RBI No. /2004-05/ 228
UBD.No. BPD. IP. 24 / 12.05.01/ 2004-05
October 20, 2004
Chief Executive Officers of all Primary (Urban)
Cooperative Banks
Dear Sir / Madam,
Systems and procedures – Best practices
The Joint Parliamentary Committee which inquired
into stock market scam and matters relating thereto has observed that RBI must
identify best practices found across banks and establish uniform standards to
be followed by all the banks.
2. Reserve Bank of India also feel that it would
be appropriate to provide UCBs with information on the best practices followed
by well-managed banks in the urban banking sector as examples. Accordingly,
we forward herewith an Annexure, indicating the best practices
followed by some of the well-managed banks and advise you to follow similar
practices to improve the functioning of your bank. The best practices furnished
in the Annexure are only illustrative in nature and you are free to put in place
any other practices, which would result in better customer service, and business
development.
3. Please acknowledge receipt of this circular
to the Regional Office concerned.
Yours faithfully,
sd/-
(N.S.Vishwanathan)
Chief General Manager
Encl : As above
ANNEXURE
1. Resource mobilization and deployment of resources
– maintenance of liquidity – compliance with CRR / SLR requirements :
a. Rate of interest offered on deposits
is in line with the market trend.
b. Maintenance of CRR / SLR is ensured.
c. Investment in Government and approved
Trustee Securities as prescribed by RBI.
d. Maintaining reasonable CD ratio.
e. Sanction of loan within exposure norms.
f. Computerisation of the work relating
to computation of CRR / SLR and developing software thereof for deployment
of surplus funds in Government and other approved Securities.
g. Framing well-documented Investment Policy.
Separation of duties of Investment Department
into Front Office, Mid-Office and Back Office.
h. Investments subjected to scrutiny by
Executive Committee at weekly meetings. Reconciliation of investments monitored
by Audit Committee.
2. Management of NPAs :
a. Framing reasonably well documented
loan policy and rules.
b. Sound credit appraisal on well-settled
banking norms.
c. Emphasising reduction in Gross NPAs
rather than the Net NPAs.
d. Pasting of sale notice/ wall posters
on the houses pledged as security.
e. Recovery action under 'Transfer of
Properties Act' by entrusting the work to the private auctioneers.
f. Recovery effort starts from the first
month of default itself. Prompt legal action and seizure action is taken.
g. One of the employees of the bank is
vested with the powers of Sales / Recovery Officer for execution proceedings.
h. Position of overdue accounts is reviewed
on a weekly basis to arrest slippage of fresh accounts to NPA category.
i. Half-yearly balance confirmation certificates
are obtained from the borrowers regularly.
j. Internal Credit Rating System is put
in place for the borrowers enjoying fund based credit facilities of Rs. 10.00
lakh and above for objective credit pricing on an on-going basis.
k. Irregular borrowal accounts are followed-up
vigorously; officers, on whose recommendations loans are sanctioned are also
held personally responsible. In addition to the efforts of the branches, Head
Office directly follows up chronic NPA accounts.
l. A Committee is constituted at Head
Office, to review irregular accounts.
m. Due to lower credit risk and consequent
higher profitability, greater encouragement is given to small borrowers.
n. Recovery competition system is extended
among the staff members. The staff recovering highest amount is felicitated.
o. Adopting the system of market intelligence
for deciding the credibility of the borrowers.
p. Scrutiny of news items appearing in
the newspapers for sale of property to ascertain whether defaulters intended
to dispose of property mortgaged with the bank.
q. Creation of a separate 'Recovery Department'
with Special Recovery Officer appointed by the RCS.
3. Expenditure control and maximization of profit
:
a. Not seeking to open new branches as
a matter of routine.
b. Not filling up the vacancies arising
out of retirements and deploying available staff judiciously.
c. Preparing expenditure budgets.
d. Not frittering away gains by declaring
unsustainably high level of dividend.
e. Increasing the fee based income by
rendering efficient and prompt customer service such as issue of DDs etc.
4. System of reporting to Board of Directors
and professionalization of management :
a. Agenda for the meetings are prepared
in detail and important financial data and reviews placed before the Board.
b. The Chief Executive Officer / General
Managers directly monitor recovery of NPA. Cordial relationship is maintained
by the management with the staff. CEO takes full responsibility and the Directors
do not involve themselves in day-to-day affairs of the bank.
c. Board of Directors consists of qualified
persons who take keen interest in the working of the bank.
d. CEO and other senior officials of the
bank are well qualified and sincere to their work.
5. Employee motivation :
a. Deputation of staff members for various
training programmes conducted by RBI and other Training Institutions.
b. Arranging monthly staff meetings to
work out strategies for the recovery of overdues.
c. Training is imparted to all staff on
an on-going basis. Regular training programmes for staff on subjects like
motivation, leadership, modern banking, etc., are conducted by inviting guest
lecturers to the banks' premises for wider coverage at lesser cost.
6. Customer service :
a. Periodical meeting with customers at
branch level for getting feed back on the deficiency, if any, in banking service.
b. Following a system of personally meeting
customers, especially borrowers, at regular intervals. Formation of Customer
Care Service Center.
c. Provide banking services to suit the
requirement of the customers, e.g., keeping the branch open on all the days
of the week / staggering the banking hours.
7. Systems and Control :
(a) Instituting a system of internal audit
/ inspection apart from statutory audit. Prompt follow up action is taken
on the reports. Accountability of Branch Manager and concerned staff is put
in place.
(b) Prompt compliance with RBI inspection
report.
(c) Prompt submission of returns to RBI.
(d) A monthly branch level meeting is convened
to review housekeeping, systems and procedures, audit and inspection findings,
loans and advances, recoveries, staff matters, etc.
(e) Quality and content of internal audit
is of high standard. Inter-bank and Inter-branch reconciliation is up-to-date.
8. Operational efficiency:
Putting in place the system of fixing annual
targets for the branches and review of their performance at half yearly interval,
by the Board of Directors.