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Volume X  Issue 11
May 2014
MONETARY AND CREDIT INFORMATION REVIEW
CUSTOMER SERVICE
Opening of Bank Accounts in the Names of Minors
To promote the objective of financial inclusion and also to bring uniformity among banks in opening and operating minors’ accounts, the Reserve Bank on May 6, 2014, advised banks that -
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A minor of any age can open a savings/fixed/recurring bank deposit account through his/her natural or legally appointed guardian;
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Minors above the age of 10 years may be allowed to open and operate savings bank accounts independently, if they so desire. Keeping in view their risk management systems, banks may, however, fix limits in terms of age and amount up to which minors may be allowed to operate the deposit accounts independently. They can also decide, in their own discretion, as to what minimum documents are required for opening of accounts by minors.
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On attaining majority, the minor should confirm the balance in his/her account and if the account is operated by the natural guardian/legal guardian, fresh operating instructions and specimen signature of the erstwhile minor should be obtained and kept on record for all operational purposes.
Banks are free to offer additional banking facilities, such as, internet banking, ATM/debit card, cheque book facility etc., subject to the safeguards that minor accounts are not allowed to be overdrawn and that these always remain in credit.
Earlier, minors’ accounts (fixed, recurring and savings deposit accounts) with mothers as guardians were allowed to be opened subject to safeguards in allowing operations in such accounts by ensuring that the minors’ accounts opened with guardian are not allowed to be overdrawn and that these always
remain in credit.
Similar instructions to primary urban co-operative banks on opening of bank accounts in the names of minors were issued
on May 12, 2014.
ATMs to be made more Disabled-friendly
The Reserve Bank, on May 21, 2014, advised banks to take necessary steps to provide all existing ATMs/future ATMs with ramps so that wheel chair users/persons with disabilities can easily access them. Care may also be taken to ensure that the height of the ATMs is not an impediment for wheelchair users. In cases where it is impracticable to provide such ramp facilities, whether permanently fixed to earth or otherwise, this requirement may be dispensed with, for reasons recorded and displayed in
branches or ATMs concerned.
The Reserve Bank further advised the banks to take appropriate steps, including providing of ramps at the entrance of the bank branches, wherever feasible, so that the persons with disabilities/wheel chair users can enter bank branches and conduct business without difficulty. Banks are advised to report the progress made in this regard periodically to their respective Customer Service Committee of the Board and ensure
compliance.
All New ATMs to talk from July 1
The Reserve Bank has also advised the banks to make all new ATMs installed from July 1, 2014 as talking ATMs with Braille keypads. Banks should lay down a road map for converting all existing ATMs as talking ATMs with Braille keypads. The status should be reviewed from time to time by the Customer Service
Committee of the Board.
The Reserve Bank has also advised banks to provide magnifying glasses in all bank branches for the use of persons with low vision, wherever they require, for carrying out banking transactions with ease. The branches should display, at a prominent place, notice about the availability of magnifying
glasses and other facilities for persons with disabilities.
No Foreclosure Charges/Pre-payment Penalty
on Floating Loans
The Reserve Bank, on May 7, 2014, asked banks not to charge foreclosure charges/pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, with immediate effect. This was a follow up on the First Bi-monthly Monetary Policy Statement 2014-15 announced on April 1, 2014, in which the Reserve Bank had proposed certain measures for consumer protection.
No Penalty on Non-Maintenance of Minimum
Balances in Inoperative Accounts
The Reserve Bank, on May 6, 2014, prohibited all scheduled commercial banks (excluding RRBs) from levying penal charges for non-maintenance of minimum balances in any inoperative account, including the basic savings bank deposit accounts (BSBDAs). The instructions also apply to all primary urban cooperative
banks.
POLICY
Foreign Branches/Subsidiaries of Banks can offer
Structured Financial Products
The Reserve Bank, on May 12, 2014, decided that foreign branches/subsidiaries of Indian banks who propose to offer structured financial and derivative products that are not specifically permitted by the Reserve Bank in the domestic market, can do so only at the established financial centres outside India like New York, London, Singapore, Hong Kong, Frankfurt, Dubai, etc. Banks should, however, ensure that their foreign branches/subsidiaries, dealing with such products in foreign jurisdictions, have adequate knowledge, understanding, and risk management capability for handling such products. At other centres, banks may offer only those products that are
specifically permitted in India.
The products that the foreign branches/subsidiaries of Indian banks offer at overseas location should also be in compliance with host country regulations, with prior approval from their board and appropriate authority in these foreign jurisdictions. Banks should continue to adhere to more stringent among the host and home regulations in respect of these products. In particular, banks should ensure that the suitability and appropriateness policy is strictly adhered to as mandated by the Reserve Bank and the
host regulators.
The Reserve Bank has further reiterated that for undertaking activities by Indian banks’ branches and subsidiaries abroad which are not permitted under the Banking Regulations Act, 1949/respective Statute of the Public Sector Banks, banks should obtain necessary permission from the Reserve Bank/ Government of India, as the case may be, before undertaking
such activities.
Scaling up of the BC Model
With a view to scaling up the Business Correspondent (BC) Model by dealing with the critical issue of cash management of
BCs, the Reserve Bank decided on April 22, 2014, that -
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The Boards of the banks must review the operations of
BCs at least once every six months with a view to ensuring
that requirement of prefunding of Corporate BCs and BC
Agents should progressively taper down with the passage
of time. Ideally in all normal cases the prefunding should
progressively come down to reach around 15 percent of the
limits fixed for each BC/CSP (customer selling point) in case
of deposits and 30 percent in case of bank guarantees, etc.
in say two years from the time a BC starts operations.
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The Board should also review the position of payment of
remuneration of BCs and should also lay down a system of
monitoring by the top management of the bank. The issue
of allowing BCs to handle deposit and payment transactions
of various credits, remittance, overdraft and other products
of banks must also be examined by the Board from time to
time. Complaints redressal system in this regard should also
be laid down by the Board.
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As the cash handled by BCs is bank’s cash, the responsibility
for insuring this cash should rest with the banks.
Issuance and Operation of PPIs
The Reserve Bank, on May 13, 2014, granted general
permission to banks to issue rupee denominated co-branded
pre-paid instruments subject to certain terms and conditions. Nonbanking
finance companies (NBFCs)/other persons desirous of
issuing such co-branded prepaid payment instruments (PPIs) will,
however, have to seek one time approval from the Reserve Bank.
All persons authorised/approved to issue pre-paid payment
instruments are permitted to co-brand such instruments with the
name/logos of financial institution/Government organisation for
whose customers/beneficiaries such co-branded instruments are
issued. The name of the issuer should be visible prominently on
the payment instrument.
The revised consolidated guidelines on Prepaid Payment
Instruments are available on RBI website (http://rbidocs.rbi.org.
in/rdocs/content/pdfs/PPICCR130514_A.pdf)
Fund/Non-Fund based Credit Facilities
The Reserve Bank, on April 22, 2014, advised that, banks,
including overseas branches/subsidiaries of Indian banks, shall
not issue standby letters of credit/guarantees/letter of comforts
etc., on behalf of overseas Joint Ventures (JV)/Wholly Owned
Subsidiaries (WOS)/Wholly owned Step-down Subsidiaries
(WoSDS) of Indian companies for the purpose of raising loans/
advances of any kind from other entities except in connection
with the ordinary course of overseas business. The Reserve Bank
further advised that while extending fund/non-fund based credit
facilities to overseas JV/WOS/WoSDS of Indian companies in
connection with their business, either through branches in India
or through branches/subsidiaries abroad, banks should ensure
effective monitoring of the end use of such facilities and its
conformity with the business needs of such entities.
Treatment of RIDF and Other Funds
The Reserve Bank has decided to include the outstanding
deposits placed by scheduled commercial banks under Rural
Infrastructure Development Fund (RIDF) and certain other funds
established with NABARD, on account of their shortfall in lending
to priority sector as part of indirect agriculture under priority sector
classification.
Accordingly, the outstanding deposits as on March 31 of the
current year under RIDF, Warehouse Infrastructure Fund, Short
Term Co-operative Rural Credit Refinance Fund and Short Term
Regional Rural Bank (RRB) Fund with NABARD would be treated
as part of indirect agriculture and would count towards overall
priority sector target achievement. The outstanding deposits
under the above funds with NABARD as on preceding March 31
will form part of adjusted net bank credit. These guidelines are
applicable with effect from March 31, 2014.
Inclusion in the Second Schedule to the
RBI Act- Bharatiya Mahila Bank Limited
The Reserve Bank, on May 21, 2014 advised that the name
of “Bharatiya Mahila Bank Limited” has been included in the
Second Schedule to the Reserve Bank of India Act, 1934 by
Notification dated March 25, 2014, published in the Gazette of
India (Part III – Section 4) dated April 12, 2014.
FEMA
Import of Gold by Nominated Banks/Agencies/Entities
The Reserve Bank, on May 21, 2014, modified the
guidelines for import of Gold by the nominated banks/agencies/
entities, as under:
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Star Trading Houses/Premier Trading Houses (STH/PTH)
which are registered as nominated agencies by the Director
General of Foreign Trade (DGFT) may now import gold under
20:80 scheme subject to certain conditions.
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Further, the nominated banks have been permitted to give Gold
Metal Loans (GML) to domestic jewellery manufacturers out of
the eligible domestic import quota of 80 percent to the extent
of GML outstanding in their books as on March 31, 2013.
Background
The Government of India and Reserve Bank of India has
been receiving representations from the jewelers, bullion dealers,
authorised dealer (AD) banks, and trade bodies to rationalise
the guidelines for import of gold. Taking into account such
representations and in consultation with the Government of India,
the Reserve Bank has modified A.P. (DIR Series) Circular No. 25
dated August 14, 2013.
Limited Liability Partnership as Indian Party
The Reserve Bank, on May 19, 2014, decided to notify a
Limited Liability Partnership (LLP), registered under the Limited
Liability Partnership Act, 2008, as an “Indian Party”. An LLP,
may now undertake financial commitment to/on behalf of a Joint
Venture (JV)/Wholly Owned Subsidiaries (WOS) abroad in terms
of the existing FEMA provisions.
Earlier, on April 16, 2014, the Reserve Bank had decided that
Limited Liability Partnership (LLP) formed and registered under the
Limited Liability Partnership Act, 2008 would be eligible to accept
Foreign Direct Investment (FDI) subject to certain conditions.
Procedure for ECB from FEHs simplified
As a measure of simplification of the existing procedure, the
Reserve Bank, on May 16, 2014, decided to delegate powers
to authorised dealer (AD) banks to approve the following cases
under the automatic route:
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Proposals for raising External Commercial Borrowing (ECB)
by companies belonging to manufacturing, infrastructure,
hotels, hospitals and software sectors from indirect equity
holders and group companies.
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Proposals for raising ECB for companies in miscellaneous
services from direct/indirect equity holders and group
companies. Miscellaneous services mean companies
engaged in training activities (but not educational institutes),
research and development activities and companies
supporting infrastructure sector. Companies doing trading
business, companies providing logistics services, financial
services and consultancy services are, however, not covered
under the facility.
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Proposals for raising ECB by companies belonging to
manufacturing, infrastructure, hotels, hospitals and software
sectors for general corporate purpose. ECB for general
corporate purpose (which includes working capital financing)
is, however, permitted only from direct equity holder.
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Proposals involving change of lender when the ECB is from
foreign equity holders (FEHs) – direct/indirect equity holders
and group company.
Earlier, ECBs from direct FEHs were considered both,
under automatic and approval routes, as the case was. ECBs
from indirect equity holders and group companies and ECBs
from direct FEH for general corporate purpose were, however,
considered under the approval route. Further, any request for
change of the ECB lender in case of FEH required the Reserve
Bank’s approval.
CO-OPERATIVE BANKING
UCBs to act as PAN Service Agents
The Reserve Bank, on May 16, 2014, permitted financially
sound and well managed urban co-operative banks (UCBs), to
act as permanent account number (PAN) service agents (PSAs).
Such UCBs, with prior approval of the Reserve Bank, will have
to tie-up with National Securities Depository Limited (NSDL)
e-Governance Infrastructure Limited or with any other agency
authorised by the Income Tax Department, Government of India,
for providing PAN issuance services to its customers.
Advance against Pledge of Gold/Silver Ornaments
As a prudential measure, the Reserve Bank has on May 9,
2014, prescribed a Loan to Value (LTV) Ratio of not exceeding
75 per cent for Urban Cooperative Banks’ (UCBs) lending against
gold jewellery (including bullet repayment loans against pledge
of gold jewellery). Therefore, now loans sanctioned by UCBs
should not exceed 75 per cent of the value of gold ornaments
and jewellery.
To standardise the valuation and make it more transparent
to the borrower, the Reserve Bank has asked banks to value gold
jewellery accepted as security/collateral at the average of the
closing price of 22 carat gold for the preceding 30 days as quoted
by the India Bullion and Jewellers Association Ltd. [Formerly
known as the Bombay Bullion Association Ltd. (BBA)]. If the
gold is of purity less than 22 carats, the bank should translate
the collateral into 22 carat and value the exact grams of the
collateral. In other words, jewellery of lower purity of gold should
be valued proportionately.
UCBs should continue to observe necessary and usual
safeguards and also have a suitable policy for lending against
gold jewellery with the approval of their Boards of Directors.
REPORTS
Committee to review Governance of Boards of Banks
The Reserve Bank placed the Report of the Committee
to Review Governance of Boards of Banks in India (Chairman:
Dr. P.J. Nayak) on its website (http://rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=784) on May 13,
2014. The comments, if any, on the recommendations of the
Report, may be emailed or sent by post to the Chief General
Manager, Reserve Bank of India, Department of Banking
Operations and Development, 12th Floor, Central Office Building,
Shahid Bhagat Singh Marg, Fort, Mumbai – 400 001 on or before
June 12, 2014.
Background
It may be recalled that the Reserve Bank had constituted
an Expert Committee to Review Governance of Boards of
Banks in India (http://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=30436). The Expert Committee was requested to
examine, inter alia, the working of banks’ boards including
whether adequate time is devoted to issues of strategy, growth,
governance and risk management; to review central bank
regulatory guidelines on bank ownership, ownership concentration
and representation in the board; to analyse the representation on
banks’ boards to see whether the boards have the appropriate
mix of capabilities and the necessary independence to govern
the institution, and to investigate possible conflicts of interest in
board representation, including among owner representatives
and regulators.
Committee on Resolution Regime for Financial Institutions
A high level Working Group, with Shri Anand Sinha, the
then Deputy Governor, Reserve Bank of India as Chairperson,
submitted its report on Resolution Regime for Financial
Institutions, to the Governor, Reserve Bank of India and Chairman
of the Sub-Committee of Financial Stability and Development
Council (FSDC). Dr. Arvind Mayaram, Secretary, Department of
Economic Affairs, Ministry of Finance, Government of India was
the Co-Chairperson. The Group was constituted by the Sub-
Committee of the Financial Stability and Development Council
(FSDC). The objective of setting up the Group was to suggest
extensive strengthening of the resolution regime taking into
consideration the structure of Indian financial institutions and the
Financial Stability Board’s key attributes of effective resolution
regime for financial institutions.
At present, there are some provisions contained in various
Acts governing the respective financial institutions, which
empower the respective regulator/supervisor and/or the central
government to resolve different types of financial institutions in
India once they run into viability problems. In order to bridge
the gaps and develop an effective resolution regime for all
financial institutions in line with the key attributes, the Group has
made wide ranging recommendations taking into consideration the international best practices and work in major advanced
jurisdictions as also the recommendations given by the Financial
Sector Legislative Reforms Commission (FSLRC).
The Group has emphasised the need for a separate
comprehensive legal framework providing the necessary
powers and tools to resolve all financial institutions irrespective
of ownership; and setting up of a single Financial Resolution
Authority (FRA) that is institutionally independent of regulators/
Government. The Group has also recommended putting in
place an early intervention mechanism in the form of a Prompt
Corrective Action (PCA) framework with clear trigger levels for
regulatory intervention in the early stages and for handing over
to the resolution authority for initiating appropriate actions in the
last stage.
On May 2, 2014, the Report of the Working Group on
Resolution Regime for Financial Institutions was placed on the
website of Ministry of Finance (MoF)/Reserve Bank of India
(RBI)/Securities and Exchange Board of India (SEBI)/Insurance
Regulatory and Development Authority (IRDA)/Pension Fund
Regulatory and Development Authority (PFRDA)/Financial
Markets Committee (FMC), for inviting public comments.
Committee on Enabling PKI in Payment System Applications
The Reserve Bank, released the final Report of the
Technical Committee on Enabling Public Key Infrastructure (PKI)
in Payment System Applications, on its website on April 22, 2014.
The committee constituted in September 2013, had released the
draft report for public comment on February-March 2014.
Cognisant of the fact that non-PKI enabled payment
systems, such as, clearing (Magnetic Ink Character Recognition
(MICR/Non MICR), electronic credit system, credit card and debit
cards contributed 75 percent in volume terms but only 6.3 percent
in value terms in the year 2012-13, the Group has suggested that
in order to ensure a safe, secure payment system in the country
and to ensure legal compliance, digital technology, such as, PKI
may be used. Based on the feedback received, the Group has
also included a detailed study of cloud-hosted digital signature
certificate (DSC), trusted execution environment, hardened―
“soft” signatures, mobile PKI, portable security transaction
protocol and hybrid PKI solution by Institute for Development and
Research in Banking Technology (IDRBT) as alternative strategies
keeping in view the Indian context.
The report highlights, among other things, security features in existing payment system applications and feasibility in implementing PKI in all payments system applications. All banks’ internet banking applications should mandatorily create authentication environment for password-based two-factor authentication as well as PKI-based system for authentication and transaction verification in online banking transaction. In online banking transactions, banks should provide the option to its customers for enabling PKI for its online banking transactions as optional feature for all customers. The Group has also recommended that banks may carry out in phases PKI
implementation for authentication and transaction verification.
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 |