Annexure: Chronology of Major Policy Developments - ஆர்பிஐ - Reserve Bank of India
83511554
வெளியிடப்பட்ட தேதி நவம்பர் 15, 2001
Annexure: Chronology of Major Policy Developments
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Announcement | Measures |
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Date | |||
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A) Scheduled Commercial Banks |
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2000 | |||
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April | 6 | • | All Indian banks having branches/offices/subsidiaries/joint ventures abroad were advised to |
dispense with RALOO statements from the quarter ended June 2000. Instead DSB(O) quarterly | |||
reporting system consisting of seven returns was introduced. | |||
24 | • | Banks were advised to assign risk-weight of 100 per cent only on those State Government | |
guaranteed securities issued by the defaulting entities and not on all the securities issued or | |||
guaranteed by the concerned State Government. Banks were advised to pay due regard to the | |||
record of the particular State Government in honouring their guarantees while processing any | |||
further requests for loans to PSUs in that State on the strength of State Government guarantee. | |||
• | No provision need be made for a period of one year in respect of additional credit facilities | ||
granted to SSI units which are identified as sick and whose accounts are classified as NPA | |||
where rehabilitation packages/nursing programme have been drawn by the banks themselves | |||
or under consortium arrangements. | |||
• | Banks were advised to make general provision of 0.25 per cent on standard assets on global | ||
portfolio basis and not on domestic advances alone. The provisions towards standard assets are | |||
eligible for inclusion in tier II capital. | |||
• | It was clarified to banks that effective March 31, 2000 the extra provision needed in the event of | ||
a depreciation in the value of the investments should be debited to the Profit and Loss Account | |||
and if required, an equivalent amount may be transferred from the 'Investment Fluctuation | |||
Reserve Account' to the Profit and Loss Account as a below the line item after determining the | |||
profit for the year. | |||
• | Lending by banks to NBFCs for on-lending to agriculture reckoned as priority sector lending. | ||
27 | • | A move towards risk-based supervision (RBS) of banks announced. The risk-based supervision | |
approach entails the supervision of banks by allocating supervisory resources and focusing | |||
supervisory attention according to the risk profile of each bank. | |||
• | Banks were advised that micro-credit extended by them to individual borrowers either directly | ||
or through any intermediary would be reckoned as part of their priority sector lending. | |||
• | With regard to deposit insurance, the Reserve Bank announced that a new law in supercession | ||
of the existing enactment is required to be enacted to implement the recommendations of the | |||
Advisory Group on Reforms in Deposit Insurance in India and the task of preparation of the new | |||
draft law has been taken up. | |||
May | 3 | • | On prudential considerations and in line with international standards, banks were advised that |
they may voluntarily build-in the risk-weighted components of their subsidiaries into their own | |||
balance sheet on notional basis, at par with the risk-weights applicable to the bank's own assets. | |||
Banks were further advised to earmark additional capital in their books over a period of time so | |||
as to obviate the possibility of impairment to their net worth when switchover to unified balance | |||
sheet for the group as a whole is adopted after some time. The additional capital required is to | |||
be provided in the bank's books in phases, beginning from the year ending March 2001. | |||
• | Banks were advised to make the necessary in-house arrangement for gathering and collection of | ||
credit and other information in one place for transmitting it to the Credit Information Bureau, | |||
as and when it is established. | |||
5 | • | Taking into consideration the difficulties expressed by some of the banks, it was decided that, | |
details of the maturity pattern of deposits and borrowings, loans and advances and investments, | |||
may be disclosed as additional information in the 'Notes on Accounts' to the Balance sheet for | |||
the year ending March 2001 and not end-March 2000 as originally stipulated. However, the | |||
information should be disclosed in the Director's Report. | |||
12 | • | Banks were permitted to rediscount bills discounted by NBFCs arising from sale of two wheeler | |
and three wheeler vehicles subject to the conditions that the bills were to have been drawn by | |||
the manufacturers on dealers only. | |||
26 | • | The exemption granted to RRBs from the practice of marking to market norms in respect of SLR | |
securities was further extended to another two financial years, viz., 2000-01 and 2001-02. | |||
28 | • | RRBs having minimum working capital of Rs.25 crore and satisfying other criteria were authorised | |
to open/maintain NRE accounts in rupees. | |||
June | 12 | • | Banks were advised to review urgently the pendency of all suit filed cases relating to NPAs and |
convey to the functionaries at all levels, the need for close monitoring of suit filed and decreed | |||
cases on an ongoing basis. | |||
July | 14 | • | Banks were advised to bring into force the 'Revised calendar of Reviews' (based on the |
recommendations of the Working Group appointed for the purpose) with effect from August 1, 2000. | |||
20 | • | The issue of repatriation of the proceeds of GDRs/ADRs issued by banks was reviewed and | |
banks were advised to repatriate the entire proceeds of GDRs/ADRs soon after the issue process | |||
is completed. This provision would also be applicable to direct investments in banks made by | |||
NRIs/OCBs, foreign banking companies or finance companies, including multilateral institutions. | |||
27 | • | Modified guidelines were issued to the public sector banks in order to provide a simplified non- | |
discretionary and non-discriminatory mechanism for recovery of stock of NPAs. These guidelines | |||
cover NPAs in all sectors up to Rs. 5 crore but do not cover cases of wilful default, fraud and | |||
malfeasance. All NPAs categorised as doubtful or loss assets as at end-March 1997 as well as | |||
sub-standard assets as on that date which have become doubtful subsequently will also be | |||
covered. The amount of settlement arrived at should be paid within one year together with | |||
interest at the existing PLR from date of settlement up to the date of final payment. The guidelines | |||
would be operative up to end-March 2001. The Board of Directors of the banks were also advised | |||
that they could evolve detailed policy guidelines regarding one time settlement of NPAs over | |||
Rs.5 crore covering the computation formula, realisable amount, cut-off date and payment | |||
conditions, etc. as part of its loan recovery policy and decide individual cases in accordance | |||
with such policy. | |||
August | 7 | • | Banks were advised to (i) assign 100 per cent risk-weight to all types of loans and advances |
granted to the bank's own staff; and (ii) to show these loans under 'Other Assets' in Schedule 11 | |||
of the Balance Sheet with a suitable foot note. | |||
9 | • | Insurance business was not permitted to be undertaken departmentally by the banks. Any bank | |
intending to undertake insurance as per the guidelines should obtain prior approval of Reserve | |||
Bank before engaging in such business. | |||
14 | • | It was decided to scale down the balances in EEFC accounts to 50 per cent of the amount held | |
on August 11, 2000. Accordingly, banks were permitted to credit i) 35 per cent of the inward | |||
remittances in the EEFC accounts of export oriented units, units in Export Processing Zone, | |||
Software Technology Park or Electronic Hardware Technology Park; and ii) 25 per cent of inward | |||
remittances in respect of others. Further, future accretions would be permitted only up to 50 | |||
per cent of the currently eligible amount. Accretions should be maintained in liquid form as | |||
current/ savings accounts. Besides, credit facilities available against such accounts would be | |||
held in abeyance. | |||
29 | • | It was clarified that rupee subordinated debts raised by banks as tier II capital, will not be | |
considered for inclusion in capital funds for the purpose of determining the exposure ceiling to | |||
individual/group borrowers. | |||
October | 4 | • | It was decided that tyre re-treading activity (through hot-cold process) and coffee curing / |
processing shall be treated as an industrial activity registrable as small scale industries. | |||
5 | • | The Reserve Bank issued guidelines for sanction of working capital finance to Information | |
Technology (IT) and Software Industry. | |||
8 | • | The concept of 'Past Due' was dispensed with effective from March 31, 2001. Accordingly as | |
from that date, a NPA shall be an advance where: interest and /or instalment of principal | |||
remain overdue for a period of more than 180 days in respect of a Term Loan; (ii) the account | |||
remains 'Out of order' for a period of more than 180 days, in respect of an Overdraft/Cash | |||
Credit (OD/CC); (iii)the bill remains overdue for a period of more than 180 days, in the case of | |||
bills purchased and discounted; (iv) interest and/or instalment of principal remains overdue for | |||
two harvest seasons but not exceeding two half years in the case of an advance granted for | |||
agricultural purposes; and (v) any amount to be received remains overdue for a period of more | |||
than 180 days in respect of other accounts. | |||
10 | • | General provision on standard assets was allowed to be included in tier II capital. | |
• | In order to bring more transparency to the balance sheets of public sector banks and as a | ||
further step towards consolidated supervision and to provide additional disclosures, it was decided | |||
that public sector banks should annex the balance sheet, Profit and Loss Account, Report of the | |||
Board of Directors and the Report of the Auditors in respect of each of their subsidiaries to their | |||
balance sheet beginning from the year ending March 31, 2001. | |||
• | The concept of "past due" (grace period of 30 days) which was incorporated into the two quarter | ||
delinquency norm on income recognition, asset classification and provisioning introduced in | |||
April 1992, would be dispensed with, effective March 31, 2001. | |||
• | After a review of current practices regarding credit exposure limits vis-à-vis international best | ||
practices, it was decided to prepare a detailed Discussion Paper on the subject which was expected | |||
to be finalised by December 2000. Based on the comments and suggestions on the issues, and | |||
followed by an interaction with banks, the Reserve Bank would take a final view on the approach | |||
that should be adopted with a view to making it effective from end-March 2002. | |||
• | On a review of the August 14, 2000 measure relating to EEFC accounts, it was decided to | ||
restore fully the earlier entitlement of i) 70 per cent of the inward remittances in the EEFC | |||
accounts of export oriented units, units in Export Processing Zone, Software Technology Park or | |||
Electronic Hardware Technology Park; and ii) 50 per cent of inward remittances in respect of | |||
others. | |||
• | To provide further operational autonomy, banks were given freedom to decide on charging penal | ||
interest to borrowers and may formulate transparent policy for the same with the approval of | |||
their Boards. | |||
• | On a review of market conditions and with a view to providing flexibility to banks in prescribing | ||
margins, the prescription of minimum margin of 15 per cent under selective credit control on | |||
free sale sugar was withdrawn. Margins on free sale sugar would be decided by the banks based | |||
on their commercial judgement. | |||
• | Public sector banks were advised to set monthly targets for issue of Kisan Credit Card to farmer | ||
borrowers within the yearly target fixed for the bank and draw action plan for achieving the | |||
overall target. | |||
• | Restrictions on transferability period of CDs issued by banks were withdrawn. | ||
16 | • | The Reserve Bank circulated the revised guidelines relating to categorisation and valuation | |
of banks' investment portfolio. The guidelines were effective from the half year ended | |||
September 30, 2000. | |||
• | As regards the flow of credit to SSI sector, in the light of the decision of the Group of Ministers, | ||
the Reserve Bank advised banks to take the following measures, (i) Banks may, while sanctioning/ | |||
renewing credit limits to their large corporate borrowers (i.e., borrowers who enjoy working | |||
capital limits of Rs.10 crore and above from the banking system), fix separate sub-limits, within | |||
the overall limits, specifically for meeting payment obligations in respect of purchases from | |||
SSIs either on cash basis or bill basis, (ii) the size of such sub-limits, may be decided by banks | |||
taking into account the projected purchases by corporate borrowers from the SSls during a year | |||
in relation to their total purchase and other relevant factors, (iii) ensuring that sale proceeds/ | |||
other receipts of the borrower are credited to this account on a pro rata basis. | |||
• | The categories of bank credit for imports exempted from the levy of interest rate surcharge are: | ||
(i) Export packing credit provided at concessive rate of interest to meet the cost of imported | |||
inputs; (ii) Import of capital goods by bonafide borrower-importers under valid Licences issued | |||
under the Export Promotion Capital Goods Scheme (EPCG Scheme); (iii) all bonafide imports | |||
including import of capital goods by Export-Oriented Units (EOUs) and units in the Export | |||
Processing Zones (EPZs); (iv) all bonafide imports under Advance Licences granted for import of | |||
"Inputs" such as raw materials, intermediates, components, etc., by either the original holder | |||
or a transferee (if transferred under an endorsement of the Directorate General of Foreign Trade | |||
enabling such transfer); (v) all bonafide imports against the credit under the Duty Entitlement | |||
Pass Book (DEPB) Scheme contained in the EXIM Policy 1997-2002; (vi) Bulk Imports in respect | |||
of crude oil, petroleum products, fertilizers, edible oils and other essential commodities imported | |||
through Government Agencies; (vii) import of crude oil by private and joint sector refineries for | |||
actual use in their own refineries, (viii) All bonafide imports under duty free replenishment | |||
certificate (DFRC) scheme, GEM Replenishment License and Diamond Imprest -License; and | |||
(ix) All bonafide imports including import of capital goods by units under Electronic Hardware | |||
Technology Park (EHTP), Software Hardware Technology Park (STP) and special Economic Zone | |||
(SEZ) schemes. | |||
November | 9 | • | A series of preventive measures were suggested by Reserve Bank to prevent frauds: (i) While |
opening deposit accounts, banks are required to obtain from customers their photograph and | |||
an introduction from an existing customer; (ii) Banks were advised to observe safeguards while | |||
issuing Letters of Credit (LCs) to their customers enjoying credit facilities; and (iii) banks must | |||
lay out clear instructions for their branch staff in respect of loan accounts where such non- | |||
funded facilities have become funded. | |||
10 | • | As recommended by the RBI-SEBI Technical Committee it was decided that within the overall | |
exposure to sensitive sectors, a bank's exposure to capital market by way of investments in | |||
shares, convertible debentures and units of mutual funds (other than debts funds) through | |||
primary or secondary markets should not exceed 5 per cent of the bank's total outstanding | |||
domestic credit (excluding inter-bank lendings and advances outside India) as on March 31 of | |||
the previous year. | |||
20 | • | It was decided that no provision need be made for a period of one year in respect of additional | |
credit facilities granted to SSI units which are identified as sick, and where rehabilitation | |||
packages/nursing programmes have been drawn by the banks themselves or under consortium | |||
arrangements. | |||
23 | • | The existing practice of banks submitting credit proposals above Rs. 1 crore to the Reserve | |
Bank for its prior approval under selective credit control has been discontinued. Banks have | |||
freedom to sanction such credit proposals in terms of their individual loan policies. | |||
December | 11 | • | It was decided that loans to the software industry having credit limit upto Rs. one crore from the |
banking system, will be eligible for inclusion under priority sector. However, small loans given | |||
to software professionals etc. upto Rs.5 lakh will continue to be covered and reported under the | |||
existing category of "loans to professionals and self-employed". Other advances to software | |||
industry may be reported under a separate head "Software Industry" in the annual statements | |||
of priority sector advances. | |||
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2001 | |||
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January | 3 | • | The guidelines for licensing of new banks in the private sector were revised indicating that: (i) |
initial minimum paid-up capital for the new bank shall be Rs.200 crore, to be raised to Rs.300 | |||
crore within 3 years of commencement of business, (ii) the promoter's contribution shall be a | |||
minimum of 40 per cent of the paid-up capital of the bank at any point of time, (iii) while | |||
augmenting the capital base to Rs.300 crore, the promoters will have to bring in additional | |||
capital, which would be at least 40 per cent of the fresh capital raised, (iv) NRI participation in | |||
the primary equity of a new bank shall be to a maximum extent of 40 per cent, (v) the new bank | |||
should not be promoted by a large industrial house. However, individual companies, directly or | |||
indirectly connected with large industrial houses may be permitted to participate in the equity | |||
of a new private sector bank upto a maximum of 10 per cent but will not have controlling | |||
interest in the bank, (vi) the proposed bank shall maintain arms length relationship with business | |||
entities in the promoter group and the individual companies investing upto 10 per cent of the | |||
equity as stipulated above. | |||
6 | • | Interest-rate surcharge of 50 per cent on bank finance was withdrawn. | |
18 | • | It was decided to consider the amounts held under the head "Building Fund" also as eligible to | |
be treated as part of free reserves, to be taken into account for calculating "Capital Funds" for | |||
the purpose of determining exposure norms by urban co-operative banks. | |||
29 | • | With regard to payment of balances in the accounts of the deceased customers to survivors/ | |
claimants, it was clarified that banks may call for succession certificate from legal heirs of | |||
deceased depositors if there are disputes and all legal heirs do not join in indemnifying the bank | |||
or in certain other exceptional cases where the bank has a reasonable doubt about the | |||
genuineness of the claimant/s being the legal heir/s of the depositor. | |||
February | 2 | • | The Reserve Bank advised banks about the exemption granted by the Ministry of Home Affairs |
to all associations from provision of Foreign Contribution (Regulation) Act, 1976 to accept foreign | |||
contributions, in cash or kind, to provide relief to earthquake victims without obtaining a formal | |||
approval of the Central Government. | |||
6 | • | In order to provide relief to the exporters, affected by earthquake of 2001 it was decided to | |
extend the following concessions: | |||
i) Extension of pre-shipment credit | |||
In cases where shipment is likely to be delayed beyond the specified time due to the calamity, | |||
banks may, after satisfying themselves of the genuineness of the case, extend upto 180 days, | |||
pre-shipment credit granted for periods less than 180 days (based on the production cycle), at | |||
the interest rate applicable for the period upto 180 days (10 per cent per annum) and for period | |||
beyond 180 days and upto 360 days, banks may charge concessional rate applicable for the | |||
period beyond 180 days and upto 270 days (13 per cent per annum). Extension of credit beyond | |||
360 days may also be considered, where necessary, on the basis of bank's commercial judgement | |||
and discretion at the rate applicable for "ECNOS-Pre-shipment" and with the approval of the | |||
bank's Board. | |||
In case where the pre-shipment credit has been granted in foreign currency, extension beyond | |||
180 days may be allowed as per the actual cost of roll-over instead of applying 2 per cent over | |||
the rate charged for the period upto 180 days as per extant instructions. | |||
(ii) Conversion of dues into short-term loans | |||
Banks may convert the overdue pre-shipment credit, wherever considered necessary, into a | |||
short-term loan repayable within a reasonable period of time after taking into account the | |||
settlement of ECGC claim, if any, in respect of guarantees taken by the bank. Penal interest | |||
which is now required to be decided by the banks should not be charged from the date of | |||
advance in case of non-shipment in such cases. | |||
(iii) Application of asset classification norm | |||
Banks need not classify as NPA the pre-shipment credit granted to exporters if period of credit | |||
has been extended in terms of paragraph (i) above or where the pre-shipment credit has been | |||
converted into short-term loan in terms of paragraph (ii) above. The advances will be treated as | |||
NPA if the interest and/or instalment of principal remains unpaid for 180 days after it has | |||
become overdue taking into account the revised due dates fixed by the banks after extension of | |||
the period or conversion of the pre-shipment credit, as the case may be. | |||
28 | • | Banks were advised to assign 20 per cent risk-weight on all loans and advances to staff which | |
were fully covered by superannuation benefits and mortgage of flat/house and classify under | |||
'Advances' in Schedule 9 of the balance sheet all interest bearing loans and advances granted to | |||
their staff. However, all non-interest bearing loans and advances to their own staff was to be | |||
included in "Others" under "Other Assets" in Schedule 11 of the balance sheet. | |||
March | 2 | • | The Reserve Bank of India granted 'in principle' approval to four entities (1) Bank of America |
Securities (India) Pvt. Ltd. 2) Bank of Baroda (subsidiary to be established) 3) HSBC Primary | |||
Dealership (India) Pvt. Ltd. 4) Standard Chartered - UTI securities India Pvt. Ltd. to be accredited | |||
as Primary Dealers in the Government Securities Market. | |||
• | With regard to the provision of credit to SSI sector, in line with the recommendations of the Nayak | ||
Committee, banks were advised to make further improvements towards: (a) delegation of adequate | |||
discretionary powers to branch officials for sanction of credit facilities, (b) issuing acknowledgements | |||
of loan proposals received, (c) providing technical expertise in branches, (d) providing credit to tiny | |||
sector, (e) maintenance of loan application registers in a comprehensive manner, (f) referring proposals | |||
liable for rejection/curtailment in the amount of finance to the next higher authority. | |||
3 | • | Banks were advised to prepare action plan for issuing Kisan Credit Cards to all eligible borrowers | |
in agricultural sector within next three years and to inform the Reserve Bank if targets are | |||
changed in future. | |||
22 | • | To keep a special watch on receipt and utilisation of foreign contribution received for providing | |
relief to the earthquake victims in Gujarat, commercial banks were directed to furnish a monthly | |||
report of receipt of foreign contributions by Associations/Organisations in India under Foreign | |||
Contribution (Regulation) Act, 1976. | |||
• | It was clarified that all deposits placed with NABARD/SIDBI in lieu of shortfall in advances to | ||
priority sector vis-à-vis the prescribed target would attract 100 per cent risk-weight, since these | |||
deposits are in lieu of shortfall in assets which carry 100 per cent risk-weight. | |||
28 | • | Public sector banks were instructed to (a) annex only the annual accounts and auditors' report | |
of the subsidiaries to its balance sheet, (b) make available the Directors' report in respect of the | |||
subsidiaries on the website of parent bank, (c) continue the above procedure till the bank switches | |||
over to the consolidated balance-sheet system. The accounting year of banking subsidiaries | |||
should be coterminous with the parent bank and hence date of the annual accounts of | |||
subsidiaries, annexed to the parent's balance sheet, should coincide with date of annual accounts | |||
of parent bank. For subsidiaries having accounting year different from the parent bank, the | |||
annual accounts annexed should not relate to a date earlier than six months prior to the date of | |||
the annual accounts of the parent bank. | |||
30 | • | The classification and provisioning norms for restructured accounts in the standard and sub- | |
standard category were reviewed and it was decided that on rescheduling, they could continue | |||
to be classified as standard and sub-standard, respectively, if the asset is fully secured and the | |||
sacrifice, if any in interest, is either written off or fully provided for. | |||
April | 10 | • | The operation of the guidelines for a simplified, non-discriminatory and non-discretionary |
mechanism for settlement of dues relating to NPAs with outstandings upto Rs.5 crore was | |||
extended upto June 30, 2001. | |||
19 | • | Banks allowed to offer loans or credit limits over Rs. 2 lakh at below-PLR interest rates to | |
exporters or other credit-worthy borrowers including public enterprises on the lines of a | |||
transparent and objective policy approved by their respective boards. However, PLR would serve | |||
as ceiling interest rates for loans up to Rs. 2 lakh. | |||
• | Banks were permitted to formulate fixed deposit schemes specifically for senior citizens offering | ||
higher and fixed rates of interest as compared to normal deposits of any size. | |||
• | To facilitate better ALM, banks were given freedom to exercise discretion to disallow premature | ||
withdrawal of large deposits held by entities other than individuals and Hindu Undivided Families, | |||
subject to informing the depositors in advance. The period of renewal of overdue term deposits | |||
at interest rate prevailing on date of maturity was made 14 days while for overdue period exceeding | |||
14 days banks were allowed to prescribe their own interest rate. | |||
• | In order to move towards international best practices and impart greater transparency, it was | ||
decided to introduce classification of loans as non-performing when interest and/or instalment | |||
of principal remain overdue for a period of more than 90 days from the year ending March 31, | |||
2004. Banks were advised to make additional provisions from the year ending March 31, 2002 | |||
to facilitate smooth transition. | |||
• | Effective from the year 2001-02, audit firms recommended by private sector banks for | ||
appointment as Statutory Central Auditors (SCAs) have to satisfy certain minimum standards | |||
like minimum number of full time partners, number of chartered accountants exclusively | |||
associated, number of professional audit staff, etc. | |||
• | The Reserve Bank announced a reduction in exposure limit for single borrower from the existing | ||
20.0 per cent to 15.0 per cent, effective from March 31, 2002; group exposure limit to 40.0 per | |||
cent from the existing 50.0 per cent of capital funds, effective from March 31, 2002; for financing | |||
infrastructure projects, the limit is extendable by another 10.0 per cent, i.e. upto 50.0 per cent. | |||
• | Banks were advised to incorporate a condition in the loan agreement for obtaining consent of | ||
borrowers to disclose their names if they become defaulters. | |||
• | For greater transparency in the operation of borrowal accounts, banks were advised for bi- | ||
annual circulation of defaulters list of Rs. 1 crore and above in the doubtful or loss category. | |||
• | In pursuance of the Union Budget announcement, measures were taken to commence operations | ||
of the Clearing Corporation, by June 2001, with State Bank of India as chief promoter and five | |||
other banks and FIs to facilitate clearing and settlement of money, government securities and | |||
foreign exchange transactions. | |||
• | It was decided to introduce an electronic Negotiated Dealing System (NDS) by June 2001 to | ||
facilitate transparent electronic bidding in auctions and secondary market transactions on a | |||
real time basis. | |||
• | It was proposed while the current eligibility criteria for accredition as a SD would continue, | ||
the existing liquidity support from RBI will be discontinued. | |||
• | With effect from June 30, 2001, banks, FIs, PDs and SDs directed to make fresh investments | ||
and hold CP only in demateralised form. Outstanding investments in scrip form in the books | |||
of these institutions should also be converted into dematerialised form by October 31, 2001. | |||
20 | • | HSBC Primary Dealership India Private Limited granted final approval to operate as a PD in | |
government securities market, thereby increasing the number of PDs to sixteen. | |||
May | 2 | • | Considering that higher loan loss provisioning adds to the overall financial strength of the banks |
and stability of the financial sector, banks were urged to voluntarily set apart provisions much | |||
above the minimum prudential levels as a desirable practice | |||
• | Banks and Fls advised that all cases of willful defaults of Rs. 100 crore and above should be | ||
reviewed and suits filed, if not done earlier. If in such cases of willful defaults, there are instances | |||
of cheating or fraud by the defaulting borrowers, banks should also file criminal cases. | |||
• | Guidelines were issued for compromise settlement of dues of banks and financial institutions | ||
through Lok Adalats. | |||
11 | • | Revised guidelines were issued on Bank Financing of Equities and Investments in Shares; (i) for | |
making direct investment in shares/debentures etc. at bank's own risk; (ii) for making loans and | |||
advances to individuals and sharebroking entities for making investment in capital markets on own | |||
account. Here,the investment risk is that of the individual or stock-broking entities. Loans/advances by | |||
banks are normally fixed in value and carry stipulated interest rate, and risk to banks could arise on | |||
account of inadequacy of margining or the inability of borrowers to meet their repayment/interest | |||
obligations to banks because of volatility in share prices or other related reasons, and (iii) | |||
shares/debentures may be assigned to banks by individuals and corporates as collateral and additional | |||
security for certain approved purposes which do not involve stockbroking or investment in capital market. | |||
• | The ceiling of 5 per cent prescribed for investment in shares will henceforth apply to total | ||
exposure including both fund based and non-fund based, to capital market by a bank in all | |||
form. The ceiling will cover: direct investment by a bank in equity shares, convertible bonds and | |||
debentures and units of equity oriented mutual funds; advances against shares to individuals | |||
for investment in equity shares (including IPOs), bonds and debentures, units of equity-oriented | |||
mutual funds etc; secured and unsecured advances to stockbrokers and guarantees issued on | |||
behalf of stockbrokers and market makers. | |||
14 | • | Guidelines issued for bank financing of film production. | |
June | 7 | • | Guidelines were issued in respect of investment in non-SLR securities regarding the due |
diligence to be undertaken, the disclosures to be obtained, and the credit risk analysis to be | |||
made in regard to privately placed investments especially for unrated instruments. | |||
14 | • | With a view to reduce divergences in assessment of NPAs by banks, statutory auditors and | |
RBI Inspectors, user friendly guidelines defining and clarifying certain related issues in | |||
question-answer format were issued. | |||
• | The guidelines on internet banking were released. | ||
August | 23 | • | Based on extensive discussions that the Government of India and Reserve Bank had with |
banks and financial institutions, the scheme of Corporate Debt Restructuring (CDR) was | |||
finalised. The objective of the CDR framework is to ensure a timely and transparent mechanism | |||
for restructuring of the corporate debts of viable corporate entities affected by internal or | |||
external factors, outside the purview of BIFR, DRT and other legal proceedings, for the benefit | |||
of all concerned. CDR will apply only to multiple banking accounts/syndicates/consortium | |||
accounts with outstanding exposure of Rs. 20 crore and above with the banks and financial | |||
institutions. | |||
September | 22 | • | Based on the recommendations of the RBI-SEBI Technical Committee, on an experimental |
basis it was decided to permit banks to extend finance to stockbrokers for margin trading | |||
within the overall ceiling of 5 per cent prescribed for exposure of banks to capital market | |||
subject to certain conditions. These guidelines will be valid for a period of 60 days (i.e. upto | |||
November 22, 2001) and will be reviewed in the light of actual experience. | |||
24 | • | A special financial package was drawn in consultation with the Government of India, for large | |
value exports of select products, which are internationally competitive and have high value | |||
addition. The products eligible for export under special financial package are: (a) | |||
pharmaceuticals (including drugs, fine chemicals), (b) agro-chemicals (including inorganic and | |||
organic chemicals), (c) transport equipment (including commercial vehicles, two and three | |||
wheelers, tractors, railway wagons, locomotives), (d) cement (including glass, glassware, | |||
ceramics and refractories), (e) iron and steel (including iron & steel bars/rods and primary | |||
and semi-finished iron & steel), (f) electrical machinery (including transmission line towers, | |||
switch gear, transformers). | |||
26 | • | A reduction in the ceiling rate for export credit by 1.0 percentage point across the board for | |
period upto March 31, 2002 was announced. Accordingly, the maximum rate that the bank | |||
would charge to exporters was revised to 2.5 percentage points below its PLR for pre-shipment | |||
credit upto 180 days and for post-shipment credit upto 90 days. | |||
October | 22 | • | It was decided that banks should furnish the following, additional disclosures in the 'Notes |
on Accounts' in their balance sheets, from the year ending March 2002: (i) movement or | |||
provisions held towards NPAs and (ii) movement of provisions held towards depreciation on | |||
investments. | |||
25 | • | Banks were given the freedom to change the composition of working capital by increasing the | |
cash credit component beyond 20 per cent, or to increase the 'loan component' beyond 80 per | |||
cent, as the case may be, for working capital limits of Rs. 10 crore and above, if they so desire. | |||
Banks are expected to appropriately price each of the two components of working capital | |||
finance, taking into account the impact of such decisions on their cash and liquidity | |||
management. | |||
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B) Co-operative Banks |
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2000 | |||
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August | 30 | • | Based on the recommendations of the High Power Committee, revised licensing policy for |
setting up of new UCBs was announced. The thrust of the revised policy is on strong start-up | |||
capital and corporate governance. Accordingly, Entry Point Norms were enhanced significantly | |||
based on population criteria. To improve corporate governance, a thorough screening of | |||
credentials of promoters is required to be carried out. Also, there should at all times be at | |||
least two directors with suitable banking experience or persons with relevant professional | |||
qualification on the Boards of Management. The promoters should not be defaulters to any | |||
financial institutions or banks and should also not have any association with chit fund/NBFC/ | |||
co-operative banks or commercial banks in the capacity of directors on the Board. | |||
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2001 | |||
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April | 19 | • | The interim prudential measures for UCBs proposed to provide greater security to depositors |
and members included stopping of direct or indirect lending by UCBs to individuals or corporates | |||
against security of shares with immediate effect, unwinding of existing lending to stock brokers | |||
or direct investment in shares, limiting of their borrowings from call money market up to 2.0 | |||
per cent of their aggregate deposits as at end-March in the previous financial year, no permission | |||
for increase in their term deposits in other UCBs and unwinding of existing term deposits by | |||
June 2002, increases in their SLR holdings in government and other approved securities as | |||
per cent of NDTL by March 2002 from 15 to 20 per cent for scheduled UCBs; from 10 to 15 per | |||
cent for non-scheduled UCBs with deposit base of Rs. 25 crore and above and from zero to | |||
10.0 per cent in case of other non-scheduled UCBs, maintenance of the entire SLR of 25 per | |||
cent of NDTL for scheduled UCB only in government and other approved securities with effect | |||
from April 1, 2003 and maintenance of investment in Government securities of scheduled as | |||
well as non-scheduled UCBs only in SGL accounts with Reserve Bank or in constituent SGL | |||
Accounts of public sector banks and PDs. | |||
• | Reserve Bank proposed a new apex supervisory body, which can take over the entire inspection/ | ||
supervisory functions in relation to scheduled and non-scheduled UCBs. This apex body could | |||
be under the control of a separate high level supervisory board consisting of representatives of | |||
Central Government, State Governments, Reserve Bank as well as experts and it may be given | |||
the responsibility of inspection/and supervision of UCBs and ensuring their conformity with | |||
prudential, capital adequacy and risk management norms laid down by the Reserve Bank. | |||
25 | • | Pursuant to High Power Committee's recommendation, Capital to Risk-weighted Assets Ratio | |
(CRAR) has been made applicable to UCBs in a phased manner. Over a period of three years, | |||
UCBs should fall in line with the discipline applicable to commercial banks. | |||
26 | • | Branch Licensing Policy for licensed UCBs was revised. UCBs which are not classified as | |
weak/sick may apply for allotment of centres to the Reserve Bank, provided they satisfy the | |||
criteria in terms of CRAR, profitability, NPAs, fulfillment of priority sector advance targets and | |||
compliance with B.R. Act 1949 (AACS) and Reserve Bank of India Act, 1934 and the instructions/ | |||
directions issued by the Reserve Bank from time to time. They should also maintain requisite | |||
level of CRR and SLR and also ensure timely submission of statutory and other returns. | |||
October | 22 | • | In response to representations received from UCBs and their federations, it was proposed to |
allow UCBs to grant loans to individuals against security of shares, subject to certain | |||
parameters. | |||
• | In response to representations received from UCBs and their federations, it was proposed to | ||
modify the timeframe for achieving the prescribed levels of SLR holding by UCBs. | |||
• | It was clarified that scheduled UCBs are required to achieve capital adequacy norms gradually | ||
by March 2004 and the non-scheduled UCBs by March 2005. | |||
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C) Financial Institutions |
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2000 | |||
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May | 5 | • | It was clarified that in regard to the treatment of accounting of provision on Standard Assets, (i) |
the provision for Standard Asset need not be netted from gross advances, but shown separately | |||
as 'Contingent Provisions against Standard Assets' under 'Other Liabilities and Provisions' in | |||
the balance sheet, (ii) the above provisions would not be eligible for inclusion in tier II capital | |||
and (iii) provision for standard assets should not be reckoned for arriving at net NPAs. | |||
25 | • | It was clarified that the interest rate surcharge of 50 per cent of the actual lending rate on credit | |
for imports, which was reintroduced as a temporary measure, with effect from May 26, 2000, | |||
would not be applicable to the following categories of credit for imports: (i) Export Packing | |||
Credit provided at concessive rate to meet the cost of imported inputs, (ii) import of capital | |||
goods by bonafide borrowers-importers under valid licences issued under the Export Promotion | |||
Capital Goods Scheme, (iii) all bonafide imports including import of capital goods by Export- | |||
Oriented Units and units in the Export Processing Zones, (iv) all bonafide imports under Advance | |||
Licenses granted for "Inputs" such as raw materials, intermediaries, components, etc., by either | |||
the original holder or a transferee (of transferred under an endorsement of the Directorate | |||
General of Foreign Trade enabling such transfer), (v) all bonafide imports against the credit | |||
under the Duty Entitlement Pass Book Scheme contained in the EXIM Policy 1997-2000, (vi) | |||
bulk imports in respect of crude oil, petroleum products, fertiliser, edible oils and other essential | |||
commodities imported through Government Agencies, and, (vii) import of crude oil by private | |||
and joint sector refineries for actual use in their own refineries. | |||
30 | • | It was advised that (i) FIs need to assign risk-weight of 100 per cent only on those State Government | |
guaranteed securities which are issued by the defaulting entities and not on all the securities issued | |||
or guaranteed by that State Government, and, (ii) the excess provision towards depreciation on | |||
investments should be appropriated to "Investment Fluctuation Reserve Account" instead of "Capital | |||
Reserve Account" and will be eligible for inclusion in tier II capital and the existing amount of excess | |||
provision towards depreciation on investments held under "Capital Reserve Account" should stand | |||
transferred to "Investment Fluctuation Reserve Account". The amount held under "Investment | |||
Fluctuation Reserve Account" could be utilised to meet, in future, the depreciation requirement on | |||
investment. | |||
June | 21 | • | It was clarified that FIs need not seek Reserve Bank's, issue-wise prior approval /registration for |
raising of resources by way of bonds (both public issue and private placement) subject to the fulfillment | |||
of the following conditions: (i) the minimum maturity of the bond should be 3 years, (ii) in respect | |||
of bonds having call/put options, the same should not be exercisable before the expiry of one year | |||
from the date of issue of bonds, (iii) the Yield to Maturity (YTM) offered, at the time of issue of bonds, | |||
should not exceed 200 basis points above the YTM on the Government of India securities of equal | |||
residual maturities. The effective YTM on instruments having call/put options should also satisfy | |||
this requirement, (iv) no 'exit' option on the bonds will be offered before the end of one year, from | |||
the date of issue, (v) the outstandings of total resources mobilised at any point of time by an individual | |||
FI including funds mobilised under the 'umbrella limit' as prescribed by the Reserve Bank should | |||
not exceed 10 times its net owned funds (NOF) as per the latest audited balance sheet, (vi) the limit | |||
for raising resources is only an enabling provision, FIs are advised to arrive at their requirements of | |||
resources along with maturity structure and the interest rate offered thereon on a realistic basis, | |||
derived, inter alia, from a sound system of ALM/Risk Management, (vii) in case of floating rate | |||
bonds, FIs should seek prior approval from Reserve Bank, in regard to 'reference rate' selected and | |||
the methods of floating rate determination (the same is not required for subsequent individual | |||
issues as long as the underlying reference rate and methods of floating rate determination remain | |||
unchanged), (viii) FIs should take note to comply with the prudential requirements of other regulatory | |||
authorities, such as SEBI, etc., as hitherto, (ix) FIs are required to furnish monthly statements (to | |||
be submitted on or before the 10th day of the following month) giving details on the resources raised. | |||
July | 20 | • | Considering the fact that Fis, which are raising capital abroad for improving their capital base, |
have largely Rupee-denominated assets and that most of the risk limits are linked to their | |||
capital, FIs were advised to repatriate the entire proceeds of Global Depository Receipts (GDRs)/ | |||
American Depository Receipts (ADRs) soon after the issue process has been completed. | |||
28 | • | It was advised that the guidelines for recovery of dues relating to non-performing assets (NPAs) | |
issued to public sector banks should also be uniformly implemented by Central Public Financial | |||
Institutions. The revised guidelines cover NPAs relating to all sectors including the small sector. | |||
August | 24 | • | The FIs were informed that the Rule 9 of the draft Ozone Rules 2000 prohibited expansion of |
capacity and establishment of new capacity based on Ozone Depleting Substances (ODS), and it | |||
was expected that FIs were not extending finance for setting up of units consuming / producing | |||
the specified ODS. The sectors covered in the phase out programme included, foam products, | |||
refrigerators and air conditioners, aerosol products, solvents in cleaning applications and fire | |||
extinguishers. | |||
31 | • | The guidelines for Recovery of Dues Relating to NPAs were extended up to September 30, 2001 | |
for giving notice to eligible borrowers. | |||
September | 19 | • | As regards advances against shares and debentures, it was advised that (i) whenever the limits |
of advances granted to a borrower against the security of shares/debentures exceed Rs.10 lakh, | |||
it should be ensured that the said shares/debentures are transferred in the FI's name and (ii) in | |||
the case of default by the borrower, the FI may invoke the pledge of dematerialised securities (as | |||
amended by SEBI (Depositories and Participants) Regulations, 1996, to facilitate the pledge of | |||
such securities) subject to the provisions of the pledge document and on such invocation, the | |||
depository will register the name of the FI as the beneficial owner of such securities. | |||
October | 10 | • | It was advised that in order to improve the functional efficiency of the market, rating would be |
mandatory for term deposits accepted by AIFIs. | |||
11 | • | Due to improvements in the payment and settlement systems, the recovery climate, upgradation | |
of technology in the banking system, etc., it was decided to dispense with 'Past Due' concept, | |||
effective March 31, 2001. Accordingly, it was clarified that a NPA shall be an advance where (a) | |||
interest remains overdue for a period of more than 180 days and /or instalment of principal | |||
remains overdue for a period of 365 days or more in respect of a term loan, (ii) the bill remains | |||
overdue and unpaid for a period of more than 180 days in the case of bills purchased and | |||
discounted, and (iii) any amount to be received remains overdue for a period of more than 180 | |||
days in respect of other accounts. | |||
• | It was decided to allow financial institutions to include 'General Provisions on Standard Assets' | ||
in tier II capital. However, the provision on standard assets together with other 'General Provisions | |||
and Loss Reserves' should not exceed 1.25 per cent of the total risk-weighted assets. | |||
November | 9 | • | The guidelines on classification and valuation of investments by FIs were revised on the basis of |
recommendations of the Informal Group in the Reserve Bank so that they are in consonance | |||
with the best international practices. The highlights of the revised guidelines are given below: (i) | |||
the revised guidelines will be effective from the half-year ended March 31, 2001, (ii) FIs are | |||
required to classify the entire investment portfolio as on March 31, 2001 under three categories, | |||
viz., 'Held to Maturity', 'Available for Sale' and 'Held for Trading' categories, (iii) the investments | |||
will be classified as (a) Government securities, (b) other approved securities, (c) shares, (d) | |||
debentures and bonds, (e) subsidiaries/joint ventures, (f) others (CPs, mutual fund units, etc), | |||
(iv) the investments under 'Available for Sale' and 'Held for Trading' categories should be marked | |||
to market as prescribed or at more frequent intervals, (v) the investments under Held to Maturity | |||
category need not be marked to market, (vi) classification of investments, shifting of investments, | |||
among the three categories, valuation of the investments, methodology for booking profit/loss | |||
on sale of investments and providing for depreciation should be in accordance with the guidelines | |||
of the Reserve Bank and (vii) the risk-weights assigned to the various securities at present | |||
including those for 'market risk', would remain unchanged. | |||
December | 5 | • | Commercial Paper was added to the list of instruments under the 'umbrella limit' equivalent to |
one time NOF in the amended set of returns regarding raising of resources by all-India FIs. | |||
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2001 | |||
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January | 24 | • | In line with the recommendations of the Informal Advisory Group on Regulation and Supervision |
of FIs, it was decided that (i) the information requirement of the inspection team would be | |||
advised to the FIs at least one month before the commencement of inspection to ensure better | |||
time management and efficiency of the examination process, (ii) before the commencement of | |||
inspection, the management of the FI may be asked to make a presentation to the inspection | |||
team of the FI's perspective on its own risk exposures, and the manner in which these risks | |||
were addressed in the past and the future strategy of the FI in this regard and (iii) the inspection | |||
team should also meet the internal and external auditors to appreciate the scope of their work | |||
and the results of their audit. On conclusion of the inspection, the Principal Inspecting Officer, | |||
along with his team members as considered necessary, should meet the Audit Committee as | |||
also the CEO of the FI to discuss the major findings of the inspection. | |||
February | 7 | • | In the context of transition of the banks and the all-India FIs from a regulated to a deregulated |
regime, informal meetings of the Heads of select banks and the FIs, including the Chairman of | |||
IBA convened by the Reserve Bank led to the emergence of the following seven issues (i) | |||
timeframe for sanction of facilities, (ii) asset classification across consortium members, (iii) | |||
disciplining borrowers-change in management, (iv) levy of charges in the problem accounts, | |||
(v) group approach to borrowers, (vi) sharing of securities and cash flows, and (vii) treatment | |||
of restructured accounts for asset classification purpose. Ground Rules were framed for the | |||
above issues. The Reserve Bank advised FIs to place the minutes indicating the agreed Ground | |||
Rules before their Board of Directors for adoption and ensure implementation thereof thereafter. | |||
10 | • | FIs were advised that the prescription of interest at 25 per cent per annum (minimum) in | |
respect of overdue export bills was withdrawn. The revision in the rate of interest would be | |||
applicable not only to fresh advances but also to the existing advances for the remaining period. | |||
March | 23 | • | FIs were advised to disclose certain important financial ratios/data in their published annual |
accounts with effect from the financial year 2000-01. Such disclosures were to be made as | |||
part of 'Notes on Accounts' to enable the auditors to authenticate the information, | |||
notwithstanding the fact that such information might be contained elsewhere in the published | |||
annual report. These disclosures could be classified into four heads (i) Capital, (ii) Asset Quality | |||
and Credit Concentration, (iii) Liquidity and (iv) Operating Results. Under (i), the disclosures | |||
included (a) CRAR, core CRAR and supplementary CRAR, (b) amount of sub-ordinated debt | |||
raised and outstanding as tier II capital, (c) risk-weighted assets-separately for on- and off- | |||
balance sheet items and (d) the shareholding pattern as on the date of the balance sheet. | |||
Under (ii), the disclosures included, (a) percentage of net NPA to net loans and advances, (b) | |||
amount and percentage of net NPAs under the prescribed asset classification categories, (c) | |||
amount of provisions made during the year towards standard assets, NPAs, investments (other | |||
than those in the nature of an advance), income tax, (d) movement in net NPAs, (e) credit | |||
exposure as percentage of capital funds and as percentage of total assets, in respect of (e1) | |||
the largest single borrower, (e2) the largest borrower group, (e3) the 10 largest single borrowers | |||
and (e4) the 10 largest borrower groups and (f) credit exposures to the five largest industrial | |||
sectors as percentage of total loan assets. Under (iii) the disclosures included, (a) maturity | |||
pattern of Rupee assets and liabilities and (b) maturity pattern of foreign currency assets and | |||
liabilities. Under (iv), the disclosures included, (a) interest income as a percentage to average | |||
working funds, (b) non- interest income as a percentage to average working funds, (c) operating | |||
profit as a percentage of average working funds, (d) return on average assets and (e) net profit | |||
per employee. | |||
• | In addition, the following disclosures would also need to be made under the RBI guidelines, (a) | ||
the notional principal of swap agreements, (b) nature and terms of the swaps including | |||
information on credit and market risk and the accounting policies adopted for recording the | |||
swaps, (c) quantification of the losses which would be incurred if the counterparties failed to | |||
fulfil their obligation under the agreements, (d) collateral required by the entity upon entering | |||
into swaps, (e) any concentration of credit risk arising from the swaps, and (f) the "fair" value | |||
of the total swaps book. | |||
28 | • | The Reserve Bank issued revised guidelines in respect of the norms relating to restructuring/ | |
rescheduling/renegotiation of loans on the standard and sub-standard loan assets. | |||
April | 18 | • | The period of operations of the guidelines issued in respect of Central Public Financial |
institutions for Recovery of Dues Relating to NPAs was extended finally upto June 30, 2001. | |||
The FIs were advised that all applications received upto June 30, 2001 should be processed | |||
and decisions taken thereof at the earliest, but not later than September 30, 2001. | |||
26 | • | It was clarified that FIs would treat a credit facility as non-performing if interest and/or | |
instalment of principal remain overdue for more than 180 days with effect from the year ending | |||
March 31, 2002. | |||
28 | • | The FIs were advised that for evolving a path for transition of a FI to a universal bank, several | |
operational and regulatory issues would need to be addressed. In this context, the Reserve | |||
Bank briefly enumerated some of the salient ones for information and guidance of the FIs. | |||
These included, reserve requirements, range of permissible activities, disposal of non-banking | |||
assets, composition of the Board, prohibition of floating charge on assets, nature of subsidiaries, | |||
restrictions on investments, connected lending, licensing, branch network, assets in India, | |||
format of Annual Reports, managerial remuneration, deposit insurance, Authorised Dealer's | |||
licence, priority sector lending and prudential norms. | |||
May | 2 | • | As a move towards compromise settlement of dues, financial institutions were advised to take |
recourse to the forum of Lok Adalats to settle banking disputes involving smaller amounts | |||
(upto Rs.5 lakh). | |||
June | 20 | • | FIs were advised that (a) the concept of capital funds as defined under capital adequacy standards |
for determining exposure ceiling for the FI would include both tier I and tier II capital, (b) non- | |||
fund based exposures would be reckoned at 100 per cent value with effect from April 1, 2003, (c) | |||
forward contracts in foreign exchange and other derivative products like currency swaps, options, | |||
etc., will need to be taken at their replacement cost for determining individual/group borrower | |||
exposure (methodology to be adopted by FIs for arriving at replacement cost of the derivatives to | |||
be advised separately) and (d) the exposure ceiling in respect of single borrower was reduced | |||
from 20 per cent to 15 per cent of capital funds, effective March 31, 2002. Similarly, the group | |||
exposure ceilings were also reduced to 40 per cent of capital funds, effective March 31, 2002. In | |||
case of financing infrastructure projects, the borrower-group exposure ceiling was extendable | |||
by another 10 per cent (i.e., upto 50 per cent). | |||
August | 7 | • | A risk-weight of 20 per cent should be assigned to all such loans and advances granted by the FIs to |
their own employees as are covered by superannuation benefits and mortgage of flats/houses. All | |||
other loans and advances to own employees should, however, be subject to 100 per cent risk-weight. | |||
25 | • | A three-tier structure of the Corporate Debt Restructuring (CDR) system, which is a non- | |
statutory, voluntary mechanism, based on the debtor-creditor and inter-creditor agreements , | |||
was envisaged to provide a transparent mechanism for restructuring of corporate debts of | |||
viable corporate entities affected by internal and external factors, outside the purview of BIFR, | |||
DRT and other legal proceedings. The CDR system is to be applied only to multiple banking/ | |||
syndicates/consortium accounts, in the standard and sub-standard category, with outstanding | |||
exposure of Rs.20 crore and above with the banks and FIs. | |||
27 | • | It was clarified that the credit exposure norms are also applicable to refinancing institutions, | |
excepting their refinancing portfolio. However, from the prudential perspective, it is expected | |||
that these institutions evolve their own exposure norms relating to the capital funds/regulatory | |||
capital of the FI concerned with the approval of their respective Boards. | |||
28 | • | As a corollary to the instructions of FIs to make fresh investment and hold CPs only in | |
dematerialised form with effect from June 30, 2001 and with a view to extend demat form of | |||
holding to other investments such as bonds, debentures and equities, it was decided to permit | |||
the FIs to make fresh investments and hold bonds, debentures, privately placed or otherwise, | |||
only in dematerialised form with effect from October 31, 2000. Outstanding investments in | |||
scrip form should also be converted into dematerialised form by June 30, 2002. | |||
29 | • | Amended guidelines relating to Asset-Liability Management was issued to FIs covering time- | |
buckets for slotting of the off-balance sheet items and treatment of securities in the trading | |||
book for interest rate sensitivity statement. | |||
October | 16 | • | A clarificatory circular was issued to FIs on classification and valuation of investments, based |
on suggestions/queries received from various Fls. These include definitions of joint-ventures, | |||
treatment of preference shares, tenor of bonds/debentures deemed to be in the volume of | |||
advances, frequency of category, transfer of investment, eligible investments for 'held to | |||
maturity' category, valuation of equity preference shares and ceilings, etc. | |||
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D) Non-Banking Financial Companies |
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2000 | |||
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June | 9 | • | The Reserve Bank issued guidelines for entry of NBFCs into insurance business. According to |
the guidelines: | |||
(i) Any NBFC registered with Reserve Bank, having net owned fund of Rs. 2 crore would be | |||
permitted to undertake insurance business as agent of insurance companies on fee basis, | |||
without any risk participation. | |||
(ii) All NBFCs registered with Reserve Bank which satisfy the eligibility criteria given below will | |||
be permitted to set up a joint venture company for undertaking insurance business with | |||
risk participation subject to safeguards:(a) the owned fund of NBFC should not be less than | |||
Rs. 500 crore, (b) the CRAR of the NBFC engaged in loan and investment activities holding | |||
public deposits should not be less than 15 per cent and for other NBFCs at 12 per cent, | |||
irrespective of their holding public deposits, (c) the level of net non-performing assets should | |||
not be more than 5 per cent of the total outstanding leased/hire purchase assets and advances | |||
taken together, (d) the NBFC should have net profit for the last three consecutive years, (e) | |||
the track record of the performance of the subsidiaries, if any, of the concerned NBFC | |||
should be satisfactory, and (f) regulatory compliance and servicing of public deposits, if | |||
held, should be satisfactory. The maximum equity contribution such NBFC can hold in a | |||
joint venture company will normally be 50 per cent of the paid up capital of the insurance | |||
company. On a selective basis, the Reserve Bank may permit a higher equity contribution | |||
by a promoter NBFC initially pending divestment of equity within the prescribed period. | |||
(iii) Registered NBFCs which are not eligible as joint venture participants can make investment | |||
upto 10 per cent of its owned fund or Rs. 50 crore, whichever is lower, in equity of insurance | |||
companies subject to fulfilment of conditions viz., (a) CRAR of 15 per cent for loan and | |||
investment companies and 12 per cent for other companies, (b) net NPAs not more than 5 | |||
per cent of total outstanding lease / hire purchase assets and advances, and (c) net profit | |||
for the last three continuous years for entering into any form of insurance business. | |||
(iv) NBFCs desirous of entering into any form of insurance business should obtain prior approval | |||
of Reserve Bank. | |||
30 | • | Provisioning norms in respect of lease and hire purchase assets were rationalised to encourage | |
the NBFCs to continue to provide asset creating facilities and lease / HP finance against second | |||
hand assets. | |||
• | The instructions relating to introduction of depositors of NBFCs were rationalised. NBFCs may | ||
obtain and keep on their records a copy of the passport, ration card, election ID card, identification | |||
by an existing depositor, etc., as an evidence of identification of new depositors. | |||
• | Residuary Non-Banking Companies were permitted to make investment in the schemes of mutual | ||
funds approved by the Securities and Exchange Board of India along with the schemes of Unit | |||
Trust of India. The floor ceiling on interest rates payable by these companies was also lowered | |||
by two percentage points. | |||
• | NBFCs were permitted to treat deposits from the relatives of the Directors outside the purview | ||
of public deposits subject to adequate disclosures in this regard. | |||
• | The formats of all the returns prescribed in terms of Directions issued under RBI Act, to be submitted | ||
by the non-banking financial companies, residuary non-banking companies and chit fund companies | |||
at quarterly, half-yearly and annual intervals were rationalised with a view to improving reporting of | |||
supervisory information and facilitating electronic processing of these returns to enable Reserve | |||
Bank to take expeditious steps to address the concerns, wherever necessary. | |||
October | 10 | • | In terms of guidelines issued by the Reserve Bank, applicability of Non-Banking Financial |
Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 would not be applicable | |||
to receipt of money by NBFCs by issuance of commercial paper in accordance with the guidelines. | |||
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2001 | |||
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March | 31 | • | Taking into account the market conditions and changes in other interest rates in the system, the |
maximum rate of interest that NBFCs can pay on their public deposits was reduced from 16 per cent | |||
to 14 per cent per annum with effect from April 1, 2001. The ceiling on interest rate was brought down | |||
to 14 per cent per annum to deposits accepted by Miscellaneous non-banking companies (Chit Fund | |||
companies) and Nidhi companies also in terms of directions prescribed by Reserve Bank. | |||
June | 27 | • | Asset-Liability Management (ALM) guidelines for NBFCs including RNBCs were announced as a part |
of the overall system for effective risk management in their various portfolios and initially made | |||
applicable to such companies which have asset size of Rs. 100 crore and above or public deposits of | |||
Rs. 20 crore and above as per their balance sheet as on March 31, 2001. NBFCs have been advised | |||
that it would be desirable to constitute an Asset-Liability Management Committee under the charge of | |||
Chief Executive Officer or other Senior Executive with other specialist members for carrying out the | |||
spadework for formalising ALM system in the institution. The ALM system is required to be | |||
implemented by the year ending March 31, 2002. While companies holding public deposits are required | |||
to submit the first ALM return (comprising of statements on structural liquidity, short-term dynamic | |||
liquidity and interest rate sensitivity) as on September 30, 2002 by October 31, 2002, arrangements for | |||
companies not holding public deposits are being worked out. Chit funds and Nidhi companies have | |||
been kept out of the purview of these guidelines. NBFCs not coming under the purview of the | |||
guidelines presently have also been advised to put in place ALM system as it is the objective of Reserve | |||
Bank to make these guidelines applicable to all NBFCs. | |||
• | Since issue of CPs by NBFCs would be governed by the guidelines issued by the Reserve Bank it | ||
was decided to exempt from the purview of public deposits the monies received by issue of CP in | |||
accordance with the guidelines; | |||
(i) The procedure of accounting for repossessed assets was clarified and suitable guidelines | |||
were issued. | |||
ii) To ensure adoption of a uniform practice by companies for computing the net amount of outstanding | |||
public deposit liabilities, it was clarified that NBFCs may maintain liquid assets on deposit liabilities | |||
as netted off in respect of TDS actually deducted and remitted to Government. | |||
(iii) In order to improve the accountability of the management of the company to its shareholders, | |||
statutory auditors of NBFCs were advised that their observations on contravention of RBI | |||
Act / Directions should also form part of the reports submitted by them to the shareholders | |||
of the company under Section 227 (2) of the Companies Act, 1956, besides directly reporting | |||
such contravention to Reserve Bank. | |||
(iv) An option was given to companies which have been granted Certificate of Registration with | |||
authorisation to accept public deposits but which were not submitting returns since they | |||
have repaid the public deposits or placed the requisite amount with scheduled commercial | |||
banks advising them to either submit periodic returns or apply for conversion into a non- | |||
public deposit taking company within 30 days. | |||
October | 31 | • | Taking into account the market conditions and changes in other interest rates in the system, |
the maximum rate of interest that NBFCs can pay on their public deposits was reduced, effective | |||
November 1, 2001, from 14 per cent to 12.5 per cent per annum. | |||
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