Regulatory and Other Measures

May 2012

RBI/2011-12/543 RPCD.CO.RRB.BC.No.76/03.05.33 (C)/ 2011-12 dated May 8, 2012

The Chairmen
All Regional Rural Banks

Interest Rates on FCNR (B) Deposits

Please refer to paragraph 2 of our circular RPCD. CO.RRB.BC.No. 36/03.05.33 (C)/2011-12 dated November 24, 2011 on Interest Rates on deposits held in FCNR (B) Accounts. In view of the prevailing market conditions, it has been decided that until further notice and with effect from the close of business in India as on May 4, 2012, the interest rates on FCNR (B) Deposits will be as under:

On floating rate deposits, interest shall be paid within the ceiling of swap rates for the respective currency/maturity plus 200 bps/300 bps as the case may be. For floating rate deposits, the interest reset period shall be six months.

2. All other instructions in this regard, as amended from time to time, will remain unchanged.

RBI/2011-12/544 DCM (FNV) No. 5063/16.02.22/2011-12 dated May 9, 2012

The Chairman and Managing Director/
Chief Executive Officer
All Scheduled Commercial Banks (Including RRBs)
and Scheduled State Co-operative Banks/
Scheduled (Primary) Urban Co-operative Banks

Detection and Reporting Mechanism of Counterfeit Notes – Monetary Policy Statement 2012-13

Please refer to our Directive No. 3158/09.39.00 (Policy)/2009-10 dated November 19, 2009 read with Circular No. NPD.3161/03.39.00 (Policy)/2009-10 dated November 19, 2009 on Sorting/Processing of banknotes, advising the banks that banknotes in the denomination of 100 and above may be re-issued over their counters or through ATMs, only if such banknotes have been duly checked for authenticity/genuineness by machines. Further, the banks were also advised to use such machines in all bank branches with average daily cash receipt of `50 lakh and above, within a definite time frame.

2. In light of Para 127 of the Monetary Policy Statement 2012-13 announced by RBI Governor on April 17, 2012 (copy enclosed), banks should now re-align their cash management in such a manner so as to ensure that cash receipts in the denominations of ` 100 and above should not be put into re-circulation without the notes being machine processed for authenticity.

3. The above instructions shall come into effect immediately and are applicable to all bank branches, irrespective of the volume of daily cash receipt.

4. Any non-compliance will be construed as violation of the above mentioned Directive issued by the Reserve Bank.

RBI/2011-12/551 DBOD.No.BP.BC-104/21.04.048/ 2011-12 dated May 10, 2012

The Chairman and Managing Director/
Chief Executive Officer of
All Scheduled Commercial Banks

Transfer of Borrowal Accounts from One Bank to Another

Please refer to our circular IECD.No.20/08.12.01/ 97-98 dated December 2, 1997, in terms of which banks were advised to incorporate the necessary safeguards to be observed in the case of transfer of borrowal accounts from one bank to another as a part of their lending policy/procedures.

2. However, of late we have been receiving references/ complaints that critical information on the health of the borrowal accounts being taken over is not being shared by the transferor bank with the transferee bank, resulting in inadequate due diligence at the time of taking over of accounts.

3. Therefore, we advise that:

a) Banks should put in place a Board approved policy with regard to take-over of accounts from another bank. The policy may include norms relating to the nature of the accounts that may be taken over, authority levels for sanction of takeover, reporting of takeover to higher authorities, monitoring mechanism of taken over accounts, credit audit of taken over accounts, examination of staff accountability especially in case of quick mortality of such cases after takeover, periodic review of taken over accounts at Board/Board Committee level, Top Management level, etc.

b) In addition, before taking over an account, the transferee bank should obtain necessary credit information from the transferor bank as per the format prescribed in our circular DBOD. No.BP.BC.94/08.12.001/2008-09 dated December 8, 2008 on ‘Lending under Consortium Arrangement/Multiple Banking Arrangements’. This would enable the transferee bank to be fully aware of the irregularities, if any, existing in the borrower’s account(s) with the transferor bank. The transferor bank, on receipt of a request from the transferee bank, should share necessary credit information as per the prescribed format at the earliest.

RBI/2011-12/553 dated RPCD.FSD.BC.No.77/05.05.09/ 2011-12 dated May 11, 2012

The Chairman and Managing Director/CEOs,
All Scheduled Commercial Banks,
(Excluding RRBs)

Revised Kisan Credit Card (KCC) Scheme

Please refer to our circular RPCD.PLFS. BC.No.38/05.05.09/2004-05 dated October 4, 2004 advising you to implement the Revised Model KCC Scheme.

2. With a view to simplify and attune the Scheme to suit to current requirements and to facilitate issue of Electronic Kisan Credit Cards, a Working Group under the Chairmanship of Shri T.M.Bhasin, Chairman and Managing Director, Indian Bank was constituted. The Working Group has since submitted its recommendations based on which a revised Kisan Credit Card (KCC) Scheme has been devised.

3. The revised Kisan Credit Card Scheme together with illustrations on assessment of KCC limits are enclosed in Annex.

4. All banks are advised to implement the revised Kisan Credit Card (KCC) Scheme.

RBI/2011-12/556 DNBS.PD. CC No. 273/03.10.01/2011-12 dated May 11 , 2012

All Infrastructure Finance Companies,
Non-Banking Financial Companies
excluding Residuary Non-Banking Companies

Prudential Norms Directions, 2007 – Infrastructure Finance Companies – Eligible Credit Rating Agencies - Brickwork Ratings India Pvt. Ltd. (Brickwork)

Please refer to the Master Circular DNBS (PD) CC No.225/03.02.001/2011-12 dated July 1, 2011 on Non- Banking Financial (Non - Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007.

2. In terms of para 19A of the circular, Infrastructure Finance Company shall have obtained a minimum credit rating ‘A’ or equivalent of CRISIL, FITCH, CARE, ICRA or equivalent rating by any other credit rating agency accredited by RBI.

3. It has now been decided that NBFCs may also use the ratings of Brickwork Ratings India Pvt. Ltd. (Brickwork) in addition to the existing four domestic credit rating agencies.

RBI/2011-12/560 DPSS.CO.CHD.No./2080/03.01.03/ 2011-12 dated May 11, 2012

The Chairman and Managing Director/
Chief Executive Officer
All Scheduled Commercial Banks including RRBs/
UCBs/State Co-operative Banks/District Central
Co-operative Banks/Local Area Banks

Review of Service Charges for Cheque Collection – Outstation and Speed Clearing

Please refer to our circulars DPSS.CO.No.611/ 03.01.03(P)/2008-09 dated October 8, 2008 and DPSS. CO.No 829/03.01.03(SC)/2008-09 dated November 17, 2008 in terms of which, the charges for Outstation Cheque Collection and cheques collected under the Speed Clearing arrangement (leveraging the CBS platform) were mandated by the Reserve Bank of India.

2. In terms of our circular DPSS.CO.CHD.No.1671/ 03.06.01/2010-11 dated January 19, 2011, freedom was accorded to banks to determine collection charges for cheques valuing above ` 1 lakh cleared through Speed Clearing and Outstation Cheque Clearing mechanism subject to such charges being levied in a fair and transparent manner. The term fair and transparent manner, inter-alia, included fixing the service charges on a cost-plus basis and not on the basis of an arbitrary percentage to the value of the instrument as advised in paragraph 6(b) of the said circular.

3. However, instances of banks levying charges as an arbitrary percentage to the value of the instrument, contrary to the instructions issued in the circular have been brought to our notice. Such practices are in violation of instructions issued under Section 18 of the Payment and Settlement Systems Act 2007.

4. Banks, which have fixed their service charges for out-station/speed clearing for instruments valuing above `1 lakh as percentage to the value of instruments are, therefore, advised to review the same and fix the charges on a cost-plus basis.

5. Banks may note to ensure that collection charges fixed for instruments valuing above `1 lakh is lower under Speed Clearing vis-a-vis Out-station Cheque Collection as advised in paragraph 6(d) of our circular dated January 19, 2011 so as to encourage the use of Speed Clearing.

6. The updated service charge structure may be incorporated in the Cheque Collection Policy (CCP) and customers notified accordingly. The revised rates may also be placed on the bank’s web site and a copy thereof may be submitted to us..

RBI/2011-12/567 UBD.BPD. (PCB) CIR No.33/09.09.001/ 2011-12 dated May 18, 2012

The Chief Executive Officers
All Primary (Urban) Co-operative Banks

Priority Sector Lending – Indirect Finance to Housing Sector

Please refer to our Circular UBD.PCB.Cir. No.11/09.09.01/2007-08 dated August 30, 2007 forwarding the guidelines for UCBs on lending to priority sector. In terms of para 7.4 of section I of Annex of the above Circular, assistance given to a nongovernmental agency approved by the NHB for the purpose of refinance for construction/reconstruction of dwelling units or for slum clearance and rehabilitation of slum dwellers, subject to a ceiling of loan component of `5 lakh per dwelling unit, is eligible for classification under priority sector.

2. Pursuant to the announcements made by the Union Finance Minister in paragraph 65 of the Budget Speech for the year 2012-13, it has been decided to increase the above limit from `5 lakh to `10 lakh. The revised limit will be applicable to loans sanctioned from the date of this circular.

RBI/2011-12/568 DBOD.BP.BC.No. 106/21.04.172/2011- 12 dated May 18, 2012

All Scheduled Commercial Banks
(excluding RRBs)

Bank Finance to NBFCs Predominantly Engaged in lending against Gold

Please refer to paragraphs 94 to 96 (extract enclosed) of the Monetary Policy Statement 2012-13 announced on April 17, 2012 on ‘Bank Finance to NBFCs Predominantly Engaged in Lending against Gold’

2. The extant regulatory framework for bank exposure to NBFCs is prescribed in circular DBOD. No.FSD.BC.46/24.01.028/2006-07 dated December 12, 2006 titled ‘Financial Regulation of Systemically Important NBFCs and Banks’ Relationship with them’.

3. NBFCs which are predominantly engaged in lending against collateral of gold jewellery (i.e. such loans comprising 50 per cent or more of their financial assets) have recorded significant growth in recent years, both in terms of their balance sheet size and physical presence. In view of regulatory concerns arising out of the rapid pace of business growth and concentration risk inherent in their business model, certain prudential measures like limiting Loan to Value (LTV) Ratio, increasing the minimum Tier I Capital requirement, prohibition on granting loans against bullion/primary gold and gold coins and other operational guidelines have been prescribed for NBFCs.

4. The rapid expansion of NBFCs predominantly engaged in lending against the collateral of gold jewellery has led to their increased dependence on public funds, including bank finance. In order to supplement the prudential norms prescribed for NBFCs as indicated in paragraph 3 above, banks are advised to:

(i) reduce their regulatory exposure ceiling on a single NBFC, having gold loans to the extent of 50 per cent or more of its total financial assets, from the existing 10 per cent to 7.5 per cent of banks’ capital funds. However, the above exposure ceiling may go up by 5 per cent, i.e., up to 12.5 per cent of banks’ capital funds if the additional exposure is on account of funds on-lent by NBFCs to the infrastructure sector. Banks which are currently having exposure to such NBFCs in excess of the above regulatory ceiling would be required to reduce their exposure within the prescribed limit at the earliest, but not later than six months from the date of this circular; and

(ii) have an internal sub-limit on their aggregate exposures to all such NBFCs, having gold loans to the extent of 50 per cent or more of their total financial assets, taken together. The sublimits should be within the internal limit fixed by the banks for their aggregate exposure to all NBFCs put together.