Oct 2016

A SUMMARY OF NOTIFICATIONS ISSUED BY RBI DURING SEPTEMBER 2016

Free Annual Credit Report to Individuals
The Committee to recommend data format for furnishing of Credit Information to Credit Information Companies (Chairman: Shri Aditya Puri) had recommended that each customer of a credit institution should be provided, one base level consumer Credit Information Report (CIR), free of cost every year by each Credit Information Company.
RBI directed (01.09.16) Credit Information Companies to provide access in electronic format, upon request and after due authentication of the requester, one free full credit report (FFCR) including credit score, once in a year (January- December), to individuals whose credit history is available with the CIC. This report must show the latest position of the credit institutions’ exposure to the individual as per records available with the CIC. The contents of the FFCR shall be the same as appearing in the most detailed version of the reports on the individual provided to credit institutions, including the credit score.
All CICs have been advised to put in place, necessary systems to provide access to the FFCR once, at any time, during a year, upon request, to individuals, whose credit data they hold, from the year commencing January 1, 2017.

Priority Sector Lending : Lending to non-corporate farmers – System wide average of last three years
The system-wide average of the last three years achievement with regard to overall direct lending to non-corporate farmers is notified by RBI at the beginning of each year. RBI advised (01.09.16) that the applicable system wide average figure for computing achievement under priority sector lending for the FY 2016-17 is 11.70 percent.

Income Declaration Scheme, 2016 – Acceptance of Cash
The Income Declaration Scheme, 2016 came into effect from June 1, 2016. Some declarants may like to pay tax dues in cash.
RBI advised banks (08.08.16) that they must invariably accept cash, irrespective of amount, over the counters from all declarants who desire to deposit cash at the counters, including deposits under the above Scheme through challan ITNS- 286. In this connection, banks shall comply with the Know Your Customer requirements for customers and walk-in customers as contained in Master Direction – KYC Direction, 2016 issued on 25.02.16.

Merchant Discount Rates (MDR) structure on Debit Cards – unbundling of charges
The directions pertaining to merchant discount rates (MDR) for debit card transactions were issued by RBI as per Circular dated 04.07.12. RBI observed that in many instances charges for merchants are bundled and a composite fee is levied on merchants irrespective of the type of card used. This practice hinders adherence to the extant regulatory mandate. Further, this not only disincentivises merchants from accepting cards but also gives them scope to indiscriminately pass on the costs to the customers in the form of surcharge.
To bring greater transparency in MDR applicable at merchant level, RBI advised (01.09.16) that the acquiring banks shall:
i) ensure that MDR are clearly unbundled for different categories of cards;
ii) enter into separate agreements or annexes within the same agreement for debit, credit and prepaid cards so as to bring in more clarity and transparency; and
iii) educate the merchants regarding the charges associated with different categories of cards, at the time of acquisition.

Branch Authorisation – Census data 2011
As per Master circular on Branch Authorisation the Tier-wise population groups, List of Underbanked Districts and List of Underbanked Districts in Underbanked States are furnished based on Census 2001. Since the Census data for 2011 are available in public domain, banks have been advised by RBI (01.09.16) to follow Census 2011 w.e.f. September 1, 2016 for all purposes of categorisations.

Risk- based Internal Audit
As per circular dated 27.12.02, on Risk-based Internal Audit, RBI set out the scope and coverage of Risk-based Internal Audit (RBIA) system in commercial banks.
RBI decided (25.08.16) to permit banks to engage the services of their retired officials for assisting in internal audit subject to following conditions:
i. Each bank should formulate with the approval of their Board of Directors, a policy to engage the services of its retired personnel for a maximum tenure not exceeding three years in the areas where it does not have enough expertise. The policy should interalia include the terms of engagement, review of performance, termination of services, etc.
ii. Banks need to ensure that the retired personnel so engaged, work under the close supervision of the Management of the bank and the final sign off of the audit reports would be the responsibility of the serving bank officials.
iii. In order to avoid conflict of interest, the retired personnel so engaged may not be assigned branches/ sections, where they had worked while in active service with the bank.

Pradhan Mantri Fasal Bima Yojna-Non-feeding of data by bank branches in the Crop Insurance Portal of MoA&FW.
Vide circular dated 17.03.16, RBI had advised banks to ensure strict compliance of the provisions of the Pradhan Mantri Fasal Bima Yojna and ensure coverage of 100% of defined loanee farmers along with good number of non-loanee farmers to achieve the defined objectives and targets fixed under the Scheme. As per the PMFBY operational guidelines of the Government of India, banks are also expected to capture all relevant data including land and crop details of all loanee farmers and non-loanee farmers availing crop insurance through the branches.
Ministry of Agriculture & Farmers Welfare advised banks to enter farmer details in unified portal for crop insurance available at www.agri-insurance.gov.in. RBI advised (25.08.16) banks to issue instructions to their branches to feed the relevant data in the portal at the earliest.

Financial Literacy Centres – Revised reporting format
RBI decided (25.08.16) to modify the reporting format (Part A, Part B, Part C and Part D). SLBC/UTLBCs are to submit the excel sheet on a quarterly basis to the respective Regional offices of RBI within 20 days from the end of the quarter, beginning quarter ended September 2016.

Repo / Reverse repo in Corporate Debt Securities
Further to circular dated 03.02.15, RBI decided (25.08.16) to permit brokers registered with SEBI and authorised as market makers in corporate bond market, to undertake repo / reverse repo contracts in corporate debt securities subject to the Directions ibid.

Partial Credit Enhancement (PCE) to Corporate Bonds
As per circular dated 24.09.15, the aggregate exposure limit of all banks towards the PCE for a given bond issue was capped at 20% of the bond issue size by RBI. On a review, RBI decided (25.08.16) to increase the aggregate exposure limit from banking system to 50% of the bond issue size, with a limit up to 20% of the bond issue size for an individual bank.
As the purpose of PCE by banks is to enable wide investor participation in the corporate bond market, banks are expected not to invest in corporate bonds which are credit enhanced by other banks.

Prudential Norms for Off-balance Sheet Exposures of Banks – Restructuring of derivative contracts
RBI circular dated 13.10.08 requires that in cases where a derivative contract is restructured, the mark-to-market value of the contract on the date of restructuring should be cash settled. RBI clarified (25.08.16) that cash settlement of only the change in mark-to-market value of the restructured derivative contract is required. It may, however, be ensured that the restructuring of the derivative contract is carried out at prevalent market rates, and not on the basis of off-market rates.

Security and Risk Mitigation for Card Present and Electronic Payment Transactions – Issuance of EMV Chip and PIN Cards
Keeping in the mind the objective to enhance the security and risk mitigation in card present transactions, and also the impact it may have on achieving the timeline for complete migration of all existing magstripe cards, RBI decided (15.09.16) not to grant any further extension beyond the respective timeline indicated on August 27, 2015.