Mid-Term Review of the Annual Policy Statement for 2008-09, RBI Credit Policy, Reserve Bank of India: Banknet India

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Mid-Term Review of the Annual Policy Statement for 2008-09

Part B. Mid-term Review of Annual Statement on Developmental and Regulatory Policies for the Year 2008-09

V. Institutional Developments

Payment and Settlement Systems

(a) Payment and Settlement Systems Act, 2007

189. The Payment and Settlement Systems Act, 2007 (51 of 2007) and the Payment and Settlement Systems Regulations, 2008 were notified and have come into effect from August 12, 2008. The Payment and Settlement Systems Act stipulates that no person other than the Reserve Bank shall commence or operate a payment system except under and in accordance with an authorisation issued by the Reserve Bank under the provisions of the Act. Accordingly, all persons currently operating a payment system or desirous of setting up a payment system as defined in the Act need to apply for authorisation to the Reserve Bank unless specifically exempted in terms of the Act. All existing payment systems will cease to have the right to carry on their operations unless they obtain an authorisation within six months from the commencement of the Act (i.e., August 12, 2008). The Payment and Settlement Systems Regulations, 2008 detail the form and manner in which the application is to be made to the Reserve Bank for grant of authorisation.

(b) Regulatory Guidelines: Mobile Payments

190. As indicated in the Annual Policy Statement of April 2008, the Reserve Bank had placed on its website ‘Draft Operating Guidelines for Mobile Payments in India’ in consultation with banks and a few industry bodies for public comments. Following a wide-ranging consultative process, operative guidelines were issued for adoption by banks under Section 18 of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007) with effect from October 8, 2008.

Urban Cooperative Banks

(a) Creation of Umbrella Organisation and Revival Fund for Urban Cooperative Banks

191. As indicated in the Annual Policy of April 2008, the Reserve Bank constituted a Working Group (Chairman: Shri V.S Das) to suggest measures, including the appropriate regulatory and supervisory framework, to facilitate emergence of umbrella organisation(s) for the UCB sector. The Group would also look into the issues concerning creation of a Revival Fund for the sector. The Group’s report is expected to be submitted by end-December 2008.

(b) Information Technology Support to UCBs

192. As indicated in the Annual Policy of April 2008, the report of the Working Group (Chairman: Shri R. Gandhi), constituted to examine various areas where IT support could be provided to UCBs by the Reserve Bank, was submitted on April 17, 2008. The report has been placed on the Reserve Bank’s website on August 13, 2008 for comments. Appropriate action would be initiated on the recommendations of the Group based on the comments received.

(c) Investment in Government Securities for SLR Purposes by Non-scheduled UCBs

193.Non-scheduled UCBs in Tier I were exempted from maintaining SLR in Government and other approved securities up to 15 per cent of their NDTL provided the amount is held in interest-bearing deposits with the State Bank of India and its subsidiary banks and the public sector banks, including Industrial Development Bank of India Ltd. It has been decided:

to continue the exemption provided that with effect from October 1, 2009 such exemption shall not exceed 7.5 per cent of NDTL. The exemption will stand withdrawn effective from April 1, 2010. In view of the exemption, it has also been decided that:

Non-scheduled UCBs in Tier I shall maintain SLR in the form of Government and other approved securities not less than 7.5 per cent of their NDTL by September 30, 2009 and 15 per cent of their NDTL by March 31, 2010.

The current prescription of holding SLR in Government and other approved securities not less than 15 per cent of their NDTL in respect of non-scheduled UCBs in Tier-II shall continue up to March 31, 2010.

From March 31, 2011 onwards all UCBs (non-scheduled and scheduled) shall be required to maintain SLR in Government and other approved securities up to 25 per cent of their NDTL. Non-Banking Financial Companies

Financial Regulation of Systemically Important NBFCs: Review of Prudential Regulations

194. In 2006, regulatory guidelines covering the prudential norms for systemically important NBFCs and banks’ relationship with them were put in place. The Reserve Bank has been monitoring the functioning of systemically important NBFCs and banks’ exposure to them. In the light of international developments and increasing bank exposure to these systemically important NBFCs, the Annual Policy Statement of April 2008 proposed to review the regulations in respect of capital adequacy, liquidity and disclosure norms of these entities. Accordingly, draft guidelines on systemically important non-deposit taking non-banking financial companies (NBFCs-ND-SI) regarding prudential norms have been placed on the Reserve Bank’s website for public comments. Taking into consideration the comments received from the public, the final guidelines dated August 1, 2008 were issued.

Committee on Financial Sector Assessment: Developments

195. The Annual Policy Statement of April 2008 had outlined the progress made by the Committee on Financial Sector Assessment (CFSA), constituted by the Government of India, in consultation with the Reserve Bank, to undertake a comprehensive assessment of the financial sector. Since then, the reports of four Advisory Panels constituted by the Committee covering assessment of Financial Stability Assessment and Stress Testing, assessment of relevant international standards and codes as applicable to Financial Regulation and Supervision, Institutions and Market Structure and Transparency Standards were peer-reviewed by external experts in each relevant area identified for the purpose. The CFSA also held a two-day seminar in June and a one-day conference in July 2008 with the peer reviewers and Advisory Panel members to discuss the major issues/recommendations of the various Panel reports. The Panels have finalised their reports by appropriately incorporating the comments of the peer reviewers. Simultaneously, the overview report of the CFSA is also under preparation. It is expected that the four Advisory Panel Reports and the overview report of the CFSA will be released by December 2008.

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