RPCD.RRB.No.BL.BC. 84 /03.05.90 -A/2003-04

May 21, 2004

RBI / 2004/ 212
Chief Executives of all Regional Rural Banks/Sponsor Banks

Dear Sir,

Reserve Bank of India has been issuing instructions to RRBs regarding opening/shifting/merger of branches/extension counters/offices, etc. from time to time. With a view to consolidating all the current instructions which are valid as on date and incorporating certain changes made therein recently, a master circular has been prepared to enable RRBs to peruse the required information at a single source. The master circular consolidates all instructions relating to branch licensing of RRBs issued upto December 31,2003.

Please acknowledge receipt.

Encls : As above

Contents

Subject

1. Legal Requirements

2. Opening of Branches

3. Shisfting of General Branches

4. Conversion of branches

5. Opening of Extension Counters

6. Upgradation of Extension Counters into full fledged branches

7. Classification/Re-classification of centres

8. RRBs which are freed from Service Area Obligation

9. RRBs which are not free from Service Area Obligation

10. Procedure to be followed for opening of branches by RRBs under Service Area Obligation) and merger of branches etc.

11. Procedure to be followed for relocation and conversion of branches

12. Submission of Returns on Branch Banking

Annexure I

Annexure II

Annexure III

Appendix

The opening of branches by banks is governed by the provisions of Section 23 of the Banking Regulation Act, 1949 (the Act). In terms of these provisions, banks cannot open a new place of business in India or abroad or change otherwise than within the same city, town or village, the location of the existing place of business without the prior approval of the RBI. Thus it is mandatory for RRBs to seek prior approval/ licence from Rural Planning and Credit Department (RPCD) of RBI before opening of new branches/offices.

1.1 General policy on Branch Licensing relating to RRBs

RRBs should fulfil the following conditions to become eligible for opening of new branches.

1. The RRBs should not have defaulted in maintenance of SLR and CRR in last two years.
2. Most of the major irregularities pointed out by NABARD in the last inspection should have been rectified.
3. Gross NPA level should not be more than 20 per cent or equivalent of the National Average for RRBs whichever is lower.
4. The bank has brought down the accumulated losses for the last two years. In case of loss making RRBs, concerned RRBs should indicate in what way the proposed branch will help in reducing the loss with supporting recommendations from its Sponsor bank and NABARD.
5. RRB should not resort to fresh recruitment of staff for manning the proposed branch/es.

The Board of Directors of RRBs are required to decide on the policy and strategy for setting up new branches taking into account the yearly business plan, potential for business at the new centres for opening of branches, profitability of the proposed branches, the efficacy of the internal control system, redeployment of staff where surplus manpower has been identified and for extending prompt and cost-effective customer service to the clientele.

RRBs should obtain prior approval of their Board of Directors and recommendation of their Sponsor Banks before applying for opening /merger of branches/offices etc. The proposal for opening/shifting and merger of branches is to be submitted through NABARD in the prescribed application Form VI (Rule 12) of Banking Companies Rules, 1949 to RPCD, Central Office, Reserve Bank of India for approval/licence. (Annexure I)

Requests so received from banks for opening of branches are considered by Reserve Bank of India on the merits of each case and taking into consideration overall financial position of the bank, quality of its management, efficacy of the internal control system, profitability and other relevant factors.

After the receipt of authorisations from Reserve Bank of India, the banks should finalise premises and infrastructure etc. and approach the concerned Regional Office of Reserve Bank of India for issue of licence for opening of the branch/es. Further, if any, branch proposes to undertake government business, it would require prior approval of concerned Government authority as also of RBI, Central Office, Department of Government & Bank Accounts. The branch should be opened only after obtaining a licence from Reserve Bank of India. There should not be inordinate delay by banks in utilisation of authorisations/licences for opening of branches.

2.1 At Rural/Semi-Urban/Urban and Metropolitan Centres

The RRBs can identify rural centres(population less than ten thousand), semi-urban centres (population more than ten thousand but less than one lakh), urban centres (population more than one lakh but less than ten lakh) and metropolitan centres (population more than ten lakh) for opening of branches depending upon the business potential and profitability of the proposed branches. They should forward through NABARD the proposals together with relative Board Resolutions and recommendation of their Sponsor Banks to Central Office of RPCD for prior approval. Requests from the RRBs for opening of branches at these centres will be considered on the merits of each case.

Note : Population criteria mentioned above will be as per the latest census report figures of the centre(revenue unit and not locality).

RRBs having 50 or more branches are allowed to open Area Offices in the ratio of one Area Office for every 25 branches. The Area Offices are not permitted to transact any banking business. However, RRBs are required to obtain a licence from the concerned Regional Office of Reserve Bank of India prior to functioning/opening of these offices. RRBs can either shift or close these offices at their discretion without prior approval of RBI. However, for shifting of an Area office, banks should obtain necessary amendments to the licence from the concerned Regional Office of Reserve Bank of India prior to the shifting of the concerned offices. As regards merger of such offices, the licence has to be surrendered to the concerned Regional Office of RPCD of Reserve Bank of India for cancellation immediately after the merger of the

office under advice to Department of Statistical Analysis and Computer Services of Reserve Bank of India.

The shifting of branches in rural centres may be effected by RRBs themselves without obtaining the prior approval of Reserve Bank of India subject to their complying with the following conditions :

• Both the existing and proposed centres should be within the same block and service area of the branch.
• It should be ensured that the relocated branch would be able to cater adequately to the banking needs of the villages allocated under Service Area Approach.

However, RRBs need to obtain amendment in the licence from the concerned Regional Office of Reserve Bank of India before effecting the shifting.

In case the semi-urban branches of RRBs have been allocated service area, the same norms of shifting of branches in rural centres would also be applicable for semi-urban centres.

Where no service area has been allotted, RRBs may shift their branches at semi-urban centres within the same locality/municipal ward without the prior approval of Reserve Bank of India. However, they have to obtain an amendment to the licence from the concerned Regional Office of RPCD of

Reserve Bank of India prior to the shifting. Regarding shifting of branches outside the locality/municipal ward, RRBs have to obtain prior approval of the concerned Regional Office of RPCD. RRBs should, however, ensure that the locality/ward is not rendered unbanked due to the shifting of branch/es.

The RRBs may shift their branches in urban/metropolitan centres within the same locality/municipal ward without the prior approval of Reserve Bank of India. However, they have to obtain an amendment to the licence prior to the shifting. Regarding shifting of branches outside the locality/municipal ward, RRBs have to obtain prior approval of the concerned Regional Offices of RPCD.

The RRBs may themselves decide the need for conversion of the existing loss making branches at rural centres into satellite offices keeping in view the cost-benefit aspect, the likely inconvenience that may be caused to the existing clientele, the effect of the conversion on the performance in the preparation of district credit plan and priority sector lending.

The following guidelines may be followed by the RRBs for establishing satellite/mobile offices

1. The satellite offices should be established at fixed premises in the surrounding villages and should be controlled and operated from a base branch located at central village/block headquarters.
2. Each satellite office should function on a few specified days (at least twice) in a week at specified hours.
3. All types of banking transactions may be conducted at these offices.
4. The customers of satellite offices may be permitted to transact business at the base branch on non-operating days of such offices.
5. While separate ledgers/registers/scrolls may be maintained for each satellite office, all the transactions carried out at these offices should be incorporated in the books of account of the base branch.
6. The staff attached to the base branch, preferably consisting of a member of supervisory staff, a cashier-cum-clerk and an armed guard, may be deputed to the satellite offices.
7. Adequate arrangements for insurance of furniture, cash-in-transit, etc. may be made.

The scheme of mobile offices envisages the extension of banking facilities through a well protected van with arrangements for two or three officials of the bank sitting in it with books, safe containing cash, etc. The mobile unit would visit the places proposed to be served by it on certain specified days/hours. The mobile offices would be attached to a branch of the RRB. The mobile offices should not visit the rural places which are served by co-operative banks and places served by regular offices of commercial banks.

Banks are required to obtain necessary amendments from the concerned Regional Office of Reserve Bank of India prior to conversion of rural branches into satellite/mobile offices.

Conversion of branches into satellite offices at centres other than rural is not permissible.

The RRBs can open extension counters at the premises of the institutions of which they are principal bankers after obtaining licence from the Regional Office of Reserve Bank of India for the purpose. Extension Counter can be opened within the premises of the RRB's head office and big offices/factories, hospitals, military units, educational institutions, etc. where there is a large complement of staff/workers, students, who because of their identical working hours and non-availability of banking facilities at a reasonable distance find it difficult to carry out their banking transactions. The Extension Counter should carry out limited type of banking business, such as,

• deposit transactions
• issuing and encashment of drafts and mail transfers
• issue and encashment of travellers cheques
• sale of gift cheques
• collection of bills
• advances against fixed deposits of their customers (within the sanctioning power of the concerned officials at the extension counter)
• facility of safe deposit locker (provided adequate security arrangements are made)

Further, if the extension counter proposes to undertake government business, it would require prior approval of concerned Government authority as also of Reserve Bank of India, Central Office, Department of Govt. and Bank Accounts.

Extension Counter are not allowed to be opened at residential colonies, shopping complexes, market places and places of worship, etc.

RRBs should furnish particulars of the proposed extension counters in parts I and II of the format given in the Annexure II, to the concerned Regional Offices of RPCD, while applying for licence prior to opening of EC.

1. The banks should obtain prior approval of Reserve Bank of India for upgrading Extension Counters into full-fledged branches. The proposals are considered by the Regional Offices of RPCD if the following conditions are fulfilled.

• The Extension Counter has been functioning for a minimum period of five years.
• The number of deposit accounts exceeded 2000 during the last one year with volume of business in the form of deposits not less than Rs.1 crore..
• The average deposits (i.e. on a monthly basis) for the last three years are not less than Rs.2 crores.

1. The proposals wherein any of the above conditions are not fulfilled entirely, but otherwise the concerned extension counters are grown to the extent of converting into a branch, such cases are considered on merits of each case.

RRBs are advised to ascertain the population group classification of the centres of which they are not sure, from Department of Statistical Analysis

and Computer Services (DESACS), RBI, Banking Statistics Division, C-8/9, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051 before approaching RPCD for opening new branches. Any query with regard to reclassification of centres also may be referred to DESACS by the Head Office of the RRB along with relevant documents such as Gazette Notifications, etc. in support of the change.

The 54 RRBs, which are at present freed from Service Area Obligations, are generally not allowed to open new branches. They may, however, relocate their loss making branches at Taluka/Block headquarters, village markets, mandis, agricultural produce centres or similar centres (hereinafter referred to as 'specified centres') preferably within the same block. Alternatively, they may convert their loss making branches into Satellite/Mobile offices. Further, 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 consider merging the two branches.

1. The RRBs which have to adhere to Service Area approach, can relocate their loss-making branches at specified centres within their Service Area only, or may consider converting loss making branches into Satellite/Mobile Offices provided such conversion does not impair continued performance of Service Area obligations.
2. Further, in case another branch of the same RRB is operating within a distance of about 5 kms in a geographically contiguous Service Area, these RRBs may consider merging the two branches with a view to rationalising the spatial spread and reducing establishment/operating costs.
3. RBI will consider on a very selective basis, the proposals of these RRBs for opening of new branches at specified centres within their area of operations subject to fulfilment of conditions specified under para 1.1.

The proposals of RRBs relating to opening of new places of business (by RRBs under service area obligation) and merger of branches by all RRBs should be approved by their Boards of Directors as also the sub-group of DCC and submitted to NABARD alongwith recommendation of the concerned Sponsor Bank. The proposals duly recommended by NABARD, are required to be sent to Central Office of RBI (RPCD) for prior approval.

The approval of sub-group of DCC is, however, not necessary for opening of branches where no additional staff is to be recruited.

Opening of Extension Counters by RRBs requires prior approval of their Board of Directors as also prior licence from the concerned Regional Offices of RBI before opening of Extension Counters.

Proposals relating to relocation of branches and conversion of branches into satellite/ mobile offices by RRBs should be approved by their Board of Directors and concerned sub-group of DCC. Prior approval of RBI is not necessary for relocation/conversion but the RRBs are required to obtain necessary amendment to the licence from the concerned Regional Office of RBI prior to effecting relocation/conversion.

9. Immediately on opening of a place of business, all RRBs are required to inform the date of opening and the postal address of the office/branch to the Central Office and the concerned Regional Office of RPCD.

(ii) Further, RRBs should submit returns in Proformae given in Annexure III

relating to the new offices/branches opened and change in status due to merger, etc. of existing offices/branches effected during the quarter to DESACS (Banking Statistics Division) and the concerned Regional Office of RPCD within 15 days of the end of the quarter to which they relate.

'Nil' Statement must be submitted in case there is nothing to report.

(iii) In terms of Rule 13 of the Banking Regulations (Companies) Rules, 1949 banks are required to submit a list relating to its offices in India in Form VII within a period of one month from the close of every quarter to the office of

RBI situated in the state in which their Head Office is located.

We have requested-----------------------------------to open the extension counter in the

(Name of the bank)

Premises of---------------------------------------------------------for the

( Name and full address of theinstitution)

Benefit of the following persons attached to the above institution.@

Workers------------------------------------

Please indicate actual Numbers

Staff/Employees-------------------------

Separately

Students -------------------------------------

Teachers--------------------------------

@ ( Where there are more than on institutionbeing managed by the authority issuing this letter which are also to be benefited by the EC, the names of these institutions, their distance from the proposed location of the extension counter,the number of students/staff etc. attached separately to each of the institutions, the name and the distance of their bankers should also be indicated separately)

• Strike out whichever is not applicable

2. (a)--------- ( Name of the bank and place)------------------------------is our

principal banker

We also deal with the following bankers (give names of bankers and their distance from the institution)

1.--------------------------------------

2---------------------------------------

3--------------------------------------

(b) Extent of our accounts with the principal bankers and other bankers as on -------(latest position please)

Name of the bank Type of a/cs maintained amount

3. We undertake to provide necessary accommodation for the extension counter within the premises of our institution(mentioned at S.No 1 above)

4. We have no objection to allow outsiders to have access to the extension counter.

5. If the extension counter is proposed to be allowed to a bank other than the principal banker, the reasons therefore.

6. Whether a similar letter to any other bankers for the pupose has been issued:

(Note : Proforma II & III has been renamed as Proforma I & II respectively).

Name of the Bank/Co-operative institution : -

Item No. 7( b) : An office is administratively independent if it maintains separate book of accounts and/or is required to submit any one or more returns specified in 'Annexure' and note thereto in the 'Handbook of Instruction - Basic Statistical Return - 1& 2' (Revised edition - March 1996)

Item No. 7(c ) : Name of the base office and its Uniform Code Numbers are to be written if answer to 7(b) is 'No'. The name of temporary office {illustrated in instruction (2)} is to be mentioned.

Item No.8(iii)(d) : The appropriate Code among the options listed below is to be indicated.

(0) Normal area

(1) Border area

(2) Disturbed area (High risk)

(3) Area affected by natural calamities (flood/earth quake prone area, etc.)

(4) Inaccessible due to inadequate transport facility because of snowfall, heavy storm,etc. Item No.9 : The appropriate nature of business (a list of which is given below) conducted by the branch/office is to be mentioned.

(0) Only banking business

(1) Banking & foreign exchange business

(2) Administration, banking & foreign exchange business

(3) Administration & banking

4. Administration & foreign exchange business
5. Only foreign exchange business
6. Only administration/training etc.

(7) Non-scheduled banks doing banking business

(8) Other institution viz. Thomas Cook (India) Ltd., IDBI, ICICI,

RBI dealing in foreign exchange

Item No.11 : The appropriate Code among the options listed below is to be indicated.

(1) Fully Computerised with ATM facility

(2) Fully Computerised without ATM facility

(3) Partially Computerised

(4) Not yet Computerised

(5) Stand-alone ATMs

Item No.12: The detailed particulars regarding Communication Hardware

and Software, installed in the office/branch, are to be written.

For example, RBINET, NICNET, VSAT, MainFrame etc.

Note : For further clarification regarding Proformae I & II contact or write to :

The Director

Banking Statistics Division

Department of Statistical Analysis & Computer Services
Reserve Bank of India, C.O,
C-9 Building (6th floor)
Bandra-Kurla Complex, Bandra (East)
Mumbai - 400 051.
Phone :- (022) 640 2668, (022) 640 0880
Fax : - (022) 644 1707.

Instructions for filling Proformae I & II

(Note : Proforma II & III has been renamed as Proforma I & II respectively)

1. a) Proforma I is meant for all types of newly opened/upgraded bank branches/offices and Proforma II is meant for reporting change in status/postal address, closure/merger/conversion/relocation, etc. of existing bank branches/offices.

b) Uniform code numbers are meant for offices/branches which are administratively independent oiffices /branches, submitting separate returns to Reserve Bank of India. {See explanation at 7(b )}.

2. Banks may please note that in respect of newly opened/existing extension counter/satellite office/representative office/cash counter/ inspectorate/collection counter/mobile office/stand-alone ATMs / currency chest attached to the branches/Airport counter / Hotel counter/ Exchange Bureau /Temporary office opened at the site of Fairs exhibitions , etc. Proformae I & II need not be sent to Department of Statistical Analysis and Computer Services DESACS whereas the same must be submitted to the concerned Regional Offices of RBI.

3. Banks which have been allowed to assign Part I code to their new branches/offices should strictly follow instruction at I (b) mentioned above at the time of forwarding Proformae I to RBI.

4. Proformae I & II will not be accepted for allotment of Part I & II/ revision of Part II code unless all items in the proformae are filled up properly.

Item No. 1( b): Public sector banks (SBI and its Associates &Nationalised Banks) are allowed to assign only Part - I code Numbers to their branches /offices and for otherbanks RBI (DESACS) allots both Part I & Part II codes. Item No. 2(a): The name of the Branch /Office is to be written.