Volume VII  Issue 8 February 2011
MONETARY AND CREDIT INFORMATION REVIEW
POLICY
Housing Loans up to Rs. 10 Lakh - Clarifications
The Government of India has issued certain clarifications on
the scheme of one per cent interest subvention on
housing loans up to Rs. 10 lakh. While submitting claims for
reimbursement under the Scheme, banks may note the
clarifications which are as follows -
a) Housing loans extended to non-resident Indians (NRIs) for
construction of farm houses and to staff members of
banks are not eligible for subsidy under the Scheme.
b) While calculating the interest subsidy, each disbursement
should be treated as a separate loan and for each
disbursement, subsidy claim should be made for twelve
instalments. For loans fully disbursed in one stroke,
subsidy would be provided upfront on the entire amount of
the loan disbursed. Subsidy should be calculated for the
12 months period from the date of disbursement of the
loan following the reducing balance of EMI.
c) Loans sanctioned prior to October 1, 2009 would not
qualify for reimbursement under the Scheme.
d) All scheduled commercial banks (SCBs) should use their
own funds for upfront credit of subsidy till the
reimbursement is received from the Government of India.
e) Banks are advised to submit their claims in the prescribed
format provided by the Reserve Bank, on a monthly basis,
in respect of all housing loans eligible for subsidy under
the Scheme.
All SCBs are further advised to implement the Scheme
vigorously and provide the benefits of the Scheme to all eligible
customers/beneficiaries expeditiously.
Branch Authorisation Policy Relaxed
General permission has been granted to domestic
scheduled commercial banks (other than RRBs) to open
administrative offices and central processing centres (CPCs) /
service branches in Tier- 3 to Tier- 6 centres (with population
up to 49,999 as per census 2001) and in rural, semi urban and
urban centres in the North Eastern States and Sikkim, subject
to reporting. While the administrative office (controlling offices)
would be carrying out administrative work, the (CPCs)/service
branches would exclusively attend to back office functions.
These CPCs/service branches should not have direct interface
with customers.
Banks should ensure that the centres where the branches
are opened under general permission are not the outgrowth
(locality developed around bigger centre) of a bigger centre. It is
clarified that outgrowth of a bigger centre would have the same
population group classification as that of the bigger centre.
The details of administrative offices and CPCs/service
branches opened by banks under general permission should
be reported to the Reserve Bank.
Base Rate
The Government of India, Ministry of New and Renewable
Energy has formulated a scheme on financing of Off-Grid and
Decentralised Solar (Photovoltaic and Thermal) applications as
part of the Jawaharlal Nehru National Solar Mission. Under the
scheme, banks may extend subsidised loans to entrepreneurs
at interest rates not exceeding five per cent where refinance of
two per cent from the Government of India is available. In this
context, the Reserve Bank has advised that such lending at interest rates not exceeding five per cent per annum, where
refinance of the Government of India is available, would not be
considered as violation of its guidelines on Base Rate.
Repo/Reverse Repo Rates increased
The repo rate and the reverse repo rate under the liquidity
adjustment facility (LAF) have been increased from January 25,
2011 as indicated below :
Repo Rate : by 25 basis points from 6.25 per cent to
6.50 per cent.
Reverse Repo Rate : by 25 basis points from 5.25 per cent to
5.50 per cent.
Standing Liquidity Facilities for Banks/PDs
The standing liquidity facilities provided to banks (export credit
refinance) and primary dealers (PDs) (collateralised liquidity
support) from the Reserve Bank would be available at the revised
repo rate, i.e., at 6.50 per cent from January 25, 2011.
Additional Liquidity Support under LAF
The additional liquidity support to SCBs under the LAF to
the extent of one per cent of their NDTL, set to expire on
January 28, 2011, has now been extended up to April 8, 2011.
For any shortfall in maintenance of the statutory liquidity ratio
(SLR) arising out of availment of this facility, banks may seek
waiver of penal interest purely as an ad hoc, temporary
measure. The liquidity support availed under this facility should,
however, be reported on a daily basis.
New Pension Option/Enhanced Gratuity - Treatment
The Reserve Bank has advised all public sector banks
that the additional liability on account of re-opening of pension
option for the employees who had not opted for pension earlier
as well as the enhancement in gratuity limits should be fully
recognised and charged to Profit and Loss Account for the
financial year 2010-11.
The Reserve Bank has further advised that –
(a) The expenditure indicated above, may, if not fully charged
to the Profit and Loss Account during the financial year
2010-11, be amortised over a period of five years (subject
to (b) and (c) below) beginning with the financial year
ending March 31, 2011 subject to a minimum of 1/5th of
the total amount involved every year.
(b) Consequent upon the introduction of International Financial
Reporting Standards (IFRS) from April 1, 2013 for the
banking industry, the opening balance of reserves of banks
will be reduced to the extent of the unamortised carry
forward expenditure.
(c) The unamortised expenditure carried forward should not
include any amounts relating to separated/retired
employees.
Appropriate disclosures of the accounting policy followed
in this regard should be made in the Notes to Accounts to the
financial statements.
In view of the exceptional nature of the event, new pension
option and enhanced gratuity related unamortised expenditure
would not be reduced from Tier I capital.
Banks should keep in view (b) above while planning their
capital augmentation, suitably factoring in Basel III
requirements also.
Mis-classification of Priority Sector Loans
The Reserve Bank has advised that henceforth, the
amount of loans wrongly classified under priority sector,
identified and reported by principal inspecting officers during
annual financial inspection of banks will be taken into account
for arriving at the shortfall under priority sector lending targets.
To begin with, such mis-classifications reported during the
current year will be added to the shortfall reported by banks as
on the last reporting Friday of the following year, for allocation
to various funds.
It had also been reported that when banks buy loans
given to eligible priority sector borrowers, by intermediaries like
micro finance institutions (MFIs)/NBFCs, they reckon the
present value of the loans arrived at by discounting at their
rate of lending which is typically much lower than the actual
rate charged to end–borrowers by such intermediaries. This
has the effect of overstating the actual amount of priority sector
loans to the extent of premium paid by banks to such
intermediaries. Banks must, therefore, report the nominal
amount actually disbursed to end priority sector borrowers and
not the premium-embedded amount paid to the
intermediaries.
Classification of Loans against Gold Jewellery
The Reserve Bank has clarified that loans sanctioned to
NBFCs for on-lending to individuals or other entities against gold
jewellery, are not eligible for classification under agriculture sector.
Similarly investments made by banks in securitised assets
originated by NBFCs, where the underlying assets are loans
against gold jewellery, and purchase/assignment of gold loan
portfolio from NBFCs are also not eligible for classification
under agriculture sector.
BRANCH BANKING
Opening of Small Accounts
The Government of India has, on December 16, 2010, issued
a notification amending the Prevention of Money-laundering
(Maintenance of Records of the Nature and Value of Transactions,
the Procedure and Manner of Maintaining and Time for Furnishing
Information and Verification and Maintenance of Records of the
Identity of the Clients of the Banking Companies, Financial
Institutions and Intermediaries) Rules, 2005. The amendment has
defined/expanded the definition of certain terms.
Small Accounts
A ‘small account’ means a savings account in a banking
company where-
(i) the aggregate of all credits in a financial year does not
exceed rupees one lakh;
(ii) the aggregate of all withdrawals and transfers in a month
does not exceed rupees ten thousand; and
(iii) the balance at any point of time does not exceed rupees
fifty thousand.
Officially Valid Documents
The government notification has expanded the definition of
‘officially valid document’ to include job card issued by NREGA
duly signed by an officer of the state government or the letters
issued by the Unique Identification Authority of India containing
details of name, address and ‘Aadhaar’ number.
Where a bank has relied exclusively on any of these two
documents, viz., NREGA job card or Aadhaar letter as complete
‘know your customer’ (KYC) document for opening of an
account, the bank account so opened, will also be subjected to
all conditions and limitations prescribed for small accounts in
the government notification.
Opening of Small Accounts
The notification also lays down the detailed procedure for
opening ‘small accounts’ -
An individual who desires to open a small account in a
banking company may be allowed to open such an account on
production of a self-attested photograph and affixation of
signature or thumb print, as the case may be, on the form for
opening the account, provided -
(i) the designated officer of the banking company, while
opening the small account, certifies under his signature
that the person opening the account has affixed his
signature or thumb print, as the case may be, in his
presence.
(ii) a small account shall be opened only at core banking
solution linked banking company branches or in a branch
where it is possible to manually monitor and ensure that
foreign remittances are not credited to a small account
and that the stipulated limits on monthly and annual
aggregate of transactions and balance in such accounts
are not breached, before a transaction is allowed to take
place;
(iii) a small account shall remain operational initially for a
period of twelve months, and thereafter for a further period
of twelve months if the holder of such an account provides
evidence before the banking company of having applied for
any of the officially valid documents within twelve months
of the opening of the said account. The entire relaxation
provisions in respect of the said account should be
reviewed after twenty four months;
(iv) a small account should be monitored and when there is
suspicion of money laundering or financing of terrorism or
other high risk scenarios, the identity of the client should
be established through the production of officially valid
documents; and
(v) foreign remittance should not be allowed to be credited
into a small account unless the identity of the client is fully
established through the production of officially valid
documents.
Banks are advised to ensure adherence to the above
procedure for opening of small accounts.
UCBs
Investment in Zero Coupon Bonds
The Reserve Bank has advised all primary (urban)
co-operative banks (UCBs) not to invest in zero coupon bonds
(ZCBs) unless the issuer builds up a sinking fund for accrued
interest and keeps it invested in liquid investments/securities
(government bonds).
It has been observed that UCBs are investing in long term
ZCBs issued by corporates, including those issued by NBFCs.
As the issuers of ZCBs are not required to pay any interest or
installments till the maturity of the bonds, credit risk in such
investments would go unrecognised till the maturity of the
bonds and this risk would especially be significant in the case
of long term ZCBs.
FEMA
Participation in Currency Futures/Currency Options
Full fledged money changers (FFMCs) and ADs Category-II
[other than regional rural banks (RRBs), local area banks (LABs),
urban co-operative banks (UCBs) and non-banking financial
companies (NBFCs)], having a minimum net worth of Rs. 5
crore, have been permitted to participate in the designated
currency futures and currency options on exchanges recognised
by the Securities and Exchange Board of India (SEBI) as clients
only for the purpose of hedging their underlying foreign exchange
exposures.
FFMCs and ADs Category–II which are RRBs, LABs, UCBs
and NBFCs, may be guided by the instructions issued by the
respective regulatory departments of the Reserve Bank.
NBFCs
CRAR of Deposit Taking NBFCs Raised
The minimum capital ratio of all deposit taking as well as
systemically important non-deposit taking NBFCs has been
aligned to 15 per cent. Accordingly, all deposit taking NBFCs
have been advised to maintain a minimum capital ratio
consisting of Tier I and Tier II capital, of not less than 15
per cent of their aggregate risk weighted assets on balance
sheet and risk adjusted value of off-balance sheet items from
March 31, 2012.
Services to Disabled Persons
The Reserve Bank has advised NBFCs to include a
suitable module containing the rights of persons with
disabilities guaranteed to them by the law and international
conventions, in all the training programmes conducted for their
employees at all levels. Further, NBFCs should ensure that the
grievances of persons with disabilities are redressed under the
grievance redressal mechanism already set up by them.
It may be recalled that in July 2010, NBFCs were advised
that there should be no discrimination in extending products
and facilities, including loan facilities, to the physically/visually
challenged applicants, on grounds of disability and that they
should also advise their branches to render all possible
assistance to such persons for availing of the various
business facilities.
INFORMATION
GOI’s Swavalamban Scheme
To address the longevity risk of the poorer sections of
the society, the Government had announced Swavalamban
Scheme in the Union Budget 2010-11. Under the Scheme,
the Government of India shall contribute a sum of Rs. 1,000
during the current year and the next three years, to each
account in the New Pension System of such subscribers
who contribute any amount between Rs. 1,000 and
Rs.12,000 per annum provided, they are not part of any
statutory pension scheme or employer assisted retirement
benefit scheme. The Government has targeted to cover ten
lakh subscribers each in the four years beginning 2010-11,
bringing the total number of subscribers to 40 lakhs by
March 2014. The operational guidelines on the Swavalamban Scheme which, inter-alia, provide details on the applicability,
benefits and coverage of the Scheme, eligibility criteria,
funding, etc. of the Scheme have been approved and the
Interim Pension Fund Regulatory and Development Authority
(PFRDA) has placed these guidelines in public domain on its
website http://www.pfrda.org.in. PFRDA will be the
implementing agency for the Swavalamban Scheme. PFRDA
has appointed agencies called Aggregators for enrolment of
subscribers and contribution collection under the
Swavalamban Scheme. A higher level of enrolments under
the Scheme will ensure old age income security for such
subscribers.
In his Budget Speech, the Finance Minister had also
appealed to all the state governments to contribute a similar
amount to the Scheme and participate in providing social
security to the vulnerable sections of society. In response, two
states, Haryana and Karnataka have also announced cocontributory
schemes for specific occupational groups for the
workers in the un-organised sectors by contributing Rs.1200
per annum over and above the subscribers’ contribution and
the contribution of the central government under the
Swavalamban Scheme.
Source : Parliament Questions
Third Quarter Review of Monetary Policy for the Year 2010-11
Dr. D. Subbarao, Governor, Reserve Bank of India, in a
meeting with chief executives of major commercial banks
presented the Third Quarter Review of Monetary Policy for the
Year 2010-11 on January 25, 2011. The highlights are:
Projections
- Real GDP growth for 2010-11 retained at 8.5 per cent with
an upside bias.
- Baseline projection of wholesale price index (WPI) inflation
for March 2011 raised from 5.5 per cent to 7.0 per cent.
- Money supply (M3) growth for 2010-11 retained at 17
per cent.
- Growth in non-food credit of scheduled commercial banks
retained at 20 per cent.
Stance
The current stance of monetary policy is intended to:
- Contain the spill-over of high food and fuel inflation into
generalised inflation and anchor inflationary expectations,
while being prepared to respond to any further build-up of
inflationary pressures.
- Maintain an interest rate regime consistent with price,
output and financial stability.
- Manage liquidity to ensure that it remains broadly in
balance, with neither a surplus diluting monetary
transmission nor a deficit choking off fund flows.
Monetary Measures
- Repo rate under the LAF increased by 25 basis points
from 6.25 per cent to 6.50 per cent.
- Reverse repo rate under the LAF increased by 25 basis
points from 5.25 per cent to 5.50 per cent.
- Cash reserve ratio (CRR) retained at 6 per cent of net
demand and time liabilities (NDTL) of banks.
Expected Outcomes
The monetary policy actions are expected to:
- Contain the spill-over from rise in food and fuel prices to
generalised inflation.
- Rein in rising inflationary expectations, which may be
aggravated by the structural and transitory nature of food
price increases.
- Be moderate enough not to disrupt growth.
- Continue to provide comfort to banks in their liquidity
management operations.
Edited and published by Alpana Killawala for the Reserve Bank of India, Department of Communication, Central Office, Shahid Bhagat Singh Marg,Mumbai - 400 001 and printed by her at Onlooker Press, 16, Sassoon Dock, Colaba, Mumbai - 400 005.
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