January 2014

• The Reserve Bank revised instructions to non-banking financecompanies(NBFCs)forlendingagainstgoldjewelleryinrespectof loan-to-value (LTV) ratio; standardisationofvalueofgold inarrivingatLTV;ratioverificationoftheownershipofgoldauctionprocessandprocedures.

• The Reserve Bank introduced incremental provisioning andcapital requirements for bank exposures to entities withunhedgedforeigncurrencyexposures.

February 2014

• TheReserveBankissuedguidelinesonintra-grouptransactionsandexposures(ITEs)forbanksrelatingtotheirtransactionsandexposurestoentitiesbelongingtothebank’sowngroup(groupentities).TheguidelinesincludedquantitativelimitsonfinancialITEsandprudentialmeasuresforthenon-financialITEstoensurethatbanksengageinITEsinasafeandsoundmannerinordertocontainconcentrationandcontagionrisksarisingoutofITEs.

• The Reserve Bank advised members of public to exchangebanknotesprintedpriorto2005atbankbranches.Membersofpubliccould,however,exchangeanynumberoftheseoldseriesnotesfromthebankbrancheswheretheyhavetheiraccounts,evenafterthedeadline.

March 2014

• The Reserve Bank issuedguidelines regarding the“FrameworkforRevitalisingDistressedAssetsintheEconomy”.Theguidelinespertained to -(i)refinancing of project loans (ii)sale of financialassets to securitisation companies (SCs)/reconstructioncompanies (RCs)(iii)purchase/sale of non-performing assets(NPAs) to other banks(iv)use of counter-cyclical/floatingprovisions(v)bankloansforfinancingpromoters’contribution.

• Bankswereadvisedtobeinreadinesstotakenecessaryactionas “The Depositor Education and Awareness Fund (the Fund)Scheme2014”wasfinalisedandforwardedtotheGovernmentof India for notifying in theOfficialGazette.The Reserve Bankalso advised all banks to designate a single contact point foranycorrespondence/queries in connectionwith the‘DepositorEducationandAwarenessFundScheme,2014’.

• The Reserve Bank advised banks to accept e-Aadhaardownloaded from the website of the Unique IdentificationAuthorityofIndia(UIDAI)asanofficiallyvaliddocumentsubjectto certain conditions. Banks were also advised to note thatphysicalAadhaarcard/letterissuedbyUIDAIcontainingdetailsofname,addressandAadhaarnumberreceivedthroughpostande-KYCprocess,would continue tobe accepted as an‘OfficiallyValidDocument’.

• ChiefInformationSecurityOfficers(CISOs)ofbankswereadvisedto report all information security related incidents on thesecurity incident trackingplatform,developedby the InstituteforDevelopmentandResearch inBankingTechnology(IDRBT).ThePlatformwouldenablebankstoreportsecurityincidentsinananonymousmanner;thuskeepingtheinformationreportedbythebanksconfidential.TheplatformwouldbehostedontheIndian Financial Network (INFINET) and the access would beprovidedonlytotheCISOsofrespectivebanks.

• AcomprehensiveIT-basedsystemcalledExportDataProcessingandMonitoringSystem(EDPMS)wasoperationalisedforbettermonitoring of export of goods and software and facilitatingauthoriseddealer(AD)bankstoreportvariousreturnsthroughasingleplatform.Itisamajorgreeninitiativeaspaperreportingrequirementwillbeeliminatedtoasubstantialextent.

April 2014

• The Reserve Bank granted “in-principle” approval to twoapplicants,namely,IDFCLimitedandBandhanFinancialServicesPrivate Limited, to set up banks under the ‘Guidelines onLicensingofNewBanksinthePrivateSector’.

• Aseparatecategoryofnon-bankingfinancecompanies(NBFCs)wascreated,namely,Non-OperativeFinancialHoldingCompany(NOFHC).NOFHCwouldbe registered as anon-deposit takingnon-bankingfinancialcompany(NBFC)withtheDepartmentofNon-BankingSupervision(DNBS)theregulatoryandsupervisoryframeworkofNOFHCincludingprudentialnormsandsubmissionof returns would be governed by the instructions issued byDepartmentofBankingOperationsandDevelopment(DBOD).

• The Reserve Bank advised stand-by letter of credit (LC)/bank guarantee (BG) issuing bank and the gold metal loan(GML) providing banks to take into account certain additionalguidelinestomitigatetheriskoffrauds/misuseoftheschemebytheGMLborrowers.

• The Reserve Bank advised banks to take into account theincentives available to micro and small enterprises (MSE)borrowersintheformofthecreditguaranteecoveroftheCreditGuaranteeFundTrustforMicroandSmallEnterprises(CGTMSE)and the zero riskweight for capital adequacy purpose for theportion of the loan guaranteed by the CGTMSE and providedifferential interest ratewhilepricing their loans for suchMSEborrowers.However, suchdifferential rateof interestmustnotbebelowthebaserateofthebank.

• The Reserve Bank accepted the recommendations of theCommittee on Financial Benchmarks (Chairman: Shri P. VijayaBhaskar, Executive Director) on measures/principles to beadopted in respect of major Indian Rupee interest rate andForeignexchangebenchmarkstostrengthentheirquality,setting

R.No. MAHENG/2004/14130Regd. No. MH/MR/South-30/2012-14

Volume XI ♦ Issue 7January 2015

Highlights of Banking and Financial Developments in 2014

Monetary and Credit Information Review, January 2015

methodologyandthegovernanceframework.TheReserveBankhassinceadvisedFixed IncomeMoneyMarketandDerivativesAssociation of India (FIMMDA) and Foreign Exchange Dealers’Association of India (FEDAI) to act as theAdministrator of theIndian Rupee interest rate and Foreign exchange benchmarksrespectively and to take necessary steps to implement therecommendationsoftheCommittee.

• TheReserveBankputinplaceaframeworkforinvestmentsunderanewschemecalled‘ForeignPortfolioInvestment’scheme.

May 2014

• TheReserveBankadvisedbanksthataminorofanyagecouldopen a savings/fixed/recurring bank deposit account throughhis/hernaturalorlegallyappointedguardian;Minorsabovetheageof10yearsshouldbeallowedtoopenandoperatesavingsbank accounts independently, if they so desire. On attainingmajority,theminorshouldconfirmthebalanceinhis/heraccountand if the account is operated by the natural guardian/legalguardian, fresh operating instructions and specimen signatureoftheerstwhileminorshouldbeobtainedandkeptonrecordforalloperationalpurposes.

• The Reserve Bank advised banks to take necessary steps toprovideallexistingATMs/futureATMswithrampssothatwheelchair users/persons with disabilities could easily access them.Bankswereadvisedtotakeappropriatesteps,includingprovidingoframpsattheentranceofthebankbranches,whereverfeasible,sothatthepersonswithdisabilities/wheelchairuserscanenterbank branches and conduct businesswithout difficulty. Bankswere also advised tomake all newATMs installed from July 1,2014 as talking ATMs with Braille keypads. Banks were alsoadvisedtoprovidemagnifyingglasses inallbankbranches forthe use of personswith low vision,wherever they require, forcarryingoutbankingtransactionswithease.

• TheReserveBankaskedbanksnottochargeforeclosurecharges/pre-paymentpenaltiesonallfloatingratetermloanssanctionedtoindividualborrowers.

• The Reserve Bank also prohibited banks from levying penalcharges for non-maintenance of minimum balances in anyinoperative account, including the basic savings bank depositaccounts(BSBDAs).

• Foreign branches/subsidiaries of Indian banks who proposeto offer structured financial and derivative products that arenotspecificallypermittedbytheReserveBank inthedomesticmarket, could do so only at the established financial centresoutside India like New York, London, Singapore, Hong Kong,Frankfurt, Dubai, etc. At other centres, banks may offer onlythoseproductsthatarespecificallypermittedinIndia.

• Thenameof“BharatiyaMahilaBankLimited”hasbeenincludedintheSecondScheduletotheReserveBankofIndiaAct,1934.

June 2014

• Therequirementofsubmissionof‘proofofaddress’withregardtotheknowyourcustomer (KYC)normswhileopeningabankaccount, were simplified:(a) Customers could submit only onedocumentary proof of address (either current or permanent)while opening a bank account or while undergoing periodicupdation; (b) In case the proof of address furnished by thecustomerisnotthelocaladdressoraddresswherethecustomeriscurrentlyresiding,thebankmaytakeadeclarationofthelocaladdressonwhichallcorrespondencewillbemadebythebankwiththecustomer.

• Guidelines on Liquidity Coverage Ratio (LCR), Liquidity RiskMonitoring Tools and LCR Disclosure Standards were finalisedtakingintoaccountcommentsandfeedbackofstakeholders.

• ThenomenclatureofSpecialWaysandMeansAdvancesgrantedtotheStateGovernmentswaschangedasSpecialDrawingFacilityfromJune23,2014.

• The ‘Timelines for Regulatory Approvals’ and ‘Citizens’ Charter’for delivery of services as part of implementation of the non-legislative recommendations of the Financial Sector LegislativeReformsCommission(FSLRC)wasannounced.

• Authorised dealers of foreign exchange were advised, to allowall residents and non- residents (except citizens of Pakistan andBangladesh and also other travellers coming from and going toPakistanandBangladesh)totakeoutIndiancurrencynotesupto`25,000whileleavingthecountry.

• Authoriseddealer (AD)category– Ibankswereadvised toallowremittances up to USD 125,000 per financial year, under theLiberalisedRemittanceScheme(LRS),foranypermittedcurrentorcapitalaccounttransactionoracombinationofboth.

• The Reserve Bank advised non-banking financial companies(NBFCs), both deposit accepting and non-deposit accepting,thatpriorapprovaloftheReserveBankisrequiredincaseofanytakeover/acquisitionofsharesofanNBFC;ormerger/amalgamationof an NBFC with another entity; or any merger/amalgamationof anentitywithanNBFC, thatwouldgive theacquirer/anotherentitycontroloftheNBFC,orwouldresult inacquisition/transferof shareholding inexcessof10percentof thepaidupcapitaloftheNBFC.

• TheReserveBankdecidedtoenablethe‘Hybrid’and‘Futurevaluedated transaction’ features in the Real Time Gross SettlementSystem (RTGS) from July 14, 2014. The hybrid feature will beconfiguredtodooff-settingeveryfiveminutes.

• TheReserveBankissuedcertificatesofauthorisationtothreenon-bankentities,namely,(i)BTIPaymentsPrivateLimited,Bangalore,(ii) Srei Infrastructure Finance Limited, Kolkata, (iii) Riddi SiddhiBullions Limited, Mumbai, for setting up and operating whitelabelATMs(WLAs)inIndia.Earlier,fourentitieswereauthorisedtooperateasWLAs,namely,TataCommunicationsPaymentSolutionsLimited, Mumbai; Prizm Payment Services Pvt. Ltd., Mumbai;MuthootFinanceLimited,KochiandVakrangeeLimited,Mumbai.

July 2014

• The Reserve Bank released the draft guidelines for“Licensing ofPaymentsBanks” and for“Licensingof Small Banks”.TheReserveBanksoughtviews/commentsonboththedraftguidelinesfromallinterestedpartiesandgeneralpublic.

• Bankswereadvisedcertainoperationalguidelinesandincentivesin the formofflexibility in loan structuringand refinancing, andalsograntingexemptionsfromregulatorypre-emptions,suchas,cashreserveratio(CRR),statutoryliquidityratio(SLR)andprioritysectorlending(PSL).

• The Reserve Bank released the “Framework for dealing withDomesticSystemicallyImportantBanks(D-SIBs)’’.

• Ruralbankbranchesweremandatedtoconductminimumofonefinancialliteracycampinamonth.

• DraftguidelinesforsettingupofandoperatingTradeReceivablesDiscounting System (TReDS) were released seeking commentsfromthepublic/stakeholders.

August 2014

• The Reserve Bank permitted banks to refinance existing projectloans,bywayof fullorpartial takeoutfinancing,evenwithoutapre-determinedagreementwithotherbanks/financialinstitutions,and fix a longer repayment period. Further, this would not beconsideredasrestructuringinthebooksoftheexistingaswellastakingoverlenders,subjecttocertainconditions.

2

Monetary and Credit Information Review, January 2015 3• ScheduledcommercialbanksincludingRRBs/urbanco-operative

banks/state co-operative banks/district central co-operativebanks/authorised card payment networks were advised toimmediatelystopentitiesfromevadingthemandatoryadditionalauthenticationprocess,wherepaymentsaremadebycustomersforaservicevia‘CardNotPresent’(CNP)transactions.

• The Reserve Bank advised the authorised dealers/full-fledgedmoneychangers(FFMCs)sellingpre-paidforeigncurrencycardsfortravelpurposestocomplywiththesamerigorousstandardsofduediligenceandknowyourcustomer(KYC)astheywouldincasetheyweresellingforeigncurrencynotes/travelerschequestotheircustomers.

• Certain modifications were made to the “Guidelines onRegistrationandOperationsofMortgageGuaranteeCompanies(MGCs)”, in the wake of representations received from theindustry and keeping in view the long term beneficial impactof development of the mortgage guarantee industry. Themodifications related tocapitaladequacy;contingency reserve;classification on investments; provision for loss on invokedguarantees.

September 2014

• The Reserve Bank released a note along with a poster and abooklet(availableonwww.rbi.org.in)comprisingafewcommonquestions relating to simplification of Know Your Customer(KYC) norms for opening bank accounts. Measures taken forsimplification included -single document for proof of identityandproofofaddress;noseparateproofofaddressisrequiredforcurrentaddress;relaxationregardingofficiallyvaliddocumentsforlowriskcustomers;andperiodicupdationofKYC.

• TheReserveBankadvisedthatwhiledealingwithwilfuldefaultofasingleborrowingcompanyinaGroup,thebanks/FIsshouldconsider the track record of the individual company, withreferencetoitsrepaymentperformancetoitslenders.However,incaseswhereguaranteesfurnishedbythecompanieswithintheGrouponbehalfofthewilfullydefaultingunitsarenothonouredwhen invokedbythebanks/FIs,suchGroupcompaniesshouldalsobereckonedaswilfuldefaulters.

• Private sectorbankswereadvised that theupper age limit forthepostofManagingDirectorandChiefExecutiveOfficers(MD&CEO)andotherWholeTimeDirectors(WTDs)ofbanksinprivatesectorinIndiashouldbe70years,beyondwhichnobodyshouldcontinueinthepost.

• The Reserve Bank, advised public sector banks, private sectorbanks/foreignbanks(excludingregionalruralbanks)thatcertainprescribed liquidity returns have to be submitted by banks tomonitortheir resiliencetopotential liquiditydisruptionsunderstressscenarios.

• The scheduled commercial banks were advised to adhere tocertainclientduediligencemeasuresincludingidentifyingandverifyingthecustomerandbeneficialowneronthebasisofreliableandindependentinformationanddataordocumentation,applyclientduediligencemeasurestoexistingclientsatanintervaloftwo/eight/tenyears in respectofhigh/medium/lowriskclientsrespectively,carryoutongoingduediligenceofexistingclientsinordertoensurethattheirtransactionsareconsistentwiththebank’sknowledgeoftheclient,hisbusinessandriskprofileandwherenecessary,thesourceoffunds.

• The Reserve Bank advised all regional rural banks/state andcentralco-operativebankstoensurethataccountsofallstudentbeneficiaries under the various central/state governmentscholarship schemes are free from restrictions of ‘minimumbalance’and‘totalcreditlimit’.

• The commercial banks were advised to clearly delineate theprocedure for disposal of loan proposals, with appropriatetimelines, and institute a suitable monitoring mechanism forreviewingapplicationspendingbeyondthespecifiedperiod.

• CategoryIauthoriseddealerbanksthatrecognisednon-residentExternalCommercialBorrowings(ECB)lendersmayextendloansin Indian Rupees subject to the conditions that (i) the lendershould mobilise Indian Rupees through swaps undertakenwithanauthoriseddealer category-Ibank in India; (ii) theECBcontract shouldcomplywithallotherconditionsapplicable totheautomaticandapprovalroutesasthecasemaybe; (iii) theall-in-costofsuchECBsshouldbecommensuratewithprevailingmarket conditions; (iv) for thepurposeof executing swaps forECBsdenominatedinIndianRupees,therecognisedECBlender,ifitdesires,maysetuparepresentativeofficeinIndiafollowingtheprescribedprocess;and(v)thehedgingarrangementforECBsdenominatedinIndianRupeesextendedbynon-residentequity-holdersshallcontinuetobegovernedbyextantguidelines.

October 2014

• The Reserve Bank advised all scheduled commercial banksincluding RRBs/UCBs/state co-operative banks/district centralco-operativebanks thatwitheffect fromNovember1,2014, (i)they can not charge any fees to their savings bank customersfor five transactions (inclusive of both financial and non-financial)inamonthcarriedoutatotherbankATMsirrespectiveof the location of the ATMs; (ii)Three transactions would befreeof charge if carriedout at other bankATMs located in sixmetro centres, namely, Mumbai, New Delhi, Chennai, Kolkata,BengaluruandHyderabad.Banksare,however,freetooffermorenumberoffreetransactionspermonthatotherbankATMsinanygeographicallocation.

• The Reserve Bank advised scheduled commercial banks(excluding regional rural banks)/local area banks/all Indiafinancialinstitutionsthat:(i)Banksneednotseekfreshproofsofidentityandaddressatthetimeofperiodicupdation,fromthosecustomerswhoarecategorisedas‘lowrisk’,incaseofnochangein statuswith respect to their identities and addresses. A self-certificationbythecustomertothateffectshouldsufficeinsuchcases.Banksmaynotinsistonphysicalpresenceofsuchlowriskcustomeratthetimeofperiodicupdation.Further,ifanexistingKnowYourCustomer(KYC)compliantcustomerofabankdesirestoopenanotheraccountinthesamebank,thereshouldbenoneed for submission of freshproof of identity and/or proof ofaddressforthepurpose.

November 2014

• The Reserve Bank advised Scheduled commercial banks(excluding regional rural banks) to adhere to the additionalguidelineswitheffectfromApril1,2015,whilelevyingchargesfor non-maintenance of minimum balance in savings bankaccount.

• The regulatory framework for NBFC (Non-Banking FinanceCompany)sectorwasrevisedtoanactivitybasedregulationofNBFCs.

• The Reserve Bank advised scheduled commercial banks(excluding RRBs)/local area banks to review and strengthenthe controls in the cheque presenting/passing and accountmonitoringprocessesandtoensurethatallproceduralguidelinesincludingpreventivemeasuresarefollowedmeticulouslybythedealingstaff/officials.

December 2014

• The Reserve Bank, allowed scheduled commercial banks(excludinglocalareabanksandregionalruralbanks)toflexibly

structuretheexistingprojectloanstoinfrastructureprojectsandcoreindustriesprojectswiththeoptiontoperiodicallyrefinancetheseloansaspercertainnorms.

• TheReserveBankreleased“GuidelinesforLicensingofPaymentsBanks’’ on the Reserve Bank’s website. Guidelines aimed atfinancial inclusionbyproviding(a)smallsavingsaccounts,and(b)payments/remittance services tomigrant labourworkforce,low income households, small businesses, other unorganisedsectorentitiesandotherusers.Guidelinesincludedparametersforeligiblepromoters;scopeofactivities:deploymentoffunds:capital requirement.‘’Guidelines for LicensingofSmall FinanceBanksinthePrivateSector’’werealsoissued.

• The Reserve Bank released ‘’Guidelines for setting up andoperating the Trade Receivables Discounting System’’ (TReDS)outliningtherequirementsandthebasictenetsofoperatingtheTReDS,includingthesystemparticipants,theirroles,transaction

processflow,settlementprocess,theeligibilitycriteriaforentitiesdesirousofsettingupandoperatingsuchasystem.

• TheReserveBankinitsguidelinesonWhiteLevelATMs(WLAs)issuedonDecember5,2014,allowedWLAstoacceptinternationalcredit/debit/prepaid cards; permitted the facility of DynamicCurrency Conversion (DCC) for the use of international cardsatWLAs; enabled delinking cash supply from that of sponsorbankarrangementsandadvisedWLAoperatorswhohavebeenauthorisedunderPSSAct2007andhavecommencedoperationsto intimatetheReserveBankregardingcommencementoftheservices.

• TheReserveBankadvancedRTGSbusinesshoursto8:00hoursfrom 9.00 hours and extended closing time of RTGS to 20.00hoursonweekdays.RTGSbusinesswindowremainsopenfrom8.00 hours to 15.30 hours on Saturdays. Customer transactioncut-offtimehasnotbeenchanged.

Edited and published by Alpana Killawala for the Reserve Bank of India, Department of Communication, Central Office, Shahid Bhagat Singh Marg, Mumbai - 400 001 MCIR can be accessed at www.mcir.rbi.org.in

Monetary and Credit Information Review, January 20154

Important Monetary Policy Decisions in 2014

Monetary Policy Review

Policy Repo Rate under the Liquidity Adjustment Facility (LAF)

Cash Reserve Ratio (CRR)*of Scheduled Commercial Banks

Statutory Liquidity Ratio (SLR) * of Scheduled Commercial Banks

Liquidity under 7-day and 14-day term repos of NDTL of the banking system

Liquidity under overnight repos under the LAF

Liquidity provided under the Export Credit Refinance (ECR) Facility

ThirdQuarterMonetaryPolicyReview,January28,2014

8.00percent,increasedby25basispointsfrom7.75percent

4.0percent,keptunchanged

23percentofNDTL

Nochange

Continuedtoprovideliquidityunder7-dayand14-daytermreposofNDTLofthebankingsystem-0.5percent

ContinuedtoprovideliquidityunderovernightreposundertheLAF0.5percentofbankwiseNDTL

50percentofeligibleexportcreditoutstanding

Nochange

FirstBi-MonthlyMonetaryPolicy,April1,2014

8percent,keptunchanged

4.0percent,keptunchanged

Nochange

Increasedliquidityunder7-dayand14-daytermreposfrom0.5percentto0.75percentofNDTLofthebankingsystem

DecreasedliquidityunderovernightreposundertheLAFfrom0.5percentofbankwiseNDTLto0.25percent

Nochange

SecondBi-MonthlyMonetaryPolicy,June3,2014

8percent,keptunchanged

4.0percent,keptunchanged

Reducedby50basispointsfrom23percentto22.5percentofNDTLwitheffectfromJune14,2014

Continuedtoprovideliquidityunder7-dayand14-daytermreposofupto0.75percentofNDTL

Nochange

Reducedfrom50percentofeligibleexportcreditoutstandingto32percent;Introducedaspecialtermrepofacilityof0.25percentofNDTLtoECRreduction

ThirdBi-MonthlyMonetaryPolicy,August5,2014

8percent,keptunchanged

4.0percent,keptunchanged

Reducedby50basispointsfrom22.5percentto22.0percentofNDTLwitheffectfromAugust9,2014

Continuedtoprovideliquidityunder7-dayand14-daytermreposofupto0.75percentofNDTLofthebankingsystem

Continuedtoprovideliquidityunderovernightreposat0.25percentofbankwiseNDTL

Nochange

FourthBi-MonthlyMonetaryPolicy,September30,2014

8percent,keptunchanged

4.0percent,keptunchanged

Nochange

Continuedtoprovideliquidityunder7-dayand14-daytermreposofupto0.75percentofNDTLofthebankingsystem

Continuedtoprovideliquidityunderovernightreposat0.25percentofbankwiseNDTL

ReducedliquidityprovidedundertheECRFacilityfrom32percentofeligibleexportcreditoutstandingto15percentwitheffectfromOctober10,2014

FifthBi-MonthlyMonetaryPolicy,December2,2014

8percent,keptunchanged

4.0percent,keptunchanged

Nochange

Continuedtoprovideliquidityunder7-dayand14-daytermreposofupto0.75percentofNDTLofthebankingsystem

Continuedtoprovideliquidityunderovernightreposat0.25percentofbankwiseNDTL

Nochange

* As percent of NDTL