There is continuing need for banks to extend credit to agriculture and small scale sector which are important segments of the national economy, on commercial considerations and on the basis of creditworthiness. The loans to agricultural and SSI sectors are now generally being granted on commercial considerations and on the basis of creditworthiness of the borrower. Further, the concessionality on interest rates for advances has been done away with, except for advances under the DRI Scheme.
While advances upto Rs. The Committee recognises that the small and marginal farmers and the tiny sector of industry and small businesses have problems with regard to obtaining credit and some earmarking may be necessary for this sector. A major portion of this lending is on account of Government sponsored poverty alleviation and employment generation schemes. The Committee recommends that given the special needs of this sector, the current practice may continue.
The Branch Managers of banks should, however, be fully responsible for the identification of beneficiaries under the Government sponsored credit linked schemes. The Committee proposes that given the importance and needs of employment oriented sectors like food processing and related service activities in agriculture, fisheries, poultry and dairying, these sectors should also be covered under the scope of priority sector lending.
The Committee recommends that the interest subsidy element in credit for the priority sector should be totally eliminated and even interest rates on loans under Rs. The Committee believes that it is the timely and adequate availability of credit rather than its cost which is material for the intended beneficiaries. The reduction of the pre-empted portion of banks' resources through the SLR and CRR would, in any case, enlarge the ability of banks to dispense credit to these sectors.
The Committee has recommended that the present stipulation may continue. As recommended by the Committee, some activities like food processing, related service activities in agriculture, fisheries, poultry, dairying have been brought under priority sector.
Under the existing dispensation, Units in sectors like food processing, etc. No further changes are considered necessary, as larger units need not be given any advantage by enlarging the scope of definition of priority sector advances.
As a first step towards deregulation of interest rates on credit limits up to R. Banks are free to decide their PLR subject to their obtaining the prior approval of their Boards therefor. As the PLR differs from bank to bank, depending on their cost of funds and competitive strategies, the measure is a step towards deregulation of interest rates. Thus the recommendation of the Committee has been implemented in spirit.
It may be stated that except for loans under DRI there is no subsidisation of interest. With regard to income recognition, in India, income stops accruing when interest or instalment of principal is not paid within days.
The Committee believes that we should move towards international practices in this regard and recommends the introduction of the norm of 90 days in a phased manner by the year The production and repayment cycles in the industry in the country generally involve a period of not less than from 4 to 6 months. A large number of SSIs also have difficulties in timely realization of their bills drawn on the suppliers. These have to be taken into account while contemplating any change in the norm.
Implementation of the recommendation would have serious implications on the asset portfolio of banks and even good quality borrowers and find it difficult to comply with the norms recommended.
There have been representations from banks and financial institutions seeking relaxations in the above instructions by increasing the period to quarters. Keeping in view the current industrial scenario, implementation of the recommendation would have serious implications even to healthy borrowers. Furthermore, interest on advances is calculated by banks at quarterly rests.
However, considering the need to bring our norms in line with the best international practices, the recommendations made by the Committee would be our long term objective.
As the level of gross NPAs of banks come down because of better management practices, the recommendation to introduce the norm of 90 days will be examined.
At present, there is no requirement in India for a general provision on standard assets. The Committee believes that in the case of future loans, the income recognition and asset classification and provisioning norms should apply even to Government guaranteed advances in the same manner as for any other advance. For existing Government guaranteed advances, RBI, Government and banks may work out a mechanism for a phased rectification of the irregularities in these accounts.
Please see comments in respect of item No. There is a need for disclosure, in a phased manner, of the maturity pattern of assets and liabilities, foreign currency assets and liabilities, movements in provision account and NPAs. The RBI should direct banks to publish, in addition to financial statements of independent entities, a consolidated balance sheet to reveal the strength of the group.
Full disclosure would also be required of connected lending and lending to sensitive sectors. Furthermore, it should also ask banks to disclose loans given to related companies in the bank's balance sheets. Full disclosure of information should not be only a regulatory requirement. Banks should also pay greater attention to asset liability management to avoid mismatches and to cover, among others, liquidity and interest rate risks.
Detailed guidelines issued to banks on asset — liability management. Implementation of these guidelines would enable banks to avoid liquidity mismatches as also to cover, among others, liquidity and interest rate risks.
Banks should be encouraged to adopt statistical risk management techniques like Value-at-Risk in respect of balance sheet items which are susceptible to market price fluctuations, forex rate volatility and interest rate changes. While the Reserve Bank may initially, prescribe certain normative models for market risk management, the ultimate objective should be that of banks building up their own models and RBI backtesting them for their validity on a periodical basis.
Banks have also been advised to adopt statistical risk management techniques like Value-at-Risk which is a statistical method of assessing the potential maximum loss from a credit or investment exposure, over a definite holding period at a given confidence level or other models appropriate to their level of business operation. Banks should bring out revised Operational Manuals and update them regularly, keeping in view the emerging needs and ensure adherence to the instructions so that these operations are conducted in the best interest of a bank and with a view to promoting good customer service.
Chapter IV, para 4. Banks have been advised to bring out revised Operative Manuals and update them regularly. Banks have confirmed having brought out revised Manuals.
An area requiring close scrutiny in the coming years would be computer audit, in view of large scale usage and reliance on information technology Chapter IV, para 4. CO PP. There is enough international experience to show the dangers to an institution arising out of inadequate reporting to and checking by the back offices of trading transactions and positions taken.
Banks should pay special attention to this aspect Chapter IV, para 4. RBI had in emphasised to banks the importance of an effective management reporting system, segregation of the trading and back office functions, etc. The efficacy of the systems put in place by banks is being constantly reviewed by the RBI through periodical inspections.
There is need to institute an independent loan review mechanism especially for large borrowal accounts and systems to identify potential NPAs.
Banks have been advised to put in place an independent Loan Review Mechanism, as recommended by the Committee. The Committee feels that the present practice of RBI selection of statutory auditors for banks with Board of Directors having no role in the appointment process, is not conducive to sound corporate governance.
We would recommend that the RBI may review the existing practice in this regard. It may also reassess the role and function of the Standing Advisory Committee on Bank Audit in the light of the setting up of the Audit Committee under the aegis of the Board for Financial Supervision. The Committee notes that public sector banks and financial institutions have yet to introduce a system of recruiting skilled manpower from the open market.
The Committee believes that this delay has had an impact on the competency levels of public sector banks in some areas and they have consequently lost some ground to foreign banks and the newly set up private sector banks.
The Committee urges that this aspect be given urgent consideration and in case there are any extant policy driven impediments to introducing this system, appropriate steps be taken by the authorities towards the needed deregulation.
The Committee notes that there has been considerable decline in the scale of merit-based recruitment even at the entry level in many banks. The concept of direct recruitment itself has been considerably diluted by many PSBs including the State Bank of India by counting internal promotions to the trainee officers' cadre as direct recruitment.
The Committee would strongly urge the managements of public sector banks to take steps to reverse this trend. The CFS had recommended that there was no need for continuing with the Banking Service Recruitment Boards insofar as recruitment of officers was concerned. This Committee, upon examination of the issue, reaffirms that recommendation.
As for recruitment in the clerical cadre, the Committee recommends that a beginning be made in this regard by permitting three or four large. If the experience under this new arrangement proves satisfactory, it could then pave the way for eventually doing away completely with the Banking Service Recruitment Boards. As regards the recommendation in regard to discontinuing the practice of recruitment of officers through Banking Services Recruitment Boards, Govt.
It seems apparent that there are varying levels of overmanning in public sector banks. The managements of individual banks must initiate steps to measure what adjustments in the size of their work force is necessary for the banks to remain efficient, competitive and viable. Surplus staff, where identified, would need to be redeployed on new business and activities, where necessary after suitable retraining.
It is possible that even after this some of the excess staff may not be suitable for redeployment on grounds of aptitude and mobility. It will, therefore, be necessary to introduce an appropriate Voluntary Retirement Scheme with incentives. The managements of banks would need to initiate dialogue in this area with representatives of labour.
The Committee would urge the managements of Indian banks to review the changing training needs in individual banks keeping in mind their own business environment and to address these urgently.
Globally, banking and financial systems have undergone fundamental changes because of the ongoing revolution in information and communications technology.
Information technology and electronic funds transfer systems have emerged as the twin pillars of modern banking development. This phenomenon has largely bypassed the Indian banking system although most technologies that could be considered suitable for India have been introduced in some diluted form.
The Committee feels that requisite success in this area has not been achieved because of the following reasons:. The Committee has tried to list out series of implementation steps for achieving rapid induction of information technology in the banking system.
Further, information and control systems need to be developed in several areas like. A Working Group was set up with representation from public sector banks, technology experts, to operationalise and implement the programme of computerisation for banks within a definite time frame.
All the recommendations of Group have been accepted for implementation. The development of the Payment System Generic Architecture Model for both domestic and cross-border payments has been undertaken. A consultant has been appointed to assist in the implementation of the RTGS.
Progress is also being made towards developing standards for newer payment instruments such as Smart Cards. Three standing Committees to review security policies, message formats, software, to examine legal issues on electronic banking and to monitor progress of computerization of branches of banks handling Govt.
Public Sector Banks have been advised to report technology progress on 20 short-listed action points. Structural Issues : The Committee has taken note of the twin phenomena of consolidation and convergence which the financial system is now experiencing globally. In India also banks and DFIs are moving closer to each other in the scope of their activities. The Committee is of the view that with such convergence of activities between banks and DFIs, the DFIs should, over a period of time, convert themselves to banks.
There would then be only two forms of intermediaries, viz. If a DFI does not acquire a banking licence within a stipulated time it would be categorised as a non-banking finance company. A DFI which converts to a bank can be given some time to phase in reserve requirements in respect of its liabilities to bring it on par with the requirements relating to commercial banks.
Similarly, as long as a system of directed credit is in vogue a formula should be worked out to extend this to DFIs which have become banks Chapter V, para 5. The feedback on the discussion paper indicated that while universal banking is desirable from the point of view of efficiency of resource use, there is need for caution in moving towards such a system by banks and DFIs. Major areas requiring attention are the status of financial sector reforms, the state of preparedness of concerned institutions, the evolution of regulatory-regime and above all a viable transition path for institutions which are desirous of moving in the direction of universal banking.
The Monetary and Credit Policy for the year — proposed to adopt the following broad approach for considering proposals in this area :. Circular MPD. Mergers between banks and between banks and DFIs and NBFCs need to be based on synergies and locational and business specific complimentarities of the concerned institutions and must obviously make sound commercial sense.
Mergers of public sector banks should emanate from management of banks with Govt. Such mergers, however, can be worthwhile if they lead to rationalisation of workforce and branch network; otherwise the mergers of public sector banks would tie down the managements with operational issues and distract attention from the real issue.
Officers of appropriate level, attitude and possessing requisite leadership skills should be posted as LDMs. Further, for successful functioning of the Lead Bank Scheme, we expect Lead Banks to go the extra mile to provide facilities over and above the bare minimum to these critical field functionaries.
The Lead District Manager should convene a quarterly public meeting at various locations in the district in coordination with the LDO of Reserve Bank, banks having presence in the area and other stakeholders to generate awareness of the various banking policies and regulations relating to the common person, obtain feedback from the public and provide grievance redressal to the extent possible at such meetings or facilitate approaching the appropriate machinery for such redressal.
Public Representatives i. The DLRC is a forum to review the pace and quality of the implementation of various programmes under the Lead Bank Scheme in the district. Hence, association of non-officials is considered useful. Lead Banks are required to ensure the presence of public representatives in DLRC meetings as far as possible.
Therefore, Lead Banks should fix the date of DLRC meetings with due regard to the convenience of the representatives of the public i. Responses to queries from public representatives need to be accorded highest priority and attended to promptly. Therefore, it is necessary that all the members participate and deliberate in these meetings.
This yearly Calendar should be prepared in the beginning of each year and circulated to all members as advance intimation for blocking future dates to attend the DCC and DLRC meetings and the meetings should be conducted as per the calendar. SLBC meetings are held on quarterly basis. All routine issues may be delegated to sub-committee s of the SLBC. They are expected to meet more frequently than the SLBC.
Engaging with such research institutions and academicians would be useful in bringing in new ideas for furthering the objectives of the Lead Bank Scheme. The SLBCs may, therefore, identify such academicians and researchers and invite them as 'special invitees' to attend SLBC meetings occasionally both for adding value to the discussions and also associate them with studies appropriate to the State.
Several corporate houses are also engaged in corporate social responsibility activities for sustainable development. Success stories could be presented in SLBC meetings to serve as models that could be replicated. Review of financial inclusion initiatives, expansion of banking network and Financial Literacy.
Status of opening of banking outlets in unbanked villages, CBS-enabled banking outlets at the unbanked rural centres URCs. Review of inclusion of Financial Education in the School Curriculum, financial literacy initiatives by banks particularly digital financial literacy. Creating awareness about various schemes, subsidies, facilities e. Explore the scope of state-specific potential growth areas and the way forward — choosing partner banks.
Discussion on findings of region-focused studies, if any, and implementing the suggested solutions. Identification of gaps in rural and agriculture infrastructure which need financing rural godowns, solar power, agro processing, horticulture, allied activities, agri-marketing etc.
Steps taken for improving land record, progress in digitization of land records and seamless loan disbursements. Sharing of success stories and new initiatives at the district level that can be replicated in other districts or across the State.
This yearly calendar should be circulated to all the concerned as an advance intimation for blocking of future dates of senior functionaries of various agencies like Central Government, State Governments, banks, RBI, etc.
The agenda should also be circulated in advance without waiting for the data from defaulting banks. The matter should, however, be taken up with the defaulting banks in the SLBC meeting.
Following broad guidelines should be used for preparation of the calendar of programmes:. SLBC Convenor Banks have therefore been advised to give wide publicity to the annual calendar at the beginning of the year and ensure that dates of senior functionaries expected to attend the meetings are blocked for all meetings by their offices. In case, despite blocking dates, if for some reason, the senior functionary is not able to attend the meeting, the meeting should be held as planned in the calendar.
More importantly, the data for review in these meetings should be received as per deadlines set in the calendar and those who do not submit the data in time should be asked to explain the reasons for delay in sending the data that may be recorded in the minutes of the meeting. Under no circumstance, should the preparation of the agenda be delayed beyond the dates stipulated as per the calendar. SLBCs should arrange to place the prescribed minimum information on the websites of SLBCs of their bank and keep it updated regularly, at least on quarterly basis.
Banks may note that the list is only indicative and SLBCs are free to put any additional information considered relevant for the State. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. A loan committee is the lending or management committee of a bank or other lending institution. It generally consists of upper-level officers with management authority.
The loan committee analyzes and subsequently approves or rejects any loan that the initial loan officer does not have the authority to approve, typically those of large sizes or higher risk. If it does, the committee can agree to fund and disburse the loan with a binding commitment. For example, a year loan in its ninth year would be a maturing loan and up for renewal if the borrower is interested in extending the loan. At times, a bank may extend the original credit facility , however, the loan committee must ensure that this is done in accordance with proper procedure.
In addition to reviewing maturing loans, a loan committee is responsible for reviewing new loans that may be large, complex, or come with a high risk. These types of loans are usually above the authority of the initial loan officer and require the approval of upper management, such as the chief risk officer CRO and chief financial officer CFO.
A loan committee analyzes and subsequently approves or rejects the loan. It may also approve the loan but with completely different terms than the borrower intended, which will mitigate any risks. The mandate of the BCBS is to strengthen the regulation, supervision and practices of banks worldwide with the purpose of enhancing financial stability.
The two-year work programme of the BCBS outlines its strategic priorities for policy, supervision and implementation activities. Latest BCBS publications. You might also be interested in:. About committees and associations. Central bank and monetary authority websites.
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