Search the Internet          Tips  Sites: Finance, Investment

Reserve Bank of India issues norms for universal banks

Indian development financial institutions that wish to convert into universal banks will have to follow norms applicable to commercial banks, according to a Reserve Bank of India circular issued earlier this week.

The circular, available on the RBI's web site (www.rbi.org.in), said universal banks will have to maintain cash reserve ratio and statutory liquidity ratio as applicable to commercial banks.

Banks have to maintain a proportion of their deposits as CRR and SLR. The CRR is currently eight per cent while the SLR is 25 per cent.

Development financial institutions do not have to maintain CRR or SLR. The institutions are mainly engaged in raising and lending long term funds.

If they choose to convert to universal banks, they will become one-stop financial services firms that will offer the whole range of services ranging from working capital to long term finance.

More importantly, the development financial institutions will also be in a position to accept retail deposits, particularly low cost savings and current deposits, which will lower their cost of funds.

Currently, they mainly raise funds through bonds, with a small amount also available through fixed deposits, which cannot be of maturities below one year.

Universal banks will also have to follow the RBI's rules on branch expansion, priority sector lending and accounting guidelines, applicable to commercial banks.

Commercial banks are required to lend a certain percentage of their total loans to sectors designated as priority while development financial institutions do have to do so.

Tell us what you think of this report