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Annual Monetary Policy Statement for the Year 2012-13 click here

RBI's Annual Monetary Policy Statement for the Year 2012-13 -17th April 2012

V. Institutional Developments

Non-Banking Financial Companies

Overseas Investment by Core Investment Companies

113. As indicated in the SQR of October 2011, core investment companies (CICs) have, as their primary activity, investment in equity shares of group entities for the sake of holding stake in these companies. As a holding company, a CIC may also need to invest in both financial and non-financial entities overseas. Accordingly, it is proposed:

to place the draft guidelines on overseas investment by CICs on the Reserve Bank’s website for public comments by end-April 2012.

Review of the Existing Regulatory Framework for NBFCs

114. As indicated in the SQR of October 2011, the Reserve Bank had constituted a Working Group (Chairperson: Smt. Usha Thorat) to examine a range of emerging issues pertaining to the regulation of the NBFC sector in view of their growing importance and inter-connectedness with other segments of the financial system, which would have a bearing on financial stability. The report was placed on the Reserve Bank’s website in August 2011 for feedback from the public. In the light of the feedback, it is proposed:

to issue the draft guidelines on the regulatory framework for NBFCs by end-June 2012.

Payment and Settlement Systems

White Label ATMs

115. At present, only banks are permitted to set up automated teller machines (ATMs) in India. The Reserve Bank has since reviewed the policy on ATMs and it has been decided to permit non-banks to set up, own and operate ATMs to accelerate the growth and penetration of ATMs in the country. Such ATMs will be in the nature of white label ATMs (WLA) and would provide services to customers of all banks. While such WLAs will be owned and operated by non-bank entities, cash management and customer grievance redressal will be in the domain of the sponsor banks. The draft guidelines on WLAs were placed on the Reserve Bank’s website for public comments in February 2012. Roles and responsibilities of the stakeholders (WLA operators, sponsor banks and ATM network operators) were indicated in the draft circular keeping in view various aspects, including cash management, ATM network membership and customer grievance redressal. The final guidelines will be issued, after taking into account the views of public and stakeholders.

RuPay Card

116. In its Payment System Vision document 2009-12, the Reserve Bank had envisaged the possibility of launching a domestic card. Accordingly, NPCI was authorised for a pilot launch of RuPay debit card. The card has since been launched in March 2012. The RuPay card is meant to promote a payments and settlement platform for card transactions at a low processing fee, making it viable for smaller merchant establishments to accept card payments for even low-value transactions. This is expected to provide a further fillip to card transactions in the country, thereby reducing the use of currency.

Membership of SWIFT Oversight Group

117. The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is presently subjected to cooperative oversight by the G-10 central banks with National Bank of Belgium as the lead overseer. The SWIFT Co-operative Oversight Group (OG) is the forum through which the G-10 central banks conduct cooperative oversight of SWIFT. The G-10 central banks have since decided to expand the SWIFT Oversight Forum by including the member countries of the Committee on Payment and Settlement System (CPSS). The Reserve Bank has been invited to join the SWIFT Oversight Forum. In the meantime, it has been decided, in principle, to permit the use of SWIFT for domestic financial transactions, subject to certain conditions. The operating modalities are being worked out.

Performance of the National Electronic Funds Transfer System

118. All the refinements to the national electronic funds transfer (NEFT) scheme have been well accepted by the stakeholders and the product is growing in terms of acceptability, reach and volumes handled. As at end-March 2012, around 84,000 branches of 109 banks participated in the NEFT system. During March 2012, the volume of transactions processed increased to about 27 million. The monthly average volume for the year 2011-12 was around 19 million per month. Further, 71 out of 82 RRBs are now participating in NEFT as sub-members through their sponsor banks. This has ensured additional branch coverage of more than 12,000 bank branches under the NEFT ambit.

119. The Royal Monetary Authority (RMA) of Bhutan successfully launched NEFT in December 2011 with the assistance of the Reserve Bank. The RMA has further sought the Reserve Bank’s assistance in linking their national ATM switch with the national financial switch (NFS) in India. Necessary support is being provided to them in this regard as well.

IT Vision Document for 2011-17

120. Information Technology Vision Document 2011-2017 was released in February 2011. The Standing Committee (Chairman: Shri Anand Sinha) has been monitoring the progress of implementation of IT vision of the Reserve Bank for 2011-17. Some of the important initiatives in this regard were setting up of an IT Sub-Committee of the Central Board, preparation of business continuity plan (BCP) document for the Bank as a whole, issue of IT project management guidelines for internal use and working on a structure for business process reengineering. The IDRBT has started working on important areas like governance and security, in the process of evolving as centre of excellence. The IBA is coordinating the activities of banks in the relevant areas.

IT and IS Governance

121. Information Technology Vision Document 2011-2017, which was released in February 2011, also sets priorities for commercial banks to move forward from usage of CBS for front-end customer service to areas such as management information system (MIS), regulatory reporting, overall risk management, financial inclusion and customer relationship management. Recognising that possible operational risks arising out of adopting technology in the banking sector could have some impact on financial stability, the document has emphasised the need for internal controls, risk mitigation systems and BCPs. Towards this, banks may work in improving their IT governance structures; and evolve well defined information technology policies as well as information security (IS) frameworks.

122. Adoption of well-structured IT governance models will assist banks in enabling better alignment between IT and business, create efficiencies, enhance conformity to internationally accepted best practices and improve overall IT performance, as also enable better control and security. IT governance objectives may be translated effectively and efficiently into improved performance. In order to achieve the above, banks need to move towards adoption of well-structured IT governance models. At its own level, the Reserve Bank has set up an IT Sub-Committee of the Central Board, chaired by an external director, in order to strengthen its IT governance mechanism.

123. Banks are increasingly relying on various IT based channels to operate their businesses and market interactions. Ability of banks to take advantage of new opportunities would largely depend on their capability to provide accessible and secure service channels. However, this would also increase their exposure to technology and operational risks, which have potential implications for individual banks as also for the entire financial sector. Adoption of comprehensive IS frameworks suiting the prevalent banking environment, business goals, processes, people and technology will be imperative to meet these challenges

Automated Data Flow from Banks

124. Following the announcement in the Monetary Policy Statement of May 2011, banks have undertaken to bring returns to be submitted to the Reserve Bank under Automated Data Flow (ADF). A working group comprising representations from banks and the Reserve Bank has been constituted for guiding and monitoring the implementation of the ADF project. Banks are adopting different strategies for putting in place systems and processes required for achieving automation of internal data flow to generate returns without manual intervention. Banks are required to implement suitable solutions to generate all the returns to be submitted to the Reserve Bank by end-March 2013. The Reserve Bank has been closely monitoring the progress of implementation.

Currency Management

Realignment of Business Processes and Training

125. In order to align the currency management systems with the emerging needs of the time and leveraging technology, the critical areas of operational importance have been revisited. A roadmap has been prepared to realign the banks’ business processes relating to currency management, for greater efficiency and productivity.

126. With the increasing incidence of counterfeit notes, the need for adequately trained personnel at banks to identify such notes has increased manifold. Such trained personnel manning the counters are not only important for detection/identification of counterfeit notes but also serving as a point of awareness for members of public. While the Reserve Bank and other banks have been conducting training programmes, these, in the emerging scenario, may not be adequate. The IBA, in consultation with the banks, will ensure that all bank personnel handling cash are trained on features of genuine Indian bank notes with the objective to train all such personnel within a period of 3 years. The Reserve Bank will also provide faculty support and training materials.

Detection and Reporting Mechanism of Counterfeit Bank Notes

127. It has already been stipulated that bank notes in the denomination of `100 and above are processed through machines conforming to the standards/parameters prescribed by the Reserve Bank, before issuing them over their counters or through ATMs. The stipulation has been made, inter alia, to ensure that counterfeit notes are detected at bank/branch level itself, thereby preventing their entry back into circulation. It is also observed that despite the above measure and after rationalising the procedure of filing first information reports (FIRs), the detection and subsequent reporting of counterfeit bank notes by banks continue to be inadequate. This has serious repercussions in that the Reserve Bank is not in a position to assess the number of counterfeit notes in circulation and its ramifications for the economy. In order to address the above concerns, banks are advised:

to ensure that the notes received over the counters are re-circulated only after ensuring their proper authentication through machines; and

to streamline their system in a manner which will make them bear the risk of counterfeit bank notes rather than the common man who unknowingly comes in possession of such notes.

128. Detailed guidelines in this regard will be issued separately.

129. Banks are expected to painstakingly follow the revised procedure for detection of counterfeit notes and its reporting, as stipulated by the Reserve Bank.

Distribution Channels of Bank Notes and Coins

130. At present, bank notes and coins are distributed to the public through the regional offices of the Reserve Bank and currency chests/bank branches. Keeping in view the geographical spread of bank branch network and leveraging technology, it has been decided:

to channelize the distribution of bank notes and coins only through currency chests/bank branches, thus making available the related services closer to the customers. Banks are expected to strengthen their distribution systems and procedures so as to cater to the growing needs of the common man.

131. Detailed operational guidelines will be issued separately, in consultation with banks.

High Level Committee on Demand for Coins

132. In the wake of increasing numbers of complaints from various trade bodies and the members of public on availability of coins, the Government of India constituted a High Level Committee (Chairman: Dr. K. C. Chakrabarty) to examine the issues relating to increase in demand for coins and supply/distribution bottlenecks so as to ensure regular and smooth availability of coins to the public at large. The Committee is expected to submit its report by end-May 2012.

Second Quarter Review

133. The next review of the developmental and regulatory policies will be undertaken as part of the Second Quarter Review of Monetary Policy on Tuesday, October 30, 2012.

...Click Here For Macro economic and Monetary Developments : 2011-12

....Click Here For RBI CREDIT AND MONETARY POLICIES (1999-2012)

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