Indian Overseas BankStaff College, Chennai

Study Circle – 04.07.2015Regulatory Round Up – 04.07.2015

RBI – 02.07.2015

Opening of Current Accounts by Banks - Need for Discipline

It is advised that the banks should scrupulously ensure that their branches do not open current accounts of entities which enjoy credit facilities (fund based or non-fund based) from the banking system without specifically obtaining a No-Objection Certificate (NOC) from the lending bank(s). Banks may open current accounts of prospective customers in case no response is received from the existing bankers after a minimum waiting period of a fortnight. However, we have been receiving complaints against banks for opening current account without following due diligence as specified in our aforesaid circulars.

Keeping in view the importance of credit discipline, especially for reduction in NPA level in banks, banks are advised to make use of the information available in CRILC and not limit their due diligence to seeking NOC from the bank with whom the customer is supposed to be enjoying the credit facilities as per his declaration. Banks should verify from the data available in CRILC database whether the customer is availing of credit facility from another bank. Further banks may also seek ‘No Objection Certificate’ from the drawee bank where the initial deposit to current account is made by way of a cheque.

RBI – 02.07.2015

Bucketing of excess SLR and MSF securities in Structural Liquidity Statement

 As per the extant instructions, approved securities are required to be slotted under respective maturity buckets, excluding the amount required to be reinvested to maintain SLR corresponding to the DTL profile in various time buckets. Further, securities in the trading book are to be slotted under Day 1, 2-7 days, 8-14 days, 15-28 days and 29-90 days according to defeasance periods.

Whereas securities in excess of mandatory SLR as well as securities eligible for MSF were also required to be slotted as per the above instructions, these securities, in fact, exhibit the liquidity characteristics required for slotting in day-1 bucket in view of their ready access to liquidity by way of repo and MSF (presently upto 2% of NDTL). It has, therefore, been decided that banks can slot their excess SLR securities and MSF eligible securities under the Day-1 bucket.

RBI – 02.07.2015

Discount Rate for Computing Present Value of Future Cash Flows

On a review, it has been decided that a rate equal to the actual interest rate charged to the borrower before restructuring may be used to discount the future cash flows for the purpose of determining the diminution in fair value of loans on restructuring. In cases where the existing credit facilities to a borrower carry different rates of interest, the weighted average interest rate (with share of each credit facility in the total outstanding of the borrower as on the date of restructuring being used as weights) may be used as the discounting rate. This

discount rate may be used to discount both the pre-restructuring cash flows as well as post-restructuring cash flows.

The above methodology may be consistently used wherever banks are required to compute fair/present value of loans under the guidelines issued by the Reserve Bank of India, including for the purpose of computing net present value of project loans 

RBI – 02.07.2015

Kisan Vikas Patra, 2014 and Sukanya Samriddhi Account

 It has been decided to pay agency commission to authorised banks for handling the work relating to the above two schemes as per the extant rates as advised in circular dtd 22.05.2012..

Sl. No.

Type of transaction  Unit Existing Rate

RevisedRate

1 (i) Receipts – Physical mode Per transaction

` 45 ` 50

(ii) Receipts – e-mode Per transaction

` 45 ` 12

RBI – 02.07.2015

Financial Benchmarks India Pvt. Ltd.(FBIL)- Benchmark Administrator

An independent company named ‘Financial Benchmarks India Pvt. Ltd.(FBIL), jointly floated by the FIMMDA, the FEDAI and the IBA has since been incorporated. The FBIL will act as an independent benchmark administrator and gradually take over the benchmarks currently being disseminated by other agencies.

FBIL has since announced taking over the administration of the benchmark for the overnight inter-bank rate to be based on the actual traded rate from July 22, 2015, replacing the existing “FIMMDA-NSE Overnight MIBID/MIBOR” by “FBIL- Overnight MIBOR”. FBIL proposes to take over administration of foreign exchange benchmarks and other Indian Rupee interest rate benchmarks over a period of time in consultation with the stakeholders. FIMMDA and FEDAI would continue to act as administrators for these Rupee interest rate and foreign exchange benchmarks respectively till they are shifted to the FBIL.

RBI – 28.06.2015

RBI clarifies Governor Rajan's Remarks at London

A section of the press has mis-characterized Governor Dr. Raghuram G. Rajan's remarks at the AQR conference at London Business School on June 25, as saying "the world is at risk of a Great Depression". What Governor Rajan did say, in his remarks made off the attached written text, was that the policies followed by major central banks around the world were in danger of slipping into the kind of beggar-thy-neighbour strategies that were followed in the 1930s. He then called for new rules of the game in the international monetary system, a call that he has made before, and is gaining some traction. The Great Depression was a period of great turmoil, caused by many factors and not just beggar-thy-neighbour policies. Governor Rajan did not imply or suggest that there was any risk of the world economy, which is in steady recovery notwithstanding uncertainties like those in the Euro area, slipping into a new Great Depression.