Volume VIII  Issue 4 October 2011
MONETARY AND CREDIT INFORMATION REVIEW
PAYMENT SYSTEM
Domestic Money Transfer Facilities Relaxed
Pursuant to the Reserve Bank having received frequent
representations to open up the formal banking channel to
facilitate fund transfers of small value, to give impetus to the
process of financial inclusion, the guidelines in this regard and
related issues were reviewed. Certain relaxations have been
made which are expected to provide money transfer facilities in
a safe, secure and efficient manner.
The relaxations are:
(a) The cash pay-out arrangements for amounts being
transferred out of bank accounts to beneficiaries not
having a bank account have been liberalised and the
transaction cap has been enhanced from the earlier limit
of Rs. 5,000 to Rs. 10,000 subject to an overall monthly
cap of Rs. 25,000 per beneficiary.
(b) Walk in customers not having a bank account (for instance
migrant workers) can now transfer funds to bank accounts
(of family members or others) subject to a transaction limit
of Rs. 5,000 and a monthly cap of Rs. 25,000 per remitter.
(c) Transfer of funds are permitted among domestic debit/
credit/pre-paid cards subject to a transaction limit of Rs.
5,000 and a monthly cap of Rs. 25,000 per remitter.
While enabling the above indicated domestic fund
transfers, banks/non-banks should adhere to the following :
• Banks/non-banks should put in place a robust system of
safeguards including velocity checks and alerts to
customers about credit into accounts using this facility. Any
unusual spurt in volume of credits in a particular account/
group of accounts should be immediately investigated.
Appropriate authorities should be alerted regarding
suspicious transactions.
• Such fund transfers are expected to be effected on a real/
near real time basis.
• The total outstanding amount on a prepaid payment
instrument should not at any point of time exceed the limits
prescribed in the Reserve Bank’s guidelines on issuance
and operation of prepaid payment instruments.
• Inter-bank settlement of funds should be effected using the
Reserve Bank’s approved payment systems only.
• Banks/non-banks may fix reasonable charges to
popularise the scheme.
• Banks/non-banks should put in place appropriate systems
for redressal of customer grievances.
• Customer grievances under this scheme would fall under the
purview of the Reserve Bank’s Banking Ombudsman Scheme.
The detailed operational instructions are indicated below:
Payment of Amounts Transferred from a Bank Account
In terms of the Reserve Bank’s circular of December 24,
2009 on mobile banking, banks are permitted to provide
services which facilitate transfer of funds from the accounts of
their customers for delivery in cash to the recipients not having
bank accounts at an ATM or through an agent appointed as
business correspondent (BC). The ceiling on the value of such
transfers has been raised from Rs. 5,000 to Rs. 10,000 per
transaction subject to a cap of Rs. 25,000 per month. It has
been further decided to permit banks to facilitate such fund
transfers through any other authorised payment channels as
well. The remitting bank should, however, obtain full details of
the name and address of the beneficiary.
Payment of Amounts to be Credited to Bank Accounts
Presently, a walk-in customer (person who does not have an
account in that bank) at a bank branch can remit funds up to Rs.
50,000 to the bank account of a beneficiary through national
electronic funds transfer (NEFT). Besides, banks are also
permitted to allow such customers to transfer funds to a bank
account of a beneficiary through BCs, ATMs, etc., up to a maximum
amount of Rs.5,000 per transaction with a monthly cap of Rs.
25,000. Such a walk-in customer has to provide minimum details
like his name and complete address to the remitting bank.
Card to Card Transfers
It has been decided to permit card-to-card fund transfers
in a manner which ensures that the underlying characteristics
of the card from which the transfer is initiated are retained.
Henceforth, person-to-person fund transfers, in a limited way,
from semi-closed prepaid cards would be permitted up to
Rs 5,000 per transaction subject to a cap of Rs 25,000 per
month.
Penalties for Dishonour of EFT Instructions
The Reserve Bank has exhorted banks to popularise the
electronic fund transfer modes amongst their customers by
allaying any apprehensions on the rights and remedies
available to the payees against dishonour of electronic funds
transfer instructions.
Section 25 of the Payment and Settlement Systems Act,
2007 accords the same rights and remedies to the payee
(beneficiary) against dishonour of electronic funds transfer
instructions for insufficiency of funds in the account of the payer
(remitter), as are available to the payee under section 138 of
the Negotiable Instruments Act, 1881.
Sub-section (5) of section 25 of the Payment and
Settlement Systems Act, 2007 provides for punishment of two
years and twice the amount of electronic funds transfer, or both,
for dishonour of such electronic funds transfer on par with the
penalties stipulated for dishonour of cheques under the
Negotiable Instruments Act, 1881.
POLICY
Rupee Export Credit Interest Rates
The Government of India has extended interest subvention
of 2 per cent on rupee export credit from April 1, 2011 to March
31, 2012 on the same terms and conditions as earlier, to the
following sectors: (i) handicrafts; (ii) handlooms; (iii) carpets;
and (iv) small and medium enterprises (SMEs).
Accordingly, banks have been advised to reduce the
interest rate chargeable to the exporters as per Base Rate
system in the above indicated sectors, by the amount of
subvention available subject to a floor rate of 7 per cent. Banks
should ensure to pass on the benefit of 2 per cent interest
subvention completely to the eligible exporters.
The procedure for claiming subvention would be as
follows:
(i) The amount of subvention would be reimbursed on the
basis of claim submitted as at the end of respective
quarters in the prescribed format.
(ii) The amount of subvention would be calculated on the
amount of export credit from the date of disbursement –
(a) up to the date of repayment; or
(b) up to the date beyond which the outstanding export
credit becomes overdue.
(iii) The claims should be accompanied by an external auditor’s
certificate certifying that the claims for subvention for the
respective quarter are true and correct. Settlement of the
claim would be done only on receipt of this certificate.
(iv) Claims should be submitted in the prescribed format to
the Chief General Manager-in-Charge, Department of
Banking Operations and Development, Reserve Bank of
India, Mumbai.
KCC Credit included under Direct Agro Finance
The Reserve Bank has clarified to banks that as credit
under kisan credit card (KCC) is primarily for agricultural
purposes, such credit would be treated as direct finance for
agriculture under priority sector lending.
Advances to State Co-operative Banks at Repo Rate
The Reserve Bank has advised that henceforth, the
interest on loans and advances granted by it to state cooperative
banks under Section 17 (4) (a) of the RBI Act, 1934
for the purpose of general banking business, such as,
clearing adjustments, liquidity etc., would be provided at the
repo rate. Earlier, such accommodation was provided at the
Bank Rate.
FEMA
External Commercial Borrowings
In consultation with the Government of India, the external
commercial borrowings (ECB) policy has been further
rationalised and liberalised as under -
Limit under Automatic Route Enhanced
(a) Eligible borrowers in real sector-industrial sectorinfrastructure
sector can avail of ECB up to USD 750
million or equivalent per financial year under the automatic
route as against the earlier limit of USD 500 million or
equivalent per financial year.
(b) Corporates in specified service sectors viz., hotel, hospital
and software can avail of ECB up to USD 200 million or
equivalent during a financial year as against the earlier
limit of USD 100 million or equivalent per financial year
provided the proceeds of the ECBs are not used for
acquisition of land.
ECBs designated in INR
(a) All eligible borrowers can avail of ECBs designated in
Indian Rupee (INR) from foreign equity holders under the
automatic/approval route, as the case may be, as per the
extant ECB guidelines.
(b) NGOs engaged in micro finance activities will, however, be
permitted to avail of ECBs designated in INR, as hitherto,
under the automatic route from overseas organisations
and individuals as per the extant guidelines.
Interest During Construction
It has been decided to consider ‘Interest During Construction’
(IDC) as a permissible end-use for Indian companies which are
in the infrastructure sector where “infrastructure” is defined in
terms of the extant guidelines on ECBs under the automatic/
approval route, as the case may be, provided (i) the IDC is
capitalised; and (ii) is part of the project cost.
The above amendments have come into force from
September 23, 2011 and are subject to review at any point of time.
Bridge Finance for Infrastructure Sector
Considering the specific needs of the infrastructure sector,
it has been decided to allow Indian companies which are in the
infrastructure sector, where “infrastructure” is as defined under
the extant guidelines on ECB, to import capital goods by
availing of short term credit (including buyers’/suppliers’ credit)
in the nature of ‘bridge finance’, under the approval route,
subject to the following conditions:
(i) the bridge finance should be replaced with a long term ECB;
(ii) the long term ECB should comply with all the extant ECB
norms; and
(iii) Reserve Bank’s prior approval should be sought for
replacing the bridge finance with a long term ECB.
The designated AD - category I bank should monitor the
end-use of funds. Banks in India will not be permitted to provide
any form of guarantees. The designated AD - category I bank
should evidence the import of capital goods by verifying the bill
of entry. All other conditions of ECB, such as, eligible borrower,
recognised lender, all-in-cost, average maturity, prepayment,
refinancing of existing ECB and reporting arrangements remain
unchanged and should be complied with.
The amended ECB policy is effective from September 23,
2011 and is subject to review.
Structured Obligations for Infrastructure Sector
It has been decided to further liberalise the policy relating
to structured obligations and to permit direct foreign equity
holder(s) as per extant ECB guidelines (minimum holding of
25 per cent of the paid up capital) and indirect foreign equity
holders, holding at least 51per cent of the paid-up capital, to
provide credit enhancement to Indian companies engaged
exclusively in the development of infrastructure and by
infrastructure finance companies (IFCs), which have been
classified as such by the Reserve Bank.
Credit enhancement by all eligible non-resident entities
will henceforth be permitted under the automatic route and the
Reserve Bank’s prior approval will not be required.
The amended policy has come into force from September
26, 2011 and is subject to review.
Borrowings in Renminbi
Indian companies which are in the infrastructure sector,
can now avail of ECBs in Renminbi (RMB), under the approval
route, subject to an annual cap of USD one billion pending
further review.
Once approved, the Reserve Bank’s approval will be valid
for a period of three months from the date of issue of the
approval letter and the loan agreement should be executed
within the validity period. The company may thereafter submit
the completed Form 83 to the Reserve Bank’s Department of
Statistics and Information Management for allotment of loan
registration number (LRN) within seven days (from the date the
borrower and the lender sign the loan agreement). In case the
borrower fails to obtain the LRN within the above period, the
Reserve Bank’s approval will stand cancelled.
AD Category- I banks will be permitted to open Nostro
accounts in Renminbi. The designated AD - Category I bank
shall monitor the end-use of funds. Bank(s) in India will not be
permitted to provide any form of guarantee(s). All other
conditions of ECB, such as, eligible borrower, recognised
lender, all-in-cost, average maturity, prepayment, refinancing of
existing ECB and reporting arrangements remain unchanged
and should be complied with.
The amended ECB policy has come into force from
September 27, 2011 and is subject to review.
Opening FCNR(B) A/c in any Freely Convertible Currency
On a review, it has been decided to permit authorised
dealer (AD) banks in India to accept Foreign Currency (Non-
Resident) Account (Banks) {FCNR (B)} deposits in any
permitted currency. ‘Permitted currency’ for this purpose would
mean a foreign currency which is freely convertible as defined
in Regulation 2(v) of FEMA 14/2000-RB dated May 3, 2000, and
as amended from time to time.
The Committee to Review the Facilities for Individuals
under FEMA, 1999 in its Report had recommended that FCNR(B) accounts may be permitted to be opened in any
freely convertible currency.
Earlier, deposit of funds in FCNR(B) accounts were
accepted in Pound Sterling, US Dollar, Japanese Yen, Euro,
Canadian Dollar and Australian Dollar.
UCBs
Internet Banking for Customers
Scheduled urban co-operative banks (UCBs) satisfying
certain criteria have been permitted to provide internet banking
facility to their customers. Accordingly, scheduled UCBs having
a minimum networth of Rs. 100 crore, capital to risk-weighted
assets ratio (CRAR) of at least 10 per cent, net non-performing
asset (NPA) of less than 5 per cent and having earned net profit
continuously in the last three financial years are eligible to offer
internet banking facility to their customers. Eligible UCBs
desirous of offering internet banking facility, may, with their
Board’s approval, frame a policy on internet banking in
accordance with the Reserve Bank’s guidelines of September
26, 2011 and approach the Reserve Bank’s Regional Office for
permission before offering such facility to their customers.
The application for permission to undertake internet
banking should be accompanied by the internet banking policy
approved by the Board of Directors. The policy should fit into the
bank’s overall information technology (IT) and information
system (IS) policy. The application should also be accompanied
by a cost benefit analysis, details of operational arrangements
like the technology adopted, business partners, if any, and
systems and controls the bank proposes to adopt for managing
risks. The bank should also submit a certificate from a certified
information system auditor stating that the IT and IS policy
requirements prescribed in the Reserve Bank’s guidelines
dated September 26, 2011 have been adhered by the bank.
INFORMATION
IBA Model Educational Loan Scheme Modified
Taking into account the operational difficulties in
implementing the existing IBA Model Educational Loan
Scheme, it was decided to modify and simplify the existing
scheme to ensure that ground level disputes arising out of
differing interpretations about the scope of the scheme, student
eligibility etc., are minimised. The revised scheme has
attempted to address the concerns expressed by the bankers
and the operational difficulties faced by the branches. The
salient aspects of the revised scheme are :
(a) Merit as the sole criteria for eligibility.
(b) Admission under management quota kept outside the
scope of the scheme.
(c) The quantum of loan to be justified by the employment
potential.
(d) Extension of repayment period to reduce burden on the
beneficiaries.
The modified scheme has been approved by the Government
of India and the Managing Committee of the Indian Banks’
Association (IBA). The modified scheme, together with the
guidance notes and frequently asked questions, has been
circulated to all the member banks of the IBA on August 30, 2011.
The member banks have been advised to adopt and implement
the modified Scheme. The details of the revised Scheme are also
hosted on IBA’s website www.iba.org.in for wider dissemination.
Source: IBA Newsletter
Banking Ombudsman Conference :
Ten Action Points to improve Customer Service of Banks
The Annual Conference of Banking Ombudsmen was held
in the Reserve Bank of India, Mumbai on September 5, 2011.
The Conference was inaugurated by Dr. D Subbarao, Governor,
Reserve Bank of India. In his inaugural remarks, he stated that,
often, prevention was better than cure. In the customer service
area too, rendering good customer service was like ‘prevention’
and was better than the ‘cure’ which was the various grievances
redressal mechanisms. He flagged various issues relating to
banks’ customer service for the consideration of the participants.
He asked whether customer service was a criterion in evaluating
the performance of a branch level official or did levying of penalty
on a bank reflected in any manner on the staff which caused the
levy of penalty; do all banks have customer grievances redressal
officer and at what level; were the most important terms and
conditions (MITC) explained to the bank customers before they
signed the documents; and whether the deviation from most
important terms and conditions of a banking product were
transparent. He urged bankers to identify ten action points to
further improve their customer service.
The decisions which were taken at the Conference were-
1. Indian Banks’ Association (IBA) will standardise most
important terms and conditions (MITC) for at least ten
important banking transactions and circulate among banks
for adaptation.
2. Banks would initiate the process of providing one view of
all bank accounts of a customer including deposits, loans,
etc., with the help of available technology, such as, core
banking solution. Banks would complete the process
within one year.
3. Banks would convey to the Reserve Bank, a consensus
view on the recommendations of the Damodaran
Committee Report on Customer Service in Banks that
could be immediately implemented.
4. To create awareness about the Banking Ombudsman
Scheme, the Banking Ombudsmen will annually share
with the local media, information regarding complaints
received and resolved, including important cases and
awards given.
5. A series of town-hall events will be organised by banks to
generate awareness about customer service in banks.
Bank customers, bank officials and Banking Ombudsmen
will participate in these events.
6. The Reserve Bank/IBA would examine the issues
pertaining to monetary compensation for mental
harassment suffered by bank customers. Issues that may
receive attention in the analysis would be:
• Whether only actual loss should be considered for
compensation.
• Whether mental harassment issues can be codified
for compensation and whether compensation should
be capped.
• Whether the policies of the banks’ boards on
compensation should inlude mental harassment as
a ground for compensation.
7. Banks should issue tax deduction at source (TDS)
certificates duly completed in all respects to the account
holders and despatch it to their mailing address.
8. In case of ATM/internet based banking transactions, in the
event of any monetary dispute involving the customer and
the bank, the onus should be on the bank to prove the
customer’s negligence or mistake. Customer must be
compensated for the losses arising out of customers’ nonauthorised
transactions.
9. Banks should initiate steps to incorporate in their ‘Code
of Fair Practices to the Customers’ the following items -
• Insurance of some reasonable amount on their
customers’ credit and debit card transactions.
• Providing periodical loan statements to small
borrowers.
• Borrowers should be conveyed information on the
annualised all-in cost (annual effective rate) on their
loan accounts.
10. Banks must not recover pre-payment charges in floating
rate loans. Banks may also offer long-term fixed rate
housing loans to their customers and address their asset
liability mismatch (ALM) issues by recourse to the Interest
Rate Swaps (IRS) market. Floating rate loans pass on the
interest rate risk from banks which are much better placed
to manage it, to borrowers and, thus, banks only substitute
interest rate risk with potential credit risk. The bank will,
however, be free to recover/charge appropriate prepayment
penalties in the case of fixed rate loans.
Background
The Reserve Bank notified the Banking Ombudsman
Scheme in 1995. The Scheme provides for a system of quick
and inexpensive redressal of customer grievances against
banks. The Banking Ombudsman Scheme covers a wide range
of complaints concerning deficiency in banking service. The
Scheme also allows appeals from complainants and banks in
respect of decisions made by the Banking Ombudsman. The
Scheme was revised twice - in 2002 and 2006 to expand its
scope and coverage. The Scheme, as last amended in 2009,
includes complaints for deficiencies arising out of internet
banking, non-adherence to the provisions of the Fair Practices
Code for lenders or the Code of Bank’s Commitment to
Customers issued by the Banking Codes and Standards Board
of India (BCSBI) and non-observance of the Reserve Bank
guidelines on engagement of recovery agents by banks. In
addition, the Reserve Bank has also simplified the format for
lodging complaint to the Banking Ombudsman.
The Reserve Bank organises a conference of all the
Banking Ombudsmen every year. Senior officials from the
Banking Codes and Standards Board of India, Indian Banks’
Association, Credit Information Bureau of India Limited (CIBIL)
and some leading banks are also invited to the Conference for
meaningful interaction. Various issues relating to customer
service and regulatory measures for improving customer
service in the banking sector are discussed in the conference.
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.
For renewal and change of address please write to the Chief General Manager, Department of Communication, Reserve Bank of India, Central Office Building, 12th floor, Fort, Mumbai - 400 001 without enclosing DD/cheque. MCIR is also available on Internet at www.mcir.rbi.org.in |