The Government has initiated formulation of laws to secure prudential banking and help effect a culture of credit discipline, including, inter alia, in terms of the following:-

i. Insolvency and Bankruptcy Code, 2016 (IBC) has been enacted to create a unified framework for resolving insolvency and bankruptcy matters. IBC, by adopting a creditor-in-saddle approach, with the interim resolution professional taking over management of affairs of corporate debtor at the outset, coupled with debarment of wilful defaulters and persons associated with NPA accounts from the resolution process, has effected a fundamental change in the creditor-debtor relationship.

ii. The Banking Regulation Act, 1949 has been amended to provide for authorisation to Reserve Bank of India to issue directions to banks to initiate the insolvency resolution process under IBC.

iii. The Fugitive Economic Offenders Act, 2018 has been enacted to deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts, provides for attachment of property of a fugitive economic offender, confiscation of such offender’s property and disentitlement of the offender from defending any civil claim.

iv. To make other recovery mechanisms as well more effective, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) has been amended to provide for three months’ imprisonment in case borrower does not provide asset details, and for lender getting possession of mortgaged property within 30 days. Six new Debts Recovery Tribunals (DRTs) have been established and the minimum pecuniary limit for filing of cases in DRTs has been revised in 2018 from Rs. 10 lakh to Rs. 20 lakh to enable focus on higher value cases in these fast-track tribunals.

RBI has furnished inputs with respect to its instructions to the banks to bring changes as per its new guidelines to strengthen their monitoring mechanism, which include, inter-alia, the following:-

i. a Circular of confidential nature was issued by RBI to all the banks in February 2018 to implement security and operational controls such as Straight-Through Process (STP) between CBS/accounting system and SWIFT messaging system, enable time-based restrictions in SWIFT, review logs at regular intervals, undertake reconciliation, etc in a time bound manner, and the banks were also advised that in case of non-compliance RBI may take enforcement action against them,

ii. banks should closely monitor the end-use of funds and obtain certificates from borrowers certifying that the funds are utilised for the purpose for which they were obtained. In case of wrong certification by the borrowers, banks may consider appropriate legal proceedings, including criminal action wherever necessary, against the borrowers,

iii. to direct the focus of banks, on early detection of loan frauds, prompt reporting to the RBI and the investigative agencies and timely initiation of staff accountability proceedings, RBI had issued a framework, with stipulated timelines with actions incumbent on banks, for dealing with loan frauds of Rs.50 crore and above, wherein banks were advised to classify potential fraud accounts as Red Flagged Accounts based on observation/evaluation of Early Warning Signals noticed. The red flagging is done on an IT platform where all banks report large exposure to entities/individuals so that other banks can be forewarned about fraud risk, and

iv. RBI reviews the cyber security developments and threats on an ongoing basis and necessary measures are taken to strengthen the cyber resilience of banks.

Compliance of the guidelines of the RBI lies under the purview of RBI. Further, as per RBI’s inputs, banks were advised that in case of non-compliance RBI will take enforcement action against them.

This was stated by Shri Shiv Pratap Shukla, Minister of State for Finance in Written Reply to a Question in Rajya Sabha today. (PIB)

RBI guidelines for agencies to deposit money in ATMs

Reserve Bank of India (RBI) vide its guidelines issued on 6.4.2018 on ‘Cash Management activities of the banks – Standards for engaging the Service Provider and its sub-contractor’, advised banks to put in place certain minimum standards  in their arrangements with the service providers for cash management related activities. The guidelines, inter alia, include the following criteria for the service provider:

  • Minimum net worth requirement of Rs. 1 billion.
  • Minimum fleet size of 300 specifically fabricated cash vans (owned / leased).
  • Cash to be transported only in the owned / leased GPS-enabled security cash vans of the Service Provider or its first level sub-contractors.
  • The passenger compartment is to accommodate two custodians and two armed security guards (gunmen) besides the driver.
  • ATM operations are to be carried out only by certified and trained personnel.
  • Character and antecedent verification of all crew members associated with cash van movement, should be done meticulously.
  • Safe and secure premises of adequate size for cash processing / handling and vaulting with fire safety gadgets.

In order to mitigate risks involved in open cash replenishment/ top-up, RBI vide it’s circular dated 12.4.2018 advised banks to consider using lockable cassettes in their ATMs which should be swapped at the time of cash replenishment. This is to be implemented in a phased manner covering at least one third ATMs operated by the banks every year, such that all ATMs achieve cassette swap by 31.3.2021.

This was stated by Shri Shiv Pratap Shukla, Minister of State for Finance in a Written Reply to a Question in RajyaSabha today.


Formulation of Reform Agenda for Banks

A Reforms Agenda of Public Sector Banks (PSBs) aimed at Enhanced Access & Service Excellence (EASE) and encapsulating a synergistic approach to ensuring prudential and clean lending, better customer service, enhanced credit availability, focus on Micro, Small & Medium Enterprises (MSMEs), and better governance has been adopted. Reforms in the agenda include, inter alia, making it easier for MSMEs and retail customers to transact, significantly increasing access to banking services, near-home banking services, time-bound refund on unauthorised electronic transactions, and mobile ATMs in underserved districts.

Steps taken by Government to reform Regional Rural Banks (RRBs) include, inter alia, the following:-

(i) Enactment of Regional Rural Banks (Amendment) Act 2015 to strengthen the capital base and improve their overall capabilities and making provision for RRBs to raise capital from source other than Central Government or State Government or Sponsor Bank, subject to the shareholding of Central Government and Sponsor Bank shall not be less than fifty-one per cent,

(ii) Revision of guidelines to make the system of appointment of auditors for RRBs more objective and transparent to improve quality of audit, and

(iii) Improvement in the recruitment process.

This was stated by Shri Shiv Pratap Shukla, Minister of State for Finance in a Written Reply to a Question in Rajya Sabha today.

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January 2021