Aug 2016

A SUMMARY OF NOTIFICATIONS ISSUED BY RBI DURING JULY 2016

Exchange of Soiled/Mutilated/Imperfect Notes
The facility of exchanging mutilated / imperfect is available under Note Refund Rules, 2009 at designated bank branches and non-chest branches. Similarly, exchange of soiled notes facility is available at all the bank branches. On a review, RBI decided (14.07.16) to modify the procedure as follows:
1) Exchange of soiled notes
a) Notes presented in small number: Where the number of notes presented is up to 20 pieces with a maximum value of Rs.5000 per day, banks should exchange them over the counter, free of charge.
b) Notes presented in bulk: Where the number of notes presented by a person exceeds 20 pieces or Rs.5000 in value per day, banks may accept them, against receipt, for value to be credited later. Banks may levy service charges as permitted by RBI. In case tendered value is above Rs.50000, banks are expected to take the usual precautions.
2) Exchange of mutilated and imperfect notes : Designated branches may continue to follow the procedure as per Part III of NRR, 2009 for exchanging mutilated & imperfect notes and issue receipt for notes presented for adjudication. Non-chest branches are to follow the following procedure for notes presented :
a) Notes presented in small number: Where the number of notes presented by a person is up to 5 pieces per day, non-chest branches should normally adjudicate the notes as per the procedure laid down in Part III of NRR, 2009 and pay the exchange value over the counter. If the non-chest branches are not able to adjudicate the mutilated notes, the notes may be received against a receipt and sent to the linked currency chest branch for adjudication. The probable date of payment should be informed to the tenderers on the receipt and it should not exceed 30 days. Bank account details should be obtained from for crediting the exchange value by electronic means.
b) Notes presented in bulk: Where the number of notes presented by a person is more than 5 pieces not exceeding Rs.5000 in value, the tenderer should be advised to send such notes to nearby currency chest branch by insured post giving his / her bank account details (a/c no, branch name, IFSC, etc) or get them exchanged thereat in person. All other persons tendering mutilated notes whose value exceeds Rs.5000 should be advised to approach nearby currency chest branch. Currency chest branches receiving mutilated notes through insured post should credit the exchange value to the account of sender by electronic means within 30 days of receipt of notes.
Tenderers aggrieved with the service provided by the banks in this regard may approach Banking Ombudsman concerned.

Basel III Framework – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards
Presently, the assets allowed as the Level 1 High Quality Liquid Assets (HQLAs) for computing the LCR of banks, inter alia, include Government securities in excess of the minimum SLR requirement and, within the mandatory SLR requirement, Govt. securities to the extent allowed by RBI under Marginal Standing Facility [presently 2% of bank’s NDTL] and under Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) [presently 8% of bank’s NDTL].
RBI decided (21.07 2016) that, in addition to the above-mentioned assets, banks will be permitted to reckon government securities held by them up to another 1% of their NDTL under FALLCR within the mandatory SLR requirement as level 1 HQLA for the purpose of computing their LCR. Hence, the total carve-out from SLR available to banks would be 11% of their NDTL. For this purpose, banks should continue to value such reckoned government securities within the mandatory SLR requirement at an amount no greater than their current market value (irrespective of the category of holding the security, i.e., HTM, AFS or HFT).
Quarterly reporting system- Foreign branches/ subsidiaries/ joint ventures/ associates of Indian banks
As per RBI Circular dated March 24, 2008 foreign branches/ subsidiaries/ joint ventures/ associates of Indian banks were required to submit quarterly return for reporting of profit and asset size of overseas operations of the bank. On a review RBI decided (30.06.16) to discontinue the submission of the said return w.e.f. June 30, 2016.

Relief measures in areas affected by natural calamities- utilisation of insurance proceeds
As per RBI circular dated 01.07.15, while restructuring the loans in the areas affected by natural calamities, banks are required to adjust the insurance proceeds, if any, receivable from the Insurance Company to ‘restructured accounts’ in cases where they have granted fresh loans to the borrowers. In view of the difficulties faced by farmers in areas affected by natural calamities, RBI advised (30.06.16) the banks to act with empathy and consider restructuring and granting fresh loans without waiting for the receipt of the insurance claims, in cases where there is reasonable certainty of receipt of the claim.
Issue of authorization for opening Controlling Offices by Primary (Urban) Coop Banks, u/s 23 of the Banking Regulation Act, 1949 (AACS)
The licence u/s 23 of the BR Act, 1949 (AACS) is required for opening Controlling Offices (Regional/Zonal/Administrative Office) in terms of instructions in RBI circular dated Oct 15, 1986.
RBI decided (30.06.16) that licensed UCBs which have implemented CBS and are fulfilling the following criteria may, at their discretion, open one controlling office for a cluster of not less than 40 branches without prior approval of RBI:
i. CRAR is not less than 10 per cent.
ii. Gross NPAs are less than 7 % and Net NPAs are not more than 3%.
iii. The bank should have made a net profit in immediate preceding financial year & overall at least in 3 out of 4 four financial years.
iv. It should not have defaulted in maintenance of CRR / SLR during the immediate preceding financial year.
v. It should have sound internal control systems with at least two professional directors on the Board.
vi. The bank should have a track record of regulatory compliance and no monetary penalty should have been imposed on the bank for violation of RBI directives / guidelines during the two financial years, preceding the year in which the controlling office is proposed to be opened.
UCBs must ensure that the controlling office is opened within their Area of Operation (as approved by RBI) and should not have any direct interface / business transactions with customers. Furthermore, eligible UCBs are required to submit full details regarding opening of such offices, within two weeks to the Regional Office concerned for issue of licence u/s 23 of the Act ibid.

Settlement System under Asian Clearing Union (ACU)
As per extant RBI directions dated 26.12.2008, the participants in ACU mechanism have the option to settle their transactions either in ‘ACU Dollar’ or in ‘ACU Euro’. The ‘ACU Dollar’ and ‘ACU Euro’ is equivalent in value to one US Dollar and one Euro, respectively. RBI advised banks (30.06.16) that the payment channel for processing ‘ACU Euro’ transactions is under review. Hence, it has become necessary to temporarily suspend operations in ‘ACU Euro’ w.e.f July 01, 2016. Accordingly, all eligible current account transactions including trade transactions in ‘Euro’ are permitted to be settled outside the ACU mechanism until further notice.

Performance Audit of Crop Insurance Schemes
The Comptroller and Auditor General is conducting a performance audit of agricultural crop insurance schemes to examine the efficacy of crop insurance in providing succour to farmers who suffer damage to their crops. It is to be conducted in the States of Andhra Pradesh, Assam, Gujarat, Haryana, Himachal Pradesh, Orissa, Maharashtra, Rajasthan and Telangana with the help of the Principal Accountant General/Accountant General (Audit) in respective States.
The Performance Audit will include examination of records of Department of Agriculture Cooperation and Farmers Welfare, Agriculture Insurance Company of India Limited, State Agriculture Department and other related departments. Further, as crop insurance schemes are being implemented with the help of various banks, insurance companies and co-operative institutions, examination of the records of these banks/insurance companies/cooperative institutions is necessary to ascertain whether crop insurance schemes were being implemented effectively and delivering benefits to the targeted beneficiaries.
In view of the above, RBI advised banks (30.06.16) to facilitate access to your records pertaining to crop insurance schemes to the audit teams deputed by the Offices of the Principal Accountant General/Accountant General (Audit) in the respective States.

Pre-2005 series of Banknotes – Revision of exchange facility
From January 2014, Pre-2005 banknotes are being withdrawn from circulation and through sustained efforts a large percentage of these notes have since been withdrawn. A small percentage of these notes, however, still remains in circulation. On a review thereof, RBI decided (30.06.16) that from July 01, 2016 onwards, the facility for the members of Public to exchange the pre-2005 banknotes will be available only at select offices of Reserve Bank of India.
Pre-2005 banknotes will continue to remain legal tender. Bank are not allowed re-circulate these notes either through the ATMs or over the counters.