Policy : 2003-2004
Y.V. Reddy, Governor, Reserve Bank of India on November 03, 2003 anounced
the Mid Term Review of Monetary Policy for the Year 2003-2004 wherein
he proposed to continue with the overall stance of the annual policy
statement of April 2003. Some of the major highlights of the policy
are as under :-
growth in 2003-2004 placed at 6.5 - 7% with an upward bias.
Inflation projected for policy purposes at 4.0 - 4.5%, with a possible
supply (M3) growth within the projected level as envisaged in April.
Rate, CRR unchanged.
of the Internal Group on liquidity adjustment facility being placed
on the RBI website for wider dissemination and comments.
IBA to advise banks on benchmark PLR.
proposed to suggest ways to improve credit flow to agriculture and
small scale sectors.
move towards pure inter-bank call/notice money market.
Banks to ensure hedging of foreign currency loans to corporates
above $10 million except for exporters and for forex expenditures.
advised to quickly build up IFR.
map for financial institutions to adopt 90 days norm for recognition
of loan impairment.
Standing Technical Advisory Committee on Financial Regulation for
both banks and non-banks proposed.
Identification and special monitoring system for Systemically Important
Financial Intermediaries (SIFIs) proposed in co-ordination with
RBI, SEBI and IRDA.
Banks advised to constitute Ad-hoc Committees to improve customer
services including review of RBI regulations impinging on customer
Group proposed to address regulatory and supervisory issues pertaining
to Development Finance Institutions (DFIs).
of good corporate governance practices to PDs, NBFCs and FIs.
system scheduled for introduction in January, 2004.
private banks authorised to conduct government business for public
of tax refunds through electronic clearing services (ECS) to be
order to improve the flow of credit to the SSI sector it is proposed
(a) to enhance the loan limit to SSIs from Rs.15 lakh to Rs.25 lakh
for dispensation of collaterals requirements; (b) Interest rates on
deposit of foreign banks placed with SIDBI towards their priority
sector shortfall reduced from 6.75% to 6%; (c) All New loans granted
by banks to NBFCs to be reckoned as priority sector lending.
RBI advice on waivers for OTS
RBI has advised the Industrial Development Bank of India that the
overdue/ penal interest, liquidated damages, other charges, etc. debited
to the sticky borrowers account after the material date
(i.e. the date of transfer to the protested bills account or the date
when the account was categorised in the doubtful category, whichever
was earlier) could be waived with the approval of its board.
The Central bank has issued clarifications in this regard on the revised
guidelines on one-time settlement (OTS) to the IDBI.
Further the outstanding balance for the purpose of OTS of chronic
non-performing assets (NPAs) should comprise the entire amount which
fell due from the borrower till either the date of transfer to the
protested bills account or the date when the account was categoriesed
in the doubtful category, whichever was earlier.
Arcil to float 9 funds to deal with bad loans
The Asset Reconstruction Company of India (ARCIL) is to complete acquisition
of the first tranche of bad loans by mid-November. Arcil plans
to float nine special purpose vehicles which would be specific to
nine companies, said Shri S. Khasnobis, President and Chief
Operating Officer Arcil, at a seminar on corporate debt restructuring
mechanism and ARC experience sharing organised by the Indian
Shri Khasnobis said nine funds would be floated with a value of around
Rs.2,000 crore to take on bad loans from the books of participating
banks. The nine companies include Birla VXL, Modern Denim, Core HealthCare,
Shree Rama Multitech, GSI (India), Precision Fasteners, Uniworth,
Kalaynpur Cements and GSAI. The acquisition of the assets and selling
them to the qualified institutional investors would happen simultaneously.
Initially the seller of the loan itself would be the subscriber to
the units. The valuation and negotiation on the pricing of these
companies is complete, he said The issue for subscribing
to the units issued by nine SPVs will open on October 27, for two
In a parallel development, foreign funds have shown interest in taking
exposure in the stressed assets that are restructured by the corporate
debt restructuring forum. Disclosing this, Shri Siby Antony, CGM,
in charge of CDR cell, said that the foreign funds and senior IDBI
officials are in the initial stage of discussion. He said 85 projects
with aggregate debt of Rs.56,414 crore were considered at CDR cell
and of this 55 projects with aggregate debt of 47061 crore were restructured.
Besides this, an inter creditor agreement with the foreign banks would
be signed by next month at the CDR cell. The existing inter-creditor
agreement would be amended following discussion with the senior RBI
officials and representative of foreign banks.
Revision of Interest Rate Structure under Refinance/Line of Credit
SIDBI vide its circular dated September 05, 2003 has decided to revise
the rates of interest on refinance against term loans sanctioned to
the units in small scale sector. The modified interest rate structure
is given as under : -
Refinance/ Line of credit [LOC] Scheme
Interest Rate Structure Under Refinance/ Line of credit [LOC]
Refinance against term loans in respect of projects / activities
eligible for assistance under the Scheme
on term loans for fixed assets and
working capital advances (% p.a.)
refinance (% p.a.)
Upto Rs. 50,000/-
a maximum spread of 3% over and above applicable refinance rate
Above Rs. 50,000/- and upto Rs.2 lakh
Above Rs. 2 lakh and upto Rs. 25 lakh
[iv] Above Rs. 25 lakh
may be decided by the PLI
Refinance against term loans in respect of projects/activities
eligible for assistance under TDMF and ISO 9000 Schemes
on term loans
Upto Rs. 50,000
to exceed SIDBIs PLR i.e. 11.50%
Above Rs. 50000 and upto Rs. 2 lakh
[iii] above Rs. 2 lakh
* 2% lower than SIDBIs PLR
revised rates of interest will be applicable on all disbursements
made under LOC by SIDBI on or after September 08, 2003. Refinance
on term loan, which have been partly disbursed before September 08,
2003 will continue to carry the pre-revised applicable rates of interest.
The PLIs have been asked to continue to charge interest rate, for
loans upto Rs.50,000/- and above Rs.50,000/- and upto Rs.2 lakh, with
a maximum spread of 3% over and above applicable refinance rates,
which are presently revised to 8.25% p.a., and 8.75% p.a. respectively,
and for loans above Rs.2 lakh and upto Rs.25 lakh and above Rs. 25
lakh depending upon the risk perception in each proposal SIDBI has,
however, instructed that the interest rate to the ultimate borrower
in respect of loan above Rs.2 lakh is reasonable in relation to the
cost of funds and risk perception.
Technology Upgradation Fund Scheme (TUFS)
SIDBI vide its circular dated 17.10.2003 has forwarded the additional
norms issued by Ministry of Textiles, GoI vide its circular No.1 &
7 on the Refinance Scheme for Textile Industry under Technology upgradation
Fund wherein additional banks / FIs have been coopted for the scheme
The Sutex Cooperative Bank Ltd.; The United Western; The Lakshmi Vilas
Bank Ltd.; Apna Sahkari Bank Ltd.; The Nasik Merchants Co-operative
Bank (NAMCO Bank) and Dombimla Nagari Sahakari Bank Ltd.
Swarojgar Credit Card System
Pursuant to the Honble Prime Ministers announcement in
his address to the nation on the Independence Day, it has been decided
to introduce a new credit facility for fishermen, rickshaw owners,
self employed persons, etc. A model scheme called the Swarojgar
Credit Card (SCC) Scheme has since been prepared by the National
Bank for Agirculture and Rural Development (NABARD) and approved by
the Ministry of Finance. All scheduled commercial banks have been
advised to introduce such a scheme on the lines of the model scheme.
The SCC scheme aims at providing adequate and timely credit, i.e.
working capital or block capital or both to small artisans, handloom
weavers, service sector, fishermen, self employed persons, rickshaw
owners, other micro-entrepreneurs, etc. from the banking system in
a flexible, hassle free and cost effective manner.
The Scheme should be implemented by all commercial banks, state co-operative
banks, district central co-operative banks (DCCBS), primary agricultural
co-operative societies (PACS), state co-operative agricultural rural
development banks (SCARDBs) primary co-operative agricultural rural
development banks (PCARDBs) and scheduled primary co-operative banks.
Nature of financial accommodation
The credit facility extended under the Scheme would be in the nature
of a composite loan including term loan/revolving cash credit.
The term loan should be provided for meeting the investment requirements
and it should be repaid within five years in suitable instalments.
The revolving cash credit should be fixed taking into account the
operating cycle/nature of the investment and available balance after
sanction of term loan.
The ceiling per borrower for composite loan is Rs.25,000. The initial
investment in fixed assets and/or working capital requirement/recurring
expenditure of the borrower should be taken as the base for fixing
the limit. The working capital/recurring expenditure limit may be
in the form of a revolving cash credit and fixed as a percentage of
the turnover divided by the number of operating cycles per annum.
A component for consumption credit could be built in keeping in view
the value of family labour in productive activity. The total limit
should have a relationship between the projected net earning and the
repayment capacity of the borrower.
Validity and Issue
The SCC would normally be valid for five years subject to satisfactory
operation of the account and could be renewed on a yearly basis through
a simple review process. The operations in the account, however, should
The beneficiaries under the scheme would be issued a laminated credit
card and a pass book incorporating the name, address, borrowing limit,
validity, etc. This will serve as an identity card as well as facilitate
recording of the transactions on an ongoing basis. Fees towards issue
of card/processing should not exceed Rs.50.
Renewal of working capital limits
could be renewed annually based on the amount credited to the cash
credit account and the repayment performance in the term loan account.
Term loan component could be enhanced within the overall limit in
case of need subject to satisfactory repayment performance of the
revolving cash credit to the extent of working capital repaid may
be renewed within the overall ceiling of Rs.25,000.00 and it should
normally be repaid within twelve months from the date of drawal.
Where necessary, the working capital component could be enhanced
within the overall ceiling to provide for escalation in the cost
of inputs, etc. subject to satisfactory repayment performance.
No drawal should be permitted if revolving cash credit remains outstanding
for more than twelve months.
The aggregate credits in the account during the twelve months
period should normally be equal to the maximum outstanding in the
working capital component plus the instalment of the term loan availed
of, if any.
Banks would have absolute freedom to select the clients for the
card. There would be no subsidy from the government under this scheme.
The borrower may avail the credit facility as per his/her requirements,
i.e. either term loan or working capital loan or a combination of
issuing branch should maintain a ledge account for each SCC account
holder. The term loan component and working capital component should
be accounted for separately. The operations in the account should
generally be through the card issuing branch. Banks may at their
discretion, however, permit operations through the designated branches,
taking into account the convenience of the clientele.
Withdrawal from the account should be through withdrawal slips/cheques.
The SCC and the pass book should be produced each time cash is withdrawn.
of savings bank account should not be a precondition for issue of
SCC. In case, however, a SCC holder desires on his/her own to open
a savings bank account, he/she may be allowed to do so.
under the scheme would automatically be covered under the group insurance
scheme and the premium would be shared by the bank and the borrower
equally. Each bank may negotiate the terms of insurance with a company
of its choice on a national or regional basis.
Security, margin, rate of interest and prudential norms would be applicable
as per the Reserve Banks norms.
Banks are required to report the monthly progress to the regional
offices of NABARD, it being the nodal agency for monitoring the scheme.
Entry of Banks into Insurance Business
The Reserve Bank has advised all scheduled commercial banks that they
need not obtain the Reserve Banks prior approval for engaging
in insurance agency business or referral arrangement without any risk
participation. The banks should, however :
(a) Comply with the Insurance Regulatory and Development Authority
(IRDA) regulations for acting as composite corporate agent
or referral arrangement with insurance companies.
(b) Not adopt any restrictive practice of forcing its customers to
go in only for a particular insurance company for assets financed
by the bank. Customers should be allowed to exercise their own choice.
(c) Enter into an agreement with the concerned insurance company for
allowing use of its premises and making use of the existing infrastructure
of the bank. The agreement should be for a period not exceeding three
years at the first instance. The bank should have the discretion to
renegotiate the terms depending on its satisfaction with the service
or replace it by another agreement after the initial period. Thereafter,
private sector banks would be free to sign a longer term contract
with their Boards approval of the Government of India.
(d) Prominently state in all publicity material that participation
by its customers in the insurance products is purely on a voluntary
basis. There should be no linkage either direct or indirect
between the banking services offered by the bank to its customers
and use of the insurance products.
(e) Ensure that risks, if any, involved in insurance agency/referral
arrangement should not get transferred to the business of the bank.
satisfying the eligibility criteria framed by the Reserve Bank and
intending to set up insurance joint ventures with equity contribution
on risk participation basis or making investments in insurance companies
for providing infrastructure and services support are, however, required
to obtain the Reserve Banks prior approval.