Monetary and Credit Information Review - ஆர்பிஐ - Reserve Bank of India
Monetary and Credit Information Review
Volume IV
MONETARY AND CREDIT INFORMATION REVIEW UCBs Investments in Non-SLR Securities With a view to allowing primary (urban) co-operative banks (UCBs) greater flexibility in making non-SLR investments, the Reserve Bank has issued guidelines as below: (i) Non-SLR investments would continue to be limited to 10 per cent of a UCB's total deposits as on March 31 of the previous year (iii) Investments in unlisted securities should not exceed 10 per cent of the total non-SLR investments at any time. Where UCBs have already exceeded this limit, no incremental investment in such securities would be permitted. (iv) Investments in units of mutual funds, except debt mutual funds and money market mutual funds, would not be permitted. The existing holding in units of other than debt mutual funds and money market mutual funds, including those in Unit Trust of India (UTI) should be disinvested. Till such time that they are held in the books of the UCB, they would be reckoned as non-SLR investments for the purpose of the limit at (i) above. (v) Fresh investments in shares of all India financial institutions (AIFIs) would also not be permitted. The existing share holding in these institutions may be phased out and till such time they are held in the books of the bank, they would be reckoned as non-SLR investments for the purpose of the limit at (i) above. (vii) Balances held in deposit accounts with commercial banks and in permitted scheduled UCBs and investments in certificates of deposit (CDs) issued by commercial banks would be outside the limit of 10 per cent of total deposits prescribed for non-SLR investments. (viii) The total amount of funds placed as inter-bank deposits (for all purposes including clearing, remittance, etc.) should not exceed 10 per cent of the demand and tine liabilities (DTL) of a UCB as on March 31 of the previous year. The prudential inter-bank exposure limit of 10 per cent of the DTL would be all-inclusive and not limited to inter-bank call and notice money. Exception has, however, been made for Tier I UCBs, which may place deposits up to 15 per cent of their NDTL with public sector banks over and above the prudential limit of 10 per cent of NDTL (ix) Exposure to any single bank should not exceed 2 per cent of the depositing bank's DTL as on March 31 of the previous year, inclusive of its total non-SLR investments and deposits placed with that bank. Deposits, if any, placed for availing constituent subsidiary general ledger (CSGL) facility, currency chest facility and non-fund based facilities like bank guarantee (BG), letter of credit (LC) would be excluded to determine the single bank exposure limit for this purpose. (x) All investments as above, barring deposits placed with banks would be subject to the prescribed prudential individual/group exposure limits. (xi) All investments, other than those in CPs and CDs, should be in instruments with an original maturity of at least one year. (xii) Non-scheduled UCBs having single branch-cum-head-office or having multiple branches within a single district, having a deposit base of Rs.100 crore or less are exempt from maintaining SLR in prescribed assets up to 15 per cent of their DTL, on keeping the required amount, in interest bearing deposits with State Bank of India and its subsidiary banks and public sector banks including Industrial Development Bank of India Ltd. Such deposits are not covered under these guidelines and the limits prescribed at (vii) above are exclusive of such deposits. UCBs have been advised to review their investment policy and ensure that it provides for the nature and extent of investments intended to be made in non-SLR instruments now permitted, the risk parameters and cut-loss limits for holding/ divesting the investments. UCBs should also put in place proper risk management systems for capturing and analysing the risk involved in non-SLR investment and taking remedial measures in time. The boards of UCBs should review the following aspects of non-SLR investment at half-yearly intervals:
UCBs should also disclose the details of the issuer-wise composition of non-SLR investments and non-performing investments in the 'Notes on Accounts' of the balance sheet. The Reserve Bank will now consider requests from UCBs (other than 'unit' banks) to shift their branches from one city to another in their area of operation within the same state, subject to the conditions that –
UCBs may submit their applications in this regard to the regional office of the Reserve Bank's Urban Banks Department in whose jurisdiction the UCB's head office is situated. BANKING Monitoring Advances Banks have also been advised that whenever stocks under hypothecation to cash credit and other loan accounts are found to have been sold but the proceeds have not been credited to the loan account, such action should normally be treated as a fraud. In such cases, banks should take immediate steps to secure the remaining stock so as to prevent further erosion in the value of the available security and also other action as warranted. As the restrictive provisions of service area approach have been dispensed with, the Reserve Bank has modified its earlier instructions issued to regional rural banks (RRBs) regarding shifting/merger of branches. The modified instructions are – Shifting of Branches At Rural Centres RRBs may shift branches in rural centres without obtaining the Reserve Bank's prior approval, subject to the condition that, both the existing and proposed centres are within the same block and that the relocated branch would be able to cater adequately to the banking needs of the villages served by the existing branch. At Semi-Urban Centres RRBs may shift their branches at semi-urban centres within the same locality/municipal ward without the Reserve Bank's prior approval. It should, however, be ensured that the locality/ward is not rendered unbanked due to the shifting of branch/es. Where two loss making branches of an RRB are in close proximity to each other (i.e. within a distance of about 5 kms.), the RRB may consider merging the two branches with a view to rationalising the spatial spread and reducing establishment/ operating costs. Conversion of Satellite Offices into Full-fledged Branches RRBs are now allowed to convert their satellite offices into full-fledged branches after obtaining concurrence from the Empowered Committee on RRBs. RRBs should, however, also obtain necessary licence from the Reserve Bank's regional office concerned. RRBs are now allowed to set up extension counters at places of worship and market places. The condition of being principal bankers would not apply in such cases. RRBs should, however, obtain the necessary licence from the Reserve Bank's regional office concerned. (a) The loan amount should not exceed 90 per cent of the purchase price of the shares or rupees 20 lakh per NRI employee, whichever is lower. (b) The rate of interest and margin on such loans may be decided by the banks, subject to the directives issued by the Reserve Bank from time to time. (c) The amount should be paid directly to the company and should not be credited to the borrowers’ non-resident accounts in India. (d) The loan amount should be repaid by the borrower by way of inward remittances or by debit to his non-resident (external) rupee (NRE)/foreign currency non-resident (banks) {FCNR(B)} account. CUSTOMER SERVICE In order to encourage a formal channel of communication between customers and banks at the branch level, the Reserve Bank has advised banks to include their customers in their branch level customer service committees. Further, as senior citizens usually form an important constituency in banks, a senior citizen should also be included in the committee. The branch level committees should submit quarterly reports giving inputs/suggestions to the Standing Committee on Customer Service, which should examine them and give relevant feedback to the Customer Service Committee of the board for necessary policy/procedural action. The Branch Level Customer Service Committee should meet at least once a month to study complaints/suggestions, cases of delay, difficulties faced/ reported by customers/members of the Committee and evolve ways and means of improving customer service. Reiterating its earlier instructions of May 2003, the Reserve Bank has advised banks/financial institutions (FIs) to invariably furnish a copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement to all borrowers at the time of sanction/disbursement of loans. INFORMATION Holding Companies in Banking Groups The Reserve Bank of India released a discussion paper on Holding Companies in Banking Groups on August 24, 2007. The discussion paper which is open for public comments till October 7, 2007 has been summarised below: Major Motivations for BHCs/FHCs in India In terms of existing instructions in India, a bank’s aggregate investment in financial services companies including subsidiaries is limited to 20 per cent of the paid up capital and reserves of the bank. In a Bank Holding Company (BHC)/ Financial Holding Company (FHC) structure, this restriction will not apply as the investment in subsidiaries and associates will be made directly by the BHC/FHC. Once the subsidiaries are separated from the banks, the growth of the subsidiaries/ associates would not be constrained on account of capital. The government holding of public sector banks through a BHC/FHC will not be possible under the existing statutes. However, if statutes are amended to count for effective holding then, the most important advantage in shifting to BHC/FHC model would be that the capital requirements of banks' subsidiaries would be de-linked from the banks’ capital. Since the non-banking entities within the banking group would be directly owned by the BHC, the contagion and reputation risk on account of affiliates for the bank is perceived to be less severe as compared with at present. Financial Conglomerates with IHCs The intermediate holding companies (IHCs) model has been mainly used by multinational corporations to take tax advantage by setting up the intermediate holding companies in tax havens. The intermediate holding companies have also been used for regulatory arbitrage. Concerns General concerns
India Specific Concerns
There are considerable advantages in having FHC/BHC structure inasmuch as the banks would be much better protected from the possible adverse effects from the activities of their non-banking financial subsidiaries. In fact, it may also be possible to consider allowing non banking subsidiaries under the FHC/ BHC structure to undertake riskier activities which have not been allowed so far to bank subsidiaries such as commodity broking. It will be useful to explore the possibility of adopting a BHC/ FHC Model. However, a proper legal framework needs to be created before such structures are floated and it is ensured that no unregulated entities are present within the structure. It will also be useful to contain the complexity in the BHC/FHC Model as also in the Bank Subsidiary Model of conglomeration to the bare minimum. Towards this end, it will be desirable to avoid intermediate holding company structures. Comments/suggestions may be sent to email. Edited and published by Alpana Killawala for the Reserve Bank of India, Press Relations Division, Central Office, Shahid Bhagat Singh Marg, Mumbai - 400 001 and printed by her at Onlooker Press, 16, Sassoon Dock, Colaba, Mumbai - 400 005. For renewal and change of address please write to the Chief General Manager, Press Relations Division, Reserve Bank of India, Central Office Building, 12th floor, Fort, Mumbai - 400 001 without enclosing DD/cheque. MCIR is also available on Internet at www.mcir.rbi.org.in |