Monetary and Credit Information Review - ఆర్బిఐ - Reserve Bank of India
Monetary and Credit Information Review
Volume XIII April 2017 MONETARY AND CREDIT INFORMATION REVIEW Banking Supervision Revised Prompt Corrective Action Framework for Banks The Reserve Bank on April 13, 2017 revised the framework for Prompt Corrective Action (PCA) for banks. The provisions of the revised PCA framework will be effective from April 1, 2017 based on the financials of the banks for the year ended March 31, 2017. The framework would be reviewed after three years. The PCA framework does not preclude the Reserve Bank of India from taking any other action as it deems fit in addition to the corrective actions prescribed in the framework. The salient features of the revised PCA framework are:
(/en/web/rbi/-/notifications/revised-prompt-corrective-action-pca-framework-for-banks-10921) Compliance with Ghosh Committee Recommendations On a review of the implementation status of Ghosh Committee recommendations in various banks, the Reserve Bank on April 20, 2017 advised all scheduled commercial banks that they need not report the compliance to the Ghosh Committee recommendations, to the Audit Committee of the Board (ACB). However, banks are advised to ensure that: i) Compliance to these recommendations are complete and sustained; and ii) These recommendations are appropriately factored in the internal inspection/audit processes of banks and duly documented in their manual/ instructions, etc. (/en/web/rbi/-/notifications/compliance-with-ghosh-committee-recommendations-10934) Banking Regulation Role of the Chief Risk Officer As part of effective risk management, the Reserve Bank on April 27, 2017 has advised all scheduled commercial banks that they are required, inter-alia, to have a system of separation of credit risk management function from the credit sanction process. However, it is observed that the banks follow diverse practices in this regard. In order to bring uniformity in approach followed by banks, as also, to align the risk management system with the best practices, banks are advised as under:
(/en/web/rbi/-/notifications/risk-management-systems-role-of-the-chief-risk-officer-cro-10948) First Bi-monthly Monetary Policy Statement, 2017-18 Resolution of the Monetary Policy Committee (MPC) The fourth meeting of the Monetary Policy Committee (MPC), constituted under section 45ZB of the amended Reserve Bank of India Act, 1934, was held on April 5 and 6, 2017 at the Reserve Bank of India, Mumbai. The meeting was attended by all the members - Dr. Chetan Ghate, Professor, Indian Statistical Institute; Dr. Pami Dua, Director, Delhi School of Economics; and Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management, Ahmedabad; Dr. Michael Debabrata Patra, Executive Director; Dr. Viral V. Acharya, Deputy Governor in-charge of monetary policy - and was chaired by Dr. Urjit R. Patel, Governor. On the basis of an assessment of the current and evolving macroeconomic situation at its meeting on April 6, 2017, the Monetary Policy Committee (MPC) decided to: • keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.25 per cent. Consequent upon the narrowing of the LAF corridor as elaborated in the accompanying Statement on Developmental and Regulatory Policies, the reverse repo rate under the LAF is at 6.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate are at 6.50 per cent. The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. The main considerations underlying the decision are set out in the statement below. Other Highlights of the Monetary Policy Committee meeting
Developmental and Regulatory Policies Liquidity Management Framework for Monetary Policy Operations
Banking Regulation and Supervision
Financial Markets
Payment and Settlement
Financial Inclusion
IFSC Banking Units – Permissible Activities The Reserve Bank on April 10, 2017 modified its directions relating to operations of the Indian Financial System Code (IFSCs) Banking Units (IBUs) and financial institutions in IFSC as follows:
Background The Reserve Bank modified the directions after examining the issues, suggestions and queries from the stakeholders regarding operations of the IBUs and financial institutions in IFSCs. (/en/web/rbi/-/notifications/setting-up-of-ifsc-banking-units-ibus-permissible-activities-10918) Banks’ Investment in Units of REITs and InvITs The Reserve Bank on April 18, 2017 allowed banks to participate in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) within the overall ceiling of 20 per cent of their net worth permitted for direct investments in shares, convertible bonds/ debentures, units of equity-oriented mutual funds and exposures to Venture Capital Funds (VCFs) [both registered and unregistered], subject to the following conditions:
Compliance with Accounting Standard by Banks The Reserve Bank on April 18, 2017 has clarified that the repatriation of accumulated profits shall not be considered as disposal or partial disposal of interest in non-integral foreign operations. Accordingly, banks shall not recognise in the profit and loss account, the proportionate exchange gains or losses held in the foreign currency translation reserve on repatriation of profits from overseas operations. Background It has been observed that banks have been recognising gains in profit and loss account from Foreign Currency Translation Reserve (FCTR) on repatriation of accumulated profits / retained earnings from overseas branch(es) by treating the same as partial disposal. The matter has been examined taking into consideration, among others, the views of the Institute of Chartered Accountants of India. Additional Provisions for Standard Advances With a view to ensure that banks have adequate provisions for loans and advances at all times, the Reserve Bank on April 18. 2017 advised all scheduled commercial banks (excluding RRBs) as under: i) Banks shall put in place a Board–approved policy for making provisions for standard assets at rates higher than the regulatory minimum, based on evaluation of risk and stress in various sectors; ii) The policy shall require a review, at least on a quarterly basis, of the performance of various sectors of the economy to which the bank has an exposure to evaluate the present and emerging risks and stress therein. The review may include quantitative and qualitative aspects like debt-equity ratio, interest coverage ratio, profit margins, ratings upgrade to downgrade ratio, sectoral non-performing assets/stressed assets, industry performance and outlook, legal/ regulatory issues faced by the sector, etc. The reviews may also include sector specific parameters; iii) More immediately, as the telecom sector is reporting stressed financial conditions, and presently interest coverage ratio for the sector is less than one, Board of Directors of the banks may review the telecom sector latest by June 30, 2017, and consider making provisions for standard assets in this sector at higher rates so that necessary resilience is built in the balance sheets should the stress reflect on the quality of exposure to the sector at a future date. Besides, banks should also subject the exposure to the sector to closer monitoring. It is advised that the provisioning rates prescribed are the regulatory minimum and banks are encouraged to make provisions at higher rates in respect of advances to stressed sectors of the economy. Disclosure in the Notes to Accounts In order to ensure greater transparency and promote better discipline with respect to compliance with Income Recognition, Asset Classification and Provisioning (IRACP) norms, the Reserve Bank on April 18, 2017 advised banks to make suitable disclosures, wherever either (a) the additional provisioning requirements assessed by the Reserve bank exceed 15 percent of the published net profits after tax for the reference period or (b) the additional Gross NPAs identified by the Reserve Bank exceed 15 percent of the published incremental Gross NPAs for the reference period, or both. Background The Reserve Bank assesses compliance by banks with extant prudential norms on income recognition, asset classification and provisioning IRACP as part of its supervisory processes. There have been instances of material divergences in banks’ asset classification and provisioning from the Reserve Bank norms, thereby leading to the published financial statements not depicting a true and fair view of the financial position of the bank. Interest Rate Data on Monthly Basis from April 2017 With a view to improving the frequency and timeliness of release of interest rate data, the Reserve Bank on April 3, 2017 has decided that the following four tables will now be released on a monthly basis beginning April 2017:
The Reserve Bank has been publishing data on lending rates of banks on its website every quarter since the quarter ended June 2002. A new table on bank-group-wise weighted average domestic term deposit rates has also been introduced. Financial Inclusion and Development To emphasise the importance of financial literacy, the Reserve Bank on April 13, 2017 has decided to observe the week from June 5 to June 9, 2017 as Financial Literacy Week across the country. The literacy week will focus on four broad themes, namely, KYC, Exercising Credit Discipline, Grievance Redressal and Going Digital (UPI and *99#). The five messages that will be communicated to the common man based on the above broad themes are available under “Financial Literacy Week” in the downloads section of the financial education webpage of the Reserve Bank. Local language versions of the posters (A3 size) for display in bank branches, flyers (A5 size) for distribution to camp participants and charts (A2 size) for use by trainers during camps, would be printed and provided by the regional offices of the Reserve Bank. Banks are advised to make logistical arrangements to collect the posters/flyers/charts from the Regional offices of the Reserve Bank during the first two weeks of May and distribute the same to their branches and Financial Literacy Centres (FLCs) well in advance before the Financial Literacy Week. During the week, the following activities have been planned:
It is the endeavour of the Reserve Bank to reach out to the common man during the Financial Literacy week and seek the whole hearted co-operation from the banking fraternity at large in making this event a grand success. (/en/web/rbi/-/notifications/financial-literacy-week-10920) Non Banking Regulation The Reserve Bank on April 28, 2017 advised that no Asset Reconstruction Company (ARC) shall commence or carry on the business of securitisation or asset reconstruction without having Net Owned Fund (NOF) of not less than Rupees two crore or such other higher amount as the Reserve Bank may, by notification, specify. Accordingly, and keeping in view the greater role envisaged for ARCs in resolving stressed assets as also the recent regulatory changes governing sale of stressed assets by banks to ARCs, it has been decided to fix the minimum NOF requirement for ARCs at ₹ 100 crore on an ongoing basis All the ARCs which are already registered with Reserve Bank of India as on the date of the Notification and not having the revised minimum NOF as on date shall achieve a minimum NOF of ₹ 100 crore latest by March 31, 2019. ARCs shall submit a certificate from their Statutory Auditors periodically as evidence of compliance thereof. Government and Bank Accounts Systems and Controls for Government Banking The Reserve Bank on April 7, 2017 advised all agency banks to ensure that internal/concurrent audit at bank branches verifies whether government business is being conducted as per rules and regulations prescribed by the Government/Reserve Bank of India. Accordingly, the internal/concurrent audit at bank branches may also examine, among other things, various aspects of government banking, such as, agency commission claims and pension payments. (/en/web/rbi/-/notifications/systems-and-controls-for-conduct-of-government-banking-10912) Financial Markets Operations Security Substitution Facility The Reserve Bank on April 12, 2017 allowed substitution of collateral (security) by the market participants during the tenor of the term repos conducted by Reserve Bank of India under the Liquidity Adjustment Facility, from April 17, 2017. The securities offered for substitution by the market participants shall be of similar market value based on the latest prices published by the Fixed Income Money Market and Derivatives Association of India (FIMMDA). The facility will be available in the e-kuber portal from Monday to Friday between 9:00 a.m. and 5:00 p.m. on all working days in Mumbai. Debt Management Draft Framework on introduction of Tri-Party Repo The Reserve Bank of India on April 11, 2017 released the draft framework on the introduction of Tri-Party Repo. Tri-party repo will enable market participants to use underlying collateral more efficiently and facilitate development of the term repo market in India. Draft directions allow introduction of tri-party repo on both Government securities and corporate bonds. Comments on the draft framework are invited from market participants by May 5, 2017. Comments may be emailed or sent by post to the Chief General Manager, Reserve Bank of India, Financial Markets Regulation Department, Central Office, Main Building, Mumbai – 400001. (/en/web/rbi/-/press-releases/rbi-announces-draft-framework-on-introduction-of-tri-party-repo-40121) Edited and published by Alpana Killawala for the Reserve Bank of India, Department of Communication, Central Office, Shahid Bhagat Singh Marg, Mumbai - 400 001. MCIR can be accessed at www.mcir.rbi.org.in |