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Gist of Important RBI Circulars

Rural Planning and Credit Department (RPCD) Circulars

ADWDRS – 2008 - Prudential Norms on Income Recognition, Asset Classification and Provisioning and
Capital Adequacy

The Government of India has now decided to make the accounts of “other farmers” eligible for a debt relief of 25% from
Government of India, even if they pay their entire share of 75% as one single installment, provided the same is deposited by
such farmers till June 30, 2009. The RRBs will not charge any interest on the eligible amount till June 30, 2009. The
Government of India has also advised that the banks/lending institutions are allowed to receive even less than 75% of the
eligible amount under OTS provided the banks/lending institutions bear the difference themselves and do not claim the same
either from the Government or from the farmer. The Government will pay only 25% of the actual eligible amount under debt
relief.

(RPCD.CO.RRB.BC No. 11/03.05.33/2009-10 dated July 1, 2009)

Inter-Bank Participation

Henceforth, Regional Rural Banks (RRBs) can also issue IBPC of a tenor of 180 days on risk sharing basis to scheduled
commercial banks against their priority sector advances in excess of 60% of their outstanding advances. All other features of
the scheme of IBPCs will remain unchanged.

(RPCD.CO.RRB.BC.No.13 /03.05.33/2009-10 dated August 4, 2009)

Opening of New Places of Business by State Co-operative Banks

On a review of the policy for opening of new place of business, under Section 23 of the Banking Regulation Act, 1949 (AACS) by
State Co-operative Banks, it has been decided to adopt the following criteria for opening of branches / extension counters. For
the purpose of opening branches / extension counters in accordance with the existing parameters, StCBs should have (as per
the latest inspection report) (a) CRAR of at least 9%, (b) Complied with Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio
(SLR), (c) Net NPA of not more than 10%; and (d) No serious irregularities. Further, the concerned State Government should
have signed the Memorandum of Understanding (MoU) in connection with the Government of India’s Revival Package for short
term rural co-operative credit structure for the StCB to be eligible for opening new place of business. The instructions in this
circular supersede all instructions issued by the Reserve Bank earlier in this regard. Applications for licence for opening of
branches/extension counters should be made to the Reserve Bank in the prescribed format through NABARD.

(RPCD.CO.RF.BC.No. 14 / 07.06.00 / 2009-10 dated August 4, 2009)

Housing Finance

It has now been decided that (i) the maximum quantum of housing loan that can be granted to an individual borrower by a State /
Central Cooperative Bank stands revised to Rs. 20 lakh. However, in case of a bank having a net worth of Rs. 100 crore and
above [as per the assessment made in NABARD’s latest inspection report], the limit will be Rs. 30 lakh, (ii) The aggregate of
housing loans outstanding on any day against individuals, institutions, and societies should not exceed 10 % of total loans and
advances of the bank as on March 31 of the preceding year. However, this limit can be exceeded to the extent of funds obtained

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for the purpose from the higher financing agency and refinance from the National Housing Bank, (iii) It is clarified that housing
loans would not include finance to commercial real estate sector as advised vide circular dated May 25, 2009 that State and
Central Cooperative banks should desist from financing the commercial real estate sector, and (iv) For repairs, additions,
alterations etc., to the existing houses, the maximum amount of loan per individual borrower stands revised to Rs. 1 lakh.

(RPCD CO.RCBD. BC. No.15 /03.03.01/2009-10 dated August 13, 2009)

Exemption of Collateral Security - Individual and Group Loans under SGSY Scheme

It has now been decided to raise the exemption limit of secondary collateral security under SGSY to Rs. 1 lakh from the existing
Rs. 50,000/- in respect of individual loans and to Rs.10 lakh from the existing Rs.5 lakh in respect of group loans. Accordingly,
for individual loans up to Rs.1 lakh and group loans up to Rs. 10 lakh, the assets created out of bank loan would be
hypothecated to the bank as primary collateral (earlier referred to as primary security). In case where movable assets are not
created as in land based activities such as dug well, minor irrigation, etc., mortgage of land may be obtained. Where mortgage
of land is not possible, third party guarantee may be obtained at the discretion of the bank. For all individual loans exceeding
Rs.1lakh and group loans exceeding Rs. 10 lakh, in addition to primary security such as hypothecation/mortgage of land or third
party guarantee as the case may be, suitable margin money/ other collateral security in the form of insurance policy;
marketable security/ deeds of other property etc. may be obtained at the discretion of the bank. The upper ceiling of Rs.10 lakh
in respect of group loans is irrespective of the size of the group or prorata per capita loan to the group.

(RPCD.SP.BC.No 12 /09.01.01/2009-10 dated August 24, 2009)

Collateral Free Loans – Micro and Small Enterprises (MSEs)

It is clarified that banks must not obtain collateral security in the case of loans upto Rs. 5 lakh extended to all units of the MSE
sector.

(RPCD.SME&NFS.BC.No.16/06.02.31 (P) /2009-10 dated August 24, 2009)

Collection of Account Payee Cheques - Prohibition on Crediting Proceeds to Third Party Account

While reiterating that such practice of collection of third party cheques is not permissible, in order to facilitate collection of
cheques from the payment system angle, account payee cheques deposited with the sub-member for credit to their customers’
account can be collected by the member bank (referred to as the sponsor member) of the Clearing House. Under such
arrangements, there should be a clear undertaking from the sub-member to the effect that the proceeds of the account payee
cheque will be credited to the payee’s account only, upon realisation.

(RPCD.CO.RF.BC.No.18 /07.38.03/2009-10 dated September 7, 2009)

Priority Sector Lending – Categorisation of Activities under the MSMED Act, 2006

It has been decided to include loans granted by banks in respect of following activities under Micro and Small (Service)
Enterprises within the priority sector, provided such enterprises satisfy the definition of Micro and Small (Service) Enterprises in
respect of investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly
related to the service rendered or as may be notified under the MSMED Act, 2006) (i.e. not exceeding Rs. 10 lakh and Rs. 2
crore respectively), (I) Consultancy Services including Management Services; (ii) Composite Broker Services in Risk and
Insurance Management; (iii) Third Party Administration (TPA) Services for Medical Insurance Claims of Policy Holders; (iv)
Seed Grading Services; (v) Training-cum-Incubator Centre; (vi) Educational Institutions; (vii) Training Institutes; (viii) Retail
Trade; (ix) Practice of Law, i.e. legal services; (x) Trading in medical instruments (brand new); (xi) Placement and Management
Consultancy Services; and (xii) Advertising agency and Training centres. There will be no separate category for ‘; Retail Trade’;
under priority sector. Loans granted by banks for Retail Trade [i.e. advances granted to retail traders dealing in essential
commodities (fair price shops), consumer co-operative stores; and advances granted to private retail traders with credit limits
not exceeding Rs. 20 lakh) would henceforth be part of the Small (Service) Enterprises.

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(RPCD.CO.Plan.BC. 24 /04.09.01/2009-10 dated September 18, 2009)

Payment of Interest on Savings Bank Account on a Daily Product Basis

It has been decided that the interest on balances in savings bank accounts would be calculated on a daily product basis with
effect from April 1, 2010. Regional Rural Banks are advised to work out modalities to effect a smooth transition to the revised
procedure.

(RPCD.CO.RRB.BC.No. 25 /03.05.33/2009-10 dated September 24, 2009)

Forms of Business

State and Central Co-operative banks should not acquire any property which is not required for their own identifiable / justifiable
use. In case, non-banking assets acquired by the banks in satisfaction of claims cannot be put to such use, they should be
disposed of within the period stipulated under Section 9 of the Act, ibid.
(RPCD.CO.RF.BC.No. 26 /07.07.11/2009-10 dated September 29, 2009) ;( UBD.CO.BSD. (SCB). No. 5 / 12.09.009/2009-10
dated August 31, 2009)

Urban Banks Department (UBD) Circulars

Agricultural Debt Waiver and Debt Relief Scheme, 2008

It is advised that the Grievance Redressal Officers may dispose of the grievances received under ADWDR Scheme through a
speaking order citing reasons for rejection / acceptance of the claim made by the petitioners in a transparent manner.

(UBD.BPD.PCB.Cir.No. 3 /13.05.006/2009-10 dated August 17 , 2009)

Payment of interest on Savings Bank Account on a Daily Product Basis

It has been decided that interest on balances in savings bank accounts would be calculated on a daily product basis with effect
from April 1, 2010. UCBs may ensure that they have the

(UBD (PCB) BPD Cir No. 7 /13.01.000/2009-10 dated September 01, 2009)

One Time Settlement Scheme (Under ADWDRS, 2008)

Government of India, Ministry of Finance have now decided, as per the OTS Scheme, that ‘other farmers’ (farmers holding
more than two hectares of land) are now given time up to December 31, 2009 to pay 75% of the amount eligible for debt relief.
The UCBs are allowed to receive even less than 75% of the eligible amount under OTS, provided they bear the difference
themselves and do not claim the same either from the Government or from the farmer. The Government will pay only 25% of the
actual eligible amount under debt relief as has already been intimated. The Government has also clarified that the UCBs would
not charge any interest on the eligible amount for the period from February 29, 2008 to June 30, 2009. However, the banks may
charge normal rate of interest on the eligible amount from July 1, 2009 upto the date of settlement. January 31, 2010 will be the
last date for receipt of grievances, by all agencies from farmers covered under the Scheme. In case of ‘other farmers’ eligible for
debt relief, after the ‘other farmer’ has paid his entire share of 75%, banks may open an account for Debt Relief Scheme, similar
to the one opened for the receivables from Government of India under the Debt Waiver Scheme, bearing the nomenclature
“Amount receivable from Government of India under Agricultural Debt Relief Scheme 2008”. The debt relief of 25% may be
credited to the farmer’s account by debit to the head ‘Amount receivable from Government of India under Agricultural Debt
Relief Scheme 2008’. This amount should also be reflected in the Balance sheet.

(UBD.BPD.PCB.Cir.No 8 /13.05.006/2009-10 dated September 3, 2009)

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Multi Level Marketing Firms - KYC/AML Guidelines

Banks should be careful in opening accounts of the marketing/trading agencies, etc. Strict compliance with KYC and AML
guidelines issued by RBI should be ensured in the matter. In cases where accounts have already been opened in the names of
the marketing agencies, retail traders, investment firms, the banks may undertake quick reviews. Unusual operations noticed
during the above review may be immediately reported to us and other appropriate authorities, such as, Financial Intelligence
Unit (FIU-IND). (For detailed circulars, please refer to the original circular).

(UBD. CO. BPD. PCB.Cir. No.9/12.05.001 / 2009-10 dated September 16, 2009)

KYC Guidelines - Accounts of Proprietary Concerns

UCBs may call for and verify the following documents before opening of accounts in the name of a proprietary concern (the
documents should be verified with the originals and certified copies should be retained by the bank), viz. (i) Identity as also the
address proof of the proprietor, such as passport, PAN card, Voter ID card, Driving licence, Ration Card with photo, etc. (ii) any
two of the documents for proof of the name, address and activity of the concern, like registration certificate, certificate/licence
issued by the Municipal authorities, sales and income tax returns, CST/VAT certificate, etc. These guidelines will apply to all
new customers. In respect of the accounts of existing customers, the above formalities may be completed before December 31,
2009.

(UBD.BPD.CO/NSB1/11/12.03.000/2009-10 dated September 29, 2009)

Department of Banking Operations and Development (DBOD) Circulars

Introduction of Advanced Approaches of Basel II Framework in India – Time Schedule

It is considered desirable to lay down a timeframe for implementation of the advanced approaches in India. This would enable
the banks to plan and prepare for their migration to the advanced approaches for credit risk and operational risk, as also for the
Internal Models Approach (IMA) for market risk. Keeping in view the likely lead time that may be needed by the banks for
creating the requisite technological and the risk management infrastructure, including the required databases, the MIS and
the skill up-gradation, etc., it is proposed to lay down the time schedule for implementation of the advanced approaches for the
regulatory capital measurement. (Please refer the original circulars for details of the timeframe)

The banks are advised to undertake an internal assessment of their preparedness for migration to advanced approaches, in the
light of the criteria envisaged in the Basel II document, as per the aforesaid time schedule, and take a decision, with the
approval of their Boards, whether they would like to migrate to any of the advanced approaches. The banks deciding to migrate
to the advanced approaches may approach us for necessary approvals, in due course, as per the stipulated time schedule. If,
the result of a bank’s internal assessment indicates that it is not in a position to apply for implementation of advanced approach
by the above mentioned dates, it may choose a later date suitable to it based upon its preparation. Banks, at their discretion,
would have the option of adopting the advanced approaches for one or more of the risk categories, as per their preparedness,
while continuing with the simpler approaches for other risk categories, and it would not be necessary to adopt the advanced
approaches for all the risk categories simultaneously. However, the banks should invariably obtain prior approval of the RBI for
adopting any of the advanced approaches.

(DBOD.BP.BC.No. 23 /21.06.001/2009-10 dated July 7, 2009)

Grievance Redressal Mechanism in Banks

Banks are advised to ensure that the names of the officials displayed at the branches who can be contacted for redressal of
complaints also include the name and other details of the concerned Nodal Officer appointed under the Banking Ombudsman
Scheme, 2006. Further, banks may also display on their web-sites, the names and other details of the officials at their Head

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Office / Regional Offices / Zonal Offices who can be contacted for redressal of complaints. This list should also include the
names of the Nodal Officers / Principal Nodal Officers appointed under the Banking Ombudsman Scheme, 2006. Banks may
also display the names, addresses, telephone numbers and fax numbers of their CMD / CEO, Line Functioning Heads for
operations such as, Credit Cards, Loans and Advances, Retail Banking, Personal Banking, Rural / Agricultural Banking, SME
Banking etc., to enable their customers to approach them in case of need, if necessary.

(DBOD.No.Leg.BC.24 /09.07.005/2009-10 dated July 21, 2009)

Inter-Bank Participation

Henceforth, Regional Rural Banks (RRBs) can also issue Inter-Bank Participation Certificates (IBPCs) of a tenor of 180 days on
risk sharing basis to scheduled commercial banks against their priority sector advances in excess of 60% of their outstanding
advances.

(DBOD No.BP.BC. 28 /21.04.141/2009-10 dated August 4, 2009)

Implementation of the New Capital Adequacy Framework

It has been decided that banks may submit their ICAAP document latest by the end of first quarter (i.e. April – June) of the
relevant financial year.

(DBOD.No.BP.BC. 29 / 21.06.001 / 2009-10 dated August 12, 2009)

Payment of Interest on Accounts Frozen by Banks

Banks were advised to obtain a request letter from the customer for renewal for a term equal to the original term, on maturity. On
a review, it is felt that instead of renewing it for a term equal to the original term, it would be appropriate if the depositor is given
the option to choose the term for renewal of the deposit. Banks may, while obtaining the request letter from the depositor for
renewal, also advise him to indicate the term for which the deposit is to be renewed. In case the depositor does not exercise his
option of choosing the term for renewal, banks may renew the same for a term equal to the original term.

(DBOD.No.Leg.BC.30 /09.07.005/2009-10 dated August 12, 2009); (UBD (PCB) BPD Cir No. 4 /13.01.000/2009-10 dated
August 20, 2009)

Collection of Account Payee Cheque – Prohibition on Crediting Proceeds to Third Party Account

In order to facilitate collection of cheques from a payment system angle, account payee cheques deposited with the sub-
member for credit to their customers’ account can be collected by the member bank (referred to as the sponsor member) of the
Clearing House. Under such arrangements, there should be clear undertaking to the effect that the proceeds of the account
payee cheque will be credited to the payee’s account only, upon realisation.

(DBOD.BP.BC No. 32 / 21.01.001/ 2009-10 dated August 27, 2009)

Prudential Treatment in respect of Floating Provisions

It has been decided to defer the implementation of paragraph (iv) of the circular dated March 25, 2009 ibid until further advice.
Accordingly, banks will continue to have the choice between deducting their existing floating provisions from gross NPAs to
arrive at net NPAs or reckoning it as part of Tier II capital subject to the overall ceiling of 1.25% of total Risk Weighted Assets.
(DBOD.No.BP.BC. 33/21.04.048/2009-10 dated August 27, 2009)

Guidelines on Exchange Traded Interest Rate Derivatives

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It is clarified that banks are not allowed to undertake transactions in IRFs on behalf of clients. These guidelines will also be
applicable to overseas branches of Indian banks. Banks are advised to ensure adherence to our circular dated December 28,
2005 as regards setting of limits for non-option derivative contracts.

(DBOD.BP.BC. No.34 /21.04.157/2009-10 dated August 28, 2009)

ADWDRS – 2008 - Prudential Norms on Income Recognition, Asset Classification and Provisioning and
Capital Adequacy

Government of India has now decided to extend the last date of payment of 75% of overdue portion by the ‘other farmer’ under
ADWDR for another six months beyond June 30, 2009, i.e. up to December 31, 2009. The Government of India has also
advised that the banks/lending institutions are allowed to receive even less than 75% of the eligible amount under OTS
provided the banks/lending institutions bear the difference themselves and do not claim the same either from the Government
or from the farmer. The Government will pay only 25% of the actual eligible amount under debt relief. The Government has also
clarified that the lending institutions would not charge any interest on the eligible amount for the period from February 29, 2008
to June 30, 2009. However, the banks may charge normal rate of interest on the eligible amount from July 01, 2009 up to the
date of settlement.

Where the farmers covered under the Debt Relief Scheme have given the undertaking, agreeing to pay their share under the
OTS, their relevant accounts may be treated by banks as ‘;standard’; / ‘;performing’; provided (a) adequate provision is made
by the banks for the loss in present value (PV) terms for all the receivables due from the borrowers. (For computing the amount
of loss in PV terms under the Scheme, the balance amount receivable from the farmers may be assumed to be due on
December 31, 2009, and the interest payments would be as per paragraph 3 above. The cash flows should be discounted to the
present value at the interest rate at which the loan was granted including the element of interest subsidy, if any, available from
the Government.) and (b) such farmers pay their share of the settlement latest by the revised last date, i.e. December 31,
2009. In case, however, the payments are delayed by the farmers beyond December 31, 2009, the outstanding amount in the
relevant accounts of such farmers shall be treated as NPA. The asset classification of such accounts shall be determined with
reference to the original date of NPA, (as if the account had not been treated as performing in the interregnum based on the
aforesaid undertaking). On such down-gradation of the accounts, additional provisions as per the extant prudential norms
should also be made.

It is now clarified that in case of ‘other farmers’ eligible for debt relief, after the ‘other farmer’ has paid his entire share of 75%,
banks may open an account for Debt Relief Scheme, similar to the one opened for the receivables from GOI under the Debt
Waiver Scheme, and bearing the nomenclature “Amount receivable from Government of India under Agricultural Debt Relief
Scheme 2008”. This amount may also be reflected in Schedule 9 (Advances) of the Balance Sheet.

(DBOD.No.BP.BC. 35/21.04.048/2009-10 dated August 31, 2009); (RPCD.CO.RRB.BC No. 20/03.05.72/2009-10 dated
September 11, 2009);(RPCD.CO.RF.BC. No.23 /07.37.02/2009-10 dated September 16, 2009)

Maintenance of Statutory Liquidity Ratio (SLR)

The proposed cash management bill will be treated as Government of India treasury Bills under clause (c) (ii) of the Notification
dated February 13, 2008 and accordingly shall be treated as SLR securities.

(DBOD.No.Ret.BC.36/12.02.001/2009-10 dated September 01, 2009); (RPCD.CO.RRB.BC No. 17/ 03.05.28(B)/ 2009-10
dated September 4, 2009)

Issue of Subordinated Debt for Raising Tier II Capital

It has been decided to permit banks to issue subordinated debt as Tier II capital with call and step-up options. The terms and
conditions are given in the Annex. Banks should ensure that the terms and conditions are strictly adhered to. (Please refer to the
original circular for detailed guidelines).

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(DBOD.No.BP.BC. 38 /21.01.002/2009-10 dated September 7, 2009)

Gold Card Scheme for Exporters

It has been decided to partially modify paragraph 3.1.3 of our circular dated May 18, 2004 and dispense with the requirement of
overdue export bills not exceeding 10% of the previous year’s

(DBOD.No. Dir (Exp). BC. 39/04.02.001/2009-10 dated September 7, 2009)

Maintenance of Statutory Liquidity Ratio (SLR)

With a view to disseminating information on the SLR status of a Government security, it has been decided that (i) the SLR status
of securities issued by the Government of India and the State Governments will be indicated in the Press Release issued by the
Reserve Bank of India at the time of issuance of the securities; and (ii) an updated and current list of the SLR securities will be
posted on the Reserve Bank’s website (www.rbi.org.in) under the link “Database on Indian Economy”.

(DBOD No. Ret. BC. 41/12.02.001/2009-10 dated September 08, 2009)

Classification of Exposures as Commercial Real Estate (CRE) Exposures

The final guidelines on classification of CRE Exposures are now given in the Annex to the circular. It may be clarified that the
guidelines are based on principles and the examples given in Appendix 2 are illustrative and not exhaustive. Based on the
principles and the examples, banks should be able to determine whether an exposure is CRE or not and should record a
reasoned note justifying the classification. Further, it is possible that an exposure could have multiple classifications, such as
CRE, Infrastructure Lending, Capital Market Exposure, etc. In that case, in all regulatory reporting to the Reserve Bank, the
exposure should be reported under all relevant classifications, with a footnote to avoid double counting, and would attract all
regulatory concessions and limits, if any, applicable to the classifications. The guidelines contained in this circular would be
applicable with immediate effect. (For details, please refer to the original circular).

(DBOD.BP.BC.No. 42 /08.12.015/ 2009-10 dated September 9, 2009)

KYC Norms/AML Standards and Obligation under PMLA, 2002

The Prevention of Money Laundering (Amendment) Act, 2009 (No. 21 of 2009) has come into force with effect from June 01,
2009. Banks are advised to maintain for at least ten years from the date of transaction between the bank and the client, all
necessary records of transactions referred to at Rule 3 of the PMLA Rules, both domestic or international, which will permit
reconstruction of individual transactions (including the amounts and types of currency involved, if any) so as to provide, if
necessary, evidence for prosecution of persons involved in criminal activity. However, records pertaining to the identification of
the customer and his address (e.g. copies of documents like passports, identity cards, driving licenses, PAN card, utility bills
etc.) would continue to be preserved for at least ten years after the business relationship is ended.

In the event of an existing customer or the beneficial owner of an existing account, subsequently becoming a Politically
Exposed Person PEP, banks should obtain senior management approval to continue the business relationship and subject the
account to the CDD measures as applicable to the customers of PEP category including enhanced monitoring on an ongoing
basis. The Principal Officer and other appropriate staff should have timely access to customer identification data and other CDD
information, transaction records and other relevant information. Banks should ensure that the Principal Officer is able to act
independently and report directly to the senior management or to the Board of Directors.

(DBOD. AML.BC. No.43 /14.01.001/2009-10 dated September 11, 2009); RPCD.CO.RRB. BC.No. 27 / 03.05.33(E)/ 2009-10
dated September 29, 2009);

Fraud Risk Management System in Banks

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In view of the above observations made by the BFS, banks are advised to initiate necessary action at their end at the earliest.
Banks may, with the approval of their respective Boards, frame internal policy for fraud risk management and fraud
investigation function, based on the above governance standard relating to the ownership of the function and accountability for
malfunctioning of the fraud risk management process in their banks. The broad governance framework dictated by the above
standard for ownership and accountability may rest on defined and dedicated organizational set up and operating processes.
(please refer to the original circular for the governance framework).

(DBS. CO. FrMC. BC. No. 7 /23.04.001/2009-10 dated September 16, 2009)

Unlawful Activities (Prevention) Act, 1967 - Obligation of Banks

Banks are advised to strictly follow the procedure laid down in the UAPA Order dated August 27, 2009 (copy enclosed) and
ensure meticulous compliance to the Order issued by the Government. Banks are advised that on receipt of the list of
individuals and entities subject to UN sanctions (referred to as designated lists) from RBI, they should ensure expeditious and
effective implementation of the procedure prescribed under Section 51A of UAPA in regard to freezing/unfreezing of financial
assets of the designated individuals/entities enlisted in the UNSCRs and especially, in regard to funds, financial assets or
economic resources or related services held in the form of bank accounts. (Please refer to the original circular for the detailed
instructions.)

(DBOD. AML.BC. No. 44 /14.01.001/2009-10 dated September 17, 2009)

Exposure to Real Estate Sector- Assessment of Group Risk

It has been observed that some of the companies operating in the real estate sector have significant exposure in the form of
advances, investments, etc. to their subsidiaries and other group or related entities. As a matter of prudence, banks may
meticulously assess the inherent group risk of their borrowal accounts falling under the purview of real estate sector. Further,
while assessing the loan requirements of large builders/land developers, they may carefully analyse the financial
credentials/viability of the borrowers on a consolidated basis supported by the consolidated accounts/position of the group.
They may also examine the financial credentials/viability of the relevant unconsolidated related entities such as Special
Purpose Vehicles (SPVs).

(DBS.CO.No. PP. BC. 8/11.01.005/ 2009-10 dated September 24, 2009)

Computation of NPA Levels

In consultation with Indian Banks’ Association, it has been decided that (i) On an account turning NPA, banks should reverse
the interest already charged and not collected by debiting Profit and Loss account, and stop further application of interest.
However, banks may continue to record such accrued interest in a Memorandum account in their books, as is the practice
currently followed by some banks, (ii) For the purpose of computing Gross Advances, interest recorded in the Memorandum
account should not be taken into account. Banks are, therefore, advised to compute their Gross Advances, Net Advances,
Gross NPAs and Net NPAs, as per the annexed format with immediate effect.

(DBOD.No.BP.BC. 46 /21.04.048/2009-10 dated September 24, 2009)

Department of Payment and Settlement Systems (DPSS) Circulars

Reconciliation of transactions at ATMs failure – Time limit

The banks may follow the following directives. (i) It is mandatory for the banks to reimburse the customers, the amount
wrongfully debited on account of failed ATM transactions, within a maximum period of 12 working days from the date of receipt
of the customer complaint, (ii) For any failure to re-credit the customers account within 12 working days from the date of receipt

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of the complaint, the bank shall pay compensation of Rs.100/-, per day, to the aggrieved customer. This compensation shall be
credited to the customer’s account automatically without any claim from the customer, on the same day when the bank affords
the credit for the failed ATM transaction, (iii) The issuer bank is entitled to claim such compensation paid to the customer from
the acquirer bank, if the delay is attributed to the latter. By the same logic the ATM network operators shall compensate the
banks for any delay on their part, (iv) Banks shall extend the scope of concurrent audit to cover cases of delay in reimbursing
the customers for failed ATM transactions, (v) Each bank shall place a quarterly review of ATM transactions to its Board of
directors, indicating inter alia, the quantum of penalties paid, reasons thereof and the actions taken to avoid recurrence of such
instances. A copy of the note along with the observations of the Board shall be forwarded to the Reserve Bank of India.

(DPSS No.101/02.10.02/2009-2010 dated July 17, 2009)

Cash Withdrawal at Point-of-Sale (POS)

As a further step towards enhancing the customer convenience in using the plastic money, it has been decided to permit cash
withdrawals at POS terminals. To start with, this facility will be available for all debit cards issued in India, upto Rs.1000/- per
day. The condition subject to which this facility is being extended is given in the Annex. Banks may obtain the approval of their
Board of Directors for offering this facility. The note put up to the Board should incorporate the product profile, risk perceived by
the bank and the risk mitigation measures.

(DPSS.CO.PD.No. 147/02.14.003/ 2009-10 dated 22nd July 2009)

National Electronic Funds Transfer (NEFT) System – Business Continuity Plan

With the increase in reach and volumes, a well-documented and tested Business Continuity Plan (BCP) with adequate
Disaster-Recovery (DR) preparedness assumes significance. Needless to stress, only periodic DR drills can ensure
availability and operation of the NEFT system to a reasonable extent in case of any contingency. DR drills involving IDRBT and
the NEFT back-up arrangements at our data centre are carried out by us at periodic intervals. It is presumed that adequate
back-up arrangements are in place in your bank for assuring availability of the NEFT system and NEFT operations are carried
out using the DR infrastructure at regular intervals, at least once in a quarter. To ensure completeness of testing, banks also
participate in the NEFT DR drills conducted by us periodically, from their alternate / back-up / DR sites. Our NEFT Clearing
Centre at Nariman Point, Mumbai will be reviewing the back-up arrangements in consultation with banks, and IDRBT will also
be extending requisite support for the same. Banks may ensure that adequate DR arrangements are in place and your bank
participates effectively in the NEFT DR drills carried out by us.

(DPSS (CO) EPPD No.192 / 04.03.02 / 2009-10 dated July 29, 2009)

Issuance and Operation of Prepaid Payment Instruments in India

It has now been decided to permit other persons to issue mobile phone based semi-closed system pre-paid payment
instruments. The entities proposing to issue such instruments shall fully comply with the above guidelines. Entities issuing
mobile phone based semi-closed payment instruments shall specifically note to ensure full compliance to the safeguards
against money laundering (KYC/AML/CFT) provisions. The mobile phone based semi-closed payment instruments issued by
other persons shall also comply with the following conditions. (i) The maximum value of such instruments shall not exceed Rs
5000/-, (ii) The purchase/reloading of these instruments against the value of airtime/talktime shall not be permitted, (iii) This
facility shall be enabled only to facilitate purchase of goods and services. Person-to-person transfer of value shall not be
permitted. All persons proposing to operate payment systems involving the issuance of these Pre-paid Payment Instruments
shall seek authorization from the Reserve Bank of India, under the Payment and Settlement Systems Act, 2007. The
application for authorization shall also include the risk management process that would be adopted by the entity.

(DPSS.CO.PD.No.344/02.14.06/ 2009-10 dated August 14, 2009)

(Compiled by S. Thyagarajan, Member of Faculty. College of Agricultural Banking, Pune)

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