It goes to the credit of our banking regulator – Reserve bank of India, that when banks across all ‘Developed Nations' crumbled, not even one in India had even a semblance of trouble. In the USA alone over 100 banks have filed for bankruptcy. In spite of this gargantuan success, RBI continues to learn and evolve from changes in our country and from the mistakes of others.
Year 2009 saw some significant changes in the regulations governing the banking sector. Most of these changes have been towards giving easier access to banking services.
Relaxations in Branch Authorisation Policy
As announced in the Annual Policy Statement of April 2009, a Working Group (Chairman: Shri P. Vijaya Bhaskar) was constituted to review the extant branch authorisation policy with a view to providing greater flexibility to banks for opening branches to enhance banking penetration and promote financial inclusion.
The Group has since submitted its report. Taking into consideration the Group's recommendations, it is proposed to liberalise the extant branch authorisation policy for domestic scheduled commercial banks (other than RRBs – Regional Rural Banks) as under:
Domestic scheduled commercial banks (other than RRBs) will now be free to open branches in Tier 3 to Tier 6 centres as identified in the Census 2001 (with population up to 50,000) under general permission.
Opening of branches by domestic scheduled commercial banks (other than RRBs) in Tier 1 and Tier 2 centres (with population over 50,000) will continue to require prior authorisation.
Banks may plan their branch expansion in Tier 3 to Tier 6 centres in such a manner that at least one-third of such branches are in the under banked districts of under banked States as will be notified separately by the Reserve Bank.
This would be one of the criteria in the Reserve Bank's consideration of proposals by domestic scheduled commercial banks (other than RRBs) to open branches in Tier 1 and Tier 2 centres.
In considering such proposals, the Reserve Bank would, will in addition, take into account banks' performance in financial inclusion, priority sector lending and level of customer service, among others.
Enhancements to the Basel II Framework
In July 2009, the Basel Committee on Banking Supervision (BCBS) had finalised enhancements and revisions in certain areas of the Basel II framework.
The enhanced/revised guidance of BCBS was contained in their three documents, viz.,
- Enhancements to the Basel II Framework;
- Revisions to the Basel II Market Risk Framework; and
- Guidelines for Computing Capital Charge for Incremental Risk in the Trading Book.
These enhancements and revisions were intended to strengthen the framework and respond to lessons learnt from the financial crisis.
The enhancements and revisions stipulated by BCBS were, however, mostly applicable to advanced approaches of the Basel II framework.
Banks in India have implemented standardised/basic approaches contained in the framework.
However, wherever those enhancements and revisions were applicable to standardised/basic approaches, it was proposed to issue detailed guidelines as appropriate for implementation by banks operating in India by end-November 2009.
Credit Flow to the MSE Sector
As indicated in the Annual Policy Statement of April 2009, the guidelines based on the Working Group on Rehabilitation of Sick SMEs (Chairman: Dr. K.C. Chakrabarty) were issued to scheduled commercial banks in May 2009.
In pursuance of the guidelines, banks were advised to review/put in place policies for the micro and small enterprises (MSEs), duly approved by their respective Boards with regard to:
- Loan policy governing extension of credit facilities;
- Restructuring/rehabilitation policy for revival of potentially viable sick units/enterprises; and
- Non-discretionary one-time settlement scheme for recovery of non-performing loans.
Amalgamation of RRBs (Regional Rural banks)
Of the total number of 196 RRBs, 159 RRBs have been amalgamated into 46 new RRBs (sponsored by 27 banks and located in 26 States including one Union Territory).
Since then one new RRB has also been established in the Union Territory of Puducherry. Accordingly, the total number of RRBs now functioning is 84.
The Union Budget 2007-08 announced that RRBs which have a negative net worth will be recapitalised in a phased manner. The process of recapitalisation has since been completed with 27 RRBs having been fully recapitalised with an amount of Rs.1,796 crore as on July 31, 2009.
Year 2009 has seen many long felt needs in the banking sector and user group (read as borrowers and account holders) being met. The liberalization of the branch opening process in smaller cities will help the banks and also the people in remote and rural areas.
The mandate to have a policy to not only issue but also to manage the outstanding loans from failed Small &Median scale Enterprises is a big booster for the sector and the economy as a whole. This is because SMEs are the major employers in terms of number of employees in the country.
The restructuring and recapitalization of RRBs will aid the farming community in a remarkable way. This sector has been suffering for long from the lack of access to bank rate lending.
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