Annual Report

Part Two : The Working and Operations of The Reserve Bank of India

Currency Management

Human Resources Development Department

CURRENCY MANAGEMENT

10.1 Notes in circulation increased by 11.6 per cent to Rs.1,92,483 crore at the end of March 2000 from Rs.1,72,541 crore in March 1999. The number of currency chests operated by commercial banks and treasuries increased to 4,223 from 4,163 in 1998-99. A currency chest was established in the Jammu office of the Reserve Bank. In all, the number of currency chests functioning as at the end of March 2000 stood at 4,242 (Table 10.1).

Table 10.1: Number of Currency Chests

Name of Agency

No. of currency

No. of currency

chests as on

chests as on

31.3.1999

31.3.2000

1

2

3

1. Treasuries

424

425

2. SBI/its Associates

2,898

2,945

3. Nationalised Banks

820

832

4. Private Sector Banks

21*

21*

5. Co-operative Banks

-

-

6. Reserve Bank (including 2 sub-offices)

18

19

Total

4,181

4,242

* Including 5 chests with branches of Jammu & Kashmir Bank Ltd.

10.2 The Reserve Bank continued to strengthen the mechanisation process in the issue offices during 1999-2000. In order to provide for the disposal of soiled notes in an environment friendly manner, the Issue Offices at New Delhi, Calcutta, Mumbai and Belapur (Navi Mumbai) have been equipped with shredding and briquetting systems of appropriate capacity. This measure would obviate incineration of cancelled notes and thereby address the objection raised by the State Pollution Boards. It is planned to provide similar facilities at the Issue Offices at Chennai, Hyderabad, Jaipur, Kanpur, Patna, and Thiruvanthapuram during 2000-01. The note processing and disposal of soiled notes in the Issue Offices at Bhopal and Chandigarh has been fully mechanised by installing currency verification and processing systems with online shredding and briquetting. The accounting of the notes and coins in the Issue Offices has also been fully computerised.

Computerisation in the Department of Government and Bank Accounts

10.3 The process of computerisation was further strengthened in the Department of Government and Bank Accounts during 1999-2000. Computerisation of Public Debt Office (PDO) started with the development of software for SGL transactions, operationalisation of Delivery vs Payment (DvP) System of settlement, and providing connectivity with Deposits Accounts Department (DAD) for funds transfer. A software package for the full computerisation of the activities of Public Accounts Department (PAD) on COBOL was installed at Ahmedabad, Bangalore, Bhubaneswar, Hyderabad, Jaipur, Kanpur, Nagpur, New Delhi, Patna and Thiruvanthapuram and it would be installed at the remaining PADs in due course. Under the Inter-active Voice Response System (IVRS), which has been in operation since 1998-99, a new value-added product, viz., Easy term, which would help the account holders to obtain transaction details in electronic form and to communicate short messages between account holders and the Reserve Bank, was installed in DAD Chennai on a trial run from June 3, 2000.

10.4 The Department of Information Technology developed software for opera-tionalising the recently introduced Liquidity Adjustment Facility. The software was installed in the Mumbai Office.

HUMAN RESOURCES DEVELOPMENT DEPARTMENT

10.5 With a view to enhancing the motivation of officers and staff the heads of regional offices, central office departments and the Reserve Bank's training colleges were advised to initiate certain measures to making the administration positive, to create an atmosphere of openness and trust, to encourage collaboration and team spirit, proactiveness and innovativeness, to improve work ethics, to conduct employee-oriented surveys and studies, to develop appropriate leadership skills and to refine the performance appraisal system so as to enhance organisational effectiveness.

10.6 The existing promotion policy for officers was revised with a view to encouraging merit and performance, ensuring the desired level of competence and minimising the level of discontent. The main features of the promotion policy are: banding of performance appraisal report marks, increase in weightage of interview marks, increase in the qualifying marks for interview, enumeration of faculties and skills to be tested during interview, personal promotion from Grade 'A' to 'B' and 'B' to 'C', two-stage promotion from Grade 'D' to 'E', and increased transparency in the system.

10.7 A career progression/development strategy for Direct Recruit Officers in Grade B was initiated. Pending finalisation of a formal system for this purpose, a Nodal Officer was appointed to ensure and suggest measures for enhancing faculties, competence and aptitude of these officers. The Nodal officer is expected to interact periodically with the Direct Recruit officers apart from taking care of their training during probation, placement, rotation, career-growth and motivation level.

10.8 A scheme was announced for deputation/secondment/tour of duty and re-employment of officers of the Reserve Bank. The objectives of the scheme are to widen officers' perspective, provide them with alternative job experience and career opportunities and lend manpower support to other organisations temporarily in public interest. An officer with a minimum service of 5 years and not having any disciplinary proceedings pending against him will be eligible for consideration under the scheme. The scheme specifies the terms and conditions under which deputation/ secondment to various institutes will be approved.

10.9 Under the Reserve Bank's Summer Placement Scheme for the year 2000, placements were offered to 22 summer trainees in Ahmedabad, Bangalore, Calcutta, Chennai, Mumbai and New Delhi Offices of the Bank.

Training

Bankers Training College, Mumbai

10.10 The College conducted 95 programmes in which 2,137 participants from different banks were trained during 1999-2000 as compared with 63 programmes in which 1,490 participants were trained in 1998-99.

Reserve Bank Staff College, Chennai

10.11 The Reserve Bank Staff College, Chennai conducted 109 programmes during 1999-2000 in which 2,489 RBI officers were trained as against 114 programmes benefiting 2,669 officers in 1998-99.

College of Agricultural Banking, Pune

10.12 The College conducted 124 programmes in which 2,596 officers were trained during 1999-2000 as against 102 programmes in which 2,447 officers were trained in 1998-99.

10.13 The CAB conducted, in addition to regular programmes, three new programmes during 1999-2000 viz., (i) management of non-performing assets for officers of State and District Central Co-operative Banks; (ii) electronic payment and settlement systems; and (iii) audit and command language.

10.14 A Course on Macroeconomic Adjustment and Financial Sector Issues was conducted at the College of Agricultural Banking by the Department of Economic Analysis and Policy in collaboration with the IMF Institute in October 1999 to impart training on the ongoing economic reforms in the country. A total of 25 officers drawn from the Reserve Bank, State Governments and Central Government were trained.

10.15 An International training course viz., 'Use of Commonwealth Secretariat Debt Recording and Management System (CS-DRMS) Ver. 7.2 and Debt Strategy Module PLUS (DSM+)' was conducted during April 3 to 13, 2000 at the College of Agricultural Banking, by the Department of Statistical Analysis and Computer Services in collaboration with the Ministry of Finance, Government of India and Commonwealth Secretariat (COMSEC) mainly for exploring possibilities of establishing a training centre in the Reserve Bank to develop India as a resource centre for external debt management activities. The faculty support was drawn from COMSEC, World Bank, the Reserve Bank and the Ministry of Finance. Such a training centre has to have in-house training facilities for CS-DRMS which will impart latest skills to user staff. A total of 14 participants were imparted training, of which 7 participants were from foreign countries, mostly from SAARC countries.

Zonal Training Centres

10.16 The Zonal Training Centres at four metropolitan centres cater exclusively to the training needs of employees in Class III and Class IV of the Reserve Bank. During 1999-2000, Zonal Training Centres conducted 86 programmes for Class III employees and 16 programmes for Class IV staff. The number of employees trained during the year 1999-2000 were 1,660 in Class III and 312 in Class IV as against 95 programmes involving 1,711 employees in Class III and 12 programmes involving 224 employees in Class IV in 1998-99.

Deputation of officers for training in India and abroad

10.17 During the year 1999-2000, 399 officers were deputed by the Reserve Bank to participate in training programmes, seminars and conferences organised by various management/banking institutes in India. Besides, 159 officers were deputed by the Bank to attend training courses, seminars, conferences, workshops etc. conducted by banking and financial institutions in 27 countries abroad.

10.18 Under the Golden Jubilee Scheme, four officers were selected for pursuing higher studies abroad in 1999-2000. The total number of beneficiaries under the scheme so far stands at 55. The Reserve Bank deputed 5 officers under the 'Select List Scheme' for training abroad. During 1999-2000, one officer was selected and granted study leave for pursuing higher studies abroad under the Study Leave Scheme introduced in 1994. One officer was granted sabbatical under the scheme for grant of sabbatical to senior officers during 1999-2000.

Training in Computer Technology

10.19 The Reserve Bank continued to provide incentives to staff members to acquire qualification in the field of computers. The scheme of base level computer training for officers and Class III employees introduced by the Reserve Bank in November 1995 to cope with the increasing training needs in this area was liberalised. Regional offices and central office departments were delegated powers to depute officers and Class III employees to reputed computer training institutions to gain working knowledge of computers. Up to the end of March 2000, 2,757 Class III employees and 1,167 officers were trained. Furthermore, with a view to enabling the officers to acquire more proficiency and skills in computer related areas which are directly linked to their job performance, 278 officers in various offices and departments were imparted training under the Scheme by the end of June 2000. In addition, 162 officers were deputed to various training institutions such as IIMs, ASCI and NIBM during the year 1999-2000 for computer training.

Training facilities to officials from other countries

10.20 During 1999-2000, 135 officials from eleven countries viz., from Bhutan, Bangladesh, Ghana, Iran, Kenya, Maldives, Nepal, Oman, Sri Lanka, Sudan and Tanzania were trained/provided study attachment facilities at the Reserve Bank's training establishments.

Training Programme under SAARCFINANCE

10.21 SAARCFINANCE is a network of SAARC Central Bank Governors and Finance Secretaries which works towards strengthening exchange of ideas on national macro-economic policies and promoting understanding of global developments and their implications for the SAARC region. Staff exchange programme under the SAARCFINANCE has been designed to promote exchange of officials among the SAARC countries so as to familiarise them with the functions and working of key policy making bodies and other official organisations. Under the SARCFINANCE Network, 8 participants from different countries (4 from Sri Lanka, 2 from Maldives, and 1 each from Bangladesh and Bhutan) participated in the E-Commerce Workshop organised by the Ministry of Commerce, Government of India during November 11-12, 1999 in Mumbai. In the month of April 2000, 7 officers from the Central Bank of Sri Lanka visited the Exchange Control Department (ECD) and the Department of Currency Management (DCM) for in-house training. A senior consultant appointed by the Nepal Rashtra Bank to prepare a study report under the SAARCFINANCE Network on ';Regional Currency Arrangement in the SAARC Region and the Feasibility of using National Currencies in SAARC Trade'; visited the Reserve Bank during March 23 - 25, 2000 for discussions with the Department of Economic Analysis and Policy (DEAP), ECD and DEIO. Two officers from DEAP participated and presented a paper in the seminar on ';Global Financial Crisis and Recession'; organised by the Bangladesh Bank in Dhaka during November 17-19, 1999 under the SAARCFIANCE Network.

Promotion of Hindi

10.22 The Reserve Bank continued its efforts for promotion of the use of Hindi consistent with the Official Language Policy. Hindi workshops and training programmes were arranged for imparting training to officers and other staff for doing work in Hindi. A special workshop on Hindi translation was conducted in the Reserve Bank Staff College, Chennai.

10.23 During the year, several bilingual publications including the Reserve Bank of India monthly bulletin, a quarterly magazine viz., ';Chintan Anuchintan';, the Annual Report, the Report on Trend and Progress of Banking in India, the Report on Currency and Finance, the Annual Report of the Services Board of the Reserve Bank, the Reserve Bank of India News Letter and the Credit Information Review were published. Besides, ';Computer Paribhasha Kosh'; an explanatory English-Hindi dictionary on computer terms was also published. In the field of computer bilingualisation some data processing applications were developed in bilingual form. Training in bilingual software packages was intensified. Rajbhasha shields, cups were awarded to the winner public sector banks for their outstanding performance in implementation of Hindi in different regions.

Industrial Relations

10.24 Industrial relations between the Bank and all the four recognised unions/associations of workmen and officers have continued to be peaceful and cordial during the year 1999-2000.

Recruitment

10.25 During 1999, the Reserve Bank recruited 620 employees, of which 175 were from Scheduled Castes and Scheduled Tribes categories constituting 28.2 of total recruitment (Table10.2).

10.26 The total staff strength as on December 31, 1999 was 31,737 as compared with 31,626 during the previous year. Of the total staff, 7,926 belonged to Scheduled Castes/Scheduled Tribes (Table 10.3).

Table 10.2: Recruitment During 1999

Category

Total

Of which

Percentage

Recruited

SC

ST

SC

ST

1

2

3

4

5

6

1.

Class I

128

13

4

10.2

3.1

2.

Class III

267

39

29

14.6

10.9

3.

Class IV

225

67

23

29.8

10.2

of which:

(a)

Sweepers

41

23

6

56.1

14.6

(b)

Others

184

44

17

23.9

9.2

Total

620

119

56

19.2

9.0

Table 10.3: Total Staff Strength During 1998 and 1999

Category-wise strength

Per cent to Col.3

Cadre

All

SC

ST

SC

ST

1998

1999

1998

1999

1998

1999

1

2

3

4

5

6

7

8

9

Class I

6,953

7,481

766

718

166

184

9.6

2.5

Class III

15,123

14,641

2,187

2,174

1,094

1,111

14.8

7.6

Class IV

9,550

9,615

3,014

2,947

785

792

30.7

8.2

Total

31,626

31,737

5,967

5,839

2,045

2,087

18.4

6.6

10.27 The Bank's Liaison Officer for Scheduled Caste/Scheduled Tribe employees conducted inspection of reservation rosters maintained at the Bank's Ahmedabad, Bangalore, Bhopal, Calcutta, Chennai, Guwahati, Jaipur, Jammu, Patna and Thiruvananthapuram Offices during the year. Meetings between the Management and the representatives of the All India Reserve Bank Scheduled Castes/Scheduled Tribes and Buddhist Employees' Federation were held on three occasions during the year to discuss issues relating to implementation of the reservation policy in the Reserve Bank.

10.28 The total strength of ex-servicemen in the Bank at the end of 1999, stood at 95 in class I, 648 in Class III and 1,138 in Class IV. The number of physically handicapped employees in Class I, Class III and Class IV stood at 51, 324 and 149, respectively.

Housing Loans

10.29 During 1999-2000 (July-June), the Reserve Bank has sanctioned a sum of Rs.41.56 crore up to end-December 1999 towards housing loans to its employees as also to the housing societies formed by employees as against Rs.28.34 crore during the previous year.

Surveys Conducted by the Bank

Survey of India's Foreign Liabilities and Assets, 1999

10.30 The survey relating to International Investment Position (IIP) collects stock and flow data on India's foreign liabilities and assets including those of the corporate sector. As per requirements of the IMF, these data are required to be collected preferably at quarterly intervals. Accordingly, a survey was launched in December 1999 for capturing data for four quarters ending December 31,1999.

Data Dissemination

10.31 During the year, the Reserve Bank brought out a comprehensive publication on the data base on the Indian economy entitled ';Hand Book of Statistics on Indian Economy'; for dissemination of historical data and current statistics in continuation of the initiative taken in 1998-99. Another important publication entitled ';The Report on Currency and Finance 1998-99';, a thematic one focusing on the process of structural transformation in the Indian economy during 1980s and 1990s was brought out during 1999-2000.

10.32 The Reserve Bank created a website (URL: www.rbi.org.in) on the internet in August 1996. The website is used for dissemination of data on Indian economy, particularly those relating to the banking and financial sector. The website is also used for meeting the requirement of data dissemination under the Special Data Dissemination Standards of the International Monetary Fund. The information available on the Reserve Bank site includes the Weekly Statistical Supplement, Reserve Bank Bulletin, Annual Report of the Reserve Bank, Report on Trend and Progress of Banking in India, Quarterly Banking Statistics, speeches of top executives of the Bank, research publications, banking guidelines and exchange control manual. The reports of most of the committees set up by the Reserve Bank are available on the site.

Central Database Management System for Reserve Bank of India

10.33 A major initiative on building a Central Database Management System as a decision support system for the Bank was undertaken during the year. A consultant was appointed to undertake the system study, system design and supervise the implementation. A study of the existing operational information systems in the Reserve Bank and a survey of analytical and information requirements of the decision making process was taken up as the first phase of the project. The nodal officers identified to assist the consultant were given basic training in data warehousing technology and were assigned subject areas for development of analytical modules.

Development Research Group

10.34 The Development Research Group (DRG) which was constituted in the Bank in November 1991, continued to serve as a forum for constructive debate and interaction among eminent outside experts and officials from within the Bank on subjects of contemporary policy oriented relevance. The DRG has published eighteen studies since its inception on a wide range of subjects relating to monetary, fiscal, external, real and social sectors. During the year, the nineteenth study in the DRG Study Series entitled ';Bond Financing: Implications for Debt Stability'; was released. The DRG is also responsible for publishing the Reserve Bank of India Occasional Papers which comprise research contributions of the staff.

Committees and Working Groups

10.35 During the year, a Standing Committee on International Financial Standards and Codes was constituted by the Reserve Bank. A number of working groups and committees which were constituted by the Reserve Bank to examine and analyse various aspects relating to banking and the financial sector for the purpose of policy formulation submitted their reports. Their recommendations are discussed below.

Working Group on Restructuring Weak Public Sector Banks

10.36 The Working Group on Restructuring Weak Public Sector Banks (Chairman: Shri M.S. Verma) constituted by the Reserve Bank in consultation with the Government of India submitted its report in October 1999. The Group recommended the use of seven parameters relating to solvency, earning capacity and profitability, in conjunction with the definition suggested by the Committee on Banking Sector Reforms to identify a bank's weakness or strength. The Group identified three banks as 'weak' and also six banks which are showing signs of distress and are vulnerable to sudden changes in the external environment.

10.37 While examining the options for restructuring, the Group concluded that a comprehensive restructuring strategy i.e., operational, organisational, financial and systemic would be the most appropriate for the three identified weak banks viz., Indian Bank, UCO Bank and United Bank of India. Some of the major recommendations include recapitalisation of the three banks accompanied by strict conditionality under an agreement between the Government, staff and employee unions, setting up of a Financial Restructuring Authority (FRA) under an Act of Parliament, creation of an Asset Reconstruction Fund for taking over of large NPAs of these banks, reduction of staff costs through introduction of Voluntary Retirement Scheme (VRS) and wage freeze, rationalisation of branch network, longer tenure for CMDs and development of a line of succession and withdrawal of Government's own serving officers from banks' Boards and replacing them with independent nominees having relevant knowledge and experience. The recommendations of the Working Group are currently under examination. The Union Budget for 2000-01 announced the constitution of a Financial Restructuring Authority (FRA), which is a modified form of the model suggested by the Working Group.

Standing Committee on International Financial Standards and Codes

10.38 The worldwide debate on the appropriate international financial architecture has centered on the need for evolving sound standards based on recognised best practices in fiscal, financial and accounting procedures in an environment of greater transparency. In order to monitor these developments and to evaluate their relevance to India, the Reserve Bank constituted a ';Standing Committee on International Financial Standards and Codes'; (Chairman: Dr. Y.V. Reddy) in consultation with the Government of India in December 1999.

10.39 The terms of reference of the committee are: (i) to identify and monitor developments in global standards and codes being evolved especially in the context of international developments and discussions as part of the efforts to create a sound international financial architecture; (ii) to consider all aspects of applicability of these standards and codes to the Indian financial system, and as necessary and desirable, chalk out a road map for aligning India's standards and practices in the light of the evolving international standards; (iii) to periodically review the status and progress in regard to the codes and practices; and (iv) to make available its reports on the above to all the organisations concerned whether they are in the public or the private sector. The Committee has set up ten non-official advisory groups in major subject areas (Box VI.8).

Working Group on Credit Information Bureau

10.40 At present, there is no institutional mechanism for sharing of information on borrowers/potential borrowers among banks/ financial institutions. The Reserve Bank constituted a Working Group to explore the possibilities for setting up of a Credit Information Bureau (CIB) in India for obtaining and dissemination of adequate and reliable information on borrowers to enhance the quality of credit decisions. The Working Group submitted its report on November 1, 1999. The major recommendations of the Group are: (i) the Bureau should collect both negative and positive information relating to credit, trade and financial information; (ii) a foreign technology partner might also be involved in setting up the Bureau to benefit from the expertise available with them; and (iii) the Bureau should be technology-driven and professionally managed company with minimum manual intervention; and (iv) an appropriate regulatory framework for the credit information bureau is necessary. The Working Group suggested that the proposed legislation should have provisions in relation to data protection, privacy, redressal of grievances for customers, etc., As a follow up of these recommendations, the State Bank of India has entered into a Memorandum of Understanding (MoU) with Housing Development Finance Corporation (HDFC) and with Dun and Bradstreet Information Services Ltd. and Trans Union International Inc. as foreign partners, to set up a CIB within the confines of the existing legislation. An in-house Committee has also been constituted by the State Bank of India to frame a master legislation to enable the formation of full-fledged CIB.

Working Group on International Banking Statistics

10.41 In India, with the growing liberalisation of the external sector, close monitoring, on an on-going basis, of the cross-border flow of funds has assumed critical importance. This calls for concerted efforts to collect and improve the coverage and timeliness of data on international claims and liabilities of the banking sector. Keeping these aspects in view, the Reserve Bank constituted a working group on International Banking Statistics (Chairman: Shri N.K. Puri). The Group submitted its report in June 1999.

10.42 The major recommendations of the working group are: (i) introduction of a comprehensive return to enable effective monitoring of the international claims and liabilities of the banking system as well as India's participation in the International Banking Statistics; (ii) establishment of a Central Database Management System (CDBMS) at the Reserve Bank with access to all user departments; (iii) data reporting by banks in the Locational Banking Statistics (LBS) could begin with the quarter ending December 1999 and the reporting of full information in the Consolidated Banking Statistics (CBS) could begin with end-March 2001; (iv) the data collection could be confined, at least in the initial periods, to 500 large branches (including public sector, private sector and foreign banks) which account for above 85 per cent of the overall foreign exchange business; (v) information flow from banks to the Reserve Bank could be initially through floppies and a direct flow of information from banks to the Reserve Bank could occur once the VSAT-based network becomes operational; (vi) collection of data on a quarterly basis both in respect of international claims and liabilities; (vii) speedy computerisation foreign exchange transactions in the relevant branches and establishing requisite connectivity between branches and head office to facilitate speedy data transmission; (viii) the Reserve Bank may design a suitable reporting format and provide detailed guidelines consisting of definition and coverage under each item to be reported; (ix) to facilitate asset-liability management, maturity-wise information in respect of both assets and liabilities should be reflected in the formats of the returns being devised by the Reserve Bank and the maturity classification should be on the basis of residual maturity; and (x) in view of the concentration of foreign exchange business in a few currencies in the country, the reporting formats of five major currencies, viz., US dollar, Yen, Pound Sterling, Deutsche Mark (applicable up to 2001) and Euro.

Working Group on New Capital Adequacy Framework

10.43 The Basel Committee on Banking Supervision (BCBS) had issued a consultative paper on 'A New Capital Adequacy Framework' in June 1999 which is intended to replace the 1988 accord on international convergence of capital measure and capital standards. An informal working group (Chairman: Shri A. Ghosh) was constituted in the Reserve Bank to examine the feasibility of various recommendations of the consultative paper of BCBS. The major recommendations of the working group inter alia are: (i) suitable amendments in the Banking and Regulation Act need to be moved to vest powers with the Reserve Bank to advise banks to annex/merge the accounts; (ii) minority stakes taken up by banks in the equity of other banks, Financial institutions, Non-Banking Financial Companies (NBFCs) or any other financial services entity may be deducted from the investing bank's / financial institution's (FIs) total capital, in addition to the total deduction of majority-owned stake in subsidiaries; (iii) investments made by banks in both equity and subordinated debt of other banks /FIs be brought under the material limit of 10 per cent of bank's total capital and any investments in excess of the material limit be deducted from the investing bank's/FI's total capital; (iv) regulations should enable the banks to issue non-cumulative perpetual preference shares and redeemable preference shares maturing not earlier than 5 years and treating these instruments as Tier I and Tier II capital; (v) banks may be encouraged to fine-tune their internal credit rating systems for assigning preferential risk weights; (vi) external assessment agencies or export insurance agencies in G-10 countries should not be assigned the sole responsibility for risk assessment of banking book assets, especially in case of sovereigns; (vii) in case of claims on banks, banks should be encouraged to go in for assessment by domestic rating agencies and preferential risk weight of 20 per cent to 50 per cent, on a graded scale, could be assigned on the basis of ratings; (viii) in respect of claims on corporates a two-pronged approach has been recommended for adoption viz., external ratings by domestic rating agencies for corporates enjoying fund-based limits of Rs.100 crore and above, and internal-rating by banks for corporates enjoying fund-based limits below Rs.100 crore; (ix) the benefit of bilateral netting may be extended to inter-bank claims for the purposes of capital adequacy; (x) there is a need to move amendments in the Banking Regulation Act to vest powers with the Reserve Bank to frame regulations on prudential norms and/ or differential CRAR, and (xi) the ability of the market to logically interpret the available information needs to be taken into account to avoid a possibility of over-reaction which can destabilise the system.

Working Group on Asset Securitisation

10.44 The Reserve Bank has indicated that institutional initiative should be triggered to lay the road map for development of asset securitisation in the Indian financial system. Accordingly, an in-house working group on asset securitisation (Chairman: Shri V.S.N.Murty) was constituted in June 1999 to examine the related issues, suggest comprehensive guidelines and amendment to the concerned statutes. The working group submitted its report in December 1999, categorising its major recommendations into short-term, medium-term and long-term with definite time frames in each category. The major recommendations of the working group inter alia are:

(i)

defining securitisation in the Transfer of Property Act to lend uniformity of approach and restrict the benefits provided by law/regulation for genuine securitisation transactions;

(ii)

rationalisation of stamp duty to make it uniform at 0.1 per cent for all securitisation transactions. Attempts may be made to bring the subject under the purview of Indian Stamps Act, 1889 from the State Stamps Act;

(iii)

reduction of registration charges by amending Section 17 (2) of the Registration Act;

(iv)

inclusion of securitised instruments in Securities Contract Regulation Act, may be considered by the SEBI;

(v)

tax neutrality of Special Purpose Vehicle. Recommendations for tax reforms also include the spread of upfront income received by Originator over the tenure of the loan securitised, extension of benefits under Section 88 of Income Tax Act for repayment of housing loans after the loans have been securitised, etc.;

(vi)

appropriate accounting treatment for securitisation transactions, adequate disclosure norms and model prudential guidelines;

(vii)

medium-term measures include standardisation of documents, improvement in the quality of assets, upgradation of computer skills and exploration of possibilities of securitising non-performing assets; and

(viii)

in the long-term there is a need for developing a host of financial intermediaries with specialised skills to provide the building blocks for market growth. The implementation of the various recommendations including framing guidelines for financial institutions are under consideration.

Technical Advisory Committee on Money and Government Securities Markets

10.45 The Reserve bank has appointed a technical advisory committee (Chairman: Dr. Y.V. Reddy) to advise on developments in the money and government securities markets. The Committee's tasks would include: (i) reviewing and recommending measures for deepening and widening the money and government securities market including participants, products, institutional and infrastructural arrangements; (ii) suggesting measures for development of the secondary market and promoting liquidity in money market instruments and governments securities; (iii) examining and advising on the evolving and desirable linkages between the money, government securities, foreign exchange and capital markets; (iv) reviewing infrastructure, legal and institutional arrangements for trading, transfer and settlement in the money/ government securities markets; and (v) preparing and considering papers and advising on the policies and practices on product/market development. During 1999-2000 (April-March) there were four meetings of the committee.

Working Group on Deposit Insurance

10.46 The report of the working group on deposit insurance (Chairman: Shri Jagdish Capoor) was set up to study the existing deposit insurance system in India and the need for its reform as a crucial component of the financial sector reforms. The report of the group submitted in October 1999 recommended: (i) retention of the present deposit coverage at Rs.1 lakh; (ii) limited co-insurance for deposits between Rs.90,000 and Rs.1 lakh with cover of 90 per cent; (iii) introduction of two deposit insurance funds- one each for commercial banking and co-operative banking at two per cent of the insured deposits; (iv) risk based pricing of deposit insurance premium in place of the existing flat rate system; (v) withdrawal of the function of credit guarantee from the Deposit Insurance and Credit Guarantee Corporation (DICGC); and (vi) assignment of the role of liquidator and receiver to the Deposit Insurance Corporation. The Group recommended the setting up of a Deposit Insurance Corporation with a capital of Rs.500 crore to be fully contributed by the Reserve Bank. Further, banks which have not complied with capital adequacy requirements, entities with a CAMEL rating of 'C' or below consistently for the past three years and development financial institutions need to be excluded from the deposit insurance coverage. It recommended a review of the position with regard to offering deposit insurance to NBFCs after two years.

High Power Committee on Urban Co-operative Banks

10.47 The Reserve Bank had appointed a high power committee on urban co-operative banks (Chairman: Shri K. Madhava Rao) in May 1999 to review the performance of Primary (Urban) Co-operative Banks (PCBs) and suggest necessary measures to strengthen this sector. The committee has submitted its report to the Reserve Bank on November 30, 1999. The committee recommended changes with regard to the revision of licensing policy for new PCBs, branch licensing policy, extension of areas of operation, dealing with unlicensed and weak PCBs, application of capital adequacy norms to PCBs, conversion of co-operative societies into PCBs, reforms in State Co-operative Societies Acts, Multi-State Co-Operative Societies Act and Banking Regulation Act, 1949 (as applicable to co-operative societies). The recommendations of the Committee are under examination.

Regulations Review Authority

10.48 A Regulations Review Authority (RRA) was set up by the Reserve Bank (with Dr. Y.V. Reddy, Deputy Governor as RRA) for a period of one year from April 1, 1999 for reviewing the Reserve Bank's rules, regulations, reporting system etc., in the light of suggestions received from general public, market participants and users of the Reserve Bank's services. Considering the favourable response to the scheme and the need to provide reasonable time to the service users, the term of RRA was extended for a further period of one year i.e. up to March 31, 2001. During the period of one year of its existence, the RRA has been instrumental in streamlining several existing procedures, not only in the Reserve Bank, but in the banking industry in general, leading to an overall improvement in customer service. An important contribution of the RRA has been compilation of subject-wise master circulars by merging quite a large number of circulars issued on important subjects over the years. Other improvements introduced on the basis of suggestions received by RRA include, authorising individual banks to take their own decision in regard to charges for various services rendered by them (hitherto attended by IBA and FEDAI), doing away with the system of sample test checking of newly printed MICR instruments at MICR cheque processing centres in the Reserve Bank, granting general permission to mutual funds for issuing units to foreign institutional investors, passing on the powers to regulate Money Market Mutual Funds from the Reserve Bank to the SEBI, withdrawal of requirement of obtaining succession certificates by banks from legal heirs irrespective of the amount in the account of a deceased customer, rationalisation of payments of interest for abnormal delay in collection of outstation instruments, setting out a procedure for dissemination of timely information on foreign investment in Indian companies through RBI website to facilitate trading by FIIs and making available information to general public through e-mail on demand.

Central Board/Local Boards

10.49 Consequent upon the appointment of Dr. Vijay Kelkar, as Executive Director for India, Sri Lanka, Bangladesh and Bhutan at the International Monetary Fund, Dr. E.A.S. Sarma, Secretary (Economic Affairs), Ministry of Finance, Department of Economic Affairs, Government of India, was nominated as a Government nominee on the Central Board in place of Dr. Kelkar with effect from July 30,1999.

10.50 Shri Mumtaz Ahmad, Director on the Central Board expired on January 9, 2000 at Calcutta.

Appointment/Retirement of Executives

10.51 Shri S. Gurumurthy, Executive Director retired from the Bank's service from the close of business on July 31, 1999.

10.52 Shri G.P. Muniappan, Regional Director, Chennai was appointed as Executive Director with effect from August 1, 1999.

10.53 Shri B.S. Sharma, Executive Director retired from the Bank's service from the close of business on November 30, 1999.

10.54 Shri Khizer Ahmed, Executive Director retired from the Bank's service from the close of business on January 31, 2000.

10.55 Shri P.B. Mathur, Chief General Manger, DBS was appointed as Executive Director with effect from February 18, 2000.

10.56 Shri P.R. Gopala Rao, Chief General Manager and Secretary was appointed as Executive Director with effect from February 18, 2000.

10.57 Shri M.R. Umarji, former Executive Director of the Corporation Bank was taken on deputation as Executive Director for Department of Non-Banking Supervision with effect from September 1, 1999.

Foreign Dignitaries

10.58 Mr. Richard Celeste, Ambassador of the USA to India visited the Bank on September 16, 1999 to participate in the Round Table conference on financial services.

10.59 Mr. Wim Kok, Prime Minister of Netherlands, together with a delegation visited the Bank on November 24, 1999.

10.60 Mr. Lou Tiwei, Chinese first Vice Minister for Finance, together with delegation of six members visited the Bank on December 24, 1999.

10.61 Mr. Gerrit Ybema, Minister for Foreign Trade, Netherlands visited the Bank on January 12, 2000.

10.62 Mr. Lawrence Summers, US Treasury Secretary visited the Bank on January 17, 2000.

10.63 Mr. Tom Alweendo, Governor, Bank of Namibia visited the Bank on January 31 and February 1, 2000.

10.64 Mr. Howard Davies, Chairman, Financial Services Authority, UK visited the Bank on February 7, 2000 to deliver the tenth C.D. Deshmukh Memorial Lecture.

10.65 Ms. Mary Harney, Deputy Prime Minister of Ireland visited the Bank on April 10, 2000.

Auditors

10.66 The accounts of the Bank were audited by M/s. Brahmayya & Co., Chennai, M/s. Mukund M, Chitale & Co., Mumbai, M/s.V.K. Mehta & Co., New Delhi, M/s. Kapoor Tandon & Co., Kanpur, M/s. N.C. Rajagopal & Co., Chennai and M/s. P.K. Mitra & Co., Calcutta. While the first five audit firms were reappointed, the last one has been appointed for the first time by the Central Government.