All-India financial institutions (FIs)¹ constitute an important segment of the financial system, which cater to the medium, long-term financing and, of late, working capital requirements of varied sectors in the economy. In November 1994, the Board for Financial Supervision (BFS) was constituted under the aegis of the Reserve Bank for comprehensive and integrated regulation and supervision over the commercial banks, FIs and non-banking financial companies (NBFCs) under one umbrella and the Reserve Bank of India (Board for Financial Supervision) Regulations were framed. The BFS Regulation 5(1) specifically provides that the Board shall perform all functions and exercise the powers of supervision and inspection in relation to different sectors of the financial system such as banking companies, FIs and NBFCs. In pursuance of the above, select FIs² have been brought under the supervisory purview of the Reserve Bank. The Reserve Bank regulates and supervises these institutions, keeping in view the need for enhancing the transparency in their performance and maintaining systemic stability. The supervision of all-India FIs by the Reserve Bank is of recent origin. It may be emphasised that the scope and coverage of the FIs inspection are very limited unlike that of NBFCs and are not as rigorous as that of banks.

4.2 FIs could be broadly categorised into all-India level financial institutions (AIFIs), state-level institutions and other institutions, with the AIFIs being the most dominant in terms of assets and range of operations (Chart IV.1). The progressive deregulation of financial markets, the disintermediation pressures arising therefrom and the diversification in portfolio preferences of investors have warranted growing sophistication and innovation in financial services. These developments have necessitated introduction of policy measures for greater transparency in operations, better monitoring and more comprehensive regulation. In response to the same, the extant guidelines in respect of prudential supervision and regulation of FIs have been reviewed and new guidelines have been introduced by the Reserve Bank in various areas of operations of FIs.

4. 3 During the year 2000-01, financial assistance sanctioned and disbursed by AIFIs registered an increase, though of a lower order than during the previous year. Sanctions increased by Rs. 16,437 crore (16.2 per cent), and disbursements by Rs. 4,934 crore (7.3 per cent). During 1999-2000, sanctions had increased by 23.6 per cent and disbursements by 20.1 per cent.

4. 4 Resource mobilisation³ by mutual funds registered a decline during 2000-01 as compared with the previous year. Net resource mobilisation by all mutual funds stood at Rs.13,339 crore vis-à-vis Rs.19,953 crore mobilised during 1999-2000.

4.5 During the year 2000-01 (April-March), several policy initiatives were undertaken by the Reserve Bank with regard to the regulation and supervision of select all-India FIs. The chronology of major policy measures pertaining to financial institutions is presented in Annexure. The policy developments and review of the operations of FIs are presented below.

4.6 Select all-India FIs were advised on May 5, 2000 that the provision for standard assets need not be netted from gross advances, but shown separately as 'contingent provision against standard assets' under 'other liabilities and provisions' in the balance sheets. It was also indicated that the provision would not be eligible for inclusion in tier II capital and the provision for standard asset should not be reckoned for arriving at net NPAs. Subsequently, on October 10, 2000, this stipulation was amended under which FIs were permitted to include the 'general provision on standard assets' in their supplementary (tier II) capital. It was also stipulated that the provisions on standard assets along with other 'general provisions and loss reserves' should not exceed 1.25 per cent of the total risk-weighted assets. The comparitive position of FIs and banks with respect to select regulatory parameters is given in Table IV.1.

4.7 In view of the improvement in the payment and settlement systems, the recovery climate, upgradation of technology in the financial system, etc., the Reserve Bank advised FIs that the 'past due' concept (grace period of 30 days) with regard to the definition of NPAs is dispensed with, effective from the year ended March 31, 2001. Accordingly, NPA should be an advance where (i) interest remains overdue for a period of more than 180 days and/ or instalment of principal remains overdue for a period of more than 365 days in respect of a term loan; (ii) the bill remains overdue and unpaid for a period of more than 180 days in the case of bills purchased and discounted; and (iii) any amount to be received remains overdue for a period of more than 180 days in respect of other accounts.

4.8 In order to bring parity in the NPA norms for banks and FIs, it was clarified that an asset would be treated as non-performing, if interest and/or instalment of principal remain overdue for more than 180 days with effect from the year ending March 31, 2002 as against the present norm of an overdue period of 365 days or more in respect of principal and more than 180 days in respect of interest.

4.9 The FIs were earlier required to assign 100 per cent risk-weight on the investment in all the securities issued or guaranteed by the State Governments in case of default of interest or principal. Subsequently, FIs were advised on May 30, 2000 that they would need to assign a 100 per cent risk-weight only on those State Government guaranteed securities which were issued by the defaulting entities. It was also advised that due regard should be paid to the record of the particular State Government in honouring its guarantees, while processing any further request for loans to PSUs in that State on the strength of State Government guarantee.

4.10 In line with international best practices, some capital cushion needs to be provided for market risk in addition to credit risk. Accordingly, FIs were required to assign a risk-weight of 2.5 per cent for market risk with effect from March 31, 2001 in respect of investments in all securities. This risk-weight would be in addition to 20 per cent / 100 per cent risk-weight already assigned for credit risk in non-government/non-approved securities.

4.11 The norms relating to restructuring / rescheduling / re-negotiation of terms of standard and sub-standard loan assets, were reviewed in the light of international best practices and Bank for International Settlements (BIS) guidelines, and revised guidelines for FIs were issued on March 28, 2001.

4.12 In the context of restructuring of accounts, the stages at which restructuring / rescheduling /renegotiation of the terms of loan agreement could take place were identified as:

1. prior to commencement of commercial production;
2. after commencement of commercial production, but before the asset has been classified as sub-standard; and
3. after commencement of commercial production and the asset has been classified as sub-standard.

4.13 The norms for treatment of the accounts, subjected to restructuring / rescheduling / renegotiation of terms are detailed in Box IV.1.

4.14 To settle disputes involving smaller amounts through the forum of Lok Adalats, FIs were issued guidelines for implementation. These guidelines indicate the ceiling amount for coverage of Lok Adalats upto Rs. 5 lakh, covering all NPA accounts, both suit filed and non-suit filed in the doubtful and loss categories. Keeping in view certain essential parameters, the settlement formula has been made flexible and left to the discretion of the Board of Directors of FIs. The organisational arrangements could be put in place in consultation with State / District/ Taluka level legal services authorities.

4.15 In order to bring about uniformity in the disclosure practices adopted by the FIs and with a view to improving the degree of transparency in their affairs, FIs were advised to disclose certain important financial ratios/data with effect from the financial year 2000-01. Such disclosures were to be made as part of the 'Notes on Accounts' to enable the auditors to authenticate the information, notwithstanding the fact that the same information might be contained elsewhere in the published annual report. These disclosures pertain to capital to risk-weighted assets ratio (CRAR)⁴, Core CRAR, supplementary CRAR, amount of subordinated debt raised/ outstanding as tier II capital, risk-weighted assets, share holding pattern, asset quality and credit concentration, maturity pattern of rupee and foreign currency assets and liabilities, and details on operating results. Besides, separate details on loan assets and sub-standard assets which have been subjected to restructuring, etc., would also need to be disclosed. Furthermore, accounts restructured under corporate debt restructuring system also should be disclosed by FIs in their annual report as part of 'notes on accounts'.

4.16 FIs were advised on May 30, 2000 that the excess provision towards depreciation on investments in equity should be appropriated to the 'Investment Fluctuation Reserve Account' (IFRA) instead of 'Capital Reserve Account' (CRA). This excess provision would be eligible for inclusion in tier II capital. The existing amount of such provisions held in CRA would also stand transferred to IFRA. These amounts in IFRA could then be utilised to meet the depreciation requirement on investments. The extra provision needed in the event of a depreciation in the value of investments should however be debited to the profit and loss account and if required, an equivalent amount may be transferred from the IFRA as a 'below the line' item after determining the profit for the year.

4.17 In the context of progressive deregulation, introduction of Interest Rate Swaps (IRS)/ Floating Rate Agreements (FRA), introduction of Asset-Liability Management (ALM) system, shift in investors preference towards short-term instruments, etc., which have had a bearing on the resources raised by FIs, the guidelines for raising of resources by AIFIs were modified in June 2000. Under the guidelines, FIs need not seek the Reserve Bank's issue-wise prior approval/ registration for raising resources through either public issue or private placement if (a) the minimum maturity period is 3 years, (b) where bonds have call/ put or both options, the same is not exercisable before expiry of one year from date of issue, (c) YTM offered at the time of issue of bonds including instruments having call/put options, does not exceed 200 basis points over that on government securities of equal residual maturities, and (d) 'exit' option is not offered prior to expiry of one year, from date of issue.

4.18 It was also stipulated that the outstanding total resources mobilised at any point of time by an individual FI including funds mobilised under the 'umbrella limit' as prescribed by the Reserve Bank should not exceed 10 times its net owned funds as per the latest audited balance sheet. FIs were advised that the limit fixed for raising resources would be an enabling provision, and their requirements of resources along with maturity structure and interest rate offered thereon should be arrived on a realistic basis and derived, inter alia, from a sound system of ALM/ risk management. In case of floating rate bonds, FIs would need to seek prior approval from the Reserve Bank, with regard to 'reference rate' selected and the methods of floating rate determination. The same would not be required for subsequent individual issues so long as the underlying reference rate and method of floating rate determination remain unchanged. FIs were also advised to comply with the prudential requirements of other regulatory authorities such as SEBI, etc., as hitherto.

4.19 A system of monthly reporting to the Reserve Bank on raising of resources by FIs has been introduced. The format of consolidated return on raising of resources by way of money market instruments and bonds was revised on December 5, 2000 to facilitate inclusion of information on commercial paper and additional information on short-term borrowings, which have been included under the one-time 'umbrella limit'.

4. 20 In order to improve the functional efficiency of the market, the rating for the term deposits accepted by FIs was made mandatory, effective November 1, 2000.

4. 21 Considering the fact that FIs, which are raising capital abroad for improving their capital base, have largely rupee-denominated assets and that most of the risk limits are linked to their capital, FIs were advised on July 20, 2000 to repatriate the entire proceeds of GDRs / ADRs soon after the issue process was completed.

4. 22 The FIs have been advised regarding classification and valuation of investments from time to time. In order to bring the existing practice in consonance with the international practice, revised guidelines effective from the half year ended March 31, 2001, were issued on November 9, 2000. These guidelines state that:

1. FIs are required to classify entire investment portfolio as on March 31, 2001, under three categories viz., (i) Held to Maturity, (ii) Available for Sale and (iii) Held for Trading. Investments under (ii) and (iii) are to be marked to market as prescribed or at more frequent intervals, while those under 'Held to Maturity' need not be marked to market and should not exceed 25 per cent of total investments.
2. Classification, valuation, shifting of investments among the three categories, methodology for booking profit/ loss on sale of investments and provision for depreciation should be in accordance with the new guidelines.
3. Investments are to be classified as (i) Government securities (ii) other approved securities (iii) shares (iv) debentures and bonds (v) subsidiaries / joint ventures and (vi) others (CPs, units of mutual funds, etc.).

4. 23 FIs were advised to formulate an investment policy with the approval of their Board of Directors tailored to the requirements of classification, shifting and valuation of investments under the revised guidelines. The policy should also adequately address risk management aspects and ensure that the procedures being adopted by FIs are consistent, transparent and well-documented.

4. 24 On-site inspection of FIs commenced since 1995, with inspections being conducted every alternate year. During the year 1999, it was observed that the financial position of certain FIs was changing rapidly. Therefore, it was decided that the inspection of all the FIs would be undertaken on an annual basis with effect from March 31, 2001 with reference to their balance sheet date from the accounting year 2000-01 till the FIs could be systematically differentiated as per the risk profile based on the off-site surveillance system and the proposed supervisory rating system. Accordingly, the inspection of all 10 FIs supervised by the Reserve Bank is to be taken up during the inspection cycle 2001-02, with reference to the balance sheet date of the FIs for accounting year 2000-01. During the year 2000-01, inspection of nine FIs, which fell due, had been completed.

4. 25 As a part of the integrated supervisory strategy, a Prudential Supervisory Reporting System (PSRS) for an on-going off-site surveillance was introduced in July 1999. The principal objective of the process has been to obtain periodic information pertaining to prudential concerns of the Reserve Bank, with particular reference to compliance with the prudential regulations prescribed for select FIs supervised by the Reserve Bank. An ancillary objective is to help build up the management information system (MIS) within the FIs on the prudential parameters. The PSRS, patterned broadly on lines of the off-site surveillance system comprises seven returns - three quarterly, two half yearly and two annual. The returns broadly cover assets and liabilities of FIs, capital adequacy statement, operational results, asset quality, ownership and management, large credit and list of subsidiaries and affiliates of the FIs.

4. 26 The Reserve Bank introduced changes in the practices/procedures followed in conducting the financial inspection of FIs since January 24, 2001. The modified procedures comprise the following: (a) the information requirements of the inspection team would be advised at least a month prior to commencement of inspection to ensure better time management and efficiency of the examination process; and (b) before the commencement of inspection, the management of the FI would be requested to make a presentation to the inspection team on the FI's perspective of its own risk exposures, the manner in which these risks were earlier addressed and the future strategy thereon.

4. 27 During the inspection, the inspection team would meet with the internal and external auditors to appreciate the scope of their work and the results of their audit. On completion of inspection, the Principal Inspecting Officer, along with his team members, as considered necessary, would meet the Audit Committee as also the chief executive officer (CEO) of the FI to discuss the major findings of the inspection. A system of discussing the provisioning-shortfall, owing to objective as well as subjective factors, by the inspection team with the statutory/ external auditors in the presence of the management of the FIs, would also be followed to enhance transparency and minimize any element of subjectivity.

4. 28 With a view to securing more effective co-ordination between banks and FIs, which jointly finance large-scale projects, on issues of common interest, the Reserve Bank had convened an informal meeting of the Heads of select banks and FIs. Banks and FIs have since evolved ground rules for co-ordination on areas of mutual interest (Box IV. 2).

4. 29 FIs were advised in April 2000 to value the investments in mutual fund units at market rates, as per stock exchange quotations, if available. Otherwise, the latest net asset value (NAV) declared by the mutual fund in respect of each particular scheme should be used for valuation. Subsequently, the guidelines for classification and valuation of investments by FIs were revised with effect from March 31, 2001, so as to bring the norms in consonance with the international best practices.

4. 30 In the context of developments in the foreign exchange markets and the overall monetary and credit situation prevalent at that time, with effect from May 2000, interest rate surcharge of 50 per cent of the actual lending rate on credit extended by FIs for imports, was reintroduced as a temporary measure. Certain specified categories of credit for import were exempted from this levy. Subsequently, certain categories of export-related imports were also exempted from this levy in November 2000. Subsequently, in January 2001, the interest rate surcharge was withdrawn.

4. 31 The FIs were advised to charge interest at the rate of 25 per cent per annum (minimum) with effect from May 26, 2000 in respect of overdue export bills from the date the bills fall due for payment, and also to ensure that the exporters do not delay repatriation of export proceeds beyond the due date.

4. 32 The FIs have been permitted to undertake transactions in securities among themselves or with banks and non-banks clients through members of the National Stock Exchange (NSE) and OTCEI. Since November 22, 2000, they have also been permitted to undertake transactions among themselves or with non-bank clients through the members of Bombay Stock Exchange (BSE) directly, without engaging any brokers. In case any transaction in securities is not undertaken on NSE, OTCEI and BSE, the same should be undertaken directly, without engaging any brokers.

4. 33 In September 2000, the FIs were instructed that whenever the limits of advances granted to a borrower against the security of shares / debentures exceed Rs. 10 lakh, it should be ensured that the said shares/ debentures are transferred in the name of the FI concerned. In this regard, SEBI amended the SEBI (Depositories and Participants) Regulations, 1996 to facilitate pledge of dematerialised securities. In case of default by the borrower, the FI could invoke the pledge, subject to the provisions of the pledge documents, and the depository will register the FI as beneficial owner. Accordingly, FIs were permitted to accept shares/ debentures held in dematerialised form in addition to the physical form.

4. 34 In line with the guidelines issued to public sector banks for recovery of dues relating to NPAs, all Central Public financial Institutions (viz., IDBI, IFCI Ltd., IDFC Ltd., IIBI Ltd., TFCI Ltd., EXIM Bank, NABARD, SIDBI and NHB) were advised in July 2000 to implement the modified guidelines which provided a simplified, non-discretionary and non-discriminatory mechanism for recovery of NPAs. Accordingly, notice was to be given by the FIs to eligible defaulting borrowers to avail of the opportunity for one-time settlement of their outstanding dues by August 31, 2000 which was extended up to September 30, 2000. The guidelines for settlement of the outstanding dues, which were initially to be operational up to March 31, 2001, were later extended up to June 30, 2001. All applications received by FIs up to June 30, 2001 were to be processed and decisions taken thereon at the earliest but not later than September 30, 2001.

4. 35 At present, several non-bank FIs and mutual funds are permitted to lend directly in the call/notice money market. Following the recommendations of the Committee on Banking Sector Reforms (Chairman: Shri M.Narasimham), it was decided to move towards a pure inter-bank (including PDs) call/notice money market. With a view to formulating a smooth phasing out of these institutions from the call/notice money market, pursuant to the announcement in the Mid-Term Review of October 2000, a Technical Group, comprising representatives from Reserve Bank, non-banks and banks was constituted. In the light of the recommendations of the Group and the feedback received on the recommendations, the FIs participation in the call money market will be phased out in the following four stages:

1. In stage I, with effect from May 5, 2001 non-banks would be allowed to lend up to 85.0 per cent of their average daily lending in call market during 2000-01.
2. In stage II, with effect from the date of operationalisation of the Clearing Corporation, non-banks would be allowed to lend up to 70.0 per cent of their average daily lending in call market during 2000-01.
3. In stage III, with effect from three months after stage II, access of non-banks to call/notice money market would be equivalent to 40.0 per cent of their average daily lending in call market during 2000-01.
4. In stage IV, with effect from three months after stage III, access of non-banks to call/notice money market would be equivalent to 10.0 per cent of their average daily lending in call market during 2000-01.

4. 36 From a date to be notified by the Reserve Bank, after the on-set of stage IV, non-banks will not be permitted to lend in call/notice money market.

4. 37 In view of the above, FIs were advised on April 21, 2001 to submit a daily return in a prescribed format to facilitate monitoring of their operations in the call/notice money market on a daily basis.

4. 38 During 2000-01, the aggregate financial assets of banks and FIs grew by 14.4 per cent compared with the growth of 15.3 per cent recorded in the previous year [Appendix Table IV.1(A)]. The financial assets of FIs grew at a lower rate of 7.8 per cent in 2000-01 than 12.7 per cent in 1999-2000 (and 15.1 per cent in 1998-99). Consequently, the share of FIs in the aggregate financial assets of FIs and banks taken together moved down from 36.1 per cent in 1999-2000 to 34.0 per cent in 2000-01 (Chart IV.2).

4.39 At the disaggregated level, the financial assets of all-India term lending institutions recorded a growth of 6.6 per cent in 2000-01 as compared with 9.5 per cent in 1999-2000 [Appendix Table IV.1(B)]. Among these institutions, during 2000-01, the financial assets of NABARD recorded the highest growth (16.2 per cent) followed by ICICI (12.5 per cent). The financial assets of IDBI and IFCI declined by 0.8 per cent and 3.0 per cent, respectively, in 2000-01. Among the investment institutions, the financial assets of all the three institutions witnessed lower increase in 2000-01 than in the previous year (Chart IV.3).

4. 40 During 2000-01, financial assistance sanctioned and disbursed by AIFIs stood at Rs.1,17,667 crore and Rs.72,528 crore, respectively. Sanctions increased by 16.2 per cent and disbursements by 7.3 per cent respectively, as compared with 23.6 per cent and 20.1 per cent, respectively, during 1999-2000 (Appendix Table IV.2 and Chart IV.3). All-India development banks' (AIDBs) sanctions grew by 16.7 per cent and disbursements by 9.2 per cent, during 2000-01. Specialised financial institutions (viz., IFCI Venture Capital Funds Ltd., ICICI Venture and TFCI) witnessed a marginal decline in disbursements to Rs.254 crore from Rs.260 crore even as their sanctions increased by 37.7 per cent to Rs.339 crore. Disbursements by investment institutions also declined marginally to Rs.12,694 crore (from Rs.12,764 crore in 1999-2000), while their sanctions increased by 13.2 per cent to Rs.17,900 crore.

4. 41 Disbursements by ICICI witnessed a significant increase both in 1999-2000 and 2000-01 and accounted for 62.0 per cent of the disbursements by three major fi nancial institutions in 2000-01. The share of disbursements by IDBI, on the other hand, declined from 37.6 per cent in 1998-99 to 33.9 per cent in 2000-01 (Table IV.2).

4. 42 During 2000-01, the total assets/ liabilities of AIFIs showed a growth rate of 6.2 per cent as compared with 8.5 per cent in the previous year (Appendix Table IV.3).

4. 43 The composition of liabilities displayed a movement away from borrowings and towards debt in the form of bonds and debentures and deposits. External sources continued to be the important source of finance for FIs, constituting 80.9 per cent of the total resource base, while capital and reserves constituted the remaining 19.1 per cent. Funds raised through bonds and debentures comprised 50.9 per cent of the total liabilities as at end-March 2001 [Chart IV.4 (A)].

4. 44 Loans and advances constituted the major item (72.9 per cent) on the asset side of the balance sheet of FIs, and posted a growth of 7.5 per cent during the year ended March 2001. While cash and bank balances increased by 6.9 per cent, investments posted a rise of 3.4 per cent as at the end of March 2001 [Chart IV.4 (B)].

4. 45 During 2000-01 (April-March), internal sources as a proportion of total sources constituted 51.1 per cent as against 50.2 per cent during the preceding year. The share of external sources amounted to 29.5 per cent as against 27.1 per cent during 1999-2000. The share of 'other sources' of funds (which includes interest/dividends received, etc.,) declined to 19.4 per cent from 22.7 per cent (Appendix Table IV.4 and Chart IV.5 (A)).

4. 46 On the uses side, fresh deployments as a proportion of total uses declined marginally from 55.6 per cent during the year 1999-2000 (April-March) to 55.1 per cent, while the share of repayments of past borrowings increased from 17.9 per cent to 18.5 per cent in 2000-01. The share of 'other deployments', declined marginally from 26.5 per cent in 1999-2000 to 26.4 per cent in 2000-01, of which the interest payments component has also increased marginally from 13.6 per cent in 1999-2000 to 13.9 per cent in 2000-01 as evidenced from Appendix Table IV.5 and Chart IV.5 (B).

4. 47 The profitability analysis of the 10 FIs indicates that the combined net profits of these institutions registered a decline of 35.1 per cent during the year 2000-01. With income increasing by 6.0 per cent and expenditure by more than 12.0 per cent, net profits of FIs showed a decline. The spread (net interest income) of FIs as a ratio of total assets declined from 1.69 per cent in 1999-2000 to 1.61 per cent in 2000-01 (Table IV.3).

4. 48 Among the major financial institutions (IDBI, ICICI and IFCI), both IDBI and IFCI witnessed a decline in their income during the year 2000-01, reflecting primarily a fall in interest income (in case of IDBI) and a sharp drop in other income (in case of IFCI). However, the rise in expenditure was more pronounced in case of all the three institutions, the largest increase being in the case of ICICI, which recorded a rise of 20.7 per cent in 2000-01 due primarily to a rise in provisions. Consequently, the net profits of IDBI and ICICI posted declines during the year 2000-01, while IFCI posted a net loss (Appendix Table IV.5).

4. 49 As a move towards greater disclosure, FIs have been advised to disclose, among other parameters, certain operating ratios in their audited balance sheet from the year 2000-01 (Appendix Table IV.6). These ratios reveal that, among the select financial institutions regulated and supervised by the Reserve Bank, IFCI has a negative return on assets and net loss per employee.

4. 50 There has been a general downward movement in interest rates over the period January 2001 to July 2001(Table IV.4). The long-term PLR (LTPLR) of IDBI declined from 14.0 per cent in January 2001 to 13.5 per cent in July 2001, and that of ICICI from 13.0 per cent to 12.5 per cent. The LTPLR of IFCI remained at 13.0 per cent during this period. The medium-term PLR (MTPLR) and short-term PLR (STPLR) of these institutions have also recorded concomitant declines.

4. 51 During the year 2000-01 (April-March), total resources mobilised by three major all-India FIs by way of issue of bonds (both public issue of bonds/ debentures as well as private placements) aggregated Rs. 18,867 crore (Table IV.5). This amount was higher than Rs.16,312 crore raised during 1999-2000, but lower than Rs.29,037 crore raised during 1998-99. Of the total resources raised during the year 2000-01, Rs.14,806 crore (78.5 per cent) was raised through private placements, whereas the remaining amount was raised through public issues. Institution-wise, ICICI raised the maximum amount of Rs.10,677 crore (56.6 per cent of the total resources raised), whereas IDBI and IFCI raised Rs. 5,481 crore and Rs. 2,709 crore, respectively. ICICI raised Rs. 7,776 crore through private placements, whereas IFCI mobilised the entire amount through the private placement route.

4. 52 FIs are allowed to participate in the call/ notice money market as lenders (which is currently being phased out) and borrow the funds by way of term money with the maturity range of three to six months within the umbrella limit prescribed for the individual FIs. Investment institutions, viz., UTI, LIC and GIC are at present allowed to participate in the call/notice money market as lenders only.

4. 53 During the year 2000-01 (April-March), the average quarterly outstanding borrowing by way of term money in respect of select FIs stood at Rs.1,091 crore as compared with Rs.465 crore during the previous year. The cost of borrowing ranged between 7.25 per cent and 11.95 per cent as against 11.10 per cent and 11.25 per cent per annum in the previous year. The maturity period ranged between 90 days to 184 days, roughly the same as during the previous year.

4. 54 The average quarterly lending of the select FIs including investment institutions (viz., UTI, LIC and GIC) in the call/ notice money market during 2000-01 (April-March) amounted to Rs.4,374 crore as compared with Rs.3,996 crore during the previous year. Institution-wise, the largest lender in the call/ notice money market during 2000-01 (April-March) was UTI with an average daily lending at Rs.878 crore followed by LIC at Rs.811 crore (Appendix Table IV.7).

4. 55 The ratio of net NPA to net loan as on March 31, 2001, in respect of ICICI, SIDBI and EXIM Bank was below 10 per cent that of IFCI, IDBI, IIBI and TFCI ranged between 14.0 per cent and 23.0 per cent (Table IV.6).

4. 56 In December 1998, the minimum CRAR to be achieved by FIs was enhanced from the then existing 8 per cent to 9 per cent, with effect from the year ending March 31, 2000. Judged thus, as at end-March 2001 all financial institutions (except IFCI) were well above the 9 per cent benchmark figure as evidenced from Table IV.7. The CRAR of IDBI, SIDBI, IIBI, NHB and TFCI witnessed significant improvements. EXIM Bank, NABARD, IFCI, ICICI and IDFC showed a decline in their CRAR as compared with the previous year's position. The CRAR of IFCI was 6.2 per cent which is lower than the required level of 9 per cent as at the end of March 2001.

4. Reserve Bank Assistance to Financial Institutions

4. 57 During 2000-01 (July-June), no long-term assistance was sanctioned by the Reserve Bank to any FI. The outstanding long-term borrowings by IDBI, SIDBI, EXIM Bank and IIBI under NIC (LTO) Fund facility as at end-June 2001 stood at Rs.4,222 crore. The outstanding long-term borrowing by NHB from the NHC (LTO) Fund as at end-June 2001 stood at Rs.875 crore.

4. 58 Under Section 17(4A)/(4BB) of the Reserve Bank of India Act, 1934, the Reserve Bank sanctioned ad-hoc borrowing limits amounting to Rs.161 crore to 13 State Financial Corporations (SFCs) during the year 2000-01, at the Bank Rate against ad-hoc bonds guaranteed by respective State Government/Union Territories. There was no outstanding borrowing by SFCs as at end-June 2001 (Table IV.8).

4. 59 During 2000-01, several steps were taken by SEBI to impart flexibility to the operations of mutual funds (MFs) and to safeguard the interests of the investors in mutual funds. Investment norms relating to mutual funds were liberalised allowing them to invest in mortgage-backed securities of investment grade and above. Further, the open ended schemes were allowed to invest up to 5 per cent of their net asset value in unlisted equity shares. The above two measures are expected to increase the funds to the housing sector and venture capital industry. Eligibility criteria for overseas investment were changed allowing apportionment of US$ 500 million limit of overseas investments among Indian MFs. The norms relating to code of conduct, criteria for classification of NPAs and their disclosures, treatment of income accrued on NPAs and the provisions to be made, disclosure of NPAs in the half-yearly portfolio reports, were stipulated. The period for initial offer of a scheme and despatch of certificates, standardisation of format, treatment of unclaimed deposits and standards for trading by the employees were tightened as well. Disclosure and transparency standards relating to Asset Management Companies (AMCs) were also tightened.

4. 60 Net resource mobilisation by all mutual funds registered a decline of 33.2 per cent to Rs.13,339 crore from Rs.19,953 crore in the previous year (Table IV.9). During 2000-01, public sector mutual funds raised Rs.1,623 crore which was more than three times the amount of Rs.513 crore raised during the previous year. The resource mobilisation by the private sector mutual funds at Rs.9,717 crore though much higher than that by public sector mutual funds was lower by 34.7 per cent as compared with Rs.14,892 crore mobilised during the previous year (Appendix Table IV.8). Resource mobilisation by UTI witnessed a sharp decline of 56.0 per cent to Rs.1,999 crore during 2000-01.

4. 61 As detailed in the previous year's Report, a High Level Committee (Chairman: Shri Deepak Parekh) was constituted by the Government in 1998 to review the objectives and working of the US-64 scheme of UTI. The progress in implementation of the recommendations of the Committee is presented in Box IV.3. Subsequently, a Committee on 'Corporate Positioning' (Chairman: Shri Y.H. Malegam) was appointed, which submitted its Report on October 31, 2001. The recommendations are given in Box IV.4.