Volume IX  Issue 6
December 2012
MONETARY AND CREDIT
INFORMATION REVIEW
Important Banking and Financial Developments in 2012
January
• Cash reserve ratio (CRR) of scheduled commercial banks
reduced by 50 basis points from 6.00 per cent to 5.50 per cent
of their net demand and time liabilities (NDTL) from the fortnight
beginning January 28, 2012.
• Foreign direct investment (FDI) up to 100 per cent permitted
in single brand product trading under the government route
subject to terms and conditions.
• Guidelines on compensation of whole time directors/chief
executive officers/risk takers and control function staff of
private sector and foreign banks finalised. The guidelines to
be implemented by private sector and foreign banks from the
financial year 2012-13.
February
• Banks advised that for deciding the value of the house property
while sanctioning housing loans, the stamp duty, registration
and other documentation charges should not be included in the
cost of the house property.
• Bank rate realigned, from the close of business on February
13, 2012, with the marginal standing facility (MSF) rate, which
in turn is linked to the policy repo rate under the liquidity
adjustment facility (LAF). Henceforth, whenever there is an
adjustment of the MSF rate, the Reserve Bank would consider
and align the bank rate with the revised MSF rate. All penal
interest rates on shortfall in reserve requirements, which are
specifically linked to the bank rate, also revised.
• The limit for foreign exchange remittance towards imports
without any documentation formalities, raised from
USD 500 or its equivalent to USD 5000 or its equivalent from
February 21, 2012.
• Draft guidelines on liquidity risk management and Basel III
framework on liquidity standards released on the Reserve Bank’s
website on February 21, 2012 for comments and feedback.
March
• The average CRR required to be maintained by every scheduled
commercial bank reduced by 75 basis points from 5.50 per cent
to 4.75 per cent of its NDTL from the fortnight beginning March
10, 2012.
• All NBFCs advised to (i) maintain a loan-to-value (LTV) ratio not
exceeding 60 per cent for loans granted against the collateral
of gold jewellery; and (ii) disclose in their balance sheet the
percentage of such loans to their total assets.
• The implementation of asset classification and provisioning
norms for non-banking financial company-micro finance
institutions (NBFC-MFIs) deferred to April 1, 2013.
• AD Category-I banks advised to allow repayment of loans taken
by individual residents in India from their close relatives outside
India, by credit to the non-resident (external) rupee (NRE)/
foreign currency non-resident (banks) [FCNR(B)] account of
the lender concerned, subject to conditions.
• Registered foreign institutional investors (FIIs) and non-resident
Indians (NRIs) allowed to purchase/sell shares and convertible
debentures of an Indian company (through registered brokers)
on recognised stock exchanges in India subject to, inter-alia,
an aggregate investment limit of 24 per cent and 10 per cent,
respectively, of the paid up equity capital or value of each
series of convertible debentures of the Indian company.
April
• Repo rate under the LAF reduced by 50 basis points from 8.50
per cent to 8.00 per cent.
• Reverse repo rate under the LAF automatically adjusted to 7.00
per cent
• Marginal standing facility rate automatically adjusted to 9.00
per cent.
• Borrowing limit of scheduled commercial banks under the MSF
raised from one per cent to two per cent of their NDTL outstanding
at the end of the second preceding fortnight from April 17, 2012.
• Bank rate adjusted by 50 basis points from 9.50 per cent to
9.00 per cent from April 17, 2012. All penal interest rates on
shortfall in reserve requirements, which are specifically linked
to the Bank Rate, also revised.
• Agency banks advised to compensate an investor in relief/
savings bonds, for the financial loss due to late receipt/delayed
credit of interest warrants/maturity value, at a fixed rate of 8 per
cent per annum.
• The following documents included in the indicative list of required
documents for opening accounts of proprietary concerns (i)
complete income tax return (not just the acknowledgement)
in the name of the sole proprietor where the firm's income is
reflected, duly authenticated/acknowledged by the income tax
authorities; and (ii) utility bills, such as, electricity, water, and
landline telephone bills in the name of the proprietary concern.
• Banks advised to allow customers to also choose NEFT as one
of the electronic modes of making payment towards equated
monthly instalments (EMIs)/repayments of loans, etc.
• Authorised dealers category-II (AD Category-II) permitted to
issue forex pre-paid cards to residents travelling on private/
business visits abroad, subject to adherence to know your
customer/anti-money laundering/combating financing of
terrorism requirements.
• Regulations pertaining to opening/holding/maintaining a foreign
currency account (FCA) by an Indian party outside India
liberalised. An Indian party can now open, hold and maintain
FCA abroad for the purpose of overseas direct investments,
subject to conditions.
• Indian companies in the power sector allowed to utilise 40 per
cent of the fresh External Commercial Borrowings raised towards
refinancing of Rupee loan/s availed by them from the domestic
banking system, under the approval route, provided that at least
60 per cent of the fresh ECB proposed to be raised is utilised for
fresh capital expenditure for infrastructure project(s).
• ECBs allowed for capital expenditure under the automatic
route for the purpose of maintenance and operations of toll
systems for roads and highways provided they form part of the
original project.
• Borrowers desirous of refinancing an existing ECB permitted to
raise fresh ECB at a higher all-in-cost/reschedule an existing
ECB at a higher all-in-cost under the approval route provided, the
enhanced all-in-cost does not exceed the all-in-cost ceiling.
May
• Final guidelines on Basel III capital regulations issued.
These guidelines to become effective from January 1, 2013
in a phased manner. The Basel III capital ratios will be fully
implemented as on March 31, 2018.
• Interest rates on FCNR(B) deposits revised from the close of
business in India as on May 4, 2012. For deposits with 1 year to
less than 3 years maturity, interest rates revised to LIBOR/swap
plus 200 basis points and for deposits with 3-5 years maturity,
interest rates revised to LIBOR/swap plus 300 basis points.
• FCNR(B) funds representing deposit liabilities permitted
to be utilised for making loans to resident constituents for
meeting (i) their foreign exchange requirements, or (ii) for the
rupee working capital/capital expenditure needs of exporters/
corporates who have a natural hedge or a risk management
policy for managing the exchange risk.
• With a view to increasing the availability of funds to exporters,
banks allowed to determine their interest rates on export credit
in foreign currency from May 5, 2012.
• Banks advised to put in place a Board approved policy with
regard to take-over of accounts from another bank. The policy
should include norms relating to the nature of the accounts
that may be taken over, authority levels for sanction of
takeover, reporting of takeover to higher authorities, monitoring
mechanism of taken over accounts, credit audit of taken over
accounts, examination of staff accountability, especially in case
of quick mortality of such cases after takeover, periodic review
of taken over accounts at board/board committee level, top
management level, etc.
• Banks advised that as most bank branches are on core banking
solutions (CBS) and KYC records of a particular customer
can be accessed by any branch of a bank, the full KYC of an
account done by one branch of a bank, is valid for transferring
the customer’s account from one branch to another branch of
the same bank.
• Rates of agency commission (also called turnover commission)
payable to agency banks for handling government
business revised.
• Non-resident Indians (NRIs) as defined in the Foreign Exchange
Management (Deposit) Regulations, 2000, as amended from
time to time, now eligible to transfer funds from non-resident
ordinary (NRO) account to non-resident external (NRE) account
within the overall ceiling of USD one million per financial year
subject to payment of applicable tax.
• The limit for foreign exchange remittance for miscellaneous
purposes without documentation formalities, raised from
USD 5000 to USD 25000 from May 7, 2012.
• Guidelines to be observed by banks at places where there is
no clearing house, issued.
• Banks which have fixed their service charges for outstation/
speed clearing for instruments valuing above Rs. 1 lakh as
percentage to the value of instruments advised to review the
same and fix the charges on a cost-plus basis.
• Banks advised to ensure that collection charges fixed for
instruments valuing above Rs. 1 lakh is lower under speed
clearing vis-a-vis out-station cheque collection.
• Banks advised to (i) reduce their regulatory exposure ceiling on
a single NBFC, having gold loans to the extent of 50 per cent or
more of its total financial assets, from the existing 10 per cent to
7.5 per cent of banks’ capital funds. This exposure ceiling may,
however, go up by 5 per cent, i.e., up to 12.5 per cent of banks’
capital funds if the additional exposure is on account of funds
on-lent by NBFCs to the infrastructure sector, and (ii) have an
internal sub-limit on their aggregate exposure to all such NBFCs,
having gold loans to the extent of 50 per cent or more of their
total financial assets, taken together.
June
• Final guidelines on white label automated teller machines in
India released on June 20, 2012.
• Banks advised not to charge foreclosure charges/pre-payment
penalties on home loans on floating interest rate basis from
June 5, 2012.
• The interest subvention scheme of 2 per cent on rupee export
credit extended from April 1, 2012 to March 31, 2013 on the
same terms and conditions as earlier, to the following sectors -
handicrafts, carpets, handlooms, small and medium enterprises
(SMEs), readymade garments, processed agriculture products,
sports goods and toys.
• The eligible limit of the export credit refinance (ECR) facility for
scheduled banks (excluding RRBs) enhanced from 15 per cent
of the outstanding export credit eligible for refinance to 50 per
cent, from the fortnight beginning June 30, 2012.
• Banks advised to initiate steps to allot a unique customer identification
code number to all their customers while entering into
new relationships with individual customers. Similarly, existing
individual customers also to be allotted unique customer identification
code by end-April 2013.
• Banks 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.
• State level bankers' committees (SLBCs) mandated to prepare
a roadmap covering all unbanked villages of population less
than 2000 and notionally allot these villages to banks for
providing banking services, in a time-bound manner. While
preparing the roadmap for providing banking services in all
unbanked villages with population of less than 2000 through
a combination of banking correspondent (BC) and branches,
it should be ensured that there is a brick and mortar branch
to provide support to a cluster of BC units, i.e., about 8-10 BC
units, at a reasonable distance of 3-4 kilometres.
July
• Guidelines on priority sector lending - targets and classification -
revised and became operational from July 20, 2012.
• Banks advised not to allow the benefit of additional interest
rate on any type of deposits of non-residents. Accordingly,
the discretion given to banks to allow the benefit of additional
interest rate of one per cent per annum to their own staff, on
deposits under non-resident (external) (NRE)/non-resident
(ordinary) (NRO)/FCNR(B) accounts withdrawn.
• The merchant discount rate (MDR) for transactions undertaken
with debit cards to be capped from September 1, 2012. For value
up to Rs 2000/- the MDR to be 'not exceeding 0.75 per cent of
the transaction amount'. For value above Rs. 2000/- the MDR
to be 'not exceeding 1 per cent of the transaction amount'.
• Customer charges levied by banks for NEFT transactions
rationalised.
• Criteria for primary urban co-operative banks (UCBs) declaring
dividend without the Reserve Bank's prior permission revised.
UCBs to henceforth, declare dividend subject to compliance
with certain parameters.
August
• Banks advised to offer a ‘Basic Savings Bank Deposit Account’
to all their customers with the following minimum common
facilities : (i) no requirement of minimum balance; (ii) deposit
and withdrawal of cash at bank branch as well as at ATMs; (iii)
receipt/credit of money through electronic payment channels
or by means of deposit/collection of cheques drawn by central/
state government agencies and departments; (iv) no limit on the
number of deposits that can be made in a month; (v) maximum
of four withdrawals in a month, including ATM withdrawals; and
(vi) ATM card or ATM-cum-debit card facility.
• Banks advised to put in place a board approved transparent
policy on pricing of liabilities and also to ensure that the variation
in interest rates on single term deposits of Rs.15 lakh and above
and other term deposits (i.e., deposits of less than Rs.15 lakh)
is minimal for corresponding maturities.
• The Reserve Bank reiterated that in case of term deposits with
“either or survivor” or “former or survivor” mandate, banks are
permitted to allow premature withdrawal of term/fixed deposit
by the surviving joint depositor on the death of the other, only if
there is a joint mandate from the joint depositors to this effect.
Banks also advised once again to incorporate a clause in the
account opening form itself to the effect that in the event of death
of the depositor, premature termination of term deposits would be
allowed subject to conditions, which may be specified therein.
• Banks advised to reframe their cheque collection policies
(CCPs) to include compensation payable for the delayed period
in the case of collection of local cheques. In case, no rate is
specified in the CCP for delay in realisation of local cheques,
compensation at savings bank interest rate should be paid for
the corresponding period of delay.
• Statutory liquidity ratio (SLR) for scheduled
commercial banks reduced from 24 per cent of
their NDTL to 23 per cent from the fortnight beginning
August 11, 2012.
• Taking into consideration the availability of processing
infrastructure for clearing outstation cheques at all clearing
locations across the country and to bring about further efficiency
in cheque clearing, all CBS enabled banks advised to issue only
“payable at par”/“multicity” CTS 2010 standard cheques to all
eligible customers.
• With a view to enhancing the penetration of banking services
in Tier 2 centres, regional rural banks (RRBs) allowed to open
branches in Tier 2 centres on par with the existing policy for Tier
3 to 6 centres. Accordingly, RRBs can open branches in Tier
2 centres (with population of 50,000 to 99,999 as per Census 2001) without taking the Reserve Bank’s permission in each
case, subject to certain conditions.
• Erstwhile stipulation of allowing credit of 100 per cent foreign
exchange earnings to exchange earners' foreign currency
account (EEFC) accounts restored, subject to the condition that,
the sum total of the accruals in the account during a calendar
month should be converted into rupees on or before the last day
of the succeeding calendar month after adjusting for utilisation of
the balances for approved purposes or forward commitments.
• Exporters allowed to cancel and rebook forward contracts to the
extent of 25 per cent of the total contracts booked for hedging
their exposure.
September
• Pursuant to the Government of India extending the scheme
of 1 per cent interest subvention to housing loans up to Rs.15
lakh where the cost of the house does not exceed Rs.25 lakh,
banks advised to implement the scheme vigorously, submit
their claims to the National Housing Bank expeditiously and
extend the benefits of the scheme to all eligible borrowers/
beneficiaries.
• CRR required to be maintained by scheduled commercial banks
reduced by 25 basis points from 4.75 per cent to 4.50 per cent of
their NDTL from the fortnight beginning September 22, 2012.
• Banks permitted to extend financial assistance to support the
factoring business of factoring companies.
• With a view to improving banks’ ability to manage their
non-performing assets (NPAs) and restructured accounts in an
effective manner and considering that almost all branches of
banks have been fully computerised, the Reserve Bank advised
banks to review their existing IT and MIS framework and put in
place a robust MIS mechanism for early detection of signs of
distress at individual account level as well as at segment level.
• To ensure time-bound migration to CTS-2010 standard cheque
formats, all banks advised to (i) issue only multi-city/payable
at par CTS-2010 standard cheques not later than September
30, 2012; (ii) withdraw the non-CTS-2010 standard cheques in
circulation before December 31, 2012 by creating awareness
among customers; and (iii) replace the post-dated equated monthly
instalment (EMI) non-CTS-2010 standard cheques (received either
on their own behalf or on behalf of their NBFC clients), with CTS-
2010 standard cheques before December 31, 2012.
• Foreign direct investment permitted up to (a) 100 per cent in
single-brand product retail trading by only one non-resident
entity, whether owner of the brand or otherwise, under the
government route; (b) 51 per cent in multi-brand retail trading
under the government route; (c) 49 per cent by foreign airlines
in the capital of Indian companies in civil aviation sector,
operating scheduled and non-scheduled air transport, under
the automatic/government route; and (d) 49 per cent in power
exchanges registered under the Central Electricity Regulatory
Commission (Power Market) Regulations, 2010, under the
government route.
• Companies in the infrastructure sector, where “infrastructure” is
as defined under the extant guidelines on external commercial
borrowings (ECBs), allowed to avail of trade credit up to a
maximum period of five years for import of capital goods,
subject to conditions.
• The maximum permissible limit of ECB that can be availed of by
an individual company enhanced to 75 per cent of the average
foreign exchange earnings realised during the immediate past
three financial years or 50 per cent of the highest foreign
exchange earnings realised in any of the immediate past three
financial years, whichever is higher.
• Qualified foreign investors allowed to hedge their currency risk
on account of their permissible investments (in equity and debt
instruments).
• The Reserve Bank clarified that permission to establish offices
in India by foreign non-government organisations/non-profit
organisations/foreign government bodies/departments, by
whatever name called, are under the government route.
Accordingly, such entities are required to apply to the Reserve
Bank for prior permission to establish an office in India, whether
project office or otherwise.
October
• Certain additions and amendments made to the guidelines on
priority sector lending issued on July 20, 2012.
• FIIs allowed to approach any AD Category I bank for hedging
their currency risk on the market value of entire investment in
equity and/or debt in India as on a particular date, subject to
conditions.
• Banks permitted to grant loans against non-resident (external)
rupee accounts [NR(E)RA] and foreign currency non-resident
(bank) [FCNR(B)] deposits either to the depositors or third
parties.
• The Reserve Bank to consider financial restructuring proposals
submitted by UCBs involving conversion of deposits into
equity/IPDI, even if the net worth of the bank does not become
positive after such conversion of deposits, provided the
depositors agree voluntarily for such conversion.
• UCBs advised to initiate steps for allotting unique customer
identification code to all their customers while entering into any
new relationships with individual customers. Similarly, existing
individual customers also to be allotted unique customer identification
code by end-May 2013.
• CRR of scheduled banks reduced by 25 basis points from
4.50 per cent to 4.25 per cent
of their NDTL from the fortnight
beginning November 3, 2012.
November
• With a view to further increasing
the operational flexibility of
banks, domestic scheduled
commercial banks (other than
R R B s ) permitted to open
offices exclusively performing
administrative and controlling
functions (regional offices/zonal
offices) in Tier 1 centres without
obtaining the Reserve Bank's
prior permission in each case,
subject to reporting.
• The Reserve Bank reiterated that banks should strictly adhere
to the policy and operational guidelines formulated by their
board of directors for hiring of premises on lease/rental basis
in metropolitan, urban, semi-urban and rural areas. While
acquiring premises for opening a branch, banks also to ensure
that the location of the branch complies with the local norms/
laws of the municipal corporation/nagar palika/town area
authority/village panchayat or any other competent authority.
• Definition of 'infrastructure lending for the purpose of financing
of infrastructure by banks and financial institutions' harmonised
with that of the master list of infrastructure sub-sectors
notified by the Government of India on March 27, 2012. The
revised definition of 'infrastructure lending' to be effective from November 20, 2012. The exposure of banks to projects under
sub-sectors which were included under the previous definition
of infrastructure, but not included under the revised definition,
to continue to get the benefits under 'infrastructure lending' for
such exposures till the completion of the projects. Fresh lending
to those sub-sectors from November 20, 2012 not to qualify as
'infrastructure lending'.
• Banks advised to strictly adhere to the instructions regarding
sharing of information relating to credit, derivatives and unhedged
foreign currency exposures among themselves and put in place
an effective mechanism for information sharing by end-December
2012. Sanction of fresh loans/ad hoc loans/renewal of loans to
new/existing borrowers from January 1, 2013 to be done only after
obtaining/sharing necessary information.
• Banks advised not to grant any advances for purchase of gold
in any form, including primary gold, gold bullion, gold jewellery,
gold coins, units of gold exchange traded funds and units of
gold mutual funds.
• Banks advised to put in place a proper mechanism to rigorously
evaluate the risks arising out of unhedged foreign currency
exposure of corporates and price them in the credit risk
premium. Banks also advised to consider stipulating a limit on
the unhedged position of corporates on the basis of the policy
approved by their board.
• Banks advised to ensure that all crop loans against which
interest subvention is claimed, satisfy the following criteria:
(i) the borrower is an agriculturist; (ii) rate of interest charged
does not exceed the rate stipulated by the Government of India;
(iii) amount of loan is fixed according to the prescribed scale
of finance for agricultural loans and the loan is used for the
stated purpose; and (iv) seasonality is observed in regard to
both disbursement and recovery.
• RRBs advised to allocate
at least 25 per cent of the total
number of branches proposed to be
opened during a year in unbanked
rural (Tier 5 and Tier 6) centres. An
unbanked rural centre would mean
a rural (Tier 5 and Tier 6) centre
that does not have a brick and
mortar structure of any scheduled
commercial bank for customer
based banking transactions.
December
• General permission granted to
banks to issue rupee denominated
co-branded pre-paid cards in India, subject to terms and
conditions.
• Banks permitted to issue debit cards, including co-branded debit
cards, without seeking the Reserve Bank’s prior approval.
• The time limit for banks to ensure withdrawal of non-CTS 2010
standard cheques and replace them with CTS-2010 standard
cheques, extended up to March 31, 2013.
• ECB allowed for low cost affordable housing projects as a
permissible end-use, under the approval route. ECB can
be availed of by developers/builders for low cost affordable
housing projects. Housing finance companies (HFCs)/NHB can
also avail of ECB for financing prospective owners of low cost
affordable housing units.
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
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