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Main Page of Mid-Term Review of the Annual Policy Statement for 2006-07 click here



Part II. Mid-term Review of Annual Statement on Developmental and Regulatory Policies for the Year 2006-07

II. Credit Delivery Mechanisms and Other Banking Services

111. It has been the endeavour of the Reserve Bank to improve credit delivery mechanisms and make available basic banking services to the widest sections of the society without procedural hassles. Initiatives taken in this regard encompass a wide ambit covering augmenting credit flow to agriculture and other priority sectors as well as to distressed farmers and areas stricken by natural calamities; institutional reform including revival of the co-operative structure and regional rural banks (RRBs); development of new avenues of credit dispensation such as micro-finance institutions and legislation for regulating money lending; financial inclusion and improvement in customer services.

(a) Priority Sector Lending

112. As indicated in the Annual Policy Statement of April, 2006 the revised draft Technical Paper of the Internal Working Group (Chairman: Shri C.S. Murthy) set up by the Reserve Bank to review the existing policy on priority sector lending was placed on the Reserve Bank’s website for wider dissemination and comments. Based on the feedback, the draft circular will be put in the public domain shortly.

(b) Micro and Small Enterprises

113. Consistent with the notification of the Micro, Small and Medium Enterprises Development Act, 2006, it is proposed to modify the definition of small-scale industry and micro and small enterprises engaged in providing or rendering of services for the purpose of priority sector lending. Guidelines to banks would be issued separately.

(c) Revival of Rural Co-operative Credit Structure

114. The recommendations of the Task Force (Chairman: Prof. A.Vaidyanathan) appointed by the Government of India to propose an action plan for reviving the short-term rural co-operative credit structure have been accepted in principle. The Government of India, in consultation with the State Governments, has approved a revival package for the short-term co-operative credit structure. The revival package has been accepted by the States of Maharashtra, Rajasthan, Gujarat, Orissa, Madhya Pradesh, Andhra Pradesh, Sikkim, and the Union Territory of Dadra and Nagar Haveli.

(d) Regional Rural Banks

115. In view of the importance of RRBs as an effective instrument of credit delivery in the Indian financial system, sponsor banks have been encouraged to merge RRBs State-wise. The amalgamation of 134 RRBs into 42 new RRBs sponsored by 18 banks in 16 States has been implemented. Consequently, the total number of RRBs has come down from 196 to 104 by end-August, 2006.

116. A Task Force on Empowering Boards of Regional Rural Banks for Improving their Operational Efficiency (Chairman: Dr. K.G. Karmakar) has been set up in September, 2006 in order to empower the boards of RRBs in various functional areas.

(e) Relief Measures by Banks in Areas Affected by Natural Calamities

117. The Reserve Bank has issued guidelines to banks on relief measures to be provided in areas affected by natural calamities. These guidelines focus on various reliefs and concessions that may be extended to existing borrowers, mainly agriculturists. As announced in the Annual Policy Statement of April, 2006 the Internal Working Group (Chairman: Shri G. Srinivasan) constituted to examine various issues in respect of areas affected by natural calamities, submitted its report in June, 2006. Based on the recommendations of the Group, additional guidelines covering issuance of fresh loans and restructuring of existing loans to non-farm borrowers, access to bank accounts, currency management, know your customer (KYC) norms, clearing and settlement system and business continuity planning in the affected areas were issued to banks.

118. An Empowered Task Force was constituted in the Union Territory of Andaman and Nicobar Islands to expedite relief measures by banks for tsunami-affected borrowers. The recommendations of the Task Force are being implemented.

(f) Relief Measures for Distressed Farmers

119. The Working Group (Chairman: Prof. S.S. Johl), constituted by the Reserve Bank to suggest measures for assisting distressed farmers including provision of financial counselling services and introduction of a specific Credit Guarantee Scheme under the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act for such farmers, submitted its interim report in October, 2006. In the light of the recommendations of the Group and with a view to ensuring transparency in implementation of the one time settlement (OTS) scheme, it is proposed that:

• banks, with approval of their boards, may formulate a transparent policy for providing OTS facility to those farmers whose accounts have been rescheduled/ restructured due to natural calamities as also those who have defaulted on account of circumstances beyond their control.

(g) Technical Group for Review of Legislations on Money Lending

120. The Reserve Bank constituted a Technical Group (Chairman: Shri S.C. Gupta) to review the efficacy of the existing legislative framework governing money lending and its enforcement machinery in different States in the interest of rural households. Various State Governments have shown interest in the deliberations of the Group. It has, therefore, been proposed to co-opt them as special invitees from the State Governments on this Group for wider representation.

(h) Financial Inclusion

121. The Annual Policy Statement of April, 2006 urged all banks to give effect to the measures announced by the Reserve Bank from time to time on financial inclusion at all their branches.

(i) Pilot Project of SLBCs for 100 per cent Financial Inclusion

122. State Level/Union Territory Bankers’ Committee (SLBC/UTLBC) convenor banks in all States/Union Territories were advised to identify at least one suitable district in each State/Union Territory for achieving 100 per cent financial inclusion by providing "no frills" accounts as also general purpose credit cards (GCC) on the lines of the initiative taken in the Union Territory of Pondicherry. All SLBCs/UTLBCs have since identified one or more districts for 100 per cent financial inclusion. Furthermore, the SLBCs/UTLBCs were advised to allocate villages to banks operating in the respective State/Union Territory for ensuring 100 per cent financial inclusion and for monitoring the progress in the SLBC/UTLBC meetings.

(ii) Improvement of Banking Services in Uttaranchal

123. In consultation with the Government of Uttaranchal, a Working Group (Chairman: Shri V.S. Das) was constituted to examine the problems/issues relating to banking services in Uttaranchal and to prepare an action plan for their improvement. The report of the Working Group has been placed on the Reserve Bank’s website for wider dissemination. The Group’s recommendations are being implemented.

(iii) Improvement of Banking Services in Chhattisgarh

124. In consultation with the Government of Chhattisgarh, a Working Group (Chairman: Regional Director for Chhattisgarh and Madhya Pradesh) has been constituted to draw up an action plan for improvement of banking services in the State of Chhattisgarh. The Group is expected to submit its report by end-January, 2007.

(iv) Report on Problems Faced by Banks and Borrowers in Bihar

125. As a sequel to the Finance Minister’s review of the working of banks in the State of Bihar, a Working Group was constituted (Chairman: Shri V.S. Das) to look into the problems faced by banks and borrowers in the State of Bihar. The Group’s report is under implementation.

(v) Report of the Committee on Financial Sector Plan for North-Eastern Region

126. A Committee (Chairperson: Smt. Usha Thorat) was constituted by the Reserve Bank to improve provisions of financial services in the north-eastern region and prepare an appropriate State-specific monitorable action plan for the region for achieving greater financial inclusion. The report of the Committee has been placed on the Reserve Bank’s website for wider dissemination. The action points that emerged from the recommendations of the report have been forwarded to the agencies concerned for implementation.

(vi) Financial Inclusion, Small Customers and KYC Requirements

127. In the context of financial inclusion, it is proposed to further simplify the KYC procedure:

a. Small accounts: For opening small accounts, banks need to seek only a photograph of the account holder and self-certification of address. Outstanding balances in these accounts at any time will be limited to Rs.50,000 and the total transactions limited to Rs.200,000 in one year. As and when the balances or total transactions exceed these limits, banks may convert them into normal accounts and follow the normal procedure of KYC.

b. Normal accounts: Banks would continue with the KYC procedure of obtaining documents of proof of identity and address as hitherto. The Reserve Bank will issue certain clarifications in respect of conduct of the KYC procedure for normal accounts also so as to make it more customer-friendly.

(i) Customer Service

128. The Reserve Bank of India has been taking measures on an ongoing basis for protection of customers’ rights, enhancing the quality of customer services and strengthening grievance redressal mechanisms in the Reserve Bank as well as in banks.

(i) Banking Codes and Standards Board of India

129. The Banking Codes and Standards Board of India (BCSBI), which was set up as a society in February 2006, released the Code of Banks’ Commitment to Customers (Code) in July, 2006 which sets out minimum standards for fair practices on various banking transactions for individual customer. Out of 84 SCBs, 55 covering approximately 93 per cent of domestic assets of SCBs are committed to follow the Code as members of the BCSBI.

(ii) Fair Practices Code: Reasonableness of Bank Charges

130. Pursuant to the Annual Policy Statement of April, 2006 the Reserve Bank constituted a Working Group comprising a nominee of the Indian Banks’ Association (IBA) and representatives of customers to formulate a scheme for ensuring reasonableness of bank charges and to incorporate the same in the Fair Practices Code which would be monitored by the BCSBI. The report of the Working Group has been placed on the Reserve Bank’s website for wider dissemination and comments. The report has enumerated 27 services of banks as basic services to individuals and has indicated broad principles of reasonableness for bank charges. Furthermore, in regard to monitoring of compliance with the Code by banks, the Group has recommended that the BCSBI may collect from member banks details of complaints relating to service charges and track the changes in the levels of service charges to identify any abnormal increases. The recommendations of the Working Group have since been examined and operational guidelines to banks, in this regard, would be issued shortly.

(iii) Housing Loans: Fairness and Transparency

131. It has been reported that some banks, while lending for housing, are not fully transparent in indicating the circumstances and factors governing the benchmark in respect of floating rates as well as in regard to reset clauses. Banks are urged to review all practices which are less than fair or transparent. They are also urged to afford an opportunity to borrowers to obtain fair and transparent terms consistent with legal requirements and fair practices.

(iv) Pension Payment Services

132. The Reserve Bank continues to take initiatives to improve services provided by agency banks to pensioners under various schemes announced by the Government of India. Under the ‘Scheme for Payment of Pension for Central Government Civil Pensioners through Authorised Banks’, a pensioner receives pension through her/his savings/current account operated individually by her/him. Since June, 2006 the Central Pension Accounting Office of Government of India has allowed crediting of the pension amount to a joint account operated by pensioner with her/his spouse where family pension has been authorised. The Reserve Bank has issued suitable instructions to agency banks in this regard.

(v) Conduct of Government Business: Extending ECS Facility

133. Payment of income tax refund up to Rs.25,000 to salaried assessees are made through electronic clearing services (ECS) in cities where banks offer this facility. The Government of India has allowed extending ECS for income tax refunds to all categories of tax payers without monetary limits and, accordingly, the Reserve Bank has extended ECS to additional thirteen cities with effect from September 1, 2006. Eleven more cities will be covered shortly through the State Bank of India.


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