Reserve Bank of India Central Office Department of Banking Operations & Development Centre - 1, World Trade Centre Cuffe Parade, Colaba, Mumbai - 400 005

DBOD.No.Dir.BC. 52/13.08.01/ 00-01

November 23, 2000

All Commercial Banks
(Including Regional Rural Banks and
Local Area Banks)

Dear Sir,

Selective Credit Control - Granting of fresh/
additional limits to borrowers dealing in sensitive
commodities - Delegation of powers

 

Please refer to our circular DBOD.NO. Dir.BC.32/13.08.01/95 dated 24 March 1995 on the above subject.

2. The matter relating to delegation of powers with regard to approval of credit proposals relating to sensitive commodities coming under Selective Credit Control has been reviewed and it has been decided that with immediate effect, the existing practice of banks submitting credit proposals above Rs.1 crore to Reserve Bank of India for its prior approval under Selective Credit Control shall be discontinued and banks will have the freedom to sanction such credit proposals in terms of their individual loan policies. Accordingly, banks need not forward the credit proposals above Rs.1 crore in respect of borrowers dealing in sensitive commodities to the Reserve Bank of India for its prior approval.

3. The banks are advised to circulate these instructions among their controlling offices/branches and take all necessary steps to ensure that the powers delegated at various levels are exercised with utmost caution without sacrificing the broad objectives of the selective credit control concept.

4. The existing clause 1(j)(ii) of paragraph 13.A.IV may be substituted by a new clause in paragraph 13.A.IV of the Manual of Instructions (Vol.I Part I) issued by DBOD, DBS & IECD as per the Slip no. attached.

5. The existing paragraph 13.A.IV.1.(k) of the Manual of Instructions will be substituted by a new paragraph as per the Slip no. attached.

6. Please acknowledge receipt.

 

Yours faithfully,

 

(P.V.Subba Rao)
Chief General Manager

 

Slip

(Chapter 13.A.IV Manual of Instructions
DBOD, DBS, IECD
BP. BC 31 of 2000)

13.A.IV.1(j)(ii)

With effect from 21^st October 1996, the bank advances against pulses, other foodgrains (viz., coarse grain), oilseed (viz., groundnut, rapeseed/mustard, cottonseed, linseed, coastorseed), oils thereof including vanaspati, all imported oilseeds and oils, sugar except buffer stock and unreleased stock of sugar to sugar mills, gur and khandsari and cotton and kapas are exempted from all the stipulations of selective credit controls. Banks are free to fix prudential margins on advances against sensitive commodities. With effect from 10^th October 2000, the margins in respect of free sale sugar will be decided by the banks based on their commercial judgement. The prescribed margin of 10 per cent in respect of levy stock and zero margin in respect of buffer stocks will continue without change.

Slip

(Chapter 13.A.IV Manual of Instructions
DBOD, DBS, IECD
DIR BC of 2000)

13.A.IV.1.(k)

The practice of banks submitting credit proposal above Rs. 1 crore to Reserve Bank of India for its prior approval under Selective Credit Control has been discontinued and banks have been given freedom to sanction such credit facility in terms of their individual loan policies.

Slip

(Chapter 13.A.III Manual of Instructions
DBOD, DBS, IECD
BP.BC. 31 of 2000)

13.A.III.11 Levying of penal rates of interest

Penal rate represents additional interest charged over and above the normal interest rates. Since the banks Boards have been empowered to decide the Prime Lending Rates (PLR) as also the spread over PLR, the Board may now take decision on penal interest that should be levied for reasons such as default in repayment of loans, irregularities in cash credit accounts, non-submission of financial statements, etc. However, banks should formulate transparent policy for charging penal interest rates and implement it with discrimination and selectivity in order to avoid indiscriminate levy of penal interest. The policy should be governed by well accepted principles of transparency, fairness, incentive to service the debt and due regard to genuine difficulties of customers.