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LATEST UPDATES
Appointments July 2024: RBI has appointed Smt. Charulatha S Kar as Executive Director (ED) with effect from July 01, 2024
Appointments June 2024: RBI has appointed Shri Arnab Kumar Chowdhury as Executive Director (ED) with effect from June 3, 2024.
Appointments June 2024: Shri R. Lakshmi Kanth Rao as Executive Director, Reserve Bank of India
Glossary - Evergreening of loans
Evergreening refers to the unhealthy practice of masking the true extent of bad loans by allowing delinquent borrowers to take more loans to repay existing ones. Since evergreening of loans conceals credit stress, it delays in recognition of the stress assets of REs and therefore its on-time resolution.
Appointments May 2024: Mr. T. Rabi Sankar Re-appointed Deputy Governor, Reserve Bank of India
Annual Report of the year 2023-24
The Reserve Bank on May 30, 2024 under section 53 (2) of the Reserve Bank of India Act, 1934 released its Annual Report of the year 2023-24. The report is a statutory report of its Central Board of Directors. It covers the working and functions of Reserve Bank for the period April 2023 - March 2024.
Major Highlights of the Annual Report are:
i) The report indicates a positive economic outlook for India despite challenges. However, it notes that climate-related risks could pose uncertainties to inflation and growth.
ii) India's GDP growth is projected to remain robust at 7% for the fiscal year 2024-25. This growth is underpinned by strong investment demand, healthy balance sheets of banks and corporations, and effective government policies focused on capital expenditure.
iii) Unclaimed deposits in banks saw a significant increase of 26% year-on-year, reaching ₹78,213 crore by the end of March 2024. The RBI has introduced new guidelines to help banks manage and reduce these unclaimed deposits
iv) The RBI's net income surged to ₹2.11 lakh crore, primarily due to a significant rise in interest from foreign securities. The central bank's balance sheet grew by 11.08%, reaching ₹70.48 lakh crore as of March 31, 2024.
v) There was a notable decline in FDI inflows into the manufacturing sector, which fell by 18% to $9.3 billion. Overall FDI inflows into India dropped slightly to $44.4 billion from $46 billion in the previous fiscal year.
vi) The number of bank frauds increased dramatically by 166% year-on-year, with over 36,075 cases reported in FY24. But the amount involved in the total bank frauds almost halved (down by 46.7 percent) to Rs 13,930 crore from Rs 26,127 crore in the previous year
vii) While there was a decrease in FDI in several sectors, including financial services and retail, the electricity transmission and generation sector saw a substantial increase in FDI inflows.
viii) The RBI maintained a cautious stance, adjusting the policy repo rate to 6.50% to balance growth and inflation. Continued focus on liquidity management to ensure adequate system liquidity while avoiding excesses.
ix) The expenditure on security printing increased to ₹5,101.4 crore in 2023-24 from ₹4,682.8 crore in the previous year, reflecting higher production and security measures.
Appointment of Executive Director
The Reserve Bank on May 9, 2024 appointed Shri R. Lakshmi Kanth Rao as Executive Director with effect from May 9, 2024. Prior to being appointed as Executive Director, Shri Rao was serving as Chief General Manager-in-Charge in the Department of Regulation. Shri Rao has experience of over three decades in the Reserve Bank having worked in the areas of Regulation of Banks and NBFCs, Supervision of Banks and Consumer Protection. He had served as Banking Ombudsman at RBI Chennai and as Regional Director of Uttar Pradesh at Lucknow.
Decisions and Deliberations of the Monetary Policy Committee (MPC)
05.04.2024: The MPC decided to maintain the policy repo rate at 6.50 percent, focusing on withdrawing accommodation to align inflation with the target while supporting growth. Consequently, the standing deposit facility (SDF) rate remains at 6.25 percent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 percent.
Commenting on the Assessment of Growth and Inflation, Governor said that, the global economy exhibits resilience and is likely to maintain its steady growth in 2024, the domestic economy is experiencing strong momentum. As per the second advance estimates (SAE), real Gross Domestic Product (GDP) expanded at 7.6 per cent in 2023-24 on the back of buoyant domestic demand and headline inflation softened to 5.1 per cent during January-February 2024, from 5.7 per cent in December.
Conditions for Upgrade to Standard: For MSME accounts where aggregate exposure of the lenders is less than ₹25 crores (Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances dt 02.04.2024)
An account may be considered for upgradation to ‘standard’ only if it demonstrates satisfactory performance during the specified period. ‘Specified Period’ means a period of one year from the commencement of the first payment of interest or principal, whichever is later, on the credit facility with longest period of moratorium under the terms of restructuring package. ‘Satisfactory Performance’ means no payment (interest and/or principal) shall remain overdue for a period of more than 30 days. In case of cash credit / overdraft account, satisfactory performance means that the outstanding in the account shall not be more than the sanctioned limit or drawing power, whichever is lower, for a period of more than 30 days.
Conditions for Upgrade to Standard for all accounts other than MSME less than ₹25 crores (Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances dt 02.04.2024)
Standard accounts classified as NPA and NPA accounts retained in the same category on restructuring by the lenders may be upgraded only when all the outstanding loan / facilities in the account demonstrate ‘satisfactory performance during the period from the date of implementation of RP up to the date by which at least 10 per cent of the sum of outstanding principal debt as per the RP and interest capitalisation sanctioned as part of the restructuring, if any, is repaid (‘monitoring period’).
Provided that the account cannot be upgraded before one year from the commencement of the first payment of interest or principal (whichever is later) on the credit facility with longest period of moratorium under the terms of RP.
Restructuring of frauds/willful defaulters (Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances dt 02.04.2024)
Borrowers who have committed frauds/ malfeasance/ willful default will remain ineligible for restructuring. However, in cases where the existing promoters are replaced by new promoters24, and the borrower company is totally delinked from such erstwhile promoters/management, lenders may take a view on restructuring such accounts based on their viability, without prejudice to the continuance of criminal action against the erstwhile promoters/management.
Categories of NPAs
Banks are required to classify non-performing assets further into the following three categories based on the period for which the asset has remained non-performing and the realisability of the dues:
Substandard Assets
Doubtful Assets
Loss Assets
Substandard Assets
With effect from March 31, 2005, a substandard asset would be one, which has remained NPA for a period less than or equal to 12 months. Such an asset will have well defined credit weaknesses that jeopardise the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.
Doubtful Assets
With effect from March 31, 2005, an asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, – on the basis of currently known facts, conditions and values – highly questionable and improbable.
Loss Assets
A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection, but the amount has not been written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.
Differential Rate of Interest (DRI) Scheme
Under the DRI Scheme, banks provide finance up to ₹15,000/- at a concessional rate of interest of 4 per cent per annum to the weaker sections of the community for engaging in productive and gainful activities. In order to ensure that persons belonging to SCs/STs also derive adequate benefit under the DRI Scheme, banks have been advised to grant eligible borrowers belonging to SCs/STs such advances to the extent of not less than 2/5th (40 percent) of total DRI advances. Further, the eligibility criteria under DRI, viz. size of land holding should not exceed 1 acre of irrigated land and 2.5 acres of unirrigated land, are not applicable to SCs/STs. Members of SCs/STs satisfying the income criteria of the scheme can also avail of housing loan up to ₹20,000/- per beneficiary over and above the individual loan of ₹15,000/- available under the scheme.
Bulk FD limit for RRBs raised to Rs 1 crore
In an effort to raise more funds, RBI has upped the criteria for ‘bulk deposits’ for Regional Rural Banks (RRBs) from the current Rs. 15 lakhs to Rs. 1 crore. According to the amended rules, Bulk Deposit means Single Rupee term deposits of Rs. 2 crore and above for SCBs (excluding RRBs) and Small Finance Banks (SFBs) and Single Rupee term deposits of Rs. 1 crore and above for RRBs.
Customers to benefit from premature withdrawal facility for TDs up to ₹1 crore
In a welcome move, all domestic Term Deposits (TDs) of ₹1 crore and below received from individual customers shall now benefit a premature withdrawal facility, after the RBI’s decision to hike the non-callable limit from ₹15 lakh to ₹ 1 crore. Non-callable FDs are those that do not give premature withdrawal facility. Money invested in these FDs remains locked till end of maturity period. Now, RBI has mandated that customers of all commercial and co-operative banks be allowed to prematurely withdraw money from Fixed Deposits (FDs) of up to Rs. 1 crore. This facility shall also be applicable for Non-Resident (External) Rupee (NRE) Deposit/Ordinary Non-Resident (NRO) Deposits.
Credit Enhancement Guarantee Scheme for Scheduled Castes (CEGSSC)
The CEGSSC was launched by Ministry of Social Justice & Empowerment on May 6, 2015 with the objective of promoting entrepreneurship amongst the Scheduled Castes (SCs), by providing credit enhancement guarantee to Member Lending Institutions (MLIs), which extend financial assistance to these entrepreneurs. IFCI Ltd. has been designated as the Nodal Agency under the scheme, to issue the guarantee cover in favour of MLIs for financing SC entrepreneurs.
Individual SC entrepreneurs/Registered Companies and Societies/Registered Partnership Firms/Sole Proprietorship firms having more than 51% shareholding and management control for the previous 6 months by SC entrepreneurs/ promoters/ members are eligible for guarantee from IFCI Ltd. against the loans extended by MLIs.
The amount of guarantee cover under CEGSSC ranges from a minimum of ₹0.15 cr to a maximum of ₹5.00 cr.
The tenure of guarantee is up to a maximum of 7 years or repayment period, whichever is earlier.
Risk-weight increased for Unsecured Loans
Risk-weight for unsecured personal loans and loans on credit cards, from 100% to 125%.
RBI issues new rules on inoperative, unclaimed savings accounts, FD, deposits
The Reserve Bank of India (RBI) has issued comprehensive guidelines on the measures to be implemented by the banks covering various aspects of how to classify deposits and accounts as unclaimed deposits and inoperative accounts respectively, periodic review of such deposits and accounts, fraud prevention measures to be taken for tracing the customers of unclaimed deposits and inoperative accounts, including their nominees/legal heirs for account reactivation, settlement of claims or closure to be followed. According to the new guidelines, only customer induced transactions, and not bank induced transactions, shall be considered for the purpose of classifying an account as ‘inoperative’. Banks are required to conduct an annual examination of accounts if there haven’t been any customer-initiated transactions for more than a year. If an account is deemed inoperative, the banks are not allowed to impose penalties for failing to maintain the required minimum amounts. Activating inactive accounts will not incur any fees. The revised instructions shall come into effect from April 1, 2024.
Enhancing UPI transaction limit for Specified Categories
To encourage the use of UPI for medical and educational services, it is proposed to enhance the limit for payments to hospitals and educational institutions from ₹1 lakh to ₹5 lakh per transaction. Earlier, in December 2021, the transaction limit for UPI payments for Retail Direct Scheme and for IPO subscriptions were increased to ₹5 lakh.
Classification of MSMEs _ URC
The Reserve Bank on December 28, 2023 amended the Master Direction on ‘Lending to Micro, Small & Medium Enterprises (MSME) Sector’. As per the amendment the existing Para 2.2 of the direction was revised as ‘All the above enterprises are required to register online on the Udyam Registration portal and obtain ‘Udyam Registration Certificate’. For PSL purposes banks shall be guided by the classification recorded in the Udyam Registration Certificate (URC).
Shri Manoranjan Mishra appointed as RBI Executive Director
The Reserve Bank on November 1, 2023 appointed Shri Manoranjan Mishra as Executive Director with effect from November 1, 2023. Prior to being promoted as Executive Director.
UDGAM Portal
The Reserve Bank on October 5, 2023 informed that the search facility in UDGAM portal has been made available for 30 banks on September 28, 2023, which covers around 90 per cent of unclaimed deposits (in value terms) in Depositor Education and Awareness (DEA) Fund. The Reserve Bank on August 17, 2023 developed a Centralised Web Portal उद्गम UDGAM (Unclaimed Deposits – Gateway to Access inforMation) for use by members of public to facilitate and make it easier for them to search their unclaimed deposits across multiple banks at one place.