Monetary and Credit Information Review - RBI - Reserve Bank of India
Monetary and Credit Information Review
Volume IV MONETARY AND CREDIT INFORMATION REVIEW POLICY ‘Fit and Proper’ Criteria for Elected Directors on Banks’ Boards The Reserve Bank has laid down specific ‘fit and proper’ criteria to be fulfilled by persons being elected as directors on the boards of nationalised banks/associate banks of the State Bank of India. The authority, manner/procedure and criteria for deciding the ‘fit and proper’ status etc., are - Nomination All nationalised banks/associate banks of State Bank of India are required to constitute a "nomination committee" consisting of a minimum of three directors (all independent/non-executive directors) from amongst the board of directors. The board of directors should also nominate one among them as the Chairman of the nomination committee. The quorum required is three, including the Chairman. In case of absence of any member already nominated, the board of directors may nominate any other independent director in his place for the ensuing meeting. At the time of constituting the nomination committee the board should decide on its tenure. Procedure The nomination committee should undertake a process of due diligence to determine the ‘fit and proper’ status of existing elected directors/the person to be elected as director. For this purpose, banks should obtain necessary information and declaration from the existing elected directors/persons who file their nominations for election. The nomination committee should meet before the last date of acceptance of nominations and decide whether or not the person’s candidature should be accepted based on the criteria laid down. The committee’s discussions should be properly recorded as formal minutes of the meeting and voting, if done, should also be noted in case of both existing and proposed directors. Based on the information provided in the signed declaration, the nomination committee should decide on the acceptance, or otherwise, of the candidate. The nomination committee may make references, where considered necessary, to the appropriate authority/persons to ensure compliance with the requirements. Criteria The nomination committee should determine the ‘fit and proper’ status of the existing elected directors/proposed candidates based on the broad criteria indicated below :
(This list is only illustrative and not exhaustive). The nomination committee should see whether non-adherence to any of the above criteria would hamper the existing elected director/proposed candidate from discharging his duties as a director on the bank’s board. Further, adverse notice by any authority/regulatory agency, insolvency or default of any loan from any bank or financial institution would make the candidate unfit and improper to be a director on a bank’s board. Other Matters The board should ensure, in public interest, that the elected directors execute, as on March 31 every year, the deed of covenants as recommended by the Dr Ganguly Group. All the elected directors must mandatorily furnish a simple declaration as on March 31 every year that the information already provided by them has not undergone any change. If there is any change in the information provided, the directors should immediately furnish the requisite details. If there are any significant changes, the nomination committee should undertake the due diligence exercise afresh and examine the ‘fit and proper’ status of the director. Nationalised banks/associate banks of the State Bank of India have been advised to complete the process of determining the ‘fit and proper’ status in respect of existing elected directors on their boards at the earliest. On a review of the current liquidity situation, the cash reserve ratio (CRR) of scheduled banks has been raised by 50 basis points to 7.50 per cent of their demand and time liabilities with effect from the fortnight beginning November 10, 2007. Deposit Schemes with Lock-in Period Reiterating its earlier instructions on interest paid on deposits, the Reserve Bank has advised banks not to discriminate between one deposit and another, accepted on the same date and for the same maturity, whether such deposits are accepted at the same office or at different offices of the bank. Fixed deposit schemes specifically for resident Indian senior citizens offering higher and fixed rates of interest as compared to normal deposits of any size, and single term deposits of Rs.15 lakh and above on which varying rates of interest is permitted on the basis of size of the deposits are, however, outside the purview of these instructions. The Reserve Bank has further advised banks that have floated special deposit schemes with lock-in periods and other features, to immediately discontinue the schemes and report compliance to the Reserve Bank. It has been brought to the notice of the Reserve Bank that some banks are offering special term deposit products to customers in addition to regular term deposits, ranging from 300 days to five years, with the following features:
RBI opens Sub-office at Ranchi The Reserve Bank’s Sub-office at Ranchi started functioning from November 15, 2007. The Sub-office, which was inaugurated by Hon’ble Chief Minister of Jharkhand, Shri Madhu Koda, has the Rural Planning and Credit Department and Financial Inclusion Cell and will cover the State of Jharkhand. The address and contact details of the sub-office are -R.R.D.A. Building, Pragati Sadan (4th Floor), Kutchery Road, Ranchi – 834001. Tel. No: 0651-2210509. Fax.No: 0651-2210511 Project Finance Portfolio of Banks At the time of financing projects, banks generally adopt one of the following methodologies for determining the level of promoters’ equity : (i) Promoters bring their entire contribution upfront before the bank starts disbursing its commitment. (ii) Promoters bring certain percentage of their equity (40 per cent – 50 per cent) upfront and the balance is brought in stages. It is observed that the last method has greater equity-funding risk. To contain this risk, the Reserve Bank has advised banks to have a clear policy regarding the debt equity ratio (DER) and to ensure that the infusion of equity/fund by promoters should be such that the stipulated level of DER is maintained at all times. Further, banks should adopt funding sequences so that the possibility of equity funding by banks is obviated. Additional Options to Banks for raising Capital With a view to providing a wider choice of instruments to Indian banks for raising Tier I and Upper Tier II capital, banks are now allowed to issue the following types of preference shares in Indian Rupees, subject to extant legal provisions. Tier I Capital Perpetual non-cumulative preference shares Upper Tier II capital (i) Perpetual cumulative preference shares The perpetual non-cumulative preference shares would be treated on par with equity and hence, the coupon payable on these instruments would be treated as dividend (an appropriation of profit and loss account). All other types of preference shares mentioned above would be treated as liabilities and the coupon payable thereon would be treated as interest (charged to profit and loss account). The addition of these instruments is expected to significantly enhance the range of eligible instruments available to banks for capital adequacy purposes. Hence, it is not considered necessary to allow banks to issue preference shares in foreign currency in overseas markets at this stage. FEMA It has been decided to permit domestic oil marketing and refining companies to hedge their commodity price risk to the extent of 50 per cent of their inventory based on the volumes in the quarter preceding the previous quarter. The hedging may be undertaken through AD Category – I banks which have been authorised by the Reserve Bank. The hedges may be undertaken using over-the-counter (OTC)/exchange traded derivatives overseas with the tenor restricted to a maximum of one-year forward. The instructions in this regard are –
Further, AD Category – I banks should continue to forward to the Reserve Bank, for approval, applications from customers to undertake hedge transactions not covered under the delegated authority. Limit for Direct Receipt of Import Bills/Documents Enhanced As a sector specific measure, the limit for direct receipt of import bills/documents has been enhanced from USD 100,000 to USD 300,000 in the case of import of rough diamonds. Accordingly, AD Category - I banks may now allow remittance for imports up to USD 300,000 where the importer of rough diamonds has received the import bills/ documents directly from the overseas supplier and the documentary evidence for the import is submitted by the importer at the time of remittance. AD Category - I banks may undertake such transactions subject to the conditions that - (i) The import is subject to the prevailing Foreign Trade Policy. Internet based Platforms for dealing in Rupee Vostro Accounts The Reserve Bank has advised scheduled commercial banks that they may permit internet based operations on rupee vostro accounts maintained by exchange houses or banks outside India with them, provided they ensure that the software prevent any unauthorised operation. The internet based operations on vostro accounts are permitted provided banks - (i) remain responsible for secrecy, confidentiality and integrity of data; CUSTOMER SERVICE Appointed Guardians can operate Bank Accounts of Disabled Banks have been advised that legal guardians appointed by the district court under the Mental Health Act, 1987 or by the local level committees set up under the National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 can open and operate the bank accounts of persons with disability covered under the Act. Banks have been advised to ensure that their branches give proper guidance to the parents/relatives of the disabled persons so that they do not face any difficulties in this regard. RBI launches Financial Education Site To commemorate Children’s day, the Reserve Bank of India launched a financial education site on November 14, 2007. Mainly aimed at teaching basics of banking, finance and central banking to children in different age groups, the site will soon also have information useful to other target groups, such as, women, rural and urban poor, defence personnel and senior citizens. To explain complexities of banking, finance and central banking in a simple and interesting way, the Reserve Bank has used comic books format for children. It has created two special characters for this purpose – ‘Raju’ who learns all about banking and ‘Money Kumar’ who explains subjects dealt with by the Reserve Bank of India, such as, monetary policy, bank regulations and currency notes. Two comic books are already available on this site – ‘Raju and the Money Tree’ explains basic banking and ‘Money Kumar and Monetary Policy!’ explains the role and relevance of the Reserve Bank’s monetary policy for the common person. The site has films on security features of currency notes of different denominations and an educative film to persuade citizens to not to staple notes. Interestingly, the site also has a games section. This section aims at educating children through entertainment. The games currently on display have been especially designed to familiarise school children with India’s various currency notes. The site will soon be available in Hindi as well as in 11 regional languages. Mid-term Review of Annual Policy Statement for 2007- 08 : Highlights In a meeting with chief executives of major commercial banks on October 30, 2007, Dr. Y. Venugopal Reddy, Governor, Reserve Bank of India, presented the Mid-term Review of the Annual Policy Statement for the Year 2007-08. The highlights are : Stance
Monetary Measures
Developmental and Regulatory Policies
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