SUMMARY OF POLICY GUIDELINES
(JAN TO DEC. 2013)
BANKING POLICY
>> REPO RATE: The policy Repo rate under the liquidity adjustment facility increased by 25 basis points
from 7.50% to 7.75% w.e.f. 29th Oct. 2013.
>> REVERSE REPO RATE: The Reverse repo rate determined with a spread of 100 bps points below
the repo rate, stands at 6.75% w.e.f. 29-10-13.
>> MARGINAL STANDING FACILITY (MSF): The MSF rate reduced by 25 basis points from 9.0 per
cent to 8.75% w.e.f. 29th Oct. 2013.
>> BANK RATE: The Bank Rate stands reduced to 8.75 per cent w.e.f. 29th Oct. 2013. With these
changes, the MSF rate and the Bank Rate are recalibrated to 100 basis points above the repo rate.
>> TERM REPOS: The liquidity provided through term repos of 7-day and 14-day tenor has been
increased from 0.25% of net demand and time liabilities (NDTL) of the banking system to 0.5% w.e.f. 29th
Oct. 2013.
>> SLR: SLR for SCBs reduced from 24% to 23% of their NDTL with effect from the fortnight beginning
August 11, 2012.
>> CASH RESERVE RATIO: RBI reduced the Cash Reserve Ratio(CRR) of scheduled banks by 25
basis points from 4.25 per cent to 4.00 per cent of their net demand and time liabilities (NDTL) effective
the fortnight beginning February 9, 2013. The reduction in the CRR injected primary liquidity of around
Rs.180 billion into the banking system.
>> CHANGE IN DAILY MINIMUM CRR REQUIREMENT
RBI has decided to reduce the minimum daily maintenance of the Cash Reserve Ratio from 99 per cent
of the requirement to 95 per cent effective from the fortnight beginning Sept. 21, 2013.
>> PPF SCHEME, 1968 & SCS SCHEME, 2004: The Government of India has reduced the interest rate
on PPF, 1968 and SCSS, 2004 for the financial year 2013-14, effective from April 01, 2013, to 8.7% per
annum and 9.2% per annum respectively.
>> IMPLEMENTATION DATE FOR BASEL III: RBI has rescheduled the start date for implementation of
Basel III to April 1, 2013 from Jan.1, 2013.
>> COUNTERFEIT BANKNOTES: RBI has revised the procedure to be followed on detection of
counterfeit banknotes. For cases of detection of counterfeit notes up to 4 pieces, in a single transaction, a
consolidated report as per the format prescribed should be sent to the police authorities at the end of the
month. However, for cases of detection of counterfeit notes of 5 or more pieces, in a single transaction,
FIRs should be lodged with the Nodal Police Station / Police Authorities as per jurisdiction.
>> DEMAND DRAFTS FOR RS.20,000/- & ABOVE: RBI has advised banks to ensure that demand
drafts of Rs. 20,000/- and above are issued invariably with account payee crossing.
>> SERVICE CHARGES: SPEED CLEARING: Banks which have fixed their service charges for outstation / speed clearing for instruments valuing above Rs.1 lakh as percentage to the value of instruments
should review the same and fix the charges on a cost-plus basis. Banks may note to ensure that
collection charges fixed for instruments valuing above Rs.1 lakh is lower under Speed Clearing vis-a-vis
Out-station Cheque Collection so as to encourage the use of Speed Clearing.
>> NEW PRIVATE SECTOR BANKS:
a) ELIGIBLE PROMOTERS: Entities / groups in the private sector, entities in public sector and NonBanking Financial Companies (NBFCs) shall be eligible to set up a bank through a wholly-owned NonOperative Financial Holding Company (NOFHC).
b) ‘FIT AND PROPER’ CRITERIA: Entities / groups should have a past record of sound credentials and
integrity, be financially sound with a successful track record of 10 years.
c) MINIMUM VOTING EQUITY CAPITAL: The initial minimum paid-up voting equity capital for a bank
shall be Rs.5 billion. (Rs 500 cr) The NOFHC shall initially hold a minimum of 40 per cent of the paid-up
voting equity capital of the bank which shall be locked in for a period of five years and which shall be
brought down to 15 per cent within 12 years. The bank shall get its shares listed on the stock exchanges
within three years of the commencement of business by the bank.
d) FOREIGN SHAREHOLDING IN THE BANK: The aggregate non-resident shareholding in the new
bank shall not exceed 49% for the first 5 years after which it will be as per the extant policy.
e) CORPORATE GOVERNANCE OF NOFHC: At least 50% of the Directors of the NOFHC should be
independent directors. The corporate structure should not impede effective supervision of the bank and
the NOFHC on a consolidated basis by RBI.
## The bank shall open at least 25 per cent of its branches in unbanked rural centres (population upto
9,999 as per the latest census)
## The bank shall comply with the priority sector lending targets and subtargets as applicable to the
existing domestic banks.
## Banks promoted by groups having 40% or more assets / income from nonfinancial business will
require RBI’s prior approval for raising paid-up voting equity capital beyond Rs.10 billion for every block of
Rs.5 billion.
>> LEVY OF FORE-CLOSURE CHARGES: The Committee on Customer Service in Banks headed by
the Chairman Sh. M. Damodaran had observed that foreclosure charges levied by banks on prepayment
of home loans are resented upon by home loan borrowers across the board especially since banks were
found to be hesitant in passing on the benefits of lower interest rates to the existing borrowers in a falling
interest rate scenario. The RBI has decided that banks will not be permitted to charge foreclosure
charges / pre-payment penalties on home loans on floating interest rate basis.
>> ‘BASIC SAVINGS BANK DEPOSIT ACCOUNT’: With a view to doing away with the stigma
associated with the nomenclature ‘no-frills’ account and making the basic banking facilities available in a
more uniform manner, RBI has advised banks to offer a ‘Basic Savings Bank Deposit Account’ which will
offer following min. common facilities to all their customers:
a) The ‘Basic Savings Bank Deposit Account’ should be considered a normal banking service available to
all.
b) This account shall not have the requirement of any minimum balance.
c) The services available in the account will include deposit and withdrawal of cash at bank branch as
well as ATMs; receipt/credit of money through electronic payment channels or by means of deposit /
collection of cheques drawn by Central/State Government agencies and departments;
d) While there will be no limit on the number of deposits that can be made in a month, account holders
will be allowed a maximum of four withdrawals in a month, including ATM withdrawals; and Facility of
ATM card or ATM-cum-Debit Card.
The above facilities will be provided without any charges. Further, no charge will be levied for nonoperation/activation of in-operative ‘Basic Savings Bank Deposit Account’.
Holders of ‘Basic Savings Bank Deposit Account’ will not be eligible for opening any other savings bank
deposit account in that bank. If a customer has any other existing savings bank deposit account in that
bank, he will be required to close it within 30 days from the date of opening a ‘Basic Savings Bank
Deposit Account’. The existing basic banking ‘no-frills’ accounts should be converted to ‘Basic Savings
Bank Deposit Account’ as per the instructions contained above.
>> RUPEE DENOMINATED CO-BRANDED CARDS:
General permission has been granted by RBI to banks to issue rupee denominated co-branded pre-paid
cards in India. The co-branding arrangement should be as per the bank’s Board approved policy.
>> NBFCS: PARTNERS IN PARTNERSHIP FIRMS: As per the extant guidelines, NBFCs were
prohibited from contributing capital to any partnership firm or to be partners in partnership firms. In cases
of existing partnerships, NBFCs were advised to seek early retirement from the partnership firms. In this
connection RBI has advised that partnership firms mentioned above will also include Limited Liability
Partnerships (LLPs). Further, the aforesaid prohibition will also be applicable with respect to Association
of persons; these being similar in nature to partnership firms.
>> SLR HOLDINGS UNDER HTM CATEGORY: In view of the fact that the SLR has since been brought
down to 23 per cent of DTL and in view to align it in line with the recommendations of the Working Group
headed by R.Gandhi on Enhancing Liquidity in the Government Securities and Interest Rate Derivatives
Markets, RBI has decided as under:
Banks are permitted to exceed the limit of 25 per cent of total investments under HTM category provided:
a) The excess comprises only of SLR securities, and
b) The total SLR securities held in the HTM category is not more than 24.50 per cent by end June 2013,
24.00 per cent by end September 2013, 23.50 per cent by end December 2013, and 23.00 per cent by
end March 2014 of their DTL as on the last Friday of the second preceding fortnight.
Further, as per extant instructions, banks may shift investments to / from HTM with the approval of the
Board of Directors once a year and such shifting will normally be allowed at the beginning of the
accounting year. In order to enable banks to shift their SLR securities from the HTM category to AFS/HFT
once in each quarter, RBI has decided to allow such shifting at the beginning of each quarter during
2013-14.
>> MAINTENANCE OF SLR – MSF: Under the Marginal Standing Facility (MSF), currently banks avail
funds from the RBI on an overnight basis against their excess statutory liquidity ratio (SLR) holdings.
Additionally, they can also avail funds on an overnight basis below the stipulated SLR up to two per cent
of their respective NDTL outstanding at the end of the second preceding fortnight. With a view to enabling
banks to meet the liquidity requirements of mutual
funds under the Reserve Bank’s Special Repo Window announced on July 17, 2013, the borrowing limit
below the stipulated SLR requirement under the MSF has been raised from 2 per cent of NDTL to 2.5 per
cent of NDTL. The higher MSF limit of 0.5 per cent of NDTL will be available only for the Special Repo
Window. This additional limit will be available for a temporary period until further notice.
>> PERIODICAL UPDATION OF KYC SIMPLIFIED: The Reserve Bank has revised its earlier
instructions on periodical updation of 'Know Your Customer' (KYC) and has advised banks as follows:
a) They should continue to carry out on-going due diligence with respect to the business relationship with
every client and closely examine the transactions in order to ensure that they are consistent with their
knowledge of the client, his business and risk profile and, wherever necessary, the source of funds.
b) Full KYC exercise should be done at least every two years for high risk individuals and entities.
c) Full KYC exercise should be done at least every ten years for low risk and at least every eight years for
medium risk individuals and entities.
d) Positive confirmation (obtaining KYC related updates through email/letter/telephonic conversation /
forms / interviews / visits, etc.), should be completed at least every two years for medium risk and at least
every three years for low risk individuals and entities.
e) Fresh photographs should be obtained from minor customers on their becoming major.
>> LIMIT FOR OVERSEAS DIRECT INVESTMENT: RBI has now decided as follows:
a) To reduce the existing limit of 400 per cent of the net worth of the Indian Party to 100 per cent of its net
worth under the Automatic Route.
Accordingly, AD Category - I banks advised to allow overseas direct investments under the Automatic
Route up to 100 per cent of the net worth of the Indian party, as on the date of the last audited balance
sheet;
b) To reduce the existing limit of 400 per cent of the net worth of the Indian company, investing in the
overseas unincorporated entities in the energy and natural resources sectors, under the automatic route,
to 100 per cent of the net worth of the Indian company investing in the overseas unincorporated entities in
the energy and natural resources sectors, as on the date of last audited balance sheet; and
c) Any Overseas Direct Investment in excess of 100% of the net worth shall be considered under the
Approval Route by the RBI.
>> FRONTLOADING OF BRANCHES: With the objective of increasing banking penetration and financial
inclusion rapidly banks were advised that they should allocate at least 25 per cent of total number of
branches proposed to be opened during the year in unbanked rural (Tier 5 and Tier 6) centres. An
unbanked rural centre would mean a rural (Tier 5 and Tier 6) centre that does not have a brick and mortar
structure of any scheduled commercial bank for customer based banking transactions.
In order to take financial inclusion to the next stage of providing universal coverage and facilitating
Electronic Benefit Transfer (EBT), banks have been advised to draw up the next Financial Inclusion Plan
(FIP) for the period 2013- 16. To facilitate speedier branch expansion in unbanked rural centres for
ensuring seamless roll out of the Direct Benefit Transfer (DBT)/EBT Scheme of the Government of India,
banks are advised that they may consider frontloading (prioritising) the opening of branches in unbanked
rural centres over a 3 year cycle co-terminus with their FIP(2013-16). The requirement of allocating at
least 25 per cent of total number of branches proposed to be opened during a year in unbanked rural
(Tier 5 and Tier 6) centres will continue. Credit will be given for branches opened in unbanked rural
centres in excess of 25 per cent in a year which will be carried forward to the subsequent year of the FIP.
>> DISTRIBUTION OF BANKNOTES AND COINS REVISED SCHEME OF INCENTIVES AND
PENALTIES:
1) Nature of Service: Exchange of soiled notes / adjudication of mutilated bank notes over the counter at
bank branches.
1.1) Particulars of Incentives: Exchange of soiled notes: Rs. 2.00/- per packet for exchange of soiled
notes in denominations up to Rs. 50/2) Nature of Service: Distribution of coins over the counter.
2.1) Particulars of Incentives:
a) Rs. 25/- per bag for distribution of coins over the counters.
b) The incentives would be paid on the basis of net-withdrawal from currency chest, without waiting for
claims from banks.
c) Banks may put in place a system of checks and balances to ensure that coins are distributed to retail
customers in small lots and not to bulk.
d) The distribution of coins shall be verified by RBI Regional Offices through inspection of currency chest
/ incognito visit to branches etc.
3) Nature of Service: Establishment of Coin Vending Machines.
3.1) Particulars of Incentives: The existing level of incentive of:
a) Reimbursement of 50% of capital expenditure in case of urban / metro centers and reimbursement of
75% of capital expenditure in case of rural and semi urban centers, and
b) reimbursement of revenue cost @ Rs.25/- per bag, as applicable to commercial banks maintaining
currency chests would now be applicable to all the scheduled commercial banks, including urban cooperative banks and regional rural banks (irrespective of whether they maintain currency chests or not).
4) Nature of Service: Installation of Machines which extend cash related retail services to the public like:
a) Coin Pouch Vending Machines b) Note Packet Vending machines
c) Cash Acceptors d) Cash Recyclers
e) Desktop banknote authenticating machines
f) ATMs dispensing lower denomination notes.
4.1) Particulars of Incentives: 50% of cost of installation in urban / metropolitan areas & 75% in semiurban & rural areas.
5) Nature of Service: Installation of Note Sorting Machines (NSMs).
5.1) Particulars of Incentives: Applicable only to RRBs and UCBs- 50% of cost of installation in urban /
metropolitan areas and 75% in semi-urban and rural areas.
>> INCREASE IN HTM LIMITS FOR PDS: On the basis of review of the current market conditions
relating to excessive volatility in yields of Government securities, RBI has decided to increase the
quantum of securities that can be classified as HTM from 100% to 200% of the audited NOF of the PD as
at end March of the preceding financial year until further notice. RBI has also decided to allow one
additional transfer to HTM for the current quarter.
>> BASE RATE – REVISED GUIDELINES
a) Banks that have commenced their banking operations in India after the coming into effect of the Base
Rate regime in July 2010 but have not completed one year of their banking operations, will be allowed to
revise their Base Rate methodology within a year from the date of commencement of their business
operations in India.
b) Banks that will commence their banking business in India after issue of this circular will be allowed to
revise their Base Rate methodology within a year from the date of commencement of their banking
business in India.
c) In case, a bank desires to review its Base Rate methodology after five years from the date of its
finalization, the bank may approach Reserve Bank for permission in this regard.
>> INCLUSION IN SECOND SCHEDULE TO RBI ACT:
RBI has decided to consider applications from UCBs for inclusion in the Second Schedule to the RBI Act,
1934. UCBs desirous of seeking inclusion in the Second Schedule to the RBI Act, 1934 and fulfilling the
following financial
criteria, based on assessed financials as per inspection reports, may submit their application along with
relevant documents:
## DTL of not less than Rs.750 crore on a continuous basis for one year;
## CRAR of minimum 12 per cent;
## Continuous net profit for the previous three years;
## Gross NPAs of 5 per cent or less;
## Compliance with CRR/SLR requirements; and
## No major regulatory and supervisory concerns.
>> IMPOSITION OF MINIMUM CAR 9% FOR RRBS:
Consequent to the consolidation of RRBs by amalgamation and recapitalization of weak RRBs, RBI has
decided to prescribe a minimum CRAR for RRBs. All
RRBs advised to achieve and maintain a minimum CRAR of 9% on an ongoing basis with effect from
March 31, 2014.
>> BRANCH AUTHORISATION POLICY: General permission given to domestic scheduled commercial
banks (other than RRBs) to open branches in Tier 2 to Tier 6 centres and in the rural, semi-urban and
urban centres in North-Eastern States and Sikkim without taking the Reserve Bank’s permission in each
case, now extended to branches in Tier 1 centres also, subject to conditions.
PRIORITY SECTOR
>> PRIORITY SECTOR GUIDELINES:
## Increase the loan limit for micro and small enterprises (MSEs) in the services sector, as defined in the
Micro, Small and Medium Enterprises Development (MSMED) Act 2006, from Rs.2 cr to Rs.5 crore per
borrower;
## Increase the loan limit from Rs.1 crore to Rs.5 crore per borrower for bank loans to dealers/sellers of
fertilisers, pesticides, seeds, cattle feed, poultry feed, agricultural implements and other inputs which are
classified as indirect finance to agriculture; and
## Raise the limit on pledge loans (including against warehouse receipts) from the current limit of Rs.25
lac to Rs.50 lac for classification as direct agriculture loans in the case of individual farmers and as
indirect agriculture loans in the case of corporates, partnership firms and institutions engaged in
agriculture and allied activities.
>>
REPAIR OF DWELLING UNITS: The ceiling on loans to individuals for carrying out
repairs/additions/alterations to their dwelling units enhanced to Rs.2 lakh in rural and semi-urban areas
and Rs. 5 lakh in urban areas. Such loans would also be eligible for classification under priority sector.
>> USE OF BUSINESS CORRESPONDENTS: RBI has advised that for furthering financial inclusion,
banks may open Ultra Small Branches at habitations where Business Correspondents (BCs) would deal
with cash transactions:
a) Establish outlets in rural centres from which BCs may operate. These BC outlets may be in the form of
low cost simple brick and mortar structures. With expanding access to banking services, it is also
important that quality services are provided through the ICT based delivery model.
b) These Ultra Small Branches may be set up between the base branch and BC locations so as to
provide support to about 8-10 BC Units at a reasonable distance of 3-4 kms. These could be either newly
set up or through conversion of the BC outlets. Such Ultra Small Branches should have minimum
infrastructure such as a Core Banking Solution terminal linked to a pass book printer and a safe for cash
retention and would have to be managed full time by bank employees.
>> "SMALL ACCOUNT": With a view to promote financial inclusion, RBI has introduced a new type of
simple account aimed at general masses.
a) The aggregate of all credits in a financial year does not exceed Rs.1 lac;
b) The aggregate of all withdrawals and transfers in a month does not exceed Rs.10,000;
c) The balance at any point of time does not exceed Rs 50,000/-.
>> INTEREST SUBVENTION ON HOUSING LOANS: The interest subvention scheme has been
liberalized with effect from Financial Year 2011-12 by extending it to housing loans up to Rs.15 lakh
where the cost of the house does not exceed Rs.25 lakh.
>> MICRO FINANCE INSTITUTIONS (MFIS): Micro finance institutions (MFIs) permitted to raise ECB up
to USD 10 million or equivalent during a financial year for permitted end-uses, under the automatic route.
>> BANK LOANS TO MFIs FOR ON-LENDING: Bank credit to micro finance institutions (MFIs) for
onlending, will now be eligible for categorisation as priority sector advance if the aggregate amount of
loan, extended for income generating activity, is not less than 70% ( earlier 75%) of the total loans given
by MFIs.
>> LIQUIDITY SUPPORT TO MSME SECTOR: In view of the need to ease the liquidity stress to micro
and small enterprises (MSE) sector which is employment intensive and contributes significantly to
exports, RBI to provide refinance of an amount of Rs. 5,000 crore to the Small Industries Development
Bank of India. The refinance will be available for direct liquidity support to finance receivables, including
export receivable, to MSEs by SIDBI or for liquidity support to MSEs through selected intermediaries, that
is, banks, NBFCs and state finance corporations. The facility will be available at the prevailing 14-day
term repo rate for a period of 90 days. During this 90-day period, the amount can be flexibly drawn and
repaid. At the end of the 90-day period, the drawal can also be rolled over. The refinance facility will be
available for a period of one year up to Nov. 13, 2014.
>> INCREMENTAL CREDIT TO MEDIUM ENTERPRISE:
In order to enhance credit delivery to the medium sector, RBI has decided to include, as eligible priority
sector lending, incremental credit, including export credit, extended to the medium enterprises by
scheduled commercial banks (excluding RRBs) over the outstanding credit as on Nov. 13, 2013.
The incremental bank loans to medium service enterprises extended after November 13, 2013, up to the
credit limit of Rs.10 crores, would qualify as priority sector advances. In line with the above, similar
incremental loans to micro and small service enterprises up to the credit limit of Rs.10 crores, (as against
the present ceiling of Rs.5 crores), shall also be treated as priority sector advances. The facility will be
available up to March 31, 2014 and will be within the overall target of 40 per cent.
>> CRGFTLIH: The Ministry of Housing & Urban Poverty Alleviation has set up the Credit Risk
Guarantee Fund Trust for Low Income Housing (CRGFTLIH). RBI has decided as under:
a) RISK WEIGHT: Banks may assign zero risk weight for the guaranteed portion. The balance
outstanding in excess of the guaranteed portion would attract a risk-weight as appropriate to the counterparty.
b) PROVISIONING: In case the advance covered by CRGFTLIH guarantee becomes non-performing, no
provision need be made towards the guaranteed portion. The amount outstanding in excess of the
guaranteed portion should be provided for as per the extant guidelines on provisioning for NPAs.
FOREIGN EXCHANGE
>> EXPORT CREDIT - INTEREST SUBVENTION: The RBI has decided to increase the rate of interest
subvention on the existing sectors eligible for export credit subvention from the present 2% to 3% with
effect from August 1, 2013 to March 31, 2014 for the following sectors on the same terms and conditions:
a) Handicrafts b) Carpet c) Handlooms d) SMEs e) Sports Goods f) Toys g) Readymade Garments
h) Processed Agriculture Products
i) Additional 101 tariff lines in engineering good sector in addition to the existing 134 lines. j) ITC(HS) and
Textiles good to 6 tariff lines;
Accordingly, banks may reduce the interest rate chargeable to the exporters as per Base Rate system in
the above mentioned sectors eligible for export credit subvention subject to a floor rate of 7%. Banks may
ensure to pass on the benefit of 3% interest subvention completely to the eligible exporters.
>> EXPORT OF GOODS AND SOFTWARE: RBI has decided to bring down the above stated realization
period from twelve months to nine months from the date of export. Further, RBI has decided that the
units located in SEZs shall realize and repatriate, full value of goods / software / services, to India within a
period of twelve months from the date of export. (earlier no limit) Any extension of time beyond the above
stipulated period may be granted by RBI, on case to case basis.
>> WRITE-OFF OF UNREALISED EXPORT BILLS: With a view to further simplifying and liberalising
the procedure and for providing greater flexibility to all exporters as well as authorised dealer banks, the
Reserve Bank has reviewed its instructions regarding write-off of unrealized export bills. RBI has now
decided to effect the following liberalisation in the limits of “write-offs” of unrealised export bills:
Write-off Limit
Self “write-off” by an exporter (other than status holder exporter)
Self “write-off” by status holder exporter
‘Write-off” by authorized dealer bank
Percent
5*
10*
10*
*of the total export proceeds realised during the previous calendar year
The above limits will be related to total export proceeds realised during the previous calendar year and
will be cumulatively available in a year.
>> REALIZATION AND REPATRIATION PERIOD-SEZ:
RBI has decided that the units located in SEZs shall realize and repatriate, full value of
goods/software/services, to India within a period of twelve months from the date of export (earlier no limit)
Any extension of time beyond the above stipulated period may be granted by RBI, on case to case basis.
>> ONLINE PAYMENT GATEWAYS: On review, RBI has decided
to increase the value per transaction from USD 3000 to USD 10,000 for export related remittances
received through OPGSPS. The revised limit will come into force with immediate effect.
>> NRO ACCOUNTS: RBI has permitted Authorised banks to open NRO account of individuals of
Bangladesh nationality without the approval of the RBI subject to the conditions that the bank concerned
should satisfy itself that the individual is holding valid visa and valid residential permit issued by Foreigner
Registration Office (FRO) / Foreigner Regional Registration Office (FRRO) concerned. Further, opening
of accounts by entities of Bangladesh ownership shall continue to require approval of RBI.
>> REBOOKING OF FORWARD CONTRACTS: With a view to provide operational flexibility to
exporters and importers to hedge their forex risk, RBI has decided to allow exporters to cancel and
rebook forward contracts to the extent of 50% of the contracts booked in a financial year for hedging their
contracted export exposures, and allow importers to cancel and rebook forward contracts to the extent of
25% of the contracts booked in a financial year for hedging their contracted import exposures.
>> CARRYING OF INR 10,000 BY NRIs: As per the extant Reserve Bank guidelines, a non-resident is
currently not allowed to carry Indian currency notes beyond Indian border, since the Indian currency is not
yet convertible. RBI has now permitted Indian currency to be carried into Duty free area and accordingly
facilitate their conversion before boarding the flight by allowing money changing facilities in the Duty
free/security hold area.
>> FOREX FACILITY FOR RESIDENTS: To provide greater flexibility to the residents travelling abroad
in meeting their immediate personal expenses like taxi fare, hotel bills, etc. on arrival, the limit has been
enhanced from INR 7,500/- per person to INR 10,000/- per person.
>> IMPORT OF GOLD BY NOMINATED BANKS: The Working Group on Gold (Chairman: Shri K.U.B.
Rao) had recommended aligning gold import regulations with rest of the imports for creating a level
playing field between gold imports and other imports. Bulk of the gold imported by nominated banks is on
consignment basis whereby nominated banks do not have to fund these stocks. To moderate the demand
for gold for domestic use, RBI has decided to restrict the import of gold on consignment basis by banks,
only to meet the genuine needs of exporters of gold jewellery.
RBI has now decided as follows:
a) To extend the provisions to all nominated agencies / premier / star trading houses which have been
permitted by Government of India to import gold.
Accordingly, any import of gold on consignment basis by both nominated agencies and banks shall now
be permissible only to meet the needs of exporters of gold jewellery.
b) All Letters of Credit (LC) to be opened by Nominated Banks / Agencies for import of gold under all
categories will be only on 100% cash margin basis.
c) All imports of gold will necessarily have to be on Documents against Payment (DP) basis. Accordingly,
gold imports on Documents against Acceptance (DA) basis will not be permitted.
d) These restrictions will however not apply to import of gold to meet the needs of exporters of gold
jewellery.
>> IMPORT OF GOLD BY NOMINATED BANKS: RBI has issued following clarifications/modifications in
supersession of all the earlier instructions:
a) Import of gold in the form of coins and medallions is now prohibited.
b) It shall be incumbent on all nominated banks/nominated agencies and other entities to ensure that at
least one fifth, i.e., 20%, of every lot of import of gold imported to the country is exclusively made
available for the purpose of exports and the balance for domestic use. This shall be monitored by
customs authorities, and will be implemented port-wise only.
c) Further, nominated banks / nominated agencies and other entities shall make available gold for
domestic use only to the entities engaged in jewellery business / bullion dealers and to banks authorised
to administer the Gold Deposit Scheme against full upfront payment. In other words, supply of gold in any
form to the domestic users other than against full payment upfront shall not be permitted.
d) The nominated banks / agencies / refineries and other entities shall ensure that there is no front
loading of imports, particularly in the first and second lots of imports. Such imports shall be linked to
normal quantities of gold supplied to the exporters by the nominated banks / agencies and shall not
exceed the highest quantity supplied during any one year out of last three years. The quantity thus arrived
at, however, will not be imported in one or two lots only.
As a thumb rule, imports of more than maximum of two months of requirements of the exporters in a lot
would be considered unusual. Illustratively, if the gold supplied to exporters by a bank during the last
three years is say, 30 tones, 40 tones and 60 tones respectively, imports shall be based on highest of
three i.e. 60 tones. Further, import of 50 tones (two months export of 10 tones for exports and 4 times the
amount for domestic use, totalling 50 tones) will be considered unusual. In case of nominated banks not
having a previous record of having supplied gold to the exporters they would need to seek prior approval
from RBI before placing orders for import of gold for the first lot under the 20/80 scheme.
e) The 20/80 principle would also apply for the henceforth import of gold in any form / purity including gold
dore, whereby 20 per cent of the gold imported shall be provided to the exporters. This will be
administered and monitored at the refinery level for each consignment at the time of such imports.
>> FOREX (COMPOUNDING PROCEEDINGS) RULES, 2000: The Reserve Bank of India has observed
that they been receiving a number of applications for compounding of contraventions of FEMA, 1999
which are submitted without obtaining proper approvals or permission from the concerned authorities
leading to avoidable correspondence with the applicants and also return of applications. In case the
application has to be returned for this reason or any other reason, the application fees of Rs.5,000/received along with the application fees is also returned. To expedite the refund of compounding fees in
such cases, RBI has decided to credit the same to the applicant’s account through NEFT. The applicants
are advised to furnish their mandate and details of their bank account on the prescribed format and other
documents required to be submitted in terms of the extant guidelines.
>> OVERSEAS FOREIGN CURRENCY BORROWINGS:
With a view to providing greater flexibility to AD category - I banks in seeking access to overseas funds,
RBI has decided that they may henceforth, borrow funds from their head office, overseas branches and
correspondents and overdrafts in nostro accounts up to:
a) A limit of 100 per cent of their unimpaired Tier I capital as at the close of the previous quarter; or
b) USD 10 million (or its equivalent), whichever is higher, as against the existing limit of 50% (excluding
borrowings for financing of export credit in foreign currency and capital instruments). The borrowings
beyond the permitted level of 50% of unimpaired Tier I capital will be subject to the following conditions:
a) The bank should have a Board approved policy on overseas borrowings which should contain the risk
management practices that the bank would adhere to while borrowing abroad in foreign currency;
b) The bank should maintain a capital to risk weighted assets ratio (CRAR) of 12.0 per cent.
c) The borrowings beyond the existing ceiling should be with a minimum maturity of three years.
>> DEREGULATION OF NRE INTEREST RATES: In order to pass on the benefit of exemption provided
on incremental NRE deposits with maturity of 3 years and above from CRR/ SLR requirements, RBI has
decided to give banks the freedom to offer interest rates on such deposits without any ceiling. The extant
ceiling on NRO Accounts will continue.
>> EXPORT OF GOODS AND SERVICES: In order to simplify the existing forms used for declaration of
exports of Goods/Software, a common form called “Export Declaration Form” (EDF) has been devised to
declare all types of export of goods from Non-EDI ports and a common “SOFTEX Form” to declare single
as well as bulk software exports. Under the Revised procedure, the exporters will have to declare all the
export transactions, including those less than US$25000, in the form as applicable.
>> EXPORT / IMPORT TRANSACTIONS: With a view to further liberalising the procedure relating to
payments for exports / imports and taking into account evolving international trade practices, RBI has
decided as follows:
EXPORT TRANSACTIONS: Authorised dealer (AD) banks may allow payments for export of goods /
software to be received from a third party (a party other than the buyer) subject to the following
conditions: a) A firm irrevocable order backed by a tripartite agreement should be in place;
b) Third party payment should come from a Financial Action Task Force (FATF) compliant country and
through the banking channel only;
c) The exporter should declare the third party remittance in the export declaration form (EDF);
IMPORT TRANSACTIONS: AD banks are allowed to make payments to a third party for import of goods,
subject to the following conditions:
a) A firm irrevocable purchase order / tripartite agreement should be in place;
b) Third party payment should be made to a FATF compliant country and through the banking channel
only;
c) The invoice should contain a narration that the related payment has to be made to the (named) third
party;
d) Bill of entry should mention the name of the shipper as also the narration that the related payment has
to be made to the (named) third party;
e) Importer should comply with the related extant instructions relating to imports including those on
advance payment being made for import of goods; and
f) The amount of an import transaction eligible for third party payment should not exceed USD 100,000.
>> OVERSEAS FOREIGN CURRENCY BORROWINGS:
Authorised dealers may borrow from their Head Office or overseas branches or correspondents outside
India or any other entity as permitted by RBI up to hundred per cent of its unimpaired Tier I capital or USD
10 million, whichever is higher, subject to such conditions as the Reserve Bank may direct.
>> FOREIGN INVESTMENT IN INDIA: RBI has decided to allow SEBI registered Foreign Institutional
Investors (FIIs), Qualified Foreign Investors (QFIs) and long term investors registered with SEBI –
Sovereign Wealth Funds (SWFs), Multilateral Agencies, Pension/ Insurance/ Endowment Funds, foreign
Central Banks - to invest in the credit enhanced bonds, up to a limit of USD 5 billion within the overall limit
of USD 51 billion earmarked for corporate debt.
>> LRS - REDUCTION OF LIMIT TO USD 75,000: On a review of the scheme, RBI has reduced the
existing limit of USD 200,000 per financial year to USD 75,000 per financial year (April - March) with
immediate effect. Accordingly, AD Category – I banks may now allow remittance up to USD 75,000 per
financial year, under the scheme, for any permitted current or capital account transaction or a
combination of both. The scheme should no longer be used for acquisition of immovable property, directly
or indirectly, outside India.
>> ECB POLICY: RBI has decided to allow external commercial borrowings (ECB) for low cost
affordable housing projects as a permissible end-use, under the approval route. ECB can be availed of
by developers / builders for low cost affordable housing projects. Housing finance companies (HFCs) /
National Housing Bank (NHB) can also avail of ECB for financing prospective owners of low cost
affordable housing units.
A low cost affordable housing project for the purpose of ECB would be a project in which at least 60% of
the permissible floor space index (FSI) would be for units having maximum carpet area up to 60 sq mtrs.
Slum rehabilitation projects will also be eligible under the low cost affordable housing scheme.
Housing finance companies (HFCs) can avail of ECB for financing prospective owners of low cost
affordable housing units provided:
a) The HFC is registered with NHB and operating in accordance with the regulatory directions and
guidelines issued by NHB;
b) The minimum paid-up capital, as per the latest audited balance sheet, is not less than Rupees 50
crore;
c) The minimum net owned funds (NOF) for the past three financial years is not less than Rupees 300
crore;
d) Borrowing through ECB should be within the HFC's overall borrowing limit of 16 times its NOF. The net
non-performing assets do not exceed 2.5 per cent of the net advances;
f) The maximum loan amount sanctioned to the individual buyer is capped at Rupees 25 lakh subject to
the condition that, the cost of the individual housing unit does not exceed Rs. 30 lakh;
g) The ECB shall be swapped into Rupees for the entire maturity on fully hedged basis.
>> ECB FROM THE FOREIGN EQUITY HOLDER: RBI has decided to permit eligible borrowers to avail
of ECB under the approval route from their foreign equity holder company with minimum average maturity
of 7 years for general corporate purposes subject to the condition that the minimum paid-up equity of 25
per cent should be held directly by the lender. Further, such ECBs would not be used for any purpose not
permitted under the ECB extant guidelines (including on-lending to their group companies / step-down
subsidiaries in India); and repayment of the principal shall commence only after completion of minimum
average maturity of 7 years. No prepayment will be allowed before maturity.
>> EXEMPTION FROM CRR / SLR: RBI has advised Banks that with effect from fortnight beginning
August 24, 2013, incremental FCNR (B) deposits as also NRE deposits with reference base date of July
26, 2013, and having maturity of three years and above, mobilised by banks will be exempt from
maintenance of CRR and SLR.
>> FOREIGN STUDENTS STUDYING IN INDIA: Banks may open a Non Resident Ordinary (NRO) bank
account of a foreign student on the basis of his/her passport (with appropriate visa & immigration
endorsement) which contains the proof of identity and address in the home country along with a
photograph and a letter offering admission from the educational institution.
a) Within a period of 30 days of opening the account, the foreign student should submit to the branch
where the account is opened, a valid address proof giving local address, in the form of a rent agreement
or a letter from the educational institution as a proof of living in a facility provided by the educational
institution.
Banks should not insist on the landlord visiting the branch for verification of rent documents and
alternative means of verification of local address may be adopted by banks.
b) During the 30 days period, the account should be operated with a condition of allowing foreign
remittances not exceeding USD 1,000 into account and a cap of monthly withdrawal to Rs.50,000/-,
pending verification of address.
c) On submission of the proof of current address, the account would be treated as a normal NRO
account, and will be operated as per the extant guidelines pertaining to Non-Resident Ordinary Rupee
(NRO) Account.
d) Students with Pakistani nationality will need prior approval of the Reserve Bank for opening the
account.
>> INTEREST RATES ON NRE DEPOSITS: In August 2013, Banks were allowed the freedom to offer
interest rates on incremental NRE deposits with maturity of 3 years and above without any ceiling in order
to pass on the benefit of exemption provided on such deposits from CRR / SLR requirements. The said
guidelines were valid up to November 30, 2013, subject to review. The RBI has advised that the above
instructions will remain unchanged till January 31, 2014, subject to review.
>> INTEREST RATES ON FCNR(B) DEPOSITS: In view of the prevailing market conditions, RBI had
decided that w.e.f. the close of business in India as on August 14, 2013, the interest rate ceiling on
FCNR(B) Deposits will be as under:
Maturity
Existing
Revised
1 year < 3years
3 – 5 years
LIBOR / Swap plus 200bps
LIBOR / Swap plus 300bps
No change
LIBOR / SWAP plus 400bps
On floating rate deposits, interest shall be paid within the ceiling of swap rates for the respective
currency/maturity plus 200 bps/ 400 bps as the case may be. For floating rate deposits, the interest reset
period shall be six months. These instructions were valid up to November 30, 2013, subject to review.
The RBI has advised that the above instructions will remain unchanged till January 31, 2014, subject to
review.
>> PERIODICITY OF PAYMENT OF INTEREST: As banks are functioning on core banking platform,
banks will now have the option to pay interest on Rupee savings and term deposits at intervals shorter
than quarterly intervals. The said revised instructions are applicable to domestic Rupee deposits including
Ordinary Non-Resident (NRO) and Non-Resident (External) (NRE) savings and term deposits. As regard
FCNR(B) deposits, the existing guidelines issued in this regard will remain unchanged.
>> FDI - DEFINITION OF ‘GROUP COMPANY’: The extant FDI policy has since been reviewed and it
has been decided to incorporate definition for ‘group company’ as under; ‘Group Company’ means two or
more enterprises which, directly or indirectly, are in position to exercise 26%, or more of voting rights in
other enterprise; or appoint more than 50%, of members of board of directors in the other enterprise.
MISCELLANEOUS
>> DEFINITION OF 'INFRASTRUCTURE LENDING': The Government of India has further updated the
Harmonised Master List of Infrastructure sub-sectors vide Gazette Notification dated October 7, 2013 and
the following new sub-sectors have been added in the Master List: a) Hotels with project cost of more
than Rs.200 crores each in any place in India and of any star rating. b) Convention Centres with project
cost of more than Rs.300cr each.
>> SECURITY AND RISK MITIGATION MEASURES FOR CARD PRESENT TRANSACTIONS: The “
Working Group on Securing Card Present Transactions“ (Chairperson: Gowri Mukherjee) set up by RBI,
had recommended the evaluation of UIDAI’s Aadhaar as an effective alternative for additional factor of
authentication for domestic transactions subject to fulfilment of certain tasks stated therein. RBI has
advised the banks as follows:
## In respect of cards, not specifically mandated by the Reserve Bank to adopt EMV norms, banks may
take a decision whether they should adopt Aadhaar as additional factor of authentication or move to EMV
Chip and Pin technology for securing the card present payment infrastructure.
## All new card present infrastructure has to be enabled for both EMV chip & PIN & Aadhaar (biometric
validation) acceptance.
>> PARTICIPATION OF NBFCS IN INSURANCE SECTOR: On a review, RBI has decided that in cases
where IRDA issues calls for capital infusion into the Insurance JV company, the Bank may, on a case to
case basis, consider need based relaxation of the 50% group limit specified subject to compliance by the
NBFC with all regulatory specified conditions.
>> CREDIT INFORMATION COMPANIES: With reference to the Credit Information Companies,
Reserve Bank of India, has directed that investments directly or indirectly by any person, whether resident
or otherwise, shall not exceed ten per cent of the equity capital of the investee company.
2) Notwithstanding the above, the Reserve Bank may consider allowing higher FDI limits as under to
entities which have an established track record of running a Credit Information Bureau in a well regulated
environment:
a) Up to 49% if their ownership is not well diversified (i.e., one or more shareholders each hold more than
10% of voting rights in the company)
b) Up to 74% if their ownership is well diversified
c) If their ownership is not well diversified, at least 50% of the directors of the investee CIC in India are
Indian nationals/ Non-Resident Indians/ Persons of Indian Origin subject to the condition that one third of
the directors are Indian nationals resident in India.
d) The investor company should preferably be a listed company on a recognised stock exchange.
>> REPO IN CORPORATE DEBT SECURITIES: Taking into consideration the market feedback and
suggestions of the Technical Advisory Committee on Money, Foreign Exchange and Government
Securities Markets, RBI has decided to permit repo in corporate debt on commercial papers, certificates
of deposit and non-convertible debentures of less than one year of original maturity; and revise the
minimum haircut, applicable on the market value of the corporate debt securities prevailing on the date of
trade of 1st leg, as under:
Rating
Existing Minimum Haircut
Revised Minimum Haircut
AAA
10%
7.5%
AA+
12%
8.5%
AA
15%
10%
The above are minimum stipulated haircuts where the repo period is overnight or where the re-margining
frequency (in case of longer tenor repos) is daily. In all other cases, the participants may adopt
appropriate higher haircuts.
>> CORPORATE BOND MARKET: With a view to enhance standalone Primary Dealers’ role in
corporate debt market, RBI has decided to:
a) Allow PDs a sub-limit of 50% of net owned funds (NOF) for investment incorporate bonds within the
overall permitted average fortnightly limit of 225 per cent of NOF as at the end of March of the preceding
financial year for call / notice money market borrowing.
b) Permit PDs to invest in Tier II bonds issued by other PDs, banks and FIs to the extent of 10% of the
investing PD’s total capital funds.
c) Permit PDs to borrow to the extent of 150% of NOF as at the end of March of the preceding financial
year through Inter Corporate Deposits.
The above guidelines are effective from Jan 30, 2013.
>> FI IN INDIA BY SEBI REGISTERED FIIS: To simplify the existing limits, RBI has now decided to
merge the existing debt limits into two broad categories as under:
a) Government Debt Limit: Government securities of USD 25 billion by merging the existing sub-limits
under Government securities [(a)USD 10 billion for investment by FIIs in Government securities including
Treasury Bills and (b) USD 15 billion for investment In Government dated securities by FIIs and long term
investors];and b) Corporate Debt Limit: Corporate debt of USD 51 billion by merging the existing sublimits of Corporate debt [(a) USD 1 billion for Qualified Foreign Investors (QFIs), (b) USD 25 billon for
investment by FIIs and long term investors in non-infrastructure sector and (c) USD 25 billion for
investment by FIIs / QFIs / long term investors in infrastructure sector].
>> LEGAL AUDIT OF TITLE DOCUMENTS: On a review, RBI has decided that the banks should also
subject the title deeds and other documents in respect of all credit exposures of Rs. 5 crore and above to
periodic legal audit and re-verification of title deeds with relevant authorities as part of regular audit
exercise till the loan stands fully repaid.
The banks may furnish a review note to its Board / Audit Committee of the Board at quarterly intervals on
an ongoing basis giving therein the information in respect of such legal audits which should cover
aspects, like number of loan accounts due for legal audit for the quarter, how many accounts covered, list
of deficiencies observed by the auditors, steps taken to rectify the deficiencies, number of accounts in
which the rectification could not take place, course of action to safeguard the interest of bank in such
cases, action taken on issues pending from earlier quarters.
>> SEBI REGISTERED LONG TERM INVESTORS: RBI in consultation with Government of India has
decided to enhance the limit for foreign investment in Government dated securities with USD 5 billion to
USD 30 billion with immediate effect. The enhanced limit of USD 5 billion will be available only for
investments in Government dated securities by long term investors registered with SEBI – Sovereign
Wealth Funds (SWFs), Multilateral Agencies, Pension/ Insurance/ Endowment Funds, Foreign Central
Banks.
>> UPFRONT DISBURSAL OF HOUSING LOANS: The Reserve Bank of India has observed that some
banks have introduced certain innovative housing loan schemes in association with developers / builders,
e.g., upfront disbursal of sanctioned individual housing loans to builders without linking the disbursals to
various stages of construction of housing project, the interest / EMI on the housing loan availed of by the
individual borrower being serviced by the builders during the construction period / specified period, etc.
This might include signing of tripartite agreements between the bank, the builder and the buyer of the
housing unit. These loan products are popularly known by various names like 80:20, 75:25 schemes. RBI
has therefore advised banks that disbursal of housing loans sanctioned to individuals should be closely
linked to the stages of construction of the housing project / houses and upfront disbursal should not be
made in cases of incomplete / under-construction / green field housing projects.
>> NEW RTGS ON ISO 20022: The Reserve Bank of India has launched the new Real Time Gross
Settlement (RTGS) system. The first in the world to be built on ISO 20022 compliant messaging
standards, the new RTGS system is highly scalable and will have several new functionalities. The new
RTGS include advance liquidity features, including gridlock resolution mechanism and hybrid settlement
facility, facility to accept future value dated transactions, options to process multi-currency transactions,
etc. The new RTGS system provides three access options to participants – thick-client, Web-API (through
INFINET or any other approved network) and Payment Originator module. The participants can decide
the mode of participation in the system based on the volume of transactions and the cost of setting up the
infrastructure.
>> ENTRY OF BANKS INTO INSURANCE BROKING: Banks desirous of offering insurance broking
services should seek specific prior approval of Reserve Bank of India. Banks offering insurance broking
services shall not enter into any arrangement for corporate agency or insurance referral business.
Requirements for undertaking insurance broking business by Banks:
a) A comprehensive Board approved policy regarding insurance broking should be formulated & services
should be offered to customers in accordance with this policy. b) The eligibility criteria as per published
accounts as on March 31 of the previous year will be as under:
## The Net worth of bank should not be less than Rs.500 crores.
## The CRAR of the bank should not be less than 10%.
## The level of net non-performing assets should not be more than 3 percent.
## The bank should have made profits for the last three consecutive years.
## The track record of the performance of the subsidiaries/JVs, if any, of the bank should be satisfactory.
c) In order to avoid any conflict of interest, banks undertaking insurance broking business cannot enter
into agreements either for corporate agency or for referral arrangements for insurance either
departmentally or through subsidiaries / group companies.
d) The IRDA (Licensing of Banks as Insurance Brokers) Regulations, 2013 and the code of conduct
prescribed by IRDA, as amended from time to time should be complied with.
>> CRE-RH: A separate sub-sector called ‘commercial real estate – residential housing’ (CRE-RH)
carved out from the commercial real estate (CRE) sector. CRERH to consist of loans to builders /
developers for residential housing projects (except for captive consumption) under CRE segment. The
CRE-RH segment to attract a lower risk weight of 75 per cent and lower standard asset provisioning of
0.75% as against 100% and 1.00 per cent, respectively for the CRE segment.