Why has the RBI withdrawn Rs 2,000 notes?

The central bank has advised the public to deposit Rs 2000 banknotes, which were introduced after Rs 500 and Rs 1000 notes were withdrawn during the demonetisation exercise six years ago, into their bank accounts and /or exchange them into banknotes of other denominations at any bank branch.

Why has the RBI withdrawn Rs 2000 notes?

The Rs 2000 note was introduced in November 2016 under Section 24(1) of The RBI Act, 1934, primarily with the objective of meeting the currency requirement of the economy expeditiously after the legal tender status of Rs 500 and Rs 1000 notes was withdrawn. With the fulfilment of that objective, and once notes of other denominations were available in adequate quantities, the printing of Rs 2000 notes was stopped in 2018-19.

The RBI issued the majority of the Rs 2000 denomination notes prior to March 2017; these notes are now at the end of their estimated lifespan of 4-5 years. This denomination is no longer commonly used for transactions; besides, there is adequate stock of banknotes in other denominations to meet currency requirements.

“In view of the above, and in pursuance of the ‘Clean Note Policy’ of the Reserve Bank of India, it has been decided to withdraw the Rs 2000 denomination banknotes from circulation,” the RBI said.

And what is the Clean Note Policy?

The Clean Note Policy seeks to give the public good-quality currency notes and coins with better security features, while soiled notes are withdrawn out of circulation. The RBI had earlier decided to withdraw from circulation all banknotes issued prior to 2005 as they have fewer security features as compared to banknotes printed after 2005.

However, the notes issued before 2005 continue to be legal tender. They have only been withdrawn from circulation in conformity with the standard international practice of not having notes of multiple series in circulation at the same time.

So will the Rs 2000 banknotes continue to be legal tender?

The Rs 2000 banknote will continue to maintain its legal tender status, the RBI has said. Members of the public can continue to use Rs 2000 banknotes for their transactions and also receive them in payment. “However, they are encouraged to deposit and/ or exchange these banknotes on or before September 30, 2023,” the RBI said.

What will happen after September 30?

The RBI has not clarified the status of these notes after September 30. However, it has said that its instructions on the Rs 2000 notes will be effective until that date.

What should you do with the Rs 2000 notes you have?

The RBI has advised people to “approach bank branches for deposit and/ or exchange” of these banknotes. “The facility for deposit into accounts and exchange for Rs 2000 banknotes will be available at all banks until September 30, 2023,” the RBI has said. The facility for exchange will also be available until September 30 at 19 RBI Regional Offices that have Issue Departments.

Is there a limit on how much money you can exchange or deposit?

You can exchange Rs 2000 banknotes up to a limit of Rs 20,000 at a time. You don’t have to go your own bank — a non-account holder of bank also can exchange Rs 2000 banknotes up to a limit of Rs 20,000 at a time at any bank branch.

The exchange of Rs 2000 banknotes can also be made through business correspondents up to a limit of Rs 4000 per day for an account holder.

Deposits into bank accounts can be made without restrictions “subject to compliance with extant Know Your Customer (KYC) norms and other applicable statutory / regulatory requirements”, the RBI has said.

When can you start exchanging the Rs 2000 notes?

To give time to banks to prepare, RBI has asked people to approach branches or ROs of RBI from May 23 to exchange their notes.

What happens if someone has a very large number of Rs 2000 notes?

Technically, a person can seek multiple exchanges in packets of Rs 20,000 at a time. However, this is expected to attract the attention of enforcement agencies and the Income-tax Department. Those holding large sums of money in Rs 2000 notes are likely to find it difficult to exchange their money.

Could there be a repeat of the demonetisation chaos of 2016?

It is unlikely that bank branches will witness chaos and long queues like in 2016 this time. The printing of Rs 2000 notes was stopped in 2018-19, and they are no longer commonly seen with the public — unlike the ubiquitous Rs 500 and Rs 1000 notes in 2016.

Also, the decision to withdraw Rs 500 and Rs 1000 notes was announced suddenly, taking the public by surprise. The exchange Rs 2000 notes will begin only on May 23, so banks and the public have sufficient time.

Could there be a repeat of the demonetisation chaos of 2016?

It is unlikely that bank branches will witness chaos and long queues like in 2016 this time. The printing of Rs 2000 notes was stopped in 2018-19, and they are no longer commonly seen with the public — unlike the ubiquitous Rs 500 and Rs 1000 notes in 2016.

Also, the decision to withdraw Rs 500 and Rs 1000 notes was announced suddenly, taking the public by surprise. The exchange Rs 2000 notes will begin only on May 23, so banks and the public have sufficient time.

Banks holding currency chests (CCs) should ensure that no withdrawal of Rs 2000 denomination is allowed from the CCs. All balances held in the CCs should be classified as unfit and kept ready for dispatch to the respective RBI offices.

Read More

RBI imposes penalties on BoI and Federal Bank

Reserve Bank of India (RBI) on Friday said it has imposed a penalty of Rs 5.72 crore on Federal Bank for deficiencies in regulatory compliance.

A  penalty of Rs 70 lakh has also been imposed on Bank of India for non-compliance with certain provisions of Know Your Customer (KYC) norms and instructions on 'compliance function in banks' issued by RBI, it said in a statement.

About Federal Bank, RBI said the bank failed to ensure that no incentive (cash or non-cash) was paid to its staff engaged in insurance broking/corporate agency services by the insurance company, according to a separate statement.

RBI had carried out Statutory Inspection for Supervisory Evaluation (lSE) of the bank with reference to its financial position as on March 31, 2020.

In another statement, RBI said a fine of Rs 7.6 lakh has been imposed on Dhani Loans and Services Limited, Gurugram for non-compliance with KYC norms.

RBI said the penalities are based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the two banks and Dhani Loans and Services with their customers.

Read More

RBI imposes monetary penalty on this PSU bank for non-compliance

 

Before the penalty, RBI had conducted a statutory inspection for supervisory evaluation of the bank regarding its financial position as of March 31, 2020, and the examination of the Risk Assessment Report, Inspection Report, and all related correspondence about the same.

The Reserve Bank of India (RBI) on Friday imposed a monetary penalty of Rs.57.50 lakh on the government-owned Indian Overseas Bank for non-compliance with certain directions. The penalty was related to the directions issued by RBI on Frauds – Classification and Reporting by commercial banks and select FIs.

RBI said, "This action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers."

Before the penalty, RBI had conducted a statutory inspection for supervisory evaluation of the bank regarding its financial position as of March 31, 2020, and the examination of the Risk Assessment Report, Inspection Report, and all related correspondence about the same.

As per the central bank, the inspection revealed non-compliance with the directions issued by RBI, inter-alia, to the extent the bank (i) failed to report certain instances of frauds involving ATM card cloning/skimming, to the RBI within three weeks from the date of detection, (ii) failed to ensure integrity and quality of data when it did not report credit information in CRILC on certain borrowers having aggregate exposure of Rs.5 crore and above, and (iii) linked certain floating rate loans to Micro and Small Enterprises, extended by it on or after October 01, 2019, to MCLR/Base Rate instead of an external benchmark.

Following this, RBI had issued a notice to the bank advising it to show cause as to why the penalty should not be imposed on it for failure to comply with the directions issued by the central bank.

After considering the bank’s reply to the notice and examination of additional submissions made by it, RBI came to the conclusion that the charge of non-compliance with the aforesaid RBI directions was substantiated and warranted imposition of monetary penalty, to the extent of non-compliance with such directions.

Read More

IDBI Bank Privatisation: Govt Likely to Invite EoIs in July-End After Discussions with RBI

The central government has been mulling the privatisation of IDBI Bank for quite some time now, and has kept the lender in its list of companies for divestment. The Department of Investment and Public Asset Management (DIPAM) is currently holding roadshows in the US for the sale of the bank, which is set to be another important landmark in reaching India’s divestment targets. The actual quantum of government stake sale at the IDBI Bank will be known once the roadshow is over, the Centre had said earlier in April.

Currently, the government is in the process of holding roadshows in the US, an official was quoted by PTI as saying, on June 10, Friday. After a few more such investor meets, it will finalise the contours of the IDBI Bank stake sale, the official added.

“We may need one more round of discussion with RBI on IDBI strategic sale. The expression of interest (EoI) may be invited by July-end," the official said. It was earlier confirmed by sources that the government may invite EoIs in May for selling its stake in IDBI Bank and expects to complete the disinvestment process in the current financial year 2022-23.

The official said while the quantum of stake dilution of both the government and LIC is yet to be decided, the management control in IDBI Bank will be transferred in the strategic sale.

DIPAM secretary Tuhin Kanta Pandey had in April also said that the EoIs will be invited once the meetings with investors were over. “The quantum of exit will be known post roadshow and then the structure of Expression of Interest will be finalised. One thing is very sure that management control will be passed on. Currently, it is with LIC. But, management control at what level of equity will have to be decided when we have decided the structure of EoI,” Pandey had said in Delhi during an event on LIC IPO roadshow.

The government holds 45.48 per cent stake in the bank, while LIC owns 49.24 per cent. Necessary amendments to the IDBI Bank Act have already been made through the Finance Act 2021, and transaction advisors have been appointed.

The Cabinet Committee on Economic Affairs had given in-principle approval for strategic disinvestment and transfer of management control in IDBI Bank in May last year. “CCEA has given an in-principle approval for strategic disinvestment along with transfer of management control in IDBI Bank Ltd”, a government had statement said.

In January 2019, IDBI Bank became a subsidiary of LIC, following the acquisition of additional 8,27,590,885 equity shares. In December 2020, IDBI Bank was classified as an associate company due to the reduction of LIC shareholding to 49.24 per cent. The IDBI Bank privatisation efforts come during a time when the government has put off similar plans for Bharat Petroleum.

Read More

RBI slaps penalty of Rs 1.95 crore on this private bank

The Reserve Bank of India on Monday imposed a monetary penalty of Rs 1.95 crore on Standard Chartered Bank - India for failing to comply with guidelines issued for customer protection, cyber security, credit card operations and creation of central repository for large exposures.

The RBI conducted a statutory inspection of bank’s books and it’s inspection report revealed that that Standard Chartered had failed to credit the amount involved in the unauthorised electronic transactions back to customer accounts. The regulator’s inspection also revealed that the bank was not reporting cyber security incidents within the prescribed time period.

The RBI which conducted a statutory audit in the bank’s books found that the foreign lender was also non-compliant in authorising the direct sales agents to conduct KYC verification, and failed to ensure integrity and quality of data submitted in Central Repository of Information on Large Credits (CRILC).

“A notice was issued to the bank advising it to show cause as to why penalty should not be imposed on it for contravention of directions,@ the RBI said. “After considering the bank’s replies to the notice, oral submissions made during the personal hearing, and additional submissions made by the bank, RBI came to the conclusion that the charge of contravention was substantiated and warranted imposition of monetary penalty on the bank.

Read More

RBI removes PCA framework from this PSU bank

  

The Reserve Bank of India on September 29 announced that it has lifted the curbs on Indian Overseas Bank and taken the bank out of the Prompt Corrective Action (PCA) framework, the central bank said in a release.

The board for financial supervision reviewed the performance of Indian Overseas Bank and noted that as per its published results for year ended March 31, 2021, the bank is not in the breach of PCA parameters, RBI said.

Further the bank has provided a written commitment that it would commitment that it would comply with the norms of minimum regulatory capital norms, net NPA and leverage ratio on an ongoing basis, RBI said.

Taking all the above into consideration, it has been decided that Indian Overseas Bank is taken out of the PCA restrictions subject to certain conditions and continuous monitoring, RBI said.

RBI had brought Indian Overseas Bank under the PCA framework in October 2015. The bank had been requesting to the central bank to take it out of the PCA framework.

The bank's MD & CEO, Partha Pratim Sengupta had said post the Q4FY21 results that, “As far as all the PCA ratios are concerned, we have been achieving it in the past quarters also, barring one ratio, which is the leverage ratio. With the ploughing back of the profits and also with the infusion of funds by the government of India, we are very, very comfortable in all the parameters.”

Indian Overseas Bank had received Rs 4,100 crore from the government.

Under the PCA norms, the central bank imposes business restrictions on banks having weak financial metrics and the restrictions are decided on a case to case basis.

Read More

RBI lifts PCA restrictions from UCO Bank

 

State-owned UCO Bank will no longer be subject to strict lending curbs imposed by the Reserve Bank of India (RBI) in May 2017, as the central bank said on Wednesday that the lender has been taken out of the prompt corrective action (PCA) restrictions.

Following UCO Bank’s exit, two banks -- Indian Overseas Bank and Central Bank of India -- remain under PCA. The central bank uses PCA framework to rein in banks that have breached certain regulatory thresholds in bad loans and capital adequacy. PCA entails curbs on high-risk lending, setting aside more money on provisions and restrictions on management salary

UCO Bank, RBI said, has provided a written commitment that it would comply with the norms of minimum regulatory capital, net non-performing asset (NPA) and leverage ratio on an ongoing basis. The Kolkata-based lender has also apprised RBI of the structural and systemic improvements that it has put in place to help in continuing to meet these commitments.

“The performance of the UCO Bank, currently under the prompt corrective action framework of RBI, was reviewed by the Board for Financial Supervision. It was noted that as per its published results for the year ended 31 March 2021, the bank is not in the breach of the PCA parameters," RBI said

As on 31 March, UCO Bank’s net NPA ratio stood at 3.94%, down 151 basis points (bps) from the same period last year. Its total capital adequacy ratio under Basel III was at 13.74%, up 204 bps from Q4 of FY20.

RBI governor Shaktikanta Das said on 6 August that it has been taking banks out of the restrictive framework based on assessments.

“We keep on reviewing that position. Recently, we removed one public sector bank from PCA tag. And as and when required requests are received, we analyse it, if it meets RBI’s regulatory requirements and if in our assessment, we feel confident that it’s a fit case, the RBI will do the needful. So, we have been taking banks out of PCA," said Das.

The PCA framework was introduced in December 2002 as a structured early intervention mechanism along the lines of the Federal Deposit Insurance Corp.’s (FDIC) PCA framework. These regulations were later revised in April 2017. In a speech on 12 October 2018, then RBI deputy governor Viral Acharya had defended the revised PCA norms, calling it the required medicine to prevent further haemorrhaging of bank balance sheets. He had added that in spite of their worse capitalization and stressed assets ratio compared to other banks, PCA banks had credit growth that was as strong as that of other banks up until 2014.

Read More

RBI cancels licence of Maharashtra-based bank

The Reserve Bank of India (RBI) on August 13 said it has cancelled the licence of Karnala Nagari Sahakari Bank of Maharashtra.Consequently, the bank ceases to carry on banking business, with effect from the close of business on August 13, 2021, the RBI said in a release.

"The Commissioner for Cooperation and Registrar of Cooperative Societies, Maharashtra has also been requested to issue an order for winding up the bank and appoint a liquidator for the bank," the RBI said.As per the data submitted by the bank, 95 percent of the depositors will receive full amounts of their deposits from Deposit Insurance and Credit Guarantee Corporation (DICGC), the RBI said.

The RBI said the bank does not have adequate capital and earning prospects and failed to comply with the requirements of various sections of the Banking Regulation Act, 1949.The continuance of the bank is prejudicial to the interests of its depositors and the bank with its present financial position would be unable to pay its present depositors in full, the RBI said, adding public interest would be adversely affected if the bank is allowed to carry on its banking business any further.

“The bank is prohibited from conducting the business of ‘banking’ which includes acceptance of deposits and repayment of deposits as defined in Section 5(b) read with Section 56 of the Banking Regulation Act, 1949 with immediate effect,” the RBI said.On liquidation, every depositor would be entitled to receive deposit insurance claim amount of deposits up to Rs five lakh from the DICGC, the RBI said.

This is the latest instance of the central bank clamping down on weak co-operative banks. In 2021 so far, the RBI has issued over 100 directives imposing various regulatory measures on erring or poorly run urban co-operative banks.Doing so, the central bank has continued the clampdown on the industry, which it kicked off in 2020.

Prior to Karnala Bank, the RBI cancelled the licence of three banks in 2021--Shivajirao Bhosale Sahakari Bank on May 31, Bhagyodaya Friends Urban Co-operative Bank Limited on April 22 and Vasantdada Nagari Sahakari Bank on January 11.Last year, it cancelled three permits--Karad Janata Sahakari Bank, CKP Co-operative Bank and the Mapusa Urban Co-operative Bank of Goa.

The RBI has a system in place to enforce punitive actions. The RBI’s Enforcement Department (EFD, set up in April, 2017 to separate enforcement action from supervisory process, identifies actionable violations from the inspection reports, risk assessment reports and scrutiny reports. Market intelligence reports, references from the top management and complaints are also used for investigation. An Adjudication Committee then adjudicates the violations and determines the quantum of penalty.

Besides punishing weak co-operative banks, the RBI has been tightening the rules for these institutions. On June 25, the central bank issued two back-to-back notifications on appointment of managing directors and chief risk officers of urban co-operative banks. The RBI said the tenure of the managing director shall not be for a period of more than five years at a time, subject to a minimum period of three years at the time of first appointment.

Also, the performance of the MD needs to be reviewed by the Board annually, the RBI said, adding the post of the MD or WTD (whole-time directors) cannot be held by the same incumbent for more than 15 years, the RBI said. Further, the UCBs need to ensure that the ‘fit and proper’ criteria of the MD, who should function under the overall general superintendence, direction and control of the Board of Directors, the RBI said.

Read More