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Annual Policy Statement for the Year 2011-12 click here

Annual Monetary Policy Statement for the Year 2011-12- 3rd May 2011

Part B. Development and Regulatory Policies

VI. Institutional Developments

Non-Banking Financial Companies

Review of the Existing Regulatory Framework for NBFCs

121. There has been significant transformation in the NBFC sector in India in the past few years and the sector has come to be recognised as a systemically important component of the financial system. The recent global financial crisis has highlighted the risks arising from the non-banking financial sector because of regulatory gaps, arbitrage and systemic inter-connectedness. A need was, therefore, felt to reflect on the broad principles that underpin the regulatory architecture for NBFCs, keeping in view the economic role and heterogeneity of this sector and the recent international experience. The Reserve Bank has constituted a Working Group (Chairperson: Smt. Usha Thorat) to examine a range of emerging issues pertaining to the regulation of the NBFC sector. The Group will also focus on the definition and classification of NBFCs, keeping in view the need for addressing regulatory gaps and regulatory arbitrage, maintaining standards of governance in the sector and adopting appropriate approach to NBFC supervision. The Committee is expected to submit its report by end-June 2011.

Setting up of Central Electronic Registry under the SARFAESI Act, 2002

122. The Government of India has set up a company, incorporated under section 25 of the Companies Act, 1956, as the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) to give effect to the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. The objective of the central registry is to prevent frauds in loan cases involving multiple lending from different banks on the same immovable property. The registry became operational from March 2011 and its jurisdiction covers the whole of India.

Payment and Settlement Systems

Mobile Banking in India

123. Considering the importance of mobile phone channels for banking services, the Reserve Bank issued guidelines on mobile banking in October 2008. Since then a number of relaxations in the guidelines have been made. In all, 39 banks were granted approval for mobile banking, of which 34 banks have launched the mobile banking services. On an average, 6,80,000 transactions amounting to ` 61 crore in a month are settled through this channel.

124. Non-bank entities were permitted by the Reserve Bank to issue mobile-based semi-closed prepaid instruments in August 2009. To start with, these instruments were considered as a separate category and a cap of ` 5,000 was imposed on such prepaid instruments. Considering the potential of such mobile-based prepaid instruments for promoting non-cash based transactions and the interest evinced by non-bank entities in promoting these products, it is proposed:

to treat mobile-based semi-closed prepaid instruments issued by non-banks on par with other semi-closed payment instruments and raise the limit from ` 5,000 to ` 50,000, subject to certain conditions.

125. Banks were permitted by the Reserve Bank in December 2009 to provide their customers the mobile-based transaction facility up to ` 1,000 without end-to-end encryption. Taking into consideration the feedback from banks for increasing the limits for such transactions, it is proposed:

to enhance the limit of such transactions from ` 1,000 to ` 5,000.

Working Group for Card Present Transactions

126. Card present transactions [transactions at points of sale (PoS) and ATMs] constitute a major proportion of the card based transactions in the country. For increasing the confidence of customers in this channel, it is necessary to secure these transactions through implementation of additional security/authentication in the short run and prevent counterfeiting of cards by migrating to chip-based and PIN-based cards in the long run. Considering the importance of this process, a Working Group comprising representatives from various stakeholders was constituted to recommend action plan for enabling additional authentication for transactions at PoS using existing cards in a cost effective manner and propose a timeframe for migrating the card infrastructure to enabling issuance and acceptance of chip-based and PIN-based cards. The Working Group is expected to submit its recommendations by end-May 2011.

Performance of National Electronic Funds Transfer System

127. All the refinements to the national electronic funds transfer (NEFT) have been well accepted by the stakeholders and the product is growing from strength to strength in terms of acceptability, reach and volumes handled. As at end-February 2011, around 75,000 branches of 100 banks participated in the NEFT system and the volume of transactions processed increased to 13.5 million in February 2011. Efforts have also been initiated to extend NEFT facility to the branches and customers of RRBs. A few banks have since successfully and seamlessly brought the RRBs sponsored by them under the NEFT ambit. Further, full assistance was provided to the Royal Monetary Authority of Bhutan; the electronic clearing service (ECS) and the NEFT were successfully replicated in Bhutan.

IT Vision Document for 2011-17

128. A High Level Committee (Chairman: Dr. K. C. Chakrabarty) was constituted by the Reserve Bank to prepare an IT vision document for the period 2011-17, taking into account requirements and expectations of the banking system in general and those of the Reserve Bank, in particular. The report of the Committee was placed on the Reserve Bank’s website in February 2011. The document contained a number of recommendations, including the Reserve Bank transforming itself into an information intensive knowledge organisation and commercial banks moving forward from their core banking solutions to enhanced use of IT in areas such as management information system (MIS), regulatory reporting, overall risk management, financial inclusion and customer relationship management. The recommendations related to both the Reserve Bank and commercial banks. The Reserve Bank has drawn a roadmap for implementation of the vision document over short-term (2 years), medium-term (2-4 years) and long-term (4 years and more). The Reserve Bank will, in association with the Indian Banks’ Association (IBA), follow up on implementation of the recommendations by commercial banks.

Automated Data Flow from Banks

129. A Core Group consisting of experts from banks, the Reserve Bank, the Institute for Development and Research in Banking Technology (IDRBT) and the IBA was constituted for preparing an approach paper on automated data flow (a straight through process) from the core banking solution (CBS) or other IT systems of commercial banks to the Reserve Bank. It was indicated in the Second Quarter Review of November 2010 that the Core Group had finalised the approach paper and the timeline of the entire project would be determined in consultation with banks. It has been decided to implement the project in a phased manner taking into account the technology and process maturity of individual banks. Banks have been advised to submit a roadmap clearly indicating the returns which can be sourced directly from the banks’ systems for submission to the Reserve Bank without manual intervention. It has also been decided to prescribe a quarterly monitoring format in which the banks will be advised to certify the list of returns which have been internally generated from the IT source systems without manual intervention. The Reserve Bank is in touch with the banks and the solution providers for implementing the recommendations over a period of two years.

Real Time Gross Settlement System

130. As indicated in the Monetary Policy Statement of April 2010, a Working Group was constituted for preparing an approach paper for implementing the next generation real time gross settlement (NG-RTGS) system. The Group has since submitted the approach paper, the suggestions of which have been taken as a basis for preparing the blueprint for the NG-RTGS system. First, the Reserve Bank has initiated steps to enhance the capacity of the hardware system in the short-term by rationalising the use of the resources during peak and non-peak periods. Second, the process for enhancing the capacity in the medium-term has already begun. Third, several new features are being envisaged in the NG-RTGS system such as advanced liquidity management facility; extensible mark up language (XML) based messaging system conforming to ISO 20022; and real time information and transaction monitoring and control system.

Currency Management

131. Banks were mandated to use note sorting machines in all their branches having average daily cash receipts of ` 1 crore and above by March 2010. As of now, 1,323 branches (other than currency chest branches) have been identified having average daily cash receipt of ` 1 crore and above. Banks have reported that note sorting machines have been installed and made operational in 1,012 branches. For the remaining branches, banks have made arrangements with the nearest currency chest branch/currency administration branch. It was also indicated in the Second Quarter Review of October 2009 that banks should use such machines in all their branches having average daily cash receipts between ` 50 lakh and ` 1 crore by March 2011. Banks have reported that they have identified 3,000 branches with daily cash receipt between ` 50 lakh and ` 1 crore, out of which 413 branches have installed note sorting machines. Another 517 branches have put in place arrangements for processing of high denomination notes. Banks are expected to enhance their efforts to have note sorting machines in all such identified branches.

Second Quarter Review

132. The next review of the developmental and regulatory policies will be undertaken as part of the Second Quarter Review of Monetary Policy on October 25, 2011.

Click Here For Highlights of Annual Policy Statement for the Year 2011-12

Click Here For Macro economic and Monetary Developments : 2010-11

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