all the depositors of the acquired bank; and (iii)

when the net worth of the acquiree bank is negative and the acquirer bank assures to protect the

deposits of all the depositors with financial support from the State Government extended upfront

as part of the process of merger.

17

•

The minimum net worth for undertaking insurance business by scheduled or licensed StCBs and

licensed CCBs reduced to Rs.50 crore from Rs.100 crore.

18

•

Comprehensive guidelines on ‘Know Your Customer’ norms and ‘Anti-Money Laundering’ measures

issued to StCBs and CCBs and advised to frame their KYC policies incorporating the following four

key elements: (i) Customer Acceptance Policy; (ii) Customer identification procedures; (iii) Monitoring

of transactions; and (iv) Risk Management.

26

•

Guidelines issued to UCBs regarding reporting system on their investment portfolio.

Annex: Chronology of Major Policy Developments (Continued)

Announcement

Measures

Date

2005

March

1

•

Guidelines issued to StCBs and CCBs in respect of additional provisioning requirement for

NPAs.

•

Guidelines issued to UCBs regarding enhancement of transparency of their operations by having

comprehensive requirements for disclosure.

28

•

Detailed guidelines issued to UCBs regarding classification and valuation of investment portfolio

for provisioning requirements.

30

•

Prudential norms in respect of income recognition, assets classification, provisioning and other

related matters for the UCBs revised.

April

11

•

Ceilings on donations/contributions for public/charitable purposes out of profits of UCBs

announced.

15

•

UCBs to reduce the prudential exposure limits on advances to 15 per cent and 40 per cent of the

‘capital funds’ in the case of a single borrower and a group of borrowers, respectively. The definitions

of capital funds and exposure were also modified for this purpose. UCBs advised to bring down the

outstanding or the sanctioned exposure limit exceeding the revised limit within a maximum period

of 2 years, i.e., by March 31, 2007.

28

•

UCBs advised to explore the option of merger/ amalgamation, wherever necessary for revitalising

and rehabilitating the weak scheduled UCBs.

May

4

•

UCBs advised to forward a quarterly statement on ‘consolidated position of frauds outstanding’

with a footnote detailing the position of frauds outstanding in the Housing Loan segment, beginning

from the quarter ended March 2005.

6

•

StCBs and district CCBs allowed to undertake insurance business on a referral basis, without any

risk participation through their network of branches, subject to certain conditions.

11

•

The eligibility to participate in repo market extended to non-scheduled urban co-operative banks

and listed companies, having a gilt account with a scheduled commercial bank subject certain

conditions.

July

4

•

UCBs having a single branch/HO with deposits up to Rs.100 crore and those having multiple branches

within a single district with deposits up to Rs.100 crore permitted to classify loan NPAs based on

180 days delinquency norm instead of the extant 90 days norm till March 31, 2007.

12

•

In the light of the recommendations of the Committee on Procedure and Performance Audit on

Public Services (CPPAPS) and to facilitate expeditious and hassle-free settlement of claims on the

death of a depositors, settlement of claims in respect of the deceased depositors simplified and

advised to StCBs and CCBs.

13

•

The norms relating to classification and valuation of investment portfolio of StCBsand CCBs were

modified allowing them to amortise their additional provisioning requirement.

August

3

•

In view of the natural calamity and the need to provide immediate succour, UCBs advised to observe

minimum formalities for enabling such persons to open a bank account quickly. Similar guidelines

issued to StCBs and CCBs on August 16, 2005.

4

•

StCBs and CCBs advised to invest their genuine surplus funds in non-SLR securities without taking

prior approval from the Reserve Bank on a case-to case basis, subject to certain conditions.

9

•

The risk weight for UCBs raised for the following categories: (i) 125 per cent from100 per cent in

the case of loans extended by UCBs against primary/collateral security of shares/debentures; (ii) 127.5

per cent from 102.5 per cent in respect of investment in equities of AIFIs/units of UTI; and (iii) 125

per cent from 100 per cent in the case of commercial real estate.

Annex: Chronology of Major Policy Developments (Continued)

Announcement

Measures

Date

2005

August

23

•

The KYC procedure for opening accounts simplified further for UCBs for those persons who

intend to keep balances not exceeding rupees fifty thousand (Rs.50,000) in all their accounts

taken together and the total credit in all the accounts taken together is not expected to exceed

one lakh (Rs.1,00,000) in a year. Banks may open accounts with introduction from another