India - Regional Rural banks

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MINISTRY OF EXTERNAL AFFAIFIS
NEW DELHI
No. Bl/202119111
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Ministry of External Affairs, Government of lndia, presents
its
iments to the Secretariat of the South Asian Association for
I Cooperation, Kathmandu and with reference to para 21(iii)
Regi
regard
best practices in financial sector, as contained in the
Report of Fifth Meeting of the lnter-Governmental Expert Group
(rcEG on financial issues held in Kathmandu, Nepal (28-29
r,2011) has the honour to fonrvard best practices adopted in
the
ional Rural Banks and Rural Cooperative Banks in lndia.
e
Ministry of External Affairs, Government of lndia, avails
itself this opportunity to renew to the Secretariat of the South Asian
Associ ion for Regional Cooperation in Kathmandu the assurances
of its h ghest consideration.
Se
For R
riat of the South Asian Association
ional Cooperation,
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sAARc secr€tadat
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MsgId:79014152
Date:
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afeport of the lnter-Governmental Expert Group (!GEG) on Financial lssues held
Kath$-andu. Nepal durins ?8- 29 December. 2011-Details of Best Practices
in
(1) Reqional Rural Banks (RBBs):
With a view to bringing about enhancement in the minimum standards of banking practices
relating to customer service and keeping in view the contemporary regulatory framework,
changing face of consumers of RRBs, the on-going market developments and innovations in
banking, etc., best practices have been put in place in RRBs, just as in the case of other
scheduled commercial banks in the country. The details of best practices other than prudential
norms of accounting, followed by RRBs are given as under:
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(i) Regional Rural Banks were advised to put in place a Board approved policy on classification
of unclaimed deposits; grievance redressal mechanism for quick resolution of coffiaints;
record keeping; and periodic review of such accounts. They are also required to display the list
of unclaimed deposits/ inoperative accounts which are inactive / inoperative for ten years or
more on their respeetive websites.
(ii) Compliance Function in RRBs is one of the key elements in the banks'
corporate
governance structure. RRBs are requested to implement the guidelines on Compliance Function
in the
best-suited manner based
on
comprehensive guidelines
on compliance and
the
Compliance Function, in consultation with the RBl.
(iii) Setting up of Audit Committee at Regional Rural Banks
With a view to strengthening the internal checks & control system, detailed Manual on lnternal
Checks and Control System
in
RRBs
for
evolving
an etfective system of
lnternal
lnspection/lnternal Audit and Concurrent Audit has been circulated among RRBs. All RRBs are
required to take steps to set up an Audit Committee in their bank for overseeing and providing
direction to the lnternalAud[t and lnspection machinery.
The basic responsibilities of Audit Committee are to oversee (i) the financial reporting process of
the bank as implemented and maintained by the Management including risks and controls to
that process and (ii) the lnternal and External Auditors' roles and responsibilities within the
financial reporting process. The Audit Committee should not be loaded with other activities. The
Audit Committee members should be independent and professionatly competent to serve as
effective members.
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,jv) Gore Banking Solutions (CBS) for RRBs
For facilitating better access to financial services and credit for the rural population and
recognizing the importance of achieving inclusive growth in the country, Core Banking Solution
)---
has been implemented in allthe RRBs covering 16,741 branches.
(2) Rural Cooperative Fanks:
The responsibility for regulation and supervision of the State Cooperative
(SCB) and
Central Cooperative Banks (DCCBs) is divided between the Reserve
of India (RBl) and
Nationat Bank for Agricultural and Rural Development (NABARD), Whi
has the regulatory
responsibilities, NABARD is entrusted with supervisory
a state subject, the aspects relating to
constitution of the board of directors, its
being
reg
,
registration
management aspects regarding cooperative institutions
of
are in the
by-laws and other
realm of the State
the State Government is also involved in the regulation and
of cooperative societies. The division of regulatory responsibilities is that the
Governments. Therefore,
supervision
banking regulation is in the ambit of RBI and the regulation relating to the provisions of the State
Act is with the State Government. ln practice, however, there are considerable overlaps in
regulatory roles which lead to conflicts.
(i) The Task Force on the Revival of Cooperative Credit lnstitutions known as Vaidyanathan
Committee (VC) suggested some changes in the laws to resolve these issues. Based on the
recomrnendations of VC, the Government approved a revival package which includes providihg
financial assistance, subject to introduction of legal and institutional reforms and improvement of
quality of management. Various State Governments have entered into
a
Memorandum of
Understanding (MoU) with the Central Government and NABARD wherein the respective State
Governments have undertaken to bring in reforms in various spheres aiming at reducing the
problem of dual control in the rural co-operative sector.
While most prudential norms related to asset quality (IRAC norms) are applicable to the rural
co-operative financial institutions, capital adequacy (CRAR) norms have not been made
applicable to them as yet. The co-operatives could graduate and further accomplish adoption of
certain Basel principles through on-going reform process particularly
in light of VC
recommendations where 7o/o capitd adequacy norm is envisaged.
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,rll state and Central Co-operative Banks were advised to put in place a Board approved policy
on classification of unclaimed deposits; grievance redressat mechanism for quick resolution of
complaints; record keeping; and periodic review of such accounts. They are also required to
display the list of unglaimed deposits / inoperative accounts which are inactive / inoperative for
ten years or more on their respective websites, Banks were also advised to make an annual
review of accounts in which there are no operations for more than one year.
(ii) Core Banking Solutions (CBS) for Rural Cooperative Banks:
As allthe State and Central Cooperative Banks are not on Core Banking Solution (CBS) mode,
they are not integrated well with the banking system and therefore there is a need to implement
CBS in those banks which are still not on CBS platform. After moving to CBS platform, the cooperative banks would be able to provide efficient and expeditious service to its customers and
offer various funds transfer facilities like RTGS/NEFT/CECS, etc.,
to their constituentsi
customers.
NABARD has been facilitating implementation of CBS under their GBS Project, As on January
31, 2013, CBS is being implemented among 205 cooperative banks covering 6949 branches
spread across 16 states and 3 UTs in NABARD's fold. 5 StCBs and 23 CCBs covering '1707
branches have gone live on CBS platform.
Given the various constraints like (poor connectivity, hardware issues, inadequate infrastructure,
data issues, lack of trained manpower, etc.) faced by rural co-operative banks, the CBS
implementation process has been slow. Given the magnitude and complexities involved in the
task, the deadline for implementing the CBS by all State and Central Co-operative Banks has
been extended till September 30,2013.
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