RBI Circulars on Bulk Deposits & Inoperative Accounts (January 2024) PDF

RBI Circulars in January 2024 DECODE INDIAN Review of Instructions on Bulk Deposits for Urban Co-operative Banks (UCBs) January 01, 2024 Background As per Master Direction - Reserve Bank of India (Co-operative Banks - I...

RBI Circulars in January 2024 DECODE INDIAN Review of Instructions on Bulk Deposits for Urban Co-operative Banks (UCBs) January 01, 2024 Background As per Master Direction - Reserve Bank of India (Co-operative Banks - Interest Rate on Deposits) Directions, 2016 dated May 12, 2016, in terms of which “Bulk Deposit” means single Rupee term deposits of Rupees fifteen lakh and above. DECODE INDIAN  On a review, it has been decided to enhance the bulk deposit limit for Scheduled Primary (Urban) Co-operative Banks, in Tier 3 and 4, to Rupees one crore and above. Accordingly, “Bulk Deposit” for Primary (Urban) Co-operative Banks would now mean: i) Single Rupee term deposits of Rupees one crore and above for Scheduled UCBs categorised as Tier 3 and 4 UCBs under the revised regulatory framework. DECODE INDIAN ii) Single Rupee term deposits of Rupees fifteen lakh and above for all other UCBs (i.e., other than Scheduled UCBs in Tier 3 and 4). DECODE INDIAN DECODE INDIAN  The relevant sections of the Master Direction as amended are indicated in the Annex. All other instructions in this regard shall remain unchanged. Applicability All Primary (Urban) Co-operative Banks DECODE INDIAN RBI has categorized Urban Co-Operative Banks in India into four tier based on size of deposits of the UCBs : Tier 1: All unit UCBs and salary earners' UCBs (irrespective of deposit size), and all other UCBs having deposits up to ₹100 crore. Tier 2: UCBs with deposits more than Rs.100 crore and up to Rs.1000 crore. DECODE INDIAN  Tier 3 – UCBs with deposits more than Rs.1000 crore and up to Rs.10, 000 crore. Tier 4 – UCBs with deposits more than Rs.10, 000 crore. DECODE INDIAN What are cooperative banks? A co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank. It is often established by people belonging to the same local or professional community having a common interest. It is formed to promote the upliftment of financially weaker sections of the society and to protect them from the clutches of money lenders who provide loans at an unreasonably high-interest rate to the needy. DECODE INDIAN  They are registered under the Cooperative Societies Act of the State concerned or the Multi-State Cooperative Societies Act, 2002. They are also regulated by the RBI and governed by Banking Regulations Act, 1949 and Banking Laws (Co-operative Societies) Act, 1955. DECODE INDIAN There are two main types of cooperative banks in India: Urban Cooperative Banks (UCBs) Rural Cooperative Banks (RCBs) Urban Cooperative Banks (UCBs): These operate in urban and semi-urban areas, providing banking services to residents of these regions. Rural Cooperative Banks: These operate in rural and agricultural areas. DECODE INDIAN Urban Co-operative Banks Scheduled UCBs Non-Scheduled UCBs Rural Co-operative Banks State Cooperative Banks District Central Cooperative Banks Primary Agricultural Credit Societies DECODE INDIAN State Cooperative Banks (SCBs): These banks operate at the state level and provide financial support to various cooperative institutions within the state. SCBs play a key role in coordinating and overseeing the functioning of District Central Cooperative Banks. DECODE INDIAN District Central Cooperative Banks (DCCBs): DCCBs operate at the district level and act as intermediaries between State Cooperative Banks and Primary Agricultural Credit Societies. They provide credit facilities to farmers and agricultural activities within their respective districts. DECODE INDIAN Primary Agricultural Credit Societies (PACS): PACS are the smallest cooperative credit institutions and operate at the grassroots level. They directly interact with farmers, providing them with credit and other financial services. DECODE INDIAN Inoperative Accounts /Unclaimed Deposits in Banks- Revised Instructions January 01, 2024 DECODE INDIAN Background As per extant instructions, the credit balance in any deposit account maintained with banks, which have not been operated upon for ten years or more. Or any amount remaining unclaimed for ten years or more, as mentioned in paragraph 3(iii) of the “Depositor Education and Awareness” (DEA) Fund Scheme, 2014, are required to be transferred by banks to DEA Fund maintained by the Reserve Bank of India. DECODE INDIAN  As a measure to assist the account holders and with a view to consolidating and rationalising the extant instructions on inoperative accounts, a review was carried out in consultation with all stakeholders. Based on the review, it has been decided to issue comprehensive guidelines on the measures to be put in place by the banks covering various aspects of classifying accounts and deposits as inoperative accounts and unclaimed deposits, as the case may be. DECODE INDIAN  Periodic review of such accounts and deposits, measures to prevent fraud in such accounts/deposits, grievance redressal mechanism for expeditious resolution of complaints. Steps to be taken for tracing the customers of inoperative accounts/ unclaimed deposits including their nominees/ legal heirs for re-activation of accounts, settlement of claims or closure and the process to be followed by them. DECODE INDIAN  These instructions are expected to complement the ongoing efforts and initiatives taken by banks and the Reserve Bank, to reduce the quantum of unclaimed deposits in the banking system and return such deposits to their rightful owners/ claimants. DECODE INDIAN  These instructions are issued in exercise of the powers conferred by Sections 35A of the Banking Regulation Act, 1949 read with Sections 26A, 51 and 56 of the Act ibid and all other provisions of this Act or any other laws enabling Reserve Bank to issue instructions in this regard. This circular is applicable to all Commercial Banks (including RRBs) and all Co-operative Banks. The revised instructions shall come into effect from April 1, 2024. DECODE INDIAN Definitions Inoperative Account- A savings/ current account shall be treated as inoperative, if there are no ‘customer induced transactions’ in the account for a period of over two years. Unclaimed Deposits- The credit balance in any deposit account maintained with banks, which have not been operated upon for ten years or more, or any amount remaining unclaimed for ten years or more as mentioned in paragraph 3(iii) of the “Depositor Education and Awareness” (DEA) Fund Scheme, 2014. DECODE INDIAN Customer induced transaction - The transactions in account which are in the nature of: a financial transaction initiated by or done at the behest of the account holder by the bank/ third party a non-financial transaction, or; KYC updation done in face-to-face physical mode or through digital channels such as internet banking or mobile banking application of the bank. DECODE INDIAN DECODE INDIAN Non-financial transaction- An enquiry or request for any product/ service initiated by the account holder through any ATM or internet banking or mobile banking application of the bank or through Third Party Application Providers. Which requires two-factor authentication (2FA) and leaves a trail for audit purposes or successful log-in to the internet banking/ mobile banking application. DECODE INDIAN Review of Accounts Banks shall undertake atleast an annual review in respect of accounts, where there is no customer induced transactions for more than a year. In cases where there is no explicit mandate to renew the term deposit, the banks should review such accounts if the customers have not withdrawn the proceeds after maturity or transferred these to their savings/current account in order to prevent such deposits from becoming unclaimed. DECODE INDIAN  The banks shall inform the account/deposit holders in writing through letters or email or SMS (if the email and mobile number are registered with the bank) that there has been no operation in their accounts/deposits in the last one year, as the case may be. The alert messages shall invariably mention that the account would become ‘inoperative’ if no operations are carried out during the next one year and, the account holder would be required to submit KYC documents afresh for reactivating the account in such case. DECODE INDIAN  If the letters are returned undelivered or no response is received through registered email, the bank shall immediately undertake an enquiry to find out the whereabouts of account holder or his/her nominee/legal heirs in case the account holder is deceased. In case any response is received from the account holder giving the reasons for not operating the account, the banks shall continue to classify the account as operative for one more year and the account holder shall be advised to operate the account within a period of one year (herein after referred to as ‘extended period’). DECODE INDIAN  In case the account holder still fails to operate the account within the extended period, the banks shall classify the said account as inoperative account after the expiry of the extended period. For the purpose of classifying an account as ‘inoperative’, only customer induced transactions and not bank induced transactions shall be considered. DECODE INDIAN  There may be instances where the customer has given a mandate like Standing Instructions (SI)/ auto-renewal instructions and there are no other operations in the Savings /Current account or the Term Deposit. These transactions shall also be treated as customer induced transactions. DECODE INDIAN  The classification of an account as inoperative shall be for a particular account of the customer and not with reference to the customer. In case a customer is maintaining multiple accounts/deposits with a bank, all such accounts/deposits shall be assessed individually for the purpose of classifying them as inoperative account/ unclaimed deposit, as the case may be. DECODE INDIAN Treatment of accounts opened for credit of scholarship amount and credit of Direct Benefit Transfer under Government Schemes The banks open zero balance accounts for beneficiaries of Central/State government schemes and for students who receive scholarship. Central and State governments have been expressing difficulty in crediting cheques/Direct Benefit Transfer/ Electronic Benefit Transfer/ scholarship amount in these accounts as they are also classified as inoperative due to non-operation for two years. DECODE INDIAN  The banks shall, based on the purpose of opening of the account, segregate the aforementioned accounts in their CBS, so that the stipulation of ‘inoperative’ account is not applicable to these accounts due to their non-operation for a period of more than two years. DECODE INDIAN Segregation and Audit of Inoperative Accounts/ Unclaimed Deposits The segregation of inoperative accounts is required to be done to reduce the risk of frauds. The transactions in inoperative accounts, which have been reactivated, shall be monitored regularly, for at least six months, at higher levels (i.e. by controlling authorities of the concerned branch) without the knowledge and notice of the customers and the dealing staff. DECODE INDIAN Tracing of Customers of Inoperative Accounts/ Unclaimed Deposits The bank shall contact the holder(s) of the inoperative account/ unclaimed deposit through letters, email or SMS (if the email and mobile number are registered with the bank). The email/ SMS shall be sent on a quarterly basis. DECODE INDIAN Activation of Inoperative Accounts The banks shall make available the facility of updation of KYC for activation of inoperative accounts/ unclaimed deposits at all branches (including non-home branches) and through Video- Customer Identification Process (V-CIP) if requested by the account holder, subject to the facility of V-CIP being provided by the bank. The V-CIP related instructions under Master Direction - Know Your Customer (KYC) Direction, 2016 dated February 25, 2016 (as updated from time to time) shall be adhered to by the bank. DECODE INDIAN  The banks shall have in place adequate operational safeguards to ensure that the claimants in case of inoperative accounts/ unclaimed deposits are genuine. The banks shall process requests for activation of inoperative account/ unclaimed deposits within three working days from the receipt of the complete application. DECODE INDIAN Payment of Interest Interest on savings accounts shall be credited on a regular basis irrespective of the fact that the account is in operation or not. Levy of Charges The banks are not permitted to levy penal charges for non-maintenance of minimum balances in any account that is classified as an inoperative account. No charges shall be levied for activation of inoperative accounts. DECODE INDIAN Display of Unclaimed Deposits and Search Facility Banks shall host the details of unclaimed deposits {only name, address (without pin code) and Unclaimed Deposit Reference Number (UDRN)}, which have been transferred to DEA Fund of RBI on their respective websites, which shall be updated regularly, at least on a monthly basis. DECODE INDIAN Fraud Risk Management in Inoperative Accounts The banks shall not allow any debit transaction in an inoperative account unless there is a customer induced activation as per the procedure mentioned in paragraph 6 of these guidelines. Further, banks may also consider imposing a cooling-off period on reactivation, with restrictions on the number and amount of transactions, as may be applicable for newly opened accounts with the bank. DECODE INDIAN Unclaimed Deposit Reference Number (UDRN) : It is a unique number generated through Core Banking Solution (CBS) and assigned to each unclaimed account/ deposit transferred to DEA Fund of RBI. The number shall be such that the account holder or the bank branch where account is maintained, cannot be identified by any third party. DECODE INDIAN Customer Awareness The banks shall provide on their website as well as at their branches, the information on the process for activation of the inoperative account/ unclaimed deposits and claiming the balances therein. Necessary claim forms and documents may be made available for the benefit of customers. DECODE INDIAN  The banks shall conduct public awareness and financial literacy campaigns regularly to educate the members of public about the activation of inoperative accounts/unclaimed deposits. And the prescribed procedure to claim amounts lying therein by a depositor or his/her nominee/ legal heir in case of deceased depositor. DECODE INDIAN  Amendment to the Master Direction (MD) on KYC January 04, 2024 Background As per Master Direction (MD) on KYC dated February 25, 2016, as amended from time to time, in terms of which Regulated Entities (REs) have to undertake Customer Due Diligence (CDD), as per the process laid out therein, for their customers. DECODE INDIAN What is Customer Due Diligence (CDD)? Customer Due Diligence (CDD)” means identifying and verifying the customer and the beneficial owner using reliable and independent sources of identification. It helps to ensure that financial institutions are not being used to facilitate money laundering or financing terrorism and helps to protect the financial system’s integrity. DECODE INDIAN Who is beneficial owner? Beneficial owner is an individual or a group of individuals who enjoy the benefits of ownership For opening an account of a person who is not a natural person such as company, partnership firms, trusts, HUFs, Body of individuals etc. the beneficial owner shall we identified in order to complete the customer due diligence procedure. DECODE INDIAN  Other Points REs shall have the option of establishing a relationship with PEPs (whether as customer or beneficial owner) provided that, apart from performing normal customer due diligence: REs have in place appropriate risk management systems to determine whether the customer or the beneficial owner is a PEP. Reasonable measures are taken by the REs for establishing the source of funds / wealth. DECODE INDIAN  The approval to open an account for a PEP shall be obtained from the senior management. All such accounts are subjected to enhanced monitoring on an on-going basis. In the event of an existing customer or the beneficial owner of an existing account subsequently becoming a PEP, senior management’s approval is obtained to continue the business relationship. DECODE INDIAN  RBI Circular In the extant Direction, the definition of Politically Exposed Persons (PEPs) is provided in sub-clause (xvii) of clause (a) of Section 3 of the MD on KYC. However, in order to provide better clarity, it has been decided to include the definition of PEPs as an explanation to Section 41 of the Master Direction as under: DECODE INDIAN  Explanation: For the purpose of this Section, “Politically Exposed Persons” (PEPs) are : Individuals who are or have been entrusted with prominent public functions by a foreign country. Including the Heads of States/Governments. Senior politicians, senior government or judicial or military officers. DECODE INDIAN  Senior executives of state-owned corporations and important political party officials. DECODE INDIAN  The new rules also include a person who is entrusted by a foreign country with a public function. Consequently, the sub-clause (xvii) of clause (a) of Section 3 of the above quoted Master Direction has been removed. The relevant Sections of the MD on KYC are hereby amended to reflect the changes as mentioned above. DECODE INDIAN Formation of new districts in the State of Madhya Pradesh – Assignment of Lead Bank Responsibility January 19, 2024 Background The Lead Bank Scheme in India was introduced by the Reserve Bank of India (RBI) in 1969 with the objective of improving the effectiveness of banking services and credit delivery in rural and semi-urban areas. DECODE INDIAN  Each district in India is assigned to a particular commercial bank, known as the lead bank. The lead bank acts as a leader for coordinating the efforts of all credit institutions in the allotted districts to increase the flow of credit to agriculture, MSE and other economic activities with the district being the basic unit in terms of geographical area. DECODE INDIAN RBI Circular The Government of Madhya Pradesh has notified formation of two new districts, viz., Pandhurna and Maihar Accordingly, it has been decided to designate the Lead Banks of the new districts as below: DECODE INDIAN DECODE INDIAN  There is no change in the Lead Banks of the other districts in the state of Madhya Pradesh. DECODE INDIAN RBI Circulars in January 2024 DECODE INDIAN Review of Instructions on Bulk Deposits for Urban Co-operative Banks (UCBs) January 01, 2024 Background As per Master Direction - Reserve Bank of India (Co-operative Banks - Interest Rate on Deposits) Directions, 2016 dated May 12, 2016, in terms of which “Bulk Deposit” means single Rupee term deposits of Rupees fifteen lakh and above. DECODE INDIAN  On a review, it has been decided to enhance the bulk deposit limit for Scheduled Primary (Urban) Co-operative Banks, in Tier 3 and 4, to Rupees one crore and above. Accordingly, “Bulk Deposit” for Primary (Urban) Co-operative Banks would now mean: i) Single Rupee term deposits of Rupees one crore and above for Scheduled UCBs categorised as Tier 3 and 4 UCBs under the revised regulatory framework. DECODE INDIAN ii) Single Rupee term deposits of Rupees fifteen lakh and above for all other UCBs (i.e., other than Scheduled UCBs in Tier 3 and 4). DECODE INDIAN DECODE INDIAN  The relevant sections of the Master Direction as amended are indicated in the Annex. All other instructions in this regard shall remain unchanged. Applicability All Primary (Urban) Co-operative Banks DECODE INDIAN RBI has categorized Urban Co-Operative Banks in India into four tier based on size of deposits of the UCBs : Tier 1: All unit UCBs and salary earners' UCBs (irrespective of deposit size), and all other UCBs having deposits up to ₹100 crore. Tier 2: UCBs with deposits more than Rs.100 crore and up to Rs.1000 crore. DECODE INDIAN  Tier 3 – UCBs with deposits more than Rs.1000 crore and up to Rs.10, 000 crore. Tier 4 – UCBs with deposits more than Rs.10, 000 crore. DECODE INDIAN What are cooperative banks? A co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank. It is often established by people belonging to the same local or professional community having a common interest. It is formed to promote the upliftment of financially weaker sections of the society and to protect them from the clutches of money lenders who provide loans at an unreasonably high-interest rate to the needy. DECODE INDIAN  They are registered under the Cooperative Societies Act of the State concerned or the Multi-State Cooperative Societies Act, 2002. They are also regulated by the RBI and governed by Banking Regulations Act, 1949 and Banking Laws (Co-operative Societies) Act, 1955. DECODE INDIAN There are two main types of cooperative banks in India: Urban Cooperative Banks (UCBs) Rural Cooperative Banks (RCBs) Urban Cooperative Banks (UCBs): These operate in urban and semi-urban areas, providing banking services to residents of these regions. Rural Cooperative Banks: These operate in rural and agricultural areas. DECODE INDIAN Urban Co-operative Banks Scheduled UCBs Non-Scheduled UCBs Rural Co-operative Banks State Cooperative Banks District Central Cooperative Banks Primary Agricultural Credit Societies DECODE INDIAN State Cooperative Banks (SCBs): These banks operate at the state level and provide financial support to various cooperative institutions within the state. SCBs play a key role in coordinating and overseeing the functioning of District Central Cooperative Banks. DECODE INDIAN Primary Agricultural Credit Societies (PACS): PACS are the smallest cooperative credit institutions and operate at the grassroots level. They directly interact with farmers, providing them with credit and other financial services. DECODE INDIAN Inoperative Accounts /Unclaimed Deposits in Banks- Revised Instructions January 01, 2024 DECODE INDIAN Background As per extant instructions, the credit balance in any deposit account maintained with banks, which have not been operated upon for ten years or more. Or any amount remaining unclaimed for ten years or more, as mentioned in paragraph 3(iii) of the “Depositor Education and Awareness” (DEA) Fund Scheme, 2014, are required to be transferred by banks to DEA Fund maintained by the Reserve Bank of India. DECODE INDIAN  As a measure to assist the account holders and with a view to consolidating and rationalising the extant instructions on inoperative accounts, a review was carried out in consultation with all stakeholders. Based on the review, it has been decided to issue comprehensive guidelines on the measures to be put in place by the banks covering various aspects of classifying accounts and deposits as inoperative accounts and unclaimed deposits, as the case may be. DECODE INDIAN  Periodic review of such accounts and deposits, measures to prevent fraud in such accounts/deposits, grievance redressal mechanism for expeditious resolution of complaints. Steps to be taken for tracing the customers of inoperative accounts/ unclaimed deposits including their nominees/ legal heirs for re-activation of accounts, settlement of claims or closure and the process to be followed by them. DECODE INDIAN  These instructions are expected to complement the ongoing efforts and initiatives taken by banks and the Reserve Bank, to reduce the quantum of unclaimed deposits in the banking system and return such deposits to their rightful owners/ claimants. DECODE INDIAN  These instructions are issued in exercise of the powers conferred by Sections 35A of the Banking Regulation Act, 1949 read with Sections 26A, 51 and 56 of the Act ibid and all other provisions of this Act or any other laws enabling Reserve Bank to issue instructions in this regard. This circular is applicable to all Commercial Banks (including RRBs) and all Co-operative Banks. The revised instructions shall come into effect from April 1, 2024. DECODE INDIAN Definitions Inoperative Account- A savings/ current account shall be treated as inoperative, if there are no ‘customer induced transactions’ in the account for a period of over two years. Unclaimed Deposits- The credit balance in any deposit account maintained with banks, which have not been operated upon for ten years or more, or any amount remaining unclaimed for ten years or more as mentioned in paragraph 3(iii) of the “Depositor Education and Awareness” (DEA) Fund Scheme, 2014. DECODE INDIAN Customer induced transaction - The transactions in account which are in the nature of: a financial transaction initiated by or done at the behest of the account holder by the bank/ third party a non-financial transaction, or; KYC updation done in face-to-face physical mode or through digital channels such as internet banking or mobile banking application of the bank. DECODE INDIAN DECODE INDIAN Non-financial transaction- An enquiry or request for any product/ service initiated by the account holder through any ATM or internet banking or mobile banking application of the bank or through Third Party Application Providers. Which requires two-factor authentication (2FA) and leaves a trail for audit purposes or successful log-in to the internet banking/ mobile banking application. DECODE INDIAN Review of Accounts Banks shall undertake atleast an annual review in respect of accounts, where there is no customer induced transactions for more than a year. In cases where there is no explicit mandate to renew the term deposit, the banks should review such accounts if the customers have not withdrawn the proceeds after maturity or transferred these to their savings/current account in order to prevent such deposits from becoming unclaimed. DECODE INDIAN  The banks shall inform the account/deposit holders in writing through letters or email or SMS (if the email and mobile number are registered with the bank) that there has been no operation in their accounts/deposits in the last one year, as the case may be. The alert messages shall invariably mention that the account would become ‘inoperative’ if no operations are carried out during the next one year and, the account holder would be required to submit KYC documents afresh for reactivating the account in such case. DECODE INDIAN  If the letters are returned undelivered or no response is received through registered email, the bank shall immediately undertake an enquiry to find out the whereabouts of account holder or his/her nominee/legal heirs in case the account holder is deceased. In case any response is received from the account holder giving the reasons for not operating the account, the banks shall continue to classify the account as operative for one more year and the account holder shall be advised to operate the account within a period of one year (herein after referred to as ‘extended period’). DECODE INDIAN  In case the account holder still fails to operate the account within the extended period, the banks shall classify the said account as inoperative account after the expiry of the extended period. For the purpose of classifying an account as ‘inoperative’, only customer induced transactions and not bank induced transactions shall be considered. DECODE INDIAN  There may be instances where the customer has given a mandate like Standing Instructions (SI)/ auto-renewal instructions and there are no other operations in the Savings /Current account or the Term Deposit. These transactions shall also be treated as customer induced transactions. DECODE INDIAN  The classification of an account as inoperative shall be for a particular account of the customer and not with reference to the customer. In case a customer is maintaining multiple accounts/deposits with a bank, all such accounts/deposits shall be assessed individually for the purpose of classifying them as inoperative account/ unclaimed deposit, as the case may be. DECODE INDIAN Treatment of accounts opened for credit of scholarship amount and credit of Direct Benefit Transfer under Government Schemes The banks open zero balance accounts for beneficiaries of Central/State government schemes and for students who receive scholarship. Central and State governments have been expressing difficulty in crediting cheques/Direct Benefit Transfer/ Electronic Benefit Transfer/ scholarship amount in these accounts as they are also classified as inoperative due to non-operation for two years. DECODE INDIAN  The banks shall, based on the purpose of opening of the account, segregate the aforementioned accounts in their CBS, so that the stipulation of ‘inoperative’ account is not applicable to these accounts due to their non-operation for a period of more than two years. DECODE INDIAN Segregation and Audit of Inoperative Accounts/ Unclaimed Deposits The segregation of inoperative accounts is required to be done to reduce the risk of frauds. The transactions in inoperative accounts, which have been reactivated, shall be monitored regularly, for at least six months, at higher levels (i.e. by controlling authorities of the concerned branch) without the knowledge and notice of the customers and the dealing staff. DECODE INDIAN Tracing of Customers of Inoperative Accounts/ Unclaimed Deposits The bank shall contact the holder(s) of the inoperative account/ unclaimed deposit through letters, email or SMS (if the email and mobile number are registered with the bank). The email/ SMS shall be sent on a quarterly basis. DECODE INDIAN Activation of Inoperative Accounts The banks shall make available the facility of updation of KYC for activation of inoperative accounts/ unclaimed deposits at all branches (including non-home branches) and through Video- Customer Identification Process (V-CIP) if requested by the account holder, subject to the facility of V-CIP being provided by the bank. The V-CIP related instructions under Master Direction - Know Your Customer (KYC) Direction, 2016 dated February 25, 2016 (as updated from time to time) shall be adhered to by the bank. DECODE INDIAN  The banks shall have in place adequate operational safeguards to ensure that the claimants in case of inoperative accounts/ unclaimed deposits are genuine. The banks shall process requests for activation of inoperative account/ unclaimed deposits within three working days from the receipt of the complete application. DECODE INDIAN Payment of Interest Interest on savings accounts shall be credited on a regular basis irrespective of the fact that the account is in operation or not. Levy of Charges The banks are not permitted to levy penal charges for non-maintenance of minimum balances in any account that is classified as an inoperative account. No charges shall be levied for activation of inoperative accounts. DECODE INDIAN Display of Unclaimed Deposits and Search Facility Banks shall host the details of unclaimed deposits {only name, address (without pin code) and Unclaimed Deposit Reference Number (UDRN)}, which have been transferred to DEA Fund of RBI on their respective websites, which shall be updated regularly, at least on a monthly basis. DECODE INDIAN Fraud Risk Management in Inoperative Accounts The banks shall not allow any debit transaction in an inoperative account unless there is a customer induced activation as per the procedure mentioned in paragraph 6 of these guidelines. Further, banks may also consider imposing a cooling-off period on reactivation, with restrictions on the number and amount of transactions, as may be applicable for newly opened accounts with the bank. DECODE INDIAN Unclaimed Deposit Reference Number (UDRN) : It is a unique number generated through Core Banking Solution (CBS) and assigned to each unclaimed account/ deposit transferred to DEA Fund of RBI. The number shall be such that the account holder or the bank branch where account is maintained, cannot be identified by any third party. DECODE INDIAN Customer Awareness The banks shall provide on their website as well as at their branches, the information on the process for activation of the inoperative account/ unclaimed deposits and claiming the balances therein. Necessary claim forms and documents may be made available for the benefit of customers. DECODE INDIAN  The banks shall conduct public awareness and financial literacy campaigns regularly to educate the members of public about the activation of inoperative accounts/unclaimed deposits. And the prescribed procedure to claim amounts lying therein by a depositor or his/her nominee/ legal heir in case of deceased depositor. DECODE INDIAN  Amendment to the Master Direction (MD) on KYC January 04, 2024 Background As per Master Direction (MD) on KYC dated February 25, 2016, as amended from time to time, in terms of which Regulated Entities (REs) have to undertake Customer Due Diligence (CDD), as per the process laid out therein, for their customers. DECODE INDIAN What is Customer Due Diligence (CDD)? Customer Due Diligence (CDD)” means identifying and verifying the customer and the beneficial owner using reliable and independent sources of identification. It helps to ensure that financial institutions are not being used to facilitate money laundering or financing terrorism and helps to protect the financial system’s integrity. DECODE INDIAN Who is beneficial owner? Beneficial owner is an individual or a group of individuals who enjoy the benefits of ownership For opening an account of a person who is not a natural person such as company, partnership firms, trusts, HUFs, Body of individuals etc. the beneficial owner shall we identified in order to complete the customer due diligence procedure. DECODE INDIAN  Other Points REs shall have the option of establishing a relationship with PEPs (whether as customer or beneficial owner) provided that, apart from performing normal customer due diligence: REs have in place appropriate risk management systems to determine whether the customer or the beneficial owner is a PEP. Reasonable measures are taken by the REs for establishing the source of funds / wealth. DECODE INDIAN  The approval to open an account for a PEP shall be obtained from the senior management. All such accounts are subjected to enhanced monitoring on an on-going basis. In the event of an existing customer or the beneficial owner of an existing account subsequently becoming a PEP, senior management’s approval is obtained to continue the business relationship. DECODE INDIAN  RBI Circular In the extant Direction, the definition of Politically Exposed Persons (PEPs) is provided in sub-clause (xvii) of clause (a) of Section 3 of the MD on KYC. However, in order to provide better clarity, it has been decided to include the definition of PEPs as an explanation to Section 41 of the Master Direction as under: DECODE INDIAN  Explanation: For the purpose of this Section, “Politically Exposed Persons” (PEPs) are : Individuals who are or have been entrusted with prominent public functions by a foreign country. Including the Heads of States/Governments. Senior politicians, senior government or judicial or military officers. DECODE INDIAN  Senior executives of state-owned corporations and important political party officials. DECODE INDIAN  The new rules also include a person who is entrusted by a foreign country with a public function. Consequently, the sub-clause (xvii) of clause (a) of Section 3 of the above quoted Master Direction has been removed. The relevant Sections of the MD on KYC are hereby amended to reflect the changes as mentioned above. DECODE INDIAN Formation of new districts in the State of Madhya Pradesh – Assignment of Lead Bank Responsibility January 19, 2024 Background The Lead Bank Scheme in India was introduced by the Reserve Bank of India (RBI) in 1969 with the objective of improving the effectiveness of banking services and credit delivery in rural and semi-urban areas. DECODE INDIAN  Each district in India is assigned to a particular commercial bank, known as the lead bank. The lead bank acts as a leader for coordinating the efforts of all credit institutions in the allotted districts to increase the flow of credit to agriculture, MSE and other economic activities with the district being the basic unit in terms of geographical area. DECODE INDIAN RBI Circular The Government of Madhya Pradesh has notified formation of two new districts, viz., Pandhurna and Maihar Accordingly, it has been decided to designate the Lead Banks of the new districts as below: DECODE INDIAN DECODE INDIAN  There is no change in the Lead Banks of the other districts in the state of Madhya Pradesh. DECODE INDIAN RBI Circulars in January 2024 PART-2 DECODE INDIAN  Credit/Investment Concentration Norms – Credit Risk Transfer January 15, 2024 Background RBI had issued the Scale Based Regulation (A revised regulatory framework) for NBFCs on October 22, 2021. Regulatory structure for Non-Banking Financial Companies (NBFCs) comprises of four layers based on their size, activity and perceived riskiness. DECODE INDIAN  NBFCs in the lowest layer shall be known as NBFCs-Base Layer (NBFCs-BL). NBFCs in middle layer and upper layer shall be known as NBFCs- Middle Layer (NBFCs-ML) and NBFCs Upper Layer (NBFCs-UL) respectively. The Top Layer is ideally expected to be empty and will be known as NBFCs-Top Layer (NBFCs-TL). DECODE INDIAN DECODE INDIAN Base Layer The Base Layer shall comprise of (a) non-deposit taking NBFCs below the asset size of ₹1,000 crore and (b) NBFCs undertaking the following activities - (i) NBFC-Peer to Peer Lending Platform (NBFC-P2P), (ii) NBFC-Account Aggregator (NBFC-AA), (iii) Non Operative Financial Holding Company (NOFHC) and (iv) NBFC not availing public funds and not having any customer interface DECODE INDIAN Middle Layer The Middle Layer shall consist of (a) all deposit taking NBFCs (NBFCs-D), irrespective of asset size (b) non-deposit taking NBFCs with asset size of ₹1,000 crore and above and DECODE INDIAN (c) NBFCs undertaking the following activities (i) Standalone Primary Dealer (SPD), (ii)Infrastructure Debt Fund-Non-Banking Financial Company (IDF-NBFC), (iii) Core Investment Company (CIC), (iv) Housing Finance Company (HFC) and (v) Non-Banking Financial Company-Infrastructure Finance Company (NBFC-IFC). DECODE INDIAN Upper Layer The Upper Layer comprises of those NBFCs which are specifically identified by the Reserve Bank as warranting enhanced regulatory requirement based on a set of parameters and scoring methodology. The top ten eligible NBFCs in terms of their asset size always resides in the upper layer, irrespective of any other factor. DECODE INDIAN Top Layer The Top Layer ideally remain empty. This layer can get populated if the Reserve Bank is of the opinion that there is a substantial increase in the potential systemic risk from specific NBFCs in the Upper Layer. Such NBFCs shall move to the Top Layer from the Upper Layer. DECODE INDIAN RBI Circular The guidelines on Large Exposures Framework (LEF) are applicable to NBFC-Upper Layer (NBFC-UL) in terms of paragraph 110 of the Master Direction - Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023 on NBFC. DECODE INDIAN DECODE INDIAN  The NBFC-Base Layer (NBFC-BL) and NBFC-Middle Layer (NBFC- ML) are, however, governed by the credit/investment concentration norms prescribed at paragraphs 32 and 91 of the MD on NBFC, paragraph 20 of MD on HFC and circular on Scale Based Regulation (SBR): A Revised Regulatory Framework for NBFCs dated October 22, 2021 In order to ensure uniformity and consistency in computation of concentration norms among NBFCs, a review of the extant concentration norms has been carried out and it has been decided as under: DECODE INDIAN Credit/investment concentration Norms (except NBFC-UL) NBFC (except NBFC-IFC) shall not have exposure (credit/investment taken together) exceeding (a) 25% of its Tier 1 capital to a single party; and (b) 40% of its Tier 1 capital to a single group of parties Provided that an NBFC may exceed the exposure norm specified above, by 5 percent for any single party and by 10 percent for a single group of parties, if the additional exposure is on account of infrastructure loan and/or investment. DECODE INDIAN NBFC in Upper Layer Exposures shall be permitted to be offset with credit risk transfer instruments and the indicative list of such instruments is provided below: (i) Cash margin/ caution money/ security deposit against which right to set off is available, held as collateral against the advances; (ii) Central Government guaranteed claims which attract zero percent risk weight for capital computation DECODE INDIAN (iii) State Government guaranteed claims which attract 20 percent risk weight for capital computation; DECODE INDIAN RBI Circular The guidelines on Large Exposures Framework (LEF) are applicable to NBFC-Upper Layer (NBFC-UL) in terms of paragraph 110 of the Master Direction - Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023 on NBFC. DECODE INDIAN  The NBFC-Base Layer (NBFC-BL) and NBFC-Middle Layer (NBFC- ML) are, however, governed by the credit/investment concentration norms prescribed at paragraphs 32 and 91 of the MD on NBFC, paragraph 20 of MD on HFC and circular on Scale Based Regulation (SBR): A Revised Regulatory Framework for NBFCs dated October 22, 2021 In order to ensure uniformity and consistency in computation of concentration norms among NBFCs, a review of the extant concentration norms has been carried out and it has been decided as under: DECODE INDIAN A. Regulations for NBFC-ML Computation of exposure – Credit Risk Transfer Instruments Aggregate exposure to a counterparty comprising both on and off-balance sheet exposures are calculated based on the method prescribed for capital computation in MD on NBFC and MD on HFC; DECODE INDIAN  i.e., on-balance sheet exposures are reckoned at the outstanding amount while the off-balance sheet exposures are converted into credit risk equivalent by applying the credit conversion factor prescribed under capital requirements. Further, as per Annex XIV of the MD on NBFC, credit default swaps (CDS) are currently allowed as credit risk transfer instruments for offsetting exposure to the underlying counterparty. Henceforth, the exposures of NBFC-ML shall also be offset with credit risk transfer instruments listed below: DECODE INDIAN What is Credit Default Swaps? Credit default swaps (CDS) are essentially insurance contracts for debt. In a CDS, one party pays another party a fee in exchange for protection against the default of a borrower. If the borrower defaults, the party selling the CDS compensates the buyer for the loss. DECODE INDIAN Example : Bank that has issued a loan of 1 crore to a company. The bank is worried about the company's ability to repay the loan, so it decides to buy a credit default swap from an insurance company. In this agreement: The bank is the buyer of the CDS, and the insurance company is the seller. The bank pays a premium (fee) to the insurance company, let's say Rs 20,000 per year. In return, the insurance company agrees to compensate the bank for the full 1 crore if the company defaults on its loan. DECODE INDIAN a) Cash margin/caution money/security deposit held as collateral on behalf of the borrower against the advances for which right to set off is available; b) Central Government guaranteed claims which attract 0 per cent risk weight for capital computation; c) State Government guaranteed claims which attract 20 per cent risk weight for capital computation; DECODE INDIAN d) Guarantees issued under the Credit Guarantee Schemes of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH) and individual schemes under National Credit Guarantee Trustee Company Ltd (NCGTC) subject to meeting the conditions of circular on ‘Review of Prudential Norms – Risk Weights for Exposures guaranteed by Credit Guarantee Schemes (CGS)’ dated September 07, 2022, as amended from time to time. DECODE INDIAN Exemptions from credit/investment concentration norms In addition to the exposures already exempted from credit/investment concentration norms in terms of paragraph 91 of MD on NBFC and paragraph 20 of MD on HFC, exposures listed below shall also be exempt from credit/investment concentration norms: a) Exposure to the Government of India and State Governments which are eligible for zero percent risk weight under capital regulations applicable to NBFC; DECODE INDIAN b) Exposure where the principal and interest are fully guaranteed by the Government of India. DECODE INDIAN Disclosure The exposures where the NBFC has exceeded the prudential exposure limits during the year are required to be disclosed in the Notes to Accounts in the annual financial statements, presently as per paragraph 3.5.4 of Annex XXII of the MD on NBFC and paragraph 3.7.4 of Annex IV of the MD on HFC. Henceforth, computation of exposure limit for disclosure requirements shall be reckoned as per paragraphs 3 and 4 of this circular. DECODE INDIAN B. Regulations for NBFC-BL NBFC-BL shall put in place an internal Board approved policy for credit/investment concentration limits for both single borrower/party and single group of borrowers/parties Computation of exposure shall be on similar lines as that for NBFC-ML as given at paragraphs 3 and 4 of this circular. DECODE INDIAN C. Regulations for NBFC-UL A reference is drawn to paragraph 110.4.2 of MD on NBFC which lists out the credit risk transfer instruments. It is clarified that to be eligible as a credit risk transfer instrument, guarantees shall be direct, explicit, irrevocable and unconditional. The above instructions shall come into force from the date of issuance of the circular. All other terms and conditions for LEF and credit/investment concentration norms shall continue as per the extant instructions. DECODE INDIAN Guidelines on Appointment / Re-appointment of Statutory Auditors of State Co-operative Banks and Central Co-operative Banks January 15, 2024 The Banking Regulation (Amendment) Act, 2020, has come into force with effect from April 01, 2021, for Rural Co-operative Banks i.e., State Co-operative Banks (StCBs) and Central Co- operative Banks (CCBs). DECODE INDIAN  Accordingly, Reserve Bank of India (RBI), in exercise of its powers conferred under Section 30(1A) of the Banking Regulation Act, 1949, has framed the guidelines enclosed as Annex of the Circular which shall be applicable to StCBs and CCBs for seeking prior approval of RBI for appointment, re- appointment or removal of Statutory Auditor (SA), and other related matters. DECODE INDIAN  These guidelines shall come into effect from April 1, 2024. Accordingly, for all accounting periods commencing on or after April 1, 2024, all StCBs and CCBs shall submit application for prior approval of RBI before July 31 of the reference accounting year, in accordance with the guidelines. Applicability All State Co-operative Banks (StCBs) All Central Co-operative Banks (CCBs) DECODE INDIAN Purpose State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs) are required to obtain prior approval of Reserve Bank of India (RBI) for appointment, re-appointment or removal of Statutory Auditor (SA) as per the provisions of Section 30(1A) of the Banking Regulation Act, 1949 (BR Act), with effect from 1st April 2021, i.e., the date on which Banking Regulation (Amendment) Act, 2020 (Act 39 of 2020) came into effect. DECODE INDIAN  Accordingly, the following guidelines are being issued by the Reserve Bank of India (‘RBI’), in exercise of its powers under the BR Act, to StCBs and CCBs, on appointment, re-appointment or removal of Statutory Auditors (SAs) and other related matters. DECODE INDIAN Prior Approval of RBI for Appointment / Re-appointment of Statutory Auditors (SAs) The bank shall obtain prior approval of RBI before appointment, re-appointment or removal of SA. The bank shall seek prior approval for re-appointment of SA annually. DECODE INDIAN Procedure i) NABARD shall obtain a list of audit firms [Partnership firms / Limited Liability Partnerships (LLPs)], on an annual basis, from the Institute of Chartered Accountants of India (ICAI). ii) Thereafter, NABARD shall apply the eligibility criteria prescribed for SAs in this circular and prepare an All-India State-wise list of eligible audit firms. DECODE INDIAN iii) NABARD shall then share this list with the banks for selection and appointment / re-appointment of SAs. iv) The bank shall select the audit firm(s) from this list, obtain the necessary approvals from the Board of Directors (Board) / Audit Committee of the Board (ACB), and submit application for prior approval to Department of Supervision, RBI, before July 31 of the reference financial year. DECODE INDIAN Eligibility Criteria of Statutory Auditors (SAs) In case of appointment of fresh SA, the bank shall select from the list provided by NABARD the audit firms fulfilling the requirements under these guidelines as enumerated in Appendix I and forward the name(s) of the shortlisted audit firms to RBI as per the procedure prescribed in Appendix II. DECODE INDIAN DECODE INDIAN DECODE INDIAN Independence of Auditors Board / ACB of the bank shall monitor and assess the independence of auditors and conflict of interest, if any, in terms of the relevant statutory / regulatory provisions, Standards and best practices. Concerns, if any, raised by the Board / ACB shall be reported to NABARD. Concurrent auditors of the bank shall not be considered for appointment as SA of the same bank. There shall be a minimum gap of one year between completion of one assignment and commencement of the other assignment. DECODE INDIAN  The time gap between any non-audit work undertaken by the SA for the appointing bank shall be at least one year, both before appointment and after completion of tenure as SA. However, during the tenure as SA, based on the decision of the Board / ACB, an audit firm may provide such services to the appointing bank which may not normally result in conflict of interest. DECODE INDIAN  Special assignments, including those such as : (i) Tax audit, tax representation and advice on taxation matters. (ii) Audit of interim financial statements. (iii) Issuance of certificates that are required to be made by the SA in compliance with statutory or regulatory requirements. (iv) Reporting on financial information or segments thereof, may not be treated as conflict of interest. DECODE INDIAN Review of Performance of Statutory Auditors (SAs) The Board / ACB of the bank shall review the performance of SA annually. Any serious lapse / negligence in discharging audit responsibilities, conduct issues on the part of the SA, or any other matter considered as relevant, shall be reported with the approval of the Board / ACB to NABARD within two months from the completion of the audit. Violation of extant statutory / regulatory norms and lapses in carrying out audit assignments such as misstatement of financial statements, etc., by the SAs would be dealt suitably under the relevant statutory / regulatory / supervisory framework. DECODE INDIAN Tenure and Rotation of Statutory Auditors (SAs) SAs shall be appointed at a time for a period of one year only and shall be reappointed annually for the succeeding two years subject to them continuing to satisfy eligibility norms stated in these guidelines. During such period, premature removal of the SA shall require prior approval of RBI. However, any such request for removal shall be forwarded to RBI with the approval of the Board / ACB. DECODE INDIAN  An auditor / audit firm shall not be eligible for appointment / re-appointment in the same bank for six years (two tenures) immediately after completion of a full or part tenure. In case an auditor / audit firm has conducted audit of the bank for part-tenure (one year or two years) and then is not re- appointed for the remainder tenure, it shall not be eligible for re-appointment in the same bank for six years after completion of part-tenure. However, audit firms can continue to undertake statutory audit of other banks. DECODE INDIAN Number of StCBs / CCBs an Audit firm can Audit An audit firm can concurrently take up statutory audit of a maximum of five banks (including not more than one StCB) in a year. The limit of five banks will be in addition to the limit of 20 Regulated Entities (REs), as prescribed in the ‘Guidelines for Appointment of Statutory Central Auditors (SCAs) / Statutory Auditors (SAs) of Commercial Banks (excluding RRBs), UCBs and NBFCs (including HFCs)’ dated April 27, 2021. DECODE INDIAN  Further, in a year, an audit firm cannot simultaneously take up statutory audit of both StCB and CCBs operating in the same State. In other words, an audit firm can concurrently take up statutory audit of a maximum of four Commercial Banks [including not more than one PSB or one All India Financial Institution (NABARD, SIDBI, NaBFID, NHB, EXIM Bank) or RBI], eight Urban Co-operative Banks (UCBs), eight Non-Banking Financial Companies (NBFCs), and five StCBs / CCBs (including not more than one StCB) in a year. DECODE INDIAN Audit Fees and Expenses of Statutory Auditors (SAs) The audit fees for SAs of all the banks shall be decided in terms of the relevant statutory / regulatory provisions and the Board / ACB of banks shall make recommendation to the competent authority as per the relevant statutory / regulatory instructions for fixing audit fees of SAs. The audit fees for SAs of banks shall be reasonable and commensurate with the scope and coverage of audit, size and spread of assets, accounting and administrative units, complexity of transactions, level of computerization, identified risks in financial reporting, etc. DECODE INDIAN Statutory Audit Policy, Appointment Procedure, Working knowledge of the language of the state and Familiarisation Mechanism for Statutory Auditors (SAs) The bank shall frame a Board-approved policy on appointment of SA and host it on its official website / public domain. The bank shall also formulate necessary procedures thereunder for selection / appointment / re-appointment / removal of SA. Apart from conforming to all the relevant statutory / regulatory requirements, the policy shall accord necessary transparency and objectivity on all the major aspects of this important assurance function. DECODE INDIAN  To decide the branch / business coverage under the Statutory Audit, the bank shall be guided by the guidelines given in Appendix III of the circular. For smooth conduct of the statutory audit, it is preferable that the audit firm to be appointed as SA has proficiency in the local language of the state / UT where the auditee bank is located. Before commencement of the audit, the bank shall sensitize its SAs, on aspects such as relevant RBI Regulations, systems and procedures at the bank, expectations and requirements from the SAs, etc. DECODE INDIAN Second Schedule to the Reserve Bank of India Act, 1934 – Norms for inclusion January 17, 2024 Background In 2013 RBI decided to consider applications from UCBs for inclusion in the Second Schedule to the Reserve Bank of India Act, 1934. DECODE INDIAN  With effect from April 01, 2013, only such of the primary co- operative banks as are licensed and Whose Demand and Time Liabilities (DTL) are not less than `750 crore would be treated as a ‘financial institution’. For the purpose of sub-clause (iii) of clause (a) of Sub-Section (6) of Section 42 of the Reserve Bank of India Act, 1934, i.e. for the purpose of inclusion of UCBs in the Second Schedule to the Reserve Bank of India Act, 1934. DECODE INDIAN  UCBs desirous of seeking inclusion in the Second Schedule to the RBI Act, 1934 and fulfilling the following financial criteria based on the assessed financials as per inspection reports, viz. a) DTL of not less than `750 crore on a continuous basis for one year; b) CRAR of minimum 12%; c) net profit for the previous three years; d) Gross NPAs of 5% or less; e) Compliance with CRR / SLR requirements and f) No major regulatory and supervisory concerns DECODE INDIAN may submit their application along with relevant documents (two sets) as detailed in the Annex, to the Regional Office concerned of Urban Banks Department. DECODE INDIAN Second Schedule to the Reserve Bank of India Act, 1934 – Norms for inclusion January 17, 2024 RBI Circular It has now been decided to revise the eligibility norms for inclusion of UCBs in the Second Schedule to the Reserve Bank of India Act, 1934 to bring them in conformity with the Revised Regulatory Framework. DECODE INDIAN DECODE INDIAN DECODE INDIAN  In this regard, GOI notification dated September 04, 2023 has been published in Gazette of India on September 23, 2023 notifying that licensed Tier 3 and Tier 4 Primary (Urban) Co- operative Banks, fulfilling the criteria stipulated for Financially Sound and Well Managed Urban Co-operative Banks by the RBI. Subject to maintenance of minimum deposits required for categorisation as a Tier 3 Urban Co-operative Bank for two consecutive years, would be the eligible financial institutions for the purpose of sub-clause (iii) of clause (a) of sub-section (6) of section 42 of the Reserve Bank of India Act, 1934. DECODE INDIAN DECODE INDIAN DECODE INDIAN  Such eligible UCBs satisfying the following criteria shall be considered for inclusion in the Second Schedule: a) CRAR of at least 3 per cent more than the minimum CRAR requirement applicable to the UCB; and b) No major regulatory and supervisory concerns. The information at 5(a) shall be based on the assessed financials and findings of RBI inspection report or audited financial statements, whichever is latest. DECODE INDIAN  Such eligible UCBs may submit their application for inclusion in the Second Schedule to the Reserve Bank of India Act, 1934 to the concerned Regional Office of Department of Supervision (in case of UCBs under jurisdiction of Mumbai office, the application should be sent to Department of Supervision, RBI, Central Office) of the Reserve Bank along with the following documents (two sets): DECODE INDIAN a) Copy of resolution passed by the Annual General Body/Board of Directors to make an application to RBI for inclusion in the Second Schedule to the Reserve Bank of India Act, 1934 and containing the name(s) of bank official(s) authorized to correspond with RBI in this regard; and b) Major financial details of the bank together with copies of the published balance sheet for the last three years. DECODE INDIAN  These instructions are issued under clause (a) of sub-section (6) of section 42 of the Reserve Bank of India Act, 1934. The revised instructions shall come into force from the date of issue of the circular. The circular UBD.CO.BPD(PCB).No.20/16.05.000/2013-14 dated September 27, 2013 will thus stand repealed. DECODE INDIAN RBI Circulars in February 2024 DECODE INDIAN Participation of Indian Banks on India International Bullion Exchange IFSC Limited (IIBX) February 09, 2024 Background In June, 2022 RBI has decided to allow the branches of Indian banks operating in GIFT-IFSC to act as Professional Clearing Member (PCM) of IIBX. DECODE INDIAN International Financial Services Centre (IFSC) International Financial Services Centre (‘IFSC’) is a specialized designated area in a Special Economic Zone (‘SEZ’) developed for creating a global financial hub wherein financial entities can be set- up for providing various financial services. E.g. corporate banking, insurance, investment & fund management, trading of securities, etc., to persons across borders. At present, the GIFT IFSC is the maiden international financial services centre in India. DECODE INDIAN  The IFSCA is a unified authority for the development and regulation of financial products, financial services and financial institutions in the International Financial Services Centre (IFSC) in India. The International Financial Services Centres Authority (IFSCA) has been established on April 27, 2020 under the International Financial Services Centres Authority Act, 2019. DECODE INDIAN About India International Bullion Exchange (IIBX) India's first bullion exchange, India International Bullion Exchange (IIBX) launched on 29 July 2022 in Gujarat in the GIFT International Financial Services Centre (IFSC). IIBX has been conceptualised to provide a gateway to import bullion into India and provide world class bullion exchange ecosystem to promote bullion trading, investment in bullion financial products and vaulting facilities in IFSCs. DECODE INDIAN DECODE INDIAN On review, it has been decided to additionally allow: a) Branch/subsidiary/joint venture of an Indian bank in GIFT-IFSC to act as a Trading Member (TM)/Trading and Clearing Member (TCM) of IIBX, and b) Indian banks authorized to import gold/silver to act as Special Category Client (SCC) of IIBX. The detailed instructions in this regard are at ANNEX to this Circular. DECODE INDIAN Detailed Instruction A. Permitted Activity 1. Trading Member/Trading and Clearing Member (TM/TCM) of IIBX a) The TM/TCM shall execute trades only on behalf of clients (without proprietary trading). DECODE INDIAN b) The bank in its role as TM/TCM shall ensure adherence to the terms and conditions as outlined in para 5 of the circular on Branches of Indian Banks operating in GIFT-IFSC – acting as PCM of IIBX dated June 07, 2022. c) The bank shall ensure adherence to extant RBI instructions as contained in the Master Circular – Loans and Advances – Statutory and Other Restrictions dated July 01, 2015 (as updated from time to time). DECODE INDIAN d) The bank shall comply with the conditions, if any, stipulated by other regulatory bodies that may be relevant for its role. DECODE INDIAN 2. Special Category Client (SCC) of IIBX As per the extant Foreign Trade Policy, the Reserve Bank grants annual import authorization to banks for import of gold/silver. Such banks, in addition to the consignment model in domestic tariff area, are hereby allowed to operate as a SCC on IIBX for import of gold/silver. a) The SCC shall execute only buy trades on behalf of clients. DECODE INDIAN b) The bank shall ensure adherence to extant RBI instructions as contained in the Master Circular – Loans and Advances – Statutory and Other Restrictions dated July 01, 2015 (as updated from time to time). c) The SCCs will appoint one of the IFSC Banking Units (IBUs) to act as clearing member on their behalf. d) The bank shall comply with the conditions, if any, stipulated by other regulatory bodies that may be relevant for its role. DECODE INDIAN C. Procedure of Application to RBI a) For TM/TCM activities, the parent bank shall seek a No Objection Certificate (NOC) from the RBI prior to its branch/subsidiary/joint venture in GIFT-IFSC seeking TM/TCM status on IIBX. An eligible bank shall, with prior approval of its Board, make an application to the Department of Regulation, Reserve Bank of India with details of its proposed business plan as a TM/TCM for facilitating client trade along with particulars of the risk management architecture. DECODE INDIAN  [A bank which has already been granted NOC by the Reserve Bank for its branch in GIFT-IFSC to act as Professional Clearing Member (PCM) of IIBX (as on date) need not take a separate approval from the Reserve Bank for obtaining TM/TCM status on IIBX. They should, however, give a prior intimation to the Department of Regulation, Reserve Bank of India while seeking to take up activities as TM/TCM on the IIBX]. DECODE INDIAN b) Banks authorized to import gold/silver can undertake the activities of an SCC by sending prior intimation to the Department of Regulation, Reserve Bank of India. c) A bank acting as a TM/TCM/SCC of IIBX shall be required to seek additional approval from the Department of Regulation, Reserve Bank of India in case of any change in their role or scope of activities at IIBX from those permitted by this circular. DECODE INDIAN  These instructions are issued in exercise of the powers conferred on the Reserve Bank of India under Section 35A of the Banking Regulation Act, 1949. In the event of non-compliance with extant guidelines, or if the Reserve Bank is satisfied that it is necessary and expedient in the public interest to do so, it may issue further necessary directions (including revocation of approval) and/or impose additional conditions, as it deems fit. DECODE INDIAN  Commencement The provisions contained in the circular shall be effective from the date of this circular. Applicability This circular is applicable to all Scheduled Commercial Banks (other than Regional Rural Banks). DECODE INDIAN Review of Fixed Remuneration granted to Non-Executive Directors (NEDs) February 09, 2024 DECODE INDIAN Who is Non-Executive Directors (NEDs)? Non-executive director means a person who is not an executive director and not interested in the company's day-to-day operations. He or she is usually involved in planning and policymaking. The non-executive directors are expected to oversee the performance of the executive directors and the management. DECODE INDIAN Background As per RBI circular “Corporate Governance in Banks - Appointment of Directors and Constitution of Committees of the Board” dated April 26, 2021, In addition to sitting fees and expenses related to attending meetings of the board and its committees as per extant statutory norms/ practices. The bank may provide for payment of compensation to NEDs in the form of a fixed remuneration commensurate with an individual director’s responsibilities and demands on time and which are considered sufficient to attract qualified competent individuals. DECODE INDIAN  However, such fixed remuneration for an NED, other than the Chair of the board, shall not exceed ₹20 lakh per annum. DECODE INDIAN RBI Circular Considering the crucial role of NEDs in efficient functioning of bank Boards and its various Committees and in order to further enable the banks to sufficiently attract qualified competent individuals on their Boards, it has been decided to revise the aforementioned ceiling to ₹30 lakh per annum. The banks are required to have suitable criteria for granting fixed remuneration to its NEDs, with the approval of its Board before any review of the extant remuneration. DECODE INDIAN  The Board of the bank may fix a lower amount within the ceiling limit of ₹30 lakh per annum depending upon the size of the bank, experience of the NED and other relevant factors. As hitherto, private sector banks would be required to obtain regulatory approval regarding remuneration to Part-time Chairman in terms of Section 10B(1A)(i) and 35B of the Banking Regulation Act, 1949. Banks are required to make disclosure on remuneration paid to the directors on an annual basis at a minimum, in their Annual Financial Statements. DECODE INDIAN Applicability and Commencement The instructions would be applicable to all the Private Sector Banks including Small Finance Banks (SFBs) and Payment Banks (PBs) as also the wholly owned subsidiaries of Foreign Banks. The instructions would come into force with immediate effect. Power exercised The instructions have been issued in exercise of powers conferred by Section 35B of the Banking Regulation Act, 1949. DECODE INDIAN Repeal The instructions on Guidelines on Compensation of Non- executive Directors of Private Sector Banks issued on June 1, 2015 stand repealed. DECODE INDIAN Exclusion of “Rupee Co-operative Bank Limited” from the Second Schedule to the Reserve Bank of India Act, 1934 February 15, 2024 RBI Circular RBI Excludes “Rupee Co-operative Bank Limited” from the List of Scheduled Banks Under RBI Act, 1934. Applicability All Banks DECODE INDIAN  Scheduled Banks in India refer to those banks which have been included in the Second Schedule of Reserve Bank of India Act, 1934. Reserve Bank of India (RBI) in turn includes only those banks in this Schedule which satisfy all the criteria laid down vide section 42(6)(a) of the said Act. Banks not under this Schedule are called Non-Scheduled Banks. DECODE INDIAN Every Scheduled bank enjoys two types of principal facilities: 1)It becomes eligible for debts/loans at the bank rate from the RBI 2) It automatically acquires the membership of clearing house DECODE INDIAN DECODE INDIAN Formation of new district in the State of Assam – Assignment of Lead Bank Responsibility February 20, 2024 Background The Lead Bank Scheme in India was introduced by the Reserve Bank of India (RBI) in 1969 with the objective of improving the effectiveness of banking services and credit delivery in rural and semi-urban areas. DECODE INDIAN  Each district in India is assigned to a particular commercial bank, known as the lead bank. The lead bank acts as a leader for coordinating the efforts of all credit institutions in the allotted districts to increase the flow of credit to agriculture, MSE and other economic activities with the district being the basic unit in terms of geographical area. DECODE INDIAN RBI Circular The Government of Assam has notified formation of a new district, viz., Hojai in the state of Assam. Accordingly, it has been decided to designate the Lead Bank of the new district as below: There is no change in the Lead Banks of the other districts in the state of Assam DECODE INDIAN Interest Equalization Scheme (IES) on Pre and Post Shipment Rupee Export Credit February 22, 2024 What is Interest Equalization Scheme (IES)? Interest Equalization Scheme (IES) was first implemented on 1st April, 2015, to provide pre- and post-shipment export credit to exporters in rupees. It was initially valid for 5 years, up to 31.3.2020. DECODE INDIAN  However, it has since been extended multiple times, including a one-year extension amidst the Covid-19 pandemic, along with additional extensions and allocations of funds. The scheme shall be implemented by the RBI through various Public and non-Public Sector banks who provide pre- and post- shipment credit to the exporters. The Scheme is jointly monitored by the Directorate General of Foreign Trade (DGFT) and the RBI through a consultative mechanism. DECODE INDIAN  The scheme helps the identified export sectors to be internationally competitive and to achieve a high level of export performance. The scheme is primarily meant for the labour-intensive sectors. An eligible exporter has to submit a certification from the external auditor to the concerned bank to claim this benefit. DECODE INDIAN  Banks provide IES benefits to the eligible exporters and claim a reimbursement from the RBI based on the external auditor certification furnished by the exporter. Currently, the Scheme provides an interest equalisation benefit at the rate of 2% on pre- and post-shipment rupee export credit to merchant and manufacturer exporters exporting under specified 410 HS lines and 3% to MSME manufacturer exporting under any HS lines. DECODE INDIAN  The Scheme has now been made fund-limited, and the benefit to individual exporters has been capped at Rs 10 Crore per annum per IEC (Import Export Code). In addition, the banks that lend to exporters at an average rate of more than Repo + 4% would be debarred under the Scheme. DECODE INDIAN DECODE INDIAN  RBI Circular Government of India has allowed for extension of the Interest Equalization Scheme for Pre and Post Shipment Rupee Export Credit ('Scheme') up to June 30, 2024. The rate of interest equalization shall be 2% for Manufacturers and Merchant Exporters exporting under specified 410 HS lines and 3% to the MSME manufacturers exporting under any HS line. DECODE INDIAN Further, Government has advised the following modifications to the scheme: a) Average interest rate: With effect from FY 2023-24, the banks which have priced the loans covered under this scheme at an average interest rate of greater than Repo Rate + 4% prior to subvention would be subjected to certain restrictions under the scheme. Based on an assessment undertaken for FY 2023-24, Director General of Foreign Trade (DGFT) will identify the banks which are in breach of the above provision. DECODE INDIAN  Such banks shall be restricted from participating in the scheme till they furnish an undertaking (in the format as enclosed in the Annex) to DGFT. Any further breach as assessed by DGFT thereafter may lead to debarment from the scheme. DECODE INDIAN b) Cap on subvention amount: The annual net subvention amount has been already capped at Rs 10 Cr per Importer-Exporter Code (IEC) in a given financial year and the same has been communicated to the trade & industry and banks vide DGFT Trade Notice No.05 dated May 25, 2023. Accordingly, all disbursement from April 1, 2023 shall be reckoned for this purpose. All other provisions of the aforesaid circulars shall remain unchanged. DECODE INDIAN Applicability All Scheduled Commercial Banks (excluding RRBs) Primary (Urban) Cooperative Banks & State Cooperative Banks (scheduled banks having AD category-I license) Exim Bank DECODE INDIAN Inclusion of Clearing Corporation of India Limited as a Financial Information Provider under Account Aggregator Framework February 22, 2024 About Clearing Corporation of India Limited (CCIL) CCIL is a Central Counterparty (CCP) which was set up in April 2001 to provide clearing and settlement for transactions in Government securities, foreign exchange and money markets in the country. DECODE INDIAN What is Account Aggregator Framework? Account Aggregator (AA) framework is a data-sharing system that provides easy access to financial data to different parties in the financial ecosystem. The system has three primary constituents – the Account Aggregator (AA), the Financial Information User (FIU) and the Financial Information Provider (FIP). An Account Aggregator is a new class of NBFC approved by the Reserve Bank of India (RBI). DECODE INDIAN  AA act as an intermediary by collecting data from Financial Information Provider (FIPs) that hold the customer's financial data. And share that with Financial Information User (FIUs) such as lending banks\agencies that provide financial services. DECODE INDIAN RBI Circular The RBI Retail Direct Scheme (‘Scheme’) was launched on November 12, 2021 to facilitate retail investors to invest in Government Securities. The Scheme enables individuals to open Retail Direct Gilt Accounts with the Bank and access the Government Securities market - both primary and secondary. DECODE INDIAN  To enable aggregation of financial information on Government Securities held by retail investors in their Retail Direct Gilt accounts under the Scheme, Clearing Corporation of India Limited has been included as a Financial Information Provider. The Master Direction – Non-Banking Financial Company - Account Aggregator (Reserve Bank) Directions, 2016 is being modified accordingly. DECODE INDIAN DECODE INDIAN Applicability All Regulated Entities of the Bank DECODE INDIAN Amendment to Master Direction on Prepaid Payment Instruments February 23, 2024 Background Master Directions on Prepaid Payment Instruments (MD-PPIs) (as amended from time to time), prescribes, the various types of PPIs which banks and non-banks can issue after obtaining necessary approval / authorisation from RBI. DECODE INDIAN What is Prepaid Payment Instruments? These are instruments that facilitate the purchase of goods and services against the value stored on them. PPIs can be physical cards, digital wallets, or other electronic means through which funds can be loaded in advance and then used for transactions. PPIs that require RBI approval / authorisation prior to issuance are classified under two types viz. (i) Small PPIs, and (ii) Full-KYC PPIs. DECODE INDIAN  Small PPIs Issued by banks and non-banks after obtaining minimum details of the PPI holder. They shall be used only for purchase of goods and services. Funds transfer or cash withdrawal from such PPIs shall not be permitted. DECODE INDIAN  Small PPIs can be used at a group of clearly identified merchant locations / establishments which have a specific contract with the issuer to accept the PPIs as payment instruments. Full-KYC PPIs : Issued by banks and non-banks after completing Know Your Customer (KYC) of the PPI holder. These PPIs shall be used for purchase of goods and services, funds transfer or cash withdrawal. DECODE INDIAN RBI Circular Public transport systems across the country cater to a multitude of commuters on a daily basis. To provide convenience, speed, affordability, and safety of digital modes of payment to commuters for transit services, it has been decided to permit authorised bank and non-bank PPI issuers to issue PPIs for making payments across various public transport systems. The MD-PPIs has been updated by revising paragraph 10.2 thereof. DECODE INDIAN  These instructions are issued under Section 18 read with Section 10 (2) of Payment and Settlement Systems Act, 2007. These instructions shall come into effect immediately. Applicability All Prepaid Payment Instrument Issuers (Banks and Non-banks) and System Participants DECODE INDIAN Appointment/re-appointment of Director, Managing Director or Chief Executive Officer in Asset Reconstruction Companies February 27, 2024 DECODE INDIAN What is Asset Reconstruction Companies? An Asset Reconstruction Company is a specialized financial institution that buys the NPAs or bad assets from banks and financial institutions so that the latter can clean up their balance sheets. In other words, ARCs are in the business of buying bad loans from banks. DECODE INDIAN Background As per Section 3(6) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the guidelines on ‘Review of Regulatory Framework for Asset Reconstruction Companies (ARCs)’. ARCs are required to obtain prior approval of the Reserve Bank for appointment/re-appointment of any Director, Managing Director or Chief Executive Officer. DECODE INDIAN  In order to have uniformity in the information submitted by ARCs for obtaining such approvals, a form for furnishing the requisite information about the candidate and an indicative list of documents required to be submitted along with the application are enclosed as Annex I and Annex II, respectively. ARCs are advised to submit applications, complete in all respect, along with duly signed Annex I and the documents/information mentioned in Annex II to this Department at least ninety days before the vacancy arises / the proposed date of appointment or re-appointment. DECODE INDIAN  Reserve Bank may call for additional information/documents for processing the application, if required. These instructions shall come into force with immediate effect. Applicability All Asset Reconstruction Companies DECODE INDIAN Important MCQ on RBI Circular October IN FEBRUARY DECODE INDIAN 1. To enhance the participation of Indian banks on the India International Bullion Exchange IFSC Limited (IIBX), which of the following decisions has the Reserve Bank of India (RBI) recently taken? a) RBI allowed Branch/subsidiary/joint venture of an Indian bank in GIFT-IFSC to act as a Trading Member (TM)/Trading and Clearing Member (TCM) of IIBX. b) RBI has decided to allow Indian banks authorized to import gold/silver to act as Special Category Client (SCC) of IIBX. DECODE INDIAN c) RBI has decided to allow the branches of Indian banks operating in GIFT-IFSC to act as Professional Clearing Member (PCM) of IIBX d) Both (a) and (b) DECODE INDIAN Answer: d) Both (a) and (b) a) RBI allowed Branch/subsidiary/joint venture of an Indian bank in GIFT-IFSC to act as a Trading Member (TM)/Trading and Clearing Member (TCM) of IIBX. b) RBI has decided to allow Indian banks authorized to import gold/silver to act as Special Category Client (SCC) of IIBX. DECODE INDIAN 2. When did the RBI decide to allow the branches of Indian banks operating in GIFT-IFSC to act as Professional Clearing Members (PCMs) of IIBX? a) April, 2022 b) June, 2022 c) January, 2022 d) March, 2022 DECODE INDIAN Answer: b) June, 2022 In June, 2022 RBI has decided to allow the branches of Indian banks operating in GIFT-IFSC to act as Professional Clearing Member (PCM) of IIBX. Professional Clearing Member (PCM) : A member only clears and settles trades of trading members of the Exchange who choose to clear and settle their trades through the Member. DECODE INDIAN 3. As per a recent RBI circular on the 'Review of Fixed Remuneration granted to Non-Executive Directors (NEDs),' what is the revised maximum limit for fixed remuneration for a Non- Executive Director (NED) other than the Chair of the board in private sector banks? a) ₹20 lakh per annum b) ₹25 lakh per annum c) ₹30 lakh per annum d) ₹35 lakh per annum DECODE INDIAN Answer: c) ₹30 lakh per annum Recently RBI raised the ceiling on fixed remuneration of non- executive directors in private banks to Rs 30 lakh per annum from Rs 20 lakh. In April 2021, the RBI had fixed the ceiling of remuneration at Rs 20 lakh per annum for NEDs (non-executive directors). DECODE INDIAN 4. Which of the following urban cooperative banks has been excluded from the list of schedule bank under RBI Act, 1934? a) Abhyudaya Co-operative Bank Ltd. b) Rupee Co-operative Bank Ltd. c) Janata Sahakari Bank Ltd. d) Rajkot Nagrik Sahakari Bank Ltd. DECODE INDIAN Answer: b) Rupee Co-operative Bank Ltd. RBI Excludes “Rupee Co-operative Bank Limited” from the List of Scheduled Banks Under RBI Act, 1934. DECODE INDIAN 5. Under which section of the Reserve Bank of India Act, 1934 criteria for inclusion in second schedule is mentioned for banks ? a) Section 42(6)(a) b) Section 45D c) Section 42 (2) (a) d) Section 45K DECODE INDIAN Answer: a) Section 42(6)(a) DECODE INDIAN 6. In which year Lead Bank Scheme in India was introduced by the Reserve Bank of India (RBI) with the objective of improving the effectiveness of banking services and credit delivery in rural and semi-urban areas? a) 1970 b) 1969 c) 1983 d) 1965 DECODE INDIAN Answer: b) 1969 The Lead Bank Scheme in India was introduced by the Reserve Bank of India (RBI) in 1969 with the objective of improving the effectiveness of banking services and credit delivery in rural and semi-urban areas. Each district in India is assigned to a particular commercial bank, known as the lead bank. DECODE INDIAN 7. The Government of Assam has notified formation of a new district “Hojai” in the state of Assam. Accordingly, which of the following bank has been decided to appoint as the Lead Bank of the new district? a) Bank of India b) Central Bank of India c) Union Bank of India d) State Bank of India DECODE INDIAN Answer : d) State Bank of India DECODE INDIAN 8. Interest Equalization Scheme (IES) was first implemented on ------ ---------- to provide pre- and post-shipment export credit to exporters in rupees? a) 1st April, 2015 b) 1st May, 2015 c) 1st January, 2015 d) 1st December, 2015 DECODE INDIAN Answer : a) 1st April, 2015 Interest Equalization Scheme (IES) was first implemented on 1st April, 2015, to provide pre- and post-shipment export credit to exporters in rupees. It was initially valid for 5 years, up to 31.3.2020. DECODE INDIAN 9. What is the extended deadline set by the Government of India for the Interest Equalization Scheme for Pre and Post Shipment Rupee Export Credit ('Scheme')? a) April 30, 2024 b) May 31, 2024 c) June 30, 2024 d) July 31, 2024 DECODE INDIAN Answer : c) June 30, 2024 Government of India has allowed for extension of the Interest Equalization Scheme for Pre and Post Shipment Rupee Export Credit ('Scheme') up to June 30, 2024. DECODE INDIAN 10. Which of the following accurately describes the interest equalization benefit rates provided by the Interest Equalizatio