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Second Quarter Review of Monetary Policy click here

Second Quarter Review of Monetary Policy 2009-2010
-Announced on the 27th October 2009

Part B. Developmental and Regulatory Policies

VII. Institutional Developments

Payment and Settlement Systems

Guidelines for Pre-paid Payment Instruments in India

167. As indicated in the Annual Policy Statement of April 2009, SCBs and non-bank entities, which complied with the eligibility criteria, were permitted to issue pre-paid payment instruments. Furthermore, in August 2009, other entities were also permitted to issue mobile phone based semi-closed system pre-paid instruments for a maximum value of Rs.5,000.

Electronic Payment Systems

168. Between end-March 2009 and end-September 2009, the branch network of national electronic funds transfer (NEFT) enabled banks increased from 54,200 to 60,839 and the RTGS enabled branches increased from 55,000 to 60,144. The average number of daily transactions handled by the RTGS network increased from 80,000 to 90,000.

National Electronic Clearing Service

169. As indicated in the Annual Policy Statement of April 2009, the volume of transactions through national electronic clearing service (NECS), introduced in September 2008, is gradually increasing. As at end-September 2009, 114 banks with 30,780 branches have been participating in NECS.

Customer Service at ATMs

170. The Reserve Bank received a number of complaints from bank customers regarding debit of their accounts even though ATMs had not disbursed cash for various reasons. In order to improve customer service, the Reserve Bank advised all banks to reimburse to the customers the amount wrongfully debited on account of failed ATM transactions within a maximum period of 12 days from the date of receipt of customer complaint. In case a bank fails to re-credit the customer’s account, it is required to pay compensation of Rs.100 per day to the aggrieved customer. The amount of compensation is credited to the customer’s account on the same day the bank credits the amount of the failed ATM transaction.

Facility to Use ATMs of other Banks: Rationalisation

171. The Reserve Bank had advised that customers could use the ATMs of other banks for cash withdrawal free of charge with effect from April 1, 2009. This led to a quantum increase in ATM transactions, especially small value cash withdrawal transactions, which tended to impair the viability of operations. The Indian Banks’ Association (IBA), therefore, approached the Reserve Bank with suggestions to rationalise the facility in order to achieve a balance between optimising customer convenience and mitigating operational difficulties. Taking into account all the relevant issues, the Reserve Bank agreed to the IBA’s suggestions of: (i) extending the access of ATMs of other banks to only customers having savings bank accounts; (ii) pegging a cap of Rs.10,000 per withdrawal at ATMs of other banks; and (iii) permitting only five free transactions per month at ATMs of other banks. These instructions came into effect from October 15, 2009.

Mobile Payments

172. With the issuance of the operative guidelines for mobile payments on October 8, 2008, the Reserve Bank has so far granted approval to 32 banks to provide mobile banking facilities to their customers.

Cheque Truncation System

173. The Annual Policy Statement of April 2009 indicated that the Reserve Bank will continue to take steps towards extending the cheque truncation system (CTS) across the country. In pursuance of this, effective July 1, 2009, all cheque volumes at New Delhi migrated to CTS and accordingly magnetic ink character recognition (MICR) clearing (both at SBI and the Reserve Bank) was discontinued. Furthermore, action to roll-out CTS at Chennai has been initiated and it is proposed that New Delhi and Chennai would act as backup for each other. With effect from July 1, 2009, a fee of Rs.0.50 per instrument each from the presenting bank and from the paying bank in the CTS has been introduced. Presently, CTS is handling around 6,00,000 instruments every day.

Cash Withdrawal at Point-of-Sale (POS)

174. Cash is predominantly used for small value payments and as such there is always a need for availability of currency. The use of debit cards at point-of-sale (POS) terminals at different merchant establishments has been steadily on the rise. The number of POS terminals in the country at the end of August 2009 was 4,87,024. As a further step towards enhancing customer convenience in using plastic cards, cash withdrawals up to Rs.1,000 per day at POS terminals have been allowed for all debit cards issued in India.

The Payment and Settlement Systems Act, 2007

175. As indicated in the Annual Policy Statement of April 2009, all payment system providers/operators, including credit card issuing companies and entities engaged in money transfer activity, require authorisation as per the Payment and Settlement Systems Act, 2007. Accordingly, 30 payment system service providers providing service in India have been granted certificate of authorisation by the Reserve Bank by end-September 2009.

Currency Management

176. The High Level Group on Currency Management (Chairperson: Smt Usha Thorat) constituted by the Reserve Bank submitted its Report in August 2009. The Group has, inter alia, emphasised the importance of using modern technology and security systems for stocking, processing and distribution of currency to ensure adequate availability of genuine and clean notes to the public. With a view to encouraging banks for giving due priority to the above objective, it is proposed:

• to mandate banks to install note sorting machines in all their branches in a phased manner in terms of a roadmap to be approved by the Reserve Bank; and

• to have the responsibility of currency management entrusted to a nodal official in each bank, who shall be a senior functionary at a level not less than that of a General Manager and who will be accountable for the obligations cast upon currency chests by the Reserve Bank.

177. Detailed guidelines based on the report of the Working Group are being issued separately.

Non-Banking Financial Companies

Classification of NBFCs-ND-SI: Infrastructure Companies

178. NBFCs-ND-SI engaged predominantly in the infrastructure financing have represented to the Reserve Bank that there should be a separate category of infrastructure financing NBFCs in view of the critical role played by them in providing credit to the infrastructure sector. Currently, the Reserve Bank classifies NBFCs under three categories, viz., asset finance companies, loan companies and investment companies. It has now been decided to:

• introduce a fourth category of NBFCs as ‘infrastructure NBFCs’, defined as entities which hold minimum of 75 per cent of their total assets for financing infrastructure projects.

179. Detailed instructions, including eligibility criteria, are being issued separately.

Repossession of Vehicles by NBFCs

180. The Annual Policy Statement of April 2009 had emphasised that NBFCs should have a built-in repossession clause (in respect of repossession of vehicles) and also detailed provisions with regard to terms and conditions for ensuring transparency in the contract/loan agreement with the borrower which will be legally enforceable. Accordingly, NBFCs were advised the broad framework in respect of terms and conditions of the contract/loan agreement, viz., (i) notice period before taking possession; (ii) circumstances under which the notice period can be waived; (iii) the procedure for taking possession of the security; (iv) a provision regarding final chance to be given to the borrower for repayment of loan before the sale/auction of the property; (v) the procedure for giving repossession to the borrower; and (vi) the procedure for sale/auction of the property. Furthermore, NBFCs were urged to make available a copy of such terms and conditions to the borrowers at the time of sanction/disbursement of loans, which may form a key component of such contracts/loan agreements.

Special Liquidity Facility for Eligible NBFCs-ND-SI

181. The special liquidity facility for eligible NBFCs-ND-SI for meeting the temporary liquidity mismatches through the Industrial Development Bank of India Stressed Asset Stabilisation Fund (IDBI SASF) Trust, which was notified as a special purpose vehicle (SPV) for undertaking the operation, was extended for eligible papers issued by NBFCs up to September 30, 2009. The SPV will cease to make fresh purchases after December 31, 2009 and will recover all dues by March 31, 2010. The facility was availed of to the extent of Rs.750 crore and was repaid fully by July 7, 2009.

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