Regulatory and Other Measures

June 2012

RBI/2011-12/588 UBD.BPD.(PCB).Cir.No.40/16.11.00/ 2011-12 dated June 5, 2012

The Chief Executive Officer All Primary (Urban) Co-operative Banks

Bank Rate

Please refer to our circular UBD.BPD.(PCB).Cir. No.32/16.11.00/2011-12 dated April 26, 2012 advising that the Bank Rate, stands revised from 9.50 per cent to 9.00 per cent with effect from April 17, 2012 and all penal interest rates on shortfalls in reserve requirements, which are specifically linked to the Bank Rate also stands revised. In this connection, we advise that the interest rate on refinance for SSI under Section 17(2) (bb) read with Section 17(4)(c) of the Reserve Bank of India Act, 1934 also stands revised to 9.00 per cent with effect from April 17, 2012.

RBI/2011-12/589 DBOD. No. Dir. BC.107/13.03.00/2011- 12 dated June 5, 2012

All Scheduled Commercial Banks (Excluding RRBs)

Home Loans-Levy of Fore-closure Charges/ Pre-payment Penalty

Please refer to our circular DBOD. No. Dir. BC. 56/13.03.00/2006-2007 dated February 2, 2007 on reasonableness of bank charges.

2. In this context, attention is invited to paragraphs 81 to 83 of the Monetary Policy Statement 2012-13 announced on April 17, 2012 with regard to home loans on floating interest rates. The Committee on Customer Service in Banks (Chairman: M. Damodaran) had observed that foreclosure charges levied by banks on prepayment of home loans are resented upon by home loan borrowers across the board especially since banks were found to be hesitant in passing on the benefits of lower interest rates to the existing borrowers in a falling interest rate scenario. As such, foreclosure charges are seen as a restrictive practice deterring the borrowers from switching over to cheaper available source.

3. The removal of foreclosure charges/prepayment penalty on home loans will lead to reduction in the discrimination between existing and new borrowers and competition among banks will result in finer pricing of the floating rate home loans. Though many banks have in the recent past voluntarily abolished pre-payment penalties on floating rate home loans, there is a need to ensure uniformity across the banking system. It has, therefore, been decided that banks will not be permitted to charge foreclosure charges/prepayment penalties on home loans on floating interest rate basis, with immediate effect.

RBI/2011-12/591 DBOD.No. Leg.BC. 108/09.07.005/ 2011-12 dated June 6, 2012

All Scheduled Commercial Banks (excluding RRBs)

Strengthening the Regulatory Framework for Unclaimed Deposits

Please refer to paragraphs 102 and 103 of the Monetary Policy Statement for the year 2012-13, announced on April 17, 2012 proposing certain measures for strengthening the Regulatory Framework for Unclaimed Deposits.

2. In terms of our Circular DBOD.No.Leg. BC.34/09.07.005/2008-09 dated August 22, 2008 detailed instructions have been given to banks on dealing with unclaimed deposits/inoperative accounts. They have been advised to find the whereabouts of the customers and their legal heirs. These instructions, inter alia, include i) annual review of accounts in which there are no operations, ii) operations in such accounts to be allowed after due diligence, and iii) no charge to be levied for activation of inoperative accounts, etc.

3. Despite the above instructions, banks have not been pro-active in tracing customers linked with unclaimed deposits/inoperative accounts. Also, the need to identify the owners of these unclaimed deposits/inoperative accounts is closely linked to KYC due diligence. Therefore, in terms of our circular DBOD. No.Leg.BC.81/09.07.005/2011-12 dated February 7, 2012 banks were advised that they should display the list of unclaimed deposits/inoperative accounts which are inactive/inoperative for ten years or more on their respective websites by June 30, 2012. The list so displayed on the websites must contain only the names of the account holder(s) and his/her address in respect of unclaimed deposits/inoperative accounts, etc.

4. On a review, with a view to further strengthen the regulatory framework for inoperative accounts and unclaimed deposits, banks are advised to put in place a Board approved policy on classification of unclaimed deposits; grievance redressal mechanism for quick resolution of complaints; record keeping; and periodic review of such accounts.

5. The first periodic review of unclaimed deposits/ inoperative accounts should be put up to their respective bank Boards by September 30, 2012.

RBI/2011-12/600 DIT Cir. No.2833/09.63.025/2011-12 dated June 13, 2012

The Chairmen/Chief Executive Officers, All Scheduled Commercial Banks (excluding RRBs)

Monetary Policy Statement 2012-13 – IT and IS Governance structures

Please refer to the paragraphs 121-123 of the Monetary Policy Statement 2012-13, wherein we have emphasised the importance of implementing IT and IS Governance structure in banks. It is expected that all banks adopt appropriate frameworks for both IT and IS Governance and put in place the proper structure and systems. Accordingly, we request you to take up suitable steps at your end in this regard and ensure that the issues relating to governance, information security and business continuity get adequate attention at the Board level. In this regard, the document prepared by IDRBT on the ‘Organisational Structure for IT in the Indian Banking Sector’ can serve as a reference manual.

2. We also draw your attention to Para 124 on automated data flow and request you to develop and deploy suitable systems to meet the deadline of March 2013 for its total implementation.

RBI/2011-12/622 UBD.BPD.(PCB) CIR No.41/12.05.001/ 2011-12 dated June 26, 2012

The Chief Executive Officers All Primary (Urban) Co-operative Banks

Home Loans – Levy of Fore-closure Charges/Pre-payment Penalty by Urban Co-operative Banks (UCBs)

Please refer to our Circular UBD.(PCB).Cir. No.54/09.39.000/05-06 dated May 26, 2006 on levy/ display of bank charges.

2. The attention of UCBs is invited to paragraphs 81 to 83 of the Monetary Policy Statement 2012-13 announced on April 17, 2012 with regard to home loans on floating interest rates. The Committee on Customer Service in Banks (Chairman: M. Damodaran) had observed that foreclosure charges levied by banks on prepayment of home loans are resented upon by home loan borrowers across the board especially since banks were found to be hesitant in passing on the benefits of lower interest rates to the existing borrowers in a falling interest rate scenario. As such, foreclosure charges are seen as a restrictive practice deterring the borrowers from switching over to cheaper available source.

3. The removal of foreclosure charges/prepayment penalty on home loans will lead to reduction in the discrimination between existing and new borrowers and competition among banks will result in finer pricing of the floating rate home loans. Though some banks have in the recent past voluntarily abolished pre-payment penalties on floating rate home loans, there is a need to ensure uniformity across the banking system. It has, therefore, been decided that UCBs will not be permitted to charge foreclosure charges/prepayment penalties on home loans on floating interest rate basis, with immediate effect.