RBI-Mar2015

Stat-5 and Stat-8 Returns
Further to the extant guidelines dated Aug 07, 2013, regarding submission of Stat 5 and Stat 8 Returns and moving the NRD-CSR reporting to XBRL platform, RBI has advised (Mar 18, 2015) that banks’ submission of NRD-CSR data in XBRL platform has stabilized. Accordingly, RBI decided to discontinue the submission of Stat 5 and Stat 8 Returns from March 2015.

Change in RBI’s Policy Rates
On March 04, 2015, RBI decided to reduce the Repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 7.75 per cent to 7.50 per cent with immediate effect.
Consequent to the change in the Repo rate,
· the Reverse Repo rate under the LAF will stand adjusted to 6.50 per cent with immediate effect.
· the Marginal Standing Facility (MSF) rate will stand adjusted to 8.50 per cent with immediate effect.
· the Bank Rate stands adjusted by 25 basis points from 8.75 per cent to 8.50 per cent with effect from March 04, 2015.
All penal interest rates on shortfall in reserve requirements, which are specifically linked to the Bank Rate, also stand revised as under:
Penal interest rates on shortfalls in reserve requirements (depending on duration of shortfalls) Bank Rate plus 3.0 percentage points (11.5 per cent) or Bank Rate plus 5.0 percentage points (13.5 per cent)

Refund of overpayment of pension to the Govt. A/c – Recovery of excess/ wrong pension payments made to the pensioners
As per Circular dated Jun 01, 2009, RBI advised banks that whenever any excess payment of government pension is detected, the entire amount should be credited to the government account immediately. RBI clarified (Mar 13, 2015) that this instruction presumes an act of omission on the part of the agency bank. If the agency bank is of the view that the excess/wrong payment to the pensioner is due to errors committed by the government, they may take up the matter with full particulars of the cases with respective Government Department for a quick resolution of the matter. This must be a time bound exercise, and the government authority’s acknowledgement to this effect must be kept on the bank’s record. The banks may take up such cases with government departments without reference to the RBI.

Persons with Disabilities – Inclusion under Weaker Sections
RBI decided (Mar 13, 2015) that priority sector loans to Persons with Disabilities will be eligible for classification under Weaker Sections category.

KYC guidelines – accounts of proprietary concerns
As per extant guidelines, the default rule is that any two documents, out of those listed in the Master Circular, should be provided as activity proof by a proprietary concern. RBI reviewed the guidelines (Mar 13, 2015) for those cases where the banks are satisfied that it is not possible to furnish two such documents. Banks would have the discretion to accept only one of those documents as activity proof.  In such cases, the banks, however, would have to undertake contact point verification, collect such information as would be required to establish the existence of such firm, confirm, clarify and satisfy themselves that the business activity has been verified from the address of the proprietary concern.
RBI also clarified that the list of registering authorities indicated in the Master circular is only illustrative and therefore includes license/certificate of practice issued in the name of the proprietary concern by any professional body incorporated under a statute, as one of the documents to prove the activity of the proprietary concern.

Guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by Banks
RBI reiterated (Mar 11, 2015) its guidelines dated Nov 03, 2006, that outsourcing of any activity by the bank does not diminish bank’s obligations, and those of its Board and senior management, who have the ultimate responsibility for the outsourced activity. Banks are to take steps to ensure that the service provider employs the same high standard of care in performing the services as would be employed by the banks, if the activities were conducted within the banks and not outsourced. Banks should not engage in outsourcing that would result in their internal control, business conduct or reputation being compromised or weakened.
A robust system of internal audit of all outsourced activities should also be put in place and monitored by the ACB of the bank.

Sale of Financial Assets to Securitisation Company(SC)/Reconstruction Company (RC) and Related Issues
As per extant guidelines, RBI has stipulated that, for non-performing assets (NPAs) sold on or after February 26, 2014 to SCs/RCs, banks can reverse the excess provision on sale of NPAs, if the sale value is for a value higher than the net book value (NBV), to their profit and loss account in the year the amounts are received.
RBI decided (Mar 11, 2015) to permit banks to reverse the excess provision (when the sale is for a value higher than the NBV) on sale of NPAs (sold prior to February 26, 2014 to SCs/RCs) to their profit and loss account. Banks can reverse excess provision arising out of sale of NPAs only when the cash received (by way of initial consideration and/or redemption of security receipts/pass through certificates) is higher than the NBV of the NPAs sold to SCs/RCs. Further, the quantum of excess provision reversed to profit and loss account will be limited to the extent to which cash received exceeds the NBV of the NPAs sold.
The quantum of excess provision reversed to the profit and loss account on account of sale of NPAs shall be disclosed in the financial statements of the bank under ‘Notes to Accounts’.

Acquisition/transfer of immovable property – Prohibition on citizens of certain countries
In terms RBI notification dated 03.05.2000, no person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan without prior permission of the Reserve Bank shall acquire or transfer immovable property in India, other than lease, not exceeding five years. Vide its circular dated Mar 11, 2015, Macau and Hong Kong being Special Administrative Regions of China, have been included in the list of these countries.

Housing Loans: Review of Instructions
A. Inclusion of stamp duty and other charges in LTV ratio
As per RBI circular dated Feb 03, 2012, banks were advised that they should not include stamp duty, registration and other documentation charges in the cost of housing property so that the effectiveness of LTV ratio is not diluted. On Mar 05, 2015, RBI decided that in cases where the cost of the house/dwelling unit does not exceed Rs.10 lakh, banks may add stamp duty, registration and other documentation charges to the cost of the house/dwelling unit for the purpose of calculating LTV ratio.
B. Construction linked disbursal of housing loan
As per circular dated Sept 03, 2013, banks were advised that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project/houses and upfront disbursal should not be made in cases of incomplete/under-construction/green field housing projects. On Mar 05, 2015, RBI advised the banks that in cases of projects sponsored by Government/Statutory Authorities, they may disburse the loans as per the payment stages prescribed by such authorities, even where payments sought from house buyers are not linked to the stages of construction, provided such authorities have no past history of non-completion of projects.

Overdraft in PMJDY accounts
RBI decided (Feb 25, 2015) that overdrafts extended by banks up to Rs.5,000 in Pradhan Mantri Jan-Dhan Yojana (PMJDY) accounts will be eligible for classification under priority sector advances (‘others’ category) as also weaker sections, provided the borrowers household annual income does not exceed Rs.60,000/- for rural areas and Rs.1,20,000/- for non-rural areas.

T+2 settlements for secondary market transactions in Govt. Securities
In order to address operational issues faced by foreign portfolio investors (FPIs) and long term foreign investors, RBI decided (Mar 20, 2015) in consultation with market participants, to permit settlements on T+2 basis for outright secondary market transactions in Government Securities undertaken by FPIs and reported on NDS-OM, subject to following conditions:
1. All sale and purchase transactions in Government securities, where at least one of the parties is an FPI, will be settled only on T+2 basis. These will include deals between a domestic entity and an FPI, deals between two FPIs of different custodians, deals between a custodian and its FPI Gilt Account Holder, and deals between two FPI Gilt account Holders of the same custodian.
2. All other trades not involving an FPI will continue to settle on T+1 basis.
3. Custodian bank of the FPI selling the security or the counterparty entity selling the security to the FPI will have to report the deal on trade date itself within the prescribed reporting time.
4. Custodian bank of the FPI buying the security can report the deal till next business day upto prescribed reporting time.

Guidelines on Sale of Financial Assets to Securitisation Company / Reconstruction Company and Related Issues
As per Circular dated April 23, 2003, disclosure requirements relating to sale of non-performing assets (NPAs) to Securitisation Companies(SCs)/Reconstruction Companies(RCs)  have been specified by RBI. To enhance transparency, RBI decided (Mar 20, 2015) that in addition to the extant disclosure requirements, banks shall make the following disclosures in the Notes to Accounts in their Annual Financial Statements:
Book value of Investment in security receipts :
a: Backed by NPAs sold by the bank as underlying – (previous year : Current year)
b: Backed by NPAs sold by other banks/ financial institutions/ non-banking financial  companies as underlying – (previous year : Current year)
c: Total – (previous year : Current year)