July 1, 2011
All Regional Rural Banks
Section 23 of the Banking Regulation Act, 1949 -
Master Circular on Branch Licensing -
Regional Rural Banks (RRBs)
Reserve Bank of India has been issuing instructions to RRBs regarding opening/shifting/merger of branches/extension counters/offices, etc. from time to time. With a view to consolidating all the current instructions and incorporating certain changes made therein recently, a master circular has been prepared to enable RRBs to peruse the required information at a single source. The master circular consolidates all instructions relating to branch licensing of RRBs issued till date.
Please acknowledge receipt to our respective Regional Office.
Chief General Manager
Encls: As above
Master Circular on Branch Licensing in respect of Regional Rural Banks (RRBs)
1. Legal Requirements
The opening of branches by banks is governed by the provisions of Section 23 of the Banking Regulation Act, 1949. In terms of these provisions, banks cannot open a new place of business in India or abroad or change otherwise than within the same city, town or village, the location of the existing place of business without the prior approval of the Reserve Bank of India (RBI). Thus, it is mandatory for RRBs to seek prior approval/ licence from Rural Planning and Credit Department (RPCD) of RBI before opening of new branches/offices.
1.1. General policy on branch licensing of RRBs
The Boards of Directors of RRBs are required to decide on the policy and strategy for setting up new branches, taking into account the yearly business plan, potential for business at the new centres, (for opening of branches), profitability of the proposed branches, efficacy of the internal control system, redeployment of staff where surplus manpower has been identified, extension of prompt and cost-effective customer service to the clientele etc.
RRBs should obtain prior approval of their Boards of Directors before applying for opening/merger/shifting/conversion of branches/offices etc. The proposal for opening, shifting, merger or conversion of branches is to be submitted to the respective Regional Office of NABARD in the prescribed application Form VI (Rule 12) of Banking Companies Rules.1949 (Annex-I), with an advance copy thereof to the concerned Regional Office of the Reserve Bank. The Empowered Committees (ECs) for RRBs, constituted by the Reserve Bank at its Regional Offices, would deliberate and make recommendation on such applications. The Reserve bank would take into account the EC's recommendation and dispose of such applications expeditiously.
No separate approval of sponsor bank is required. Further, approval of the sub-group of District Consultative Committee (DCC) will also not be required for opening of branches. However, in case of shifting / merger/conversion of branches, approval of the sub-group of DCC will be required.
1.2 Conditions for opening of new branches
RRB should fulfill the following conditions to become eligible for opening of new branch/es.
(i) It should not have defaulted in maintenance of SLR and CRR during the last two years.
(ii) The RRB should be making operational profits, its net worth should show improvement and its net NPA ratio should not exceed 8 per cent.
1.3 Relaxation in Branch Licensing Policy
RRBs are permitted to open branches in Tier 3 to Tier 6 centers ( with population up to 49, 999 as per Census 2001- details of classification of centers tier-wise furnished in Annex iv ) without having the need to take permission from Reserve Bank of India in each case, subject to reporting, provided they fulfill the following conditions as per the latest inspection report:-
i) CRAR of at least 9%
ii) Net NPA less than 5%
iii) No default in CRAR/SLR for the last year
iv) Net profit in the last financial year
As RRBs have to be fully CBS compliant by September, 2011, after that date, the liberalization will be available only to such RRBs.
2. Opening of branches/ Regional Offices
2.1. Branches at Rural/Semi-Urban/Urban and Metropolitan centres
The RRBs can identify rural centres (population up to ten thousand), semi-urban centres (population more than ten thousand but up to one lakh), urban centres (population more than one lakh but up to ten lakh) and metropolitan centres (population more than ten lakh) for opening of branches depending upon the business potential and profitability of the proposed branches.
Note: Population criteria mentioned above will be as per the latest census report figures of the centre (revenue unit and not locality).
The proposals of RRBs for opening of new branches will be considered by RBI on a very selective basis and on merits of each case, taking into consideration the overall financial position of the RRB, quality of its management, efficacy of the internal control system, profitability and other relevant factors.
2.2 Service Branch
RRBs may be allowed to set up Service Branches / Central Processing Centres (CPCs) / Back Offices exclusively to attend to back office functions such as data processing, verification and processing of documents, issuance of cheque books, demand drafts etc. and other functions incidental to their banking business. These offices should have no interface with customers and would not be allowed to be converted into General Banking branches. These offices would be treated on par with a branch and the RRBs shall be required to obtain necessary licence from the concerned Regional Office of RBI (RPCD).
2.3. Regional Offices (ROs)
RRBs (both amalgamated and stand alone) will be allowed to open one RO for every 50 branches. RRBs having up to 50 branches will be under direct control of Head Office, without any intermediate tier. The cases of RRBs, which require relaxation in the above norm in regard to the number of branches to be covered by one RO due to geographical /other conditions, will be examined by State Level Empowered Committee of the Reserve Bank of India and referred to Central Office, RPCD for consideration.
The ROs are not permitted to transact any banking business. However, RRBs are required to obtain licences from the concerned Regional Office of RBI (RPCD) prior to functioning/opening of these offices. RRBs can either shift or close/merge these offices at their discretion without prior approval of RBI, but they are required to ensure that the licence is submitted to the concerned Regional Office of RBI (RPCD) for getting the new address incorporated in the licence at the earliest, but not later than three months from the date of shifting. As regards closure/merger of such offices, the licence has to be surrendered to the concerned Regional Office of RBI (RPCD) for cancellation immediately after the closure/merger of the office under advice to the Department of Statistics and Information Management (DSIM) of RBI.
2.4. Validity of Authorisations and Licences
Presently authorisations are issued to RRBs for opening of branches based on the requests received from them (through NABARD) on merits of each case. With a view to ensuring expeditious utilisation of authorisations and actual establishment of the branch, it has been decided to limit the validity of authorisation to a maximum period of two years.
RRBs are required to obtain necessary licence prior to the opening of an office/branch from the concerned Regional Office of RBI (RPCD). It is observed that some RRBs take unduly long time to approach the Regional Offices for grant of licence after the authorisation has been issued. It is also observed that some RRBs obtain a licence, but do not open the branch for a considerable period of time and approach the Regional Offices for revalidation of licences time and again. RRBs should, therefore, approach the Regional Office for licence only after the infrastructure is ready for opening of the office/branch.
Further, RRBs often approach for approval for change in name of a branch due to change in name of the locality or street/road where the branch is located. Since there is no change in location of the branch, banks need not seek approval or approach for amendment to licence in the matter, but intimate the change to the concerned Regional Office of RBI (RPCD) and DSIM, Mumbai. Changes may also take place due to change in name of taluk/district or reorganisation of districts or formation of new States. Under such circumstances, too, RRBs need not forward the relevant licence/s to the Regional Office for amendment and may adopt the changed name on the basis of Government Notification, under advice to the concerned Regional Office of RBI (RPCD) and DSIM, Mumbai.
In case any alteration in any name was to be made for avoiding confusion between branches of various banks bearing the same name in the same locality or on account of other justifiable circumstances, such requests should be addressed to the concerned Regional Office of RBI (RPCD) and while forwarding such requests, the relative licences, together with the covering letters, should also be sent.
2.5. Requirement for conduct of State/Central Government business
If any branch proposes to undertake government business, it would require prior approval from the concerned Government authority and RBI. The RRB should approach the concerned Regional Director, RBI for conducting business of the State Government and the Department of Government & Bank Accounts, RBI, Central Office, Mumbai in regard to the Central Government business.
3. Shifting of branches
3.1 At Rural centres
The shifting of branches in rural centres may be effected by RRBs themselves without obtaining the prior approval of RBI, subject to the condition that both the existing and proposed centres are within the same block, and that the relocated branch would be able to cater adequately to the banking needs of the villages served by the existing branch.
3.2. At Semi-Urban centres
RRBs may shift their branches at semi-urban centres within the same locality/municipal ward without the prior approval of RBI. It should, however, be ensured that the locality/ward is not rendered unbanked due to the shifting of branch/es.
3.3. At Urban/Metropolitan centres
The RRBs may shift their branches in urban/metropolitan centres within the same locality/municipal ward without the prior approval of RBI.
Regarding shifting of branches outside the locality/municipal ward at Semi-urban/Urban/Metropolitan centres, RRBs have to obtain prior approval of the concerned Regional Office of RBI (RPCD).
3.4. Procedural rationalization
RRBs may shift their branches as indicated above (paras 3.1 to 3.3), but ensure that the licence of the branch is submitted to the concerned Regional Office of RBI (RPCD) for getting the new address incorporated therein at the earliest but not later than three months from the date of the shifting of the branch.
4. Conversion of full-fledged branches into satellite/mobile offices
The RRBs may themselves decide the need for conversion of the existing loss making branches into satellite/mobile offices keeping in view the cost-benefit aspect, the likely inconvenience that may be caused to the existing clientele, the effect of the conversion on the performance in the preparation of district credit plan and priority sector lending. With a view to providing better customer service in rural areas, RRBs may also convert their satellite offices into full-fledged branches after obtaining concurrence from the Empowered Committee on RRBs and RRBs should also obtain necessary licence from the concerned Regional Office of RBI (RPCD).
4.1 Satellite Offices
The following guidelines may be followed by the RRBs in respect of satellite offices:
- The satellite office should be established at fixed premises in the surrounding villages and should be controlled and operated from a base branch located at central village/block headquarters.
- Each satellite office should function on a few specified days (at least twice) in a week at specified hours.
- All types of banking transactions may be conducted at the satellite office.
- The customers of satellite office may be permitted to transact business at the base branch on non-operating days of such office.
- While separate ledgers/registers/scrolls may be maintained for each satellite office, all the transactions carried out thereat should be incorporated in the books of account of the base branch.
- The staff attached to the base branch, preferably consisting of a member of supervisory staff, a cashier-cum-clerk and an armed guard, may be deputed to the satellite office.
- Adequate arrangements for insurance of furniture, cash-in-transit, etc. may be made.
Conversion of branches into satellite offices at centres other than rural is not permissible.
4.2. Mobile Offices
The scheme of mobile offices envisages the extension of banking facilities through a well protected van with arrangements for two or three officials of the bank sitting in it with books, safe containing cash, etc. The mobile unit would visit the places proposed to be served by it on certain specified days/hours. The mobile offices would be attached to a branch of the RRB. The mobile office/s should not visit the rural places which are served by co-operative banks and places served by regular offices of commercial banks.
5. Opening of Extension Counters
The RRBs, with the approval of their Boards of Directors, can open Extension Counters at the premises of the institutions of which they are principal bankers after obtaining licence from the concerned Regional Office of RBI (RPCD) for the purpose. Extension Counter can be opened within the premises of big offices/factories, hospitals, military units, educational institutions, residential colonies, shopping complexes where there is a large complement of staff/workers, students, who because of their identical working hours and non-availability of banking facilities at a reasonable distance find it difficult to carry out their banking transactions. Apart from above, RRBs can also set up Extension Counters after obtaining licence from the concerned Regional Office of RBI (RPCD) at places of worship and market places. The condition of being principal bankers however would not apply in such cases.
The Extension Counter should carry out limited type of banking business, such as,
- deposit/withdrawal transactions
- issuing and encashment of drafts and mail transfers
- issue and encashment of travellers cheques
- sale of gift cheques
- collection of bills
- advances against fixed deposits of their customers (within the sanctioning power of the concerned officials at the extension counter)
- facility of safe deposit locker (provided adequate security arrangements are made).
Further, if the Extension Counter proposes to undertake government business, it would require prior approval from the concerned Government authority and RBI as stipulated under paragraph 2.5 above.
RRBs should furnish particulars of the proposed Extension Counters in parts I and II of the format, given in Annex -II, to the concerned Regional Offices of RBI (RPCD), while applying for licence prior to opening of Extension Counter.
6. Upgradation of Extension Counters into full-fledged branches
6.1 RRBs should approach the concerned Regional Office of RBI (RPCD) for prior approval for upgrading Extension Counter into full-fledged branch. The proposal is considered if the following conditions are fulfilled:
- The Extension Counter has been functioning for a minimum period of five years.
- The number of deposit accounts exceeded 2000 during the last one-year.
- The average deposits (i.e. on a monthly basis) for the last three years are not less than Rs.2 crore.
6.2 The proposals, wherein the above conditions are not fulfilled entirely but otherwise the concerned Extension Counters have grown so as to be fit for conversion into branches, are considered on merit.
7. Automated Teller Machines (ATMs)
7.1. RRBs need not obtain permission of RBI for installation of ATMs at branches and Extension Counters for which they hold licences issued by RBI. RRBs should, however, report to the concerned Regional Office of the Reserve Bank (RPCD) and DSIM as and when ATM is installed at a branch or an Extension Counter.
7.2 In case any RRB wishes to set up an off-site ATM in its area of operation, it may do so after assessing the cost and benefit. Prior approval of RBI need not be obtained, but on opening of such ATMs, RRBs should immediately inform the respective Regional Office of the Reserve Bank (RPCD) for the purpose of getting a formal authorisation for the place of business.
8. Classification/Re-classification of centres
RRBs are advised to ascertain the population group classification of the centres of which they are not sure, from RBI, DSIM, Banking Statistics Division, C-8/9, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051 before approaching RPCD for opening of new branches. Any query with regard to reclassification of centres also may be referred to DSIM by the Head Office of the RRB along with relevant documents such as Gazette Notifications, etc. in support of the change.
9. Merger of loss making branches
Where two loss making branches of any RRB are in close proximity to each other (i.e. within a distance of about 5 kms.), RRB may consider merging the two branches with a view to rationalising the spatial spread and reducing establishment/operating costs.
10. Submission of Returns on Branch Banking
(i) Immediately on opening of a place of business, all RRBs are required to inform the date of opening and the postal address of the office/branch to the Central Office and the concerned Regional Office of RPCD.
(ii) In terms of Rule 13 of the Banking Regulations (Companies) Rules, 1949, the RRB is required to submit a list relating to its offices in India in Form VII within a period of one month from the close of every quarter to the office of RBI situated in the state in which its Head Office is located.
(iii) Further, RRBs should submit returns in the Proformae given in Annex - III, as advised in Circular RPCD.CO.RRB.BL.BC.10/ 03.05.90A/ 2005-06 (RBI/2005-06/46) dated July 6, 2005, relating to the new offices/branches opened and change in status due to merger, etc. of existing offices/branches effected during the quarter to DSIM (Banking Statistics Division) and the concerned Regional Office of RPCD within 14 days of the month succeeding the quarter to which they relate. While submitting the current quarter Returns, the previous quarter's reference must be quoted in the forwarding letter. 'Nil' Returns must be sent to DSIM and the concerned Regional Office of RPCD in case there is nothing to report on opening/closing/change in status, etc., of any office/branch/NAIO (Not Administratively Independent Offices like Extension Counters, Satellite Offices, ATMs, etc.) during a quarter.