The Reserve Bank has revised its guidelines on dividends payable by banks as under :

The bank should -

• The Reserve Bank should not have placed any explicit restrictions on the bank for declaration of dividends.

Banks desirous of declaring dividend higher than the specified limit, should obtain the Reserve Bank’s prior approval. The Reserve Bank would consider requests received from banks on a case-to-case basis.

Banks which qualify for declaring dividend and satisfy the other requirements mentioned above, may also declare and pay interim dividends out of the relevant accounting period’s profit without the Reserve Bank’s prior approval provided, the cumulative interim dividend(s) are within the prudential cap on dividend payout ratio (33.33 per cent) computed for the relevant accounting period. Declaration and payment of interim dividends beyond this ceiling would, however, require the Reserve Bank’s prior approval.

Banks which do not meet the eligibility criteria prescribed above, should obtain the Reserve Bank ‘s prior approval before declaring any dividend. Requests received from such banks would be considered by the Reserve Bank on a case-to-case basis.

(i) provision of adequate liquidity to meet credit growth and support investment and export demand while keeping a very close watch on the movements in the price level.

(ii) Consistent with the above, while continuing with status quo, RBI to pursue an interest rate environment that is conducive to maintaining momentum of growth and, macroeconomic and price stability.

• Automated value-free transfer of securities proposed between market participants and the CCIL under CBLO.
• RBI constituted Working Group to review the performance of negotiated dealing system (NDS).
• Clearing of OTC derivatives through CCIL being considered.
• CCIL to work out arrangement for settlement of trades in non-SLR debt instruments for NDS members.

• Discussion paper on Capital Indexed Bonds being put in public domain.
• The ECB limit already enhanced to US $ 500 million under the automatic route for investment in the real sector.
• Resident individuals already permitted to remit freely up to US $ 25,000 per calendar year.
• Indian corporates and partnership firms allowed to invest overseas upto 100 per cent of their net worth.
• Banks allowed to raise long-term bonds to finance infrastructure.
• The extant limit on unsecured exposures for banks withdrawn.
• Exposures on all public financial institutions (PFIs) to attract a risk weight of 100 per cent.
• Banks required to maintain capital charge for market risk in a phased manner.
• Banks to draw a road map for migration to Basel II.
• Banks to make higher provisioning according to the age of NPAs.
• Banks/FIs to provide credit information to CIBIL.
• Banks to fully adhere to the KYC policy for opening new accounts.
• Report of the Working Group on Financial Conglomerates being put in public domain.
• Risk based supervision extended to more banks.
• Fresh licences to UCBs only after a comprehensive policy.
• Report of the Working Group on Development Finance Institutions being put in public domain.
• Technical Group to evaluate the regulatory and supervisory systems deployed by refinancing institutions (RFIs).
• Waiver of service charges on banks for electronic funds transfer and electronic clearing services.
• RBI sets up a Board for Payment and Settlement Systems.
• RBI expects most commercial banks to join the RTGS system by June 2004.
• A Working Group on Electronic Funds Transfer for Capital Market constituted.
• Single window services for all transactions in RBI cash department.
• Operationalisation of On-line Tax Accounting System by June 2004.
• Standing Committee on Procedures and Performance Audit on Public Services has submitted four Reports, being put in the public domain.
• Recommendations of the Advisory/Technical Groups on International Financial Standards and Codes being pursued.

Banks should report details of dividend declared during the accounting year within a fortnight of payment of the dividend(s).

These revised guidelines would be applicable to the dividends declared for the accounting year ended March 31, 2004 onwards. Banks should place a copy of these guidelines before their Board at its next meeting.

Banks are further advised that violation of these guidelines would be viewed very seriously and would attract penal action under Section 46 of the Banking Regulation Act, 1949. The Reserve Bank had, in consultation with the Standing Technical Advisory Committee on Financial Regulation, reviewed the policy approach regarding payment of dividends by banks. It was decided that the regulatory focus with regard to payment of dividend by banks should shift from ‘quantum of dividend’ to ‘dividend payout ratio’.

With a view to ensuring uniformity in the Information System (IS) audit being followed by banks, the Reserve Bank has advised all scheduled commercial banks to -(i) Adopt an IS audit policy (if not already done) appropriate to their level of computerisation and review the same at regular intervals in tune with the industry best practices and guidelines issued by the Reserve Bank from time to time ii) Adopt appropriate system and practices for conducting IS audit on an annual basis covering all the critically important branches (in terms of nature and volume of business) iii) Undertake such audits preferably prior to the statutory audit so that the IS audit reports are available to the statutory auditors well in time for examination and for incorporating comments, if any, in the audit reports iv) Place the IS audit reports before their top management and ensure compliance within the time frame as outlined in the audit policy.

Banks have been advised to place these instructions before their board in its next meeting and implement them during the current financial year.

The Reserve Bank had, in the past, taken many initiatives in sensitising banks to the risks and concerns that emerge from adoption of information technology. Various committee reports, instructions and circulars were issued from time to time towards assisting banks in adopting sound IS audit policy framework and practices.

The Reserve Bank had recently conducted a study to assess the current practices being followed by banks vis-à-vis IS audit.

The study revealed that though banks have put in place a mechanism for conducting IS/EDP audit, the practices differ from bank to bank depending upon the level of adoption of technology. Further, many banks are in the process of implementing IS audit system in place of computer/EDP audit.

On the recommendation made by the Task Force constituted for monitoring developments in the financial markets, it has been decided to restore, with immediate effect, the status quo ante on margins that banks have to maintain for financing against shares/ IPOs/issue of guarantees. The margins would now be 40 per cent against the earlier 50 per cent. Furthermore, the minimum cash margin of 25 per cent (within the margin of 50 per cent) stands reduced to 20 per cent.

It may be recalled that the margins against shares were increased from the level of 40 per cent to 50 per cent in January 2004.

The Reserve Bank has reiterated its earlier instructions to banks to scrupulously ensure that their branches do not open current accounts of entities which enjoy credit facilities (fund based or non-fund based) from the banking system without specifically obtaining a no-objection certificate from the lending bank(s). Banks have also been advised that non-compliance of these instructions would be perceived as abetting the siphoning of funds and such violations, reported to the Reserve Bank or noticed during its inspection would render the concerned banks liable for penalty under the Banking Regulation Act, 1949.

In January 2000 banks were advised that at the time of opening current accounts, they should insist on a declaration from the account-holder stating that he is not enjoying any credit facility with any other bank or obtain a declaration giving particulars of credit facilities enjoyed by the intending customer with any other bank(s). Concerned lending bank(s) were required to be duly informed so that they could take suitable precautionary measures, where necessary.

The Reserve Bank has advised all commercial banks that information collected from customer while opening an account is confidential and divulging any details thereof for cross selling or any other purpose would be in breach of customer confidentiality obligations. Banks are, therefore, advised to instruct all the branches to strictly ensure compliance with their obligations to the customer in this regard.

The Reserve Bank has further advised banks that if they desire to collect any information about their customer for a purpose other than "Know Your Customer" (KYC) requirements, it should not form part of the account opening form. Such information may be collected separately, purely on a voluntary basis, after explaining the objectives to the customer and taking his express approval for the specific uses to which such information could be put.

Banks have also been advised to get their existing practices in this regard examined by the Ad hoc Committee/Board and issue suitable instructions to their branches and ensure compliance.

The Committee on Procedures and Performance Audit on Public Services had observed that banks are using information collected from their customers for cross selling of services of various products by their subsidiaries and affiliates. Sometimes, such information is also provided to other agencies.

Banks have been advised to inform, at least one month in advance, their existing account holders any change in the prescribed minimum balance and the charges that would be levied if the prescribed minimum balance is not maintained.

Earlier, in August 2003, banks were advised that at the time of opening savings bank accounts, they should inform their customers about the requirement of maintaining minimum balance and levying of charges if such minimum balance is not maintained. Any subsequent change in this regard should be informed to the account holders.

The Committee on Procedure and Performance Audit on Public Services had observed that banks added charges without informing the existing depositors. The Committee had recommended that any charge levied subsequently should be transparently made known to all depositors with one month’s advance notice.

The Reserve Bank has clarified that non-resident ordinary (NRO) accounts may be held by non-residents jointly with residents.

In August 2003, banks were advised that non-resident (external) (NRE) deposits should be held jointly with non-residents only. Some banks had interpreted that these instructions were equally applicable to NRO accounts and that NRO accounts could not be held jointly with residents.

In order to give further fillip to other types of electronic modes of funds transfer, it has been decided to waive the service charges on banks for Electronic Funds Transfer (EFT) and Electronic Clearing Service (ECS) transactions up to March 31, 2006. The details in this regard are :

• The Reserve Bank would not levy ECS/EFT processing charges. The waiver would be applicable to ECS (credit and debit clearing), centralised ECS, the normal EFT as well as to the special EFT schemes.
• The waiver would be effective from June 1, 2004, i.e., in respect of data submitted by banks from June 1, 2004 and would be in vogue up to March 31, 2006.
• Banks should required to pass on this benefit to the customers in the form of a reduction in the charges being levied for such transactions.

It may be recalled that in December 2003, the Reserve Bank had waived the processing charges for EFT transactions for two years. This measure was undertaken to encourage electronic mode of payments which is fast and efficient.

Banks have been further advised to inform the Reserve Bank of the steps taken by them to pass on the benefit in terms of the change in tariff along with details of pre and post waiver charges.

The Reserve Bank has advised all regional rural banks (RRBs)/ sponsor banks that the exemption granted to RRBs from ‘mark to market’ norms in respect of stautory liquidity ratio (SLR) securities has been extended for one more year i.e., for the financial year 2004-05. Accordingly, RRBs should classify the entire investment portfolio of SLR securities under ‘held to maturity’ for the financial year 2004-05 with valuation on book value basis and amortisation of premium, if any, over the remaining life of securities.

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 Alco Corporation, A-2, 72, Shah & Nahar Ind. Estate, Lower Parel (West), Mumbai - 400 013. Readers desirous of subscribing may remit the subscription, by way of cheque/DD payable at Mumbai to the Director, DRRP (Sales Section), DEAP, Reserve Bank of India, Amar Building, Sir P. M. Road, P. B. No. 1036, Mumbai - 400 001. Also available on Internet at www.cir.rbi.org.in