Note: The data are provided for informational purposes only and in some cases, the information may be incomplete, not fully accurate or out of date. For more information on how data are compiled, see "A Note About Sources." The date of the last update for each country is marked in the section "Country Indicators." We welcome updates and comments. Click here to write to us.
India
Country Indicators
Information Last Updated
May 2006
Information Compiled by
Jeremiah Grossman, IRIS Center
Population (Millions)
1,094.6 [2005]
Population Density (per sq km)
368 [2005]
GNI per capita (US$)
720 [2005]
GNI per capita (PPP US$)
3460 [2005]
Total Unemployment (% of labor force)
4 [2000]
Employment in Agriculture (% of total employment)
67 [1995]
Gross domestic saving (% of GDP)
28 [2004]
% Population under $2/day (PPP)
81 [2000]
Size of informal sector
36 percent
Depth of Financial Sector (M2/GDP)
63 [2005]
Exchange rate
1 USD : 44.29 INR, as of 28 February 2006
Percentage of population with access to banking services
Approximately 20% of low-income citizens have access to financial services (Microfinance in India, Thorat (PDF document)).
Self-Help Groups (SHGs). Note, though, that NGOs are linking SHGs with banks to access capital and formalize operations (Progress of Banking in India 2004-05, RBI).
Wholesale Lender(s)
1. National Bank for Agriculture and Rural Development (NABARD): Apex bank for rural development, provides production and investment credit for the promotion of agriculture, small scale industries, cottage and village industries, handicraft etc. Provides: concessional refinancing to State Cooperative Agriculture and Rural Development Banks (SCARDBs), State Cooperative Banks (StCBs), Regional Rural Banks (RRBs), and other approved financial institutions; policy guidance; technical and promotional support mainly for capacity building of NGOs and Self-Help Groups (SHGs); and training support to banks, NGOs, and other partners. 2. Rural Infrastructure Development Fund (RIDF): Provides loans to State governments to finance rural infrastructure projects. Set up by NABARD, funded by commercial banks as a means of fulfilling their priority/agricultural sector lending requirements. Local self-government institutions (Panchayati Raj Institutions) and SHGs may access these funds as well. 3. Cooperative Development Fund (CDF): Funding for development of human resources, Management Information Systems (MIS), infrastructure, and Business Development. 4. Small Industries Development Bank of India (SIDBI): Principal financial institution for promotion, financing, and development of small-scale industry; provides refinancing to banks for on-lending in that regard. 5. Rashtriya Mahila Kosh (RMK -- National Women's Fund): Society that acts as an apex organization for channelling funds from governments and donors to retailing intermediate microfinance organisations; builds support to MFIs; advocates to influence development and microfinance policy. 6. Micro Finance Development Equity Fund (MFDEF): US$ 45.2 million(INR 2 billion) fund created by RBI, NABARD, and commercial banks to financially support MFIs, NGOs, SHGs, and other related groups. 7. Other: RBI provides Urban Cooperative Banks with refinance facilities (pursuant to RBI Act, Section 17). In addition, Scheduled Commercial Banks (SCBs) and Regional Rural Banks (RRBs) are providing MFIs with wholesale funding (Progress of Banking in India 2004-05, RBI) (MFDEF Structure and Guidelines, NABARD) (Urban Banks Department, RBI) (Microfinance Institutions in India, Rao).
Definitions of microfinance or microcredit
Providing small amounts of thrift, credit, and other financial services and products to the poor in rural, semi-urban or urban areas for income generation and to improve living standards (MF in India - An Overview, NABARD).
NGO microfinance provider formalization or transformation issues
The National Bank for Agriculture and Rural Development (NABARD) has linked over 1.6 million informal Self-Help Groups (SHGs) with commercial banks and hopes to have linked 3 million such SHGs by 2010 (Opening Address, Kumar).
Ongoing microfinance policy development status
1) A Task Force recommended measures to strengthen the rural cooperative credit structure in 2004-05. Initiatives include a Medium-Term Framework for Urban Cooperative Banks (UCBs), which aims to create a two-tier regulatory regime (depending upon bank size) and a state-level Task Force for Urban Cooperative Banks (TAFCUB); and the encouragement and facilitation of consolidation of UCBs through merger (Progress of Banking in India 2004-05, RBI).2. An internal group tasked with examining issues related to rural credit and microfinance recommended using NGOs and MFIs as intermediaries ("Business Correspondents") to provide loans and deposit-taking services on behalf of licensed financial institutions. This arrangement was formalized through circulars issued by the Reserve Bank of India (see Report of the Internal Group, 2005; Circular RBI/2005-06/288, RBI).
Safety net availability: insurance, pension, etc.
Old-age, disability, and survivor pensions; maternity, medical, and sickness benefits; worker's compensation (SSA Programs - India, SSA).
In addition to general commercial activities, public- and private-sector SCBs are supposed to lend at least 40% of net bank credit to the "priority sector" (agriculture, small-scale industries, etc.), with sub-targets of 18% for agriculture and 10% for "weaker sections". Foreign banks have lower targets, with sub-targets of 10% for Small-Scale Industries and 12% for the export sector (Progress of Banking in India 2004-05, RBI).
Traditionally, small-value borrowers (under US$ 4515.7(INR 200,000)), although the percentage of loans to small farmers has dropped in recent years. At least 60% of total advances must target the "priority sector" (agriculture, microenterprise, education, housing, etc.); the actual figure was 57% as of 2003 (RRBs: Past and Present Debate, Bose (PDF file)).
Small area of concentration, limited number of activities, and small client base lead to high risk; low capital base (merger/consolidation proposed as a solution); high NPAs (12.6% as of March 2004) and low recovery rates; high cost of capital; human capital deficiencies; inefficient management structure due to sponsoring bank's influence; history of interest-rate caps (RRB Report, RBI) (RRBs: Past and Present Debate, Bose (PDF file)).
US$ 4.6 billion(INR 202.5 billion), of which US$ 3.7 billion(INR 166 billion) were mobilized by only 3 NBFCs (based upon 576 NBFCs reporting statistics) (Progress of Banking in India 2004-05, RBI).
Equipment leasing, hire-purchase, loan companies, and investment companies. A few focus on deposit services. Very few are focused on microfinance.
Difficulty obtaining permission to mobilize deposits (requires two years of prior operations and an investment-grade rating); no access to external commercial borrowings as of Sept. 2005, which limits growth (Sa-Dhan 2006).
At least 60% of credit must target the "priority sector" (agriculture, microenterprise, education, housing, etc.), and at least 1/4 of the 60% must go to "weaker sections" of the priority sector (Progress of Banking in India 2004-05, RBI).
StCBs: US$ 15.3 billion (INR 678.38 billion) (as of March 2004). CCBs: US$ 28 billion (INR 1.26 trillion) (as of March 2004) (Progress of Banking in India 2004-05, RBI).
StCBs: US$ 9.8 billion (INR 434.86 billion) (as of March 2004). CCBs: US$ 17.9 billion (INR 791.53 billion) (as of March 2004) (Progress of Banking in India 2004-05, RBI).
Low resource base, high dependence on refinancing agencies, lack of diversification, high accumulated losses and non-performing assets (NPAs of 18-23%), low loan recovery rates, organizational weaknesses (Progress of Banking in India 2004-05, RBI)
State & Primary Cooperative Agriculture and Rural Development Banks
Banks continue to sustain losses every year; low resource base, high dependence on refinancing agencies, lack of diversification, high accumulated losses and non-performing assets (NPAs of 27-36%), low loan recovery rates, organizational weaknesses (Progress of Banking in India 2004-05, RBI)
Near-total dependence on CCBs for financing (some of which are weak) hinders resource mobilization; high accumulated losses and non-performing assets (over 1/3 of loans are overdue); small size prevents financial self-sufficiency; human capital and MIS deficiencies; lack of diversification; low loan recovery rates, organizational weaknesses (Progress of Banking in India 2004-05, RBI)
Credit Accessed in FY 2004-05: US$ 415.4 million (INR 29.62 billion). Aggregate Credit: US$ 1.6 billion (INR 68.65 billion) (as of March 2005) (Progress of Banking in India 2004-05, RBI).
Deposits in SHGs: Estimated at over US$ 100 million (INR 4.43 billion) (as of March 2003). SHGs also held over US$ 100 million (INR 4.43 billion) of deposits in banks (Bhattacharjee & Staschen, 2004).
SHGs are groups of poor citizens organized largely by NGOs and government agencies to avail of internally- and externally-supplied financial services(Progress of Banking in India 2004-05, RBI).
Poor accounting and bookkeeping practices; insufficient NGO oversight and assistance; weak human capital (Microfinance in India, Thorat (PDF)).
Microfinance lending and other charitable activities.
Subsidy dependence; lack of capital for growth (although linkages with banks may help to address this problem); prohibition on mobilizing deposits; human capital and capacity-building needs; few NGOs specialize solely in microfinance(Microfinance in India, Thorat (PDF)) (Bhattacharjee & Staschen, 2004).
Microfinance lending for business and housing (Sa-Dhan 2006).
Cannot mobilize deposits without registering with RBI; nonprofit form limits desirability of equity investment despite company status (Sa-Dhan 2006).
General Approach to Regulating
Legal basis for regulating
Definition or description of institution
Regulator(s) and role of regulator(s)
Activity that determines required regulatory status
Banks
Commercial Banks
Reserve Bank of India Act 1934 (RBI Act); Banking Regulation Act, 1949 (BR Act).
Commercial banks that meet minimum capital requirements that make them eligible for short-term lending from the Reserve Bank (RBI Act, Section 17(3A)).
Reserve Bank of India
Full banking activities with the highest minimum capital requirements.
Local Area Banks
Reserve Bank of India Act 1934 (RBI Act); Banking Regulation Act, 1949 (BR Act).
Private sector commercial banks operating in rural areas, which do not meet the minimum capital requirements for scheduled commercial banks (RBI Act, Section 17(3A)) (Bhattacharjee & Staschen, 2004).
Reserve Bank of India
Banking activities without meeting the minimum capital requirements for scheduled banks.
State-sponsored, regionally-based, rural-oriented banks for rural development, particularly through marginalized farmers and small enterprises (RRB Report, RBI).
National Bank for Agriculture and Rural Development (NABARD) regulates in practice, though Reserve Bank reserves the right to do so (RRB Report, RBI).
Provision of rural credit through a majority state-owned bank.
Non-bank Financial Institutions
Non-Bank Financial Companies
Reserve Bank of India Act 1934, Section 45 (I)(A) (as amended); RBI Act)
Non-bank institutions that engage in: financing other entities; purchasing government securities; and other business. This category does not include institutions whose primary business is agricultural, industrial, or involves the purchase of goods or provision of services (RBI Act, Section 45(I)). Residuary Non-Banking Companies (RNBCs) are a subset of NBFCs that focus on acceptance of public deposits and have limited investment options (Annual Report 2004-2005, RBI).
Reserve Bank of India
RNBCs: Acceptance of public deposits and investment of public deposits in directed, safe investments. NBFCs: Lending, deposit-taking, and other basic banking activities with lower entry requirements than for commercial banks (Annual Report 2004-2005, RBI) (Sa-Dhan 2006).
Cooperatives/Credit Unions
Primary (Urban) Cooperative Banks
Banking Regulation Act, 1949 As Applicable to Cooperative Societies (AACS), Section 56; state-specific Cooperative Societies Acts.
A primary credit society other than a "primary agricultural credit society" whose primary business is banking, does not admit other cooperative societies as members, and has paid-up capital and reserves of at least US$ 2257.8(INR 100,000) (BR Act, 1949, Section 56).
Reserve Bank of India -- Urban Banks Department, although managerial and administrative aspects are the province of the state government (or federal government for UCBs with a multistate presence) (Urban Banks Department, RBI) (Sa-Dhan 2006).
Urban-based cooperative banking services
State and Central Cooperative Banks
Banking Regulation Act, 1949 As Applicable to Cooperative Societies (AACS), Section 56; state-specific Cooperative Societies Acts.
Cooperative banks engaged in short-term lending operations at the state and district levels.
Constitution of India - Schedule VII, List II, Item 32 OR List I, Item 44; state-specific cooperative society laws (for intrastate cooperatives), or the Multi-State Co-operative Societies Act, 2002 (for interstate cooperatives). Banking Regulation Act, 1949 DOES NOT apply (see BR Act, Section 3).
A cooperative society primarily focused on providing financial assistance for agricultural activities, and whose bylaws prohibit other cooperative societies from becoming members (except cooperative banks under limited circumstances) (BR Act, Section 56).
Agriculture-related cooperative society activities with access to government capital
Mutually Aided Cooperative Societies
State-specific Acts,. A model Act is the Andhra Pradesh Mutually Aided Cooperative Societies Act 1995 (AP MACS Act)
Member-controlled cooperatives without government share capital contributions; as a result, government influence in MACS' administration is limited (Bhattacharjee & Staschen, 2004).
Banking Regulation Act, 1949 (BR Act), Section 56; Constitution of India, Schedule VII, List II, Item 32 OR List I, Item 44; state-specific cooperative society laws (for intrastate cooperatives), or the Multi-State Cooperatve Societies Act, 2002 (for interstate cooperatives).
A cooperative society -- other than a PACS -- that is: (i) primarily focused on banking business; (ii) has paid-up share capital and reserves of less than US$ 2257.8 (INR 100,000); (iii) and whose bylaws prohibit other cooperative societies from becoming members (except cooperative banks under limited circumstances) (BR Act, Section 56).
Nonprofit organizations established as limited liability companies, which must reinvest all profits and cannot distribute dividends (Microfinance Institutions in India, Rao).
Registrar of Companies. Not financially regulated so long as they: (i) do not accept public deposits; (ii) are registered as a non-profit company under Section 25 of the Companies Act; and (iii) do not provide credit of over US$ 1,100 (INR 50,000) (business) or US$ 2,800 (INR 125,000) (housing) (Notification No. 138 on NBFCs, RBI).
Max. 10% of paid-up capital per entity or related group of entities, except with RBI approval and per guidelines of Circular RBI/2004/38. Corporate investors should be well-diversified, with ideally no more than 10% control/ownership in a single individual/entity. Investment by other banks: Max. 5% of equity capital, per Circular RBI/2004-05/21. Investment in Large Industrial Houses: Max. 10% of paid-up capital, with RBI approval. RBI may allow higher ownership levels to help with consolidation or restructuring. Foreign Investment: Max. 74% aggregate. Foreign Institutional Investment limited to 10% (individual), 24% (aggregate), can be raised to 49% with approval of Board and General Body. Non-resident Indians limited to 5% (individual), 10% (aggregate), can be raised to 24% with approval of Board and General Body (Guidelines on Ownership and Governance in Private Sector Banks, RBI).
The World Bank has estimated the following expenses for new businesses in India: Cost: Approx. US$385, Time: 71 days(Doing Business -- India, World Bank).
Must be 50% owned by Government of India, 15% by the state, 35% by sponsoring commercial banks (Regional Rural Banks, IAFIC).
The World Bank has estimated the following expenses for new businesses in India: Cost: Approx. US$385, Time: 71 days(Doing Business -- India, World Bank).
Foreign investment in equity permitted, but with a minimum investment of US$500,000 to US$50 million, depending on percentage of total equity held by foreign entity (Sa-Dhan 2006).
The World Bank has estimated the following expenses for new businesses in India: Cost: Approx. US$385, Time: 71 days (Doing Business -- India, World Bank).
For state-level UCBs: State-level Registrars of Cooperative Societies. For multi-state UCBs: Central Registrar of Cooperative Societies (Progress of Banking in India 2004-05, RBI)
Cooperative Society
The World Bank has estimated the following expenses for new businesses in India: Cost: Approx. US$385, Time: 71 days(Doing Business -- India, World Bank).
Mutually Aided Cooperative Societies
State-specific Acts, such as the Andhra Pradesh Mutually Aided Cooperative Societies Act 1995 (AP MACS Act).
State-level Registrar of Cooperative Societies
Cooperative Society
Fees are determined by state government. Fees are generally low (in one case, US$ 11.3(INR 500)) (Bhattacharjee & Staschen, 2004).
Non-profit institutions
NGO-MFIs
Societies: Societies Registration Act 1860, and also Bombay Public Trusts Act in certain states. Trusts: Indian Trust Act 1882 and state-specific Trust Acts. In addition, all NGOs must register under the Shop and Establishment Act to open an office and employ people (Legal Issues Pertaining to Non-Profit Organisations in India, CAF).
Societies: Societies Registration Act 1860, and also Bombay Public Trusts Act in certain states. Trusts: Indian Trust Act 1882 and state-specific Trust Acts. In addition, all NGOs must register under the Shop and Establishment Act to open an office and employ people (Legal Issues Pertaining to Non-Profit Organisations in India, CAF).
Nonprofit Limited Liability Company (Companies Act, Section 25)
Foreign investment in equity permitted, but with a minimum investment of US$500,000 to US$50 million, depending on percentage of total equity held by foreign entity (Sa-Dhan 2006).
Money: Approx.US$12.6 (INR 560). Time: Regional director of Company Law Board must decide whether to grant a license within 30 days after the company publishes notice of application in local newspapers (Legal Issues Pertaining to Non-Profit Organisations in India, CAF).
Licensing Requirements and Standards
Standards for ownership officers
Feasibility study/business plan
Audit of Proposed Founders, Owners, Officers
Operating Manuals
Prohibited sources of funds
Banks
Commercial Banks
Scheduled Private-Sector Banks: Diversified ownership and control; "important" shareholders (5% or greater) must meet "fit and proper" requirements of Circular RBI/2004/38 and be approved by RBI; Directors and CEO must meet "fit and proper" requirements of Circular RBI/2004/268 and be approved by RBI; at least 51% of Board must consist of professionals with relevant financial or legal skills, including at least two agriculture/rural/microfinance experts (per Banking Regulation Act, Section 10A) (Guidelines on Ownership and Governance in Private Sector Banks, RBI).
Banks must demonstrate that they have adequate capital, good earning prospects, and that they will be able to repay current and future depositors (BR Act, Section 22).
Must show that general character of the proposed management will not be detrimental to depositors or the public interest (BR Act, Section 22).
Must show that company affairs will not be conducted in a manner prejudicial to depositors (BR Act, Section 22).
Regional Rural Banks
9-member Board: 3 Directors nominated by Central government; 2 Directors nominated by state government; 3 Directors nominated by sponsor bank; and a Chairman. Currently, Chairman must be from sponsoring bank, though this is proposed to be changed. Directors may not be insolvent, insane, or convicted of a crime involving "moral turpitude" (RRB Report, RBI) (Regional Rural Banks, IAFIC) (RRB Act, Section 12).
Banks must demonstrate that they have adequate capital, good earning prospects, and that they will be able to repay current and future depositors (BR Act, Section 22).
Must show that general character of the proposed management will not be detrimental to depositors or the public interest (BR Act, Section 22).
Must show that company affairs will not be conducted in a manner prejudicial to depositors (BR Act, Section 22).
Non-bank Financial Institutions
Non-Bank Financial Companies
May not be insolvent or insane; no self-dealing; no jail time of over 6 months; minimum 7 members (for public company, 2 for private) (Companies Act, Section 12; Appendix III (77).
Must submit names, addresses, and occupations of proposed owners (Companies Act, Section 567).
Deposits, unless rated by an approved credit rating agency; cannot lend against its own shares (Sa-Dhan 2006).
Cooperatives/Credit Unions
Primary (Urban) Cooperative Banks
Must have at least 2 Directors with professional qualifications (or adequate experience) on the Board (Annual Report 2004-2005, RBI).
Mutually Aided Cooperative Societies
Varies by state, Andhra Pradesh (AP) state government has issued instructions to MACS to observe best practices with respect to governance and management. AP requires that Directors be voting members and regular meeting participants for at least two years (or since the society was founded) (Bhattacharjee & Staschen, 2004) (Sa-Dhan 2006).
Officers: Promoters must declare that they are of sound mind, not insolvent, lack a criminal record, and are not disqualified under Companies Act, Section 203 from appointment as a Director. Board must have minimum 3 members (Legal Issues Pertaining to Non-Profit Organisations in India, CAF).
Tier I: Paid-up capital; statutory reserves; other disclosed free reserves; surplus reserves from sale of assets; Innovative Perpetual Debt Instruments (IPDIs); perpetual non-cumulative preference shares. See Draft Guidelines for rules for foreign banks. Tier II (max. 100% of Tier I funds): Undisclosed reserves; cumulative perpetual preference shares; revaluation reserves; general provisions and loss reserves; hybrid debt capital instruments; subordinated debt (Capital Adequacy Draft Guidelines,RBI) (Circular RBI/2005-06/283).
0%: Most claims on domestic sovereigns; exposures to RBI, ECGC, CGTSI; international financial institution (IFI) exposures; certain State-guaranteed exposures. 20%: Claims in local currency on scheduled banks; most State-level guarantee exposures; claims in foreign currency on a bank funded in the foreign currency. 75%: Claims secured by residential property; certain regulated retail claims. 100%: Claims in local currency on non-scheduled banks; investments totaling up to 30% of paid-up equity of a subsidiary; other assets. 125%: Claims secured by commercial real estate. Claims on foreign sovereigns, claims on corporate entities, and foreign currency claims in most banks risk-weighted according to country's or bank's international rating. Must implement Basel II risk framework (for credit risk and operational risk) by March 31, 2007. (Prudential Guidelines on Capital Adequacy, RBI) (Capital Adequacy Draft Guidelines, RBI).
Standard (0-3 months overdue): 0.40%. Sub-standard (3 months-1 year & 3 months): 10% secured, 20% unsecured. Doubtful (1 year & 3 months-4 years and 3 months): 30% secured, 100% unsecured. Doubtful (over 4 years and 3 months): 75%-100% secured, depending on age (as of March 2006; beginning March 2007, will be 100% for all), 100% unsecured. Loss (lost assets that have not been fully written off): 100% provision or full write-off required (Circular RBI/2005-06/28) (Circular RBI/2005-06/198, RBI).
Cash Reserve Ratio: Min. 5% of net demand and time liabilities must be kept in a current account with the RBI (as of July 2005). Statutory Liquidity Ratio: Min. 25% of net demand and time liabilities must be liquid (as of July 2005). Reserve Fund: Min. 25% of profits (pre-dividend) annually. Investment Fluctuation Reserve: 5% of total investments (as of March 2005) (Circular RBI/2005-06/70, RBI) (Prospectus, Allahabad Bank (PDF)).
Regional Rural Banks
Authorized capital of US$ 225.8 thousand (INR 10 million) (as of May 2005) (RRB Report, RBI).
Cash Reserve Ratio: Min. 5% of net demand and time liabilities (must be at least 3% of gross demand and time liabilities as well). Credit-to-Deposits Ratio: Min. 60% (Circular RBI/2004-05/174); (RRBs: Past and Present Debate, Bose (PDF)).
Non-bank Financial Institutions
Non-Bank Financial Companies
US$ 451.6 thousand (INR 20 million) for NBFCs that commenced business after April 21, 1999, US$ 56.5 thousand (INR 2.5 million) otherwise) (Sa-Dhan 2006).
12%; 15% if they are taking public deposits; Tier II capital cannot be more than 100% of Tier I capital (Sa-Dhan 2006).
Tier I: Owned fund (paid-up equity, preference shares compulsorily convertible into equity, free reserves). Tier II: Preference shares not compulsorily convertible into equity; certain general provisions and loss reserves; certain hybrid debt-capital instruments and subordinated debt (Sa-Dhan 2006).
0%: Cash and bank balances; approved investments; loans/advances fully secured with deposits held by the company itself; loans to staff; income tax deducted at source; advance tax paid; interest due on gov't securities 20%: Bonds and term deposits at public banks and financial institutions; units of Unit Trust of India. 100%: Debt and equity in all other companies; stock on hire; inter-corporate loans and deposits; other secured loans and advances; bills purchased/discounted; fixed assets; other assets. 50-100%: Off-balance sheet items (Circular RBI/2005-06/32).
Standard (0-6 months overdue): None. Substandard (6 months to 24 months overdue): 10%. Doubtful (Over 24 months overdue): 100% of unsecured portion, 20-50% of secured portion, depending on number of years classified as "doubtful". Loss (assets to be written off): Write-off or 100% (Circular RBI/2005-06/32, RBI).
Min. US$ 2,260 (INR 100,000), consisting of paid-up capital and reserves (Banking Regulation Act, 1949 (As Applicable to Cooperative Societies), Section 11).
Tier I: Paid-up share capital; free reserves; surplus reserves from sale of assets; surplus in profit-and-loss account. Tier II: Undisclosed reserves; revaluation reserves; general provisions and loss reserves; investment fluctuation reserves; hybrid debt capital instruments; subordinated debt (Circular RBI/2004-05/423).
Same as commercial banks (see above), except that UCBs have an extension until March 31, 2007 to meet the following requirements: 1) 100% provisioning requirement with respect to loans doubtful for over 4 years; 2) Loans must be classified as "Doubtful" 12 months after being classified as "Substandard" (currently, 18 months); and 3) Loans that are overdue up to 180 days can be deemed "standard" (rather than only 90 days) for certain UCBs (unit banks or banks with multiple branches in the same district with deposits of no more than US$ 225.8 million(INR 1 billion)) (Circular RBI/2005-06/41).
Scheduled UCBs: Cash Reserve Ratio: Min. 5% of net demand and time deposits, which must be kept in accounts at the RBI. Liquidity: Min. 25% of total demand and time deposits (Banking Regulation Act, 1949 (As Applicable to Cooperative Societies), Section 24); RBI Act, , Section 34); (Urban Banks Department, RBI). Non-Scheduled UCBs: Cash Reserve Ratio: Min. 3% of total demand and time deposits. Liquidity: Min. 25% of total demand and time deposits (Banking Regulation Act, 1949 (As Applicable to Cooperative Societies)) Section 18); (Urban Banks Department, RBI).
Permitted: Deposits; credit; dealing in securities; letters of credit; foreign exchange; dealing in stocks and bonds; insurance; dealing in property connected with secure claims. Prohibited: Buying, selling, or trading in goods (BR Act, Sections 5(b), 6, 8).
Banks must implement Know Your Customer (KYC) norms and risk management procedures to avoid being used for money laundering. Need RBI permission to open branches or incorporate subsidiaries. At least 75% of domestic demand and time liabilities must remain in India (BR Act, Sections 23, 25) (Circular RBI-2004-05/284, RBI).
Loans: Loans of less than (INR 200,000) are limited to the bank's Benchmark Prime Lending Rate (BPLR). However, loans to NGOs and MFIs for onlending are not restricted. Deposits: No restrictions on interest rates for term deposits. No interest may be paid on current account deposits. Max. 3.5% annual interest on savings deposits (Circular RBI/2005-06/18) (Circular RBI/2005-06/20).
Max. exposure to single borrower/group: 15% (individual), 40% (group) of capital funds. Banks must also fix internal, sector-specific limits. Max. exposure to capital markets: 20% of net worth. Max. investment in debt or equity of other banks and FIs: 10% of investing bank's capital funds; also, no new equity stakes exceeding 5% of investee bank's equity capital (Prospectus, Allahabad Bank (PDF)) (Annual Report 2004-2005, RBI).
Permitted: Deposits; credit; one or more of the following: dealing in securities; letters of credit; foreign exchange; dealing in stocks and bonds; insurance; dealing in property connected with secure claims. Prohibited: Buying, selling, or trading in goods (RRB Act, Section 18; BR Act, Sections 5(b), 6, 8).
Banks must implement Know Your Customer (KYC) norms and risk management procedures to avoid being used for money laundering. Need RBI permission to open branches or incorporate subsidiaries (BR Act, Section 23) (Circular RBI/2004-05/369, RBI).
Deposits: No restrictions on interest rates for term deposits. No interest may be paid on current account deposits. Max. 4% annual interest on savings deposits (Circular RBI/2005-06/18).
No director may vote or be involved in any transaction that could benefit him/her; in addition, the director must notify the Board of the nature of the interest in the transaction (RRB Act, Section 14).
Non-bank Financial Institutions
Non-Bank Financial Companies
Permitted: Lending; hire-purchase or leasing; deposit mobilization permitted only if rated by an approved credit rating agency, and only time deposits of 1-5 years are permitted. In addition, most deposits are allowed only in the province where the NBFC is registered. Prohibited: Generally, MFI NBFCs may not provide microinsurance or fund transfers (Bhattacharjee & Staschen, 2004) (Sa-Dhan 2006).
Opening Branches: NBFCs need RBI permission. Closing Branches: Must notify RBI and publish intent to close in one national and one vernacular newspaper, 90 days prior to closure. Know Your Customer Requirements: Must follow customer identification and verification requirements with respect to money laundering and terrorist financing, with full compliance as of Dec. 31, 2005 (Sa-Dhan 2006) (Progress of Banking in India 2004-05, RBI).
Time deposits subject to interest rate ceilings (11% as of 2005) (Sa-Dhan 2006).
For NBFCs accepting public deposits. Lending to single borrower or single group of borrowers: 15% (individual) or 25% (group) of net owned fund. Investment in shares of another company or single group of companies: 15% (company) or 25% (group) of net owned fund. Other: Max. investments of 10% of net owned fund in land/building, and 20% of net owned fund in unquoted shares of nonrelated companies. Deposit Ceilings: Range from 0%-150% of net owned funds, depending upon investment grade and capital adequacy ratio (Sa-Dhan 2006). For other NBFCs: Lending to single borrower or single group of borrowers: 15% (individual) or 40% (group) of capital fund (Progress of Banking in India 2004-05, RBI).
Cooperatives/Credit Unions
Primary (Urban) Cooperative Banks
Must display their full name as it appears in their Certificate of Registration and license on publicity materials, stationery, name board, etc.; need RBI permission to open branches; must be fully compliant with Know Your Customer (KYC) norms as of Dec. 31, 2005 (Progress of Banking in India 2004-05, RBI) (Banking Regulation Act, 1949 (As Applicable to Cooperative Societies), Section 23); Annual Report 2004-2005, RBI).
Max. 0.5% annual interest on current account deposits, 4.5% on savings deposits. No restrictions on term deposits (Circular RBI/2005-06/138).
Max. exposure (both credit and investment exposure) of 15% (to an individual) and 40% (to a group of borrowers) of total capital funds (Tiers I and II) (Circular RBI/2004-05/423).
Most loans and advances to Directors, relatives, and their business interests are prohibited, but regular employee-related loans to Directors are permitted (as of Oct. 2005) (Circular RBI/2005-06/175).
Lenders can establish a "cost plus a reasonable margin" approach if desired to help control interest rates; some states may implement interest rate caps (Microfinance Institutions in India, Rao) (Sa-Dhan 2006).
Must prepare consolidated financial statements for public disclosure; must submit annual consolidated prudential returns and quarterly and monthly returns to RBI. Returns must include information on assets and liabilities; risk-weighted exposures; capital adequacy; balance sheet analysis; ownership, control, and management; and other prudential requirements. Banks must disclose penalties imposed in Annual Report; RBI discloses penalties and adverse findings to public (BR Act, Section 24-31) (Annual Report 2004-2005, RBI).
Deposit Insurance and Credit Guarantee Corporation insures most bank deposits up to US$ 2257.8(INR 100,000) (as of Oct. 2004) (DICGC Summary, Kannan).
Regional Rural Banks
For RRBs not meeting minimum capital requirements: Annual inspections. For Other RRBs: Every two years. Sponsor banks (commercial banks with 35% ownership stake) should also inspect and audit RRBs periodically (Progress of Banking in India 2004-05, RBI) (RRB Act, Section 24A).
Must prepare consolidated financial statements for public disclosure; must submit annual consolidated prudential returns and quarterly and monthly returns to both RBI & NABARD. Returns must include information on assets and liabilities; risk-weighted exposures; capital adequacy; balance sheet analysis; ownership, control, and management; and other prudential requirements. RRBs must disclose penalties imposed in Annual Report; RBI discloses penalties and adverse findings to public (BR Act, Sections 24-31).
Deposit Insurance and Credit Guarantee Corporation insures most bank deposits up to US$ 2257.8(INR 100,000) (as of Oct. 2004) (DICGC Summary, Kannan).
Non-bank Financial Institutions
Non-Bank Financial Companies
Onsite (based on CAMELS methodology); offsite (using technology, market intelligence, and statutory auditors' reports). Most deposit-taking NBFCs were inspected in FY 2004-05; few non-deposit-taking NBFCs were (Annual Report 2004-2005, RBI).
Annually: Audited balance sheet and profit/loss account must be submitted to RBI and Registrar of Companies, along with auditor's report. Twice yearly: Half-yearly returns. Quarterly: Return showing exposure to capital market (if holding public deposits of over US$11.3 million (INR 500 million) only); quarterly audit. Monthly (non-deposit-taking with assets over US$ 225.8 million(INR 1 billion): Source of funds; assets and liabilities; profit and loss; NPAs; exposure; foreign fund sources (Companies Act, Section 220 & Appendix II (78-94)); (Sa-Dhan 2006) (Circular RBI/2005-06/349).
N/A
Cooperatives/Credit Unions
Primary (Urban) Cooperative Banks
On-site inspections every 1-2 years by the Reserve Bank; off-site surveillance system (OSS) for scheduled UCBs and UCBs with deposits of over US$ 225.8 million (INR 1 billion) (Progress of Banking in India 2004-05, RBI).
Reporting: UCBs with deposits of over US$ 225.8 million (INR 1 billion) (approx. 11% of all UCBs) must file 7 quarterly and 1 annual OSS return with information about assets and liabilities, earnings, asset quality, sector/segment breakdown of lending, exposure concentration, insider/related lending, and capital adequacy. Disclosure: UCBs must disclose in their annual reports any penalties levied (Progress of Banking in India 2004-05, RBI) (Sa-Dhan 2006).
Deposit Insurance and Credit Guarantee Corporation insures most cooperative bank deposits up to US$ 2257.8(INR 100,000), provided that the particular state or union's Cooperative Societies Act gives the RBI control over winding up, amalgamation, or reconstruction of cooperative banks (as of 2004) (DICGC Summary, Kannan).
Mutually Aided Cooperative Societies
Varies by state. In Andhra Pradesh, audited statements of accounts must be filed annually with state-level Regis
