BANKING Recent Developments

REGULATIONS

C. Nageswara Rao
GM & MoF, RBSC
 Applicable to SCBs (incl SFBs, RRBs and LABs), UCBs, StCBs/DCCBs, AIFIs,
NBFCs (Incl HFCs and ARCs) and CICs

TREATMENT OF WILFUL "large defaulter" - defaulter with an o/s of ₹1 crore and above; suit filed/doubtful/
DEFAULTERS AND LARGE loss a/cs; Wilful defaulter – NPAs with min o/s of ₹ 25 lakhs or as notified by RBI
DEFAULTERS from time to time

Process of identifying Wilful Defaulter

• Issue Showcase and advise to respond in 21 days

• If satisfied, Identification Committee to make a proposal to Review Committee
• Borrower can make a written representation within 15 days
• Give a Personal Hearing (Not to be represented by a lawyer)
• Review Committee can pass a reasoned order
 Initiation of criminal proceedings can be considered separately

RE to have non-discriminatory Board-approved policy on publishing of

photographs of wilful defaulters

Penal measures
TREATMENT OF WILFUL
••No additional credit facility shall be granted by any lender to a wilful defaulter
DEFAULTERS AND LARGE
or any entity is associated till the period of one year after after the name of
DEFAULTERS (2)
wilful defaulter has been removed from the List of Wilful Defaulters (LWD) by
the lender.
•• For other lenders, the cut-off period is five years.
•• Wilful defaulters or any entity with which a wilful defaulter is associated shall
not be eligible for restructuring of credit facility even after removal of names
from the list.
i. All Credit Institutions to report to CICs every month list of suit filed a/cs of large
defaulters and non-suit filed large defaulters but a/cs are loss or doubtful ctg

i. CICs to publish list of suit-filed large defaulters on their web sites and non-suite
filed large defaulter a/cs to all Credit Institutions
 Some UCBs have created the Dividend Equalisation Fund (DEF) through
appropriation of profits, with an intent to utilise these balances to pay dividend in
future years, when profits are not sufficient or where the bank has posted a net
loss.

However, extant 2012 guidelines on dividend payment prohibit dividend payments

TREATMENT OF DIVIDEND from previously accumulated profits or reserves.
EQUALISATION FUND Dividend can only be paid by the banks from net profit of the CY after making all
(DEF)- UCBS statutory and other provisions and after adjustment for accumulated losses in full.

• The UCBs have been considering the balances in DEF as part of Tier-II capital.

To provide a better treatment of these balances for regulatory capital purposes,

UCBs have been permitted to transfer the balances in the DEF to general
reserves/free reserves which shall qualify as Tier-I capital.

• Suitable disclosures to be made of such transfers in the ‘Notes on Accounts’

to the B/S
 Applicable from April 01, 2025, to all UCBs in Tier 2, Tier 3 and Tier 4, except
UCBs under All Inclusive Directions (AID).

Exit from SAF or movement to PCA will be considered case by case.

Capital, Asset Quality and Profitability will be the key areas for monitoring in the
PROMPT CORRECTIVE revised PCA Framework.
ACTION (PCA) REPLACES
SUPERVISORY ACTION • Respective indicators will be CRAR, Asset Quality and Profitability and
FRAMEWORK (SAF) breach any one indicator threshold can lead to invoking PCA

Three levels of Risk thresholds have been prescribed in the indicators

• Min CRAR (12 %) – below 250 bps below Min CRAR, 250 bps to 400 bps and
more than 400 bps
• Asset Quality – 6 to 9 %, 9 to 12 % and More than 12 %
• Net Profit – Incurred losses for two consecutive Fys
Each threshold to have mandatory actions as well as commons menu of
discretionary actions to prescribed
 • To raise capital either from existing members or by
issuance of equity and other permissible capital
instruments
Risk Threshold 1 • Restriction on declaration/ payment of dividend/
donation
• Appropriate restrictions on capital expenditure, other
than for technological upgradation
PROMPT CORRECTIVE
ACTION (PCA) REPLACES Risk Threshold 2 • Above + restriction on branch expansion
SUPERVISORY ACTION
FRAMEWORK (SAF) (2)
• Above 1&2 + appropriate restrictions/ prohibition on
Risk Threshold 3
expansion of total size of the deposits

• Special Supervisory Actions

• Action related to Strategy, Governance, Capital, Credit
Discretionary risk, Market risk, HR, Profitability,
actions and Ops/Business
(Common Menu) • Imposition of All Inclusive Directions/ Cancellation of
Banking License
• Any other action
 It now expressly requires that the REs shall ensure compliance with the principles
of natural justice in a time-bound manner before classifying Persons / Entities as
fraud, duly taking into account the Hon’ble Supreme Court Judgment dated March
27, 2023.
• So, the REs board approved Fraud Risk Management policy shall incorporate
measures for ensuring compliance with principles of natural justice in a time-
bound manner
• The policy shall be reviewed by the Board at least once in three years, or more
MD ON FRAUD RISK frequently, as may be prescribed by the Board
MANAGEMENT
For the first time, these Directions have now been made applicable to RRBs, Rural
Cooperative Banks and HFCs as well, with the intent of promoting better fraud risk
management systems and framework in such Res

Banks shall subject the title deeds and other related title documents in respect of
all credit facilities of ₹5 crore and above to periodic legal audit and re-verification,
till the loan is fully repaid.

Banks shall complete the investigation from fraud angle before transferring the
loan account / credit facility to other lenders / ARCs. In cases where banks
conclude that a fraud has been perpetrated in the account, they shall report it to
RBI / NABARD before selling the accounts to other lenders / ARCs
 A Red Flagged Account is one where
Banks shall have a framework for suspicion of fraudulent activity is
Early Warning Signals (EWS) and Red thrown up by the presence of one or
Flagging of Accounts (RFA) under the more EWS indicators, alerting /
overall Fraud Risk Management Policy triggering deeper investigation from
approved by the Board. potential fraud angle and initiating
preventive measures by the banks.
MD ON FRAUD RISK
MANAGEMENT (2)

A robust EWS must be with Core Banking

Solution (CBS) or other operational
The Risk Management Committee of systems; (ii) Initiation of remedial action in
the Board (RMCB) shall oversee the a timely manner; (iii) Periodic review of
effectiveness of the framework for credit sanction and monitoring processes,
EWS and RFA. The EWS will be internal controls and systems; and (iv)
approved by RMCB and will have a Effective use of Central Repository of
TAT of 30 days. Information on Large Credits (CRILC)
database and the Central Fraud Registry
(CFR)
 On a review, it has now been decided
that
On oct 12, 2022, RBI advised that •• In respect of fresh rating mandates,
REs/market participants were advised rating may be obtained from the CRA
that no fresh ratings/evaluations shall for bank loans not exceeding Rs.250
be obtained from Brickwork Ratings crore.
India Private Limited (the CRA). •• In respect of existing ratings, the CRA
BASEL III – ELIGIBLE may undertake rating surveillance
CREDIT RATING AGENCIES irrespective of the rated amount, till the
residual tenure of such loans.

Currently valid CRAs for domestic ratings

• Acuite Ratings & Research Ltd (Acuite)
Provided that in case of existing ratings • CARE Ratings Limited
assigned to working capital facilities
• CRISIL Ratings Limited
exceeding Rs.250 crore, the CRA shall
undertake rating surveillance only till the • ICRA Limited
next renewal of such facility by the • India Ratings and Research Private
banks. Limited (India Ratings) and
• INFOMERICS Valuation and Rating
Pvt Ltd. (INFOMERICS)
 For all Scheduled Commercial Banks (excl RRBs), SFBs and LABs, The
term “Bulk Deposit” would now mean

•• Single Rupee term deposits of Rupees three crore and above for
BULK DEPOSITS – Scheduled Commercial Banks (excluding RRBs) and Small Finance
REVISED INSTRUCTIONS Banks.
•• Single Rupee term deposits of Rupees one crore and above for Local
Area Banks as applicable in case of Regional Rural Banks.

Bulk deposit limit for scheduled UCBs

• For Tier 3 and 4 raised to ₹ one crore and above.

• For all other UCBs - single Rupee term deposits of ₹ 15 lakh and
above.
 The guidelines on Fair Practices Code issued to various Regulated Entities (REs)
since 2003, inter-alia, advocate fairness and transparency in charging of interest
by the lenders, while providing adequate freedom to REs as regards their loan
pricing policy.

But certain unfair practices observed during onsite examinations for FY March 31,
2023

•• Charging of interest from the date of sanction of loan or date of execution of

loan agreement and not from the date of actual disbursement of the funds.
FPC FOR LENDERS –
•• In the case of loans being disbursed by cheque, interest was charged from the
CHARGING OF INTEREST
date of the cheque but the cheque was handed over to the customer several
days later.
•• In the case of disbursal or repayment of loans during the course of the month,
some REs were charging interest for the entire month, rather than charging
interest only for the period for which the loan was outstanding.
•• REs were collecting one or more instalments in advance but reckoning the full
RBIloan amount
through for chargingteams
its supervisory interest.
has advised REs to refund such excess interest
and other charges to customers. REs are also being encouraged to use online
account transfers in lieu of cheques being issued in a few cases for loan disbursal.

All REs are directed to review their practices regarding mode of disbursal of loans,
application of interest and other charges and take corrective action, including
system level changes, as may be necessary, to address the issues highlighted
above.
 Self-regulation complements the extant regulatory/ statutory framework for better
compliance, in letter and spirit

OMNIBUS FRAMEWORK • SROs enhance the effectiveness of regulations by drawing upon the technical
FOR expertise of practitioners and also aid in framing/ fine-tuning regulatory policies
SELF-REGULATORY by providing inputs on technical & practical aspects, nuances and trade-offs
ORGANIZATIONS involved.
• SROs can also help in fostering innovation, transparency, fair competition, and
consumer protection.

SRO shall frame necessary best practices/ standards/ codes for voluntary
adoption by its members

• within the regulatory framework prescribed by RBI and not to substitute to the
prescribed regulatory framework for REs.
BASEL III FRAMEWORK – Under the earlier guidelines, only NABARD, NHB and SIDBI were recognized as
LIQUIDITY STANDARDS Development Banks
- NET STABLE FUNDING
RATIO (NSFR) • Now, EXIM Bank and National Bank for Financing Infrastructure and
- REVIEW Development (NaBFID) were also added.

Unencumbered loans to the above NDBs with a residual maturity ≥ one year that
would qualify for a 35 % or lower risk weight under the Standardised Approach
for credit risk shall be assigned a Required Stable Funding (RSF) factor of 65 %
(as against 100 % earlier).
 Payments’ sub-indicator under ‘Substitutability’ indicator

• The data requirement revised from “Payments made in INR using RTGS and NEFT
systems” to:
• Total value of Digital Payments made in INR (75 % weightage)
• Total volume of Digital Payments made in INR (25 % weightage)
Timeline for annual assessment and disclosures
D-SIBS FRAMEWORK • The computation of SI scores, based on the end-March data of all the banks, will be done
REVISIONS in the months of August-October, and names of the banks classified as D-SIBs will be
disclosed in the month of November every year. Accordingly, banks will be required to be
in readiness to submit the required data to RBI by Aug 15 of each year.

Data requirements

• For ‘Total Marketable Securities issued by the bank’ under Interconnectedness

indicator - The value shall be based on their market value.
• For ‘Securities in HFT and AFS categories under Complexity indicator - The subset of
securities held in these categories that meet the definition of Level 1 and Level 2 assets
(with applicable haircuts), as defined in the Basel III liquidity coverage ratio (LCR)
guidelines, shall be deducted.
• For Securities Financing Transactions (SFTs) and Over-the-counter (OTC) derivatives
reported within Intra-Financial Assets and Intra-Financial Liabilities under
Interconnectedness indicator - Where effective bilateral netting contracts are in place,
banks may report such transactions on a net basis.
CURRENTLY IDENTIFIED
D-SIBS
 Why it was done

• Necessitated by high growth in certain components of consumer credit

and increasing dependency of NBFCs on bank borrowings

REGULATORY MEASURES
TOWARDS CONSUMER Hike in R/Ws
CREDIT AND BANK CREDIT
TO NBFC S
• Consumer credit exposure of commercial banks (outstanding as well
as new), including personal loans to 125%.
• The consumer credit exposure of NBFCs (outstanding as well as new)
categorised as retail loans, to 125%.
• Both the above hikes will not be applicable to H/Ls, E/Ls, vehicle loans,
loans against gold jewellery and MF/SHG loans
• Credit card receivables of SCBs and that of NBFCs increased to
150% and 125% respectively
• The risk weights on exposures of SCBs to NBFCs, (excl CICs)
increased by 25 percentage points (over and above the risk weight
associated with the given external rating) in all cases where the extant
risk weight as per external rating of NBFCs is below 100%.
REGULATORY MEASURES Strengthening credit standards
TOWARDS CONSUMER
CREDIT AND BANK CREDIT
TO NBFC S - 2

• The REs to review their extant sectoral exposure limits for

consumer credit and put in place, if not already there, Board
approved limits in respect of various sub-segments under consumer
credit, importantly all unsecured consumer credit exposures.
• The limits so fixed shall be strictly adhered to and monitored on an
ongoing basis by the Risk Management Committee.
 Applicable for SCBs (excl RRBs, LABs), SFBs,
PBs, NBFCs (excl CICs), CICs and AIFIs

REs shall have robust IT Governance Framework

focussing on
IT GOVERNANCE, RISK,
CONTROLS AND •• the governance structure and processes necessary to meet the RE’s
ASSURANCE PRACTICES – business/ strategic objectives;
MASTER DIRECTION
•• specifies the roles (including authority) and responsibilities of the
Board of Directors (Board) / Board level Committee and Senior
Management; and
•• adequate oversight mechanisms to ensure accountability and
mitigation of IT and cyber/ information security risks.

i. Role of Board of Directors

•• All strategies and policies related to IT, Information Assets, BC, Info
Security and Cyber Security must be approved by them and reviewed
at least annually.
 IT Strategy Committee of the Board
• Min technically competent three member- directors as members;
• The Chairperson shall be an independent director and have
substantial IT expertise in managing/ guiding information technology
initiatives
• ITSC shall meet at least quarterly
i. ITSC shall ensure that
IT GOVERNANCE, RISK, •• an effective IT strategic planning process in place;
CONTROLS AND •• Guide in preparation of IT Strategy so that it aligns with the overall
ASSURANCE PRACTICES – strategy of the RE towards accomplishment of its business objectives
MASTER DIRECTION •• the IT Governance and Information Security Governance structure
fosters accountability, is effective and efficient, has adequate
skilled resources, well defined objectives and unambiguous
responsibilities for each level;
•• processes for assessing and managing IT and cybersecurity risks are
in place;
•• the budgetary allocations for the IT function (including for IT security),
cyber security are commensurate with the RE’s IT maturity, digital
depth, threat environment and industry standards and are utilised in a
manner intended for meeting the stated objectives; and
•• the adequacy and effectiveness of the Business Continuity Planning
and Disaster Recovery Management of the RE are reviewed at least
annually.
 The MD provides guidance on IT Services Management, Third Party
Arrangements, Capacity Management, Project Management etc

It also expects the REs to manage Change and Patch Management,

IT GOVERNANCE, RISK, Data Migration Controls, availability of Audit Trails, Cryptographic
CONTROLS AND Controls, STP etc
ASSURANCE PRACTICES –
MASTER DIRECTION
The MC also provides guidance on Physical and Environmental
controls, Access controls and Controls on Tele-working.

Risk Management Policy of the RE shall include IT and Cyber

security related risk and RMCB shall review the same at least
annually in consultation with ITSC.

The guidelines reiterate the critical role to be played by the Chief

Information Security Officer (CISO), regular conduct of VA and PT as well
as Cyber Incident and Response Mechanism.
 the minimum amount for offering
Guidelines applicable to SCBs and non-callable TDs is increased from
UCBs Rupees fifteen lakh to Rupees
one crore
NON-CALLABLE DEPOSITS
– REVISED INSTRUCTIONS

All domestic term deposits

These instructions are applicable
accepted from individuals for
for Non-Resident (External) Rupee
amount of Rupees one crore and
(NRE) Deposit / Ordinary Non-
below shall have premature-
Resident (NRO) Deposits.
withdrawal-facility
 Applicable to all SCBs (except for PBs), UCBs, State and Central CBs,
NBFCs (incl HFCs), AIFIs, ARCs, CICs

The guidelines are issued in terms Section 11 of CIC RA, 2005 - a CI

FRAMEWORK FOR would get twenty-one (21) days and CICs would effectively get the
COMPENSATION remainder of nine (9) days for complete resolution of the complaint.
TO CUSTOMERS FOR
DELAYED UPDATION / The complainants are to be advised by the CI/ CIC of the action taken on
RECTIFICATION OF the complaint in all cases, including the cases where the complaint has
CREDIT INFORMATION been rejected.
Complainants shall be entitled to a compensation of ₹100 per calendar
day in case their complaint is not resolved within a period of thirty
calendar days from the date of the initial filing of the complaint by the
complainant with a Credit Institution/ Credit Information Company.
The complainant can approach RBI Ombudsman or CEPCs in case of
wrongful denial of compensation by CIs or CICs.

Will come into effect from 6 months post Oct 26, 2023
 •• CICs to alerts through SMS/ email to customers when
their Credit Information Report (CIR) is accessed by
the Specified Users (SUs) wherever mobile number/
Intimation of email ID details of the customers are available. The
access to CIR alerts shall be sent by CICs only when the CIR
and updation of enquiry reflects in the CIR of the customer.
credit •• CIs shall send alerts through SMS/ email to
STRENGTHENING OF customers while submitting information to CICs
information
CUSTOMER SERVICE regarding default/ Days Past Due (DPD) in existing
with CICs
RENDERED BY CREDIT credit facilities, wherever the mobile number/email ID
INFORMATION details are available.
COMPANIES AND •• CIs to organise special awareness campaigns
CREDIT INSTITUTIONS
•• Setting up of Nodal Points/Officials
a. Responsibilities •• Half Yearly Root Cause Analysis
of CIs
•• Reasons for Rejection of requests for data correction

•• CICs shall ingest CI data received from the CIs as

per its data acceptance rules, into their databases
within seven (7) calendar days of its receipt from the
a. Responsibilities CIs or communicate back to CIs in case of rejection.
of CICs •• Disclose details of complaints on websites
•• Access to Free Full Credit Report including Credit
Score once a Calendar year
•• HY review of Search & Match logic algorithm by CICs
 • loans given to individuals and consist of (a) consumer
credit, (b) education loan, (c) loans given for creation/
Personal Loan
enhancement of immovable assets (e.g., housing, etc.),
means
and (d) loans given for investment in financial assets
(shares, debentures, etc.).

• release all the original movable / immovable property

RESPONSIBLE LENDING docs and remove charges registered with any registry
CONDUCT – within a period of 30 days after full repayment/
RELEASE OF MOVABLE / settlement of the loan a/c.
IMMOVABLE PROPERTY • Give the borrower the option of collecting the
DOCUMENTS ON documents either from the banking outlet / branch
REPAYMENT/ SETTLEMENT where the loan account was serviced or any other
OF PERSONAL LOANS For Release of office of the RE where the documents are available, as
Documents, the per her / his preference.
REs shall
• The above details will be mentioned in the loan
sanction letters.
• In the contingent event of demise of the sole borrower
or joint borrowers, the REs shall have a well laid out
procedure for return of original movable / immovable
property documents to the legal heirs displayed on the
website of the REs.
 • In case of delay in releasing of documents or failing to
file charge satisfaction form with relevant registry
beyond 30 days after full repayment/ settlement of
loan, the RE shall communicate to the borrower
reasons for such delay. In case where the delay is
attributable to the RE, it shall compensate the borrower
RESPONSIBLE LENDING CONDUCT –
at the rate of ₹5,000/- for each day of delay.
RELEASE OF MOVABLE / IMMOVABLE • In case of loss/damage to documents, either in part or
PROPERTY DOCUMENTS ON
REPAYMENT/ SETTLEMENT OF in full, the REs shall assist the borrower in obtaining
PERSONAL LOANS Compensation for duplicate/certified copies of the documents and shall
delay bear the associated costs, in addition to paying
compensation as indicated as above. However, in such
cases, an additional time of 30 days will be available to
the REs to complete this procedure and the delayed
period penalty will be calculated thereafter (i.e., after a
total period of 60 days).
• The compensation provided under these directions
shall be without prejudice to the rights of a
borrower to get any other compensation as per any
applicable law.
 A few instances of alleged evergreening were flagged whereby
investments by REs in the AIF schemes were appropriated by the
stressed borrowers of the concerned REs for repayment of their loans.

INVESTMENTS IN
ALTERNATIVE
INVESTMENT FUNDS (AIFS) To prohibit any such prudential violation including evergreening,
following measures were initiated on December 19, 2023:

• REs were prohibited from investing in any of the AIF schemes, which
has downstream investment in any of the debtor companies of the
concerned RE.
• REs to liquidate their existing investments in AIFs within a stipulated
period of 30 days, if AIF scheme had invested or subsequently
invests in RE's debtor company, failing which REs shall make full
provision for their investments in that particular scheme; and
• REs were mandated that any investment in junior tranche will be
deducted in full from their regulatory capital fund.
 Clarifications issued on March 27, 2024:
INVESTMENTS IN
ALTERNATIVE
INVESTMENT FUNDS (AIFS) • downstream investments exclude equity shares but include other
instruments
• provisioning applies only to extent of RE's investment in the AIF
scheme (proportionate basis), and not on the entire investment
• proposed deductions from capital affect both Tier-1 and Tier-2 capital,
encompassing all forms of subordinated exposures including sponsor
units and
• investments in AIFs through intermediaries such as fund of funds or
mutual funds are beyond the scope of circular.
 Penalty, if any, for non-
Penal charges should be
compliance of major terms
commensurate to the
and conditions of loan
severity of non-compliance
agreement should be in the
and should not be
form of ‘penal charges’ and
discriminatory within a
not ‘penal interest’ that is
particular loan / product
added to the existing rate
category
FAIR LENDING of interest.
PRACTICES
–
PENAL CHARGES IN Any instance of penal
LOAN A/CS The quantum of penal
charges and the reasons
charges must be properly
therefor should be
disclosed – loan agreement,
communicated to the
MITC/ KFS, RE’s website.
borrower.

Timelines for implementation

revised. Fresh loans from
April 01, 2024, and for
existing loans max by June
30, 2024.
 Applicable for At the time of sanction, REs should inform the borrowers about
personal loans the possible impact of change in benchmark interest rate on the
only loan.
Subsequently, any increase in the EMI/ tenor or both on account
change in benchmark interest rate shall be communicated to the
borrower immediately
At the time of reset of interest rates, REs shall provide the option
RESET OF FLOATING to the borrowers to switch over to a fixed rate and the charges
thereof shall be disclosed in the sanction letter.
INTEREST RATE ON EMIS
The borrowers shall also be informed if such charges are
subsequently revised.

The borrowers shall also be given the choice to opt for (i)
enhancement in EMI or elongation of tenor or for a combination
of both options; and, (ii) to prepay, either in part or in full, at any
point during the tenor of the loan. Levy of foreclosure charges/
pre-payment penalty shall be subject to extant instructions.

REs shall ensure that the elongation of tenor in case of floating

rate loan does not result in negative amortisation.
 A DBU is a specialised fixed point business unit/hub

• minimum digital infrastructure for delivering digital banking products and

services as well as servicing existing financial products and services digitally,
• in both self-service and assisted mode,
• cost effective/convenient access and enhanced digital experience
• with most services being available in self-service mode at any time, all year
round.
DIGITAL BANKING UNITS SCBs (not RRBs, PBs and LABs) with past digital banking experience permitted to
(DBUS) open DBUs in Tier 1 to Tier 6 centres.
• No need to take permission from RBI case-wise.
• The DBUs will be treated as Banking Outlets
Should be headed by a Chief Operating Officer (COO) preferably a Scale III or
above for PSBs (or equivalent grades for other banks)
• Can also offer hands-on customer education on safe digital banking products
and practices for inducting customers to self-service digital banking services.
• Can offer Liability products/Services, Asset Products/Services and Digital
Services
The Board or a Committee of the Board shall review the progress and key
performance indicators and cover both business and risk aspects of the segment.
• No physical disbursal/acceptance of cash across the counters to be permitted
 Borrowers, with less than (<) ₹5 crore exposure of the banking system, no
restriction on opening of current accounts or on provision of CC/OD facility by banks

However, such borrowers undertake to inform the bank(s), as and when the credit
facilities availed by them from the banking system reaches ₹5 crore or more.

Borrowers where exposure of the banking system is ₹5 crore or more, can

CURRENT ACCOUNTS maintain current accounts with any one of the banks with which it has CC/OD
– REVISED GUIDELINES facility, provided that the bank has at least 10 % of the exposure
Other lending banks may open only collection accounts provided funds deposited
in such collection accounts will be remitted within two working days of receiving
such funds, to the CC/OD account maintained with the above-mentioned bank
maintaining current account.
In case none of the lenders has at least 10% exposure of the banking system to the
borrower, the bank having the highest exposure may open current accounts.

Non-lending banks are not permitted to open current accounts.

In case of borrowers with aggregate exposure of ₹50 crore or more, banks to put in
place an escrow mechanism. Borrowers shall be free to choose any lending bank
as their escrow managing bank. All lending banks should be part of the escrow
agreement and the same bank will open/maintain current A/c.
 Applies to all SCBs, UCBs, RCBs and NBFCs

MFL is “a collateral-free loan given to a household having annual

household income </= ₹3,00,000, regardless of end use and mode
of application/ processing/ disbursal
REGULATORY REs to have a Board approved policy covering IR model for arriving
FRAMEWORK FOR at an all-inclusive I/Rate and including Cost of Funds, Risk Premium
MICROFINANCE LOANS and margin.

RE to disclose pricing related information to a prospective borrower

in a standardised simplified factsheet

No pre-payment penalty on microfinance loans. Penalty, if any, for

delayed payment shall be applied on the overdue amount and not
on the entire loan amount.
Board approved FPC in a language easily understood by the
prospective borrower and no harsh methods of Recovery by Res /
Recovery agents

Not for profit’ companies (Section 8 of the Com Act, 2013), with >/= ₹100
crore to register with RBI
 principle-based classification of investment portfolio into three categories,
viz., (i) 'Held to Maturity' (HTM), 'Available for Sale' (AFS), and 'Fair Value
through Profit and Loss Account' (FVTPL)

clearly identifiable trading book under 'Held for Trading' (HFT), a sub-
category within FVTPL

PRUDENTIAL NORMS FOR removal of the 90-day ceiling on holding period under HFT
CLASSIFICATION, VALUATION category
AND OPERATIONS OF
INVESTMENT PORTFOLIO OF
CBS - REVIEW
removal of ceiling on investments in HTM category;

tightening of regulation around transfer to/ from HTM category and

sales out of HTM

inclusion of non-statutory liquidity ratio (SLR) securities in HTM

category, subject to fulfilling certain conditions;

symmetric recognition of gains/losses for investments under AFS and

FVTPL categories; and granular disclosures
 Card-issuers to provide a one-page Key Fact
Statement along with the credit card application
containing the important aspects of the card
The MITC shall be highlighted and published/sent
separately to the customers, at the acceptance stage
(welcome kit) and in important subsequent communications.
REGULATORY
FRAMEWORK FOR Card-issuers may consider introducing, at the option
ISSUANCE OF CREDIT/ of the customers, an insurance cover to take care of
DEBIT CARDS the liabilities arising out of lost cards, card frauds, etc.
In case of an unsolicited card is issued/existing card upgraded and activated without
the explicit consent of the recipient, the card-issuer to not only reverse the
charges forthwith, but also pay a penalty without demur amounting to twice
the value of the charges reversed.
Card-issuers to seek OTP based consent from the cardholder for activating a credit
card, if the same has not been activated by the customer for > 30 days from the
date of issuance. Can close the card within 7 working days in case of no response
Credit information relating to a new credit card
account to Credit Information Companies prior
to activation of the card shall not be reported.
Request for closure of a credit card, with no dues, shall
be honoured within seven working days. Failing to do
so will result in a penalty of ₹500 per calendar day of
delay
 Applicable to D/Lending by all commercial banks, UCBs, StCBs, DCCBs and
NBFCs (incl HFCs) & Defines D/Lending as a remote and automated
lending process, largely by use of seamless digital technologies for customer
acquisition, credit assessment, loan approval, disbursement, recovery, and
associated customer service.
All loan servicing, repayment, etc., shall be executed by the borrower directly in
the RE’s bank account without any pass-through account/ pool account of any
GUIDELINES third party. The disbursements shall always be made into the bank account of the
ON borrower. In no case, disbursal is made to a third-party account, including the
DIGITAL LENDING accounts of LSPs and their DLAs

A Key Fact Statement (KFS) be provided to the borrower before the execution of
the contract in a standardized format for all digital lending products. No fees,
charges, etc., not mentioned in the KFS can be charged.

Digitally signed documents viz., KFS, summary of loan product, sanction letter,
T&Cs, A/c statements, privacy policies of the LSPs/DLAs with respect to
borrowers data, etc. must be shared with the borrowers on their registered and
verified email/ SMS upon execution of the loan contract/ transactions

Any lending done through their DLAs and/or DLAs of LSPs must be reported to
CICs irrespective of its nature/ tenor. No automatic increase in credit limit
except with the explicit consent of borrower
 Why ?

DIGITAL LENDING • Aims to manage Regulatory and systemic risk emanating from
GUIDELINES – DEFAULT innovative digital products like First Loss Default Guarantee (FLDG)
LOSS GUARANTEE • Strike a balance between prudence and innovation in a non-disruptive
(DLG) manner.

Features

• DLG capped at five % of the o/s loan portfolio (known upfront).

• DLG only in the form of Cash, Fixed Deposits and Bank Guarantee.
• Extant asset classification and provisioning norms applicable.
• DLG covers both implicit and explicit loss sharing arrangements.
• Disclosures by LSPs/RES and reporting by REs
 A new standardised approach was prescribed for determining the minimum
capital requirements for operational risk in order to secure greater
convergence with the revised Basel standards.
• Financial statement-based business indicator component (BIC), along with
loss data-based internal loss multiplier (ILM) [for larger banks] in their
operational risk regulatory capital calculation.

REVIEW OF GUIDELINES ON
Talks about Operational Risk as well as Operational Risk Resilience -
OPERATIONAL RISK the ability of an RE to deliver critical operations through disruption
MANAGEMENT

Uses the three-pillar approach

• Pillars of Prepare and Protect, Build Resilience and Learn and Adapt

Advocates three lines of defence

• (i) Business Unit Management, (ii) Organisational OR Management Function
including compliance function and (iii) Audit Function
 Climate change may result in physical and transition risks

Implications for the safety and soundness of REs as well as financial

stability.
CLIMAGE CHANGE
AND A major focus area for times to come as such risks will impact the
FINANCIAL RISK business models of banks.

In line with various CBs, RBI too has issued Commitment towards
Green Finance

A D/Paper on Climate Risk and Sustainable Finance placed on

RBI’s website on July 27, 2022 for comments
Results of a Survey on Climate Risk and Sustainable Finance show
that though banks have begun taking steps in the area, concerted
effort and further action is needed.
In April 2023, a framework for acceptance of green deposits by REs has
been issued and guidelines would be issued in a phased manner on (i)
disclosure framework on climate-related financial risks; and (ii) guidance on
climate scenario analysis and stress testing.
 To encourage REs to offer green deposits to
customers, protect interest of the depositors, aid
customers to achieve their sustainability agenda,
address greenwashing concerns and help augment
the flow of credit to green activities/projects.
Shall be denominated in INR and shall be subject to
extant instructions on tenor, size, interest rate and
other terms and conditions as applicable for deposits
FRAMEWORK FOR
ACCEPTANCE OF REs can allocate the funds raised from green deposits
GREEN DEPOSITS in the
• (i) Renewable Energy (ii) Energy efficiency (iii) Clean transportation
(iv) Climate change adaptation (v) Sustainable Water and Waste
Management (vi) Pollution Prevention and Control (vii) Green Buildings
(viii) Sustainable Management of Living Natural Resources and Land
Use and (ix) Terrestrial and Aquatic Biodiversity Conservation
Such allocation of funds during a FY shall be subject
to annual verification/Assurance done by an
independent Third-Party

Impact Assessment Report shall be prepared by RE

on an annual basis
 Was issued to provide further impetus to resolution of stressed assets in the system
as well as to rationalise and harmonise the existing instructions across all REs

FRAMEWORK FOR Applicable to all SCBs (incl RRBs, SFBs, LABs and RRBs), UCBs, SCBs, DCCBs,
COMPROMISE AIFIs and NBFCs (incl HFCs)
SETTLEMENTS
AND TECHNICAL
WRITE-OFFS Compromise Settlement - a negotiated arrangement with the borrower to fully settle
the claims of the RE against the borrower in cash.

• May entail some sacrifice of the amount due from the borrower on the part of
the REs with corresponding waiver of claims of the RE against the borrower to
that extent.

Technical write-off - the NPAs remain outstanding at borrowers’ loan account level,
but are written-off (fully or partially) by the RE only for accounting purposes

• without involving any waiver of claims against the borrower, and without
prejudice to the recovery of the same.
 • Minimum ageing, deterioration in collateral value and a
graded framework for examination of staff
Mandatory accountability, cooling period (min of 12 months) etc
provisions in the • permissible sacrifice for various types of exposures
Board approved after prudently reckoning the current realisable value of
policy security/collateral, where available.
FRAMEWORK FOR
• The methodology for arriving at the realisable value of
COMPROMISE
SETTLEMENTS AND the security
TECHNICAL WRITE-
OFFS (CONTD…. ) • maximise the possible recovery from a distressed
The objective borrower at minimum expense, in the best interest of
the RE.

• rests with one level higher in hierarchy than the

authority vested with power to sanction
• any official who was part of sanctioning the loan (as
individual or part of a committee) shall not be part of
Delegation of
the approving the proposal for compromise settlement
powers
of the same loan account, in any capacity.
• proposals in respect of debtors classified as fraud or
wilful defaulter require approval of the Board in all
cases.
 The inadequacy of the current incurred loss (IL)
approach for provisioning by banks and its
procyclicality effect was on display during the
PROVISIONING financial crisis of 2007-09 and has been well
NORMS – documented later. The too late and too little
IL VS ECL theory against IL.

• Since then, many jurisdictions have been trying to move over to

Expected Credit Loss (ECL) regime for provisioning
• Towards converging with globally accepted prudential norms, RBI
has proposed to adopt expected loss approach for loss allowances
required to be maintained by banks in respect of their exposures.
• As a first step, a discussion paper on Introduction of Expected
Credit Loss Framework for Provisioning by Banks was issued on
Jan 16, 2023.
 Drawbacks of current framework
• Is seen as a backward-looking approach wherein stress is recognized
after materialization of the risk and it has the tendency to propagate
procyclical lending practices
The proposed framework will mandate banks
• to classify financial assets into one of the three categories - Stage 1,
INTRODUCTION OF Stage 2, and Stage 3, depending on the assessed credit losses on
EXPECTED CREDIT them, at the time of initial recognition as well as on each subsequent
LOSS FRAMEWORK reporting date and make necessary provisions for any increase in
FOR PROVISIONING BY assessed risks of default.
BANKS – DP Key features
• The assessment of increase in credit risk since initial recognition, on
each reporting date, is to be made at the level of each counterparty
and not at the instrument level
• Interest recognition in respect of Stage 3 assets shall be allowed on
cash basis and not on an accrual basis
• An asset in Stage 3 shall not directly be brought to Stage 1 even after
the irregularities are rectified. At a minimum, banks shall keep a Stage
3 asset in Stage 2 for six months after all the irregularities are rectified
before the same is brought to Stage 1.
• Certain instruments shall be considered as ‘low credit risk’, not
requiring periodic assessments for increase in credit risk (eg SLR
eligible instruments or claims on GG or exposures guaranteed by CG.
 Banks would be allowed to design and implement
their own models for measuring expected credit
losses for the purpose of estimating loss provisions in
line with the proposed principles.
INTRODUCTION OF
EXPECTED CREDIT
LOSS FRAMEWORK • However, in order to mitigate the concerns relating to model risk and
FOR PROVISIONING BY considering the significant variability that may arise, some mitigants
BANKS – DP have been proposed.

In order to enable a seamless transition, banks shall

be provided an option to phase out the effect of
increased provisions on Common Equity Tier I capital,
over a maximum period of five years.

• Regional rural banks and smaller cooperative banks (based on a

threshold to be decided based on comments) are proposed to be kept
out of the above framework.
PSL TARGETS FOR The overall PSL target for UCBs To ease the implementation
UCBS - REVISIONS were revised on March 13, 2020 challenges faced by the UCBs,
from 40% to 75% of ANBC or the timelines for achieving the
CEOBSE, whichever is higher. A targets/sub-targets were
glide path was provided till March extended by two more years, i.e.
31, 2024. , up to March 2026.
• Further, UCBs are required to • UCBs were also allowed to
contribute to various funds with contribute to the various funds
NABARD /NHB/SIDBI/MUDRA w.e.f. March 31, 2023, with
Ltd. against shortfall in reference to PSL shortfalls for
achievement of the PSL targets the FY2022-23 instead of
w.e.f. March 31, 2021. FY2020-21 and FY2021-22, as
required earlier.
 • Tier 1 - All unit UCBs and salary earner’s UCBs
(irrespective of deposit size) plus all other UCBs
having deposits up to ₹100 cr (as per previous FY)
• Tier 2 - UCBs with deposits > ₹100 cr and </= ₹1000 cr
Regulatory • Tier 3 - UCBs with deposits > ₹1000 cr and </=
Classification ₹10,000 cr
• Tier 4 - UCBs with deposits more than ₹10,000 cr
UCBS – CHANGE IN
REGULATORY CAPITAL • If a UCB transits to a higher Tier on account of
REQUIREMENTS increase in deposits in any year, a three year glide
path will be given to comply with higher regulatory
requirements, if any

• ₹2 crore for Tier 1 UCBs operating in single district

and ₹5 crore for all other UCBs (all Tiers) has been
Min Net worth
stipulated. Glide path of five years. 50 % of the NW by
Mar 2026 and 100 % by Mar 2028.

• Tier II, III and IV UCBs to have 12 % CRAR but will be

CRAR given a glidepath from Mar 2024 to Mar 2026
(10/11/12%). CRAR for Tier I UCBs retained at 9 %.
 • Perpetual Non-Cumulative Preference Shares
(PNCPS) eligible for inclusion in Tier I capital

Preference • Redeemable Non-Cumulative Preference Shares

Shares (RNCPS) &
• Perpetual Cumulative Preference Shares (PCPS) &
• Redeemable Cumulative Preference Shares (RCPS)
UCBS – ADDITIONAL
eligible for inclusion in Tier II capital
AVENUES FOR RAISING
CAPITAL

• Perpetual Debt Instruments (PDI) eligible for inclusion

in Tier I capital
Debt Instruments
• Long Term Subordinated Bonds (LTSB) eligible for
inclusion in Tier II capital

• UCBs can refund share capital provided

• the bank’s CRAR is 9 % or above, both as per the
latest audited financial statements and the last CRAR
Refund of share as assessed by RBI during statutory insp.
capital
• Such refund does not result in the CRAR of the bank
falling below regulatory min of 9 %.
 Revaluation be reckoned as Tier 1 capital at a discount of 55 % Subject to
reserves
(arise out of
change in the the bank is able to sell the property readily at its own will and
carrying without any legal impediment in such selling
amount of a
bank’s
UCBS – GUIDELINES property the rev. reserves are presented/disclosed separately under
ON REVALUATION consequent “Reserve Fund and Other Reserves” in the B/Sheet
RESERVES upon its
revaluation revaluations are realistic, line with accounting standards and
obtained, from two independent valuers, at least once in every
three years
In case of substantial impairment, these are to be immediately
revalued and duly factored into CRAR

No qualified opinion expressed by S/Auditors on such

revaluation of the property

Such Rev Reserves which do not qualify for inclusion in Tier 1

should not be included in Tier 2 as well.
 Harnessing
the benefits
of
Technology

REGULATORY FOCUS
– Containing Strengthenin
EMERGING AREAS Risks from g Customer
Pro-cyclical Service and
lending Conduct
Emerging areas of
Regulatory Focus

Improving
Reinforcing Governance,
Prudential Compliance
Regulations and Risk
Management
 Prudence

BANK REGULATION
–
GUIDING PRINCIPLES Proportionality

Proactiveness

Harmonised approach