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Daily News RBI Credit Policies (1999-2005)
Part II. Review of Annual Statement on Developmental and Regulatory Policies for the Year 2005-06
Institutional Developments
Payment and Settlement Systems
(a) Electronic Payment Products: Status and Proposed Action
99. The coverage of Real Time Gross Settlement (RTGS) system has increased significantly. As on October 19, 2005 RTGS connectivity was available in 11,280 bank branches at 508 cities. By end-March 2006, 15,000 branches are proposed to be covered and the number of monthly transactions of the system is expected to expand from one lakh to two lakh.
100. The National Electronic Funds Transfer (NEFT) system for electronic transfer of funds would be implemented in phases for all networked branches of banks all over the country. By end-December 2005, NEFT would be operationalised in 34 banks. By end-June 2006, the remaining banks are expected to be part of the system. Currently, the package for operationalisation of NEFT is being tested for implementation.
101. The pilot project for Cheque Truncation System, which aims at enhancing efficiency in the retail cheque clearing sector, is expected to be implemented in New Delhi by end-March 2006.
102. The clearing position of banks in various clearing houses would be settled centrally through a national settlement system (NSS) in order to enable banks to manage liquidity in an efficient and cost-effective manner. Accordingly, it is proposed to introduce NSS at the four metropolitan centres by end-December 2005.
103. One of the constraints in the growth of electronic payment systems has been the high rate of service charges being levied by banks. In this context, the Reserve Bank waived service charges on banks for both electronic clearing service (ECS) and electronic fund transfer (EFT) transactions up to March 31, 2006 with a view to promoting EFT and encouraging ECS. Furthermore, no service charge is being levied for RTGS transactions since its commencement and this waiver is also valid up to March 31, 2006. As electronic payment systems facilitate straight-through processing and are cost-effective in the long run, banks are encouraged to review service charges being levied on such transactions.
(b) Umbrella Organisation for Retail Payment Systems: Progress
104. The Vision Document for Payment and Settlement Systems, 2005-2008 envisages establishment of an institutional structure owned by banks and other financial institutions for retail payment systems. The objective of setting up of such an organisation is to optimise the use of resources through consolidation of the existing infrastructure and by building up of new infrastructure. The IBA constituted a Working Group with
12 banks as its members to study the proposal. The Working Group has recommended setting up of a company under Section 25 of the Companies Act, 1956 which would be owned and operated by banks. The recommendations are under consideration of the IBA and the new organisation is likely to get operational with effect from April 1, 2006.
(c) Business Continuity Plan: Contingency Plan
105. In the recent past, usage of information technology (IT) has increased significantly. With increasing migration to centralised systems, provision for effective back-up and business continuity plans assumes importance. In this context, the Reserve Bank has drawn up a disaster recovery plan for all critical applications including RTGS, the performance of which is tested at quarterly intervals.
106. Furthermore, there is a need for banks to ensure that their plans for business continuity are adequate and comprehensive which could resume business functionalities quickly in a situation of disaster to transact normal business. Banks are, therefore, urged to test their business continuity plans periodically and ensure continuous service.
Information Technology
Financial Sector Technology Vision Document
107. As indicated in the annual policy Statement of April 2005, the Financial Sector Technology Vision Document was placed on the Reserve Bank’s website in July 2005. The Vision Document has enumerated the initiatives to be undertaken by the Reserve Bank in the medium-term in order to ensure maintenance of overall systemic efficiency of the financial sector. In this context, the Document has identified four key areas for information technology (IT) development: regulation and supervision, role of the Institute for Development and Research in Banking Technology (IDRBT) to augment technology absorption, the financial sector and government related functions. Banks are required to ensure that the policy perspectives of the Reserve Bank integrate seamlessly with the approaches followed by them with appropriate focus on corporate governance.
Urban Co-operative Banks
(a) Vision Document for UCBs: Medium-term Framework
108. A medium-term framework for urban co-operative banks (UCBs) is being developed on the basis of feedback received on the draft ‘Vision Document for Urban Co-operative Banks’. As the UCBs are subject to dual control by the Reserve Bank and State Governments, the Vision Document envisaged harmonisation of their approaches for facilitating the development of the sector. Accordingly, the Reserve Bank has signed a Memorandum of Understanding (MoU) with three State Governments, viz., Andhra Pradesh, Gujarat and Karnataka, and is in the process of entering into MoUs with other States having sizeable presence of UCBs. The MoU envisages drawing up of an action plan through State level Task Forces on UCBs for revival of weak UCBs. It provides for a structured arrangement for coordination and consultation as well as professionalisation of management of UCBs. The draft Vision Document also envisages that facilities and opportunities available to commercial banks should, as far as possible, also be made available to UCBs other than unit and single district banks with deposits less than Rs.100 crore. Accordingly, it is proposed:
• to extend currency chest facility and issuance of licence to conduct foreign exchange business (authorised person licence) to scheduled UCBs registered under the Multi-State Co-operative Societies Act and under the State Acts where the State governments concerned have assured regulatory coordination by entering into MoU with the Reserve Bank. The eligibility norms for these facilities would be notified separately.
(b) Merger/Amalgamation of UCBs
109. Guidelines on merger/amalgamation in the UCB sector were issued by the Reserve Bank with a view to facilitating emergence of strong entities and for providing an avenue for non-disruptive exit of unviable entities. The major focus of the guidelines is on the financial aspects of the merger/amalgamation proposals with a view to protecting depositors’ interests and avoiding systemic problems. So far, the Reserve Bank has conveyed ‘no objection’ to five merger proposals out of which two proposals have already materialised. In order to further smoothen the process of merger in the UCB sector, it is proposed:
• to permit the acquirer UCB to amortise the losses taken over from the acquired UCB over a period of not more than five years, including the year of merger.
(c) 90 Days Norm for UCBs: Relaxation
110. The Reserve Bank has relaxed the 90 days delinquency norm for certain categories of UCBs on requests received from the UCB sector regarding difficulty in meeting the norm. Accordingly, unit banks (i.e., having a single branch/head office) as well as banks having multiple branches within a single district with deposits up to Rs.100 crore would classify their loan accounts as NPAs based on the 180 days delinquency norm instead of the extant 90 days norm. The relaxation would be valid up to end-March 2007 to enable the UCBs concerned to build up adequate provisions and strengthen their procedures in order to transit to the 90 days delinquency norm within the stipulated period.
(d) Restructuring of Weak Scheduled UCBs
111. The Reserve Bank has begun a consultative process for revitalisation and rehabilitation of weak scheduled UCBs. In this context, 10 weak scheduled UCBs are in the process of restructuring and the Reserve Bank is closely monitoring their progress.
The Right to Information Act, 2005
112. The Government has enacted the Right to Information Act, 2005 on June 15, 2005. Pursuant to its enactment, the Reserve Bank has designated the Chief General Manager-in-Charge of the Department of Administration and Personnel Management as the Chief Public Information Officer. Details of the scheme regarding implementation of the provisions of the Act have been placed on the Reserve Bank’s website.
Computation of Exchange Rate Indices - New Series
113. As part of its policy of communication and to aid researchers and analysts, the Reserve Bank has recently updated its 5-country and 36-country indices of nominal effective exchange rates (NEER) and real effective exchange rates (REER). The 5-country indices have been replaced by new 6-currency indices of REER and NEER. The new indices would include two new currencies, both Asian - the Chinese Renminbi and the Hong Kong Dollar. Two currencies in the existing 5-country series, viz., French Franc and Deutsche Mark would be replaced by the Euro. The new indices use 3-year moving average trade weights in place of the fixed trade weights in the 5-country indices. The new series would be published in the December 2005 issue of the Reserve Bank of India Bulletin along with information on methodological and computational details. Simultaneously, the broader 36-country indices of NEER and REER with 1985 as the base year will be updated to 1993-94 as the base year and revisions would be carried out in the weighting pattern. These revised computations are aimed to reflect the changing profile of India’s foreign trade.
<<< Back To MAIN PAGE OF Mid-term Review of Annual Policy for the year 2005-06
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