Professional Documents
Culture Documents
Banking Updates
Banking Updates
Page Contents
Page Module
Module –– B A :: Updates on Key Banking
Recent Important Changes Segments
3 Profitability:
Amendments in Banking Regulation Act and its impacts
27
6 NIM – under stress:
Introduction How Banks
of Dynamic will respond
Loan Loss the situation
Provisioning Framework for
30 Productivity
Banks in India and Efficiency
9 Consumer
BASEL IIIProtection:
& Capital Management of Indian Banking Sector
31
14 Financial
Introduction Consumer
of FinancialProtection and its
Holding company Linkage
structure to Risk
in India
Page
18 Management
Module – C :Function
Liberalization Future
of Branchtrends / Challenges
Expansion Policy
82
21 Know
HR your Bank:
Challenges
Deregulation ofofInterest
Decade 2020
on Savings Bank
33
84
23 Awards
IT Vision
Union and accolades
for 2011
Budget for
to 2020
of India the Bank in FY 2012
– 2013-14
34
91
25 New
ScopeInitiatives
Banking ofby taken
the year
Merger by Bank
of 2015
Banks in India
36 Project “NAVNIRMAAN – Baroda Next”
39 Project Sparsh
SME & Wealth Management Services:
40 SME Banking – An overview & Important Guidelines
44 Wealth Management Services
e-Business
46 Bank’s e-Channel products
Baroda Academy Inventing Methods for Igniting Minds
3
Priority Sector Lending & Financial Inclusion
63 Revised Priority Sector Guidelines
67 Financial Inclusion – Recent Updates
Credit Monitoring & NPA Management
71 RBI Guidelines for Restructuring
81 Non Performing Assets
MODULE – A: RECENT IMPORTANT CHANGES
The Indian banking system has seen a complete transformation during the
last two decades, in sync with the progress made by the real economy.
Almost every aspect of banking operation has seen significant change during
this period as banks sought to reinvent themselves in an attempt to retain
their pre-eminent position in the financial system. The period saw banks
moving beyond brick and mortar branches to adopt innovative delivery
channels including internet banking, ATMs, call / contact centres, kiosks,
Business Correspondents (BCs), etc. Retail banking gained prominence. Banks
have sought to grow, not just in terms of balance sheet size, but also in
terms of greater penetration of banking services to the hitherto unbanked
segments of the population. It is reasonable to say that banks have
succeeded in rising up to the challenges posed by the unique needs of a
transforming economy and have, in no small measure, contributed to the
nation’s economic progress during this period.
However, Indian Banking is also facing several challenges and they must
address these challenges to sustain their excellent performance. Following
are some Contemporary issues faced by Banking in India.
The Banking Regulation Act, 1949 being the law relating to banking has been in
force for more than six decades, which empowers the RBI to regulate and
supervise the banking sector. The banking companies are now operating in a
liberalized environment. In this scenario, it has become necessary that the banking
companies in India are enabled to raise capital in accordance with the international
best practices. Therefore the Banking Laws (Amendment) Bill 2011 was introduced
in order to amend the BANKING REGULATION ACT, 1949.
Baroda Academy Inventing Methods for Igniting Minds
3
Some of the salient features of amendments with the impacts are as under:-
Under the existing provision contained in section 36AA of the BR Act, 1949, The
RBI has , inter alia , power to remove any director or other officers of a banking
company , but such power is not adequate if the entire Board of directors of a
banking company is functioning in a manner detrimental to the interest of the
depositors or the banking company itself. It is therefore proposed to confer
power upon the RBI to supersede the Board of directors of a banking company for
a total period not exceeding twelve months and appoint an administrator to manage
the banking company during the said period.
Enactment of this bill will provide new power to RBI. It proposes to confer upon
the RBI the power to call for information and return from the associate
enterprises of banking companies and also to inspect the same, if necessary.
Impact: - Such power of RBI will help it in regulating new as well as existing
entities in a better manner.
Another key feature of amendment is increasing the voting rights of all the
shareholders of nationalized bank to 10 per cent from 1 percent.
Impact:-
It is expected that higher voting rights will give investors more leeway. The
increase in voting cap will help drive increased investors interest and hence
facilitate raising additional capital.
Insertion of new section 26 A, the RBI shall establish a Fund to be called the
“Depositor Education and Awareness Fund” by utilizing the inoperative deposit
accounts. There shall be credited to the Fund the amount to the credit of any
account in India with a banking company which has not been operated upon for a
period of ten years, within a period of three months from the expiry of the said
period of ten years.
Impact: - This fund will be used for promotion of depositors’ interest and for such
other purpose as may be specified by the RBI from time to time.
This amendment for the banking sector is a long –term positive. This will gradually
pave the way for more competition in the sector and as it seen that new licenses
will given by RBI to start new banking business in India which will carve out a more
efficient and more valuable banking system.
The prevailing “incurred loss model” for provision on impaired loans came under
severe criticism after the recent global financial crisis for delaying loss
recognition. There is a view that earlier recognition of loan losses based on
“expected losses” could have potentially reduced the cyclical impacts of the recent
crisis.
In the immediate aftermath of the Global Crisis, the G-20 leaders called upon the
accounting standard setters to work urgently with banking supervisors and
regulators to improve standards on valuation and provisioning and achieve a single
set of high quality global accounting standards.
Dynamic provisioning is a technique that allows banks to build up loan loss provisions
when their profits are growing to draw on these provisions during an economic
downturn.
This concept advocates the Provisioning norms based on “Expected Loss” basis in
place of prevailing “incurred loss” method. Dynamic provisioning can be generally
expressed as:
Thus, a Dynamic Provisioning Framework for Loan Loss Provisions for banks in
India, consisting of two components, may be considered as under:
Dynamic provisioning framework in India is more or less based on the FSA model
(UK model of dynamic provisioning).
Improvements in credit risk models have supported the concept of expected losses
and unexpected losses. From a conceptual point of view, loan loss provisions should
cover expected losses while capital provides an adequate buffer for unexpected
losses. The internal rating based (IRB) model approach under Basel II credit risk
capital computation gave a fillip to the expected loss based provisioning and
unexpected loss based capitalization.
While specific provisions would be as per the RBI guidelines on NPA provisioning,
dynamic provisions would be the difference between the long run “average
expected loss” of the portfolio for one year and specific provisions made during
the year. Thus, this will ensure that every year the charge to profit and loss
account on account of specific provisions and dynamic provisions is maintained at a
level of expected losses.
Dynamic provisions are created only when the specific provisions are lesser than
the expected losses. The framework thus ensures that at any point of time,
provisioning equivalent to expected losses should be made. Thus, the objective of
the dynamic provisioning framework is to smoothen the impact of incurred losses
(Rs. In Billion)
Public Sectors Private Total
Bank Sector Bank
A Additional Equity Capital 1400-1500 200-250 1600-1750
Requirement under Basel III
Over the last two decades, India has seen the emergence of Financial
Conglomerates (FCs), each operating in a different segment of the financial
services sector– a bank, housing finance company, non-banking financial company,
and insurance company; or, in some cases, an industrial company.
Considering the complexity of the issues involved and implications of the FHC
model for the financial system in general and banking system in particular, the
Reserve Bank constituted a Working Group in June 2010 under the Chairpersonship
of Smt. Shyamala Gopinath, Deputy Governor, Reserve Bank of India.
The Working Group approached the issue from two fundamental perspectives:
first, the risk to bank balance sheets from affiliate non-bank entities and
- The Working Group concluded that a holding company model may be more suited
in the Indian context. It was conscious of the fact that banks cannot be totally
insulated from the risks of non-banking activities undertaken by their affiliates.
The Working Group also recognized that there are divergent ownership and
governance norms for various sectors; entities within the sectors; legacy issues
concerning the existing conglomerates etc.
Any framework to harmonise them at the level of the FHC would be a challenge and
therefore the FHC as a preferred model will need to be phased in gradually.
Recommendation 2: The FHC model can be extended to all large financial groups –
irrespective of whether they contain a bank or not. Therefore, there can be
Banking FHCs controlling a bank and Non-banking FHCs which do not contain a bank
in the group
Recommendation 11: The FHCs should be permitted to carry out all financial
activities through subsidiaries.
Recommendation 12: The FHC should be well diversified and subject to strict
ownership and governance norms.
(i) Pending enactment of a separate Act, the FHC model will be registered as an
NBFC with the RBI and the RBI will frame a suitable regulatory framework.
(ii) All identified financial conglomerates having a bank within the group will need
to convert to the FHC model in a time bound manner and in cases the above
conglomerates do not want to convert to FHCs, they should be required to confine
only to those activities which the banks are presently permitted by RBI.
(iii) All new banks and insurance companies, as and when licensed, will mandatorily
need to operate under the FHC framework.
(iv) Amendments to various taxation provisions to make the transition from Bank-
Subsidiary model to FHC model tax neutral would be a binding condition for
operationalising this framework.
Section 23 of Banking Regulation Act 1949 which states that “ without prior
permission of RBI, no banking company shall open a new place of business in India
or change otherwise than within the same city, town or village, the location of an
existing place of business situated in India. “
Bank plays a vital role in economic development of a country. Bank provides credit to various segments
in the society to start economic activities, thereby helps the people to raise their income and standard of
living. In our country 70% populations was staying in rural area. Prior to 1969 Bank branches were
mainly concentrated in Urban and Metro areas. To provide banking facilities to agriculture and small
industries and to mobilize the untapped resources in rural and semi urban areas, nationalisation of 14
banks was done in 1969. To encourage banks to open more and more branches in rural areas, RBI
introduced a policy to open 4 branches in rural unbanked centres to get a license to open a branch in
metro banked centre. This policy was successful and by 1991 around 60%of bank branches were in rural
and semi urban areas. Penetration of Branch net work had helped the Government to implement
subsidised schemes for self employment and for rural development for eradication of poverty,
successfully. The following table will show the impact of policy.
The Narahamsim committee also felt that the Bank Management takes its own
judgement for assessing need of additional bank branches. Hence RBI liberalised
the Branch Licensing Policy in 1995.
RBI while granting permission for new branch offices was considering the financial
condition and history of applicant bank, general character of its management,
adequacy of capital, earning prospects and whether new office will serve public
interest.
Keeping these aspects in mind, RBI issued following guidelines while liberalising the
branch expansion policy in 1995.
Bank fulfilling the following conditions can open new branch without prior
permission of RBI.
After liberalising the branch expansion policy as above, banks focus again shifted to Metro and Urban
centres. Banks also closed the loss making branches. The following the statistic will prove the impact of
liberalisation.
In view of above trend RBI revised the policy in 2005. Policy encouraged the
banks to open branches in unbanked and under-banked centres. Private Banks
were also asked to open 25% of their branches in semi urban and rural centres.
Advantages:
Facts / Guidelines:
Effective from October 25, 2011, Banks are free to determine their savings bank
deposit interest rate, subject to the following two conditions:
A. First, each bank will have to offer a uniform interest rate on savings bank
deposits up to Rs.1 lakh, irrespective of the amount in the account within this
limit.
B. Second, for savings bank deposits over Rs.1 lakh, a bank may provide
differential rates of interest, if it so chooses, subject to the condition that
banks will not discriminate in the matter of interest paid on such deposits,
between one deposit and another of similar amount, accepted on the same date,
at any of its offices.
Pros:
1. It will enhance the return on SB deposit to the customers, which in turn
will contribute to an increase in financial savings.
4. It may adversely affect the small savers and lead to the challenge of
‘financial exclusion’.
Income limit for the tax-saving Rajiv Gandhi Equity Savings Scheme
(RGESS) is raised to Rs. 12 lakh from Rs. 10 lakh
Duty-free limits for Gold raised to Rs 50000 for men and Rs 1 lakh for
women
For foreign companies, who pay the higher rate of corporate tax, the
surcharge will increase from 2 pct to 5 per cent.
These facts have once again opened the discussion for Merger of Banks for
creating Big Banks to compete at global levels.
Though this issue of consolidation of PSBs was first recommended by the
Narasimham Committee on Financial Systems (1991) and working group was
constituted by the government on bank mergers, which had submitted it
recommendation in October 2004.
Post liberalization a lot of changes took place in the banking sector and the biggest
development is the adoption of CBS operating platform in all Banks in India.
This uniform operating platform has made the consolidation task easy, because the
integration of operating tools and procedures was the major challenge in the way
of consolidation.
PROFITABILITY
Profitability is sine qua non for any commercial organization and banking is not its
utilization in banks are spread, net interest margin, and intermediation ratio.
Spread and net interest margin are loosely interpreted one and same thing but
both terms are defined differently for productivity and profitability measurement
assets owned by the banks, while net interest margin (NIM) is defined as the
difference between the total interests earned on advances & investment and total
This ratio indicates as to how effectively the banks deploy all their deployable
funds i.e. both deposit and borrowings to generate income from credit and
investment operations.
However, there is a classical argument which reinforce that banks should strive to
lower their NIMs to benefit their borrowers and depositors i.e. lend at lower rate
for economic growth and pay high on deposits to reward the savers. The present
NIM of Indian banks is expected to hit about 2 percent by 2020 owing to highly
deregulated and competitive environment. But an emerging economy like India with
NIM for all banks fell down from 3.04% (2007) to 2.74% (2010). During the year
2011, NIM grew to 3.10% in year 2011 but further declined to 3.07% for the year
end March 2012 with highest of 4.91% for foreign banks. As observed from the
Table- that NIM had increased during the year 2011 as compared to previous year
level in 2010 for all categories of banks except foreign banks, with a recovery in
economy and higher credit growth but further declined due to tighten interest
is a need to bring down NIM from an efficiency point of view, nevertheless, from a
To achieve collective aspiration of double digit and inclusive growth, a nation needs
to raise the level of national savings and channel those savings into investment.
This means banks need to raise the interest rates on deposits and reduce the
margin.
A balanced approach would be to bring down NIM, which will improve efficiency of
financial intermediation, along with an increase in income from other sources and
Banks play the critical role of financial intermediation by performing the task of
maturity and risk transformation, besides providing payment and settlement
services. In order to effectively perform these functions, banks need to ensure
that they maintain high levels of productivity and efficiency in their operations.
Two kinds of efficiency are essential for banks:
Indian banks need to improve both, allocational and operational efficiency, so that
the financial intermediation function is effectively performed. This would include
reengineering of all critical products and processes by leveraging on innovative
technology-based solutions, while retaining a strong customer-centric focus.
CONSUMER PROTECTION
As on 31st Dec 2011, the Bank‘s entire domestic, overseas and RRBs [i.e.,
five sponsored RRBs] related operations were on the CBS platform.
Bank has developed IT facilities for online/offline account opening through
Business Correspondents under Financial Inclusion.
Bank‘s retail & corporate customers enjoy several facilities under its
Internet Banking Delivery Channel. The SMS alerts of transactions are
also implemented in the Internet Banking Portal.
Why Navnirmaan?
SME is a growth engine of economy for any nation across the world. The
importance of this sector in India as compared to corporate giants with respect
to its contribution towards Indian economy can be best understood that they
contribute 8% in Gross Domestic Product (GDP), 45% of manufactured output,
40% of exports, manufacture over 6000 products and provide employment to
around 60 million person through 26 million enterprises as per latest 4 th all
India census of MSMEs.
Important Committees
The Committee was constituted by Reserve Bank of India in December 1991 under
the Chairmanship of Shri P. R. Nayak, the then Deputy Governor to examine the
issues confronting SSIs (now MSE) in the matter of obtaining finance. All the
major recommendations of the Committee have been accepted and the banks have
been inter‐alia advised to:
give preference to village industries, tiny industries and other small scale units
in that order, while meeting the credit requirements of the small scale sector;
grant working capital credit limits to SSI (now MSE) units computed on the
basis of minimum 20% of their estimated annual turnover whose credit limit in
individual cases is upto Rs.2 crore [ since raised to Rs.5 crore ];
prepare annual credit budget on the `bottom‐up’ basis to ensure that the
legitimate requirements of SSI (now MSE) sector are met in full;
extend ‘Single Window Scheme’ of SIDBI to all districts to meet the financial
requirements (both working capital and term loan) of SSIs(now MSE);
Ensure that there should not be any delay in sanctioning and disbursal of
credit. In case of rejection/curtailment of credit limit of the loan proposal, a
reference to higher authorities should be made;
not to insist on compulsory deposit as a `quid pro‐quo’ for sanctioning the
credit;
open specialised SSI (now MSE) bank branches or convert those branches
which have a fairly large number of SSI (now MSE) borrowal accounts, into
specialised SSI (now MSE) branches;
Working Group to Review the Credit Guarantee Scheme for Micro and Small
Enterprises
A Working Group was constituted by the Reserve Bank of India under the
Chairmanship of Shri V.K. Sharma, Executive Director, to review the working of
the Credit Guarantee Scheme of CGTMSE and suggest measures to enhance its
usage and facilitate increased flow of collateral free loans to MSEs. The
recommendations of the Working Group included, inter alia, mandatory doubling of
the limit for collateral free loans to micro and small enterprises (MSEs) sector
from Rs.5 lakh to Rs.10 lakh and enjoining upon the Chief Executive Officers of
banks to strongly encourage the branch level functionaries to avail of the CGS
cover and making performance in this regard a criterion in the evaluation of their
field staff, etc. have been advised to all banks.
e-BUSINESS
“Bank is providing various Alternate Delivery channels apart from Brick and mortar
Banking. The purpose of these alternate delivery channels is to provide anywhere
any time banking by using technology. Anywhere banking means no geographical
ISSUER: In the card industry, the issuer is an entity, which issues the card. In
the debit card segment, this normally is a Banker, who maintains the account of the
customer.
ACQUIRER: The acquirer is an entity, which makes the payment e.g. owners of
ATMs (mostly banks) to the Card holders to the member establishments
Introduction: Over the years we have witnessed growth of credit cards and Debit
Cards as alternate payment options to conventional cash, cheque and demand draft.
Pre paid cards are next development in card business which is gaining momentum in
Indian market .Prepaid cards are pre-funded cards mainly used for gift purpose,
making adhoc payment, for online purchase etc and can be used till balance is
available in the card. In pre-paid cards, he Account is not exposed and hence it
protected. Ownership can be transferred and prepaid cards are safe and easy to
handle.
Open Ended and Close Ended cards: Prepaid cards are available in non reloadable
(use and throw) as well as reloadable (multi use) category based on the type of
card and associated regulation. Prepaid variants which can be used at large number
of merchant locations are called open ended cards and the ones which have
accessibility at select centers/outlets/CUG are classified under close/semi close
cards
Baroda Gift cards can be good revenue stream for branches by way of increase in
non interest income, breakage income, and float funds. It also helps in increasing
the foot falls at the branches and thereby helps the branches for up selling &
cross selling of other products
Baroda Travel Easy Cards: Bank has launched foreign currency pre-paid card
Baroda Travel Easy Card and the first release is US Dollar card. Baroda
TravelEasy card is presently issued in US$ for minimum US$200 and maximum
as per FEMA guidelines issued from time to time. Travel easy card is valid for
three years from the date of issue.
Baroda Travel Easy card is issued to Resident Indians and are usable abroad for
ATM cash withdrawal and making merchant payments at physical/online stores
from the loaded currency. Baroda TravelEasy Card will be available at – B Category
branches for issuance.
RTGS was introduced in India by RBI on 26 th March, 2004 and our bank
became a RTGS member from 8th May, 2004.
Real Time Gross Settlement System (RTGS) is an efficient, secure,
economical and reliable system of transfer of funds from bank to bank as
well as from a remitter’s account in a particular bank to the beneficiary’s
account in another bank across the country. The minimum amount of txn
under RTGS for the customer is Rs. 2 lakh.
Another difference between NEFT and RTGS is that transfer of funds up to
a limit of Rs. 50000 is allowed by cash under NEFT while it is strictly an
account to account transfer in RTGS.
The funds are made available for immediate use. It is a cheaper remittance
facility as compared to conventional remittance like DD or Collection of
cheques.
RTGS system can require relatively large amounts of intra-day liquidity
because participants need sufficient funds in the settlement account to
cover their outgoing payments. Liquidity can come from various sources,
including opening balances, or reserve balances at the central bank, incoming
payments and intraday credit (which is usually provided by the central bank).
Adequate liquidity, relative to the value and distribution of payments, makes
a smooth flow of payments possible through such systems, helping to avoid
delays in individual payments and minimizing liquidity risks. The cost of intra-
Following are the pre-requisite for putting through a funds transfer transaction
using RTGS
Originating and destination bank branches should be part of the RTGS
network
Amount to be remitted
Remitting customer’s account number which is to be debited
Name of the beneficiary bank
Name of the beneficiary customer
Account number of the beneficiary customer
Sender to receiver informations, if any
The IFSC number of the receiving branch
Foe net banking customers, some banks provide the facility to
automatically pop-up the IFSC once name of the destination bank and
branch is highlighted / chosen / indicated / keyed in.
IFSC – The IFSC is Indian Financial System Code is an alpha numeric code that
uniquely identifies a bank-branch participating in the RTGS system.
IFSC is used by the RTGS system to identify the originating / destination banks /
branches and also to route the messages appropriately to the concerned banks /
branches.
This is an -11- digit code with the first four alpha characters indicate the Bank.
(For our Bank it is BARB). The fifth character is numeral Zero (0) reserved by RBI
for future use. The last six characters identify the respective bank’s branch. (Our
Bank has adopted ALPHA code of the respective branch for these last six
characters). In case the ALPHA code is less than six alphabets, then suffix by X’s
so as to make it six characters. For example in the case of Agra main branch, the
alpha code is AGRA and the IFS Code, thus, shall be:- BARB0AGRAXX.
In case of on-line NEFT through Baroda connect or through M-connect after the
above cut-off time, the account will be debited on the same day but the funds will
be transferred in the first batch of the next working day.
Internet Banking (Baroda Connect): Baroda Connect was launched in our bank on
14/09/2006. It provides 24*7*365 service to our Retail & Corporate customers.
Baroda connect can be accessed from any where using Internet.
Features available:
Security: Baroda Connect is secured by 128 bit Secured Socket Layer (SSL)
provided by VeriSign.
Bank of Baroda offers you BARODA M-CONNECT, the most convenient and secure
way to bank on the move 24X7. BARODA M-CONNECT is a banking application that
can be downloaded on your mobile phone and can be used to conduct banking
transactions in your Bank of Baroda account using your registered mobile phone.
With BARODA M-CONNECT you can access account information, transfer funds,
pay utility bills, recharge mobile, do airline/movie ticketing and many more.
BALANCE ENQUIRY
MINI STATEMENT
FUND TRANSFER (WITHIN BANK)
1. MOBILE TO MOBILE
2. MOBILE TO ACCOUNT
FUND TRANSFER (OUTSIDE BANK)
1. NEFT (National Electronic Fund Transfer)
2. IMPS (Interbank Mobile Payment Service)
NUUP (National Unified USSD Platform) is real-time and session oriented platform
for Mobile Banking transactions. It works on mobiles without downloading
application software. It is initiated by *99# short code and is available across
mobile operators and banks through a common integration of NPCI. It has better
adoption rate due to non dependency on application and is expected to broad-base
Mobile Banking and promote Financial Inclusion
7 Contact Centre
The Call Center, christened as “Contact Centre” that bank has recently introduced
is delivery of banking services through TOLL FREE PHONE.
Through these Toll Free Numbers, Bank’s customers and members of general public
can call the Bank’s Contact Centre and seek information on their accounts,
request for banking services, enquire on bank’s products, interest rates, etc.
All customers can avail contact centre services by dialing any one of the following
Toll Free Numbers.
It works for 365 days in a year (Except national holidays), from 8.00 am to
8.00 pm.
Though these two centers are housed in two geographies, they are complimentary
to each other and function as a single unit.
These contact centers are provided with necessary access to software applications like
CBS, CRM, Net banking portal, etc, for enabling them to service bank’s customers.
The resources deployed, called agents have been trained to service the Bank’s customers.
Contact centre helps branches by providing customer service over PHONE without
intervention of the branches.
The contact centre will work as extended arm of the branch facilitating
marketing and sales of the bank’s various products.
Target Customer:
Merchants, who have their website and are in the business of selling
products / services through internet.
Merchants, who are interested in expanding their existing business using
internet technology.
Security Features:
Funds Collection
Inflow forecasting
Speed & quality of information assisting the process – Customized Reports
with additional information
Payment dispatch
Funds utilization to minimize interest outflow
Total agriculture:
18 percent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure,
whichever is higher. Of this, indirect lending in excess of 4.5% of ANBC or credit
equivalent amount of Off-Balance Sheet Exposure, whichever is higher, will not be
reckoned for computing achievement under 18 percent targ et. However, all
agricultural loans under the categories 'direct' and 'indirect' will be reckoned in
computing achievement under the overall priority sector target of 40 percent of
ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is
higher.
Loans for food and agro processing will be classified under Micro and Small
Enterprises, provided the units satisfy investments criteria prescribed for
Micro and Small Enterprises, as provided in MSMED Act, 2006.
Education Loan: Study in India up to Rs.10 lacs and Study abroad – up to Rs.20
lacs
Housing Loans:
Upto Rs.25 lac in Metro and Rs.15 lac in other centres, for constructions of houses.
For EWS, Rs.5 lac per dwelling unit (irrespective of area ) will qualify for P.S.
classification. Loans for repair and renovations up to Rs. 2 lac in Rural and Semi
Urban Area and upto Rs. 5 lacs in Urban Areas.
Export Credit:
Export Credit extended by foreign banks with less than 20 branches will be
reckoned for priority sector target achievement.
As regards the domestic banks and foreign banks with 20 and above branches,
export credit is not a separate category under priority sector.
Others:
Loans, not exceeding Rs 50,000 per borrower provided directly by banks to
individuals and their SHG/JLG, Overdrafts, up to Rs 50,000 (per account),
granted against 'no-frills' / basic banking / savings accounts provided the
borrower’s household annual income in rural areas does not exceed Rs 60,000/- and
for non-rural areas it should not exceed Rs 1,20,000/-.
Loans to distressed persons not exceeding Rs 50,000 per borrower to prepay their
debt to non-institutional lenders.
Loans sanctioned to State Sponsored Organisations for SC/ST for the specific
purpose of purchase and supply of inputs to and/or the marketing of the outputs of
the beneficiaries of these organisations.
Loans sanctioned by banks directly to individuals for setting up off-grid solar and
other off-grid renewable energy solutions for households.
Weaker section:
A large section of the rural poor still does not have access to the formal
banking channel. Further, the backward regions of the country, too, lack basic
financial infrastructure.
Financial Inclusion is aimed at providing banking services at an affordable cost
to the disadvantaged and low-income groups.
Capital formation through credit and financial services essential prerequisite
for inclusive and sustainable growth can be achieved through access to a well-
functioning financial system resulting into better integration of economically
and socially excluded people into the economy.
Globally, the triad of Financial Inclusion, Financial Literacy and Consumer
Protection has been recognized as intertwining threads in pursuit of Financial
Stability.
Formulate specific Board approved Financial Inclusion Plans (FIP) and to act on
them on a mission mode.
To provide banking services in every village having a population of over 2000 by
31 March 2012, through bank branches as well as through various ICT-based
models including through Business Correspondents (BCs).
Despite increased outreach of the branches in rural and semi urban areas and
the implementation of directed credit, farmers and rural artisans still did not
receive adequate credit from banks and accessibility of avenues for savings in
formal banking channels were limited.
In order to address this issue RBI liberalised the branch authorisation policy in
December 2009 and domestic scheduled commercial banks were given freedom
to open branches in tier 3 to tier 6 centres (having population up to 49,999 as
per 2001 census) without obtaining permission from RBI, subject to reporting.
Committee on Financial Sector Reforms (Government of India, 2009), proposed
that instead of focussing primarily at expanding credit, financial inclusion
should be viewed as expanding access to financial services, such as payments
services, savings products, insurance products, and inflation-protected pensions.
The focus also shifted from social banking without profitability concerns to
profitable business propositions for the banks. The delivery models instead of
being cost centric should aim at generating revenue aimed at providing quality
banking service to customers at their doorstep with a profitable proposition for
the banks. (RBI 2011).
It will help the banks to increase the customer base and reduction of
dependency of rural masses on non institutional financial channels.
This will be helpful in increasing the CASA base of the banks.
As per CRISIL survey the consumption in rural area is growing faster than in
urban area, during 2009-10 to 2011-12, additional spending by rural India was
Rs. 3750 billion, significantly higher than Rs. 2,994 billion by urban population.
This untapped potential in rural area can be utilised by the banks in increasing
their business.
The lack of easy access to financial products and services creates demand for
non financial products like gold and real estate. Through combined effect of
The principles and prudential norms laid down here are applicable to all advances
including the borrowers, who are eligible for special regulatory treatment for
asset classification.
3 Normally, restructuring can not take place unless alteration / changes in the
original loan agreement are made with the formal consent / application of the
debtor. However, the process of restructuring can be initiated by the bank in
deserving cases subject to customer agreeing to the terms and conditions.
4 No account will be taken up for restructuring by the banks unless the financial
viability is established and there is a reasonable certainty of repayment from the
borrower, as per the terms of restructuring package. The viability should be
determined by the banks based on the acceptable viability benchmarks
determined by them, which may be applied on a case-by-case basis, depending on
merits of each case. Illustratively, the parameters may include the Return on
Capital Employed, Debt Service Coverage Ratio, Gap between the Internal Rate
of Return and Cost of Funds and the amount of provision required in lieu of the
diminution in the fair value of the restructured advance. The accounts not
considered viable should not be restructured and banks should accelerate the
recovery measures in respect of such accounts. Any restructuring done without
looking into cash flows of the borrower and assessing the viability of the
projects / activity financed by banks would be treated as an attempt at ever
greening a weak credit facility and would invite supervisory concerns / action.
6 BIFR cases are not eligible for restructuring without their express approval.
CDR Core Group in the case of advances restructured under CDR Mechanism /
the lead bank in the case of SME Debt Restructuring Mechanism and the
individual banks in other cases, may consider the proposals for restructuring in
such cases, after ensuring that all the formalities in seeking the approval from
BIFR are completed before implementing the package.
(c) after commencement of commercial production / operation and the asset has
been classified as 'sub-standard' or 'doubtful'.
Provisioning norms
1 Normal provisions
Banks will hold provision against the restructured advances as per the existing
provisioning norms.
For this purpose, the erosion in the fair value of the advance should be computed
as the difference between the fair value of the loan before and after
restructuring. Fair value of the loan before restructuring will be computed as the
present value of cash flows representing the interest at the existing rate
charged on the advance before restructuring and the principal, discounted at a
rate equal to the bank's BPLR as on the date of restructuring plus the
appropriate term premium and credit risk premium for the borrower category on
the date of restructuring. Fair value of the loan after restructuring will be
computed as the present value of cash flows representing the interest at the
The above formula moderates the swing in the diminution of present value of
loans with the interest rate cycle and will have to follow consistently by banks in
future. Further, it is reiterated that the provisions required as above arise due
to the action of the banks resulting in change in contractual terms of the loan
upon restructuring which are in the nature of financial concessions. These
provisions are distinct from the provisions which are linked to the asset
classification of the account classified as NPA and reflect the impairment due to
deterioration in the credit quality of the loan. Thus, the two types of the
provisions are not substitute for each other.
(ii) In the case of working capital facilities, the diminution in the fair value of
the cash credit / overdraft component may be computed as indicated above,
reckoning the higher of the outstanding amount or the limit sanctioned as the
principal amount and taking the tenor of the advance as one year. The term
premium in the discount factor would be as applicable for one year. The fair value
of the term loan components (Working Capital Term Loan and Funded Interest
Term Loan) would be computed as per actual cash flows and taking the term
premium in the discount factor as applicable for the maturity of the respective
term loan components.
(iii) In the event any security is taken in lieu of the diminution in the fair value
of the advance, it should be valued at Re.1/- till maturity of the security. This will
ensure that the effect of charging off the economic sacrifice to the Profit &
Loss account is not negated.
(ii) Retention of the asset classification of the restructured account in the pre-
restructuring asset classification category
During the pendency of the application for restructuring of the advance with the
bank, the usual asset classification norms would continue to apply. The process of
reclassification of an asset should not stop merely because the application is
under consideration. However, as an incentive for quick implementation of the
package, if the approved package is implemented by the bank as per the following
time schedule, the asset classification status may be restored to the position
which existed when the reference was made to the CDR Cell in respect of cases
covered under the CDR Mechanism or when the restructuring application was
received by the bank in non-CDR cases:
(i) Within 120 days from the date of approval under the CDR Mechanism.
Subject to the compliance with the under noted conditions in addition to the
adherence to the prudential framework laid down:
(ii) during the specified period, the asset classification of the sub-standard /
doubtful accounts will not deteriorate upon restructuring, if satisfactory
performance is demonstrated during the specified period.
However, these benefits will be available subject to compliance with the following
conditions:
i) The dues to the bank are 'fully secured'. The condition of being fully secured
by tangible security will not be applicable in the following cases:
(b) Infrastructure projects, provided the cash flows generated from these
projects are adequate for repayment of the advance, the financing bank(s) have
in place an appropriate mechanism to escrow the cash flows, and also have a clear
and legal first claim on these cash flows.
(c) Micro Finance Institution accounts, which are standard at the time of
restructuring, even if they are not fully secured. However, this relaxation is
granted purely as a temporary measure and would be applicable to standard MFI
accounts restructured by banks upto 31st March 2011.
iii) The repayment period of the restructured advance including the moratorium,
if any, does not exceed 15 years in the case of infrastructure advances and 10
years in the case of other advances. The aforesaid ceiling of 10 years would not
be applicable for restructured home loans; in these cases the Board of Director
of the banks should prescribe the maximum period for restructured advance
keeping in view the safety and soundness of the advances. Lending to individuals
meant for acquiring residential property which are fully secured by mortgages on
residential property that is or will be occupied by the borrower or that is rented
are risk weighted as under the new capital adequacy framework, provided the
LTV is not more than 75% , based on board approved valuation policy. However,
the restructured housing loans should be risk weighted with an additional risk
weight of 25 percentage points to the risk weight prescribed already.
Though the face of banking industry has undergone a sea change in the years that
have gone by, one characteristic of the industry that has remained unchanged is
people. The banks succeed or fail depending on the quality of their workforce
talent at every level—the front lines, middle management and executive leadership.
Banks should look at workforce talent as the primary engine for sustained,
competitive advantage and for creating a workforce in which people at every level
are capable of contributing with high levels of performance leveraging on
technology. It's about creating a IT culture of excellence. It is the HR teams that
will give banks the competitive advantage in the years to come.
Skilling of workforce
In India, output per worker has increased at an impressive rate in the services
sector after the reforms initiated in early 90s. In this period, TFPG growth has
also been impressive for this sector. TFPG growth has also improved for the
manufacturing sector since the 1980s. So, progress is being made. However, the
rate of this technical change, still, has been lower than that for the East Asian
economies during the period in which they earned the tag of being East Asian
tigers.
Retention of Talent
During last one & two years Banking Industry is experiencing that the rate of
attrition is increasing due to various reasons and almost all PSBs are facing some
degree of uncertainties in their humane base planning due to this attrition behavior
prevalent in the market. Attrition not only cost us in the form of time and money
but also affects the momentum of our business growth.
Opportunity: It is estimated that a large portion of the bill payments are done
at biller’s location (generally walk-in customers). Thus there is a huge
opportunity for developing a bill payment system for payments towards
insurance premia, utility payments, taxes, school fees.
Challenges: Towards this end, there is a need for developing an electronic
GIRO system. One of the prerequisites for developing an electronic GIRO
system is the standardisation of biller information.
Payment Hub:
Manage Mobile
The mobile revolution has created a sort of new world order. It has the potential
to change the way banks do business. It is up to the banks to take cue. While banks
are embracing the mobile channel -- and continuing to support the old standby of
online banking -- they are not integrating the technologies used to build e-banking
solutions. Also as more people conduct their banking on mobile devices, these
devices also will become the growing focus of hackers and fraudsters, who are
always on the hunt for ripe targets. Banks can work on two areas within the mobile
channel, fraud prevention and marketing to customers. In fact, world over mobile
banking already is playing a role in reducing fraud in a variety of ways -- ranging
from simple transaction and security alerts to mobile authentication for bank
transfers.
The Automated Teller Machine (ATM) has been hailed as one of the most
innovative and revolutionary technological developments in the history of banking.
IADs and ISOs are almost similar in their operations, barring the following
differences:
(i) ISOs are usually larger operators that own and deploy ATMs and the entire
related infrastructure. They have a sponsorship arrangement with the banks for
cash loading and services. The relationships with sponsor banks are guided by local
regulatory requirements. The ISO scheme works either through a single sponsor
bank or the multisponsor bank model.
(ii) In the IAD model, the entities concentrate on investment in the assets (ATMs).
They own the ATM and connect to any existing network provider for the payment
infrastructure. The IADs can include entities ranging from individual business
owners to large retail outlets/ supermarkets. Such entities do not have a direct
arrangement with any bank for any aspect related to the operation of such ATMs,
including cash loading.
The survey was conducted by IBM research unit on future banking scenario,
which revealed five key trends that will determine market success in 2015:
A new workforce- The need for productivity and efficiency will create new
labour and work practices. But there will also be intense competition to
attract and retain talent.
Even, banks will source products and services from many specialized and best-in-
class service providers, including independents and other banks providing white-
label products and services. Innovation in products, processes, relationships and
business models will be the primary path to sustainable growth.