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WHAT IS NEW IN BANKING

27.04.2021 -Guidelines for Appointment of SCAs/SAs

The Reserve Bank on April 27, 2021 issued the following guidelines under Section 30(1A) of the Banking Regulation Act, 1949, Section 10(1) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980 and Section 41(1) of SBI Act, 1955; and under provisions of Chapter IIIB of RBI Act, 1934 for NBFCs:

Applicability - The guidelines will be applicable to the Commercial Banks (excluding RRBs), UCBs and NBFCs including HFCs (hereinafter referred to as the Entities) for Financial Year 2021-22 and onwards in respect of appointment/reappointment of Statutory Central Auditors (SCAs)/Statutory Auditors (SAs) of the Entities.

Prior Approval of the Reserve Bank - Commercial Banks (excluding RRBs) and UCBs will be required to take prior approval of the Reserve Bank (Department of Supervision) for appointment/reappointment of SCAs/SAs, on an annual basis. While NBFCs do not have to take prior approval of the Reserve Bank for appointment of SCAs/SAs, all NBFCs need to inform the Reserve Bank within one month of such appointment.

Number of SCAs/SAs and Branch Coverage - For Entities with asset size of ₹15,000 crore and above as at the end of previous year, the statutory audit should be conducted under joint audit of a minimum of two audit firms [Partnership firms/Limited Liability Partnerships (LLPs)]. All other Entities should appoint a minimum of one audit firm (Partnership firm/LLPs) for conducting statutory audit.

Eligibility Criteria of Auditors - Each Entity is required to appoint audit firm(s) as its SCA(s)/SA(s) fulfilling the eligibility norms as prescribed in Annex I of the guidelines.

Independence of Auditors – For Commercial Banks (excluding RRBs) and NBFCs, the Audit Committee of the Board (ACB)/ Local Management Committee (LMC) shall monitor and assess the independence of the auditors and conflict of interest position in terms of relevant regulatory provisions, standards and best practices. For UCBs/remaining NBFCs, the Board of Directors shall monitor and assess the independence of the auditors.

Professional Standards of SCAs/SAs - The SCAs/SAs shall be strictly guided by the relevant professional standards in discharge of their audit responsibilities with highest diligence.

Tenure and Rotation – In order to protect the independence of the auditors/audit firms, Entities will have to appoint the SCAs/SAs for a continuous period of three years, subject to the firms satisfying the eligibility norms each year.

Audit Fees and Expenses - The audit fees for SCAs/SAs of all the Entities shall be decided in terms of the relevant statutory/regulatory provisions.

Statutory Audit Policy and Appointment Procedure - Each Entity shall formulate a Board/LMC approved policy to be hosted on its official website/public domain and formulate necessary procedure thereunder to be followed for appointment of SCAs/SAs.

 

08.04.2021: Enhancement of limit of maximum balance per customer at end of the day from ₹1 lakh to ₹2 lakh – Payments Banks (PBs)

PBs were restricted to hold a maximum balance of ₹1 lakh per individual customer at the end of the day. It has been decided to enhance the limit of maximum balance at the end of the day from ₹1 lakh to ₹2 lakh per individual customer of PBs with immediate effect.

 

23.03.2021: No justification for charging compound interest or penal interest during the period of loan moratorium which was allowed by the Reserve Bank of India from March 1 to August 31 last year on account of the COVID19 pandemic. : SC

The Supreme Court has observed that there is no justification for charging compound interest or penal interest during the period of loan moratorium which was allowed by the Reserve Bank of India from March 1 to August 31 last year on account of the COVID19 pandemic. The Court observed that compound interest is chargeable on wilful or deliberate default by the borrower to pay the due installments. So, when the installments have been deferred based on the moratorium declared by the RBI, the non-payment of installments cannot be termed as willful. Therefore, there is no justification in charging compound interest.  The Court observed that there shall not be any charge of interest on interest/compound interest/penal interest for the period during the moratorium from any of the borrowers and whatever the amount is recovered by way of interest on interest/compound interest/penalty interest for the period during the moratorium, the same shall be refunded and to be adjusted/given credit in the next instalment of the loan amount. Interim relief granted earlier not to declare the accounts of respective borrowers as NPA stands vacated. Small Scale Industrial Manufactures Association (Regd.) Versus Union of India and others WRIT PETITION (C) NO. 476 OF 2020. Date of Judgment: 23.03.2021.

16.03.2021- Penalty imposed upton SBI: The Reserve Bank of India (RBI) has, by an order dated March 15, 2021, imposed a monetary penalty of ₹2 Crore (Rupees Two Crore only) on State Bank of India (the bank) for contravention of provisions of section 10 (1) (b) (ii) of the Banking Regulation Act, 1949 (the Act) and specific directions of RBI issued to the bank on payment of remuneration to employees in the form of commission.

15.03.2021 RBI: Extension of Image-based Cheque Truncation System (CTS) across all bank branches in the country

it has been decided by RBI to extend CTS across all bank branches in the country. To facilitate this, banks shall have to ensure that all their branches participate in image-based CTS under respective grids by September 30, 2021. They are free to adopt a model of their choice, like deploying suitable infrastructure in every branch or following a hub & spoke model, etc. and concerned banks shall coordinate with the respective Regional Offices of RBI to operationalise this.

IDBI Bank Limited taken out of PCA framework

IDBI Bank Limited taken out of the Prompt Corrective Action (PCA) framework, subject to certain conditions and continuous monitoring - RBI on 10.03.2021.

Inclusion of “Fino Payments Bank Limited” in the Second Schedule of the Reserve Bank of India Act, 1934

“Fino Payments Bank Limited” has been included in the Second Schedule to the Reserve Bank of India Act, 1934 vide Notification published on February 13 - February 19, 2021.

Restoration of Cash Reserve Ratio (CRR)

As per Satement of Development and Regulatory Policies issued on 05.02.2021, the cash reserve ratio (CRR) of all banks was reduced by 100 basis points to 3.00 per cent of their Net Demand and Time liabilities (NDTL) effective from the reporting fortnight beginning March 28, 2020. The dispensation was available for a period of one year ending March 26, 2021.

It has been decided to gradually restore the CRR in two phases in a non-disruptive manner. Accordingly, banks are required to maintain the CRR at 3.50 per cent of their NDTL effective from the reporting fortnight beginning March 27, 2021 and 4.00 per cent of their NDTL effective from fortnight beginning May 22, 2021.

Further, Scheduled Commercial Banks will be allowed to deduct the amount equivalent to credit disbursed to ‘New MSME borrowers’ from their Net Demand and Time Liabilities (NDTL) for calculation of the Cash Reserve Ratio (CRR). For the purpose of this exemption, ‘New MSME borrowers’ shall be defined as those MSME borrowers who have not availed any credit facilities from the banking system as on January 1, 2021. This exemption will be available only up to ₹25 lakh per borrower disbursed up to the fortnight ending October 1, 2021, for a period of one year from the date of origination of the loan or the tenure of the loan, whichever is earlier.

RBI imposes penalty on Banks

The Reserve Bank of India (RBI) has imposed, by an order dated January 13, 2021, a monetary penalty of ₹1 lakh on The Mandvi Mercantile Co-operative Bank Ltd., Mandvi, Dist. Kutch (Gujarat) (the bank)  and a monetary penalty of ₹0.50 lakh on Alavi Co-operative Bank Ltd., Vadodara (Gujarat) (the bank) for contravention of RBI directions on ‘Loans and Advances to Directors, Relatives and Firms/Concerns in which they are Interested’ and ‘Placement of Deposits with Other Banks by Primary (Urban) Co-operative Banks (UCBs)’. 

The Reserve Bank of India (RBI) has, by an order dated January 12, 2021, imposed a monetary penalty of ₹2 crore (Rupees Two Crore only) on Deutsche Bank AG (the bank) for non-compliance with certain provisions of directions issued by RBI contained in the “Reserve Bank of India (Interest Rate on Deposits) Directions, 2016”. 

Reserve Bank of India (RBI) has, vide order dated January 08, 2021 cancelled the licence of Vasantdada Nagari Sahakari Bank Ltd., Osmanabad, Maharashtra to carry on banking business, with effect from the close of business on January 11, 2021. 

The Reserve Bank of India, in exercise of powers conferred on it under Section 45-IA (6) of the Reserve Bank of India Act, 1934, has cancelled the Certificate of Registration of the following companies. 1. Abhinav Hire Purchase Limited 2. Jupiter Management Services Private Limited 3. N. E. Leasing and Finance Private Limited 

Risk based Internal Audit (RBIA) Framework – Strengthening Governance arrangements (RBI notification dated 07.01.2021)

To bring uniformity in approach followed by the banks, as also to align the expectations on Internal Audit Function with the best practices, banks are advised as under:

1. Authority, Stature and Independence - The internal audit function must have sufficient authority, stature, independence and resources within the bank, thereby enabling internal auditors to carry out their assignments with objectivity. Accordingly, the Head of Internal Audit (HIA) shall be a senior executive of the bank who shall have the ability to exercise independent judgement. The HIA as well as the internal audit function shall have the authority to communicate with any staff member and have access to all records or files that are necessary to carry out the entrusted responsibilities. 

2. Competence - Requisite professional competence, knowledge and experience of each internal auditor is essential for the effectiveness of the bank's internal audit function. The desired areas of knowledge and experience may include banking operations, accounting, information technology, data analytics and forensic investigation, among others. Banks should ensure that internal audit function has the requisite skills to audit all areas of the bank.

3. Staff Rotation - Except for the entities where the internal audit function is a specialised function and managed by career internal auditors, the Board should prescribe a minimum period of service for staff in the Internal Audit function. The Board may also examine the feasibility of prescribing at least one stint of service in the internal audit function for those staff possessing specialized knowledge useful for the audit function, but who are posted in other departments, so as to have adequate skills for the staff in the Internal Audit function.

4. Tenor for appointment of Head of Internal Audit - Except for the entities where the internal audit function is a specialised function and managed by career internal auditors, the HIA shall be appointed for a reasonably long period, preferably for a minimum of three years. 

5. Reporting Line - The HIA shall directly report to either the Audit Committee of the Board (ACB) / MD & CEO or Whole Time Director (WTD). Should the Board of Directors decide to allow the MD & CEO or a WTD to be the ‘reporting authority’ of the HIA, then the ‘reviewing authority’ shall be with the ACB and the ‘accepting authority’ shall be with the Board in matters of performance appraisal of the HIA. Further, in such cases, the ACB shall meet the HIA at least once in a quarter, without the presence of the senior management, including the MD & CEO/WTD. The HIA shall not have any reporting relationship with the business verticals of the bank and shall not be given any business targets. In foreign banks operating in India as branches, the HIA shall report to the internal audit function in the controlling office / head office.

6. Remuneration - The independence and objectivity of the internal audit function could be undermined if the remuneration of internal audit staff is linked to the financial performance of the business lines for which they exercise audit responsibilities. Thus, the remuneration policies should be structured in a way that it avoids creating conflict of interest and compromising audit’s independence and objectivity.

 Card Transactions -The Reserve Bank decided to increase the contactless card per transactions limit from ₹2,000/- to ₹5,000/- on December 04, 2020.