Regulation in News from 01st of December till 31st of December

1. Housing Finance Companies asked to discourage intermediaries

December 29, 2010

National Housing Bank (NHB) has asked housing finance companies (HFCs) not to encourage
intermediaries and appraise companies and projects directly. The regulator has conveyed that
intermediaries have to be employed by lenders, not borrowers. NHB is also in the process of
firming up guidelines for intermediaries. NHB guidelines say the ultimate responsibility for
knowing the customer lies with HFCs. Also, in case of large accounts, HFCs are supposed to
periodically review the risk categorisation and enhance due diligence measures.

2. Tougher lending norms for housing finance companies

December 28, 2010

The National Housing Bank has mandated housing finance firms to keep aside 0.4 percent of
the total outstanding loans, excluding individual housing loans, by September 2011. The new
rules also limit the amount a person could borrow against property to 90 percent where the
value of the property is less than 20,00,000 rupees. There was no limit earlier. All other loans
against property have been capped at 80 percent of the property's value

3. Govt. seeks regular financial inclusion report from banks

December 24, 2010

The government has directed state-run banks to regularly report on the outcomes of financial
inclusion programme. Financial services secretary R Gopalan has written to bank chairmen
and executive directors to monitor 1% of the new villages that come under inclusion plans and
the general managers for 5% villages covered under such plans. The government is keen on
extending financial services to more than 50% of the population that do not have bank
accounts. As of now, only 45% of the Indian population has access to bank accounts and there
is a low ratio of one bank branch for 16,000 people. The government is looking at opening five
Crore accounts in the selected 73,000 villages having a population of up to 2000, by March
2012.

4. RBI steps to push up home loan rates

December 24, 2010

The central bank, which had outlined the proposal in the November monetary policy
announcement, formalised the new provisioning norms on Thursday evening. RBI made it
compulsory for all those applying for a housing loan from a bank to pay margin money of at
least 20% of the value of the property, except for loans up to Rs 20 lakh where a buyer will
have to pay at least 10% of the value of the property. RBI also increased the standard asset
provisioning on the outstanding amount for teaser loans from 0.40% to 2%. However, it is
provided that the provisioning on these assets would revert to 0.40% after one year from the
date on which the rates are reset at higher rates if the accounts remain ‘standard'.

5. Credit default swap guidelines soon

December 23, 2010

MUMBAI : Reserve Bank of India Deputy Governor Subir Gokarn said that RBI would soon
come out with the guidelines for credit default swap (CDS), an instrument by which a lender
could insure the risk arising from its exposure to a borrower by transferring it to a third party.

"The RBI will shortly come out with the guidelines for introduction of credit default swaps
market, which can help develop the corporate debt market in some ways," Mr. Gokarn told a
seminar on debt markets, organised by the credit rating agency Care here

6. RBI releases feedback on new banks' pvt sector entry

December 23, 2010

The RBI on Thursday released a short compilation of the feedback and comments it received
from various financial institutions on the discussion paper for entry of new banks in the private
sector, according to which most banks and industry players preferred a high start-up capital of
around 10 billion rupees for new banks in the private sector. However, non-banking financial
companies and mutual fund institutions preferred a lower start-up capital ranging between 3-5
billion rupees.

7. Basel proposals on capitalizing banks' exposures to avoid troubled assets

December 21, 2010

The Basel Committee on Banking Supervision (BCBS) issued a consultative paper on the
regulatory capital adequacy rules text, requiring banks to more appropriately capitalise their
exposures to central counterparties (CCPs) so that they do not end up with troubled assets. The
consultative paper also provides the background for an impact study which would be initiated
shortly to measure the impact of the proposed changes on bank capitalisation. The study would
assist the Committee in finalising the rules for banks' regulatory capital against exposures to
CCPs, including determination of the appropriate calibration of such rules. The proposed rules
for the capitalisation of bank exposures to CCPs would be refined, as necessary, after the
completion of this consultation period and impact study. The rules would be finalised once the
final CPSS-IOSCO standards are published during 2011.

8. 'Aadhaar' number to act as valid document to open bank account

December 21, 2010

The finance ministry has recognized Aadhaar number issued by the Unique Identification
Authority of India (UIDAI) as an officially valid document to satisfy the KYC norms for
opening bank accounts, the Planning Commission said in a statement on Tuesday. The finance
ministry had issued a notification to this effect last week

9. RBI keeps key rates unchanged, cuts SLR to 24%

December 17, 2010

In its mid-quarter review of monetary policy, RBI kept its short-term lending and borrowing
rates to banks unchanged at 6.25 per cent and 5.25 per cent respectively, but announced
pumping in Rs 48,000 Crore into the system. The mandatory cash reverse ratio has been
maintained at 6 per cent of the banks' total deposits
In view of the Prime Minister's Economic Advisory Council's observation that the system was
feeling the pinch of liquidity shortage, RBI has decided to reduce the Statutory Liquidity Ratio
(SLR) by one percentage point to 24 per cent with effect from December 18 and to buy
government securities from banks to the tune of Rs 48,000 Crore in the next one month

10. Andhra govt seeks bar on MFIs tapping markets, private equity

December 17, 2010

The Andhra Pradesh government on Thursday requested the Y. H. Malegam committee to bar
microfinance institutions (MFIs) from raising funds from stock markets and private equity
(PE) players. "There is a need to promote social investors, as also rope in companies evincing
interest in corporate social restructuring. MFIs should not be allowed to go for initial public
offers, as they have to generate more and more profits, defeating the very purpose of
microfinance," the government requested the RBI committee. On MFI interest rates, it said the
government had been regulating the rates charged by money lenders and so there was no
reason why MFI rates should not be regulated

11. Lenders' meet may offer respite to troubled MFIs

December 14, 2010

In an effort to address their outstanding credit liabilities and liquidity problems, Small
Industries and Development Bank of India (Sidbi) is organising a lenders' meet in Hyderabad.
The meet is expected to discuss rescheduling of loans by MFIs to borrowers. The state
government is trying to convince MFIs to reschedule credit so that a borrower's debt servicing
cost does not exceed 40% of his annual income. In order to do this, banks also have to agree to
extend the tenure of loans, considering that Rs 7,500-crore loan linkages to MFIs are
outstanding. The meet is expected to be attended by leading private sector banks such as ICICI
Bank, Axis Bank and HDFC Bank besides public sector lenders like Andhra Bank

12. RBI may get to inspect related arms of Banks such as

Mutual Funds and Insurance Companies

December 14, 2010

The finance ministry plans to incorporate new provisions in amendments to a banking

legislation to allow the central bank greater regulatory oversight over associate enterprises of
banking companies such as mutual funds, insurance and factoring operations. The ministry
plans to seek the approval of the cabinet this month for changes which will be part of the
Banking Laws Bill. However, there needs to be a consensus among other supervisors such as
Sebi, which regulates mutual funds, and Irda, which oversees insurance firms. It is not clear
whether the finance ministry had held talks with these two regulators on the proposal

13. RBI to open 12 k-cr fund lines to tackle liquidity crunch

December 14, 2010

The Reserve Bank of India (RBI) has announced an open market operations (OMO) worth Rs
12,000 Crore on Wednesday. Through OMOs the central bank buys back some of the
government securities (G-secs) currently with banks, which, in turn, leave funds with banks.
This is the second OMO by RBI in as many weeks
14. RBI asks banks to open no frills account for minority students

December 13, 2010

The RBI has advised all scheduled banks to ensure opening of 'no frills' accounts of students
from minority communities or other disadvantaged groups when they approach them,
Government said today.

The banks would ensure opening of such accounts or other accounts for students of the
minority community when they approach banks for availing various scholarships or other
benefits offered by the government, Minority Affairs Minister Salman Khurshid said.

He, however, said that while opening such accounts, "know your customer norms as
appropriate may be followed".

The advisory came after the Ministry received feedbacks that the banks were reluctant to open
no frills accounts of students of minority community, he said in a written reply in the Rajya
Sabha.

15. Banks told to cap cash deposit charges at Rs.5

December 10, 2010

The Reserve Bank of India has told banks not to charge more than Rs.5 for any cash deposit
made at a non-home branch. Advised that the cash deposit charges should be in line with
NEFT charges, which is Rs.5 for transactions up to Rs.1 lakh.

16. Bill on MFIs tabled in AP Assembly

December 10, 2010

HYDERABAD: Despite several objections from the microfinance institutions, the Andhra
Pradesh government tabled the microfinance ordinance in AP assembly on the first day of the
winter season on Friday. Government sources also say that the ordinance is most likely to be
passed in the coming Tuesday.

17. RBI draft guidelines for new bank licenses in January

December 9, 2010

RBI will be ready with its draft guidelines on new banking licenses by the end of January,
governor D Subbarao said on Thursday. It will put a gist of feedback received on the new
license issue in its website shortly. The RBI central board has on Thursday discussed issues
like initial capital for new banks and their likely business model, and how would the
promoters capital be diluted after initial years. RBI will study the feedback, that it has received
from the public on several issues relating to the new licenses, before putting up the draft
guidelines "by January 2011

18. RBI open to more cash easing

December 9, 2010
RBI Governor said that RBI will be forthcoming with more measures if needed to help ease a
cash crunch in the banking system. Subbarao said the cash crunch was due to structural issue
such as faster loans growth compared with deposit rise, and frictional factor cause by a build-
up in government cash balances following higher receipts from mobile spectrum auctions,
divestments and taxes

19. Banks within rights to levy Foreclosure Penalty: CCI

December 8, 2010

Hearing a complaint filed by a borrower over penalty being levied for foreclosure of home
loans, the Competition Commission of India (CCI) has ruled that such a penalty by banks and
housing finance companies neither amounts to an anti-competitive agreement, nor abuse of
dominant market position. At present, most banks charge a prepayment penalty of around 1-
2% in the event of a customer opting to close a home loan prematurely. Banks do this with a
view to cover the interest loss due to foreclosure of the loan. The CCI's ruling quashes hopes
of thousands of borrowers to foreclose on their housing loans without paying a penalty

20. Banks cautioned against raising money from MFs

December 5, 2010

The Prime Minister's economic panel has cautioned banks against heavy dependence on
mutual funds for meeting funding requirements, saying that the money from that source is
volatile. Mr. C. Rangrajan has pointed out that the funding provided by mutual funds could be
volatile as the bulk of bank CDs are of short-term duration

21. New a/c for 1,400cr lying unclaimed with banks

December 4, 2010

The Finance Ministry has indicated that the funds in deposit accounts that have not been
operated for more than 10 years will be credited into a "depositor education and awareness
fund", which has been conceived in consultation with the RBI. The government is
contemplating to amend the Banking Regulation Act, 1949 for creating the Depositor
Education and Awareness Fund. The proposed depositor education fund will be run by an
authority or committee constituted by RBI

22. RBI may bring down provisioning requirements of banks

December 4, 2010

Mumbai: Reserve Bank of India executive director Anand Sinha on Saturday said RBI could
bring down the provisioning requirements of banks, but he did not give any timeframe for it.

Sinha, who was speaking at the Bancon, the annual bankers' conference that concluded on
Saturday, said the high provisioning requirements, which is now at 70% for all the stressed
loans, was done at a time when the Indian banks were having good profits.

"It is not meant to be kept at that level," Sinha said noting that some banks have resented the
high provisioning requirement.
"It was part of process that we are adopting … in good times you should set aside more capital
while in bad times, you should release more capital. It is a first step that we have taken but we
are working out details of it, whether it would be 70% or whatever. It is for building up stock
(of capital) in good times ….," Sinha clarified at the sidelines of the conference.

Sinha also noted that some banks had resented against this high provisioning requirements.
However, he did not give any details of when the provisioning requirements would finally
come down

23. 'MFIs will be dead by Jan 1 unless banks release fresh funds'

December 3, 2010

The Microfinance Network, an umbrella body representing MFIs has said that Microfinance
lending activities across the country will be "dead, absolutely" by January 1 unless banks
release fresh credit to the sector. Bank funding for MFIs has completely dried up ever since
the Andhra Pradesh government's Ordinance on the issue

24. Some banking regulations confusing, need streamline: Subbarao

December 3, 2010

Arguing the urgent need for streamlining and fine-tuning the existing array of laws governing
the banking system, the RBI Governor has said that a single legislation will bring about clarity
and do away with the inconsistencies currently governing the banking system. Subbarao also
asserted that the proposed financial sector reforms should be driven more by the sectoral
regulator Reserve Bank than by a legislative panel

25. RBI tells banks to guard against subversion of lending processes

December 3, 2010

The finance ministry has cautioned banks to be on guard for subversion of lending processes
by some 'undesirable parties'. Lending and financial institutions should carefully scrutinise
loan seekers and evaluate their proposals more stringently, with immaculate documentation
and periodic inspections and reviews. The banks are asked to ensure that all procedures and
due diligences consistent with board-approved guidelines are adhered to while approving loans