A To Z in Banking - A To Z in Banking

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Banking and Financial Developments April 2013 to Jan 2014
Third Quarter Review of Monetary Policy 2013-14 (28th Jan 2014)
Mid-Quarter Monetary Policy Review: December 2013 (declared 18th Dec 2013)
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Banking and Financial Developments April 2013 to Jan 2014
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April 2013
POLICY
Risk Weight and Provisioning
The Ministry of Housing and Urban Poverty Alleviation, Government of India has set up the Credit Risk Guarantee
Fund Trust for Low Income Housing (CRGFTLIH). Regarding issue of assignment of appropriate risk weight for loans
guaranteed by CRGFTLIH and prescription of requisite provisioning norms for such loans on the lines of credit
facilities guaranteed by the Credit Guarantee Fund Trust for Micro and Small Enterprises, the Reserve Bank has
advised banks as below:
Risk Weight
Banks may assign zero risk weight for the guaranteed portion. The balance outstanding in excess of the guaranteed
portion would attract a risk-weight as appropriate to the counter-party.
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Provisioning
In case the advance covered by CRGFTLIH guarantee becomes non-performing, no provision need be made towards
the guaranteed portion. The amount outstanding in excess of the guaranteed portion should be provided for as per
the extant guidelines on provisioning for non-performing advances.
Bank Guarantees
Noticing large disparities in the application of credit conversion factor (CCF) on guarantees issued by banks, the
Reserve Bank has advised them to keep in view the following principles for application of CCF for determining the
credit equivalent amount with regard to non-market related off-balance sheet items :
(a) Financial guarantees are direct credit substitutes wherein a bank irrevocably undertakes to guarantee the
repayment of a contractual financial obligation. Financial guarantees essentially carry the same credit risk as a direct
extension of credit i.e., the risk of loss is directly linked to the creditworthiness of the counterparty against whom a
potential claim is acquired. An indicative list of financial guarantees attracting a CCF of 100 per cent is as under:
Guarantees for credit facilities.
Guarantees in lieu of repayment of financial securities.
Guarantees in lieu of margin requirements of exchanges.
Guarantees for mobilisation advance, advance money before the commencement of a project and for money to be
received in various stages of project implementation.
Guarantees towards revenue dues, taxes, duties, levies etc., in favour of tax/customs/port/excise authorities and
for disputed liabilities for litigation pending at courts.
Credit enhancements.
Liquidity facilities for securitisation transactions.
Acceptances (including endorsements with the character of acceptance).
Deferred payment guarantees.
(b) Performance guarantees are essentially transaction-related contingencies that involve an irrevocable undertaking
to pay a third party in the event the counterparty fails to fulfil or perform a contractual non-financial obligation. In
such transactions, the risk of loss depends on the event which need not necessarily be related to the creditworthiness
of the counterparty involved. An indicative list of performance guarantees, attracting a CCF of 50 per cent is as
under:
Bid bonds.
Performance bonds and export performance guarantees.
Guarantees in lieu of security deposits/earnest money deposits for participating in tenders.
Retention money guarantees.
Warranties, indemnities and standby letters of credit related to particular transaction.
Small Savings Schemes - Revision of Interest Rates
Pursuant to the Government of India revising the rate of interest on various small savings schemes for the financial
year 2013-14, it is advised that, from April 1, 2013, the rates of interest on the Public Provident Fund Scheme, 1968
and the Senior Citizens Savings Scheme, 2004, on the basis of interest compounding/payment built-in in the
schemes, will be as under:
Revised Rate
Earlier
Rate
Small
Savings
of Interest
of Interest
Scheme
(in per cent)
(in per cent)
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Senior Citizens Savings

Scheme, 2004
9.3
9.2
Public Provident Fund

8.8
8.7
Scheme, 1968
Agency banks have been advised to instruct their branches to display the revised interest rates on their notice boards
for the information of the subscribers of these schemes.
Prudential Norms on Advances to Infrastructure Sector
The Reserve Bank has advised banks that in case of public-private partnership (PPP) projects, debts may be
considered as secured to the extent assured by the project authority in terms of the Concession Agreement, subject
to the following conditions:
User charges/toll/tariff payments are kept in an escrow account where senior lenders have priority over withdrawals
by the concessionaire.
There is sufficient risk mitigation, such as, pre-determined increase in user charges or increase in concession
period, in case project revenues are lower than anticipated.
The lenders have a right of substitution in case of concessionaire default.
The lenders have a right to trigger termination in case of default in debt service.
Upon termination, the project authority has an obligation of (i) compulsory buy-out; and (ii) repayment of debt due
in a pre-determined manner.
In all such cases, banks must satisfy themselves about the legal enforceability of the provisions of the tripartite
agreement and factor in their past experience with such contracts.
Implementation of Basel III Capital Regulations
The Reserve Bank has advised that in view of the shift in the start date of Basel III implementation from January 1,
2013 to April 1, 2013, all instructions applicable as on January 1, 2013, except those relating to credit valuation
adjustment (CVA) risk capital charge for over the counter (OTC) derivatives, would become effective from April 1,
2013 with banks disclosing Basel III capital ratios from the quarter ending June 30, 2013. As the introduction of
mandatory forex forward guaranteed settlement through a central counterparty has been deferred pending resolution
of certain issues, such as, exposure norms, etc., the CVA risk capital charges would become effective as on January 1,
2014. The other transitional arrangements would remain unchanged and Basel III will be fully implemented as on
March 31, 2018.
Norms for Self Help Groups Simplified
In order to address the difficulties faced by self help groups (SHGs) in complying with 'know your customer' (KYC)
norms while opening savings bank accounts and credit linking of their accounts, it has been decided to simplify
certain norms for SHGs.
Accordingly, UCBs have been advised that while opening a savings bank account of a SHG, it is not necessary to do
KYC verification of all the members of the SHG and KYC verification of all the office bearers would suffice. As regards
KYC verification at the time of credit linking of SHGs, it is clarified that since KYC would already have been verified
while opening the savings bank account and the account continues to be in operation and is to be used for credit
linkage, no separate KYC verification of the members or office bearers is necessary.
The Reserve Bank has advised UCBs to revise their KYC policy in the light of these instructions and ensure that they
are strictly adhered to.
FEMA
External Commercial Borrowings Policy
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On a review, it has been decided to permit all entities to avail of external commercial borrowings (ECBs) under the
automatic route as per the current norms, notwithstanding pending investigations/adjudications/appeals by law
enforcing agencies, without prejudice to the outcome of such investigations/ adjudications/appeals. Accordingly, in
case of all applications where the borrowing entity has indicated about the pending investigations/adjudications
/appeals, authorised dealers while approving the proposal, should intimate the concerned agencies by endorsing a
copy of the approval letter. The same procedure would also be followed by the Reserve Bank while approving such
proposals.
These modifications to the ECB guidelines have come into effect from March 5, 2013. All other aspects of the ECB
policy, under the automatic route, such as, amount of ECB, eligible borrower, recognised lender, end-use, all-in-cost
ceiling, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements remain
unchanged.
Earlier, corporates under investigation by any law enforcing agencies like the Directorate of Enforcement etc., were
not allowed to access ECB under the automatic route. Any request by such corporates for ECB was examined by the
Reserve Bank under the approval route.
Overseas Direct Investments Clarification
It has been observed that eligible Indian parties are using overseas direct investments (ODI) automatic route to set
up certain structures facilitating trading in currencies, securities and commodities. It has come to the notice of the
Reserve Bank that such structures having equity participation of Indian parties have also started offering financial
products linked to Indian Rupee (e.g. non-deliverable trades involving foreign currency, rupee exchange rates, stock
indices linked to Indian market, etc.). It is clarified that any overseas entity having equity participation
directly/indirectly should not offer such products without the Reserve Bank's specific approval, given that currently
the Indian Rupee is not fully convertible and such products could have implications for the exchange rate
management of the country. Any incidence of such product facilitation would be treated as a contravention of the
extant FEMA regulations and would consequently attract action under the relevant provisions of FEMA, 1999.
Money Changing Activities
On a review, it has been decided that authorised money changers may sell Indian rupees to foreign tourists/visitors
against international credit cards/international debit cards. They should, however, take prompt steps to obtain
reimbursement through normal banking channels.
INFORMATION
Cheque Collection Policy
Non-payment or inordinate delay in payment or collection of cheques, drafts, bills, etc., is one of the grounds of
complaints under the Banking Ombudsman Scheme. The 15 offices of the Banking Ombudsman situated across the
country resolve complaints received on this ground. The total number of complaints regarding non-payment or
inordinate delay in payment or collection of cheques, drafts, bills, etc., received in respect of commercial banks
during the last three years is as under:
July
July
July 2009
2011 2010
June
June
June
2010
2012
2011
Complaints received
4,054
3,354
2,951
The Reserve Bank has issued a Master Circular on Customer Service on July 2, 2012 whereby banks are required to
formulate a comprehensive and transparent cheque collection policy (CCP), which should include provisions on
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immediate credit for local/outstation cheques, time-frame for collection of cheques and interest payment for delayed
collection. While formulating such a policy, banks are also required to take into account their technological
capabilities, system and process adopted for clearing arrangements and other internal arrangements for collection
through correspondents; and obtain specific approval of their Board on the reasonableness of the policy and
compliance with the spirit of the Reserve Bank's guidelines. Further, on noticing that the CCPs of various banks did
not include a provision on compensation for delay in realisation of local cheques, the Reserve Bank had advised
banks on August 13, 2012 to reframe their CCPs to include compensation payable for the delayed period in the case
of collection of local cheques also. The Reserve Bank's guidelines also provide that in case no rate is specified in the
CCP for delay in realisation of local cheques, compensation at savings bank interest rate should be paid for the
corresponding period of delay.
Source: Parliament Questions
RBI signs Currency Swap Agreement with RMAB
The Reserve Bank signed the first Currency Swap Agreement with the Royal Monetary Authority of Bhutan (RMAB) on
March 8, 2013. The Royal Monetary Authority of Bhutan can make drawals of US Dollar, Euro or Indian Rupee in
multiple tranches up to a maximum of US$ 100 million or its equivalent. This is expected to further economic
co-operation between the two countries.
The agreement is valid for a period of three years from the date of signing.
In May 2012, RBI Governor Dr. D. Subbarao had announced in the SAARCFINANCE Governors meeting, held in
Pokhara, Nepal, that the Reserve Bank of India would offer swap facilities aggregating US$ 2 billion, both in foreign
currency and Indian Rupee to the neighbouring countries of the SAARC region. The facility is available to all SAARC
member countries, viz., Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka. The swap
arrangement is intended to provide a backstop line of funding for the SAARC member countries to meet any balance
of payments and liquidity crises till longer term arrangements are made or if there is a need for short-term liquidity
due to market turbulence. The arrangement will also further financial stability in the region.
Financial Sector Regulators sign MoU
The financial sector regulators (Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory
and Development Authority and Pension Fund Regulatory and Development Authority) signed a memorandum of
understanding (MoU) at a meeting held on March 8, 2013, for co-operation in the field of consolidated supervision
and monitoring of financial groups identified as financial conglomerates. The Sub-Committee of the Financial Stability
and Development Council (FSDC) also approved the National Strategy for Financial Education (NSFE). The NSFE has
been revised incorporating the feedback received from public consultations and from a global peer review.
May 2013
MONETARY AND CREDIT INFORMATION REVIEW
POLICY
Repo/Reverse Repo/Marginal Standing Facility Rates
Pursuant to the announcement made in the Monetary Policy Statement for 2013-14, the following rates have been
changed from May 3, 2013:
Repo Rate
The repo rate under the liquidity adjustment facility (LAF) has been reduced by 25 basis points from 7.50 per cent to
7.25 per cent.
Reverse Repo Rate
The reverse repo rate stands automatically adjusted to 6.25 per cent.
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Marginal Standing Facility

The marginal standing facility (MSF) rate stands automatically adjusted to 8.25 per cent.
Standing Liquidity Facilities to Banks/Primary Dealers
The standing liquidity facilities provided to banks under export credit refinance (ECR) and special export credit
refinance (SECR) and to primary dealers (PDs) (collateralised liquidity support) from the Reserve Bank would be
available at the revised repo rate, i.e., at 7.25 per cent from May 3, 2013.
Bank Rate
The Bank Rate stands adjusted by 25 basis points from 8.50 per cent to 8.25 per cent from May 3, 2013.
All penal interest rates on shortfall in reserve requirements, which are specifically linked to the Bank Rate, also stand
revised as indicated below:
Penal Interest Rates which are linked to the Bank Rate
Item
Existing Rate
Revised Rate
(Effective from May 3, 2013)
Penal interest rates on shortfalls

in
reserve
requirements
(depending
on
duration
of
shortfalls)
Bank Rate plus 3.0 percentage

points (11.50 per cent) or Bank
Rate plus 5.0 percentage points
(13.50 per cent)
Bank Rate plus 3.0 percentage points

(11.25 per cent) or Bank Rate plus 5.0
percentage points (13.25 per cent)
Priority Sector Lending - Limits Revised

The Reserve Bank has advised that the following limits under priority sector have been revised upward from April 1,
2013:
Agriculture
(i) The limit of loans to farmers against pledge/hypothecation of agricultural produce (including warehouse receipts)
for a period not exceeding 12 months has been increased from ` 25 lakh to ` 50 lakh both under direct and indirect
agriculture.
(ii) The limit of loans to dealers/sellers of fertilisers, pesticides, seeds, cattle feed, poultry feed, agricultural
implements and other inputs has been raised to ` 5 crore per borrower from ` 1 crore.
Micro and Small Enterprises
The limit of bank loans to micro and small service enterprises (MSEs) engaged in providing or rendering of services
has been increased from ` 2 crore to ` 5 crore per borrower/unit, provided they satisfy the investment criteria for
equipment as defined under the MSMED Act, 2006.
SLR Holdings under Held to Maturity Category
Pursuant to the recommendations of the Working Group on Enhancing Liquidity in the Government Securities and
Interest Rate Derivatives Markets (Chairman: Shri R. Gandhi), it has been decided that Banks may be permitted to exceed the limit of 25 per cent of total investments under 'held to maturity' (HTM)
category provided:
a) the excess comprises only of statutory liquidity ratio (SLR) securities; and
b) the total SLR securities held in the HTM category is not more than 24.50 per cent by end June 2013, 24.00 per
cent by end September 2013, 23.50 per cent by end December 2013, and 23.00 per cent by end March 2014 of their
demand and time liabilities (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 their Board of Directors
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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 SLR securities from the HTM category to AFS/HFT once in each quarter as indicated above, it has
been decided to allow such shifting at the beginning of each quarter during 2013-14.
Clean Note Policy
Reiterating its earlier instructions on Clean Note Policy the Reserve Bank has advised banks to
* do away with stapling of note packets and instead secure note packets with paper bands;
* sort notes into re-issuables and non-issuables, and issue only clean notes to the public; and
* forthwith stop writing of any kind on the watermark window of bank notes.
PAYMENT SYSTEM
Re-presentation of Return Cheques
With a view to streamlining the procedure followed by banks regarding re-presentation of cheques and cheque return
charges, the Reserve Bank has advised banks to adhere to the following instructions:
Cheque return charges should be levied only in cases where the customer is at fault and is responsible for such
returns. An illustrative list of returns where the customers are not at fault, is indicated in the box.
Cheques that need to be re-presented without any recourse to the payee, should be made in the immediate next
presentation clearing not later than 24 hours (excluding holidays) with due notification to the customers of such
re-presentation through SMS alert, email, etc.
Banks have also been advised to reframe their cheque collection policy (CCP) to include the above indicated
procedures and give publicity to their revised CCP for better customer service and dissemination of information.
Recently, instances have been brought to the Reserve Banks notice where banks are (i) levying cheque return
charges even in cases where customers have not been at fault in the return; and (ii) delaying the re-presentation of
cheques which had been returned by paying banks due to technical reasons.
BRANCH BANKING
Direct Benefit Transfer Scheme
With a view to facilitating direct benefit transfer (DBT) for the delivery of social welfare benefits by direct credit to
the bank accounts of beneficiaries, the Reserve Bank has advised banks to:
open accounts for all eligible individuals in camp mode with the support of local government authorities;
seed the existing accounts or new accounts opened with Aadhaar numbers; and
put in place an effective mechanism to monitor and review the progress in the implementation of DBT.
The state level bankers committee (SLBC) convenor banks and lead banks should institute a monitoring and review
mechanism to periodically assess and evaluate the progress made in the implementation of DBT by banks. The
review of progress in the implementation of DBT should be included as a regular agenda for discussion in SLBC and
district consultative committee (DCC) meetings.
DBT is being rolled out in a phased manner with 43 districts taken up in the first phase from January 1, 2013 and will
be extended to 78 more districts from July 1, 2013. Eventually, all districts in the country would be covered under the
DBT scheme.
FEMA
Import of Gold by Nominated Banks/Agencies
To moderate the demand for gold for domestic use, it has been decided to restrict the import of gold on consignment
basis by banks, only to meet the genuine needs of exporters of gold jewellery.
The Working Group on Gold (Chairman: Shri K.U.B. Rao) had recommended aligning gold import regulations with rest
of the imports for creating a level playing field between gold imports and other imports. Bulk of the gold imported by
nominated banks was on consignment basis whereby nominated banks did not have to fund these stocks.
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Realisation and Repatriation of Export Proceeds

In consultation with the Government of India, it has been decided to bring down the period for realisation and
repatriation to India, of the amount representing the full value of goods or software exported, from twelve months to
nine months from the date of export. These instructions have come into effect from May 20, 2013 and are valid till
September 30, 2013.
The provisions regarding period of realisation and repatriation to India of the full export value of goods or software
exported by a unit situated in a special economic zone (SEZ) as well as exports made to warehouses established
outside India remain unchanged.
Monetary Policy Statement 2013-14
Dr. D. Subbarao, Governor, Reserve Bank of India, in a meeting with chief executives of major commercial banks
presented the Monetary Policy Statement for 2013-14 on May 3, 2013. The highlights are:
Projections
Baseline GDP growth for 2013-14 projected at 5.7 per cent.
To contain headline WPI inflation at around 5.0 per cent in the short-term and at 3.0 per cent over the medium
term.
M3 growth for 2013-14 projected at 13 per cent for policy purposes.
Stance
The stance of the monetary policy is intended to:
continue to address the accentuated risks to growth;
guard against the risks of inflation pressures re-emerging and adversely impacting inflation expectations, even as
corrections in administered prices release suppressed inflation; and
appropriately manage liquidity to ensure adequate credit flow to the productive sectors of the economy.
Monetary Measures
Repo rate under the liquidity adjustment facility (LAF) reduced by 25 basis points from 7.50 per cent to 7.25 per
cent.
Reverse repo rate under the LAF, determined with a spread of 100 basis points below the repo rate, adjusted to
6.25 per cent.
Marginal standing facility (MSF) rate, determined with a spread of 100 basis points above the repo rate, adjusted to
8.25 per cent.
Bank rate adjusted to 8.25 per cent.
Cash reserve ratio (CRR) of scheduled banks retained at 4.00 per cent of their NDTL.
CUSTOMER SERVICE
Review of ATM Operations of Banks
The Reserve Bank recently conducted a review of ATM operations of banks with a large ATM network. The review
mainly aimed at identifying major complaint-prone operational areas and steps to overcome these. The review was
based on the following grounds identified for rising trend in ATM complaints.
(i) Frequent breakdowns
(ii) Discrepancies in cash dispensation
(iii) Cash-out (machines running out of cash)
(iv) Quality of notes
(v) Grievance redressal
Frequent Breakdowns
Power failure, network failure, cash handler faults, reject bin full, machine breakdowns are some of the major
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reasons for ATM breakdowns. To ensure that these breakdowns are kept to a minimum, some of the important
measures initiated by banks are:
Periodic visits by ATM channel managers/vendors to ATMs.
Monitoring uptime of ATMs by vendors as well as by banks on a real time basis.
Online system enabling immediate notification to vendors about down ATMs for restoration on a priority basis.
Top management's oversight on ';down time'; reports.
Detailed servicing and replacement of system, if necessary, of ATMs with more than a fixed number of complaints
in a month.
Periodic preventive maintenance.
Corrective action on the basis of root cause analysis.
Discrepancies in Cash Dispensation
For major ATM network banks the percentage of complaints on account of short/non-dispensation of cash was less
than 0.15 per cent of total complaints. Regulatory prescription of resolution of such complaints within 7 days and
penalty for failure to do so have ensured that most of these discrepancies are rectified immediately and not kept
pending beyond 7 working days. Online monitoring of ATMs having high number of dispenser problems, follow up
with manufacturers for periodical preventive maintenance, training of custodians to ensure proper cash loading and
oversight of senior management on resolution and corrective action are some of the steps taken to address the
discrepancies in cash dispensation.
Cash-out
Regular monitoring and forecasting cash requirements ensures that ATMs are loaded optimally to avoid cash-outs
(running out of cash). ATMs are loaded with currency based on the frequency of cash dispensation to ensure that the
ATMs do not run out of cash during peak period. Cash levels are set and monitored at intervals and when cash in the
machine falls below a pre-determined level, the vendor is informed to replenish cash immediately.
Quality of Notes
Efforts are made to ensure that ATMs are loaded with either newly printed or ATM fit notes which are sorted and
processed on hi-tech note sorting machines by agency custodians/vendors who are imparted regular training in this
regard.
Access to Grievance Redressal Mechanism
Systems are in place to provide smooth access to grievance redressal mechanism for ATM related complaints. The
grievance redressal procedure is displayed in the ATM premises. Banks have automated systems enabling
registration of ATM related complaint at any branch/call centre by visit/call. Auto escalation of complaints is also
enabled in these systems which facilitates speedy resolution of complaints.
Security Measures
With spread of ATM network, instances of frauds are also on the rise. Ensuring a secure environment is a must for
building customer confidence in electronic banking. The measures initiated to strengthen security in ATM transactions
are:
Caretakers at off-site ATMs and sensitive locations to discourage attempts to tamper with the ATM.
Arrangements with local police authorities for regular beats in case of ATMs located in sensitive areas.
Disabling cash retraction facility at ATMs as per the Reserve Banks guidelines in view of large number of frauds
committed by fraudsters taking advantage of this facility.
Security screen on the machine requiring the customer to confirm the digits entered.
Reduction of per screen transaction time.
Logging out of a customer in case of even a single invalid pin.
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Dip-card readers: Dip card readers (card is not swallowed by the machine) preempt capture of data through
extraneous devices. Many banks are now using dip-card readers.
Mystery shopping.
Analysis of complaints to identify complaint prone ATMs and monitoring transactions at these ATMs.
Customer Awareness and Education Measures
Customer education and awareness is one of the important tools to ensure secured electronic banking. Some of the
measures undertaken by banks in this regard are:
Posters/notices containing safety tips on usage of card/ATM are prominently displayed at the ATM machines.
Customers are provided with user manual/letter along with the card at the time of card issue which details the
safety guidelines for operating ATMs.
Customers are also imparted knowledge on safety measures/precautions on ATM transactions through print media
and radio advertisements.
Feedback is obtained from customers through surveys/phone calls.
June 2013
POLICY
Opening of Branches in Unbanked Rural Centres
With a view to taking financial inclusion to the next stage of providing universal coverage and facilitating electronic
benefit transfer (EBT), domestic scheduled commercial banks (SCBs) have been advised to draw up the next financial
inclusion plan (FIP) for the period 2013-16. To facilitate speedier branch expansion in unbanked rural centres for
ensuring seamless roll out of the direct benefit transfer (DBT)/EBT scheme of the Government of India, banks have
been advised to consider front-loading (prioritising) opening of branches in unbanked rural centres over a 3 year
cycle co-terminus with their FIP (2013-16). While the requirement of allocating at least 25 per cent of total number of
branches proposed to be opened during the annual branch expansion plan (ABEP) in unbanked rural (Tier 5 and Tier
6) centres would continue, credit will be given for branches opened in unbanked rural centres in excess of the
required 25 per cent of the ABEP for the year, which will be carried forward for achieving the criteria in the
subsequent ABEP/year of the FIP.
SCBs are required to allocate at least 25 per cent of the total number of branches proposed to be opened during a
year in unbanked rural (Tier 5 and Tier 6) centres while preparing their ABEP. An unbanked rural centre would mean
a rural (Tier 5 and Tier 6) centre that does not have a brick and mortar structure of any SCB for customer based
banking transactions.
Off-balance Sheet Exposures - Deferment of Premium
Banks are permitted to defer, at their discretion, the premium on plain vanilla options sold by them to users subject
to certain conditions. It has now been decided to extend this facility to cost reduction forex option structures in which
the liability of the users never exceeds the net premium payable to the bank under any scenario. This facility would
be subject to the following conditions:
(i) Before extending this facility to users, banks should carry out necessary due diligence regarding the ability of
users to adhere to the premium payment schedule, in accordance with their Board approved policy.
(ii) Payment of premium for option structure with maturity of more than 1 year may be deferred, provided the
premium payment period does not extend beyond the maturity date of the contract.
(iii) The premium should be received uniformly over the maturity of the contract and the periodicity of such payment
should be at least once in a quarter.
(iv) This facility should not be allowed for contracts which are on past performance basis.
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Such option structures would continue to be governed by instructions on suitability and appropriateness as regards structured derivative products laid down in the Comprehensive Guidelines
on Derivatives: Modifications issued by the Reserve Bank on November 2, 2011; and
cost reduction structures as laid down in the Master Circular on Risk Management and Inter-Bank Dealings dated
July 2, 2012.
Large Value Accounts - Legal Audit of Documents
The Reserve Bank has advised banks and all-India select financial institutions to subject the title deeds and other
documents in respect of all credit exposures of Rs. 5 crore and above to periodic legal audit and re-verification of title
deeds with relevant authorities as part of regular audit exercise till the loan stands fully repaid.
Further, banks should furnish a review note to its Board/Audit Committee of the Board at quarterly intervals on an
ongoing basis giving therein information in respect of such legal audits which should cover aspects like, number of
loan accounts due for legal audit for the quarter, how many accounts covered, list of deficiencies observed by the
auditors, steps taken to rectify the deficiencies, number of accounts in which the rectification could not take place,
course of action to safeguard the bank's interest in such cases, action taken on issues pending from earlier quarters.
Lending against Gold
As per extant instructions, banks are currently permitted to grant advances against gold ornaments and other
jewellery and against specially minted gold coins sold by banks. Banks cannot, however, grant advances for purchase
of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold exchange traded
funds and units of gold mutual funds. While there may not be any objection to grant of advances against specially
minted gold coins sold by banks, there is a risk that some of these coins would be weighing much more, thereby
circumventing the Reserve Banks guidelines of July 1978 regarding restrictions on grant of advance against gold
bullion.
Accordingly, it is advised that while granting advance against the security of specially minted gold coins sold by them,
banks should ensure that the weight of the coin(s) does not exceed 50 grams per customer and the amount of loan
to any customer against gold ornaments, gold jewellery and gold coins (weighing up to 50 grams) should be within
the Board approved limit.
Commercial Real Estate - Residential Housing
As loans to residential housing projects under the commercial real estate (CRE) sector exhibit lesser risk and volatility
than the CRE sector taken as a whole, it has been decided to carve out a separate sub-sector called commercial real
estate residential housing (CRE-RH) from the CRE sector. CRE-RH would consist of loans to builders/developers for
residential housing projects (except for captive consumption) under CRE segment. Such projects should ordinarily not
include non-residential commercial real estate. Integrated housing projects comprising some commercial space (e.g.
shopping complex, school, etc.) can also be classified under CRE-RH, provided the commercial area in the residential
housing project does not exceed 10 per cent of the total floor space index (FSI) of the project. In case the FSI of the
commercial area in the predominantly residential housing complex exceeds the ceiling of 10 per cent, the project
loans should be classified as CRE and not CRE-RH.
The CRE-RH segment will attract a lower risk weight of 75 per cent and lower standard asset provisioning of 0.75 per
cent as against 100 per cent and 1.00 per cent, respectively for the CRE segment.
It has been decided to rationalise the prudential norms on risk-weight, provisioning and loan to value (LTV) ratio for
individual housing loans, CRE and CRE-RH exposures, as under:
Category of Loan
LTV Ratio
Risk Weight (per
Standard
Asset
(per cent)
cent)
Provisioning
(per
cent)
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(a) Individual Housing

Loans
(i) Up to ` 20 lakh
90
50
0.40
(ii) Above ` 20 lakh and
80
50
0.40
up to ` 75 lakh
(iii) Above ` 75 lakh
75
75
0.40
(b) CRE-RH
NA
75
0.75
(c) CRE
NA
100
1.00
Note: (1) The LTV ratio should not exceed the prescribed ceiling in all fresh cases of sanction. In case
the LTV ratio is currently above the ceiling prescribed for any reasons, efforts should be made to bring it
within limits.
(2) Banks exposures to third dwelling unit onwards to an individual will also be treated as CRE
exposures.
It is further advised that the extant instructions requiring additional risk-weight of 25 percentage points for
restructured housing loans and higher provisioning of 2 per cent for housing loans extended at teaser rates by banks
will continue to remain in force.
FEMA
Export related receipts facilitated by OPGSPs
The Reserve Bank has advised all category - I authorised dealer banks that the per transaction limit for export
related remittances received through online payment gateway service providers (OPGSPs) has been increased from
USD 3000 to USD 10,000. The revised limit has come into force from June 11, 2013.
It may be recalled that in October 2011, AD Category I banks were permitted to offer the facility to repatriate export
related remittances by entering into standing arrangements with OPGSPs for export of goods and services for value
not exceeding USD 3000 per transaction.
Import of Gold by Nominated Banks/Agencies
The Reserve Bank has advised that, any import of gold on consignment basis by nominated banks/agencies
/premier/star trading houses who have been permitted by the Government of India to import gold, would now be
permissible only to meet the needs of exporters of gold jewellery.
Further, all letters of credit (LCs) to be opened by nominated banks/agencies for import of gold under all categories
will be only on 100 per cent cash margin basis. All imports of gold will necessarily have to be on documents against
payment (DP) basis. Accordingly, gold imports on documents against acceptance (DA) basis will not be permitted.
These restrictions would, however, not apply to import of gold to meet the needs of exporters of gold jewellery.
Realisation and Repatriation Period for Units in SEZs
The Reserve Bank has advised that units located in special economic zones (SEZs) should realise and repatriate, full
value of goods/software/services to India within a period of twelve months from the date of export. The Reserve
Bank will grant, on a case to case basis, any extension of time beyond this stipulated period. These changes will be
applicable from June 11, 2013 and would be valid for one year, subject to review.
Finance for Purchase of Gold
The Reserve Bank has clarified that NBFCs should not grant advances for purchase of gold in any form, including
primary gold, gold bullion, gold jewellery, gold coins, units of gold exchange traded funds (ETF) and units of gold
mutual funds.
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INFORMATION
Guidelines for Licensing of New Banks - Clarifications
The Reserve Bank, on June 3, 2013, released on its website, clarifications to queries on the Guidelines for Licensing
of New Banks in the Private Sector.
The Reserve Bank had released the Guidelines for Licensing of New Banks in the Private Sector on its website on
February 22, 2013. Following the issue of the guidelines, the Reserve Bank had issued a press release on March 7,
2013 inviting queries from intending applicants seeking clarifications on the guidelines and also stated that
considering that the clarifications provided would be of wider interest and use for all intending applicants, the
Reserve Bank would post the clarifications on its website.
In all, the Reserve Bank has received 443 queries from 34 individuals/organisations. The clarifications to all the
queries have been provided. A few queries have been clubbed with other related queries for the sake of clarity and
continuity.
A good number of queries have brought out issues relating to the provisions in the guidelines on the eligible
promoters, fit and proper criteria, corporate structure of the Non-Operative Financial Holding Company (NOFHC),
foreign shareholding and transition time to the new structure.
RBIs Fraud Monitoring Cell to function from Bengaluru
The Reserve Bank of Indias Fraud Monitoring Cell attached to the Department of Banking Supervision, Central Office
has shifted from the present location at 2nd Floor, World Trade Centre-1, Cuffe Parade, Mumbai 400005 to the
Reserve Bank's Bengaluru Regional Office. The Central Fraud Monitoring Cell will continue to be a part of Department
of Banking Supervision, Central Office, Mumbai and will start functioning from July 1, 2013 from the new address
which is - Central Fraud Monitoring Cell, Department of Banking Supervision, Reserve Bank of India, 10/3/8,
Nruputhunga Road, Bengaluru 560001.
CUSTOMER SERVICE
Operation of Accounts by Old and Incapacitated Persons
The Reserve Banks instructions to banks regarding operation of bank accounts by old and incapacitated persons areFacility to sick/old/incapacitated non-pension account holders
The facilities offered to pension account holders should be extended to non-pension account holders also who are
sick/old/incapacitated and are not willing to open and operate joint accounts.
Types of sick/old/incapacitated account holders
The cases of sick/old/incapacitated account holders fall into the following categories:
(a) An account holder who is too ill to sign a cheque/cannot be physically present in the bank to withdraw money
from his bank account but can put his/her thumb impression on the cheque/withdrawal form.
(b) An account holder who is not only unable to be physically present in the bank but is also not even able to put
his/her thumb impression on the cheque/withdrawal form due to certain physical incapacity.
Operational procedure
With a view to enabling old/sick account holders to operate their bank accounts, banks should follow the following
procedure (a) Wherever thumb or toe impression of the sick/old/incapacitated account holder is obtained, it should be identified
by two independent witnesses known to the bank, one of whom should be a responsible bank official.
(b) Where the customer cannot even put his/her thumb impression and also would not be able to be physically
present in the bank, a mark can be obtained on the cheque/withdrawal form which should be identified by two
independent witnesses, one of whom should be a responsible bank official.
(c) The customer may also be asked to indicate to the bank as to who would withdraw the amount from the bank on
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the basis of cheque/withdrawal form as obtained above and that person should be identified by two independent
witnesses. The person who would be actually drawing the money from the bank should be asked to furnish his
signature to the bank.
IBA's opinion in case of a person who cannot sign due to loss of both hands
Opinion obtained by the Indian Banks Association from their consultant on the question of opening a bank account of
a person who has lost both his hands and could not sign the cheque/withdrawal form is as under:
In terms of the General Clauses Act, the term sign with its grammatical variations and cognate expressions, shall
with reference to a person who is unable to write his name, include mark with its grammatical variations and
cognate expressions. The Supreme Court has held in AIR 1950 Supreme Court, 265 that there must be physical
contact between the person who is to sign and the signature can be by means of a mark. This mark can be placed by
the person in any manner. It could be the toe impression, as suggested. It can be by means of a mark which anybody
can put on behalf of the person who has to sign, the mark being put by an instrument which has had a physical
contact with the person who has to sign.
Bank branches/ATMs to be made accessible to persons with disabilities
Banks have been advised 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 and also make arrangements in such a way that the
height of the ATM does not create an impediment in its use by a wheelchair user. Banks should also take appropriate
steps, including providing ramps at the entrance of their branches so that, persons with disabilities/wheel chair users
can enter the bank branches and conduct business without much difficulty.
Providing banking facilities to visually impaired persons
In order to facilitate access to banking facilities by visually challenged persons, banks have been advised to offer
banking facilities including, cheque book facility/operation of ATM/locker, net banking, retail loans, credit cards etc.,
to the visually challenged as they are legally competent to contract.
Talking ATMs with Braille keypads for use by persons with visual impairment
Banks have been advised to make at least one third of new ATMs installed as talking ATMs with Braille keypads and
place them strategically in consultation with other banks to ensure that at least one talking ATM with Braille keypad
is generally available in each locality for catering to the needs of the visually impaired persons. Banks should also
bring the locations of such talking ATMs to the notice of their visually impaired customers.
Source: RBI MONETARY AND CREDIT INFORMATION REVIEW
Change in Cash Reserve Requirement
The minimum daily cash reserve ratio (CRR) balance required to be maintained by banks has been increased from 70
per cent to 99 per cent of their net demand and time liabilities (NDTL) effective from the first day of the fortnight
beginning July 27, 2013.
Liquidity Adjustment Facility
As part of the measures announced by the Reserve Bank on July 23, 2013 to address exchange market volatility, the
total quantum of funds available to a bank under the liquidity adjustment facility (LAF) has been capped at 0.50 per
cent of the individual banks net NDTL. This change in LAF has come into effect from July 24, 2013. For the purpose
of arriving at an individual banks limit, the NDTL would be the same as is being reckoned for the purpose of
maintenance of CRR during a reporting fortnight. Accordingly, the Reserve Banks earlier instructions issued on July
16, 2013 regarding cap on overall allocation of funds at Rs. 75,000 crore under LAF are withdrawn.
Maintenance of SLR - MSF
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Under the marginal standing facility (MSF), currently banks avail funds from the Reserve Bank on an overnight basis
against their excess statutory liquidity ratio (SLR) holdings. Additionally, they can also avail funds on an overnight
basis below the stipulated SLR up to two per cent of their respective NDTL outstanding at the end of the second
preceding fortnight.
With a view to enabling banks to meet the liquidity requirements of mutual funds under the Reserve Banks Special
Repo Window announced on July 17, 2013, the borrowing limit below the stipulated SLR requirement under the MSF
has been raised from 2 per cent of NDTL to 2.5 per cent of NDTL. The higher MSF limit of 0.5 per cent of NDTL will be
available only for the Special Repo Window. This additional limit will be available for a temporary period until further
notice.
Bank loans to MFIs for on-lending
Bank credit to micro finance institutions (MFIs) for onlending, will now be eligible for categorisation as priority sector
advance if the aggregate amount of loan, extended for income generating activity, is not less than 70 per cent of the
total loans given by MFIs.
Earlier, bank credit to MFIs for on-lending was eligible for categorisation as priority sector advance if the aggregate
amount of loan extended for income generating activity, was not less than 75 per cent of the total loans given by
MFIs.
Marginal Standing Facility Rates
As a part of the measures announced by the Reserve Bank to address the exchange rate volatility, the MSF rate has
been recalibrated at 300 basis points above the policy repo rate under the LAF. Consequently, the MSF rate is 10.25
per cent from July 16, 2013.
Bank Rate
The Bank Rate has been adjusted by 200 basis points from 8.25 per cent to 10.25 per cent from July 15, 2013.
All penal interest rates on shortfall in reserve requirements, which are specifically linked to the Bank Rate, have been
Penal Interest Rates which are linked to the Bank Rate
Item
Existing Rate
Revised Rate
(Effective from
2013)
Penal interest rates on

shortfalls in reserve
requirements
(depending on duration
of shortfalls)
Bank Rate plus 3.0

percentage points (11.25
per cent) or Bank Rate
plus
5.0
percentage
points (13.25 per cent)
Bank
Rate
plus
3.0
percentage points (13.25
per cent) or Bank Rate plus
5.0
percentage
points
(15.25 per cent)
July
15,
Unsolicited Commercial Communications

The Reserve Bank has reiterated that banks should engage only those direct marketing agents (DMAs)/direct selling
agents(DSAs)/call centres who are registered as telemarketers in terms of the guidelines issued by the Telecom
Regulatory Authority of India (TRAI), from time to time, for all their promotional/telemarketing activities.
As per the Telecom Commercial Communications Customer Preference Regulations, 2010 issued by TRAI, any
person involved in sending commercial communications has to register with TRAI as a telemarketer. It has, however,
been brought to the Reserve Bank's notice that many banks, financial institutions as also their franchisees are
engaging telemarketers who are not registered with TRAI, for marketing their services and these unregistered
telemarketers use their normal telephone connections for making commercial calls to customers registered in the
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National Customer Preference Register. This is resulting in a lot of customer grievance.

BRANCH BANKING
Direct Benefit Transfer Scheme
With a view to facilitating seamless rollout of Aadhaar based direct benefit transfer (DBT) of government benefits,
including LPG subsidy, all state level bankers' committee (SLBC) convenor banks and lead banks have been advised
to:
Take steps to complete account opening and seeding Aadhaar number in all the DBT districts.
Closely monitor the progress in seeding of Aadhaar number in bank accounts of beneficiaries.
Put in place a system to provide acknowledgement to the beneficiary of seeding request and also send confirmation
of seeding of Aadhaar number.
Form DBT Implementation Co-ordination Committee along with the state government department concerned, at
district level and review the seeding of Aadhaar number in bank accounts.
Ensure that district and village wise names and other details of business correspondents (BCs) engaged/other
arrangements made by the bank is displayed on the SLBC website.
Set up a complaint grievance redressal mechanism in each bank and nominate a complaint redressal officer in each
district, to redress the grievances relating to seeding of Aadhaar number in bank accounts.
A workshop on DBT scheme was recently held in Mysore which was inter alia attended by Chairman, Unique
Identification Authority of India (UIDAI), finance secretaries of select states, the Reserve Bank's top management
and bankers from Karnataka state. While reviewing the progress of seeding of Aadhaar number in bank accounts, it
was emphasised that banks should pro-actively take steps to open a large number of bank accounts, seed these
accounts with Aadhaar numbers and view it as a sustainable and scalable business opportunity. As an illustration, a
reference was also made to the possibility of utilising the services of LPG distributors for opening of bank accounts
and seeding Aadhaar numbers in bank accounts.
Norms for Periodical Updation of KYC Simplifed
Revising its earlier instructions on periodical updation of 'know your customer' (KYC) the Reserve Bank has advised
banks that (a) They should continue to carry out on-going due diligence with respect to the business relationship with every
client and closely examine the transactions in order to ensure that they are consistent with their knowledge of the
client, his business and risk profile and, wherever necessary, the source of funds.
(b) Full KYC exercise should be done at least every two years for high risk individuals and entities.
(c) Full KYC exercise should be done at least every ten years for low risk and at least every eight years for medium
risk individuals and entities.
(d) Positive confirmation (obtaining KYC related updates through e-mail/letter/telephonic conversation/forms
/interviews/ visits, etc.), should be completed at least every two years for medium risk and at least every three years
for low risk individuals and entities.
(e) Fresh photographs should be obtained from minor customers on their becoming major.
Banks have been advised to revise their KYC policy in the light of these instructions and strictly adhere to the same.
FEMA
Import of Gold by Nominated Banks/Agencies/Entities
In consultation with the Government of India, it has been decided to rationalise the import of gold in any form/purity
including import of gold coins/dore into the country. Accordingly, all nominated banks/nominated agencies have been
advised that(a) It shall be incumbent on them to ensure that at least one fifth of every lot of import of gold (in any form/purity
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including import of gold coins/dore) is exclusively made available for the purpose of export. Such imports shall be
linked to financing of exporters by the nominated agencies (i.e., average of last three years or any one year,
whichever is higher). Further, they shall make available gold in any form for domestic use only to entities engaged in
jewellery business/ bullion dealers supplying gold to jewellers.
(b) They will be required to retain 20 per cent of the imported quantity in customs bonded warehouses.
(c) They will be permitted to undertake fresh imports of gold only after the exports have taken place to the extent of
at least 75 per cent of gold remaining in the customs bonded warehouse.
(d) Any import of gold under any type of scheme, shall follow the 20/80 principle set out above. The extant
instructions, regarding import of gold on consignment basis, L/C restrictions, etc., have been withdrawn.
Entities/units in special economic zones (SEZs) and export oriented units (EoUs), premier and star trading houses are
permitted to import gold exclusively for the purpose of exports only.
AD category I banks have been advised to strictly ensure that foreign exchange transactions effected by/for their
constituents are compliant with these instructions. Head offices of nominated agencies/international banking
divisions of banks would be responsible for monitoring operations of the revised scheme taking into account
transactions put through different centres.
The Government of India will be issuing separate instructions, if any, to the customs authorities/Directorate General
of Foreign Trade (DGFT) to operationalise and monitor these import restrictions.
External Commercial Borrowings
On a review, it has been decided to extend the benefit of USD 10 billion scheme to Indian companies in the
manufacturing, infrastructure and hotel sectors which have established joint venture (JV)/wholly owned subsidiary
(WOS)/have acquired assets overseas in compliance with extant regulations under FEMA, 1999 subject to the
following conditions:
(a) ECB can be availed of for repayment of all term loans having average residual maturity of 5 years and
above/credit facilities availed of by Indian companies from domestic banks for overseas investment in JV/WOS, in
addition to capital expenditure.
(b) ECB can be availed of within the scheme based on the higher of 75 per cent of the average foreign exchange
earnings realised during the past three financial years and/or 75 per cent of the assessment made about the average
of foreign exchange earnings potential for the next three financial years of the Indian companies from the JV/WOS
/assets abroad as certified by statutory auditor/chartered accountant/certified public accountant/category I merchant
banker registered with the Securities and Exchange Board of India (SEBI)/ an investment banker outside India
registered with the appropriate regulatory authority in the host country; and
(c) ECB availed of under the scheme will have to be repaid out of forex earnings from the overseas JV/WOS/assets.
Past earnings in the form of dividend/repatriated profit/other forex inflows like royalty, technical know-how, fee, etc.,
from overseas JV/WOS/assets will be reckoned as foreign exchange earnings for the purpose of the US$ 10 billion
scheme.
NBFC - AFCs permitted to avail of ECBs
Non-banking financial companies (NBFCs) categorised as asset finance companies (AFCs) by the Reserve Bank and
complying with the norms prescribed in its circular of December 6, 2006, as amended from time to time, are now
allowed to avail of ECB subject to the following conditions:
NBFC-AFCs are allowed to avail of ECB under the automatic route from all recognised lenders as per the extant ECB
guidelines with minimum average maturity period of five years in order to finance the import of infrastructure
equipment for leasing to infrastructure projects.
In cases where NBFC-AFCs avail of ECB in the form of foreign currency bonds from international capital markets, such
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ECBs will be permitted to be raised only from those international capital markets that are subject to regulations
prescribed by the host country regulator in a financial action task force (FATF) member country compliant with FATF
guidelines.
Such ECBs (including outstanding ECBs) under the automatic route can be availed of up to 75 per cent of the
NBFC-AFC's owned funds, subject to a maximum of USD 200 million or its equivalent per financial year.
ECBs by NBFC-AFCs above 75 per cent of their owned funds will be considered by the Reserve Bank under the
approval route.
The currency risk of such ECBs is required to be hedged in full.
PAYMENT SYSTEM
Migrating to CTS 2010 Standards
On a review of the progress made by banks towards migration to CTS-2010, it has been noticed that while banks
have begun to issue fresh cheques in the CTS-2010 format there is still a large volume of non-CTS-2010 format
cheques being presented in image-based clearing. It has, therefore, been decided to put in place the following
arrangements for clearing of residual non- CTS-2010 standard cheques:
(a) Separate clearing session will be introduced in the three CTS centres (Mumbai, Chennai and New Delhi) for
clearing of such residual non-CTS 2010 instruments (including PDC and EMI cheques) with effect from January 1,
2014. This separate clearing session will initially operate thrice a week (Monday, Wednesday and Friday) up to April
30, 2014. Thereafter, the frequency of such separate sessions will be reduced to twice a week up to October 31,
2014 (Monday and Friday) and further to once a week (every Monday) from November 1, 2014 onwards. If the
identified day for clearing non-CTS-2010 instruments falls on a holiday under the Negotiable Instruments Act, 1881,
the presentation session on such occasions will be conducted on the previous working day. Operational instructions in
this regard will be issued separately by the CTS centres.
(b) Upon the commencement of special session for non- CTS-2010 standard instruments, drawee banks will return
the non-CTS-2010 instruments, if any, presented in the regular CTS clearing, under the reason code '37- present in
proper zone'. Such returned instruments will have to be re-presented by the collecting bank in the immediate next
special clearing session for non-CTS-2010 instruments.
(c) Banks may educate and notify their customers of the likely delay in realisation of non-CTS-2010 standard
instruments in view of the proposed arrangement for clearing of such instruments at less frequent intervals. Banks
may also suitably modify their cheque collection policies (CCPs) to reflect this change. Banks should also put in place
appropriate arrangement for handling customer complaints, if any, arising out of this new arrangement.
(d) Banks can continue to present such non-CTS-2010 instruments in express cheque clearing system (ECCS) centres
and MICR cheque processing centres (CPCs) till such time the CPCs are in operation.
(e) During the transition period (i.e., up to December 31, 2013), the existing clearing arrangements will continue and
all cheque issuing banks should make efforts to withdraw the non-CTS-2010 standard cheques in circulation.
The volume of instruments processed in the three CTS centres in all clearing sessions will be monitored with respect
to the non-CTS-2010 instruments presented by banks. The Reserve Bank may consider levying penalty on drawee
banks (and presenting banks where necessary) which violate these instructions issued under the Payment and
Settlement Systems Act, 2007.
NBFCs
Payment of Interest on Overdue Public Deposits
NBFCs are at times required to freeze the term deposits of customers based on the orders of the enforcement
authorities or the deposit receipts are seized by the enforcement authorities. As doubts have been raised on the
payment of interest on such deposits which have either been seized by the government authorities, and/or have
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been frozen till further clearance is received by the government authorities concerned, NBFCs have been advised to
follow the below mentioned procedure:
(i) A request letter may be obtained from the customer on maturity. While obtaining the request letter from the
depositor for renewal, NBFCs should also advise him to indicate the term for which the deposit is to be renewed. In
case the depositor does not exercise his option of choosing the term for renewal, NBFCs may renew the deposit for a
term equal to the original term.
(ii) No new receipt is required to be issued. A suitable note may, however, be made regarding renewal, in the deposit
ledger.
(iii) Renewal of deposit may be advised by registered letter/speed post/courier service to the government
department concerned under advice to the depositor. In the advice to the depositor, the rate of interest at which the
deposit is renewed should also be mentioned.
(iv) If the overdue period does not exceed 14 days on the date of receipt of the request letter, renewal may be done
from the date of maturity. If it exceeds 14 days, NBFCs may pay interest for the overdue period as per the policy
adopted by them, and keep it in a separate interest free sub-account which should be released when the original
fixed deposit is released.
NBFCs should make the final repayment of the principal and the interest accrued only after obtaining clearance from
the respective government agencies.
CUSTOMER SERVICE
Basic Savings Bank Deposit Account
Banks have been advised to offer a 'Basic Savings Bank Deposit Account' which should offer the following minimum
common facilities to all their customers:
The 'Basic Savings Bank Deposit Account' should be considered as a normal banking service available to all.
This account should not have the requirement of any minimum balance.
The services available in the account will include deposit and withdrawal of cash at bank branch as well as ATMs;
receipt/ credit of money through electronic payment channels or by means of deposit/collection of cheques drawn by
central/state government agencies and departments.
While there will be no limit on the number of deposits that can be made in a month, account holders will be allowed
a maximum of four withdrawals in a month, including ATM withdrawals.
Facility of ATM card or ATM-cum-debit card should be provided.
The above facilities should be provided without any charges. Further, no charge should be levied for
non-operation/activation of in-operative 'Basic Savings Bank Deposit Account'.
Banks would be free to evolve other requirements including, pricing structure for additional value-added services
beyond the stipulated basic minimum services on reasonable and transparent basis and applied in a
non-discriminatory manner.
The 'Basic Savings Bank Deposit Account' would be subject to the Reserve Banks instructions on know your customer
(KYC)/anti-money laundering (AML) for opening of bank accounts issued from time to time. If such an account is
opened on the basis of simplified KYC norms, the account would additionally be treated as a 'small account' and
would be subject to the conditions stipulated for such accounts in the Reserve Banks Master Circular on KYC
Norms/AML Standards/Combating of Financing of Terrorism (CFT)/ Obligation of Banks under PMLA, 2002 dated July
02, 2012.
Holders of 'Basic Savings Bank Deposit Account' will not be eligible for opening any other savings bank deposit
account in that bank. If a customer has any other existing savings bank deposit account in that bank, he/she will be
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required to close it within 30 days from the date of opening a 'Basic Savings Bank Deposit Account'.
The existing basic banking 'no-frills' accounts should be converted to 'Basic Savings Bank Deposit Account'.
FEMA
Import of Gold by Nominated Banks/Agencies/Entities
In consultation with the Government of India, the Reserve Bank of India has clarified/modified its instructions of July
22, 2013 on import of gold, as indicated below:
(a) Import of gold in the form of coins and medallions is now prohibited.
(b) It is incumbent on all nominated banks/nominated agencies and other entities to ensure that at least one-fifth,
i.e., 20 per cent of every lot of gold imported into the country is exclusively made available for the purpose of exports
and the balance for domestic use. Operations of the 20/80 scheme envisaged in terms of the present instructions
shall be monitored by the customs authorities, and will be implemented port-wise only.
(c) Nominated banks/nominated agencies and other entities shall make available gold for domestic use only to
entities engaged in jewellery business/bullion dealers and to banks authorised to administer the Gold Deposit
Scheme against full upfront payment. In other words, supply of gold in any form to domestic users other than against
full payment upfront shall not be permitted.
(d) Nominated banks/agencies/refineries and other entities shall ensure that there is no front loading of imports,
particularly in the first and second lots of imports. Such imports shall be linked to normal quantities of gold supplied
to exporters by the nominated banks/agencies and shall not exceed the highest quantity supplied during any one
year out of last three years. The quantity thus arrived at, however, will not be imported in one or two lots only. As a
thumb rule, imports of more than a maximum of two months of requirements of exporters in a lot would be
considered unusual. Illustratively, if gold supplied to exporters by a bank during the last three years is say, 30
tonnes, 40 tonnes and 60 tonnes respectively, imports shall be based on highest of the three i.e., 60 tonnes. Further,
import of 50 tonnes (two months export of 10 tonnes for exports and 4 times the amount for domestic use, totalling
50 tonnes) will be considered unusual. Nominated banks not having a previous record of having supplied gold to
exporters would need to seek the Reserve Banks prior approval before placing orders for import of gold for the first
lot under the 20/80 scheme.
(e) The 20/80 principle would also apply for gold imported henceforth, in any form/purity, including gold dore,
whereby 20 per cent of the gold imported shall be provided to exporters. This will be administered and monitored at
the refinery level for each consignment at the time of such imports. This will also be monitored by the customs
authorities. The refinery shall make available for domestic use, only to entities engaged in jewellery business/bullion
dealers and to banks authorised to administer the Gold Deposit Scheme against full upfront payment; and sale of
gold against any other form of payment shall not be permitted. Further, the import of gold dore is permitted only
against a licence issued by the Directorate General of Foreign Trade (DGFT).
(f) Any authorisation, such as, advance authorisation/duty free import authorisation is to be utilised for import of gold
meant for export purposes only and no diversion for domestic use shall be permitted.
Entities/units in special economic zone (SEZ) and export oriented units (EoUs), premier and star trading houses are
permitted to import gold only for the purpose of exports.
AD Category-I banks have been advised to strictly ensure that foreign exchange transactions effected by/for their
constituents are compliant with these instructions. Head offices of nominated agencies/international banking
divisions of banks would be responsible for monitoring operations of the revised scheme taking into account
transactions put through different centres. In respect of gold released for the purpose of exports, AD Category-I
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banks should put in place a special mechanism to monitor realisation of export proceeds as per the extant
regulations and any contraventions/unusual developments in this regard should be reported forthwith to the Reserve
Banks regional office concerned.
Limit under LRS Reduced
The existing limit under the liberalised remittance scheme (LRS) for resident individuals has been reduced from USD
200,000 per financial year to USD 75,000 per financial year (April - March) with effect from August 14, 2013.
Accordingly, AD Category-I banks may now allow remittance up to USD 75,000 per financial year, under the scheme,
for any permitted current or capital account transaction or a combination of both. Certain changes/clarifications
regarding remittances under LRS are:
(i) The scheme should no longer be used for acquisition of immovable property, directly or indirectly, outside India.
Therefore, AD Category-I banks may henceforth, not allow any remittances under the LRS Scheme for acquisition of
immovable property outside India.
(ii) The scheme should not be used for making remittances for any prohibited or illegal activities such as margin
trading, lottery etc.
(iii) Resident individuals have now been allowed to set up joint ventures (JVs)/wholly owned subsidiaries (WOSs)
outside India for bonafide business activities outside India within the limit of USD 75,000 with effect from August 5,
2013 and subject to the terms and conditions stipulated in Notification No.FEMA 263/RB-2013 dated August 5, 2013.
Further, the limit for gift/loan in Rupees by resident individuals to NRI close relatives stands modified to USD 75,000
per financial year.
Overseas Direct Investments
On a review, it has been decided to rationalise the regulations governing overseas direct investments (ODI) as
under:
The total ODI limit of an Indian party in all its JVs and/or WOSs abroad, engaged in any bonafide business activity,
has been reduced from 400 per cent of its net worth as on the date of the last audited balance sheet, to 100 per cent
of its net worth under the automatic route.
The limit of an Indian company, investing in overseas unincorporated entities in the energy and natural resources
sectors, under the automatic route, has been reduced from 400 per cent to 100 per cent of its net worth as on the
date of last audited balance sheet. Any ODI in excess of 100 per cent of the net worth would be considered by the
Reserve Bank under the approval route.
In respect of Navaratna Public Sector Undertakings (PSUs), ONGC Videsh Limited (OVL) and Oil India Ltd (OIL), the
extant provision for investing in overseas unincorporated entities and overseas incorporated entities in the oil sector
(i.e., for exploration and drilling for oil and natural gas, etc.), which are duly approved by the Government of India,
without any limits under the automatic route would, however, continue as hitherto.
The above provisions would apply to all fresh ODI proposals on a prospective basis but would not apply to the
existing JVs/WOSs set up under the extant regulations.
Foreign Investments in ARCs
The Reserve Bank has advised that (i) The ceiling for foreign direct investment (FDI) in asset reconstruction companies (ARCs) has been increased from
49 per cent to 74 per cent subject to the condition that, no sponsor should hold more than 50 per cent of the
shareholding in an ARC either by way of FDI or by routing through a foreign institutional investor (FII). Foreign
investment in ARCs should comply with the FDI policy pertaining to entry route conditionality and sectoral caps.
(ii) The foreign investment limit of 74 per cent in ARC would be a combined limit of FDI and FII. Hence, the
prohibition on investment by FIIs in ARCs is removed. The total shareholding of an individual FII should not exceed
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10 per cent of the total paid-up capital.

(iii) The limit of FII investment in security receipts (SRs) is enhanced from 49 per cent to 74 per cent of the paid up
value of each tranche of scheme of SRs issued by ARCs. The individual limit of 10 per cent for investment of a single
FII in each tranche of SRs issued by ARCs has been dispensed with. Such investment should be within the FII limit on
corporate bonds prescribed from time to time, and sectoral caps under the extant FDI regulations should be
complied with.
POLICY
Deregulation of Interest Rates on NRE Deposits
The Reserve Bank has directed that banks are free to offer interest rates without any ceiling on non-resident
(external) rupee (NRE) deposits with maturity of 3 years and above. The extant ceiling on non-resident ordinary
(NRO) accounts would continue. These instructions would be valid up to November 30, 2013, subject to review.
Interest Rates on FCNR (B) Deposits
In view of the prevailing market conditions, it has been decided that until further notice and with effect from the
close of business in India as on August 14, 2013, the interest rate ceiling on foreign currency non-resident (bank)
{FCNR (B)} deposits will be as under:
Maturity Period
Existing
Revised
1 year to less than 3
years
LIBOR/swap plus 200

basis points
No change
3 - 5 years
LIBOR/swap plus 300

basis points
LIBOR/swap plus400 basis

points
On floating rate deposits, interest shall be paid within the ceiling of swap rates for the respective currency/maturity
plus 200 bps/400 bps as the case may be. For floating rate deposits, the interest re-set period shall be six months.
These instructions will be valid up to November 30, 2013, subject to review.
FCNR (B)/NRE Deposits - Exempt from CRR/SLR
The Reserve Bank has advised that from the fortnight beginning August 24, 2013, incremental FCNR (B) and NRE
deposits with reference base date of July 26, 2013, and having maturity of three years and above, mobilised by
banks would be exempt from maintenance of cash reserve ratio (CRR) and statutory liquidity ratio (SLR). To amplify,
if a bank had a total FCNR (B) deposit base of say USD 100 as on the base date, and mobilises an incremental
deposit of say USD 20, that portion of USD 20 which has a maturity of 3 years and above will not be part of NDTL
and will qualify for CRR and SLR exemption. The same principle will apply for calculation of NRE deposits for
exemption from maintenance of CRR/SLR requirements. Any transfer from non-resident (ordinary) (NRO) accounts to
NRE accounts would, however, not qualify for such exemptions.
Further, advances extended in India against incremental FCNR (B)/NRE deposits qualifying for exemption from
CRR/SLR requirements as above, will also be excluded from adjusted net bank credit (ANBC) for computation of
priority sector lending targets.
Earlier, banks were required to include all FCNR (B) and NRE deposit liabilities for computation of net demand and
time liabilities (NDTL) and for maintenance of CRR and SLR.
PAYMENT SYSTEM
ATM Transactions
With a view to further improving customer service through enhancement of efficiency in ATM operations, banks have
been advised to initiate action as below:
The message regarding non-availability of cash in ATMs should be displayed before the transaction is initiated by
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the customer. Banks may display such notices either on the screen or in some other way.
The ATM ID may be displayed clearly in the ATM premises to enable a customer to quote it while making a
complaint/suggestion.
Forms for lodging ATM complaints should be made available within the ATM premises and the name and phone
number of the officials with whom the complaint can be lodged should be displayed.
Sufficient toll-free phone numbers for lodging complaints/reporting and blocking lost cards should be made
available to avoid delays and such requests should be attended to on a priority basis. Local helpline numbers (citywise/centre wise) should also be increased and prominently displayed in the ATM premises/banks web-site.
Mobile numbers/e-mail IDs of their customers should be proactively registered for sending alerts and customers
should be educated to intimate changes, if any. A time-bound programme for updation of mobile number and or
e-mail of all existing accounts may be drawn up. These details should be updated periodically along with know your
customer (KYC) details.
To prevent fraudulent withdrawal at ATMs, the Reserve Bank had mandated requirement of PIN entry for each and
every transaction, including balance enquiry transactions. Banks already have in place time limits for completion of
transactions at ATMs. As an additional safety measure, however, it is advised that time-out sessions should be
enabled for all screens/stages of ATM transaction keeping in view the time required for such functions in normal
course. Banks should ensure that no time extensions are allowed beyond a reasonable limit at any stage of the
transaction.
To create awareness about electronic banking products and to make customers aware of their rights and
responsibilities, banks, in collaboration with the Indian Banks Association, may run advertisement campaigns in both,
print and electronic media at regular intervals.
Dr. Raghuram Rajan appointed next Governor of RBI
Dr. Raghuram Rajan, Chief Economic Adviser, Ministry of Finance, has been appointed as the next Governor of the
Reserve Bank of India for a term of three years vice Dr. D. Subbarao upon completion of his tenure.
Dr. Raghuram Rajan has also been appointed as Officer on Special Duty in the Reserve Bank of India for a period of
three weeks prior to his taking over as Governor, Reserve Bank of India on September 5, 2013 to provide for an
overlap with the present Governor.
Uniform Holiday Calendar under CTS
Grid-based cheque truncation system (CTS) has been launched in Chennai and Mumbai covering several states/union
territories with the objective of streamlining the procedures in cheque clearing system. All the states/union territories
covered by the above grid follow different schedule of holidays declared under the Negotiable Instruments Act 1881
by the respective governments. As local clearing houses are gradually being subsumed into the CTS, it has been
decided to put in place a uniform holiday arrangement at the three CTS locations with effect from October 7, 2013.
Under grid-based CTS clearing, all cheques drawn on bank branches falling in the grid jurisdiction are treated and
cleared as local cheques on T+1 basis. As such, the uniform holiday arrangement will further enhance customer
service in banks through faster realisation of cheques even on holidays in respective states. Accordingly it is advised
that CTS centres in New Delhi, Chennai and Mumbai will adopt RTGS holidays as uniform holidays for the respective
grid.
Additionally, CTS operations will be closed on such days when all the participating states in the grid are observing
holidays, even though RTGS is working on such days.
The President of the respective CTS location will notify the list of such uniform holidays well in advance to enable
the participating banks to put in place inward clearing processing infrastructure at the grid location.
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Under CTS, inward clearing is generally processed in a centralised manner by banks at the CTS location. In
exceptional cases, where the reference to base branch is required and the base branch is closed on account of local
holiday, the drawee bank at the grid location may return the instrument to the presenting bank under return reason
code 88 as enumerated in annexure D of Uniform Regulations and Rules for Bankers' Clearing Houses with the
description need reference to the drawee branch which is closed on account of local holidays/issues.
On occasions when banks are unable to process the inward clearing pertaining to specific locations due to exceptional
circumstances, banks can approach the President of the clearing house at CTS location for extension of
return/blocking the presentation drawn on such locations.
Migration of PDC/EMI Cheques to ECS - Debit
Reiterating its earlier instructions, the Reserve Bank has advised banks that No fresh/additional post-dated cheques (PDC)/equated monthly instalment (EMI) cheques (either in old format or
new CTS-2010 format) should be accepted in locations where the facility of electronic credit service (ECS)/regional
electronic clearing service (RECS) (Debit) is available. The existing PDCs/EMI cheques in such locations may be
converted into ECS/RECS (Debit) by obtaining fresh ECS (Debit) mandates.
As Section 25 of the Payment and Settlement Systems Act, 2007 accords the same rights and remedies to the
payee (beneficiary) against dishonour of electronic funds transfer instructions under insufficiency of funds as are
available under Section 138 of the Negotiable Instruments Act, 1881, there is no need for banks to take additional
cheques, if any, from customers in addition to ECS (Debit) mandates.
Cheques complying with CTS-2010 standard formats should only be obtained in locations where the facility of
ECS/RECS is not available.
CUSTOMER SERVICE
Acknowledgement of receipt of Form 15-G/15-H
Banks are not required to deduct tax deducted at source (TDS) from depositors who submit a declaration in Form
15-G/15-H under Income Tax Rules, 1962. However, it has been brought to the Reserve Bank's notice that banks are
deducting tax at source despite customers submitting Form 15-G/15-H. This causes inconvenience to customers and
also results in a number of complaints. Such instances arise because either the forms are misplaced or a track is not
kept of forms received in the branches.
The matter was examined by the Reserve Bank in consultation with the Indian Banks Association (IBA). With a view
to protecting depositors' interest and for rendering better customer service, banks have been advised to give an
acknowledgment at the time of receipt of Form 15-G/15-H. This will help in building a system of accountability and
customers will not be put to inconvenience due to any omission on the part of banks.
Source: RBI Monetary and Credit Review Aug 2013
Sep 2013
Mid Quarter Monetary Policy Review (20th Sep 2013) -Monetary and Liquidity Measures
On the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to:
reduce the marginal standing facility (MSF) rate by 75 basis points from 10.25 per cent to 9.5 per cent with immediate effect;
reduce the minimum daily maintenance of the cash reserve ratio (CRR) from 99 per cent of the requirement to 95 per cent effective from the
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fortnight beginning September 21, 2013, while keeping the CRR unchanged at 4.0 per cent; and
increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.25 per cent to 7.5 per cent with
immediate effect.
Consequently, the reverse repo rate under the LAF stands adjusted to 6.5 per cent and the Bank Rate stands reduced to 9.5 per cent with
immediate effect.
Fitch downgrades ratings of Public Sector Banks (23rd Sep 2013)

Global rating agency Fitch today dowgraded viability ratings of the state-run Punjab National Bank and Bank of
Baroda by one notch to 'bb+' from 'bbb-' while retaining their long-term issuer default ratings at 'bbb-'.
On BoB, the Fitch report said, 50 per cent of its loan book (both onshore and offshore loans) is foreign-currency
denominated, which could be a greater source of instability to its credit profile given the recent currency volatility.
The viability rating is an indicator of a bank's credit-worthiness.
Downgrading the second largest public sector lender, Fitch said: "BoB's stressed assets are equivalent to 85 per cent
of equity. While this is a better buffer than PNB's, this is unlikely to be maintained given the level of deterioration
that has taken place."
"The downgrade to PNB's viability ratings reflects its already-weak equity position and the expected further
weakening of its asset quality profile from current levels, which means the state-run lender would take longer to
bounce back even under a cyclical recovery," Fitch said in a release.
PNB's stressed assets stood close to 15 per cent of its loans at FY13 as against 11 per cent in FY12, the highest
among rated state-owned banks it rates, it said.
"Notwithstanding PNBs funding and profitability strength, we maintain a negative bias on the bank's viability ratings,"
the rating agency said.
BoB's gross NPLs have risen 84 per cent in April-June 2013 year-on-year, the report noted.
Fitch has downgraded Indian Bank's Long-Term (LT) Issuer Default Rating (IDR) to 'BB+' from 'BBB-' and its Viability
Rating (VR) to 'bb+' from 'bbb-'.
The agency has also affirmed the long-term issuer default ratings of State Bank of India, Canara Bank, IDBI Bank,
ICICI Bank and Axis Bank at 'bbb-', and the viability ratings of SBI, ICICI Bank and Axis Bank at 'bbb-', Canara at
'bb+' and IDBI at 'bb'.
September 2013
POLICY
Relaxations in Branch Authorisation Policy
With the objective of further liberalising and rationalising the branch authorisation policy, the general permission
given to domestic scheduled commercial banks (other than RRBs) to open branches in Tier 2 to Tier 6 centres and in
the rural, semi-urban and urban centres in North-Eastern States and Sikkim without taking the Reserve Banks
permission in each case, is now extended to branches in Tier 1centres also, subject to the following:
(a) At least 25 percent of the total number of branches opened during the financial year (excluding entitlement for
branches in Tier 1 centres given by way of incentive), must be opened in unbanked rural (Tier 5 and Tier 6) centres,
i.e., centres which do not have a brick and mortar structure of any scheduled commercial bank for customer based
(b) The total number of branches opened in Tier 1 centres during the financial year (excluding entitlement for
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branches in Tier 1 centres given by way of incentive) cannot exceed the total number of branches opened in Tier 2 to
6 centres and all centres in the North Eastern States and Sikkim.
As there is a continuing need for opening more branches in underbanked districts of underbanked states for ensuring
more uniform spatial distribution, banks would be provided incentive for opening such branches. Accordingly, banks
may open branches in Tier 1 centres, over and above their eligibility as indicated above, equal to the number of
branches opened in Tier 2 to Tier 6 centres of underbanked districts of underbanked states, excluding rural branches
opened in unbanked rural centres that may be located in the underbanked districts of underbanked states in
compliance with the requirement as indicated in (a) above.
Banks have to ensure that all branches opened during a financial year are in compliance with the norms stipulated
above. In case a bank is unable to open all the branches it is eligible for in Tier 1 centres, it may carry-over (open)
these branches during subsequent two years.
Banks, which for some reason are unable to meet their obligations of opening branches in Tier 2 to 6 centres in
aggregate, or in unbanked rural centres (Tiers 5 to 6 centres) during the financial year, must necessarily rectify the
shortfall in the next financial year.
This general permission would be subject to compliance with the parameters stated above as well as
regulatory/supervisory comfort in respect of individual banks. The Reserve Bank would POLICYhave the option to
withhold the general permission granted to banks which fail to meet the above mentioned criteria along with
imposing penal measures on banks which fail to meet the obligations stated above.
Repo/Reverse Repo/MSF Rates
The following rates have been changed from September 20, 2013:
Repo
The repo rate under the liquidity adjustment facility (LAF) has been increased by 25 basis points from 7.25 per cent
to 7.50 per cent.
Reverse Repo
Consequent to the change in the repo rate, the reverse repo rate under the LAF stands automatically adjusted to
6.50 per cent.
The marginal standing facility (MSF) rate has been reduced by 75 basis points from 10.25 percent to 9.50 per cent.
Standing Liquidity Facilities for Banks and PDs
The standing liquidity facilities provided to banks under export credit refinance (ECR) and to primary dealers (PDs)
(collateralised liquidity support) from the Reserve Bank would be available at the revised repo rate, i.e., at 7.50 per
cent with effect from September 20, 2013.
Bank Rate
The Bank Rate stands adjusted by 75 basis points from 10.25 per cent to 9.50 per cent with effect from September
20, 2013. All penal interest rates on shortfall in reserve requirements, which are specifically linked to the Bank Rate,
also stand revised as indicated below:
Item
Existing Rate
Revised Rate
(Effective from September 20, 2013)
Penal interest rates on Bank Rate plus 3.0 percentage points Bank Rate plus 3.0 percentage points
shortfalls
in
reserve (13.25 per cent) or Bank Rate plus 5.0 (12.50 percent) or Bank Rate plus 5.0
requirements (depending percentage points (15.25 per cent)
on duration of shortfalls)
Change in Daily Minimum Cash Reserve Maintenance
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The minimum daily maintenance of cash reserve ratio has been reduced from 99 per cent of the requirement to 95
per cent effective from the fortnight beginning September 21, 2013.
Base Rate Revised Guidelines
It has been decided to allow banks flexibility in computation/revision of Base Rate methodology to enable them to
overcome the difficulties faced in this regard. Accordingly, it is advised that(i) Banks that have commenced their banking operations in India after the coming into effect of the Base Rate
regime in July 2010 but have not completed one year of their banking operations as on September 2, 2013, will be
allowed to revise their Base Rate methodology within a year from the date of commencement of their business
operations in India.
(ii) Banks that will commence their banking business in India after September 2, 2013, will be allowed to revise their
Base Rate methodology within a year from the date of commencement of their banking business in India.
(iii) In case, a bank, including banks listed above, desires to review its Base Rate methodology after five years from
the date of its finalisation, the bank may approach the Reserve Bank for permission in this regard.
Export and Import of Currency
With a view to providing greater flexibility to resident individuals travelling abroad, it has been decided that any
person resident in India:
(i) may take outside India (other than to Nepal and Bhutan) currency notes of the Government of India and the
Reserve Bank of India notes up to an amount not exceeding Rs.10,000 per person; and
(ii) who had gone out of India on a temporary visit, may bring into India at the time of his/her return from any place
outside India (other than from Nepal and Bhutan), currency notes of the Government of India and the Reserve Bank
of India notes up to an amount not exceeding Rs.10,000 per person.
The earlier such limit was Rs.7,500 per person.
Distribution of Banknotes and Coins
Banks have been advised to explore the possibility of alternative avenues for distribution for banknotes and coins,
such as, using the services of business correspondents (BCs) and engaging the services of cash in transit (CIT)
entities.
It may be recalled that on September 2, 2013, banks were permitted to include distribution of banknotes and coins
also in the scope of activities which may be undertaken by BCs.
BRANCH BANKING
Upfront Disbursal of Housing Loans
It has been observed that some banks have introduced certain innovative housing loan schemes in association with
developers/builders, e.g., upfront disbursal of sanctioned individual housing loans to builders without linking the
disbursals to various stages of construction of housing project, the interest/EMI on the housing loan availed of by the
individual borrower being serviced by the builders during the construction period/specified period, etc. This might
include signing of tripartite agreements between the bank, the builder and the buyer of the housing unit. These loan
products are popularly known by various names like 80:20, 75:25 schemes.
Such housing loan products are likely to expose banks as well as their home loan borrowers to additional risks e.g., in
case of disputes between individual borrowers and developers/builders, default/delayed payment of interest/EMI by
the developer/builder during the agreed period on behalf of the borrower, non-completion of the project on time, etc.
Further, any delayed payments by developers/builders on behalf of individual borrowers to banks may lead to lower
credit rating/scoring of such borrowers by credit information companies (CICs). In cases where bank loans are also
disbursed upfront on behalf of their individual borrowers in a lump-sum to builders/developers without any linkage to
stages of construction, banks run disproportionately higher exposures with concomitant risks of diversion of funds.
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Banks have, therefore, been advised that disbursal of housing loans sanctioned to individuals should be closely linked
to the stages of construction of the housing project/houses and upfront disbursal should not be made in cases of
incomplete/under-construction/green field housing projects.
Foreign Students Studying in India - Opening Bank A/cs
In view of the fact that foreign students arriving in India are facing difficulties in complying with the know your
customer (KYC) norms while opening a bank account due to non-availability of any proof of local address, the
Reserve Bank has laid down the following procedure for opening such accounts.
Banks may open a non-resident ordinary (NRO) bank account of a foreign student on the basis of his/her passport
(with appropriate visa and immigration endorsement) which contains the proof of identity and address in the home
country along with a photograph and a letter from the educational institution offering admission.
Within a period of 30 days of opening the account, the foreign student should submit to the branch where the
account has been opened, a valid address proof giving local address, in the form of a rent agreement or a letter from
the educational institution as proof of living in a facility provided by the educational institution. Banks should not
insist on the landlord visiting the branch for verification of the rent documents and alternative means of verification of
local address may be adopted.
During the 30 days period, the account should be operated with the condition of allowing foreign remittances not
exceeding USD 1,000 into the account and a cap of monthly withdrawal of Rs. 50,000, pending verification of
address.
Students of Pakistani nationality will need the Reserve Banksprior approval for opening an account.
FEMA
Overseas Foreign Currency Borrowings
With a view to providing greater flexibility to AD category - I banks in seeking access to overseas funds, it has been
decided that they may henceforth, borrow funds from their head office, overseas branches and correspondents and
overdrafts in nostro accounts up to a limit of 100 per cent of their unimpaired Tier I capital as at the close of the
previous quarter or USD 10 million (or its equivalent), whichever is higher, as against the existing limit of 50 per cent
(excluding borrowings for financing of export credit in foreign currency and capital instruments).
In view of the prevailing market conditions, it has been decided that AD category I banks, at their option, may enter
into a swap transaction with the Reserve Bank in respect of the borrowings raised after September 10, 2013. The
swaps would be available at a concessional rate of a hundred basis points below the market rate for all fresh
borrowing with a minimum tenor of one year and a maximum tenor of three years, irrespective of whether such
borrowings are in excess of fifty per cent of their unimpaired Tier I capital or not. Further, while the swaps shall be
for the entire tenor of the borrowing, the rate shall be re-set after every one year from the date of the swap at
hundred basis points lower than the market rate prevailing on the date of re-set. While banks are free to borrow in
any freely convertible currency, the swap will be available only for conversion of USD equivalent into Rupees and the
USD equivalent shall be computed at the relevant cross rate prevailing on the date of the swap. The concessional
swap window is open till November 30, 2013. The Reserve Bank reserves the right to decline a swap transaction or to
withdraw this facility before November 30, 2013 after due notice.
Further, the borrowings beyond the hitherto permitted level of 50 per cent of the unimpaired Tier I capital will be
subject to the following conditions:
(i) The bank should have a Board approved policy on overseas borrowings which should contain the risk management
practices that the bank would adhere to while borrowing abroad in foreign currency;
(ii) The bank should maintain a capital to risk weighted assests ratio (CRAR) of 12.0 per cent.
(iii) The borrowings beyond the existing ceiling should be with a minimum maturity of three years.
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(iv) All other existing norms (FEMA regulations, NOPL norms, etc.) would continue to be applicable.
Swap Window for Attracting FCNR (B) Dollar Funds
It has been decided to introduce a US Dollar-Rupee swap window for fresh foreign currency non-resident (banks)
{FCNR (B)} dollar funds, mobilised for a minimum tenor of three years and above. The salient features of the new
swap facility are:
(a) The swap facility will be available to scheduled commercial banks (excluding RRBs) for fresh FCNR(B) deposits
mobilised in any permitted currency for a minimum tenor of three years. The swap facility with the Reserve Bank will,
however, be available in US Dollars only. The tenor of the swap will be for three years or more in line with the tenor
of the underlying FCNR deposits.
(b) The swap window will be operated on a daily basis on all working days in Mumbai (except Saturdays and
holidays). A particular bank can, however, avail of the swap facility only once in a week. During any particular week,
the maximum amount of dollars that banks would be eligible to swap with the Reserve Bank would be equal to the
fresh FCNR(B) deposits for a minimum tenor of three years mobilised in equivalent US Dollar terms during the
preceding week(s).
(c) Under the swap arrangement, a bank can sell US Dollars in multiples of USD one million to the Reserve Bank and
simultaneously agree to buy the same amount of US Dollars at the end of the swap period. The swap will be
undertaken at a fixed rate of 3.5 per cent per annum. In the first leg of the transaction, the bank will sell US Dollars
to the Reserve Bank at the RBI Reference Rate or any other rate as may be mutually agreed upon. The settlement of
the first leg of the swap will take place on spot basis from the date of the transaction. In the reverse leg of the swap
transaction, Rupee funds will have to be returned to the Reserve Bank along with the swap premium to get the US
Dollars back.
(d) Banks desirous of availing the swap facility will have to furnish a declaration duly signed by their authorised
signatories that they have mobilised the fresh FCNR(B) deposits for minimum tenor of three years during the
preceding week(s).
(e) The swap facility will be operationalised by the Reserve Banks Financial Markets Department at Mumbai. The
Reserve Bank will exercise the right to decide on the day of operation and the number of banks that can avail of the
facility on any particular day keeping in view the market conditions and other relevant factors.
(f) The underlying deposits will have a minimum lock-in period of one year. Premature withdrawal of such deposits
would, however, be permitted after one year. Accordingly, swaps undertaken with the Reserve Bank cannot be
cancelled before one year. In case of premature withdrawal of deposits after one year, banks may approach the
Reserve Bank for termination of the swap. Banks desirous of terminating a swap will have to furnish a declaration
duly signed by their authorised signatories that they have allowed premature withdrawal of FCNR (B) deposits. In the
event of pre-termination of a swap, the swap cost would be re-fixed for the completed period of the swap at 400 bps
above the concessional contracted rate of 3.5 per cent offered to banks plus the prevailing USD/INR swap rate in the
market for the residual tenor of the original swap (towards the replacement cost). The Reserve Banks decision
regarding re-pricing of the swap at the time of termination shall be final and no request for any modification or
revision to the same would be entertained.
(g) The new swap window came into effect on September 10, 2013 and will remain open up to November 30, 2013.
The Reserve Bank reserves the right to close the scheme earlier with prior notice.
Cancellation/Rebooking of Forward Contracts
With a view to providing operational flexibility to exporters and importers to hedge their foreign exchange risk, it has
been decided to(a) allow exporters to cancel and rebook forward contracts to the extent of 50 per cent of the contracts booked in a
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financial year for hedging their contracted export exposures, and

(b) allow importers to cancel and rebook forward contracts to the extent of 25 per cent of the contracts booked in a
financial year for hedging their contracted import exposures.
Forex Counters in International Airports in India
It has been decided to allow non-residents to carry Indian currency up to a maximum of Rs.10,000 beyond
Immigration/Customs desk to the Duty Free Area/Security Hold Area in the departure hall in international airports in
India for meeting miscellaneous expenditures. Non-residents will, however, not be allowed to carry Indian rupees
beyond the Security Hold Area and they should dispose of Indian currency before boarding the plane.
In order to provide money changing facility to non-residents to convert unspent Indian Rupees with them, foreign
exchange counters in the departure halls in international airports in India may be established in the Duty Free
Area/Security Hold Area beyond the Immigration/Customs desk. Such foreign exchange counters will, however, only
buy Indian Rupees from non-residents and sell foreign currency to them subject to the usual terms and conditions.
October 2013
POLICY
Branch Authorisation Policy Relaxed
The Reserve Bank had, on September 19, 2013, permitted domestic scheduled commercial banks (other than RRBs)
to open branches in Tier 1 to Tier 6 centres without needing to take the Reserve Banks permission in each case,
subject to reporting. The Reserve Bank has now issued detailed guidelines in this regard, as indicated below:
Opening of new branches and shifting of existing branches by banks is governed by the provisions of Section 23 of
the Banking Regulation Act, 1949. In terms of these provisions, banks cannot, without the Reserve Banks prior
approval, open a new place of business in India or outside India or change, otherwise than within the same city,
town or village, the location of the existing place of business. Before granting permission, the Reserve Bank may
require to be satisfied, by an inspection or otherwise, regarding the financial condition and history of the banking
company, the general character of its management, the adequacy of its capital structure and earning prospects and
that public interest would be served by the opening/change of location of the existing place of business.
For the purpose of branch authorisation policy, a branch would include all branches, i.e., full-fledged branches,
specialised branches, satellite offices, mobile branches, extension counters, off-site ATMs (automated teller
machines), administrative offices, controlling offices, service branches (back office or processing centres), etc.
The branch authorisation policy covers the opening of branches in all Tiers (Tier 1 to 6) of the country. Tier 1
comprises metropolitan and urban centres, Tiers 2, 3, and 4 comprise semi-urban centres and Tiers 5 and 6 comprise
rural centres.
For increasing banking penetration and financial inclusion, there is a need to open branches in centres that are
unbanked. Unbanked centres are those which do not have any brick and mortar structure of a scheduled commercial
bank for customer based banking transactions. The current branch authorisation policy, therefore, mandates that
banks have to open at least 25 per cent of all branches opened in a year in unbanked rural centres.
The general permission available to domestic scheduled commercial banks for opening branches in Tier 1 to Tier 6
centres across the country will encompass specialised branches, extension counters, satellite offices, service
branches, central processing centres (CPCs) and all other offices/branches of the bank. Thus, banks are not required
to approach the Reserve Bank for authorisation for opening branches or any other places of business or
administrative offices in any centre.
Banks may formulate an annual plan for the financial year, approved by their Board as part of their annual strategy
for branch expansion. While formulating this plan, they may keep various factors in mind, such as, setting up of low
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cost branches, innovative use of technology, including internet banking and virtual banking to reduce physical
footfalls, improving customer service, etc.
Opening of branches during a financial year will be subject to the following conditions:
* At least 25 per cent of the total number of branches opened during a financial year (excluding entitlement for
branches in Tier 1 centres given by way of incentive), must be opened in unbanked rural (Tier 5 and Tier 6) centres,
i.e., centres which do not have a brick and mortar structure of any scheduled commercial bank for customer based
* The total number of branches opened in Tier 1 centres during the financial year (excluding entitlement for branches
in Tier 1 centres given by way of incentive) cannot exceed the total number of branches opened in Tier 2 to Tier 6
centres and all centres in the North Eastern States and Sikkim.
Extension counters, satellite offices, mobile branches, CPCs, service branches and administrative offices can be freely
opened in any centre and will not be reckoned for the purposes indicated above.
Banks would be provided incentive for opening branches in underbanked districts of underbanked states. Accordingly,
banks may open branches in Tier 1 centres, (over and above their eligibility), equal to the number of branches
opened in Tier 2 to Tier 6 centres of underbanked districts of underbanked states, excluding branches opened in
unbanked rural centres that are located in underbanked districts of underbanked states.
In case a bank is unable to open all the branches it is eligible for in Tier 1 centres, it may carry-over (open) these
branches during subsequent two years. If for some reason banks are unable to meet their obligations of opening
branches in Tier 2 to 6 centres in aggregate, or in unbanked rural centres (Tiers 5 to 6 centres) during the financial
year, the shortfall must necessarily be rectified in the next financial year.
In May 2013, banks were advised to consider front-loading (prioritising) the opening of branches in unbanked rural
centres over a 3 year cycle co-terminus with their Financial Inclusion Plan (FIP 2013-16). Credit will, therefore,
continue to be given for the branches opened in unbanked rural centres in excess of the required 25 per cent of the
total branches opened during the year which will be carried forward for achieving the criteria in the subsequent year
of the FIP.
Banks should place before their Board an annual report of branches actually opened during the year, for the year
ending March 31. Compliance regarding opening of branches in accordance with the above stipulations would be
examined during the banks annual financial inspection and discussion of the Financial Inclusion Plans.
Bank Rate
The Bank Rate has been adjusted by 50 basis points from 9.5 per cent to 9.0 per cent from October 7, 2013.
All penal interest rates on shortfall in reserve requirements, which are specifically linked to the Bank Rate, have been
Item
Existing Rate
Revised Rate
(effective from October 7, 2013)
Penal interest rates on shortfalls in Bank Rate plus 3.0 percentage points Bank Rate plus 3.0 percentage
reserve requirements (depending (12.50 per cent) or Bank Rate plus 5.0 points(12.00 per cent) or Bank Rate
on duration of shortfalls)
plus 5.0percentage points(14.00 per
cent)
The marginal standing facility (MSF) rate has been reduced by 50 basis points from 9.50 per cent to 9.00 per cent
from October 7, 2013.
BRANCH BANKING
Settlement of Claims - Missing Persons in Uttarakhand
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In the aftermath of the Uttarakhand natural disaster during June 14-20, 2013 the office of the Registrar General of
India, Ministry of Home Affairs, Government of India had issued a circular on August 16, 2013, devising a procedure
for registration of death of missing persons in natural calamities affected areas in Uttarakhand. The circular details
the procedure for registration and issue of death certificate of a person reportedly missing since his/her visit to the
site of disaster in Uttarakhand in June 2013.
The Reserve Bank has advised banks to settle claims in respect of missing persons, covered by the Ministry of Home
Affairs circular, without insisting on production of any documentation other than (i) death certificate issued by the
designated officer as per the Ministrys circular and (ii) letter of indemnity.
UCBs
Financially Sound and Well Managed UCBs
The Reserve Bank has advised that primary (urban) co-operative banks (UCBs ) fulfilling the following criteria would
now be termed as financially sound and well managed UCBs:
(a) Maintenance of a minimum capital to risk weighted assets ratio (CRAR) of 10 per cent on a continuous basis.
(b) Gross non-performing assets (NPAs) of less than 7 per cent and net NPAs of not more than 3 per cent.
(c) No default in maintenance of cash reserve ratio (CRR)/statutory liquidity ratio (SLR) during the preceding financial
year.
(d) Continuous net profit for last three years.
(e) Sound internal control system with at least two professional directors on the Board.
(f) Regulatory comfort based on inter alia, record of compliance to the provisions of the Banking Regulation Act, 1949
(AACS), RBI Act, 1934 and the Reserve Banks instructions/directions issued from time to time.
The new criteria would, henceforth be considered for processing applications received from UCBs for branch
authorisations, opening of on-site and off-site ATMs, extension of area of operation, shifting of premises and other
permissions from the Reserve Bank.
Inclusion in Second Schedule to RBI Act, 1934
It has now been decided to consider applications from UCBs for inclusion in the Second Schedule to the Reserve Bank
of India Act, 1934. The Government of India has, on May 4, 2013, notified that with effect from April 1, 2013, only
licensed UCBs whose demand and time liabilities (DTL) are not less than Rs. 750 crore would be treated as a
financial institution for the purpose of sub-clause (iii) of clause (a) of Sub-Section (6) of Section 42 of the Reserve
Bank of India Act, 1934, i.e., for the purpose of inclusion in the Second Schedule to the Reserve Bank of India Act,
1934.
UCBs desirous of seeking inclusion in the Second Schedule to the RBI Act, 1934 and fulfilling the following financial
criteria, based on assessed financials as per inspection reports, may submit their application along with relevant
documents, to the regional office concerned of the Reserve Banks Urban Banks Department:
DTL of not less than Rs.750 crore on a continuous basis for one year;
CRAR of minimum 12 per cent;
Continuous net profit for the previous three years;
Gross NPAs of 5 per cent or less;
Compliance with CRR/SLR requirements; and
No major regulatory and supervisory concerns
Unsecured Exposure Norms
On a review, it has been decided to exempt unsecured loans up to Rs.10,000 sanctioned by UCBs from the aggregate
ceiling on unsecured exposure of 10 per cent of total assets as per audited balance sheet as on March 31 of the
previous financial year, subject to the conditions that -
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(a) the individual amount sanctioned should not exceed Rs.10,000;

(b) the loan should be for productive purpose and banks should ensure end-use of funds lent;
(c) the bank should have CRAR of 9 per cent; and
(d) the UCBs gross NPAs should be less than 10 per cent of the gross advances.
Unsecured loans, so extended by an UCB, should not exceed 15 per cent of its total assets.
UCBs which do not meet the above criteria would continue to be governed by the extant guidelines limiting the
ceiling on unsecured loans (with or without surety or for cheque purchase) to 10 per cent of total assets as per
audited balance sheet as on March 31 of the previous financial year, with individual and group borrower limits
ranging from Rs. 25,000 to Rs. 5 lakh, depending on the size of DTL and compliance with CRAR.
At par Cheque Facility
The Reserve Bank had advised UCBs to utilise the at par cheque facility extended by scheduled commercial banks
only for the following purposes:
(i) their own use;
(ii) their account holders who are know your customer (KYC) compliant provided, all transactions of Rs. 50,000 or
more are strictly by debit to the customers account; and
(iii) walk-in customers against cash of less than Rs. 50,000 per individual.
In order to utilise the at par cheque facility in the above manner, UCBs should maintain (a) records pertaining to issuance of at par cheques covering inter alia applicants name and account number,
beneficiarys details and date of issuance of the at par cheque.
(b) sufficient balances/drawing arrangements with the commercial bank extending such facility for the purpose of
honouring such instruments.
UCBs have also been advised to ensure that all at par cheques issued by them are crossed account payee
irrespective of the amount involved.
UCBs are further advised to make use of more efficient means of remittances for their customers like NEFT or RTGS
by providing such services directly or by becoming sub-members of banks providing such services.
FEMA
Overseas Foreign Currency Borrowings by AD Banks
With a view to providing greater flexibility to AD category - I banks in seeking access to overseas funds, the Reserve
Bank has advised that henceforth, authorised dealers may borrow from their head office or overseas branches or
correspondents outside India or any other entity, as permitted by the Reserve Bank, up to hundred per cent of their
unimpaired Tier I capital or USD 10 million, whichever is higher, subject to conditions.
Accordingly, permission is now granted to AD category - I banks to borrow from international/multilateral financial
institutions for a limited period up to November 30, 2013. Such borrowings should be for the purpose of general
banking business and not for capital augmentation and would be subject to conditions.
PAYMENT SYSTEM
Card Present Transactions
The Reserve Bank has reiterated that no further extension of time would be granted to banks in the stipulated
deadline of September 30, 2013 for complying with the task of securing the technology infrastructure (Unique Key Per
Terminal - UKPT or Derived Unique Key Per Transaction - DUKPT/Terminal Line Encryption - TLE) as stated in its
circular of September 22, 2011.
In its circular of June 24, 2013, the Reserve Bank had indicated that in the event of a customer complaining of misuse
of card after the stipulated date, the issuer or the acquirer who has not adhered to the timelines should bear the
loss. Accordingly, banks not complying with the requirements shall compensate loss, if any, incurred by the card
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holder using card at POS terminals not adhering to the mandated standards.
The Reserve Bank has advised that in case a card holder approaches his/her card issuing bank for any fraudulent POS
transaction/s in India (which have occurred after September 30, 2013), the following course of action is mandated:
(i) The issuing bank would ascertain, within 3 working days from the date of the cardholder approaching the bank,
whether the respective POS terminal/s where the said transaction/s occurred is/are compliant with TLE and
UKPT/DUKPT.
(ii) If it is found that the POS terminals are non-compliant as mandated, the issuing bank shall pay the disputed
amount to the customer within 7 working days, failing which, a compensation of Rs.100 per day will be payable to
the customer from the 8th working day.
(iii) The issuing bank shall claim the amount paid by it to the customer from the respective bank/s which have
acquired the POS transaction/s in question.
(iv) The acquiring banks have to pay the amount paid by the issuing bank without demur within 3 working days of
the issuing bank raising the claim, failing which the Reserve Bank would be constrained to compensate the issuing
bank by debiting the account of the acquiring bank maintained with the Reserve Bank.
Acquiring banks have been advised to send a status report of compliance with respect to TLE and UKPT/DUKPT as on
September 30, 2013, duly signed/approved by their chairman and managing director/chief operating officer on or
before October 7, 2013. The position in this regard should also be put up to their Board in its next meeting, and a
duly approved copy should be sent to the Reserve Bank.
The Reserve Bank has further advised that it would also consider invoking the penal provisions under the Payment
and Settlement Systems Act, 2007 against banks that have failed to adhere to the timeline of September 30, 2013.
Mid-Quarter Review of Monetary Policy 2013-14
The Reserve Bank of India announced the Mid-Quarter Review of the Monetary Policy Statement 2013-14 on
September 20, 2013. On the basis of an assessment of the current and evolving macroeconomic situation, the
following monetary and liquidity measures were announced reduction in the MSF rate by 75 basis points from 10.25 per cent to 9.5 per cent from September 20, 2013.
reduction in the minimum daily maintenance of cash reserve ratio (CRR) from 99 per cent of the requirement to 95
per cent effective from the fortnight beginning September 21, 2013, while keeping the CRR unchanged at 4.0 per
cent; and
increase in the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.25 per cent to
7.5 per cent from September 20, 2013.
Consequently, the reverse repo rate under the LAF was adjusted to 6.5 per cent and the Bank Rate reduced to 9.5
per cent from September 20, 2013.
INFORMATION
Launch of new RTGS System
Dr. Raghuram Rajan, Governor, Reserve Bank of India, launched the new Real Time Gross Settlement (RTGS) system
of the Reserve Bank of India on October 19, 2013.
Reportedly the first in the world to be built on ISO 20022 messaging standards, the new RTGS system is highly
scalable and will have several new functionalities. These include, advance liquidity features, including gridlock
resolution mechanism and hybrid settlement facility, facility to accept future value dated transactions, options to
process multi-currency transactions, etc. These functionalities, as and when made available for use, will be notified to
the participants.
The new ISO 20022 compliant RTGS system provides three access options to participants thick-client, Web-API
(through INFINET or any other approved network) and Payment Originator module. The participants can decide the
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mode of participation in the system based on the volume of transactions and the cost of setting up the infrastructure.
With implementation of the new RTGS system, the earlier RTGS system has ceased to be operational. Further, the
RTGS System Regulations 2013 have replaced the RTGS (Membership) Business Operating Guidelines, 2004 and
RTGS (Membership) Regulations, 2004.
The RTGS system is a large-value funds transfer system which banks use to settle inter-bank transfers for their own
account as well as for their customers. It was first implemented in India in March 2004 as a major technology based
electronic funds transfer system across the country. The system facilitates customer, inter-bank payment on a real
time and on gross basis. The system also facilitates settlement of Multilateral Net Settlement Batch files emanating
from other ancillary payment systems. The RTGS infrastructure is critical in facilitating the orderly settlement of
payment obligations.
November 2013
POLICY
RBI releases Framework for setting up of WOSs by Foreign Banks in India
The Reserve Bank of India, on November 6, 2013 released on its website, the framework for setting up of wholly
owned subsidiaries (WOSs) by foreign banks in India.
The policy is guided by two cardinal principles of (i) reciprocity and (ii) single mode of presence. As a locally
incorporated bank, the WOSs will be given near national treatment which will enable them to open branches
anywhere in the country at par with Indian banks (except in certain sensitive areas where the Reserve Banks prior
approval would be required). They would also be able to participate fully in the development of the Indian financial
sector. The policy incentivises the existing foreign bank branches which operate within the framework of Indias
commitment to the World Trade Organisation (WTO) to convert into WOS due to the attractiveness of near national
treatment. Such conversion is also desirable from the financial stability perspective. To provide safeguards against
the possibility of the Indian banking system being dominated by foreign banks, the framework has certain measures
to contain their expansion if the share of foreign banks exceeds a critical size. Certain measures from corporate
governance perspective have also been built in so as to ensure that public interest is safeguarded.
Key features of the Framework
Banks with complex structures, banks which do not provide adequate disclosure in their home jurisdiction, banks
which are not widely held, banks from jurisdictions having legislation giving preferential claim to depositors of home
country in winding up proceedings, etc., would be mandated entry into India only in the WOS mode.
Foreign banks in whose case the above conditions do not apply can opt for a branch or WOS form of presence.
A foreign bank opting for branch form of presence shall convert into a WOS as and when the above conditions
become applicable to it or it becomes systemically important on account of its balance sheet size in India.
Foreign banks which commenced banking business in India before August 2010 shall have the option to continue
their banking business through the branch mode. They will, however, be incentivised to convert into WOS because of
the attractiveness of the near national treatment afforded to WOS.
To prevent domination by foreign banks, restrictions would be placed on further entry of new WOSs of foreign
banks/capital infusion, when the capital and reserves of the WOSs and foreign bank branches in India exceed 20 per
cent of the capital and reserves of the banking system.
The initial minimum paid-up voting equity capital for a WOS shall be Rs. 5 billion for new entrants. Existing branches
of foreign banks desiring to convert into WOS shall have a minimum net worth of Rs. 5 billion.
The parent of the WOS would be required to issue a letter of comfort to the Reserve Bank for meeting the liabilities
of the WOS.
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Corporate governance - (i) not less than two-third of the directors should be non-executive directors; (ii) a minimum
of one-third of the directors should be independent of the management of the subsidiary in India, its parent or
associates; and (iii) not less than fifty per cent of the directors should be Indian nationals/NRIs/PIOs subject to the
condition that not less than 1/3rd of the directors are Indian nationals resident in India.
The branch expansion guidelines as applicable to domestic scheduled commercial banks would generally be
applicable to WOSs of foreign banks except that they will require the Reserve Banks prior approval for opening
branches at certain locations that are sensitive from the perspective of national security.
Priority sector lending requirement would be 40 per cent for WOS like domestic scheduled commercial banks with
adequate transition period for existing foreign bank branches converting into WOS.
On arms length basis, WOS would be permitted to use parental guarantee/credit rating only for the purpose of
providing custodial services and for their international operations. WOSs should, however, not provide counter
guarantee to its parent for such support.
WOSs may, at their option, dilute their stake to 74 per cent or less in accordance with the existing FDI policy. In the
event of dilution, they will have to list themselves.
The issue of permitting WOSs to enter into merger and acquisition transactions with any private sector bank in India
subject to the overall investment limit of 74 per cent would be considered after a review is made with regard to the
extent of penetration of foreign investment in Indian banks and functioning of foreign banks (branch mode and
WOS).
Background
In 2004, the Government of India with a view to liberalising foreign direct investments (FDI) in private sector banks
raised the FDI limit to 74 per cent in private sector banks under the automatic route and also permitted foreign
banks, regulated by a banking supervisory authority in the home country and meeting the Reserve Banks licensing
criteria to hold 100 per cent paid up capital, to set up a WOS in India.
To operationalise the FDI guidelines, the Reserve Bank released the roadmap for presence of foreign banks in India
in consultation with the Government of India on February 28, 2005. The roadmap was divided into two phases the
first phase spanning the period March 2005 to March 2009 and the second phase beginning after a review of
experience gained in the first phase.
In the first phase, foreign banks already operating in India were allowed to convert their existing branches to WOS
while following the one-mode presence criterion and the WOS was to be treated at par with the existing branches of
foreign banks for branch expansion in India. The second phase of the roadmap which was to commence in April 2009
envisaged removal of limitations on the operations of WOS and treating them on par with domestic banks to the
extent appropriate. During the first phase no foreign bank came forward to set up or convert their branches into WOS
in the absence of adequate incentives.
As a sequel to the roadmap of 2005 and pursuant to the announcements made in the Annual Policy Statement for
2010-11, the Reserve Bank issued a Discussion Paper in January 2011 on the mode of presence of foreign banks in
India. The framework for setting up of WOS by foreign banks in India has now been finalised taking into account the
feedback received on the Discussion Paper and factoring in the lessons from the crisis which favour a subsidiary mode
of presence from financial stability perspective.
Repo/Reverse Repo/MSF Rates
As announced in the Second Quarter Review of Monetary Policy 2013-14, the following rates have changed from
October 29, 2013:
Repo Rate
The repo rate under the liquidity adjustment facility (LAF) has been increased by 25 basis points from 7.50 per cent
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to 7.75 per cent.

Reverse Repo Rate
Consequent to the change in the repo rate, the reverse repo rate under the LAF stands automatically adjusted to
6.75 per cent.
MSF Rate
The marginal standing facility (MSF) rate has been reduced by 25 basis points from 9.00 per cent to 8.75 per cent.
Term Repo under LAF
The quantum of liquidity to be provided through term repos of 7 day and 14 day tenor has been increased from 0.25
per cent to 0.50 per cent of net demand and time liabilities (NDTL) of the banking system from October 29, 2013.
Bank Rate
The Bank Rate has been adjusted by 25 basis points from 9.0 per cent to 8.75 per cent with effect from October 29,
2013.
All penal interest rates on shortfall in reserve requirements, which are specifically linked to the Bank Rate, have also
been revised as indicated below:
Item
Existing Rate
Revised Rate
Penal interest rates on Bank
Rate
plus
3.0 Bank
Rate
plus
3.0
shortfalls
in
reserve percentage points (12.00 percentage points (11.75
requirements (depending per cent) or Bank Rate plus per cent) or Bank Rate plus
on duration of shortfalls). 5.0
percentage
points 5.0
percentage
points
(14.00 per cent).
(13.75 per cent).
Standing Liquidity Facilities for Bank/PDs
The standing liquidity facilities provided to banks under export credit refinance (ECR) and to primary dealers (PDs)
(collateralised liquidity support) by the Reserve Bank would be available at the revised repo rate, i.e., at 7.75 per
cent with effect from October 29, 2013.
BRANCH BANKING
Correspondent Banking Relationship
It has been observed that some commercial banks have arrangements with co-operative banks wherein the latter
open current accounts with commercial banks and use the cheque book facility to issue at par cheques to their
constituents and walk-in-customers for facilitating their remittances and payments. Since the at par facility offered
by commercial banks to co-operative banks is in the nature of correspondent banking arrangements, banks have
been advised to monitor and review such arrangements to assess the risks including, credit risk and reputational risk
arising therefrom. Banks have also been advised to retain the right to verify the records maintained by the client
co-operative banks/societies for compliance with the extant instructions on know your customer (KYC) and
anti-money laundering (AML) under such arrangements.
Timely Issue of TDS Certificate to Customers
With a view to protecting the interest of depositors and for rendering better customer service, banks have been
advised to provide to their customers from whose account income tax has been deducted at source, TDS certificate in
Form 16A. Banks have also been advised to put in place systems that will enable them to provide Form 16A to their
customers within the time-frame prescribed under the Income Tax Rules.
FEMA
Third Party Payments for Export/Import Transactions
With a view to further liberalising the procedure relating to payments for exports/imports and taking into account
evolving international trade practices, it has been decided that -
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Export Transactions
Authorised dealer (AD) banks may allow payments for export of goods/software to be received from a third party (a
party other than the buyer) subject to the below indicated conditions:
(a) a firm irrevocable order backed by a tripartite agreement should be in place;
(b) third party payment should come from a Financial Action Task Force (FATF) compliant country and through the
banking channel only;
(c) the exporter should declare the third party remittance in the export declaration form (EDF);
(d) it would be the responsibility of the exporter to realise and repatriate the export proceeds from such third party
named in the EDF;
(e) reporting of outstandings, if any, in the XOS would continue to be shown against the name of the exporter.
Instead of the name of the overseas buyer from where the proceeds have to be realised, the name of the declared
third party should appear in the XOS; and
(f) in case shipment is made to a country in group II of restricted cover countries, (e.g. Sudan, Somalia, etc.), the
payment should be received from an open cover country.
Note: Restricted cover group II country is a country which experiences chronic political and economic problems as
well as balance of payment difficulties.
Import Transactions
AD banks are allowed to make payments to a third party for import of goods, subject to the below indicated
conditions:
(i) a firm irrevocable purchase order/tripartite agreement should be in place;
(ii) third party payment should be made to a FATF compliant country and through the banking channel only;
(iii) the invoice should contain a narration that the related payment has to be made to the (named) third party;
(iv) bill of entry should mention the name of the shipper as also the narration that the related payment has to be
made to the (named) third party;
(v) importer should comply with the related extant instructions relating to imports including those on advance
payment being made for import of goods; and
(vi) the amount of an import transaction eligible for third party payment should not exceed USD 100,000. This limit
will be revised as and when considered expedient.
UCBs
Classification/Valuation/Provisioning
It has been observed that the recent hardening of long term yields has resulted in banks incurring large mark-tomarket (MTM) losses in their investment portfolio. Since these MTM losses are partly resulting from abnormal market
conditions and could be recouped going forward, it has been decided to provide the following prudential adjustments
As per extant instructions, primary (urban) co-operative banks (UCBs) can shift investments to Held to Maturity
(HTM) once a year with their Board of Directors approval and such shifting is normally allowed at the beginning of
the accounting year. As a one-time measure, it has now been decided to permit UCBs to transfer statutory liquidity
ratio (SLR) securities from Available For Sale (AFS)/Held for Trading (HFT) to HTM category up to the limit of 25 per
cent of their NDTL. Such transfer of securities from AFS/HFT category to HTM category should be made at the lower
of acquisition cost or book value or market value. UCBs have the option of valuing these securities for the purpose of
such transfer as at the close of business of July 15, 2013 and depreciation, if any, should be provided for in
accordance with the Reserve Banks Master Circular on Investments by Primary (Urban) Co-operative Banks dated
July 1, 2013. If banks choose to transfer securities as above, the transfers must be done at the earliest but not later
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than November 15, 2013. This transfer must be out of the outstanding position of AFS/HFT securities as at the close
of business of November 1, 2013 up to the limit of 25 per cent of NDTL (i.e. NDTL as on October 4, 2013 applicable
for maintenance of SLR for November 1, 2013).
UCBs are required to periodically value their AFS and HFT portfolio and provide for net depreciation. As a one-time
measure, it has been decided to permit UCBs to distribute the net depreciation of the AFS/HFT portfolio on each of
the valuation dates in the current financial year in equal instalments during the financial year 2013-14.
Advances Guaranteed by CRGFTLIH
The Ministry of Housing & Urban Poverty Alleviation, Government of India has set up the Credit Risk Guarantee Fund
Trust for Low Income Housing (CRGFTLIH) vide their notification dated June 21, 2012. The Reserve Bank has advised
UCBs to assign risk weight for loans guaranteed by CRGFTLIH as under:
Risk Weight
UCBs may assign zero risk-weight to the guaranteed portion of the housing loan extended by them to eligible
borrowers. The balance outstanding in excess of the guaranteed portion would attract a risk-weight as appropriate to
the counter-party.
Provisioning
In case the advance covered by CRGFTLIH guarantee becomes non-performing, no provision needs to be made
towards the guaranteed portion of the housing loan. The amount outstanding in excess of the guaranteed portion
should be provided for as per the extant guidelines on provisioning for non-performing advances.
Undertaking Activity as PAN Service Agent
It has been decided to permit financially sound and well managed UCBs to act as PAN service agent (PSA) by
entering into a tie-up with UTI Infrastructure and Technology Services Ltd., (UTIITSL) with the Reserve Banks prior
approval.
UCBs undertaking PSA activity should, however, exercise due care as violations, such as, delay in forwarding the
applications to processing centres of UTIITSL, incomplete applications, insufficient/discrepancy in enclosed
documentary proof/applications etc., may result in imposition of penalty by UTIITSL.
In case any UCB has already signed an agreement or has planned to engage in the activity of providing PAN issuance
services to its customers by entering into a tie-up with UTIITSL, it may approach the concerned regional office of the
Reserve Bank for completing the required formalities/obtaining regulatory approval, subject to fulfilling the prescribed
criteria.
NBFCs
Migration of PDC/EMI Cheques to ECS (Debit)
On December 20, 2012 all non-banking financial companies (NBFCs) were advised to ensure replacement of all
non-CTS-2010 standard compliant cheques received from their customers for future equated monthly instalment
(EMI) payments by March 31, 2013. The Reserve Bank had also advised on July 16, 2013 that cheques not complying
with CTS-2010 standard will be cleared at less frequent intervals with effect from January 1, 2014 (thrice a week up
to April 30, 2014, twice a week up to October 31, 2014 and weekly once from November 1, 2014 onwards.
With a view to avoid delays in realisation of non-CTS-2010 cheques, all NBFCs have been advised to (a) migrate towards accepting only CTS-2010 standard cheques; and
(b) not accept fresh/additional post dated cheques (PDC)/EMI cheques (either in old format or new CTS-2010 format)
in locations where the ECS/RECS (Debit) facility is available. The existing PDCs/EMI cheques in such locations may be
converted into ECS/RECS (Debit) by obtaining fresh ECS (Debit) mandates. This exercise should be completed not
later than December 31, 2013.
Considering the protection available under Section 25 of the Payment and Settlement Systems Act, 2007 which
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accords the same rights and remedies to the payee (beneficiary) against dishonour of electronic funds transfer
instructions under insufficiency of funds as are available under Section 138 of the Negotiable Instruments Act, 1881,
NBFCs need not take additional cheques, if any, from customers in addition to ECS (Debit) mandates. Cheques
complying with CTS-2010 standard formats should be obtained only in locations, where ECS/RECS facility is not
available.
INFORMATION
RBI extends Liquidity Support to MSME Sector
Refinance to SIDBI to ease Liquidity Stress to MSE Sector
In view of the need to ease the liquidity stress to micro and small enterprises (MSE) sector which is employment
intensive and contributes significantly to exports, it has been decided to provide refinance of an amount of Rs. 5,000
crore to the Small Industries Development Bank of India (SIDBI) under the provisions of Section 17(4H) of the
Reserve Bank of India Act, 1934.
The refinance will be available for direct liquidity support to finance receivables, including export receivable, to MSEs
by SIDBI or for liquidity support to MSEs through selected intermediaries, that is, banks, NBFCs and state finance
corporations. The refinance will be available against receivables, including export receivables, outstanding as on
November 14, 2013 onwards. The facility will be available at the prevailing 14-day term repo rate for a period of 90
days. During this 90-day period, the amount can be flexibly drawn and repaid. At the end of the 90-day period, the
drawal can also be rolled over. The refinance facility will be available for a period of one year up to November 13,
2014. The utilisation of funds will be governed by the policy approved by the Board of SIDBI.
Incremental Credit to Medium Enterprises to qualify as Priority Sector
The Medium Sector (as defined vide notification No.S.O.1722(E) dated October 5, 2006 of the Ministry of Small Scale
Industries) is also facing liquidity tightness. In order to enhance credit delivery to the medium sector, it has been
decided to include, as eligible priority sector lending, incremental credit, including export credit, extended to the
medium enterprises by scheduled commercial banks (excluding RRBs) over the outstanding credit as on November
13, 2013. The facility will be available up to March 31, 2014 and will be within the overall target of 40 per cent.
Background
The liquidity support comes in the wake of slowdown in the economy which has resulted in liquidity tightness in a
large number of MSEs in the manufacturing and services sector, particularly due to delayed settlement of receivables
from large corporate, public sector undertakings and government departments.
Dec 2013 and Jan 2014
Risk Weights and Provisioning For guaranteed Low Income Housing Loans
For loans guaranteed by Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH):
i) Risk weight: NBFC-MFIs may assign zero risk weight for the guaranteed portion. The balance outstanding in excess
of the guaranteed portion would attract a risk-weight as per extant guidelines.
ii) Provisioning: In case the advance covered by CRGFTLIH guarantee becomes non-performing, no provision need be
made towards the guaranteed portion. The amount outstanding in excess of the guaranteed portion should be provided
for as per the extant guidelines on provisioning for non-performing advances.
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The CRGFTLIH has been set up by the Ministry of Housing & Urban Poverty Alleviation, Government of India for the
purpose of providing guarantee in respect of low income housing loans.
Implementing Capital Regulations for OTC Derivatives and CCPs
It has been decided to implement the credit valuation adjustment (CVA) risk capital charge on Over-the-Counter (OTC)
derivatives from April 1, 2014, instead of January 1, 2014. The guidelines on capital requirements for banks exposures
to central counterparties (CCPs) will become effective from January 1, 2014.
Prudential Norms for Credit Card Accounts
In order to bring in consistency and to induce transparency, the Reserve Bank has advised that a credit card account
will be treated as non-performing asset if the minimum amount due, as mentioned in the statement, is not paid fully
within 90 days from the next statement date. The gap between two statements should not be more than a month. Banks
should follow this uniform method of determining over-due status for credit card accounts while reporting to credit
information companies and for the purpose of levying of penal charges, namely, late payment charges, if any.
FEMA
ODI Rollover of Guarantees
It has been decided that in the case of Foreign Direct Investment (ODI) not to treat/reckon the renewal/rollover of an
existing/original guarantee, which is part of the total financial commitment of the Indian party in terms of Regulation 6 of
the Notification No. FEMA.120/RB-2004 dated July 7, 2004, as a fresh financial commitment, provided that:
a. The existing/original guarantee was issued in terms of the then extant/prevailing FEMA guidelines.
b. There is no change in the end use of the guarantee, i.e., the facilities availed by the JV/WOS/Step Down
Subsidiary;
c. There is no change in any of the terms & conditions, including the amount of the guarantee except the validity
period;
d. The reporting of the rolled over guarantee would be done as a fresh financial commitment in Part II of Form ODI,
as hitherto; and
e. If the Indian party is under investigation by any investigation/enforcement agency or regulatory body, the
concerned agency/body shall be kept informed about the same.
In case, however, the above conditions are not met, the Indian party shall obtain prior approval of the Reserve Bank for
rollover/renewal of the existing guarantee through the designated AD bank.
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Issue of Non Convertible/Redeemable Bonus Preference Shares or Debentures - Clarifications

It has been decided that an Indian company may issue non-convertible/redeemable preference shares or debentures to
non-resident shareholders, including the depositories that act as trustees for the ADR/GDR holders, by way of
distribution as bonus from its general reserves under a Scheme of Arrangement approved by a Court in India under the
provisions of the Companies Act, as applicable, subject to no-objection from the Income Tax Authorities. This has been
done with a view to rationalising and simplifying the procedures for issue of non-convertible/redeemable bonus
preference shares or debentures to non-resident shareholders from the general reserve under a Scheme of
Arrangement by a Court, under the provisions of the Companies Act, as applicable.
This general permission to Indian companies is, however, only for issue of non-convertible/redeemable preference
shares or debentures to non-resident shareholders by way of distribution as bonus from the general reserves. The issue
of preference shares (excluding non-convertible/redeemable preference shares) and convertible debentures (excluding
optionally convertible/partially convertible debentures) under the FDI scheme would continue to be subject to A.P. (DIR
Series) Circular Nos.73 and 74 dated June 8, 2007 as hitherto.
MRO to be part of Airport Infrastructure for ECBs
On a review, it has been decided that, for the purpose of External Commercial Borrowings (ECB), Maintenance,
Repairs and Overhaul (MRO) will also be treated as a part of airport infrastructure. Accordingly, MRO, as distinct from
the related services which are other than infrastructure, will be considered as part of the sub-sector of airport in the
Transport Sector of infrastructure. All other aspects of ECB policy shall remain unchanged.
Import of Gold by Nominated Entities
In consultation with the Government of India, it has been decided to issue the following clarifications on import of gold by
nominated banks/agencies/entities:
a. Refineries are allowed to import dore up to 15% of their gross average viable quantity based on their licence
entitlement in the first two months for making this available to the exporters on First in First out (FIFO) basis.
Subsequent to this, the quantum of gold dore to be imported should be determined lot-wise on the basis of
export performance.
b. Before the next import, not more than 80% shall be allowed to be sold domestically.
c. The dore so imported shall be refined and shall be released based on FIFO basis following 20:80 principle. This
would be monitored by CBEC as earlier.
d. The imports, thereafter, shall be allowed only up to 5 times the quantum for which proof of export has been
submitted. This shall be on accrual basis.
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The instructions have come into effect immediately.

Residents can on-lend Rupees borrowed from Resident Outside India
A person resident in India who had borrowed in Rupees from a person resident outside India was restricted under
current FEMA regulations from using such borrowed funds for any investment, whether by way of capital or otherwise,
in any company or partnership firm or proprietorship concern or any entity, whether incorporated or not, or for relending.
On a review, such resident entities / companies in India, authorised by the Government of India, to issue tax-free,
secured, redeemable, non-convertible bonds in Rupees to persons resident outside India have been permitted to use
such borrowed funds for:
a. on lending / re-lending to the infrastructure sector; and
b. keeping in fixed deposits with banks in India pending utilization by them for permissible end-uses.
Revised Guidelines for Merchanting Trade Transactions

The Reserve Bank of India has revised guidelines on Merchanting Trade Transactions. The earlier guidelines on the
subject were issued in 2003. Merchanting or Intermediary Trade involves purchase of goods by Indian residents from
non-residents and then reselling them to another non-resident directly without the goods touching the Indian ports.
Although the merchanting trade transactions do not contribute to the exports from India, they result in net foreign
exchange inflows. The Technical Committee on Services / Facilities to exporters (Chairman: Shri G. Padmanabhan) in its
report (May 2013) recommended that the procedure be simplified.
Under the revised guidelines, total period of merchanting trade has been extended from six months to nine months and
short term financing for both export and import leg has been enabled. Half yearly reporting of outstanding merchanting
trade by AD Banks has also been prescribed to ensure better monitoring.
Mid-Quarter Monetary Policy Review: December 2013
The Reserve Bank of India announced the Mid-Quarter Review of the Monetary Policy Statement 2013-14 on
December 18, 2013. On the basis of an assessment of the current and evolving macroeconomic situation, it has been
decided to:
keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 7.75 per cent; and
keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liability
(NDTL).
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Consequently, the reverse repo rate under the LAF will remain unchanged at 6.75 per cent, and the marginal standing
facility (MSF) rate and the Bank Rate at 8.75 per cent.
Reports
Committee on Comprehensive Financial Services for Small Business and Low Income Households
The Reserve Bank of India released on its website for public comments, the Report of the Committee on
Comprehensive Financial Services for Small Business and Low Income Households. The Reserve Bank of India had, in
September 2013, set up a Committee on Comprehensive Financial Services for Small Business and Low Income
Households, under the Chairmanship of Dr. Nachiket Mor, Member on the Reserve Banks Central Board of Directors.
Vision
The Committee, while laying down its vision statement for financial inclusion and deepening, has suggested providing a
universal bank account to all Indians above the age of eighteen years and has recommended a Vertically Differentiated
Banking System with Payments Banks for Deposits & Payments and Wholesale Banks for credit outreach with relaxed
entry point norms of ` 50 crore.
Priority Sector Lending
On priority sector, the Committee has recommended Adjusted Priority Sector Lending Target of 50 per cent against the
current requirement of 40 per cent with sectoral and regional weightages based on the level of difficulty in lending. The
Committee has also recommended risks and liquidity transfers through markets. In view of the fact that banks may
choose to focus their priority sector strategies on different customer segments and asset classes, the Committee has
recommended that the regulator provide specific guidance on differential provisioning norms at the level of each asset
class. A banks overall Non Performing Assets Coverage Ratio would therefore be a function of its overall portfolio asset
mix.
Definition of NBFCs
On definition of Non-Banking Finance Companies (NBFCs), the Committee has recommended only two categories - one
for core investment companies and another category for all other NBFCs. The Committee has advocated regulatory
convergence between banks and NBFCs based on the principle of neutrality with regard to classification of
non-performing assets and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security
Interest (SARFAESI) Act, 2002 eligibility.
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State Level Regulators

The Committee has suggested that a State Finance Regulatory Commission (SFRC) be created into which all the
existing State Government-level regulators could be merged and functions like the regulation of Non-Government
Organisations-Micro Finance Institutions (NGO-MFIs) and local Money Services Business could be added on. The
Committee has desired that the Reserve Bank should issue regulations on suitability, applicable specifically for
individuals and small businesses, to all regulated entities within its purview so that the violation of such regulations would
result in penal action for the institution as contemplated under the relevant statutes through a variety of measures,
including fines, cease-and-desist orders, and modification and cancellation of licences.
Committee on Financial Benchmarks
The Reserve Bank of India has placed on its website, the Draft Report of the Committee on Financial Benchmarks for
public comments. The Reserve Bank had announced the constitution of the Committee on Financial Benchmarks under
Chairmanship of Shri P. Vijaya Bhaskar, Executive Director on June 28, 2013 with a mandate to study various issues
relating to financial benchmarks in India and to submit the Report by December 31, 2013.
In the aftermath of the revelations regarding manipulations of several key global benchmark rates, viz. LIBOR,
EURIBOR, TIBOR, etc., several international standard setting bodies, national regulators, and self-regulatory market
bodies have reviewed the benchmark setting processes and came out with wide ranging reform measures and
governing principles for enhancing the robustness and reliability of the financial benchmarks. The IOSCO has released
its final report on Principles for Financial Benchmarks in July 2013. The FSB, working under the mandate of G-20, has
endorsed the IOSCOs Principles. The Benchmark Administrators are required to disclose their compliance with the
IOSCO Principles by July 2014.
The Report of the Committee provides a brief overview of the measures recommended by various international
bodies/committees and the reforms already undertaken/underway in key benchmarks in various jurisdictions. Building on
the cross-country experiences, the Report provides an in-depth analysis of the existing benchmark setting methodology
and governance framework of the major Indian Rupee interest rate benchmarks and foreign exchange benchmarks.
While the existing system was found generally satisfactory, the Report recommends several measures/principles to be
followed to strengthen the benchmark quality, setting methodology and governance framework of the Benchmark
Administrators, Calculation Agents and Submitters. In line with the international move towards greater regulatory
oversight of the benchmark setting process, the Report reviews the existing regulatory powers of RBI over the financial
benchmarks and recommends suitable amendments of the RBI Act, as a long term measure, to explicitly empower RBI
to determine policy with regard to benchmarks used in Money, G-sec, Credit and Foreign Exchange markets in India
and to issue binding directions to all the agencies involved in the benchmark setting. Pending the amendments, the
Report recommends appropriate regulatory and supervisory framework to be put in place by RBI for the above financial
benchmarks under its existing statutory powers.
Source: RBI Monetary and Credit Review
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Bank Promotions Kit

Banking and Financial Developments April 2013 to Jan 2014

Banking and Financial Developments May 2013

Articles View Hits 364500

Banking and Financial Developments July 2013

Much of the study material and quizzes on

Senior Citizens Savings

Public Provident Fund

Marginal Standing Facility

Penal interest rates on shortfalls

Bank Rate plus 3.0 percentage

Bank Rate plus 3.0 percentage points

Priority Sector Lending - Limits Revised

Realisation and Repatriation of Export Proceeds

(a) Individual Housing

Penal interest rates on

Bank Rate plus 3.0

Unsolicited Commercial Communications

National Customer Preference Register. This is resulting in a lot of customer grievance.

10 per cent of the total paid-up capital.

LIBOR/swap plus 200

LIBOR/swap plus 300

LIBOR/swap plus400 basis

Fitch downgrades ratings of Public Sector Banks (23rd Sep 2013)

financial year for hedging their contracted export exposures, and

(a) the individual amount sanctioned should not exceed Rs.10,000;

to 7.75 per cent.

concerned agency/body shall be kept informed about the same.

Issue of Non Convertible/Redeemable Bonus Preference Shares or Debentures - Clarifications

The instructions have come into effect immediately.

Revised Guidelines for Merchanting Trade Transactions

State Level Regulators

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