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Volume XI  Issue 4
October 2014
MONETARY AND CREDIT INFORMATION REVIEW
Policy
Simplification of KYC Norms
The Reserve Bank, on October 21, 2014, clarified to all scheduled
commercial banks (excluding regional rural banks)/local area
banks/all India financial institutions that:
(i) Banks need not seek fresh proofs of identity and address at
the time of periodic updation,from those customers who are categorised
as ‘low risk’, in case of no change in status with respect to their
identities and addresses. A self-certification by the customer to that
effect should suffice in such cases. In case of change of address of
such ‘low risk’ customers, they could merely forward a certified copy
of the document (proof of address) by mail/post. Banks may not insist
on physical presence of such low risk customer at the time of periodic
updation.
(ii) If an existing Know Your Customer (KYC) compliant customer
of a bank desires to open another account in the same bank, there
should be no need for submission of fresh proof of identity and/or
proof of address for the purpose.
If a customer is non-compliant of KYC requirements despite
repeated reminders, banks can impose a ‘partial freezing’ on such
accounts in a phased manner while allowing the account holders
to revive their accounts by submitting the KYC documents as per
instructions in force. While imposing ‘partial freezing’, banks should
ensure that the option of ‘partial freezing’ is exercised after initially
giving a notice of three months to the customers to comply with
KYC requirement, followed by a reminder giving a further period of
three months and thereafter imposing ‘partial freezing’ by allowing
all credits and disallowing all debits with the freedom to close the
accounts. If the accounts continue to be KYC non-compliant after six
months of imposing initial ‘partial freezing’, banks may disallow all
debits and credits from/to the accounts, rendering them inoperative.
It would always be open to the bank to close the account of such
customers.
The clarification was issued in order to ease the difficulties of
customers in complying with the KYC requirements while staying
within the overall framework of the Prevention of Money Laundering
Act, 2002 (PMLA) and Rules (PMLR).
Clarification on Proof of Address
Earlier, on October 13, 2014, the Reserve Bank advised banks
to ensure that customers were not unnecessarily asked to submit additional proof of addresses for current addresses in case where
proof of addresses for permanent addresses was already available.
The Reserve Bank also advised banks to confirm latest by October
17, 2014, that the bank had communicated the instruction to all their
branches.
The clarifications were issued after the Reserve Bank gathered
that despite taking several measures towards simplification of KYC
norms, customers are still facing difficulties in complying with the
periodic updation requirements and some banks are still insisting
on submission of a proof of address for the current address even
when a customer produces a proof of permanent address, which
prevents many prospective customers, especially migrant workers,
from opening bank accounts.
Fourth Bi-Monthly Monetary Policy Statement, 2014-15
Dr. Raghuram G. Rajan, Governor, announced the Fourth Bi-
Monthly Monetary Policy Statement, 2014-15 on September 30,
2014 in Mumbai. On the basis of an assessment of the current and
evolving macroeconomic situation, the Reserve Bank decided to:
• keep the policy repo rate under the liquidity adjustment
facility (LAF) unchanged at 8.0 per cent;
• keep the cash reserve ratio (CRR) of scheduled banks
unchanged at 4.0 per cent of net demand and time liabilities
(NDTL);
• reduce the liquidity provided under the export credit
refinance (ECR) facility from 32 per cent of eligible export
credit outstanding to 15 per cent with effect from October
10, 2014;
• continue to provide liquidity under overnight repos at 0.25
per cent of bank-wise NDTL at the LAF repo rate and
liquidity under 7-day and 14-day term repos of up to 0.75
per cent of NDTL of the banking system through auctions;
and
• continue with daily one-day term repos and reverse repos
to smooth liquidity.
Consequently, the reverse repo rate under the LAF will remain
unchanged at 7.0 per cent, and the marginal standing facility (MSF)
rate and the Bank Rate at 9.0 per cent.
The fifth bi-monthly monetary policy statement is scheduled on
Tuesday, December 2, 2014.
SLR Holdings under HTM Category
Banks were, with effect from August 9, 2014, permitted to
exceed the limit of 25 per cent of the total investments under held to
maturity (HTM) category provided the excess comprised only SLR
securities, and the total SLR securities held in the HTM category was
not more than 24.00 per cent of their NDTL as on the last Friday of
the second preceding fortnight.
In order to further develop the government securities market
and to enhance liquidity, the Reserve Bank decided to bring down
the ceiling on SLR securities under the HTM category from 24 per
cent of NDTL to 22 per cent in a gradual manner. Accordingly, banks
are permitted to exceed the limit of 25 per cent of total investments
under HTM category provided:
(a) the excess comprises only of SLR securities, and
(b) the total SLR securities held in the HTM category is not more than
• 23.50 per cent effective January 10, 2015,
• 23.0 per cent effective April 4, 2015,
• 22.5 per cent effective July 11, 2015 and
• 22.0 per cent effective September 19, 2015
of their DTL as on the last Friday of the second preceding fortnight.
As per extant instructions, banks may shift investments to/
from HTM with the approval of the Board of Directors once a year
and such shifting will normally be allowed at the beginning of the
accounting year. In order to enable banks to shift their excess SLR
securities from the HTM category to Available for sale (AFS)/Held for
trading(HFT), the Reserve Bank decided to allow such shifting of the
excess securities at the beginning of January, July and September
2015. This may be in addition to the shifting permitted at the beginning
of the accounting year, that is, April 2015. Such transfer to Available
for sale (AFS)/Held for trading(HFT) category would be excluded
from the 5 per cent cap prescribed for value of sales and transfers of
securities to/from HTM category.
Export Credit Refinance Facilities
The Reserve Bank, on September 30, 2014 advised
scheduled commercial banks, excluding regional rural
banks(RRBs) that the eligible limit of export credit refinance
(ECR) facility has been reduced from the level of 32 per cent of
the outstanding rupee export credit eligible for refinance as at
the end of the second preceding fortnight to 15 per cent effective
from October 10, 2014.
Payment and Settlement Systems
Free ATM Transactions on other Bank ATMs
The Reserve Bank, on October 10, 2014 advised all scheduled
commercial banks including regional rural banks / urban co-operative
banks / state co-operative banks / district central co-operative banks
that they have to mandatorily provide services to their customers in
other bank’s ATMs from November 1, 2014, as under:
(i) Not to charge any fees to their savings bank account
customers for five ATM transactions (inclusive of both financial and
non-financial) in a month carried out at other bank ATMs irrespective
of the location of the ATMs;
(ii) Three transactions (inclusive of both financial and nonfinancial)
would be free of charge if carried out at other bank ATMs
located in six metro centres, viz., Mumbai, New Delhi, Chennai,
Kolkata, Bengaluru and Hyderabad;
(iii) If transactions are carried out at both the six metro centres
and other locations, the total number of transactions (inclusive of
both financial and non-financial) free of charge at other bank ATMs
would continue to remain at five;
Banks are, however, free to offer more number of free transactions
per month at other bank ATMs as well as own ATMs in any geographical
location. Banks are also free to decide on the combination (for metro
and non-metro locations) of free transactions while adhering to the
minimum requirements.
CTS - Government Cheques
The Reserve Bank, on September 30, 2014 advised all banks
that the date of implementation of the revised procedure of doing
away with the requirement of returning paid government cheques
back to Government Departments concerned, has been extended
by three months to January 1, 2015. Earlier, on September 18,
2014, the Reserve Bank conveyed to all agency banks about
the approval of the Controller General of Accounts, Ministry of
Finance, New Delhi regarding doing away with the requirement
of returning paid government cheques back to Government
Departments concerned with effect from October 1, 2014.
As part of enhancing the efficiency in cheque clearing,
the Reserve Bank has introduced Cheque Truncation system
(CTS) for clearance of cheques facilitating the presentation and
payment of cheques without their physical movement.
Co-operative Banking
Norms for Classification of UCBs as FSWM
The Reserve Bank, on October 13, 2014 advised that primary
(urban) co-operative banks (UCBs) fulfilling the following criteria
would now be termed as Financially Sound and Well Managed
(FSWM):
• Capital to Risk (Weighted) Assets Ratio (CRAR) of not less
than 10 per cent;
• Gross non-performing asset (NPA) of less than 7 per cent
and net NPAs of not more than 3 per cent;
• Net profit for at least three out of the preceding four
years subject to it not having incurred a net loss in the
immediate preceding year;
• No default in the maintenance of CRR / SLR during the
preceding financial year;
• Sound internal control system with at least two professional
directors on the Board;
• Core Banking Solution (CBS) fully implemented; and
• Regulatory Comfort, that is, a proven record of compliance
with the provisions of Banking Regulation Act,1949 (As
Applicable to Cooperative Societies - AACS), Reserve Bank
of India Act, 1934 and the instructions/directions issued by
the Reserve Bank from time to time that is, the bank should
have an impeccable record of regulatory compliance and no
warning letter/cautionary advice should have been issued
to or monetary penalty imposed on the bank on account of
violation of the Reserve Bank directives/guidelines during
the preceding three financial years.
The new criteria would be considered for processing applications
received from UCBs for opening of on-site/off-site/mobile ATMs,
applications under Annual Business Plans (ABP), extension of area
of operation, shifting of premises and all other permissions from the
Reserve Bank.
Internet Banking Facility for UCB Customers
With a view to offering value added services to the customers,
the Reserve Bank, on October 13, 2014, permitted all urban co-operative banks(UCBs) which have fully implemented Core
Banking Solution(CBS) and have migrated from Internet Protocol
Version 4 (IPv4) to Internet Protocol Version 6 (IPv6), to offer
internet banking (view only) facility to their customers subject to
compliance to certain prescribed security features. The Reserve
Bank further advised UCBs, offering internet banking (view only)
facility to their customers, to ensure that online facility offered is
strictly non-fund based service (such as, balance enquiry, balance
viewing, account statement download, request for supply of
cheque-books, etc.) and no online fund-based transactions are
allowed. UCBs commencing internet banking (view only) facility,
should report to the concerned regional office of the Reserve Bank
within one month of operationalisation of the facility.
Suggestions invited for Utilisation of Unclaimed
Deposits
The Committee appointed by the Ministry of Finance to
examine issues related to unclaimed amounts lying in various small
savings schemes(Chairman: Shri Harun R. Khan, Deputy Governor,
Reserve Bank of India), has invited suggestions/ideas from general
public/senior citizens/welfare organisations and non-government
organisations associated with welfare of senior citizens on appropriate
use of unclaimed amount lying in various small savings schemes in
post offices and banks. Interested persons/organisations may submit
their suggestions/ideas to the Joint Director, National Savings Institute,
Government of India, Ministry of Finance, ‘A’ Block, 4th Floor, CGO
Complex, Seminary Hills, Nagpur–440006 or email them to nsi@nsiindia.gov.in, latest by November 15, 2014. The National Savings
Institute is providing Secretarial support to the Committee.
KYC Norms – Creating Public Awareness
The Reserve Bank, on September 16, 2014 advised primary
(urban) co-operative banks to initiate steps to create awareness and
give wider publicity by circulating the poster and booklet comprising a
few common questions relating to Know Your Customer (KYC) norms
for opening bank accounts, among all their branches. Branches may be
advised to make available the booklet to the customers/general public
and display the poster prominently in their premises. Progress made
in this regard would be reviewed by the Reserve Bank in due course.
The Reserve Bank has been taking several measures to simplify
KYC requirements to help the common man open bank accounts.
It was, however, observed that despite such measures, the general
public was still facing problems in opening a bank account as these
measures had not been given adequate publicity and the common
man still lacked awareness on the basics of opening a bank account.
In order to address these issues, to create public awareness and to
give wide publicity to KYC simplification measures, the Reserve Bank
published a poster and a booklet on the subject and placed it on its
website for banks’ use.
Instruments for Augmentation of Capital Funds
The Reserve Bank, on September 30, 2014 permitted state/central
cooperative banks(StCBs/CCBs) to issue long term(subordinated)
deposits (LTDs) subject to compliance with their bye-laws/provisions of
the Co-operative Societies Act under which they are registered and with
the approval of the Reserve Bank of India and the concerned Registrar
of Co-operative Societies. LTDs may be issued to members and nonmembers,
including those outside the area of operation of the StCBs/
CCBs concerned. There is no prohibition on existing shareholders
subscribing to LTD. The amounts raised through LTDs will be eligible to
be treated as lower Tier II capital subject to compliance with prescribed
terms and conditions.
Banking Supervision
MoU on Supervisory Cooperation with Kenya
The Reserve Bank signed the Memorandum of Understanding
(MoU) on “Supervisory Cooperation and Exchange of Supervisory
Information” with the Central Bank of Kenya on October 16, 2014. The
MoU was signed by Prof. Njuguna Ndung’u, Governor, Central Bank of
Kenya and Dr. Raghuram G. Rajan, Governor, on behalf of the Reserve
Bank. The signing ceremony was held at Hyderabad. Shri S.S. Mundra,
Deputy Governor and Shri Chandan Sinha, Executive Director, were
present.
Inter-Bank Hindi Essay Competition: 2014-15
The Reserve Bank has announced three topics for the interbank
Hindi Essay Competition to be held for 2014-15. These are:
Participants may send their essay in Hindi on any one of the
given topics. The last date for submission is December 31, 2014.
Some important rules for the competition are:
• The word limit for the essay is between 3000 and 4000 words.
• The Essay should be typed on one side in quarto size paper.
Handwritten essays will also be accepted provided they are
neatly written and are legible.
• The amount of First, Second and Third Prize is ` 11,000/-,
` 7,000/- and ` 5,000/-, respectively.
• Each participant is required to certify in the prescribed form
through concerned bank that his/her essay is original and that it
has not been sent for prize or publication elsewhere.
• The participants should not write his/her name, address, etc.
on the essay.
To encourage original writing in Hindi on banking subjects,
the Reserve Bank conducts an inter-bank Hindi Essay competition
every year. All Officers and Staff Members (Except Rajbhasha
Officers and Translators) can participate in this competition.
The Reserve Bank has advised all public sector banks
(including regional rural banks) and financial institutions to inform
their staff and publish information regarding the competition in their
house journals/Hindi periodicals and also on their websites.
With this, the Reserve Bank has signed 22 such MoUs
and one Letter for Supervisory Co-operation. The Reserve Bank
has been signing the Memorandum of Understanding and Letter
for Supervisory Co-operation with supervisors of other countries to
promote greater co-operation and share supervisory information
among the authorities.
FEMA
Risk Management and Inter Bank Dealings: Hedging
The Reserve Bank, on September 30, 2014 advised Authorised
Dealers Category-I (AD Category-I) banks that importers are allowed
to book forward contracts, under the past performance route, up to
100 per cent of the eligible limit. Importers who have already booked
contracts up to previous limit of 50 per cent in the current financial
year, shall be eligible for difference arising out of the enhanced limits.
ECB in Indian Rupees
The Reserve Bank, on September 3, 2014 advised Authorised
Dealer Banks(Category – I) that recognised non-resident External
Commercial Borrowings (ECB) lenders may extend loans in Indian
Rupees subject to the conditions that (i) the lender should mobilise
Indian Rupees through swaps undertaken with an Authorised Dealer
Category-I bank in India, (ii) the ECB contract should comply with
all other conditions applicable to the automatic and approval routes
as the case may be, (iii) the all-in-cost of such ECBs should be
commensurate with prevailing market conditions, (iv) for the purpose
of executing swaps for ECBs denominated in Indian Rupees, the
recognised ECB lender, if it desires, may set up a representative
office in India following the prescribed process, (v) the hedging
arrangement for ECBs denominated in Indian Rupees extended by
non-resident equity-holders shall continue to be governed by extant
guidelines.
Compounding of Contraventions under FEMA
The Reserve Bank, on October 16, 2014, delegated
more powers to its regional offices with regard to
compounding of select contraventions under Foreign
Exchange Management Act (FEMA). These contraventions
include:
• delay in submission of Foreign Currency- Transfer of
Shares (FC-TRS) form in case of transfer of shares from
resident to non-resident;
• delay in submission of form FC-TRS on transfer of shares
from non-resident to resident;
• taking on record transfer of shares by investee company,
in the absence of certified form FC-TRS.
Further, officers attached to the FED, CO Cell, New Delhi office
are authorised to compound the contraventions as under:
• contraventions relating to acquisition and transfer of
immovable property outside India;
• contraventions relating to acquisition and transfer of
immovable property in India;
• contraventions relating to establishment in India of Branch
office, Liaison Office or project office; and
• contraventions falling under Foreign Exchange
Management (Deposit) Regulations, 2000.
The powers to compound the contraventions have been
delegated to all regional offices and FED, CO Cell, New Delhi,
respectively, without any limit on the amount of contravention.
Kochi and Panaji ROs can compound these contraventions
ìf the amount of contravention is below Rupees one crore
(`1,00,00,000). The contraventions of Rupees one crore
(`1,00,00,000) or more under the jurisdiction of Panaji and
Kochi Regional Offices and all other contraventions of FEMA
will continue to be compounded by the Cell for Effective
Implementation of FEMA (CEFA), Mumbai, as earlier.
Concerned entities may submit applications for
compounding these contraventions, up to the prescribed
amount of contravention, to the respective regional offices
under whose jurisdiction they fall or to FED, CO Cell, New
Delhi, respectively. For all other contraventions, applications
may continue to be submitted to CEFA, Foreign Exchange
Department, 5th floor, Amar Building, Sir P.M.Road, Mumbai
400001.
Edited and published by Alpana Killawala for the Reserve Bank of India, Department of Communication, Central Office, Shahid Bhagat Singh Marg, Mumbai - 400 001. MCIR can be accessed at www.mcir.rbi.org.in |