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 HIGHER DIPLOMA IN COOPERATIVE MANAGEMENT

SEMESTER - I
SUBJECT – 3
COOPERATIVE CREDIT AND BANKING

Prepared by:
Sh. B.N.Hembram,
Ex-General Manager, NABARD &
Sr. Consultant,
C-PEC, BIRD, Lucknow
 PAPER- III : COOPERATIVE CREDIT AND BANKING

PART-A: Cooperative Credit (10 Sessions)

1. Credit Cooperatives
Evolution of Credit Cooperatives; Institutionalisation of Credit Cooperatives in India;
Cooperative Credit Structure (CCS) two tier/three tier Cooperative Credit Structure-
Role of NABARD/NCDC in Cooperative Credit in India.

2. Short Term (SAO) Loans – KCC Schemes

Applicability, Objectives, Eligibility, Fixation of Credit Limit, Scale of Finance,
Disbursement- Cash and kind portion (fertilizer, seeds and pesticides), Rate of Interest,
Repayment period, Validity/renewal of Kisan Credit Cards, Security as per NABARD
guidelines, Crop Insurance, Classification of NPA Accounts

3. Long Term Loans – Investment Credit

Loan portfolio- purpose – Loan Eligibility- Loan Procedure- Field Inspection and
Financial appraisal- Legal Scrutiny-Share Capital and down payment- Land valuation-
rate of interest – unit cost and repayment as per NABARD guidelines- security
4. Constitution of SLBCs, MoU between State Governments, NABARD and State
Cooperative Apex Banks for credit dispensation in the respective states.

PART-B : Cooperative Banking (20 Sessions)

1. Applicability of Banking Regulation Act 1949 to Cooperative Societies, Latest
Amendments to BR Act 2020
2. Elements of Banking
Types of Accounts, Opening of Account, KYC norms, e-KYC, Customer Acceptance
Policy (CAP), Customer Identification Procedure (CIP), Banking Products, Customer
Service (RBI guidelines), Concept of NEFT, RTGS, IMPS, UPI, Mobile Banking.
3. Cash and its custody

Strong room/Safe, Cash Balance of the Bank, Cash Operations-safe in safe out, register,
tokens and cash receipts, cash payments, cash shortages, excess cash, cash custody,
cash in transit, counterfeit notes, clean note policy

4. Clearing and Payment System

Clearing house, MICR clearing, inward clearing cheques, outward clearing cheques,
clearing house account reconciliation, automated clearing house, cheque truncation
system

5. Ancillary Services
Inter Bank Transfer of Funds- cheque, money transfer, demand draft, RTGS, NEFT,
Mobile Banking, Letters of Credit and Guarantees, Agency Services, Safe deposit and
locker services

6. Banking Norms
Cost of Funds, Yield on Assets, Cost of Management, Risk cost, SLR and CRR norms,
CRAR norms, BASEL Regulations, BASEL Norms,

7. Financial Inclusion
Definition, Objectives, Status of Financial Inclusion in India – PMJDY,
PMSBY,PMJJY, APY, PMMY

8. Banking Ombudsman
Appointment, role powers and duties, procedure for lodging complaints, Integrated
Ombudsman Scheme 2021
 Contents
Cooperative Credit and Banking

Chapter. No. Topic Page no.

1. EVOLUTION OF CREDIT COOPERATIVES IN 2-10

INDIA

2. SHORT TERM (SAO)- KCC SCHEME 11-22

3. LONG TERM LOAN- INVESTMENT CREDIT 23-29

4. CONSTITUTION OF SLBC 30-44

5. BANKING REGULATION ACT 1949 46-47

6. ELEMENTS OF BANKING 48-65

7. CASH MANAGEMENT 66-74

8. 75-85
CLEARING AND PAYMENT SYSTEM

9. ANCILLARY SERVICE 86-94

10. CASH RESERVE RATIO AND STATUTORY 95-109

LIQUIDITY RATIO (CRR, SLR)

11. FINANCIAL INCLUSION 110-119

12. BANKING OMBUDSMAN SCHEME 120-122

COOPERATIVE CREDIT
AND BANKING

PART-A
COOPERATIVE CREDIT

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 CHAPTER 1
EVOLUTION OF CREDIT COOPERATIVES IN INDIA

Even before formal cooperative structures came into being through the passing of a law, the practice of
the concept of cooperation and cooperative activities were prevalent in several parts of India. Some of
them were named as Devarai or Vanarai, Chit Funds, Kuries, Bhishies, Phads. In the Madras Presidency
were organised ‘Nidhis’ or Mutual-Loan Associations.
The first official step was taken when Sir William Wedderburn made, after the Deccan riots took place
at Pune and Ahmednagar against money lenders coined formation of cooperative societies. The proposal
for the establishment of agricultural banks as a remedy against rural indebtedness. Consequent to Decan
riot British Government passed three act. These are Decan Agriculture Relief Act 1879, Land
Improvement Loan Act 1883 and Agriculturist Loan Act 1884.

First Cooperative Act In India:

The Indian Famine Commission (1901) induced the government to set up a committee under the
presidency of Sir Edward Law to report on the introduction of cooperative societies in India. The
Committee reported favourably. In the mean time in 1903 first credit cooperative societies was formed
in banking with the support of Bengal Government under Friendly Societies Act of British Government.
In 1904 Credit Cooperative Societies Act in India was enacted. This act encouraged thrift, self help and
cooperation among agriculturist and Artisan.

Salient Features Of The Act:

Any ten persons living in the same village or town or belonging to the same class or tribe could form a
cooperative credit society. Societies were classified as Rural and Urban depending if the majority of the
total membership (80%) was agricultural or non-agricultural. Rural society was not permitted to
distribute profits, but in the case of urban societies, profits could be distributed after carrying 25% of
the net profits to the Reserve Fund.

Drawbacks Of The Act:

The act provided no legal protection to non-credit societies. It also made no provision for mobilising
urban savings for financing agricultural operations. The classification of societies into urban and rural
was found to be arbitrary, unscientific, and highly inconvenient. Many provisions of the Act of 1904
became a hindrance to the further spread of the movement.

The Cooperative Societies Act of 1912:

The defects of the 1904 Act were remedied when the Cooperative Societies Act, 1912 was enacted.

Salient Features of the act:

Any society, credit or otherwise, could be registered which had as its objective, the promotion of the
economic interest of its members. A federal society like the Central Bank or union could be registered.
No member could have more than 1/5 of the total share capital or hold share exceeding Rs. 1,000 in
such a society. The societies were granted exemption from compulsory registration and from the
payment of income tax and stamp duties.

Maclagan Committee:

In 1915, a committee headed by Sir Edward Maclagan, was appointed to study and report whether the
cooperative movement was proceeding on economically and financially sound lines.The committee
observed that illiteracy and ignorance of the masses, misappropriation of funds, rampant nepotism,

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inordinate delay in granting loans and viewing the cooperative movement as a Government movement
were some of the glaring defects of the cooperative movement. The committee made the following
suggestions:

 All members should be made aware of the cooperative principles.

 Honesty should be the main criterion for taking a loan.
 Dealings should be strictly confined to the members only.
 Applications should be carefully scrutinized before advancing loans and there should be careful
follow up for effective utilization of loans.
 One member-one vote should be strictly followed
 These recommendations could not be put into practice because of the First World War.
 Expansion Stage of the Cooperative Movement (1919-29)

Montague-Chelmsford Reforms:

Through the Montague- Chelmsford Reforms of 1919, co-operation became a provincial subject which
gave further impetus to the movement. Various states passed their own Acts to make the Cooperative
Movement a successful one. The membership of the Cooperative societies increased considerably
during this period.
In the year 1929 witnessed the Great Economic Depression in India. This has resulted in the agricultural
commodities fell down to a remarkable extent, unemployment along with other economic crises grew.
The agriculturists could not pay back the loans of the societies.Over dues increased unexpectedly and
cooperative societies were ruined.

Restructuring Stage Of Cooperative Societies (1930-1946)

Appointment Of Committees:
Various committees were appointed in Madras, Bombay, Travancore, Mysore, Gwalior and Punjab for
examining the possibilities of restructuring the Cooperative societies. In 1937 the Congress Ministry
came to power in many states and revived interest in organising the cooperative movement.
Role of World War II:
The abnormal conditions created by the Second World War led to far-reaching developments in the
Cooperative Movement. Prices of agricultural commodities began to rise, rural farmers got extra
economic gains and non- credit societies like marketing, production and consumer societies increased
rapidly. The All India Cooperative Planning Committee in 1945 also gave a fillip to the growth of the
Cooperative Movement.
Gandhian Socialist Philosophy regarding Cooperative. Cooperation according to Gandhiji was
necessary for creation of a socialistic society and complete decentralization of power. He was of the
opinion that cooperation was one of the important means to empower people. In South Africa, Mahatma
Gandhi instituted the 'Phoenix Settlement' as a cooperative in a socialistic pattern. Its objective was to
cultivate the three acres of land given to each member and to stop the emergence of a new class of
absentee landowners. He established the Tolstoy Farm as a rehabilitation cooperative settlement for the
families affected by the South African freedom struggle during the period. He fully believed in Tolstoy's
socialistic philosophy.
On return from South Africa, Gandhiji visited the countryside of India and realized the bankruptcy and
distress of Indian peasantry oppressed by excess taxation, rack renting, illegal exaction etc. He observed
that the closest cooperation amongst the peasants is an absolute necessity. Any industry based on
agricultural produce such as cotton, sugar, oil seed, wheat etc. should be on a cooperative basis so that
the producers could secure the best value for their output.

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Cooperative Movement After Independence
Part Of Mixed Economy:
After independence, the nation adopted the approach of planned economic development for
establishment of a mixed economy consisting of three sectors namely Public, Private and Cooperative
Sectors. Cooperatives were visualized to play the role of a balancing factor between public and private
sectors.
Part Of FYPs:
After independence, cooperatives became an integral part of Five-Year Plans (FYPs). Pandit Jawaharlal
Nehru considered cooperatives as one of the three pillars of Democracy, the other two being the
Panchayat and the Schools.
National Policy Of Cooperatives:
In 1958, the National Development Council (NDC) had recommended a national policy on cooperatives
and also for training of personnel and setting up of Cooperative Marketing Societies. The Government
of India announced a National Policy on Cooperatives in 2002.
Establishment Of NCDC:
National Cooperative Development Corporation (NCDC), a statutory corporation, was set up under
National Cooperative Development Corporation Act, 1962.
Committees Set Up For Cooperatives:
The Rural Credit Survey Committee in 1954 recommended state participation in cooperatives at all
levels.
The S.T. Raja Committee was appointed by the Government of India to suggest amendments to the
Cooperative Law. The committee prepared a Model Act enabling state participation and appointment
of Government nominees on the management of assisted Cooperative Societies.

Issues Faced By The Cooperative Sector

Cooperatives in India function in different sectors. Cooperatives is a State subject under the Constitution
of India and State cooperative laws and their implementation vastly differ. It was observed, Serious
inadequacies in governance including that related to Boards’ roles and responsibilities. The people on
the board are not held accountable for many inconveniences.
Lack of Recognition: A general lack of recognition of cooperatives as economic institutions both
amongst the policy makers and public at large due to this it did not attract and retain competent
professionals.
Lack of Capital Formation: Lack of efforts for capital formation particularly that concern enhancing
member equity and member stake.
Lack of Awareness: People are not well informed about the objectives of the Movement, rules and
regulations of co-operative institutions.
As a key sector of the Indian economy, Reserve Bank of India has historical allocated a key priority to
the agricultural credit delivery. The Reserve Bank of India Act, 1934 envisaged a special developmental
role for the Reserve Bank in the sphere of agricultural credit with responsibility, in particular, for
financing seasonal operations and the marketing of crops. The Rural Banking Enquiry Committee
(Thakurs Committee, 1950) stressed the importance, for an efficient system of agricultural finance, of
a sound co-operative credit structure capable of developing close relations with the Bank. The Reserve
Bank followed up the Rural Banking Enquiry Committee with the informal conference.

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The conference’s recommended that the Reserve Bank to organise a Rural Credit Survey and constitute
a Standing Advisory Committee on Agricultural Credit. The All-India Rural Credit Survey,
commissioned in August 1951, covered seventy-five districts around the country. Eight villages in each
were chosen for the survey, which was based on a sample of fifteen households from each of the selected
villages, with a view to recommend practicable policies for the future on rural credit. The survey was
completed during November 1951 - July 1952, under the committee of Direction, headed by A. D.
Gorwala. Dr. D. R. Gadgil was one of members of the committee. The Report was submitted in August
1954. The survey was struck by the utter insignificance of co-operatives in providing rural credit.
‘Positive and deliberate’ measures rather than ‘small administrative, functional or other changes’ were
required to ensure the success on co-operative credit institutions and enable them to become self-
supporting. The State’s tendency in the past had been to ‘over-administer and under - finance’ the co-
operative movement, but the Report pointed out the need for an integrated system of co-operation and
rural credit. The Report envisaged a key role for the Reserve Bank of India in coordinating the proposed
network of co-operative institutions and for its Agricultural Credit Department in over seeing their
functioning. The Reserve Bank would occupy a ‘strategic position’ in the co-operative credit sector,
while other principal participants would play a major role in rural co-operation, viz., co-operative
economic activity and the training of co-operative personnel. Since cooperative credit institutions
depended on the banking system for a number of services, there was a need for positive State association
with a defined sector of commercial banking. The Report thus recommended the creation of the State
Bank of India through the statutory amalgamation of the Imperial Bank of India and the major State
associated banks to undertake an expeditious programme of banking expansion, particularly in the rural
areas.
Bank was expected to manage the Imperial Bank’s passage to State ownership. The Reserve Bank
prepared a draft-bill, approved by the Board in February, 1955, which among other things, authorised
it to make long-term loans to State Governments to subscribe to the share capital of co-operative
institutions and to central land mortgage banks, and set up the proposed special funds. The bill also
provided for a third Deputy Governor to have exclusive responsibility of rural credit. The bill was
passed into law on May 8, 1955. The National Agricultural Credit (Long-term operations) Fund was
created in 1955 and the Reserve Bank was authorised to specify from time to time, the purposes for
which, it would make medium-term loans. Over the years such loans were made to finance a wide range
of investments relating to the rural sector. The State Bank of India was created in July 1955 in order to
give a boost to direct flow of funds of the banking system into certain neglected, but important, sectors
of the economy such as agriculture and allied activities and spread banking facilities in rural areas. The
flow of funds to the rural sector increased over the years. However, the demand for productive
investment in the rural sector was not fully met. In 1960, the Committee on Co-operative Credit
(Vaikunth Lal Mehta Committee) advised examining the possibility of using P. L.480 funds to finance
long-term productive investment in agriculture. Consequently, the Reserve Bank and the Government
began to think to create a specialised agency to finance agricultural investment. It was thought that the
demand for agricultural credit might require the establishment of some specialised institutions, which
would ultimately relieve the Reserve Bank of its function so far as rural
Finance and Agricultural credit was concerned. The Agricultural Refinance Corporation Bill, 1962
received the President’s assent in March 1963. The Corporation under the chairmanship of D. G. Karve,
the then Deputy Governor, started its operation in Bombay on July 1,1963. The Corporation took up a
wide range of activities of the rural sector for refinance / direct loans / subscriptions to fully guaranteed
debentures of eligible institutions covering central land mortgage banks, State cooperative banks,
scheduled commercial banks (share holders of the cooperatives), and co-operative societies under the
approval of the Reserve Bank. The High-Yielding Varieties Programme (or HYVP) was launched
during Kharif 1966-67, as part of the new agricultural strategy towards achieving self-sufficiency in
food by 1970-71. The Bank, for its part, assured the State Governments that the programme would not
be allowed to suffer. Special credit limits would, if
ncessary, be sanctioned to co-operative banks. However, the demand for credit was poor and was found
to be mainly due to cultivators’ resistance to new practices, lack of proper motivation and orientation

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amongst extension staff, and reduced operational efficiency of central co-operative banks and primary
societies.
In July 1966, the All India Rural Credit Review Committee (Venkatappiah Committee) was formed to
review the progress made in the supply of credit for intensive agricultural production and marketing
from all the institutional sources including commercial banks, working of the crop loans system,
progress of rural branches of commercial banks and coordination between different agencies involved
in rural credit. The Committee submitted its report in July 1969 and admitted that co-operatives would
have to be strengthened but it had no hesitation in highlighting that they should be all the better, and
the farmer would be better served, if other institutions coexisted with them in healthy competition. In
other words, the adoption of the multi-agency approach as the most feasible and appropriate response
to the credit requirements of agriculture and allied activities was recommended. The adoption of ‘social
control’ as a policy measure in 1968 helped the Reserve Bank to motivate the commercial banks into
the area of agriculture and rural credit on a significant scale. The National Credit Council, constituted
in December 1967 recognised the importance of the commercial banks’ role as complementary to co-
operative initiatives.
The nationalisation of the 14 major commercial banks in July 1969 helped the orientation of commercial
banks lending policies and procedures to meet the requirements of the priority sectors of the economy
with due to attention to the financing needs of the small farmers. The multi-agency approach covered
the Lead Bank Scheme, which provided, boost to the improved flow of funds to agriculture sector
through the organised credit channels. Agriculture sector got the place of importance in the priority
sector lending.
Realistic targets for deposits for central cooperative banks were attempted. The borrowing needs,
consequently from the Reserve Bank were met at differential rates of interest (concessional rate usually
being a few basis points below the Bank rate). By mid-1977, the scheme of financing primary
agricultural credit societies was in operation in 12 States, 24 commercial banks through 604 branches
had taken over 343 societies for financing, however, over the years, it was found that the experience
with the working of the scheme was in general not satisfactory. In the context of the large finance gap,
the commercial banks,
Regional Rural Banks (RRBs) and co-operatives were deeply concerned during late 1970s. The system
of district credit plans was introduced to meet the credit needs by different agencies. The commercial
banks were geared up to fulfil priority sector targets and the target was raised to 40 per cent of their
outstanding advances by March 1985. Another target was the attainment of 60 per cent of credit deposit
ratio by the banks by March 1985 in respect of rural -semi urban branches separately.
The Reserve Bank of India appointed a committee to Review Arrangements for Institutional Credit for
Agriculture and Rural Development, chaired by B. Sivaram, former Secretary of the Ministry of
Agriculture, Government of India in 1979. The report was submitted in 1981 and recommended the
setting up of a National Bank for Agriculture and Rural Development (NABARD). The NABARD came
into existence in July 1982. All major rural credit related works from the Reserve Bank of India were
shifted to the NABARD. Works relating to the urban-cooperative banks remained with the Reserve
Bank. A RURAL INCOME: SOME EVIDENCE 231 new Department as Rural Planning and Credit
Department (RPCD) was set-up in the Reserve Bank, to look into the broad rural credit policies of the
Reserve Bank as a part of overall monetary management of the economy for price stability with
sustainable growth of the economy.
The Reserve Bank so, far devoted its attention to provide necessary credit to rural sector for boosting
agricultural growth directly and indirectly through many institutions. It might be indicated that the
Reserve Bank of India provided short-term and mid-term loans to State co-operative banks, for
agricultural production and marketing activities. medium-term loans were provided out of the National
Agricultural Credit (LTO) Fund. Long-term finance was provided to the State Governments and Land
Development Banks through LTO Fund for contribution to the share capital of cooperative societies
and to rural debentures of Land Development Banks (LDBs). Reserve Bank also contributed to the

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ordinary debentures of LDBs by way of general funds. Besides, the Reserve Bank contributed to the
resources of agriculture refinance corporations.
Constitutional Provisions:
The Constitution (97th Amendment) Act, 2011 added a new Part IXB right after Part IXA (Municipals)
regarding the cooperatives working in India. The word “cooperatives” was added after “unions and
associations” in Article 19(1)(c) under Part III of the Constitution. This enables all the citizens to form
cooperatives by giving it the status of fundamental right of citizens. A new Article 43B was added in
the Directive Principles of State Policy (Part IV) regarding the “promotion of cooperative societies”.
SC Ruling:
In July, 2021, the Supreme Court struck down certain provisions of the 97th Amendment Act, 2011. It
gave a major boost for federalism as the amendment shrank the exclusive authority of States over its
co-operative societies. Part IX B dictates the terms for running co-operative societies. As per the SC,
Part IX B (Articles 243ZH to 243ZT) has “significantly and substantially impacted” State legislatures’
“exclusive legislative power” over its co-operative sector. Also, the provisions in the 97th Amendment
were passed by Parliament without getting them ratified by State legislatures as required by the
Constitution. The SC held that states have exclusive power to legislate on topics reserved exclusively
to them (cooperatives are a part of State list). The 97th Constitutional Amendment required ratification
by at least one-half of the state legislatures as per Article 368(2). Since the ratification was not done in
the case of the 97th amendment, it was liable to strike it down. It upheld the validity of the provisions
of Part IX B which are related to Multi State Cooperative Societies (MSCS). It said that in case of
MSCS with objects not confined to one state, the legislative power would be that of the Union of India.
In the year 2020 Parliament amended BR Act1949(AACS) which was came in to force with effect from
1st April 2021. This amendment enabled all the provisions of BR Act 1949 for applicability to
cooperative banks

Cooperative Credit Structure

The cooperative credit structure in India can be categorised in to two broad segments. The Urban
Cooperative Banks and Rural Credit Cooperative Banks. The urban cooperative banks have single tier
system. The Rural cooperative credit structure divided in to Long Term and Short Term cooperative
credit structure. The short-term cooperative credit institution has three tier structures ie State
cooperative Bank at apex level District Central cooperative banks at middle level and Primary
Agriculture Credit Cooperative (PACS) are at lower level. Some state in short term cooperative credit
structure is mixed structure. These state are Himachal Pradesh, West Bengal and two tier structures are
in the state of Kerala , Jharkhand and North Eastern States of India. It is worth to mention that the PACS
and SCARDB and PCARDB are not bank but working only as societies.
The Long Term Cooperative credit institution have generally a two tier structure comprising the State
cooperative Agriculture and Rural Development Bank (SCARDB) and Primary Cooperative
Agriculture and Rural Development Bank (PCARDB). The long-term cooperative credit structure has
a unitary structure in some state and in other state they have mixed structure ie SCARDB and PCARDB
The state not having long term cooperative credit institutions, the credit requirement is served by the
State Cooperative Bank of the respective state. However over a period since many of the long term
cooperative credit structures became weak, the long term credit requirements are met by the central
cooperative banks and state cooperative banks.
The objective of the credit cooperative institutions is to provide an effective alternative to the traditional
defective credit system of the money lender. The cooperative banks protect the rural population from
the clutches of money lender who provides credit at higher rate of interest. The important benefits of
the cooperative credit banks are to get borrower both production-oriented loan and marketing of produce
loan. Apart from this cooperative bank are providing Medium Term and Long-Term Loan at lower rate

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of interest. Due to credit at lower rate of interest farmers are able to purchase seeds, fertilizers, pesticides
intern utilising the same towards better production of crops. It is also notice that despite effort is being
made by the GOI, NABARD and RBI many of the cooperative banks do not have net banking, mobile
banking and other modern banking practices. With the effort made by GOI, around 63000 PACS are to
be computerised across the country and remaining will be computerised at later stage.
Role Of NABARD In Cooperative And Rural Development
The foundation of NABARD can be traced back to the Shivaraman Committee’s recommendation on
Rural Credit. The committee was established in 1979 to initiate the functioning of the rural credit system
in India. This establishment was held under the former chairmanship of the Reserve Bank of India.
Based on the recommendation of the committee, the Indian government introduced the National Bank
for Agriculture and Rural Development Bill in 1981 in Parliament. The aim of the bill was to establish
NABARD as the country’s apex development bank for rural development and agriculture.
However, it received the approval of the Parliament and came into existence officially on July 12th,
1982, after the president’s accent to the act. The financial institution was established as an autonomous
institution headquartered in Mumbai, Maharashtra. The operation is conducted under the framework of
RBI and the guidance provided by the Ministry of Finance.
As time passed by, NABARD has developed into a pivotal institution that plays a crucial role in the
landscape of rural development and agriculture in India. It has successfully undertaken various
initiatives, schemes, and programs to channel institutional credit, develop rural infrastructure, and
provide technical assistance.
The role of NABARD in the growth and development of agriculture is multifaceted. Below are given
some of the critical roles accomplished by NABARD:
 The primary role is to facilitate the flow of credit to the rural and agricultural sectors.
 It offers financial and refinancing support to various cooperative, commercial, and rural and
regional banks for lending to agricultural cooperatives, rural entrepreneurs, and farmers.
 It entertains active participation in the formation of policies and planning strategies to enhance
agricultural and rural development.
 NABARD implements various schemes and programs to promote the productivity of agriculture,
enhancement of rural livelihood, and the development of rural infrastructure.
 NABARD is also responsible for conducting various workshops, training programs, and seminars
with the aim of enhancing the knowledge of the individuals involved in agriculture.
 NABARD evaluates and monitors the impact of the initiatives concerning rural; development and
measures the progress of the projects it has undertaken.
 It also offers support to the establishment of Microfinance institutions as well as self-help groups
as well as invigilates their functioning.
 Help Cooperative Banks to prepare development action plan for themselves
 Enter MoU with respective State Government and Rural cooperative Banks specifying their
obligations to improve the affairs of the banks in a stipulated Time Frame
 Providing Technical and Financial support for Financial Inclusion Programme
 Providing Grant Assistance for implementation of lively hood programme to Tribals through Tribal
Development Funds
 Providing Grant Assistance to Rural Cooperative Banks and NCCT through Cooperative
Development Fund
 Fostering Partnership with various agencies for climate resilience
 Providing skill upgradation and knowledge enhancement to various credit institutions through its
Training Centre
 Offering financial assistance through grants, loans, refinancing, or subsidiaries. This aims at
meeting the requirement of credit on the part of the agricultural cooperative, rural entrepreneurs,
farmers, and various other rural entities.

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 NABARD has designed various schemes and same to cover target specific beneficiaries like the
marginalized section of society, rural artisans, women entrepreneurs, self-help groups, JLGs, or
farmers.
 The scheme also caters to various sectors within the ambit of agricultural and rural development,
especially in areas like horticulture, production of crops, fisheries, and animal husbandry, among
many more.
 The particular emphasis on NABARD schemes is on the training programs and capacity building
with various modern techniques of farming.
 It also adopts the promotion of environmental conservation and sustainable practices of agriculture.
 NABARD schemes often involve partnerships and collaborations with a variety of stakeholders,
including financial institutions, government agencies, NGOs, and community-based organizations,
among many more.

Role of NCDC
NCDC is involved in planning, promoting, coordinating and financing of cooperative development
programmes at the national level. It provides financial and technical support to cooperative institutions
of farmers and other weaker sections associated with agriculture and allied rural economic activities.
The promotional and developmental role is distinctly reflected in the following spheres of its operations:
 Assisting in planning for cooperative development and thus, helping the Central and State
Governments in formulation of Annual Plans.
 Extending consultancy support for formulation of development projects in the cooperative
sector.
 Coordinating activities of cooperatives with various Government Offices, institutions etc.
 Imparting training to cooperative personnel to upgrade their operational skills for successful
implementation of projects financed by the Corporation.
 Convening All-India and Regional conferences/ workshops to facilitate exchange of
information and review of progress etc.
Besides NCDC also provides short term loans to Agriculture Credit Cooperatives at reasonable rate of
interest. Also provides subsidy to the cooperative societies for their development.

PATTERN OF ASSISTANCE IN RESPECT OF SCHEMES ASSISTED BY THE NCDC

NCDC provides financial assistance in the form of loans (both Term Loans and Investment Loans) and
subsidy to the cooperative societies for their development. The assistance is provided under the Central
Sector Integrated Scheme on Agricultural Cooperation (CSISAC) & other Central Sector Schemes and
NCDC Sponsored Scheme. The loan component is provided from out of NCDC’s own funds while the
subsidy is provided from outlay earmarked under the CSISAC and other Central Sector Schemes.
Subsidy is provided subject to availability from Government of India otherwise equivalent amount is
provided as loan in lieu of subsidy. The subsidy under CSISAC is for agriculture and allied activities.
For the purpose of NCDC funding, the States/Union Territories are categorized as under: Cooperatively
Least Developed States/Union Territories {Arunachal Pradesh, Assam, Bihar, Jharkhand, Jammu &
Kashmir (UT), Ladakh (UT), Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, and Tripura};
Cooperatively Under Developed States/Union Territories {Andhra Pradesh, Chhattisgarh, Himachal
Pradesh, Madhya Pradesh, Odisha, Rajasthan, Telangana, Uttar Pradesh, Uttarakhand, West Bengal,
Andaman & Nicobar Islands (UT) and Lakshadweep (UT)}; Cooperatively Developed States/Union
Territories {Gujarat, Haryana, Karnataka, Kerala, Maharashtra, Punjab, Tamil Nadu, Chandigarh (UT),
Dadra & Nagar Haveli and Daman & Diu (UT), Puducherry (UT), Delhi (UT) } Weaker Section
Programme shall include programmes related to

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 (i) Marketing,
(ii) Processing (Small & Medium sized processing units related to agriculture and allied
activities),
(iii) Storage including Cold Chain and
(iv) Consumer business and activities related to agriculture & allied activities taken up by
a. Fisheries,
b. Dairy & Livestock,
c. Poultry,
d. Coir,
e. Jute,
f. Sericulture,
g. Handloom &
h. Tobacco Cooperatives.

Apart from these programme / activities, Weaker Section benefits will also be extended to Tribal /
Scheduled Caste/ Scheduled Tribe/ Hill area, Labour and Women Cooperatives for undertaking the
above activities.

Role Of State Cooperative Bank

In each state the State Cooperative Bank has been established in terms of State Cooperative Societies
Act. Major role played by the state cooperative Bank is as under.
1. Assist the central banks and to balance excess and deficiencies in the resources of central bank.
2. Keep watch on all the district cooperative banks within the state.
3. Act as a chain between cooperative activities and country’s money market
4. Directs the guidelines for the development of cooperative activities to the district bank situated
in the state
5. Helps District cooperative banks in the form of subsidies
6. Create proper environment for the rapid growth of cooperative activities
7. Play the role of friend, philosopher and guide to all the cooperative institution in the state
8. Manage for imparting education and training of cooperative activities in the state
9. Provides credit to the primary credit societies through the central cooperative bank
10. Provides the facility of re discounting of bills and clearing house

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 CHAPTER- 2
SHORT TERM (SAO)- KCC SCHEME

The Kisan Credit Card was introduced in the year 1998 to meet the production credit requirement of
farmers. Loan was issued by the credit institutions adopting crop loan method. However, to ease the
availability of short-term credit to the farmers and to cover different segments of cultivators,
Government of India appointed various committees. Based on the committee’s recommendations and
suggestions on studies conducted by NABARD, KCC scheme was revisited and new KCC scheme was
introduced for financing short term credits. This scheme is in the nature of cash credit. This scheme is
implemented by Commercial Banks, Regional rural Banks, Small Finance Bank and Co -operative
Banks.
Objectives Of The Scheme
 To meet the short-term credit requirement for cultivation of crops
 Post-harvest expenses
 Produce Marketing loan
 Consumption requirement of farmer house hold
 Working capital for maintenance of farm assets and activities allied to agriculture like dairy
animals, inland fisheries etc
 Investment requirement for agriculture and allied activities like pump set, sprayers, dairy
animals etc
The above five components will form the short-term credit limit portion and investment
requirement for agriculture and allied activities will form part of long-term credit limit portion

Farmers Eligible For Getting Loans From Banks

 All farmers- Individuals/ Joint Borrowers who are owner cultivators
 Tenant Farmers, Oral Lessees & Share Croppers
 SHGs or Joint Liability Groups of farmers including tenant farmers, share croppers

Fixation Of Credit Limit/ Loan Amount

The credit limit is prepared for a period of five years based on the scale of finance and 10% increase on
scale of finance for second years onwards successively to meet the cost escalation of the agri inputs.
During the fixation of the credit limit by the societies, they take care seasonality discipline, realistic
lending programme and business budget respectively. Apart from the each bank fixes individual
maximum borrowing power based on the income expenditure position of the each borrower.
 All farmers other than marginal farmers

The short-term limit to be arrived for the first year (For cultivating single crop in a year)
Scale of finance for the crop (as decided by District Level Technical Committee) x Extent of area
cultivated + 10% of limit towards post-harvest/household/ consumption requirements + 20% of limit
towards repairs and maintenance expenses of farm assets + crop insurance and/or accident insurance
including PAIS, health insurance & asset insurance.

Limit For Second & Subsequent Year

First year limit for crop cultivation purpose arrived at as above plus 10% of the limit towards cost
escalation / increase in scale of finance for every successive year (2nd, 3rd, 4th and 5th year) and
estimated term loan component for the tenure of Kisan Credit Card, i.e., five years.

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For cultivating more than one crop in a year
The limit is to be fixed as above depending upon the crops cultivated as per proposed cropping pattern
for the first year plus an additional 10% of the limit towards cost escalation / increase in scale of finance
for every successive year (2nd, 3rd, 4th and 5th year). It is assumed that the farmer adopts the same
cropping pattern for the succeeding four years. In case the cropping pattern adopted by the farmer is
changed in the subsequent year, the limit may be reworked. In cooperative banks the KCC limit is
bifurcated in to two components ie Cash and Kind at the ratio 70:30. For kind components Primary
Credit Cooperative Societies obtained license from Agriculture Departments to carry out the business.
For this purpose PACS draws separate credit limit from District Central Cooperative Banks.

Term Loan For Investment

The term loan for investment is to be made towards land development, minor irrigation, purchase of
farm equipment and allied agricultural activities. The banks may fix the quantum of credit for term and
working capital limit for agricultural and allied activities, etc., based on the unit cost of the asset/s
proposed to be acquired by the farmer, the allied activities already being undertaken on the farm, the
bank's judgment on repayment capacity vis-a-vis total loan burden devolving on the farmer, including
existing loan obligations.
The long- term loan limit should be based on the proposed investment(s) during the five year period
and the bank's perception on the repaying capacity of the farmer.

Maximum Permissible Limit

The short-term loan limit arrived for the 5th year plus the estimated long term loan requirement will be
the Maximum Permissible Limit (MPL) and is to be treated as the Kisan Credit Card limit.

Fixation Of Sub-Limits
i. Short- term loans and term loans are governed by different interest rates. At present, short term crop
loans up to ₹ 3 lakh are covered under Interest Subvention Scheme/Prompt Repayment Incentive
scheme of the Government of India2. Further, repayment schedule and norms are different for short
term and term loans. Hence, in order to have operational and accounting convenience, the card limit is
to be bifurcated into separate sub-limits for short term cash credit limit cum savings account and term
loans.
ii. Drawing limit for short term cash credit should be fixed based on the cropping pattern. The amount(s)
for crop production, repair and maintenance of farm assets and consumption may be allowed to be
drawn as per the convenience of the farmer. In case the revision of scale of finance for any year by the
district level technical committee exceeds the notional hike of 10% contemplated while fixing the five-
year limit, a revised drawable limit may be fixed in consultation with the farmer. In case such revisions
require the card limit itself to be enhanced (4th or 5th year), the same may be done and the farmer be
so advised.
iii. For term loans, installments may be allowed to be withdrawn based on the nature of investment and
repayment schedule drawn as per the economic life of the proposed investments. It is to be ensured that
at any point of time the total liability should be within the drawing limit of the concerned year.
iv. Wherever the card limit / liability so arrived warrants additional security, the banks may take suitable
collateral as per their policy.

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For Marginal Farmers
A flexible limit of ₹ 10, 000 to ₹ 50, 000 may be provided (as Flexi KCC) based on the land holding
and crops grown including post-harvest warehouse storage related credit needs and other farm expenses,
consumption needs, etc., plus small term loan investment(s) like purchase of farm equipment(s),
establishing mini dairy/backyard poultry as per assessment of the Branch Manager without relating it
to the value of land. The composite KCC limit is to be fixed for a period of five years on this basis.
Wherever higher limit is required due to change in cropping pattern and / or scale of finance, the limit
may be arrived at as per the estimation indicated at para 4.1 (Illustration II)

Disbursement
1 .The short- term component of the KCC limit is in the nature of revolving cash credit facility. There
should be no restriction in number of debits and credits. The drawing limit for the current season/year
could be allowed to be drawn using any of the following delivery channels.
 operation through branch;
 operation using cheque facility;
 withdrawal through ATM /debit cards
 operation through Business Correspondents and ‘banking outlet/part-time banking outlet’
 operation through PoS available in Sugar Mills/Contract farming companies, etc., especially
for tie-up advances;
 operations through PoS available with input dealers;
 Mobile based transfer transactions at agricultural input dealers and mandies.

2. The long- term loan for investment purposes may be drawn as per installment fixed.

Issue of Electronic Kisan Credit Cards

All new KCC must be issued as smart card cum debit card. Further, at the time of renewal of existing
KCC; farmers must be issued smart card cum debit card.
The shortterm credit limit and the term loan limit are two distinct components of the aggregate KCC
limit bearing different rates of interest and repayment periods. Until a composite card could be issued
with appropriate software to separately account transactions in the sub limits, two separate electronic
cards may be issued for all new/renewed cards.
Validity/Renewal
Banks may determine the validity period of KCC and its periodic review.
The review may result in continuation of the facility, enhancement of limit or cancellation of the
limit/withdrawal of the facility depending upon increase in cropping area/pattern and performance of
the borrower.
When the bank has granted extension and/or re-schedule the period of repayment on account of natural
calamities affecting the farmer, the period for reckoning the status of operations as satisfactory or
otherwise would get extended together with the extended amount of limit. When the proposed extension
is beyond one crop season, the aggregate of debits for which extension is granted is to be transferred to
a separate term loan account with stipulation for repayment in installments.
Rate Of Interest (ROI) :

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The credit institutions are charging 7% rate of interest to the farmers. The Govt of India is providing
3% incentives for prompt repayment of loan. Besides GOI and State Governments are also giving
interest subvention to the farmers.
Repayment Period :
1. The repayment period may be fixed by banks as per the anticipated harvesting and marketing period
for the crops for which the loan has been granted.
2. The term loan component will be normally repayable within a period of 5 years depending on the
type of activity/investment. However, banks at their discretion, provide longer repayment period for
term loan depending on the type of investment.
Margin
Providing KCC loan to the farmers, banks have their own policy to decide the amount of margin to be
charged or to exempt
Security
Hypothecation of crops: For KCC limit upto ₹ 1.00 lakh banks are to waive margin/security
requirements.
With tie-up for recovery: Banks may consider sanctioning loans on hypothecation of crops up to card
limit of ₹ 3.00 lakh without insisting on collateral security.
Collateral security: Collateral security may be obtained at the discretion of Bank for loan limits above
₹ 1.00 lakh in case of non-tie-up and above ₹ 3.00 lakh in case of tie-up advances.
In states where banks have the facility of on-line creation of charge on the land records, the same shall
be ensured.
Other Features
The applicable interest subvention /incentive for prompt repayment4 as advised by Government of India
and/or State Governments. The bankers will give adequate publicity of the facility so that maximum
farmers may benefit from the scheme.
Besides the mandatory crop insurance, the KCC holder should have the option to avail the benefit of
any type of asset insurance, accident insurance (including PAIS), health insurance (wherever product is
available) and have premium paid through his/her KCC account. Premium has to be borne by the
farmer/bank according to the terms of the scheme. Farmer beneficiaries should be made aware of the
insurance cover available and their consent (except in case of crop insurance, it being mandatory) is to
be obtained, at the application stage itself.
A one-time documentation at the first time of availment of KCC loan and thereafter simple declaration
(about crops grown/proposed) by farmer from the second year onwards.

Classification Of Account As NPA :

The short- term crop loan sanctioned on KCC can be given the same treatment as a cash credit account
for the purpose of applying prudential norms and should not be treated as out of order if balance
outstanding is less than or equal to the drawing limit and each drawl is repaid within a period of 12
months. The term loan under KCC to be governed on the NPA in the line applicable for other term loan
Processing fee, inspection charges and other charges may be decided by banks.
In case the farmer applies for loan against the warehouse receipt of his produce, the banks would
consider such requests as per the established procedure and guidelines. However, when such loans are

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sanctioned, these should be linked with the crop loan account, if any, and the crop loan outstanding in
the account could be settled at the stage of disbursal of the pledge loan, if the farmer so desires.

Delivery Channels - Technical Features

1. Issue Of Cards
The beneficiaries under the scheme will be issued with a Smart card / Debit card (Biometric smart card
compatible for use in the ATMs / Hand held Swipe Machines and capable of storing adequate
information on farmers identity, assets, land holdings and credit profile etc). All KCC holders should
be provided with any one or a combination of the following types of cards :
2. Type Of Card :
A magnetic stripe card with PIN (Personal Identification Number) with an ISO IIN (International
Standards Organization International Identification Number) to enable access to all banks ATMs and
micro ATMs
In cases where the Banks would want to utilize the centralized biometric authentication infrastructure
of the UIDAI (Aadhaar authentication), debit cards with magnetic stripe and PIN with ISO IIN with
biometric authentication of UIDAI can be provided.
Debit Cards with magnetic stripe and only biometric authentication can also be provided depending on
customer base of the bank. Till such time, UIDAI becomes widespread, if the banks want to get started
without inter-operability using their existing centralized bio metric infrastructure, banks may do so.
Banks may choose to issue EMV (Europay, MasterCard and VISA, a global standard for interoperation
of integrated circuit cards) and RUPAY compliant chip cards with magnetic stripe and pin with ISO
IIN.
Further, the biometric authentication and smart cards may follow the common open standards
prescribed by IDRBT and IBA. This will enable them to transact seamlessly with input dealers as also
enable them to have the sales proceeds credited to their accounts when they sell their output at mandies,
procurement centers, etc.
3. Delivery Channels :
The following delivery channels shall be put in place to start with so that the Kisan Credit Card is used
by the farmers to effectively transact their operations in their KCC account.
1. Withdrawal through ATMs / Micro ATM
2. Withdrawal through BCs using smart cards.
3. PoS machine through input dealers
4. Mobile Banking with IMPS capabilities / IVR
5. Aadhaar enabled Cards.
4. Mobile Banking / Other Channels:
Provide Mobile banking functionality for KCC Cards / Accounts as well along with Interbank Mobile
Payment Service (IMPS of NPCI) capability to allow customers to use this inter-operable IMPS for
funds transfer between banks and also to do merchant payment transactions as additional capability for
purchases of agricultural inputs.
This mobile banking should ideally be on Unstructured Supplementary Data (USSD) platform for wider
and safer acceptance. However, the banks can also offer this on other fully encrypted modes (application
based or SMS based) to make use of the recent relaxation on transaction limits. Banks can also offer
unencrypted mobile banking subject to RBI regulations on transaction limits.

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It is necessary that Mobile based transaction platforms enabling transactions in the KCC use easy to use
SMS based solution with authentication thru' MPIN. Such solutions also need to be enabled on IVR in
local language to ensure transparency and security. Such mobile based payment systems should be
encouraged by all the banks by creating awareness and by doing proper customer education.
With the existing infrastructure available with banks, all KCC holders should be provided with any one
or a combination of the following types of cards:
* Debit cards (magnetic stripe card with PIN) enabling farmers to operate the limit through all banks
ATMs / Micro ATMs
* Debit Cards with magnetic stripe and biometric authentication.
* Smart cards for doing transactions through PoS machines held by Business Correspondents, input
dealers, traders and Mandies.
* EMV compliant chip cards with magnetic stripe and pin with ISO IIN.
In addition, the banks having a call centre / Inter active Voice Response (IVR), may provide SMS based
mobile banking with a call back facility from bank for mobile PIN (MPIN) verification through IVR,
thus making a secured SMS based mobile banking facility available to card holders.
Classification Of NPA
Agricultural Advance
(i) With effect from September 30, 2004 the following revised norms are applicable
to all direct agricultural advances
a) A loan granted for short duration crops will be treated as NPA, if the installment of principal or
interest thereon remains overdue for two crop seasons.
b) A loan granted for long duration crops will be treated as NPA, if the installment of principal or
interest thereon remains overdue for one crop season.
(ii) For the purpose of these guidelines, "long duration" crops would be crops with crop season longer
than one year and crops, which are not "long duration" crops would be treated as "short duration" crops.
(iii) The crop season for each crop, which means the period up to harvesting of the crops raised, would
be as determined by the State Level Bankers' Committee in each state.
(iv) Depending upon the duration of crops raised by an agriculturist, the above NPA norms would also
be made applicable to agricultural term loans availed of by him. In respect of agricultural loans, and
term loans given to non-agriculturists, identification of NPAs would be done on the same basis as non-
agricultural advances, which, at present, is the 90 days delinquency norm.
(v) Banks should ensure that while granting loans and advances, realistic repayment schedules are fixed
on the basis of cash flows / fluidity with the borrowers. Identification of Assets as NPAs should be
done on an ongoing basis The system should ensure that identification of NPAs is done on an on-going
basis and doubts in asset classification due to any reason are settled through specified internal channels
within one month from the date on which the account would have been classified as NPA as per
prescribed norms. Banks should also make provisions for NPAs as at the end of each calendar quarter
i.e as at the end of March / June / September / December, so that the income and expenditure account
for the respective quarters as well as the P&L account and balance sheet for the year end reflects the
provision made for NPAs.

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Treatment of NPAs - Borrower-wise and not Facility-wise
(i) In respect of a borrower having more than one facility with a bank, all the facilities granted by the
bank will have to be treated as NPA and not the particular facility or part thereof which has become
irregular.
(ii) However, in respect of consortium advances or financing under multiple banking arrangements,
each bank may classify the borrowal accounts according to its own record of recovery and other aspects
having a bearing on the recoverability of the advances.
Agricultural Advances - Default in repayment due to Natural
Calamities
(i) Where natural calamities impair the repaying capacity of agricultural borrowers, as a relief measure,
banks may decide on their own to :
(a) convert the short-term production loan into a term loan or reschedule the repayment period, and
(b) sanction fresh short-term loans
(ii) In such cases of conversion or re-schedulement, the term loan as well as fresh short-term loan may
be treated as current dues and need not be classified as non performing asset (NPA). The asset
classification of these loans would, therefore, be governed by the revised terms and conditions and these
would be treated as NPA under the extant norms applicable for classifying agricultural advances as
NPAs.
Asset Classification
Banks should classify their assets into the following broad groups, viz. -
(i) Standard Assets
(ii) Sub-standard Assets
(iii) Doubtful Assets
(iv) Loss Assets
Standard Assets
Standard Asset is one which does not disclose any problems and which does not carry more than normal
risk attached to the business. Such an asset should not be an NPA.
Sub-Standard Assets
(i) With effect from March 31, 2005 an asset would be classified as substandard if it remained NPA for
a period less than or equal to 12 months and rural cooperative banks NPA for a period up to 3 years. In
such cases, the current net worth of the borrowers / guarantors or the current market value of the security
charged is not enough to ensure recovery of the dues to the banks in full. In other words, such assets
will have well defined credit weaknesses that jeopardise the liquidation of the debt and are characterised
by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.
(ii) An asset where the terms of the loan agreement regarding interest and principal have been re-
negotiated or rescheduled after commencement of production, should be classified as sub-standard and
should remain in such category for at least 12 months and 3 years of satisfactory performance under the
re-negotiated or rescheduled terms. In other words, the classification of an asset should not be upgraded
merely as a result of rescheduling, unless there is satisfactory compliance of this condition.

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Doubtful Assets
With effect from March 31, 2005, an asset is required to be classified as doubtful, if it has remained
NPA for more than 12 months. For Tier I banks, of urban cooperative banks, the 12-month period of
classification of a substandard asset in doubtful category is effective from April 1, 2009. As in the case
of substandard assets, rescheduling does not entitle the bank to upgrade the quality of an advance
automatically. A loan classified as doubtful has all the weaknesses inherent as that classified as sub-
standard, with the added characteristic that the weaknesses make collection or liquidation in full, on the
basis of currently known facts, conditions and values, highly questionable and improbable. In case of
rural cooperative banks Doubt full 1 category outstanding NPA remains for a period more than 3 years
and up to 4 years. In respect of doubtful 2 category outstanding NPA remains for a period more than 4
years and up to 6 years and doubtful 3 category outstanding NPA remains more than 6 years
Loss Assets
A loss asset is one where loss has been identified by the bank or internal or external auditors or by the
Co-operation Department or by the Reserve Bank of India inspection but the amount has not been
written off, wholly or partly. In other words, such an asset is considered un-collectible and of such little
value that its continuance as a bankable asset is not warranted although there may be some salvage or
recovery value.

Crop Insurance
Objectives:
- To provide insurance coverage and financial support to the farmers in the event of failure of any of
the notified crop as a result of natural calamities, pests & diseases.
- To stabilise the income of farmers to ensure their continuance in farming.
- To encourage farmers to adopt innovative and modern agricultural practices.
- To ensure flow of credit to the agriculture sector.
Implementing Agency (IA):
The Scheme shall be implemented through a multi-agency framework by selected insurance companies
under the overall guidance & control of the Department of Agriculture, Cooperation & Farmers Welfare
(DAC&FW), Ministry of Agriculture & Farmers Welfare (MoA&FW), Government of India (GOI) and
the concerned State in co-ordination with various other agencies; viz Financial Institutions like
Commercial Banks, Co-operative Banks, Regional Rural Banks and their regulatory bodies,
Government Departments viz. Agriculture, Co-operation, Horticulture, Statistics, Revenue,
Information/Science & Technology, Panchayati Raj etc. DAC&FW has designated/empanelled
Agriculture Insurance Company of India(AIC) and some private insurance companies presently to
participate in the Government sponsored agriculture /crop insurance schemes based on their financial
strength, infrastructure, manpower and expertise etc.
The empanelled private insurance companies at present are
1) ICICI-Lombard General Insurance Company Ltd.
2) HDFC-ERGO General Insurance Company Ltd.
3) IFFCO-Tokio General Insurance Company Ltd.
4) Cholamandalam MS General Insurance Company Ltd.
5) Bajaj Allianz General Insurance Company Ltd.
6) Reliance General Insurance Company Ltd.

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7) Future Generali India Insurance Company Ltd.
8) Tata-AIG General Insurance Company Ltd.
9) SBI General Insurance Company Ltd.
10) Universal Sompo General Insurance Company Ltd.
The selection of insurance company from amongst the empanelled insurance companies to act as IA
shall be done by the concerned State Government for implementation of the scheme in their State. Such
selection of IA shall be done from amongst the designated / empanelled companies which shall be be
initially pre-qualified , strictly on the basis of, experience, existence of infrastructure in the area and
quality of services like coverage of farmers & area, pay-outs in terms of quantum & timely settlement
thereof, willingness to do publicity & awareness campaigns etc.
The final selection of IA from amongst the pre-qualified insurance companies shall be done based on
the lowest weighted premium quoted by a pre-qualified company for all notified crops within the cluster
of districts
Management Of The Scheme:
The existing State Level Co-ordination Committee on Crop Insurance (SLCCCI), SubCommittee to
SLCCCI, District Level Monitoring Committee (DLMC) already overseeing the implementation &
monitoring of the ongoing crop insurance schemes like National Agricultural Insurance Scheme
(NAIS), Weather Based Crop Insurance Scheme(WBCIS), Modified National Agricultural Insurance
Scheme(MNAIS) and Coconut Palm Insurance Scheme(CPIS) shall be responsible for proper
management of the Scheme. IA shall be an active member of SLCCCI and District Level Monitoring
Committee (DLMC) of the scheme. UNIT OF INSURANCE:
The Scheme shall be implemented on an ‘Area Approach basis’ i.e., Defined Areas for each notified
crop for widespread calamities with the assumption that all the insured farmers, in a Unit of Insurance,
to be defined as ‘Notified Area’ for a crop, face similar risk exposures, incur to a large extent, identical
cost of production per hectare, earn comparable farm income per hectare, and experience similar extent
of crop loss due to the operation of an insured peril, in the notified area.
Defined Area (i.e., unit area of insurance) is Village/Village Panchayat level by whatsoever name these
areas may be called for major crops and for other crops it may be a unit of size above the level of
Village/Village Panchayat.
In due course of time, the Unit of Insurance can be a Geo-Fenced/Geo-mapped region having
homogenous Risk Profile for the notified crop.
For Risks of Localised calamities and Post-Harvest losses on account of defined peril, the Unit of
Insurance for loss assessment shall be the affected insured field of the individual farmer.

Crops And Notified Area:

Crops:
The Scheme can cover all the Crops for which past yield data is available and grown during the notified
season, in a Notified Area and for which yield estimation at the Notified Area level will be available
based on requisite number of Crop Cutting Experiments (CCEs) being a part of the General Crop
Estimation Survey (GCES).
Notified Area:
Notified Area is the Unit of Insurance decided by the State Govt. for notifying a Crop during a season.
The size of the Unit of Insurance shall depend on the area under cultivation within the unit. For major
crops, the Unit of Insurance shall ordinarily be Village/Village Panchayat level and for minor crops

Page | 19
may be at a higher level so that the requisite number of CCEs could be conducted during the notified
crop season. States may notify Village / Village Panchayat as insurance unit in case of minor crops too
if they so desire.
Farmers To Be Covered:
All farmers growing notified crops in a notified area during the season who have insurable interest in
the crop are eligible.
Compulsory Coverage:
The enrolment under the scheme, subject to possession of insurable interest on the cultivation of the
notified crop in the notified area, shall be compulsory for following categories of farmers:
Farmers in the notified area who possess a Crop Loan account/KCC account (called as Loanee Farmers)
to whom credit limit is sanctioned/renewed for the notified crop during the crop season and Such other
farmers whom the Government may decide to include from time to time.
VOLUNTARY COVERAGE: Voluntary coverage may be obtained by all farmers not covered in
above, including Crop KCC/Crop Loan Account holders whose credit limit is not renewed.
Risks To Be Covered & Exclusions:
RISKS: Following risks leading to crop loss are to be covered under the scheme :-
YIELD LOSSES (standing crops, on notified area basis): Comprehensive risk insurance is provided to
cover yield losses due to non-preventable risks, such as
(i) Natural Fire and Lightning
(ii) Storm, Hailstorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado etc.
(iii) Flood, Inundation and Landslide
(iv) Drought, Dry spells
(v) Pests/ Diseases etc.
In cases where majority of the insured farmers of a notified area, having intent to sow/plant and incurred
expenditure for the purpose, are prevented from sowing/planting the insured crop due to adverse
weather conditions, shall be eligible for indemnity claims upto a maximum of 25% of the sum-insured.
Post-Harvest Losses (Individual Farm Basis): Coverage is available upto a maximum period of 14
days from harvesting for those crops which are kept in “cut & spread” condition to dry in the field after
harvesting, against specific perils of cyclone / cyclonic rains, unseasonal rains throughout the country.
Localised Calamities (Individual Farm Basis): Loss / damage resulting from occurrence of identified
localized risks i.e. hailstorm, landslide, and Inundation affecting isolated farms in the notified area.
Exclusions: Risks and Losses arising out of following perils shall be excluded:-
War & kindred perils, nuclear risks, riots, malicious damage, theft, act of enmity, grazed and/or
destroyed by domestic and/or wild animals, In case of Post–Harvest losses the harvested crop bundled
and heaped at a place before threshing, other preventable risks.

Sum Insured / Limit Of Coverage:

In case of Loanee farmers under Compulsory Component, the Sum Insured would be equal to Scale of
Finance for that crop as fixed by District Level Technical Committee (DLTC) which may extend up to
the value of the threshold yield of the insured crop at the option of insured farmer. Where value of the
threshold yield is lower than the Scale of Finance, higher amount shall be the Sum Insured. Multiplying

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the Notional Threshold Yield with the Minimum Support Price (MSP) of the current year arrives at the
value of sum insured. Wherever Current year’s MSP is not available, MSP of previous year shall be
adopted. The crops for which, MSP is not declared, farm gate price established by the marketing
department / board shall be adopted.
Further, in case of Loanee farmers, the Insurance Charges payable by the farmers shall be financed by
loan disbursing office of the Bank, and will be treated as additional component to the Scale of Finance
for the purpose of obtaining loan.
For farmers covered on voluntary basis the sum-insured is upto the value of Threshold yield i.e threshold
yield x (MSP or gate price) of the insured crop.
Premium Rates:
The Actuarial Premium Rate (APR) would be charged under PMFBY by IA. DAC&FW/States will
monitor the premium rates considering the basis of Loss Cost (LC) i.e. Claims as % of Sum Insured
(SI) observed in case of the notified crop(s) in notified unit area of insurance (whatsoever may be the
level of unit area) during the preceding 10 similar crop seasons (Kharif / Rabi) and loading for the
expenses towards management including capital cost and insurer’s margin and taking into account non-
parametric risks and reduction in insurance unit size etc.. The rate of Insurance Charges payable by the
farmer will be as per the following table:
Season Crops Maximum Insurance charges payable by farmer (% of Sum Insured)
1. Kharif Food & Oilseeds crops (all cereals, millets, & oilseeds, pulses) 2.0% of SI or Actuarial rate,
whichever is less
2.Rabi Food & Oilseeds crops (all cereals, millets, & oilseeds, pulses) 1.5% of SI or Actuarial rate,
whichever is less
3. Kharif &Rabi Annual Commercial / Annual Horticultural crops 5% of SI or Actuarial rate, whichever
is less
The difference between premium rate and the rate of Insurance charges payable by farmers shall be
treated as Rate of Normal Premium Subsidy, which shall be shared equally by the Centre and State.
AIC shall calculate LC premium rates (till an Independent Agency/TSU takes over) based on latest
available yield data in month of February for Kharif crops and August for Rabi crops as per requirement
of the States and shall provide to DAC&FW/Concerned States before invitation for premium bidding.
State Govt. would invite all the empanelled insurance companies to quote their actuarial premium rates
for the notified crop(s) in the notified insurance unit area, Indemnity Level, Threshold Yields, Sum
Insured etc. as indicated by the State for the season. For more effective implementation, selection of
Implementing Agency (IA) may be made through adopting the cluster approach under which bunch of
about 15-20 good & bad districts / areas with reference to risks will be bid out. This will facilitate the
uniform distribution of the risks among the participating insurance companies and will avoid selection
of districts / areas according to company’s choice. In case of smaller States, the whole State shall be
assigned to one IA. This is also expected to take care of districts which have traditionally had high
actuarial premiums for crops due to high risk. Selection of IA may be made for at least 3 years. The
designated / empanelled companies participating in bidding have to bid the premium rates for all the
crops notified / to be notified by the State Govt. and non-compliance will lead to rejection of company’s
bid. The insurance coverage in terms of number of farmers & hectare-age should be at least at the
previous season's level.
Fixation Of Credit Limit
In cooperative banks credit limit is prepared by the credit societies based on the land holding and taking
into account scale of finance, The PACS, LAMPS, FSS prepares credit limit for both for Kharif and
Rabi crops. Once the credit limit is prepared it will remain operative for a period of five years. However
each year the scale of finance is escalated 10% to address the price rise on account of inflation. Besides

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a flexi limit of Rs 10,000/- to Rs 50,000/- is provided based on the land holding and crops grown
including post harvest ware house storage related credit needs and other farm expenses, consumption
needs plus purchase of farm equipments and Woking capital requirement for animal husbandry and
fisheries. When credit limit is fixed by the Societies cash and kind component are also earmarked.
Fixation Of Scale Of Finance
Scale of Finance is the finance required for raising a per unit area i.e. acre or hector. The scale of Finance
for different crops in a district is decided every year by District Level Technical Committee (DLTC).
The District Central Cooperative Bank in the district act as convener of this committee and all major
banks in the district, State Agriculture Department Officials, leading farmers, Lead District Manager
etc act as its members. The committee is chaired by the district collector of the district. The committee
which is sub-committee of the DCC meets once in a year and fix the scale of finance for each crop
raised in the district
 Scale of finance for all crops cultivated in the district both during Kharif and Rabi season shall
be considered for fixation. The production credit requirement of fish farmers shall also be
included in the scale of finance
 The District Agriculture Officer should present to the DLTC, the details of cost of cultivation
etc in various agro climatic zone.
 Actual requirement of cash component towards wages for individual crops on the basis of
experience of participants farmers and the expert of Agriculture Department. Similarly kind
component for inputs items may be fixed separately.
 Separate scale of finance may be fixed for low volume high value crops like flowers, aromatic/
medicinal crops, spices etc depending upon the crop feasibility as per agro climatic condition
prevalent in the district
 Requirement of chemical fertilizers and pesticides and the market value which may change
from year to year
 Price of seed component
 Insurance premium
 Irrigation charges
 Consumption requirement of the farmer

Upper ceiling for the scale of finance

The scale of finance shall be limited to 70% of the estimated market value of the produce. The
crop for which Minimum Support price is decided and declared by the Government should be
taken in to account while fixing scale of finance. In case of other farm produce shall be taken
in to consideration. The market price shall be obtained from the expert in Agriculture and
horticulture Departments.

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 CHAPTER - 3
LONG TERM LOAN- INVESTMENT CREDIT

Purpose
Bank provides loan for the various purpose such as major purchases, construction, renovation,
consumption and business ventures.
Eligibility
To secure loan from the bank a borrower is eligible if he or she fulfils following criteria.
Age more than 21 years, residents of the area of operation, credit score more than 700, not defaults to
any institution, should not be insolvent and mentally unsound.
Loan Procedure
Loan is applied to the bank in a prescribed format for different purpose. Before loan is sanctioned pre
sanction visit is made by the bank officials to ascertain borrower’s credibility. On receipt of the
satisfactory field visit report, application received along with detailed project report is appraised by the
bank official ascertaining technical feasibility, financial viability and various financial ratios. If the
feasibility and viability report found suitable, sanction letter is issued to the borrower and obtain
acceptance of terms and conditions. Before loan is disbursed to the borrower, he or she is required to
contribute margin money as stipulated by the bank. Loan. Besides borrower is also required to execute
various legal documents required for different loans.
Whenever any loan is sanctioned, the bank officials take in to account Scale of Finance for short term
loan and unit cost for medium term loan and long term loans with appropriate moratorium period. The
moratorium period is determined based on the purpose of loam and repayment of loan is based on
economic life of assets, category of borrower and surplus generated out of the investment made.
Presently the banks are stipulating two types of rates of interest ie fixed and floating. the floating rate
is linked with repo rate changes. Under floating rate of interest rate of interest undergo changes
whenever RBI changes the Repo rate in the monetary policy.
Whenever loan is issued adequate collateral securities along with third party securities are obtained
from the borrower. If land is being mortgaged, valuation is made by the approved valuer of the bank.
The valuation of the land is made based on the bench mark value of different types of land ie. Gharabari,
Agriculture, Residential and Other land. The documents executed by the borrower to be ensured that
are affixed require value as determined by Central and State stamp act. In cooperative banks loans are
issued only to the member who have become member subscribing entrance fee and share capital @ 10%
or 8% as per the bank’s policy.
Types Of Loans
There are different types of loans. These are Short term loan, medium term loan and long term loan.
Further this loan can be secured and unsecured also loan can be extended to borrowers for retail lending.
In short term agriculture loan is given for production and marketing of products and medium term loan
and long term loans are for the purpose of agriculture and non-agricultural where investment is made
for fixed cost and working capital. As regards retail lending, the loans are given for the purpose of
personal loan, vehicle loan, education loan, housing loan, gold loan, consumption loan, loan against
FD, NSC, LIC etc.
Principles Of Sound Lending
Liquidity- Liquidity is a measure of the ability and ease with which asset can be converted to cash

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Safety- Safety means that the borrower should be able to repay the loan and interest in time at regular
interval without default
Diversity- Diversification aims at minimizing risks of the investment portfolio of a bank
Profitability- The bank has to earn profit to pay salaries to the staff, interest to the depositors,
dividend to the share holder and to meet the day to day expenditure, loan and advances, though the
least liquid asset, constitute the most profitable asset to the bank
Margin Money- Margin means a sufficient gap between loan value and security value. The
percentages of margin money is based on loan policy of respective banks.

Agriculture Term Loan (Investment Credit)

Investment credit is a type of medium term or long-term loan with a term of 2 years to 20 years. In this
credit, promoter is required to prepare a detailed project report indicating project cost ie fixed cost,
recurring cost etc. The investment credit project is prepared emphasising on identification, formulation,
appraisal, implementation, Monitoring and evaluation. The detail project report for investment credit
for agriculture and Non-Agriculture Credit are prepared as per the followings.

A ‘Project Report’ is a document which provides details on the overall picture of the proposed
business. The project report gives an account of the project proposal to ascertain the prospects of the
proposed plan/activity. Project Report is a written document relating to any investment in field of
activity, be it in agriculture or production segment. It contains data on the basis of which the project
has been appraised and found feasible. It consists of information on economic, technical, financial,
managerial and production aspects. It enables the entrepreneur to know the inputs and helps him to
obtain loans from banks or other financial Institutions.

Contents Of A Project Report

General Information
A project report must provide information about the details of the activity, that the prospective borrower
intends to take up. It must contain all the information and data about the prospective borrower’s past
experience, present status as also the problems and future prospects of the proposed activity. It must
give information about the product to be manufactured and the reasons for selecting the product if the
proposed business is a manufacturing unit. The Project report must spell out the demand for the
product in the local areas, keeping in view the limited managerial abilities of the borrowers of a Primary
Agricultural Societies. (PACS). However, if the produce has considerable demand outside the area of
operation, details to be furnished. It should specify the reasons for starting that particular activity, for
which financial support is sought for.

Executive Summary
An executive summary is the first section of the proposal that provides a brief overview of the document
and contains its main points. In other words, it is a condensed version of the business plan or proposal.
In the present case, a project report must state the methods through which the proposed activity can
attain success. The overall picture of the project with regard to capital, operations, methods of
functioning and execution, in other words both the forward and backward linkages of the project must
be stated in the project report. It must also mention the assumptions and the risks generally involved in
carrying out such activity.

Organization Summary
The project report should indicate the organization structure and pattern proposed for the unit. It must
state whether the ownership is based on sole proprietorship or a joint venture. It must provide
information about the bio data of the borrower including financial soundness. The name, address, age
qualification and experience of the proposed loanees must be stated in the project report.

Environmental Scanning

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Environmental scanning is a process that systematically surveys and interprets relevant data to identify
external opportunities and threats that could influence future decisions. It is closely related to a SWOT
analysis and should be used as part of the strategic planning process.

In Project Management, components of external scanning that could be considered include:

o Likely changes in the trends in the market.

o Likely changes in the habits of the customers.
o Competition in the market amongst the producers of the proposed product.
o Likely changes in the technology and adaptability of the borrower to the new changes to ensure
smooth running of the project.
o Anticipated changes in the needs and priorities of customers of the product proposed to be
financed.
o Ability of the borrower to provide proper customer service.
o Continuous availability of adequate and skilled labour for managing the project to be financed
in its area of operation.
o Likely changes in the demand for the product that will be produced by the financing unit.
o Lastly, likelihood of any legislation or political decision that might affect the operations of the
proposed project.

Identification Of Project

A brief description of the project must be stated and must give details about the following:

o Location of the site,

o Raw material requirements,
o Area required for the work shed,
o Power requirements,
o Fuel requirements,
o Water requirements,
o Employment requirements of skilled and unskilled labour,
o Technology selected for the project,
o Production process,
o Projected production volumes, unit prices;
o Any other requirement, depending upon the activity to be undertaken by the borrower.

Marketing Plan

The project report must clearly state the total expected demand for the product. It must state the price
at which the product can be sold in the market. It must also mention the strategies to be employed to
capture the market. In case any after-sales-service is provided, details thereof should be indicated in the
project. It must describe the mode of distribution of the product from the production unit to the market.
Project report must state the following:

o Type of customers,
o Target markets,
o Nature of market,
o Market segmentation,
o Future prospects of the market,
o Projected sales.
o Marketing cost of the project,
o Market share of proposed venture,

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 o Demand for the product in the local and nearby market in the District, where the
Society is functioning.

It must also indicate potential users of products and distribution channels to be used for distributing
the product.

Capital Structure And Operating Cost

The project report must invariably describe the total capital requirements of the project. It must state
the source of finance, it must also indicate the extent of owner’s contribution (margin money) and
proposed borrowed funds from the Society. Proposed financial structure of the venture must indicate
the expected sources and terms of equity and debt financing. The operating cost shall also be indicated
as part of the Project report.

Management Plan

The project report should also state the following.

 Business experience of the promoters of the business,

 Details about the management team,
 Duties and responsibilities of team members,
 Current staff requirements of the organization,
 Methods of managing the business,
 Plans for hiring and training Staff;
 Programmes and policies of the management.

Financial Aspects

In order to judge the profitability of the business, a projected profit and loss account and balance
sheet must be presented in the project report. It must show the estimated sales revenue, cost of
production, gross profit and net profit likely to be earned by the proposed unit. In addition to the
above, a projected balance sheet, cash flow statement and funds flow statement must be prepared
every year and at least for the period the proposed loan runs. The project report must indicate the
Capital cost, Net Present Value (NPV) of the project, Benefit Cost (BC) Ratio and Internal Rate of
Return (IRR) and to be concluded with proper and clear remarks as to whether the proposed activity
or the business is technically feasible and economically viable.

Technical Aspects

Project report provides information about the technology and technical aspects related to the project
as a result technical feasibility can be ascertained.

Project Implementation

Every proposed business unit must draw a time table for the project. It must indicate the time within
which the activities involved in establishing the enterprise can be completed. Implementation
schedule show the timetable envisaged for project preparation and completion.

Social Cost-Benefit

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Any unit, proposed to be financed draws the inputs or raw material from the society. It is, therefore,
desirable that its contribution to the society in the form of employment, income, output of the business
is also indicated in the project report at the end.

Monitoring & Evaluation

The process of Monitoring & Evaluation is the heart of ‘managing for impact’, by which is meant
the need to respond to changing circumstances and increased understanding and managing adaptively
so that the project is more likely to achieve its intended impacts

Monitoring is a continuous or periodic review and surveillance [overseeing] by Management at every

level of the implementation of the activity to ensure that input deliveries, work schedules, targeted
outputs and other required actions are proceeding according to the plan. The purpose of monitoring is
to achieve efficient and effective project performance by providing feed back to project management
at all levels through a well knit Management and Information System [MIS] – It enables the
management to improve the operational plans and to take timely corrective action in case of shortfalls
and constraints. Monitoring is mostly carried out during implementation of a project.

Monitoring Study

The main aim of a monitoring study are:

o To review physical and financial achievements of the selected ongoing schemes /
projects financed by financial institutions and identify the potential pitfalls in
implementation, procedural and operational difficulties, faced by the financial
institutions and suggest corrective measures.
o To enquire whether funds were disbursed by the financing financial institutions for the
intended purposes, adequacy or otherwise thereof.
o To examine whether the terms and conditions stipulated in the sanction letter were
strictly adhered to by the beneficiaries.
o To examine whether there is a system of effective supervision, verification of utilisation
of loans at the level of financial institution with a view to ensure the end-use of the
credit.
o To ascertain whether co-ordination of different departments is achieved for smooth
implementation of the scheme / project.

Evaluation

In a project cycle, it is the last phase in the cycle of project completion. It is carried out during
implementation (on-going evaluation), at completion (terminal evaluation) and some years after
completion (ex-post evaluation) when the activity is expected to have reached the full development
the full impact of the activity is expected to have been realized. It is an organizational process for
improving activities, for auditing / helping the management in their future planning, programming and
decision making.

Objectives

The main objectives of evaluation study are:

 To review the progress made in implementation of the scheme vis-à-vis targets laid down
and achievements with particular reference to shortfall, if any, and reasons thereof.
 To find out actual cost of investment in comparison with assumed cost.

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  To associate the exact returns derived out of the scheme and compare the same with the
assumed benefits.
 To review the adequacy or otherwise of the infrastructural facilities and technical guidance
available for smooth implementation of the programme.
In general, these studies should cover all the aspects of working of the projects/schemes with special
reference to benefits attempted under a scheme.

Field Visit

(i) Objectives of field visits:

 Getting the feel of the prevailing situation.

 Ensuring that the unit financed is smoothly functioning on being commissioned on time.
 Identifying problems confronting the borrowers.
 Evolving solution to the problems.
 Ensuring proper end-use of the funds borrowed.
 Modification needed for proper implementation of the scheme/Project.

(ii) Information to be elicited:

 Time lag in processing, sanction and disbursement of loan and its instalments, if any.
 Adequacy of loan component as compared to the actual cost.
 Failed or infructuous investments, with detailed analysis on the factors contributing for such
status.
 Difference between prescribed and actual investment specifications. (Reasons for such
differences)
 Repayment performance.
 Rationality of repayment schedule prescribed by the financial institution (PACS in
this case) including grace period/moratorium in relation to benefits.

Data so collected are to be tabulated and inferences be drawn. The report, by and large, should consist
the following chapters.

 Introduction
 Salient features of the Project.
 Objectives of the study
 Methodology adopted.
 Review of performance of the project with reference to the objectives of the study.
 Study observations in detail.
 Suggestive measures, if any.
 Summary and conclusion.

In case of study pertaining to evaluation, a separate report on financial assumptions and financial
returns has to be prepared by actual cash flow statement and the project’s / scheme’s IRR has to be
calculated and submitted.

Unit Cost, Procedure For Fixing Repayment Period And Rate Of Interest

With a view to giving a fillip to investment credit under agriculture sector in the State, NABARD had
re-started the practice of fixing Unit Costs (UCs) for major activities during 2012-13. Every year
NABARD initiate the process of fixing / finalising Unit Costs for major agriculture and allied activities
in the respective State through its Regional Office. The basic objective of the exercise is to make
available, benchmark costs under various investment activities to financial institutions and line

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departments and thereby help these agencies in deciding appropriate levels of financing for each
activity, which in turn can help obviate “under” or ''over'' financing. In addition to the above, these Unit
Costs also provided an indication of the expected benefits from each activity under ideal conditions.
More importantly, the unit cost computations also provide a detailed breakup of various components /
parameters, which influence costs under various activities.
The process of annual revision in Unit Costs is carried out through a consultative process that involves
various stakeholders like Banks, Government departments, Commodity Boards, Farmers and NGOs in
the districts of the respective State through a panel of Technical Officers/members of the Regional
Technical Advisory Group identified in NABARD and DDMs in the district.
The Unit Costs is being drawn up after detailed discussions with the concerned line departments,
commodity boards, consultations with dealers / vendors engaged in trading agricultural implements /
components, conduct of ground level studies and consultations with farmers in some instances. Further,
the economics for various activities are also worked out to ensure that investments made under such
activities with suggested Unit Costs, are financially/economically viable. The Unit Cost finalised / fixed
by the SLUCC is only indicative / illustrative, serving more as a pointer, for bankers and Government
agencies engaged in supporting term lending under agriculture and allied activities

Rate Of Interest
RBI has given freedom to the banks to determine the rate of interest (except KCC) by themselves
adopting MCLR procedure. The procedure to calculate the MCLR is based on following elements.
 Tenor premium. It is the premium charged by the banks for the risk associated with lending for
higher tenors
 Marginal Cost of Funds
 Negative Carrying Cost on Cash Reserve Ratio (CRR)
 Operating Cost

Fixation Of Repayment Period

Based on the nature of activity bank fix tenure of repayment of loan. In case of crop loan short duration
crop repayment is fixed at 12 months from the date of disbursement of loan. Crop raised for long
duration crop the repayment is fixed at 18 months from the date of disbursement of loan. Similarly,
term loan agriculture and non-agriculture is fixed at 2 years periods to 15 years. Some cases it may be
more than 15 years. The loan instalments can be collected on monthly, quarterly, half yearly and
annually depend upon cash flow of the activity financed. While fixing the repayment period,
moratorium period is also considered where ever required. Besides while fixing the repayment period
following aspects are also kept in mind. Economic life of the assets financed, surplus generated from
the investment made by the promoter/cultivator and category of farmer financed.

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 CHAPTER - 4
CONSTITUTION OF SLBC

Introduction
The genesis of the Lead Bank Scheme (LBS) can be traced to the Study Group headed by Prof. D. R.
Gadgil (Gadgil Study Group) on the Organizational Framework for the Implementation of the Social
Objectives, which submitted its report in October 1969. The Study Group drew attention to the fact that
commercial banks did not have adequate presence in rural areas and also lacked the required rural
orientation. The Study Group, therefore, recommended the adoption of an 'Area Approach' to evolve
plans and programmes for the development of an adequate banking and credit structure in the rural
areas.
A Committee of Bankers on Branch Expansion Programme of Public Sector Banks appointed by the
Reserve Bank of India under the Chairmanship of Shri F. K. F. Nariman (Nariman Committee) endorsed
the idea of an ‘Area Approach’ in its report (November 1969), recommending that in order to enable
the Public Sector Banks to discharge their social responsibilities, each bank should concentrate on
certain districts where it should act as a 'Lead Bank. Pursuant to the above recommendations, the Lead
Bank Scheme was introduced by the Reserve Bank of India in December 1969.The Scheme aims at
coordinating the activities of banks and other developmental agencies through various fora in order to
achieve the objective of enhancing the flow of bank finance to the priority sector and other sectors and
to promote banks' role in the overall development of the rural sector. For coordinating the activities in
the district, a particular bank is assigned ‘Lead Bank’ responsibility of the district. The Lead Bank is
expected to assume a leadership role for coordinating the efforts of the credit institutions and the
Government.
In view of the several changes that had taken place in the financial sector, the Lead Bank Scheme was
last reviewed by the High Level Committee headed by Smt. Usha Thorat, the then Deputy Governor of
the Reserve Bank of India in 2009. The High Level Committee held wide ranging discussions with
various stakeholders viz. State Governments, banks, development institutions, academicians, NGOs,
MFIs etc. and noted that the Scheme has been useful in achieving its original objectives of improvement
in branch expansion, deposit mobilisation and lending to the priority sector, especially in rural/semi
urban areas. There was overwhelming consensus that the Scheme needs to continue. Based on the
recommendations of the Committee, the guidelines were issued to SLBC Convenor banks and Lead
Banks for implementation and envisaging greater role for private sector banks, Lead Banks were
advised to ensure that private sector banks are more closely involved in the implementation of the Lead
Bank Scheme. Private sector banks should involve themselves more actively by leveraging on
Information Technology bringing in their expertise in strategic planning. They should also involve
themselves in the preparation as well as implementation of the District Credit Plan.
In view of the changes that have taken place in the financial sector over the years, the Reserve Bank of
India had constituted a “Committee of Executive Directors” of the Bank to study the efficacy of the
Scheme and suggest measures for its improvement. Based on the Committee’s recommendations and
feedback received from various stakeholders, certain ‘action points’ were issued to SLBC
Convenors/Lead Banks and NABARD on April 6, 2018.

Block Level Bankers’ Committee (BLBC)

Block Level Bankers’ Committee (BLBC) is a forum for achieving coordination between credit
institutions and field level development agencies at the block level. The forum prepares and reviews
the implementation of the Block Credit Plan and also resolves operational problems in the
implementation of the credit programmes of banks. The Lead District Manager (LDM) of the district is
the Chairman of the Block Level Bankers’ Committee. All the banks operating in the block including

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the Small Finance Banks, Wholly Owned Subsidiaries (WOS) of Foreign Banks, RRBs, the District
Central Co-operative Banks, Block Development Officer, technical officers in the block, such as
extension officers for agriculture, industries and co-operatives are members of the Committee. BLBC
meetings are held at quarterly intervals. To strengthen the BLBC forum which operates at the base level
of the Lead Bank Scheme, it is necessary that all branch managers attend BLBC meetings and enrich
the discussions with their valuable inputs. Controlling Heads of banks may also attend a few of the
BLBC meetings selectively. Participation by the District Development Manager (DDM) of NABARD
in BLBCs would ensure better and more meaningful discussions for the development of the Block.
Therefore, NABARD has been advised that DDMs should attend all Block Level Bankers’ Committee
meetings in their district and actively participate in the credit planning exercise and review meetings at
the block level. The Lead District Officer (LDO) of the Reserve Bank of India (RBI) selectively attends
the BLBC meetings. The representatives of Panchayat Samitis are also invited to attend the meetings at
half yearly intervals so as to share their knowledge and experience on rural development in the credit
planning exercise. Payments Banks should also be invited to attend the meetings.
District Consultative Committee (DCC)
The District Consultative Committees were constituted in the early seventies as a common forum at the
district level for bankers as well as Government agencies/departments to facilitate coordination in
implementing various developmental activities under the Lead Bank Scheme. The District Collector is
the Chairman of the DCC meetings. Reserve Bank of India, NABARD, all the commercial banks
including Small Finance Banks, Wholly Owned Subsidiaries (WOS) of Foreign Banks, RRBs,
Payments Banks, Co-operative banks including the District Central Cooperative Bank (DCCB), various
State Government departments and allied agencies are the members of the DCC. The Lead District
Officer (LDO) represents the Reserve Bank as a member of the DCC. The Lead District Manager
(LDM) convenes the DCC meetings. The Director of Micro, Small and Medium Enterprises
Development Institute (MSME-DI) in the district is an invitee in districts where MSME clusters are
located to discuss issues concerning MSMEs.
Conduct Of DCC Meeting
DCC meetings should be convened by the Lead Banks at quarterly intervals. At the DCC level, sub-
committees as appropriate, may be set up to work intensively on specific issues and submit reports to
the DCC for its consideration. DCC should give adequate feedback to the SLBC on various issues that
need to be discussed on a wider platform, so that these receive adequate attention at the State Level.
Issues Discussed In DCC Meetings
While Lead Banks are expected to address the problems particular to the concerned districts, some of
the important areas which are common to all districts which the lead banks should invariably discuss in
the fora are as under:
 Review of progress under Financial Inclusion Plan (FIP).
 The specific issues inhibiting and enabling IT enabled financial inclusion
 Issues to facilitate 'enablers' and remove/minimise 'impeders' for banking development for
inclusive growth
 Monitoring initiatives for providing 'Credit Plus' activities by banks and State Governments
such as setting up of Financial Literacy Centres (FLCs) and RSETI# type Training Institutes
for providing skills and capacity building to manage businesses.
 Scaling up financial literacy efforts to achieve financial inclusion.
 Review of performance of banks under District Credit Plan (DCP)
 Flow of credit to priority sector and weaker sections of the society
 Doubling of Farmers’ Income
 Assistance under Government sponsored schemes
 Grant of educational loans
 Progress under SHG - bank linkage

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  SME financing & bottlenecks thereof, if any
 Timely submission of data by banks
 Review of relief measures (in case of natural calamities wherever applicable)
Rural Self Employment Training Institutes (RSETIs) should be more actively involved and monitored
at various fora of LBS particularly at the DCC level. Focus should be on development of skills to
enhance the credit absorption capacity in the area and renewing the training programmes towards
sustainable micro enterprises. RSETIs should design specific programmes for each district/ block,
keeping in view the skill mapping and the potential of the region for necessary skill training and skill
up gradation of the rural youth in the district.
Role of LDMs
As the effectiveness of the Lead Bank Scheme depends on the dynamism of the District Collectors and
the Lead District Managers (LDMs), with supportive role of the Regional/Zonal Office, the office of
LDM should be sufficiently strengthened with appropriate infrastructural support being the focal point
for the successful implementation of the Lead Bank Scheme. Apart from the provision of a separate
office space, technical infrastructure like computers, printer, data connectivity, etc. which are basic
necessities for LDMs to discharge their core responsibilities may be provided to LDMs’ Office without
exception. Officers of appropriate level, attitude and possessing requisite leadership skills should be
posted as LDMs. Additionally, it is suggested that a dedicated vehicle may be provided to LDMs’ to
facilitate closer liaison with the bank officials, district administration officials as also to organise/ attend
various financial literacy initiatives and meetings. The absence of a specialist officer/assistant for data
entry/analysis is a common and major issue faced by LDMs. Liberty to hire the services of skilled
computer operator may be given to the LDMs to overcome the shortage of staff/ in case appropriate
staff is not posted at LDM office. Further, for successful functioning of the Lead Bank Scheme, we
expect Lead Banks to go the extra mile to provide facilities over and above the bare minimum to these
critical field functionaries. Apart from the usual role of LDMs like convening meetings of the
DCC/DLRC and periodical meetings of DDM/ LDO/ Government officials for resolving outstanding
issues etc., the new functions envisaged for LDMs include the following:
 Monitoring the implementation of the District Credit Plan
 Associate with the setting up of Financial Literacy Centres (FLCs), RSETIs by banks
 Associate with organizing financial literacy camps by FLCs and rural branches of banks.
 Holding annual sensitisation workshops for banks and Government officials with participation
by NGOs/Panchayati Raj Institutions (PRIs)
 Arranging for quarterly awareness and feedback public meetings, grievance redressal etc.

Quarterly Public Meeting and Grievance Redressal

The Lead District Manager should convene a quarterly public meeting at various locations in the district
in coordination with the LDO of Reserve Bank, banks having presence in the area and other stakeholders
to generate awareness of the various banking policies and regulations relating to the common person,
obtain feedback from the public and provide grievance redressal to the extent possible at such meetings
or facilitate approaching the appropriate machinery for such redressal.

District Level Review Committee (DLRC) Meetings

DLRC meetings are Chaired by the District Collector and attended by members of the District
Consultative Committee (DCC). Public Representatives i.e. Local MPs/MLAs/ Zilla Parishad Chiefs
are also invited to these meetings. The DLRC meetings should be convened by the Lead Banks at least
once in a quarter. The DLRC is a forum to review the pace and quality of the implementation of various
programmes under the Lead Bank Scheme in the district. Hence, association of non-officials is
considered useful. Lead Banks are required to ensure the presence of public representatives in DLRC
meetings as far as possible. Therefore, Lead Banks should fix the date of DLRC meetings with due
regard to the convenience of the representatives of the public i.e. MPs/MLAs etc. and invite and involve

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them in all functions conducted by the banks in the districts, such as opening of new banking outlets,
distribution of Kisan Credit Cards, SHG credit linkage programmes, etc. Responses to queries from
public representatives need to be accorded highest priority and attended to promptly. The follow up of
the DLRC’s decisions is required to be discussed in the DCC meetings.
DCC/DLRC Meetings- Annual Calendar Of Meetings
i) DCC and DLRC are the important fora facilitating coordination among commercial banks,
Government agencies and others at the district level to review and find solutions to the problems
hindering developmental activities. Therefore, it is necessary that all the members participate and
deliberate in these meetings. On a review of the DCC/DLRC meetings, it was observed that late
receipt/non-receipt of intimation of the date of meetings, clash of dates with other events, commonality
of dates etc., hinder participation of members in these meetings, thus undermining the prime objective
of conducting the above meetings.
ii) Lead Banks have, therefore, been advised to prepare an Annual Schedule of DCC and DLRC
meetings on Calendar year basis for all districts in consultation with the Chairperson of the meetings,
Lead District Officer of the RBI and Public Representatives in case of DLRC. This yearly Calendar
should be prepared in the beginning of each year and circulated to all members as advance intimation
for blocking future dates to attend the DCC and DLRC meetings and the meetings should be conducted
as per the calendar. While preparing the Calendar, it should be ensured that DCC and DLRC meetings
are not held simultaneously.

State Level Bankers’ Committee (SLBC)

i) The State Level Bankers’ Committee (SLBC) was constituted in April 1977, as an apex inter-
institutional forum to create adequate coordination machinery in all States, on a uniform basis for
development of the State. SLBC is chaired by the Chairman/ Managing Director/ Executive Director of
the Convenor Bank. It comprises representatives of commercial banks including Small Finance Banks,
Wholly Owned Subsidiaries (WOS) of Foreign Banks, RRBs, Payments Banks, State Cooperative
Banks, RBI, NABARD, heads of Government departments including representatives from National
Commission for Scheduled Castes/Tribes, National Horticulture Board, Khadi & Village Industries
Commission etc. and representatives of financial institutions operating in a State, who come together
and sort out coordination problems at the policy implementation level. Representatives of various
organizations from different sectors of the economy like industry bodies, retail traders, exporters,
farmers’ unions, etc. are special invitees in the SLBC meetings for discussing their specific problems,
if any. SLBC meetings are held on quarterly basis. The responsibility for convening the SLBC meetings
would be of the SLBC Convenor Bank of the State.
ii) Recognising that SLBCs, primarily as a committee of bankers at the State level, play an important
role in the development of the State, illustrative guidelines on the conduct of State Level Bankers’
Committee meetings have been issued.
Conduct Of SLBC Meetings
i) SLBC meetings are required to be held regularly at quarterly intervals. The meetings are chaired by
the Chairman/ Managing Director/ Executive Director of the Convenor Bank and co-chaired by the
Additional Chief Secretary or Development Commissioner of the State concerned. In cases where the
Managing Director/Chief Executive Officer/Executive Director of the SLBC Convenor Bank is unable
to attend SLBC Meetings, the Regional Director of the RBI shall co-chair the meetings along with the
Additional Chief Secretary/Development Commissioner of the State concerned. A High Level of
participation in SLBC/UTLBC meetings ensures an effective and desired outcome with meaningful
discussion on issues of public policy of both the Government of India and the Reserve Bank of India.

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ii) The Chief Minister/Finance Minister and senior level officers of the State/RBI (of the rank of Deputy
Governor / Executive Director) may be invited to attend the SLBC meetings. Further, the State Chief
Ministers are encouraged to attend at least one SLBC meeting in a year.
iii) State Level Bankers’ Committee meetings should primarily focus on policy issues with participation
of only the senior functionaries of the banks/ Government Departments. All routine issues may be
delegated to sub-committee(s) of the SLBC. A Steering Sub-committee may be constituted in the SLBC
to deliberate on agenda proposals from different stakeholders and finalise a compact agenda for the
SLBC meetings. Typically, the Sub-Committee could consist of SLBC Convenor, RBI & NABARD
representatives & senior State Government representative from the concerned department, e.g. Finance/
Institutional Finance and two to three banks having major presence.
iv) Other issue-specific sub-committees may be constituted as required. The sub committees may
examine the specific issues relating to agriculture, micro, small/medium industries/enterprises,
handloom finance, export promotion and financial inclusion, etc. in-depth and devise
solutions/recommendations for adoption by the full committee. They are expected to meet more
frequently than the SLBC. The composition of the sub-committees and subjects/ specific issues
impeding/enabling financial inclusion to be deliberated upon, may vary from State to State depending
on the specific problems/issues faced by the States.
v) The secretariat/offices of the SLBC should be sufficiently strengthened to enable the SLBC Convenor
Bank to effectively discharge its functions.
vi) The various fora at lower levels may give adequate feedback to the SLBC on issues that need to be
discussed on a wider platform.
vii) Several institutions and academicians are engaged in research, studies etc. that have implications
for sustainable development in agriculture and MSME sector. Engaging with such research institutions
and academicians would be useful in bringing in new ideas for furthering the objectives of the Lead
Bank Scheme. The SLBCs may, therefore, identify such academicians and researchers and invite them
as 'special invitees' to attend SLBC meetings occasionally both for adding value to the discussions and
also associate them with studies appropriate to the State. Other 'special invitees' may be invited to attend
SLBC meetings depending on the agenda items/issues to be discussed in the meetings.
viii) The activities of NGOs in facilitating and channelling credit to the low income households are
expected to increase in the coming years. Several corporate houses are also engaged in corporate social
responsibility activities for sustainable development. A linkage with such NGOs/Corporate houses
operating in the area to ensure that the NGOs/corporates provide the necessary 'credit plus' services can
help leverage bank credit for inclusive growth. Success stories could be presented in SLBC meetings to
serve as models that could be replicated.
Agenda For SLBC Meetings
 Review of financial inclusion initiatives, expansion of banking network and Financial Literacy:
 Status of opening of banking outlets in unbanked villages, CBS-enabled banking outlets at the
unbanked rural centres (URCs)
 Review of Operations of Business Correspondents – hurdles/issues involved
 Progress in increasing digital modes of payment in the State, provision of continuous
connectivity with sufficient bandwidth, resolving connectivity issues/ connectivity options
(Bharat Net, VSAT, etc.), installation of ATMs and PoS machines and status of
implementation of e-receipts and e-payments in the State
 Status of rollout of Direct Benefit Transfer in the State, Aadhaar seeding and authentication
 Review of inclusion of Financial Education in the School Curriculum, financial literacy
initiatives by banks (particularly digital financial literacy)
 Creating awareness about various schemes, subsidies, facilities e.g. crop insurance, renewable
energy
 Review of efforts towards end-to-end projects involving all stakeholders in the supply chain.

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 Review Of Credit Disbursement By Banks:

 Achievement under ACP of the State, Priority Sector Lending

 Discussion on lending towards government sponsored schemes (DAY-NRLM, DAY-NULM,
MUDRA, Stand-Up India, PMEGP, etc.) and impact of these schemes
 Flow of credit to MSMEs and for affordable housing
 KCC loan, crop insurance under PMFBY
 Grant of Education Loans
 Progress under SHG-bank linkage.
 Doubling of Farmers’ Income
 CD Ratio, Review of Districts with CD Ratio below 40% and working of Special Sub-
Committees of the DCC (SSC).
Position of NPAs in respect of schematic lending, Certificate Cases and Recovery of NPAs.
Review of restructuring of loans in natural calamity affected districts in the State, if any. Discussion on
policy initiatives of the Central/State Government/RBI (Industrial Policy, MSME Policy, Agriculture
Policy, Start-Up Policy, etc.), and expected involvement of banks.
Discussion On Improving Rural Infrastructure/ Credit Absorption Capacity:
Any large project conceived by the State Government to help improve C-D Ratio
Explore the scope of state-specific potential growth areas and the way forward – choosing partner banks
Discussion on findings of region-focused studies, if any, and implementing the suggested solutions
Identification of gaps in rural and agriculture infrastructure which need financing (rural godowns, solar
power, agro processing, horticulture, allied activities, agri-marketing etc.)
Implementation of Model Land Leasing Act 2016 (exploring possibility).
Efforts towards skill development on mission mode partnering with Krishi Vigyan Kendra (KVK),
Horticulture Mission, National Skill Development Corporation, Agriculture Skill Council of India
(ASCI), etc. including a review of functioning of RSETIs.
Steps taken for improving land record, progress in digitization of land records and seamless loan
disbursements.
Sharing of success stories and new initiatives at the district level that can be replicated in other districts
or across the State.
Discussion On Market Intelligence Issues E.G.:
Ponzi Schemes/ Illegal Activities of Unincorporated Bodies/ Firms/ Companies Soliciting Deposits
from the Public
Banking Related Cyber Frauds, phishing, etc. Instances of usurious activities by lending entities in the
area, cases of over indebtedness Credit related frauds by borrower groups, etc.
Issues remaining unresolved at DCC/DLRC meeting.
Timely submission of data by banks, adhering to the schedule of SLBC meeting.
SLBC - Yearly Calendar Of Meetings
i) To improve the effectiveness and streamline the functioning of SLBC/UTLBC meetings, SLBC
Convenor Banks have been advised to prepare a yearly calendar of programmes (calendar year basis)
in the beginning of the year itself, for conducting the meetings. The calendar of programmes should
clearly specify the cut off dates for data submission to SLBC and acceptance thereof by the SLBC
Convenor. This yearly calendar should be circulated to all the concerned as an advance intimation for

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blocking of future dates of senior functionaries of various agencies like Central Government, State
Governments, banks, RBI, etc. The SLBC/UTLBC meetings should be conducted as per the calendar
under all circumstances. The agenda should also be circulated in advance without waiting for the data
from defaulting banks. The matter should, however, be taken up with the defaulting banks in the SLBC
meeting. In addition, the SLBC Convenor Bank should write a letter in this regard to the controlling
office of the defaulting banks under advice to the Regional Office of RBI. The SLBC Convenor Bank
will, however, continue to follow-up with banks for timely data submission. Further, in case the Chief
Minister, Finance Minister or other very senior functionaries are not able to attend the SLBC on some
very rare occasion, then if so desired by them, a special SLBC meeting can be held. Following broad
guidelines should be used for preparation of the calendar of programmes:
Activity To Be Completed By (Date)
Preparation of calendar of SLBC/UTLBC meetings and intimation to all the concerned of the cut-off
dates for submission of data and dates of meetings as per the dateline given below 15th January every
year
Reminder regarding the exact date of meeting and submission of data by banks to SLBC 15days before
end of the quarter
Dead line for receipt of information/data by SLBC Convenor Bank 15 days from the end of the quarter
Distribution of agenda cum background papers 20 days from the end of the quarter
Holding of the meeting Within 45 days from the end of the quarter
Forwarding the minutes of the meeting to all stakeholders within 10 days from holding the meeting
Follow-up of the action points emerged from the meeting to be completed within 30 days of forwarding
the minutes (for review in the next meeting)
ii) The objective of preparing the calendar of meetings in the beginning of the year is to ensure adequate
notice of these meetings and timely compilation and dispatch of agenda papers to all stakeholders. It
also ensures clear cut guidelines for the submission of data to SLBC Convenors by participating banks
& Government Departments. It is expected to save precious time of SLBC Convenors otherwise spent
in taking dates from various senior functionaries attending these SLBC meetings.
iii) SLBC Convenor Banks need to appreciate the advantages of ensuring adherence to the yearly
calendars. SLBC Convenor Banks have therefore been advised to give wide publicity to the annual
calendar at the beginning of the year and ensure that dates of senior functionaries expected to attend the
meetings are blocked for all meetings by their offices. In case, despite blocking dates, if for some reason,
the senior functionary is not able to attend the meeting, the meeting should be held as planned in the
calendar. More importantly, the data for review in these meetings should be received as per deadlines
set in the calendar and those who do not submit the data in time should be asked to explain the reasons
for delay in sending the data that may be recorded in the minutes of the meeting. Under no circumstance,
should the preparation of the agenda be delayed beyond the dates stipulated as per the calendar.

Liaison With State Government

SLBC Convenor Banks are expected to co-ordinate the activities of all banks in the State, discuss with
State Government officials, the operational problems in lending, extending necessary support for
banking development and to achieve the objective of financial inclusion.

Capacity Building/Training/Sensitization Programmes

i) There is a need for sensitising the District Collectors and CEOs of Zilla Parishads on banks and
banking in general as also on the specific scope and role of the Lead Bank Scheme. In each State, a full

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day ‘Sensitisation Workshop’ may be convened by the SLBC Convenor Bank every year, preferably in
April/May. Such sensitisation should form part of the probationary training of such officers. Further, as
soon as they are posted in a district, the SLBC may arrange for exposure visits for the District Collectors
to the SLBC Convenor’s office for sensitisation and understanding of the Lead Bank Scheme.
ii) Staff at the operational level of banks and government agencies associated with implementation of
the Lead Bank Scheme need to be aware of the latest developments and emerging opportunities. There
is need for staff sensitisation/ training/seminars, etc. at periodic intervals on an ongoing basis.

Implementation Of Lead Bank Scheme

Preparation Of Credit Plans
Planning plays an important role in the implementation of the Lead Bank Scheme and a bottom-up
approach is adopted to map the existing potential for development. Under LBS, planning starts with
identifying block-wise/ activity-wise potential estimated for various sectors.
Potential Linked Credit Plans (PLPs)
i) Potential Linked Credit Plans (PLPs) are a step towards decentralized credit planning with the basic
objective of mapping the existing potential for development through bank credit. PLPs take into account
the long term physical potential, availability of infrastructure support, marketing facilities, and
policies/programmes of Government etc. NABARD to take measures to ensure that PLPs should be
more focussed and implementable so that banks can utilize them more gainfully while preparing the
Branch Credit Plan. PLPs should emphasise on promotion of sustainable agricultural practices suitable
to local conditions. While preparing the PLPs, the focus must be on identifying processes and projects
that:
 reduce the carbon foot-print,
 prevent the overuse of fertilizers,
 ensure efficient utilisation of water and
 address agricultural pollution issues.
The plans must also focus on promoting innovative farming systems such as organic farming, bio
dynamic farming, permaculture and sustainable small-scale farming, as also promoting Farmer
Producer Organisations (FPOs) and Farmers’ Markets. Such initiatives must be supported by
appropriate investments and project finance frameworks.
ii) A pre-PLP meeting is convened by LDM during June every year to be attended by banks,
Government agencies, etc., to reflect their views and concerns regarding credit potential
(sector/activity-wise) and deliberate on major financial and socio-economic developments in the district
in the last one year and priorities to be set out for inclusion in the PLP. The DDM of NABARD makes
a presentation in this meeting outlining the major requirements of information for preparing the PLP
for the following year. The preparation of PLP for the next year is to be completed by August every
year to enable the State Government to factor in the PLP projections.
iii) The procedure for preparing the District Credit Plan is as follows:
Controlling Offices of commercial banks including Small Finance Banks, Wholly Owned Subsidiaries
(WOS) of Foreign Banks and Head Office of RRB and DCCB/LDB circulate the accepted block-
wise/activity-wise potential to all their branches for preparing the Branch Credit Plans (BCP) by their
respective branch managers. Banks should ensure that the exercise of preparation of branch/block plans
is completed in time by all branches so that the Credit Plans become operational on time.
A special Block Level Bankers' Committee (BLBC) meeting is convened for each block where the
Branch Credit Plans are discussed and aggregated to form the Block Credit Plan. The DDM and the
LDM guide the BLBC in finalizing the plan, ensuring that the Block Credit Plan is in tune with the
potentials identified activity-wise including in respect of Government Sponsored Schemes.

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All the Block Credit Plans of the district are aggregated by the LDM to form the District Credit Plan
(DCP). This plan indicates an analytical assessment of the credit needs of the district to be deployed by
all the financial institutions operating in the district and the total quantum of funds to be earmarked as
credit by all the financial institutions for a new financial year. The Zonal/Controlling Offices of banks,
while finalizing their business plans for the year, should take into account the commitments made in
the DCP which should be ready well in time before the performance budgets are finalized.
The District Credit Plan is then placed before the DCC by the Lead District Manager for final
acceptance/approval. All the District Credit Plans are eventually aggregated into a State Level Credit
Plan to be prepared by SLBC Convenor Bank and launched by the 1st of April every year.
The corporate business targets for branches, blocks, districts and states may be aligned with the Annual
Credit Plans (ACP) to ensure better implementation. The Controlling Offices of the banks in each state
should synchronize their internal business plans with the ACP.
Monitoring the Performance of Credit Plans
The performance of the credit plans is reviewed in the various fora created under the Lead Bank Scheme
as shown below:
At Block Level Block Level Bankers’ Committee (BLBC)
At District Level District Consultative Committee (DCC) & District Level Review Committee (DLRC)
At State Level State Level Bankers’ Committee (SLBC)
Monitoring Of LBS By RBI - Monitoring Information System (MIS)
i) Data on Annual Credit Plan (ACP) is an important element to review the flow of credit in the State.
ACP formats are aligned with the extant reporting guidelines on priority sector lending. Accordingly,
the ACP is to be prepared considering the categories of priority sector that would include Agriculture,
Micro, Small and Medium Enterprises, Export Credit, Education, Housing, Social Infrastructure,
Renewable Energy and Others. Further, it has been decided that bank loans to Micro/Small and Medium
Enterprises (Services), engaged in providing or rendering of services as defined in terms of investment
in equipment under MSMED Act, 2006, shall qualify under priority sector without any credit cap. The
reporting statement for ACP target is LBS-MIS-I (Annex IV), statement for disbursement and
outstanding LBS-MIS-II (Annex V) and ACP achievement vis-à-vis ACP target, LBS-MIS-III (Annex
VI). SLBC Convenor Banks/ Lead Banks have been advised to prepare the statements LBS MIS I, II
and III as per the revised formats starting from the financial year 2018-19. They should prepare the
bank group wise statements of LBS-MIS-I, II and III as per the prescribed formats and also place these
statements for meaningful review in all DCC and SLBC meetings.
ii) In order to maintain consistency and integrity of data with the All-India data of scheduled commercial
banks and facilitate a meaningful review/analysis of data, the ACP data needs to be grouped separately
for scheduled commercial banks and other banks like State Cooperative Banks, DCCBs, etc. while
presenting in the DCC/SLBC meetings and submitting to our Regional Offices. The data pertaining to
scheduled commercial banks needs to be further grouped into public sector banks, private sector banks,
Regional Rural Banks, Small Finance Banks and Wholly Owned Subsidiaries (WOS) of Foreign Banks
to know the bank group wise position.
Revised Mechanism Of Data Flow For LBS Fora Meetings
At present, discussions at the quarterly meetings of the various LBS fora viz. State Level Bankers’
Committee (SLBC), District level Consultative Committee (DCC) and Block Level Bankers’
Committee (BLBC) primarily focus on the performance of banks in the disbursement of loans vis-a-vis
the allocated target under the Annual Credit Plan. The integrity & timeliness of the data submitted by
banks for the purpose has been an issue as a significant portion of this data is manually compiled and
entered into the Data Management Systems of the SLBC Convenor Banks. The extent to which this
data corresponds with the data present in the Core Banking Solution (CBS) of the respective banks also

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varies significantly. Therefore, there is need of a standardized system to be developed on the website
maintained by each SLBC to enable uploading and downloading of the data pertaining to the Block,
District as well as the State. The relevant data must also be directly downloadable from the CBS and/
or MIS of the banks with a view to keeping manual intervention to a minimal level in the process. The
procedure relating to the envisaged intervention in this area is given below:
Management Of Data Flow At LBS Fora – Procedure
Each bank’s CBS should have a provision to generate a report pertaining to all LBS related data/ tables
to Excel. This data should have information pertaining to all the branches operating in the state including
fields/ columns for District & Block name. Access to Download & Export this data from the bank’s
CBS should be given to the Controlling Offices of the banks who would be solely responsible for the
process of ‘Data Feeding’ for all districts/ blocks within their jurisdiction.
The ‘Data Feeding’ process is the process of uploading this Excel file (downloaded in step (i) above)
on the SLBC websites. SLBC websites should have a provision to ‘Import/ Upload’ all the data present
in the Excel Sheet on the database of the SLBC website. This would obviate any manual ‘data entry’ at
the SLBC/ Controlling Office level.
To facilitate the above functionality, each SLBC Convenor Bank would have to add this ‘Import/
Upload’ functionality to their SLBC website along with the requisite capabilities at the back-end.
The SLBC website would, thus, effectively work as a data aggregation platform. Further, data analysis
capabilities could also be added to the SLBC websites depending on the available resources.
The SLBC websites should provide access to LDMs to download district and block specific data directly
from this website thus ensuring integrity and timely availability of data.
There could still be some data pertaining to State Government Schemes/ other data that is not available
on the CBS or MIS of the banks. This would have to be collated at the Controlling Office level as is
done now. At the SLBC website, functionalities could be provided to enter this data too. This could
then be downloaded by the LDMs for district/ block level reports. Banks may also add Open Format
fields like ‘text boxes’ for data or information that is special or is entered/ used once in a while.
Such a system ensures that LDMs & SLBC Convenor Banks have to do zero or minimal data entry/
feeding and all data is entered by a single ‘custodian of data’ which is the Controlling Office of each
bank. Any information to be provided by Government extension agencies could also be similarly
uploaded.
Necessary modifications may be made on the SLBC websites and to the CBS & MIS systems of all
banks to implement the envisaged data flow mechanism.
A Working Group of select SLBC Convenor banks and NABARD was constituted by RBI to work out
a standardised system for collection, storage, presentation and management of data on the SLBC/
UTLBC website. A Standard Operating Procedure (SOP), which may be followed by SLBC/ UTLBC
Convenor Banks, member banks and LDMs, as suggested by the Working Group for management of
the data flow is given at Annex III.

Assignment Of Lead Bank Responsibility

i) Lead Bank Scheme is administered by the Reserve Bank of India since 1969. The assignment of Lead
Bank responsibility to designated banks in every district is done by the Reserve Bank of India following
a detailed procedure formulated for this purpose. As on March 31, 2021, 12 public sector banks and one
private sector bank have been assigned Lead Bank responsibility in 730 districts of the country.

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ii) State Level Bankers’ Committee (SLBC)/Union Territory Level Bankers' Committee (UTLBC), as
an apex level forum at the State/Union Territory (UT) level, coordinates the activities of the financial
institutions and Government departments in the State/Union Territory under the Lead Bank Scheme.
SLBC/UTLBC Convenorship is assigned to banks for this purpose. As on March 31, 2021, the SLBC/
UTLBC convenorship of 28 States and 8 Union Territories has been assigned to 11 public sector banks
and one private sector bank. A List of State/UT wise SLBC/UTLBC Convenor Banks and district wise
Lead Banks is given in Annex I.
iii) The Lead Bank Scheme (LBS) has been extended to the districts in the metropolitan areas, thus
bringing the entire country under the fold of the Lead Bank Scheme.
Banking Penetration
i) Over the years, the focus of the Lead Bank Scheme has shifted to inclusive growth and financial
inclusion. The use of Information Technology (IT) and intermediaries has enabled banks to increase the
outreach, scale and depth of banking services at affordable cost.
ii) SLBC Convenor Banks / Lead Banks are advised to focus attention on the need for achieving 100%
financial inclusion through penetration of banking services in the rural areas. Upon issuance of DoR
revised guidelines on ‘Rationalisation of Branch Authorisation Policy’ on May 18, 2017 clarifying on
‘Banking Outlet’, banks were advised to consider opening of a CBS-enabled banking outlet or a part
time banking outlet, as the case may be, in unbanked rural centres.
iii) SLBC Convenor Banks should take up with the State Governments, impeders such as issues of
road/digital connectivity, conducive law and order situation, uninterrupted power supply, adequate
security, etc. for ensuring banking expansion at all centres where penetration by the formal banking
system is required. However, these impeders should not inhibit the scaling up of financial inclusion
initiatives.
Roadmap For Providing Banking Services In Unbanked Villages
In November 2009, a roadmap to provide banking services in villages with population more than 2000
was rolled out. All the identified villages have been provided with banking services through branches,
business correspondents or through other modes such as ATMs and mobile vans. Later, in June 2012,
a roadmap to provide banking services in unbanked villages with less than 2,000 population was rolled
out. SLBC Convenor Banks and Lead Banks were advised to complete the process of providing banking
services in unbanked villages with population below 2000 by August 14, 2015.
Roadmap for opening brick and mortar branches in villages with population more than 5000 without a
bank branch of a scheduled commercial bank
As brick and mortar branches are an integral component of financial inclusion, it was decided to focus
on villages with population above 5000 without a bank branch of a scheduled commercial bank. This
was to enable banks to provide quality financial services and timely support to BC outlets that would
help in sustaining and strengthening the services provided through BCs and also ensuring close
supervision of BC operations. Accordingly, SLBC Convenor Banks were advised to identify villages
with population above 5000 without a bank branch of a scheduled commercial bank in their State and
allot these villages among scheduled commercial banks (including Regional Rural Banks) for opening
of branches.
Aligning roadmap for unbanked villages having population more than 5000 with revised Guidelines on
Branch Authorisation Policy
‘Rationalisation of Branch Authorisation Policy - Revision of Guidelines’, final guidelines on
‘Banking Outlets’ have been issued with a view to facilitate financial inclusion as also to provide
flexibility to banks on the choice of delivery channel. Accordingly, SLBC Convenor Banks have been
advised to identify all unbanked rural centres (URCs) in the State, compile and maintain an updated list
of all such centres. The updated list should be displayed on the website of each SLBC to facilitate banks
to choose/indicate the place/centre where they wish to open a ‘banking outlet’.

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ii) Further, SLBC Convenor Banks have been advised that in order to comply with the criteria of
opening at least 25 percent of the total banking outlets in unbanked rural centres in Tier 5 & 6 centres,
as prescribed vide DoR circular dated May 18, 2017, banks should give priority to villages without a
banking outlet having population more than 5000 (i.e. Tier 5 centres) and ensure that all such villages
under their jurisdiction are covered with a CBS-enabled Banking Outlet on priority basis.
iii) The updated list of unbanked rural centres should be tabled in all SLBC meetings during discussions
on the progress of providing banking services in unbanked rural centres.
National Strategy for Financial Inclusion (NSFI): 2019-2024 – Universal Access to Financial Services
Providing banking access to every village within a 5 KM radius / hamlet of 500 households in hilly
areas has been one of the key objectives of the National Strategy for Financial Inclusion (NSFI): 2019-
2024. Accordingly, SLBC/ UTLBC Convenor banks have been advised to review the presence of
banking outlets of Scheduled Commercial Banks (SCBs), Regional Rural Banks (RRBs), Small Finance
Banks (SFBs) and Payments Banks (PBs) in every village within a 5 KM radius / hamlet of 500
households in hilly areas under their jurisdiction(s) and ensure that universal access to financial services
are provided to all such villages.

Credit Deposit Ratio (CD Ratio) Of Banks In Rural And Semi-Urban Areas
Banks have been advised to achieve a CD Ratio of 60 percent in respect of their rural and semi-urban
branches separately on an All-India basis. While it is not necessary that this ratio should be achieved
separately, branch-wise, district-wise or region-wise, the banks should, nevertheless, ensure that wide
disparity in the ratios between different States / Regions is avoided in order to minimise regional
imbalance in credit deployment. The credit dispensation in certain districts is very low, as a result of
various factors such as lack of necessary infrastructure, varying ability of different regions to absorb
credit, etc. Banks may review the performance of their bank branches in such areas and take necessary
steps to augment the credit flow. The Lead Banks may discuss the problem in all its aspects with the
other financial institutions in the district and also in the DCC forum.
Implementation Of The Recommendations Of The Expert Group On CD Ratio
i) An Expert Group was constituted by the Government of India to go into the nature and magnitude of
the problem of low CD Ratio across States / Regions and to suggest steps to overcome the problem.
The Expert Group examined the problems and causes of low CD Ratio and made recommendations. As
per the recommendations, the CD Ratio of banks should be monitored at different levels.
In the districts having CD Ratio less than 40 percent, Special Sub-Committees (SSCs) of the DCC shall
be set up to monitor the CD Ratio.
Districts having CD Ratio between 40 and 60 percent, shall be monitored under the existing system by
the DCC, and
The district with CD Ratio of less than 20 percent need to be treated on a special footing.
ii) Special Sub-Committees (SSCs) of the DCC should be set up in the districts having CD Ratio less
than 40 percent, in order to monitor the CD Ratio and to draw up Monitorable Action Plans (MAPs) to
increase the CD Ratio. The Lead District Manager (LDM) is designated as the Convenor of the SSC
which, in addition to the District Co-ordinators of banks functioning in the area, should comprise of the
LDO of RBI, the DDM of NABARD, the District Planning Officer or a representative of the Collector
duly empowered to take decisions on behalf of the district administration.
The functions of the Special Sub-Committee are as under:
The SSCs should draw up Monitorable Action Plans (MAPs) for improving the CD Ratio in their
districts on a self-set graduated basis.

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For this purpose, the SSC should hold a special meeting immediately after its constitution and on the
basis of the various ground level parameters, set for itself, a target for increasing the CD Ratio initially
for the current year. It will also, at the same meeting, set a definite time frame to achieve a CD Ratio
more than 60 percent in annual increments.
Consequent to the completion of this process, the target and time frame self-set by the SSC should be
placed before the DCC for approval.
The plans for implementation must then be taken up by the SSC and monitored assiduously once in two
months.
The SSC should report the progress on the implementation of the plan to the DCC on a quarterly basis
and through them to the Convenor of the SLBC.
On the basis of the feedback received from the DCC regarding the progress in the implementation of
the Monitorable Action Plans (MAPs), a consolidated report should be prepared by the SSC and tabled
at all SLBC meetings for discussion / information.
iii) As regards the districts with a CD Ratio less than 20 percent, these are generally located in hilly,
desert or inaccessible terrains and / or those dependent solely on the primary sector and/ or characterized
by a breakdown of the law and order machinery. In such areas, conventional methods are not likely to
work unless the banking system and the State Government come together in a specially meaningful
way.
iv) While the framework for implementation for raising the CD Ratio in these districts will be the same
as in the case of districts with CD Ratio below 40 percent (i.e. setting up of SSC etc.), the focus of
attention and the level of efforts should be of a much higher scale.
For this,
All such districts should first be placed in a special category.
Thereafter, the responsibility for increasing their CD Ratio should be taken by banks and State
Governments and the districts should be "adopted" by the District Administration and the Lead Bank
jointly.
While banks would be responsible for credit disbursement, the State Government would be required to
give an upfront commitment regarding its responsibilities for creation of identified rural infrastructure
together with support in creating an enabling environment for banks to lend and to recover their dues.
Progress in the special category districts should be monitored at the district level and reported to the
corporate offices of the concerned banks.
The Chairmen/ Managing Directors of banks should give special attention to the CD Ratio in such
districts.
Direct Benefit Transfer
Direct Benefit Transfer (DBT) was rolled out by the Government of India in selected districts in January
2013. It was expanded to other districts subsequently. SLBC Convenor Banks were advised to co-
ordinate with the Government authorities to implement DBT. Banks were advised to include the status
of the roll-out of DBT as a regular agenda item for discussion in SLBC meetings as part of Financial
Inclusion/Direct Benefit Transfer (DBT) implementation. As a prerequisite to the implementation of
the DBT, every eligible individual should have a bank account. Further, to make disbursements at the
doorstep through the ICT-based BC model, banking outlets either through brick & mortar branches or
the branchless mode is needed in all villages across the country. Hence, banks have been advised to:

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  take steps to complete the opening of bank accounts and seeding of Aadhaar numbers in all
bank accounts.
 closely monitor the progress in seeding of Aadhaar number with the bank accounts of
beneficiaries.
 put in place a system to provide the beneficiary of the seeding request an acknowledgement
and also send a confirmation of the seeding of Aadhaar number.

 form a DBT Implementation Co-ordination Committee, along with the State Government
department concerned, at district level and review the seeding of Aadhaar numbers in bank
accounts.
 ensure that district and village wise names and other details of business correspondents (BCs)
engaged/other arrangements made by the bank are displayed on the SLBC website.
 set up a Complaint Grievance Redressal mechanism in each bank and nominate a Complaint
Redressal Officer in each district, to redress the grievances related to ‘seeding of Aadhaar
number in bank accounts'.

Banks were further advised to ensure that opening of bank accounts and seeding of Aadhaar numbers
with existing or new accounts of eligible beneficiaries opened for the purpose of Direct Benefit Transfer
(DBT) under social welfare schemes, was in conformity with the provisions listed under Section 16 of
the Master Direction - Know Your Customer (KYC) Direction, 2016 (updated as on May 29, 2019) and
extant provisions of the Prevention of Money Laundering (PML) Rules.
Service Area Approach (SAA)
i) The Service Area Approach (SAA), introduced in April 1989 for planned and orderly development
of rural and semi-urban areas was applicable to all scheduled commercial banks including Regional
Rural Banks. Under SAA, each bank branch in a rural or semi-urban area was designated to serve an
area of 15 to 25 villages and the branch was responsible for meeting the needs of bank credit of its
service area. The primary objective of SAA was to increase productive lending and forge effective
linkages between bank credit, production, productivity and increase in income levels.
ii) The Service Area Approach scheme was reviewed in December 2004 and it was decided to dispense
with the restrictive provisions of the scheme while retaining the positive features of the SAA such as
credit planning and monitoring of the credit purveyance. Accordingly, under SAA, the allocation of
villages among the rural and semi-urban branches of banks were made not applicable for lending except
under Government Sponsored Schemes. Thus, while the commercial banks and RRBs are free to lend
in any rural and semi-urban area, the borrowers have the choice of approaching any branch for their
credit requirements.
Dispensing With ‘No Due Certificate’
In order to ensure hassle free credit to all borrowers, especially in rural and semi-urban areas and
keeping in view the technological developments and the different ways available with banks to avoid
multiple financing, banks have been advised to dispense with obtaining a ‘No Due Certificate’ from the
individual borrowers (including SHGs & JLGs) in rural and semi-urban areas for all types of loans
including loans under Government Sponsored Schemes, irrespective of the amount involved unless the
Government Sponsored Scheme itself provides for obtention of a ‘No Due Certificate’. Further, it has
been clarified that the policy of dispensing with a ‘No Due Certificate’ for lending by banks is also
applicable to urban areas including metropolitan cities.
ii) Banks are encouraged to use an alternative framework of due diligence as part of the credit appraisal
exercise other than the ‘No Due Certificate’ which could, among others, consist of one or more of the
following:
 Credit history check through Credit Information Companies (CICs)

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  Self-declaration or an affidavit from the borrower
 CERSAI registration
 Peer monitoring
 Information sharing among lenders
 Information search (writing to other lenders with an auto deadline)
iii) Banks are also advised to submit information/data to all Credit Information Companies (CICs), as
required in terms of extant instructions issued by RBI.
Doubling of Farmers’ Income
i) The Government of India, in the Union Budget 2016-17, had announced its resolve to double the
income of farmers by 2022. Several steps have been taken towards attaining this objective including
setting up of an inter-ministerial committee for preparation of a blue print for the same. This agenda
has also been reiterated by the government in several fora and has acquired primacy from the point of
view of rural and agricultural development.
ii) The strategy to achieve this goal, inter-alia, includes,
Focus on irrigation with large budgets, with the aim of "per drop, more crop"
Provision of quality seeds and nutrients based on soil health of each field
Investments in warehousing and cold chains to prevent post-harvest crop losses
Promotion of value addition through food processing
 Creation of a national farm market, removing distortions and development of infrastructure
such as e-platform across 585 stations
 Strengthening of the crop insurance scheme to mitigate risks at affordable cost
 Promotion of ancillary activities like poultry, bee-keeping and fisheries
iii). Needless to emphasize that acceleration in income generation is significantly dependent on better
capital formation in agriculture. Towards this, banks should revisit their documentation for crop loans,
simplify them where required and ensure speedy sanctioning and disbursal of loans within specified
time limits.
iv). The Lead Bank Scheme, which ensures inter-departmental/governmental coordination in the
financial sector, should, therefore, be leveraged to further the objective of doubling farmers’ income by
2022. Lead Banks are accordingly advised to ensure the following:
 Work closely with NABARD in the preparation of Potential Linked Credit Plans (PLPs) &
Annual Credit Plans (ACPs) keeping the above strategy in consideration
 Include ‘Doubling of Farmers’ Income as a regular agenda under the Lead Bank Scheme in
various fora such as SLBC, DCC, DLRC and BLBC
 For the purpose of monitoring and reviewing the progress, Lead Banks may use the benchmarks
as may be provided by NABARD
 Map the overall strategy as given in para above to the agriculture/agro-ancillary lending plan
of the bank.
 Expanding and Deepening of Digital Payments Ecosystem
With a view to expanding and deepening the digital payments ecosystem, the SLBCs/UTLBCs were
advised to identify one district in their respective States/UTs on a pilot basis in consultation with banks
and stakeholders and allocate it to a bank with significant footprint which will endeavour to make the
district 100% digitally enabled within one year, in order to enable every individual in the district to
make/ receive payments digitally in a safe, secure, quick, affordable and convenient manner. SLBC/
UTLBC Convenor Banks were also advised to devise a time bound roadmap to all branches of member
banks (Public Sector Banks, Private Sector Banks, Regional Rural Banks, Small Finance Banks and
Payments Banks) located in the identified district(s) for on-boarding merchants/ traders/ businesses/
utility service providers to facilitate fully digital transactions. Further, SLBC/ UTLBC Convenor Banks
were advised to constitute a Sub-Committee on Digital Payments at SLBC/ UTLBC level.

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COOPERATIVE CREDIT
AND BANKING

PART-B
COOPERATIVE BANKING.

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 CHAPTER 5
BANKING REGULATION ACT 1949

The banking and regulations act was enacted to safeguard the interest of the depositors and to control
the abuse of powers by controlling the banks by any means necessary and to the interest of Indian
economy in general. There are many provisions of banking regulation act 1949. Though the BR Act
was in existence from 16 March 1949, it was not applicable to the Cooperative banks for a long
time. But when the deposits started increasing in the Coop sector, it was felt necessary by the
Government of India to made applicable the BR Act to the Coop banks with effect from 1st March 1966
with a nomenclature - BR Act 1949 (As Applicable to Coop Societies) providing exclusive sections i.e.,
56. However this act was not made applicable to the PACS, LDBs and non-credit societies functioning
in India. With this amendment of BR Act, RBI was empowered to supervise and regulate the
Cooperative Banks operating in the country.
BR Act was suitably amended several times to insert new provisions and to suit to the need of changing
circumstances. Accordingly, B R Act was amended by the Parliament & notified in the gazette by the
Government of India on 29 September 2020 for uniform applicability of various sections of the main
act. Consequent to the amendment of BR Act, RBI through its circular made effective the act from 1 st
April 2021. The amendment empowered RBI to regulate on Share capital, Management, Audit,
Supersession, Amalgamation and Liquidation which was earlier rest with the Registrar of Cooperative
Societies of the respective State. All the cooperative banks are registered under the Cooperative
Societies Act, therefore the powers regarding incorporation, Registration, elections to the Board of
Directors still rest with the Registrar of Coop societies of the concerned State or Centre after the
amendment of the act. The B R Act is having 56 sections with five parts and five schedules
Salient Features Of The Act
The act provides a comprehensive definition of banking so as to bring within the scope of the legislation
all institutions which receive deposits repayable on demand or otherwise for lending or investment. The
act also provides the provisions of prohibition of non- banking companies from accepting deposits
repayable on demand. Further the act stipulates the prohibition of trading to eliminate non-banking
risks, prescription of minimum capital standards, limiting the payments of dividends. When the act was
enacted, it provided the scope of legislation of banks registered outside the states of India. In order to
function banks in India legislation made a provision for introduction of comprehensive system of
licensing of banks and their branches. The act also has a prescription of a special form of balance sheet
and conferring of power on the Reserve Bank to call for periodical returns and also power of inspection
of books of accounts of all banks by RBI except RRBs and Rural Cooperative Banks. The act also
empowered the Central Government to take action against banks conducting their affairs in a manner
detrimental to the interest of the depositors and provision for bringing the RBI in to closer touch with
banking companies and expeditious procedure for liquidation
Objectives And Functions Of Banking Regulation Act 1949
The provision of the Indian Companies Act 1913 was found inadequate and unsatisfactory to regulate
banking companies in India. Therefore, a need was felt to have a specific legislation having
comprehensive coverage on banking business in India. Due to inadequacy of capital many banks failed
and hence prescribing a minimum capital requirement was felt necessary. The banking regulation act
brought in certain minimum capital requirements for banks. One of the key objectives of this act was to
avoid cut throat competition among banking companies. The act was regulated the opening of branches
and changing location of existing branches. The act enabled the RBI to prevent indiscriminate opening
of new branches and ensure balanced development of banking companies by system of licensing and
assign power to RBI to appoint, reappoint and removal of chairman, director and officers of the banks.
This could ensure the smooth and efficient functioning of banks in India. To protect the interest of

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depositors and public at large by incorporating certain provisions, viz. prescribing cash reserve and
liquidity reserve ratios. This provision enabled bank to meet demand of the depositors.
The act also has a provision for compulsory amalgamation of weaker banks with senior banks, and
thereby strengthens the banking system in India. When legislation was passed, it was ensured to
introduce few provisions to restrict foreign banks in investing funds of Indian depositors outside India.
Provide quick and easy liquidation of banks when they are unable to continue further or amalgamate
with other banks.

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 CHAPTER – 6
Elements of banking
Types Of Bank Accounts
Any person who is a housewife or a college student, a business owner or a business house, a retired
professional or Indian living abroad, not having a bank account is unimaginable. Based on the purpose,
frequency of transaction, and location of the account-holder, banks offer a bouquet of bank accounts to
choose from. Here is a list of some of the types of bank accounts in India.
Current Account
A current account is a deposit account for traders, business owners, and entrepreneurs, who need to
make and receive payments more often than others. These accounts hold more liquid deposits with no
limit on the number of transactions per day. Current accounts allow overdraft facility, that is
withdrawing more than what is currently available in the account. Also, unlike savings accounts, where
you earn some interest, these are zero-interest bearing accounts. You need to maintain a minimum
balance to be able to operate current accounts.
Savings Account
A savings bank account is a regular deposit account, where you earn a minimum rate of interest. Here,
the number of transactions you can make each month is capped. Banks offer a variety of Savings
Accounts based on the type of depositor, features of the product, age or purpose of holding the account,
and so on.
There are regular savings accounts, savings accounts for children, senior citizens or women,
institutional savings accounts, family savings accounts, and so many more.
Depositor has the option to pick from a range of savings products. There are zero-balance savings
accounts and also advanced ones with features like auto sweep, debit cards, bill payments and cross-
product benefits.
A cross-product benefit is when a depositors is having a savings account with a bank and get to avail
special offers on opening a second account such as a demat account.
Salary Account
Among the different types of bank accounts, salary account is the one that is opened as per the tie-up
between employer and the bank. This is the account, where salaries of every employee are credited to
at the beginning of the pay cycle. Employees can pick their type of salary account based on the features
they want. The bank, where one has a salary account, also maintains reimbursement accounts; this is
where allowances and reimbursements are credited to.

Fixed Deposit Account

To park funds and earn a decent rate of interest on it, there are different types of accounts like fixed
deposits and recurring deposits.

A fixed deposit (FD) account allows depositors to earn a fixed rate of interest for keeping a certain sum
of money locked in for a given time, that is until the FD matures. FDs range between a maturity period
of seven days to 10 years. The rate of interest depositors earn on FDs will vary depending on the tenure
of the FD. Generally, one cannot withdraw money from an FD before it matures. Some banks offer a
premature withdrawal facility. But in that case, the interest rate earn is lower.

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Recurring Deposit Account

A recurring deposit (RD) has a fixed tenure. One needs to invest a fixed sum of money in it regularly -
- every month or once a quarter -- to earn interest. Unlike FDs, where depositors need to make a lump
sum deposit, the sums need to invest here is smaller and more frequent. Depositors cannot change the
tenure of the RD and the amount to be invested each month or quarter. Even in the case of RDs,
depositors face a penalty in the form of a lower interest rate for premature withdrawal. The maturity
period of an RD could range between six months to 10 years.
NRI Accounts
There are different types of bank accounts for Indians or Indian-origin people living overseas. These
accounts are called overseas accounts. They include two types of savings accounts and fixed deposits -
- NRO or non-resident ordinary and NRE or non-resident external accounts. Banks also offer foreign
currency non-resident fixed deposit accounts. Let us quickly see the various types of bank accounts for
NRIs-
a) Non-resident ordinary (NRO) savings accounts or fixed deposit accounts
NRO accounts are rupee accounts. When NRIs deposit money in these accounts, usually in foreign
currency, it is converted into INR at the prevailing exchange rate. NRIs can park money earned in India
or overseas in NRO bank accounts. Payments like rent, maturities, pension, among others, can be sent
abroad through NRO accounts. The income earned on these deposit accounts is taxed.
b) Non-resident external (NRE) savings accounts or fixed deposit accounts
NRE deposit accounts are similar to NRO accounts and the funds in these accounts are maintained in
INR. Any money deposited into these accounts is converted into INR at prevailing exchange rates. But
these accounts are only for parking your earnings from abroad. The funds, both principal and interest,
are transferable. But the interest earned on these deposit accounts is not taxed in India.
C) Foreign currency non-resident (FCNR) account
As the name suggests and unlike the other two types of bank accounts, FCNR accounts are maintained
in foreign currency. The principal and interest from these accounts are transferable, but the interest
earned is not taxed in India.

Important Terms And Conditions Of Savings Bank Accounts

Savings Deposits
Means a form of demand deposit which is subject to restrictions as to the number of withdrawals as also
the amounts of withdrawals permitted by the Bank during any specified period.

Account Opening:
Savings Bank Deposit accounts can be opened by an individual in his own name or by more than one
individual in their own names. The Bank before opening any deposit account will carry out due
diligence as required under “Know Your Customer” (KYC) guidelines issued by the RBI and/or such
other norms or procedures adopted by the Bank. The due diligence process by the Bank, while opening
a deposit account will involve satisfying about the KYC documents i.e., relating to identity of the
person, verification of address, satisfying about his occupation and source of income. Bank will also
obtain recent photograph of the person/s opening / operating the account as may be necessary. Fresh
documents may be required to be updated periodically as part of KYC monitoring & compliance
activity. In addition to the due diligence requirements, under KYC norms the Bank is required by law
to obtain Permanent Account Number (PAN), or alternatively declaration in Form No. 60 or 61 as
specified under the Income Tax Act/Rules.

Interest:

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Interest shall be calculated on daily product basis and paid at the specified rate as decided by bank from
time to time. Interest will be paid on quarterly basis with a minimum of `1 in any quarter i.e., on the last
day of June, September, December & March every year.

Minimum Balance To Be Maintained:

Customer is required to maintain certain minimum monthly average balance in the account as part of
terms and conditions governing operation of savings accounts which shall be Rs1000 & Rs500 for non-
cheque book accounts and for cheque book operated accounts, the minimum monthly average balance
shall be RS 2500 & Rs 1000 respectively at Metro / Urban and Semi urban /Rural Branches. Savings
Accounts are also opened for Pensioners and Bonafede students with lesser minimum balance. In the
event of a default in maintenance of average minimum monthly balance as agreed to between the bank
and customer, the bank shall notify the customer clearly by SMS/ email/ letter etc. that in the event of
the minimum balance not being restored in the account within a month from the date of notice, penal
charges will be applicable. In case the minimum balance is not restored within a reasonable period,
which shall not be less than one month from the date of notice of shortfall, penal charges shall be
recovered under intimation to the account holder. The penal charges would be directly proportionate
to the extent of shortfall observed. In other words, the charges should be a fixed percentage levied on
the amount of difference between the actual balance maintained and the minimum balance as agreed
upon at the time of opening of account.

Charges For SMS:

SMS would be sent for all mandatory transactions viz., withdrawals through ATM, online transactions
through Internet/Mobile Banking etc. and charges for such SMS shall not be levied. However, where
request is made by customer for SMS above a threshold level for credit/debit transactions by registering
their mobile number with the bank, charge is levied on actual basis collected every month.

Changes In Fees & Charges:

Increase in any fee or charge or introduction of a new fee or charge, will be displayed at the notice board
of the branches, one month prior to the revised charges becoming effective and this information will
also be made available on the Bank’s website.

Operations In Account:
In case of non-cheque book accounts, withdrawals would be permitted only inhome branch, if
accompanied with Passbook. Payment to a third party on the basis of a mandate in a withdrawal slip
shall be made for limited amount only as in vogue from time to time. 50 debit transactions shall be
permitted in the account free of cost per half year. Transactions exceeding the permissible level would
be charged as per the existing service charge in vogue. Debit entries relating to ATM debits/IRCTC
transactions/POS debits/Internet & Mobile transactions shall however not be counted for this purpose.

DICGC Insurance Cover:

Each depositor of the bank is insured up to a maximum of 5,00,000 (Rupees Five Lakh) for both
principal and interest amount held by him in the same right and same capacity as on the date of
liquidation/cancellation of bank's licence or the date on which the scheme of
amalgamation/merger/reconstruction comes into force.

Other Delivery Channels:

ATM card services may be availed for anywhere, anytime, hassle free banking and our Internet banking,
Mobile banking services may be used for banking from the comforts of the customer’s Office/residence.

Issue Of Cheque Books:

Cheques must be drawn on Bank’s printed cheque forms only, supplied by the Bank. The Bank reserves
the right to refuse payment of cheques drawn otherwise. An application for a cheque book must be
made personally in writing on the printed requisition form supplied with each book. MICR cheque

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books will be issued at a cost computed at Rs 4 per cheque leaf after the free entitlement of 1 cheque
book of20 leaves in a calendar year. Personalised cheque book would be issued on receipt of requisition
at branch / online and sent through post to the address available in the Bank records. Operation in cheque
operated accounts would be permitted only through cheque leaf. It is the responsibility of the depositor
to ensure safe custody of the cheque book supplied to him/her and that cheque leaves are not stolen or
mislaid or fraudulently used. Cheques compliant with CTS-2010 standards only are to be used and it
should be ensured that the account has enough funds to honour cheques issued/ ECS mandate given.
Return of cheques in clearing will attract penalty as specified by Bank from time to time. The Bank
may, at its sole discretion, reject any request for issue of more than one cheque book at a time, unless
sufficient reason is shown for such request.

Operation By Cheques:
The Bank reserves to itself the right to refuse payment of cheques which have been altered in any way
unless the alteration is authenticated under the drawer’s full signature. The date, the name of the payee
and the amount on cheques should be written clearly in indelible ink and in such a way as to leave no
space for any subsequent additions or insertions of any other words or figures. Mutilated, post-dated
and irregularly drawn cheques, as also cheques containing extraneous matter, may be refused payment.
The signature of account holder on cheque should be uniform and must agree with the specimen
signature furnished by him/her to the Bank. Post-dated cheques, i.e., cheques bearing a date subsequent
to the date of presentation will not be paid. Cheques presented after the expiry of 3 months from the
date of their issue will be considered as out of date or stale and payment thereof shall be refused. Paid
cheques will not be returned except under special arrangements.
Cheques must be drawn only against funds actually realised and credited to accounts. Under no
circumstances should a customer presume that overdraft facilities will be allowed or drawings passed
against cheques in course of realisation. Charges would be levied for cheques drawn by the customers
on the Bank which are returned unpaid for want of funds when presented in clearing. The Bank follows
a slab structure depending upon the amount of the cheque and the nature of customers viz., Individuals,
non-individuals and Special category of customers viz., Pensioners, Senior Citizens & Individuals in
Rural areas. Details of cheque return charges are available at the branches and also displayed at the
Bank's website. It should also be clearly understood that Cheques issued by the customer which when
passed, would cause a debit balance in the account for whatsoever reason, would be deemed by the
Bank as an implied request and authority by the customer to the Bank to pass the cheques and allow
such a temporary debit/overdraft and the passing of cheques whether at the discretion of the bank or
otherwise or at the request of the customer, resulting in overdrafts in the account should not be construed
as a regular arrangement for an overdraft facility.

Deposits Of Cash And Cheques:

All deposits to Savings Bank accounts should ordinarily be accompanied by paying-in-slips which are
supplied to depositors. Separate paying-in-slips should be used for deposit of a) cash, b) cheques drawn
on the branch where the account is maintained, c) cheques drawn on other local branches of the bank,
d) cheques drawn on local clearing banks, e) cheques on outstation branches/banks and f) Bills and
other collection items. Customers are required to cross cheques deposited for the credit of their accounts
before handing them over for collection. A remittance for credit of an account can be made by letter
under special circumstances. The remitter should indicate the account number and name, for which the
credit is intended. Ordinarily, cheques and other instruments drawn to the order of the Depositor or
payable to bearer alone shall be accepted for collection in the account. Customers may in their own
interest cross such cheques before depositing them in the Bank.

Cheques And Bills For Collection:

All cheques and other instruments tendered for credit should be crossed. Cheques on clearing banks
will be collected in accordance with the rules of the local clearing house. The bank undertakes on behalf
of constituents the collection of cheques, hundies, bills, drafts, salary and pension bills etc. Cheques,
demand drafts, bills etc., payable locally should be sent early in the day, so that, if possible, they may
be collected on the same day. Cheques, drafts etc., on local banks will be collected free of charge. If
instruments taken for collection are dishonoured and returned, the bank does not undertake to give

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notice of such dishonour to the constituent who has tendered the instrument until the succeeding day.
The bank will have the right to debit the account for all items already credited to the account, which are
subsequently returned or remain unpaid. Cheques, drafts etc., tendered for collection and credited to an
account must not be drawn against until they have been realized. It must be distinctly understood that
even though credit entries may have been made in the statement of account, should such credits be made
up wholly or partly of cheques or other instruments under collection, the amounts so made up are not
available for drawing until such cheques and instruments have been actually realized. Under no
circumstances should a customer presume, that drawings will be permitted against cheques in course of
collection. Cheques and drafts and other instruments accepted for collection/ purchased/negotiated by
the Bank will be forwarded for collection to the branches of the bank/another bank at the place at which
the instruments are made payable entirely at the risk and responsibility of the account holder. The bank
will be at liberty to make use of the services of any bank of its choice for collection and the bank so
employed will be the agent for the account holder for the purpose of collection. The bank or the agent
at its option will send for collection the instruments at the sole risk and responsibility of the account
holder by ordinary or registered post at its discretion. The bank will not be responsible for any loss of
the instruments in the course of such transmission. The bank may accept from the agency bank, cash
payment instruments or mandates in exchange of instruments sent for collection, such mandates or
exchange instruments will be collected solely at the risk and responsibility of the account holder.

Loss Of Instruments In Transit:

Customers are requested to send cheques, drafts and other valuable instruments by registered post lest
they may be lost or stolen in transit. The bank will register instructions for stop payment from the
account holder, relating to cheques issued by him and lost, stolen, etc. In case of cheque lost in transit
or in the clearing process or at the paying bank's branch, the bank will intimate the same to the notice
of the customer immediately. The Bank will take care to get the proceeds of the cheques by contacting
the drawee bank / branch and the customer will be informed about the possible delay in realization of
cheques. The Bank will request the customer to obtain duplicate cheques and the bank will reimburse
the reasonable expense incurred in this regard. Also, the Bank will pay interest at the specified rate for
delay/ abnormal delay. Details of interest/charges payable are as follows:
If the intimation of loss of instrument is conveyed to the customer beyond the time limit stipulated for
collection (7/10/14 days as the case may be), interest shall be paid for the period exceeding the stipulated
collection period at the rates specified i.e., Savings Bank rate for the period of delay beyond 7/10/14
days and where the delay is beyond 14 days interest will be paid at the rate applicable to a term deposit
of the respective period. In case of extraordinary delay (i.e., delays exceeding 90 days), interest will be
paid at the rate of 2% above the corresponding Term deposit rate and in addition interest on the amount
of the cheque for a further period of 15 days at Savings Bank rate would be paid to provide for likely
further delay in obtaining a duplicate cheque/instrument and collection thereof. The Bank shall also
compensate the customer for any reasonable charges he/she incurs in getting a duplicate
cheque/instrument upon production of receipt, in the event the instrument is to be obtained from a
bank/institution who would charge a fee for issue of duplicate instrument. In case a cheque/instrument
lost in transit by the bank, charges if any, for recording Stop Order will be borne by the bank. In case
of loss of a cheque which was discounted by the Bank, the charges for obtaining a duplicate may be
borne by the Bank, only on realisation of such duplicate cheque. In case of return, the customer has to
bear the charges in addition to commission, interest on the amount of the cheque and other handling
charges like postages etc.

Inoperative Account:
An account shall be treated as inoperative/dormant if there are no transactions in the account for over a
period of two years. Further, for the purpose of classifying an account as inoperative, both the types of
transactions i.e., debit as well as credit transactions induced at the instance of customers as well as third
party would be considered. The customer would be informed at least three months before the account
is classified as inoperative /dormant and the consequences thereof and Bank would endeavour to send
an SMS/e-mail in this regard. The procedure to be followed foractivation would be informed and no
charge shall be levied merely because an account is inoperative/dormant or for activation of the
inoperative account.

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Standing Instructions:
Standing instructions in the prescribed format would be accepted from account holders desirous of
making payments/remittance of a regular nature such as payment of monthly premium to LIC, monthly
instalment to RD account, transfer to loan Deposits account etc., Such standing instructions shall
continue to hold good until its cancellation by the customer or closure of the account or death of the
customer or insufficiency of balance in the account or for reasons beyond the control of the bank. If a
standing instruction could not be carried out on account of inadequate balance in the account, the
customer would be advised of the fact with a request to maintain sufficient balance. If the account
continues to have insufficient balance the instructions given may be cancelled after giving due notice.

Issue Of Passbook:
A Pass book will be provided by the Bank to Savings Bank Account Holders periodically as per terms
and conditions of opening of the account. Pass book shall be tendered for updation at any branch after
accumulation of sufficient number of entries say 10-15 entries. In case sufficient entries are not
available, the pass book should be updated once in 6 months for getting the interest credit duly recorded.
MICR Code and IFS Code of the branch shall be made available in the passbook. All efforts would be
made to ensure that the entries in the Pass book are brief and intelligible. Unless the constituent notifies
the bank immediately of any discrepancy found byhim / her in his/her Pass book, it will be taken that
he / she has found the entries in the statement of account correct. It is also obligatory on the part of the
constituent that any wrong credit entries found in the Pass book be immediately brought to the
knowledge of the Bank, if it is not done so, then it will be considered as a breach of contract on the part
of the customer and the matter would be dealt with accordingly. Passbook are system generated outputs
and requires no signature. Passbook should be carefully preserved and loss thereof should be
immediately notified.

Duplicate Passbook:
If the pass book is mislaid or lost, duplicate pass book, will be supplied on request by the constituent at
prescribed charges with latest entry. Additional charges as has been laid down proportionate to the
copying work will be collected, if a copy of the account for an earlier period is required. Account holder
should carefully examine the entries in the passbook and draw the bank's attention to errors/omissions,
discrepancies/ unauthorized/ wrong entries. The customer would be bound by the entries if the bank
does not hear from him within a reasonable time after receiving the passbook. Silence of the customer
would stop him from contesting the entries subsequently. However, in exceptional situations where
entries are manually made in the passbooks in computerized branches, such entries should be valid,
only if authorized by an official of the branch. The bank will not be responsible for any entries not
authenticated under the initials of its authorized official.

Loss Of Cheque Book/Pass Book/ATM/Debit Card:

In the event of the cheque book, passbook or ATM/Debit card being lost or stolen or the PIN or other
security information being known to someone else, the same is to be intimated to us as soon as possible
by phone at our 24-hour toll-free number and a written confirmation to that effect be sent immediately.
Alternatively, the loss may also be advised through e-mail. Necessary steps should also be taken to
change PIN/Password if someone else knows them.

Closure Of Accounts:
If not satisfied, the account can be closed and refund sought for balances lying in the account up to 14
days from the date of first payment in the account without any penalty. After that, up to a period of one
year from the date of first transaction, bank will charge closure charge as specified from time to
time.Under normal circumstances, account shall not be closed without giving at least 30 days’ notice
indicating the reasons for such closure. In such cases, the customer shall be required to make alternate
arrangements for cheques already issued and desist from issuing any fresh cheques on such account.

Transfer Of Accounts:
Transfer of account to another branch of our bank shall be done within 3 (three) working days without
insisting on fresh proof of address and on the basis of a self-declaration regarding current address. Upon

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receipt of request, the account would be transferred to the transferee branch and documentary proof of
the address need to be produced at the transferee branch within a period of six months.

Nomination Facility:
Nomination facility is available to the account holder. Nomination can be made at the time of opening
of account or subsequently. It can also be cancelled / varied. At the time of opening of the account, the
account holder has to specifically instruct the bank to that effect if nomination is not required. Similarly,
request should be made in case the name of the nominee is to be made available in the Passbook.
Nomination shall be in favour of an individual only. Nomination can be made only in respect of deposit
account held by individual (s) / sole proprietary concern. If the proprietary concern undergoes a change
in constitution, the nomination made will stand cancelled.

Accounts Of Deceased Parties:

Individuals can avail nomination facility. Appropriate forms for filing nomination (DA-1), cancellation
(DA-2) and variation (DA-3) are provided on request. In respect of deceased depositors’ accounts, the
legal heirs/representatives will be allowed to operate the account, on recognition of the claim by the
bank. ‘Basic Savings Bank Deposit Account’ (BSBD Account) and small account can be opened
without the requirement of any minimum balance.

Basic Savings Bank Deposit Account (Bsbda):

The account would be subject to RBI instructions on Know Your Customers (KYC)/Anti Money
Laundering (AML) for opening of bank accounts, issued from time to time. Holders of 'Basic Savings
Bank Deposit Account' will not be eligible for opening anyother savings bank account in that bank. If
a customer has any other existing savings bank account in that bank, he / she will be required to close
it within 30 days from the date of opening a 'Basic Savings Bank Deposit Account'. Transaction charges
of a6 will be levied for beyond 4 withdrawals in a month. The account shall have limitation regarding
total credits (should not exceed one lakh rupees in a year), Maximum balance (should not exceed fifty
thousand rupees at any time) and the total of debits by way of cash withdrawals and transfers (will not
exceed ten thousand rupees in a month).

Small Account:
Small account can be opened by those persons who do not have any of the “Officially valid documents”
viz., Passport, driving licence, Voters’ ID card, PAN card, Aadhaar letter issued by UIDAI and Job card
issued by NREGA signed by a State Government Official and to be notified from time to time. Such an
account can be opened on the basis of a self-attested photograph and by putting the signature or thumb
print of the person in the presence of an official of the bank. The accounts would have limitation
regarding the aggregate credits (not more than Rupees One lakh in a year), aggregate withdrawals (not
more than Rupees ten thousand in a month) and balance in the accounts (not more than fifty thousand
at any point of time).These accounts would be valid normally for a period of twelve months and
thereafter such accounts would be allowed to continue for a further period of twelve more months, if
the account holder provides a document showing that she/he has applied for any ofthe officially valid
document within twelve months of the opening of the small account. Specific charges for issue of
cheque books, duplicate passbook, copies of paid cheques, folio charges, debit card, ATM card,
verification of signature, return of cheque, change in mandate or style of account, closure of account
and other applicable charges shall be included in the Tariff Schedule and displayed in Bank’s website.

Obligation Of Account Holders:

To prevent forgery, fraud etc., account holders should observe safe guards viz Count the number of
leaves in the cheque books issued to them and draw the attention of the bank, if any cheque is found
missing therein. Keep the cheque books in a place of safety under lock & key. Fill in the date, the name
of the payee (in case of cheques) and the amount clearly in indelible ink and in such a way as to leave
no scope for any subsequent additions or insertions of any other words or figures. Strictly avoid giving
signed blank cheques and not to allow the use of any cheque leaf from their cheque books by other
persons and to confine the use of a cheque book to drawings only on the account for which it is issued.
Use carbon paper when writing cheques, so that the impression of writing is made on the back side of

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the cheque. Cross the cheque unless cash payment is required. Crossing should be done in such a way
that the crossing runs the whole width of the cheque. A furtherance of safeguardwill be to include the
words “Not Negotiable” along with the crossing. See that their signatures correspond exactly with the
specimen supplied to the Bank. Authenticate under their full signatures for all alterations in the cheque
or withdrawal slips. The cheques with alterations/ corrections other than date are not accepted for
presentment in Cheque Truncation System (CTS).

Unremunerative/Undesirable Accounts:
There may be cases where it is desirable for the Bank to close the customer’s accounts, either for the
reason that it is unremunerative or that the operations are undesirable. In the following instances the
account would be treated as unremunerative or undesirable. The balance quite often falls below the
stipulated minimum balance. Meagre average balance is maintained and advantage of the bank’s
remittance facilities is availed with no benefit to the bank by way of deposits and/or other remunerative
business. Small average balance is maintained in which small denomination notes or small coins are
excessively tendered. Very heavy operations not commensurate with the balance maintained.

Cheques are drawn without provision/arrangement having been made for funds to cover them and the
cheques have to be returned frequently.
Small average balance is maintained with heavy operations and the accounts where frequent requests
are received for drawl against uncleared effects without a sanctioned limit.

Right To Alter Rules:

The bank reserves the right to alter or add to these rules at any time without giving separate notice to
each account holder. An announcement of the change of the rules put up on the notice board of the Bank
will be considered as sufficient notice. A person having opened a Savings Bank Account shall be
deemed to have read, understood and agreed to be bound by the rules as now subsisting or as at any
time altered or added to. The depositor/s shall inform the Bank in writing in the event of change in
Resident status under Foreign Exchange Management Act.

Term Deposits:
Deposit received by the Bank for a fixed period withdrawable only after the expiry of the said fixed
period and include deposits such as Recurring Deposits/ Short Term Deposits / Fixed Deposits / Money
multiplier deposit etc. Term Deposit accounts can be opened by an individual in his own name or by
more than one individual in their own names. A depositor desirous of opening an account with the Bank
should complete the relative account opening form/card in all respects with full name(s) and specimen
signature(s) at appropriate places. The prospective account holder should normally be required to fill in
the account opening form in the presence of a bank’s official.

Resident Foreign Currency Account for Returning Indians

Account can be opened by returning Indians i.e., those Indians who were non-residents earlier, and are
returning now for permanent stay.

Salient Features
Account held in foreign currency.RFC deposits are accepted in USD, GBP, SGD, Euro, Australian
Dollar, Canadian Dollar, JPY and CHF. Account can be opened by transfer of NRE/FCNR funds or by
remitting foreign currency notes or travellers’ cheques. Foreign currency assets held outside India and
brought to India at the time of returning for permanent stay can be credited to RFC account. Foreign
currency received as pension or any other superannuation or other monetary benefits from the employer
outside India can be credited to RFC account. Foreign currency received or acquired when a person was
resident outside India as gift or inheritance from a person resident outside India can be credited to RFC
account.

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Opening of Current Accounts and CC/OD Accounts by Banks

The CC/ OD can be opened with all Scheduled Commercial Banks, Cooperative Banks and all Payments
Banks

Procedure For Penning Of Cash Credit/ Overdraft Facilities

For availing CC/OD facility, the bank can provide such facilities without any restrictions if the
aggregate exposure of the banking system to that borrower is less than Rs 5 crore. However, the bank
is required to obtain an undertaking from such borrowers that they (the borrowers) shall inform the
bank(s), if and when the credit facilities availed by them from the banking system becomes Rs5 crore
or more. For borrowers, where the aggregate exposure of the banking system is Rs 5 crore or more.
Banks having a share of 10 per cent or more in the aggregate exposure of the banking system to such
borrower can provide CC/OD facility without any restrictions placed vide this circular. In case none of
the banks has at least 10 per cent exposure, bank having the highest exposure among CC/OD providing
banks can provide such facility without any restrictions.

A bank’s exposure to a borrower is less than 10 per cent of the aggregate exposure of the banking
system to that borrower, while credits are freely permitted, debits to the CC/OD account can only be
for credit to the CC/OD account of that borrower with a bank that has 10 per cent or more of aggregate
exposure of the banking system to that borrower. Funds will be remitted from these accounts to the said
transferee CC/OD account at the frequency agreed between the bank and the borrower. Further, the
credit balances in such collection accounts shall not be used for repayment of any credit facilities
provided by the bank, or as collateral/ margin for availing any fund or non-fund-based credit facilities.
However, banks are permitted to debit interest/ charges pertaining to the said CC/OD account and other
fees/ charges before transferring the funds to the CC/OD account of the borrower with bank(s) having
10 per cent or more of the aggregate exposure. It may be noted that banks with exposure to the borrower
of less than 10 per cent of the aggregate exposure of the banking system can offer working capital
demand loan (WCDL)/ working capital term loan (WCTL) facility to the borrower. In case there is
more than one bank having 10 per cent or more of the aggregate exposure, the bank to which the funds
are to be remitted may be decided mutually between the borrower and the banks.

Know Your Customer (KYC)

Know your customers refer to the process of verifying the identity of customers to prevent fraud and
money laundering. The KYC is required to open bank account, apply of loan and availing other financial
services. To comply with the norms of KYC person is required to provide documents viz Identity proof,
Address proof, Income proof. The identity proof and address proof include Aadhar card, Driving
License, Passport, Job Card, Voter Identity Card, National Population Register Card. In the absence of
address proof a person can provide electric bill, gas bill, water bill etc. While complying KYC norms,
person is required to provide Income Tax returns for last two years. In banking sector the individual
bank is required to formulate a policy containing Customer Acceptance Policy, Risk Management,
Customer Identification Procedures (CIP) and Monitoring of Transactions

Money Laundering And Terrorist Financing Risk Assessment

Bank are required to carry out ‘Money Laundering (ML) and Terrorist Financing (TF) Risk Assessment’
exercise periodically to identify, assess and take effective measures to mitigate its money laundering
and terrorist financing risk for clients, countries or geographic areas, products, services, transactions or
delivery channels, etc. The assessment process should consider all the relevant risk factors before
determining the level of overall risk and the appropriate level and type of mitigation to be applied.

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While preparing the internal risk assessment, bank must take cognizance of the overall sector-specific
vulnerabilities, if any, that the regulator/supervisor may share with REs from time to time.

The risk assessment by the bank shall be properly documented and be proportionate to the nature, size,
geographical presence, complexity of activities/structure, etc. of the RE. Further, the periodicity of risk
assessment exercise shall be determined by the Board or any committee of the Board of the RE to which
power in this regard has been delegated, in alignment with the outcome of the risk assessment exercise.
However, it should be reviewed at least annually. The outcome of the exercise shall be put up to the
Board or any committee of the Board to which power in this regard has been delegated, and should be
available to competent authorities and self-regulating bodies. Bank shall apply a Risk Based Approach
(RBA) for mitigation and management of the risks (identified on their own or through national risk
assessment) and should have Board approved policies, controls and procedures in this regard. REs shall
implement a CDD programme, having regard to the ML/TF risks identified and the size of business.
Further, REs shall monitor the implementation of the controls and enhance them if necessary.

Customer Acceptance Policy

Bank shall frame a Customer Acceptance Policy. In customer acceptance policy it should contain that
no account is opened in anonymous or fictitious/benami name. It appropriate due diligence measure is
not applied by the bank or due to non-cooperation of the customer or non-reliability of the
documents/information furnished by the customer. The bank shall consider filing a Suspicious
Transaction Report, if necessary, when it is unable to comply with the relevant CDD measures in
relation to the customer. No transaction or account-based relationship is undertaken without following
the CDD procedure. The mandatory information to be sought for KYC purpose while opening an
account and during the periodic updation, is specified. Additional information, where such information
requirement has not been specified in the internal KYC Policy of the RE, is obtained with the explicit
consent of the customer.

Bank shall apply the CDD procedure at the UCIC level. Thus, if an existing KYC compliant customer
of a bank desires to open another account with the same bank, there shall be no need for a fresh CDD
exercise.CDD Procedure is followed for all the joint account holders, while opening a joint account.
Circumstances in which, a customer is permitted to act on behalf of another person/entity, is clearly
spelt out. Where Permanent Account Number (PAN) is obtained, the same shall be verified from the
verification facility of the issuing authority. Where an equivalent e-document is obtained from the
customer, bank shall verify the digital signature. In case Goods and Services Tax (GST) details are
available, the GST number shall be verified from the search/verification facility of the issuing authority.
However, Customer Acceptance Policy shall not result in denial of banking/financial facility to
members of the general public, especially those, who are financially or socially disadvantaged. Bank
forms a suspicion of money laundering or terrorist financing, and it reasonably believes that performing
the CDD process will tip-off the customer, it shall not pursue the CDD process, and instead file an STR
with FIU-IND.

Risk Management

For Risk Management, bank shall have a risk-based approach which includes the Customers shall be
categorised as low, medium and high-risk category, based on the assessment and risk perception of the
bank. Broad principles may be laid down by the bank for risk-categorisation of customers. Risk
categorisation shall be undertaken based on parameters such as customer’s identity, social/financial
status, nature of business activity, and information about the customer’s business and their location,
geographical risk covering customers as well as transactions, type of products/services offered, delivery
channel used for delivery of products/services, types of transaction undertaken – cash, cheque/monetary
instruments, wire transfers, forex transactions, etc. While considering customer’s identity, the ability to
confirm identity documents through online or other services offered by issuing authorities may also be
factored in. The risk categorisation of a customer and the specific reasons for such categorisation shall
be kept confidential and shall not be revealed to the customer to avoid tipping off the customer. Provided

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that various other information collected from different categories of customers relating to the perceived
risk, is non-intrusive and the same is specified in the KYC policy.

Customer Identification Procedure (CIP)

Customer Identification Procedure is required while carrying out any international money transfer
operations for a person who is not an account holder of the bank, when there is a doubt about the
authenticity or adequacy of the customer identification data it has obtained, selling third party products
as agents, selling their own products, payment of dues of credit cards/sale and reloading of
prepaid/travel cards and any other product for more than rupees fifty thousand. In case of carrying out
transactions for a non-account-based customer, that is a walk-in customer, where the amount involved
is equal to or exceeds rupees fifty thousand, whether conducted as a single transaction or several
transactions that appear to be connected. When bank has reason to believe that a customer (account-
based or walk-in) is intentionally structuring a transaction into a series of transactions below the
threshold of rupees fifty thousand.

For the purpose of verifying the identity of customers at the time of commencement of an account-
based relationship, bank may rely on customer due diligence done by a third party, subject to the
following conditions:

Records or the information of the customer due diligence carried out by the third party is obtained
immediately from the third party or from the Central KYC Records Registry.

Adequate steps are taken by REs to satisfy themselves that copies of identification data and other
relevant documentation relating to the customer due diligence requirements shall be made available
from the third party upon request without delay.

The third party is regulated, supervised or monitored for, and has measures in place for, compliance
with customer due diligence and record-keeping requirements in line with the requirements and
obligations under the PML Act.

The third party shall not be based in a country or jurisdiction assessed as high risk.

The ultimate responsibility for customer due diligence and undertaking enhanced due diligence
measures, as applicable, will be with the bank.

Customer Due Diligence (CDD) Procedure

Customer Due Diligence (CDD) Procedure in case of Individuals undertaking CDD, bank shall obtain
the following from an individual while establishing an account-based relationship or while dealing with
the individual who is a beneficial owner, authorised signatory or the power of attorney holder related
to any legal entity:

(a) the Aadhaar number were, he is desirous of receiving any benefit or subsidy under any scheme or
he decides to submit his Aadhaar number voluntarily to a bank or any bank notified under first proviso
to sub-section (1) of section 11A of the PML Act or the proof of possession of Aadhaar number where
offline verification can be carried out or the proof of possession of Aadhaar number where offline
verification cannot be carried out or any OVD or the equivalent e-document thereof containing the
details of his identity and address; or the KYC Identifier with an explicit consent to download records
from CKYCR.

(b) The Permanent Account Number or the equivalent e-document thereof or Form No. 60 as defined
in Income-tax Rules, 1962 and such other documents including in respect of the nature of business and
financial status of the customer, or the equivalent e-documents thereof as may be required by the bank.
where the customer has submitted Aadhaar number to a bank shall carry out authentication of the

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customer’s Aadhaar number using e-KYC authentication facility provided by the Unique Identification
Authority of India. Further, in such a case, if customer wants to provide a current address, different
from the address as per the identity information available in the Central Identities Data Repository, he
may give a self-declaration to that effect to the bank.
i. proof of possession of Aadhaar under clause (aa) above where offline verification can be carried
out, the bank shall carry out offline verification.
ii. an equivalent e-document of any OVD, the bank shall verify the digital signature as per the
provisions of the Information Technology Act, 2000.
iii. any OVD or proof of possession of Aadhaar number under clause (ab) above where offline
verification cannot be carried out, the RE shall carry out verification through digital KYC.
iv. KYC Identifier under above, the bank shall retrieve the KYC records online from the CKYCR.

Accounts opened using Aadhaar OTP based e-KYC, in non-face-to-face mode, are subject to the
following conditions:

There must be a specific consent from the customer for authentication through OTP.

As a risk-mitigating measure for such accounts, bank shall ensure that transaction alerts, OTP, etc., are
sent only to the mobile number of the customer registered with Aadhaar. Bank shall have a board
approved policy delineating a robust process of due diligence for dealing with requests for change of
mobile number in such accounts. The aggregate balance of all the deposit accounts of the customer shall
not exceed rupees one lakh. In case, the balance exceeds the threshold, the account shall cease to be
operational, till CDD is complete. The aggregate of all credits in a financial year, in all the deposit
accounts taken together, shall not exceed rupees two lakh. As regards borrowal accounts, only term
loans shall be sanctioned. The aggregate amount of term loans sanctioned shall not exceed rupees sixty
thousand in a year.

Accounts, both deposit and borrowal, opened using OTP based e-KYC shall not be allowed for more
than one year unless identification (V-CIP) is carried out. If Aadhaar details are used the process shall
be followed in its entirety including fresh Aadhaar OTP authentication. If the CDD procedure as
mentioned above is not completed within a year, in respect of deposit accounts, the same shall be closed
immediately. In respect of borrowal accounts no further debits shall be allowed. A declaration shall be
obtained from the customer to the effect that no other account has been opened nor will be opened using
OTP based KYC in non-face-to-face mode with any other banks. Further, while uploading KYC
information to CKYCR, banks shall clearly indicate that such accounts are opened using OTP based e-
KYC and other REs shall not open accounts based on the KYC information of accounts opened with
OTP based e-KYC procedure in non-face-to-face mode. Banks shall have strict monitoring procedures
including systems to generate alerts in case of any non-compliance/violation, to ensure compliance with
the above-mentioned conditions.

V-CIP

CDD in case of new customer on-boarding for individual customers, proprietor in case of proprietorship
firm, authorised signatories and Beneficial Owners (BOs) in case of Legal Entity (LE) customers.
Provided that in case of CDD of a proprietorship firm, banks shall also obtain the equivalent e-document
of the activity proofs with respect to the proprietorship firm, apart from undertaking CDD of the
proprietor. banks opting to undertake V-CIP, shall adhere to the following minimum standards:

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V-CIP Infrastructure

The bank should have complied with the RBI guidelines on minimum baseline cyber security and
resilience framework for banks, as updated from time to time as well as other general guidelines on IT
risks. The technology infrastructure should be housed in own premises of the bank and the V-CIP
connection and interaction shall necessarily originate from its own secured network domain. Any
technology related outsourcing for the process should be compliant with relevant RBI guidelines. Where
cloud deployment model is used, it shall be ensured that the ownership of data in such model rests with
the bank only and all the data including video recording is transferred to the bank’s exclusively owned
/ leased server(s) including cloud server, if any, immediately after the V-CIP process is completed and
no data shall be retained by the cloud service provider or third-party technology provider assisting the
V-CIP of the bank. The bank shall ensure end-to-end encryption of data between customer device and
the hosting point of the V-CIP application, as per appropriate encryption standards. The customer
consent should be recorded in an auditable and alteration proof manner. The V-CIP infrastructure /
application should be capable of preventing connection from IP addresses outside India or from spoofed
IP addresses. The video recordings should contain the live GPS co-ordinates (geo-tagging) of the
customer undertaking the V-CIP and date-time stamp. The quality of the live video in the V-CIP shall
be adequate to allow identification of the customer beyond doubt.

The application shall have components with face liveness / spoof detection as well as face matching
technology with high degree of accuracy, even though the ultimate responsibility of any customer
identification rests with the bank. Appropriate artificial intelligence (AI) technology can be used to
ensure that the V-CIP is robust. Detected / attempted / ‘near-miss’ cases of forged identity, the
technology infrastructure including application software as well as work flows shall be regularly
upgraded. Any detected case of forged identity through V-CIP shall be reported as a cyber event under
extant regulatory guidelines. The V-CIP infrastructure shall undergo necessary tests such as
Vulnerability Assessment, Penetration testing and a Security Audit to ensure its robustness and end-to-
end encryption capabilities. Any critical gap reported under this process shall be mitigated before rolling
out its implementation. Such tests should be conducted by the empanelled auditors of Indian Computer
Emergency Response Team (CERT-In). Such tests should also be carried out periodically in
conformance to internal / regulatory guidelines. The V-CIP application software and relevant APIs /
webservices shall also undergo appropriate testing of functional, performance, maintenance strength
before being used in live environment. Only after closure of any critical gap found during such tests,
the application should be rolled out. Such tests shall also be carried out periodically in conformity with
internal/ regulatory guidelines.

V- CIP Procedure

Each banks hall formulate a clear work flow and standard operating procedure for V-CIP and ensure
adherence to it. The V-CIP process shall be operated only by officials of the bank specially trained for
this purpose. The official should be capable to carry out liveness check and detect any other fraudulent
manipulation or suspicious conduct of the customer and act upon it. Disruption of any sort including
pausing of video, reconnecting calls, etc., should not result in creation of multiple video files. If pause
or disruption is not leading to the creation of multiple files, then there is no need to initiate a fresh
session by the bank. However, in case of call drop / disconnection, fresh session shall be initiated. The
sequence and/or type of questions, including those indicating the liveness of the interaction, during
video interactions shall be varied in order to establish that the interactions are real-time and not pre-
recorded. Any prompting observed at end of customer shall lead to rejection of the account opening
process. The fact of the V-CIP customer being an existing or new customer, or if it relates to a case
rejected earlier or if the name appearing in some negative list should be factored in at appropriate stage
of work-flow. The authorised official of the bank performing the V-CIP shall record audio-video as
well as capture photograph of the customer present for identification and obtain the identification
information using any one of the following:

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OTP based Aadhaar e-KYC authentication

Offline Verification of Aadhaar for identification KYC records downloaded from CKYCR, using the
KYC identifier provided by the customer, equivalent e-document of Officially Valid Documents
(OVDs) including documents issued through Digi Locker bank shall ensure to redact or blackout the
Aadhaar number .In case of offline verification of Aadhaar using XML file or Aadhaar Secure QR
Code, it shall be ensured that the XML file or QR code generation date is not older than three working
days from the date of carrying out V-CIP. If the address of the customer is different from that indicated
in the OVD, suitable records of the current address shall be captured, as per the existing requirement. It
shall be ensured that the economic and financial profile/information submitted by the customer is also
confirmed from the customer undertaking the V-CIP in a suitable manner. Bank shall capture a clear
image of PAN card to be displayed by the customer during the process, except in cases where e-PAN
is provided by the customer. The PAN details shall be verified from the database of the issuing authority
including through DigiLocker. Use of printed copy of equivalent e-document including e-PAN is not
valid for the V-CIP. The authorised official of the RE shall ensure that photograph of the customer in
the Aadhaar/OVD and PAN/e-PAN matches with the customer undertaking the V-CIP and the
identification details in Aadhaar/OVD and PAN/e-PAN shall match with the details provided by the
customer. Assisted V-CIP shall be permissible when banks take help of Business Correspondents (BCs)
facilitating the process only at the customer end. Banks shall maintain the details of the BC assisting
the customer, where services of BCs are utilized. The ultimate responsibility for customer due diligence
will be with the bank. All accounts opened through V-CIP shall be made operational only after being
subject to concurrent audit, to ensure the integrity of process and its acceptability of the outcome. All
matters not specified under the paragraph but required under other statutes such as the Information
Technology (IT) Act shall be appropriately complied with by the bank. V-CIP Records and Data
Management The entire data and recordings of V-CIP shall be stored in a system / system located in
India. REs shall ensure that the video recording is stored in a safe and secure manner and bears the date
and time stamp that affords easy historical data search. The extant instructions on record management,
as stipulated in this MD, shall also be applicable for V-CIP. The activity log along with the credentials
of the official performing the V-CIP shall be preserved.

CDD Measures For Sole Proprietary Firms

For opening an account in the name of a sole proprietary firm, CDD of the individual (proprietor) shall
be carried out. In addition to the above, any two of the documents or the equivalent e-documents i.e., a
proof of business/ activity in the name of the proprietary firm shall also be obtained. Registration
certificate including Udyam Registration Certificate (URC) issued by the Government,
Certificate/licence issued by the municipal authorities under Shop and Establishment Act Sales and
income tax returns CST/VAT/ GST certificate Certificate/registration document issued by Sales
Tax/Service Tax/Professional Tax authorities. IEC (Importer Exporter Code) issued to the proprietary
concern by the office of DGFT or Licence/certificate of practice issued in the name of the proprietary
concern by any professional body incorporated under a statute. Complete Income Tax Return (not just
the acknowledgement) in the name of the sole proprietor where the firm's income is reflected, duly
authenticated/acknowledged by the Income Tax authorities. Utility bills such as electricity, water,
landline telephone bills, etc. In cases where the banks are satisfied that it is not possible to furnish two
such documents, banks may, at their discretion, accept only one of those documents as proof of
business/activity.

CDD Measures For Legal Entities

For opening an account of a company, certified copies of each of the following documents or the
equivalent e-documents thereof shall be obtained:

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Certificate of incorporation, Memorandum and Articles of Association, Permanent Account Number of
the company, a resolution from the Board of Directors and power of attorney granted to its managers,
officers or employees to transact on its behalf, Documents, as specified in relating to beneficial owner,
the managers, officers or employees, as the case may be, holding an attorney to transact on the
company’s behalf the names of the relevant persons holding senior management position; and the
registered office and the principal place of its business, if it is different.

For opening an account of a partnership firm, the certified copies of each of the following documents
or the equivalent e-documents thereof shall be obtained:
 Registration certificate
 Partnership deed
 Permanent Account Number of the partnership firm
For opening an account of a trust, certified copies of each of the following documents or the equivalent
e-documents thereof shall be obtained:
 Registration certificate
 Trust deed
 Permanent Account Number or Form No.60 of the trust
Documents specified in relating to beneficial owner, managers, officers or employees, as the case may
be, holding an attorney to transact on its behalfthe names of the beneficiaries, trustees, settlor, protector,
if any and authors of the trustthe address of the registered office of the trust; and list of trustees and
documents, as specified in Section 16, for those discharging the role as trustee and authorised to transact
on behalf of the trust. For opening an account of an unincorporated association or a body of individuals,
certified copies of each of the following documents or the equivalent e-documents thereof shall be
obtained:

Resolution of the managing body of such association or body of individuals. Permanent Account
Number or Form No. 60 of the unincorporated association or a body of individuals. Power of attorney
granted to transact on its behalf

Documents, as specified in Section 16, relating to beneficial owner, managers, officers or employees,
as the case may be, holding an attorney to transact on its behalf and Such information as may be required
by the banks to collectively establish the legal existence of such an association or body of individuals.
For opening account of a customer who is a juridical person (not specifically covered in the earlier part)
such as societies, universities and local bodies like village panchayats, etc., or who purports to act on
behalf of such juridical person or individual or trust, certified copies of the following documents or the
equivalent e-documents thereof shall be obtained and verified: Document showing name of the person
authorised to act on behalf of the entity. Documents, as specified in Section 16, of the person holding
an attorney to transact on its behalf and such documents as may be required by the RE to establish the
legal existence of such an entity/juridical person.

Identification Of Beneficial Owner

For opening an account of a Legal Person who is not a natural person, the beneficial owner(s) shall be
identified and all reasonable steps in terms of sub-rule (3) of Rule 9 of the Rules to verify his/her identity
shall be undertaken keeping in view the following:

Where the customer or the owner of the controlling interest is (i) an entity listed on a stock exchange in
India, or (ii) it is an entity resident in jurisdictions notified by the Central Government and listed on
stock exchanges in such jurisdictions, or (iii) it is a subsidiary of such listed entities; it is not necessary
to identify and verify the identity of any shareholder or beneficial owner of such entities. In cases of
trust/nominee or fiduciary accounts whether the customer is acting on behalf of another person as

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trustee/nominee or any other intermediary is determined. In such cases, satisfactory evidence of the
identity of the intermediaries and of the persons on whose behalf they are acting, as also details of the
nature of the trust or other arrangements in place shall be obtained.

Updation / Periodic Updation Of KYC

Banks shall adopt a risk-based approach for periodic updation of KYC ensuring that the information or
data collected under CDD is kept up-to-date and relevant, particularly where there is high risk.
However, periodic updation shall be carried out at least once in every two years for high-risk customers,
once in every eight years for medium risk customers and once in every ten years for low-risk customers
from the date of opening of the account / last KYC updation. Policy in this regard shall be documented
as part of Banks’ internal KYC policy duly approved by the Board of Directors of REs or any committee
of the Board to which power has been delegated.

Individuals:

No change in KYC information: In case of no change in the KYC information, a self-declaration from
the customer in this regard shall be obtained through customer’s email-id registered with the bank,
customer’s mobile number registered with the RE, ATMs, digital channels (such as online banking /
internet banking, mobile application of bank), letter, etc. Change in address: In case of a change only
in the address details of the customer, a self-declaration of the new address shall be obtained from the
customer through customer’s email-id registered with the bank, customer’s mobile number registered
with the bank, ATMs, digital channels (such as online banking / internet banking, mobile application
of bank), letter, etc., and the declared address shall be verified through positive confirmation within two
months, by means such as address verification letter, contact point verification, deliverables, etc.
Further, banks, at their option, may obtain a copy of OVD or deemed OVD, or the equivalent e-
documents for the purpose of proof of address, declared by the customer at the time of periodic updation.
Such requirement, however, shall be clearly specified by the banks in their internal KYC policy duly
approved by the Board of Directors of banks or any committee of the Board to which power has been
delegated.

Accounts of customers, who were minor at the time of opening account, on their becoming major: In
case of customers for whom account was opened when they were minor, fresh photographs shall be
obtained on their becoming a major and at that time it shall be ensured that CDD documents as per the
current CDD standards are available with the REs. Wherever required, REs may carry out fresh KYC
of such customers i.e., customers for whom account was opened when they were minor, on their
becoming a major. Aadhaar OTP based e-KYC in non-face to face mode may be used for periodic
updation. To clarify, conditions stipulated in Section 17 are not applicable in case of updation / periodic
updation of KYC through Aadhaar OTP based e-KYC in non-face to face mode. Declaration of current
address, if the current address is different from the address in Aadhaar, shall not require positive
confirmation in this case. REs shall ensure that the mobile number for Aadhaar authentication is same
as the one available with them in the customer’s profile, in order to prevent any fraud.

Customers Other Than Individuals:

No change in KYC information: In case of no change in the KYC information of the LE customer, a
self-declaration in this regard shall be obtained from the LE customer through its email id registered
with the bank, ATMs, digital channels (such as online banking / internet banking, mobile application
of bank), letter from an official authorized by the LE in this regard, board resolution, etc. Further, REs
shall ensure during this process that Beneficial Ownership (BO) information available with them is
accurate and shall update the same, if required, to keep it as up-to-date as possible.

Change in KYC information: In case of change in KYC information, bank shall undertake the KYC
process equivalent to that applicable for on-boarding a new LE customer. In addition to the above,
banks shall ensure that, the KYC documents of the customer as per the current CDD standards are

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available with them. This is applicable even if there is no change in customer information but the
documents available with the banks are not as per the current CDD standards. Further, in case the
validity of the CDD documents available with the bank has expired at the time of periodic updation of
KYC, bank shall undertake the KYC process equivalent to that applicable for on-boarding a new
customer. Customer’s PAN details, if available with the bank, is verified from the database of the
issuing authority at the time of periodic updation of KYC. Acknowledgment is provided to the customer
mentioning the date of receipt of the relevant document(s), including self-declaration from the
customer, for carrying out periodic updation. Further, it shall be ensured that the information /
documents obtained from the customers at the time of periodic updation of KYC are promptly updated
in the records / database of the banks and an intimation, mentioning the date of updation of KYC details,
is provided to the customer. In order to ensure customer convenience, banks may consider making
available the facility of periodic updation of KYC at any branch, in terms of their internal KYC policy
duly approved by the Board of Directors of banks or any committee of the Board to which power has
been delegated. Banks are required to adopt a risk-based approach with respect to periodic updation of
KYC. Any additional and exceptional measures, which otherwise are not mandated under the above
instructions, adopted by the REs such as requirement of obtaining recent photograph, requirement of
physical presence of the customer, requirement of periodic updation of KYC only in the branch of the
RE where account is maintained, a more frequent periodicity of KYC updation than the minimum
specified periodicity etc., shall be clearly specified in the internal KYC policy duly approved by the
Board of Directors of REs or any committee of the Board to which power has been delegated. Banks
shall advise the customers that in order to comply with the PML Rules, in case of any update in the
documents submitted by the customer at the time of establishment of business relationship / account-
based relationship and thereafter, as necessary; customers shall submit to the REs the update of such
documents. This shall be done within 30 days of the update to the documents for the purpose of updating
the records at banks’ end. In case of existing customers, bank shall obtain the Permanent Account
Number or equivalent e-document thereof or Form No. 60, by such date as may be notified by the
Central Government, failing which bank shall temporarily cease operations in the account till the time
the Permanent Account Number or equivalent e-documents thereof or Form No. 60 is submitted by the
customer.

Enhanced Due Diligence

Onboarding non-face-to-face facilitates the banks to establish relationship with the customer without
meeting the customer physically or through V-CIP. Such non-face-to-face modes for the purpose of this
Section includes use of digital channels such as CKYCR, Digi Locker, equivalent e-document, etc., and
non-digital modes such as obtaining copy of OVD certified by additional certifying authorities as
allowed for NRIs and PIOs. Following EDD measures shall be undertaken by banks for non-face-to-
face customer onboarding. In case bank has introduced the process of V-CIP, the same shall be provided
as the first option to the customer for remote onboarding. It is reiterated that processes complying with
prescribed standards and procedures for V-CIP shall be treated on par with face-to-face CIP for the
purpose of this Master Direction. In order to prevent frauds, alternate mobile numbers shall not be
linked post CDD with such accounts for transaction OTP, transaction updates, etc. Transactions shall
be permitted only from the mobile number used for account opening. Bank shall have a Board approved
policy delineating a robust process of due diligence for dealing with requests for change of registered
mobile number. Apart from obtaining the current address proof, bank shall verify the current address
through positive confirmation before allowing operations in the account. Positive confirmation may be
carried out by means such as address verification letter, contact point verification, deliverables, etc.
Bank shall obtain PAN from the customer and the PAN shall be verified from the verification facility
of the issuing authority. First transaction in such accounts shall be a credit from existing KYC-complied
bank account of the customer. Such customers shall be categorized as high-risk customers and accounts
opened in non-face to face mode shall be subjected to enhance monitoring until the identity of the
customer is verified in face-to-face manner or through V-CIP.

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Accounts Of Politically Exposed Persons (PEPs)

Banks shall have the option of establishing a relationship with PEPs (whether as customer or beneficial
owner) provided that, apart from performing normal customer due diligence. Banks have in place
appropriate risk management systems to determine whether the customer or the beneficial owner is a
PEP. Reasonable measures are taken by the REs for establishing the source of funds / wealth; the
approval to open an account for a PEP shall be obtained from the senior management; all such accounts
are subjected to enhanced monitoring on an on-going basis; in the event of an existing customer or the
beneficial owner of an existing account subsequently becoming a PEP, senior management’s approval
is obtained to continue the business relationship;

Accounts Opened By Professional Intermediaries:

Banks shall ensure while opening client accounts through professional intermediaries, that clients shall
be identified when client account is opened by a professional intermediary on behalf of a single client.
Banks shall have option to hold 'pooled' accounts managed by professional intermediaries on behalf of
entities like mutual funds, pension funds or other types of funds. Banks shall not open accounts of such
professional intermediaries who are bound by any client confidentiality that prohibits disclosure of the
client details to the banks. All the beneficial owners shall be identified where funds held by the
intermediaries are not co-mingled at the level of banks, and there are 'sub-accounts', each of them
attributable to a beneficial owner, or where such funds are co-mingled at the level of bank, the bank
shall look for the beneficial owners.

Simplified Due Diligence

CDD of all the members of SHG shall not be required while opening the savings bank account of the
SHG.CDD of all the office bearers shall suffice. CDD of all the members of SHG may be undertaken
at the time of credit linking of SHGs. Procedure to be followed by banks while opening accounts of
foreign students

Banks shall, at their option, open a Non-Resident Ordinary (NRO) bank account of a foreign student
on the basis of his/her passport (with visa & immigration endorsement) bearing the proof of identity
and address in the home country together with a photograph and a letter offering admission from the
educational institution in India. Provided that a declaration about the local address shall be obtained
within a period of 30 days of opening the account and the said local address is verified. Further that
pending the verification of address, the account shall be operated with a condition of allowing foreign
remittances not exceeding USD 1,000 or equivalent into the account and a cap of rupees fifty thousand
on aggregate in the same, during the 30-day period. The account shall be treated as a normal NRO
account, and shall be operated in terms of Reserve Bank of India’s instructions on Non-Resident
Ordinary Rupee (NRO) Account, and the provisions of FEMA 1999. Students with Pakistani
nationality shall require prior approval of the Reserve Bank for opening the account.

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 CHAPTER – 7
CASH MANAGEMENT

General.

Cash Management System is the main important system in a Bank / Branch to ensure smooth
functioning of the Branch / Bank. The Cash, must be kept in a fir proof safe in the Strong Room in the
joint custody of the Head Cashier / Cashier and an authorised Supervising Official, who will be the
Manager / Accountant to perform this duty. Since Cash is the most liquid asset, adequate care should
be adopted while handling Cash. All the cash dealings like withdrawal or deposit in the cash safe /
strong room should be done by Joint Custody only by the Cashier / Authorised Officers of the Bank.
Managers should see that no member of staff other than the Cashier / Teller receives money over the
counter from depositors. Notices to this effect should be prominently displayed in English and also the
regional language in two places, one near the cash department and the other near the entrance. Notice
in respect of branches where there are no 'Teller' counters, the customers are requested to remit cash
only at the Cash counter provided in the Bank. No receipt for cash tendered will be recognised by the
Bank unless it is signed by the Cashier and countersigned by the Manager or duly authorised officer of
the Bank. The customers are also advised to be present till the counting of cash by the Cashier is over
and found by him to be in order. The Customers are requested to count the cash received from the
cashier before leaving the cash counter. Notice in respect of branches having 'Teller' counters the
customers are requested to remit cash only at the cash counter provided in the Bank and to a Cashier or
Teller. No receipt for cash tendered will be recognised by the Bank unless it is signed by the Teller if
the cash is tendered at Teller Counter or if tendered at Cash Counter it is signed by the Cashier and
countersigned by Manager or duly authorised officer of the Bank.

Strong Room / Safe.

The safe and the Storage Room must be with bubble lock and key under the joint custody of the Head
cashier and the supervising Official in charge of the cash. Both Officials must be present when the
storage Room / Safe is opened and as far as possible, all receptacles in the Strong Room which are used
for storing Cash and Currency Chest balances must also be with double lock & key under Joint custody
of the Head Cashier / Cashier and the Supervising Official, with the exception of the receptacle used
for the Head Cashier's / Cashier's hand balance which should be under his single custody. It must be
ensured that the locking mechanism of all receptacle are always in good working condition and that the
doors of all cupboards etc. are securely fastened before being locked. Separate arrangements in the Safe
/ Strong Room should be made to accommodate the currency denomination wise. If currency chest
arrangements are available with the Bank, the instructions / guidelines provided by RBI in this regard
must be scrupulously followed. Currency chest, if necessary, can be provided in the Bank as per the
Guidelines issued by RBI for infrastructure and for other operations including engagement of Human
Resources.
Detection and Impounding of Counterfeit Notes

Detection of Counterfeit Notes

Banknotes tendered over the counter should be examined for authenticity through machines. Similarly,
banknotes received directly at the back office / currency chest through bulk tenders should also be
examined 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 wilful
involvement of the bank concerned in circulating Counterfeit Notes and penalty will be imposed.

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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.

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 must be issued to the
tenderer, after stamping the note 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.

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 up to 4 pieces, in a single transaction, a consolidated report
in the prescribed format 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 immediately by the Nodal Bank Officer to the local police authorities or the Nodal Police
Station for investigation by filing FIR in the prescribed format. 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 for filing of 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 consolidated 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 Stations may be obtained from
the Regional Office concerned of the Reserve Bank of India. In order to facilitate identification of
people abetting circulation of Counterfeit Notes, banks are advised to cover the banking hall / area and
counters under CCTV surveillance and recording and preserve the recording. 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 and treasuries should be included in the
monthly returns forwarded to the Reserve Bank Issue Offices. 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.

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Reserve Bank’s Clean Note Policy
Reserve Bank is charged with the responsibility of providing adequate supply of currency for facilitating
transactions of the Government, banks and the public. Over the years, with the expansion of the
economic activities and growth, the volume of currency in circulation has multiplied by many times.
Of late, it was observed that many of the notes in circulation were soiled and mutilated and these were
no longer considered as a decent medium of exchange. Such notes were also not found conducive for
introducing new technology such as dispensing machines, counting machines, automatic teller
machines (ATM), etc. to improve customer service. To overcome this problem, the Reserve Bank took
a number of initiatives to increase the supply of clean notes on the one hand and suck out the soiled and
mutilated notes from the circulation on the other, known as ‘Clean Note Policy’. This note attempts to
analyse how far these measures have been effective in improving the then prevailing situation and
providing a new direction to the currency management.
Introduction
The Reserve Bank of India is the sole authority for the issue of currency in India. Although one-rupee
notes/coins and subsidiary coins, the magnitude of which is relatively small, are issued by the
Government of India, these are put into circulation only through the Reserve Bank. This authority is
given to the Reserve Bank because it is charged with the responsibility of providing adequate supply of
currency for facilitating transactions of the Government and the exchange and remittance requirements
of banks and the public. With the expansion of the economic activities and growth, the volume of
currency in circulation has multiplied by more than 200 times during last 50 years. Of late, it was
observed that many of the notes in circulation were soiled and mutilated and these were no more
considered as a decent medium of exchange. Nobody wanted to accept these notes, however, if
somebody acquired these notes while transacting, they wanted to get rid of them at the first available
opportunity. With the result, these soiled and mutilated notes were effectively driving out the good notes
out of circulation, as if the Gresham’s Law was in operation. These were also not at all conducive for
use of new technology such as dispensing machines, counting machines, automatic teller machines
(ATM), etc. for improving banks’ efficiency and customer service. To overcome this problem, the
Reserve Bank of India took a number of initiatives to increase the supply of clean notes on the one hand
and suck out the soiled and mutilated notes from the circulation on the other, known as ‘Clean Note
Policy’. This note attempts to analyse how far these measures have been effective in improving the then
prevailing situation and providing a new direction to the currency management.
The note has been organised into three sections. Section I explains the main features of currency
management in India in a historical perspective, while Section II focuses on various measures taken
under ‘Clean Note Policy’ and their impact on currency management. Section III contains the
concluding observations.
Currency Management in India
Up to March 31, 1935, the regulation of currency was carried out by the Central Government
departmentally through the Controller of Currency under the Paper Currency Act (XIX of 1861). On its
establishment, the Reserve Bank took over the management of currency in India under Section 3 of the
Reserve Bank of India Act, 1934 (RBI, 1970). Accordingly, the liability of the Government of India
notes in circulation on that date and assets equal to that amount of liability were transferred to the Issue
Department of the Bank. Under Section 22 of the Act, the Bank has the sole right to issue currency
notes (referred to as ‘bank notes’ in the Act in order to distinguish them from the notes issued by the
Government) in India. Currency notes are legal tender at any place in India in payment or on account,
without limit (RBI, 1983).
In India, currency forms a significant part of the money supply, even though its importance has been
declining over the years due to the increasing monetisation of the economy and the spread of banking
facilities. Currency is an important economic indicator of economic activity, especially in rural India

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and its behavioural pattern throws up many interesting insights. Cash demand tends to increase in the
beginning of the month when salaries are spent and tapers off at the end of the month when consumers
spending returns to business accounts. Similarly, currency seasonality, by and large, mirrors the
seasonality in economic activity. The variance of the ratio of currency to gross domestic product (GDP)
at current market prices, an indicator of the role of currency in economic activity, has stabilised since
the mid-eighties (RBI, 2001). Since currency constitutes the base for the expansion of money supply,
regulation of currency is also an important element of monetary control.
The RBI Act permits the issue of notes in the denominations of rupees two, five, ten, twenty, fifty, one
hundred, five hundred, one thousand, five thousand and ten thousand or such other denominations not
exceeding rupees ten thousand as the Central Government may specify, on the recommendation of the
Central Board of the Bank. At present, all denominations except rupees two, five thousand and ten
thousand are being issued. Of the various denominations, one-hundred-rupee notes account for nearly
41 per cent of the total value of currency issued, followed by five-hundred-rupee notes (about 28 per
cent) and fifty-rupee notes (about 15 per cent). The value of lower denominations is too little though
their volume is enormous. Rupees one, two and five notes account for just one per cent of the total value
of currency issued, while they account for about 15 per cent of the total volume. Similarly, rupees ten
notes account for only 3 per cent of the total value, while their share in total volume is 25 per cent
(Kamesam, 2003). The design, form and material of the notes have to be approved by the Central
Government, after consideration of the recommendations made by the Central Board of the Bank. The
Bank takes special care in the choice of the size, colour and design of the notes to enable the public to
distinguish the different denominations easily.
The Central Government may deprive currency notes of any denomination of their legal tender character
or direct the non-issue of any denomination, on recommendation of the Central Board of the Bank. In
this connection, special mention may be made of demonetisation of high denomination notes by the
Government of India on two occasions. On January 12, 1946, with the object of checking unaccounted
money and tax evasion, Government demonetised notes of rupees five hundred, one thousand and ten
thousand. The Bank reintroduced from April 1, 1954, notes of rupees one thousand and ten thousand.
Five-thousand-rupee notes were also introduced from that date. It was again after a lapse of more than
30 years that high denomination notes (rupees one thousand, five thousand and ten thousand) were
demonetised on January 16, 1978, on the ground that the availability of these notes facilitated the illicit
transfer of money for financing transactions, which were harmful to the national economy or for illegal
purposes (RBI, 1983). However, the notes of rupees five hundred and rupees one thousand have since
been reintroduced.
The volume of note issue (excluding one rupee coin) grew from Rs. 186 crores in 1938 to Rs. 1,114
crores in 1952 and further to Rs. 2,75,096 crores at end-March 2003 (RBI, 1970, 1983 and 2003). Thus,
the volume of note issue multiplied by over 200 times during the last 50 years. While various reasons
could be attributed to explain the phenomenal growth in note issue, certain factors stand out, namely,
large expansion of the economy requiring greater use of cash, continuing public preference for currency
notes as a medium of exchange and growth of population. All transactions relating to issue of currency
notes are separated, for accounting purposes, in the Issue Department of the Bank. The Issue
Department is liable for the aggregate value of the currency notes of the Government of India and
currency notes of the Reserve Bank in circulation from time to time and it maintains eligible assets for
equivalent value. The assets, which form the backing for the note issue, are kept wholly distinct from
those of the Banking Department. The Issue Department will issue currency notes only in exchange for
currency notes of other denominations or against such assets, which are statutorily acceptable for being
held as part of the reserve.
In practice, the distinction between the Issue Department and the Banking Department has little
economic significance since there are frequent shifts between the assets of the two departments.
However, not all the assets of the Banking Department are eligible for being held in the Issue
Department (e.g., State Government securities, small coins), an arrangement designed to provide some
check on the issue of currency. The Issue Department is also responsible for getting its periodical
requirements of notes printed from the currency printing presses of the Government of India,

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distribution of currency among the public and withdrawal of unserviceable notes and coins from
circulation.
The mechanism of putting currency into circulation and its withdrawal from circulation (i.e., expansion
and contraction of currency, respectively) is affected through the Banking Department. Thus, if a
scheduled bank wants to withdraw Rs. one crore from its deposits with the Reserve Bank, the transaction
is handled by the Banking Department, which gives currency in the denominations required by the bank,
debiting the bank account. For this purpose, the Banking Department holds stock of currency, which it
replenishes as and when necessary, from the Issue Department against transfer of eligible assets.
Likewise, if a bank tenders’ cash to the Reserve Bank for its account, the cash is received by the Banking
Department. If the holding currency in the Banking Department becomes surplus to the normal
requirements of the Department, the surplus is returned to the Issue Department in exchange for
equivalent assets. In respect of the exchange of currency notes for rupee coins and rupee coins for notes
and exchange of notes of one denomination for another, the Issue Department deals directly with the
public and not through the Banking Department.
Reserve Bank notes have a cent per cent cover in approved assets. There is no ceiling on the number of
notes that can be issued by the Bank at any time. According to Section 33 of the RBI Act, the assets of
the Issue Department against which currency notes are issued have to consist of gold coin and bullion,
foreign securities, rupee coin, Government of India rupee securities of any maturity and bills of
exchange and promissory notes payable in India which are eligible for purchase by the Bank. In practice,
such bills and promissory notes have not figured as assets so far due to the lack of proper bill market.
The original RBI Act prescribed a proportional reserve system. Under this system, the Bank was
required to keep 40 per cent of assets in the form of gold coin, gold bullion and foreign securities,
subject to the condition that the value of gold (coin and bullion) should not be less than Rs. 40 crore in
value. This system was a relic of the old international gold exchange standard and it placed rigid
limitations on the central bank. In India, the rapid growth in economic activity under the impetus of the
development plans and the expansion in the monetised sector of the economy called for a large
expansion of currency. The financing of the plans also necessitated heavy drafts on the foreign reserves
held by the Bank. The Reserve Bank of India (Amendment) Act, 1956, sought to provide for the needed
flexibility in note issue, while maintaining a specified quantity of reserves in gold and foreign securities.
Under the new system, known as minimum reserve system, the Reserve Bank is required to ensure that
in the different items of assets kept as backing, the value of gold coin and bullion should not be less
than the value of Rs. 115 crore. The other minimum condition, which can be dispensed with during
unforeseen contingencies, is that there should be foreign securities of the minimum value of Rs. 85
crore, so that together with gold (coin and bullion) the minimum value of these assets is Rs. 200 crore
(RBI, 1983). The new system seems to provide for gold of a higher value, but this did not imply need
for additional gold. It is because the value of the existing gold was revised upward in accordance with
the new higher price.
The Bank has made elaborate arrangements for the discharge of its currency functions. It has set up a
full-fledged ‘Department of Currency Management’ to streamline various functions related to currency
management. The Department addresses policy and operational issues relating to designing of
banknotes, forecasting demand for notes and coins, ensuring smooth distribution of banknotes and coins
throughout the country and retrieval of unfit notes and uncurrent coins from circulation, ensuring the
integrity of banknotes, administering the RBI(Note Refund) Rules, reviewing/ rationalising the work
systems/ procedures at the Issue Offices on an ongoing basis and dissemination of information on
currency related matters to the general public. The Department makes estimates of currency for
incremental needs, replacement needs and reserve needs through statistical analysis and long-term
forecasts and accordingly allocates printing/ minting of currency notes/ coins among various Presses/
Mints. Delivery schedules of currency notes/ coins to various Issue Offices of the Bank are also decided
in advance. The distribution of currency to the Government, banks and the public is undertaken through
offices of the Issue Department. At present, the Bank maintains 19 offices of the Issue Department at
Ahmedabad, Bangalore, Belapur, Bhopal, Bhubaneshwar, Chandigarh, Chennai, Guwahati, Hyderabad,
Jaipur, Jammu, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur, New Delhi, Patna and

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Thiruvananthapuram. The currency requirements at other centres are met through 4,422 currency chests
maintained by the Bank with (i) its agencies, namely the branches of the State Bank of India, its
associates and nationalised banks, and (ii) Government treasuries and sub-treasuries. Currency chests
are receptacles in which stocks of new and re-issuable notes are stored along with rupee coins. The
balances in the chests are the property of the Reserve Bank. Besides, 3,784 bank branches spread
throughout the country have also been authorised to establish small coin depots to stock small coins and
distribute them into other bank branches in the area of their operations .
The Reserve Bank’s responsibility is not only to put currency into, or withdraw it from circulation, but
also to exchange notes and coins into such other denominations of notes and/or coins as may be required
by the public. Section 27 of the RBI Act imposes an obligation on the Bank to maintain the quality of
note issue by stipulating that the Bank shall not reissue currency notes, which are torn, defaced or
excessively spoiled. Besides the Reserve Bank, public sector banks accept soiled notes and slightly
mutilated notes in payment of dues and afford free facilities to their customers and other persons for
exchanging such notes. The value of any lost, stolen, imperfect or mutilated note of the Government of
India or the Reserve Bank cannot be claimed by any person as of right. However, with a view to
mitigating the hardship to the public in genuine cases, the Bank, as a matter of grace, arranges to make
refund of the value of such notes in accordance with the rules called the Reserve Bank of India (Note
Refund) Rules, which have been framed for this purpose in terms of the proviso to Section 28 of the
RBI Act.
The Bank, for the first time, issued the RBI (Note Refund) Rules in 1935 based on the rules of the Paper
Currency Department as they then stood. In 1975, the Bank issued a new set of rules known as RBI
(Note Refund) Rules, 1975 in order to provide powers to examine and dispose of the claims to be
delegated to a number of officers at various levels. The element of discretion, which was previously
vested in the currency officers, as prescribed officers entitled to adjudicate claims in respect of notes
which were not exchangeable over the counters, were abolished and replaced by precisely formulated
rules intended to test and establish the genuineness of the notes and the claims in relation thereto. The
defective and mutilated notes tendered for adjudication were classified with reference to the degree of
mutilation and the difficulties likely to be experienced in the examination and disposal of the claims.
The mission behind the initiatives was to facilitate the expeditious settlement of all genuine claims
(RBI, 1975).
Notes and coins returned from circulation are deposited at the issue offices of the Reserve Bank. The
Bank then separates the notes that are fit for reissue and those which are not fit for reissue. The notes
which are fit for reissue, are sent back into the circulation and which are not fit for reissue are, after
processing, shredded. The coins withdrawn are sent for melting. The replacement of notes returning
from circulation is a continuous process and is carried out to keep the notes in circulation in as clean a
condition as possible. The pursuit of this on-going process can aptly be described as the Bank’s Clean
Note Policy.
The Bank’s Clean Note Policy
With a view to facilitating the management and servicing of a very large and growing volume of
currency notes, the Reserve Bank took a number of steps since 1975. A new metallic rupee was issued
on 1st April 1975 to supplement the availability and stocks of one-rupee notes. Subsequently, rupees
two and five notes were also coinised. The installed capacity for printing of fresh notes and the
production of bank note paper was substantially increased. The existing currency note printing presses
at Nasik and Dewas and the mints owned by the Government of India at Hyderabad, Kolkata, Mumbai
and Noida are being modernised. Two new printing presses with the state-of-art technology have been
set up at Mysore and Salboni under the aegis of the Bharatiya Reserve Bank Note Mudran Ltd., a wholly
owned subsidiary of the Reserve Bank. To bridge the demand-supply gap, the Government, as a one-
time measure even allowed the import of 3.6 billion pieces of notes in 1997-98. The production capacity
of the four Government Mints is being augmented. The Government of India has also been importing
rupee coins to supplement the quantity of coins supplied by the four mints. So far, more than two-
billion-rupee coins have been imported. Thus, by 1999, enough printing capacity was installed to take
care of the current and foreseeable future requirements.

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Simultaneously, the number of note examination sections and staff employed for the examination of
soiled and mutilated notes were increased with a view to enabling the Bank to retire and replace
excessively soiled, defective and mutilated notes as expeditiously as possible. In spite of these efforts,
the claims in respect of soiled and mutilated notes were rising by leaps and bounds and the quality of
notes in circulation was fast deteriorating. It was no more possible to handle these claims manually and
maintain the quality of notes in circulation at the desired level by using the prevailing methods and
techniques of currency management. Hence it was no more a choice, but an imperative to bring the
methods and techniques of currency management in consonance with new technology and international
best practices.
Accordingly, Dr. Bimal Jalan, the then Governor, Reserve Bank of India announced the Bank’s ‘Clean
Note Policy’ in January 1999. For effective execution of ‘Clean Note Policy’, withdrawing soiled and
mutilated notes from circulation is as important as pumping fresh notes into circulation. For the
achievement of the twin-goals, the Reserve Bank has, over the past four years, introduced various
changes in the systems and procedures related to currency management. The steps include:
mechanisation of the currency verification and processing as also shredding and briquetting for
destruction of soiled and mutilated notes. The Bank has installed a number of Currency Verification
and Processing System (CVPS) at its various Issue Offices to supplement the manual processing of
notes.
The CVPS is an electronic-mechanical device designed for examination, authentication, counting,
sorting and on-line destruction of the notes, which are unfit for further circulation. The system is capable
of sorting the notes on the basis of denomination, design and level of soilage. Generally, the system
sorts the notes into fit, unfit, reject and suspect categories. The unfit notes are shredded online. The fit
notes are retrieved from the system in packets of 100 pieces. These packets are banded by the system
and information such as denomination, date of processing, name of office and operator code is printed
on the label to facilitate easy identification. The notes in the reject and suspect categories are received
in different stackers since these have to be inspected manually for the presence of counterfeit or different
denomination notes. The CVPS ensures uniformity and consistency in the examination of notes on the
basis of soilage levels and other parameters and classification thereof into re-issuable and non-issuable.
The element of subjectivity, which characterises manual examination of notes, is thus eliminated
through CVPS .
Each CVPS is capable of processing 50,000 – 60,000 notes per hour. It counts, examines the
genuineness of notes, sorts notes into fit and unfit and shreds the unfit notes on-line. The shreds are on-
line transported to a separate Shredding and Briquetting Systems (SBS) where they are compressed into
briquettes of small size. The system is environment-friendly, as it does not create pollution that was
created by burning of notes in the past. The briquettes can be used as residual fuel in industrial furnaces.
They can even be used for land fillings or for making items for use at office and home and paperboard.
The SBS are capable of destroying notes off-line and briquette the shreds on a stand-alone basis. They
can also make briquettes online out of shreds generated in the CVPS units. So far, 48 CVPS and 27
SBS at all the Issue Offices have been installed .
Apart from weeding out soiled and mutilated notes from circulation, the Reserve Bank has also taken
measures to supply adequate quantities of fresh notes and to prevent excessive soilage of the existing
currency notes. As on April 1, 2003, the total annual capacity of printing presses is 18 billion pieces as
against the current requirement of about 12 billion pieces. This capacity can be raised up to 28 billion
pieces with two shifts. Similarly, the total annual minting capacity is 4,700 million pieces as against the
current requirement of about 4,000 million pieces. Thus, the installed capacity of the presses and mints
is adequate to take care of not only current requirements, but also of foreseeable future requirements.
Further to ensure supply of clean notes and coins among the public, mobile vans are periodically sent
at city centers and in various parts of towns. Distribution of clean notes and coins has also been arranged
through milk co-operatives in the State of Gujarat and through Post Offices in rural areas in the State
of Maharashtra. Coin dispensing machines have been installed at public places and bank branches. Issue
of notes of lower denominations to bulk users by the Bank is compulsorily accompanied by issue of
some part in small coins.

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The number of counterfeit notes detected at the Reserve Bank’s regional offices and branches of
commercial banks has been on the rise in recent years. However, the value of forged notes detected, as
a proportion to the total value of notes in circulation has remained miniscule. In order to mitigate the
difficulties faced by the public on account of counterfeit notes, the Bank has undertaken several
measures to enhance public awareness. A film on security features of Rs.100 and Rs.500 denomination
notes was telecast on Door darshan and other TV channels. Banks were advised to establish ‘Forged
Note Vigilance Cells’ at their Head Offices for dissemination, monitoring and implementation of the
Reserve Bank’s instructions on forged notes. The Bank has also initiated a number of steps to track
forgery on the one hand and improve the quality of notes on the other. The substance of bank note paper
has been increased and a melamine resin has been incorporated in the paper to increase its wet strength.
The new Mahatma Gandhi series of notes with special security measures have been introduced since
1996. Although the predominant reason for new security features is to make counterfeiting difficult,
they also assume importance in the context of the mechanised cash processing activities by highspeed
CVPS. The success of these systems in achieving the authenticity and rated capacity depends greatly
on the notes having machine-readable security features. The notes in the Ashoka Pillar Series, i.e.,
Ashoka Pillar in watermark window, are being phased out from circulation, as they do not contain
adequate anti-counterfeit security features as compared with the Mahatma Gandhi series notes. These
features are windowed security thread, latent denominational image, micro printing, registration mark
and raised identification mark for identification of a denomination by the visually impaired, among
others. Moreover, portraits of human beings have been recognised as a strong security feature on bank
notes all over the world. The watermark with a human face is a unique and an inimitable feature which
provides the desired light and shade effects. In particular, a human face brings into focus the shine/
glean in the eyes. The portraits involve deep engravings with very minute details and are difficult to
counterfeit. The choice of the personality from the security point of view should be such that the face
should be expressive and should have lots of lines and folds so that there is an ample scope of engravings
of different depths, which would be difficult for counterfeits. The Government and the Reserve Bank,
therefore, introduced a portrait of Mahatma Gandhi on banknotes as well as in the watermark window.
The notes on which the above features are not available can be suspected as forged notes and detected
on examination. Thus, these features are very helpful in detecting the forged notes.
A major factor for soilage and mutilation of notes was stapling and multi stapling of notes/ note packets.
The Reserve Bank and the Government of India were receiving a large number of complaints against
stapling of notes. A study conducted by the Reserve Bank indicated that no other country followed the
practice of stapling note packets. The Government of India and the Reserve Bank, therefore, decided to
do away with the practice of stapling of note. The practice of non-stapling of fresh notes was initiated
in 1996 and now the fresh notes supplied by the note printing presses are totally in unstapled condition.
Moreover, non-stapling of notes facilitates proper sorting of notes at bank branches by using table-top
sorting machines, as also, mechanised processing at the CVPS. The note packets are now secured by
paper/ polythene bands and both banks and public need to accept the change to paper/ polythene bands
and move away from staple pins. Hence, towards implementation of ‘Clean Note Policy’, the Reserve
Bank has taken into confidence the banks, the trade and the public at large. It has made mandatory on
the banks to discontinue the practice of stapling the currency note packets. It has issued a public interest
directive to all banks under Section 35A of the Banking Regulation Act, 1949 in November 2002
instructing them:
i. Not to staple bank notes,
ii. To tender soiled notes to the Reserve Bank in unstapled condition,
iii. To use bands instead of staple pins,
iv. To issue only clean notes to members of public,
v. To open select currency chest branches on Sundays to provide exchange facility to members of
public all over the country, and
vi. To provide unrestricted facility for exchange of soiled and mutilated notes to members of public
The Reserve Bank has also urged members of the public not to write on the currency notes and deface
them. Interestingly, the Bank occasionally also arranges to collect soiled and mutilated notes from the

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public by going to market places. As a result, the number of public complaints in respect of soiled notes
in circulation has considerably declined and availability of fresh notes has significantly improved.
Some complaints of restrictive practices were also being received according to which some currency
chest branches in the rural and semi-urban areas do not accept lower denomination notes. To mitigate
the position, the Reserve Bank has given specific monthly targets for distribution of coins to these
currency chests. The Bank monitors these targets from the feedback reports. Further on experimental
basis, the Reserve Bank had requested banks between September and November 2002 to open one
currency chest branch on one Sunday in a month at selected centers to exclusively provide currency
exchange and distribution of small coins and suck out the soiled and mutilated notes. The reports
received from the banks show that this experiment has received tremendous response from the public.
It has, therefore, been decided that banks should run this scheme on a permanent basis with
wholehearted participation. The choice of the center and the Sunday in the month has been left to the
individual bank to decide.
Efforts are underway to design, develop and implement an ‘Integrated Computerised Currency
Operations and Management System ‘in the Reserve Bank. Computerisation will cover issue
accounting, resource planning and distribution of currency, cash department operations, note exchange
counters in Issue Department, claims section, currency chest reporting and management information
systems in the Regional and Central Offices. The development of the application software is being
outsourced. Furthermore, the Reserve Bank has envisaged the establishment of a Monetary Museum in
Mumbai with display and archival facilities, which would house contemporary and ancient monetary
artifacts and coins capturing the history of currency in India. The website for the proposed Monetary
Museum has now been made a part of the Reserve Bank website (RBI, 2003).
For the success of the ‘Clean Note Policy’, high degree of coordination is necessary between chest
branches and non-chest branches and the currency chest branches should mechanise their operations by
installing smaller desk top versions in addition to banding machines so that members of public receive
good staple free notes and the Reserve Bank receives staple free soiled notes ready for processing and
destruction. The Regional Directors of the Reserve Bank could also be contacted for proper
coordination of remittances of notes and coins. It is hoped that banks will extend full co-operation to
the Reserve Bank in delivery of its Clean Note Policy and it may not have to think of any regulatory
intervention for this purpose.

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 CHAPTER-8

CLEARING AND PAYMENT SYSTEM

Clearing Operations:

General:
The Head Office or the Main Branch or a branch identified as "Service Branch' of a bank will function
as a "Clearing Centre" for all the paper-based payment instruments such as Drafts, Cheques etc. received
from its own customers and those of its other branches. These instruments will have to be presented for
collection through the "Clearing House" situated at the local RBI or SBI office, as the case may be. The
"Clearing Centre" can be divided into Non- MICR and MICR Clearing Centres.

Clearing House:

The Clearing House will function either at the local RBI or SBI Office as the case be. The Clearing
House will function during the stipulated hours which will be communicated to all Member Banks. The
Member Banks will have to strictly adhere to these "Clearing House hours". Delayed Participation in
the Clearing House Operations will result in non-Acceptance of the cheques presented by that Bank by
all other Member Banks which in turn will cause serious damages to that Bank. The Clearing Operations
may take place 2/3 times in a day in the following order:

i. Clearing (or) First Clearing (or) Delivery Clearing

ii. Second Clearing (or) Main Clearing and
iii. Special Returns Clearing
On Saturdays only the Main Clearing and the Special Clearing will take place.

Operations In The Non-MICR Clearing Centre:

The HO will have to draw a time schedule depending upon the "Clearing House hours" to collect the
cheques from all its Branches to be presented in that day's clearing. Normally in Non-MICR Centres
the Clearing House operates THREE times daily on week days and TWICE on Saturdays as detailed
below:
Operations Time schedule

i. First or Delivery Clearing 10.30 AM

ii. Second or Main Clearing 2.30 PM
iii. Special or Returns Clearing 3.00 PM

Therefore the HO of bank must arrange for daily tapal (daily mail) including clearing cheques,
movements from HO to Branches and from Branches to HO as per the following time schedule:

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 Operations Time schedule

i. HO to Branches (to reach all branches before) 8.30 / 9.00 AM Daily and
ii. All Branches to HO (to reach HO before) 11.30 AM

a. The HO Tapal Bag (Mail bag) will contain all advices, circulars etc and also the clearing cheques
drawn on the branch received through the Clearing House. The Branch Tapal Bag will contain all
advices to HO, Statements to HO and the Clearing Cheques (including cheques returned unpaid with
separate return memo attached to each such (cheque) to be presented in the Clearing House that day.
The HO Clearing Centre, on receipt of Clearing Cheques from all the branches should prepare a
consolidated schedule for each member bank, on whom cheques have been drawn and presented in
the Clearing House, enclosing the "Sub — Schedules" received from the branches. The Sub-
Schedule prepared by the branch will contain the details of individual cheque numbers and the
amounts. Whereas the consolidated schedule prepared by the HO / Service Branch will contain only
the name of its branch, total number of cheques presented by that branch drawn on that particular
bank and the total value / amount of the cheques presented.

Operations In The MICR Clearing Centres:

In MICR centres 3 or 4 types of operations are carried out through the clearing cell. MICR clearing is
also done in two centres. One in SBI MICR clearing cell wherein all the branches of the SBI and its
Subsidiaries will participate. In addition, all outward clearing instruments relating to other banks,
presented by the SBI group will have to be collected by all the other member banks from this SBI MICR
clearance cell. For all other banks the clearing arrangement is at 'MICR Clearing Cell' of 'National
Clearing Cell' (NCC). Even the instruments (outward clearing instruments) drawn on various branches
of SBI and its subsidiaries will have to be lodged only with the NC cell.The inward clearing instruments
will be collected by all member banks from both MICR clearing cell (NCC) and also from the MICR
clearing cell of SBI. All the member banks will identify either the HO (Main Branch) or any other
branch as "Service Branch" .All the branches of the SCB will have to send the outward clearing
instruments to this service branch daily before the stipulated time.For this purpose, the HO of the bank
will make arrangements for a courier service for movement of all mail including clearing instruments
between the HO and Branches or will make arrangements through its own staff members. In the case
of normal MICR clearing all outward instruments are kept in a box and presented at MICR clearing
centre (NCC) together with a BLOCK TICKET against a separate acknowledgement. However, in the
case of High Value Clearing, Returns Clearing and Zone 5 (for e.g. as recently introduced in Chennai)
instruments are to be deposited in the boxes of the I respective banks in the clearing cell. For lodging
all the 'unpaid returns cheques' in respect of branches operating within the main zone the time fixed is
between 12.40 pm and 1.00 pin while the High Value returns will be between 12.30 pm and 12.40 pm.
The Branches will get from HO (Service Branch) all inward clearing cheques between 8.15 am and 8.45
am through couriers. The branches will have to send the unpaid "Return Cheques" through the branch
courier to reach the service branch before 11.30 am on week days and 12.00 noon on Saturdays. HO
will have to present them in the Clearing House by 12.40 pm.
Inward Clearing Cheques:
The service branch will have to arrange to collect the inward clearing instruments from the Clearing
House (NC cell and SBI MICR cell) daily by 6 am. On getting the inward clearing instruments the staff
of the service branch will have to verify the number of cheques as per the "Claim List" received from a
clearing cell Then record the number of instruments and the total value against the respective branches
in the 'Inward Clearing Register/Slip'. If it is slip system, it will be straight away used as Day Book
voucher. With the "Claim List" the clearing cheques will be sent to the respective branches which will
be delivered to the branches between 8.15 am and 8.45 am through the bank's courier. For this purpose,

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the couriers will leave the service branch by 7.30 am. While verifying the inward clearing instruments
with the "Claim List" received from the clearing cell, if there is any difference in the amounts claimed
the same will be noted/ marked in that claim list and the branch will be debited for actual amounts as
per the instruments / cheques sent to the branches. In respect of Missing Instruments, the service branch
will advise the presenting bank in FORM — A under a copy of FORM — A to the MICR clearing cell.
In respect of "unclaimed amounts" i.e., the cheque will be there in the bunch of inward clearing cheques
but the amount relating to the particular cheque may not find place in the claim list/statement, then the
fact will be reported to MICR (NCC) clearing cell in FORM — B. Under the latest system, the NC cell
is imaging all the clearing instruments processed through the computers and if any bank represents
about a missing cheque giving all the relevant details as per "Inward Clearing Cheques — Claim
statement", then the clearing cell will provide a copy of the instruments for verification and action

Outward Clearing Cheques — Encoding:

All the outward clearing instruments received from the branches with a covering schedule called "Local
Clearing Cheques List", the service branch staff will first count the number of instruments attached to
such a list and verify whether the same agrees / tallies with the number of cheques recorded therein.
Then the cheques will be Encoded. Under the process of Encoding only the amount for which the said
cheque is drawn will be printed in the white Band at the bottom 7 of the cheque.For each branch a
"Batch Ticket" will be prepared which will relate to printing branch code number, number of
instruments and total value of cheques presented in outward clearing. For the bank as a whole a "Block
Ticker" will be printed which will contain bank code number, service branch code number, number of
Batch tickets and total value of outward clearing cheques lodged. specimens of `Batch Ticket' and
`Block Ticket' are given below:

High Value Clearing

All instruments of value Rupees 1 lakh and above shall be separately presented in "High value clearing".
This will have to be done after loading all relevant details about the cheques presented in a floppy. This
floppy together with a printout will be presented in MICR clearing cell. High value returned will be
known by 3.40pm while all other returns will be known by 2.30 pm. Since the high value cheques are
received by the service branch only around 1.30 pm, only those branches which are very close to Service
Branch can participate in this high value return cleaning. Otherwise in the normal case the returned
cheques (even high value cheques) will have to be presented in the Clearing House the next day.

Rejections:
Due to inferior quality of printing or paper or etc. some cheques may not be processed by MICR clearing
cell computers. All such instruments will be manually re-encoded and sorted out and sent to the
respective branch.

Zone — 5 Clearing Arrangements:

A new system as "Zone 5" has been introduced in Chennai to handle all
 Non MICR instruments
 Un Sized cheques
 Mutilated cheques etc.

All the relevant details about such instruments presented in clearing should be loaded in a floppy along
with a print out and the instruments. The floppy must be dropped in the boxes of the respective member
banks in the Clearing House.

Sub-Members:

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With the approval of the Bankers Clearing House, other Coop. Banks which have substantial public
deposit with the scope for sizable number of cheque operations may be admitted as Sub-Members of
the SCB, subject to the terms and conditions, as may be decided by the management of the bank after
consulting local Bankers Clearing House.This will help such Coop. Banks to quickly realise the cheques
drawn on various Banks and deposited by their customers into their accounts. The main conditions are
:
 Sub-Members will be bound by the rules and regulations of the Bankers Clearing House
 The Sub-Members should agree to pledge FD receipts for an amount specified by the bank,
based on the volume of transactions.
 The Sub-Members shall authorise the bank to debit the amount of all cheques drawnon it
and received by the Bank in clearing every day to its account (A special current account
will have to be maintained by the Sub-Members for this purpose). Such authorization
should also specifically state that in case this special current account happens to be over
drawn due to such debits of clearing cheque amounts, the bank can debit such amounts to
the regular current accounts of the Sub-Members and adjust the same to clear the overdraft
in the special current account of the Sub-Member.The Sub-Member should also agree to
pay interest at the rate fixed by the bank for such over drafts. The Sub-Member should
make its own arrangement to deliver the clearing cheques to the bank HO / Service Branch
before the stipulated time on all working days and also to collect the clearing cheques
drawn on them, received through clearing daily at the prescribed time.
Cheque Truncated System
Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in India, is a project of the
Reserve Bank of India (RBI), commenced in 2010, for faster clearing of cheques. CTS is based on a
cheque truncation or online image-based cheque clearing system where cheque images and magnetic
ink character recognition (MICR) data are captured at the collecting bank branch and transmitted
electronically. Cheque truncation means stopping the flow of the physical cheques issued by a drawer
to the drawee branch. The physical instrument is truncated at some point in route to the drawee branch
and an electronic image of the cheque is sent to the drawee branch along with the relevant information
like the MICR fields, date of presentation, presenting banks etc. This would eliminate the need to move
the physical instruments across branches, except in exceptional circumstances, resulting in an effective
reduction in the time required for payment of cheques, the associated cost of transit and delays in
processing, etc., thus speeding up the process of collection or realization of cheques. Majority of the
People use cash for retail payments. However, use of cheques and drafts is the preferred mode of
payment for all economic activities. Payments through paper instruments are settled through the
mechanism of clearing houses at various centres, where the cheques and drafts and other paper
instruments received for collection are exchanged by the Banks and the resulting net payments between
the Banks are settled. Since the volume of usage of cheques and drafts increased heavily, the physical
movement of instruments from branches to clearing house and sorting them according to each Bank
Branch at the clearing centre has become difficult.To reduce the difficulty in sorting, RBI introduced
the MICR (Magnetic Ink Character Recognition) technology to facilitate and expedite sorting of
instruments using high speed MICR sorters. Further, to reduce the difficulties in payment system, RBI
introduced the ECS (Electronic Clearing Service).

Electronic Clearing Service (ECS):

ECS enabled the Banks to settle payments as an alternate to use of cheques and drafts for remittance
and payment of funds. ECS replaced huge paper instruments with electronic instructions in transactions
like dividend warrant, interest warrant, refund orders, salary and pension and other consumer payments
like electricity bill, telephone bill, insurance premium, etc. Some companies for payment of periodical
interest on the deposit of customers and payment of annual dividends and companies like BSNL for
collecting telephone charges obtain a Mandate from the customers for directly crediting/debiting the
amounts to their accounts. In all such cases, through the clearing cell, the banks will receive a statement
Giving details of the names of the account holders, their account numbers, amount to be debited /
credited, purpose of debit / credit etc., 2/3 days prior to the actual date of debit / credit. In this statement

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the "TRANSACTION DATE" will also be indicated. On that day the respective branch will have debit
/ credit the customers account. If there is no adequate balance in any of the customer's account to meet
such debit under ECS, the same will have to be treated as regular return using return memo. Similarly
in the case where the branch is not able to properly identify the customer's account for crediting the
interest / dividend amount then such amount must also be returned to the Clearing House following the
procedure for normal return of any unpaid cheque.

National Electronic Funds Transfer (NEFT):

Since the above said systems increased the cost to the Banks, RBI introduced the other mode of e -
payments called Electronic Funds Transfer (EFT), through which one to one payment are affected with
minimum cost. This retail funds transfer system enabled an account holder of a Bank to electronically
transfer funds to another account holder with any other participating Bank. The EFT system was
upgraded and replaced by a more secure system called National Electronic Funds Transfer (NEFT)
system. The NEFT is more efficient for facilitating one - to - one funds transfer requirements of
individuals / corporate. The NEFT system provides for batch settlements at hourly intervals, thus
enabling near real time transfer of funds. NEFT is an electronic fund transfer system that operates on a
Deferred Net Settlement (DNS) basis which settles transactions in batches. The settlement takes place
with all transactions received till a particular cut off time. NEFT operates on Hourly basis - there are
eleven settlements from 9 a.m. to 7 p.m. on week days and five settlements from 9 a.m. to 1 p.m. 00
Saturdays. Any transaction initiated after a designated settlement time would have to wait till the next
designated settlement time. NEFT is a nationwide funds transfer system to facilitate transfer of funds
from any bank branch to any other bank branch in India. Under NEFT any amount starting from Re.1
and above e be transferred to any bank branch having NEFT facility in India. RBI publishes the list of
bank branches participating in the NEFT on its website. The beneficiary gets the credit on the same day
or the next day depending on the time of request for settlement.

Real Time Gross Settlement (RTGS):

The acronym RTGS' stands for Real Time Gross Settlement, which can be defined as the continuous
(real-time) settlement of funds transfers individually on an order-by-order basis (without netting).'Real
Time' means the processing of instructions at the time they are received rather than at some later time.'
Gross Settlement' means the settlement of funds transfer instructions occurs individually (on an
instruction-by-instruction basis). Considering that the funds settlement takes place in the books of the
Reserve Bank of India, the payments are final and irrevocable. The RTGS system is primarily meant
for large value transactions. The minimum amount to be remitted through RTGS is Rs. 2.00 lakhs.
There is no upper ceiling for RTGS transactions. Contrary to NEFT in the RTGS system, transactions
are processed continuously throughout the business hours and settled in real time. The remitting bank
receives a message from the Reserve Bank that money has been credited to the receiving bank. Based
on this the remitting bank can advise the remitting customer that money has been delivered to the
receiving bank. Under normal circumstances the beneficiary branches are expected to receive the funds
in real time as soon as funds are transferred by the remitting bank. The beneficiary bank has to credit
the beneficiary's account within two hours of receiving the funds transfer message. If the money cannot
be credited for any reason, the receiving bank would have to return the money to the remitting bank
within 2 hours. Once the money is received back by the remitting bank, the original debit entry in the
customer's account is reversed. With a view to rationalize the service charges levied by banks for
offering various electronic products, a broad framework has been mandated as under:

 Inward transactions — Free, no charge to he levied

 Outward transactions – As per bank,s rule

 'Rs 2 lakh to Rs.5 lakh - not exceeding `Rs. 25 per transaction.

 Above as. 5 lakh — not exceeding Rs.50 per transaction.
The remitting customer has to furnish the following information to a bank for effecting a RTGS
remittance:

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  Amount to be remitted
 Remitting customer's account number which is to be debited
 Name of the beneficiary bank
 Name of the beneficiary customer
 Account number of the beneficiary customer
 Sender to receiver information, if any
 The IFSC Number of the receiving branch

1. Cheque Truncation System (CTS):

Reserve Bank of India is in the process of implementation of Cheque Truncation System in India in
collaboration with National Payment Corporation of India. Truncation is the process of stopping the
flow of the physical cheque issued by a drawer to the drawee branch. The physical cheque will be
truncated at some point en - route to the drawee branch and an electronic image of the cheque would be
sent to the drawee branch along with the relevant information like the MICR fields, date of presentation,
presenting bank, etc.The Cheque truncation system is being implanted in some states and will be
introduced in other states shortly by RBI. The following are the benefits of cheque truncation:

 Speed up collection of cheques.

 Enhances customer service.
 More secure system with digital signature.
 Reduces the scope for clearing related frauds.
 Minimizes the cost of collection of cheques.
 Reduces reconciliation problems.
 Eliminates logistics problems.

2. Automated Teller Machine (ATM):

Automated Teller Machine is a computerized machine that provides the customers of banks the facility
of accessing their accounts for dispensing cash and to carry out other financial transactions without the
need of actually visiting a bank branch at their convenient time.The ATM cards / debit cards, credit
cards and prepaid cards that permit cash withdrawal can be used at ATMs for various transactions. In
addition to cash dispensing ATMs have many other services / facilities such as:

 Account information.
 Cash deposit.
 Regular bill payment.
 Loan account enquiry.
 Mini / Short statement, Etc

The services offered may vary from bank to bank, or may depend on the capacity of the machine to
provide such services.

IMPS
IMPS is a funds transfer system (push transactions) operated by NPCI that works 24x7x365. The system
facilitates funds transfer up to a limit of Rs5 lakh, on real-time basis. The cost of perating and facilitating
transactions in IMPS involves, inter alia, operational costs and settlement risk management costs.In
order to make a payment or transfer funds through IMPS, one must have at least one of the following
details about the beneficiary: Mobile number and Mobile Money Identifier (MMID) Bank account
number and IFSC. Aadhaar number

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Mobile Banking
In order to quicken the process of MPIN generation and also widen the accessibility of this process to
their mobile banking registered customers, banks can consider adopting various channels / methods
such as
Through the ATM channels (similar to option available for change of PIN on their own ATMs as well
as in inter-operable ATM networks)
Through an option provided in the USSD menu for mobile banking (both their own USSD platform, if
any, as well as under the inter-operable USSD Platform for mobile banking)
Use of MPIN mailers (like PIN mailers for cards)
In the last two decades, mobile banking has evolved from being mere SMS-based support service –
wherein customers get updates about their transactions – to a full-fledged banking service,
protocol/WAP-supported smartphones, now a customer can avail of almost all those services that he
could once get only when physically present at the branch. Technically, all bank transactions that
involve accessing credit/debit through a mobile device (phone or handheld tablet) are considered as
mobile-banking transactions. These services, currently offered by 97 banks in India, are available to
mobile customers irrespective of their mobile network or service provider. A customer may simply
register with their respective bank and download a specific application on their smartphone. Licensed
banks with the provision of core banking solutions (CBS) are permitted to offer mobile-banking services
to their customers after obtaining necessary permissions from the Department of Payments and
Settlement Systems, Reserve Bank of India. As of now, only rupee-based services within India are
allowed; cross-border transfers of any kind are prohibited.

Mobile Banking For Children

RBI, in May 2014, allowed banks to let minors above the age of 10 years open and operate bank
accounts independently. The minors can open a savings, fixed or recurring bank deposit account. These
accounts also offer debit card and chequebook facility.
Typically, mobile-banking services include the following:
 Account information
 Mini statements and account history
 Alerts on account activities
 Monitoring term deposits
 Access to loan and/or card statements
 Insurance policy management Funds transfer
 Fund transfers between customer-linked accounts
 Fund transfers to other accounts
 Bill payments
 Credit card payments Investment
 Portfolio management
 Real-time stock quotes
 Personalized alerts and notifications on security prices

Support services
• Chequebook and card requests

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• Complaint filing and tracking
• ATM location

Mobile banking is not restricted to smartphones. National Payments Corporation of India offers mobile
banking services on a National Unified USSD Platform (NUUP) through a short code – *99#. This
number allows banking customers to access banking services with a single number across all banks –
irrespective of the telecom service provider, the mobile handset make, or the region.
Benefits
• Works across all GSM mobile handsets. No application installation is required on the mobile
handset, the service also has an interactive menu
• Round-the-clock availability (functional even on holidays)
• Provides a variety of banking and value-added service
• GPRS is not required; works only on voice connectivity
• Additional channel for banking and a key

Unified Payments Interface (UPI)

Unified Payments Interface, commonly referred as UPI, is an Indian instant payment system developed
by the National Payments Corporation of India (NPCI) in 2016. The interface facilitates inter-bank
peer-to-peer (P2P) and person-to-merchant (P2M) transactions. It is used on mobile devices to instantly
transfer funds between two bank accounts. The mobile number of the device is required to be registered
with the bank. The UPI ID of the recipient can be used to transfer money. It runs as an open-source
application programming interface (API) on top of the Immediate Payment Service (IMPS) and is
regulated by the Reserve Bank of India (RBI). Indian Banks started making their UPI-enabled apps
available on the Google Play on 25 August 2016.

UPI 2.0
On 16 August 2018, UPI 2.0 was launched, which enabled users to link their overdraft accounts to a
UPI handle. Users were also able to pre-authorise transactions by issuing a mandate for a specific
merchant. This version also included a feature to view and store an invoice for each transaction. An
AutoPay facility for recurring payments was also added. As of August 2021, State Bank of India, Bank
of Baroda and Paytm Payments Bank have been live on UPI AutoPay, each registering 660,000,
204,000, and 186,000 mandates, respectively. From 15 March 2022, the government removed the need
for debit cards for UPI registration. NPCI is planning to expand AutoPay to international markets and
operationalize real-time payment dispute resolution mechanisms covering 90% of the complaints by
September 2022.
From 8 June 2022, RBI allowed linking RuPay credit cards with UPI. Customers can now make credit
card payments using UPI, in the absence of a physical card. NPCI developed a real-time feature that
will reduce the 24-hour time period taken by banks to unblock funds over time-out or transaction
declines to 30 seconds. The service was officially launched on 20 September 2022. On 7 December
2022, RBI announced that UPI will upgrade from single-block-single to single-block-multiple debit for

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recurring transactions and investments in securities. This feature is expected to help users block funds
for specific purposes and release them when needed.
RBI on 6 April 2023 proposed allowing credit on UPI through pre-approved bank lines which would
help customers reduce their dependence on credit cards. On its point-of-sale devices, Razorpay
introduced a quick refund feature for UPI in 2024. Compared to the industry average of five to six
business days, the reimbursement will be initiated within 2 minutes.[43]

UPI 123PAY
As part of a financial inclusion initiative, NPCI with fintech start-up Naffa Innovations with their
product ToneTag in 2021 started working on developing a voice-based payment service for feature
phone users in low connectivity zones over UPI payment ecosystem under Interactive Voice Response
(IVR) project. The system utilised Dual Tone Multi-Frequency (DTMF) signalling technology with
two-factor authentication (2FA) flow for peer-to-peer (P2P) transaction. From September 2020 to June
2021, it was under beta testing while awaiting RBI approval for large-scale deployment. The beta testing
and pilot experiment were completed by October 2021 and RBI started formulating guidelines for
nationwide use.
The RBI governor Shaktikanta Das launched the service called UPI 123PAY on 8 March 2022, with an
aim to help almost 400 million feature phone users in the country. Till now, UPI payments were only
possible through payment applications on smartphones and USSD-based service for feature phones.
However, as per Deputy Governor T Rabi Shankar, the latter has been found to be cumbersome due to
the unavailability of the services on several mobile networks.
UPI 123PAY has four options for payment.
App-based functionality where a mobile phone manufacturer can install a UPI app through over-the-air
programming, that can be used for payment.
Missed calls based: where a customer can use a dedicated merchant payment number by giving a missed
call. The incoming authentication call will ask for PIN verification to complete the transaction.
Interactive Voice Response (IVR) based where the payment transaction will be completed using pre-
defined phone numbers.
Payment in offline mode through sound-based proximity data communication.
As per NPCI, some of the early use cases involve FASTag recharges, insurance payments, and EMI
collections. As of 20 September 2022, Ultracash Technologies in collaboration with Bharat Petroleum
helped 200,000 active users make LPG booking and payment through UPI 123PAY.
UPI One World
RBI announced extending UPI payment facility for inbound travelers from G20 countries. Transcorp
International will enable UPI One World for nationals coming from G20 countries.
UPI Wallet
UPI Wallet facility has been introduced for foreign tourists in India, Once set up, users can add funds
using their preferred debit or credit card and start scanning to pay at over 20 million stores in India with
no commission fee. The wallet's wide acceptance means it is convenient for tourists to transact in any
location, from roadside tea stalls to five-star resorts. There are apps for UPI wallet such as Cheq UPI.
Remittance
Due to increasing remittances to India, NIPL with Western Union is going to integrate UPI to help the
Indian diaspora receive and send money abroad with ease. The service will become operational from
second quarter of 2022. IndusInd Bank and Thailand based financial service provider DeeMoney will

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use UPI ID to verify customers in India for cross border transaction. This is part of the Money Transfer
Operator (MTO) partners programme of NPCI. IndusInd Bank is planning to collaborate with more
foreign entities to increase acceptability of UPI abroad. NIPL on 27 January 2022 signed MoU with
Netherlands based Terra Payment Services that will help UPI users receive international payments from
around the globe in real time.

To save the cost borne by Indians living abroad when sending money back home, NPCI is planning to
move 32 million expatriate population from SWIFT to UPI The 2022 Russian invasion of Ukraine and
removal of Russian banks from SWIFT made development of an alternative all the more important for
Indian policy makers.
From 30 April 2023, international mobile numbers from Malaysia, Singapore, Australia, Canada, Hong
Kong, Oman, Qatar, USA, Saudi Arabia, UAE, and the UK will be able to access the UPI transaction
facility. It will be available through non-resident external (NRE) and non-resident ordinary (NRO)
accounts.Customers of Axis Bank, DBS Bank, ICICI Bank, Indian Bank, Indian Overseas Bank, and
State Bank of India can now utilize the remittance facility between Singapore and India via the BHIM,
Paytm, and PhonePe applications, according to a 11 January 2024, announcement from NPCI. Soon,
more banks are anticipated to be connected, including HDFC Bank, Bank of Baroda, Bank of India,
Canara Bank, Central Bank of India, Federal Bank, IDFC First Bank, IndusInd Bank, Karur Vysya
Bank, Kotak Mahindra Bank, Punjab National Bank, South Indian Bank, and UCO Bank.

Service
For real-time payments from one bank account to another, any UPI client app can be used and multiple
bank accounts can be linked to a single app. Money can be sent or requested using a user-created Virtual
Payment Address (VPA) or UPI ID for each bank account using the KYC-linked mobile number. UPI
also generates a specific QR code for each user account for contactless payments. The RBI increased
the UPI payment limit for payments in hospitals and educational institutions from Rs100,000 to
Rs500,000 on 8 December 2023. Multi-factor authentication for UPI e-mandates will now be activated
over Rs100,000, as opposed to Rs 15,000, for credit card repayments, mutual fund subscriptions, and
insurance premium payments.

Mobile apps
Any UPI app can be used to transfer funds from and to UPI enabled banks. Apart from various third-
party apps such as Google Pay (previously Tez), PhonePe, Paytm, Amazon Pay, Airtel Payments Bank,
MobiKwik, Samsung Pay, WhatsApp Pay,[79] NPCI manages its own app, BHIM.The total number of
banks linked to UPI platform grew from 21 in April 2016 to 304 in February 2022. In June 2021, NPCI
removed the restriction placed on WhatsApp for UPI customer onboarding which until then was limited
to 20 million users. With 530 million registered users in the Indian market, WhatsApp could then roll
out UPI to all its customers.

On-Device Wallet
NPCI called this feature UPI Lite. It can scan QR code without the need of an internet connection. In
phase 1, UPI Lite will process the debit transaction offline while the credit will happen when the device
goes online. But the final goal is to achieve both credit and debit transaction through offline mode. The
upper limit of UPI Lite On-Device wallet is Rs2,000. Additional factor authentication or UPI AutoPay
feature will be used to securely load the desirable amount.Since 50% of UPI transactions are below
Rs200 with a higher frequency rate, the per transaction limit will be maximum Rs 200, as it creates a
large backlog of volume which increases the failure rate and affects the stability of the entire payment

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network. To save electricity consumption and computing power of banks, UPI mobile apps will have
to support on-device wallet features as per the RBI directive from December 2021. The in-built wallet
will help in low-value instant payment by using the infrastructure of the mobile app developer, thus
decreasing the load on banks through decentralization of back-end infrastructure and resources. On 20
September, RBI governor Shaktikanta Das officially launched UPI Lite at Global Fintech Fest 2022.
Canara Bank, HDFC Bank, Indian Bank, Kotak Mahindra Bank, Punjab National Bank, State Bank of
India, Union Bank of India and Utkarsh Small Finance Bank enabled UPI Lite feature on BHIM.Paytm
Payments Bank on 15 February 2023 went live with UPI Lite feature.

Supported Banks
The NPCI website lists the banks that facilitate UPI, termed as Payment Service Providers (PSP) – listed
with their UPI application and handle – and issuers. PSP includes banks which have their own mobile
application to facilitate transaction and issuers include banks which don't have their own payments
interface and rely on third-party software for transactions.

e-RUPI
e-RUPI or e₹UPI (portmanteau of electronic Rupee and UPI) developed in collaboration with
Department of Financial Services, Ministry of Health and Family Welfare and National Health
Authority. It was introduced from 2 August 2021. e-RUPI is to ensure leak proof delivery of welfare
services and bypassing middle man to decrease corruption. Private sector can use the service for their
own corporate social responsibility initiative (CSR). e-RUPI is basically e-voucher based on QR code
or SMS string that can be delivered through mobile phone.e-RUPI will act as a precursor for future
Central bank digital currency (CBDC) that will be launched by RBI as it will help in highlighting the
gaps within the national digital payment infrastructure. Financial Software and Systems (FSS)
integrated e-RUPI on 1 December 2021 for financially underserved segments of the society.
Government of Karnataka partnered with NPCI to provide student scholarship through e-RUPI which
can even be received on feature phones.

Digital Rupee
As part of the Central Bank Digital Currency pilot project, Canara Bank has released the Unified
Payments Interface compatible digital rupee mobile app. Without the need for a separate on-boarding
procedure for CBDC for retailers, it will enable users to scan the existing UPI QR code and make
payments using digital rupee. Customers in 26 Indian cities who have been whitelisted can access the
service as part of a pilot program.In 2019, UPI accounted for 17% of the Rs 31 billion of digital
transactions, and in 2022, accounted for 52% of the Rs 88.4 billion of digital transactions. As per
Minister of State for Finance Bhagwat Karad, in terms of volume, UPI increased at a CAGR of 147%
from 92 crore in FY 2017–18 to 8,375 crore in FY 2022–2023. At a CAGR of 168%, the value of UPI
transactions increased from Rs 1 lakh crore in FY 2017–18 to Rs139 lakh crore in FY 2022–23. With
UPI representing 62% of digital payment transactions in FY 2022–2023, it has been the primary driver
of the overall development of digital payment transactions in India.
In January 2024, the value of UPI transactions reached Rs18.41 trillion, a slight increase of 1% from
Rs 18.23 trillion in December 2023. From 12.02 billion in October 2023 to 12.20 billion in January
2024, there was a 1.5% increase in transactions. With 11.4 billion transactions, the value was recorded
at Rs 17.4 trillion in November 2023. In comparison to the same month in the previous fiscal year,
January 2024 numbers were 52% higher in volume and 42% higher in value, according to NPCI data.

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 CHAPTER 9
ANCILLARY SERVICE

Letter Of Guarantees
Back Ground
In view of the risks involved in the business of issuance of guarantees, the Co-operative Banks should
extend guarantees within restricted limits so that their financial position is not impaired. The banks
should follow certain broad guidelines in respect of their guarantee business as indicated in the
following paragraphs.
Purpose
As a general rule, banks may provide only financial guarantees and not performance guarantees.
However, the scheduled banks may issue performance guarantees on behalf of their constituents subject
to exercising due caution in the matter.
Maturity
It would be desirable for bank to confine their guarantees to relatively short-term maturities. Guarantees
should not be issued for periods exceeding ten years in any case.
Volume
The total volume of guarantee obligations outstanding at any time may not exceed 10 per cent of the
total owned resources of the bank comprising paid up capital, reserves and deposits. Within the overall
ceiling, proportion of unsecured guarantees outstanding at any time may be limited to an amount
equivalent to 25% of the owned funds (paid up capital + reserves) of the bank or 25% of the total amount
of guarantees, whichever is less.
Secured Guarantees
Banks should preferably issue secured guarantees. A secured guarantee means a guarantee made on the
security of assets (including cash margin), the market value of which will not at any time be less than
the amount of the contingent liability on the guarantee, or a guarantee fully covered by counter
guarantee/s of the Central Government, State Governments, public sector financial institutions and / or
insurance companies. Banks should generally provide deferred payment guarantees backed by adequate
tangible securities or by counter guarantees of the Central or the State Government or public sector
financial institutions or of insurance companies and other banks.
Unsecured Guarantees
Banks should avoid undue concentration of unsecured guarantee commitments to particular groups of
customers and / or trades. The banks' Board of Directors should fix suitable proportions for issuance of
unsecured guarantees on behalf of any individual constituent so that these guarantees do not exceed a
reasonable proportion of the total obligations in respect of unsecured guarantees provided by the bank
to all such constituents at any time, andreasonable multiple of the shareholdings in the bank.

Deferred Guarantees
Banks, which intend to issue deferred payment guarantees on behalf of their borrowers for acquisition
of capital assets should ensure that the total credit facilities including the proposed deferred payment
guarantees do not exceed the prescribed exposure ceilings. The proposals for deferred payment
guarantees should be examined having regard to the profitability / cash flows of the project to ensure
that sufficient surpluses are generated by the borrowing unit to meet the commitments as a bank has to
meet the liability at regular intervals in respect of the instalments due. The criteria generally followed

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for appraising a term loan proposal for acquisition of capital assets should also be applied while issuing
deferred payment guarantees.
Guarantees In Respect Of Commodities Covered Under Selective Credit Controls
Banks should not issue, either to a Court or to Government, or any other person, a guarantee on behalf
of or on account of any importers guaranteeing payment of customs duty and / or import duty, or other
levies, payable in respect of import of essential commodities without taking, as security for issue of
such guarantees, a cash margin equivalent to at least one half of the amount payable under the guarantee.
The term "essential commodities" shall mean such commodities as may be specified by the Reserve
Bank of India from time to time.
Safeguards In Issuance Of Guarantees
While issuing the financial guarantees, the banks should observe the following safeguards:
The bank guarantees should be issued in security forms serially numbered to prevent issuance of fake
guarantees. Guarantees above a particular cut off point, as may be decided by each bank, should be
issued under two signatures in triplicate, one copy each for the branch, beneficiary and Controlling
Office / Head Office. It should be binding on the part of the beneficiary to seek confirmation of the
Controlling Office / Head Office as well for which a specific stipulation be incorporated in the guarantee
itself. The guarantees should not normally be allowed to the customers who do not enjoy credit facilities
with the banks but only maintain current accounts. If any requests are received from such customers,
the banks should subject the proposals to thorough scrutiny and satisfy themselves about the genuine
need of the customers. The banks should be satisfied that the customers would be in a position to meet
the claims under the guarantees, when received, and not approach the bank for credit facility in this
regard. For this purpose the banks should enquire into the financial position of the customers, the source
of funds from which they would be in a position to meet the liability and prescribe a suitable margin
and obtain other security, as necessary. The banks may also call for the detailed financial statements
and Wealth-tax / Income-tax returns of the customer to satisfy themselves of their financial status. The
observations of the banks in respect of all these points should be recorded in banks' books. Where the
customers enjoy credit facilities with other banks, the reasons for their approaching the bank for
extending the guarantees should be ascertained and invariably, a reference should be made to their
existing bankers with whom they are enjoying credit facilities. Banks, when approached to issue
guarantees in favour of other banks for grant of credit facilities by another bank, should examine
thoroughly the reasons for approaching another bank for grant of credit facilities and satisfy themselves
of the need for doing so. This should be recorded in bank's books.
When it is considered necessary to issue such guarantees, the banks concerned should ensure that the
relative guarantee document, beyond a stipulated amount, should not be signed singly but by two
authorised officials jointly after obtaining proper sanction and authority and proper record of such
guarantee issued being maintained. The credit proposals should be subjected to usual scrutiny by the
lending bank ensuring that the proposals conform to the prescribed norms and guidelines and credit
facilities are allowed only if the bank is satisfied about the merits of the proposal and the availability of
another bank's guarantee should not result in a dilution of the standards of evaluation of the proposal
and financial discipline in lending.

Safe Deposits Locker

Customer Due Diligence
The existing customers of a bank who have made an application for locker facility and who are fully
compliant with the CDD criteria under the Master Direction – Know Your Customer (KYC) Directions,
2016 (as updated from time to time) may be given the facilities of safe deposit lockers/ safe custody
article subject to on-going compliance. Customers who are not having any other banking relationship
with the bank may be given the facilities of safe deposit locker / safe custody article after complying

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with the CDD criteria under the Master Direction – Know Your Customer (KYC) Directions, 2016 (as
updated from time to time) and subject to on-going compliance. The due diligence shall be carried out
for all the customers in whatever rights and capacities they may be hiring the locker. Banks shall
incorporate a clause in the locker agreement that the locker-hirer/s shall not keep anything illegal or any
hazardous substance in the Safe Deposit locker. If the bank suspects the deposit of any illegal or
hazardous substance by any customer in the safe deposit locker, the bank shall have the right to take
appropriate action against such customer as it deems fit and proper in the circumstances. The banks
shall obtain recent passport size photographs of locker-hirer(s) and individual(s) authorised by locker
hirer(s) to operate the locker and preserve in the records pertaining to locker-hirer being maintained in
the bank’s branch.
Locker Allotment
In order to facilitate customers making informed choices, banks shall maintain a branch wise list of
vacant lockers as well as a wait-list in Core Banking System (CBS) or any other computerized system
compliant with Cyber Security Framework issued by RBI, for the purpose of allotment of lockers and
ensure transparency in allotment of lockers. The banks shall acknowledge the receipt of all applications
for allotment of locker and provide a wait list number to the customers, if the lockers are not available
for allotment.
Model Locker Agreement
Banks shall have a Board approved agreement for safe deposit lockers. For this purpose, banks may
adopt the model locker agreement to be framed by IBA. This agreement shall be in conformity with
these revised instructions and the directions of the Hon’ble Supreme Court in this regard. Banks shall
ensure that any unfair terms or conditions are not incorporated in their locker agreements. Further, the
terms of the contract shall not be more onerous than required in ordinary course of business to safeguard
the interests of the bank. Banks shall renew their locker agreements with existing locker customers by
January 1, 2023.
At the time of allotment of the locker to a customer, the bank shall enter into an agreement with the
customer to whom the locker facility is provided, on a paper duly stamped. A copy of the locker
agreement in duplicate signed by both the parties shall be furnished to the locker-hirer to know his/her
rights and responsibilities. Original Agreement shall be retained with the bank’s branch where the
locker is situated.
Locker Rent
Banks may face potential situations where the locker-hirer neither operates the locker nor pays the rent.
To ensure prompt payment of locker rent, banks are allowed to obtain a Term Deposit, at the time of
allotment, which would cover three years’ rent and the charges for breaking open the locker in case of
such eventuality. Banks, however, shall not insist on such Term Deposits from the existing locker
holders or those who have satisfactory operative account. The packaging of allotment of locker facility
with placement of term deposits beyond what is specifically permitted above will be considered as a
restrictive practice.
If locker rent is collected in advance, in the event of surrender of a locker by a customer, the
proportionate amount of advance rent collected shall be refunded to the customer.
If there is any event such as merger / closure / shifting of branch warranting physical relocation of the
lockers, the bank shall give public notice in two newspapers (including one local daily in vernacular
language) in this regard and the customers shall be intimated at least two months in advance along with
options for them to change or close the facility. In case of unplanned shifting due to natural calamities
or any other such emergency situation, banks shall make efforts to intimate their customers suitably at
the earliest.

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Infrastructure And Security Standards
Security Of The Strong Room/Vault
Banks shall take necessary steps to ensure that the area in which the locker facility is housed is properly
secured to prevent criminal break-ins. The risks of accessibility of an allotted locker from any side
without involvement of the locker-hirer concerned may be assessed and kept on record. Banks shall
have a single defined point of entry and exit to the locker room/vault. The place where the lockers are
housed must be secured enough to protect against hazard of rain / flood water entering and damaging
the lockers in contingent situations. The fire hazard risks of the area should also be assessed and
minimized. The banks, as per their policy, shall conduct necessary engineering / safety verification
regularly to identify the risks and carry out necessary rectification. The area housing the lockers should
remain adequately guarded at all times. The banks shall install Access Control System, if required as
per their risk assessment, which would restrict any unauthorized entry and create digital record of access
to locker room with time log. As per their internal security policy, banks may cover the entry and exit
of the strong room and the common areas of operation under CCTV camera and preserve its recording
for a period of not less than 180 days. In case any customer has complained to the bank that his/her
locker is opened without his/her knowledge and authority, or any theft or security breach is
noticed/observed, the bank shall preserve the CCTV recording till the police investigation is completed
and the dispute is settled. The security procedures shall be well-documented and the staff concerned
shall be properly trained in the procedure. The internal auditors shall verify and report the compliance
to ensure that the procedures are strictly adhered to.

Locker Standards
All the new mechanical lockers to be installed by the banks shall conform to basic standards /
benchmarks for safety and security as prescribed by Bureau of Indian Standards (BIS) or any other
enhanced industry standards applicable in this regard.
Banks offering electronically accessed lockers should be fully aware of the safety and security features
of such lockers satisfying appropriate industry standards. In case the lockers are being operated through
an electronic system, the bank shall take reasonable steps to ensure that the system is protected against
hacking or any breach of security. The customers’ personal data, including their biometric data, shall
not be shared with third parties without their consent. Further, banks shall ensure that the electronically
operated lockers are compliant with the Cyber Security Framework prescribed by the Reserve Bank.
The system should be capable of maintaining unalterable log of locker activities. The banks shall
comply with the relevant statutory / regulatory guidelines/requirements applicable for IT / data
protection. Further, the banks shall also devise a standard operating procedure for issue of new password
in lieu of lost passwords to customers in a safe and secure manner in case of electronically operated
lockers.
Banks shall ensure that identification Code of the bank / branch is embossed on all the locker keys with
a view to facilitating identification of lockers / locker ownership by law enforcement agencies in case
of need. Further, the custodian of the locker shall, regularly/periodically, check the keys maintained in
the branch to ensure that they are in proper condition. Banks shall permit the locker-hirer to operate the
locker only with the key provided by the bank, although there is no restriction in allowing the customer
to use an additional padlock of her /his own if there are such provisions in lockers.

Locker Operations
Regular Operations by Customers
The locker hirer and/or the persons duly authorized by him/ her only shall be permitted to operate the
locker after proper verification of their identity and recording of the authorization by the officials
concerned of the bank. The bank shall maintain a record of all individuals, including the locker-hirers,

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who have accessed the lockers and the date and time (both check-in and check-out time) on which they
have opened and closed the locker and obtain their signature. The ingress and egress register for access
to Vault Room by locker-hirers or any other individual including the banks’ staff shall be maintained
to record the movement of individuals in the Vault Room area with their signatures at appropriate place
in the records.
The bank’s officer authorizing the locker-hirer to access the locker, after unlocking the first key /
password shall not remain present when the locker is opened by the locker-hirer. The banks shall ensure
that there is adequate privacy to the locker-hirers in the operations when customers access the lockers
at the same time.
Banks shall send an email and SMS alert to the registered email ID and mobile number of the customer
before the end of the day as a positive confirmation intimating the date and time of the locker operation
and the redressal mechanism available in case of unauthorized locker access.
Internal Controls By Banks
There shall be a system of inter change of locks whenever the locker is surrendered by the hirer. The
keys of vacant lockers shall be kept in sealed envelopes. The duplicate master keys shall be deposited
with another branch of the bank. There shall be proper record of joint custody of master keys. Banks
shall conduct surprise periodic verification of surrendered/vacant lockers and their keys by an officer
of the bank who is not connected with their custody and proper record shall be maintained as a proof of
such verification.
Banks shall ensure that the Locker Register and the Locker Key Register are maintained in CBS or any
other computerized system compliant with the Cyber Security Framework issued by the Reserve Bank.
The Locker Register shall be updated in case of any change in the allotment with complete audit trails.

The bank custodian shall check whether the lockers are properly closed post locker operation. If the
same is not done, the lockers must be immediately closed, and the locker-hirer shall be promptly
intimated through e-mail, if registered or through SMS, if mobile number is registered or through letter
so that they may verify any resulting discrepancy in the contents of the locker. The bank custodian shall
record the fact of not closing the locker properly in the register and its closure by the bank with the date
and time. Further, the custodian of the locker room shall carry out a physical check of the locker room
at the end of the day to ensure that lockers are properly closed, and that no person is inadvertently
trapped in the locker room after banking hours.
Nomination Facility And Settlement Of Claims
Nomination Facility
The banks shall offer nomination facility in case of safe deposit lockers and safe custody of articles, in
accordance with the provisions of section 45-ZC to 45-ZF of the Banking Regulation Act, 1949 and
Banking Companies (Nomination) Rules, 1985/Co-operative Banks (Nomination) Rules, 1985. In case
the nominee is a minor, the same procedure as prescribed for the bank accounts shall be followed by
the banks. A passport size photo of the nominee attested by the customer may be obtained from the
customers, at his/her option and preserved in the records.
For the various Forms (Forms SC1, SC2 and SC3 for Articles left in Safe Custody and Forms SL1,
SL1A, SL2, SL3 and SL3A for Safety Lockers) prescribed under Banking Companies (Nomination)
Rules, 1985/Co-operative Banks (Nomination) Rules, 1985, only Thumb-impression(s) shall be
required to be attested by two witnesses. Signatures of the account holders need not be attested by
witnesses. Banks shall have appropriate systems and procedures in place to register the nomination,
cancellation and / or variation of the nomination, in their books, made by the locker hirers. Banks shall
devise a proper system of acknowledging the receipt of duly completed form of nomination,
cancellation and / or variation of the nomination. Such acknowledgement shall be given to all the
customers irrespective of whether the same is demanded by the customers or not.

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Settlement Of Claims In Case Of Death Of A Customer
Banks shall have a Board approved policy for settlement of claims. The policy shall be in conformity
with the regulatory instructions and the Model Operational Procedure (MOP) for settlement of claims
of the deceased constituents formulated by the IBA and in case of State and Central Co-operative Banks,
MOP formulated by NABARD. Banks shall have a Board approved policy for nomination and release
of contents of safety lockers / safe custody article to the nominee and protection against notice of claims
of other persons in accordance with the provisions of Sections 45 ZC to 45 ZF of the Banking
Regulation Act, 1949 and the Banking Companies (Nomination) Rules, 1985/Co-operative Banks
(Nomination) Rules, 1985 and the relevant provisions of Indian Contract Act and Indian Succession
Act. In order to ensure that the articles left in safe custody and contents of lockers are returned to the
genuine nominee, as also to verify the proof of death, banks shall devise their own claim formats, in
terms of applicable laws and regulatory guidelines. Time limit for settlement of claims: Banks shall
settle the claims in respect of deceased locker hirers and shall release contents of the locker to
survivor(s) / nominee(s), as the case may be, within a period not exceeding 15 days from the date of
receipt of the claim subject to the production of proof of death of the depositor and suitable identification
of the claimant(s) with reference to nomination, to the bank's satisfaction. Banks shall report to the
Customer Service Committee of the Board, at appropriate intervals, on an ongoing basis, the details of
the number of claims received pertaining to deceased locker-hirers / depositors of safe custody article
accounts and those pending beyond the stipulated period, with reasons therefor. Customer Service
Committee of the Board of the banks shall review the settlement of claims and make suggestions to
ensure that the claims are settled as early as possible unless there is any litigation pending before the
Courts or any difficulty is being faced in identifying the true claimant with reference to nomination.

Access To The Articles In The Safe Deposit Lockers / Return Of Safe Custody Articles
If the sole locker hirer nominates an individual to receive the contents in the locker, in case of his death,
after verification of the death certificate and satisfying the identity and genuineness of such individual
approached, the banks shall give access of the locker to such nominee with liberty to remove the
contents of the locker, after an inventory was taken in the prescribed manner. In case the locker was
hired jointly with the instructions to operate it under joint signatures, and the locker hirer(s) nominates
any other individual(s), in the event of death of any of the locker hirers, the bank shall give access of
the locker and the liberty to remove the contents jointly to the survivor(s) and the nominee(s) after an
inventory was taken in the prescribed manner. In case the locker was hired jointly with survivorship
clause and the hirers instructed that the access of the locker should be given to "either or survivor",
"anyone or survivor" or "former or survivor" or according to any other survivorship clause permissible
under the provisions of the Banking Regulation Act, 1949, the banks shall follow the mandate in the
event of death of one or more of the joint locker-hirers. Banks shall, however, ensure the following
before giving access to the contents to nominee / survivor: Exercise due care and caution in establishing
the identity of the survivor(s) / nominee(s) and the fact of death of the locker hirer by obtaining
appropriate documentary evidence. Make diligent effort to find out whether there is any order or
direction from Courts/Forums restraining it from giving access to the locker of the deceased; and Make
it clear to the survivor(s) / nominee(s) that access to articles in the locker / safe custody articles is given
to them only as a trustee of the legal heirs of the deceased locker hirer i.e., such access given to them
shall not affect the right or claim which any person may have against the survivor(s) / nominee(s) to
whom the access is given.
Similar procedure shall be followed for return of articles placed in the safe custody of the bank.
The banks shall ensure that, the contents of locker, when sought to be removed on behalf of a minor
nominee, are handed over to a person who is, in law, competent to receive the articles on behalf of such
minor. Further, the banks shall prepare an inventory of the articles in the presence of two independent
witnesses, one officer of the bank who is not associated with the locker facility or safe deposit of articles

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and the claimant (s), who may be a nominee or an individual receiving the articles, on behalf of a minor.
The bank shall obtain a separate statement from the nominee (claimant) or the person competent to
receive articles on behalf of the minor, as the case may be, that all the contents in the locker or in the
safe custody of the bank, as the case may be, are received and the locker is empty and they have no
objection to allotment of the locker to any other customer as per norms.
While giving access to the survivor(s) / nominee(s) of the deceased locker hirer / depositor of the safe
custody articles, banks may avoid insisting on the production of succession certificate, letter of
administration or probate, etc., or obtain any bond of indemnity or surety from the
survivor(s)/nominee(s), unless there is any discrepancy in nomination. In case where the deceased
locker hirer had not made any nomination or where the joint hirers had not given any mandate that the
access may be given to one or more of the survivors by a clear survivorship clause, banks shall adopt a
Board approved policy to facilitate access to legal heir(s) / legal representative of the deceased locker
hirer. Similar procedure shall be followed for the articles under safe custody of the bank.

Closure And Discharge Of Locker Items

This part refers to the breaking open of the locker in a manner other than through the normal access by
the customer using her/his original key or password under any one of the following circumstances:
if the hirer loses the key and requests for breaking open the locker at her /his cost; or if the Government
enforcement agencies have approached the bank with orders from the Court or appropriate competent
authority to seize lockers and requested for access to the lockers; or if the bank is of the view that there
is a need to take back the locker as the locker hirer is not co-operating or not complying with the terms
and conditions of the agreement. Banks shall have a clear Board approved policy together with a
Standard Operating Procedure (SOP) for breaking open the lockers for all possible situations keeping
in view the relevant legal and contractual provisions.
Discharge Of Locker Contents At The Request Of Customer
If the key of the locker, supplied by bank is lost by the locker-hirer, the customer (locker hirer) shall
notify the bank immediately. An undertaking may also be obtained from the customer that the key lost,
if found in future, will be handed over to the bank. All charges for opening the locker, changing the
lock and replacing the lost key may be recovered from the hirer. The charges applicable for replacement
of lost keys / issue of new password shall be communicated to the locker hirer. The opening of the
locker has to be carried out by the bank or its authorized technician only after proper identification of
the hirer, proper recording of the fact of loss and written authorization by the customer for breaking
open the locker. The operation shall be done in the presence of the customer/s and an authorized official
of the bank. It has to be ensured that the adjoining lockers are not impacted by any such operations and
the contents of the lockers are not exposed to any individual other than the locker-hirer during the break-
up or restoration process.
Attachment and recovery of contents in a Locker and the Articles in the safe custody of the bank by any
Law Enforcement Authority. In case of attachment and recovery of the contents in a locker of a
customer or the articles left by a customer for safe custody of the bank by any Authority acting either
under the orders of a Court or any other competent authority vested with the power to pass such orders,
the banks shall co-operate in execution and implementation of the orders.
The bank shall verify and satisfy itself about the orders and the connected documents received for
attachment and recovery of the contents in a locker or articles in the safe custody of the bank. The
customer (locker-hirer) shall be informed by letter as well as by email/SMS to the registered email
id/mobile phone number that the Government Authorities have approached for attachment and recovery
or seizure of the locker or articles deposited for safe custody. An inventory of the contents of locker
and articles seized and recovered by the Authority shall be prepared in the presence of such Government
Authorities, two independent witnesses and an officer of the bank and shall be signed by all. A copy of
the inventory may be forwarded to the customer to the address available in the bank’s records or handed

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over to the customer against acknowledgement. Banks shall also record a video of the break-open
process and the inventory assessment, wherever legally permissible, and preserve the video to produce
as evidence in case of any dispute or Court or fraud case in future.
Discharge Of Locker Contents By Banks Due To Non-Payment Of Locker Rent
Banks shall have the discretion to break open any locker following due procedure if the rent has not
been paid by the customer for three years in a row. The bank shall ensure to notify the existing locker-
hirer prior to any changes in the allotment and give him/her reasonable opportunity to withdraw the
articles deposited by him/her. A clause may be incorporated in the locker agreement to this effect.Before
breaking open the locker, the bank shall give due notice to the locker-hirer through a letter and through
email and SMS alert to the registered email id and mobile phone number. If the letter is returned
undelivered or the locker-hirer is not traceable, the bank shall issue public notice in two newspaper
dailies (one in English and another in local language) giving reasonable time to the locker-hirer or to
any other person/s who has interest in the contents of locker to respond. The locker shall be broken
open in the presence of an officer of the bank and two independent witnesses. In case of electronically
operated lockers (including Smart Vaults), the use of ‘Vault Administrator’ password for opening of
locker shall be assigned to a senior official and complete audit trail of access shall be preserved. Further,
banks shall also record a video of the break open process together with inventory assessment and its
safe keep and preserve the same so as to provide evidence in case of any dispute or Court case in future.
Banks shall also ensure that the details of breaking open of locker is documented in CBS or any other
computerized systems compliant with the Cyber Security Framework issued by RBI, apart from locker
register. After breaking open of locker, the contents shall be kept in sealed envelope with detailed
inventory inside fireproof safe in a tamper-proof way until customer claims it. A record of access to the
fireproof safe shall invariably be maintained. While returning the contents of the locker, the bank shall
obtain acknowledgement of the customer on the inventory list to avoid any dispute in future.
Banks shall ensure that the inventory prepared after breaking open of the locker and during settlement
of claims, is in the appropriate forms as provided at the end of this circular or as near thereto as
circumstances require. Further, banks shall not open sealed/closed packets left with them for safe
custody or found in locker while releasing them to the nominee(s) and surviving locker hirers / depositor
of safe custody article, unless required by law.
Discharge of locker contents if the locker remains inoperative for a long period of time. If the locker
remains inoperative for a period of seven years and the locker-hirer cannot be located, even if rent is
being paid regularly, the bank shall be at liberty to transfer the contents of the locker to their
nominees/legal heir or dispose of the articles in a transparent manner, as the case may be. Before
breaking open the locker, the bank shall follow the procedure as prescribed in paragraph 6.3.2 and 6.3.3
above. Banks shall ensure that the procedure to be followed by them for disposal of the articles left
unclaimed for a reasonably long period of time as mentioned above is incorporated in their locker
agreement. The banks shall ensure that appropriate terms are inserted in the locker agreement executed
with the customer specifying the position in case the locker is not in operation for long period. A clause
may also be incorporated in the locker agreement to discharge the bank from liability in case the locker
is not in operation and the locker is opened by the bank and contents are released as per law and as per
the instructions issued by the Reserve Bank and the terms and conditions prescribed in the agreement.

Compensation Policy / Liability for Banks

Liability Of Banks
The banks shall put in place a detailed Board approved policy outlining the responsibility owed by them
for any loss or damage to the contents of the lockers due to their negligence as banks owe a separate
duty of care to exercise due diligence in maintaining and operating their locker or safety deposit
systems. The duty of care includes ensuring proper functioning of the locker system, guarding against
unauthorized access to the lockers and providing appropriate safeguards against theft and robbery.
Further, banks shall adhere to the Master Directions on Frauds for reporting requirements about the

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instances of robberies, dacoities, thefts and burglaries. Liability of banks arising from natural calamities
like earthquake, flood, thunderstorm, lightning etc. or due to sole negligence of the customer. The bank
shall not be liable for any damage and/or loss of contents of locker arising from natural calamities or
Acts of God like earthquake, floods, lightning and thunderstorm or any act that is attributable to the
sole fault or negligence of the customer. Banks shall, however, exercise appropriate care to their locker
systems to protect their premises from such catastrophes. Liability of banks arising from events like
fire, theft, burglary, dacoity, robbery, building collapse or in case of fraud committed by the employees
of the bank
It is the responsibility of banks to take all steps for the safety and security of the premises in which the
safe deposit vaults are housed. It has the responsibility to ensure that incidents like fire, theft/ burglary/
robbery, dacoity, building collapse do not occur in the bank’s premises due to its own shortcomings,
negligence and by any act of omission/commission. As banks cannot claim that they bear no liability
towards their customers for loss of contents of the locker, in instances where loss of contents of locker
are due to incidents mentioned above or attributable to fraud committed by its employee(s), the banks’
liability shall be for an amount equivalent to one hundred times the prevailing annual rent of the safe
deposit locker.

Risk Management, Transparency And Customer Guidance

Branch Insurance Policy
Banks, with the approval of their Board, shall have a branch insurance policy to minimize the loss due
to incidents like robbery, fire, natural calamities, loss during shifting/merger of branch, etc., affecting
contents of lockers.
Insurance Of Locker Contents By The Customer
Banks shall clarify in their locker agreement that as they do not keep a record of the contents of the
locker or of any articles removed therefrom or placed therein by the customer, they would not be under
any liability to insure the contents of the locker against any risk whatsoever. Banks shall under no
circumstances offer, directly or indirectly, any insurance product to its locker hirers for insurance of
locker contents.
Agency Functions of Banks
A bank is a kind of financial organization that carries all the operations related to the deposit and
withdrawal of money for the general public, providing loans for investment, etc. These banks are profit-
making organizations and do business only to make a profit.
Some of the agency functions of a bank are Collection of cheques, bills, and drafts, Payment of interest,
installments of loans, insurance premium, etc. Purchase and sale of securities, Collection of interest,
dividend, etc., Transfer of funds through demand drafts, mail transfer, NEFT, RTGS etc., Purchase and
sale of foreign exchange.
The functions of banks are classified into two main categories
Primary functions- Accepts deposit, Provides loans and Advances, Credit Cash.
Secondary functions - Discounting bills of exchange, Overdraft Facility, Purchasing and Selling of the
Securities, Locker Facilities, Paying and Gather the Credit – It uses different instruments like a
promissory notes, cheques, and bills of exchange

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 CHAPTER - 10
CASH RESERVE RATIO AND STATUTORY LIQUIDITY RATIO
(CRR, SLR)

Maintenance of CRR by the banks

The objective of the CRR is to ensure that the banks maintain a minimum level of liquidity against their
liabilities so that they do not run short of liquidity in case of excess demand for funds. Banks are seen
as symbols of trust and any liquidity crisis can lead to a crisis of trust. That is the sole objective of CRR.
It is also used by the RBI to give signals on the direction of liquidity, although the RBI does not use it
very frequently these days.
Cash Reserve Ratio (CRR) is the amount of funds that banks have to maintain with the Reserve Bank
of India (RBI) and District Central Cooperative Banks with State Cooperative Banks or with notified
public sector banks at all times. If the central bank decides to increase the CRR, the amount available
with the banks for disbursal comes down. The RBI uses the CRR to drain out excessive money from
the system. Banks are required to maintain an average cash balance with the RBI, and with StCB or
public secort banks (for DCCBs) the amount of which shall not be less than 4.5% of the total of Net
Demand and Time Liabilities (NDTL) on a fortnightly basis.
Definition Of Statutory Liquidity Ratio (SLR)
Statutory Liquidity Ratio (SLR) is typically defined as the ratio of a bank's liquid assets to a bank's net
demand and time liabilities (NDTL).
Statutory Liquidity Ratio
In Indian banking terms, statutory liquidity ratio (SLR) refers to the minimum reserve requirement that
needs to be maintained by commercial banks RRBs Cooperative Banks in the nation. This term is used
by the Indian government. The word 'statutory' indicates that it is mandatorily and legally required. The
Reserve Bank of India (RBI) Act states that every commercial bank in India has to keep a certain amount
of time deposits as well as demand deposits as liquid assets in its independent and own vault.
In the case of statutory liquidity ratio, these assets can be in the form of gold, cash, securities that are
approved by the Indian government, etc. Apart from these assets, securities that are sanctioned under
market stabilisation schemes (MSS) as well as market borrowing programmes, and treasury bills are
included in the statutory liquidity ratio. Every bank must maintain this particular SLR as it assists in the
process of increasing bank credit.
Reserve Ratios To Be Maintained By Banks In India
A bank needs to maintain both CRR and SLR in order to function effectively in India according to the
specifications of the RBI. Each banking institution is given customised instructions regarding the
maintenance of SLR by the RBI. The RBI also offers regular updates regarding the classification of
assets that will be treated as liquid assets under SLR.
Need To Maintain Statutory Liquidity Ratio (Slr)
Every nation has a certain monetary authority that is responsible for the functioning of banks. In our
country, the Reserve Bank of India is the chief monetary authority and it works on a central level.
The main goal of the RBI is to make sure that prices are always stable in the nation without heavy
fluctuations. Its primary responsibility is to create and operate a monetary policy. The monetary policy
helps in administering the flow and supply of money for the purpose of attaining good growth in the
economy. This is done by monitoring and managing various interest rates.

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The RBI uses a set of monetary policy instruments and they include credit ceiling, statutory liquidity
ratio, cash reserve ratio, bank rate policy, open market operations, credit authorisation scheme, repo
rate, reverse repo rate, moral suasion, etc. Each of these instruments plays a very important role in
controlling, managing, and coordinating the flow of money in the nation's economy.

Goals Of The Monetary Policy Created By The Reserve Bank Of India

It works towards keeping prices stable as this helps in achieving good economic development.
It aims to increase bank credit as well as monetary supply skillfully so that any bank's output does not
get affected. This measure also helps in making sure that all banks have the ability to meet seasonal
credit requirements.
The monetary policy works towards controlling the stocking of money and inventories. Unlimited
stocking of money and inventories result in outdated stocks and these, in return, result in the creation
of sick units. In order to prevent a bank from becoming a sick unit, the RBI insists that no bank has idle
funds.
The RBI, through its monetary policy, works towards making banks flexible in nature. This measure is
taken specifically to promote variety, idea generation, independence among bank staff, and a free and
friendly environment for both customers as well as employees. The central monetary institution
interferes in any bank's operations only when it is absolutely required.
The monetary policy also aims at raising the output and performance of fixed investments of banks.
This is done by restricting fixed investments that are not necessary for a bank.
As mentioned above, the monetary policy of the RBI requires that every bank maintains a particular set
of liquid assets and these should be available at any particular point of time. Moreover, it is necessary
that these assets are maintained in non-cash form. They can be bonds, precious metals, and other
government-approved securities. The ratio of these liquid assets to the time and demand assets is the
statutory liquidity ratio.
Liabilities Included For Calculation Of Demand And Time Liabilities
Demand Liabilities
 Current Deposits
 Demand portion of Savings Bank deposits
 Overdue fixed deposits, recurring deposits
 MT,DD payable
 Unclaimed deposits
 Credit Balance in Cash Credit Accounts
 Margin held against letter of Credit/ Guarantee
 Deposit held as security for advance which are payable on demand
 Money at call and short notice from outside banking system
 Unadjusted amount of interbank remittance

Time Liabilities
 Fixed deposits/ Cash Certificates/Recurring Deposits
 Time portion of SB deposits
 Staff security deposits
 Indian Millennium Deposits
 Margin held as securities for advance which are not payable on demand
 Gold Deposits

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Other Demand And Time Liabilities
 Interest accrued on deposits
 Bills Payable
 Unpaid dividends and suspense account balance representing amount due to other banks or
publics
 Provision made for payment of gratuity
 Provision made for payment of arrear salary
 Unremitted amountof employees’ provident fund and interest accrued there on
 Provision made for audit fees
 Provision made for payment of Income Tax
 Provision made for payment of minimum bonus to employee
 Any contingent liabilities which turn in real liabilities
 Premium remittable to DICGC in advance but not remitted by bank
 Subsidy reserve except fund under Subsidy Reserve Fund under government sponsored scheme
 Undisbursed profit
 Borrowing other than higher financing institution, for cooperative banks from state government

Financial Ratios
Net Worth
i. Net worth/ REV = average amount of under paid up capital, statutory reserves, other free reserves not
in the nature of outside liabilities, credit balance in profit and loss accounts, standard assets provisions,
undisbursed profit, excess provision (-) the accumulated losses, short fall in provisions
ii. Working Funds
Aggregate of balance sheet items excluding (contra items, fixed assets, accumulated loss, overdue
interest reserve, stock stationeries, computer, vehicle and security deposits of service providers). For
calculation of WF, monthly average figures of balance sheet items have to be taken.
iii. Net Interest Income
Total Interest Income (-) Total Interest Expenses
iv. Operating cost/ Expenses
Interest expenses, staff cost and other operating cost incurred during the year
v. Transaction cost/ cost of management
Operating cost (-) interest expenses
vi. Operating profit
Operating profit (-) operating expenses
vii. Net profit
Gross income (-) total expenses
viii. Financial Margin
Difference between the weighted average cost of fund and weighted average yield on assets
ix. Net financial Margin

Financial margin plus miscellaneous income as % to Working Fund (-) risk cost as % to WF

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x. Net Margin

Net financial Margin (-) transaction cost % of WF

xi. Financial Cost
Cost incurred for raising resources(interest on deposits and borrowings)= Interest paid paid/ payable on
deposits and borrowings x 100
Average outstanding deposits and borrowings during the year
xii. Risk Cost
Provision required to be made against its NPA for the year + provision required to be made for standard
assets for the year x100
Average working funds
xiii. Net Interest Margin
Net Interest Incomex100
Average total assets
xiv. Return on Assets
Net Profit x 100
Average total assets
xv. CRAR
Capital Fund ( Tier I and Tier II) x 100
Total Risk Weighted Assets
xvi. Current Ratio
Current Asset/Current liabilities
xvii. Debt Equity Ratio
Long Tern Debts/ Equity
xviii. Fixed Asset Turnover ratio
Sales/ Fixed assets
xix. Profitability Ratio
Gross Margi- Gross Profit/ sales
Net Margin – Profit After Tax/Sales
xx. Cost of Management
Cost of Management x 100 /Gross Income

Basel Norms
Basel norms or Basel accords are the international banking regulations issued by the Basel Committee
on Banking Supervision. The Basel norms is an effort to coordinate banking regulations across the
globe, with the goal of strengthening the international banking system. It is the set of the agreement by

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the Basel committee of Banking Supervision which focuses on the risks to banks and the financial
system.
Basel Committee On Banking Supervision
The Basel Committee on Banking Supervision (BCBS) is the primary global standard setter for the
prudential regulation of banks and provides a forum for regular cooperation on banking supervisory
matters for the central banks of different countries. It was established by the Central Bank governors of
the Group of Ten countries in 1974. The committee expanded its membership in 2009 and then again
in 2014. The BCBS now has 45 members from 28 Jurisdictions, consisting of Central Banks and
authorities with responsibility of banking regulation. It provides a forum for regular cooperation on
banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and
improve the quality of banking supervision worldwide.
Needs For The Norms
Banks lend to different types of borrowers and each carries its own risk. They lend the deposits of the
public as well as money raised from the market i.e, equity and debt. This exposes the bank to a variety
of risks of default and as a result they fall at times. Therefore, Banks have to keep aside a certain
percentage of capital as security against the risk of non – recovery. The Basel committee has produced
norms called Basel Norms for Banking to tackle this risk.
The Name Basel
Basel is a city in Switzerland. It is the headquarters of the Bureau of International Settlement (BIS),
which fosters cooperation among central banks with a common goal of financial stability and common
standards of banking regulations. It was founded in 1930. The Basel Committee on Banking Supervision
is housed in the BIS offices in Basel, Switzerland.
The Basel Committee has issued three sets of regulations which are known as Basel-I, II, and III.
Basel-I
It was introduced in 1988.
It focused almost entirely on credit risk. Credit risk is the possibility of a loss resulting from a borrower's
failure to repay a loan or meet contractual obligations. Traditionally, it refers to the risk that a lender
may not receive the owed principal and interest. It defined capital and structure of risk weights for
banks. The minimum capital requirement was fixed at 8% of risk weighted assets (RWA). RWA means
assets with different risk profiles. For example, an asset backed by collateral would carry lesser risks as
compared to personal loans, which have no collateral. India adopted Basel-I guidelines in 1999.
Basel-II
In 2004, Basel II guidelines were published by BCBS. These were the refined and reformed versions of
Basel I accord. The guidelines were based on three parameters, which the committee calls it as pillars.
Capital Adequacy Requirements: Banks should maintain a minimum capital adequacy requirement of
8% of risk assets. In India it is stipulated at 9%.
Supervisory Review: According to this, banks were needed to develop and use better risk management
techniques in monitoring and managing all the three types of risks that a bank faces, viz. credit, market
and operational risks.
Market Discipline: This needs increased disclosure requirements. Banks need to mandatorily disclose
their CAR, risk exposure, etc to the central bank. Basel II norms in India and overseas are yet to be fully
implemented though India follows these norms.
Basel III
In 2010, Basel III guidelines were released.

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These guidelines were introduced in response to the financial crisis of 2008. A need was felt to further
strengthen the system as banks in the developed economies were under-capitalized, over-leveraged and
had a greater reliance on short-term funding. It was also felt that the quantity and quality of capital
under Basel II were deemed insufficient to contain any further risk. The guidelines aim to promote a
more resilient banking system by focusing on four vital banking parameters viz. capital, leverage,
funding and liquidity. Capital: The capital adequacy ratio is to be maintained at 12.9%. The minimum
Tier 1 capital ratio and the minimum Tier 2 capital ratio have to be maintained at 10.5% and 2% of risk-
weighted assets respectively. In addition, banks have to maintain a capital conservation buffer of 2.5%.
Counter-cyclical buffer is also to be maintained at 0-2.5%.
Leverage: The leverage rate has to be at least 3 %. The leverage rate is the ratio of a bank’s tier-1 capital
to average total consolidated assets. Funding and Liquidity: Basel-III created two liquidity ratios: LCR
and NSFR.
The liquidity coverage ratio (LCR) will require banks to hold a buffer of high-quality liquid assets
sufficient to deal with the cash outflows encountered in an acute short term stress scenario as specified
by supervisors. This is to prevent situations like “Bank Run”. The goal is to ensure that banks have
enough liquidity for a 30-days stress scenario if it were to happen.
The Net Stable Funds Rate (NSFR) requires banks to maintain a stable funding profile in relation to
their off-balance-sheet assets and activities. NSFR requires banks to fund their activities with stable
sources of finance (reliable over the one-year horizon). The minimum NSFR requirement is 100%.
Therefore, LCR measures short-term (30 days) resilience, and NSFR measures medium-term (1 year)
resilience. The deadline for the implementation of Basel-III was March 2019 in India. It was postponed
to March 2020. In light of the coronavirus pandemic, the RBI decided to defer the implementation of
Basel norms by further 6 months. Extending more time under Basel III means lower capital burden on
the banks in terms of provisioning requirements, including the NPAs. This extension would impact the
perception of Indian Banks and central banks in the eyes of the global players.
Bank Run
It occurs when a large number of customers of a bank or other financial institution withdraw their
deposits simultaneously over concerns of the bank's solvency. As more people withdraw their funds,
the probability of default increases, prompting more people to withdraw their deposits
.
Countercyclical Capital Buffer (CCCB)
Following Basel-III norms, central banks specify certain capital adequacy norms for banks in a country.
The CCCB is a part of such norms and is calculated as a fixed percentage of a bank’s risk-weighted
loan book. The key respect in which the CCCB differs from other forms of capital adequacy is that it
works to help a bank counteract the effect of a downturn or distressed economic conditions. With the
CCCB, banks are required to set aside a higher portion of their capital during good times when loans
are growing rapidly, so that the capital can be released and used during bad times, when there’s distress
in the economy. Although the RBI had proposed the CCCB for Indian banks in 2015 as part of its Basel-
III requirements, it hasn’t actually required the CCCB to be maintained, keeping the ratio at zero percent
ever since.
This is based on the RBI’s review of the credit-GDP gap, the growth in GNPA, the industry outlook
assessment index, interest coverage ratio and other indicators, as part of the first monetary policy of
every financial year.
Tier 1 Capital vs. Tier 2 Capital
Banks have two main silos of capital that are qualitatively different from one another.

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Tier 1: It refers to a bank's core capital, equity, and the disclosed reserves that appear on the bank's
financial statements. In the event that a bank experiences significant losses, Tier 1 capital provides a
cushion that allows it to weather stress and maintain a continuity of operations.
Tier 2: It refers to a bank's supplementary capital, such as undisclosed reserves and unsecured
subordinated debt instruments that must have an original maturity of at least five years. Tier 2 capital
is considered less reliable than Tier 1 capital because it is more difficult to accurately calculate and
more difficult to liquidate.

Crar
This master circular covers instructions regarding the components of capital and capital charge required
to be provided for by the banks for credit and market risks. It deals with providing explicit capital charge
for credit and market risk and addresses the issues involved in computing capital charges for interest
rate related instruments in the trading book, equities in the trading book and foreign exchange risk
(including gold and other precious metals) in both trading and banking books. Trading book for the
purpose of these guidelines includes securities included under the Held for Trading category, securities
included under the Available For Sale category, open gold position limits, open foreign exchange
position limits, trading positions in derivatives, and derivatives entered into for hedging trading book
exposures, including Credit Default Swaps (CDS).
Capital
The basic approach of capital adequacy framework is that a bank should have sufficient capital to
provide a stable resource to absorb any losses arising from the risks in its business. Capital is divided
into tiers according to the characteristics/qualities of each qualifying instrument. For supervisory
purposes capital is split into two categories: Tier I and Tier II. These categories represent different
instruments’ quality as capital. Tier I capital consists mainly of share capital and disclosed reserves and
it is a bank’s highest quality capital because it is fully available to cover losses. Tier II capital, on the
other hand, consists of certain reserves and certain types of subordinated debt. The loss absorption
capacity of Tier II capital is lower than that of Tier I capital. When returns of the investors of the capital
issues are counter guaranteed by the bank, such investments will not be considered as Tier I/II regulatory
capital for the purpose of capital adequacy.
Credit Risk
Credit risk is most simply defined as the potential that a bank’s borrower or counterparty may fail to
meet its obligations in accordance with agreed terms. It is the possibility of losses associated with
diminution in the credit quality of borrowers or counterparties. In a bank’s portfolio, losses stem from
outright default due to inability or unwillingness of a customer or a counterparty to meet commitments
in relation to lending, trading, settlement and other financial transactions. Alternatively, losses result
from reduction in portfolio arising from actual or perceived deterioration in credit quality. For most
banks, loans are the largest and the most obvious source of credit risk; however, other sources of credit
risk exist throughout the activities of a bank, including in the banking book and in the trading book, and
both on and off-balance sheet. Banks increasingly face credit risk (or counterparty risk) in various
financial instruments other than loans, including acceptances, inter-bank transactions, trade financing,
foreign exchange transactions, financial futures, swaps, bonds, equities, options and in guarantees and
settlement of transactions. The goal of credit risk management is to maximize a bank’s risk-adjusted
rate of return by maintaining credit risk exposure within acceptable parameters. Banks need to manage
the credit risk inherent in the entire portfolio, as well as, the risk in the individual credits or transactions.
Banks should have a keen awareness of the need to identify, measure, monitor and control credit risk,
as well as, to determine that they hold adequate capital against these risks and they are adequately
compensated for risks incurred.
Market Risk

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Market risk refers to the risk to a bank resulting from movements in market prices in particular changes
in interest rates, foreign exchange rates and equity and commodity prices. In simpler terms, it may be
defined as the possibility of loss to a bank caused by changes in the market variables. The Bank for
International Settlements (BIS) defines market risk as “the risk that the value of ‘on’ or ‘off’ balance
sheet positions will be adversely affected by movements in equity and interest rate markets, currency
exchange rates and commodity prices”. Thus, Market Risk is the risk to the bank’s earnings and capital
due to changes in the market level of interest rates or prices of securities, foreign exchange and equities,
as well as, the volatilities of those changes.
Capital To Risk Weighted Asset Ratios(CRAR)
As per the BASEL norms, in India RBI issued a detailed instructions to implement capital adequacy
norms in Banking Sector, so that Risk like Market Risk, Credit Risk, Liquidity Risk and operational
risk persists in the Banking Sectors can be adequately covered, and also resources are efficiently used.
Further to protect the interest of the depositors’ banks were advised to ensure maintain Net Stable Fund
and Liquidity Coverage Ratio.

Capital Of Cooperative Banks

Cooperative Banks mobilise share capital from members or by retaining portion of net earnings of
members, retaining portion of sale proceeds of members, receiving subsidies from Government and
capital from outsiders as grant, short term loan and long term loan.
Components of Capital
Tier I capital of Cooperative Bank
 Paid up share capital
 Contribution from associate/ nominal members
 Perpetual Non-Cumulative Preference share
 Free Reserve
 Capital Reserve
 Perpetual Debt Instruments
 Surplus in Profit and Loss account
 Special Reserve created under section 36(i)iii of IT Act 1961

Tier II capital
 Revaluation Reserve- Revaluation Reserves of bank premises and marketable securities
considered at a discount of 55%
 General Provision and Loss Reserves i.e additional general provisions (floating provisions) not
earmarked any specific NPA to the extent of 1.25% of Risk Weighted Assets.
 Investment Fluctuation Reserves
 Undisclosed Reserves
Tier II capital Instruments
 Perpetual Cumulative Preference Share
 Redeemable Non-Cumulative Preference Share
 Redeemable Cumulative Preference Shares
 Long Term Subordinate Bonds. However, shall be reckoned only up to 50% of Tier I capital
 Long Term Deposits 5 years and above
While computing capital, following items of the balance sheet of the bank to be deducted
 Amount of Intangible Assets
 Loss in current Financial Year and those brought forward from previous years

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  Deficit in NPA provisions
 Income wrongly recognised in NPA account
 Provisions required for devilment of liabilities

In terms of the document titled ‘Basel III - A global regulatory framework for more resilient banks and
banking systems’, released by the Basel Committee on Banking Supervision (BCBS) in December
2010, regulatory capital instrument should not have step-up or other incentives to redeem. However,
the BCBS has proposed certain transitional arrangements, in terms of which only those instruments
having such features which were issued before September 12, 2010 will continue to be recognized as
eligible capital instruments under Basel III which becomes operational beginning January 01, 2013 in
a phased manner. Hence, banks should not issue Tier I or Tier II capital instruments with ‘step-up
option’, so that these instruments continue to remain eligible for inclusion in the new definition of
regulatory capital.

 Deductions from computation of Capital funds:

 Deductions from Tier I Capital: The following deductions should be made from Tier I capital:
 Intangible assets and losses in the current period and those brought forward from previous
periods should be deducted from Tier I capital;
 Creation of deferred tax asset (DTA) results in an increase in Tier I capital of a bank without
any tangible asset being added to the banks’ balance sheet. Therefore, DTA, which is an
intangible asset, should be deducted from Tier I capital.
 Deductions from Tier I and Tier II Capital

Equity/Non-Equity Investments In Subsidiaries

The investments of a bank in the equity as well as non-equity capital instruments issued by a subsidiary,
which are reckoned towards its regulatory capital as per norms prescribed by the respective regulator,
should be deducted at 50 per cent each, from Tier I and Tier II capital of the parent bank, while assessing
the capital adequacy of the bank on 'solo' basis, under the Basel I Framework.
Credit Enhancements Pertaining To Securitization Of Standard Assets
(i) Treatment of First Loss Facility
The first loss credit enhancement provided by the originator shall be reduced from capital funds and the
deduction shall be capped at the amount of capital that the bank would have been required to hold for
the full value of the assets, had they not been securitised. The deduction shall be made at 50 per cent
from Tier I and 50 per cent from Tier II capital.
(ii) Treatment of Second Loss Facility
The second loss credit enhancement provided by the originator shall be reduced from capital funds to
the full extent. The deduction shall be made 50 per cent from Tier I and 50 per cent from Tier II capital.
(iii) Treatment of credit enhancements provided by third party
In case, the bank is acting as a third-party service provider, the first loss credit enhancement provided
by it shall be reduced from capital to the full extent as indicated at para (i) above;
(iv) Underwriting by an originator
Securities issued by the SPVs and devolved / held by the banks in excess of 10 per cent of the original
amount of issue, including secondary market purchases, shall be deducted 50 per cent from Tier I capital
and 50 per cent from Tier II capital;
(v) Underwriting by third party service providers

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If the bank has underwritten securities issued by SPVs devolved and held by banks which are below
investment grade the same will be deducted from capital at 50 per cent from Tier I and 50 per cent from
Tier II.

Limit for Tier II elements

Tier II elements should be limited to a maximum of 100 per cent of total Tier I elements for the purpose
of compliance with the norms.
Norms On Cross Holdings
A bank’s / FI’s investments in all types of instruments indicated below, which are issued by other banks
/ FIs and are eligible for capital status for the investee bank / FI, will be limited to 10 per cent of the
investing bank's capital funds (Tier I plus Tier II capital). Banks' / FIs' investment in the following
instruments will be included in the prudential limit of 10 per cent referred above.
Equity Shares
Preference shares eligible for capital status;
Innovative Perpetual Debt Instruments eligible as Tier I capital;
Subordinated debt instruments;
Debt capital Instruments qualifying for Upper Tier II status; and
Any other instrument approved as in the nature of capital.

Banks / FIs should not acquire any fresh stake in a bank's equity shares, if by such acquisition, the
investing bank's / FI's holding exceeds 5 per cent of the investee bank's equity capital. Banks’ / FIs’
investments in the equity capital of subsidiaries are at present deducted at 50 per cent each, from Tier I
and Tier II capital of the parent bank for capital adequacy purposes. Investments in the instruments
issued by banks / FIs which are listed at paragraph (ii) above, which are not deducted from Tier I capital
of the investing bank/ FI, will attract 100 per cent risk weight for credit risk for capital adequacy
purposes. Institutions which may be deemed to be financial institutions for capital adequacy purposes.
Banks,
Mutual funds,
Insurance companies,
Non-banking financial companies,
Housing finance companies,
Merchant banking companies,
Swap Transactions

Banks are advised not to enter into swap transactions involving conversion of fixed rate rupee liabilities
in respect of Innovative Tier I/Tier II bonds into floating rate foreign currency liabilities. Minimum
requirement of Capital Funds. Banks are required to maintain a minimum CRAR of 9 per cent on an
ongoing basis.

Capital Charge For Credit Risk

Banks are required to manage the credit risks in their books on an ongoing basis and ensure that the
capital requirements for credit risks are being maintained on a continuous basis, i.e. at the close of each
business day.
Capital Charge For Market Risk
As an initial step towards prescribing capital requirement for market risk, banks were advised to assign
an additional risk weight of 2.5 per cent on the entire investment portfolio; assign a risk weight of 100

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per cent on the open position limits on foreign exchange and gold; and build up Investment Fluctuation
Reserve up to a minimum of five per cent of the investments held in Held for Trading and Available for
Sale categories in the investment portfolio. Subsequently, keeping in view the ability of the banks to
identify and measure market risk, it was decided to assign explicit capital charge for market risk. Thus,
banks are required to maintain capital charge for market risk on securities included in the Held for
Trading and Available for Sale categories, open gold position, open forex position, trading positions in
derivatives and derivatives entered into for hedging trading book exposures. Consequently, the
additional risk weight of 2.5 per cent towards market risk on the investment included under Held for
Trading and Available for Sale categories is not required. To begin with, capital charge for market risks
is applicable to banks on a global basis. At a later stage, this would be extended to all groups where the
controlling entity is a bank. Banks are required to manage the market risks in their books on an ongoing
basis and ensure that the capital requirements for market risks are being met on a continuous basis, i.e.
at the close of each business day. Banks are also required to maintain strict risk management systems
to monitor and control intra-day exposures to market risks.
Capital Charge for Interest Rate Risk: The capital charge for interest rate related instruments and
equities would apply to current market value of these items in bank’s trading book. The current market
value will be determined as per extant RBI guidelines on valuation of investments. The minimum capital
requirement is expressed in terms of two separate capital charges i.e. Specific risk charge for each
security both for short and long positions and General market risk charge towards interest rate risk in
the portfolio where long and short positions in different securities or instruments can be offset. In India
short position is not allowed except in case of derivatives and Central Government Securities. The banks
have to provide the capital charge for interest rate risk in the trading book other than derivatives as per
the guidelines given below for both specific risk and general risk after measuring the risk of holding or
taking positions in debt securities and other interest rate related instruments in the trading book.
Specific Risk:
This refers to risk of loss caused by an adverse price movement of a security principally due to factors
related to the issuer. The specific risk charge is designed to protect against an adverse movement in the
price of an individual security owing to factors related to the individual issuer. The specific risk charge
is graduated for various exposures under three heads, i.e. claims on Government, claims on banks,
claims on others.
General Market Risk:
The capital requirements for general market risk are designed to capture the risk of loss arising from
changes in market interest rates. The capital charge is the sum of four components, the net short (short
position is not allowed in India except in derivatives and Central Government Securities) or long
position in the whole trading book, a small proportion of the matched positions in each time-band (the
“vertical disallowance”); a larger proportion of the matched positions across different time-bands (the
“horizontal disallowance”), and net charge for positions in options, where appropriate.
Computation Of Capital Charge For Market Risk:
The Basel Committee has suggested two broad methodologies for computation of capital charge for
market risks i.e. the Standardised method and the banks’ Internal Risk Management models (IRM)
method. It has been decided that, to start with, banks may adopt the standardised method. Under the
standardised method there are two principal methods of measuring market risk, a “maturity” method
and a “duration” method. As “duration” method is a more accurate method of measuring interest rate
risk, it has been decided to adopt Standardised Duration method to arrive at the capital charge.
Accordingly, banks are required to measure the general market risk charge by calculating the price
sensitivity (modified duration) of each position separately. Under this method, the mechanics are first
calculate the price sensitivity (modified duration) of each instrument; next apply the assumed change
in yield to the modified duration of each instrument between 0.6 and 1.0 percentage points depending
on the maturity of the instrument. slot the resulting capital charge measures into a maturity ladder with
the fifteen-time bands subject long and short positions (short position is not allowed in India except in

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derivatives and Central Government Securities) in each time band to a 5 per cent vertical disallowance
designed to capture basis risk; and carry forward the net positions in each time-band for horizontal
offsetting subject to the disallowances.
Capital Charge For Interest Rate Derivatives:
The measurement of capital charge for market risks should include all interest rate derivatives and off-
balance sheet instruments in the trading book and derivatives entered into for hedging trading book
exposures which would react to changes in the interest rates, like FRAs, interest rate positions, etc. The
details of measurement of capital charge for interest rate derivatives and options are furnished below.
Measurement System In Respect Of Interest Rate Derivatives And Options
Interest Rate Derivatives
The measurement system should include all interest rate derivatives and off-balance• sheet instruments
in the trading book, which react to changes in interest rates, (e.g. forward rate agreements (FRAs), other
forward contracts, bond futures, interest rate and cross-currency swaps and forward foreign exchange
positions). Options can be treated in a variety of ways as described at para 2.2.5.5.2 below. A summary
of the rules for dealing with interest rate derivatives is set out at the end of this section.
Calculation Of Positions
The derivatives should be converted into positions in the relevant underlying and be subjected to
specific and general market risk charges as described in the guidelines. In order to calculate the capital
charge, the amounts reported should be the market value of the principal amount of the underlying or
of the notional underlying. For instruments where the apparent notional amount differs from the
effective notional amount, banks must use the effective notional amount.
Futures And Forward Contracts, Including Forward Rate Agreements (FRA):
These instruments are treated as a combination of a long and a short position in a notional government
security. The maturity of a future or a FRA will be the period until delivery or exercise of the contract,
plus - where applicable - the life of the underlying instrument. For example, a long position in a June
three-month interest rate future (taken in April) is to be reported as a long position in a government
security with a maturity of five months and a short position in a government security with a maturity of
two months. Where a range of deliverable instruments may be delivered to fulfil the contract, the bank
has flexibility to elect which deliverable security goes into the duration ladder but should take account
of any conversion factor defined by the exchange.
SWAP:
Swaps will be treated as two notional positions in government securities with relevant maturities. An
interest rate swap under which a bank is receiving floating rate interest and paying fixed will be treated
as a long position in a floating rate instrument of maturity equivalent to the period until the next interest
fixing and a short position in a fixed-rate instrument of maturity equivalent to the residual life of the
swap. For swaps that pay or receive a fixed or floating interest rate against some other reference price,
e.g. a stock index, the interest rate component should be slotted into the appropriate re-pricing maturity
category, with the equity component being included in the equity framework. Separate legs of cross-
currency swaps are to be reported in the relevant maturity ladders for the currencies concerned.
Calculation Of Capital Charges For Derivatives Under The Standardised Methodology:
Allowable Offsetting Of Matched Positions
Banks may exclude the following from the interest rate maturity framework altogether (for both specific
and general market risk).Long and short positions (both actual and notional) in identical instruments
with exactly the same issuer, coupon, currency and maturity. A matched position in a future or forward
and its corresponding underlying may also be fully offset (the leg representing the time to expiry of the
future should however be reported) and thus excluded from the calculation. When the future or the

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forward comprises a range of deliverable instruments, offsetting of positions in the future or forward
contract and its underlying is only permissible in cases where there is a readily identifiable underlying
security which is most profitable for the trader with a short position to deliver. The price of this security,
sometimes called the "cheapest-to-deliver", and the price of the future or forward contract should in
such cases move in close alignment.
No offsetting will be allowed between positions in different currencies; the separate legs of cross-
currency swaps or forward foreign exchange deals are to be treated as notional positions in the relevant
instruments and included in the appropriate calculation for each currency. In addition, opposite
positions in the same category of instruments can in certain circumstances be regarded as matched and
allowed to offset fully. To qualify for this treatment the positions must relate to the same underlying
instruments, be of the same nominal value and be denominated in the same currency. For futures
offsetting positions in the notional or underlying instruments to which the futures contract relates must
be for identical products and mature within seven days of each other, for swaps and FRAs: the reference
rate (for floating rate positions) must be identical and the coupon closely matched (i.e. within 15 basis
points); and for swaps, FRAs and forwards: the next interest fixing date or, for fixed coupon positions
or forwards, the residual maturity must correspond within the following limits:
less than one month hence: same day; between one month and one year hence: within seven days; over
one year hence: within thirty days.
Banks with large swap books may use alternative formulae for these swaps to calculate the positions to
be included in the duration ladder. The method would be to calculate the sensitivity of the net present
value implied by the change in yield used in the duration method and allocate these sensitivities into
the time-bands.
Specific Risk
Interest rate and currency swaps, FRAs, forward foreign exchange contracts and interest rate futures
will not be subject to a specific risk charge. This exemption also applies to futures on an interest rate
index (e.g. LIBOR). However, in the case of futures contracts where the underlying is a debt security,
or an index representing a basket of debt securities, a specific risk charge will apply according to the
credit risk of the issuer as set out in paragraphs above.
General Market Risk
General market risk applies to positions in all derivative products in the same manner as for cash
positions, subject only to an exemption for fully or very closely matched positions in identical
instruments as defined in paragraphs above. The various categories of instruments should be slotted
into the maturity ladder and treated according to the rules identified earlier.
Scenario Approach
The scenario approach uses simulation techniques to calculate changes in the value of an options
portfolio for changes in the level and volatility of its associated underlying. Under this approach, the
general market risk charge is determined by the scenario "grid" (i.e. the specified combination of
underlying and volatility changes) that produces the largest loss. For the delta-plus method and the
scenario approach the specific risk capital charges are determined separately by multiplying the delta-
equivalent of each option by the specific risk weights.
More sophisticated banks will also have the right to base the market risk capital charge for options
portfolios and associated hedging positions on scenario matrix analysis. This will be accomplished by
specifying a fixed range of changes in the option portfolio’s risk factors and calculating changes in the
value of the option portfolio at various points along this "grid". For the purpose of calculating the capital
charge, the bank will revalue the option portfolio using matrices for simultaneous changes in the
option’s underlying rate or price and in the volatility of that rate or price. A different matrix will be set
up for each individual underlying as defined in the preceding paragraph. As an alternative, at the
discretion of each national authority, banks which are significant traders in options for interest rate

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options will be permitted to base the calculation on a minimum of six sets of time-bands. When using
this method, not more than three of the time-bands as defined in Section 2.2.5 should be combined into
any one set.
The options and related hedging positions will be evaluated over a specified range above and below the
current value of the underlying. The range for interest rates is consistent with the assumed changes in
yield . Those banks using the alternative method for interest rate options set out in the preceding
paragraph should use, for each set of time-bands, the highest of the assumed changes in yield applicable
to the group to which the time-bands belong.12 The other ranges are ±9 % for equities and ±9 % for
foreign exchange and gold. For all risk categories, at least seven observations (including the current
observation) should be used to divide the range into equally spaced intervals.
The second dimension of the matrix entails a change in the volatility of the underlying rate or price. A
single change in the volatility of the underlying rate or price equal to a shift in volatility of + 25% and
- 25% is expected to be sufficient in most cases. As circumstances warrant, however, the Reserve Bank
may choose to require that a different change in volatility be used and / or that intermediate points on
the grid be calculated.
After calculating the matrix, each cell contains the net profit or loss of the option and the underlying
hedge instrument. The capital charge for each underlying will then be calculated as the largest loss
contained in the matrix.
In drawing up these intermediate approaches it has been sought to cover the major risks associated with
options. In doing so, it is conscious that so far as specific risk is concerned, only the delta-related
elements are captured; to capture other risks would necessitate a much more complex regime. On the
other hand, in other areas the simplifying assumptions used have resulted in a relatively conservative
treatment of certain option positions.
Besides the options risks mentioned above, the RBI is conscious of the other risks also associated with
options, e.g. rho (rate of change of the value of the option with respect to the interest rate) and theta
(rate of change of the value of the option with respect to time). While not proposing a measurement
system for those risks at present, it expects banks undertaking significant options business at the very
least to monitor such risks closely. Additionally, banks will be permitted to incorporate rho into their
capital calculations for interest rate risk, if they wish to do so.
Measurement Of Capital Charge For Equity Risk
Minimum capital requirement to cover the risk of holding or taking positions in equities in the trading
book is set out below. This is applied to all instruments that exhibit market behaviour similar to equities
but not to non-convertible preference shares (which are covered by the interest rate risk requirements
described earlier). The instruments covered include equity shares, whether voting or non-voting,
convertible securities that behave like equities, for example: units of mutual funds, and commitments
to buy or sell equity. Capital charge for specific risk (akin to credit risk) will be 11.25% and specific
risk is computed on the banks’ gross equity positions (i.e. the sum of all long equity positions and of all
short equity positions – short equity position is, however, not allowed for banks in India). The general
market risk charge will also be 9% on the gross equity positions.
Investments in shares and units of VCFs may be assigned 150% risk weight for measuring the credit
risk during first three years when these are held under HTM category. When these are held under or
transferred to AFS, the capital charge for specific risk component of the market risk as required in terms
of the present guidelines on computation of capital charge for market risk, may be fixed at 13.5% to
reflect the risk weight of 150%. The charge for general market risk component would be at 9% as in
the case of other equities.
Measurement Of Capital Charge For Foreign Exchange And Gold Open Positions
Foreign exchange open positions and gold open positions are at present risk weighted at 100%. Thus,
capital charge for foreign exchange and gold open position is 9% at present. These open positions, limits

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or actual whichever is higher, would continue to attract capital charge at 9%. This is in line with the
Basel Committee requirement.
Capital Charge For Credit Default Swaps (CDS)
Capital Adequacy Requirement for CDS Positions in the Banking Book
Recognition of External / Third-party CDS Hedges
In case of Banking Book positions hedged by bought CDS positions, no exposure will be reckoned
against the reference entity / underlying asset in respect of the hedged exposure, and exposure will be
deemed to have been substituted by the protection seller, if the following conditions are satisfied:
(a) Operational requirements mentioned in paragraph 4 of the Prudential Guidelines on CDS are met;
(b) The risk weight applicable to the protection seller under the Basel II Standardised Approach for
credit risk is lower than that of the underlying asset; and
(c) There is no maturity mismatch between the underlying asset and the reference / deliverable
obligation. If this condition is not satisfied, then the amount of credit protection to be recognised. If the
conditions (a) and (b) above are not satisfied or the bank breaches any of these conditions subsequently,
the bank shall reckon the exposure on the underlying asset; and the CDS position will be transferred to
Trading Book where it will be subject to specific risk, counterparty credit risk and general market risk
(wherever applicable) capital requirements as applicable to Trading Book.
The unprotected portion of the underlying exposure should be risk-weighted as applicable under Basel
II framework. The amount of credit protection shall be adjusted if there are any mismatches between
the underlying asset/ obligation and the reference / deliverable asset / obligation with regard to asset or
maturity. These are dealt with in detail in the following paragraphs.
Asset Mismatches
Asset mismatch will arise if the underlying asset is different from the reference asset or deliverable
obligation. Protection will be reckoned as available by the protection buyer only if the mismatched
assets meet the requirements of the Prudential Guidelines on CDS.
Maturity Mismatches
The protection buyer would be eligible to reckon the amount of protection if the maturity of the credit
derivative contract were to be equal or more than the maturity of the underlying asset. If, however, the
maturity of the CDS contract is less than the maturity of the underlying asset, then it would be construed
as a maturity mismatch. In case of maturity mismatch the amount of protection will be determined in
the following manner:
If the residual maturity of the credit derivative product is less than three months no protection will be
recognized.
If the residual maturity of the credit derivative contract is three months or more protection proportional
to the period for which it is available will be recognised. When there is a maturity mismatch the
following adjustment will be applied.
Pa = P x (t - 0.25) ÷ (T - 0.25)
Where:
Pa = value of the credit protection adjusted for maturity mismatch
P = credit protection
t = min (T, residual maturity of the credit protection arrangement) expressed in years
T = min (5, residual maturity of the underlying exposure) expressed in years

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 CHAPTER-11
FINANCIAL INCLUSION

Financial inclusion has been defined as “the process of ensuring access to financial services, timely and
adequate credit for vulnerable groups such as weaker sections and low-income groups at an affordable
cost”. (Committee on Financial Inclusion - Chairman: Dr C Rangarajan, RBI, 2008). The Committee
on Medium-Term Path to Financial Inclusion (Chairman: Shri Deepak Mohanty, RBI, 2015) has set the
vision for financial inclusion as, convenient access to a basket of basic formal financial products and
services that should include savings, remittance, credit, government-supported insurance and pension
products to small and marginal farmers and low income households at reasonable cost with adequate
protection progressively supplemented by social cash transfers, besides increasing the access of small
and marginal enterprises to formal finance with a greater reliance on technology to cut costs and
improve service delivery.
The National Strategy for Financial Inclusion for India 2019-2024 has been prepared by RBI under the
aegis of the Financial Inclusion Advisory Committee and is based on the inputs and suggestions from
Government of India, other Financial Sector Regulators viz., Securities
Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI)
and Pension Fund Regulatory and Development Authority of India (PFRDA). This document also
reflects various outcomes from wide-ranging consultation held with a range of stakeholders and market
players, including National Bank for Agriculture and Rural Development (NABARD), National
Payments Corporation of India (NPCI), Commercial Banks and Corporate Business Correspondents
etc. It includes an analysis of the status and constraints in financial inclusion in India, specific financial
inclusion goals, strategy to reach the goals and the mechanism to measure progress.With increased
recognition globally and United Nations Sustainable Development Goals (SDGs) emphasising financial
inclusion as a key enabler for achieving sustainable development worldwide, countries across the globe
are developing suitable strategies and policies to increase access and usage of formal financial services.
Achieving Universal Financial Access by 2020 (UFA 2020) has been one of the key developmental
agenda of the World Bank which aims to provide adults who currently aren’t part of the formal financial
system, with access to a transaction account to store money, send and receive payments to manage their
financial lives. (Universal Financial Access 2020, 2018) To achieve this ambitious goal, the World
Bank Group has committed to enable one billion people to gain access to a transaction account through
targeted interventions. It also works with countries to strengthen the following key building blocks:
public and private sector commitment, enabling legal and regulatory framework, and bolstering
financial and ICT infrastructure, and globally, through engagement with standard-setting bodies to
come up with recommendations and guidelines that will advance access to transaction accounts. Each
country’s strategy and progress towards financial inclusion is unique because of significant variations
in the Government’s priorities, institutional capacity to implement reforms, evolution of financial
markets, payments infrastructure, financial capability of people, and cultural beliefs that drive financial
behaviour. Therefore, a mere review of various countries’ financial inclusion policies without
understanding their socio-economic background, political system, and culture and beliefs, will not be
sufficient to draw insights for designing and developing our own Financial Inclusion strategy. It would
nevertheless still be meaningful to look into and draw inferences based on the experiences and feedback
of the financial inclusion policies of other countries. Similar to National Identity System put in place
by various countries, India has also introduced Aadhaar in 2009. Recognizing the importance of
financial education, the current Strategy considers Financial Education as one of the important pillars
of the NSFI as visualized by other countries.
Globally, the adoption of a formal National Financial Inclusion Strategy (NFIS) has accelerated
significantly in the past decade. By mid-2018, more than 35 countries, including Brazil, China,
Indonesia, Peru and Nigeria have launched a NFIS and another 25 countries are in the process of
developing a strategy. Further, several countries have also updated their original NFIS (World Bank

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Group, 2018). Some of the important commonalities observed in the strategies of a few countries have
been reviewed and are summarised below.
Cross Country Analysis And Lessons
Leadership
A strong leadership (visionary or charismatic) is important to achieve financial inclusion goals.
Financial inclusion policies require time to realize their full potential. Therefore, having a long-term
vision and a well-coordinated approach is essential.
Target Based Approach
Financial inclusion policies are generally targeted towards specific sectors like MSME, Agriculture or
specific regions like Aspirational Districts. It is important to develop sector specific action plans and
monitor targets and review the progress.
Regulatory Framework
There should be a strong regulatory and legal framework aimed at protecting the interests of the
customers, promoting fair practices and curbing market manipulations. Further, the regulations should
have adequate space to allow flexibility and openness for innovations. This calls for incorporating a
Test and Learn Approach in the form of Regulatory Sandboxes along with encouraging Pilot projects
to reach long term viability and mitigate losses.
Market Development
Market development and deepening thereof, through various regulatory initiatives for catering to the
needs of the target groups is vital. While a Universal Banking system can continue to provide services
to existing clientele, there may also be a case for permitting differentiated entities that leverage
technology to provide low-cost, high-volume services. The process of market developmentcan be in the
form of expansion of rural networks and access points; allowing preferential prudential rules to
encourage lending to rural areas and setting up special sub-branches in rural areas; digitising large-scale
payment streams like pension, insurance, and subsidies for rural households etc. as also proliferation of
new institutions, products and services.
Strengthening Infrastructure
Development of an ecosystem with requisite infrastructure, including credit infrastructure, receipt and
payment infrastructure etc., are essential. Providing a national level identification, setting up a credit
registry database, creation of open and inclusive payment systems are some of the key steps in this
direction. Putting in place a suitable framework for using national level identification number for
cashless and paperless financial transactions, based on customer consent can simplify customer on-
boarding and also ease in operations. Further, this facilitates a large volume of Government to Person
(G2P) transactions and vice-versa (P2G), directly National Strategy for Financial Inclusion 2019-
2024bank accounts. Development of robust payments infrastructure coupled with regulations can foster
competition and orderly growth which result in more customer centric products, increased choices and
convenience. Developing a robust credit database also helps lenders to take an informed decision on
the credit proposals.
Last Mile Delivery
Focus on Last Mile Delivery has been one of the major thrust areas in various countries.
Since the typical rural customer would not be willing to forego his/ her day’s wage to visit a financial
service provider, it is important that distance and resulting time taken to visit the service provider does
not act as a deterrent. To achieve this, various countries have come up with policies to extend the receipt
infrastructure including permitting formal financial institutions to engage services of agents and
Business Correspondents (BCs). While the Business Correspondents have been able to reach out to the
last mile customer, the issue of customer protection, providing suitable products, increasing financial

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awareness, having a proactive oversight over the activities of the agents and sustainability of the
agent/BC network are some of the areas which now require policy interventions.
Innovation AND Technology
Innovation and Technology in the overall landscape have resulted in rise of fin-tech entities which
leverage technology to offer financial services. While these new entities have the potential to increase
competition and provide the customer with greater choice through suitable products and easier
processes, they may also exclude those customers who do not have the basic infrastructure like internet
connectivity and access to smart phones. It is therefore imperative to have a balance between technology
and agents to provide customers with adequate handholding. Since technology evolves very rapidly,
oversight on the technology led institutions is of utmost importance and their regulation needs constant
upgradation.
Financial Literacy And Awareness
Financial literacy continues to gather global attention as it is increasingly being realised that only an
informed customer will be able to take proper financial decisions. Financial literacy enables a customer
to have necessary awareness about the available products, ability to choose the right product and
available mechanism for grievance redressal. Emphasis is now on to increase the financial awareness
among various vulnerable groups in the society viz., women, youth, children, elderly, small
entrepreneurs, etc. who require handholding. Focus has been on the development of various scientific
tools and design approaches combining concept literacy with process literacy. With more and more
usage of digital mode of transactions, financial literacy in the realm of digital financial services has
assumed importance.
Cross Country Analysis And Lessons
Consumer Protection
Considering that the new entrants to the financial system are likely to be more vulnerable, customer
protection and grievance redressal has become an important pillar for furthering sustainable financial
inclusion. This is further accentuated by the fact that there has been a steep increase in access to digital
financial services which calls for a robust customer protection framework. Some of the measures
undertaken include increased market monitoring, creation of a strong enforcement machinery to redress
customer grievances and improved coordination between the financial sector supervisors, particularly
relating to cross-product and cross-market issues.
PRADHAN MANTRI JANDHAN YOJANA(PMJDY)
Background
Pradhan Mantri Jan-Dhan Yojana (PMJDY) is National Mission for Financial Inclusion to ensure access
to financial services, namely, Banking/ Savings & Deposit Accounts, emittance, Credit, Insurance,
Pension in an affordable manner.
Objectives:
Ensure access of financial products & services at an affordable cost,Use of technology to lower cost &
widen reach
Basic tenets of the scheme
Banking the unbanked - Opening of basic savings bank deposit (BSBD) account with minimal
paperwork, relaxed KYC, e-KYC, account opening in camp mode, zero balance & zero charges
Securing the unsecured - Issuance of Indigenous Debit cards for cash withdrawals & payments at
merchant locations, with free accident insurance coverage of Rs. 2 lakh
Funding the unfunded - Other financial products like micro-insurance, overdraft for consumption,
micro-pension & micro-credit

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Initial Features
The scheme was launched based upon the following 6 pillars:
Universal access to banking services – Branch and BC
Basic savings bank accounts with overdraft facility of Rs. 10,000/- to every eligible adult
Financial Literacy Program– Promoting savings, use of ATMs, getting ready for credit, availing
insurance and pensions, using basic mobile phones for banking
Creation of Credit Guarantee Fund – To provide banks some guarantee against defaults
Insurance – Accident cover up to Rs. 1,00,000 and life cover of Rs. 30,000 on account opened between
15 Aug 2014 to 31 January 2015
Pension scheme for Unorganized sector

Important Approach Adopted In PMJDY Based On Past Experience:

Accounts opened are online accounts in core banking system of banks, in place of earlier method of
offline accounts opening with technology lock-in with the vendor Inter-operability through RuPay debit
card or Aadhaar enabled Payment System (AePS)
Fixed-point Business Correspondents
Simplified KYC / e-KYC in place of cumbersome KYC formalities
Extension of PMJDY with New features – The Government decided to extend the comprehensive
PMJDY program beyond 28.8.2018 with some modifications .Focus shift from ‘Every Household’ to
Every Unbanked Adult’
RuPay Card Insurance - Free accidental insurance cover on RuPay cards increased from Rs. 1 lakh to
Rs. 2 lakh for PMJDY accounts opened after 28.8.2018.
Enhancement in overdraft facilities -
OD limit doubled from Rs 5,000/- to Rs 10,000/-; OD upto Rs 2,000/- (without conditions). Increase
in upper age limit for OD from 60 to 65 years
Impact Of PMJDY
PMJDY has been the foundation stone for people-centric economic initiatives. Whether it is direct
benefit transfers, COVID-19 financial assistance, PM-KISAN, increased wages under MGNREGA, life
and health insurance cover, the first step of all these initiatives is to provide every adult with a bank
account, which PMJDY has nearly completed. One in 2 accounts opened between Mar’14 to Mar’20
was a PMJDY account. Within 10 days of nationwide lockdown more than about 20 crore women
PMJDY accounts were credited with ex-gratia.Jandhan provides an avenue to the poor for bringing their
savings into the formal financial system, an avenue to remit money to their families in villages besides
taking them out of the clutches of the usurious money lenders. PMJDY has brought the unbanked into
the banking system, expanded the financial architecture of India and brought financial inclusion to
almost every adult.
PRADHAN MANTRI SURAKHYA BIMA YOJANA(PMBSY)
PMSBY is an Accident Insurance Scheme offering accidental death and disability cover for death or
disability on account of an accident. It would be a one-year cover, renewable from year to year. The
scheme would be offered / administered through Public Sector General Insurance Companies (PSGICs)
and other General Insurance companies willing to offer the product on similar terms with necessary

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approvals and tie up with Banks / Post office for this purpose. Participating banks / Post office will be
free to engage any such insurance company for implementing the scheme for their
subscribers. The scheme will cover to all individual bank/ Post office account holders in the age group
of 18 to 70 years in participating banks/ Post office will be entitled to join. In case of multiple bank/
Post office accounts held by an individual in one or different banks/ Post office, the person would be
eligible to join the scheme through one bank / Post office account only. Aadhar would be the primary
KYC for the bank/ Post office account. However, enrolment Modality / Period shall be for the one-
year period stretching from 1st June to 31st May for which option to join / pay by auto-debit from the
designated bank/ Post office account on the prescribed forms will be required to be given by 31st May
of every year. Joining subsequently on payment of full annual premium would be possible. However,
applicants may give an indefinite / longer option for enrolment / auto-debit, subject to continuation of
the scheme with terms as may be revised on the basis of past experience. Individuals who exit the
scheme at any point may re-join the scheme in future years through the above. The modality to the
scheme is new entrants into the eligible category from year to year or currently eligible individuals who
did not join earlier shall be able to join in future years while the scheme is continuing. In case any losses
to the life the benefit would be Rs 2 lakhs of Sum Insured in case of death and total and irrecoverable
loss of both eyes or loss of use of both hands or feet or loss of sight of one eye and loss of use of hand
or foot Rs. 2 Lakh. Total and irrecoverable loss of sight of one eye or loss of use of one hand or foot
Rs. 1 Lakh
Rs. 20/- per annum per member. The premium will be deducted from the account holder’s bank/ Post
office account through ‘auto debit’ facility in one instalment on or before 1 st June of each annual
coverage period under the scheme. However, in cases where auto debit takes place after 1st June, the
cover shall commence from the date of auto debit of premium by Bank/ Post office. The premium would
be reviewed based on annual claims experience. Eligibility Conditions: Individual bank/ Post office
account holders of participating banks/ Post office aged between 18 years (completed) and 70 years
(age nearer birthday) who give their consent to join / enable auto-debit, as per the above
modality, will be enrolled into the scheme.
Master Policy Holder: Participating Bank/ Post office will be the Master policy holder on behalf of the
participating subscribers. A simple and subscriber friendly administration & claim settlement process
has been finalized by the respective general insurance company in consultation with the participating
Banks.

Termination of cover: The accident cover for the member shall terminate on any of the following events
and no benefit will be payable there under:

1) On attaining age 70 years (age nearest birthday).

2) Closure of account with the Bank/ Post office or insufficiency of balance to keep the insurance in
force.
3) In case a member is covered through more than one account and premium is received by the Insurance
Company inadvertently, insurance cover will be restricted to one bank/ Post office account only and the
premium paid for duplicate insurance(s) shall be liable to be forfeited.
4) If the insurance cover is ceased due to any technical reasons such as insufficient balance on due date
or due to any administrative issues, the same can be reinstated on receipt of full annual premium, subject
to conditions that may be laid down. During this period, the risk cover will be suspended and
reinstatement of risk cover will be at the sole discretion of Insurance Company.
5) Participating banks will deduct the premium amount in the same month when the auto debit option
is given, preferably in May of every year, and remit the amount due to the Insurance Company in that
month itself.
Administration: The scheme, subject to the above, will be administered as per the standard procedure
stipulated by the Insurance Company. The data flow process and data proforma will be provided
separately. It will be the responsibility of the participating bank/ Post office to recover the appropriate
annual premium from the account holders within the prescribed period through ‘auto-debit’ process.
Enrolment form / Auto-debit authorization in the prescribed proforma shall be obtained and retained by
the participating bank/ Post office. In case of claim, the Insurance Company may seek submission of
the same. Insurance Company reserves the right to call for these documents at any point of time. The

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acknowledgement slip may be made into an acknowledgement slip-cum certificate of insurance. The
scheme is liable to be discontinued prior to commencement of a new future renewal date if
circumstances so require.

Appropriation of Premium:

1) Insurance Premium payable to Insurance Company: Rs. 20/- per annum per member
2) Commission payable to Business Correspondents, agents, etc. by the insurer:
Re.1/- per member (for new enrolments only).
3) Administrative expenses payable to participating Bank by insurer: Re.1/- per annum per member
Note: The amount of commission payable to Business Correspondents, agents, etc.
as specified in item 2) saved in case of voluntary enrolment by an accountholder through electronic
means shall be passed on as a benefit to the subscriber by correspondingly reducing the amount of the
Insurance Premium payable specified in item 1).

PRADHAN MANTRI JEVAN JYOTI BIMA YOJANA(PMJJBY)

Details of the scheme: PMJJBY is an insurance scheme offering life insurance cover for death due to
any reason. It is a one-year cover, renewable from year to year. The scheme is offered / administered
through LIC and other Life Insurance companies willing to offer the product on similar terms with
necessary approvals and tie ups with Banks / Post office for this purpose. Participating banks/ Post
office are free to engage any such life insurance company for implementing the scheme for their
subscribers.
Scope of coverage: All individual account holders of participating banks/ Post office in the age group
of 18 to 50 years are entitled to join. In case of multiple bank / Post office accounts held by an individual
in one or different banks/ Post office, the person is eligible to join the scheme through one bank/ Post
office account only. Aadhaar is the primary KYC for the bank / Post office account.
Enrolment period: The cover shall be for one-year period stretching from 1st June to 31st May for
which option to join / pay by auto-debit from the designated individual bank / Post office account on
the prescribed forms will be required to be given by 31st May of every year. Delayed enrolment for
prospective cover is possible with payment of pro-rata premium. For enrolment in June, July and August
– Full Annual Premium of Rs.436/- is payable. For enrolment in September, October, and November
– pro rata premium of Rs. 342/- is payable. For enrolment in December, January and February – pro
rata premium of Rs. 228/- is payable. For enrolment in March, April and May – pro rata premium of
Rs. 114/-is payable. Lien period of 30 days shall be applicable from the date of enrolment.
Enrolment Modality: The cover shall be for one-year period stretching from 1st June to 31st May for
which option to join / pay by auto-debit from the designated individual bank / Post office account on
the prescribed forms will be required to be given by 31st May of every year. Delayed enrolment for
prospective cover is possible with payment of pro-rata premium as laid down in above para for which
risk will start from the date of auto-debit of the premium. For subscribers enrolling for the first time on
or after 1st June 2021, insurance cover shall not be available for death (other than due to accident)
occurring during the first 30 days from the date of enrolment into the scheme (lien period) and in case
of death (other than due to accident) during lien period, no claim would be admissible.
Individuals who exit the scheme at any point may re-join the scheme in future years. The exclusion of
insurance benefits during the lien period shall also apply to subscribers who exit the scheme during or
after the first year, and re-join on any date on or after 01st June 2021. In future years, new entrants into
the eligible category or currently eligible individuals who did not join earlier or discontinued their
subscription shall be able to join while the scheme is continuing subject to the 30 days lien period
described above. Benefits: Rs.2 lakh is payable on member’s death due to any cause. Premium Rs.436/-
per annum per member. The premium will be deducted from the account holder’s bank / Post office
account through ‘auto debit’ facility in one instalment, as per the option given, at the time of enrolment

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under the scheme. Delayed enrolment for prospective cover after 31st May will be possible with
payment of pro-rata premium as laid down in para 3 above. The premium would be reviewed based on
annual claims experience.
Eligibility Conditions:
Individual bank/ Post office account holders of the participating banks/ Post office aged between 18
years (completed) and 50 years (age nearer birthday) who give their consent to join / enable auto-debit,
as per the above modality, will be enrolled into the scheme.
Master Policy Holder: Participating Banks/ Post office are the Master policy holders. A simple and
subscriber friendly administration & claim settlement process has been finalized by LIC / other
insurance companies in consultation with the participating banks / Post office.
Termination of assurance: The assurance on the life of the member shall terminate on any of the
following events and no benefit will become payable there under:
1) On attaining age 55 years (age near birth day) subject to annual renewal up to that date (entry,
however, will not be possible beyond the age of 50 years).
2) Closure of account with the Bank/ Post office or insufficiency of balance to keep the insurance in
force.
3) In case a member is covered under PMJJBY with LIC of India / other insurer through more than one
account and premium is received by LIC / other company inadvertently, insurance cover will be
restricted to Rs. 2 lakh and the premium paid for duplicate insurance(s) shall be liable to be forfeited.
4) If the insurance cover is ceased due to insufficient balance on due date or due to exit from the scheme,
the same can be reinstated on receipt of appropriate premium as mentioned in Para 3 above, subject
however to the cover being treated as fresh and the 30 days lien clause being applicable.
5) Participating Banks shall remit the premium to insurance companies in caseof regular enrolment on
or before 30th of June every year and in other cases in the same month when received.
10. Administration: The scheme, subject to the above, is administered by the LIC P&GS Units / other
insurance company setups. The data flow process and data proforma has been informed separately. It is
the responsibility of the participating bank/ Post office to recover the appropriate premium in one
instalment, as per the option, from the account holders on or before the due date through ‘auto-debit’
process. Enrolment form / Auto-debit authorization / Consent cum Declaration form in the prescribed
proforma shall be obtained and retained by the participating bank/ Post office. In case of claim, LIC /
insurance company may seek submission of the same. LIC / Insurance Company reserve the right to
call for these documents at any point of time. The acknowledgement slip may be made into an
acknowledgement slip-cum certificate of insurance.

ATAL PENSION YOJANA

The Government of India is extremely concerned about the old age income securityof the working poor
and is focused on encouraging and enabling them to join the National Pension System (NPS). To address
the longevity risks among the workers in unorganised sector and to encourage the workers in
unorganised sector to voluntarily save for their retirement, who constitute 88% of the total labour force
of 47.29 crore as per the 66th Round of NSSO Survey of 2011-12, but do not have any formal pension
provision, the Government had started the Swavalamban Scheme in 2010-11. However, coverage under
Swavalamban Scheme is inadequate mainly due to lack of guaranteed pension benefits at the age of 60.

The Government announced the introduction of universal social security schemes in the Insurance and
Pension sectors for all Indians, specially the poor and the under-privileged, in the Budget for the year
2015-16. Therefore, it has been announced that the Government will launch the Atal Pension Yojana
(APY), which will provide a defined pension, depending on the contribution, and its period. The APY
will be focussed on all citizens in the unorganised sector, who join the National Pension System (NPS)

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administered by the Pension Fund Regulatory and Development Authority (PFRDA). Under the APY,
the subscribers would receive the fixed minimum pension of Rs. 1000 per month, Rs. 2000 per month,
Rs. 3000 per month, Rs. 4000 per month, Rs. 5000 per month, at the age of 60 years, depending on their
contributions, which itself would be based on the age of joining the APY. The minimum age of joining
APY is 18 years and maximum age is 40 years. Therefore, minimum period of contribution by any
subscriber under APY would be 20 years or more. The benefit of fixed minimum pension would be
guaranteed by the Government. The APY would be introduced from 1st June, 2015.

Benefit Of APY And Eligibility

Fixed pension for the subscribers ranging between Rs. 1000 to Rs. 5000, if he joins and contributes
between the age of 18 years and 40 years. The contribution levels would vary and would be low if
subscriber joins early and increase if he joins late.
Atal Pension Yojana (APY) is open to all bank account holders. The Central Government would also
co-contribute 50% of the total contribution or Rs. 1000 per annum, whichever is lower, to each eligible
subscriber account, for a period of 5 years, i.e., from Financial Year 2015-16 to 2019-20, who join the
NPS between the period 1st June, 2015 and 31st December, 2015 and who are not members ofany
statutory social security scheme and who are not income tax payers. However the scheme will continue
after this date but Government Co-contribution will not be available. The Government co-contribution
is payable to eligible PRANs by PFRDA after receiving the confirmation from Central Record Keeping
Agency at such periodicity as may be decided by PFRDA. The minimum age of joining APY is 18
years and maximum age is 40 years. The age of exit and start of pension would be 60 years. Therefore,
minimum period of contribution by the subscriber under APY would be 20 years or more. All bank
account holders under the eligible category may join APY with autodebit facility to accounts, leading
to reduction in contribution collection charges. The subscribers should keep the required balance in
their savings bank accounts on the stipulated due dates to avoid any late payment penalty. Due dates
for monthly contribution payment is arrived based on the deposit of first contribution amount. In case
of repeated defaults for specified period, the account is liable for foreclosure and the GoI co-
contributions, if any shall be forfeited. Also any false declaration about his/her eligibility for benefits
under this scheme for whatsoever reason, the entire government contribution shall be forfeited along
with the penal interest. For enrolment, Aadhaar would be the primary KYC document for identification
of beneficiaries, spouse and nominees to avoid pension rights and entitlement related disputes in the
long-term. The subscribers are required to opt for a monthly pension from Rs. 1000 - Rs. 5000 and
ensure payment of stipulated monthly contribution regularly. The subscribers can opt to decrease or
increase pension amount during the course of accumulation phase, as per the available monthly pension
amounts. However, the switching option shall be provided once in year during the month of April. Each
subscriber will be provided with an acknowledgement slip after joining APY which would invariably
record the guaranteed pension amount, due date of contribution payment, PRAN etc. All Points of
Presence (Service Providers) and Aggregators under Swavalamban Scheme would enrol subscribers
through architecture of National Pension System. The banks, as POP or aggregators, may employ
BCs/Existing non - banking aggregators, micro insurance agents, and mutual fund agents as enablers
for operational activities. The banks may share the incentives received by them from
PFRDA/Government, as deemed appropriate. However this scheme is regulated and administered by
PFRDA.Government would provide fixed pension guarantee for the subscribers,would co-contribute
50% of the total contribution or Rs. 1000 per annum, whichever is lower, to eligible subscribers; and
would also reimburse the promotional and development activities including incentive to the contribution
collection agencies to encourage people to join the APY.
Migration Of Existing Subscribers Of Swavalamban Scheme To APY
The existing Swavalamban subscriber, if eligible, may be automatically migrated to APY with an option
to opt out. However, the benefit of five years of government Co-contribution under APY would not
exceed 5 years for all subscribers. This would imply that if, as a Swavalamban beneficiary, he has
received the benefit of government Co-Contribution of 1 year, then the Government co-contribution
under APY would be available only 4 years and so on. Existing Swavalamban beneficiaries opting out
from the proposed APY will be given Government co-contribution till 2016-17, if eligible, and the NPS

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Swavalamban continued till such people attained the age of exit under that scheme. The existing
Swavalamban subscribers between 18-40 years will be automatically migrated to APY. For seamless
migration to the new scheme, the associated aggregator will facilitate those subscribers for completing
the process of migration. Those subscribers may also approach the nearest authorised bank branch for
shifting their Swavalamban account into APY with PRAN details. The Swavalamban subscribers who
are beyond the age of 40 and do not wish to continue may opt out the Swavalamban scheme by complete
withdrawal of entire amount in lump sum, or may prefer to continue till 60 years to be eligible for
annuities . Under APY, the individual subscribers shall have an option to make the contribution on a
monthly basis. Banks are required to collect additional amount for delayed payments, such amount will
vary from minimum Rs. 1 per month to Rs 10/- per month. Rs. 1 per month for contribution upto Rs.
100 per month. Rs. 2 per month for contribution upto Rs. 101 to 500/- per month. Rs. 5 per month for
contribution between Rs 501/- to 1000/- per month. Rs. 10 per month for contribution beyond Rs 1001/-
per month. Discontinuation of payments of contribution amount shall lead to after 6 months account
will be frozen. After 12 months account will be deactivated. After 24 months account will be closed.

APY module will raise demand on the due date and continue to raise demand till the amount is recovered
from the subscriber’s account.The due date for recovery of monthly contribution may be treated as the
first day /or any other day during the calendar month for each subscriber. Bank can recover amount any
day till the last day of the month. It will imply that contribution are recovered as and when funds are
available any point during the month. Monthly contribution will be recovered on FIFO basis- earliest
due instalment will recovered first along with the fixed amount of charges as mentioned above. More
than one monthly contribution can be recovered in month subject to availability of the funds. Monthly
contribution will be recovered along with the monthly fixed due amount, if any. In all cases, the
contribution is to be recovered along with the fixed charges. This will be banks’ internal process. The
due amount will be recovered as and when funds are available in the account. The amount collected
under APY are managed by Pension Funds appointed by PFRDA as per the investment pattern specified
by the Government. The subscriber has no option to choose either the investment pattern or Pension
Fund. Periodical information to the subscribers regarding balance in the account, contribution credits
etc. will be intimated to APY subscribers by way of SMS alerts. The subscribers will have the option
to change the non – financial details like nominee’s name, address, phone number etc whenever
required.

PRADHAN MANTRI MUDRA YOJANA (PMMY)

MUDRA loans are extended by banks, NBFCs, MFIs and other eligible financial intermediaries as
notified by MUDRA Ltd. The Pradhan Mantri MUDRA Yojana (PMMY) announced by the Hon’ble
Prime Minister on 8th April 2015, envisages providing MUDRA loan, uptoRs10 lakh, to income
generating micro enterprises engaged in manufacturing, trading and services sectors. The overdraft
amount of Rs 5000 sanctioned under PMJDY has been also classified as MUDRA loans under Prime
Minister MUDRA Yojana (PMMY). The MUDRA loans are extended loans upto Rs 50,000/- (Shishu),
loans from Rs 50,001 to Rs 5 lakh (Kishore) and loans from Rs5,00,001/- to Rs 10 lakh (Tarun). Under
this scheme Individuals, Proprietary concern, Partnership Firm, Private Ltd. Company, Public
Company and any other legal forms are eligible. However the applicant should not be defaulter to any
bank or financial institution and should have a satisfactory credit track record. The individual borrowers
may be required to possess the necessary skills/experience/ knowledge to undertake the proposed
activity. The need for educational qualification, if any, need to be assessed based on the nature of the
proposed activity, and its requirement. Under mudra scheme need based term loan/OD limit/composite
loan to eligible borrowers for acquiring capital assets and/or working capital/marketing related
requirements are provided. The MUDRA loans are provided for income generating small business
activity in manufacturing, processing, service sector or trading. The Project cost is decided based on
business plan and the investment proposed. MUDRA loan is not for consumption/personal needs. For
the purpose of working capital limit, MUDRA has launched a new product called “MUDRA Card”,
which is a Debit card issued on RuPay platform, and provides hassle free credit in a flexible manner.
Amount of assistance upto to Rs 10 lakh in three categories viz. Shishu, Kishore and Tarun.

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Margin/Promoters Contribution is as per the policy framework of the bank, based on overall guidelines
of RBI in this regard. Banks may not insist for margin for Shishu loans. The interest rates are to be
charged as per the policy decision of the bank. However, the interest rate charged to ultimate borrowers
shall be reasonable. Scheduled Commercial Banks, RRBs and Cooperative Banks wishing to avail of
refinance from MUDRA will have to peg their interest rates, as advised by MUDRA Ltd., from time to
time. Banks may consider charging of upfront fee as per their internal guidelines. The upfront
fee/processing charges for Shishu loans are waived by most banks. While providing loans the banks
charges security. The first charge on all assets created out of the loan extended to the borrower and the
assets which are directly associated with the business/project for which credit has been extended. DPN
(wherever applicable). CGTMSE (wherever felt desirable)/MUDRA Guarantee cover (as and when
introduced).

In terms of RBI guidelines issued on lending to MSME Sector of loans upto Rs 10 lakh, banks are
mandated not to accept collateral security in the case of loans upto ` Rs 10 lakh extended to units in the
Micro Small Enterprises (MSE) Sector. For this the Credit Guarantee Scheme cover is available. Tenor
of Assistance is based on the economic life of the assets created and also the cash flow generated.
However, MUDRA’s refinance assistance will be for a maximum tenor of 36 months which will also
be aligned to terms of allotment of MUDRA funds by RBI from time to time. Mudra loan under PMMY
is available at all bank branches across the country. Mudra loan is also issued by NBFCs / MFIs who
are engaged in financing for micro enterprises in small business activities.

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 CHAPTER-12
BANKING OMBUDSMAN SCHEME
A Scheme for resolving customer grievances in relation to services provided by entities regulated by
Reserve Bank of India in an expeditious and cost-effective manner under Section 35A of the Banking
Regulation Act, 1949 (10 of 1949), Section 45L of the Reserve Bank of India Act, 1934 (2 of 1934),
Section 18 of the Payment and Settlement Systems Act, 2007 (51 of 2007) and Section 11 of the Credit
Information Companies (Regulation) Act, 2005 (30 of 2005)1.

The Reserve Bank appoints one or more of its officers as Ombudsman and Deputy Ombudsman, to
carry out the functions entrusted to them under the Scheme. The appointment of Ombudsman or the
Deputy Ombudsman, will be made for a period not exceeding three years at a time. The offices of the
Ombudsman will be at Regional Office and Head Office the Reserve Bank.

Under the scheme the Reserve Bank has established the Centralised Receipt and Processing Centre at
different places to receive the complaints filed under the Scheme and process them. The complaints
under the Scheme can be made online shall be registered on the portal of RBI. Complaints in electronic
mode (E-mail) and physical form, including postal and hand-delivered complaints, shall be addressed
and sent to the place where the Centralised Receipt and Processing Centre of the Reserve Bank is
established, for scrutiny and initial processing. The complaints that are received directly in any of the
offices of the Reserve Bank shall be forwarded to the Centralised Receipt and Processing Centre for
further action.

The Ombudsman/Deputy Ombudsman will consider the complaints of customers of banks relating to
deficiency in service. There is no limit on the amount in a dispute that can be brought before the
Ombudsman for which the Ombudsman can pass an Award. However, for any consequential loss
suffered by the complainant, the Ombudsman shall have the power to provide a compensation up to
Rupees 20 lakh, in addition to, up to Rupees One lakh for the loss of the complainant’s time, expenses
incurred and for harassment/mental anguish suffered by the complainant. The Ombudsman have the
power to address and close all complaints, the Deputy Ombudsman shall have the power to close those
complaints falling under clause 10 of the Scheme and complaints settled through facilitation as stated
under clause 14 of the Scheme. The Ombudsman sends to the Deputy Governor, Reserve Bank of India,
a report, as on March 31st every year, containing a general review of the activities of the office during
the preceding financial year, and furnishes such other information as the Reserve Bank may direct. For
the public interest the Reserve Bank publish the report and the information received from the
Ombudsman in such consolidated form or otherwise, as it may deem fit.

Any customer aggrieved by an act or omission of a bank resulting in deficiency in service may file a
complaint under the Scheme personally or through an authorised representative. However complaint
relating to deficiency in service , commercial judgment/decision of a bank, a dispute between a vendor
and a bank relating to an outsourcing contract, a grievance not addressed to the Ombudsman directly,
general grievances against Management or Executives of a bank, a dispute in which action is initiated
by a bank in compliance with the orders of a statutory or law enforcing authority, a service not within
the regulatory purview of the Reserve Bank, a dispute between banks, a dispute involving the
employee-employer relationship of a bank, a dispute for which a remedy has been provided in Section
18 of the Credit Information Companies (Regulation) Act, 2005; and a dispute pertaining to customers
of bank not included under the Scheme.

A complaint under the Scheme shall not lie unless the complainant had, before making a complaint
under the Scheme, made a written complaint to the bank concerned and the complaint was rejected
wholly or partly by the banks, and the complainant is not satisfied with the reply or the complainant
had not received any reply within 30 days after the bank received the complaint and the complaint is
made to the Ombudsman within one year after the complainant has received the reply from the
Regulated Entity to the complaint or, where no reply is received, within one year and 30 days from the

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date of the complaint, the complaint is not in respect of the same cause of action which is already
pending before an Ombudsman or settled or dealt with on merits, by an Ombudsman, whether or not
received from the same complainant or along with one or more complainants, or one or more of the
parties concerned, pending before any Court, Tribunal or Arbitrator or any other Forum or Authority;
or, settled or dealt with on merits, by any Court, Tribunal or Arbitrator or any other Forum or Authority,
whether or not received from the same complainant or along with one or more of the
complainants/parties concerned, the complaint is not abusive or frivolous or vexatious in nature, the
complaint to the Bank was made before the expiry of the period of limitation prescribed under the
Limitation Act, 1963, for such claims, the complainant provides complete information as specified in
clause 11 of the Scheme, the complaint is lodged by the complainant personally or through an
authorised representative other than an advocate unless the advocate is the aggrieved person, complaints
made through other modes where proof of having made a complaint can be produced by the
complainant, a complaint in respect of the same cause of action does not include criminal proceedings
pending or decided before a Court or Tribunal or any police investigation initiated in a criminal offence.

The complaint may be lodged online through the portal designed for the purpose. The complaint may
also be submitted through electronic or physical mode to the Centralised Receipt and Processing Centre
as notified by the Reserve Bank. The complaint, if submitted in physical form, shall be duly signed by
the complainant or by the authorised representative. The complaint shall be submitted in electronic or
physical mode in such format and containing such information as may be specified by Reserve Bank.

Complaints which are in the nature of offering suggestions or seeking guidance or explanation shall
not be treated as valid complaints under the Scheme and shall be closed accordingly with a suitable
communication to the complainant. Complaints which are non-maintainable will be separated to issue
a suitable communication to the complainant. The remaining complaints shall be assigned to the offices
of the Ombudsman for further examination under intimation to the complainant. A copy of the
complaint shall also be forwarded to the bank against whom the complaint is filed with a direction to
submit its written version.

The Ombudsman for the purpose of carrying out duties under this Scheme, require the bank against
whom the complaint has been made or any other banks which is a party to the dispute to provide any
information or furnish certified copies of any document relating to the complaint which are or is alleged
to be in its possession. In the event of failure of banks to comply with the requisition without sufficient
cause, the Ombudsman may draw an inference that the bank has no information to furnish.

The Ombudsman will maintain confidentiality of the information or the documents coming to its
knowledge or possession in the course of discharging duties and shall not disclose such information or
documents to any person except as otherwise required by law, or with the consent of the person
furnishing such information or documents. Provided that nothing in this sub-clause shall prevent the
Ombudsman from disclosing information or documents furnished by the parties to the proceedings to
each other, to the extent considered necessary to comply with the principles of natural justice and fair
play. Further those provisions of this sub-clause shall not apply in relation to the disclosure made or
information furnished by the Ombudsman to the Reserve Bank or filing thereof before any Court, Forum
or Authority.

The Ombudsman/Deputy Ombudsman will make endeavour to promote settlement of a complaint by

agreement between the complainant and the Regulated Entity through facilitation or conciliation or
mediation. The proceedings before the Ombudsman will be summary in nature and will not be bound
by any rules of evidence. The Ombudsman may examine either party to the complaint and record their
statement. The bank will, on receipt of the complaint, file its written version in reply to the averments
in the complaint enclosing therewith copies of the documents relied upon, within 15 days before the
Ombudsman for resolution. The Ombudsman may, at the request of the bank in writing to the
satisfaction of the Ombudsman, grant such further time as may be deemed fit to file its written version
and documents.

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 In case the Regulated Entity omits or fails to file its written version and documents within the time as
provided, the Ombudsman may proceed ex-parte based on the evidence available on record and pass
appropriate Order or issue an Award. There shall be no right of appeal to the bank in respect of the
Award issued on account of non-response or non-furnishing of information sought within the stipulated
time.

The Ombudsman/Deputy Ombudsman shall ensure that the written version or reply or documents filed
by one party, to the extent relevant and pertaining to the complaint are furnished to other party and
follow such procedure and provide additional time as may be considered appropriate. In case the
complaint is not resolved through facilitation, such action as may be considered appropriate, including
a meeting of the complainant with the officials of bank, for resolution of the complaint by conciliation
or mediation may be initiated. Ombudsman/Deputy Ombudsman, as the case may be, in resolution of
the dispute and comply with the direction for production of any evidence and other related documents
within the stipulated time. If any amicable settlement of the complaint is arrived at between the parties,
the same shall be recorded and signed by both the parties and thereafter, the fact of settlement may be
recorded, annexing thereto the terms of settlement, directing the parties to comply with the terms within
the stipulated time.

The complaint would be deemed to be resolved if it has been settled by the Regulated Entity with the
complainant upon the intervention of the Ombudsman or the complainant has agreed in writing or
otherwise (which may be recorded) that the manner and the extent of resolution of the grievance is
satisfactory or the complainant has withdrawn the complaint voluntarily.

Award is given in the event of non-furnishing of documents/information or the matter not getting
resolved based on records placed, and after affording a reasonable opportunity of being heard to both
the parties. The Ombudsman will also take into account, in addition, the principles of banking law and
practice, directions, instructions and guidelines issued by the Reserve Bank from time to time and such
other factors as may be relevant, before passing a reasoned Award. The Award shall contain, inter alia,
the direction, if any, to the bank for specific performance of its obligations and in addition to or the
amount, if any, to be paid by the bank to the complainant by way of compensation for any loss suffered
by the complainant.

The Ombudsman will not have the power to pass an Award directing payment by way of compensation;
an amount which is more than the consequential loss suffered by the complainant or Rupees 20 lakh
whichever is lower. The compensation that can be awarded by the Ombudsman shall be exclusive of
the amount involved in the dispute. The Ombudsman may also award a compensation not exceeding
Rupees one lakh to the complainant, taking into account the loss of the complainant’s time, expenses
incurred, harassment and mental anguish suffered by the complainant. The Award passed will lapse
and be of no effect unless the complainant furnishes a letter of acceptance of the Award in full and final
settlement of the claim to the bank concerned, within a period of 30 days from the date of receipt of the
copy of the Award. The bank will comply with the Award and intimate compliance to the Ombudsman
within 30 days from the date of receipt of the letter of acceptance from the complainant.

The Deputy Ombudsman or the Ombudsman may reject a complaint at any stage if it appears that the
complaint made is non-maintainable under clause 10 or is in the nature of offering suggestions or
seeking guidance or explanation. Further the Ombudsman may reject a complaint at any stage if in his
opinion there is no deficiency in service; or the compensation sought for the consequential loss is
beyond the power of the Ombudsman to award the compensation as indicated in clause 8(2); or the
complaint is not pursued by the complainant with reasonable diligence; or the complaint is without
any sufficient cause; or the complaint requires consideration of elaborate documentary and oral
evidence and the proceedings before the Ombudsman are not appropriate for adjudication of such
complaint; or in the opinion of the Ombudsman there is no financial loss or damage, or inconvenience
caused to the complainant.

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