• Domestic scheduled commercial banks (other than RRBs) will now be free to open branches in Tier 3 to Tier 6 centres as identified in the Census 2001 (with population up to 50,000) under general permission.
• Opening of branches by domestic scheduled commercial banks (other than RRBs) in Tier 1 and Tier 2 centres (with population over 50,000) will continue to require prior authorisation.
• Banks may plan their branch expansion in Tier 3 to Tier 6 centres in such a manner that at least one-third of such branches are in the underbanked districts of underbanked States as will be notified separately by the Reserve Bank. This would be one of the criteria in the Reserve Bank’s consideration of proposals by domestic scheduled commercial banks (other than RRBs) to open branches in Tier 1 and Tier 2 centres. In considering such proposals, the Reserve Bank would, in addition, take into account banks’ performance in financial inclusion, priority sector lending and level of customer service, among others.
153. In July 2009, the Basel Committee on Banking Supervision (BCBS) had finalised enhancements and revisions in certain areas of the Basel II framework. The enhanced/revised guidance of BCBS is contained in their three documents, viz., Enhancements to the Basel II Framework; Revisions to the Basel II Market Risk Framework; and Guidelines for Computing Capital Charge for Incremental Risk in the Trading Book. These enhancements and revisions are intended to strengthen the framework and respond to lessons learnt from the financial crisis.
• to issue detailed guidelines as appropriate for implementation by banks operating in India by end-November 2009.
• to issue detailed guidelines on the use of DGA for management of interest rate risk by end-November 2009 .
• to allow banks to build up capital for take-out exposures in a phased manner.
157. Detailed guidelines in this regard are being issued separately.
• to increase the provisioning requirement for advances to the commercial real estate sector classified as ‘standard assets’ from the present level of 0.40 per cent to 1 per cent.
• to advise banks to augment their provisioning cushions consisting of specific provisions against NPAs as well as floating provisions, and ensure that their total provisioning coverage ratio, including floating provisions, is not less than 70 per cent. Banks should achieve this norm not later than end-September 2010.
• to link the risk weights of banks’ exposure to such NBFCs to the credit rating assigned to the NBFC by external credit assessment institutions (ECAIs).
• that the minimum retention by the originators will be 10 per cent of the pool of assets being securitised.
162. The international work, especially in the European Union and the US regarding the minimum retention criteria, is still underway. The Reserve Bank will issue detailed guidelines on the manner of computation of the one year lock-in period and other operational details keeping in view the international norms being developed.
• to issue suitable guidelines to private sector and foreign banks with regard to sound compensation policies.
• to issue a draft circular reflecting these changes by end-December 2009.
• to issue guidelines to banks on stress testing by end-January 2010.
166. It was indicated in the Annual Policy Statement of April 2009 that the Reserve Bank will liaise with the SEBI on the issue of rating agencies’ adherence to Code of Conduct Fundamentals of the International Organisation of Securities Commissions (IOSCO). Accordingly, in order to review rating agencies’ continued accreditation under Basel II, the Reserve Bank conducted meetings with Credit Rating Information Services of India Ltd. (CRISIL), ICRA Ltd., Credit Analysis and Research Ltd. (CARE) and Fitch. The Reserve Bank has also initiated discussions with the SEBI to assess the rating agencies’ compliance with the enhanced Code of Conduct Fundamentals of the IOSCO.