Monday, August 22, 2016

Capacity Building in Banks and AIFIs

The Reserve Bank had constituted a ‘Committee on Capacity Building’ under G Gopalakrishna, for implementing the recommendations of Financial Sector Legislative Reforms Commission (FSLRC).

The recommendations pertaining to banks may be implemented based on their organisational objectives and business strategies, after taking approval from their respective Boards.

Some of the recommendations for implementation are as under:
a.     To begin with, the banks should make acquiring of a certificate course mandatory in the following areas:
        Treasury operations – Dealers, mid-office operations.
        Risk management – credit risk, market risk, operational risk, enterprise-wide risk, information security, liquidity risk.
        Accounting – Preparation of financial results, audit function.
        Credit management – credit appraisal, rating, monitoring, credit administration.

Banks are free to require certification for other areas of work also. The employees working in the above referred areas should be asked to acquire certifications within 6 months. This period can be extended depending on the time required for the certification. Banks should have a specific policy in place for this purpose.
b.    The employees involved in marketing third party retail products and wealth management products must undergo a certification process. Where other regulators have prescribed any certifications, these too must be complied with.
c.     IBA has been requested to identify in consultation with RBI and provide a list of institutions and courses that will meet the certification requirements by end December 2016.
d.    Banks should identify the courses that are suitable for their operations and put in place a Board approved policy, mandating such certifications. Banks should ensure that by March 2017, the employees have commenced the process of obtaining the necessary certifications.
e.     It is expected that, w.e.f. April 1, 2018, staff will have first obtained the requisite certification before being posted in the above mentioned functional areas.
f.      If an employee has already acquired relevant graduate, diploma and certificate courses offered by reputed universities, the same can also be considered as an accreditation/ certification.
Banks should also prepare a comprehensive policy for their implementation of the
Committee’s recommendations by end-December 2016.
Based on RBI Master circular dated 11/08/2016. For further clarification, please refer ……….. Poppy

Friday, August 12, 2016

Facility for Exchange of Notes and Coins

Facility for exchange of notes and coins at bank branches
(a) All branches of banks should provide the following customer services:

(i)  Issuing fresh / good quality notes and coins,
(ii)  Exchanging soiled / mutilated / defective notes, and
(iii)  Accepting coins and notes.

(b) All branches should provide the above facilities on all working days. The scheme of providing exchange facility by a few select currency chest branches on one of the Sundays in a month will remain unchanged.

(c)  Such facility should be given wide publicity.

(d)  No Branch should refuse to accept small denomination notes / coins.

RBI (Note Refund) Rules, 2009 - Delegation of powers
(a)   No person is entitled as a matter of right to recover the value of any lost, stolen, mutilated or imperfect currency note from the Government or RBI. However, RBI may prescribe the conditions subject to which, the value of such notes may be refunded as a matter of grace.

(b) All branches of banks have been delegated for exchange of mutilated / defective notes free of cost.
Liberalized definition of a Soiled Note
A ‘soiled note’ means a note which has become dirty due to normal wear and tear and also includes a two piece note pasted together wherein both the pieces belong to the same note with no essential feature missing. These notes should be accepted over the counters.
Such notes should not be re-issued and shall be deposited in currency chests for onward transmission to RBI.

Mutilated Notes – Presentation and Passing
A mutilated note is a note of which a portion is missing or which is composed of more than two pieces. The notes so presented shall be accepted, exchanged and adjudicated at any of the bank branches.

Extremely brittle, burnt, charred, stuck up Notes
Notes which have turned extremely brittle or are badly burnt, charred or inseparably stuck up together and, therefore, cannot withstand normal handling, shall not be accepted by the bank branches for exchange. Instead, the holders may tender these notes to the concerned Issue Office where they will be adjudicated under a Special Procedure.

Procedure for exchange of soiled/ mutilated/ imperfect notes

Exchange of soiled notes

Notes presented in small number: Where the number is up to 20 pieces with a maximum value of Rs.5000 per day, banks should exchange them over the counter, free of charge.

Notes presented in bulk: Where the number exceeds 20 pieces or Rs.5000 in value per day, banks may accept them, against receipt, for value to be credited later. Banks may levy service charges as permitted by RBI.

Exchange of mutilated and imperfect notes

While designated branches may continue to follow the procedure laid down in Part III of NRR, 2009  for exchanging mutilated and imperfect notes and issue receipt for the notes presented for adjudication, non-chest branches are required to follow the following procedure.

Notes presented in small number: Where the number is up to 5 pieces, non-chest branches should follow the above procedure and pay the exchange value over the counter. If such branches are not able to adjudicate the mutilated notes, the notes may be received against a receipt and sent to the linked currency chest branch for adjudication. The probable date of payment should be informed to the tenderers on the receipt itself and the same should not exceed 30 days. Bank account details should be obtained from the tenderers for crediting the exchange value by electronic means.

Notes presented in bulk: Where the number is more than 5 pieces not exceeding Rs.5000 in value, the tenderer should send the notes to nearby currency chest branch by insured post giving bank account details or get it exchanged there in person. All others should approach nearby currency chest branches. Currency chest branches receiving mutilated notes through insured post should credit the exchange value to the account of sender by electronic means within 30 days of receipt of notes.

Tenderers aggrieved with the service provided in this regard may approach Banking Ombudsman.

Notes bearing "PAY"/"PAID" "REJECT" stamps
(a) Every Branch Manager and every Officer-in-charge of the Accounts or Cash Wing shall act as 'Prescribed Officer' to adjudicate the notes received for exchange in accordance with RBI (Note Refund) Rules, 2009. After adjudicating, the Prescribed Officer should record his order by subscribing his initials to the dated 'PAY'/ 'PAID'/ 'REJECT' stamp which should also carry the name of the bank and branch. The stamp should be held under the custody of the 'Prescribed Officer'.

(b)  Mutilated / defective notes bearing 'PAY'/'PAID' (or 'REJECT') stamp, if presented for payment should be rejected.

Notes bearing slogans / political messages, etc.
Any note with slogans and message of a political nature written across it ceases to be a legal tender and the claim on such a note will be rejected. Similarly, notes which are disfigured may also be rejected.

Deliberately cut notes
The notes, which are found to be deliberately cut, torn, altered or tampered with, if presented for payment of exchange value should be rejected. The details such as the name of the tenderer, the number of notes tendered and their denominations should be reported to RBI. The matter should also be reported to local police in case a large number of such notes are tendered.

RBI conducts training programmes for 'Prescribed Officers' on a priority basis. These training programmes are intended to provide knowledge in the process of adjudication of defective notes. Hence, it is imperative that the Prescribed Officers are deputed for such programmes.

Display of Notice Board
All bank branches are required to display at a board indicating the availability of note exchange facility with the legend, "SOILED/MUTILATED NOTES ARE ACCEPTED AND EXCHANGED HERE". Banks should provide the facility for exchange of notes and coins to all. However, they should ensure that the note exchange facility is not cornered by money changers / dealers in defective notes.

Disposal of notes adjudicated at bank branches 
The full value paid notes have to be remitted to the chest branches and there from to the concerned Issue Offices together with the next soiled note remittance. The half value paid notes and rejected notes, may either be remitted separately or sent by registered and insured post as and when required.
The full value paid notes will be treated as chest remittance while the half value paid notes and rejected notes will be treated as notes tendered for adjudication and processed accordingly. All chest branches are required to submit a monthly statement to RBI showing the number of notes adjudicated during the month.

Agreement between RBI and commercial banks
(a) The bank branches should accept coins in exchange of notes.
(b)  They should accept coins of all denominations from any member of public without any restriction.
(c)   They should use Coin counting machines or accept coins by weight for large receipts.
Uncurrent Coins
The coins of denomination of 25 paise and below have ceased to be legal tenders. All such coins should be retained in the Small Coin Depots (SCDs) of the bank till further instructions from RBI.

Monitoring and Control
(a) The RMs/ ZMs of the banks may pay surprise visits to the branches and report the position of compliance to the Head Office which will review such reports and take prompt remedial action, wherever necessary.
(b) Any non-compliance shall be viewed as violation of instructions issued by RBI.
Based on RBI Master Circular dated 18/07/2016. For further clarifications please visit ……………. Poppy

Thursday, August 11, 2016

Detection and Impounding of Counterfeit Notes

Detection and Impounding of Counterfeit Notes
Authority to Impound Counterfeit Notes
(i) All branches of Public Sector Banks.
(ii) All branches of Private Sector Banks and Foreign Banks.
(iii) All branches of Co-operative Banks & Regional Rural Banks.
(iv)All Treasuries and Sub-Treasuries.
(v) Issue Offices of Reserve Bank of India.

Detection of counterfeit notes

Ø Banknotes tendered should be examined for authenticity through machines.
Ø No credit to customer’s account is to be given for counterfeit notes.
Ø Counterfeit notes should not be returned to the tenderer or destroyed.
Ø Failure of the banks to impound counterfeit notes will be construed as willful involvement of the bank concerned, in circulating counterfeit notes and penalty will be imposed for violation.

Impounding of counterfeit notes

Notes determined as counterfeit shall be stamped as "COUNTERFEIT NOTE" and impounded in the prescribed format. Each such impounded note shall be recorded under authentication, in a separate register.

Issue of Receipt to Tenderer

When a banknote is found to be counterfeit, an acknowledgement receipt must be issued to the tenderer, after stamping the note. The receipt, in running serial numbers, should be authenticated by the cashier and tenderer. The receipt is to be issued even if the tenderer is unwilling to countersign it. Notice to this effect should be displayed at the branches.

Detection of Counterfeit Notes - Reporting to Police and other bodies

For cases of detection of counterfeit notes upto 4 pieces, in a single transaction, a consolidated report should be sent by the Nodal Bank Officer to the police authorities or the Nodal Police Station, along with the counterfeit notes, at the end of the month. For 5 or more pieces, in a single transaction, the counterfeit notes should be forwarded for investigation by filing FIR.

A copy of the monthly consolidated report / FIR shall be sent to the Forged Note Vigilance Cell constituted at the Head Office of the bank.

Acknowledgement of the police authorities has to be obtained for the counterfeit notes submitted to them. In case, any difficulty is faced due to reluctance of the police to receive the statement or file FIRs, the matter may be sorted out in consultation with the Nodal Officer of the police authority designated to coordinate matters relating to investigation of counterfeit banknotes cases.

Banks are advised to cover the banking hall / area and counters under CCTV surveillance and recording and preserve the recording for future use in case of detection of counterfeit notes.

Banks should monitor the patterns of such detection and suspicious trends should be brought to the notice of RBI /Police authorities immediately.

The progress made by banks in detection and reporting of counterfeit notes and problems thereof, should be discussed in the meetings of various State Level Committees viz. SLBC, SCCM, SLSC, etc.

The data on detection of counterfeit Indian notes should be included in the monthly Returns forwarded to RBI.

The definition of 'counterfeiting' in the Indian Penal Code covers foreign currency as well. In case of suspected foreign currency note is received for opinion from the police and government agencies, etc., they should be advised to forward the case to the Interpol Wing of the CBI, New Delhi after prior consultation with them.

The Government of India has framed Investigation of High Quality Counterfeit Indian Currency Offences Rules, 2013 under Unlawful Activities (Prevention) Act (UAPA), 1967. The Third Schedule of the Act defines High Quality Counterfeit Indian Currency Note. Activity of production, smuggling distribution and circulation of High Quality Counterfeit Notes has been brought under the ambit of UAPA, 1967.

Examination of the Banknotes before Issuing over Counters, Feeding ATMs and Remitting to Issue Offices of the Reserve Bank

Banks should ensure that cash receipts in the denominations of 100 and above are put into re-circulation only after being machine processed for authenticity. Any non-compliance will be construed as violation.

It is imperative to put in place adequate safeguards before loading ATMs with notes. Dispensation of counterfeit notes through the ATMs would be construed as an attempt to circulate the counterfeit notes by the bank concerned.

Detection of counterfeits in chest remittances is also liable to be construed as willful involvement of the chest branches in circulating Counterfeit Notes and may attract special investigation by police authorities, and suspending the operation of the chest concerned.
Penalty at 100% of the notional value of counterfeit notes, in addition to the recovery of loss, will be imposed under the following circumstances:

a) When counterfeit notes are detected in the soiled note remittance of the bank.
b)  If counterfeit notes are detected in the currency chest balance of a bank during Inspection by RBI

The responsibility of ensuring the quality and genuineness of cash loaded at White Label ATMs would be that of the Sponsor Bank.

Designating Nodal Bank Officer

Each bank should designate Nodal Bank Officer, district-wise and notify the same to RBI and Police Authorities. All cases of reporting should be through such an Officer. He will also serve as the contact point for all counterfeit note related activities.

Establishment of Forged Notes Vigilance Cell at Head Office of Bank

Each bank shall establish at its Head Office, a Forged Note Vigilance Cell to undertake the following functions:

i.           Dissemination, monitoring and implementation of instructions issued by RBI. Compilation of data, and its submission to RBI and FIU-IND. Follow-up of cases, with police authorities and designated nodal officer.
ii.           Sharing of the information with bank’s CVO and report all cases involving counterfeit notes.         
iii.           Conducting periodic surprise checks at currency chests where shortages/ defective /counterfeit notes etc. are detected.
iv.          Ensuring operation of Note Sorting Machines at the currency chests / back offices and monitoring the detection of Counterfeit Notes and maintaining record. Ensuring that only sorted and machine examined banknotes are fed into the ATMs / issued over the counters and to put in place safeguards.

The Cell shall submit quarterly status report covering the aforesaid aspects to RBI within a fortnight from the conclusion of the quarter. The said report should only be sent by mail.

Banks shall furnish the particulars of the Forged Note Vigilance Cells  to RBI every year, as on 1st July by mail.
Provision of Ultraviolet Lamp and Other Infrastructure
All bank branches including currency chest and identified back offices should be equipped with ultra-violet lamps, sorting and detection machines.

The banks shall maintain a daily record of the notes processed through the Note Sorting machines and the counterfeits detected.

The banks should consider providing a counting machine (with dual display facility) for public use at the counter.

Reporting of Data to RBI

By Bank branches
A statement showing the details of counterfeit notes detected shall be compiled and forwarded RBI on a monthly basis so as to reach them by 7th of the next month.

Principal Officers of banks are also required to report transactions involving forged notes to The Director, FIU-IND, Financial Intelligence Unit- India, within 7 working days.

A “nil “report may be sent in case no counterfeit has been detected during the month.

Preservation of Counterfeit Notes Received from Police Authorities

All Counterfeit Notes received back from the police authorities/courts may be carefully preserved in the safe custody of the bank and a record should be maintained by the concerned branch. Forged Note Vigilance Cell of the bank shall also maintain a branch-wise consolidated record of such Counterfeit Notes.

These Counterfeit Notes at branches should be subjected to verification on a half-yearly basis. Such notes should be preserved for a period of three years from the date of receipt.

These notes may thereafter be sent to the concerned Issue Office of RBI.

Counterfeit notes, which are the subject matter of litigation should be preserved with the concerned branch for 3 years after conclusion of the court case.

Detection of Counterfeit Notes - Training of Staff

It is necessary to ensure that the cash handling staff in banks and treasuries / sub-treasuries is fully conversant with the security features of a banknote.

The design and security features of banknotes are to be displayed prominently at the branches. Posters of the 2005-06 series of banknotes are also to be displayed at branches. Details of security features of the New Design banknotes of 2000 and 500 along with other bank notes are available at the link

The banks should ensure that all bank personnel handling cash are trained on features of genuine Indian bank notes. The Reserve Bank will also provide faculty support and training materials.
Based on RBI Master Circular Dated 20/07/2017. For further clarification please refer …….. Poppy