A press report – RBI Data Shows India’s Bank Fraud is As High As Rs. 60,000 Crore


Reserve Bank of India (RBI) data, which a Reuters reporter obtained through a right-to-information request, shows state-run banks have reported 8,670 “loan fraud” cases totalling Rs. 612.6 billion ($9.58 billion) over the last five financial years up to March 31, 2017.

 PNB recorded 389 cases of loan fraud totalling Rs. 65.62 billion over the last five financial years

  1. Punjab National Bank claims $1.77 billion fraud by Nirav Modi
  2. An RBI report shows 8,670 cases loan fraud cases in the last 5 years
  3. The loan frauds, reported by state-run banks, total over Rs.60,000 crores
 The central bank has recorded data that shows the problem runs far deeper and wider.

Reserve Bank of India (RBI) data, which a Reuters reporter obtained through a right-to-information request, shows state-run banks have reported 8,670 “loan fraud” cases totalling Rs. 612.6 billion ($9.58 billion) over the last five financial years up to March 31, 2017.

Loan frauds typically refer to cases where the borrower intentionally tries to deceive the lending bank and does not repay the loan.

The figures expose the magnitude of the problem in a banking sector already under pressure after years of poor lending practices. Bad loans surged to a record peak of nearly $149 billion last year.

Bank loan frauds have steadily increased as well, reaching Rs. 176.34 billion in the latest financial year from Rs. 63.57 billion in 2012-13, according to the data, which doesn’t include the PNB case.

One of the leading legal experts expressed that “This might be the tip of the iceberg or the middle, and that is the worry,” and “The fact is we don’t know what else is out there.”

The Reserve Bank of India,  in its Financial Stability Report, called frauds in banks and financial institutions “one of the emerging risks to the financial sector”.

“In a number of large value frauds, serious gaps in credit underwriting standards were evident,” the RBI said, adding that some of the gaps include lack of continuous monitoring of cash flows and cash profits, diversion of funds, double financing and general credit governance issues in banks.

The RBI has been commended for forcing Indian banks to fully disclose its bad loans, speed up their recovery, and stop hiding fraud cases as non-performing assets.

Yet to some critics, the RBI has, at the same time, been too guarded about publicly sharing data on loan defaults or fraudulent loans. This is partly due to legal constraints on disclosing individual cases and worries investors would pummel the affected banks, making loan recovery even harder.

India’s biggest lender, State Bank of India reported 1,069 loan fraud cases in the last five financial years but did not disclose the amount.

The magnitude of the bad debt in India forced the government last year to bail out the sector by pledging to inject $32 billion over this financial year and next.

Yet analysts and credit rating agencies have long warned that solving the bad debt at India’s banking sector needs to also involve wholesale reforms of the lending practices that led to the surge in bad loans.

Reserve Bank cautions regarding risk of virtual currencies including Bitcoins


PRESS RELEASES

Date : Dec 05, 2017
Reserve Bank cautions regarding risk of virtual currencies including Bitcoins
Attention of members of public is drawn to the Press Release issued by the Reserve Bank of India (RBI) on December 24, 2013, cautioning users, holders and traders of Virtual Currencies (VCs) including Bitcoins regarding the potential economic, financial, operational, legal, customer protection and security related risks associated in dealing with such VCs.

Vide press release dated February 1, 2017, RBI has also clarified that it has not given any licence/authorisation to any entity/company to operate such schemes or deal with Bitcoin or any VC.

In the wake of significant spurt in the valuation of many VCs and rapid growth in Initial Coin Offerings (ICOs), RBI reiterates the concerns conveyed in the earlier press releases.

Jose J. Kattoor
Chief General Manager

Press Release: 2017-2018/1530

BITCOINS AND VIRTUAL CURRENCIES

In India, besides the RBI, the government, too, has made public its discomfort with bitcoin.

 

On Nov. 30, finance minister Arun Jaitley said India does not recognise virtual currency as legal tender. Earlier this year, a committee set up by his ministry had reportedly recommended banning cryptocurrencies over fears that they could be used to launder money and perpetuate frauds.

 

These warnings come in the wake of bitcoin’s skyrocketing value—up more than 1,000% this year. In India, its price has almost doubled in a month, from Rs4.55 lakh ($7,070) on Nov. 01 to Rs8.6 lakh on Dec.05.

 

In spite of the strong warnings, the cryptocurrency exchange operators remain unfazed.

 

The spike has led to a buying frenzy.

 

In fact, measures to curb the use of cryptocurrencies have been gaining momentum across Asia.   The central banks of Indonesia and Bangladesh have even barred the use of bitcoin as a payment tool.  In September, China shut down bitcoin exchanges and banned initial coin offerings.  On Nov. 29, the vice-president of the European Central Bank warned against investing in bitcoin at such soaring prices. The governor of the Bank of France cautioned against its potential hazards, as did Russian president Vladimir Putin and Germany’s central bank.

Meanwhile, rallying past all warning signs, bitcoin is at a record high, having crossed the $12,000 mark today (Dec. 06).

It is further said that the Government must take strong steps to stop the transactions in virtual currencies and warnings will not work in India.

Rs.17000 Crores Deposited in 58000 accounts and withdrawn post dmonetisation – investigation is on


The Ministry of Corporate Affairs has said that its investigation has found thousands of dubious banking transactions in the aftermath of note ban on November 8, 2016.

The Ministry of Corporate Affairs in a statement said that about Rs 17,000 crore was deposited in 58,000 accounts and withdrawn from the same and some of the bank accounts had a negative opening balance on November 8, 2016.

“Preliminary enquiry on the basis of information received from 56 banks in respect of 35,000 companies involving 58,000 accounts has revealed that an amount of over Rs 17,000 crore was deposited and withdrawn post demonetisation,” the statement read.

“In one case, a company which had a negative opening balance on 8th November, 2016, deposited and withdrew Rs 2,484 crore post-demonetisation,” it added.

On the basis of its investigation “around 2.24 lakh companies have been struck off till date for remaining inactive for a period of two years or more.” Following the massive drive to strike off the defaulting companies, restrictions have been imposed on operation of their bank accounts.

ACTION BY AGENCIES

These companies have been barred from “sale and transfer of moveable and immoveable properties”. The Centre has shared information about defaulting companies with the respective governments depending on the location of the firm.

Enforcement authorities including Central Board of Direct Taxes, Financial Intelligence Unit, Department of Financial Services and the Reserve Bank of India have also been advised to take further action based on the preliminary enquiry.

“The Prime Minister’s Office has constituted a Special Task Force under Joint Chairmanship of Revenue Secretary and Secretary, Corporate Affairs, to oversee the drive against such defaulting companies with the help of various enforcement agencies,” the statement issued by the Ministry of Corporate Affairs said.

“The Special Task Force has so far met five times and action has been initiated against several defaulting companies, which is expected to help in the drive against black money,” it added.

Payment systems to remain open on all days from March 25, 2017 to April 1, 2017-RESERVE BANK OF INDIA


RBI/2016-17/257
DPSS.CO.CHD.No./2695/03.01.03/2016-17

March 25, 2017

The Chairman and Managing Director / Chief Executive Officer
All Scheduled Commercial Banks including Regional Rural Banks/
Urban Co-operative Banks / State Co-operative Banks /
District Central Co-operative Banks/Local Area Banks

A reference is invited to the circulars DPSS.CO.CHD.No./2656/03.01.03/2016-17 dated March 23, 2017 on “Special Clearing operations on March 30 and 31, 2017” and DBR.No.Leg.BC.55/09.07.005/2016-17 dated March 24, 2017 on “All Agency Banks to remain open for public on all days from March 25, 2017 to April 1, 2017”.

2. With a view to facilitate accounting of all the Government transactions for the current financial year (2016-17) by March 31, 2017, it has been decided that all payment systems, including RTGS and NEFT would operate, as on a normal working day, during the period  March 25 to April 1, 2017 (including Saturday, Sunday and all holidays). Besides, the extended timings on March 30 & 31, 2017 for the centralised payment systems viz., RTGS & NEFT, have already been a advised to the member banks via a broadcast message.

Yours faithfully

(Nanda S. Dave)
Chief General Manager-in-Charge

Limits on Cash withdrawals from Bank accounts and ATMs – Restoration of status quo ante – RBI


RBI/2016-17/217
DCM (Plg) No. 2905/10.27.00/2016-17

January 30, 2017

The Chairman / Managing Director / Chief Executive Officer,
Public Sector Banks / Private Sector Banks / Foreign Banks,
Regional Rural Banks / Urban Co-operative Banks,
State Co-operative Banks / District Central Co-operative Banks

Dear Sir/Madam,

Limits on Cash withdrawals from Bank accounts and ATMs – Restoration of status quo ante

Please refer to our circular DCM (Plg) No.1226/10.27.00/2016-17 dated November 08, 2016 placing limits on Cash withdrawals from bank accounts and ATMs in the wake of withdrawal of Legal Tender Character of Specified Bank Notes (SBN) and subsequent circulars DCM (Plg) Nos.1256, 1274, 1317, 1437, 2142 and 2559 dated November 11, 14, 21, 28, December 30, 2016 and January 16, 2017 respectively, providing for relief and relaxations therefrom.

2. On a review of the pace of remonitisation, it has been decided to partially restore status quo ante as under:

  1. Limits placed vide the circulars cited above on cash withdrawals from Current accounts/ Cash credit accounts/ Overdraft accounts stand withdrawn with immediate effect.
  2. The limits on Savings Bank accounts will continue for the present and are under consideration for withdrawal in the near future.
  3. Limits vide the circulars cited above placed on cash withdrawals from ATMs stand withdrawn from February 01, 2017. However, banks may, at their discretion, have their own operating limits as was the case before November 8, 2016, subject to 2 (ii) above.

3. Further, banks are urged to encourage their constituents to sustain the movement towards digitisation of payments and switching over of payments from cash mode to non-cash mode.

4. Please acknowledge receipt.

Yours faithfully,

(P Vijaya Kumar)
Chief General Manager

The daily limit of withdrawal from ATMs has been increased (within the overall weekly limits specified) with effect from January 01, 2017,from the existing ₹ 2,500/- to ₹ 4,500/- per day per card. -RBI


BI/2016-17/204
DCM (Plg) No. 2142/10.27.00/2016-17

December 30, 2016

The Chairman / Managing Director/ Chief Executive Officer,
Public Sector Banks/ Private Sector Banks / Foreign Banks/
Regional Rural Banks / Urban Cooperative Banks/ State Cooperative Banks
District central Cooperative Banks

Dear Sir,

Cash withdrawal from ATMs – Enhancement of daily limits

Please refer to our circular DCM (Plg) No. 1424/10.27.00/2016-17 dated November 25, 2016 on “Withdrawal of cash from bank deposit account – Relaxation”.

2. On a review of the position, the daily limit of withdrawal from ATMs has been increased (within the overall weekly limits specified) with effect from January 01, 2017, from the existing ₹ 2500/- to ₹ 4500/- per day per card. There is no change in weekly withdrawal limits.Such disbursals should predominantly be in the denomination of ₹ 500.

3. The relaxation of withdrawal limits as enabled by our circular DCM (Plg) No. 1437/10.27.00/2016-17 dated November 28, 2016 remains unchanged.

4. Please acknowledge receipt.

Yours faithfully,

(P Vijaya Kumar)
Chief General Manager

RELAXATION OF WITHDRAWAL LIMIT – RBI – IN CERTAIN CASES – WHEN NEW CURRENCY IS DEPOSITED IN LIEU OF BUSINESS OR REGULAR OFFICIAL TRANSACTION


RESERVE BANK OF INDIA

RBI/2016-17/163
DCM.No.1437/10.27.00/2016-17

November 28, 2016

The Chairman / Managing Director/ Chief Executive Officer,
Public Sector Banks/ Private Sector Banks / Foreign Banks /
Regional Rural Banks / Urban Cooperative Banks/
State Cooperative Banks/ District Central Cooperative Banks

Dear Sir,

Withdrawal of cash from bank deposit accounts – Relaxation

It has been reported that certain depositors are hesitating to deposit their monies into bank accounts in view of the current limits on cash withdrawals from accounts.

2. As it is impeding active circulation of currency notes, it has been decided, on careful consideration, to allow withdrawals of deposits made in current legal tender notes on or after November 29, 2016 beyond the current limits; preferably, available higher denominations bank notes of ₹ 2000 and ₹ 500 are to be issued for such withdrawals.

Yours faithfully,

(P Vijaya Kumar)
Chief General Manager

The Reserve Bank of India (RBI) on Monday clarified ( refer above notification or circular by RBI) that if deposits had been made in legal tender, then depositors could withdraw that amount over and above the Rs.24,000 weekly limit.

The move was aimed at allowing comfort to individuals who were hesitant to deposit legal tender following the withdrawal of high-value currency notes which came into effect from November 9.

“It has been decided, on careful consideration, to allow withdrawals of deposits made in current legal tender notes on or after November 29, 2016 beyond the current limits,” the RBI said in a statement.

The withdrawals could be preferably permitted in “available higher denominations bank notes of Rs.2,000 and Rs.500,” it said. The move will encourage small businesses such as shopkeepers to deposit cash in legal tender which they can fully withdraw.

Following the withdrawal of high-currency notes, the Centre had said that an individual could only withdraw Rs.24,000 in cash per week. “It has been reported that certain depositors are hesitating to deposit their monies into bank accounts in view of the current limits on cash withdrawals from accounts,” the RBI said, explaining its decision. Separately, the RBI also said Rs.8.1 lakh crore had been deposited in banks following the demonetisation move (as of November 27) while close to Rs.34,000 crore had been exchanged.

RBI-Withdrawal of cash – Weekly limit


Withdrawal of cash – Weekly limit
RBI/2016-17/158
DCM (Plg) No.1424/10.27.00/2016-16

November 25, 2016

The Chairman / Managing Director/ Chief Executive Officer,
Public Sector Banks/ Private Sector Banks / Foreign Banks/ Regional Rural
Banks / Urban Cooperative Banks/ State Cooperative Banks/ District Central Cooperative Banks

Dear Sir,

Withdrawal of cash – Weekly limit

Please refer to our circulars DCM (Plg) Nos. 1272/10.27.00/2016-17 and 1273/10.27.00/2016-17 dated November 13 and November 14, 2016, respectively. The banks are, hereby, advised that they may continue to allow their existing customers to withdraw cash from their accounts upto ₹ 24,000/- per week, till further instructions. The said limit include withdrawals from ATMs as stipulated in our circular DCM (Plg) No.1304/10.27.00/2016-17 dated November 20, 2016.

2. Please acknowledge receipt.

Yours faithfully,

(Suman Ray)
General Manager

Master Circular – Detection and Impounding of Counterfeit Notes


Reserve Bank of India

MASTER CIRCULARS

Master Circular – Detection and Impounding of Counterfeit Notes
RBI/2016-17/22
DCM (FNVD) G–6/16.01.05/2016-17

July 20, 2016

The Chairman / Managing Director,
Commercial Banks, Cooperative Banks, RRBs,
Private Banks, Foreign Banks and
Director of Treasuries of all States

Dear Sir / Madam,

Master Circular – Detection and Impounding of Counterfeit Notes

Please refer to the Master Circular DCM (FNVD) No.G-4/16.01.05/2015-16 dated July 1, 2015 (updated on 28 Sept 2015) consolidating the instructions issued till Sept. 28, 2015, relating to Detection and Impounding of Counterfeit Notes. The Master Circular has since been updated by incorporating the instructions issued till date and has been placed on the RBI website www.rbi.org.in.

The Master Circular is a compilation of the instructions contained in the circulars issued by RBI on the above subject which are operational as on the date of this Circular.

Yours faithfully,

(P Vijaya Kumar)
Chief General Manager
Encl: Master Circular


INDEX

CONTENTS
Para No Particulars
1 Authority to Impound Counterfeit Notes
2 Detection of counterfeit notes
3 Impounding of Counterfeit notes
4 Issue of Receipt to tenderer
5 Detection of counterfeit notes – Reporting to Police and other bodies
6 Examination of Banknotes Before Issuing over Counters, Feeding ATMs and Remitting to Issue Offices of RBI
7 Designating Nodal Bank Officer
8 Establishment of Forged Notes Vigilance Cell at Head Office of Bank
9 Provision of Ultra-Violet Lamp and Other Infrastructure
10 Reporting of Data – (I) Bank Branches (II) Cooperative Banks & RRBs
11 Preservation of Counterfeit Notes Received from Police Authorities
12 Detection of Counterfeit Notes – Training of Staff
Annex I
Annex II
Annex III
Annex IV
Annex V
Annex VI
Annex VII

RESERVE BANK OF INDIA
DEPARTMENT OF CURRENCY MANAGEMENT
MASTER CIRCULAR – 2016-17

Detection and Impounding of Counterfeit Notes

Para 1 Authority to Impound Counterfeit Notes

The Counterfeit Notes can be impounded by-

(i) All branches of Public Sector Banks.
(ii) All branches of Private Sector Banks and Foreign Banks.
(iii) All branches of Co-operative Banks & Regional Rural Banks.
(iv) All Treasuries and Sub-Treasuries.
(v) Issue Offices of Reserve Bank of India.

Para 2 Detection of counterfeit notes

Banknotes tendered over the counter / received directly at the back office / currency chest through bulk tenders should be examined for authenticity through machines.

No credit to customer’s account is to be given for counterfeit notes, if any, detected in the tender received over the counter or at the back-office / currency chest.

In no case, the counterfeit notes should be returned to the tenderer or destroyed by the bank branches / treasuries. Failure of the banks to impound counterfeit notes detected at their end will be construed as willful involvement of the bank concerned, in circulating counterfeit notes and penalty will be imposed for violation of Directive No.3158/09.39.00 (Policy)/2009-10 dated November 19, 2009 issued by the Reserve Bank.

Para 3 Impounding of counterfeit notes

Notes determined as counterfeit shall be stamped as “COUNTERFEIT NOTE” and impounded in the prescribed format (Annex I). Each such impounded note shall be recorded under authentication, in a separate register.

Para 4 Issue of Receipt to Tenderer

When a banknote tendered at the counter of a bank branch/back office and currency chest or treasury is found to be counterfeit, an acknowledgement receipt in the prescribed format (Annex II) must be issued to the tenderer, after stamping the note as in Paragraph 2 ibid. The receipt, in running serial numbers, should be authenticated by the cashier and tenderer. Notice to this effect should be displayed prominently at the offices / branches for information of the public. The receipt is to be issued even in cases where the tenderer is unwilling to countersign it.

Para 5 Detection of Counterfeit Notes – Reporting to Police and other bodies

The following procedure should be followed while reporting incidence of detection of counterfeit note to the Police:

For cases of detection of counterfeit notes upto 4 pieces, in a single transaction, a consolidated report in the prescribed format (Annex III) should be sent by the Nodal Bank Officer to the police authorities or the Nodal Police Station, along with the suspect counterfeit notes, at the end of the month.

For cases of detection of counterfeit notes of 5 or more pieces, in a single transaction, the counterfeit notes should be forwarded by the Nodal Bank Officer to the local police authorities or the Nodal Police Station for investigation by filing FIR in the prescribed format (Annex IV).

A copy of the monthly consolidated report / FIR shall be sent to the Forged Note Vigilance Cell constituted at the Head Office of the bank (only in the case of banks), and in the case of the treasury, it should be sent to the Issue Office of the Reserve Bank concerned.

Acknowledgement of the police authorities concerned has to be obtained for note/s forwarded to them both as consolidated monthly statement and FIR. If the counterfeit notes are sent to the police by insured post, acknowledgement of receipt thereof by the police should be invariably obtained and kept on record. A proper follow-up of receipt of acknowledgement from the police authorities is necessary. In case, any difficulty is faced by the Offices / Branches due to reluctance of the police to receive monthly consolidate statement / file FIRs, the matter may be sorted out in consultation with the Nodal Officer of the police authority designated to coordinate matters relating to investigation of counterfeit banknotes cases. The list of Nodal Police Station may be obtained from the respective Regional Office of Reserve Bank.

Banks should also monitor the patterns / trends of such detection and suspicious trends / patterns should be brought to the notice of RBI /Police authorities immediately.

The progress made by banks in detection and reporting of counterfeit notes to Police, RBI, etc. and problems thereof, should be discussed regularly in the meetings of various State Level Committees viz. State Level Bankers’ Committee (SLBC), Standing Committee on Currency Management (SCCM), State Level Security Committee (SLSC), etc.

The data on detection of counterfeit Indian notes at bank branches & treasuries should be included in the monthly Returns forwarded to the Reserve Bank Issue Offices as indicated in para 10 below.

The definition of ‘counterfeiting’ in the Indian Penal Code covers currency notes issued by a foreign government authority as well. In case of suspected foreign currency note received for opinion from the police and government agencies, etc., they should be advised to forward the case to the Interpol Wing of the CBI, New Delhi after prior consultation with them.

The Government of India has framed Investigation of High Quality Counterfeit Indian Currency Offences Rules, 2013 under Unlawful Activities (Prevention) Act (UAPA), 1967. The Third Schedule of the Act defines High Quality Counterfeit Indian Currency Note. Activity of production, smuggling distribution and circulation of High Quality Counterfeit Notes has been brought under the ambit of UAPA, 1967.

Para 6 Examination of the Banknotes before Issuing over Counters, Feeding ATMs and Remitting to Issue Offices of the Reserve Bank

The banks should re-align their cash management in such a manner so as to ensure that cash receipts in the denominations of ₹ 100 and above are not put into re-circulation without the notes being machine processed for authenticity. The said instructions shall be applicable to all bank branches, irrespective of the volume of daily cash receipt. Any non-compliance will be construed as violation of the Directive No.3158/09.39.00 (Policy)/2009-10 dated November 19, 2009issued by the Reserve Bank.

In order to obviate complaints regarding receipt of counterfeit notes through ATMs, and to curb circulation of counterfeits, it is imperative to put in place adequate safeguards/checks before loading ATMs with notes. Dispensation of counterfeit notes through the ATMs would be construed as an attempt to circulate the counterfeit notes by the bank concerned.

Detection of counterfeits in chest remittances is also liable to be construed as willful involvement of the chest branches concerned in circulating Counterfeit Notes and may attract special investigation by police authorities, and other action like suspending the operation of the chest concerned.

Penalty at 100% of the notional value of counterfeit notes, in addition to the recovery of loss to the extent of the notional value of such notes, will be imposed under the following circumstances:

a) When counterfeit notes are detected in the soiled note remittance of the bank.

b) If counterfeit notes are detected in the currency chest balance of a bank during Inspection / Audit by RBI

In terms of circular No.DPSS.CO.PD2298/02.10.002/2011-12 dated June 20, 2012, the responsibility of ensuring the quality and genuineness of cash loaded at White Label ATMs would be that of the Sponsor Bank.

Para 7 Designating Nodal Bank Officer

Each bank should designate Nodal Bank Officer, district-wise and notify the same to the concerned Regional Office of RBI and Police Authorities. All cases of reporting of counterfeit note detection as indicated in Para 5 should be through the Nodal Bank Officer. The Nodal Bank Officer will also serve as the contact point for all counterfeit note detection related activities.

Para 8 Establishment of Forged Notes Vigilance Cell at Head Office of Bank

Each bank shall establish at its Head Office, a Forged Note Vigilance Cell to undertake the following functions:

  1. Dissemination of instructions issued by the Reserve Bank on counterfeit notes to bank’s branches. Monitoring the implementation of these instructions. Compilation of data on detection of counterfeit notes, and its submission to Reserve Bank and FIU-IND as per extant instructions. Follow-up of cases of counterfeit notes, with police authorities / designated nodal officer.
  2. Sharing of the information thus compiled with bank’s CVO and report to him / her all cases of acceptance / issue of counterfeit notes over the counters.
  3. Conducting periodic surprise checks at currency chests where shortages/ defective /counterfeit notes etc. are detected.
  4. Ensuring operation of Note Sorting Machines of appropriate capacity at all the currency chests / back offices and closely monitoring the detection of Counterfeit Notes and maintaining the record of the same. Ensuring that only properly sorted and machine examined banknotes are fed into the ATMs / issued over the counters and to put in place adequate safeguards, including surprise checks, both during the processing and in transit of notes.

Forged Note Vigilance Cell shall submit status report on a quarterly basis covering the aforesaid aspects to the Chief General Manager, Department of Currency Management, Reserve Bank of India, Central Office, Amar Building, Fourth Floor, Sir P. M. Road, Fort, Mumbai 400 001, and to the Issue office of the Regional office of Reserve Bank under whose jurisdiction the FNV Cell is functioning, within a fortnight from the conclusion of the quarter under report. The said report should be sent by mail. No hard copy need be sent.

In order to update the record of the addresses of the Forged Note Vigilance Cells, the bank shall furnish by e-mail, in the prescribed format (Annex V), the address etc. particulars to the Reserve Bank every year, as on 1st July. No hard copy need be sent.

Para 9 Provision of Ultra-Violet Lamp and Other Infrastructure

With a view to facilitating the detection of counterfeit notes, all bank branches / identified back offices should be equipped with ultra-violet lamps / other appropriate banknote sorting / detection machines. In addition, all currency chest branches should be equipped with verification, processing and sorting machines and should be used to their optimum capacity. Such machines should conform to the guidelines on ‘Note Authentication and Fitness Sorting Parameters’ prescribed by the Reserve Bank in May 2010.

The banks shall maintain a daily record of the notes processed through the Note Sorting machines, including the number of counterfeits detected.

The banks should also consider providing at least one counting machine (with dual display facility) for public use at the counter.

Para 10 Reporting of Data to RBI

I By Bank branches

Data on counterfeit notes detected by all the branches of the bank shall be reported in the prescribed format, on a monthly basis. A statement (Annex VI) showing the details of counterfeit notes detected in the bank branches during the month shall be compiled and forwarded to the Issue Office of Reserve Bank concerned so as to reach them by 7th of the next month.

Under Rule 3 of Prevention of Money Laundering Rules, 2005, Principal Officers of banks are also required to report information on cash transactions where forged notes have been used as genuine note to The Director, FIU-IND, Financial Intelligence Unit- India, 6th Floor, Hotel Samrat, Chanakyapuri, New Delhi-110021, within seven working days.

A “nil “report may be sent in case no counterfeit has been detected during the month.

II By Co-operative Banks and Regional Rural Banks

Data on Counterfeit Notes detected by branches of Co-operative Banks and Regional Rural Banks should be furnished on monthly basis to the respective Issue Office of Reserve Bank in prescribed format (Annex VI).

Para 11 Preservation of Counterfeit Notes Received from Police Authorities

All Counterfeit Notes received back from the police authorities/courts may be carefully preserved in the safe custody of the bank and a record thereof be maintained by the branch concerned. Forged Note Vigilance Cell of the bank shall also maintain a branch-wise consolidated record of such Counterfeit Notes.

These Counterfeit Notes at branches should be subjected to verification on a half-yearly basis (on 31st March and 30th September) by the Officer-in- Charge of the bank office concerned. They should be preserved for a period of three years from the date of receipt from the police authorities.

They may thereafter be sent to the concerned Issue Office of Reserve Bank of India with full details.

Counterfeit notes, which are the subject matter of litigation in the court of law should be preserved with the branch concerned for three years after conclusion of the court case.

Para 12 Detection of Counterfeit Notes – Training of Staff

It is necessary to ensure that the cash handling staff in banks and treasuries / sub-treasuries is fully conversant with the security features of a banknote.

With a view to educating the branch staff on detection of counterfeit notes, the design and security features of all the banknotes shown in Annex VII have been supplied to all the banks / treasuries with instructions to display them prominently at the branches for information of the public. Posters of the 2005-06 series of banknotes have also been supplied to bank branches for display at the branches. Posters of the 2005-06 series are also available for download in http://www.paisaboltahai.rbi.org.in.

The Controlling Offices / Training Centers should also organise / conduct training programmes on the security features of banknotes for members of staff to enable detection of counterfeit notes at the point of receipt itself. The banks should ensure that all bank personnel handling cash are trained on features of genuine Indian bank notes. The Reserve Bank will also provide faculty support and training materials.


Annex I
(Paragraph 3)

Each banknote, which, on examination of various security features / parameters, is determined as a counterfeit one, shall be branded with a stamp “COUNTERFEIT BANKNOTE”. For this purpose, a stamp with a uniform size of 5 cm x 5 cm with the following inscription may be used.

COUNTERFEIT BANKNOTE IMPOUNDED

BANK / TREASURY/ SUB-TREASURY

BRANCH / CURRENCY CHEST

SIGNATURE

DATE


Annex II
(Paragraph 4)

Format – Acknowledgement Receipt to be issued to the tenderer of counterfeit notes

Name of the Bank / Treasury/ Sub-treasury:
Address:

Serial Number of the Receipt:
Date:

The note (s) described below received from…………………………….(Name and Address of the tenderer) is/are counterfeit and has/have therefore been impounded and stamped accordingly.

Serial number of the note deemed as counterfeit Denomination Parameter on which the note is deemed as counterfeit

Total number of counterfeit notes:

(Signature of the Tenderer)

(Signature of the counter staff)


Annex III
(Paragraph 5)

Consolidated Monthly Reporting for the month of ________

1. Name of the Bank / District:

2. Name and Address of the Nodal Officer:

3. Detail of counterfeit notes:

Date of detection Name of branch / currency chest Details of tenderer Denominations / pieces / serial numbers Security features breached

4. The counterfeit notes are enclosed.

5. Kindly acknowledge receipt.

(Authorised signatory)
Encl:


Annex- IV
(Paragraph 5)

Name of the Bank:
District:
Name and Address of the Nodal Bank Officer:
Ref. No. Date:

The Sr. Inspector of Police
___________Police Station,

Dear Sir,

Detection of counterfeit note/s – Request for investigation

We enclose the following counterfeit notes detected in our office on ________. The details of the counterfeit notes are furnished below.

2. As the printing and/or circulation of forged Indian Currency Notes is an offence under Sections 489A to 489E of the Indian Penal Code, we request you to lodge FIR and conduct the necessary investigation. In case it is decided to file criminal proceedings in the court of law, you may first arrange to send the notes to any of the Note Printing Presses, Forensic Science Laboratories etc. in terms of the provisions of Section 292(1) and 292(3) of the Code of Criminal Procedure) for examination. The expert opinion furnished may be produced in the court as evidence under Section 292 of the Criminal Procedure Code. The forged notes may please be returned to us after the completion of the investigation and/or proceedings in the court of law along with the detailed report of the investigation/decision of the court.

Denominations /Number of pieces Serial Number Notional Value Details of tenderer Name and Address of the branch / currency chest where detection took place Bank’s Entry No

3. The counterfeit notes are enclosed.

4. Please acknowledge receipt.

Yours faithfully,

Authorized Signatory
Encl:


Annex V
(Paragraph 8)

FORMAT FOR FURNISHING ADDRESS ETC. PARTICULARS OF FORGED NOTE VIGILANCE CELL (FNVC) TO RBI

(TO BE FURNISHED BY E-MAIL ON 1ST JULY EVERY YEAR)
REF: MASTER CIRCULAR DATED JULY1, 2012 ISSUED BY RBI

NAME OF THE BANK ADDRESS OF FNVC (WITH PIN CODE) NAME AND DESIGNATION OF OFFICER-IN-CHARGE TELEPHONE NO (WITH CODE). FAX NO. (WITH CODE) E-mail Address of the FNVC

We note to intimate immediately the changes, if any, in the particulars furnished above

Name of Authorised Official:
Designation:
Date:

NB: The completed format should be transmitted by e-mail, in MS-Excel on the following address-
E-mail
(No hard copy need be sent)


Annex VI
(Paragraph 10)

Name of the bank /District:
Statement showing the details of counterfeit banknotes detected in the
_______________ during the month of _______________

A. Details of counterfeit notes detected:

Name of branch / currency chest Type of detection Denomination-wise Details in pieces Total pieces
10 20 50 100 500 1000
FIR
Non-FIR
Pieces of notes processed

B) Details of cases filed with police:

Pending with Police at the beginning of the month Sent to Police during the month under report Returned by the Police Pending with the Police at the end of the month
No. of cases
No. of pieces

NB: Each FIR lodged comprises one case. The total number of forged notes covered by the FIR may be indicated in each of the columns above.

Forwarded to: –

1. The General Manager/Deputy General Manager, Reserve Bank of India, Issue

Department, ____________
(Signature)

Name & Designation of the Authorised Official

DEMONITISATION – RBI -FREQUENTLY ASKED QUESTIONS


1. Why is this scheme introduced?

The incidence of fake Indian currency notes in higher denomination has increased. For ordinary persons, the fake notes look similar to genuine notes, even though no security feature has been copied. The fake notes are used for antinational and illegal activities. High denomination notes have been misused by terrorists and for hoarding black money. India remains a cash based economy hence the circulation of Fake Indian Currency Notes continues to be a menace. In order to contain the rising incidence of fake notes and black money, the scheme to withdraw has been introduced.

2. What is this scheme?

The legal tender character of the existing bank notes in denominations of ₹500 and ₹1000 issued by the Reserve bank of India till November 8, 2016 (hereinafter referred to as Specified Bank Notes) stands withdrawn. In consequence thereof these Bank Notes cannot be used for transacting business and/or store of value for future usage. The Specified Bank Notes can be exchanged for value at any of the 19 offices of the Reserve Bank of India or at any of the bank branches of commercial banks/ Regional Rural Banks/ Co-operative banks or at any Head Post Office or Sub-Post Office.

District Central Cooperative Banks (DCCBs) can allow their existing customers to withdraw money from their accounts upto ₹ 24,000 per week upto November 24, 2016. No exchange facility against the specified bank notes (₹ 500 and ₹ 1000) or deposit of such notes should be entertained by DCCB’s. The Reserve Bank has accordingly advised all banks to permit withdrawal of cash by DCCBs from their accounts based on need.

3. Does the scheme apply to pre 2005 banknotes of ₹500 and ₹1000?

Yes, specified banknotes (SBN) include pre 2005 banknotes in the denominations of ₹500 and ₹1000.

4. How much value will I get?

You will get value for the entire volume of notes tendered at the bank branches / RBI offices.

5. Can I get all in cash?

No. You will get upto ₹4500 per person in cash exchange over the counter irrespective of the size of tender and anything over and above that will be receivable by way of credit to bank account.

6. Why I cannot get the entire amount in cash when I have surrendered everything in cash?

The Scheme does not provide for it, given its objectives.

7. ₹4500 cash is insufficient for my need. What to do?

You can use balances in bank accounts to pay for other requirements by cheque or through electronic means of payments such as Internet banking, mobile wallets, IMPS, credit/debit cards etc.

8. What if I don’t have any bank account?

You can always open a bank account by approaching a bank branch with necessary documents required for fulfilling the KYC requirements.

9. What if, if I have only JDY account?

A JDY account holder can avail the exchange facility subject to the caps and other laid down limits in accord with norms and procedures.

10. Where can I go to exchange the notes?

The exchange facility is available at all Issue Offices of RBI and branches of commercial banks/RRBS/ Co-operative banks or at any Head Post Office or Sub-Post Office.

11. Need I go to my bank branch only?

For exchange upto ₹4500 in cash you may go to any bank branch with valid identity proof.

For exchange over ₹4500, which will be accorded through credit to Bank account only, you may go to the branch where you have an account or to any other branch of the same bank.

In case you want to go to a branch of any other bank where you are not maintaining an account, you will have to furnish valid identity proof and bank account details required for electronic fund transfer to your account.

12. Can I go to any branch of my bank?

Yes you can go to any branch of your bank.

13. Can I go to any branch of any other bank?

Yes, you can go to any branch of any other bank. In that case you have to furnish valid identity proof for exchange in cash; both valid identity proof and bank account details will be required for electronic fund transfer in case the amount to be exchanged exceeds ₹4500.

14. Can I exchange ₹4500 more than once?

No. You can exchange upto ₹4500 only once. As per the Standard Operating Procedure advised to banks, while exchanging the specified banknotes, the bank branch concerned, issue office of RBI or post offices would put indelible ink mark on the right index finger of the customer so as to identify that he/she has exchanged the old currency notes. The indelible ink will be applied before the old notes are taken or new notes are given. Indelible ink on the index finger of the left hand or any other finger of the left hand may not be used as a pretext to deny exchange of old notes.

This procedure would be introduced to begin with in the metro cities and later extended to the other areas.

15. I have no account but my relative / friend has an account, can I get my notes exchanged into that account?

Yes, you can do that if the account holder relative/friend etc. gives you permission in writing. While exchanging, you should provide to the bank, evidence of permission given by the account holder and your valid identity proof.

16. Should I go to bank personally or can I send the notes through my representative?

Personal visit to the branch is preferable. In case it is not possible for you to visit the branch you may send your representative with an express mandate i.e. a written authorisation. The representative should produce authority letter and his / her valid identity proof while tendering the notes.

17. Can I withdraw from ATM?

The ATMs are progressively getting recalibrated. As and when they are recalibrated, the cash limit of such ATMs will stand enhanced to ₹ 2500/- per withdrawal. This will enable dispensing of lower denomination currency notes for about ₹ 500/- per withdrawal. Other ATMs which are yet to be recalibrated, will continue to dispense ₹ 2000/- till they are recalibrated.

Banks have also been advised to increase the Business Correspondents’ limit of dispensing cash to ₹ 2500/- for withdrawal from bank accounts.

18. What will be the levied ATM charges?

It has been decided that banks shall waive levy of ATM charges for all transactions (inclusive of both financial and non-financial transactions) by savings bank customers done at their own banks’ ATMs as well as at other banks’ ATMs, irrespective of the number of transactions during the month. This waiver is applicable on transactions done at ATMs from November 10, 2016 till December 30, 2016, subject to review.

19. Does the limit of ₹ 10,000 withdrawal apply to withdrawals from bank account of one bank from another bank?

The daily limit of ₹ 10000/- per day stands withdrawn. These limits are not applicable to cash withdrawal from a bank account by one bank from another bank, Post Office, Money changers operating at International airports and operators of White Label ATMs. The branches maintaining Currency Chests have been advised to accommodate the requests from other branches in their vicinity – linked or otherwise – for supply of cash.

20. Can I withdraw cash against cheque?

Yes, you can withdraw cash against withdrawal slip or cheque subject to a weekly limit of ₹ 24000/- (including withdrawals from ATMs and over the counter) from the bank accounts. The ceiling of ₹10,000/- in a day stands withdrawn. The limits apply upto November 24, 2016, after which these may be reviewed.

Business entities having Current Accounts which are operational for last three months or more will be allowed to draw ₹ 50,000/- per week. This can be done in a single transaction or multiple transactions.

21. Can I deposit Specified Bank Notes through ATMs, Cash Deposit Machine, cash Recycler and bank branches multiple times?

Yes, Specified Bank Notes can be deposited in Cash Deposits machines / Cash Recyclers or at bank branches more than once till December 30, 2016. At bank branches, customers should use separate pay-in-slips for depositing specified bank notes and other legal tender bank notes. (If a depositor has a mixed bunch of SBN and legal tender notes, he has to segregate them and submit two separate Pay-in slips).

22. Can I make use of electronic (NEFT/RTGS /IMPS/ Internet Banking / Mobile banking etc.) mode?

You can use NEFT/RTGS/IMPS/Internet Banking/Mobile Banking or any other electronic/ non-cash mode of payment.

23. How much time do I have to exchange the notes?

The scheme closes on December 30, 2016. The Specified banknotes can be exchanged at branches of commercial banks, Regional Rural Banks, Urban Cooperative banks, State Cooperative Banks and RBI till December 30, 2016 and even beyond, at specified RBI offices. As there is ample time, people need not rush to exchange putting avoidable strain on the banking branch network.

24. I am right now not in India, what should I do?

If you have Specified banknotes in India, you may authorise in writing enabling another person in India to deposit the notes into your bank account. The person so authorised has to come to the bank branch with the Specified banknotes, the authority letter given by you and a valid identity proof (Valid Identity proof is any of the following: Aadhaar Card, Driving License, Voter ID Card, Pass Port, NREGA Card, PAN Card, Identity Card Issued by Government Department, Public Sector Unit to its Staff)

25. I am an NRI and hold NRO account, can the exchange value be deposited in my account?

Yes, you can deposit the Specified banknotes to your NRO account.

26. I am a foreign tourist, I have these notes. What should I do?

You can purchase foreign exchange equivalent to ₹5000 using these Specified Bank Notes at airport exchange counters till November 24, 2016, provided you present proof of purchasing the Specified Bank Notes.

27. I have emergency needs of cash (hospitalisation, travel, life saving medicines) then what I should do?

Till the November 24, 2016 midnight, specified banknotes can be used as under:—

(a) for making payments in Government hospitals for medical treatment and pharmacies in Government hospitals for buying medicines with doctor’s prescription;

(b) at railway ticketing counters, ticket counters of Government or Public Sector Undertakings buses and airline ticketing counters at airports for purchase of tickets;

(c) for purchases at consumer cooperative stores operated under authorisation of Central or State Governments and the customers shall provide their identity proof;

(d) for purchase at milk booths operating under authorisation of the Central or State Governments;

(e) for purchase of petrol, diesel and gas at the stations operating under the authorisation of Public Sector Oil and Gas Marketing Companies;

(f) for payments at crematoria and burial grounds;

(g) at international airports, for arriving and departing passengers, who possess specified bank notes, the value of which does not exceed five thousand rupees to exchange them for notes having legal tender character;

(h) for foreign tourists to exchange foreign currency or specified bank notes, the value of which does not exceed five thousand rupees to exchange them for notes having legal tender character.

(i) for making payments in all pharmacies on production of doctor’s prescription and proof of identity;

(j) for payments on purchases LPG gas cylinders;

(k) for making payments to catering services on board, during travel by rail;

(l) for making payments for purchasing tickets for travel by suburban and metro rail services;

(m) for making payments for purchase of entry tickets for any monument maintained by the Archaeological Survey of India.

(n) for making payments towards any fees, charges, taxes or penalties, payable to the Central or State Governments including Municipal and local bodies;

(o) for making payments towards utility charges including water and electricity -which shall be restricted to individuals or households for payment of only arrears or current charges and no advance payments shall be allowed

28. Can I use the Specified banknotes to settle outstanding in my loan account?

Deposits of Specified bank Notes into all types of deposit/loan accounts is allowed subject to CTR/STR reporting.

29. What is proof of identity?

Valid Identity proof is any of the following: Aadhaar Card, Driving License, Voter ID Card, Pass Port, NREGA Card, PAN Card, Identity Card Issued by Government Department, Public Sector Unit to its Staff.

30. Where can I get more information on this scheme?

Further information is available on our website (www.rbi.org.in) and the website of the Government of India (www.finmin.nic.in)

31. What steps have been taken for queue management?

Banks have been advised to make arrangements for separate queues for Senior citizens and Divyang (disabled) persons. Similarly, separate queues should also be arranged for those who come to exchange SBN for cash and those who come to deposit into bank accounts.

The last date for submission of the annual life certificate for the government pensioners which is to be submitted in November every year has been extended upto January 15, 2017 to facilitate.

The Reserve Bank assures members of the public that enough cash in small denominations is also available at the Reserve Bank and banks. The Reserve Bank urges that public need not be anxious; need not come over to banks repeatedly to draw and hoard; Cash is available when they need it.

32. If I have a problem, whom should I approach?

You may approach the control room of RBI by email or on Telephone Nos 022 22602201/022 22602944

Withdrawal of Legal Tender Character of Specified Bank Notes – Compliance with provisions of 114B of the Income Tax Rules, 1962
RBI/2016-17/135
DCM (Plg) No.1287/10.27.00/2016-17November 16, 2016The Chairman / Managing Director/Chief Executive Officer
Public Sector Banks / Private Sector Banks/ Foreign Banks
Regional Rural Banks / Urban Co-operative Banks / State Co-operative BanksDear Sir,Withdrawal of Legal Tender Character of Specified Bank Notes –
Compliance with provisions of 114B of the Income Tax Rules, 1962Please refer to our Circular DCM (Plg) No.1226/10.27.00/2016-17 dated November 08, 2016 on the captioned subject. With a view to ensure compliance with provisions of 114B of the Income Tax Rules, 1962, the banks are advised as under:

  1. Anybody depositing more than ₹ 50,000/- in cash in their bank account has to submit a copy of the PAN card in case the bank account is not seeded with PAN
  2. In addition to the above provision, in the same IT Rules, PAN reporting requirements are there for other transactions, which banks need to insist upon.

2. The banks are, therefore, advised to take note of the above and ensure strict compliance with the provisions of 114B of the Income Tax Rules, 1962. Relevant provision 114B of the Income Tax Rules, 1962, is enclosed.Yours faithfully,(P Vijaya Kumar)
Chief General Manager
Encl: As above

Date : Nov 15, 2016
Withdrawal of Legal Tender Character of Specified Bank Notes: RBI asks Cooperative Banks to ensure Strict Compliance to its Instructions
There were reports that some cooperative banks were not strictly adhering to the instructions issued in connection with the withdrawal of legal tender status of the existing ₹ 500 and ₹ 1000 bank notes (specified bank notes). The Reserve Bank of India today informed that it has advised the Urban Cooperative Banks through its Regional Offices and the State Cooperative Banks through National Bank for Agricultural and Rural Development (NABARD) of the need to ensure strict compliance with the instructions issued with regard to exchange of specified bank notes as also deposit of such notes into the accounts of their customers.Alpana Killawala
Principal AdviserPress Release : 2016-2017/1215

RBI/2016-17/132
DPSS.CO.PD.No.1240/02.10.004/2016-2017

November 14, 2016

The Chairman and Managing Director / Chief Executive Officers
All Scheduled Commercial Banks including RRBs / Urban Co-operative Banks /
State Co-operative Banks / District Central Co-operative Banks
White Label ATM Operators

Dear Madam/ Sir,

Usage of ATMs – Waiver of customer charges

A reference is invited to the circular DPSS.CO.PD.No.316/02.10.002/2014-2015 dated August 14, 2014 on rationalisation of number of mandatory free ATM transactions for savings bank account customers for transactions done at their own bank ATMs as well as at ATMs of other banks. A reference is also drawn to Circular No.DCM (Plg) No.1226/10.27.00/2016-17 dated November 08, 2016 on the withdrawal of legal tender characteristics of existing ₹ 500/- and ₹ 1000/- Bank Notes (Specified Bank Notes – SBN) and Circular RBI/2016-17/111 DPSS.CO.PD.No./02.10.002/2016-2017 dated November 8, 2016 on, inter alia, closure of ATMs and waiver of charges on withdrawals from ATMs till December 30, 2016.

2. In this regard, it has been decided that banks shall waive levy of ATM charges for all transactions (inclusive of both financial and non-financial transactions) by savings bank customers done at their own banks’ ATMs as well as at other banks’ ATMs, irrespective of the number of transactions during the month.

3. This waiver is applicable on transactions done at ATMs from November 10, 2016 till December 30, 2016, subject to review.

4. The directive is issued under Section 10(2) read with Section 18 of Payment and Settlement Systems Act 2007, (Act 51 of 2007).

Yours faithfully

(Nanda S Dave)
Chief General Manager

Reserve Bank of India Cuts Repo rates and the EMI and interest rates will fall


Reserve Bank cut the benchmark repo rate by 25 basis points today .

The reduction in repo rate – which is the rate at which Reserve Bank lends short-term funds to lenders – is likely to result in lower loan EMIs, bankers say. The government has been pitching for lower rates in a bid to boost demand in the economy.

Watch RBI Governors Press Meet

GOLD BONDS – SOVEREIGN GOLD BONDS !!!! – Safe -Secure -Good – Small investment of 2 Grams – AVAIL THIS OPPORTUNITY


The Chairman & Managing Director

All Scheduled Commercial Banks
(Excluding RRBs)

Dear Sir/Madam,

Sovereign Gold Bonds, 2015-16

It has been decided by the Government of India, as per their Notification F.No. 4(19)-W&M/2014 dated October 30, 2015, to issue Sovereign Gold Bonds, 2015 (“the Bonds”) with effect from November 05, 2015 to November 20, 2015. The Government of India may, with prior notice, close the Scheme before the specified period. The terms and conditions of the issuance of the Bonds shall be as follows:

  1. Eligibility for Investment:

The Bonds under this Scheme may be held by a person resident in India, being an individual, in his capacity as such individual, or on behalf of minor child, or jointly with any other individual. “Person resident in India” is defined under section 2(v) read with section 2 (u) of the Foreign Exchange Management Act, 1999.

  1. Form of Security

The Bonds shall be issued in the form of Government of India Stock in accordance with section 3 of the Government Securities Act, 2006. The investors will be issued a Holding Certificate (Form C). The Bonds shall be eligible for conversion into de-mat form.

  1. Date of Issue

Date of issuance shall be November 26, 2015.

The investors can apply for the Bonds in receiving offices from November 05, 2015 to November 20, 2015. The issuance can be closed by Government of India earlier than November 20, 2015 with a prior notice.

  1. Denomination

The Bonds shall be denominated in units of one gram of gold and multiples thereof. Minimum investment in the Bonds shall be 2 grams with a maximum subscription of 500 grams per person per fiscal year (April – March). In case of joint holding, the limit applies to the first applicant.

  1. Issue Price

Price of the Bonds shall be fixed in Indian Rupees on the basis of the previous week’s (Monday – Friday) simple average closing price for gold of 999 purity, published by the India Bullion and Jewellers Association Ltd. (IBJA).

  1. Interest

The Bonds shall bear interest at the rate of 2.75 per cent (fixed rate) per annum on the amount of initial investment. Interest shall be paid in half-yearly rests and the last interest shall be payable on maturity along with the principal.

  1. Receiving Offices

Scheduled commercial banks (excluding RRBs) and designated Post Offices (as may be notified) are authorized to receive applications for the Bonds either directly or through agents.

  1. Payment Options

Payment shall be accepted in Indian Rupees through Cash or Demand Drafts or Cheque or Electronic banking. Cheque or draft should be drawn in favour of the bank / post office (Receiving Office), specified in paragraph 7 above and payable at the place where the applications are tendered.

  1. Redemption
  2. The Bonds shall be repayable on the expiration of eight years from the date of issue. Pre-mature redemption of the Bond is allowed from fifth year of the date of issue on the interest payment dates.
  3. The redemption price shall be fixed in Indian Rupees on the basis of the previous week’s (Monday – Friday) simple average closing price for gold of 999 purity, published by IBJA.
  4. Repayment

The receiving office shall inform the investor of the date of maturity of the Bonds, one month before its maturity.

  1. Eligibility for Statutory Liquidity Ratio (SLR)

The investment in the Bonds shall be eligible for SLR.

  1. Loan against Bonds

The Bonds may be used as collateral for loans. The Loan to Value ratio will be as applicable to ordinary gold loan mandated by the RBI from time to time. The lien on the Bonds shall be marked in the depository by the authorized banks.

  1. Tax Treatment

Interest on the Bonds shall be taxable as per the provisions of the Income-tax Act, 1961. Capital gains tax treatment will be the same as that for physical gold.

  1. Applications

Subscription for the Bonds may be made in the prescribed application form (Form ‘A’)  or in any other form as near as thereto stating clearly the grams of gold and the full name and address of the applicant. The receiving office shall issue an acknowledgment receipt in Form ‘B’ to the applicant.

  1. Nomination

Nomination and its cancellation shall be made in Form ‘D’ and Form ‘E’, respectively, in accordance with the provisions of the Government Securities  Act, 2006 (38 of 2006) and the Government Securities Regulations, 2007, published in part III, Section 4 of the Gazette of India dated the 1st December, 2007.

  1. Transferability

The Bonds shall be transferable by execution of an Instrument of transfer as in Form ‘F’, in accordance with the provisions of the Government Securities Act, 2006 (38 of 2006) and the Government Securities Regulations, 2007, published in part III, Section 4 of the Gazette of India dated the 1st December, 2007.

  1. Tradability in Bonds

The Bonds shall be eligible for trading from such date as may be notified by the Reserve Bank of India.

  1. Commission for distribution

Commission for distribution shall be paid at the rate of rupee one per hundred of the total subscription received by the receiving offices on the applications received and receiving offices shall share at least 50% of the commission so received with the agents or sub-agents for the business procured through them.

  1. All other terms and conditions specified in the notification of Government of India in the Ministry of Finance (Department of Economic Affairs) vide number F. No.4(13) W&M/2008, dated the 8th October, 2008 shall apply to the Bonds.

Yours faithfully,

(Chandan Kumar)
Deputy General Manager

RBI-Sovereign Gold Bonds -2

The Reserve Bank of India, in consultation with Government of India, has decided to issue Sovereign Gold Bonds. The Bonds will be issued on November 26, 2015. Applications for the bond will be accepted from November 05, 2015 to November 20, 2015. The Bonds will be sold through banks and designated post offices as may be notified. The borrowing through issuance of the Bond will form part of market borrowing programme of Government of India.

It may be recalled that Honourable Finance Minister had announced in Union Budget 2015-16 about developing a financial asset, Sovereign Gold Bond, as an alternative to purchasing metal gold. The features of the Bond are given below:

Sl.No. Item Details
1. Product name Sovereign Gold Bond
2. Issuance To be issued by Reserve Bank India on behalf of the Government of India.
3. Eligibility The Bonds will be restricted for sale to resident Indian entities including individuals, HUFs, trusts, Universities, charitable institutions.
4. Denomination The Bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram.
5. Tenor The tenor of the Bond will be for a period of 8 years with exit option from 5th year to be exercised on the interest payment dates.
6. Minimum size Minimum permissible investment will be 2 units (i.e. 2 grams of gold).
7. Maximum limit The maximum amount subscribed by an entity will not be more than 500 grams per person per fiscal year (April-March). A self-declaration to this effect will be obtained.
8. Joint holder In case of joint holding, the investment limit of 500 grams will be applied to the first applicant only.
9. Frequency The Bonds will be issued in tranches. Each tranche will be kept open for a period to be notified. The issuance date will also be specified in the notification.
10. Issue price Price of Bond will be fixed in Indian Rupees on the basis of the previous week’s (Monday–Friday) simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Ltd. (IBJA).
11. Payment option Payment for the Bonds will be through electronic funds transfer/cash payment/ cheque/ demand draft.
12. Issuance form Government of India Stock under GS Act, 2006. The investors will be issued a Stock/Holding Certificate. The Bonds are eligible for conversion into de-mat form.
13. Redemption price The redemption price will be in Indian Rupees based on previous week’s (Monday-Friday) simple average of closing price of gold of 999 purity published by IBJA.
14. Sales channel Bonds will be sold through banks and designated Post Offices, as may be notified, either directly or through agents.
15. Interest rate The investors will be compensated at a fixed rate of 2.75 per cent per annum payable semi-annually on the initial value of investment.
16. Collateral Bonds can be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time.
17. KYC Documentation Know-your-customer (KYC) norms will be the same as that for purchase of physical gold. KYC documents such as Voter ID, Aadhaar card/PAN or TAN /Passport will be required.
18. Tax treatment The interest on Gold Bonds shall be taxable as per the provision of Income Tax Act, 1961 (43 of 1961) and the capital gains tax shall also remain same as in the case of physical gold.
19. Tradability Bonds will be tradable on exchanges/NDS-OM from a date to be notified by RBI.
20. SLR eligibility The Bonds will be eligible for Statutory Liquidity Ratio.
21. Commission Commission for distribution shall be paid at the rate of 1% of the subscription amount.

RBI SLASHES THE INTEREST RATE !!!!!!!!!!!!


The Reserve Bank of India`s Governor Shri. Raghuram Rajan, today, cut the benchmark repo rate by 50 basis points to a 4-1/2-year low of 6.75 per cent in a surprise move.

THE REALTY MARKET TREND


 

THE REAL ESTATE MARKET PRICE SCENARIO !!!

The real estate market is struggling with low demand, low sales and high inventory, except Bengaluru, and the policy makers are of the opinion that the present scenario must end with the developers reducing the prices and that will be a big help to the sector because there is a sense that the prices have stabilized and there will be more buyers of the property in the market.

The market is experiencing small corrections here and there but by and large remains stagnant and the development must be accelerated by reducing the interest rates, reducing the prices and providing tax benefits.

The RBI may reduce the interest rates further to accelerate the recovery of this sector and put the industry in the FAST MODE, provided the developers REDUCE THE PRICE to the affordable levels.

 

HOME LOAN – HOUSING LOAN – RESERVE BANK OF INDIA`S DIRECTIVES TO BANKS AND FINANCIAL INSTITUTIONS ISSUED ON 01-07-2015


THE RESERVE BANK OF INDIA HAS CLEARLY MANDATED THAT LOAN MUST NOT BE SANCTIONED TO

1). ILLEGAL AND UNAUTHORISED LAYOUTS OR SITES.

2). IRREGULAR AND UNAUTHORISED CONSTRUCTIONS OR BUILDINGS.

3). BUILDINGS WHICH ARE NOT CONSTRUCTED AS PER THE SANCTIONED BUILDING PLAN.

RESERVE BANK OF INDIA DIRECTIVES TO BANKS AND FINANCIAL INSTITUTIONS IN RESPECT OF HOME LOANS/HOUSING LOANS ELIGIBILITY AND CRITERIA ON 01-07-2015.

MASTER CIRCULAR ON HOUSING LOANS – RBI DIRECTIONS ISSUED ON 01-07-2015

 

RBI/2015-16/7
DCBR.BPD.(PCB) MC No.9/09.22.010/2015-16

July 1, 2015

The Chief Executive Officers
All Primary (Urban) Co-operative Banks

Dear Sir/ Madam,

Master Circular- Finance for Housing Schemes – UCBs

Please refer to our Master Circular UBD.BPD.(PCB).MC.No.2/09.22.010/2014-15 dated July 1, 2014 on the captioned subject (available at RBI websitehttps://rbi.org.in/). The enclosed Master Circular consolidates and updates all the instructions / guidelines on the subject issued up to June 30, 2015 as listed in the Appendix.

Yours faithfully

(Suma Varma)
Principal Chief General Manager

Master Circular
Finance for Housing Schemes – UCBs

  1. General

1.1 The role of primary (urban) co-operative banks (UCBs) in providing housing finance has been reviewed from time to time. These banks, with their vast network, occupy a very strategic position in the financial system and have an important role to play in providing credit to the housing sector. Further, housing finance to specified categories up to prescribed limits is treated as priority sector lending, and the need for UCBs providing credit to priority sector has come to be increasingly recognised consistent with the social objectives placed before the banking system.

1.2 Therefore, with a view to enabling the UCBs to play a more positive role in providing finance for housing schemes, particularly to the weaker sections of the community, these banks are permitted to grant loans for housing schemes up to certain limits from their own resources subject to the guidelines detailed hereunder.

1.3 Bigger banks that have large surplus resources may undertake larger lending for housing, as this will provide a remunerative avenue for investment of their surplus funds.

1.4 Wherever banks are still required to obtain special permission of the Registrar for financing housing societies, it is suggested that these banks should obtain general permission to finance housing societies subject to such terms and conditions as may be prescribed for the purpose.

  1. Eligible Category of Borrowers

UCBs may grant loans to the following categories of borrowers:

  1. Individuals and co-operative / group housing societies.
  2. Housing boards undertaking housing projects or schemes for economically weaker sections (EWS), low income groups (LIG) and middle income groups (MIG).

iii. Owners of houses / flats for extension and up-gradation, including major repairs.

  1. Eligible Housing Schemes

The borrowers in the above categories will be eligible for finance for the following types of housing schemes:

(a) Construction / purchase of houses / flats by individuals

(b) Repairs, alterations and additions to houses / flats by individuals

(c) Schemes for housing and hostels for scheduled castes and scheduled tribes

(d) Under slum clearance schemes – directly to the slum dwellers on the guarantee of the Government, or indirectly through Statutory Boards established for this purpose

(e) Education, health, social, cultural or other institutions / centers which are part of a housing project and considered necessary for the development of settlements or townships

(f) Shopping centers, markets and such other centers catering to the day to day needs of the residents of the housing colonies and forming part of a housing project

  1. Terms and Conditions for Housing Loans

Finance provided by the UCBs to the eligible categories of borrowers for eligible housing schemes will be subject to the following terms and conditions:

4.1 Maximum Loan Amount & Margins

(i) UCBs, based on their commercial judgment and other prudential business considerations, with the approval of their Board of Directors, are free to identify the eligible borrowers, decide margins and grant housing loans depending upon the repaying capacity of borrowers.

(ii) Tier-I UCBs are permitted to extend individual housing loans up to a maximum of ₹ 30 lakh per beneficiary of a dwelling unit and Tier II UCBs (UCBs other than Tier I) to extend individual housing loans up to a maximum of ₹ 70.00 lakh per beneficiary of a dwelling unit subject to extant prudential exposure limits.

(iii) The maximum loan should not exceed 15 percent of capital funds of the bank in case of individual borrowers and 40 per cent of the capital funds in case of group of borrowers. The capital funds for the purpose shall include both Tier I Capital and Tier II capital.

* Tier I UCBs are categorised as under:

– Banks having deposits below ₹100 crore operating in a single district

– Banks with deposits below ₹100 crore operating in more than one district will be treated as Tier I provided the branches are in contiguous districts and deposits and advances of branches in one district separately constitute at least 95% of the total deposits and advances respectively of the bank and

– Banks with deposits below ₹100 crore, whose branches were originally in a single district but subsequently, became multi-district due to reorganization of the district

Deposits and advances as referred to in the above definition may be reckoned as on 31st March of the immediate preceding financial year.

4.2 A. Interest

Banks may, with the approval of their Boards, determine the rate of interest, keeping in view the size of accommodation, degree of risk and other relevant considerations.

  1. Foreclosure Charges / Prepayment Penalty

With effect from June 26, 2012 it has been decided that UCBs will not be permitted to charge foreclosure charges / prepayment penalties in home loans on floating interest rate basis.

4.3 Charging of Penal Interest

Banks may formulate, with the approval of their Boards, transparent policy for charging penal interest rates to be levied for reasons such as default in repayment, non-submission of financial statements, etc. The policy should be governed by well accepted principles of transparency, fairness, incentive to service the debt and due regard to genuine difficulties of customers.

4.4 Security

(i) UCBs may secure housing loans either

(a) by mortgage of property, or

(b) by government guarantee where forthcoming, or

(c) by both.

(ii) Where this is not feasible, banks may accept security of adequate value in the form of LIC policies, Government Promissory Notes, shares / debentures, gold ornaments or such other security as they deem appropriate.

4.5 Period of Loan

(i) Housing loans may be repayable within a maximum period of 20 years, including moratorium or repayment holiday.

(ii) The moratorium or repayment holiday may be granted

(a) at the option of the beneficiary, or

(b) till completion of constructions, or 18 months from the date of disbursement of first instalment of the loan, whichever is earlier.

4.6 Graduated Instalments

(i) The instalments should be fixed on a realistic basis taking into account the repaying capacity of the borrower.

(ii) In order to make housing finance affordable, banks may consider fixing the instalments on a graduated basis, if there is reasonable expectation of growth in the income of the borrower in the coming years. Graduated basis means fixing lower repayment instalments in the initial years and gradually increasing the instalment amount in subsequent years coinciding with expected increase in income in subsequent years.

4.7 Aggregate Limit for Housing Finance

4.7.1 The exposure of UCBs to housing, real estate and commercial real estate loans would be limited to 10 per cent of their total assets. The above ceiling of 10 per cent of total assets can be exceeded by an additional limit of 5 per cent of total assets for the purpose of grant of housing loans to individuals up to ₹ 25 lakh, which is covered under priority sector.

4.7.2 The total assets may be reckoned based on the audited balance sheet as on March 31 of the preceding financial year. For reckoning total assets, losses, intangible assets, contra items like bills receivables etc. would be excluded.

4.7.3 The exposure should take into account both fund based and non-fund based facilities.

4.7.4 Working capital loans given by UCBs against hypothecation of construction materials provided to the contractors who undertake comparatively small construction on their own without receiving advance payments as provided for in paragraph 7 of this circular is exempted from the prescribed limit.

4.7.5 Finance extended to the eligible category of borrowers mentioned in paragraph 2 above will only be eligible to be treated as housing finance. While the purpose of the loan shall determine whether the loans granted against the security of immovable property need to be classified as real estate loans, the source of repayment will determine whether the exposure is against commercial real estate. For classification of such loans as Real Estate / Commercial Real Estate, UCBs may be guided by the instructions contained in Annex 1. As loans to the residential housing projects under the Commercial Real Estate (CRE) Sector exhibit lesser risk and volatility than the CRE Sector taken as a whole, it has been decided to carve out a separate sub-sector called ‘Commercial Real Estate–Residential Housing’ (CRE-RH) from the CRE Sector. CRE-RH would consist of loans to builders/developers for residential housing projects (except for captive consumption) under CRE segment. Such projects should ordinarily not include non-residential commercial real estate. However, integrated housing projects comprising some commercial space (e.g. shopping complex, school, etc.) can also be classified under CRE-RH, provided that the commercial area in the residential housing project does not exceed 10% of the total Floor Space Index (FSI) of the project. In case the FSI of the commercial area in the predominantly residential housing complex exceeds the ceiling of 10%, the project loans should be classified as CRE and not CRE-RH.

4.7.6 UCBs are not allowed to exceed the limit prescribed for grant of housing, real estate, commercial real estate loans to the extent of funds obtained from higher financing agencies and refinance from National Housing Bank.

  1. Additional / Supplementary Finance

5.1 UCBs may extend additional finance to carry out alterations, additions, repairs to houses / flats already financed by them subject to repayment capacity of borrowers.

5.2 In the case of individuals who might have raised funds for construction / acquisition of accommodation from other sources and need supplementary finance, banks may extend credit after obtaining pari passu or second mortgage charge over the property mortgaged in favour of other lenders and / or against such other security as they may deem appropriate after due assessment of aggregate repayment capacity of borrowers.

5.3 UCBs may also extend need-based credit up to a maximum of ₹ 2.00 lakh in rural and semi-urban areas and ₹5.00 lakh in urban areas to the owner of a house / flat only for repairs, additions, alterations, etc., irrespective of whether the house / flat is owner occupied or tenant occupied, after obtaining such security as the banks may deem appropriate. They should satisfy themselves regarding the estimated cost of repairs, additions, etc. having regard to the extent of such repairs or additions, materials to be used, cost of labour and other charges and after obtaining certificate/s from qualified engineers / architects in respect thereof, considered necessary.

5.4 The terms and conditions relating to margin, interest rates, repayment period etc. in respect of additional / supplementary finance may be same as indicated in respect of loans for construction / acquisition.

  1. Lending to Housing Boards

6.1 UCBs may extend loans to housing boards within their States. The rate of interest to be charged on the loans to such boards may be fixed at the discretion of the banks.

6.2 While extending loans to housing boards, banks may not only keep in view the past performance of the housing boards in the matter of recovery from the beneficiaries but should also stipulate that the boards will ensure prompt and regular recovery of loan instalments from the beneficiaries.

  1. Advances to Builders / Contractors

7.1 Builders / contractors generally require huge funds, take advance payments from the prospective buyers or from those on whose behalf construction is undertaken and, therefore, may not normally require bank finance for the purpose. Any financial assistance extended to them by primary (urban) co-operative banks may result in dual financing. Banks should, therefore, normally refrain from sanctioning loans and advances to this category of borrowers.

7.2 However, where contractors undertake comparatively small construction work on their own, (i.e. when no advance payments are received by them for the purpose), banks may consider extending financial assistance to them against the hypothecation of construction materials, provided such loans and advances are in accordance with the bye laws of the bank and instructions / directives issued by the Reserve Bank from time to time.

7.3 Banks should undertake a proper scrutiny of the relevant loan applications, and satisfy themselves, among other things, about the genuineness of the purpose, the quantum of financial assistance required, creditworthiness of the borrower, repayment capacity, etc. and also observe the usual safeguards, such as, obtaining periodic stock statements, carrying out periodic inspections, determining drawing power strictly on the basis of the stock held, maintaining a margin of not less than 40 to 50 percent, etc. They should also ensure that materials used up in the construction work are not included in the stock statements for the purpose of determining the drawing power.

7.4 Valuation of land : It has been observed that while financing builders / contractors, certain banks valued the land for the purpose of security, on the basis of the discounted value of the property after it is developed, less the cost of development. This is not in conformity with established norms. In this connection, it is clarified that UCBs should not extend fund based / non-fund based facilities to builders / contractors for acquisition of land even as a part of a housing project. Further, wherever land is accepted as collateral, valuation of such land should be at the current market price only.

7.5 UCBs may also take collateral security, wherever available. As construction work progresses, contractors will get paid and such payments should be applied to reduce the balance in the borrowal accounts. If possible, banks could perhaps enter into a tripartite agreement with the borrower and his clients, particularly when no collateral securities are available for such advances.

7.6 It has been observed that some banks have introduced certain innovative Housing Loan Schemes in association with developers / builders, e.g. upfront disbursal of sanctioned individual housing loans to builders without linking the disbursals to various stages of construction of housing project, interest / EMI on the housing loan availed of by the individual borrower being serviced by the builders during the construction period / specified period, etc. In view of the higher risks associated with such lump-sum disbursal of sanctioned housing loans and customer suitability issues, UCBs are advised that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project / houses and upfront disbursal should not be made in cases of incomplete / under-construction / green field housing projects.

  1. Housing Loans under Priority Sector

8.1 The following types of loan for housing purposes are eligible for categorisation under priority sector:

  1. i) Loans up to ₹ 25 lakh to individuals for purchase / construction of dwelling unit per family (excluding loans granted by banks to their own employees). Family for this purpose means and includes the spouse of the member and the children, parents, brothers and sisters of the member who are dependent on such member, but shall not include legally separated spouse.
  2. ii) Loans given for repairs to the damaged dwelling units of families up to ₹ 2 lakh in rural and semi-urban areas and up to ₹ 5 lakh in urban and metropolitan areas.

iii) Assistance given to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum dwellers, subject to a ceiling of ₹ 5 lakh of loan amount per dwelling unit.

  1. iv) Assistance given to a non-governmental agency approved by the NHB for the purpose of refinance for construction / reconstruction of dwelling units or for slum clearance and rehabilitation of slum dwellers, subject to a ceiling of loan component of ₹ 10 lakh per dwelling unit for loans sanctioned on and after May 18, 2012.

8.2 Investments made by UCBs in bonds issued by NHB / HUDCO on or after April, 1, 2007 shall not be eligible for classification under priority sector lending.

  1. Precautions

9.1 A number of cases have come to the notice of Reserve Bank, where unscrupulous persons have defrauded the banks by obtaining multiple bank finance against the same property by preparing a number of sets of the original documents and submitting the same to various banks for obtaining housing finance. Similarly the salary certificates of employees of certain public sector undertakings were fabricated, so as to match the requirement of banks for availing higher amounts of loan. The estimates given were also on the higher side, so as to avoid contribution of margin money by the borrowers.

Such frauds could take place on account of laxity on the part of the bank officials to follow the laid down procedures for verifying the genuineness of the documents submitted by borrowers independently through their own advocates / solicitors. Banks should, therefore, take due precaution while accepting various documents.

9.2 Banks would need to satisfy themselves that loans extended by them are not for unauthorized construction or for misuse of properties / encroachment on public land. For this purpose, they should ensure strict compliance with the procedure laid down in Annex 2 .

9.3 In a case which came up before the Hon’ble High Court of Judicature at Bombay, the Hon’ble Court observed that the bank granting finance to housing / development projects should insist on disclosure of the charge / or any other liability on the plot, in the brochure, pamphlets etc., which may be published by developer / owner inviting public at large to purchase flats and properties. The Court also added that this obviously would be part of the terms and conditions on which the loan may be sanctioned by the bank. Keeping in view the above observations, while granting finance for eligible housing schemes, UCBs are advised to stipulate as part of terms and conditions that:

(a) The builder / developer shall disclose in the pamphlets / brochures etc., the name(s) of the bank(s) to which the property is mortgaged.

(b) The builder / developer would append the information relating to mortgage while advertising for a particular scheme in newspapers / magazines etc.

(c) The builder / developer would indicate in the pamphlets / brochures that he would provide No Objection Certificate (NOC) / permission of the mortgagee bank for sale of flats / property if required.

UCBs are also advised to ensure compliance of the above terms and conditions. Funds should not be released unless the builder / developer fulfills the above requirements.

  1. National Building Code

The Bureau of Indian Standards (BIS) has formulated a comprehensive building Code namely National Building Code (NBC) of India 2005, providing guidelines for regulating the building construction activities across the country. The Code contains all the important aspects relevant to safe and orderly building development such as administrative regulations, development control rules and general building requirements; fire safety requirements; stipulations regarding materials, structural design and construction (including safety); and building and plumbing services. Adherence to NBC will be advisable in view of the importance of safety of buildings especially against natural disasters. Banks’ boards may consider this aspect for incorporation in their loan policies. Further information regarding the NBC can be accessed from the website of Bureau of Indian Standards (http://www.bis.org.in/).

Annex – 1

Definition of Commercial Real Estate Exposure (CRE)

(vide paragraph 4.7.5)

Real Estate is generally defined as an immovable asset – land (earth space) and the permanently attached improvements to it. Income-producing real estate (IPRE) is defined in para 226 of the Basel II Framework as under :

“Income-producing real estate (IPRE) refers to a method of providing funding to real estate (such as, office buildings to let, retail space, multifamily residential buildings, industrial or warehouse space, and hotels) where the prospects for repayment and recovery on the exposure depend primarily on the cash flows generated by the asset. The primary source of these cash flows would generally be lease or rental payments or the sale of the asset. The borrower may be, but is not required to be, an SPE (Special Purpose Entity), an operating company focused on real estate construction or holdings, or an operating company with sources of revenue other than real estate. The distinguishing characteristic of IPRE versus other corporate exposures that are collateralised by real estate is the strong positive correlation between the prospects for repayment of the exposure and the prospects for recovery in the event of default, with both depending primarily on the cash flows generated by a property”.

  1. The Income Producing Real Estate (IPRE) is synonymous with Commercial Real Estate (CRE). From the definition of IPRE given above, it may be seen that for an exposure to be classified as IPRE / CRE, the essential feature would be that the funding will result in the creation / acquisition of real estate (such as, office buildings to let, retail space, multifamily residential buildings, industrial or warehouse space, and hotels) where the prospects for repayment would depend primarily on the cash flows generated by the asset. Additionally, the prospect of recovery in the event of default would also depend primarily on the cash flows generated from such funded asset which is taken as security, as would generally be the case. The primary source of cash flow (i.e. more than 50% of cash flows) for repayment would generally be lease or rental payments or the sale of the assets as also for recovery in the event of default where such asset is taken as security.
  2. In certain cases where the exposure may not be directly linked to the creation or acquisition of CRE but the repayment would come from the cash flows generated by CRE. For example, exposures taken against existing commercial real estate whose prospects of repayments primarily depend on rental / sale proceeds of the real estate should be classified as CRE. Other such cases may include ; extension of guarantees on behalf of companies engaged in commercial real estate activities, corporate loans extended to real estate companies etc.
  3. It follows from the definition at para 2 and 3 above that if the repayment primarily depends on other factors such as operating profit from business operations, quality of goods and services, tourist arrivals etc., the exposure would not be counted as Commercial Real Estate.
  4. UCBs should not extend finance for acquisition of land even if it is part of a project. However, finance can be granted to individuals for purchase of a plot, provided a declaration is obtained from the borrower that he intends to construct a house on the said plot, within such period as may be laid down by the banks themselves.

Simultaneous Classification of CRE into other Regulatory Categories

  1. It is possible for an exposure to get classified simultaneously into more than one category, real estate, CRE, infrastructure etc as different classifications are driven by different considerations. In such cases, the exposure would be reckoned for regulatory / prudential exposure limit, if any, fixed by RBI or by the bank itself, for all the categories to which the exposure is assigned. For the purpose of capital adequacy, the largest of the risk weights applicable among all the categories would be applicable for the exposure. The rationale for such an approach is that, while at times certain classifications / categorizations could be driven by socio-economic considerations and may be aimed at encouraging flow of credit towards certain activities, these exposures should be subjected to appropriate risk management / prudential / capital adequacy norms so as to address the risk inherent in them. Similarly, if an exposure has sensitivity to more than one risk factor it should be subjected to the risk management framework applicable to all the relevant risk factors.
  2. In order to assist banks in determining as to whether a particular exposure should be classified as CRE or not, some examples based on the principles described above are given below. Based on the above principles and illustrations given, banks should be able to determine, whether an exposure not included in the illustrative examples is a CRE or not and should record a reasoned note justifying the classification.

Illustrative Examples

  1. Exposures which should be classified as CRE
  2. Loans extended to builders for construction of any property which is intended to be sold or given on lease (e.g. loans extended to builders for housing buildings, hotels, restaurants, gymnasiums, hospitals, condominiums, shopping malls, office blocks, theatres, amusement parks, cold storages, warehouses, educational institutions, industrial parks) In such cases, the source of repayment in normal course would be the cash flows generated by the sale / lease rentals of the property. In case of default of the loan, the recovery will also be made from sale of the property if the exposure is secured by these assets as would generally be the case.
  3. Loans for Multiple Houses intended to be rented out

The housing loans extended in cases where houses are rented out need to be treated differently. If the total number of such units is more than two, the exposure for the third unit onwards may be treated as CRE Exposure as the borrower may be renting these housing units and the rental income would be the primary source of repayment.

  1. Loans for integrated Township Projects

Where the CRE is part of a big project which has small non-CRE component, it will be classified as CRE exposure since the primary source of repayment for such exposures would be the sale proceeds of buildings meant for sale.

  1. Exposures to Real Estate Companies

In some cases exposure to real estate companies is not directly linked to the creation or acquisition of CRE, but the repayment would come from the cash flows generated by Commercial Real Estate. Such exposures illustratively could be :

* Corporate Loans extended to these companies

* Investments made in the debt instruments of these companies

* Extension of guarantees on behalf of these companies

  1. General Purpose loans where repayment is dependent on real estate prices

Exposures intended to be repaid out of rentals / sale proceeds generated by the existing CRE owned by the borrower, where the finance may have been extended for a general purpose.

  1. Exposures which may not be classified as CRE
  2. Exposures to entrepreneurs for acquiring real estate for the purpose of their carrying on business activities, which would be serviced out of the cash flows generated by those business activities. The exposure could be secured by the real estate where the activity is carried out, as would generally be the case, or could even be unsecured.
  3. a) Loans extended for construction of a cinema theatre, establishment of an amusement park, hotels and hospitals, cold storages, warehouses, educational institutions, running haircutting saloons and beauty parlours, restaurant, gymnasium etc. to those entrepreneurs who themselves run these ventures would fall in this category. Such loans would generally be secured by these properties.

For instance, in the case of hotels and hospitals, the source of repayment in normal course would be the cash flows generated by the services rendered by the hotel and hospital. In the case of a hotel, the cash flows would be mainly sensitive to the factors influencing the flow of tourism, not directly to the fluctuations in the real estate prices. In the case of a hospital, the cash flows in normal course would be sensitive to the quality of doctors and other diagnostic services provided by the hospital. In these cases, the source of repayment might also depend to some extent upon the real estate prices to the extent the fluctuation in prices influence the room rents, but it will be a minor factor in determining the overall cash flows. In these cases, however, the recovery in case of default, if the exposure is secured by the Commercial Real Estate, would depend upon the sale price of the hotel / hospital as well as upon the maintenance and quality of equipment and furnishings.

The above principle will also be applicable in the cases where the developers / owners of the real estate assets (hotels, hospitals, warehouses, etc.) lease out the assets on revenue sharing or profit sharing arrangement and the repayment of exposure depends upon the cash flows generated by the services rendered, instead of fixed lease rentals.

  1. b) Loans extended to entrepreneurs, for setting up industrial units will also fall in this category. In such cases, the repayment would be made from the cash flows generated by the industrial unit from sale of the material produced which would mainly depend upon demand and supply factors. The recovery in case of default may partly depend upon the sale of land and building if secured by these assets.

Thus, it may be seen that in these cases the real estate prices do not affect repayment though recovery of the loan could partly be from sale of real estate.

  1. Loans extended to a company for a specific purpose, not linked to a real estate activity, which is engaged in mixed activities including real estate activity.

For instance, a company has two divisions. One division is engaged in real estate activity, and other division is engaged in power production. An infrastructure loan, for setting up of a power plant extended to such a company, to be repaid by the sale of electricity would not be classified as CRE. The exposure may or may not be secured by plant and machinery.

  1. Loans extended against the Security of future rent receivables

A few banks have formulated schemes where the owners of existing real estate such as shopping malls, office premises, etc. have been offered finance to be repaid out of the rentals generated by these properties. Even though such exposures do not result in funding / acquisition of commercial real estate, the repayment might be sensitive to fall in real estate rentals and such exposures should be classified as CRE. However, if there are certain in built safety conditions which have the effect of delinking the repayments from real estate price volatility like, the lease rental agreement between the lessor and lessee has a lock in period which is not shorter than the tenor of loan and there is no clause which allows a downward revision in the rentals during the period covered by the loan banks can classify such exposures as non CRE. Banks may, however, record a reasoned note in all such cases.

  1. Credit facilities provided to construction companies which work as Contractors

The working capital facilities extended to construction companies working as contractors, rather than builders, will not be treated as CRE exposures because the repayment would depend upon the contractual payments received in accordance with the progress in completion of work.

  1. Financing of acquisition / renovation of self-owned office / company premises

Such exposures will not be treated as CRE exposures because the repayment will come from company revenues. The exposures to industrial units towards setting up of units or projects and working capital requirement, etc. would not be treated as CRE Exposures.

Annex – 2

Direction of the Hon’ble High Court of Delhi –
Procedure for ensuring the loan sought is for authorised structure

(vide paragraph 9.2)

  1. Housing Loan for Building Construction
  2. i) In cases where the applicant owns a plot / land and approaches the banks / FIs for a credit facility to construct a house, a copy of the sanctioned plan by competent authority in the name of a person applying for such credit facility must be obtained by the Banks / FIs before sanctioning the home loan.
  3. ii) An affidavit-cum-undertaking must be obtained from the person applying for such credit facility that he shall not violate the sanctioned plan, construction shall be strictly as per the sanctioned plan and it shall be the sole responsibility of the executant to obtain completion certificate within 3 months of completion of construction, failing which the bank shall have the power and the authority to recall the entire loan with interest, costs and other usual bank charges.

iii) An Architect appointed by the bank must also certify at various stages of construction of building that the construction of the building is strictly as per sanctioned plan and shall also certify at a particular point of time that the completion certificate of the building issued by the competent authority has been obtained.

  1. Housing Loan for Purchase of Constructed Property / Built up Property
  2. i) In cases where the applicant approaches the bank / FIs for a credit facility to purchase a built up house / flat, it should be mandatory for him to declare by way of an affidavit-cum-undertaking that the built up property has been constructed as per the sanctioned plan and / or building bye-laws and as far as possible has a completion certificate also.
  3. ii) An Architect appointed by the bank must also certify before disbursement of the loan that the built up property is strictly as per sanctioned plan and / or building bye-laws.
  4. No loan should be given in respect of those properties which fall in the category of unauthorized colonies unless and until they have been regularized and development and other charges paid.
  5. No loan should be given in respect of properties meant for residential use but which the applicant intends to use for commercial purposes and declares so while applying for loan.
  6. The above directions will not be applicable to construction of farmhouses on agricultural land since the agricultural land is outside the limit of Grampanchayats and Municipal Councils and as these authorities neither sanction plans nor issue completion certificates for farmhouses constructed by the farmers on the agricultural land. In all such cases, local rules will apply.

 

Direction of the Hon’ble High Court of Delhi –
Procedure for ensuring the loan sought is for authorised structure

(vide paragraph 9.2)

  1. Housing Loan for Building Construction
  2. i) In cases where the applicant owns a plot / land and approaches the banks / FIs for a credit facility to construct a house, a copy of the sanctioned plan by competent authority in the name of a person applying for such credit facility must be obtained by the Banks / FIs before sanctioning the home loan.
  3. ii) An affidavit-cum-undertaking must be obtained from the person applying for such credit facility that he shall not violate the sanctioned plan, construction shall be strictly as per the sanctioned plan and it shall be the sole responsibility of the executant to obtain completion certificate within 3 months of completion of construction, failing which the bank shall have the power and the authority to recall the entire loan with interest, costs and other usual bank charges.

iii) An Architect appointed by the bank must also certify at various stages of construction of building that the construction of the building is strictly as per sanctioned plan and shall also certify at a particular point of time that the completion certificate of the building issued by the competent authority has been obtained.

  1. Housing Loan for Purchase of Constructed Property / Built up Property
  2. i) In cases where the applicant approaches the bank / FIs for a credit facility to purchase a built up house / flat, it should be mandatory for him to declare by way of an affidavit-cum-undertaking that the built up property has been constructed as per the sanctioned plan and / or building bye-laws and as far as possible has a completion certificate also.
  3. ii) An Architect appointed by the bank must also certify before disbursement of the loan that the built up property is strictly as per sanctioned plan and / or building bye-laws.
  4. No loan should be given in respect of those properties which fall in the category of unauthorized colonies unless and until they have been regularized and development and other charges paid.
  5. No loan should be given in respect of properties meant for residential use but which the applicant intends to use for commercial purposes and declares so while applying for loan.
  6. The above directions will not be applicable to construction of farmhouses on agricultural land since the agricultural land is outside the limit of Grampanchayats and Municipal Councils and as these authorities neither sanction plans nor issue completion certificates for farmhouses constructed by the farmers on the agricultural land. In all such cases, local rules will apply.

RBI extends the Date for Withdrawal of Pre-2005 Series Banknotes- up to 31-12-2015


Date : Jun 25, 2015
The Reserve Bank of India has extended the date for the public to exchange their pre-2005 banknotes till December 31, 2015. It had, in December 2014, set the last date for public to exchange these notes as June 30, 2015.

Soliciting cooperation from members of public in withdrawing these banknotes from circulation, the Reserve Bank of India has urged them to deposit the old design notes in their bank accounts or exchange them at a bank branch convenient to them. The Reserve Bank has stated that the notes can be exchanged for their full value. It has also clarified that all such notes continue to remain legal tender.

Explaining the move, the Reserve Bank said that the banknotes in Mahatma Gandhi series have now been in circulation for a decade. A majority of the old banknotes have been withdrawn through bank branches. It has, therefore, decided to withdraw the remaining old design notes from circulation. Not having currency notes in multiple series in circulation at the same time is a standard international practice, the Reserve Bank has pointed out.

The Reserve Bank will continue to monitor and review the process so that the public is not inconvenienced in any manner.

Alpana Killawala
Principal Chief General Manager

Press Release : 2014-2015/2751

Finance Minister ask Banks to reduce interest rates on loans


THE FINANCE MINISTER HAS ASKED THE BANKS TO PASS ON THE BENEFIT OF REDUCED INTEREST RATES TO BORROWERS, HE WAS REVIEWING THE ANNUAL PERFORMANCE OF PUBLIC SECTOR BANKS FOR THE YEAR 2014-15, THE BORROWERS MAY GET THE BENEFIT OF REDUCED INTEREST FROM 01-7-2015.