Banking Regulation and Monetary Policy

The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India to provide an expeditious grievance redressal mechanism to customers of banks. It provides for an institutional and legal framework for resolution of complaints relating to banking services and other matters as specified under the Scheme. The Scheme has been brought into force by way of direction issued by the Reserve Bank in terms of Section 35A of the Banking Regulation Act, 1949. The Reserve Bank will also appoint its serving senior officials as the Banking Ombudsman and will also fully fund it for better effectiveness. The Banking Ombudsman shall also entertain complaints covered by this Scheme received by Central Government or Reserve Bank and forwarded to him for disposal.  

The first study of Urban Co-operative Banks was taken up by RBI in the year 1958-59. The Report published in 1961 acknowledged the widespread and financially sound framework of urban co-operative banks; emphasized the need to establish primary urban cooperative banks in new centers and suggested that State Governments lend active support to their development. Banking related functions (viz. licensing, area of operations, interest rates etc.) were to be governed by RBI.

RBI was established in 1935. It was nationalised in 1949. It plays the role of regulator of the banking system in India. The Banking Regulation Act 1949 and the RBI Act 1953 have given RBI the power to regulate the banking system.

RBI was established in 1935. It was nationalised in 1949. It plays the role of regulator of the banking system in India. The Banking Regulation Act, 1949 and the RBI Act, 1953 has given RBI the power to regulate the banking system.

Off-site surveillance particularly focuses on the risk profile of the supervised institution. The Off-site Monitoring and Surveillance System (OSMOS) was introduced in 1995 as an additional tool for supervision of commercial banks to supplement the on-site examinations. The system consists of 12 returns (called DSB returns) that focus on supervisory concerns, such as capital adequacy, asset quality, large credits and concentrations, connected lending, earnings and risk exposures (viz. currency, liquidity and interest rate risks). 

In view of the amendment carried out to RBI Act, 1934, omitting sub-section (1B) of Section 42, the Reserve Bank does not pay any interest on the CRR balances maintained by SCBs with effect from the fortnight beginning March 31, 2007.

Factors that will be taken into account while considering the application for setting up a foreign bank in India are 

a. Economic and political relations between India and the country of incorporation of the foreign bank

b. Financial soundness of the foreign bank

c. Ownership pattern of the foreign bank

d. International and home country ranking of the foreign bank

e. Rating of the foreign bank by international rating agencies

f. International presence of the foreign bank

The targets for banks under priority sector are

a. Agriculture - 18% of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.

b. Total Priority Sector - 40% of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.

c. Micro Enterprises - 7.5% of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher to be achieved in a phased manner (7% by March, 2016 and 7.5% by March, 2017).

d. Advances to Weaker Sections - 10% of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.

Disclosure of information on products and services on websites is found to be an effective channel for reaching out to customers and the public at large. Such disclosures increase transparency in operations and also help to create awareness among customers about the products and services offered by banks.  On the basis of the recommendations of the Working Group on Lenders’ Liability Laws constituted by the Government of India, the feasibility of introducing the Fair Practices Code for Lenders was examined in consultation with Government, select banks and financial institutions. The guidelines have since been finalised and banks are advised to adopt the broad guidelines and frame the Fair Practices Code duly approved by their Board of Directors.

With effect from October 25, 2011, savings bank deposit interest rate stands deregulated. Accordingly, banks are free to determine their savings bank deposit interest rate, subject to the following two conditions:

(a) Each bank will have to offer a uniform interest rate on savings bank deposits up to Rs. 1 lakh, irrespective of the amount in the account within this limit.

(b) For savings bank deposits over Rs. 1 lakh, a bank may provide differential rates of interest, if it so chooses, subject to the condition that banks will not discriminate in the matter of interest paid on such deposits, between one deposit and another of similar amount, accepted on the same date, at any of its offices.

Companies Act, BR Act and RBI Act

Section 6(1) in Banking Regulation Act,1949 states that "in addition to the business of banking, a banking company may engage in any one or more of the following forms of businesses. They are the borrowing, raising or taking up of money, the lending or advancing of money either upon or without security, the drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hoondees, promissory notes, cou­pons, drafts, bills of lading, railway receipts, warrants, deben­tures, certificates, scrips and other instruments and securities whether transferable or negotiable or not.

Regional rural banks are estab­lished under Section 3 of the Regional Rural Banks Act, 1976.

All are true. 

Direct credit controls in India are of three types:

• It is part of the interest rate structure, i.e. rate on small savings and provident funds are administratively set.

• Banks are required to keep 21.50% of their deposits in the form of government securities.

• Banks are required to lend to the priority sector to the extent of 40% of their advances.

Section 7(1) in the Reserve Bank of India Act, 1934 states that the Central Government may from time to time give such directions to the bank as it may, after consultation with the Governor of the Bank, consider necessary in the public inter­est.