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PDF - Annexure: Chronology of Major Policy Announcements: April 2004 - July 2005

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Date : Aug 29, 2005

Annexure: Chronology of Major Policy Announcements: April 2004 - July 2005

Date of
Announce-			POLICY ANNOUNCEMENTS
ment

			I. MONETARY POLICY MEASURES
2004

April	17	•	In order to provide consistency in the interest rate offered to non-resident Indians (NRIs), the ceiling on interest
			rates on NRE deposits for one to three years maturity contracted effective close of business on April 17, 2004, was
			capped at LIBOR/SWAP rates for US dollar of corresponding maturity. Similarly, the interest rate on NRE saving
			deposits was capped at LIBOR/SWAP rates, instead of domestic savings deposit rate.

	19	•	All scheduled commercial banks (SCBs) advised of the State/Union Territory-wise physical targets for sanctioning
			and disbursement of loans under the Prime Minister Rozgar Yojana (PMRY) for the purpose of their quarterly targets
			to be achieved by end-March 2005.

	23	•	The validity period of the reduction in the interest rates charged by SCBs on pre-shipment rupee export credit up to
			180 days and post-shipment rupee export credit up to 90 days announced on September 26, 2001 extended up to
			April 30, 2005.

	24	•	Entities other than authorised dealers (ADs) or authorised banks were prohibited from accepting deposits from NRIs
			either through fresh remittances or by debit to their NRE/FCNR(B) accounts. Holding of the existing deposits would
			be permitted and renewed on repatriation or non-repatriation basis and the interest earned on such deposits would
			continue to be repatriable.

May	18	•	Entire export credit refinance to be made available at reverse repo rate.

		•	Non-bank participants’ lending in call/notice money market reduced to 45 per cent of their average daily lending
			during 2000-01, effective June 26, 2004.

		•	Automated value-free transfer of securities between market participants and the Clearing Corporation of India Ltd.
			(CCIL) was enabled for collateralised borrowing and lending operations (CBLO).

		•	Loans to storage units, including cold storage units, designed to store agricultural produce/ products, irrespective of
			their location, would be treated as indirect agricultural finance under priority sector.

		•	Investments by banks in securitised assets representing direct (indirect) lending to agriculture would be treated as
			their direct (indirect) lending to agriculture under priority sector.

Jul.	20	•	Investment by banks in the mortgage backed securities (MBS) to be classified as direct lending to housing within the
			priority sector lending, subject to certain conditions.

	26	•	Banks to take appropriate steps to increase the flow of credit to priority sector, agriculture and weaker sections so
			as to achieve the stipulated targets and also observe the Reserve Bank directives on interest rates on loans.

		•	Some recommendations of the Advisory Committee on Flow of Credit to Agriculture and Related Activities from the
			Banking System (Chairman: Prof. V.S. Vyas) accepted and advised to banks for implementation. These include :
			exploring possibilities like entering into tie-ups with major tractor and farm machinery manufacturers for financing
			agriculturists in a cost-effective manner; taking steps for implementing the recommendations of the R. V. Gupta
			Committee relating to simplification of documentation, delegation of more powers to the branch managers, etc.;
			measures to save avoidable expenses for borrowers for getting a loan sanctioned; providing a separate flexible
			revolving credit limit to small borrowers for production and investment loans for meeting temporary shortfalls in
			family cash flows; measures to reduce the information gap about procedures; exploring financing of oral lessees on
			the basis of Joint Liability Group and SHG approach models through pilot projects; and address various issues to
			make access to financial services smooth and client-friendly.

Sept.	11	•	The cash reserve ratio (CRR) increased by one-half of one percentage point of Net Demand and Time Liabilities
			(NDTL) in two stages - 4.75 per cent effective September 18, 2004 and 5.0 per cent effective October 2, 2004.

		•	The interest on eligible cash balances maintained with the Reserve Bank reduced to 3.5 per cent from the Bank
			Rate (6.0 per cent) effective September 18, 2004.

Date of
Announce-			POLICY ANNOUNCEMENTS
ment

2004			I. MONETARY POLICY MEASURES (Contd.)
Oct.	26	•	Repo rate increased by 25 basis points to 4.75 per cent effective October 27, 2004. The fixed reverse repo rate
			under the Liquidity Adjustment Facility (LAF) left unchanged at 6.0 per cent. The nomenclature of repo and reverse
			repo was changed effective October 29, 2004 consistent with international usage. Effective October 29, 2004, reverse
			repo indicates absorption of liquidity and repo indicates injection of liquidity. Accordingly, reverse repo rate would be
			4.75 per cent and repo rate would be 6.0 per cent.

		•	The revised LAF scheme operationalised with overnight fixed rate repo and reverse repo effective November 1,
			2004; the 7-day and 14-day repos discontinued.

		•	Ceiling on interest rates on NRE deposits raised by 50 basis points above the LIBOR/SWAP rates for the US dollar
			of corresponding maturities.

		•	Banks allowed to fix the ceiling on interest rates on FCNR(B) deposits on a monthly basis for the following month
			based on rates prevailing as on the last working day of the preceding month.

		•	Banks allowed to reduce the minimum tenor of retail domestic term deposits (under Rs.15 lakh) from 15 days to 7
			days. Banks have the freedom to offer differential rates of interest on wholesale domestic term deposits of Rs.15
			lakh and above.

		•	Limits on priority sector advances for dealers in agricultural machinery including drip/sprinkler irrigation systems
			increased from Rs. 20 lakh to Rs.30 lakh and for distribution of inputs for allied activities from Rs.25 lakh to Rs.40
			lakh.

		•	Banks advised to increase their disbursements to small and marginal farmers to 40 per cent of their direct advances
			under special agricultural credit plans (SACPs) by March 2007. All private sector banks urged to formulate SACP
			from the year 2005-06, targeting an annual growth rate of at least 20-25 per cent of credit disbursements to agriculture.

		•	Investments made by banks in securitised assets representing direct lending to the SSI sector would be treated as
			their direct lending to SSI sector under priority sector, provided the pooled assets represent loans to SSI sector
			which are reckoned under priority sector and the securitised loans are originated by banks/financial institutions.

		•	The composite loan limit for SSI entrepreneurs enhanced from Rs. 50 lakh to Rs. 1 crore.

		•	Banks, with the approval of their Boards, allowed to extend direct finance to housing sector up to Rs.15 lakh,
			irrespective of location, as part of their priority sector lending.

		•	Banks allowed to advance loans to distressed urban poor, against appropriate collateral or group security, to prepay
			their debt to non-institutional lenders and classify the same under weaker sections within the priority sector.

		•	Non-bank participants’ lending in call/notice money market reduced to 30 per cent of their average daily lending
			during 2000-01, effective the fortnight beginning January 8, 2005.

		•	The minimum maturity period of Commercial Paper (CP) reduced from 15 days to 7 days.

		•	The ceiling on the outstanding obligation of the Government under the Market Stabilisation Scheme (MSS) raised
			from Rs.60,000 crore to Rs.80,000 crore. The threshold level of the ceiling for further review placed at Rs.70,000
			crore.

Nov.	1	•	Banks allowed to reduce the minimum tenor of retail domestic/NRO term deposits (under Rs.15 lakh) at their discretion
			from 15 days to 7 days. Similar guidelines were issued to all State and District central co-operative banks.

Dec.	15	•	Banks’ investments in special bonds issued by certain specified institutions on or after April 1, 2005 made ineligible
			for classification under priority sector lending. Investments made up to March 31, 2005 would cease to be eligible in
			a phased manner.

2005

Jan.	12	•	The investment limit in plant and machinery for seven items belonging to sports goods, which figures in the list of
			items reserved for manufactures in the SSI sector, enhanced from Rs. 1 crore to Rs. 5 crore for the purpose of
			classification under priority sector advances.

April	28	•	The fixed reverse repo rate under the LAF of the Reserve Bank increased by 25 basis points to 5.0 per cent effective
			April 29, 2005. The fixed repo rate under the LAF left unchanged at 6.0 per cent.

Date of
Announce-			POLICY ANNOUNCEMENTS
ment

2005			I. MONETARY POLICY MEASURES (Concld.)

April	28	•	Non-bank participants’ lending, except Primary Dealers (PDs), reduced to 10 per cent of their average daily lending in
			call/notice money market during 2000-01 with effect from the fortnight beginning June 11, 2005. Non-bank participants,
			except PDs, to be completely phased out from the call/notice money market effective August 6, 2005.

		•	With effect from the fortnight beginning April 30, 2005, the benchmark for fixing prudential limits on exposures to
			call/notice money market in the case of SCBs linked to their capital funds (sum of Tier I and Tier II capital) from their
			owned funds (Schedule I and II capital).

		•	Participation in market repo facility in Government securities for non-scheduled urban co-operative banks (UCBs)
			and listed companies having gilt accounts with scheduled commercial banks allowed subject to eligibility criteria
			and safeguards.

		•	The minimum maturity period of certificates of deposit (CDs) reduced from 15 days to 7 days with immediate effect.

		•	Introduction of asset-backed commercial paper (ABCP) to further deepen the CP market and additional intra-day
			LAF to stabilise short-term interest rates would be considered in future in consultation with market participants.

		•	Options in OTC rupee derivatives to be considered, once legal clarity to OTC derivatives is provided and appropriate
			accounting standards are put in place.

		•	The limit on loans to farmers through the produce marketing scheme increased from Rs.5 lakh to Rs.10 lakh under
			priority sector lending.

	29	•	The validity period of the reduction in the interest rates on pre-shipment rupee export credit up to 180 days and post-
			shipment rupee export credit up to 90 days announced on September 24, 2001 extended up to October 31, 2005.

Jul.	1	•	Investments made by banks in venture capital on or after July 1, 2005 shall not be eligible for classification under
			priority sector lending and investments that have already been made up to June 30, 2005 shall not be eligible for
			classification under priority sector with effect from April 1, 2006.


			II. INTERNAL DEBT MANAGEMENT POLICIES
2004

June	3	•	Guidelines issued on dividend distribution by PDs. Dividend payout ratio linked to Capital to Risk Weighted Assets
			Ratio (CRAR) and ceiling on individual payout ratio fixed.

Aug.	19	•	The Gilt Account holders in the UCBs not to undertake any sale transaction unless the security sold is actually held
			in the Gilt Account of the constituent.

	24	•	Guidelines issued to PDs to hold all their equity investments (including conversion of their equity holdings in
			scrip form into dematerialised form) and make all fresh investments only in dematerialised form, effective
			December 31, 2004.

Oct.	15	•	Guidelines on PDs issuing subordinated debt instruments for raising Tier II and Tier III capital issued.

	26	•	Capital indexed bonds (CIBs) to be introduced during the year 2005-06 in consultation with the Central Government.

Nov.	13	•	All PDs to ensure that whenever defaults (in maintaining sufficient balances in the current and/or SGL accounts to
			meet their commitments arising out of transactions) take place, they should immediately report the details of such
			defaults to the Reserve Bank.

2005

March	29	•	Guidelines issued to all NDS members regarding conduct of dated Government securities auction under Primary
			Market Operations module of PDO-NDS.

April	28	•	The settlement system for transactions in Government securities to be standardised to T+1 basis.

		•	The Reserve Bank would continue to resort to multiple and uniform price methods flexibly in the auction of Government
			securities.

		•	Permitted structures of PD business would be expanded to include banks which fulfil certain minimum criteria subject
			to safeguards and in consultation with banks, PDs and the Government.

		•	Restructuring the underwriting obligations of PDs, allowing PDs exclusivity in primary auctions, introduction of ‘When
			Issued Market’ and limited short selling in Government securities would be considered in consultation with the Government.

Date of
Announce-			POLICY ANNOUNCEMENTS
ment

2005			II. INTERNAL DEBT MANAGEMENT POLICIES (Concld.)

May	11	•	Guidelines issued on adoption of standardised settlement on T+1 basis of all outright secondary market transactions
			in Government securities.

		•	Guidelines issued permitting sale of Government securities allotted to successful bidders in primary issues on the
			day of allotment, with and between Constituents’ Subsidiary General Ledger (CSGL) account holders.

		•	Non-scheduled UCBs and listed companies, having a gilt account with a scheduled commercial bank, made eligible
			to participate in repo market subject to certain conditions.

July	20	•	Guidelines on transaction in Government securities further relaxed by permitting a buyer from an allottee in primary
			auction to re-sell the security.



			III. FINANCIAL SECTOR MEASURES
2004

April	10	•	Revised norms issued with regard to cheque drop box facility, delivery of cheque books over the counter and statement
			of accounts/pass book.

	15	•	Comprehensive guidelines issued for investment in non-SLR securities by UCBs.

	22	•	Banks to inform at least one month in advance, their account holders, any change in the prescribed minimum balance
			and the charges that may be levied if the minimum balance is not maintained.

	23	•	Guidelines relating to the eligibility criteria (inclusive of minimum CRAR, non-performing asset and regulatory
			compliance) for declaration of dividend by commercial banks without prior approval of the Reserve Bank as well as
			the quantum of dividend payable (with a ceiling placed at 33 1/3 per cent dividend payout ratio and methods of
			compilation of the ratio prescribed) modified.

	24	•	Non-Banking Financial Companies (NBFCs) prohibited from accepting fresh NRI deposits with effect from April 24,
			2004, but could renew the deposits already accepted.

	30	•	Banks (excluding RRBs and LABs) to review policies and practices relating to information system (IS) audit and
			place the audit reports before the top management. Banks to adopt an IS Audit Policy appropriate to their level of
			computerisation, review the same at regular intervals in tune with industry best practices and guidelines issued by
			the Reserve Bank.

		•	Banks (excluding RRBs) to ensure strict compliance with the three accounting standards (No. 24, 26 and 28) relating
			to discounting operations, intangible assets and impairment of assets, respectively.

May	12	•	SCBs to strictly maintain the confidentiality of information provided by the customer for ‘Know Your Customer’ (KYC)
			compliance. These guidelines were extended to cover all primary (urban) co-operative banks on May 29, 2004.

	15	•	Banks to scrupulously ensure that their branches do not open current accounts of entities which enjoy credit facilities
			(fund-based or non-fund based) without specifically obtaining a no-objection certificate from the lending banks.

	17	•	NBFCs/Residuary Non-Banking Companies (RNBCs) to authorise designated banks for collection of interest on due
			dates on securities held in physical form lodged for safe custody with the designated banks.

	18	•	The requirement of margin/security for agricultural loans up to Rs.50,000 and in the case of agri-business and agri-
			clinics for loans up to Rs.5 lakh waived.

	20	•	The exemption granted to Regional Rural Banks (RRBs) from ‘mark-to-market’ norms in respect of the SLR securities
			extended for one more year, i.e., up to 2004-05.

	24	•	The primary (urban) co-operative banks to exercise due caution with regard to valuation while sanctioning loans and
			advances against mortgage of house property.

	26	•	The off-site surveillance system for primary (urban) co-operative banks already in place for the scheduled UCBs
			extended to all non-scheduled UCBs having deposit size of Rs.100 crore and above.

June	11	•	To give boost to the infrastructure lending, banks allowed to raise long term bonds with a minimum maturity of five
			years.

	15	•	The risk weight in respect of exposure by banks/FIs to public financial institutions (PFIs) raised to 100 per cent for
			credit risk and 2.5 per cent for market risk, effective from April 1, 2005.

Date of
Announce-			POLICY ANNOUNCEMENTS
ment

2004			III. FINANCIAL SECTOR MEASURES (Contd.)

June	16	•	The scope of definition of infrastructure lending by NBFCs widened to include the following projects/sectors: i)
			construction relating to projects involving agro-processing and supply of inputs to agriculture; ii) construction for
			preservation and storage of processed agro-products, perishable goods such as fruits, vegetables and flowers
			including testing facilities for quality; and iii) construction of educational institutions and hospitals.

	17	•	The extant limits on unsecured exposures by banks withdrawn, allowing banks to set their own limits for unsecured
			exposures. Unsecured exposures were redefined and it was clarified that unsecured sub-standard assets would
			attract 20 per cent provisioning.

		•	The currency of the ad hoc Committees on Procedures and Performance Audit on Customer Services in Banks was
			extended by six months and they were advised to complete the work within one year from the date of their constitution
			and also to associate non-officials in the Committees.

		•	The extant guidelines on country risk management extended to cover countries where a bank has net funded exposure
			of one per cent or more of its assets with effect from the year ending March 31, 2005.

	18	•	Banks to draw a roadmap for migration to Basel II norms by the end of 2004 and make a quarterly review of the
			progress made.

	21	•	Graded higher provisioning requirement according to the age of NPAs in ‘doubtful for more than three years’ category
			introduced for SCBs, with effect from March 31, 2005. Similar guidelines issued to FIs on August 3, 2004 and to RRBs
			on August 6, 2004.

		•	It was clarified that the process of identifying wilful defaulters and the mechanism related to redressal of grievances
			are two distinct processes. The borrower should be suitably advised before being classified as a wilful defaulter.

		•	Boards of banks/Financial Institutions (FIs) to oversee furnishing of requisite information of all borrowers to CIBIL and
			report compliance of the same to the Reserve Bank. The role of CIBIL in dissemination of credit information was
			clarified. CIBIL to move towards a sufficiently diversified ownership structure with no single entity owning more than 10
			per cent of its paid-up capital.

		•	Banks to fully adhere to the Know Your Customer (KYC) policy adopted by their Boards: i) for opening new accounts, ii)
			for the existing accounts, where any wrong-doing is suspected or where the summation of the credit/debit transactions
			is more than Rs.10 lakh, and iii) in respect of all accounts belonging to trusts, intermediaries or those operated through
			a mandate or power of attorney.

		•	The vigilance procedure in public sector banks modified. Only such vigilance cases in which an officer of the level of
			Scale V and above is involved are required to be referred to the Central Vigilance Commission (CVC) for advice.

		•	Boards of banks, under exceptional circumstances, allowed to raise single or group exposure limit by 5 per cent of
			capital funds.

	22	•	The investment pattern prescribed for RNBCs rationalised for imparting liquidity and safety to their investments for
			enhancing depositors’ protection. These measures included: i) phasing out of discretionary investment by RNBCs, ii)
			restriction of investments in financial institutions in only CD instruments of rating AA+ and above, iii) additional investment
			of 15 per cent of the deposits in securities issued by the Central and State Governments, iv) investment in bonds and
			debentures to be limited to listed securities of rating AA+ and above, v) restricting mutual fund investments to only debt
			oriented schemes with a sub-limit of 2 per cent in any one fund, and vi) restricting exposure to a single SCB to one per
			cent of aggregate deposit liabilities of the SCB and to a single specified FI to not more than one per cent of the
			deposits of the RNBCs.

	24	•	Banks to provide for capital charge for market risk in respect of trading book exposures (including derivatives), effective
			March 31, 2005. Capital charge would be introduced for securities under ‘Available for Sale’ (AFS) category with effect
			from March 31, 2006.

		•	Prudential norms on income recognition, asset classification and provisioning with respect to agricultural advances
			modified with a view to align the repayment dates with harvesting of crops. Effective September 30, 2004, a loan
			granted for short duration crops to be treated as NPA if the instalment of the principal or interest thereon remains
			unpaid for two crop seasons beyond the due date. A loan granted for long duration crops (with crop season longer than
			one year) will be treated as NPA, if the instalment of principal or interest thereon remains unpaid for one crop season
			beyond the due date.

		•	All commercial banks advised to implement the measures, announced by the Union Finance Minister, for doubling flow
			of credit to agriculture.

Date of
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ment

2004			III. FINANCIAL SECTOR MEASURES (Contd.)

July	6	•	The types of instruments to be included in the prudential limit of bank’s aggregate investment in Tier II bonds
			widened.

	7	•	NBFCs advised that the issue of debit cards, stored value cards, smart cards, value added cards, etc. have a
			characteristic akin to demand deposits as they are payable at the convenience of the card holders. The issue of such
			cards is, therefore, violative of the extant NBFC directions.

13		•	No application for inclusion in the Second Schedule of the Reserve Bank of India Act, 1934 to be considered for the
			primary (urban) co-operative banks till a proper legislative framework is put in place.

20		•	Banks debarred from prescribing any minimum annual turnover for issuance of Gold Card since the objective of the
			scheme was to cover all credit worthy exporters, including the SME segment.

23		•	Additional measures relating to wilful defaulters introduced. These included: prohibition on additional facilities,
			debarment from institutional finance for floating new ventures for a period of five years, initiation of legal proceedings
			and foreclosure and also criminal proceedings wherever necessary, adoption of a proactive approach for a change
			of management of the wilfully defaulting borrower unit, incorporation of a covenant in the loan agreement barring
			borrowing companies to induct a person who is a director on the Board of a company which has been identified as
			a wilful defaulter.

24		•	NBFCs having Certificate of Registration (CoR) in the non-public deposit taking category to meet the minimum net
			owned funds (NOFs) requirement of Rs.2 crore for being eligible to apply to the Reserve Bank for accepting public
			deposits.

26		•	FIs to strictly adhere to the single/group borrower prudential exposure ceilings i.e., 15 per cent and 40 per cent,
			respectively and the additional limits of 5 per cent and 10 per cent, respectively, for exposure to infrastructure. FIs
			could, in exceptional circumstances, with the approval of their Boards, consider enhancement of the exposure to a
			borrower up to a further 5 per cent of capital funds subject to the borrower consenting to the FIs making appropriate
			disclosures in their Annual Reports.

		•	On the application of the Reserve Bank under Sub-Section (1) of Section 45 of the Banking Regulation Act, 1949,
			the Government of India made an Order of Moratorium in respect of the Global Trust Bank Ltd. under Sub-Section
			(2) of the said Section for the period from the close of business on July 24, 2004 and inclusive of October 23, 2004.
			The Government of India also issued directions to the said banking company under paragraph (2) thereof authorising
			payment of certain liabilities and obligations. In order to effect an amalgamation of the Global Trust Bank Ltd. with
			Oriental Bank of Commerce, the Reserve Bank, in exercise of the powers conferred on it by Sub-Section (4) of the
			said Section, prepared a scheme and forwarded it, in draft, to each of the aforesaid banking companies for suggestions
			and objections, if any, in terms of clause (a) of Sub-Section (6) of Section 45 ibid by August 7, 2004.

29		•	Banks to insist on a declaration from the account holder, for opening of current accounts, stating that he/she is not
			enjoying any credit facility with any other commercial bank or insist on a declaration giving particulars of credit
			facilities enjoyed by him/her with any other commercial bank(s). Banks also to ascertain whether he/she is a member
			of any other co-operative society/bank, if so, the full details thereof.

30		•	Norms for inclusion of Self Help Groups (SHGs) for assistance under Prime Minister Rozgar Yojana (PMRY) modified.

Aug.	3	•	The monetary ceiling of the cases to be referred to the Lok Adalats, organised by Civil Courts, enhanced from Rs.5
			lakh to Rs.20 lakh.

	7	•	For loans and advances (both secured and unsecured) sanctioned by the UCBs, the directors and relatives not
			eligible to stand as surety/guarantor.

10		•	NBFCs advised that whenever they intend to extend the date of their Balance Sheet as per provisions of the Companies
			Act, they should take prior approval of the Reserve Bank before approaching the Registrar of Companies (ROC) for
			this purpose. Even in the cases where permission is granted for extension of time, the company would be required
			to furnish to the Reserve Bank a Proforma Balance Sheet (unaudited) as on March 31 of the year and the statutory
			returns due on the above date.

17		•	Banks to convert all their equity holdings into dematerialised form by the end of December 2004.

26		•	Banks to ensure that the schedule of interest/instalment payable on advances on rural housing granted to agriculturists
			under ‘Indira Awas Yojana’ and ‘Golden Jubilee Rural Housing Finance Scheme’ is linked to crop cycles.

Date of
Announce-			POLICY ANNOUNCEMENTS
ment

2004			III. FINANCIAL SECTOR MEASURES (Contd.)

Aug.	28	•	Banks to initiate action at their level to get the Master Policy under Personal Accident Insurance Scheme (PAIS) for
			KCC holders renewed for a period of one year, on the existing terms and conditions.

	30	•	FIs permitted to make fresh investments in equity instruments and hold them in demat form with immediate effect.
			All outstanding investments in equity in paper-based form to be converted into demat form by end December 2004.

Sept.	1	•	Banks to take remedial measures suggested by the Group on Frauds in the area of housing finance.

	2	•	Banks permitted to exceed the 25 per cent limit under Held to Maturity (HTM) category provided that the excess
			comprises only SLR securities and the total SLR securities held in the HTM category are not more than 25 per cent
			of their NDTL. To enable the above, banks were allowed to shift SLR securities to the HTM category. However, no
			fresh non-SLR securities are permitted to be included in the HTM category once more during the year 2004-05.
			Similar guidelines were also issued to the UCBs.

		•	‘Yes Bank Limited’ included in the Second Schedule to the Reserve Bank of India Act, 1934 with effect from August
			21, 2004.

	4	•	Some recommendations of Ganguly Working Group on Flow of Credit to SSI sector were accepted and advised to
			banks for implementation. These include: identification of new clusters and adoption of cluster based approach for
			financing SME sector, sponsoring specific projects as well as widely publicising the successful working models of
			NGOs, sanctioning higher working capital limits to SSI in North East region for maintaining higher levels of inventory,
			and exploring new instruments for promoting rural industry.

	27	•	For advances identified as ‘doubtful for more than three years’, additional provisioning by the UCBs to be phased
			over a five-year period commencing from the year ending March 31, 2005 instead of four years.

Oct.	4	•	Guidelines issued for implementing the revised Model KCC Scheme of NABARD to take care of the investment
			credit as also working capital for agriculture and allied activities and a reasonable component for consumption
			needs.

	5	•	The minimum lock-in-period of three months from the date of acceptance of deposits for NBFCs and Miscellaneous
			Non-Banking Companies (MNBCs) and twelve months for RNBCs within which they cannot repay a public deposit (in
			case of NBFCs) or deposit (in case of RNBCs and MNBCs) or grant of any loan against such deposits was retained.
			It was also decided to stratify the NBFCs, MNBCs and RNBCs for the purpose of permission to prepay the deposits
			(after the lock-in period) into two categories, viz., ‘problem NBFCs, MNBCs, and RNBCs’ and ‘normally run companies’.
			Accordingly, different set of norms were issued for the two groups with respect to the prepayment norms and the
			interest rates to be paid on the deposits.

	7	•	The Senior Citizens Savings Scheme (SCSS), 2004 being implemented through post offices also to be operated
			through all the branches of public sector banks (PSBs) which are operating ‘PPF Scheme, 1968’.

	14	•	Industrial Development Bank of India (IDBI) Ltd. included in the Second Schedule to the Reserve Bank of India Act,
			1934 with effect from October 11, 2004.

	15	•	Banks to implement a few more recommendations of the Vyas Committee. These included: financing development of
			wasteland and fallow land, improving staffing in the rural areas to promote retail lending to agriculture, relying on
			village functionaries for credit disbursal, using individual volunteers, farmers’ clubs or NGOs/SHGs as direct selling
			agents, building synergy between good working primary agricultural credit societies and commercial banks, using
			Information Technology (IT) in rural branches, working out appropriate incentive structure for prompt repayment,
			making the rates of interest on small loans reasonable and improving the efficiency of credit delivery to small borrowers
			and association with contract farming.

		•	Guidelines relating to the process of issue of Subordinated Debt Instruments under Tier II and Tier III Capital issued.

	19	•	The details of the levy of penalty on a bank to be put in the public domain in the interests of the investors and
			depositors. The strictures or directions on the basis of inspection reports or other adverse findings also to be placed
			in the public domain.

	20	•	UCBs to follow similar practices as the illustrative best practices followed by well-managed banks in the urban
			banking sector provided by the Reserve Bank as examples. UCBs, however, are free to put in place any other
			practices, which would result in better customer service and business development.

Date of
Announce-			POLICY ANNOUNCEMENTS
ment

2004			III. FINANCIAL SECTOR MEASURES (Contd.)

Oct.	27	•	RRBs permitted to undertake insurance business as corporate agent without risk participation subject to their fulfilling
			certain terms and conditions related to net worth, gross NPAs, profitability, compliance with IRDA regulations,
			prudential norms and directions of the Reserve Bank, etc.

Nov.	1	•	Banks to formulate a comprehensive and transparent policy covering i) immediate credit of local/outstation cheques,
			ii) time frame for collection of local/outstation cheques and iii) interest payment for delayed collection.

		•	The requirement of invocation of State Government guarantee for deciding the asset classification and provisioning of
			State Government guaranteed exposure was withdrawn and they were subjected to the same norms as applicable to
			exposures not guaranteed by the State Governments. Similar guidelines were issued to all primary (Urban) co-operative
			banks.

		•	With effect from March 31, 2005, in respect of FIs, an asset is to be classified as doubtful asset, if it remained in the
			sub-standard category for 12 months. FIs permitted to phase out the consequent additional provisioning over a four-
			year period, commencing from the year ending March 31, 2005, with a minimum of 20 per cent each year.

	6	•	Banks/FIs to take immediate steps to ensure submission of periodical data to CIBIL and submit progress reports to
			the Reserve Bank.

	13	•	A quarterly reporting arrangement introduced for NBFCs not accepting/holding public deposits and having assets
			size of Rs.500 crore and above as on March 31, 2004.

	18	•	Scheduled or licensed State Co-operative Banks and licensed District Central Co-operative Banks (DCCBs) permitted
			to undertake insurance business as corporate agent without risk participation subject to their fulfilling certain terms
			and conditions.

	24	•	Banks to restructure crop loans and agricultural term loans only in respect of the overdue instalments including
			interest thereon as on March 31, 2004. The farmers whose loans have been restructured as above would be eligible
			for fresh loans. The rescheduled/restructured loans as also the fresh loans to be issued to the farmers may be
			treated as current due and need not be classified as NPA.

	29	•	Comprehensive guidelines on ‘Know Your Customer’ norms and Anti-Money Laundering Measures issued. Banks
			advised to frame their KYC policies incorporating the following four key elements: i) Customer Acceptance Policy; ii)
			Customer Identification Procedures; iii) Monitoring of Transactions; and iv) Risk Management. Similar guidelines
			issued to UCBs on December 15, 2004, to RRBs on February 18, 2005 and to NBFCs/MNBCs/RNBCs on February 21,
			2005.

Dec.	8	•	The recommendations of the Ganguly Working Group with regard to evaluation of methods of utilisation of deposits
			made by foreign banks with SIDBI for shortfall in their priority sector obligation accepted. Accordingly, the amount of
			shortfall in priority sector obligation to be placed with SIDBI for a tenor of three years and the funds so placed to
			have a graded interest rate structure.

		•	The Service Area Approach (SAA) introduced in April 1989 was reviewed and it was decided to dispense with the
			restrictive provisions of the scheme, while retaining the positive features such as credit planning and monitoring of
			the credit purveyance.

	14	•	UCBs permitted to grant housing loan up to Rs.15 lakh as against the existing limit of Rs.10 lakh.

	16	•	Banks advised that the due diligence in respect of members of the Nomination Committee be carried out by the
			Board itself.

	21	•	Comprehensive guidelines issued to banks to play a proactive role in achieving the targets set under the Swarnjayanti
			Gram Swarozgar Yojana (SGSY) scheme.

	23	•	Risk weight on housing loans extended by SCBs increased from 50 per cent to 75 per cent and in the case of
			consumer credit including personal loans and credit cards increased from 100 per cent to 125 per cent. Similar
			guidelines issued to UCBs on January 5, 2005.

	30	•	Banks to enhance the amount of consumption loan for general purposes to Rs.3,000 for people affected by Tsunami.
		•	Comprehensive guidelines issued to RNBCs to smoothen the process of their transition to compliance with the revised
			Directions of the Reserve Bank. For compliance with the revised Directions issued on June 22, 2004, following
			modifications were made. These included: reckoning as eligible securities the investments made in CDs of specified
			FIs and bonds/debentures which are listed, even if rating of AA+ of these instruments at the time of investment has
			been subsequently downgraded to Minimum Investment Grade Rating (MIGR); treating balances in current account
			with scheduled commercial banks as eligible investments.

Date of
Announce-			POLICY ANNOUNCEMENTS
ment

2005			III. FINANCIAL SECTOR MEASURES (Contd.)

Jan.	4	•	Guidelines on receipt of foreign contributions by Associations/Organisation in India under Foreign Contribution
			(Regulation) Act, 1976 for the Tsunami relief issued to Banks/UCBs.

18		•	Banks to formulate suitable loan policies to finance second hand assets, both directly and through NBFCs.
		•	Banks advised to ensure acceptance of coins of all denominations without any restriction from the members of the
			public by their branches.

20		•	Guidelines issued to UCBs to delink the requirement of invocation of State Government Guarantee for asset
			classification and provisioning.
24		•	Comprehensive guidelines issued allowing all primary (urban) co-operative banks to undertake insurance business
			on a referral basis, subject to certain conditions. Similar guidelines were issued to all State co-operative banks and
			District central co-operative banks on May 6, 2005 and to RRBs on May 12, 2005.
Feb.	2	•	Guidelines on Merger/Amalgamation for UCBs issued with the following preconditions: i) net worth of the acquiree
			bank is positive and the acquirer bank assures to protect entire deposits of all the depositors of the acquired bank;
			ii) when the net worth of acquiree bank is negative, the acquirer bank on its own assures to protect deposits of all
			the depositors of the acquired bank; and iii) when the net worth of the acquiree bank is negative and the acquirer
			bank assures to protect the deposits of all the depositors with financial support from the State Government extended
			upfront as part of the process of merger.

	7	•	NBFCs accepting/holding public deposits advised to ensure that at all times there is full cover available for public
			deposits accepted by them.
11		•	FIs to obtain from their Statutory Central Auditors, the certificate relating, inter alia, to their treasury operations;
			reconciliation of their investments; compliance in key areas; income recognition, asset classification and provisioning
			and authentication of their calculation on CRAR.
15		•	Detailed prudential guidelines issued to banks on capital adequacy for implementation of the New Capital Adequacy
			framework under Basel II. In order to maintain consistency and harmony with international standards. Banks were advised
			to adopt Standardised Approach for credit risk and Basic Indicator Approach for operational risk with effect from March 31,
			2007. The Reserve Bank may consider allowing some banks to migrate to Internal Rating Based (IRB) approach after
			developing adequate skills both in banks and at supervisory levels. Under the New Framework, banks adopting Standardised
			Approach would use the ratings assigned only by those credit rating agencies which are identified by the Reserve Bank.
			Banks were also required to focus on formalising and operationalising their Internal Capital Adequacy Assessment Process
			which would serve as a useful benchmark while undertaking the parallel run with effect from April 1, 2006.

17		•	The minimum networth for undertaking insurance business by scheduled or licensed state co-operative banks and
			licensed DCCBs reduced from Rs.100 crore to Rs.50 crore.

26		•	Guidelines issued to primary (urban) co-operative banks regarding reporting system on their investment portfolio.
28		•	Comprehensive guidelines issued on ownership and governance in private sector banks encompassing the minimum
			capital requirement, diversified ownership, procedures for acquisition and transfer of shares, ‘fit and proper criteria’
			for the directors and important shareholders, etc.
		•	Roadmap for presence of foreign banks in India laid out in two phases. In the first phase (March 2005 to March 2009); i)
			foreign banks wishing to establish presence in India for the first time could either choose to operate through branch
			presence or set up a 100 per cent wholly owned subsidiary (WOS), following the one-mode presence criterion; ii) for new
			and existing foreign banks, it was proposed to go beyond the existing WTO commitment of 12 branches in a year. Initially
			entry of foreign banks would be permitted only in private sector banks that are identified by the Reserve Bank for restructuring,
			wherein foreign banks would be allowed to acquire a controlling stake in a phased manner. In the second phase beginning
			April 2009, the experience with Phase I would be reviewed and after due consultations with all stakeholders in the banking
			sector issues concerning extension of national treatment to WOS, dilution of stake and permitting mergers and acquisitions
			of any private sector banks in India by a foreign bank would be examined.

March	1	•	Master circular issued to SCBs (including RRBs/LABs) in regard to matters relating to lending to small scale
			industries sector.

		•	Guidelines issued to state co-operative banks and DCCBs in respect of additional provisioning requirement for NPAs.

		•	Guidelines issued to UCBs regarding enhancement of transparency of their operations by having comprehensive
			requirements for disclosure.

	3	•	Effective March 31, 2005, SCBs to disclose a minimum framework on their risk exposure in derivatives.

Date of
Announce-			POLICY ANNOUNCEMENTS
ment

2005			III. FINANCIAL SECTOR MEASURES (Contd.)

March	11	•	Parameters on pilot implementation of Cheque Truncation Image Standards issued to banks.

	28	•	Detailed guidelines issued to UCBs regarding classification and valuation of investment portfolio for provisioning
			requirements.

	30	•	Prudential norms in respect of income recognition, assets classification, provisioning and other related matters for
			the UCBs revised.

		•	UCBs to exercise caution in outsourcing of their systems and ensure that risks in this regard are minimised.

		•	Banks advised to implement some recommendations of the Vyas Committee. These included: constitution of local
			advisory committees for all rural branches/group of branches, setting up of micro-finance cells at banks’ central offices,
			and encouraging SHGs to use local book writers in association with concerned agencies promoting these SHGs for
			maintaining the quality of books of accounts.

April	7	•	The lending and deposit rates of interest restructured in case of amounts disbursed on or before October 31, 2003
			out of RIDF IV to VII, effective April 16, 2005.

	11	•	Detailed guidelines issued to banks on rural lending under Annual Credit Plans on the basis of Potential Linked
			Plans (PLPs) prepared by NABARD.

		•	Banks to pay compensation for delayed credit under ECS/EFT/SEFT suo moto.

		•	Ceilings on donations/contributions for public/charitable purposes out of profits of UCBs announced.

	13	•	The rate of interest to be charged on group loans under SGSY linked to per capita size of the loans.

	15	•	Banks to put in place a Business Continuity Plan including a robust information risk management system within a
			fixed time frame.

		•	UCBs to reduce the prudential exposure limits on advances to 15 per cent and 40 per cent of the ‘Capital Funds’ in
			case of single borrower and group of borrowers, respectively. The definitions of capital funds and exposure were
			also modified for this purpose. UCBs to bring down the outstanding or the sanctioned exposure limit exceeding the
			revised limit within a maximum period of 2 years, i.e., by March 31, 2007.

	16	•	Banks to take necessary action to convert the existing ad hoc Committees on Procedures and Performance Audit of
			Public Services (CPPAPS) into a Standing Committee on Customer Service.

	19	•	Banks advised on the role of Customer Service Committee of the Board for monitoring the implementation of awards
			under the Banking Ombudsman Scheme.

	26	•	A minimum framework for disclosures by FIs on their risk exposures in derivatives laid out to provide a clear picture
			of their exposure to risks in derivatives, risk management systems, objectives and policies.

	27	•	Banks permitted to shift their rural branches within the block/service area without obtaining prior approval of the
			Reserve Bank, subject to their complying with a few conditions.

		•	Financial institutions not accepting public deposits but having asset size of Rs.500 crore and above would be subjected
			to limited off-site supervision by the Reserve Bank. Therefore, with effect from the period ended March 31, 2005, the
			existing system of off-site supervision would stand replaced by a simplified information system known as the ';Quarterly
			Return on Important Financial Parameters in respect of Select Financial Institutions';.

	30	•	Banks allowed to formulate schemes for providing services at the premises of a customer within the framework of
			Section 23 of Banking Regulation Act, 1949 and submit to the Reserve Bank for approval.

		•	Banks with capital of at least 9 per cent of the risk weighted assets for both credit risk and market risks for both
			Held for Trading (HFT) and Available for Sale (AFS) categories may transfer the balance in excess of 5 per cent of
			securities included under HFT and AFS categories, in the Investment Fluctuation Reserve (IFR) to Statutory Reserve,
			which is eligible for inclusion in Tier I capital.

May	4	•	General permission granted to banks to declare dividends under fulfillment of a few conditions, including observance
			of minimum CRAR and NPA ratio, subject to a ceiling of dividend payout ratio of 40 per cent.

		•	Effective quarter ended June 2005, the time limit for filing the monthly and quarterly off-site returns changed to 15
			days and 21 days, respectively, from the close of the relevant period for all categories of banks.

		•	UCBs to forward in the quarterly statement on ‘consolidated position of frauds outstanding’ a footnote detailing the
			position of frauds outstanding in the housing loan segment, beginning from the quarter ended March 2005.

Date of
Announce-			POLICY ANNOUNCEMENTS
ment

2005			III. FINANCIAL SECTOR MEASURES (Concld.)

May	11	•	Detailed guidelines for merger/amalgamation of private sector banks issued laying down the process of merger
			proposal, determination of swap ratios, disclosures, the stages at which Boards will get involved in the merger
			process and norms of buying/selling of shares by the promoters before and during the process of merger.

	13	•	The Vision Document on Payment and Settlement Systems 2005-08 released.

	20	•	Banks to initiate early action with regard to scheme for Small Enterprises Financial Centres (SEFCs) envisaged for
			forming a strategic alliance between branches of banks and SIDBI located in the clusters for improving credit flow to
			the SSIs sector.

	26	•	SCBs advised to put in all efforts to achieve the credit mobilisation targets under SGSY during the year 2005-06
			including the minimum subsidy credit ratio fixed and maintain per family investment of Rs.25,000.

June	7	•	Banks allowed to extend financial assistance to Indian companies for acquisition of equity in overseas joint ventures/
			wholly owned subsidiaries or in other overseas companies, new or existing, as strategic investment in terms of a Board
			approved policy, duly incorporated in the loan policy of the bank.

	9	•	Instructions issued to banks, in supersession of all earlier instructions on settlement of claims in respect of deceased
			depositors, covering aspects relating to i) access to balance in deposit accounts, ii) premature termination of term
			deposit accounts, iii) treatment of flows in the name of the deceased depositor, iv) access to the safe-deposit lockers/
			safe custody articles, and v) time limit for settlement of claims.

		•	Banks (both in private and public sector) need not obtain approval of the Reserve Bank for permitting any of their
			whole-time officers or employees (other than Chairmen/CEOs) to become director or a part-time employee of any
			other company.

	14	•	Processing charges waived for all electronic products for transactions under EFT, SEFT and ECS facility involving
			Rs.2 crore and above with effect from June 14, 2005 up to the period ending March 31, 2006. This is in addition to
			the existing waiver on transactions involving less than Rs.2 crore.

	20	•	Banks advised that while furnishing data/information to the Government or other investigating agencies they should
			satisfy themselves that the information is not of such a nature which will violate the provisions of the laws relating to
			secrecy in banking transactions.

	24	•	For the purpose of Section 20 of the Banking Regulation Act, 1949, the term '; loans and advances'; shall not include
			line of credit/overdraft facility extended by settlement bankers to National Securities Clearing Corporation Ltd. (NSCCL)
			to facilitate smooth settlement.

	29	•	Banks to have a Board mandated policy in respect of their real estate exposure covering exposure limits, collaterals
			to be considered, margins to be kept, sanctioning authority/level and sector to be financed. Banks to also report their
			real estate exposure under certain heads and disclose their gross exposure to real estate sector as well as the
			details of the break-up in their Annual Report.

July	4	•	UCBs having a single branch/HO with deposits up to Rs.100 crore and those having multiple branches within a
			single district with deposits up to Rs.100 crore permitted to classify loan NPAs based on 180 days delinquency norm
			instead of the extant 90 days norm till March 31, 2007.

	13	•	Banks to furnish information on pricing of services for products based on RTGS/SEFT/EFT/ECS infrastructure.

		•	Guidelines on sale/purchase of NPAs, including valuation and pricing aspects, and prudential and disclosure norms
			issued.

		•	The norms relating to classification and valuation of investment portfolio of State and District central co-operative
			banks modified allowing them to amortize their additional provisioning requirement.

	20	•	Prior approval of the Reserve Bank not required for offering Internet Banking services, subject to fulfillment of
			certain conditions.

	23	•	The authority to grant permission to companies listed on a recognised stock exchange to hedge the price risk in
			respect of any commodity (except gold, silver, petroleum and petroleum products) in the international commodity
			exchanges/markets delegated to select commercial banks.

	26	•	The risk weight for credit risk on capital market exposures and commercial real estate exposures increased from 100
			per cent to 125 per cent.

	29	•	Guidelines issued for relief measures by banks in areas affected by unprecedented rains and floods in Maharashtra.
			Accordingly, banks were advised to consider granting consumption loans to the affected persons up to Rs.5,000
			without any collateral and Rs.10,000 at the discretion of the branch manager, depending on the repaying capacity of
			the borrower.

Date of
Announce-			POLICY ANNOUNCEMENTS
ment

			IV. CAPITAL MARKET POLICIES

			(i) Securities and Exchange Board of India (SEBI)

2004
April	1	•	With a view to make the trading system efficient and less time consuming, Straight Through Processing (STP) made
			compulsory for all institutional trades.

	2	•	In order to identify the trades through multiple members of the stock exchanges and for the purpose of better risk
			management, FIIs/sub-accounts advised to inform the unique client code to the member broker while trading in the
			Indian securities market.

	21	•	Guidelines issued to facilitate smooth completion of settlement process and help members of the stock exchanges to
			meet their obligations in a timely manner in cases where holidays of banks and stock exchanges are not common.

	30	•	All listed companies which decide to change their names advised to comply with the following conditions: i) at least
			one year should have elapsed from the last name change, ii) at least 50 per cent of its total revenue in the preceding
			one year period should have been accounted for by the new activity suggested by the new name, and iii) the new name
			along with the old name should be disclosed through the websites of the respective stock exchanges where the company
			is listed and also through the EDIFAR website for a continuous period of one year, from the date of the last name
			change.

May	28	•	SEBI announced amendments to the SEBI Disclosure and Investor Protection (DIP) Guidelines, 2000 with respect
			to the following: splitting of shares before IPO, terms of the issue, post issue obligations, public issues of bonds by
			designated financial institutions under a shelf prospectus, definition of employees, reservation for shareholders and
			availability of Green Shoe Option (GSO) facility.

July	16	•	SEBI modified the risk containment measures, position limits and the broad eligibility criteria of stocks and indices
			on which futures and options could be introduced. The FII position limit in all index derivative contracts (futures or
			options) on a particular underlying index would be Rs.250 crore or 15 per cent of the total open interest of the
			market per exchange, whichever was higher, in that index derivative.

		•	All specified intermediaries and their related persons required to quote the Unique Identification Number (UIN)
			obtained under the Central Database of Market Participants in lieu of the Unique Client Code for all secondary
			market transactions with effect from August 2, 2004.

Aug.	23	•	As per the provisions in the Union Budget and the Finance Bill for 2004-05, SEBI instructed the stock exchanges to
			levy, collect and remit the securities transaction tax (STT) on all transactions from the date of notification by the
			Government of India.

	24	•	SEBI instructed the members to transfer the funds and securities from their respective pool account to the respective
			beneficiary account of their clients within a working day after the payout day.

	26	•	In order to bring about uniformity in documentary requirements across different segments and exchanges and also
			to avoid duplication and multiplicity of documents, SEBI in consultation with stock exchanges formulated uniform set
			of documents with respect to client registration form, member client agreements, model tripartite agreement between
			broker, sub-broker and clients and uniform risk disclosure documents. Broker sub-broker agreement to be submitted
			by the market participants periodically.

Oct.	27	•	On the basis of SEBI (Central Database of Market Participants) Regulation, 2003, SEBI clarified ‘specified investors’
			as those who are required to obtain a UIN before March 31, 2005. All resident investors not being bodies corporates,
			who enter into any securities market transactions (primary or secondary) of value of one lakh rupees or more, as
			‘specified investors’, required to obtain a UIN before March 31, 2005. Foreign institutional investors, sub-accounts and
			foreign venture capital investors as ‘specified investors’ also required to obtain a UIN before March 31, 2005.

	28	•	SEBI reviewed and consolidated the Investors Protection Fund (IPF)/Customer Protection Fund (CPF) Guidelines
			and prescribed comprehensive guidelines with respect to constitution and management of the IPF/CPF, contribution
			to IPF/CPF, manner of filing/inviting claims from investors, eligible claims, determination of legitimate claims and
			disbursements of claims from the IPF/CPF.

	29	•	All stock exchanges directed to amend the existing Clause 49 of the listing agreement in areas pertaining to
			composition of board of directors, audit committee, subsidiary companies, disclosures, CEO/CFO certification, report
			on corporate governance, and compliance. SEBI clarified that the provisions would be implemented for entities
			seeking listing for the first time, at the time of seeking in-principle approval for such listing and for existing listed
			entities having a paid-up share capital of Rs.3 crore and above or net worth of Rs.25 crore or more at any time in the
			history of the company, by April 1, 2005.

Date of
Announce-			POLICY ANNOUNCEMENTS
ment

2004			IV. CAPITAL MARKET POLICIES (Contd.)

Nov.	2	•	In view of the Government of India raising the cumulative debt investment limit for the FIIs/sub-accounts from
			US $ 1 billion to US $ 1.75 billion, SEBI clarified that the overall investment limit under the 70:30 route in dated
			Government securities and treasury bills would be increased from US $ 100 million to US $ 200 million.

		•	SEBI finalised the model listing agreement for debt securities. Part one of the agreement contains clauses which
			should be complied with by all issuers irrespective of the mode of issuance. Part two contains clauses which should
			be complied with only if debentures are issued either through public or rights issue. Part three contains clauses
			which are required to be complied with only if debentures are issued on private placement basis. All the stock
			exchanges instructed to henceforth list all debt securities through an agreement as given in the model listing
			agreement.

Dec.	2	•	SEBI clarified that a cumulative sub-ceiling of US $ 500 million outstanding would be fixed for FII investments in
			corporate debt, over and above the ceiling of US $ 1.75 billion for Government debt.

	8	•	SEBI amended the Clause 16 of the Listing Agreement and instructed that the company on whose stocks, derivatives
			are available or whose stocks form part of an index on which derivatives are available, should give a notice period of
			30 days to stock exchanges for corporate actions like mergers, de-mergers, splits and bonus shares.

2005

Jan.	28	•	Based on the recommendations of the Secondary Market Advisory Committee (SMAC), SEBI rationalised the charge
			structure for dematerialisation by exempting investors from paying any charge towards opening of beneficiary owner
			(BO) account except for statutory charges and for credit of securities into his/her BO account.

Feb.	23	•	SEBI released the comprehensive risk management framework for the cash segment of the market which contains
			the definition of acceptable liquid assets and the applicable haircuts, liquidity categorisation of security, calculation
			of mark-to-market losses and computation and collection of VaR margin and other margins.

Mar.	4	•	SEBI modified the margin trading and securities lending and borrowing scheme with respect to the securities eligible
			for margin trading facility, margin requirements, no-objection certificate and procedures of securities lending and
			borrowing.

	29	•	SEBI extended the deadline for ensuring conformity by companies with the revised Clause 49 of the listing agreement
			up to December 31, 2005.

		•	SEBI amended the SEBI (DIP) Guidelines, 2000 for enhancing the allocation category for retail investors, redefining
			the retail investors in value terms, reducing the bidding period, timing of disclosure of price band/floor price in case
			of listed companies and data reporting at the website of stock exchanges.

July	1	•	SEBI suspended all fresh registrations for obtaining UIN and the requirement to obtain/quote UIN under the Central
			Database of Market Participants Regulations/Circulars.


		(ii) Government of India
2004

July	8	•	The Union Budget, 2004-05 proposed the following measures: i) raising of the investment ceiling for Flls in debt
			funds from US $ 1 billion to US $ 1.75 billion, ii) 0.15 per cent Securities Transaction Tax (STT) on all transactions
			made on the stock exchanges, iii) abolition of the tax on long-term capital gains from securities transactions, iv)
			reduction in the short-term capital gains tax to a flat rate of 10 per cent from the existing 30 per cent (excluding
			surcharge), v) a tax of 12.5 per cent on the income distributed to individual unit holders and 20 per cent in case of
			corporate unit holders by debt-oriented mutual funds, and vi) abolition of the bonus stripping and dividend stripping
			in units of MFs.

	21	•	The budget proposal relating to the STT modified. It was clarified that the STT of 0.15 per cent would be applicable
			only to the delivery-based transactions and would be shared equally between the buyers and the sellers. The tax for
			non-delivery transactions by day traders and arbitragers was proposed to be reduced from 0.15 per cent to 0.015
			per cent and 0.01 per cent, respectively, on derivates transactions. The debt market was fully exempted from the
			STT. Debt-oriented mutual funds were also exempted from STT and would pay 10 per cent tax on long-term capital
			gains and 30 per cent tax on short-term capital gains. Equity-oriented mutual funds were exempted from tax on long-
			term capital gains and the tax on short-term capital gains was reduced to 10 per cent. Buyers of units of MFs would
			pay a STT of 0.15 per cent.

Date of
Announce-			POLICY ANNOUNCEMENTS
ment

2005			IV. CAPITAL MARKET POLICIES (Concld.)

Feb.	28	•	The Union Budget, 2005-06 proposed the following measures: i) authorising the SEBI to set up a National Institute
			of Securities Markets (NISM) for teaching and training intermediaries in the securities markets and promoting research,
			ii) permitting FIIs to submit appropriate collateral, in cash or otherwise, as prescribed by the SEBI, when trading in
			derivatives on the domestic market, iii) amending the definition of ‘securities’ under the Securities Contracts
			(Regulation) Act, 1956 so as to provide a legal framework for trading of securitised debt including mortgage-backed
			debt, iv) appointing a high level Expert Committee on corporate bonds and securitisation to look into the legal,
			regulatory, tax and market design issues in the development of the corporate bond market, v) taking measures to
			provide legal validity to Over the Counter (OTC) derivatives contracts, vi) exempting one-time stamp duty on the
			notional transfer of assets of the three stock exchanges which are not yet corporatised, vii) rationalising the stamp
			duty to create a level playing field for banks and non-bank entities to issue commercial paper, viii) appointing a high
			powered Expert Committee in consultation with the Reserve Bank to advise the Government on making Mumbai a
			regional financial centre, and ix) SEBI to permit mutual funds to introduce Gold Exchange Traded Funds (GETFs)
			with gold as the underlying asset in consultation with the Reserve Bank.


		(iii) Reserve Bank of India

2004

May	18	•	In line with the recommendations made by the Task Force constituted for monitoring developments in the financial
			markets, the Reserve Bank decided to restore, with immediate effect, the status quo ante on margins that banks
			have to maintain for financing against shares/IPOs/issue of guarantees. Accordingly, the margins would be 40 per
			cent as against the earlier 50 per cent. The minimum cash margin of 25 per cent (within the margin of 50 per cent)
			was reduced to 20 per cent.

Dec.	27	•	Margin on all advances against shares/financing of IPOs/issue of guarantees increased from the existing 40 per
			cent to 50 per cent and the minimum cash margin from 20 per cent to 25 per cent with immediate effect.

2005

June	25	•	Banks going for rights issues henceforth to make complete disclosure of the regulatory requirements in their offer
			documents.


			V. EXTERNAL SECTOR POLICIES

		a) Trade Policy
2004
May	17	•	Additional Standard Input Output Norms (SION) for 20 new export items and amendments/corrections/deletions in
			the norms for 20 existing export items notified by the Directorate General of Foreign Trade (DGFT). Out of the 20
			new norms, 16 norms related to the chemicals and allied products and one each related to engineering products,
			plastic products, textile products and miscellaneous products.

	27	•	The Reserve Bank announced the Gold Card Scheme for exporters.

Aug.	31	•	A comprehensive Foreign Trade Policy 2004-09 (FTP 2004) announced by the Government of India aimed at doubling
			India’s share in global merchandise trade by 2009 and to make exports an effective instrument of economic growth
			and employment generation. The key strategies adopted in the policy to enhance exports include unshackling of
			controls, simplification of procedures, reduction in transaction cost; neutralisation of incidence of all levies and
			duties on inputs used for export; facilitating development of India as a global hub for manufacturing, trading and
			services; and identifying and nurturing special focus areas like agriculture, handlooms, handicraft, gems and jewellery,
			leather and footwear. In addition, export promotion schemes like ‘Vishesh Krishi Upaj Yojna’ and ‘Served from India’
			scheme were also announced to accelerate the growth of agriculture and services exports. New schemes named
			‘Target Plus’ and ‘Free Trade Warehousing Zone’ (FTWZ) were announced to improve the export-related infrastructure
			and thereby exports. Various schemes were modified to suit the changing export climate. FTP 2004 also mooted to
			revamp and revitalise the Board of Trade to advise the Government on policy measures for preparation and
			implementation of short-term and long-term plans for increasing exports.

Date of
Announce-			POLICY ANNOUNCEMENTS
ment

2004			V. EXTERNAL SECTOR POLICIES (Contd.)

Oct.	15	•	Free on Board (FOB) value of exports of an Export Oriented Unit (EOU)/ Electronic Hardware Technology Park
			(EHTP)/ Software Technology Park (STP)/ Bio-Technology Park (BTP) units could be clubbed with FOB value of
			exports of its parent company in the Domestic Tariff Area (DTA) or vice versa for the purpose of according Star
			Export House Status.

		•	Clearance of capital goods including second hand capital goods in DTA would be allowed as per the policy under
			the EPCG Scheme. In other cases, clearance in DTA may be allowed on payment of applicable duty and import
			policy in force on the date of such clearance.

Nov.	25	•	The DGFT notified additional SION for 60 new export items and amendments/corrections/deletions in the SION
			for 42 existing export items. Out of the 60 new norms, 48 norms related to the chemicals and allied products and
			12 related to engineering products.

Dec.	16	•	The DGFT notified additional SION for 28 new export items and amendments/corrections/deletions in the norms
			for 23 existing export items. Out of the 28 new norms, 20 norms related to the chemicals and allied products, 6
			norms related to textile products and 2 norms related to miscellaneous products.

2005
Jan.	4	•	The Government of India notified various export items eligible for duty credit scrip equivalent to 5 per cent of FOB
			value of exports under ‘Vishesh Krishi Upaj Yojana’. The export items eligible for these benefits include plants,
			bulbs, roots, cut flowers, edible vegetables, edible fruits and nuts, spices and minor forest product.

	13	•	The DGFT notified additional SION for 12 new export items and amendments/corrections/deletions in the SION
			for 16 existing export items. Out of the 12 new norms, 6 norms related to the chemicals and allied products, 3
			related to the engineering products, 2 related to the plastic products and 1 norm related to the textile products.

	18	•	All supplies made to Special Economic Zones (SEZs) to be treated as physical exports with effect from September
			1, 2004 and entitled for benefits of Duty-Free Replenishment Certificate (DFRC) under the foreign trade policy.

	24	•	A fast track clearance procedure for EOUs having status holder certificate under the foreign trade policy announced
			to facilitate the functioning of performing EOUs by lowering the transaction cost.

Feb.	16	•	The DGFT notified additional SION for 27 new export items and amendments/corrections/deletions in the norms
			for 35 existing export items. Out of the 27 new norms, 22 norms related to the chemicals and allied products, 4
			related to the engineering products and 1 related to the food products.

	28	•	The Union Budget for 2005-06 announced various trade measures relating to diversification of agricultural
			commodities, rejuvenation of the plantation sector, programme to strengthen manufacturing competitiveness and
			nurturing the textile sector to prepare it for the post-MFA regime. Towards the objective of bringing India’s custom
			duty structure closer to the East Asian level, the peak rate of custom duty for non-agricultural products reduced
			from 20 per cent to 15 per cent.

April	8	•	Annual Supplement to FTP 2004 announced with focus on making manufacturing sector more competitive through
			concrete measures so as to help Indian companies become globally competitive and simultaneously give Indian
			consumers world-class products and services. The policy renewal provides packages for several sectors including
			agriculture, marine products, export oriented units and service sectors; contains major procedural simplification
			initiatives to reduce transaction costs; setting up of an Inter State Trade Council to engage State Governments
			more actively in export effort; and proposals to abolish cess on export of all agricultural and plantation commodities
			levied under the various Commodity Board Act. In a further boost to agri-exports, benefits under the ‘Vishesh
			Krishi Upaj Yojana’ proposed to be extended to poultry and dairy products in addition to export of flowers, fruits,
			vegetables, minor forest produce and their value added products.

	28	•	The DGFT notified additional SION for 27 new export items of which 25 norms related to the chemicals and allied
			products and one each related to engineering products and plastic products.

May	10	•	SEZ units obtaining gold/silver/platinum from the nominated agencies on loan basis required to export that jewellery
			within 90 days from the date of release, except outright purchase.

	13	•	Units, other than gems and jewellery, allowed to sell goods up to 50 per cent of FOB value of exports subject to
			fulfillment of positive net foreign exchange earnings (NFE) on payment of concessional duties.

		•	EOU/EHTP/STP/BTP units allowed to sell finished products except pepper and pepper products, which are freely
			importable under the policy in the DTA under intimation to the Development Commissioner against payment of full
			duties, provided they have achieved the positive NFE.

Date of
Announce-			POLICY ANNOUNCEMENTS
ment

			V. EXTERNAL SECTOR POLICIES (Contd.)

		b) Foreign Exchange Market

2004

April	17	•	Authorised Dealers (ADs) allowed to approve trade credits for imports into India up to US $ 20 million per import
			transaction for import of all items (permissible under the EXIM Policy) with a maturity period (from the date of
			shipment) up to one year. ADs also allowed to approve trade credits up to US $ 20 million per import transaction with
			a maturity period of more than one year and less than three years only for import of capital goods. No roll-over/
			extension would be permitted by the AD beyond the permissible period.

		•	ADs permitted to allow remittance of net salary (after deductions of taxes, contribution to provident fund and other
			deductions) of a citizen of India, who is on deputation to the office or branch or subsidiary or joint venture in India of
			such overseas company, for the maintenance of close relatives residing abroad.

	22	•	It was clarified to banks that non-resident ordinary accounts may be held by non-residents jointly with residents.

	24	•	It was clarified that deposits by NRIs with persons other than ADs/Authorised Banks out of inward remittances from
			overseas or by debit to NRE/FCNR(B) accounts would not be permitted. However, deposits by NRIs by debit to NRO
			Accounts may continue hitherto provided that the amount deposited with such entities does not represent inward
			remittances or transfer from NRE/FCNR(B) accounts into the NRO account.

May	3	•	ADs permitted to allow remittances for acquisition of shares under Employees’ Stock Option Plan (ESOP) dispensing
			with the condition that the shares should be offered at a concessional price. Sale of the shares so acquired was also
			permitted, without prior permission of the Reserve Bank, provided the proceeds thereof are repatriated to India.

	25	•	Close relatives (as defined under section 6 of the Companies Act, 1956) of the borrower in India permitted to repay
			the installment of housing loans, interest and other charges, if any, through their bank accounts directly to the
			borrower’s loan account with the authorised dealer/housing finance institution.

June	7	•	Exporters permitted to grant trade related loans/advances from their EEFC account to their overseas importer
			customers without any ceiling, subject to submission of a guarantee of a bank of international repute situated outside
			India by the overseas borrowers in favour of the lender where the amount of loan advanced exceeds US $ 1,00,000
			(earlier limit of US $ 25,000).

July	9	•	ADs advised that they can open Letters of Credit (LCs) and allow remittance on behalf of EOUs, units in SEZs in the
			gems and jewellery sector in addition to nominated agencies for direct import of gold, subject, inter alia, to the
			conditions that i) the import of gold should be strictly in accordance with the EXIM policy, ii) Suppliers’ and Buyers’
			Credit, including usance period of LCs opened for direct import of goods, should not exceed 90 days, and iii)
			bankers’ prudence should be strictly exercised for all such transactions, while also meeting reporting requirements
			stipulated by the Reserve Bank.

	20	•	Resident individual beneficiaries were permitted to credit to their Resident Foreign Currency (RFC) Account or RFC
			(Domestic) Account, as the case may be, the foreign exchange received by them by way of the proceeds of life
			insurance policy claims/maturity/surrender values settled in foreign currency from an insurance company in India
			permitted to undertake life insurance business by the IRDA.

Sept.	13	•	Restriction imposed on investment in Indian companies by Sri Lankan citizens was lifted and they would henceforth
			be eligible to purchase shares or convertible debentures of an Indian company under foreign direct investment
			scheme subject to specified terms and conditions.

Oct.	1	•	Listed Indian companies may allot shares to their employees who are citizens of Bangladesh and Sri Lanka under
			ESOP.

		•	The issue of ADR/GDR linked stock option by a listed company in the knowledge-based sectors would be governed
			by SEBI (Employees Stock Option and Stock Purchase Scheme) Guidelines, 1999, while the issue of ADR/GDR
			linked stock option to its employees by an unlisted company would continue to be governed by the guidelines
			issued by the Government of India. Accordingly, ADs were allowed to make remittances up to US $ 50,000 or its
			equivalent in a block of five calendar years, which is the current limit per eligible employee, without prior approval of
			the Reserve Bank, for purchase of foreign securities under the ADR/GDR linked ESOP, after satisfying that the
			issuing company has followed the relevant guidelines of SEBI/Government of India.

Date of
Announce-			POLICY ANNOUNCEMENTS
ment

2004			V. EXTERNAL SECTOR POLICIES (Contd.)

Oct.	1	•	General permission granted for conversion of external commercial borrowings (ECBs) into equity subject to the
			following conditions: i) the activity of the company is covered under the automatic route for FDI or they had obtained
			Government approval for foreign equity in the company; ii) the foreign equity after such conversion of debt into
			equity is within the sectoral cap, if any; iii) pricing of shares is as per SEBI and erstwhile CCI guidelines/regulations
			in the case of listed/unlisted companies as the case may be; and iv) compliance with the requirements prescribed
			under any other statute and regulation in force. This would also be applicable to ECBs irrespective of whether due
			for repayment or not, as well as secured or unsecured loans availed from non-resident collaborators. However,
			import payables, deemed as ECBs, would not be eligible for conversion into equity/preference shares. Conversion of
			ECB into equity will be subject to the prescribed reporting requirements.

	4	•	The requirement of prior approval of the Reserve Bank for transfer of shares and convertible debentures (excluding
			financial service sector) was dispensed with and general permission accorded subject to compliance of the terms
			and conditions and reporting requirements for transfer by a person resident in India to person resident outside India
			and vice versa. Increase in foreign equity participation by fresh issue of shares as well as conversion of preference
			shares into equity capital allowed, provided such increase falls within the sectoral cap in relevant sectors and are
			within the automatic route.

16		•	The requirement of prior approval of the Reserve Bank by Indian agents of foreign airline companies who are members
			of International Air Transport Association (IATA), for arranging to issue bank guarantees in favour of the foreign
			airline companies/IATA, in connection with their ticketing business was dispensed with. Accordingly, ADs were allowed
			to issue such guarantees and required to report the details of invocation of such guarantees to the Reserve Bank.

25		•	Remittance of hiring charges of transponders by i) TV Channels and ii) Internet Service Providers (ISP) would
			require the approval of the Ministry of Information and Broadcasting and Ministry of Communication and Information
			Technology, respectively. Accordingly, ADs would allow the remittances towards hiring of transponders by TV Channels
			and ISPs, as approved by the concerned Ministry.

Nov.	1	•	General permission given to ADs to issue guarantees, letters of comfort and letters of undertaking in favour of
			overseas suppliers or banks for their importer clients, up to US $ 20 million per transaction for a period up to one
			year for import of all non-capital goods permissible under the Foreign Trade Policy (except gold) and up to three
			years for import of capital goods, subject to prudential guidelines.

		•	All status holder exporters permitted a period of twelve months for realisation and repatriation of export proceeds.
			This facility was extended to 100 per cent EOUs and units set up under EHTPs, STPs and BTPs schemes.

		•	The limit for outstanding forward contracts booked by importers/exporters, based on their past performance (without
			production of the underlying documents), was increased from 50 per cent to 100 per cent of their eligible limit. The
			contracts booked in excess of 25 per cent of the eligible limits, however, would be on deliverable basis.

2005

Feb.	1	•	The Government of India, in consultation with the Reserve Bank, reviewed the procedures for compounding of
			contravention under the Foreign Exchange Management Act (FEMA), with a view to providing comfort to the citizens
			and corporate community by minimising transaction costs, while taking severe view of wilful, mala fide and fraudulent
			transactions. The responsibilities of administering compounding of contravention cases under FEMA vested with
			the Reserve Bank with exception of clause (a) of Section 3 of FEMA 1999 which deals essentially with Hawala
			transactions. Accordingly, the Reserve Bank issued directions to the ADs operationalising the revised procedures
			for compounding of contravention under the FEMA.

	9	•	An employee or a director of an Indian office or branch or a subsidiary of a foreign company in India or of an Indian
			company in which the foreign holding is not less than 51 per cent was permitted to purchase shares under ESOP
			offered by a foreign company even if it is an indirect shareholding (through a holding company or an SPV in third
			country) in the Indian company.

18		•	As per the existing guidelines, nominated agencies/approved banks can import gold on loan basis for on-lending to
			exporters of jewellery and by EOUs and units in SEZs for manufacturing and export of jewellery on their own account
			only. After a review of these guidelines, the maximum tenor of gold loan was enhanced to 240 days i.e., 60 days for
			manufacture and exports, and 180 days for fixing the price and repayment. ADs were permitted to open standby LCs
			for tenor equivalent to the loan period and on behalf of entities permitted to import gold. The standby LC should be
			in favour of the internationally renowned bullion banks only.

Date of
Announce-			POLICY ANNOUNCEMENTS
ment

2005			V. EXTERNAL SECTOR POLICIES (Concld.)

March	15	•	Banks authorised to deal in foreign exchange permitted to allow a resident power of attorney holder to remit funds
			out of the balances in the NRE/FCNR(B) account through normal banking channels, to the non-resident account
			holder provided specific powers for the purpose have been given.

	31	•	The liberalised remittance scheme of US $ 25,000 is not permitted, directly or indirectly, to countries identified by
			the Financial Action Task Force (FATF) as non co-operative countries and territories (NCCTs) viz. Cook Islands,
			Egypt, Guatemala, Indonesia, Myanmar, Nauru, Nigeria, Philippines and Ukraine. AD banks were advised that they
			may keep a record of the countries identified by FATF as NCCTs and accordingly update the list from time to time for
			necessary action by their branches handling the transactions under the liberalised remittance scheme. For this
			purpose, they may access the website www.fatf-gafi.org to obtain the latest list of non co-operative countries identified
			by FATF.

April	25	•	General permission granted to insurance companies incorporated outside India which have obtained prior approval
			from the IRDA to establish Liaison Offices in India subject to conditions specified by the IRDA from time to time.

		•	Non-Governmental Organisations (NGOs) engaged in micro finance activities, having satisfactory borrowing relationship
			of three years with a bank and ‘fit and proper’ board/management committee, were permitted to raise ECB up to US $
			5 million during a financial year for permitted end-use, under the automatic route. The designated AD has to ensure
			that the ECB proceeds are utilised for lending to self-help groups or for micro-credit or for bona fide micro finance
			activity including capacity building and that the forex exposure of the borrower is hedged at the time of draw down.
			ECB funds should be routed through normal banking channel from internationally recognised sources viz. i) international
			banks, ii) multilateral financial institutions, and iii) export credit agencies. Furthermore, overseas organisations and
			individuals complying with KYC guidelines and anti-money laundering safeguards were allowed to lend ECB provided
			all other ECB parameters under the automatic route are complied with.

May	12	•	The ceiling of overseas investment by Indian entities in overseas joint ventures and/or wholly owned subsidiaries
			raised from 100 per cent to 200 per cent of their net worth under the automatic route.

	16	•	The closing time for inter-bank foreign exchange market in India was extended by one hour up to 5.00 p.m.

	17	•	General permission to ADs to open non-interest bearing foreign currency account for the project offices set up
			under the general/specific approval of the Reserve Bank by foreign companies in India, and operate the accounts
			flexibly.

June	14	•	Cancellation and rebooking of all eligible forward contracts booked by residents, irrespective of tenor, allowed subject
			to certain conditions.

		•	International Debit Cards (IDCs) can be used only for permissible current account transactions. Accordingly, the item-
			wise limits as mentioned in the Schedules to the Government of India Notification No.G.S.R. 381(E) dated May 3,
			2000, as amended from time to time, are equally applicable to payments made through use of these cards. Further,
			IDCs cannot be used on internet for purchase of prohibited items like lottery tickets, banned or proscribed magazines,
			participation in sweepstakes, payment for call-back services, i.e. for such items/activities for which drawal of foreign
			exchange is not permitted.

July	12	•	ADs given freedom not to follow up submission of evidence of import involving amount of US $ 1,00,000 or less
			provided they are satisfied about the genuineness of the transaction and the bona fides of the remitter. A suitable
			policy may be framed by the bank’s Board of Directors and ADs may set their own internal guidelines to deal with
			such cases.

	23	•	Banks allowed to approve proposals for commodity hedging in international exchanges from their corporate
			customers.

	29	•	FDI up to 100 per cent permitted under the automatic route in petroleum product marketing, oil exploration in both
			small and medium sized fields and petroleum product pipelines. In air transport services (Domestic Airlines) sector,
			FDI up to 100 per cent permitted under the automatic route by NRIs and up to 49 per cent by others. However, no direct
			or indirect equity participation by foreign airlines would be allowed.

Annual Report

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