Mar-2016

A SUMMARY OF NOTIFICATIONS ISSUED BY RBI DURING MARCH 2016

Interest Rates on Small Saving Schemes for 1st Quarter of 2016-17
From the year 2012-13, the interest rates on various Small Savings Schemes (SSS) are recalculated and notified in the month of March every year, for the next financial year.  This is being done in line with the recommendations of the Shyamala Gopinath Committee to ensure that the interest rates of Small Savings Schemes are market linked.
As notified on 16th February, 2016, instead of annual resetting of interest rates for the next financial year, the interest rates from now on, will be reset every quarter based on the G-Sec yields of the previous three months. Consequently, the interest rates for various Small Savings Schemes were recalculated with reference to the G-Sec yields of equivalent maturity for the months December 2015 to February 2016.  Based on this calculation, the interest rates on various Small Savings Schemes for the 1st quarter of 2016-17 are as under:
Instrument Existing Rate New Rate
Savings Deposit 4.0 4.0
1 Year Time Deposit 8.4 7.1
2 Year Time Deposit 8.4 7.2
3 Year Time Deposit 8.4 7.4
5 Year Time Deposit 8.5 7.9
5 Year Recurring Deposit 8.4 7.4
5 Year Senior Citizens Savings Scheme 9.3 8.6
5 year Monthly Income Account Scheme 8.4 7.8
5 Year National Savings Certificate  8.5 8.1
Public Provident Fund Scheme  8.7 8.1
Kisan Vikas Patra 8.7 7.8
(mature in 110 months)
Sukanya Samriddhi Account Scheme 9.2 8.6
 Further, the additional interest rate spreads which the Government allows on Small Savings Schemes like PPF, Senior Citizen Savings Scheme, Sukanya Samridhi Scheme, NSC etc. are being continued.  The additional spread for these Schemes are 25 basis points for PPF, 100 basis points for Senior Citizen Savings Scheme, 75 basis points for Sukanya Samridhi Scheme, 25 basis points for five year time deposit, 25 basis points for National Savings Certificate and 25 basis points for Monthly Income Scheme. These additional interest rate spreads are being continued and are included in the rates notified.
The quarterly revision of interest rates will ensure that the interest rates under Small Savings Schemes are more dynamically related to the current market rates, thereby enabling the Banks to move their interest rates in line with current money market rates. 
Basel III Capital Regulations – Revision
The treatment of certain balance sheet items, as per the extant regulations of RBI on banks’ capital, differs from what is prescribed by the Basel Committee on Banking Supervision (BCBS). RBI reviewed (on Mar 01, 2016) the position and decided to align the current regulations with the BCBS guidelines, as under:
Treatment of revaluation reserves : Revaluation reserves arising out of change in the carrying amount of a bank’s property consequent upon its revaluation may, at the discretion of banks, be reckoned as CET1 capital at a discount of 55%, instead of as Tier 2 capital under extant regulations, subject to meeting the following conditions:
· bank is able to sell the property readily at its own will and there is no legal impediment in selling the property;
· the revaluation reserves are shown under Schedule 2: Reserves & Surplus in the Balance Sheet of the bank;
· revaluations are realistic, in accordance with Indian Accounting Standards.
· valuations are obtained, from two independent valuers, at least once in every 3 years;
· the external auditors of the bank have not expressed a qualified opinion on the revaluation of the property;
Treatment of foreign currency translation reserve (FCTR) : Banks may, at their discretion, reckon foreign currency translation reserve arising due to translation of financial statements of their foreign operations in terms of Accounting Standard (AS) 11 as CET1 capital at a discount of 25% subject to meeting the following conditions:
· the FCTR are shown under Schedule 2: Reserves & Surplus in the Balance Sheet of the bank;
· the external auditors of the bank have not expressed a qualified opinion on the FCTR.
Treatment of deferred tax assets (DTAs)
(i) Deferred tax assets (DTAs) associated with accumulated losses and other such assets should be deducted in full from CET1 capital.
(ii) DTAs which relate to timing differences (other than those related to accumulated losses) may, instead of full deduction from CET1 capital, be recognised in the CET1 capital up to 10% of a bank’s CET1 capital, at the discretion of banks [after the application of all regulatory adjustments].
(iii) Further, the limited recognition of DTAs as at (ii) above along with limited recognition of significant investments in the common shares of unconsolidated financial (i.e. banking, financial and insurance) entities taken together must not exceed 15% of the CET1 capital, calculated after all regulatory adjustments. Banks shall ensure that the CET1 capital arrived at after application of 15% limit should in no case result in recognising any item more than the 10% limit applicable individually.
(iv) The amount of DTAs which are to be deducted from CET1 capital may be netted with associated deferred tax liabilities (DTLs) provided that:
· both the DTAs and DTLs relate to taxes levied by the same taxation authority and offsetting is permitted by the relevant taxation authority;
· the DTLs permitted to be netted against DTAs must exclude amounts that have been netted against the deduction of goodwill, intangibles and defined benefit pension assets; and
· the DTLs must be allocated on a pro rata basis between DTAs subject to deduction from CET1 capital as at (i) and (ii) above.
(v) The amount of DTAs which is not deducted from CET1 capital (in terms of para (ii) above) will be risk weighted at 250% as in the case of significant investments in common shares not deducted from bank’s CET1 capital.
Grant of EDF Waiver for Export of Goods Free of Cost
In terms of circular dated 26.04.2003, GR waiver to exporters for export of goods free of cost was enabled. The facility was extended to the Status through Foreign Trade Policy 2004-2009, in terms of which Status Holders were entitled to export freely exportable items on free of cost basis for export promotion subject to an annual limit of Rs 10 lakh or 2% of average annual export realization during preceding three licensing years, whichever is higher.
Government of India on June 4, 2015, notified that the Status Holders shall be entitled to export freely exportable items on free of cost basis for export promotion subject to an annual limit of Rs 10 lakh or 2% of average annual export realization during preceding three licensing years whichever is lower. AD Category – I banks can consider requests from Status Holder exporters for grant of Export Declaration Form (EDF) waiver, for export of goods free of cost based on the revised norm.
Recovery of excess payments made to pensioners
RBI received complaints from pensioners stating that the recovery of excess/wrong pension payments are being made in a manner that is not in keeping with the extant guidelines. RBI reiterated (17.03.16) these guidelines (dated 18.4.91 and 6.5.91) as below:
As soon as the excess/wrong payment made to a pensioner comes to the notice of the paying branch, the branch should adjust the same against the amount standing to the credit of the pensioner’s account to the extent possible including lumpsum arrears payment.
If the entire amount of over payment cannot be adjusted from the account, the pensioner may be asked to pay forthwith the balance amount of over payment.
In case the pensioner expresses his inability to pay the amount, the same may be adjusted from the future pension payments to be made to the pensioners. For recovering the over-payment made to pensioner from his future pension payment in instalments 1/3rd of net (pension + relief) payable each month may be recovered unless the pensioner concerned gives consent in writing to pay a higher installment amount.
If the over payment cannot be recovered from the pensioner due to his death or discontinuance of pension then action has to be taken as per the letter of undertaking given by the pensioner under the scheme.
The pensioner may also be advised about the details of overpayment/wrong payment and mode of its recovery.
NEFT – Customer Service and Charges – Adherence to Procedural Guidelines and Circulars
As per circular dated 21.01.14, banks were advised by RBI to submit data pertaining to NEFT transactions by walk-in customers (those not having an account with the bank) starting from quarter ended March 31, 2014. RBI decided (17.03.16) to discontinue the submission of this report by member banks, from the quarter ending March 31, 2016. RBI may call for adhoc reports regarding the data for NEFT transactions by walk-in customers. Hence, banks may continue to maintain such data at their end.
Risk weights to be assigned by NBFCs to sovereign debt
In terms of the extant directions, deposit accepting NBFCs, systemically important non-deposit taking NBFCs, all NBFC-MFIs and all NBFC-IFCs shall maintain a minimum capital ratio consisting of Tier I and Tier II capital which shall not be less than 15 per cent of its aggregate risk weighted assets on-balance sheet and of risk adjusted value of off-balance sheet items.
RBI (on 10.03.16) made the following changes
A) Exposures to Central Government
fund based and non-fund based claims on the Central Government will attract a zero risk weight.
Central Government guaranteed claims will attract a zero risk weight.
B) Exposures to State Government
i.Direct loan/ credit/ overdraft exposure and investment in State Government securities will attract zero risk weight.
ii.State Government guaranteed claims, which have not remained in default, will attract 20 per cent risk weight. However, if the loans guaranteed by the State Government have remained in default for a period of more than 90 days, a risk weight of 100% should be assigned.