RESERVE BANK OF INDIA (RBI)
RBI established on April 1, 1935 under RBI Act 1934 (on the recommendations of John Hilton Young Commission 1926 - called Royal Commission on Indian Currency and Finance), is the central bank of the country and was nationalised wef Jan 01,1949. Prior to its existence, Imperial Bank of India from SBI was conducting the Central Bank’s functions. Originally it was a shareholders’ bank which was taken over by the Central Govt, under Reserve Bank (Transfer of Public Ownership) Act 1948 (paid up capital Rs.5 cr). RBI’s central office is in Mumbai.
Management of RBI : RBI is managed by a Central Board of Directors with 4 local board at Mumbai, Delhi, Calcutta and Chennai. It has one Governor, provision for 4 Dy. Governors and 15 other directors.
Functions of RBI:
a: Issuance of currency : U/s 22 of RBI Act 1934, RBI has the sole agency/ authority in India to issue currency notes (called bank notes) under signatures of Governor. (One rupee note called currency note is issued by the Central Govt, and signed by Finance Secretary).
Issue Deptt : is responsible for issue of fresh notes against security which consists of gold coins, bullion, rupee coins foreign securities, eligible promissory notes and other approved securities (aggregate value of gold and foreign exchange reserves should not be less than Rs.200 crore out of which, gold (coins and bullion) should not be less than Rs.115 crore) (Sec 33). The stock of currency is distributed with the help of currency chests spread all over the country.
b : Banker to the Govt : U/s 20 for (Central Govt) and u/s 21-A (for State Govt), RBI transacts govt, business and manages public debt. SBI or any other public sector bank is appointed its Agent where RBI does not have office. It provides Ways & Means advances (Section 17(5) to Govt.
c : Bankers’ bank : It keeps a part of deposits of commercial banks (as CRR) and acts as lender of last resort by providing financial assistance to banks. Section 17 (2) and (3) enable banks to approach RBI for rediscounting of bills, refinance etc. It provides export credit refinance, Liquidity Adjustment Facility (LAF)and Marginal Standing Facility (MSF).
d : Controller of Banks : Every entity which wants to conduct banking business in India has to obtain licence from RBI. RBI also acts as controller of banks by including the banks in India in 2nd Schedule of the Act. It issues directions, carries inspection (on-site as well as off-site) and exercises management control.
e : Controller of credit : U/s 21 and 3 5A, of Banking Regulation Act, RBI can fix interest rates (including Bank Rate) and also exercise selective credit controls to regulate money supply for ensuring price stability. Various tools such as change in cash reserve ratio, stipulation of margin on securities, directed credit guidelines etc. are used for this purpose. It also carries sale and purchase of securities which are known as open market operations.
f : Statutory Reserves : RBI ensures that the banks maintain certain %age of their assets in liquid/cash form under SLR/CRR requirements.
g : Collection of information : RBI collects credit information (U/s 45-C information on borrowers enjoying credit limits up to Rs. 10 lac on secured basis and Rs.5 lac on unsecured basis) and can share this information with other banks (Sec 45-D). Besides, RBI obtains information on suit-filed accounts and BSR returns.
h : Maintenance of external value : RBI is responsible also for maintaining external value of Indian currency as well as the internal value. Foreign exchange reserves are held by RBI and it has wide powers to regulate foreign exchange transactions under Foreign Exchange Management Act (FEMA).
CTS-2010 STANDARD
On the recommendations of a Working Group, RBI decided to prescribe certain benchmarks towards achieving standardisation of cheques known as “CTS-2010 standard”, specifications.
Mandatory features applicable wef 1.12.2010
1. Paper: Paper should have protection against alterations by having chemical sensitivity to acids, alkalis, bleaches and solvents giving a visible result after a fraudulent attack. CTS-2010 Standard paper should not glow under Ultra-Violet (UV) light i.e., it should be UV dull.
2. Watermark : All cheques shall carry a standardized watermark, with the words “CTS-INDIA”. It should be oval in shape and diameter could be 2.6 to 3.0 cms. Each cheque must hold atleast one full watermark.
3. VOID pantograph : Pantograph with hidden / embedded “COPY” or “VOID” feature shall be included in the cheques. This feature should be clearly visible in photocopies and scanned colour images as a deterrent against colour photocopy or scanned colour images of a cheque.
4. Bank’s logo: Bank’s logo shall be printed in ultraviolet (UV) ink. The logo will be captured by / visible in UV-enabled scanners / lamps. It will establish genuineness of a cheque.
5. Mandating colours and background : Light / Pastel colours so that Print / Dynamic Contrast Ratio (PCR / DCR) is more than 60% for ensuring better quality and content of images.
6. Prohibiting alterations / corrections on cheques : No changes / corrections should be carried out on the CTS cheques (other than for date validation purposes, if required). For any change in the payee’s name, courtesy amount or legal amount etc., fresh cheque forms should be used by customers. This requirement is for cheques issued under CTS only and not other cheques.
7. Printing of account field : Cheques used in current accounts and corporate customers, should be issued with the account number field pre-printed. Courtesy amount means amount in figures and legal amount means in words.
8. As per RBI Cir dated Sep 03, 2012 banks are required to arrange to withdraw the non-CTS-2010 Standard cheques in circulation before December 31, 2012. Banks holding post-dated EMI cheques may ensure to replace non-CTS-2010 standard cheques with CTS-2010 I standard cheques before Dec 31,2012. The executive head of Reserve Bank of India (RBI) is known as the Governor, the governor is assist by four deputy Governor.
Governor:
Governor of Reserve Bank of India (RBI) is Raghuram Rajan who replaced Duvvuri Subbarao on September 4, 2013.
List of Deputy Governor:
1. Shri H.R.Khan
2. Urijit Patel (New Appointment, Replaced Subir Gokarn.)
3. Shri R. Gandhi (Appointed on April 3, 2014.)
4. Post Vacant. [Dr.K.C.Chakrabarty depart early from his post on April 25, 2014).
BANKING OMBUDSMAN-SCHEME 2006
RBI notified the Banking Ombudsman Scheme 2006 (on Dec 26, 2005), in partial modification of its Banking Ombudsman Scheme 2002 to enlarge the extent and scope of the authority and functions of the Ombudsman, u/s 35A of Banking Regulation Act, 1949. The scheme that came into force wef Jan 01, 2006 covers all commercial banks, regional rural banks and scheduled primary co-operative banks.
Objective : To facilitate the resolution of complaints relating to Banking services through conciliation and mediation between the bank and the aggrieved parties OR by passing an Award.
Who can be Ombudsman : CGM/GM -RBI (not exceeding 3 years at a time). Cost borne by RBI.
Who can file a complaint : A person himself /his authorised representative (other than an advocate) can file the complaint on paper OR through electronic media (eMail) OR forwarded by RBI or Central Govt, (For Credit card, the jurisdiction is with reference to Ombudsman having jurisdiction over the billing address of the card holder).
Conditions: Complaints can be made when:
a: the complaint was made to the bank and bank had rejected it OR no reply was received within a period of one month OR the complainant is not satisfied with the reply given by the bank;
b: period of more than one year has not lapsed after receipt of bank reply.
c: the complaint is not for issues already settled/dealt with Ombudsman OR for which proceedings before court, tribunal or arbitrator or any other forum is pending or a decree or Award or order has been passed;
d: the complaint is within limitation period under Indian Limitation Act 1963.
Rejection of Complaint by Ombudsman Rejection can be at any stage if it appears to be frivolous, vexatious, malafide; OR without sufficient cause; OR not pursued by the complainant with diligence; OR there is no loss or damage or inconvenience caused to the complainant; OR is beyond the pecuniary jurisdiction of Ombudsman. Customer can appeal against grounds of rejection to Appellate Authority within 30 days of receipt of communication regarding rejection.
Process of redressal of grievance By sending copy of the complaint to the bank, endeavour shall be made for a settlement by agreement through conciliation or mediation. The proceedings shall be summary in nature.
Award by the Ombudsman Where a complaint could not be settled by agreement within a period of one month from the date of receipt of the complaint, Ombudsman may pass an Award or reject the complaint, on the basis of evidence, the principles of banking law and practice, directions and guidelines issued by RBI.
Award & Compensation: Award shall specify the amount of compensation, if any, to be paid by bank, not more than actual loss suffered as direct consequence of act of omission or commission of the bank OR Rs.10 lac, whichever is lower. A copy of the Award shall be sent to the complainant and the bank.
Effect of award : Award shall be binding on a bank only if the complainant sends acceptance of in full and final settlement, within 30 days from the date of receipt of the Award.
Implementation: Customer is to send acceptance of the award within 30 days of date of receipt of the award. Bank is to implement the award within one month from the date of receipt of the acceptance from the complainant and intimate compliance to the Banking Ombudsman.
Appeal : The customer can file an appeal to Appellate Authority (Dy. Governor RBI) within 30 days of date of receipt of Award (which could be extended by 30 days by Appellate Authority). The appeal by banks should be filed with sanction of the CMD /ED / CEO. For banks 30 days period for filing appeal begins from date of receipt of customer’s acceptance.. The Appellate Authority may dismiss/allow the appeal; OR set aside the Award; OR remand the matter to Ombudsman for fresh disposal OR modify the Award or pass any order as it may deem fit.
Nodal officers : The banks shall appoint Nodal Officers at their RO/ZO and inform the Ombudsman, who shall represent the bank/furnish information to the Ombudsman.
May I help You Counters
Such counters should be available at all branches except very small branches as per RBI’s customer service guidelines of Oct 2008. As per Goiporia Committee, such counters were to be established at branches having a staff strength of 30 or more.
CURRENCY, COINS & NOTES
Notes are of two kinds i.e. Govt. notes (Re.l note issued by Govt, of India) and Bank notes (issued by RBI (Rs.2 and above denomination).
Essential features of a currency note:
Name of issuing authority, which may be either RBI or Govt, of India (Ministry of Finance) Guarantee and promise clause (Hindi or English) Signatures
King/s effigy/Ashoka Pillar Emblem
Water mark of King’s Effigy or Ashoka Emblem.
DIFFERENT KINDS OF NOTES
Genuine Notes: Such notes must have a water mark of Ashoka Pillar, security thread and serial number along with alphabet. They have distinctive colours.
Spurious coins: When tendered over the counter, should be cut and handed over to the tenderer. If the tenderer disputes it, the coins should be sent to the Mint at his cost, for examination.
Soiled notes: The currency note which has become dirty due to its use or may be in 2 pieces. No portion of such note should be missing. These notes are accepted for exchange without any restrictions by the banks.
Mutilated notes: Such currency notes that are composed of various pieces or they are cut notes of which some portion is missing. These notes are exchanged only by the currency chest branches of banks.
Single/double numbered notes: Notes of denomination up to Rs.5 are single numbered while the notes of denomination above Rs.5 are double numbered notes.
Imperfect Notes: The currency notes which are washed, bleached, oiled or are altered or have become undecipherable, are known as imperfect notes. They are different from mutilated notes
RBI’S CLEAN NOTE POLICY
RBI had announced ‘Clean Note Policy’ in January 1999. For withdrawing soiled notes from circulation and pumping fresh notes into circulation, the RBI introduced various changes in the system and procedures related to currency management which include mechanization of the currency verification and processing as also shredding and briquetting for destruction of soiled and mutilated notes. RBI issued a public interest directive (u/s 35A B R Act) to all banks instructing them :
Not to staple bank notes,
To Tender soiled notes to the Reserve Bank in unstapled condition,
To use bands instead of staple pins,
To issue only clean notes to members of public,
To open select currency chest branches on Sundays to provide exchange facility to members of public all over the county,
To provide unrestricted facility for exchange of soiled and mutilated notes to members of public.
banks should sort notes into re-issuables and non-issuables, and issue only clean notes to public. Soiled notes in unstapled condition may be tendered at RBI in inward remittances through Currency Chests; and,
banks should stop writing of any kind on watermark window of bank notes.
Coins of 25 Paise and Below - Withdrawal
Govt, of India has decided to withdraw coins of denomination of 25 paise and below from circulation w.e.f. June 30, 2011. Coins of denomination of 25 paise and below are not accepted for exchange at the bank branches from July 1, 2011 onwards.
PERMANENT ACCOUNT NUMBER (PAN)
The Central Board of Direct Taxes (CBDT) made it mandatory to quote PAN or General Index Number (GIR) on specified transactions (specified as per Rule 114B) with a view to ensure voluntary compliance of the income tax procedures. The quoting PAN became mandatory with effect from 01.11.1998.
What is PAN : A PAN is a 10 character alphanumeric number allotted by the Income Tax Deptt, to a tax payer who is eligible to file the income tax return. First 3 characters are Alphabetic series. 4th is status of PAN holder. 5th is the 1st character of PAN holder’s name. Next 4 are special sequential numbers and the last one is alphabetic check.
IFSC Code
IFSC stands for Indian Financial System Code . The electronic Payment System Applications such as Real Time Gross Settlement (RTGS), National Electronic Funds Transfer (NEFT) and Centralized Funds Management System (CFMS) developed by the Reserve Bank of India use these codes. The code consists of 11 Alpha Numeric characters (example - CNRB00O3252):
First 4 characters represent entity / bank name
5th position reserved as a ‘0’ (Zero) for future use
Last 6 character denotes the branch identity
IFSC is identified by RBI as the code to be used for various payment system projects within the country, and it would, in due course, cover all networked branches.
As on July 31, 2012 there are more than 90,000 RTGS enabled bank branches for which IFSC and MICR code is available.
Maintenance of bank account: The remitter and the beneficiary should have an account. NEFT is an account to account funds transfer system.
Foreign remittances : The remittances abroad using the NEFT are not permitted.
NEFT for loan repayment: It can be used.
CENTRALIZED FUNDS MANAGEMENT SYSTEMS(CMFS)
CFMS is a system set up, operated and maintained by RBI to enable operations on current accounts maintained at various offices of the RBI, through standard message formats in a secure manner.
Components: The CFMS comprises 2 components. (1) the Centralised Funds Enquiry System (CFES) and (2) Centralised Funds Transfer System (CFTS).
Eligibility Criteria and admission: Bank maintaining a current account with RBI and a member of INFINET, is eligible for membership to the CFMS. Admission to the CFMS may be granted, suspended or revoked by RBI.
Transaction Types: The following types of facilities are be available through CFMS:
a) Enquiries relating to the operation of its current account/s maintained with any of the DADs
b) Funds Transfers between accounts of the same account holder at different DADs.
CFMS Operation Sessions: The CFMS is operational on all days on which at least 2 DADs of RBI are working. CFMS timings wef Jan 24, 2011 are Monday-Friday : 10 am to 5 pm and Saturday : 10 am to 3 am.
ATM Models
1. Online ATMs : These ATMs are connected to data base of the bank and provide transactions on real time basis, online. The withdrawal limits are fixed and the limit is monitored by ATM switch centre.
2. Offline ATMs: These ATMs are not connected to bank’s data base. Withdrawals are permitted within a pre-fixed limit irrespective of the amount balance.
3. Stand alone ATMs: These ATMs are not connected to any ATM network. The transactions are restricted to the ATM branch and link branches only.
4. Networked ATMs: These ATMs are connected an ATM network.
5. 0nsite ATMs: The ATMs that are installed within the bank branch premises.
6. 0ff-site ATMs : The ATMs that are installed away from the bank branch premises, such as in a shopping centre, air port, railway station etc.
WHITE LABEL ATMs
RBI decided to permit (on Jun 20, 2012), the non-bank entities incorporated in India under the Companies Act 1956, to set up, own and operate ATMs in India. Such ATMs are called “White Label ATMs” (WLAs). These can be set up after obtaining RBI authorisation (valid for 1 year) under Payment and Settlement Systems (PSS) Act 2007. The time for seeking authorisation is available for 4 months from Jun 20, 2012.
Eligibility criteria for WLA Operators (WLAO) :
1. Non-bank entities must have net worth of at least Rs 100 crore as per the last audited balance sheet (if additional capital is infused to satisfy this condition, certificate of Chartered Accountant is required), which has to be maintained at all times.
2. 1n case of any FDI in the applicant entity, necessary approval from the competent authority must be submitted while seeking authorization.
Location : The authorised WLAO would have the freedom to choose the location of the WLA.
ELECTRONIC CLEARING SERVICES (ECS)
ECS is a mode of electronic funds transfer from one bank account to another bank account using the services of a Clearing House. This is normally for bulk transfers from one account to many accounts or vice-versa.
Types of ECS : There are two types of ECS called ECS (Credit) and ECS (Debit). ECS (Credit) is used for affording credit to a large number of beneficiaries by raising a single debit to an account, such as dividend, interest or salary payment. ECS (Debit) is used for raising debits to a number of accounts of consumers/ account holders for crediting a particular institution. ECS-Credit is available at 60 centres and ECS-Debit at 15 centres.
MAGNETIC INK CHARACTER RECOGNITION (MICR)
RBI had issued a set of comprehensive guidelines (Dec 06, 2002) for operating the mechanized cheque processing systems using Magnetic Ink Character Recognition (MICR) technology.
Standardisation of Cheque Forms: Instruments passing through clearing are required to be issued in standard format and defined size of 8' x 3 2/3'. The instruments should be printed on MICR grade quality paper with a ‘read band’ of 5/8' in width reserved at the bottom on which essential particulars occur in special MICR ink in the E-13B Font. Cheques are printed by approved security printers forming part of a panel which is maintained by IBA.
MICR Code Line Structure: The code line occurring in the Read Band is divided into 5 fields as under:
i) Cheque serial number of 6 numeric digits. The alpha-numeric prefix to the serial number should be printed outside the code line.
ii) Sort field or the city/bank/branch code number consisting of 9 digits. The first 3 digits represent the city, the next 3 indicate the bank and the last 3 digits signify the branch. The 9 digit sort code is unique for any bank branch in the country,
iii) Account number field consisting of 6 digits followed by a delimiter is an optional field. In the case of Government Cheques issued by RBI alone, the account number is of 7 digits. The Government Account number is 10 digits in length-7 digits occurring in the Account number field and 3 in the transaction code field.
iv) Transaction code field comprising of 2 digits is in all instruments except Government cheques drawn on RBI which have a 3 digit transaction code. Control documents - batch and block tickets have a 3 digit ? representation in the transaction code field,
v) Last field represents the amount field and consists of 13 digits bounded on both sides by a delimiter. The amount is encoded in paise without the decimal point.
National Payment Corporation of India (NPCI)
With a view to consolidate and integrate the multiple systems with varying service levels into nation-wide uniform and standard business process for all retail payment systems, NPCI was incorporated, on recommendations of an IBA Core Group, in Dec 2008 as a Section 25 company under Companies Act. The authorized capital is Rs 300 crore and the paid up capital is Rs 30 crore.
Shareholding and management : There are 10 core promoter banks (SBI, PNB, Canara Bank, Bank of Baroda, Union bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank and HSBC).
Expected role: NPCI would function as a hub in all electronic retail payment systems which is evergrowing in terms of varieties of products, delivery channels, number of service providers and diverse Technology solutions. BPSS on Sept 24,2009 approved, in-principle, to issue authorisation to NPCI, for operating various retail payment systems in the country and granted Certificate of Authorisation for “operation of National Financial Switch (NFS) ATM Network with effect from October 15, 009.
PRE-PAID PAYMENT INSTRUMENTS (PPI)
Under the provisions of Payment and Settlement Systems, Act 2007, all persons involved in the issuance of PPI require RBI authorization. RBI issued guidelines on Apr 29, 2009 u/s 18 and additional guidelines in Nov 2010.
PPI : These are payment instruments that facilitate purchase of goods and services against the value stored on such instruments. The value represents the value paid for by the holders by cash, by debit to a bank account, or by credit card.
Form of PPI : These can be issued as smart cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers and any such instrument, which can be used to access the pre-paid amount.
Eligibility to issue PPI: Banks which comply with the eligibility criteria can issue all categories of PPI. NBFCs and other persons can issue only semi-closed system payment instruments.
Capital requirements to be eligible
1. Banks and NBFCs which comply with the Capital Adequacy requirements prescribed by RBI can issue pre-paid payment instruments.
2. Other persons to have a min paid-up capital of Rs 100 lakh and positive net owned funds. KYC/AML/CFT provisions
l. The RBI KYC guidelines shall apply.
2. The use of pre-paid payment instruments for cross border transactions shall not be permitted.
3. The maximum value of any pre-paid payment instruments (where specific limits have not been prescribed) shall not excecd Rs 50,000.
Issue of PPI to corporates for onward issuance to their employees:
W.e.f. 4.8.11 banks can issue such instruments:
a. Instruments can be issued only to corporate entities listed in any of the stock exchanges in India;
b. Amount on individual prepaid payment instruments at any point of time shall not exceed Rs 50,000.
CORE BANKING SOLUTIONS
Core Banking Solutions (CBS) or Centralised Banking Solutions is the process which is completed in a centralized environment i.e. under which the information relating to the customer’s account (i.e. financial dealings, profession, income, family members etc.) is stored in the Central Server of the bank (that is available to all the networked branches) instead of the branch server.
Depending upon the size and needs of a bank, it could be for the all the operations or for limited operations. This task is carried through an advance software by making use of the services provided by specialized agencies. Due to its benefits, a no. of banks in India in recent years have taken steps to implement the CBS with a view to build relationship with the customer based on the information captured and offering to the customer, the customised financial products according to their need.
Essential requirement of CBS Creation of Primary Data centre : It houses the central server for online transaction. Central data base is used for all customer centric delivery channel services integrated with CBS. It is manned round the clock to offer 24*7 service to the customer.
Disaster recovery site (DRS): It is done to avoid disruption in the business activities of CBS branches due to central system or network failure, to ensure non-stop functioning of branches and on line delivery channels integrated with CBS, to act as a back up for providing a reliable and continuous processing environment.
Business process re-engineering: It done with a view to help the bank in realigning existing business processes in tune with the benefits provided by the new technology platform, to help the bank in taking advantage of the best business practices available in the technology platform to provide more efficient services.
Software : It is to comprise the branch functional modules, delivery channel needs like ATMs, tele-banking, internet banking, interface to integrate with NDS, RTGS etc.
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