RBI Guidelines: Customer Service in Banks

Customer service has great significance in the banking industry. The banking system in India today has perhaps the largest outreach for delivery of financial services and is also serving as an important channel for delivery of financial services. While the coverage has been expanding day by day, the quality and content of dispensation of customer service has come under tremendous pressure mainly owing to the failure to handle the soaring demands and expectations of the customers.

The vast network of branches spread over the entire country with millions of customers, a complex variety of products and services offered, the varied institutional framework – all these add to the enormity and complexity of banking operations in India giving rise to complaints for deficiencies in services. This is evidenced by a series of studies conducted by various committees to bring in improvement in performance and procedure involved in the dispensation of hassle-free customer service.

Reserve Bank, as the regulator of the banking sector, has been actively engaged from the very beginning in the review, examination and evaluation of customer service in banks. It has constantly brought into sharp focus the inadequacy in banking services available to the common person and the need to benchmark the current level of service, review the progress periodically, enhance the timeliness and quality, rationalize the processes taking into account technological developments, and suggest appropriate incentives to facilitate change on an ongoing basis through instructions/guidelines.

Depositors’ interest forms the focal point of the regulatory framework for banking in India. There is a widespread feeling that the customer does not get satisfactory service even after demanding it and there has been a total disenfranchisement of the depositor. There is, therefore, a need to reverse this trend and start a process of empowering the depositor. Broadly, a customer can be defined as a user or a potential user of bank services.

Policy for general management of the branches

Banks’ systems should be oriented towards providing better customer service and they should periodically study their systems and their impact on customer service. Banks should have a Board approved policy for general management of the branches which may include the following aspects:-

  • Providing infrastructure facilities by branches by bestowing particular attention to providing adequate space, proper furniture, drinking water facilities, with specific emphasis on pensioners, senior citizens, disabled persons, etc.
  • Providing entirely separate enquiry counters at their large / bigger branches in addition to a regular reception counter.
  • Displaying indicator boards at all the counters in English, Hindi as well as in the concerned regional language. Business posters at semi-urban and rural branches of banks should also be in the concerned regional languages.
  • Posting roving officials to ensure employees’ response to customers and for helping out customers in putting in their transactions.
  • Providing customers with booklets consisting of all details of service and facilities available at the bank in Hindi, English and the concerned regional languages.
  • Use of Hindi and regional languages in transacting business by banks with customers, including communications to customers.
  • Reviewing and improving upon the existing security system in branches so as to instill confidence among the employees and the public.
  • Wearing on person an identification badge displaying photo and name thereon by the employees.
  • Periodic change of desk and entrusting of elementary supervisory jobs.
  • Training of staff in line with customer service orientation. Training in Technical areas of banking to the staff at delivery points. Adopting innovative ways of training / delivery ranging from job cards to roving faculty to video conferencing.
  • Visit by senior officials from Controlling Offices and Head Office to branches at periodical intervals for on the spot study of the quality of service rendered by the branches.
  • Rewarding the best branches from customer service point of view by annual awards/running shield.
  • Conducting customer service audit, Customer surveys.
  • Holding Customer relation programs and periodical meetings to interact with different cross sections of customers for identifying action points to upgrade the customer service with customers.
  • Clearly establishing a New Product and Services Approval Process which should require approval by the Board especially on issues which compromise the rights of the Common Person.
  • Appointing Quality Assurance Officers who will ensure that the intent of policy is translated into the content and its eventual translation into proper procedures.

Future Challenges for Indian Banks

Banks have played a pivotal role in the economic development of India and in surviving the recent financial crisis. The resilience demonstrated by the banking sector has been phenomenal. Indian banks have made good progress over the last five years owing to active capital markets, vital governmental support and increased public deposit.

However, though seemingly stable, the banking sector does face an uncertain future with several challenges ahead such as increase in the interest rates on saving deposits, a more stringent monetary policy, a large government deficit, increasing inflation, increased stress in sectors like state utilities, airlines, and micro-finance, increasing infrastructure loans, and implementation of Basel III reform measures. Today banks are faced with various challenges like the accessibility, transparency, customer expectations, management of risks, growth in banking sector, global banking, and employee and customer retention.

One of the nemeses of the Indian banking sector has been inflation. Currently, the growing rate of inflation is leading to high interest rates for borrowers in the market. This will drastically affect the common man’s pocket and bring down the lending rate thereby reducing the capital investment for banks and other financial institutions and ultimately affect the overall growth for banks as well as the Indian economy at large.

Banks are striving hard to combat the competition they face from global banks. Also, the technological advancement in the field of banking is compelling them to rethink their policies and strategies. India, like other developing countries has a large section of population that has no or minimal access to banking services. And even those who do have access and are availing the benefits of banking services are difficult to satisfy because of the rising expectations of customers. This is due to the advent of Information Technology and advanced innovation in banking methods and increasing competition from foreign banks. There has been a steady rise in the number of services offered by banks and the growing emphasis on meeting customer expectations on account of increasing competitive pressure in the banking market.

The growing competitive market has put tremendous pressure on banks to abide by the internationally accepted corporate governance practices for transparency and disclosure. As per these global standards, banks are expected to be more responsive and accountable to the investors, which becomes more challenging for nationalized and private sector banks with the presence of global players in the market. All these foreign banks are large in size, technically advanced and have greater presence in the global market, enabling them to offer more and better options and services to the Indian customer.

The banking industry has undergone a remarkable and rapid transformation in the last ten years, moving away from being a transactional and customer service-oriented sector to an increasingly aggressive and competitive environment, where competition for revenue is the top priority. Long-time banking employees are not very comfortable with this sudden shift and are becoming increasingly disenchanted with the industry and often resistant to its new approach. This is not a rosy picture for the retail banking industry where employee satisfaction is equated with customer satisfaction, and retention of employees is crucial to safeguarding the customer relationship.

Thus, there is an imperative need for banks to work more on technology upgradation coupled with its integration with the overall services offered to the end customer, better management of assets and liabilities and the risks assumed therein; creating a more dynamic and challenging work culture to meet the demands of customer relationships, reputation, corporate governance and regulatory measures; focusing on internal controls, risk mitigation systems and business continuity plans to effectively mitigate possible operational risks arising out of adoption of technology which could have a potential bearing on the overall financial stability.

Developmental and Regulatory Policy Measures of the RBI

The Reserve Bank of India recently announced it’s developmental and regulatory policy measures concerning various sectors of the economy. These measures are as follows:

Regulation and Supervision

  • For the purpose of computing Liquidity Coverage Ratio (LCR), the total carve-out from Statutory Liquidity Ratio (SLR) available to banks would be 13 per cent of their NDTL.
  • The valuation of securities issued by each state government should be valued based on observed prices. The valuation of traded state government securities would now be at the price at which they have been traded in the market. In case of non-traded state government securities, the valuation would be based on the state-specific weighted average spread over the yield of the central government securities of equivalent maturity, as observed at primary auctions.
  • In view of the continuing rise in yield of government securities as also the inadequacy of time to build an Investment Fluctuation Reserve (IFR) for many banks, banks would be granted the option to spread the mark-to-market (MTM) losses on investments held in Available for Sale (AFS) and Held for Trading (HFT) portfolio for the quarter ending June 30, 2018, equally over a period of four quarters, commencing from the quarter ending June 30, 2018.
  • Urban Cooperative Banks (UCBs) meeting the prescribed criteria, would now be allowed for voluntary transition into Small Finance Banks (SFBs).
  • To encourage formalisation of the MSME Sector, banks and NBFCs would be temporarily allowed to classify their exposure, as per the 180 day past due criterion, to all MSMEs with aggregate credit facilities up to ₹250 million limit, including those not registered under GST.
  • With a view to bring greater convergence of the Priority Sector Lending (PSL) guidelines for housing loans with the Affordable Housing Scheme, and to give a fillip to the low-cost housing for the economically weaker sections and lower income groups, the housing loan eligibility limits for PSL have been revised upwards.
  • Keeping in view the increasing level of NPAs for the ticket size of up to ₹ 2 lakh, banks are advised to strengthen their screening and follow up in respect of lending to housing sector in particular.
  • Core Investment Companies (CICs) registered with the Reserve Bank as Non-Bank Financial Companies (NBFCs), now permitted to invest in Infrastructure Investment Trusts (InvITs) as Sponsors within limits on amount and tenor as prescribed by Securities and Exchange Board of India (SEBI) (Infrastructure Investment Trusts) Regulations, 2014.

Financial Markets

  • With a view to harmonise Liquidity Adjustment Facility (LAF) haircuts with international standards, it has been decided to require — starting August 1, 2018 — initial margin on collateral of Central Government Securities (including T-bills) and State Development Loans (SDLs) on the basis of its residual maturity.
  • To enhance participation in Government Securities Market (G-Sec) it has been decided to liberalise the eligible participants’ base, relax the entity-wise and security category-wise limits for short selling in G-Sec and for taking positions in the when issued market.
  • In order to provide comprehensive services to Foreign Portfolio Investor (FPI) clients, Standalone Primary Dealers (SPDs) would be provided a limited foreign exchange licence. With a view to increase activity and participation in financial markets and redistribute financial exposure of the banking system, it is proposed to introduce regulations, in line with the best global practices, to prevent abuse in markets regulated by the Reserve Bank.
  • The Reserve Bank would lay down the framework for the recognition of the foreign Central Counter-parties (CCPs) as also the capital requirement and governance framework for all CCPs so that these entities function in an efficient and effective manner.

Debt Management

  • In order to further incentivise adequate maintenance of Consolidated Sinking Fund and Guarantee Redemption Fund of State Governments and to encourage them to increase the corpus of these funds, it has been decided to lower the rate of interest on Standing Deposit Facility (SDF) from 100 bps below the Repo Rate to 200 bps below the Repo Rate.

Payment and Settlement

  • In order to minimise concentration risk in retail payment systems from a financial stability perspective, the Reserve Bank plans to encourage more players to participate in and promote pan-India payment platforms so as to give a fillip to innovation and competition in the sector.

Currency Management

  • The Reserve Bank has been sensitive to the challenges faced by the visually challenged in conducting their day to day business with Indian banknotes. Hence, the Reserve Bank, in consultation with various entities representing the visually challenged, will explore the feasibility of developing a suitable device or mechanism for aiding them in the identification of Indian banknotes.

Other Measures

  • With a view to address information asymmetry, foster access to credit, and strengthen the credit culture in the economy and as per the recommendations of the High Level Task Force on Public Credit Registry (PCR) for India (Chairman: Shri Yeshwant M. Deosthalee), an Implementation Task Force (ITF) is being constituted by the Reserve Bank to help design undertake logistics for the next steps in setting up of the Public Credit Registry (PCR)
  • It has been decided that furnishing of PAN, which hitherto was not to be insisted upon while putting through permissible current account transactions of up to USD 25000, shall now be mandatory for making all remittances under the Liberalised Remittance Scheme (LRS) by Authorised Dealer (AD) banks. Further, in the context of remittances allowed under LRS for maintenance of close relatives, it has been decided to align the definition of ‘relative’ with the definition given in Companies Act, 2013 instead of Companies Act, 1956.

RBI Guidelines: Basel III Framework on Liquidity Standards – Net Stable Funding Ratio (NSFR)

The Net Stable Funding Ratio (NSFR) and Liquidity Coverage Ratio (LCR) are significant components of the Basel III reforms. The LCR guidelines which promote short term resilience of a bank’s liquidity profile have been issued on June 9, 2014. The NSFR guidelines on the other hand ensure reduction in funding risk over a longer time horizon by requiring banks to fund their activities with sufficiently stable sources of funding in order to mitigate the risk of future funding stress.

The draft guidelines on the NSFR for banks in India were issued on May 28, 2015 for comments. The final guidelines after due consideration have been issued and will be implemented in the near future. These are:


  1. In the backdrop of the global financial crisis that started in 2007, the Basel Committee on Banking Supervision (BCBS) proposed certain reforms to strengthen global capital and liquidity regulations with the objective of promoting a more resilient banking sector. In this regard, the Basel III rules text on liquidity – “Basel III: International framework for liquidity risk measurement, standards and monitoring” was issued in December 2010 which presented the details of global regulatory standards on liquidity. Two minimum standards, viz., Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) for funding liquidity were prescribed by the Basel Committee for achieving two separate but complementary objectives.
  2. The LCR promotes short-term resilience of banks to potential liquidity disruptions by ensuring that they have sufficient high quality liquid assets (HQLAs) to survive an acute stress scenario lasting for 30 days. The NSFR promotes resilience over a longer-term time horizon by requiring banks to fund their activities with more stable sources of funding on an ongoing basis.
  3. At the time of issuing the December 2010 document, the Basel Committee had put in place a rigorous process to review the standard and its implications for financial markets, credit extension and economic growth and agreed to review the development of the NSFR over an observation period. The focus of this review was on addressing any unintended consequences for financial market functioning and the economy, and on improving its design with respect to several key issues, notably: (i) the impact on retail business activities; (ii) the treatment of short-term matched funding of assets and liabilities; and (iii) analysis of sub-one year buckets for both assets and liabilities.
  4. These guidelines are based on the final rules text on NSFR published by the BCBS in October 2014 and take into account the Indian conditions.


The objective of NSFR is to ensure that banks maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities. A sustainable funding structure is intended to reduce the probability of erosion of a bank’s liquidity position due to disruptions in a bank’s regular sources of funding that would increase the risk of its failure and potentially lead to broader systemic stress. The NSFR limits over-reliance on short-term wholesale funding, encourages better assessment of funding risk across all on- and off-balance sheet items, and promotes funding stability.


The NSFR would be applicable for Indian banks at the solo as well as consolidated level. For foreign banks operating as branches in India, the framework would be applicable on stand-alone basis (i.e., for Indian operations only).

Definition of NSFR

The NSFR is defined as the amount of available stable funding relative to the amount of required stable funding. “Available stable funding” (ASF) is defined as the portion of capital and liabilities expected to be reliable over the time horizon considered by the NSFR, which extends to one year. The amount of stable funding required i.e., “Required stable funding (RSF) of a specific institution is a function of the liquidity characteristics and residual maturities of the various assets held by that institution as well as those of its off-balance sheet (OBS) exposures.

Minimum Requirement and Implementation Date

The above ratio should be equal to at least 100% on an ongoing basis. However, the NSFR would be supplemented by supervisory assessment of the stable funding and liquidity risk profile of a bank. On the basis of such assessment, the Reserve Bank may require an individual bank to adopt more stringent standards to reflect its funding risk profile and its compliance with the Sound Principles, issued in 2012. The NSFR would be binding on banks with effect from a date which will be communicated in due course.

RBI Guidelines on Storage of Payment System Data

There has been considerable growth in the payment ecosystem in the country. Such systems are also highly technology dependent, which necessitate adoption of safety and security measures, which are best in class, on a continuous basis. As per the RBI, not all system providers store the payments data in India.

To ensure better monitoring, it is important to have unfettered supervisory access to data stored with these system providers as also with their service providers / intermediaries/ third party vendors and other entities in the payment ecosystem. The RBI has put in place certain guidelines for storage of payment system data which are as follows:

  1. All system providers are required to ensure that the entire data relating to payment systems operated by them are stored in a system only in India. This data should include the full end-to-end transaction details / information collected / carried / processed as part of the message / payment instruction. For the foreign leg of the transaction, if any, the data can also be stored in the foreign country, if required.
  2. System providers are required to ensure compliance of (1) above within a period of six months and report compliance of the same to the Reserve Bank latest by October 15, 2018.
  3. System providers are required to submit the System Audit Report (SAR) on completion of the requirement at (1) above. The audit should be conducted by CERT-IN empaneled auditors certifying completion of activity at (1) above. The SAR duly approved by the Board of the system providers should be submitted to the Reserve Bank not later than December 31, 2018.

This directive has been issued under Section 10(2) read with Section 18 of Payment and Settlement Systems Act 2007, (Act 51 of 2007).

Standards Prescribed for Cash Management Activities of Banks

In view of the increasing reliance of the banks on outsourced service providers and their sub-contractors in cash management logistics, certain minimum standards have been prescribed for the service provider / sub-contractors who are engaged by the banks for this purpose.

Accordingly, the Reserve Bank of India has decided that the banks put in place certain minimum standards in their arrangements with the service providers for cash management related activities. Banks are advised to review their existing outsourcing arrangements and bring them in line with these instructions within 90 days from the date of this circular.

Further, as the cash held with the service providers and their sub-contractors continue to remain the property of the banks and the banks are liable for all associated risks, the banks shall put in place appropriate business continuity plan approved by their boards to deal with any related contingencies.

Standards for engaging the Service Provider and its sub-contractors

1. Eligibility Criteria

Minimum net worth requirement of ₹ 1 billion. The net worth of at least ₹ 1 billion should be maintained at all times. [The net worth requirement will come into force with immediate effect for all future outsourcing agreements of the banks. In case of existing agreements, the banks shall ensure that the net worth criteria is met as on March 31, 2019 (audited balance sheet to be submitted to the bank concerned by June 30, 2019) or at the time of renewal of agreement, whichever is earlier].

2. Physical / Security Infrastructure

  • Minimum fleet size of 300 specifically fabricated cash vans (owned / leased).
  • Cash should be transported only in the owned / leased security cash vans of the Service Provider or its first level sub-contractors. Each cash van should be a specially designed and fabricated Light Commercial Vehicle (LCV) having separate passenger and cash compartments, with a CCTV covering both compartments.
  • The passenger compartment should accommodate two custodians and two armed security guards (gunmen) besides the driver.
  • No cash van should move without armed guards. The gunmen must carry their weapons in a functional condition along with valid gun licenses. The Service Provider or its first level sub-contractor should also furnish the list of its employed gunmen to the police authorities concerned.
  • Each cash van should be GPS enabled and monitored live with geo-fencing mapping with the additional indication of the nearest police station in the corridor for emergency.
  • Each cash van should have tubeless tyres, wireless (mobile) communication and hooters. The vans should not follow the same route and timing repeatedly so as to become predictable. Predictable movement on regular routes must be discouraged. Staff should be rotated and assigned only on the day of the trip. With regard to security, additional regulations / guidelines as prescribed by Private Security Agencies (Regulation) Act, 2005, the Government of India and the State Governments from time to time must be adhered to.
  • Night movement of cash vans should be discouraged. All cash movements should be carried out during daylight. There can be some relaxation in metro and urban areas though depending on the law and order situation specific to the place or the guidelines issued by the local police. If the cash van has to make a night halt, it necessarily has to be in a police station. In case of inter-state movement, changeover of security personnel at the border crossing must be pre-arranged.
  • Proper documentation including a letter from the remitting bank should be carried invariably in the cash van, at all times, particularly for inter-state movement of currency.
  • ATM operations should be carried out only by certified personnel who have completed minimum hours of classroom learning and training. The content of such training may be certified by a Self-Regulatory Organisation (SRO) of Cash-in-Transit (CIT) Companies / Cash Replenishment Agencies (CRAs) who may tie up with agencies like National Skill Development Corporation for delivery of the courses.
  • The staff associated with cash handling should be adequately trained and duly certified through an accreditation process. Certification could be carried out through the SRO or other designated agencies.
  • Character and antecedent verification of all crew members associated with cash van movement, should be done meticulously. Strict background check of the employees should include police verification of at least the last two addresses. Such verification should be updated periodically and shared on a common database at industry level. The SRO can play a proactive role in creating a common data base for the industry. In case of dismissal of an employee, the CIT / CRA concerned should immediately inform the police with details.
  • Safe and secure premises of adequate size for cash processing / handling and vaulting. The premises should be under electronic surveillance and monitoring round the clock. Technical specifications of the vault should not be inferior to the minimum standards for Chests prescribed by the Reserve Bank. The vault should be operated only in joint custody and should have colour coded bins for easier storage and retrieval of different types of contents.
  • All fire safety gadgets should be available and working in the vault which should also be equipped with other standard security systems live CCTV monitoring with recording for at least 90 days, emergency alarm, burglar alarm, hotline with the nearest police station, lighting power backup and interlocking vault entry doors.
  • Work area should be separate from the cash area. The premises should be under the security of armed guards whose number should have reference to the scale of operations specific to the location but not less than five in any case.
  • Critical information like customer account data should be kept highly secure. Access to the switch server should be restricted to banks. Interfaces where a bank gives access to the service provider or its sub-contractor to the bank’s internal server should be limited to relevant information and secured.

RBI Guidelines: Creation of Investment Fluctuation Reserve (IFR)

With a view to addressing the systemic impact of sharp increase in the yields on Government Securities, the Reserve Bank of India recently decided to grant banks the option to spread provisioning for Mark to Market (MTM) losses on investments held in Available for Sale (AFS) and Held for Trading (HFT) for the quarters ended December 31, 2017 and March 31, 2018. The provisioning for each of these quarters may be spread equally over up to four quarters, commencing with the quarter in which the loss is incurred.

Banks that utilise the above option shall make suitable disclosures in their notes to accounts/ quarterly results providing details of –

  • the provisions for depreciation of the investment portfolio for the quarters ended December 2017 and March 2018 made during the quarter/year and,
  • the balance required to be made in the remaining quarters.

Further, with a view to building up of adequate reserves to protect against increase in yields in future, all banks are advised to create an Investment Fluctuation Reserve (IFR) with effect from the year 2018-19, as under:

An amount not less than the lower of the following:

  • net profit on sale of investments during the year
  • net profit for the year less mandatory appropriations

shall be transferred to the Investment Fluctuation Reserve (IFR), until the amount of IFR is at least 2 per cent of the HFT and AFS portfolio, on a continuing basis. Where feasible, this should be achieved within a period of 3 years.

A bank may, at its discretion, draw down the balance available in IFR in excess of 2 per cent of its HFT and AFS portfolio, for credit to the balance of profit/loss as disclosed in the profit and loss account at the end of any accounting year. In the event the balance in the IFR is less than 2 per cent of the HFT and AFS investment portfolio, a draw down will be permitted subject to the following conditions:

  • The drawn down amount is used only for meeting the minimum CET1/Tier 1 capital requirements by way of appropriation to free reserves or reducing the balance of loss, and
  • The amount drawn down is not more than the extent the MTM provisions made during the aforesaid year exceed the net profit on sale of investments during that year.

IFR shall be eligible for inclusion in Tier 2 capital.

RBI Announces Revamp of Lead Bank Scheme

With reference to deliberation on the recommendations of the Committee of Executive Directors’ with various stakeholders and based on their feedback, the Reserve Bank of India recently decided that the following ‘action points’ will be implemented by the State Level Bankers’ Committee (SLBC) Convener Banks/Lead Banks-

  • SLBC meetings should primarily focus on policy issues with participation of only the senior functionaries of the banks/ Government Departments. All routine issues may be delegated to sub-committee(s) of the SLBC. A Steering Sub-committee may be constituted in the SLBC to deliberate on agenda proposals from different stakeholders and finalise a compact agenda for the SLBC meetings. Typically, the Sub-Committee could consist of SLBC Convenor, Reserve Bank of India (RBI) and National Bank for Agriculture and Rural Development (NABARD) representatives and senior State Government representative from the concerned department, such as, Finance/Institutional Finance and two to three banks having major presence. Other issue-specific sub-committees may be constituted as required.


  • In cases where the Managing Director/ Chief Executive Officer/ Executive Director of the SLBC Convenor Bank is unable to attend SLBC Meetings, the Regional Director of the Reserve Bank shall co-chair the meetings along with the Additional Chief Secretary/ Development Commissioner of the State concerned.


  • The corporate business targets for branches, blocks, districts and states may be aligned with the Annual Credit Plans (ACP) under the Lead Bank Scheme to ensure better implementation. The Controlling Offices of the banks in each state should synchronise their internal business plans with the ACP under Lead Bank Scheme.


  • At present, discussions at the Quarterly Meetings of the various LBS fora namely, State Level Bankers’ Committee (SLBC), District level Consultative Committee (DCC) and Block Level Bankers’ Committee (BLBC) primarily focuses on the performance of banks in the disbursement of loans with regard to the allocated target under the Annual Credit Plan. The integrity and timeliness of the data submitted by banks for the purpose has been an issue as a significant portion of this data is manually compiled and entered into the Data Management Systems of the SLBC Convener Banks. The extent to which this data corresponds with the data present in the Core Banking Solution (CBS) of the respective banks also varies significantly. Therefore, there is need for a standardised system to be developed on the website maintained by each SLBC to enable uploading and downloading of the data pertaining to the Block, District as well as the State. The relevant data must also be directly downloadable from the CBS and/ or Management Information System (MIS) of the banks with a view to keeping manual intervention to a minimal level in the process. Necessary modifications may be made on the SLBC websites and to the CBS and MIS systems of all banks to implement the envisaged data flow mechanism.


  • To strengthen the BLBC forum which operates at the base level of the Lead Bank Scheme, it is necessary that all branch managers attend BLBC meetings and enrich the discussions with their valuable inputs. Controlling Heads of banks may also attend a few of the BLBC meetings selectively.


  • Rural Self Employment Training Institutes (RSETIs) should be more actively involved and monitored at various fora of LBS particularly at the DCC level. Focus should be on development of skills to enhance the credit absorption capacity in the area and renewing the training programs towards sustainable micro enterprises. RSETIs should design specific programs for each district/ block, keeping in view the skill mapping and the potential of the region for necessary skill training and skill up gradation of the rural youth in the district.

RBI Guidelines for implementation of Countercyclical Capital Buffer (CCCB)

The framework on countercyclical capital buffer (CCCB) was put in place by the Reserve Bank in terms of guidelines issued on February 5, 2015 wherein it was advised that the CCCB would be activated as and when the circumstances warranted, and that the decision would normally be pre-announced with a lead time of four quarters. The framework envisages the credit-to-GDP gap as the main indicator, which may be used in conjunction with other supplementary indicators, viz., the Credit-Deposit (C-D) ratio for a moving period of three years (given its correlation with the credit-to-GDP gap and GNPA growth), industrial outlook (IO) assessment index (with due note of its correlation with GNPA growth), and interest coverage ratio (noting its correlation with the credit-to-GDP gap).

The aim of the Countercyclical Capital Buffer (CCCB) regime is twofold. Firstly, it requires banks to build up a buffer of capital in good times which may be used to maintain flow of credit to the real sector in difficult times. Secondly, it achieves the broader macro-prudential goal of restricting the banking sector from indiscriminate lending in the periods of excess credit growth that have often been associated with the building up of system-wide risk.

The CCCB may be maintained in the form of Common Equity Tier 1 (CET 1) capital or other fully loss absorbing capital only, and the amount of the CCCB may vary from 0 to 2.5% of total risk weighted assets (RWA) of the banks.

The CCCB decision would normally be pre-announced with a lead time of 4 quarters. However, depending on the CCCB indicators, the banks may be advised to build up requisite buffer in a shorter span of time.

The credit-to-GDP gap shall be the main indicator in the CCCB framework in India. However, it shall not be the only reference point and shall be used in conjunction with GNPA growth. The Reserve Bank of India shall also look at other supplementary indicators for CCCB decision such as incremental C-D ratio for a moving period of three years (along with its correlation with credit-to-GDP gap and GNPA growth), Industry Outlook (IO) assessment index (along with its correlation with GNPA growth) and interest coverage ratio (along with its correlation with credit-to-GDP gap). While taking the final decision on CCCB, the Reserve Bank of India may use its discretion to use all or some of the indicators along with the credit-to-GDP gap.

The CCCB framework shall have two thresholds, viz., lower threshold and upper threshold, with respect to credit-to-GDP gap.

  1. The lower threshold (L) of the credit-to-GDP gap where the CCCB is activated shall be set at 3 percentage points, provided its relationship with GNPA remains significant. The buffer activation decision will also depend upon other supplementary indicators as mentioned above.
  2. The upper threshold (H) where the CCCB reaches its maximum shall be kept at 15 percentage points of the credit-to-GDP gap. Once the upper threshold of the credit-to-GDP gap is reached, the CCCB shall remain at its maximum value of 2.5 per cent of RWA, till the time a withdrawal is signalled by the Reserve Bank of India.
  3. In between 3 and 15 percentage points of credit-to-GDP gap, the CCCB shall increase gradually from 0 to 2.5 per cent of the RWA of the bank but the rate of increase would be different based on the level/position of credit-to-GDP gap between 3 and 15 percentage points. If the credit-to-GDP gap is below 3 percentage points then there will not be any CCCB requirement.

The same set of indicators that are used for activating CCCB (as mentioned above) may be used to arrive at the decision for the release phase of the CCCB. However, discretion shall be with the Reserve Bank of India for operating the release phase of CCCB. Further, the entire CCCB accumulated may be released at a single point in time but the use of the same by banks will not be unfettered and will need to be decided only after discussion with the Reserve Bank of India.

For all banks operating in India, CCCB shall be maintained on a solo basis as well as on consolidated basis.

All banks operating in India (both foreign and domestic banks) should maintain capital for Indian operations under CCCB framework based on their exposures in India.

Banks incorporated in India having international presence have to maintain adequate capital under CCCB as prescribed by the host supervisors in respective jurisdictions. The banks, based on the geographic location of their RWA, shall calculate their bank specific CCCB requirement as a weighted average of the requirements that are being applied in respective jurisdictions. The Reserve Bank of India may also ask Indian banks to keep excess capital under CCCB framework for exposures in any of the host countries they are operating if it feels the CCCB requirement in host country is not adequate.

10. Banks will be subject to restrictions on discretionary distributions (may include dividend payments, share buybacks and staff bonus payments) if they do not meet the requirement on countercyclical capital buffer which is an extension of the requirement for capital conservation buffer (CCB). Assuming a concurrent requirement of CCB of 2.5% and CCCB of 2.5% of total RWAs, the required conservation ratio (restriction on discretionary distribution) of a bank, at various levels of CET1 capital held is illustrated here.

Individual bank minimum capital conservation ratios, assuming a requirement of 2.5% each of capital conservation buffer and CCCB
Common Equity Tier 1 Ratio bands Minimum Capital Conservation Ratios
(expressed as a percentage of earnings)
>5.5% – 6.75% 100%
>6.75% – 8.0% 80%
>8.0% – 9.25% 60%
>9.25% – 10.50% 40%
>10.50% 0%

The CET 1 ratio bands are structured in increments of 25% of the required CCB and CCCB prescribed by the Reserve Bank of India at that point in time.

Banks must ensure that their CCCB requirements are calculated and publicly disclosed with at least the same frequency as their minimum capital requirements as applicable in various jurisdictions. The buffer should be based on the latest relevant jurisdictional CCCB requirements that are applicable on the date that they calculate their minimum capital requirement. In addition, when disclosing their buffer requirement, banks must also disclose the geographic breakdown of their RWAs used in the calculation of the buffer requirement.

The indicators and thresholds for CCCB decisions mentioned above shall be subject to continuous review and empirical testing for their usefulness and other indicators may also be used by the Reserve Bank of India to support CCCB decisions.

Based on the review and empirical testing of CCCB indicators, it has been decided that it is not necessary to activate CCCB at this point in time.

Exam Tips: How to Prepare for CAIIB

There is no short-cut to success. If not too much in-depth knowledge as given in MacMillan books or several others available in the market, meant purely for gaining knowledge for those looking for subject expertise, you must focus on the key areas as covered in NBTI study kits.

Understanding of the concepts is very important for CAIIB as it is the next step after JAIIB. The knowledge you have grasped with JAIIB comes into application now towards preparation for CAIIB. JAIIB or Diploma in Banking and Finance is equivalent to Matriculation in Banking and Finance and CAIIB is like Graduation in Banking and Finance. While CAIIB is tough, JAIIB is much more easy and gives basic knowledge. CAIIB gives you the understanding of how to crack the problems with the knowledge you have acquired with JAIIB which you can then apply in your day-to-day banking activities. Both are very helpful in professional career, giving you the understanding, knowledge and confidence to succeed and address any challenges you may come across while working in the bank.

Moreover, CAIIB is a highly esteemed certification exam for a banker but not all clear it given the tough and exhaustive syllabus and time required for preparation. But we took up this challenge and made our study material simple and easy to follow with elaborate practice in numericals and case studies. As a result, nearly all our participants have cleared CAIIB with flying colours, even those struggling previously with failed attempts expressed their joy after clearing the exam finally with the help of NBTI study kits. While many others apprehensive about attempting the exam given their non-accounting background have cleared in single attempt.

So, if you start early, 30 minutes a day is a good time investment to master the concepts covered under CAIIB. Or you could read the material a few times over like a story book before approaching mock tests or practice papers, and you will be able to answer the questions correctly. It is essential that you do the reading up first before attempting any questions on the topics. Conceptual understanding is very crucial, without that you will feel lost trying to attempt any CAIIB practice papers or CAIIB mock tests, and you will do more harm than good as your confidence will not build up. For this reason we have structured our CAIIB Distance Learning Kits in such a way that you systematically go through the Theory section first, followed by Module wise questions and then CAIIB Online Mock Tests for rigorous practice with exam like feel.

We designed our CAIIB Distance Learning Kits to give ease and convenience to every banker preparing for CAIIB. In today’s hectic and demanding bank set up, bankers can easily study while continuing with their daily work without taking leave or traveling for a class.

So gear up for exams are just around the corner. Prepare well and you will surely clear CAIIB Exam with a good score.