A quarterly newsletter

Dec.2013

Qtr.

Banking in General

SBI in particular An economy and Banking update

Compiled by: Pramod Kumar Mishra

Chief Manager (Trg.)

SBLC Purnea

agmstc.purnea@sbi.co.in

pramod.mishra@sbi.co.in

09431814448/09430856523

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Contents: Page No.

State Bank of India 03

Banking & Finance 05

General Awareness /Policy matters 10

Data Corner 54

DISCLAIMER: This Quarterly Newsletter is a voluntary effort, not a priced publication. All the sections / data/

information are based on press reports, journals, news clippings, reading materials published by different

institutions, web sites and no responsibility is accepted for the accuracy of facts and figures contained in them.

The opinion expressed is of the author and not of the Bank or its Subsidiaries. Regarding products and Circulars,

it is requested to refer to the original circular for any clarification & act as per original circular. We have taken

every care to provide correct information; we believe to be accurate and reliable. However we do not assume

responsibility of any kind nor shall be liable for losses and consequences arising from uses thereof.

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State Bank of India

Ms. Arundhati Bhattacharya has taken over charge as the first woman

Chairman of State Bank of India. Provide interest subvention on term loans to farmers: SBI chief- The Capital

formation in agriculture sector can be even more if the Government were to provide

interest subvention on term loans to farmers, SBI Chairman Ms. Arundhati

Bhattacharya has said. The current interest subvention facility is confined to

short-term crop loans and not for term loans availed by farmers. SBI has suggested

to the Government that the latter should provide interest subvention on term loans

to farmers rather than confining it to cash credit (short-term loans) alone.

SBI allows cash withdrawal to debit card holders: State Bank of India (SBI)

has opened a new channel to 14 Crore Debt Card Holders. In a First-of-its

kind initiative, SBI is allowing cash withdrawal of up to Rs.1000 from any

shop/ trader with a Point-of sale (POS) terminal. A fee of Rs.7.50 will be

charged to the customer, a part of which goes to the trader. While buying

something on debit card, the card holder may also withdraw petty cash. SBI

is the Leader among Public Sector Banks by having about one Lakh terminals. Govt. gives nod to SBI's plan to raise Rs. 9,576 crore via QIP- SBI has received

government approval to raise Rs 9,576 crore through Qualified Institutional

Placement (QIP) in FY14, on condition that government holding shall not come down

below 58%. Raising of the capital will subject to requisite approvals from RBI and

shareholders. The government will infuse Rs 2,000 crore in the SBI this year and

towards this it will issue preferential shares worth the same quantum to the

government. In October, SBI's board had approved infusion of Rs. 2,000 crore by

allotting preferential equity shares to the government. SBI's capital adequacy ratio

stands at 11.69%, with Tier-I capital of 8.73% under the Basel-II norms. SBI has appointed five Foreign Banks- Bank of America-Merrill Lynch, Morgan

Stanley, Citi, JPMorgan and UBS to manage its qualified institutional placement

(QIP) worth about Rs 10,000 crore as it aims to boost its capital base. The

governments stake in the bank is expected to decline to 54-56% after the QIP,

from the present 62%. In addition to the QIP, the bank will receive about Rs 2,000

crore from the government, which is infusing capital into all state-owned lenders.

Both the fund infusions are aimed at boosting SBIs capital adequacy ratio (CAR),

which is at 11.69%. However, the banks Tier-I capital of 8.73% is below the Basel-

II norms. SBI plans study on customer experience: In a bid to assess the current level of

customer satisfaction and experience, SBI is planning to conduct a study across key

areas such as products, channels and processes. To be conducted across all 14

circles, the study will identify opportunities to improve customer experience across

various areas and benchmark SBIs processes and service against best-in-class

banks in India and overseas. The bank expects actionable plans emerging from the

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study, which will cover about 600 branches and about 300 ATMs including 100 off

site ATMs, to help improve customer satisfaction, leading to growth in its business.

The study will assess the quality of customer service and experience at the

branches, ATMs and at CPCs (for retail and liabilities), across the customer

lifecycle and identify the major improvement areas. Besides assessing product

knowledge / communication skills of the branch staff while dealing with customers,

the study will assess the banks processes / layouts affecting customer service and

delivery of services and products and identify improvement opportunities. It will

recommend possible changes in the product and service offerings SBI expects to

assess the usage of other channels such as debit card /POS/mobile banking,

internet banking, call centre and the customer experience with different channels.

The study will analyse the current complaints management process and the

customer grievance redressal mechanism. SBI sponsored Bhaag Bengaluru Bhaag marathon- Around 10,000 men and women

participated in the "Bhaag Bengaluru Bhaag" marathon in the city's upscale eastern

suburb of Whitefield. Organised by Rotary Bangalore IT corridor and sponsored by

the SBI, the event's seventh edition witnessed about 1,500 participants in the full

marathon (42 km) and 1,200 in the half marathon (21 km).

SBI Q2 net sinks 35% on higher provision for bad loans- Higher provisioning

for rising bad loans saw SBI post a 35% slump in net profit at Rs 2,375

crore in the second quarter ended September 30.

In the July-September period last year, the bank made a profit of Rs 3,658

crore. SBI Chairperson Ms. Arundhati Bhattacharya said: There is more

pain ahead for the bank. The bank set aside Rs 2,645 crore during the

quarter as a cover against potential bad loans. For the same period last year,

it had set aside Rs 1,837 crore.

The MCG & SME segments accounted for about 63% of the banks NPAs.

NPAs rose 30% to Rs 64,206 crore (Rs 49,202 crore) during the quarter

under review. Gross NPAs as a percentage of total advances rose to 5.64%

from 5.15% a year ago. Accounts slipping into NPAs increased by Rs 3,315

crore on a net basis during the quarter. Most were from the power,

infrastructure and iron and steel segments. We are trying to capture early-

warning signals and push these accounts into restructuring to ensure that

these do not lead to more trouble, said Ms. Bhattacharya. SBI will raise Rs

8,000-9,000 crore during the year through qualified institutional

placements(QIP). This is in addition to the Rs 2,000-crore capital infusion

the Government has agreed to make.

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Banking & Finance :

Recommendations of the Financial Sector Legislative Reforms Commission

(FSLRC): It is proposed to implement the following recommendations of the

FSLRC pertaining to consumer protection and capacity building:

All instructions relating to consumer services/consumer protection

would be consolidated and will be placed on the Reserve Banks website

as a single group of instructions by end-March 2014 and they will be

examined for gaps, if any.

A Committee will be set up by the Reserve Bank to examine capacity

building, including basic and job specific knowledge requirements and

examine whether a system of formal certification is warranted for

certain job descriptions within the Reserve Bank and in the financial

entities and market segments regulated by it.

The Reserve Bank will examine its own public facing services and

institute time-bound response guidelines where feasible and not

already in place. Such guidelines will be placed on the Reserve Banks

website by January 2014.

Rising bad loans to cut govts earnings from PSBs by 30%- Public sector

banks will see a further surge in bad loans which will dent their earnings and

shrink the governments dividend earning from these banks by around 30%,

according to ICRA, a rating agency. In a report on the banking sector, the

rating agency said that more loans will turn bad in the medium term,

resulting in gross non-performing assets (NPAs) of public sector banks rising

from 4.5% in September 2013 to 4.8-5% by March 2014.

Supreme Court judgement on bounced Cheque: The Supreme Court has said

in its judgment on the Bounced Cheques issue that Once the amount in a

dishonoured cheque is paid with interest and compensation, the payee can

not insist on criminal prosecution of the directors of a firm who issued the

cheques. The object of Section 138 of the Negotiable Instruments Act,

which makes issuing of cheques without sufficient balance in the account an

offence, is meant to inculcate faith in the efficacy of banking operations and

credibility of transactions. It is not meant only to punish the guilty.

RBI extends deadline for banks to shift to new messaging standards ISO

20022 to 31.03.2014- A new RTGS system was put in place in October this

year that required banks to adopt ISO 20022 standard messaging formats.

Banks didn't take enough measures to handle the ISO 20022 standard

messages and are still relying on temporary solution provided by their IT and

service providers for conversion of messages. RBI said that it received

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requests from banks to allow them to continue with the present arrangement

till the required modifications were made at the CBS at banks' end. The

objective of introducing ISO 20022 standard message format for payment

system is to bring about standardisation in the messaging formats for

various payment systems in the country.

New Rs. 10 notes: As per RBIs notification, RBI will shortly issue Rs. 10

denomination Bank notes incorporating "Rs." symbol on the obverse and

reverse, without inset letter in both the numbering panels, in the Mahatma

Gandhi Series-2005 bearing the signature of Dr. Raghuram G. Rajan, Gov.

RBI, and the year of printing '2013' printed on the reverse of the Banknote.

Unclaimed deposits of Rs 3,652.64 crore are lying with scheduled

commercial banks: Finance Minister.

Banks may go for partial closing of ATMs at night- Banks may go for partial

shutdown of ATMs with low transactions as a security measure from 1st

Jan14. This was the outcome of a recent meeting of the Indian Banks'

Association over the issue of providing security to ATMs, where banks

decided that shutting down of machines, which get low traffic at night, was

an option. IBA has written to RBI, communicating its decision that banks will

take a call on which low-traffic ATMs will be closed at night and will identify

the ATM machines where guards will be deployed, in addition to e-

surveillance, depending on the risk perception. A night shut-down will lower

labour costs as well as operating costs and reduce revenues marginally. Some

banks were of the opinion that e-surveillance, where the kiosk is monitored

through a CCTV, is a good alternative. Banks also discussed sharing of guards

in places where ATMs of different banks are located next to each other.

Some feel that ATMs will get increasingly susceptible to attacks with the

growth of 'white-label' and 'brown-label' ATMs where third-party agencies

deploy ATM machines away from branches to increase reach of financial

services. The Confederation of ATM Industry opined that ATMs need a

combination of both electronic and physical security and the cost of putting

guards on an ATM is much lower than moving cash withdrawal transaction

into bank branches and if ATMs are closed because of security customers

will start moving to branches.

Paperless banking facility: Axis Bank Ltd has launched the e-KYC initiative to

facilitate paperless banking to Aadhaar card holders at Mumbai. With this

step, Axis Bank became the first bank to allow customers to open an account

with just their Aadhaar number.

PNB customers under phishing attack: as per the global cyber security firm

Websense, Cyber criminals tried to steal passwords of corporate and

customers of Punjab National Bank. California-based Websense, which

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provides protection against cyber attacks and data theft, was able to block

the intrusion, which involved a phishing attack. Phishing involves sending

emails purporting to be from reputable firms to unsuspecting individuals and

also corporate entities to induce then in revealing personal and financial

information like passwords, credit card numbers, etc.

Punching of PIN: With the objective of minimizing frauds, RBI has

mandated that Debit card holders will now be required to punch in their PIN

numbers every time they use the card. Earlier, in June, the RBI had

extended the deadline for implementation of mandatory PIN punching at

point-of-sales (PoS) and merchant outlets till November 30 following

representation of banks.

Ratings of banks: moody's investors service has affirmed the senior

unsecured debt and local currency deposit ratings of Axis Bank, HDFC Bank

and ICICI Bank at Baa2. At the same time, Moody's has affirmed each

bank's D+ financial strength rating, which is equivalent to a baseline credit

assessment (BCA) of baa3. The outlook for all the above ratings is stable.

Banks to charge SMS alerts: The RBI has advised banks to leverage the

technology available with them and the telecom service providers to ensure

that such (SMS) charges are levied on all customers on actual usage basis.

As per RBI fees based on actual usage are necessary to ensure

reasonableness and equity in charges levied by banks.

Financial secrecy index: As per the Financial Secrecy Index compiled by the

Tax Justice Network, a global research and advocacy group, Switzerland

remains the world's most secretive place on financial matters, while India

ranks 32nd on a new global scale. Switzerland is followed by Luxembourg,

Hong Kong, Cayman Islands.

RBI directed public sector banks to provide credit to women self help

groups at a rate of 7% per annum so as to get the benefit of interest

subvention scheme under SGSY, subject to the maximum limit of 5.5%, for

the FY-2014. The SGSY scheme comes under the MoRD which launched

NRLM on April 1, 2013 to reduce poverty by building strong institutions of

the poor, particularly women. It aims to enable these institutions to access a

range of financial services and livelihoods services. The RBI further said

that SHGs will be given an additional 3% subvention on prompt repayment of

loan. For all loans up to Rs 3 lakh, sanctioned to women SHGs on or after

December 1, 2013, banks must charge an interest rate of 7%. However, for

loans extended between April 1, 2013 and November 30, 2013, banks should

convert the rate of interest to 7% for all the existing loan accounts of the

SHGs with effect from April 1, 2013.

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SARFAESI Act: The most effective tool to recover bad loans; Amidst rising

NPAs, the SARFAESI Act was the most potent tool in the hands of banks

for recovering bad loans as the Act empowers banks to recover NPAs

without the intervention of courts by providing three alternative methods

securitisation, asset reconstruction and enforcement of security without

the intervention of courts. According to the RBIs Report on Trend and

Progress of Banking in India, 2012-13, banks have recovered Rs 18,500 crore

through the Sarfaesi route. Also, in terms of efficiency, the Act has proved

to be more effective than the DRTs or mediation by Lok Adalats. Under the

Sarfaesi Act, notice is served and two-months time is given to the borrower

to discharge his liabilities, but DRTs (despite clear instructions from the

Supreme Court that they cannot give stay orders on Sarfaesi) are still giving

stay orders and eventually, the stay order is lifted but in the process one to

one-and-a-half years is lost, without any benefit to any party. Also, the

rising levels of stress across the banking system was reflected in the fact

that the number of cases under all the three mechanisms saw a massive

increase of 66 per cent to 10.45 lakh cases.

Womens access to financial services seems to be progressively improving

under the financial inclusion drive undertaken by banks, shows RBI data. The

share of female depositors has increased to 28% of the total number of

individual deposit accounts in 2012 against 24% in the previous year.

The total number of individual deposit accounts in the country stood at

77.32 crore in 2012 against 72.50 crore in the previous year. In terms of

amount, womens share in the total individual deposits has improved to 26%

in 2012 from 22% in 2011. In 2012, individual deposits aggregated Rs 30.78

lac crore (Rs 28.05 lac crore). There was a marginal improvement in womens

share in the total number of loan accounts. However, their share in the total

loan outstanding showed marked improvement. The share of female loan

accounts in the total number of loan accounts has nudged up a tad to 15.82%

(15.77% in 2011). The total number of individual loan accounts increased to

1.88 crore in 2012 against 1.62 crore in 2011. Womens share in the total

outstanding loans (individuals) has risen to 18% in the reporting period

against 15% in the previous period. The total outstanding loans in the case of

individuals aggregated Rs 11.69 lac crore in 2012 against Rs 9.63 lac crore in

2011.

Finance Ministry has directed state-run banks to recover at least 10% of

bad loans, by the end of this financial year. The finance minister has already

directed that banks should not write-off more than what they recover.

State-run banks have written off loans worth more than Rs 60,000 crore in

the last three years. RBI has proposed draft rules that promise a more

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stringent regime on bad loans and how they should be restructured. In April-

June, recoveries by state-run banks amounted to a mere Rs. 1,416 crore

while they added more than double the amount as bad loans. The Kolkata-

based United Bank of India, which posted a loss of Rs 489 crore in the

second quarter, is under RBI scrutiny, which has barred it from

restructuring debt and sanctioning loans of more than Rs 10 crore to any

single borrower.

Bank loan frauds almost doubled in 2012-13 adding up to Rs. 6,212 crore

against Rs 3,183 crore in the previous year. Public sector banks accounted

for a chunk of these frauds.

o In terms of numbers, 349 cases of fraud of over Rs.1 crore were

reported in 2012-13 up 28% over the previous years 273 cases.

o Loan related frauds accounted for 64 per cent of the money

misappropriated followed by technology related and knowyour-

customer (mainly in deposit accounts) frauds.

o There has been a 15-fold rise in large value fraud cases involving

amounts of Rs. 50 crore and above, from three cases in 2009-10

(involving an amount of Rs 404 crore) to 45 cases in 2012-13 (Rs 5,335

crore).

o Increase in cases of large value fraud in accounts financed under

consortium or multiple banking arrangements, involving even more than

10 banks at times, is a newly emerging, but unwelcome trend in the

banking sector.

o RBI has come across cases where there is a lag of 12-15 months in

declaration of the same case as fraud by different banks. This not

only enables the borrower to defraud the banking system more, but

also gives him time to erase the money trail making the task difficult

for the investigating agencies.

The first bank for women: Bharatiya Mahila Bank (BMB) the countrys first

public sector bank focussed exclusively on catering to the financial needs of

women has been inaugurated by offering higher interest on savings bank

deposits, in the process becoming the first public sector bank to do so.

While all other public sector banks offer 4%, the BMB will offer 4.5% on

Savings Bank balances up to Rs 1 lakh and 5% on balances above Rs 1 lakh.

o The move is in the backdrop of the fact that only 26% of women in

India have a bank account. Since fewer women have bank accounts,

they are only able to get loans.

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o Further, per capita credit in the case of women is 80 per cent lower

than in the case of men. Hence, the need for a bank that

predominantly serves women from self-help groups and small business

women to working women and high net worth individuals.

o BMB, set up with a capital base of Rs 1,000 crore, is the first bank

started in the public sector space by an Act of Parliament (other

public sector banks were nationalised in two tranches in 1969 and

1980).

o Though BMB will predominantly serve women customers, it will serve

men too. BMB will devise products that take care of the gender biases

that are built into the system. BMB will offer various loans to women,

such as for education, housing, setting up food and catering business,

day-care centres, and small and medium enterprises.

o BMB will be a universal bank, that is, one which undertakes

multifarious banking activities, including financial services such as

insurance and mutual funds and commercial / investment banking.

Safest emerging markets banks in ASIA: Global Finance magazine in its

survey has named China Development Bank as the most safest emerging

markets banks in Asia, while Agricultural Development Bank of China tops

second position. The other safest emerging markets banks in Asia include

Export-Import Bank of China, Industrial Bank of Korea, Korea Finance

Corporation and Export-Import Bank of Korea.

General Awareness /Policy Matters

General Awareness

Technology-related banking frauds in India have fallen in the last four years

due to stepping up checks on on-line transactions by the banks. According to

the RBI Data, during current financial year, 8765 tech-related frauds were

reported, a 13% drop over the previous fiscal.

According to the latest Report by the World Economic Forum, India is at

101st position on the Gender-gap Index among the 136 countries surveyed.

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While Iceland and Finland are at position no.1 & 2, Pakistan is at position

No.135th.

Migration of PDC/EMS cheques to ECS (debit), On Dec. 20, 2012, all non-

banking financial companies (NBFCs) were advised to ensure replacement of

all non-CTS-2010 standard compliant cheques received from their customers

for future equated monthly instalment (EMI) payments by March 31, 2013.

The Reserve Bank had also advised on July 16, 2013 that cheques not

complying with CTS-2010 standard will be cleared at less frequent intervals

with effect from January 1, 2014 (thrice a week up to April 30, 2014, twice

a week up to October 31, 2014 and weekly once from November 1, 2014

onwards. With a view to avoid delays in realisation of non-CTS-2010 cheques,

RBI has advised all NBFCs to:

a) Migrate towards accepting only CTS-2010 standard cheques; and

b) Not accept fresh/additional post dated cheques (PDC)/EMI cheques (either in

old format or new CTS-2010 format) in locations where the ECS/RECS (Debit)

facility is available.

The existing PDCs/EMI cheques in such locations may be converted into ECS/RECS

(Debit) by obtaining fresh ECS (Debit) mandates. This exercise should be

completed not later than December 31, 2013.

c) Considering the protection available under Sec 25 of the Payment and

Settlement Systems Act, 2007 which accords the same rights and remedies to the

payee (beneficiary) against dishonour of electronic funds transfer instructions

under insufficiency of funds as are available under Sec 138 of the Negotiable

Instruments Act, 1881, NBFCs need not take additional cheques, if any, from

customers in addition to ECS (Debit) mandates. Cheques complying with CTS- 2010

standard formats should be obtained only in locations, where ECS/RECS facility is

not available.

Liquidity support to MSME sector :The liquidity support comes in the wake

of slowdown in the economy which has resulted in liquidity tightness in a

large number of MSEs in the manufacturing and services sector, particularly

due to delayed settlement of receivables from large corporate, public sector

undertakings and government departments.

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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 has been to provide refinance of an amount of

Rs. 5,000 crore to the Small Industries Development Bank of India (SIDBI)

under the provisions of Section 17(4H) of the RBI Act, 1934.

The refinance will be available for:

o 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

o The refinance will be available against receivables, including export

receivables, outstanding as on Nov. 14, 2013 onwards.

o 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.

o The refinance facility will be available for a period of one year up to Nov. 13,

2014. The utilisation of funds will be governed by the policy approved by the

Board of SIDBI.

Incremental credit to medium enterprises: The Medium Sector is also

facing liquidity tightness. 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.

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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 now advised that the above instructions will remain unchanged till

January 31, 2014, subject to review.

FI limit in AXIS Bank increased: The Cabinet committee on economic affairs

(CCEA) has approved the proposal of Axis Bank for increase in foreign

investment from 49% to 62% entailing an inflow of about Rs 7,250 crore.

Following the inflow and hike in stake by foreign investors, the bank will

become foreign-owned, whereby every future investment in seven

subsidiaries will be governed by the foreign direct investment policy.

The Central Government has increased its stake in Corporation Bank to

63.33 per cent. The Securities Allotment Committee of the board of the

bank has allotted 1,46,27,486 equity shares of Rs 10 each at a premium of

Rs 297.64 a share to Government of India on a preferential basis.

The Union Finance Ministry has directed public sector banks (PSBs) to act as

insurance brokers from 15 January 2014. In the Budget speech 2013-14, the

Finance Ministry remarked that banks will be permitted to act as insurance

brokers to increase insurance penetration and to reduce mis-selling of

insurance products.

SINDA: The Singapore branch of ICICI BANK has made a contribution of

S$100,000 to the Singapore Indian Development Association (SINDA), a

self-help group for the local Indian community. This is the second such

contribution from ICICI Bank to SINDA, the first one was in 2010. The

contribution was made as part of its 10th anniversary of operations in

Singapore.

ICICI Bank, organized the 100th Coin Exchange Mela in Delhi under the

guidance of the RBI. This Coin Mela was organised to offer a free facility of

exchanging currency notes with coins to the general public. The Bank also

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exchanged mutilated and soiled currency notes with fresh notes and coins at

this event.

UK to overtake Germany as Europes largest economy by 2030: Centre for

Economic and Business Research (CERB) study released in December 2013

has predicted that UK will overtake Germany as Europes largest economy by

2030. At present Germany is at the top spot in Europe. It cites the UK's

population growth as an aid to economic acceleration.

India overtakes Japan in 2028: The Centre for Economics and Business

Research (CEBR), a London-based economic consultancy in its annual "World

Economic League Table" has indicated that by 2028, the league table will be

reordered. As per the report India will beat Japan to grab the position of

the world's third-largest economy in 2028. Further, as per the report, China

to overtake the US for the top position.

The Reserve Bank of India has launched an inflation indexed saving bonds.

The newly launched indexed savings bonds offer protection to retail

investors from price rise.

The Centre approved the proposal to set up National Cancer Institute at the

Jhajjar campus of All India Institute of Medical Sciences (AIIMS).

The RBI has launched Consumer Confidence Survey with December 2013 as

the reference period. The RBI has been conducting the Consumer

Confidence Survey of Households on a quarterly basis since June 2010. The

survey aims at capturing subjective assessments of around 5,400

respondents across 6 metropolitan cities viz., Bangalore, Chennai,

Hyderabad, Kolkata, Mumbai and New Delhi. The results of this Survey are

being used by RBI as one of the important inputs for monetary policy

formulation.

The survey seeks responses on questions pertaining to economic conditions,

household circumstances, income & spending, perceptions on prices,

employment prospects, outlays for major purchases such as motor vehicle,

house, durable goods etc.

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Next commonwealth summit in 2015: Malta, a Southern European country

was unanimously chosen as the host of the next Commonwealth summit in

2015.3

The 22nd Commonwealth Heads of Government Meeting (CHOGM) held in

Colombo, Sri Lanka, from 15-17 November 2013 on the theme Growth with

Equity: Inclusive Development ended. The event concluded with the adoption

of the independent declarations - on Youth, International Trade and

Inclusive Development and the release of Summit Communiqu.

INS Vikramaditya aircraft carrier was inducted into the Indian Navy giving

a boost to the Indias maritime warfare capabilities.

Appointments:

Chairman of railway board: Arunendra Kumar has been appointed as

Chairman of Railway Board.

New Air chief: Air Marshal Arup Raha name has been announced as the next

chief of the Indian Air Force after Air Chief Marshal NAK Browne retired

on Dec. 31, 2013.

Commissioned into the IAF in Dec. 1974 in the Fighter Stream, Air Marshal

Raha is currently posted as the IAF vice-chief.

New CMD for corporation bank: S. R. Bansal has taken the Charge as the

Chairman and Managing Director of Corporation Bank.

New MCX-SX chairman: Former Union Home Secretary G.K. Pillai has been

appointed as Chairman of MCXSX.

Further, former acting Chairman of the LIC, Thomas Mathew T., has been

appointed as the Vice-Chairman.

IBA New CEO: M.V. Tanksale former CMD of Central Bank has taken over as

Chief Executive of Indian Bank Association. He succeeds Dr. K.

Ramakrishnan.

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Anurag Jain: Anurag Jain, Joint Secretary (Financial Inclusion & CVO),

Deptt. of Financial Services, Ministry of Finance, has been appointed as CMD

of Export-Import Bank of India, till such time as a regular incumbent is

appointed. Anurag Jain succeeds TCA Ranganathan, who relinquished his

office, on attaining superannuation.

Justice Ajit Prakash Shah has been appointed as Chairman of Law

Commission of India.

Ms Usha Anantha Subramanian has been appointed as CMD of Bharatiya

Mahila Bank.

Krishna Mohan Sahni has been appointed as the Chairman of the National

Multi-Commodity Exchange of India.

Harsh Kumar Bhanwala has taken over as Chairman of the National Bank for

Agriculture and Rural Development (NABARD). He succeeds Dr. Prakash

Bakshi.

Mr. Arun Tiwari has taken over as Chairman and Managing Director of Union

Bank of India. Tiwari has replaced D. Sarkar.

First woman MD of LIC: Usha Sangwan has been appointed first woman

Managing Director of LIC.

Siddarth Birla has been appointed as the President of FICCI.

The Government has appointed Senior IAS Officer Devendra Bhushan Gupta

as Secretary in the Union Public Service Commission (UPSC).

Misc:

Fatima Bhutto, grand-daughter of Zulfikar Ali Bhutto and the niece of

Benazir Bhutto, Former Prime- Ministers of Pakistan, promoted her latest

Book and First Work of Fiction Shadow of the Crescent Moon with the

message-Violence is never the answer, whatever be the cause or loyalty.

India has slipped to 134th position on World Banks Doing Biz list.

Singapore has topped the list followed by Hong Kong and New Zealand.

17

Turkey opens the Worlds First Underwater Rail Link between two

continents connecting Asia and Europe. It will carry subway commuters in

Europes Biggest City and eventually serve high speed and freight trains.

Ten Richest Indians have been named in the Forbes List. Number of

Billionaires rose to 68 from 61 last year. Mukesh Ambani has been ranked

Number One followed by Lakshmi Mittal and Dilip Shanghvi.

The Foundation Stone of the Statue of Unity of Indias First Home

Minister Iron-man Sardar Vallabhbhai Patel, was laid by the CM of Gujarat.

The statue, at 182 meters, will be constructed on the island on the Narmda

river and this statue will be the Worlds Tallest Statue.

According to a research by HSBC Expat, India has been placed at 7th place

out of 37 in the list of countries ranked in terms of expat quality of life.

Thailand tops the list which is dominated by Asian countries.

According to a Report published by Wealth-X and UBS, The number of

billionaires in India has fallen by over 5% in the past year, while their

combined wealth is less than half of the combined wealth of Chinas

billionaire population. The combined wealth of Indias billionaires is $180

billion against combined wealth of Chinas billionaires.

Central Bureau of Investigation (CBI) completed its 50 years of functioning

on 11th November, 2013.The Supreme Court stayed the Guwahati High Court

verdict declaring the existence of CBI as Unconstitutional.

Typhoon Haiyan, potentially the most powerful typhoon ever with tsunami-

like waves is believed to have killed 1200 people in the Philippines.

Himachal Pradesh Wildlife Deptt. has set up the first Ever Bird Ringing

Station at Sairopa in the Himalyan National Park to study migration of birds

between the Indian subcontinent and Central Asia.

According to a recent study by the World Health Organisation., Ludhiana,

the Industrial Capital of Punjab has been declared the 4th Most polluted

City in the World and 1st in India.

According to the list, the Worlds First comprehensive ranking of the Most

Powerful, Influential and Contemporary Sikhs in the World brought out by

the Sikh Dictionary, Prime Minister Manmohan Singh has been ranked

Worlds Most Powerful Sikh followed by Planning Commission Dy.Chairman

Montek Singh Ahluwalia and Current Head of Shri Akal Takht Sahib Giani

Gurbachan Singh.

Vice-President Hamid Ansari unveiled Momentous Times, a special book

brought out by Times of India as part of its 175th year celebrations. The

book covers 175 landmark events that have shaped Modern India.

The Government will set up a National Services Competitive Council on the

lines of National Manufacturing Competitive Council to address the varied

18

needs of the sector and to identify training and other needs of each

vertical.

A Commemorative Stamp to mark 175 years of The Times of India was

released by President Pranab Mukharjee on 13th. Congratulating the

Newspaper for choosing its iconic Common Man for the stamp, the President

said that Times of India was truly representative of Indias aspirations and

ambitions.

Jalan Committee on new bank licences.

Honour/ Award/Achievements:

Bharat Ratna for Sachin R. Tendulkar and C.N.R. Rao- The Centre announced

that it was conferring the Bharat Ratna on Sachin Tendulkar within hours of

the cricket legend hanging up his boots. He becomes the first sportsperson

to receive the nations highest civilian honour. The Government release said

Tendulkars achievements in cricket were unparalleled, the records set by

him unmatched, and the spirit of sportsmanship displayed by him exemplary. Eminent scientist C. N. R. Rao has also been conferred the award. C. N. R.

Rao is an international authority on solid state and materials chemistry. He

has published over 1,400 research papers and 45 books. His contributions

have been recognised by major scientific academies around the world

through conferment of memberships and fellowships. According to Fortune Magazine, ICICI Bank MD and CEO Chanda Kochar has

been named as the Most Powerful Business-Woman in India for the third

consecutive year.

Mallika Srinivasan, CEO of Tractors and Farm Equipment Ltd. received a

Lifetime Entrepreneur Achievement Award from TiE Chennai for steering

the company to its position as the Worlds 3rd Largest Tractor

Manufacturer.

Xpro India and Digjam Ltd. Chairman Sidharth Birla will be the New

President of the Federation of Indian Chambers of Commerce & Industry

(FICCI) for the year 2014.

5th Deutsche Bank prize: Reserve Bank of India Governor Raghuram G Rajan

has been awarded the Fifth Deutsche Bank Prize for Financial Economics

2013, in recognition of his ground-breaking research work which influenced

financial and macro-economic policies around the world. The academic prize

19

is sponsored by the Deutsche Bank Donation Fund and carries an endowment

of euro 50,000. The Centre for Financial Studies (CFS) awards the prize bi-

annually in partnership with Goethe University Frankfurt.

Man Booker Prize 2013: Eleanor Catton, 28, New Zealand author won the

Man Booker Prize 2013 for her second novel entitled The Luminaries,

published by Granta.

Mother Teresa award 2013: Former Miss Universe Sushmita Sen conferred

with the Mother Teresa Memorial International Award by NGO The

Harmony Foundation for her efforts towards achieving social justice in

Mumbai.

Award for national integration: Eminent agricultural scientist M.S.

Swaminathan selected for the Indira Gandhi Award for National Integration

for the year 2012.

Ashok Amritraj won Soul of India Award for the year 2013.

Top-50 women business leaders: Four Indians led by ICICI Bank CEO

Chanda Kochhar have made to Fortune magazine's global list of top-50

women business leaders. Kochhar has been ranked fourth, followed by

National Stock Exchange chief Chitra Ramkrishna at 17th, Axis Bank's

Shikha Sharma at 32nd and HSBC's Naina Lal Kidwai at 42nd place among

the Indians on the international list of most powerful women in business. The

list is topped by Brazilian energy giant Petrobras' CEO, Maria Das Gracas

Foster.

Miss ASIA PACIFIC 2013: 21 -year old Srishti Rana has made the country

proud by winning the coveted Miss Asia Pacific 2013 title outclassing 49

other contestants in Korea. Srishti was being crowned by the reigning Miss

Asia Pacific World 2012 Himangini Singh Yadu from India.

Sakharov human rights prize 2013: Malala Yousafzai received EU's Sakharov

Human Rights Prize 2013.

Fastest batsman to score 5000 runs: Indian Cricketer Virat Kohli became

the fastest batsman to score 5000 runs in one-day internationals when he

scored 86 against the West Indies in the first ODI in Kochi.

DUN & BRADSTREET infra awards: IRCON International Limited was

selected as the Top Infrastructure Company under the category

Construction Infrastructure Development - Mid at the third edition of Dun

and Bradstreet Infra Awards 2013

20

First zero landless district: Union Minister for Rural Development Jairam

Ramesh declared Kannur in Kerala as the first zero-landless district in the

country.

Miss universe 2013: Miss Venezuela Gabriela Isler has been crowned as Miss

Universe 2013.

World athletes of 2013: bolt and fraser-pryce were crowned World

Athletes of 2013.

Petas person of the year: Sashi Tharoor, the Union Minister of State for

Human Resource Development was named as the Person of the Year by the

animal rights body PETA India, for taking steps to advance animal

protection.

Sword of honour award: Rajiv Gandhi International Airport (RGIA),

Hyderabad awarded the Sword of Honour for safety management in London.

First centenary film award at IFFI: Waheeda Rehman, the veteran actress

of Bollywood will be conferred with the inaugural Centenary Award for the

Indian Film Personality of the Year 2013, at the 44th International Film

Festival of India (IFFI) in Goa.

Dayawati Modi Award: Anjolie Ela Menon awarded with Dayawati Modi

Award.

Golden shoe award: Lionel Messi, the Barcelonan forward footballer won the

Golden Shoe award.

NSS best university award 2012-13: President of India presented Indira

Gandhi National Service Scheme Best University Award 2012-13, to

Mangalore University of Karnataka.

Indira Gandhi Prize for peace 2013: Dr. Angela Merkel, German Chancellor

selected for Indira Gandhi Prize for Peace, Disarmament and Development

for the year 2013.

India pride award: IRCON International Limited has been awarded the

prestigious India Pride Awards for Excellence in Central PSUs in India

21

Image Enhancement. The award was received by the CMD of IRCON from

HRD ministry.

Col. C .K. Nayudu lifetime achievement award 2013: Kapil Dev, the former

Captain of Indian Cricket Team selected for the BCCIs prestigious Col. CK

Nayudu Lifetime Achievement award for the year 2013.

KMC-Intach heritage award 2013: The 103-year-old Park Mansions on

Kolkata's upscale Park Street was given the prestigious heritage award for

the restoration of its colonial era structure.

Cheteshwar Pujara, the Indian cricketer and a Test batsman, bagged the

Emerging Cricketer of the Year trophy at the ICC Annual awards announced

in Dubai.

Pope Francis was named as the Person of the Year 2013 by Time Magazine

for changing the perception of the Catholic Church within nine months.

Wipro Chairman Azim Premji received ET Lifetime Achievement Award 2013.

Miss Venezuela Alyz Henrich has been crowned with the pageant of Miss

Earth 2013 at the Versailles Palace, Philippines.

First female judge in PAKs court: Ashraf Jehan a female judge sworn-in at

Pakistans national sharia court which hears cases under the Islamic

legislation.

Policy Matters:

Monetary Policy mid-quarter review: Dec. 2013

In view of the current macro-economic scenario and expected moderation in

inflation, the Reserve Bank of India in its midquarter monetary policy review of

December 2013, has decided to keep its key interest rates at status-quo.

22

The monetary policy stance has been mainly influenced by the current levels of

high inflation and future expectations of the same which is expected to come

down.

The Key rates stand as follows:

Key Rates (%) Current Previous Change

Cash Reserve Ratio 4.0% 4.0% No change

Statutory Liquidity Ratio 23 23 No change

Repo Rate 7.75% 7.75% No change

Reverse Repo Rate 6.75% 6.75% No change

Marginal Standing Facility 8.75% 8.75% No change

Bank Rate 8.75% 8.75% No change

On the domestic front, RBI states that the liquidity conditions have improved, as

reflected in the steady decline in the access to the MSF. Besides, the capital

inflows under the Reserve Banks swap facilities for banking capital and non-

resident deposits have augmented domestic liquidity significantly.

On the other hand, the narrowing of trade deficit is expected to continue further

which should bring down the current account deficit to a more sustainable level for

the year as a whole.

HIGHLIGHTS:

Global overview: The outlook for global growth continues to remain moderate, with

an uneven recovery across industrial countries. Activity in major emerging market

economies barring China has decelerated on account of weak domestic demand.

While volatility in financial markets has receded, it could pick up again following

the tapering of quantitative easing in the USA.

Domestic Growth: GDP witnessed a modest pickup in Q2 2013-14, driven largely by

robust growth of agricultural activity, supported by an improvement in net exports.

This has partly offset the weakness in industrial and service activity both of which

23

continue to remain subdued. Going forward, tightening in government spending to

meet budget projections and revival of stalled investments will also be key

sensitivities to growth.

Inflation: Inflation levels remain above RBIs comfort zone. Rising CPI and WPI

remain a concern; upside pressures are evident across all constituent components.

High inflation, both at wholesale and retail level risks entrenching inflation

expectations at higher levels, and poses a threat to growth.

Liquidity: Lower utilisation of LAF and export credit refinance window, coupled

with steady decline in MSF access were indicative of easing liquidity. Going ahead,

RBI expects temporary tightness in liquidity from mid-December 2013 because of

advance tax payments.

To ease liquidity further, RBI conducted an additional 14-day term repo auction of

Rs.100 billion on December 13, 2013. It also opened a refinance facility of Rs. 50

billion for SIDBI aimed at addressing liquidity stress faced by MSMEs and

ensuring adequate credit flow to the productive sectors of the economy.

CAD: The narrowing of the trade deficit since June through November, on positive

export growth and contraction in both oil and non-oil imports, should bring the

current account deficit (CAD) down to a more sustainable level for the year as a

whole.

Robust inflows into the swap windows opened by the Reserve Bank during August-

November have contributed significantly to rebuilding foreign exchange reserves

thus covering possible external financing requirements and providing stability to

the foreign exchange market.

WTO Ministerial Conference :Bali :

The 9th WTO Ministerial Conference was concluded on 6th December 2013, at

Bali, Indonesia and was attended by 159 WTO Member countries representatives.

BACKGROUND: US, Canada and Pakistan had raised concerns about Indias new

food security legislation at the World Trade Organisation (WTO).

They had also asked India to explain the effect the food security legislation on

global stocks and commodity prices. India was apprehensive that once the Food

24

Security legislation, which entitles around 67 per cent of the population to 5 kg of

subsidised foodgrain, is fully implemented, its food subsidies will breach the 10 per

cent mark as stipulated by WTO agreement.

Talks in Bali almost foundered owing to US pressure on India to stop stockpiling

subsidised grain. Indias stand was that domestic support was needed to feed

India's poor.

BALI - THREE MAIN ELEMENTS:

A) FOOD SECURITY:

o During the conference, the World Trade Organization (WTO) agreed to

allow countries to provide subsidy on staple food crops without any threat of

punitive action.

o The WTO has issued a revised draft of the Bali Package which addresses

India's concerns on food security. A "peace clause" was agreed in which

India was allowed to keep its regime in place but only on the basis that the

agreement was temporary, with a permanent deal to be concluded within four

years. As such the draft proposes an interim mechanism to safeguard

minimum support prices to farmers against WTO caps till a permanent

solution is adopted.

o The deal allows nations such as India to fix a Minimum Support Price (MSP)

for farm produce and to sell staple grains to the poor at subsidised rates.

o It also permits countries to store food grains to meet contingency

requirements.

B) TRADE FACILITATION AGREEMENT (TFA):

o WTO also agreed on the Trade Facilitation Agreement (TFA), which is aimed

at making international trade much easier by simplifying and streamlining

custom procedures across the globe.

o The trade facilitation will also help developing countries including India to

reduce transaction cost and improve competitiveness of domestic industry.

25

o The pact is billed to bring in gains worth 1 trillion Dollars for global trade.

The TFA would help countries cut transaction costs.

C) HELP FOR THE LEAST DEVELOPED COUNTRIES:

Many Western countries have already agreed duty-free and quota-free access to

their markets for goods from more than 30 of the world's poorest countries.

Those that have not done so for at least 97% of products "shall seek" to improve

product coverage. In addition, there will be simplified "rules of origin" for the

world's poorest countries. As per WTO, these will help the least well off countries

identify products as their own goods, making it easier to get preferential

treatment in importing countries.

ISSUES IN AGRICULTURE SECTOR:

Four issues in agriculture out of a larger set negotiated in the Doha Round, are

on the table. They are:

o General services: A proposed list of general services of particular interest

to developing countries that would be added to the Green Box- the

category of domestic support that is considered not to distort trade (or to

distort minimally) and therefore allowed without any limits.

o Developing countries public stockholding of food for food security.

o Tariff quota administration: A proposal to deal with the way a specific type

of import quota (tariff quotas) is to be handled when the quota is

persistently under-filled.

o Export competition, the collective term for export subsidies and other

policies with similar effects.

COTTON: The draft on cotton deals both with improving market access for cotton

products from least developed countries, and with development assistance for

production in those countries.

DEVELOPMENT: This covers:

26

o Duty-free, quota-free access for least developed countries to export to

richer countries markets.

o Simplified preferential rules of origin for least developed countries, making

it easier for these countries to identify products as their own products and

qualify for preferential treatment in importing countries.

o A services waiver, allowing least developed countries preferential access to

richer countries services markets.

o A monitoring mechanism, consisting of meetings and other methods for

monitoring special treatment given to developing countries.

Policy matters at Glance: 2013 (Jan.'2013 to Dec.'2013)

(JAN TO DEC. 2013)

BANKING POLICY

o 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.

o 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.

o Implementation date for BASEL III: RBI has rescheduled the start date

for implementation of Basel III to April 1, 2013 from Jan.1, 2013.

o 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

27

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.

o 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.

o Service charges: speed clearing: Banks which have fixed their service

charges for out-station / speed clearing for instruments valuing above Rs.1

lac 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 lac 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 Non-Banking Financial Companies (NBFCs) shall be eligible to set

up a bank through a wholly-owned Non-Operative 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 crore) 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.

28

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.

o 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)

o The bank shall comply with the priority sector lending targets and sub-

targets as applicable to the existing domestic banks.

o Banks promoted by groups having 40% or more assets / income from

nonfinancial business will require RBIs 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 Mr. 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

29

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 non-operation/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

banks 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

30

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 Banks 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 up-dation 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

31

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

32

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.

33

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 co-operative 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 semi-urban & 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

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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:

o DTL of not less than Rs.750 crore on a continuous basis for one year;

o CRAR of minimum 12 per cent;

o Continuous net profit for the previous three years;

o Gross NPAs of 5 per cent or less;

o Compliance with CRR/SLR requirements; and

o No major regulatory and supervisory concerns.

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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 Banks

permission in each case, now extended to branches in Tier 1 centres also,

subject to conditions.

PRIORITY SECTOR GUIDELINES:

o 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;

o 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

o 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.

o 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 lac 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

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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 on-lending, will now be eligible for categorisation as

priority sector advance if the aggregate amount of loan, extended for

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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

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guaranteed portion would attract a risk-weight as appropriate to the

counter-party.

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.

FOREX:

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 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

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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 (in % terms)

Self write-off by an exporter (other than status holder exporter) 5%*

Self write-off by status holder exporter 10%*

Write-off by authorized dealer bank 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

40

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 old 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.

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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