RESERVE BANK measures

Interest payment on SB accounts

The RBI has proposed that payment of interest on savings bank accounts by scheduled commercial banks SCBs would be calculated on a daily product basis with effect from April 1,2010. Currently,interest on savings bank accounts is calculated on the minimum balances held in the accounts during the period from the10th day to the last day of each calendar month.

BPLR system review

The central bank has proposed to constitute a working group to review the present benchmark prime lending rate BPLR system and suggest changes to make credit pricing more transparent. The RBI has observed that the system of BPLR has lost its relevance as a meaningful reference rate as bulk of loans is advanced below BPLR making the loan pricing system non-transparent. The working group would consult all the stakeholders and submit its report by end-August 2009.

Easy to set up ATMs

RBI has proposed to allow scheduled commercial banks SCBs to set up offsite ATMs without prior approval subject to reporting.The current branch authorisation policy requires banks to have a medium term plan in respect of branch expansion.

Reposession clause in loan deals

The RBI has asked non-bankinf finance companies NBFCs to have a built-in clause regarding vehicle reposession in agreements with borrowers,which could be enforced legally. This would ensure transparency,the apex bank observed and said that terms and conditions of the contract/loan agreements should contain detailed provisions in this regard. The issue of repossession of vehicles in the event of non-payment of interest and/or principal of loans given by NBFCs has recently come into focus.

Reasonable pay for bank execs

The RBI also called for reasonable compensation package for top executives including chief executives and directors of banks operating in the country. The apex bank made the

observation in response to the recommendation made by a G-20 working group. The central bank8217;s observation comes at a time when executive compensation has come under the scanner in the wake of the global financial crunch.

Review of rating agencies

Performance of credit rating agencies,including their default rate,should be reviewed for continuing their accreditation with the central bank,the RBI observed. The apex bank stated that as the country had moved on to international banking norms such as Basel II,there was a need to review the performance of the credit rating agencies8230; especially by looking at the latest data relating to cumulative default rate. So far,the RBI has accredited four credit rating agencies ICRA,Fitch,CARE and Crisil which are registered with the market regulator Sebi.

Dealing with tax havens

The RBI would sldo deal with the problem of black money being hidden in tax havens by continuously updating its regulations in line with the G-20 guidelines on strengthening transparency in cross-border movement of capital. The apex bank stated that it would continue to incorporate in its regulations the latest international best practices to deal with tax havens and non-cooperative jurisdictions.

For financial markets

amp;149;Further liberalisation of the FCCBs buyback policy: cap up from 50 million to 100 million

amp;149;Extension of the relaxation on the all-in-cost ceilings for ECBs up to December 31,2009

amp;149;Extension of the special refinance facility and term repo

facility and increased limit for export credit refinance for banks up to March 31,2010

amp;149;Introduction of STRIPS to aid the development of a

sovereign zero-coupon yield curve

amp;149;Revise the issuance structure of floating rate bonds,among others

Institutional development

amp;149;Permit eligible SCBs to issue all categories of pre-paid

payment instruments

amp;149;Permit eligible non-bank entities,including NBFCs,to issue semi-closed instruments

amp;149;Permit extension of area of operation of Tier II urban co-operative banks UCBs in Grade I to the entire state of registration

amp;149;Guidelines to UCBs on internal controls,risk management systems,ALM and disclosure norms

amp;149;Apply capital charge for market risks in respect of large urban co-operative banks

amp;149;Defer the implementation of CRAR for NBFCs-ND-SI by one year

other measures

amp;149;Issuing guidelines to banks on rehabilitation of sick SMEs

amp;149;Phased introduction of capital to risk-weighted asset ratio CRAR for regional rural banks RRBs

amp;149;A non-disruptive roadmap to ensure that only banks with licence operate in the co-operative space by 2012

amp;149;Setting up banking facilities at commercially unviable centres in the North-Eastern region

amp;149;Cap on loans against non-resident Indian deposits hiked from Rs 20 lakh to Rs 1 crore