Bank of baroda

Universal Banking Guidelines
Universal banking, in the Indian context, means the transformation of long-term lending institutions into banks. Pursuant
to the recommendations of the Narasimham Committee II and the Khan Working Group, RBI, in its mid-term review of
monetary and credit policy for fiscal 2000, announced that long-term lending institutions would have the option of
transforming themselves into banks subject to compliance with the prudential norms as applicable to banks. If a long-term
lending institution chose to exercise the option available to it and formally decided to convert itself into a universal bank,
it could formulate a plan for the transition path and a strategy for smooth conversion into a universal bank over a
specified time frame. In April 2001, the RBI issued guidelines on several operational and regulatory issues which were
required to be addressed in evolving the path for transition of a long-term lending institution into a universal bank.
Annual Policy Statement
RBI has renamed its credit policy as the “Annual Policy” statement since it is more aimed at structural adjustments rather
than controlling the credit flow in the economy. As per the RBI’s Annual Policy statement for fiscal 2006, the rate of CRR
of scheduled commercial banks has been kept at 5.00% of net demand and time liabilities as on the last Friday of the
second preceding fortnight.
As part of its effort to continue bank reform, RBI has announced a series of measures in its monetary and credit policy
statements aimed at deregulating and strengthening the financial system.
In the Annual Policy for fiscal 2006, RBI has stated that the overall stance of monetary policy for fiscal 2006 shall be as
follows:
Provision of appropriate liquidity to meet credit growth and support investment and export demand in the economy
while placing equal emphasis on price stability;
Consistent with the above, to pursue an interest rate environment that is conducive to macroeconomic and price
stability, and maintaining the momentum of growth; and
To consider measures in a calibrated manner, in response to evolving circumstances with a view to stabilising
inflationary expectations.
In the Annual Policy for fiscal 2006, RBI has introduced the following measures, among others:
Liquidity adjustment facility (“LAF”) scheme: The international usage of “repo” and “reverse repo” terms was adopted
from October 29, 2004. The LAF scheme has been operating with overnight fixed rate repo and reverse repo with
effect from November 1, 2004.
There is no change in the bank rate, which remains at 6.00%.
The fixed reverse repo rate under the LAF scheme was increased effective from April 29, 2005 from 4.75% to
5.00%. The fixed repo rate under LAF remained unchanged at 6.00%.
The CRR level has been kept unchanged at 5.00%.

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Ensuring stability in short-term interest rates, minimising default risk and achieving a balanced development of
various segments of the money market.
RBI will not be participating in the primary issuance of Government securities with effect from April 1, 2006. Further
sale of government securities allotted in primary issues with and between CSGL account holders (which is the
demat form of holding Government securities) shall also take place on the same day.
RBI shall issue guidelines on merger and amalgamation between private sector banks and with NBFCs. The
guidelines would cover process of merger proposal, determination of swap ratios, disclosures, norms for buying/
selling of shares by promoters before and during the process of merger and the Board’s involvement in the merger
process. The principles underlying these guidelines would also be applicable as appropriate to public sector banks,
subject to relevant legislation.
To raise the ceiling of overseas investment by Indian entities in overseas joint ventures and/or wholly owned
subsidiaries from 100% to 200% of their net worth under the automatic route.
To set up an independent Banking Codes and Standards Board of India on the model of the mechanism in the U.K.
in order to ensure that comprehensive code of conduct for fair treatment of customers are evolved and adhered to.
Structural and developmental measures for deepening and widening the government securities market.
Measures for simplifying the systems and procedures for offering better customer service and to continue with the
liberalisation process for improvement of the foreign exchange market.