RBI Notification

Eligibility Criteria for Offering Internet Banking Facility by RRBs

The Reserve Bank of India, through notification no RBI/2022-23/135 DoR.AUT.REC.81/24.01.001/2022-23, dated November 01st 2022, has issued fresh guidelines for offering internet banking facilities by the Regional Rural Banks (RRBs). The guidelines specifically mention the eligibility criteria and all the amendments made to the instructions issued on November 19th 2015, vide circular no. DBR.RRB.BC. No.59/31.01.001/2015- 16 on Internet banking facility for customers of Regional Rural banks. These amendments came into force on the issuance of the notification on November 01st 2022, by the Reserve bank of India, and apply to all the Regional rural banks operating in the country.

Overview of the Internet banking facility by RRBs

Released on November 19th 2015, these guidelines aimed at presenting the internet banking facilities to the customers of these banks and spreading digital banking practices in the country’s rural regions. The guidelines have segregated the internet facilities into the following parts;

Internet banking (View only) facility

RRBs^[1] that have implemented the core banking solutions and migrated to the Internet Protocol Version 6 can provide their customers with a View-only facility in the Internet Banking Facility. The two-factor authentication with OTP is mandatorily required for view only internet banking facilities.

The view-only service will strictly cover only non-transactional services like balance viewing, balance enquiry, account statement download, and chequebook requests, it does not include any online fund transfers.

Internet banking with a Transactional facility  

Apart from the CBS and IPv6, the banks offering transactional services on internet banking must submit the application to the RBI with the following conditions:

• The bank must attain a net worth of 100 crores or more on 31^st march of the immediately preceding year
• Gross NPA should be below 7% and net NPA less than 3%
• The bank should have made a profit in the preceding financial year with registered profits in the 3 out of 4 financial years.
• Should possess an internal control procedure approved by CISA qualified independent auditor
• The bank should have a good track record of compliance with the RBI directives/guidelines and should not have any monetary penalty in the preceding two years.
• The bank should not have defaulted in the maintenance of CRR/SLR during the immediate financial year.

The banks fulfilling the above-mentioned criteria can submit an application in the prescribed format to the regional RBI office through NABARD with the documents specified in the notification.

Guidelines on Internet banking facility by RRBs

An Internet banking policy by RRBs must be formulated with the Board’s approval keeping in mind the following pointers:

• The policy must fit into the bank’s Information Security Policy and Information Technology Policy to ensure the confidentiality of records and security systems.
• The policy should also cover the facility’s legal, regulatory and supervisory issues.
• Disclosures should be put forth in the policy with regard to risks, liabilities and responsibilities to the customers before offering the facility to the customers.
•  The policy should mention the KYC requirements of the banks
• The bank must possess a sound internal control system to consider the facility’s operational hindrances.

Revised eligibility criteria for providing Internet Banking Facility by RRBs

The Reserve Bank of India, through a notification on November 01st 2022, has revised the eligibility criteria to provide Internet banking facilities by RRBs with a transactional facility to its customers. The changes made to the criteria are elucidated below:

• Banks should have full implementation of the Core Banking Solutions and should have migrated to IPv6 protocols. This criterion is the same and hasn’t been amended over time.
• The banks should be compliant with the minimum prescribed Capital to Risk (Weighted) Assets Ratio (CRAR) as applicable from time to time.
• The net worth must be ₹50 crores (revised from 100 crores) as of March 31^st of the previous financial year.
• The Net NPA must not be more than 5% as on March 31^st of the previous financial year. The reserve bank has revised this criterion from 3% to 5 %
• The banks need to record profit in the immediate two preceding financial years.
• There should be no instance of default in the maintenance of CRR/SLR during the immediately preceding financial year.
• The bank should maintain a satisfactory track record of regulatory compliance, and there should be no instances of any monetary penalty imposed for violation of RBI directives/guidelines for the preceding two financial years.
• The banks should obtain approval from a CISA-qualified independent auditor on the internal control system adopted.

Conclusion

With an aim to promote digital banking and technology-based products in the country, the Reserve bank of India has eased the requirements for setting up a transaction-based digital banking framework in the country. The recent circular is the apex bank’s way of boosting the use of technology so that online banking can be provided to millions of users across many semi-urban and rural areas of the country. The notable amendments in the form of net worth requirement and decreased NPA percentage shows the stance of the apex bank and the government in promoting these virtual banking services in the country. This step of providing Internet Banking facility by RRBs to its customers will provide a boost to small business owners and MSMEs to flourish in the digital era.

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