Regulatory and Other Measures

February 2010

RBI/2009-2010/302 Ref: UBD (PCB).No./2/ 12.03.000/2009-10 datef February 01, 2010 The Chief Executive Officers of All Scheduled Primary (Urban) Co-operative Banks

UCBs - Section 42(1) of Reserve Bank of India Act, 1934-Maintenance of Cash Reserve Ratio (CRR)

Please refer to our Circular UBD (PCB) Cir. No.9/ 12.03.000/ 2008-09 dated January 05, 2009 on the captioned subject.

2. On the basis of the current macroeconomic assessment, as set out in the Third Quarter Review of the Monetary Policy 2009-10 issued on January 29, 2010, it has been decided to increase the Cash Reserve Ratio (CRR) for Scheduled Primary (Urban) Cooperative Banks by 75 basis points from 5.00 per cent to 5.75 per cent of their net demand and time liabilities (NDTL), in two stages,effective from the fortnights as indicated below.

RBI/2009-10/305 DPSS CO EPPD No.168 / 04.03.01 / 2009-2010 dated February 5, 2010

The Chairman and Managing Director / Chief Executive Officer of all member banks participating in NEFT

National Electronic Funds Transfer (NEFT) System – Refinement of process-flow and enhancement of features

The National Electronic Funds Transfer (NEFT) system has been successfully handling significant volumes, ever since its launch in November 2005. The coverage has also increased substantially with the participation of over 63,000 bank branches spread across the length and breadth of the country.

2. NEFT uses the Public Key Infrastructure (PKI) technology to assure end-to-end security and the Indian Financial Network (INFINET) to connect bank branches for electronic transfer of funds. NEFT has no amount restrictions and accepts cash up to Rs. 50,000 for originating transactions.

3. With a view to further strengthen the NEFT system in terms of availability, convenience, efficiency and speed, the following refinements to process-flow and enhancements to operational features are being introduced –

(i) Tightening of Return Window – Presently, the NEFT procedural guidelines mandate banks to return NEFT transactions in the very next available batch. The NEFT system has, however, been designed to allow destination banks to return transactions on a T+1 basis. The traffic analysis has revealed that a major chunk of returns are effected by banks either in the last batch of the day or in the first batch of the next day, indicating that the transactions are processed by the destination batches only at the end of the day instead of batch-wise. In order to streamline the system and complete the processing cycle on a near-real-time basis, the concept of return within two hours of completion of a batch is being introduced. The B+2 return discipline would require banks to afford credit to beneficiary accounts immediately upon completion of a batch or else return the transactions within two hours of completion of the batch settlement, if credits are unable to be afforded for any reason. Required changes in the SFMS / NEFT software has been carried out. Necessary changes are also being made to the Procedural Guidelines for the purpose.

(ii) Increase in Operating Hours – NEFT is currently available from 9 am to 5 pm on week days and from 9 am to 12 noon on Saturdays. There have been constant requests from various individual and business segments to elongate the operating hours. After examining the feasibility and customer benefits, it has been decided to extend NEFT operating hours from 9 am to 7 pm on week days and from 9 am to 1 pm on Saturdays. Member banks need to effect changes at their end to initiate and/ or receive NEFT transactions taking full advantage of the increased hours of operation.

(iii) Move to Hourly Settlements – On date, NEFT has six batches of settlement at 9 am, 11 am, 12 noon, 1 pm, 3 pm and 5 pm on week days and three batches of settlement at 9 am, 11 am and 12 noon on Saturdays. An analysis of daily data has shown that the volume of transactions processed in batches that have a gap of two hours between batches is double the volume of transactions processed in batches that have only an hour’s gap between them. With a view to evenly space out transactions across batches, as also to make the system near-real-time, it has been decided to introduce the concept of hourly settlements. Accordingly, there would be eleven hourly settlements starting from 9 am to 7 pm on all week days and five hourly settlements from 9 am to 1 pm on Saturdays. Necessary changes have been carried out in the SFMS / NEFT software.

(iv) Implementation of Positive Confirmation – At present, the uncredited NEFT transactions are returned by destination banks and it is presumed that credit for all other transactions have been afforded to beneficiary accounts. In order to remove any ambiguity and to introduce the element of positive confirmation, the NEFT outward message format is being modified to contain two additional fields, wherein mobile number and / or e-mail address of the originating customer can be populated. A new message format is also being introduced to relay to the originating bank an acknowledgement containing the date and time of credit, immediately after the credit is afforded to beneficiary accounts. This message would flow from the destination bank / branch to the originating bank / branch. The originating banks after receiving the positive confirmation from the destination banks shall have to initiate a mobile SMS or generate an e-mail to the originator to convey the fate of the transaction. Detailed process flow for generating the positive confirmation is enclosed. SFMS / NEFT has been modified to add the required fields in the existing messages as also to handle the new messages.

4. The above modifications will be implemented in NEFT with effect from March 1, 2010. Member banks are advised to carry out appropriate changes to their CBS / system interfaces to handle the enhancements. In order to facilitate smooth migration, IDRBT-Hyderabad would release modified patches to be applied on SFMS / NEFT applications by February 15, 2010. For any additional information / clarifications, the NEFT team at your bank can contact officials of DPSS or IDRBT through email.

Infrastructure Finance Companies

Please refer to paragraph 178 of the Second Quarter Review of the Monetary Policy for the year 2009-10. NBFCs-ND-SI engaged predominantly in infrastructure financing have represented to the Reserve Bank that there should be a separate category of infrastructure financing NBFCs in view of the critical role played by them in providing credit to the infrastructure sector. Currently, the Reserve Bank has classified NBFCs under three categories, viz., Asset Finance Companies, Loan companies and Investment Companies. It has now been decided to introduce a fourth category of NBFCs as “Infrastructure Finance Companies”(IFCs).

2. Accordingly, it is advised that the present classification of NBFCs stands modified to include IFCs. An IFC is defined as non deposit taking NBFC that fulfills the criteria mentioned below:

i) a minimum of 75 per cent of its total assets should be deployed in infrastructure loans as defined in Para 2 (viii) of the Non Banking Financial (Non Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007;

ii) Net owned funds of Rs. 300 crore or above;

iii) minimum credit rating ‘A’ o r equivalent of CRISIL, FITCH, CARE, ICRA or equivalent rating by any other accrediting rating agencies iv) CRAR of 15 percent (with a minimum Tier I capital of 10 percent).

3. IFCs may exceed the concentration of credit norms as provided in paragraph 18 of the aforesaid Directions as under:

(i) in lending to

(a) any single borrower by ten per cent of its owned fund; and

(b) any single group of borrowers by fifteen per cent of its owned fund;

(ii) in lending and investing (loans/ investments taken together) by

(a) five percent of its owned fund to a single party; and

(b) ten percent of its owned fund to a single group of parties.

(iii) The extant norms for investment for both single party and single group of parties will remain same as in Para 20 of the Directions referred to above.

4. The present norms relating to infrastructure loan as laid out in Para 20 of the aforesaid Directions will continue for NBFCs that do not meet the criteria to be classified as IFCs.

5. Since the classification for the purpose of income recognition, asset classification and provisioning norms is based on asset specification, the extant prudential norms will continue as hitherto.

6. The companies satisfying the above conditions may approach the Regional Office in the jurisdiction of which their Registered Office is located, along with the original Certificate of Registration (CoR) issued by the Bank for classification as Infrastructure Finance Companies. Their request must be supported by a certificate from their Statutory Auditors confirming the asset / income pattern of the company as on March 31, of the latest financial year. The change in classification would be incorporated in the Certificate of Registration issued by the Bank as NBFC-ND-IFC.

7. The onus of including only eligible assets for the purpose of classification as IFC shall be that of the company concerned.

The necessary amendments to the Non- Banking Financial (Non- Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, contained in Notification No. DNBS. 193/DG(VL)-2007 dated February 22, 2007 have been carried out.

RBI/2009-10/320 DCM(Plg)No. G-18 /10.01.03/ 2009-10 dated February 19, 2010

The Chairman and Managing Director / Chief Executive Officer
All Scheduled Commercial Banks

Setting up of Cash Processing Centres – Recommendation of HLG

We invite your attention to issue of a directive DCM (NPD)No. 3158 / 09.39.00(Policy)/2009-10 dated November 2009 (issued under cover of our letter DCM(NPD)No. 3161/09.39.00(Policy)/2009- 10 also dated 19 November 2009 enjoining upon the banks to necessarily check/process the notes in the denomination of Rs. 100 and above through Machines for fitness and authenticity, confirming to Standards prescribed by the Reserve Bank from time to time, before their issue through ATM/ over counters. The instructions as above were issued by us pursuant to the recommendations of the High Level Group constituted under DG(UT) to look into various currency management practices in vogue.

2. The Group, inter alia, has also recommended setting up of Cash Processing Centres (CPCs) at various key locations with enhanced processing and storage capacities to tap advantages arising out of economies of scale, minimise overnight cash risks at bank branches and to benefit from sophisticated logistics techniques.

3. Since banks may find it difficult to install/maintain machines at all their branches dealing with notes of high denomination, it has been decided to accept the Group’s recommendations with respect to CPC and encourage the banks to set up state of the art Cash Processing Centres (CPCs) with substantial processing and storage capacities. This would further RBI’s objective of the Clean Note Policy.

4. Banks may consider any of the following three types of Cash Processing Centres (CPCs):

1. A CPC established at an existing currency chest branch in the same location.

2. A CPC attached to an existing/new currency chest branch in different location.

3. A stand alone CPC that provides only fitness sorting and authentication services (i.e. they shall collect mixed notes from the bank branches in the morning and would return the same, after processing/authentication checking/sorting, in the evening as unfit notes, fit/issueable notes (ATM Fit/Counter Fit and suspect notes).

5. To make the CPCs viable and also to take advantage of capacity built up, the CPCs may also serve the branches of other banks which may require its services and charge from them a reasonable fee for the services rendered at mutually agreed rates. The stand alone CPCs could also render services to others such as merchant establishments, petrol pumps, etc. handling large volumes of cash against payment of fees.

6. Machines to be installed at CPC shall confirm to “Note Authentication and Fitness Sorting Standards” prescribed by RBI (DCM).

7. CPC shall be subject to inspection by RBI at any time.

RBI/2009-10/322 DBOD. No. Dir. BC 77/ 13.03.00/2009-10 dated February 19, 2010

All Scheduled Commercial Banks (Excluding RRBs)

Payment of Interest on Savings Bank Account on Daily Product Basis

Please refer to our circular DBOD. No. Dir. BC.128/13.03.00/2008-09 dated April 24, 2009 advising banks that in view of the present satisfactory level of computerisation in commercial bank branches, it is proposed that payment of interest on savings bank accounts by scheduled commercial banks would be made on a daily product basis with effect from April 1, 2010. Further, banks were advised that in order to ensure a smooth transition, they may work out the modalities in this regard.

2. We advise that payment of interest on savings bank accounts may be made by banks on a daily product basis with effect from April 1, 2010.