Programme in W.B.Judicial Academy for Judicial officers

1. Programme in W.B.Judicial Academy for Judicial officers By N.V.DESHPANDE FORMER P.L.A.RBI. 12 &13 April,2011. NVD

2. Programme in W.B.Judicial Academy for Judicial officers-. Welcome to the Sessions on BANKING REFORMS-A STUDY FROM LEGAL PERSPECTIVE NVD

3. Banking Reforms-An overview. • FinancialMarkets Govt. of India.(MoF) • RBI (Money Market) • SEBI(Capital Market) • IRDA(Insurance Sector) • PFRDA(Pension & PF Sector) • Commodities- FMC.(Future Markets in Commodities.) • Ministry of Agriculture. Govt. of India. NVD

4. RBI- Reforms As Monetary Authority. • Shift from Institutionwise regulation to activitywise regulation-from lazy banking to ALM banking. • Money Market Instruments-NDS platform for trading- CCIL as clearing Authority even for FOREX market. • Regulating conglomerates-Systemically imp.institutions-too big to fail- NVD

5. RBI- Reforms As Monetary Authority. Contd. • Concept of super-regulator. • High- level coordination committee.(RBI) • Regulatory conflicts among regulators. • Setting up of FSDC • FSDC providing for rewriting of financial laws under a high power committee. NVD

6. Banking Reforms-An overview. • RBI. • Banks • Nationalised Banks.(1970 &1980 Acts) • SBI & Associate Banks • Private Sector, Old & New Generation, Banks. • Foreign Banks. • Co-operative Banks. • RRBs & Local area Banks. • NBFCs • Public Funded • Self-owned funded. • MFIs NVD

7. Banking Reforms-Regulatory Angle- A case study. • IDBI Ltd.estd.under IDB (Transfer of Undertaking and Repeal) Act,2003-Appointed date:Oct.1,2004. • Deemed banking company u/s 3(1)(c) and as such not required to get banking license u/s 22 of the BR Act. • Exempted from CRR/SLR requirement for 5 years • BR Act applicable to the extent not repugnant. • Power to the Central Govt.to apply/not apply BR Act. NVD

8. Regulatory Provisions.(B.R.Act) (contd.) • Licensing of banking companies.S.22 • Restrictions on opening of new and transfer of existing places of business.S.23 • Maintenance of percentage of assets.S.24. • Assets in India.S.25 • Return of unclaimed deposits.S.26 NVD

9. Regulatory Power of the RBI. • Production of documents of confidential nature.S.34A • Inspection S.35 • Power of RBI to give directions.S.35A • Further powers and Function of the RBI. S.36 • Power of RBI to remove managerial and other persons from office.S.36AA. NVD

10. Mergers and Amalgamations • Procedure for the amalgamation of banking companies.S.44A.No provision for acquisitions. Amendments propose new section to include NBFCs & Co-op.banks. • Power of RBI to apply to Central Govt.for suspension of business by a banking company and to prepare a scheme of reconstitution or amalgamation. NVD

11. Salient Proposed Amendments to the BR Act under the pending Bills.. • Approved securities definition to be amended to include only the Govt.Issued securities.S.5(a) • Clause 12(1) introduction of preference shares • New Clause 12B Regulation of acquisition of shares or voting rights. Providing approval procedure and application of fit and proper norms. • Automatic approval if no approval is given in 90 days. NVD

12. Amendments continued. • RBI’sPower to exempt any bank from the restrictions on loan and advances.S.20(6) • Minimum SLR limit of 25% removed.S.24(2A) • Power in respect of associate enterprises.S.29A. • S.36ACA new section giving power to supersede the Board of a bank. • Power to direct special audit on a coop.bank given to RBI. NVD

13. Suggested Amendments. • S.5(b) definition of banking to include electronic and internet banking. • S.5(c) ‘banking policy’ to include prudential norms within its meaning. • S.6(2) power to RBI to notify additional forms of business. NVD

14. Suggested Amendments continued. • Raising minimum Capital requirement existing entry level norms much below the proposed level.Time to be given to the banks to reach this level.S11(2) • New sections to regulate acquisition of shares but no right to take-over management.is provided in case of undesirable elements.S.12(2A). NVD

15. Suggested Amendments continued. • Reciprocatory Supervision to be introduced for the foreign banks.S22(3A). • Power to cancel license or cease and desist, on failure to comply direction u/s 35A.S.22(4). NVD

16. Suggested Amendments continued. • New subsections casting legal duties on Auditors to report compliance.S.30(4)&(5). • Introduction of a new part IID to enable RBI to regulate Developmental financial institutions with regard to certain matters like Exim Bank,IDFC,IFCI Etc. NVD

17. Issues to Ponder . • Whether the existing Act and even proposed amendments are adequate to cater to the modern banking and financial regulatory regime.. • Whether there is a need for a fresh new Act or undertake codification of entire law on the subject in the place of the existing Act. NVD

18. Banking Reforms-Transactional View. • Electronic Banking and Payment System related Issues under Payment & Settlement Systems Regulation Act,2007. • National Payment Council &Board for National Payment Systems • Setting up of NPCIL- a S.25 company. • RTGS & High value Transfer of funds • NEFT and High volume Transfer of funds. • Debit Transfer and Credit Transfers. ECS&CTS. NVD

19. Banking Reforms-Transactional View. • Information Technology Act-good for governance & not for business/commerce. • Digital signature in Banking non-starter. • Need to consider issues like Data Protection & Privacy in the electronic medium in the light of IT Act provisions. • Need to revive Communication Convergence Bill.2001. NVD

20. Banking Reforms-Transactional View. • Banker-Customer Relationship. • KYC Norms- Introduction-documents like Passport, PAN card etc.-from point of Money laundering Act.-Suspicious transactions. • Financial inclusion and KYC norms. • AEPS (UID) solution. NVD

21. Banking Reforms-Transactional View. • Universal Banking. Concept of all banking under one roof. • Includes Investment banking, retail and wholesale banking and develoment banking comprising short term and long term lending. • Khan committee first to moot this concept in India. NVD

22. Banking Reforms-Transactional View. • Securitisation and Asset reconstruction. • Position of Injunctive power. • Additional Responsibilities of banks. • Limitation to Injunctive power. • Deemed foreclosure till day of redemption, if done. • Mardia chemicals case. NVD

23. Banking Reforms-Transactional View.contd. • Basis for securitisation-security interest creation for the secured lending.Lenders’ liability. • Steps-Creation- Validity/ Possession. Registration and Publicity. Prioritisation-Notice. Enforcement of the Security NVD

24. Banking Reforms-Transactional View. • Banking frauds-Various dimensions including Cyber frauds. • Dr. Mitra’s Report-recommended establishing a Bureau for investigating serious financial fraud & a fast track special court. • Report in 2 parts, first dealing with preventive aspect as good governance & second dealing with prohibition of financial fraud &introduction of a deterrent jurisprudence. NVD

25. Banking Reforms-Transactional View. • Recommended measures like: • Best practice code and its internalisation. • Internal checks and internal control. • Legal compliance Audit. • Data building on discretionary power &its monitoring. • Appropriate incentive System • Liability of the accounting ,auditing profession • Responsibility of RBI in frauds reported by banks. • A separate statute, ‘Financial Fraud, (Investigation etc.)Act,2001. NVD

26. Banking Reforms-Transactional View. • Amendments to the N.I.Act to provide for electronic based cheque and cheque truncation. • Credit Information Companies Regulation Act,2005 • --Deals with information privacy principles and reporting of credit information with regulation of such companies. • Govt. Securities Act,2006 replaces Public Debt Act,1944. • --Provide for dematerialised holding of securities, opening and maintenance of SGL & CSGL accounts & pledge,hypothecation, and lien on GS without transfer of securities. NVD

27. Banking Reforms-Transactional View. Thank You NVD