Date of

Announce-

POLICY ANNOUNCEMENTS

ment

I. MONETARY POLICY MEASURES

2002

April

29

•

Cash reserve ratio (CRR) to be reduced from 5.5 per cent to 5.0 per cent effective fortnight beginning June 15, 2002.

•

A reduction in Bank Rate by 50 basis points to be considered by the Reserve Bank as and when necessary.

•

Collateralised lending facility (CLF) to be phased out with effect from the fortnight beginning October 5, 2002. CLF could be reintroduced for a temporary period in future, if considered necessary in the light of changes in monetary conditions.

•

All banks were encouraged to put a flexible interest rate system on deposits (with a fixed rate option for depositors) in practice as early as possible. Banks to consider paying the depositors at the contracted rate for the period of deposit already run and waive the penalty for premature withdrawal if the same deposit is renewed at the variable rate.

•

Banks to provide information to depositors and the Reserve Bank on: a) deposit rates for various maturities and effective annualised return to the depositors, and b) maximum and minimum interest rates charged to their borrowers. The Reserve Bank to place the above information in public domain.

•

Banks to report to the Reserve Bank the minimum and maximum lending rates to exporters, with effect from fortnight beginning June 15, 2002, for placing in public domain.

•

Banks to switch over to ‘all cost’ concept for borrowers by explicitly declaring the processing charges, service charges, etc. charged to borrowers and announcing them publicly.

•

Co-operative banks free to determine the lending rates with the withdrawal of MLR concept. Co-operative banks to publish the minimum and maximum lending rates and display the same in every branch.

•

Ceiling interest rates on FCNR (B) deposits revised downwards from LIBOR/SWAP rates of corresponding maturities to LIBOR/ SWAP minus 25 basis points.

•

Ceiling interest rate on export credit in foreign currency reduced to LIBOR plus 0.75 percentage point from the existing LIBOR plus 1.0 percentage point.

•

The daily borrowings of State Co-operative Banks and District Central Co-operative Banks in the call/notice money market not to exceed 2.0 per cent of their aggregate deposits as at the end of March of the previous financial year.

•

The limit on banks to borrow and invest from/in overseas market increased from 15 per cent to 25 per cent of their unimpaired Tier I capital within the banks’ Open Position Limit and maturity mismatch limits (Gap Limits).

May

18

•

The CRR reduction by 0.5 percentage point from the then existing level of 5.5 per cent, initially proposed to be effective fortnight beginning June 15, 2002, advanced to reporting fortnight beginning June 1, 2002.

June

27

•

The repo rate was cut by 25 basis points to 5.75 per cent from 6.00 per cent.

•

Prudential limit stipulated on the exposure of sheduled commercial banks (SCBs) in call money market in two stages:

i) In the first stage, effective October 5, 2002, SCBs daily lending in the call/notice money market, on a fortnightly average basis, not to exceed 50 per cent of their owned funds as at the end of March of the previous financial year; their fortnightly average borrowing not to exceed 150 per cent of their owned funds or 2.0 per cent of aggregate deposits as at the end of March of the previous financial year, whichever is higher. However, they will be allowed to lend and borrow a maximum of 100 per cent and 250 per cent, respectively, of their owned funds on any day during a fortnight.

ii) In the second stage, effective fortnight beginning December 14, 2002, SCBs fortnightly average lending in the call/ notice money market not to exceed 25 per cent of their owned funds; fortnightly average borrowings not to exceed 100 per cent of their owned funds or 2.0 per cent of aggregate deposits as at the end of March of the previous financial year, whichever is higher. They will be allowed to lend and borrow a maximum of 50 per cent and 125 per cent, respectively, of their owned funds on any day during a fortnight.

iii) An increased access may be allowed for a temporary period in case of mismatches in liquidity position. If the bank has a fully functional Asset Liability Management (ALM) system to the satisfaction of the Reserve Bank, an increased access over the stipulated norm may be permitted for a longer period.

2002

July

31

•

Following the recommendations of the Working Group constituted to suggest the criteria for fixing limits for transactions of primary dealers (PDs) in call/notice money market as also to suggest a roadmap for phasing them out from call/ notice money market, it was decided:

i) With effect from October 5, 2002, PDs will be permitted to lend in call/notice money market up to 25 per cent of their net owned funds (NOF).

ii) Access of PDs to borrow in call/notice money market would be gradually reduced in two stages: In Stage I, PDs would be allowed to borrow up to 200 per cent of their NOF as at end-March of the preceding financial year. In Stage II, PDs would be allowed to borrow up to 100 per cent of their NOF. The limits under both the stages would not be applicable for the days on which Government dated securities are issued to the market. The date of implementation of the Stage I, to be notified later, would be operational upon the finalisation of uniform accounting and documentation procedures for repos, allowing rollover of repos, introduction of tripartite repos or collateralised borrowing and lending obligations and permitting repos out of ‘available for sale’ category. Stage II will commence one month after permitting sale of repoed securities.

iii) On implementation of the real-time gross settlement (RTGS) system, the above exemptions would be reviewed.

Oct.

29

•

Bank Rate was reduced by 25 basis points to 6.25 per cent with effect from close of business on October 29,2002.

•

Repo rate under the LAF was reduced by 25 basis points to 5.25 per cent.

•

CRR to be reduced by 25 basis points to 4.75 per cent, effective fortnight beginning November 16,2002.

•

Apportionment of normal and back-stop facilities changed to one-half each (50:50) from the existing ratio of two-thirds

to one-third, effective from the fortnight beginning November 16,2002.

•

To enable clearing corporation of India ltd. (CCIL) to commence forex clearing operations in early November and to collateralise the facility, all the participants were advised to contribute to the Settlement Guarantee Fund (SGF).

Dec.

26

•

With a view to providing flexibility to banks in choosing an optimum strategy of holding reserves depending upon their intra-period cash flows, the requirement of daily maintenance of minimum 80 per cent of the CRR balances wasreduced to 70 per cent with effect from the fortnight beginning December 28, 2002.

2003

Feb.

28

•

The interest rate on savings account offered by banks was reduced to 3.5 per cent per annum from 4.0 per cent per annum with effect from March 1, 2003.

•

The LAF repo rate was reduced to 5.0 per cent from 5.5 per cent effective March 3, 2003.

April

29

•

Bank Rate was reduced by 0.25 percentage point from 6.25 per cent to 6.0 per cent with effect from close of business on April 29,2003 with a policy bias to keep it stable until the Mid-term Review of October 2003.

•

CRR to be reduced by 0.25 percentage point from 4.75 per cent to 4.50 per cent, with effect from fortnight beginning June 14, 2003.

•

Interest on eligible CRR balances maintained by banks with the Reserve Bank to be paid on a monthly basis (as against the existing practice of quarterly basis) starting from April 2003.

•

Export credit refinance facility to continue for eligible export credit remaining outstanding under post-shipment credit beyond 90 days and up to 180 days. The measure to be reviewed in October 2003.

•

The multiplicity of rates at which liquidity is absorbed/injected under back-stop facility rationalised as under: i) the back-stop interest rate will be at the reverse repo cut-off rate at the regular LAF auctions on that day; ii) in case of no reverse repo in the LAF auctions, back-stop will be 2.0 percentage point above the repo cut-off rate; and, iii) on days when no repo/reverse repo bids are received/accepted, back-stop rate will be decided by the Reserve Bank on an ad-hoc basis.

•

In order to enhance transparency in banks’ pricing of their loan products as also to ensure that the prime lending rate (PLR) truly reflects the actual costs, banks were advised to take into account their (i) actual cost of funds, (ii) operating expenses and (iii) a minimum margin to cover regulatory requirement of provisioning/capital charge and profit margin, while arriving at the benchmark PLR.

•

The benchmark PLR to continue to be the ceiling rate for credit limit up to Rs.2 lakh. The system of determination of benchmark PLR by banks and the actual prevailing spreads around the benchmark PLR to be reviewed in September 2003.

•

The minimum maturity period of fresh NRE deposits raised to one year in line with FCNR (B) deposits. The maturity period of fresh NRE deposits will normally be one year to three years. In case a particular bank, from its ALM point of view, wishes to accept deposits with maturity of more than 3 years, it may do so provided the interest rate on such long term deposits is not higher than that applicable to 3 year NRE deposits.

•

Stage II of the transition to a pure inter-bank call/notice money market would be effective from the fortnight beginning June 14, 2003, wherein non-bank participants would be allowed to lend, on average in a reporting fortnight, up to 75 per cent of their average daily lending in call/notice money market during 2000-01.

•

With effect from fortnight beginning May 3, 2003, reporting of all call/notice money market deals on Negotiated Dealing System (NDS) would be mandatory for all NDS members. Deals done outside NDS should also be reported within 15 minutes on NDS, irrespective of the size of the deal or whether the counterparty is a member of the NDS or not. Full compliance with the reporting requirement to NDS will be reviewed in September 2003. In case there is repeated non- reporting of deals by an NDS member, it will be considered whether non-reported deals by that member should be treated as invalid with effect from a future date.

•

Less complex Over the Counter (OTC) interest rate rupee options to be permitted. Detailed guidelines to be issued in consultation with market participants.

July

17

•

Banks were advised that until further notice, the interest rates on fresh repatriable NRE deposits for one to three years contracted effective July 17, 2003 should not exceed 250 basis points above the LIBOR/SWAP rates for US dollar of corresponding maturity. The LIBOR/SWAP rates as on the last working day of the preceding month would form the base for fixing ceiling rates for the interest rates that would be offered effective from the following month.

II. INTERNAL DEBT MANAGEMENT POLICIES

2002

April

1

•

WMA limits for State Governments revised. The normal total WMA limit increased by Rs.752 crore to Rs.6,035 crore.

•

Calendar for issuance of dated securities announced for the first six months of the fiscal year 2002-03.

3

•

Notified amount of 364-day Treasury Bills raised from Rs.750 crore to Rs.1,000 crore in the auctions effective April 3, 2002.

17

•

WMA limit to the Government of India for the fiscal 2002-03 retained at Rs.10,000 crore for the first half of the year (April to September) and Rs.6,000 crore for the second half of the year (October to March). The interest rate on WMA is fixed at Bank Rate and on Overdraft at Bank Rate plus two percentage points.

May

20

•

RBI regulated entities were instructed to transact and hold their investments in Government securities in demat form only either in SGL/CSGL (Gilt) account or in a demat account with depositories.

31

•

Satellite Dealers (SDs) scheme discontinued effective May 31, 2002.

June

5

•

PDs brought under the purview of Board for Financial Supervision (BFS).

July

17

•

For the first time, as part of Central Government’s market borrowing programme, a bond (10-year Government of India stock) with call and put option issued.

26

•

PDs were required to publish their audited annual results in leading financial newspapers and on their website in the prescribed format.

Oct.

29

•

Anonymous screen based order driven trading in Government securities on the stock exchanges to be introduced in consultation with SEBI.

•

To move in the direction of categorisation and valuation of banks’ investments in consonance with best international practices, the Reserve Bank issued guidelines for uniform accounting norms for repo and reverse repo transactions in consultation with market participants.

•

For deepening and making the repo market more liquid, the Reserve Bank proposed i) extension of repos to all regu- lated entities with gilt/CSGL accounts as long as all transactions are mandatorily reported and settled through the Delivery versus Payment (DvP) System; and ii) to allow rollover of repo contracts using the same securities between the same counterparties.

•

For improving the pricing of bonds in the secondary market and enhancing their liquidity i) fresh issues of floating rate bonds (FRBs) will provide for annual reset of base rate instead of existing practice of semi-annual reset, and ii) the base rate will be determined on the basis of the average cut-off yields of 364-day Treasury Bills in the preceding three auctions as against preceding six auctions as applicable for existing FRBs.

2003

Jan.

16

•

Buying and selling of Government securities through the stock exchanges commenced in NSE, BSE and OTCEI.

20

•

Collateralised borrowing and lending obligation (CBLO) was operationalised as a money market instrument through the CCIL.

Feb.

21

•

Guidelines were issued to extend eligibility for ready forward (repo) contracts to select categories of gilt account holders, with adequate safeguards to ensure DvP and transparency. The guidelines came into effect from March 3, 2003.

March

3

•

Based on the recommendations of the Ramachandran Committee, the WMA limit for States was enhanced by Rs. 1,135 crores to Rs. 7,170 crore with effect from March 03, 2003.

24

•

Guidelines were issued for uniform accounting of repo transactions.

•

Guidelines were issued for availment of FCNR (B) loans by PDs.

31

•

An indicative calendar for issuance of dated securities announced for the first six months of the fiscal year 2003-04.

April

1

•

WMA limit to the Government of India for the fiscal year 2003-04 was retained at Rs. 10,000 crore for the first half of the year (April to September) and Rs. 6,000 crore for the second half of the year (October to March). The interest rate on WMA was fixed at Bank Rate and on Overdraft at Bank Rate plus two percentage points.

•

Overdraft Regulation for the State Governments was made more stringent. The States cannot remain in Overdraft for more than 36 working days in a quarter.

3

•

Operational guidelines were issued to CCIL for operationalisation of Government securities lending scheme. The CCIL was permitted to enter into an arrangement with any of its members for borrowing Government securities for the purpose of handling securities shortage in the settlement of transactions.

10

•

Operational guidelines were issued to PDs for Portfolio Management Services (PMS). PDs, with prior approval of the Reserve Bank and registration with SEBI, were permitted to offer PMS services only to entities not regulated by the Reserve Bank.

29

•

CBLO exempted from CRR subject to the bank maintaining the statutory minimum CRR of 3.0 per cent. Securities lodged in the gilt account of the bank maintained with CCIL under CSGL facility for CBLO remaining unencumbered at the end of any day reckoned for SLR purposes by the concerned bank.

May

19

•

FRBs 2014 was issued for Rs.5,000 crore incorporating modified features for the first time.

June

3

•

With a view to enabling PDs to manage their exposure to interest rate risk, they were allowed to deal in exchange traded Interest Rate Derivatives (IRDs) in a phased manner. In the first phase, such entities were permitted to transact only in interest rate futures on notional bonds and Treasury Bills for limited purpose of hedging the risk in their under- lying investment portfolio subject to prudential guidelines and appropriate disclosures.

11

•

Based on the feedback from the PDs, they were further permitted to hold trading positions in interest rate futures.

III. FINANCIAL SECTOR MEASURES

2002

April

1

•

In respect of urban co-operative banks (UCBs), it was decided that accretion to or reduction in the share capital after the balance sheet date may be taken into account for determining exposure ceiling at half yearly intervals and the bank may, if they so desire, fix a fresh exposure limit taking into account the amount of share capital available as on 30 September. However, accretions to capital funds other than to share capital would not be eligible for re-fixing the exposure ceiling. Banks should also ensure that they do not take exposures in excess of the ceiling prescribed, in anticipation of infusion of capital on a future date.

4

•

Instances of frauds in UCBs involving large amounts of frauds of serious nature should be reported to the Registrar of Co-operative Societies through a D.O. letter which may cover the various categories of specified frauds.

5

•

The Consultative Group of Directors of Banks and Financial Institutions (Chairman: Dr. A.S. Ganguly), which was constituted to look into the role of Board of Directors of banks/FIs and make recommendations, for consideration by the Government/the Reserve Bank, for making it more effective with a view to minimising risks and over-exposure, submitted its report to the Reserve Bank. The major recommendations of the Group pertain to: appointment of one more whole-time director on the Boards of large-sized nationalised banks; establishment of appropriate due diligence procedures for appointment of directors on the Boards of private sector banks; setting up of nomination committees of Boards of banks to recommend appointment of independent/non-executive directors; building and creation of a pool of professional and talented people for Board level appointments in banks.

•

The recommendation of the High Power Committee on UCBs regarding the appointment of at least two directors with suitable banking experience or with relevant professional, on the Boards of newly constituted UCBs, was extended to all the existing UCBs. All UCBs were advised to amend their by-laws to incorporate the above recommendation and initiate steps for compliance.

April

6

•

UCBs were advised that the investment limit in plant and machinery in respect of the industrial undertakings, manufacturing specified hosiery and hand tool items has been enhanced from ‘not exceeding Rs.1 crore’ to ‘not exceeding Rs.5 crore’. Advances to such units may be classified as SSI advances under priority sector.

15

•

Scheduled UCBs were advised to put in place an effective ALM System by June 30, 2002. To begin with, the banks have to ensure coverage of at least 60 per cent of their liabilities and assets; for the remaining 40 per cent, banks may include the position based on their estimates. Internal Asset-Liability Committee (ALCO) is to be set up in each bank, headed by the CEO.

18

•

Banks were advised that while reckoning the quantum of unsecured advances and guarantees for applying the norms relating to unsecured advances and guarantees, outstanding credit card dues should be excluded from the total of unsecured advances.

19

•

Banks were advised that products of aluminium, petroleum products, sugar and foodgrains were to be included in the products eligible for special financial package for large value exports.

20

•

As some banks had not followed the Reserve Bank guidelines on investment transactions and had undertaken transactions which might have exposed the banks to significant risks, UCBs were advised to strictly follow the extant guidelines. Some of the important instructions are as follows: (i) UCBs should not undertake any purchase/sale transactions with broking firms or other intermediaries on a principal to principal basis. (ii) UCBs should seek a SCB, PD or FI as a counter party. Preference should be for direct deals with such counter parties. It will be desirable to check prices from the banks or PDs with whom UCBs may be maintaining Constituent SGL Account (CSGL). (iii) If a deal is put through with the help of broker, the role of the broker should be restricted to that of bringing the two parties to the deal together. Under no circumstances should bank give power of attorney or any other authorisation to brokers/ intermediaries to deal on their behalf in the money and securities markets. (iv) Only brokers registered with NSE or BSE or OTCEI should be utilised for acting as intermediary. A limit of 5 per cent of total transactions (both purchases and sales) should be treated as the aggregate upper contract limit for each of the approved brokers. (v) All investment transactions should be perused by the Board at least once a month.

22

•

The Reserve Bank announced that the past due period of 30 days for identification of NPAs by NBFCs would be done away with, effective March 31, 2003.

•

The Reserve Bank prescribed guidelines for objective identification of loss assets by NBFCs including instances therein which could threaten the recovery of the assets so that the NPAs are promptly classified and adequate provisions are made against such assets.

•

It was decided to take action progressively against NBFCs for non-submission of returns. Such action may include imposing penalties as provided in the Reserve Bank of India Act, 1934 as also launching court proceedings against the errant companies, besides considering rejection/cancellation of the Certificate of Registration. To start with, cases of NBFCs having public deposits of Rs.50 crore and above and defaulting in submission of returns are being taken up. This discipline will be extended to other NBFCs in due course.

26

•

The Reserve Bank approved the merger of ICICI Ltd. with ICICI Bank Ltd., subject to certain conditions.

•

Scheduled UCBs were advised to conduct a special audit of their securities transactions by a Chartered Accountant and to place a report of the audit before the Board.

29

•

Issue of certificate of deposits (CDs) by banks and FIs only in the dematerialised form effective June 30, 2002. Conversion of existing outstandings of CDs into the demat form by October 2002.

•

The RRBs were advised to maintain their entire SLR holdings in Government and other approved securities by converting existing deposits with sponsor banks into approved securities by March 31, 2003.

•

Funds provided to RRBs by sponsor banks for on-lending to priority sector to be excluded from the calculation of priority sector target achievements.

•

All SCBs were advised that they may, on the basis of good track record of the SSI units and the financial position of the units, increase the limit of dispensation of collateral requirement from Rs.5 lakh to Rs.15 lakh.

•

Increase in limit from Rs.15 lakh to Rs.25 lakh for financing of distribution of inputs for allied activities under priority sector.

•

Increase in credit limits from Rs.1 lakh to Rs.5 lakh for marketing of crops (pledge financing) under priority sector. Repayment schedules of such credit enhanced to 12 months from 6 months.

•

Banks were advised that, effective March 31, 2005, an asset would be classified as doubtful if it remained in the sub- standard category for 12 months. Banks were permitted to phase the additional provisioning consequent upon the reduction in the transition period from substandard to doubtful asset from 18 months to 12 months, over a four- year period, commencing from the year ending March 31, 2005, with a minimum of 20 per cent each year.

•

Investments by banks in Mortgage Backed Securities (MBS) issued by HFCs and supervised by NHB to be included in the prescribed housing finance allocation of 3 per cent.

May

3

•

Banks were advised to compute Investment Fluctuation Reserve (IFR) with reference to investments in two categories, viz., "Held for Trading" and "Available for Sale" and for the purpose of computation of IFR, it is not necessary to include investments under "Held to Maturity" category.

•

As an interim measure, the Reserve Bank would grant permission for CDR on the basis of specific recommendations of CDR "Core Group", if a minimum of 75 per cent by value of the lenders consent for CDR, irrespective of differences in asset classification status in banks/FIs.

•

Banks to constitute an expert internal team to study the methodology of the new Basel proposals and its likely impact.

14

•

With the operationalisation of the CCIL, modified instructions were issued to FIs, which inter alia, state that ready forward contracts shall be settled through the SGL accounts of the participants with the Reserve Bank or through the SGL accounts of the CCIL with the Reserve Bank.

20

•

Commercial banks, co-operative banks, PDs, FIs, local area banks, RRBs and NBFCs were advised to hold Government securities in dematerialised form.

21

•

The existing norm of two harvest seasons not exceeding two half years for reckoning NPAs which is applicable only in respect of short-term agricultural crop loans for production and marketing of seasonal agricultural crops and not for other activities like horticulture, floriculture or other allied activities was reviewed and it was decided that the norm of two harvest seasons, not exceeding two half years, be made applicable to all specified direct agricultural advances.

23

•

Parabanking facilities such as lending and hire-purchase extended by banks at select branches departmentally were

made eligible for classification as priority sector advances, provided the beneficiary satisfies the criteria laid down by

the Reserve Bank for treating such advances as priority sector advances.

24

•

Banks were advised that housing loans to individuals against the mortgage of residential housing properties may be assigned a risk weight of 50 per cent instead of the existing 100 per cent for the purpose of capital adequacy. Loans against mortgage of commercial real estate would continue to attract 100 per cent risk weight as hitherto. Banks’ investment in MBS of residential assets of Housing Finance Companies (HFCs) which are supervised by the National Housing Bank (NHB) would be eligible for risk weight of 50 per cent for the purpose of capital adequacy.

28

•

To ensure that the loan assets relating to projects under implementation were appropriately classified and asset quality correctly reflected, the norms on income recognition, asset classification and provisioning with respect to industrial projects under implementation, which involve time overrun, earlier applicable to FIs only, were made applicable to banks also.

29

•

Keeping in view the nature of operations of banks and the need to ensure uniformity in regulatory requirements, it was decided that compliance with the following Accounting Standards be made optional for banks only for the financial year ended March 31,2002: AS 17 on Segment Reporting, AS 18 on Related Party Disclosure, AS 21 on Consolidated Financial Statements and AS 22 on Taxes on Income. Banks would be required to conform to the above Accounting Standards by March 31, 2003 in accordance with the detailed guidelines to be issued shortly on the basis of the recommendations of a Working Group on the issue.

30

•

Based on the recommendations of the Working Group on Wilful Defaulters, the term ‘Wilful Default’ was redefined and widened so as to cover the aspects of diversion of/siphoning off funds therein. The banks and FIs are required to initiate penal measures against wilful defaulters as advised.

June

4

•

The banks, all-India notified FIs and State Financial Corporations were advised to submit the list of suit filed accounts of Rs.1 crore and above as on March 31, 2002 and quarterly updates thereof till December 2002 and suit filed accounts of wilful defaulters of Rs.25 lakh and above as at end-March, June, September and December 2002 to the Reserve Bank as well as to Credit Information Bureau (India) Ltd. (CIBIL) for a period of one year till March 31, 2003 and thereafter to CIBIL only.

6

•

UCBs were advised that, in addition to the existing permitted entities, they can also seek insurance companies, mutual funds and provident funds as counter parties for their transactions in securities.

•

The prudential norms for NBFCs relating to (i) removal of the concept of the "past due", (ii) definition of NPAs and (iii) maintenance of capital adequacy on an ongoing basis and with the certification from the Auditors were amended.

7

•

To ensure uniformity in interpretation of the term ‘financial closure’ for the green field projects, a standard definition was introduced for the purpose of asset classification for FIs.

•

It was decided that, with immediate effect, all transactions in Government securities by UCBs should necessarily be through SGL or constituent SGL account or dematerialised account with depositories.

June

11

•

In the light of developments involving securities transactions of certain UCBs, it was decided that concurrent auditors shall also certify that investments held by the bank as on the last reporting Friday of each quarter and as reported to the Reserve Bank, are actually owned/held by it as evidenced by physical securities or the custodians’ statement. Those banks not having the system of concurrent audit may have the above certification furnished by an auditor appointed by the Registrar of Co-operative Societies.

15

•

To increase the investor base, the minimum size of CDs issued by FIs to single investor was reduced from the existing level of Rs.5 lakh to Rs.1 lakh and in multiples of Rs.1 lakh thereafter.

20

•

UCBs were advised to initiate steps to enhance/augment flow of credit under priority sector to artisans, craftsmen, etc. belonging to the minority communities namely, Sikhs, Muslims, Christians, Zoroastrians and Buddhists.

26

•

The Reserve Bank introduced the supervisory rating system based on "CAMELS" model for the FIs, on lines similar to banks.

July

26

•

In supercession of the earlier instructions on system of charging interest on advances at monthly rests with effect from April 1, 2002, banks were advised that : i) they have option to compound interest at monthly rests effective either from April 1, 2002 or July 1, 2002 or April 1, 2003; ii) with effect from quarter beginning July 1, 2002, banks should ensure that the effective rate does not go up merely on account of the switchover to the system of charging/ compounding interest at monthly rests and increase the burden on the borrowers; iii) instructions on charging interest at monthly rests shall not be applicable to agricultural advances and banks shall continue to follow the existing practice of charging/ compounding of interest on agricultural advances linked to crop seasons. In case of other agricultural advances, banks may take into consideration due dates fixed on the basis of fluidity with borrower for charging of interest.

31

•

FIs were advised to ensure rotation of the partner of the audit firm conducting audit, if the firm continues for more than 4 years, so as to ensure that the audit is not conducted by the same partner for a continuous period of more than four years.

Aug.

3

•

In view of the drought and floods damaging crops and property in several parts of the country, banks were advised to take immediate action in terms of the standing guidelines in providing appropriate relief to the persons affected by the natural calamities.

8

•

Loans extended by an FI to infrastructure projects against the guarantee of a bank would attract a risk weight of 20 per cent for computation of CRAR of the lending FI. The risk weight of 20 per cent would apply to only that part of the loan which is covered by the bank’s guarantee and the remaining amount of loan, if any, would normally attract 100 per cent risk weight. For the purpose of exposure norms, however, the entire loan transaction should be reckoned as an exposure on the borrowing entity and not on the bank guaranteeing the loan. In case the funded facility is by way of term loan, the level of exposure should be reckoned as per the Reserve Bank’s extant guidelines.

16

•

The stipulation regarding the promoters’ contribution towards the equity capital of a company should come from their own resources and the bank should not normally grant advances to take up shares of other companies was relaxed in the case of bank finance to successful bidders under the PSU disinvestments programme of the Government subject to the conditions specified.

•

In view of the recent developments, both domestic and international, extant instructions and guidelines on ‘know your customer’ (KYC) norms and cash transactions were reissued reinforcing earlier instructions on the subject with a view to safeguarding banks from being unwittingly used for the transfer or deposit of funds derived from criminal activity orfor financing of terrorism. The guidelines are also applicable to foreign currency accounts/transactions.

19

•

Banks were advised to refrain from offering low/zero per cent interest rates on consumer durable advances to borrowers through adjustment of discount available from manufactures/dealers of consumer goods as such loan schemes lack transparency in operations and distort pricing mechanism of loan products. They were also advised to refrain from linking their names in any form/manner with any incentive-based advertisement where clarity regarding interest rate is absent.

23

•

On the basis of recommendation of the Indian Banks’ Association (IBA), it was decided to enhance the ceiling for immediate credit of outstation/local cheques from Rs.7,500 to Rs.15,000, subject to the guidelines issued by the Reserve Bank.

31

•

FIs were advised that, with immediate effect, (i) housing loans extended by FIs to individuals against the mortgage of residential housing properties would attract a risk weight of 50 per cent (as against the existing 100 per cent); and (ii) investments by the FIs in the Mortgage Backed Securities (MBS) would attract a risk weight of 50 per cent (in addition to the 2.5 per cent risk weight for market risk) provided that the assets underlying the MBS are the residential loan assets of the Housing Finance Companies (HFC) which are recognised and supervised by NHB; and that the MBS satisfy certain other terms and conditions.

Aug.

31

•

SCBs were advised to classify advances for financing Agriclinics and Agribusiness centres as "Direct Finance under Agriculture."

Sep.

2

•

FIs were issued a set of draft guidelines relating to proposed supervisory framework for consolidated supervision which envisages the following three components (a) consolidated financial statements (CFS), (b) consolidated prudential returns (CPR), and (c) application of prudential regulations like capital adequacy, large exposures and liquidity gaps on group-wide basis. Final guidelines on the subject matter were issued on August 1, 2003.

14

•

As per the extant norms the asset classification of the projects under implementation falling under Category II (projects with original cost of Rs.100 crore or more), is required to be decided with reference to the ‘deemed date of completion’ of such projects as determined by the Independent Group. Henceforth, as a prudential measure, the provisions held by the FIs in respect of accounts should not be reversed even in cases where, as per the deemed date of completion of the Category II projects certain accounts might become eligible for upgradation to the standard category.

Oct.

1

•

NBFCs were required to necessarily hold their investments in Government securities either in CSGL with SCB/SHCIL or in a dematerialised account with depositories (NSDL/CDSL) through a depository participant registered with SEBI and dematerialise Government securities held in physical form by October 31, 2002. All further transactions of purchase and sale of Government securities have to be compulsorily through CSGL /demat account. The NBFCs need not seek prior approval of the Reserve Bank for opening a demat/SGL account with any of the organisations mentioned above, but must inform the concerned Regional Office of the Reserve Bank on the details of the account within one week of doing so.

•

As a depositor protection measure, NBFCs were advised to include in their advertisements or statements in lieu of advertisement the fact that the deposits collected by them are not insured.

•

All NBFCs holding public deposits of Rs.50 crore and above and RNBCs having aggregate liabilities to the depositors of Rs.50 crore and above as on March 31, 2002 or thereafter were advised to furnish the information regarding their exposure to the capital market to the Reserve Bank in a quarterly return within one month of the close of the respective quarter.

12

•

Banks were advised to use the revised Guidance Notes on Management of Credit Risk and Market Risk for updating their risk management systems. The design of risk management framework should be dictated by banks’ own size, complexity of business, risk philosophy, market perception and the expected level of capital and should be adaptable to changes in business size, the market dynamics and future product innovation.

18

•

In order to have uniformity in reporting, frauds were classified mainly on the provisions of the Indian Penal Code like (a) misappropriation and criminal breach of trust, (b) fraudulent encashment through forged instruments, manipulation of books of account or through fictitious accounts and conversion of property, (c) unauthorised credit facilities extended for reward or for illegal gratification, (d) negligence and cash shortages, (e) cheating and forgery and (f) irregularities in foreign exchange transactions.

21

•

Banks were advised that Boards of each bank may fix a suitable cut off limit with reference to the borrowing entity’s overall exposure on the banking system, over which audit of accounts of borrowers by Chartered Accountants would be mandatory.

29

•

The Reserve Bank constituted a group of seven banks (three public sector banks, two new private banks and two old private banks) to participate in the Quantitative Impact Study (QIS 3) being conducted by the Basel Committee to assess the impact of the New Capital Accord.

•

SLR holdings of RRBs in the form of deposits with sponsor banks maturing beyond March 31, 2003 were allowed to be retained till maturity. These deposits may be converted into Government securities, on maturity, in case the concerned RRBs have not achieved the 25 percent minimum level of SLR in Government securities by that time.

•

Banks were permitted to undertake referral business through their network of branches with prior permission from IRDA and the Reserve Bank.

•

RRBs/LABs and co-operative banks were encouraged not to pay any additional interest on the savings banks accounts over and above what is payable by commercial banks. Co-operative banks were encouraged not to pay interest on current accounts.

•

Unsecured advances given by banks to SHGs against group guarantees under the SHG-bank linkage programme would be excluded from the total of unsecured advances for the purpose of computation of prudential norms on unsecured guarantees and advances. The facility will be reviewed after a year.

•

The CAMELS based supervisory rating system to be implemented on trial basis for scheduled UCBs from March 2003.

•

Extension of 90 days norms for recognition of loan impairment to state co-operative banks (SCBs) and District central co-operatives banks (DCCBs) from the year ending March 31, 2006. SCBs and DCCBs to move over to charging of interest at monthly rests effective April 1, 2004.

•

Consolidated instructions were issued clarifying the methodology of charging of interest rate at monthly rest for different types of advances.

•

All SCBs (including RRBs) and local area banks were advised that the limit on advances granted to dealers in drip irrigation/sprinker irrigation system/agricultural machinery located in rural/semi-urban areas was increased from Rs. 10 lakh to Rs. 20 lakh under priority sector lending for agriculture. The individual credit limit to artisans, village and cottage industries for reckoning under advances to ‘weaker sections’ was increased from Rs. 25,000 to Rs. 50,000.

Nov.

11

•

The Reserve Bank formulated a scheme for the setting up of Off-shore Banking Units (OBUs) in Special Economic Zones (SEZs) by banks.

15

•

All SCBs were advised not to recover principal or interest during current financial year on kharif crop loans; to convert principal in to term loan and defer interest. No interest should be charged on deffered interest.

25

•

Banks and FIs can issue CDs on floating rate basis provided the methodology of computing the floating rate is objective, transparent and market-based.

Dec.

4

•

The overall ceiling for loans and advances to directors of UCBs, their relatives and concerns in which they are interested was brought down from 10 per cent to 5 per cent of the demand and time liabilities (DTL). Banks whose outstandings of such loans on September 30, 2002 or thereafter, were more than 5 per cent of their DTL were directed not to sanction any fresh loans/renew the existing facilities and to bring these within the prescribed limit of 5 per cent by March 31, 2003.

13

•

All foreign banks operating in India were advised that their unsecured advances which are backed by the guarantees of their overseas branches may not be taken into account for the purpose of computing the limit on unsecured guarantees and advances.

14

•

Banks were allowed to open savings bank accounts in the names of State Government departments/bodies/agencies in respect of grants/subsidies released for implementation of various programmes/schemes sponsored by State Governments.

19

•

Based on the recommendation of the Committee on Computer Audit, the possible areas of audit interest in the Information System (IS) environment have been identified as 15 broad categories and a ‘standardised checklists’ under each category to facilitate the conduct of computer audit has been prepared and sent to FIs. The issues elaborated in the checklists gives a fair idea about areas that need to be controlled. These checklists, however, are only in the nature of guidelines and FIs are free to develop more elaborate checklists to conduct IS Audit suitable to the IT environment in which they operate and propose to operate.

20

•

All SCBs (excluding RRBs) were advised that no service charge or inspection charge should be levied by them on priority sector loans upto Rs. 25,000.

21

•

In consultation with the Government of India, guidelines were issued to the FIs in regard to the connected lending.

•

Implementation of the Prompt Corrective Action (PCA) scheme was initiated initially for a period of one year. It will be reviewed in December 2003. All scheduled commercial banks were directed to place the scheme before their respective Board of Directors to ensure that their bank does not come within the PCA framework. The PCA framework does not preclude the Reserve Bank from taking any other action as it deems fit in addition to the corrective actions prescribed in the framework.

27

•

All SCBs were advised to waive first year’s deffered interest liability (20 per cent) on kharif loans, as one time measure.

•

Banks were directed to form a Task Force comprising senior executives for chalking out an action plan for switching over to risk-based internal audit. A quarterly progress report on the implementation of risk-based internal audit should be submitted to the Reserve Bank from the quarter ending March 31, 2003.

2003

Jan.

20

•

With effect from April 1, 2003, of the two methods for measuring the credit risk exposure inherent in derivatives for determining individual/group borrower exposures, viz. the Original Exposure Method and the Current Exposure Method,

banks were encouraged to follow the Current Exposure Method.

24

•

Banks were given freedom to decide their own guidelines for assessing/sanctioning working capital limits of borrowers while purchasing/ discounting/ negotiating/ rediscounting genuine commercial/trade bills. They were allowed to sanction working capital limit as well as bills limit to borrowers after proper appraisal of their credit needs and in accordance with the loan policy as approved by their Board of Directors.

•

In supercession of earlier instructions, the detailed guidelines were issued to the banks laying down revised guidelines for purchasing/discounting/negotiating/rediscounting of genuine commercial bills.

29

•

Fresh guidelines to provide a simplified, non-discretionary and non-discriminatory mechanism for compromise settlement of chronic NPAs below Rs.10 crore were issued. All public sector banks were directed to uniformly implement the guidelines to ensure maximum realisation of dues within the stipulated time. The guidelines do not cover cases of wilful default, fraud and malfeasance.

Feb.

4

•

Revised guidelines were issued for financing of infrastructure projects. The guidelines define infrastructure lending; specify criteria for financing, types of financing by banks, methodology of project appraisal and administrative management; and provide prudential credit exposure limits, risk weight for capital adequacy purposes and asset liability management.

5

•

As announced in the Union Budget 2002-03, revised guidelines on Corporate Debt Restructuring (CDR) were issued to make CDR mechanism more efficient. The revised guidelines provide two categories of debt restructuring under the CDR system – one for ‘standard’ and ‘sub-standard’ accounts (Category 1) and the other for ‘doubtful’ accounts (Category2).

19

•

Detailed guidelines were issued on country risk management and provisioning therefor. The guidelines are applicable only in respect of countries where a bank’s net funded exposure is of two per cent or more of its total assets. The guidelines shall be reviewed after one year, taking into account the experience of banks in implementing the guidelines.

23

•

Final guidelines on Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 were issued. The guidelines and directions relate to registration, owned fund, permissible business, operational structure, deployment of surplus funds, internal control system, prudential norms and disclosure requirements for Securitisation and Reconstruction Companies. The Reserve Bank also issued guidance notes of recommendatory nature on acquisition of assets, issue of security receipts etc. A set of standard guidelines in the matter of takeover of the management, sale or lease of whole or part of the business of the borrower is being formulated.

25

•

Final guidelines on consolidated accounting and other quantitative methods to facilitate consolidated supervision were issued to banks. Banks were advised to place the guidelines before the Board of Directors and ensure strict compliance with the same commencing from the year ended March 31, 2003.

26

•

The time period allowed to banks for making provision against the net debit balance in the inter-branch account is to be reduced from one year to six months from the year ending March 31, 2004.

27

•

Banks were advised to recognise income on accrual basis in respect of the three categories of projects under implementation which are classified as ‘standard’ in terms of the guidelines issued in May 2002.

March

3

•

The ceiling on interest rates payable on deposits by NBFCs (including Chit Fund companies and Nidhi companies) was revised downwards from 12.5 per cent per annum to 11.0 per cent per annum effective from March 4, 2003. The new rate is applicable to fresh public deposits and renewals of matured public deposits. Other conditions relating to rests at which interest can be compounded, rate of brokerage, etc. remain unchanged.

21

•

Guidelines on bank finance for PSU disinvestments were reviewed in consultation with the Government of India and new guidelines were issued in respect of lock-in period for shares relating to such disinvestments.

29

•

To facilitate informed decision making by regulators, depositors and other users of balance sheets, NBFCs (irrespective of whether they hold public deposits or not) were directed to attach a schedule to the balance sheet containing additional particulars as per the format prescribed by the Reserve Bank effective from the balance sheet as on March 31, 2003 and onwards.

31

•

Payment of the minimum rate of return by Residuary Non-Banking Companies (RNBCs) to their depositors was revised to 3.5 per cent on daily deposits and to 5.0 per cent on other deposits effective from April 1, 2003.

April

8

•

The ceiling for banks to offer credit/non-credit facilities to Indian Joint Ventures / Wholly Owned Subsidiaries abroad was increased from 5 per cent of the unimpaired Tier - I capital to 10 per cent of banks’ unimpaired capital funds (Tier I and Tier II capital).

23

•

The Reserve Bank issued guidelines and directions to the Securitisation Companies and Reconstruction Companies seeking registration from the Bank under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

29

•

While Investment Fluctuation Reserve (IFR) would continue to be treated as Tier II capital, it would not be subject to the ceiling of 1.25 per cent of the total risk-weighted assets. However, for the purpose of compliance with the capital adequacy norms, Tier II capital including IFR, would be considered up to a maximum of 100 per cent of total Tier I capital. The above treatment would be effective from March 31, 2003.

•

The Reserve Bank would consider favourably any proposal for transfer of branches in rural and semi-urban centres from one commercial bank to another by mutual agreement. Banks will be expected to ensure that such mutually agreed transfers do not adversely affect the available banking services in that area.

•

Banks were advised to build up provisions, significantly above the minimum regulatory requirements, for their NPAs particularly for those assets which they propose to sell to securitisation/ reconstruction companies.

•

Dealers in drip irrigation/sprinkler irrigation system/ agricultural machinery, irrespective of their location, would be eligible for advances, under priority sector lending for agriculture.

•

Banks with their Board’s approval would be free to extend direct finance to the housing sector up to Rs.10 lakh in rural and semi-urban areas as part of priority sector lending.

•

UCBs permitted to exempt both gold loans and small loans up to Rs.1 lakh from the 90 days norm for recognition of loan impairment. These loans would, therefore, continue to be governed by the 180 days norm for classification as NPAs even after March 31, 2004.

•

UCBs permitted to place deposits with strong scheduled UCBs (other than banks classified as weak or sick) with certain conditions.

•

The ceiling on the unsecured advances by the UCBs was revised except in the case of weak/sick UCBs. The aggregate of unsecured advances granted by a UCB to its members as a whole, would continue to be within the overall ceiling of 33 1/3 per cent of the bank’s DTL.

•

UCBs were given a maximum period of six months from the date of the inspection report to remove the irregularities pointed out in the inspection report in all respects, failing which the Reserve Bank will invoke the penal provisions.

•

All UCBs are to introduce concurrent audit with immediate effect.

•

UCBs were directed not to grant loans and advances (both secured and unsecured) to directors, their relatives and firms/concerns/companies in which they are interested. Existing advances extended prior to April 29, 2003 should not be renewed or extended further.

30

•

Non-bank entities including corporates were allowed to provide unconditional and irrevocable guarantee for credit enhancement for issuance of CP. Furthermore, banks are allowed to invest in CPs guaranteed by non-bank entities provided their exposure remains within the regulatory ceiling as prescribed by the Reserve Bank for unsecured exposures.

May

5

•

Banks/All India Financial Institutions were advised to adopt the broad guidelines and frame the Fair Practices Code regarding applications for loans and their processing, loan appraisal and terms/conditions, disbursement of loans including changes in terms and conditions, and post disbursement supervision, duly approved by their Board of Directors.

14

•

Advances up to Rs.20 lakh per dealer, granted by urban co-operative banks to dealers in drip irrigation / sprinkler irrigation systems and agricultural machinery, may be classified under ‘Indirect Finance to Agriculture’ as a part of priority sector lending. As part of priority sector lending, banks are free to extend direct housing loans up to Rs.10 lakh in rural and semi-urban areas also.

30

•

Revised guidelines were issued for compromise settlement of chronic NPAs. In consultation with the Government of India, the last date for receipt of the applications under the revised One Time Settlement (OTS) Scheme was extended from April 30, 2003 to September 30, 2003 and the date of processing of the applications by banks from October 31, 2003 to December 31, 2003.

June

3

•

Banks/FIs were allowed to deal in exchange traded interest rate derivatives in a phased manner, with a view to enabling them to manage their exposure to interest rate risks.

20

•

The major irregularities observed in the concurrent audit report of the treasury transactions as also the position of compliance therewith should be incorporated in the half-yearly reviews of the investment protfolio to be submitted to the Regional Offices of the DBS.

26

•

In order to streamline the procedure followed by banks in dealing with the dishonour of cheques, additional instructions were given to banks covering all cheques dishonoured on account of insufficient funds. The instructions also require banks to deal severely with frequent dishonour of cheques. Further, banks are also required to create a database of all dishonoured cheques of Rs.1 crore and above which should form part of their MIS.

July

8

•

Primary (urban) co-operative banks which are not members of NDS/CCIL system were directed to undertake their transactions in Government securities through gilt account/demat account maintained with NDS members.

•

Banks were exempted from the requirement of approprating the profit on sale of securities from Held to Maturity (HTM) category to ‘Capital Reserve Account’, as a one-time measure, only in respect of the identified securities that are sold to the Government of India under the scheme of Government of India’s Debt Buyback Programme.

19

•

With a view to reducing the level of long pending outstanding entries in the Clearing Adjustment Account of banks, they were allowed, as one time measure, to net off the entries representing clearing differences ‘receivable’ against entries representing clearing differences ‘payable’ up to Rs. 500 which are outstanding for more than three years as on March 31, 2003.

31

•

Regulatory framework of NBFCs was amended to permit ready forward contracts in dated securities and Treasury Bills issued by the Government of India and dated securities issued by the State Governments.