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Archive for Legislation

Mobile Banking Transactions in India – Operative Guidelines for Banks (Second Draft – Sep-08)

The Reserve Bank of India has modified its earlier draft guidelines on mobile payments in India.
Click here for the updated Operative Guidelines for Banks – Mobile Banking Transactions in India.
Also reproduced below is The Economic Times article summarising the guidelines…
MUMBAI: Small-ticket payments and remittances from mobile phones will become a reality soon. Keeping in mind the superior reach of mobile phones as a delivery channel, the Reserve Bank of India on Friday released its final operative guidelines for mobile banking.

  • The central bank has decided to keep the limit on the ticket-size for mobile banking at Rs 2,500 per transaction, and Rs 5,000 per day. Banks have also been allowed to put in place a monthly transaction limit, depending on the bank’s risk perception of the customer.
  • While the guidelines will enable lenders such as State Bank of India and Axis Bank to go ahead with their launch of mobile-banking services, the central bank has decided to restrict the services only to holders of debit and credit cards. The card user base in the country is 80 million, with 55 million debit card users and 25 million credit card users.
  • However, it comes as a blow to players who intended to use mobile banking to reach out to the underbanked in rural India. A number of microfinance institutions and mobile payment operators such as mChek, PayMate and Obopay had tied up to offer mobile-based financial inclusion products in the hinterland. Banks, however, have been allowed to use the services of banking correspondents for extending this facility to consumers.
  • Only Indian rupee-based domestic services shall be provided on the mobile-payment platform, and the use of mobile-banking for cross-border transactions have been strictly prohibited. Banks which are based, licensed and supervised in India will be allowed to offer such services. Further, only banks which have implemented the core banking platform will be allowed to offer mobile banking.
  • At the same time, the RBI has recommended that all mobile banking transactions are validated through a two-factor authentication system, thereby complying to the latest security and encryption standards. The RBI has also said the long-term goal of the mobile-payment framework in India would be to enable funds transfer from and account in one bank to any other account in any bank on a real-time basis, irrespective of the mobile network the customer has subscribed to.
  • The guidelines also recommend that banks do not compromise on their know-your-customer and anti-money laundering guidelines. They will also be required to file suspicious transaction reports (STRs) to the Financial Intelligence Unit for all mobile banking transactions, as in the case of regular banking transactions.
  • It has also been recommended that banks explicitly state the risks to the customer and also get them to sign a contract before the service is adopted. It has also asked banks to make their mobile-banking services available across all phone networks.
  • The number of mobile phone connections in the country was at about 296 million at the end of July this year and it is growing at about 8-9 million per month, according to telecom regulator Trai. Banks have been exploring the feasibility of using mobile phones as an alternative channel of delivery of banking services. Some banks have also started offering information-based services like balance enquiry, stop payment instruction of cheques, transaction enquiry, location of the nearest ATM or branch, etc. Acceptance of transfer of funds, instruction for credit to beneficiaries of same or another bank in favour of pre-registered beneficiaries have also started in a few banks, the RBI said.






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RBI puts a temporary halt on Mobile Payment Services

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In a significant decision, the Reserve Bank of India (RBI) has restrained banks in launching their mobile payment services Read the rest of this entry »

SHG’s to be included in the Farm Loan Waiver – 2008

Download the farm waiver package herefarm-loan-waiver-20081
The Indian Government has widened the scope of the farm loan waiver package. Finance minister P Chidambaram elaborated on the details of the new-look scheme on Thursday (19 June 08 )  to the country’s top bankers in a video conference.

As per fresh directions, all self-help groups (SHGs) of farmers are eligible for loan waiver even if disaggregated data of loan extended to each farmers of the group may not be maintained with branches. Banks offer loans to SHGs as group-loans, and therefore, no disaggregated data is maintained at branch level. Then, farmers who had availed of short-term gold loans for agricultural investment will be covered under the package.

However, the applicable interest to be waived will not be in excess of 7% in the corresponding year. Farmers who took direct agriculture investment loans for buying farm equipment like harvesters and combine will be entitled for waiver of loans.

In all these cases, farm loans overdue on December 31, 2007 and which remained unpaid until February 29, 2008, are eligible for both loan waiver and debt relief scheme.

However, the number of additional eligible farmers is not readily available. Banks have instructed their respective branches to review the list. The ministry of finance has elaborated on the details following queries raised by banks. “We’ve asked our officials to act accordingly. The finance minister has complimented the efforts of branch level people. However, the branch level officers need to put a few more days’ of hard work,” a top bank executive said.

In the circulated note, the ministry has clarified that Hindu undivided families will be covered under the package, although proprietary firms are excluded from the list. Farmers, who took short term production loans for sugarcane and banana cultivation will be covered under the scheme.

Interestingly, the ministry has also instructed banks to include insurance premium debited in the loan accounts in the eligible amount.

It categorically said: “The scheme does not apply to any loan disbursed by lending institutions prior to close of business on March 31, 1997.”

This cut-off date will, however, not apply to loans restructured and rescheduled by lending institutions in 2004 and 2006 through special packages and in the normal course as per RBI guidelines.




Higher CAR – RBI Draft Guidelines for NBFC’s ; WILL Impact MFI’s

Higher capital adequacy ratio (CAR) mooted by RBI in it draft guidelines for non-banking financial companies (NBFC), including microfinance institutions (MFI), will put the organisations under pressure to boost their capital requirements by half to 15% by April 2009. MFIs in the country are highly leveraged since they are dependent on borrowings. They could find it difficult to bring in additional capital to meet the norms.

The draft guidelines have increased CAR of systemically-important non-deposit-taking NBFCs from 10% to 12% immediately, and to 15% by April 1, 2009. This would limit the way the NBFCs leverage their capital. Some experts say that with a 15% CAR, MFIs can leverage only up to five times. 

The regulator’s concern was triggered because NBFCs raised short-term resources to fund their asset books.

So far, only deposit-taking NBFCs were subject to prudential regulations on income recognition, asset classification and provisioning capital adequacy, among others, while non-deposit-taking NBFCs were subject to minimal regulation. Most of the systemically-important NBFCs are those promoted by banks. There are 173 systemically-important non-deposit-taking NBFCs.

According to RBI, “In view of recent international developments, the risk associated with highly-leveraged borrowings and the reliance on short-term funds by some NBFCs, there have been concerns regarding the enhanced systemic risk associated with the activities of the entities.”

Non-deposit-taking NBFCs with an asset size of over Rs 100 crore would be considered NBFC-ND-SI, and a new regulatory framework involving prescription of capital adequacy and exposure norms for such NBFC-ND-SI was put in place from April 1, 2007. The companies were advised to maintain a minimum capital-to-risk weighted assets (CRAR) ratio of 10%.

Report of the Committee on Financial Inclusion

The Report of the Committee on Financial Inclusion is finally out !! Please download it by clicking this link. 

 Background of the Report: The Government in June 2006, had constituted a Committee to prepare a strategy of ‘Financial Inclusion’. The Ten Member Committee, was constituted under the Chairmanship of Dr. C. Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister. The terms of reference of the Committee included:

i) To study the pattern of exclusion from access to financial services disaggregated by region, gender and occupational structure.

ii) To identify the barriers confronted by vulnerable groups in accessing credit and financial services, including supply demand and institutional constraints.

iii) To review the international experience in implementing policies for financial inclusion and examine their relevance/applicability to India.

iv) To suggest

– strategy to extend financial services to small and marginal farmers and other vulnerable groups, including measures to streamline and simplify procedures, reduce transaction costs and make the operations transparent.

– measures including institutional changes to be undertaken by the financial sector to implement the proposed strategy of financial inclusion.

– a monitoring mechanism to assess the quality and quantum of financial inclusion including indicators for assessing progress.

Government had been concerned that despite the vast expansion, modernization and diversification of ownership of financial institutions, a large number of vulnerable groups remain excluded from the opportunities and services provided by the financial sector. Such excluded groups include women, small and marginal farmers, people in the unorganized sector, the self employed and the pensioners. Government was anxious to correct this situation and extend the reach of the financial sector to such vulnerable group by minimizing, if not eliminating, the formal and informal barriers to access encountered by such groups.

The members of the Committee were Shri Vinod Rai, Special Secretary, Ministry of Finance, Dr. (Ms.) Rohini Nayyar, Adviser, Rural Development, Shri M.B.N. Rao, CMD, Canara Bank, Shri Yogesh Agarwal, MD, State Bank of Patiala, Prof. Mahinder Dev, Director, Centre for Economic and Social Studies, Hyderabad, Shri Vijay Mahajan, CEO, BASIX, Shri R. Gopalkrishnan, ED, TATA Sons, Shri A.P. Fernandes, Director, MYRADA and Dr. Y.S.P. Thorat, Chairman, NABARD.(PIB)

Microfinance Bill

The new microfinance law is underway, with the Union Cabinet on Friday clearing the bill despite an opposition from some official quarters citing lacunae in it. The bill will be tabled in the current session of Parliament.

The bill for microfinance will empower the National Bank for Rural and Agricultural Development (Nabard) to regulate the microfinance sector in India. While microfinance institutions, operating in the form of trusts, societies and co-operatives will now come under Nabard, non-bank finance companies have been kept out of the ambit. Significantly, the minimum capital required has been fixed at as low as Rs 1 lakh.

According to the bill, MFIs operating as co-operatives, trusts and societies need to register under the Microfinance Development Council (MDC), which will be a Nabard-promoted entity. It will permit MFIs to raise savings, but they will have to take specific approvals from the council after registration to be able to raise savings. The minimum capital requirement has been capped at Rs 1 lakh, with promoters of such MFIs having to contribute, at least, 50% of this amount.

Other provisions include the appointment of a microfinance ombudsman to cater to the redressal of grievances arising from the participants of the sector. This apart, it is likely that the microfinance development fund, announced in the last budget, may now be made the centralised recipient of the grants received by MFIs, mainly from overseas institutions.