The powers that have been delegated to banks include hiring of premises, rentals payable, deposit on rented premises and loans to owners of premises. The central bank has asked the boards of banks to lay down policies and formulate detailed operational guidelines covering all areas in respect of acquiring premises on a lease or rental basis for their use, including delegation of powers at various levels.

The central bank has told banks that the guidelines should prescribe norms separately in respect of metropolitan, urban, semi-urban and rural areas. Also, they have been asked to ensure that decisions for surrender or shifting of premises, other than in rural areas, is taken at the central-office level by a committee of senior executives.

Public-sector banks have, however, been told thatnegotiated contracts in respect of rentals and deposits of Rs 25 lakh and above in respect of premises taken by banks on a rental/lease basis will continue to be reported to the Central Bureau of Investigation. This requirement does not apply to private banks.

The RBI move follows the recommendations of the working group constituted for the purpose of reviewing the policy on hiring and de-hiring bank premises. The three-member working group was chaired by DRS Chaudhary, joint secretary of the banking division in the finance ministry with DT Pai, executive director of Union Bank of India and RBI chief general manager Shyamala Gopinath.

The group looked into all RBI guidelines relating to hiring of premises, advances to landlords rental deposits and related issues. It also took note of complaints and grievances generally received from landlords in the matter of rentals and surrender of premises. The team also met the secretary of the Indian Banks' Association and officials of a few public-sectorbanks.

The reason behind RBI's intervention in the area of hiring of premises and issuing guidelines was to avoid unhealthy competition among banks while conducting negotiations for acquisition of premises. The guidelines served a useful purpose at the time when banks were opening a large number of branches every year in accordance with its branch-licensing policy.

The working group in its recommendations has said that banks have been experiencing operational difficulties in adhering to the limits prescribed by RBI in regard to loans and rental ceilings in the changing scenario, resulting in increased references to the management committee.

Insight:

Need for absolute autonomy

This kind of autonomy, while welcome, means very little. What public-sector banks need is freedom from interference at all levels, especially when it comes to things like incentives to employees, closing down unviable branches, discretion in mandated lending. Freedom to price its lease rentals is an obviousresponse to the competition being put forward by the private sector which attract depositors by their spacious and well-designed interiors and good quality buildings that the branches are housed in.