Indian Overseas Bank

Staff College, Chennai

Study Circle 04.07.2015
Regulatory Round Up 04.07.2015
RBI 02.07.2015
Opening of Current Accounts by Banks - Need for Discipline
It is advised that the banks should scrupulously ensure that their branches do not
open current accounts of entities which enjoy credit facilities (fund based or nonfund based) from the banking system without specifically obtaining a No-Objection
Certificate (NOC) from the lending bank(s). Banks may open current accounts of
prospective customers in case no response is received from the existing bankers
after a minimum waiting period of a fortnight. However, we have been receiving
complaints against banks for opening current account without following due
diligence as specified in our aforesaid circulars.
Keeping in view the importance of credit discipline, especially for reduction in NPA
level in banks, banks are advised to make use of the information available in
CRILC and not limit their due diligence to seeking NOC from the bank with whom
the customer is supposed to be enjoying the credit facilities as per his declaration.
Banks should verify from the data available in CRILC database whether the
customer is availing of credit facility from another bank. Further banks may also
seek No Objection Certificate from the drawee bank where the initial deposit to
current account is made by way of a cheque.
RBI 02.07.2015
Bucketing of excess SLR and MSF securities in Structural Liquidity
Statement
As per the extant instructions, approved securities are required to be slotted
under respective maturity buckets, excluding the amount required to be
reinvested to maintain SLR corresponding to the DTL profile in various time
buckets. Further, securities in the trading book are to be slotted under Day 1, 2-7
days, 8-14 days, 15-28 days and 29-90 days according to defeasance periods.
Whereas securities in excess of mandatory SLR as well as securities eligible for
MSF were also required to be slotted as per the above instructions, these
securities, in fact, exhibit the liquidity characteristics required for slotting in day-1
bucket in view of their ready access to liquidity by way of repo and MSF (presently
upto 2% of NDTL). It has, therefore, been decided that banks can slot their excess
SLR securities and MSF eligible securities under the Day-1 bucket.
RBI 02.07.2015
Discount Rate for Computing Present Value of Future Cash Flows
On a review, it has been decided that a rate equal to the actual interest rate
charged to the borrower before restructuring may be used to discount the future
cash flows for the purpose of determining the diminution in fair value of loans on
restructuring. In cases where the existing credit facilities to a borrower carry
different rates of interest, the weighted average interest rate (with share of each
credit facility in the total outstanding of the borrower as on the date of
restructuring being used as weights) may be used as the discounting rate. This

discount rate may be used to discount both the pre-restructuring cash flows as
well as post-restructuring cash flows.
The above methodology may be consistently used wherever banks are required to
compute fair/present value of loans under the guidelines issued by the Reserve
Bank of India, including for the purpose of computing net present value of project
loans
RBI 02.07.2015
Kisan Vikas Patra, 2014 and Sukanya Samriddhi Account
It has been decided to pay agency commission to authorised banks for handling
the work relating to the above two schemes as per the extant rates as advised in
circular dtd 22.05.2012..

Sl. Type of transaction

No.

Unit

Existin Revised
g Rate Rate

1 (i) Receipts Physical mode

Per
transaction

` 45

` 50

(ii)

Per
transaction

` 45

` 12

Receipts e-mode

RBI 02.07.2015
Financial Benchmarks India Pvt. Ltd.(FBIL)- Benchmark Administrator
An independent company named Financial Benchmarks India Pvt. Ltd.(FBIL),
jointly floated by the FIMMDA, the FEDAI and the IBA has since been incorporated.
The FBIL will act as an independent benchmark administrator and gradually take
over the benchmarks currently being disseminated by other agencies.
FBIL has since announced taking over the administration of the benchmark for the
overnight inter-bank rate to be based on the actual traded rate from July 22, 2015,
replacing the existing FIMMDA-NSE Overnight MIBID/MIBOR by FBIL- Overnight
MIBOR. FBIL proposes to take over administration of foreign exchange
benchmarks and other Indian Rupee interest rate benchmarks over a period of
time in consultation with the stakeholders. FIMMDA and FEDAI would continue to
act as administrators for these Rupee interest rate and foreign exchange
benchmarks respectively till they are shifted to the FBIL.
RBI 28.06.2015
RBI clarifies Governor Rajan's Remarks at London
A section of the press has mis-characterized Governor Dr. Raghuram G. Rajan's
remarks at the AQR conference at London Business School on June 25, as saying
"the world is at risk of a Great Depression". What Governor Rajan did say, in his
remarks made off the attached written text, was that the policies followed by
major central banks around the world were in danger of slipping into the kind of
beggar-thy-neighbour strategies that were followed in the 1930s. He then called
for new rules of the game in the international monetary system, a call that he has
made before, and is gaining some traction. The Great Depression was a period of

great turmoil, caused by many factors and not just beggar-thy-neighbour policies.
Governor Rajan did not imply or suggest that there was any risk of the world
economy, which is in steady recovery notwithstanding uncertainties like those in
the Euro area, slipping into a new Great Depression.