Second Quarter Review of Monetary Policy 2009-2010
-Announced on the 27th October 2009
Part B. Developmental and Regulatory Policies
IV. Credit Delivery Mechanism and Other Banking Services
Credit Flow to the MSE Sector
127. As indicated in the Annual Policy Statement of April 2009, the guidelines based on the Working Group on Rehabilitation of Sick SMEs (Chairman: Dr. K.C. Chakrabarty) were issued to scheduled commercial banks in May 2009. In pursuance of the guidelines, banks were advised to review/put in place policies for the micro and small enterprises (MSEs), duly approved by their respective Boards with regard to: (i) loan policy governing extension of credit facilities; (ii) restructuring/rehabilitation policy for revival of potentially viable sick units/enterprises; and (iii) non-discretionary one-time settlement scheme for recovery of non-performing loans. Other recommendations pertaining to the Government of India/State Governments/State Level Bankers’ Committee (SLBC) convener banks were forwarded to them for necessary action. The regional offices of the Reserve Bank were advised to monitor the actions initiated by the State Governments/SLBC convener banks and discuss the progress in this regard in the SLBC meetings.
128. The Annual Policy Statement of April 2009 also proposed that the Standing Advisory Committee on MSEs would review the credit guarantee scheme. Accordingly, a Working Group (Chairman: Shri V. K. Sharma) was constituted to review the credit guarantee scheme of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGFTMSE) and also examine the feasibility of a ‘whole turnover guarantee’ for the MSE portfolio. The Working Group is expected to submit its report by end-December 2009.
Agricultural Debt Waiver and Debt Relief Scheme, 2008: Status
129. A scheme of agricultural debt waiver and debt relief for farmers with the total value of overdue loans being waived estimated at Rs.50,000 crore and a one-time settlement (OTS) relief on the overdue loans estimated at Rs.10,000 crore was announced in the Union Budget 2008-09. Out of this, Rs.28,000 crore was passed on to the National Bank for Agriculture and Rural Development (NABARD) for reimbursing the claims of regional rural banks (RRBs) and co-operatives and the remaining amount was earmarked for reimbursing the claims of scheduled commercial banks (SCBs), local area banks (LABs) and urban co-operative banks (UCBs). Till date, SCBs and UCBs have been reimbursed to the extent of 64.7 per cent of their ‘debt waiver’ claims.
Rural Co-operative Banks
Licensing of Co-operatives: Status
130. The Committee on Financial Sector Assessment (Chairman: Dr. Rakesh Mohan and Co-Chairman: Shri Ashok Chawla) had recommended that rural co-operative banks which fail to obtain a license by 2012 should not be allowed to continue to operate. Accordingly, it was proposed, in the Annual Policy Statement of April 2009, to work out a roadmap for achieving this objective in a non-disruptive manner. The criteria for licensing of these banks have been drafted in consultation with the NABARD and action with regard to issuance of licenses has been initiated. At present, 17 out of 31 state co-operative banks, and 296 out of 371 central co-operative banks are unlicensed.
Revival of Rural Co-operative Credit Structure: Status
131. Based on the recommendations of the Task Force on Revival of Rural Co-operative Credit Institutions (Chairman: Prof. A. Vaidyanathan) and in consultation with the State Governments, the Government of India had approved a package for revival of the short-term rural co-operative credit structure. So far, as envisaged under the package, 25 States have entered into Memorandum of Understanding (MoU) with the Government of India and the NABARD. Twelve States have made amendments to their respective Co-operative Societies Acts. As on July 31, 2009, an aggregate amount of Rs.6,639 crore has been released by the NABARD as Government of India’s share under the package to primary agricultural credit societies (PACS) in 10 States. The National Implementing and Monitoring Committee (NIMC) set up by the Government of India is monitoring the implementation of the revival package.
132. Furthermore, a study of the long-term co-operative credit structure was entrusted by the Government of India to the same Task Force. The Task Force submitted its report in August 2006. It was announced in the Union Budget 2008-09 that the Government of India and the State Governments have reached an agreement on the content of the package for the revival of the long-term co-operative credit structure. The cost of the package has been estimated at Rs.3,074 crore, of which the Central Government’s share will be Rs.2,642 crore. The Government of India has constituted a Task Force (Chairman: Shri G. C. Chaturvedi) in September 2009 with representatives from the Reserve Bank and the NABARD to look into the various aspects of the long-term co-operative credit structure with regard to viability, relevance of a separate package and strategy for implementation.
Regional Rural Banks
Capital to Risk-weighted Assets Ratio (CRAR) for RRBs: Status
133. On the basis of the recommendations of the Committee on Financial Sector Assessment (Chairman: Dr. Rakesh Mohan and Co-Chairman: Shri Ashok Chawla), the Annual Policy Statement of April 2009 proposed to introduce CRAR for RRBs in a phased manner, taking into account the status of recapitalisation and amalgamation. The Government of India has constituted a Committee (Chairman: Dr. K.C. Chakrabarty) with representatives from the Government, sponsor banks, RRBs and the NABARD to examine the financials of the RRBs and suggest a roadmap to raise the CRAR of RRBs to nine per cent by March 2012. The Committee is expected to submit its report by end-January 2010.
Amalgamation of RRBs: Status
134. Of the total number of 196 RRBs, 159 RRBs have been amalgamated into 46 new RRBs (sponsored by 27 banks and located in 26 States including one Union Territory). Since then one new RRB has also been established in the Union Territory of Puducherry. Accordingly, the total number of RRBs now functioning is 84.
Recapitalisation of RRBs: Status
135 The Union Budget 2007-08 announced that RRBs which have a negative net worth will be recapitalised in a phased manner. The process of recapitalisation has since been completed with 27 RRBs having been fully recapitalised with an amount of Rs.1,796 crore as on July 31, 2009.
Technology Upgradation of RRBs: Status
136. With a view to enabling RRBs to adopt information technology (IT)-based solutions for financial inclusion, it was proposed in the Annual Policy Statement of April 2009 to work out, in consultation with the NABARD, the manner of providing assistance to RRBs for adopting information and communication technology (ICT) solutions for financial inclusion in districts identified as having high level of exclusion by the Committee on Financial Inclusion (Chairman: Dr. C. Rangarajan). To facilitate ICT implementation, there is a need to implement core banking solutions (CBS). In this context, the Report of the internal Working Group (Chairman: Shri G. Srinivasan) constituted by the Reserve Bank to prepare a roadmap for migration to CBS by RRBs was forwarded to all sponsor banks in October 2008 with an advice to implement the recommendations in respect of RRBs sponsored by them. The issue of sharing the funding cost of CBS project among the owners of RRBs, viz., the Government of India, the State Governments and sponsor banks, is under examination by the NABARD.
Urban Co-operative Banks
Review of Regulatory and Supervisory Framework for UCBs: Status
137. The Annual Policy Statement of April 2009 proposed a review of the existing instructions on internal control, risk management system, asset-liability management (ALM) and disclosure norms as appropriate to UCBs as also to apply capital charge for market risk in respect of large-sized and systemically important UCBs. The review is underway.
Information Technology Support to UCBs: Status
138. Based on the recommendations of the Working Group (Chairman: Shri R. Gandhi), which looked into ways of supporting IT initiatives of the UCBs, a tentative action plan has been worked out. Taking into account a large number of small and unit UCBs and the lack of uniformity in the level of computerisation, the action plan envisages the minimum level of IT infrastructure to include computerised management information system (MIS) reporting and automated regulatory reporting (ARR). After a series of discussions with service providers, it has been decided to adopt the application service provider (ASP) model for providing IT support to UCBs. The modalities are being worked out in consultation with the Institute for Development and Research in Banking Technology (IDRBT).
Creation of Umbrella Organisation and Revival Fund for UCBs: Status
139. As indicated in the Annual Policy Statement of April 2008, a Working Group (Chairman: Shri V. S. Das) was constituted to suggest measures, including the appropriate regulatory and supervisory framework, to facilitate emergence of umbrella organisation(s) for the UCB sector in the respective States. The Group has since submitted its Report.
DICGC-Supported Transfer of Assets and Liabilities of UCBs to Commercial Banks in Legacy Cases
140. As a part of the measures to strengthen the urban co-operative banking system, a scheme of amalgamation of weak UCBs with strong UCBs, with support from the Deposit Insurance and Credit Guarantee Corporation (DICGC), is considered by the Reserve Bank in cases involving UCBs having negative net worth as on March 31, 2007. However, in those cases, where proposals for amalgamation within the UCB sector are not forthcoming, it is proposed:
• to provide DICGC support to the scheme involving transfer of assets and liabilities (including branches) of legacy cases of urban co-operative banks to domestic scheduled commercial banks, provided the scheme ensures 100 per cent protection to depositors and DICGC support is restricted to the amount as provided under Section 16 (2) of the DICGC Act, 1961.
141. Detailed guidelines in this regard will be issued separately.
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