credit policy
overview
| coop banks
| basics
|
lending
|adv banking
| products
| IT
& banking
daily news |
banking software|
bank directory|
internet banking|
IT directory|
bankers forum
Click here to return to main page of Annual Policy Statement 2007-08
Part II. Annual Statement on Developmental and
Regulatory Policies for the Year 2007-08
V. Institutional Developments
Urban Co-operative Banks
207.Urban co-operative banks (UCBs) play a crucial role in the Indian financial system in channelising funds and bridging the financing gap in respect of small and medium borrowers. A ‘Vision Document for Urban Co-operative Banks’ was prepared keeping in view the heterogeneity of the sector in terms of size, area of operation, performance and strength. The Vision Document was placed on the Reserve Bank’s website in March 2005. Pursuant to the Vision Document, the Reserve Bank has so far entered into Memoranda of Understanding (MoUs) with nine State Governments, with a view to putting in place a structured arrangement for co-ordination between State Governments and the Reserve Bank to address the problem of dual control. Task Forces for Urban Co-operative Banks (TAFCUBs) have been constituted in States that have signed MoUs and consultative processes are in operation. A TAFCUB has also been set up for the multi-state co-operative banks coming under the Central Registrar of Co-operative Societies. Consequently, 79 per cent of the UCBs, constituting 90 per cent of the deposits of this sector, are covered by MoUs/TAFCUBs.
(a)Licensing of Branches of UCBs
208.It was indicated in the Annual Policy Statement of May 2004 that fresh issuance of licenses to UCBs would be considered only after a comprehensive policy on UCBs, including an appropriate legal and regulatory framework for the sector, is put in place and a policy for improving the financial health of the UCB sector is formulated. As a sequel thereto, grant of licences for opening of new branches was also put on hold. Keeping in view the positive developments in the UCB sector, it is proposed:
•to consider granting of branch licenses to well-managed and financially sound UCBs in States that have signed MoUs, subject to fulfillment of certain parameters.
(b)Guidelines on Augmenting Capital of UCBs
209.A Working Group comprising representatives of the Reserve Bank, State Governments and the UCB sector was constituted to explore various options for raising of regulatory capital funds of UCBs and identify alternate instruments/avenues for augmenting the capital funds. The report of the Group was placed on the Reserve Bank’s website in November 2006 for wider dissemination and feedback. Based on the recommendations of the Working Group and comments received thereon, it is proposed:
•to issue guidelines to UCBs on the various options for raising capital by May 31, 2007.
(c)Prudential Norms for UCBs: Extension of Time
210.As a part of the two-track regulatory approach to deal with the UCBs sector, UCBs are classified under two categories, viz., Tier I and Tier II banks. Tier I UCBs were allowed to classify loan accounts as NPAs based on 180 days delinquency norm instead of 90 days norm up to March 31, 2007. Furthermore, effective from the financial year 2006-07, UCBs in Tier II were required to move towards a more stringent provisioning norms for doubtful assets. Taking into consideration the progress made by UCBs, so far, it is proposed:
•to extend by one year the existing relaxed prudential norms applicable to Tier I and Tier II banks.
(d)Undertaking Insurance Business
211.At present, Scheduled UCBs in Grade I with a net worth of not less than Rs.50 crore are permitted to undertake insurance business as corporate agents, without risk participation. Further, all UCBs are allowed to undertake insurance business on referral basis. With a view to providing avenues for fee-based income for a larger number of banks, it is proposed:
•To allow all UCBs in Grade I and II with a net worth of Rs.10 crore and registered in a State that has signed the MoU with the Reserve Bank or under the Multi-State Co-operative Societies Act, to undertake insurance business as corporate agents, without risk participation.
Deposit Insurance and Credit Guarantee Corporation (DICGC)
(a)Recent Initiatives
212.The Corporation has taken a number of initiatives recently to eliminate delay in settlement of claims to the depositors. These include:
(i)Follow-up with liquidators, providing guidance and training to them for speedy preparation and submission of claim lists.
(ii)Where claim lists are not forthcoming from the liquidators within the prescribed time, the Corporation issues an advertisement in local newspapers. The advertisement mentions the non-receipt of claims at its end and also requests depositors to make claims with the liquidator under intimation to the Corporation. Before issue of such advertisements the concerned Registrar of Co-operative Societies is given one month’s time for arranging submission of claim lists. The DICGC processes such cases after obtaining necessary details from the liquidator.
(iii)Where there is a Court case challenging cancellation of license/liquidation of banks, the depositors claims in such cases as per claim list will be settled after obtaining an irrevocable undertaking from the liquidator. If the court has directly restrained it from settling claims, the Corporation will make an application to have the injunction lifted.
(b)Liberalised Interpretation in case of Joint Holding
213.Currently, the maximum claim payable by DICGC to any depositor in the same right and same capacity is Rs.1 lakh. In case of joint deposit accounts, two accounts held in the names of, say, ‘A & B’ and ‘B & A’ are currently clubbed and considered as being held in the same right and capacity with claim payment limited to Rs.1 lakh.
214.In view of the large number of representations received and in order to redress the grievance of depositors, it is proposed:
•to treat only those joint accounts held exactly in the same nomenclature and having names in the same order with different branches of the same bank, as being held in the same capacity and same right. Accordingly, joint deposits held in the names of ‘A & B’ and ‘B & A’ will be treated as two separate accounts eligible for maximum claim of Rs.1 lakh each.
Non-Banking Financial Companies
(a)Setting up of Mortgage Guarantee Companies: Status
215.A mortgage guarantee company issues guarantees for the repayment of the amount of housing loan and interest accrued thereon to a creditor institution on the occurrence of a pre-determined trigger event. These guarantees help the primary lenders to the housing loan sector to transfer their credit risk to the mortgage guarantee company.
216.The draft guidelines for setting up mortgage guarantee companies have been put on the Reserve Bank’s website on April 2, 2007 for comments from the public. On the basis of the feedback received, the final guidelines will be issued on June 15, 2007.
(b)Interest Rate Ceiling on Deposits Accepted by NBFCs
217.The interest payable on deposits by NBFCs (other than residuary non-banking financial companies (RNBCs)) accepting public deposits is subject to a ceiling of 11.0 per cent per annum. There have been requests from deposit-taking NBFCs for enhancement of the ceiling on the interest payable on deposits. Taking into account the market developments, it is now proposed:
•to increase the ceiling on the rate of interest payable by NBFCs (other than RNBCs) on deposits by 150 basis points to 12.5 per cent per annum and such interest would be paid or compounded at rests which should not be shorter than monthly rests.
Committee on Financial Sector Assessment: Developments
218.The Government and the Reserve Bank of India has constituted a Committee on Financial Sector Assessment to undertake a comprehensive self-assessment of the Indian financial sector using the Handbook brought out by the World Bank and the IMF as the base. The central plank of the assessment is based on three mutually reinforcing pillars, namely, financial stability assessment and stress testing; legal, infrastructural and market development issues, and, assessment of the status and progress in implementation of international financial standards and codes. The Committee has since constituted Technical Groups comprising officials directly handling different subject areas drawn from regulatory and market agencies, besides the Government of India to undertake the assessment. The Committee envisages constituting Advisory Panels drawing non-official experts whose reports will be peer reviewed for enhancing credibility. The Committee would publish Advisory Panel reports and also its own report. Based on an objective analysis of the present strengths and weaknesses of the financial sector and the status with regard to standards, the Committee is expected to lay out a road-map for further reforms in a medium-term perspective. The Committee is expected to complete the assessment by December 2007.
High-Powered Expert Committee on Making Mumbai
an International Financial Centre
219.The High-Powered Expert Committee (HPEC) on Making Mumbai an International Financial Centre (Chairman: Shri Percy S. Mistry) has offered an exhaustive list of recommendations towards facilitating the ensuing process of making Mumbai an international financial hub. The HPEC has suggested inter alia introduction of some specific measures in the areas of monetary policy and capital account liberalisation. It has underscored the complicated challenges of monetary management with large fiscal deficits and an open capital account in a rapidly growing developing economy like India. It emphasises the need to focus on the single task of managing a key short-term ‘base rate’ to maintain price stability (e.g., inflation being kept within a range of 3 to 4 per cent), consistent with supporting a high growth rate of around 8 to 10 per cent. It has suggested that various issues pertaining to monetary operations, which have also been examined by the CFCAC, need to be looked into further by a specialised expert technical committee. On capital account liberalisation, the HPEC expressed the view that the ongoing process should be rapidly accelerated towards faster achievement of goals than is presently envisaged. It sets the target of achieving capital account convertibility within the next 18-24 months, i.e., by the end of calendar 2008 at the earliest as compared to a five-year timeframe suggested by CFCAC along with the concomitants. In this context, it is proposed to constitute an Internal Working Group to examine the report of the HPEC and implement the recommendations as appropriate.
<< BACK TO PAGE 1
Click Here For Highlights of Annual Policy Statement for the Year 2007-08
Advertise
| Book Store |
About us |
Contact us
| Terms of use | Disclaimer
© Banknet India |
All rights reserved worldwide.
Best viewed with IE 4.00 & above at a screen resolution of 800 x 600
or higher