Sunday, November 4, 2012

Recent Developments in Banking

In this post I have covered the details of various recent developments  related to banking. I hope that the same will be useful for the staff of banks who are appearing for the tests and interviews for their promotions:

1.Current Rates as on 2.11.2012:

a)Policy Rates:

i)Bank Rate:                  9%

(Bank Rate is the rate at which  RBI  allows finance to commercial banks. Bank Rate is a tool, which central bank  uses for short-term purposes. Any upward revision in Bank Rate by central bank is an indication that banks should also increase    deposit rates  as well as Base Rate/ Benchmark Prime Lending Rate(BPLR).  Thus any revision in the Bank rate indicates that it is likely that interest rates on your deposits are likely to either go up or go down,  and it can also indicate  an increase or decrease in your EMI.)

ii)Repo Rate:                  8%

Repo Rate: Whenever the banks have any shortage of funds they can borrow it from RBI. 
Repo rate is  the rate at which our banks borrow rupees from RBI. A reduction in  the repo rate will help banks to get money at a cheaper rate. 

When the repo rate increases borrowing from RBI becomes more expensive.)

iii)Reverse Repo Rate:     7%

Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always ready to lend money to RBI since their money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system. 

b)Reserve Ratios:

i)CRR                         4.50%

(CRR(Cash Reserve Ratio):Cash reserve Ratio (CRR) is the amount of Cash(liquid cash like gold) that    the banks have to keep with RBI. This Ratio is basically to secure solvency of the bank and to drain out the excessive money from the banks. If RBI decides to increase the percent of this, the available amount with the banks comes down and if RBI reduce the CRR then available amount with Banks increased and they are able to lend more.)

ii)SLR                        23.00%

(CRR(Cash Reserve Ratio):Cash reserve Ratio (CRR) is the amount of Cash(liquid cash like gold) that    the banks have to keep with RBI. This Ratio is basically to secure solvency of the bank and to drain out the excessive money from the banks. If RBI decides to increase the percent of this, the available amount with the banks comes down and if RBI reduce the CRR then available amount with Banks increased and they are able to lend more.)

 ( Ref my post on  Monetary Tools used by RBI to control Inflation with the following link to know more details: )

2.RBI clarifies on penalty clause for 'survivors'

The Reserve Bank of India has adivsed banks to make sure to incorporate the "either or survivor" or "former or survivor" clause in their account opening forms.
RBI had advised that in case joint depositors of term/fixed deposits with "Either or Survivor" or "Former or Survivor" mandate intend to allow premature withdrawal of their deposits by one of the joint depositors on the death of the other.
RBI also clarified that such premature withdrawal would not attract any penal charge on survivor.
The joint deposit holders may be permitted to give the mandate either at the time of placing fixed deposit or anytime subsequently during the term/tenure of the deposit. If such a mandate is obtained, banks can allow premature withdrawal of term/fixed deposits by the surviving depositor without seeking the concurrence of the legal heirs of the deceased joint deposit holder.
RBI has also asked banks to inform their existing along with future term deposit holders about the availability of such an option.

The Reserve Bank of India (RBI) has also advised regional rural and co-operative banks to modify Fixed Deposit account opening forms to allow premature withdrawal of FD on death of one of the joint account holders without any penalty. Under the modified norms, it will be easier for the surviving joint account holders to go for premature withdrawal of FD in the event of death of the other. 

As per the RBI notification, banks will have to incorporate a clause in the FD form to give option of premature withdrawal by survivor in case of death of the other joint account holder.

3. Deduction on Interest on Saving Account – 80TTA

Individuals and HUFs can now claim deduction on Interest on saving account from 1st April, 2013 u/s 80TTA. Section 80TTA has been newly inserted to provide deduction in respect of interest on deposits in Savings Accounts held with Banks, Post office and Cooperative Banks.

Eligible Assessee

Deduction on Interest on saving account will be allowed only to Individuals and HUF’s (Hindu Undivided Family).

Section 80TTA deduction shall not be allowed to any Partnership firm, Association of Persons, Company or a body of individuals.

Qualifying – Saving Account

Deduction in respect of Interest on saving account with any of the following will qualify:

    Bank or banking company;
    Co-operative Society engaged in carrying on the business of banking, including a co-operative land mortgage bank or co-operative land development bank,
    Post office Saving Account.

Other Relevant Points

Deposit in other scheme of Post office or time deposit or term deposit or fixed deposits will not be allowed.

Moreover, where the interest on saving account is derived from any deposit in a savings account held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed in respect of such income in computing the total income of any partner of the firm or any member of the association or body.

Quantum of Deduction

Deduction shall be allowed upto Rs. 10000 in aggregate.


Deduction will be available to an assessee, being an individual and HUF’s from 1st April, 2013. In other words, deduction on Interest on saving account will apply from financial year 2012-2013 (Assessment year 2013-2014) and subsequent years.


The Reserve Bank of India (RBI)  directed all banks to issue cheques with uniform features conforming to Cheque Truncation System (CTS) 2010 standard by the end of September 2012.

The homogeneity in security features act as deterrent against frauds, and the fixed field placement specifications facilitate straight-through-processing at drawee banks’ end through the use of optical or image character recognition technology, RBI said in a notification.

Adherence to CTS-2010 standards has inherent advantages as the security features in cheque forms help the presenting banks to identify the genuineness of the drawee banks’ instruments while handling them in the image based scenario, it said.

To ensure the time-bound migration to CTS-2010 standard cheque formats, all banks are advised to arrange only “multi-city or payable at par CTS-2010 standard cheques not later than September 30, 2012,” it said.

“Arrange to withdraw the non-CTS-2010 standard cheques in circulation before December 31, 2012 by creating awareness among customers through SMS alerts, letters, display boards in branches/ATMs, log-on message in internet banking, notification on the web-site etc,” it said.

The introduction of new cheque standards ‘CTS 2010’ was warranted on account of several developments in the cheque clearing namely growing use of multi-city and payable-at-par cheques at any branch of a bank, increasing popularity of speed clearing for local processing of outstation cheques and implementation of grid based CTS for image-based cheque processing etc., it said.

Will your Cheque Book be valid after 31st December, 2012?
As per RBI guidelines, there have been certain changes made to the cheques issued by the Bank. However, these changes are available only in cheque books issued after August 2011. If you have obtained the cheque book prior to this, the cheques will not be valid after December 31, 2012.  
If the cheques you currently hold have the following features, they will be valid after the given date.
  • "Please sign above" is mentioned on cheque leaf on the lower right  hand side.
  • A wave like design is embossed on the left-hand side of Cheque leaf   
Below is the new sample cheque format from HDFC Bank  
Additionally, any post-dated cheques issued by you and due after December 31, 2012 will need to be replaced by the fresh cheques meeting the above mentioned guidelines. 
Please contact your bank branch for new cheque book.


What is ‘Cash Retraction’?

‘Cash Retraction’ means if the cash notes are not collected from ATM

slot within specified time, cash notes are taken back by the ATM.

The banks have done away with the cash retraction system in ATMs. The systemwas withdrawn  after the Reserve Bank of India (RBI) agreed to National Payments Corporation of India's proposal for removing the feature from all ATMs to deal with the increasing number of fraudulent claims about non-receipt of cash. 

Banks have posted messages on their websites that the system has been disabled. The step has been taken to prevent the misuse of the system as RBI has received complaints about people trying to defraud banks by holding on to some withdrawn currency notes in ATMs and then claiming non-receipt of cash after the machine takes back the rest. 

Now, every time you visit an ATM for cash withdrawal; please remember the following:
Always collect all your cash notes while doing a cash withdrawal transaction  

 If all cash notes are not collected, cash will not be taken back by 
the ATM machine and will remain there till the time the cash is not collected

Count all your notes before leaving the ATM site

6. Post Offices to have ATM facility soon

On the occasion of World Post Day , the Department of Post announced a proposal to install ATMs at several post offices in the state. “The Banking Services are available but this will enable anywhere, anytime banking. It will give easy access to electronic clearing services and fund transfer. 519 Post offices have been identified for core Banking Services. 1403 Post offices have been covered under project arrow. Out of these,141 Post offices have been covered under look & feel.” said Shri A.K. Sharma, Chief Postmaster General of Maharashtra and Goa.
World Post Day marks the institution of the Universal Postal Union way back in 1847 in Bern in Switzerland. In India, the dept. has come a long way from the time it merely courier letters and parcels to multi –utility facilitator of products and services. Sharma added there were plans to network all the post offices through computers. “We are partnering with firms like TCS for training staff, Infosys for full service integration and Sify will handle our network integration.” he said.

7. RBI sets up committee for sustainable financial inclusion

RBI has constituted a high level Financial Inclusion Advisory Committee (FIAC) to spearhead the efforts towards greater financial inclusion. The collective expertise and experience of the members of the committee will explore issues such as developing viable and sustainable banking services delivery models focusing on accessible and affordable financial services, developing products and processes for rural as well as urban consumers presently outside the banking network and suggest appropriate regulatory framework to ensure that financial inclusion and financial stability move in tandem.
The Committee will be chaired by Dr. K.C. Chakrabarty, Deputy Governor, Reserve Bank of India and will comprise of members of board of directors of RBI, professors from eminent institutions, and senior level officials from UIDAI and banks. Executive Director in-charge of Rural Planning and Credit Department, Reserve Bank of India will be the convenor of the committee.
Ensuring accessible and affordable financial services in all 6 lakh villages in India is a herculean task and given the enormity of the task, a lot of ground still needs to be covered.  This calls for a partnership of all the stakeholders – RBI, other sectoral regulators like Securities and Exchange Board of India. While the regulators and the Government of India are already part of the financial inclusion project, a need was felt to engage the members from the civil society/Non-Governmental Organisations and others for a sound and purposeful collaboration.
The committee, if necessary, would call other market players like Corporate Business Correspondents, Technology Vendors etc., as special invitees to the meetings. Since the financial inclusion model selected in India is primarily bank-led, the committee may also invite the Chairperson/Managing Directors of banks to its meetings to gather the perspective of the banks.


  1. good updates,all at one place !!
    keep it up.
    Ashok Dhar

    1. Ashok Dhar>>>>Thank you Sir for your nice comments and encouragement

  2. excellent effort ! please keep it up !!

    1. Kaeyes49>>>>Thank you KS sir for your nice comments

  3. Great job!! Its great to hear about the disabling of ATM cash retraction. 

    1. gene bernice>>>>>Thank you for your nice comments

  4. Great work saibaba. It helps people like me to discharge my funcyion as a director of a bank. Thank you very much.

    1. T.T.C>>>>> I am glad to hear that the purpose of my post is served. Thank you sir for your nice comments and your encouragement.

  5. Very good attempt to keep our knowledge updated.

    Thanks a lot.


    1. N.Srinivasan>>.Thank you for your nice comments