Banking in General SBI in Particular an Economy and Banking Update

A quarterly newsletter

Banking in General SBI in particular An economy and Banking update

Compiled by: Pramod Kumar Mishra

Chief Manager (Trg.)

SBLC Purnea

[email protected]

09431814448/09430856523

Dec.’2013 Qtr.

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.

 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 government’s 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 SBI’s capital adequacy ratio (CAR), which is at 11.69%. However, the bank’s 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 SBI’s processes and service against best-in-class banks in India and overseas. The bank expects actionable plans emerging from the 3

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 bank’s 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 bank’s 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.

 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 Bank’s 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 Bank’s website by January 2014.  Rising bad loans to cut govt’s earnings from PSBs by 30%- Public sector banks will see a further surge in bad loans which will dent their earnings and shrink the government’s 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

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 Jan’14. 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 6

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.

 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 RBI’s 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.  Women’s 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, women’s 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 women’s 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. Women’s 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 8

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 year’s 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 country’s 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.

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.

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.

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. 12

 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

exchanged mutilated and soiled currency notes with fresh notes and coins at this event.

 UK to overtake Germany as Europe’s largest economy by 2030: Centre for Economic and Business Research (CERB) study released in December 2013 has predicted that UK will overtake Germany as Europe’s 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.

 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 Communiqué.

 INS Vikramaditya aircraft carrier was inducted into the Indian Navy giving a boost to the India’s 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.

 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 Bank’s “Doing Biz” list. Singapore has topped the list followed by Hong Kong and New Zealand.

 Turkey opens the World’s First Underwater Rail Link between two continents connecting Asia and Europe. It will carry subway commuters in Europe’s 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 India’s 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 World’s 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 China’s billionaire population”. The combined wealth of India’s billionaires is $180 billion against combined wealth of China’s 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 World’s 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 “World’s 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 17

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 India’s 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 nation’s highest civilian honour. The Government release said Tendulkar’s 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 World’s 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 18

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

 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.

 Peta’s 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

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 BCCI’s 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 PAK’s court: Ashraf Jehan a female judge sworn-in at Pakistan’s 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.

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 Bank’s 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

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 RBI’s 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 India’s 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 23

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. India’s 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.

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:

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 26

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.

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 RBI’s 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

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 bank’s 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 29

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 Bank’s 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 30

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

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.

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

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.

 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 Bank’s 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

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 36

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.

 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 37

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

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 39

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.

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 to normal quantities of gold supplied to the exporters by the nominated banks / agencies and shall not exceed the highest quantity supplied during any one year out of last three years. The quantity thus arrived at, however, will not be imported in one or two lots only.

As a thumb rule, imports of more than maximum of two months of requirements of the exporters in a lot would be considered unusual. Illustratively, if the gold supplied to exporters by a bank during the last three years is say, 30 tonnes, 40 tonnes and 60 tonnes respectively, imports shall be based on highest of three i.e. 60 tonnes. Further, import of 50 41

tonnes (two months export of 10 tonnes for exports and 4 times the amount for domestic use, totalling 50 tonnes) will be considered unusual. In case of nominated banks not having a previous record of having supplied gold to the exporters they would need to seek prior approval from RBI before placing orders for import of gold for the first lot under the 20/80 scheme.

e) The 20/80 principle would also apply for the henceforth import of gold in any form / purity including gold dore, whereby 20 per cent of the gold imported shall be provided to the exporters. This will be administered and monitored at the refinery level for each consignment at the time of such imports.

 FOREX (COMPOUNDING PROCEEDINGS) RULES, 2000: The Reserve Bank of India has observed that they been receiving a number of applications for compounding of contraventions of FEMA, 1999 which are submitted without obtaining proper approvals or permission from the concerned authorities leading to avoidable correspondence with the applicants and also return of applications. In case the application has to be returned for this reason or any other reason, the application fees of Rs.5,000/- received along with the application fees is also returned. To expedite the refund of compounding fees in such cases, RBI has decided to credit the same to the applicant’s account through NEFT. The applicants are advised to furnish their mandate and details of their bank account on the prescribed format and other documents required to be submitted in terms of the extant guidelines.

 OVERSEAS FOREIGN CURRENCY BORROWINGS: With a view to providing greater flexibility to AD category - I banks in seeking access to overseas funds, RBI has decided that they may henceforth, borrow funds from their head office, overseas branches and correspondents and overdrafts in nostro accounts up to: a) A limit of 100 per cent of their unimpaired Tier I capital as at the close of the previous quarter; or

b) USD 10 million (or its equivalent), whichever is higher, as against the existing limit of 50% (excluding borrowings for financing of export credit in foreign currency and capital instruments).

The borrowings beyond the permitted level of 50% of unimpaired Tier I capital will be subject to the following conditions: a) The bank should have a Board approved policy on overseas borrowings which should contain the risk management practices that the bank would adhere to while borrowing abroad in foreign currency; b) The bank should maintain a capital to risk weighted assets ratio (CRAR) of 12.0 per cent. c) The borrowings beyond the existing ceiling should be with a minimum maturity of three years.

 DEREGULATION OF NRE INTEREST RATES: In order to pass on the benefit of exemption provided on incremental NRE deposits with maturity of 3 years and above from CRR/ SLR requirements, RBI has decided to give banks the freedom to offer interest rates on such deposits without any ceiling. The extant ceiling on NRO Accounts will continue.

 EXPORT OF GOODS AND SERVICES: In order to simplify the existing forms used for declaration of exports of Goods/Software, a common form called “Export Declaration Form” (EDF) has been devised to declare all types of export of goods from Non-EDI ports and a common “SOFTEX Form” to declare single as well as bulk software exports. Under the Revised procedure, the exporters will have to declare all the export transactions, including those less than US$25000, in the form as applicable.

 EXPORT / IMPORT TRANSACTIONS: With a view to further liberalising the procedure relating to payments for exports / imports and taking into account evolving international trade practices, RBI has decided as follows:

o EXPORT TRANSACTIONS: Authorised dealer (AD) banks may allow payments for export of goods / software to be received from a third

party (a party other than the buyer) subject to the following conditions:

a) A firm irrevocable order backed by a tripartite agreement should be in place;

b) Third party payment should come from a Financial Action Task Force (FATF) compliant country and through the banking channel only;

c) The exporter should declare the third party remittance in the export declaration form (EDF);

o IMPORT TRANSACTIONS: AD banks are allowed to make payments to a third party for import of goods, subject to the following conditions: a) A firm irrevocable purchase order / tripartite agreement should be in place; b) Third party payment should be made to a FATF compliant country and through the banking channel only; c) The invoice should contain a narration that the related payment has to be made to the (named) third party; d) Bill of entry should mention the name of the shipper as also the narration that the related payment has to be made to the (named) third party; e) Importer should comply with the related extant instructions relating to imports including those on advance payment being made for import of goods; and f) The amount of an import transaction eligible for third party payment should not exceed USD 100,000.

 OVERSEAS FOREIGN CURRENCY BORROWINGS: Authorised dealers may borrow from their Head Office or overseas branches or correspondents outside India or any other entity as permitted by RBI up to hundred per cent of its unimpaired Tier I capital or USD 10 million, whichever is higher, subject to such conditions as the Reserve Bank may direct.

 FOREIGN INVESTMENT IN INDIA: RBI has decided to allow SEBI registered Foreign Institutional Investors (FIIs), Qualified Foreign Investors (QFIs) and long term investors registered with SEBI – Sovereign Wealth Funds (SWFs), Multilateral Agencies, Pension/ Insurance/ Endowment Funds, foreign Central Banks - to invest in the credit enhanced bonds, up to a limit of USD 5 billion within the overall limit of USD 51 billion earmarked for corporate debt.

 LRS - REDUCTION OF LIMIT TO USD 75,000: On a review of the scheme, RBI has reduced the existing limit of USD 200,000 per financial year to USD 75,000 per financial year (April - March) with immediate effect. Accordingly, AD Category – I banks may now allow remittance up to USD 75,000 per financial year, under the scheme, for any permitted current or capital account transaction or a combination of both. The scheme should no longer be used for acquisition of immovable property, directly or indirectly, outside India.

 ECB POLICY: RBI has decided to allow external commercial borrowings (ECB) for low cost affordable housing projects as a permissible end-use, under the approval route. ECB can be availed of by developers / builders for low cost affordable housing projects. Housing finance companies (HFCs) / National Housing Bank (NHB) can also avail of ECB for financing prospective owners of low cost affordable housing units.

A low cost affordable housing project for the purpose of ECB would be a project in which at least 60% of the permissible floor space index (FSI) would be for units having maximum carpet area up to 60 sq mtrs. Slum rehabilitation projects will also be eligible under the low cost affordable housing scheme.

Housing finance companies (HFCs) can avail of ECB for financing prospective owners of low cost affordable housing units provided:

a) The HFC is registered with NHB and operating in accordance with the regulatory directions and guidelines issued by NHB;

b) The minimum paid-up capital, as per the latest audited balance sheet, is not less than Rupees 50 crore;

c) The minimum net owned funds (NOF) for the past three financial years is not less than Rupees 300 crore;

d) Borrowing through ECB should be within the HFC's overall borrowing limit of 16 times its NOF. The net non-performing assets do not exceed 2.5 per cent of the net advances;

f) The maximum loan amount sanctioned to the individual buyer is capped at Rupees 25 lakh subject to the condition that, the cost of the individual housing unit does not exceed Rs. 30 lakh;

g) The ECB shall be swapped into Rupees for the entire maturity on fully

hedged basis.

 ECB FROM THE FOREIGN EQUITY HOLDER: RBI has decided to permit eligible borrowers to avail of ECB under the approval route from their foreign equity holder company with minimum average maturity of 7 years for general corporate purposes subject to the condition that the minimum paid- up equity of 25 per cent should be held directly by the lender. Further, such ECBs would not be used for any purpose not permitted under the ECB extant guidelines (including on-lending to their group companies / step-down subsidiaries in India); and repayment of the principal shall commence only after completion of minimum average maturity of 7 years. No prepayment will be allowed before maturity.

 EXEMPTION FROM CRR / SLR: RBI has advised Banks that with effect from fortnight beginning August 24, 2013, incremental FCNR (B) deposits as also NRE deposits with reference base date of July 26, 2013, and having maturity of three years and above, mobilised by banks will be exempt from maintenance of CRR and SLR.

 FOREIGN STUDENTS STUDYING IN INDIA: Banks may open a Non Resident Ordinary (NRO) bank account of a foreign student on the basis of his/her passport (with appropriate visa & immigration endorsement) which

contains the proof of identity and address in the home country along with a photograph and a letter offering admission from the educational institution.

a) Within a period of 30 days of opening the account, the foreign student should submit to the branch where the account is opened, a valid address proof giving local address, in the form of a rent agreement or a letter from the educational institution as a proof of living in a facility provided by the educational institution.

Banks should not insist on the landlord visiting the branch for verification of rent documents and alternative means of verification of local address may be adopted by banks.b) During the 30 days period, the account should be operated with a condition of allowing foreign remittances not exceeding USD 1,000 into account and a cap of monthly withdrawal to Rs.50,000/-, pending verification of address.

c) On submission of the proof of current address, the account would be treated as a normal NRO account, and will be operated as per the extant guidelines pertaining to Non-Resident Ordinary Rupee (NRO) Account.

d) Students with Pakistani nationality will need prior approval of the Reserve Bank for opening the account.

 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 advised that the above instructions will remain unchanged till January 31, 2014, subject to review.

 INTEREST RATES ON FCNR(B) DEPOSITS: In view of the prevailing market conditions, RBI had decided that w.e.f. the close of business in India as on August 14, 2013, the interest rate ceiling on FCNR(B) Deposits will be as under:

Maturity Existing Revised

1 year < 3 years LIBOR / Swap plus 200 bps No change

3 – 5 years LIBOR / Swap plus 300 bps LIBOR / SWAP plus 400 bps

On floating rate deposits, interest shall be paid within the ceiling of swap rates for the respective currency/maturity plus 200 bps/ 400 bps as the case may be. For floating rate deposits, the interest reset period shall be six months. These instructions were valid up to November 30, 2013, subject to review. The RBI has advised that the above instructions will remain unchanged till January 31, 2014, subject to review.

 PERIODICITY OF PAYMENT OF INTEREST: As banks are functioning on core banking platform, banks will now have the option to pay interest on Rupee savings and term deposits at intervals shorter than quarterly intervals. The said revised instructions are applicable to domestic Rupee deposits including Ordinary Non-Resident (NRO) and Non-Resident (External) (NRE) savings and term deposits. As regard FCNR(B) deposits, the existing guidelines issued in this regard will remain unchanged.

 FDI - DEFINITION OF ‘GROUP COMPANY’: The extant FDI policy has since been reviewed and it has been decided to incorporate definition for ‘group company’ as under; ‘Group Company’ means two or more enterprises which, directly or indirectly, are in position to exercise 26%, or more of voting rights in other enterprise; or appoint more than 50%, of members of board of directors in the other enterprise.

Miscellaneous

 DEFINITION OF 'INFRASTRUCTURE LENDING': The Government of India has further updated the Harmonised Master List of Infrastructure sub-sectors vide Gazette Notification dated October 7, 2013 and the following new sub-sectors have been added in the Master List:

a) Hotels with project cost of more than Rs.200 crores each in any place in India and of any star rating.

b) Convention Centres with project cost of more than Rs.300cr each. 48

 SECURITY AND RISK MITIGATION MEASURES FOR CARD PRESENT TRANSACTIONS: The “ Working Group on Securing Card Present Transactions“ (Chairperson: Gowri Mukherjee) set up by RBI, had recommended the evaluation of UIDAI’s Aadhaar as an effective alternative for additional factor of authentication for domestic transactions subject to fulfilment of certain tasks stated therein. RBI has advised the banks as follows:

In respect of cards, not specifically mandated by the Reserve Bank to adopt EMV norms, banks may take a decision whether they should adopt Aadhaar as additional factor of authentication or move to EMV Chip and Pin technology for securing the card present payment infrastructure.

All new card present infrastructure has to be enabled for both EMV chip & PIN & Aadhaar (biometric validation) acceptance.

 PARTICIPATION OF NBFCS IN INSURANCE SECTOR: On a review, RBI has decided that in cases where IRDA issues calls for capital infusion into the Insurance JV company, the Bank may, on a case to case basis, consider need based relaxation of the 50% group limit specified subject to compliance by the NBFC with all regulatory specified conditions.

 CREDIT INFORMATION COMPANIES: With reference to the Credit Information Companies, Reserve Bank of India, has directed that investments directly or indirectly by any person, whether resident or otherwise, shall not exceed ten per cent of the equity capital of the investee company.

Notwithstanding the above, the Reserve Bank may consider allowing higher FDI limits as under to entities which have an established track record of running a Credit Information Bureau in a well regulated environment:

a) Up to 49% if their ownership is not well diversified (i.e., one or more shareholders each hold more than 10% of voting rights in the company)

b) Up to 74% if their ownership is well diversified

c) If their ownership is not well diversified, at least 50% of the directors of the investee CIC in India are Indian nationals/ Non-Resident Indians/ Persons of Indian Origin subject to the condition that one third of the directors are Indian nationals resident in India.

d) The investor company should preferably be a listed company on a recognised stock exchange.

 REPO IN CORPORATE DEBT SECURITIES: Taking into consideration the market feedback and suggestions of the Technical Advisory Committee on Money, Foreign Exchange and Government Securities Markets, RBI has decided to permit repo in corporate debt on commercial papers, certificates of deposit and non-convertible debentures of less than one year of original maturity; and revise the minimum haircut, applicable on the market value of the corporate debt securities prevailing on the date of trade of 1st leg, as under:

Rating AAA AA+ AA

Existing Minimum Haircut 10% 12% 15%

Revised Minimum Haircut 7.5% 8.5% 10%

The above are minimum stipulated haircuts where the repo period is overnight or where the re-margining frequency (in case of longer tenor repos) is daily. In all other cases, the participants may adopt appropriate higher haircuts.

 CORPORATE BOND MARKET: With a view to enhance standalone Primary Dealers’ role in corporate debt market, RBI has decided to: a) Allow PDs a sub-limit of 50% of net owned funds (NOF) for investment in corporate bonds within the overall permitted average fortnightly limit of 225 per cent of NOF as at the end of March of the preceding financial year for call / notice money market borrowing. b) Permit PDs to invest in Tier II bonds issued by other PDs, banks and FIs to the extent of 10% of the investing PD’s total capital funds.

c) Permit PDs to borrow to the extent of 150% of NOF as at the end of March of the preceding financial year through Inter Corporate Deposits.

The above guidelines are effective from Jan 30, 2013.

 FI IN INDIA BY SEBI REGISTERED FIIS: To simplify the existing limits, RBI has now decided to merge the existing debt limits into two broad categories as under: a) Government Debt Limit: Government securities of USD 25 billion by merging the existing sub-limits under Government securities [(a)USD 10 billion for investment by FIIs in Government securities including Treasury Bills and (b) USD 15 billion for investment In Government dated securities by FIIs and long term investors];and b) Corporate Debt Limit: Corporate debt of USD 51 billion by merging the existing sub-limits of Corporate debt [(a) USD 1 billion for Qualified Foreign Investors (QFIs), (b) USD 25 billon for investment by FIIs and long term investors in non-infrastructure sector and (c) USD 25 billion for investment by FIIs / QFIs / long term investors in infrastructure sector].

 LEGAL AUDIT OF TITLE DOCUMENTS: On a review, RBI has decided that the banks should also subject the title deeds and other documents in respect of all credit exposures of Rs. 5 crore and above to periodic legal audit and re-verification of title deeds with relevant authorities as part of regular audit exercise till the loan stands fully repaid.

The banks may furnish a review note to its Board / Audit Committee of the Board at quarterly intervals on an ongoing basis giving therein the information in respect of such legal audits which should cover aspects, like number of loan accounts due for legal audit for the quarter, how many accounts covered, list of deficiencies observed by the auditors, steps taken to rectify the deficiencies, number of accounts in which the rectification could not take place, course of action to safeguard the interest of bank in such cases, action taken on issues pending from earlier quarters.

 SEBI REGISTERED LONG TERM INVESTORS: RBI in consultation with Government of India has decided to enhance the limit for foreign 51

investment in Government dated securities with USD 5 billion to USD 30 billion with immediate effect. The enhanced limit of USD 5 billion will be available only for investments in Government dated securities by long term investors registered with SEBI – Sovereign Wealth Funds (SWFs), Multilateral Agencies, Pension/ Insurance/ Endowment Funds, Foreign Central Banks.

 UPFRONT DISBURSAL OF HOUSING LOANS: The Reserve Bank of India has observed that some banks have introduced certain innovative housing loan schemes in association with developers / builders, e.g., upfront disbursal of sanctioned individual housing loans to builders without linking the disbursals to various stages of construction of housing project, the interest / EMI on the housing loan availed of by the individual borrower being serviced by the builders during the construction period / specified period, etc. This might include signing of tripartite agreements between the bank, the builder and the buyer of the housing unit. These loan products are popularly known by various names like 80:20, 75:25 schemes. RBI has therefore advised banks 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.

 NEW RTGS ON ISO 20022: The Reserve Bank of India has launched the new Real Time Gross Settlement (RTGS) system. The first in the world to be built on ISO 20022 compliant messaging standards, the new RTGS system is highly scalable and will have several new functionalities. The new RTGS include advance liquidity features, including gridlock resolution mechanism and hybrid settlement facility, facility to accept future value dated transactions, options to process multi-currency transactions, etc. The new RTGS system provides three access options to participants – thick-client, Web-API (through INFINET or any other approved network) and Payment Originator module. The participants can decide the mode of participation in the system based on the volume of transactions and the cost of setting up the infrastructure.

 ENTRY OF BANKS INTO INSURANCE BROKING: Banks desirous of offering insurance broking services should seek specific prior approval of Reserve Bank of India. Banks offering insurance broking services shall not enter into any arrangement for corporate agency or insurance referral business.

Requirements for undertaking insurance broking business by Banks:

a) A comprehensive Board approved policy regarding insurance broking should be formulated & services should be offered to customers in accordance with this policy.

b) The eligibility criteria as per published accounts as on March 31 of the previous year will be as under:

o The Net worth of bank should not be less than Rs.500 crores. o The CRAR of the bank should not be less than 10%. o The level of net non-performing assets should not be more than 3 percent. o The bank should have made profits for the last three consecutive years. o The track record of the performance of the subsidiaries/JVs, if any, of the bank should be satisfactory. c) In order to avoid any conflict of interest, banks undertaking insurance broking business cannot enter into agreements either for corporate agency or for referral arrangements for insurance either departmentally or through subsidiaries / group companies. d) The IRDA (Licensing of Banks as Insurance Brokers) Regulations, 2013 and the code of conduct prescribed by IRDA, as amended from time to time should be complied with.

 CRE-RH: A separate sub-sector called ‘commercial real estate – residential housing’ (CRE-RH) carved out from the commercial real estate (CRE) sector. CRERH to consist of loans to builders / developers for residential housing projects (except for captive consumption) under CRE segment. The CRE-RH segment to attract a lower risk weight of 75 per cent and lower standard 53

asset provisioning of 0.75% as against 100% and 1.00 per cent, respectively for the CRE segment.

 Data Corner:

Important financial indicators of scheduled commercial banks

(Amount in ` Million)

NPA OF VARIOUS BANKS

Net NPA ratio in %

BANK GROUP 2008-09 2009-10 2010-11 2011-12

All SCBs 1.05 1.12 0.97 1.28

PSBs (Including SBI group) 0.94 1.10 1.09 1.53

SBI and its Associates 1.47 1.50 1.49 1.76

Private Banks 1.29 1.03 0.56 0.46

Foreign Banks 1.81 1.82 0.67 0.61

Source: RBI

Sl. No. 2013-14 Projection 2013- 14 GDP 4.4 in QI of 2013-14 5.00% revised 5.7 %then projection downgraded to 5.5 then to 5.00% inflation 4.9% WPI in QI(June’2013) 9.00% latest 5.5% WPI retail projection, WPI 5% Target % In 2011-12 (Growth Rate in %) 2012-13(Growth contribution Rate in %) of GDP 54

Agri 12.02 (3.90%) 12.02- 13.68(1.79%) Ind.+Mfg. & 45.27(-.63 in mining to 3.49% 44.25(0.43 to Mining in industry) 3.12) Services 58.39(8.20%) 59.29(6.59)

No. 1: Select Economic Indicators 2013-14 Item Q1 Q2

1 Real Sector (% Change) 1.1 GDP 4.4 4.8 1.1.1 Agriculture 2.7 4.6 1.1.2 Industry -0.9 1.6 1.1.3 Services 6.2 5.8 2013

Sep Oct 4 5 1.2 Index of Industrial 2.0 Production .. 2.1 Scheduled Commercial Banks 2.1.1 Deposits 11.5 14.9 2.1.2 Credit 15.0 16.4 2.1.2.1 Non-food Credit 15.2 16.8 2.1.3 Investment in Govt. Securities 9.3 10.7 2.2 Money Stock Measures 2.2.1 Reserve Money 7.7 8.0 (M0) 2.2.2 Broad Money (M3) 12.5 13.1 3 Ratios (%) 3.1 Cash Reserve Ratio 4.00 4.00 3.2 Statutory Liquidity Ratio 23.0 23.0 3.3 Cash-Deposit Ratio 5.1 5.0 55

3.4 Credit-Deposit Ratio 77.7 76.3 3.5 Incremental Credit- 74.4 58.0 Deposit Ratio 3.6 Investment-Deposit 29.4 29.7 Ratio 3.7 Incremental 24.9 28.9 Investment-Deposit Ratio 4 Interest Rates (%) 4.1 Policy Repo Rate 7.50 7.75 4.2 Reverse Repo Rate 6.50 6.75 4.3 Marginal Standing 8.75 Facility (MSF) Rate 9.50 4.4 Bank Rate 9.50 8.75 4.5 Base Rate 9.80/10.25 9.80/10.25 4.6 Term Deposit Rate 8.00/9.00 8.00/9.05 >1 Year 4.7 Savings Deposit 4.00 4.00 Rate 4.8 Call Money Rate 9.46 8.98 (Weighted Average) 4.9 91-Day Treasury Bill 9.69 8.77 (Primary) Yield 4.10 182-Day Treasury 9.47 8.68 Bill (Primary) Yield 4.11 364-Day Treasury 9.46 8.71 Bill (Primary) Yield 4.12 10-Year 8.54 8.55 Government Securities Yield 5 RBI Reference Rate and Forward Premia 5.1 INR-US$ Spot Rate (` Per Foreign Currency) 62.78 61.41 5.2 INR-Euro Spot Rate 84.67 84.12 (` Per Foreign Currency) 5.3 Forward Premia of 11.66 8.50 US$ 1-month (%) 3-month (%) 9.91 8.47 56

6-month (%) 9.03 8.11 6 Inflation (%) 6.1 Wholesale Price Index 6.5 7.0 6.1.1 Primary Articles 13.5 14.7 6.1.2 Fuel and Power 10.1 10.3 6.1.3 Manufactured Products 2.0 2.5 6.2 All India Consumer Price Index 9.8 10.1 6.3 Consumer Price Index for Industrial Workers 10.7 11.1 7 Foreign Trade (% Change) 7.1 Imports -18.8 -14.5 7.2 Exports 10.3 13.5 INDIAN ECONOMY-IMPORTANT PARAMETERS RBI's growth estimate for 2013-14 : 5.5% GDP growth-2012-13 (revised estimate) : 5.0% GDP@factor cost 2013-14 (cr) : 11371886 GDP@factor cost 2012-13 (cr) : 9461013 GNI@factor cost 2012-13 (cr) : 9361113 GDP@factor cost 2012-13 (2004-05 price) : 5505437 Fiscal Deficit Target (2013-14) 4.8% of GDP : 542499 cr Revenue Deficit Target (2013-14) 3.3.% of GDP : 379838 cr Share of service sector in GDP : 64.5% Share of manufacturing sector in GDP : 18.2% Share of agriculture sector in GDP : 17.3% Wholesale Price Index (Jul 2013) : 12.2% Money Supply (M3) expansion Dec 2012 : 12.9% Exports during 2012-13 : 300.6 bn Imports during (2012-13) : 491.5 Bn Export target - 2012-13 (in $) 15% growth : 325 bn India's share in world merchandise export : 1.70% India's currency rating (S&P) : BB + India's external debt (Mar 2013) US $ : 390 Bn Tax-GDP ratio Target (2013-14) : 11.7% Apr- Oct 13:Export $ 179.4 bn Imports : 270.1 bn$

Per capita Income 2012-13 (Rs.) : 68757 Indian economy's ranking in world in PPP : 3rd Indian economy's ranking in world in value: 10th

Important Rates: BANK RATE 8.75% Base Rate of major Banks 9.75-10.50%

CRR 4% FOREX RESERVES- Rs. (Billion) 18,358.40

SLR 23% FOREX RESERVES US $ Million 295,708.50

REPO RATE 7.75% SCB Total Deposits - Rs. in Cr. 75,242.20

Reverse REPO 6.75% SCB Total Credit - Rs. Cr 57,013.30

MSF 8.75% CREDIT- DEPOSIT RATIO 75.77%

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