LATEST NEWS IN THE WORLD OF BANKS IN INDIA
VERIFY BENEFICIARY NAME WHILE MAKING RTGS / NEFT PAYMENTS :
31.12.2024 : Currently, the Unified Payments Interface (UPI) and Immediate Payments Service (IMPS) systems enable a remitter to verify the name of the beneficiary before initiating transfer. Now Reserve Bank of India ( RBI ) has decided to put in place a similar facility that would enable a remitter to verify the beneficiary bank account name before initiating a transaction using RTGS or NEFT system. Accordingly, National Payments Corporation of India (NPCI) has been advised by the RBI to develop the facility and onboard all banks.
. Banks participating in Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) Systems, will make this facility available to their customers through Internet banking and Mobile banking. The facility will also be available to remitters visiting branches for making transactions The facility will be provided free of cost
Details of the scheme :
1. To ensure that remitters using RTGS and NEFT systems can verify the name of the bank account to which money is being transferred before initiating the transfer and thereby avoid mistakes and prevent frauds, a solution for fetching the beneficiary’s name will be implemented. Based on the account number and IFSC of the beneficiary entered by the remitter, the facility will fetch the beneficiary’s account name from the bank’s Core Banking Solution (CBS).
2. This facility will be available to remitters through Internet and Mobile banking and to those who visit branches to make transactions.
3. To ensure uniform experience for customers, the banks will adhere to the instructions given below:
Provision to verify beneficiary bank account name will be provided in Internet banking and Mobile banking facilities at the time of registering a beneficiary and at the time of one-time fund transfer where the beneficiary may not be registered.
Provision to re-verify a registered beneficiary at any time will also be provided.
Beneficiary account name provided by the beneficiary bank will be displayed to the remitter.
In case the beneficiary name cannot be displayed for any reason, the remitter can proceed with the fund transfer, at their discretion.
Specific alert messages as provided in the technical document, issued earlier by NPCI, will be displayed to the remitter.
4. Both remitting and beneficiary banks will preserve detailed logs of all queries made, responses received and all other activities as part of beneficiary bank account name lookup facility.
5. NPCI will not store any data relating to this facility. In case of a dispute, the remitting bank and the beneficiary bank will resolve the dispute based on the unique lookup reference number and the corresponding logs.
6. While providing the facility, banks will ensure to comply with legal provisions related to data privacy, if any.
7. Beneficiary account name lookup facility will be made available to customers without any charge.
8. All banks who are direct members or sub members of RTGS and NEFT are advised to offer this facility no later than April 1, 2025.
RBI REDUCES CRR BY 0.5 % :
Dated 08.12.2024 : As per the Statement on Developmental and Regulatory Policies dated December 06, 2024, it has been decided by the Reserve Bank of India ( RBI ) to reduce the Cash Reserve Ratio (CRR) of all banks by 50 basis points in two equal tranches of 25 basis points each to 4.0 per cent of net demand and time liabilities (NDTL). Accordingly, banks are required to maintain the CRR at 4.25 per cent of their NDTL effective from the reporting fortnight beginning December 14, 2024 and 4.00 per cent of their NDTL effective from fortnight beginning December 28, 2024.
What is CRR ?
Cash Reserve Ratio (CRR): This is a monetary policy tool used by the Reserve Bank of India (RBI) to control the amount of money circulating in the economy.
Commercial banks must hold a certain percentage of their total deposits as reserves with the RBI. This money cannot be used for lending or investments.
Higher CRR: Reduces the amount of money banks can lend, slowing down economic activity and potentially reducing inflation.
Lower CRR: Increases the amount of money banks can lend, stimulating economic growth but potentially increasing inflation.
The RBI adjusts the CRR to manage:
Inflation: If inflation is high, the RBI may increase the CRR to reduce the money supply and cool down the economy.
Economic Growth: If the economy is slowing down, the RBI may decrease the CRR to encourage lending and boost economic activity.
Liquidity in the Banking System: The RBI can use CRR to ensure banks have sufficient liquidity to meet their obligations.
The expected fallout of the CRR reduction by 0.5% is as follows:
Positive Impacts:
Increased Liquidity: The reduction in CRR will release approximately Rs 1.16 lakh crore into the banking system. This will increase the amount of money available for lending.
Stimulated Economic Activity: Increased liquidity can lead to lower interest rates on loans, making it cheaper for businesses and individuals to borrow money. This can boost investment and consumption, thereby stimulating economic growth.
Reduced Cost of Funds for Banks: With lower CRR requirements, banks will have to deposit less money with the RBI, reducing their cost of funds. This could potentially lead to lower interest rates on loans for customers.
Potential Risks:
Increased Inflationary Pressure: While the CRR cut can stimulate economic activity, there is a risk that it could also lead to increased inflationary pressure. If banks lend out the additional liquidity too aggressively, it could fuel demand and drive up prices.
Impact on Financial Stability: The RBI needs to carefully balance the need for liquidity with maintaining financial stability. If the CRR is reduced too much, it could weaken the banking system's ability to withstand shocks.
THE BANKING LAWS ( AMENDMENT ) BILL 2024
Multiple Nominees allowed
Dated 04.12.2024 : The Banking Laws (Amendment) Bill, 2024, was passed by the Lok Sabha on December 3, 2024. It introduces several key changes to the banking sector in India:
Key Changes:
Multiple Nominees: Allows depositors to nominate up to four individuals for their bank accounts or fixed deposits, replacing the previous single-nominee system. This simplifies the process of distributing funds after the account holder's death. The Bill allows depositors to nominate up to four individuals for their bank accounts or fixed deposits, replacing the current single-nominee system. The move aims to simplify fund distribution after the death of an account holder . The Bill permits depositors to opt for either simultaneous nomination, where nominees are assigned specific percentage shares, or successive nomination, where nominees inherit in a predefined order. This change is expected to make fund access smoother for families while also reducing procedural delays.
Redefined "Substantial Interest" Threshold: Increases the threshold for directorships from ₹5 lakh to ₹2 crore, potentially attracting more qualified individuals to serve on bank boards.The Banking Regulation Act defines substantial interest in a company as owning shares exceeding ₹5 lakh or 10% of the paid-up capital, whichever is lower. This threshold has become outdated. The Bill increases the threshold to ₹2 crore.
Increased Tenure for Cooperative Bank Directors: Extends the tenure of directors (excluding the chairman and whole-time director) in cooperative banks from 8 years to 10 years, aligning with constitutional provisions. The Banking Regulation Act currently limits the tenure of bank directors (excluding chairpersons and whole-time directors) to eight consecutive years. The Bill proposes extending this tenure to 10 consecutive years for directors of co-operative banks.
Greater Flexibility for Banks: Grants banks more freedom in determining the remuneration for statutory auditors. Currently, the RBI, in consultation with the central government, determines the remuneration of bank auditors. The Bill shifts this responsibility to banks, empowering them to decide auditor remuneration independently.
Revised Reporting Dates: Changes the reporting dates for banks to the 15th and last day of every month, instead of the second and fourth Fridays.
Settlement of Unclaimed balances : Under the State Bank of India Act and the Banking Companies Acts of 1970 and 1980, unpaid or unclaimed dividends are transferred to an unpaid dividend account. If these remain unclaimed for seven years, they are moved to the Investor Education and Protection Fund (IEPF).The Bill broadens the scope of funds transferable to the IEPF by including:
Shares where dividends remain unpaid for seven consecutive years.
Unpaid interest or redemption amounts on bonds for seven years.
This ensures that dormant or unclaimed financial assets are used for public education and investor awareness. Individuals, however, retain the right to claim refunds for their transferred shares or funds.
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UNIFIED LENDING INTERFACE :
Dated 26.08.2024 ; In an inaugural Address by Shri Shaktikanta Das, Governor, Reserve Bank of India at the Global Conference on “Digital Public Infrastructure and Emerging Technologies”, on August 26, 2024, Bengaluru , the launch of a new digital initiative of RBI was announced .
He said " Continuing on this journey of digitalisation of banking services, last year RBI had launched the pilot of a technology platform which enables frictionless credit. RBI proposes to call it the Unified Lending Interface (ULI). " This platform facilitates consent based flow of digital information, including even land records of various states, from multiple data service providers to lenders. This cuts down the time taken for credit appraisal, especially for smaller and rural borrowers. The ULI architecture will have common and standardised APIs, designed for a 'plug and play' approach to ensure digital access to information from diverse sources. It is expected that borrowers would get the benefit of seamless delivery of credit, quicker turnaround time without requiring extensive documentation.
ULI is expected to cater to large unmet demand for credit across various sectors, particularly for agricultural and MSME borrowers. Based on the experience from the pilot project, a nation-wide launch of the ULI will be done in due course. Just like UPI transformed the payments ecosystem, RBI expects that ULI will play a similar role in transforming the lending space in India.
To go through the entire speech , CLICK HERE
BANK DEPOSITS ARE GROWING : SBI RESEARCH
Dated 22.08.2024 : In a recent research paper published , State bank of India dismisses the fear of slowing down of deposit growth in Indian Banks . The research paper reveals
In FY23, ASCBs registered the highest amount of absolute growth in deposits and credit since 1951-52. Deposits grew by Rs 15.7 lakh crore and credit by Rs 17.8 lakh crore, which pushed the incremental CD Ratio to 113%. The story continued in FY24 (deposits grew by Rs 24.3 lakh crore and credit by Rs 27.5 lakh crore) .
PSBs are at the forefront of mobilizing low ticket deposits across the banking spectrum....The average ticket size of SB/Term deposits of Public Sector Banks comes to Rs 72,577... as against Rs 1.60 lakhs of Private Sector Banks and Rs 10.5 lakhs for Foreign Banks...PSBs are also more active in RUSU region...this has also helped deposits by women jump as a mass movement across the banking sector...the SHG linkage is becoming more pronounced .
47% of term deposits are now held by Senior Citizens, implying younger cohort is increasingly shying away from traditional avenues like bank deposits... in contrast, median age of all investors in capital markets is now 32 years with ~40% of investors being less than 30 years.. Clearly, in line with MF/equity markets, we are of the considered opinion that Government should tweak the ‘tax on interest on deposits and delink tax treatment at the highest income bucket....and tax treatment should be at redemption and not at accrual basis for bank depositors....
The share of RURAL & URBAN areas in deposits has almost remain flat at ~10% and ~21% respectively during FY14-FY24, while the share of SEMI-URBAN in total deposits has increased to 15.7% in FY24 from 14.3% in FY14...The trend clearly indicate a compositional shift of deposits from Metro to Semi-urban areas, which may be due to the migration of people to Metro from Semi-Urban areas
On a global comparison, Indian Banks are resilient with clear focus on stable retail deposits as opposed to wholesale deposits globally....this makes it imperative to have a fair and differential tax treatment of retail deposits as opposed to other geographies....Deciphering ITR returns data, the distribution is more evenly scattered for interest income implying bank deposits benefitting a larger cross section of society across tiers .
To read the research paper , CLICK HERE
For the latest Fixed Deposits rates of PRIVATE SECTOR banks in India , CLICK HERE
For the latest Fixed Deposits rates of PUBLIC SECTOR banks in India , CLICK HERE
RBI'S LATEST MOVES :
Dated 08.08.2024 : The Governor of Reserve Bank of India Mr Shri Shaktikanta Das announced following new moves of RBI today :
1. Public Repository of Digital Lending Apps :
The Reserve Bank has taken several measures for the orderly development of the digital lending ecosystem in India. As a further measure in this direction and to address the problems arising from unauthorised digital lending apps (DLAs), the Reserve Bank proposes to create a public repository of DLAs deployed by its regulated entities. The regulated entities (REs) will report and update information about their DLAs in this repository. This measure will help the consumers to identify the unauthorised lending apps. Frequency of Reporting of Credit Information to Credit Information Companies
The availability of accurate credit information is vital for both lenders and borrowers. At present, lenders are required to report credit information to credit information companies (CICs) on a monthly basis or at such shorter intervals as may be agreed between the lenders and the CICs. It is proposed to increase the frequency of reporting of credit information to a fortnightly basis or at shorter intervals. Consequently, borrowers will benefit from faster updation of their credit information, especially when they repay their loans. The lenders, on their part, will be able to make better risk assessment of borrowers.
2. Enhancing Transaction Limit for Tax Payments through UPI
Currently, the transaction limit for UPI is ₹1 lakh except for certain category of payments which have higher transaction limits. It has now been decided to enhance the limit for tax payments through UPI from ₹1 lakh to ₹5 lakh per transaction. This will further ease tax payments by consumers through UPI.
3 . Introduction of ‘Delegated Payments’ through UPI
It is proposed to introduce a facility of "Delegated Payments" in UPI. This would enable an individual (primary user) to allow another individual (secondary user) to make UPI transactions up to a limit from the primary user’s bank account without the need for the secondary user to have a separate bank account linked to UPI. This will further deepen the reach and usage of digital payments.
4. Continuous Clearing of Cheques
. At present, cheque clearing through Cheque Truncation System (CTS) operates in a batch processing mode and has a clearing cycle of up to two working days. It is proposed to reduce the clearing cycle by introducing continuous clearing with 'on-realisation-settlement’ in CTS. This means that cheques will be cleared within a few hours on the day of presentation. This will speed up cheque payments and benefit both the payer and the payee.
To read the Governor's statement with this regard , CLICK HERE
CHARGING OF INTEREST : RBI warns against unfair practices
Dated 01.05.2024 : RBI had issued Fair practices code in 2003 where they had advocated banks for fairness and transparency in charging of interest .
Now recently the Reserve Bank has come across instances of lenders resorting to various unfair practices in charging of interest. Some of the unfair practices observed by them are :
Charging of interest from the date of sanction of loan or date of execution of loan agreement and not from the date of actual disbursement of the funds to the customer. Similarly, in the case of loans being disbursed by cheque, instances were observed where interest was charged from the date of the cheque whereas the cheque was handed over to the customer several days later.
In the case of disbursal or repayment of loans during the course of the month, some lending banks / entities were charging interest for the entire month, rather than charging interest only for the period for which the loan was outstanding.
In some cases, it was observed that the lenders were collecting one or more instalments in advance but reckoning the full loan amount for charging interest.
RBI finds that such non-standard practices of charging interest are not fair to the bank customers. Therefore, in the interest of fairness and transparency, RBI has directed all banks to review their practices regarding mode of disbursal of loans, application of interest and other charges and take corrective action, including system level changes, as may be necessary, to address the issues highlighted above.
To read RBI Notification dated 26.04.2024 , CLICK HERE
Kotak Mahindra Bank barred from issuing credit cards , No new on-line customers
Dated 24.04.2024 : The Reserve Bank of India has today, in exercise of its powers under Section 35A of the Banking Regulation Act, 1949, directed Kotak Mahindra Bank Limited to cease and desist, with immediate effect, from (i) onboarding of new customers through its online and mobile banking channels and (ii) issuing fresh credit cards. The bank can continue to provide services to its existing customers, including its credit card customers.
RBI has given the following reasons for its actions :
" These actions are necessitated based on significant concerns arising out of Reserve Bank’s IT Examination of the bank for the years 2022 and 2023 and the continued failure on part of the bank to address these concerns in a comprehensive and timely manner. Serious deficiencies and non-compliances were observed in the areas of IT inventory management, patch and change management, user access management, vendor risk management, data security and data leak prevention strategy, business continuity and disaster recovery rigour and drill, etc. For two consecutive years, the bank was assessed to be deficient in its IT Risk and Information Security Governance, contrary to requirements under Regulatory guidelines. During the subsequent assessments, the bank was found to be significantly non-compliant with the Corrective Action Plans issued by the Reserve Bank for the years 2022 and 2023, as the compliances submitted by the bank were found to be either inadequate, incorrect or not sustained.
In the absence of a robust IT infrastructure and IT Risk Management framework, the bank’s Core Banking System (CBS) and its online and digital banking channels have suffered frequent and significant outages in the last two years, the recent one being a service disruption on April 15, 2024, resulting in serious customer inconveniences. The bank is found to be materially deficient in building necessary operational resilience on account of its failure to build IT systems and controls commensurate with its growth.
In the past two years, the Reserve Bank has been in continuous high-level engagement with the bank on all these concerns with a view to strengthening its IT resilience, but the outcomes have been far from satisfactory. It is also observed that, of late, there has been rapid growth in the volume of the bank’s digital transactions, including transactions pertaining to credit cards, which is building further load on the IT systems.
The Reserve Bank, therefore, has decided to place certain business restrictions on the bank as mentioned above, in the interest of customers and to prevent any possible prolonged outage which may seriously impact not only the bank’s ability to render efficient customer service but also the financial ecosystem of digital banking and payment systems.
The restrictions now being imposed will be reviewed upon completion of a comprehensive external audit to be commissioned by the bank with the prior approval of RBI, and remediation of all deficiencies that may be pointed out in the external audit as well as the observations contained in the RBI Inspections, to the satisfaction of the Reserve Bank. Further, these restrictions are without prejudice to any other regulatory, supervisory or enforcement action that may be initiated against the bank by the Reserve Bank. "
TNo read RBI Press release , CLICK HERE
CASH DEPOSITS THROUGH UPI APP :
Dated 06.04.2024 : RBI Governor announced yesterday that Reserve bank of India ( RBI ) would facilitate the use of UPI app for depositing cash in Cash Deposit Machines (CDMs) of the banks .
CDMs are deployed by banks enhance customer convenience while reducing cash-handling load on bank branches. The facility of cash deposit is presently available only through use of debit cards. Given the popularity and acceptance of UPI, as also the benefits seen from the availability of UPI for card-less cash withdrawal at ATMs, it is now proposed to facilitate cash deposit facility through use of UPI. .
The operational instructions to the banks will be issued shortly .
Penal Charges in Loan Accounts - Timeline extended :
Dated 03.01.2024 : In August 2023 , RBI had issued fresh guidelines on levying of charges and interest by the banks on loan accounts and te guidelines were to be implemented by the banks on 1st, January 2024 . Now RBI has extended the timeline and the guidelines are to be implemented from 1st , April 2024 .
The key guidelines are :
1. Penalty, if charged, for non-compliance of material terms and conditions of loan contract by the borrower shall be treated as ‘penal charges’ and shall not be levied in the form of ‘penal interest’ that is added to the rate of interest charged on the advances. There shall be no capitalisation of penal charges i.e., no further interest computed on such charges. However, this will not affect the normal procedures for compounding of interest in the loan account.
2. Banks shall not introduce any additional component to the rate of interest and ensure compliance to these guidelines in both letter and spirit.
3. The quantum of penal charges shall be reasonable and commensurate with the non-compliance of material terms and conditions of loan contract without being discriminatory within a particular loan / product category.
4. The penal charges in case of loans sanctioned to ‘individual borrowers, for purposes other than business’, shall not be higher than the penal charges applicable to non-individual borrowers for similar non-compliance of material terms and conditions.
5. The quantum and reason for penal charges shall be clearly disclosed by banks to the customers in the loan agreement and most important terms & conditions / Key Fact Statement (KFS) as applicable, in addition to being displayed on bank's website under Interest rates and Service Charges.
6. Whenever reminders for non-compliance of material terms and conditions of loan are sent to borrowers, the applicable penal charges shall be communicated. Further, any instance of levy of penal charges and the reason therefor shall also be communicated.
7. The above guidelines are not applicable to credit cards
Reference : RBI NOTIFICATION DATED 29.12.2023
Inoperative Accounts /Unclaimed Deposits in Banks- Revised Instructions
Dated 02.01.2024 : Presently the credit balance in any deposit account maintained with banks, which have not been operated upon for ten years or more, or any amount remaining unclaimed for ten years or more, are required to be transferred by banks to DEA Fund maintained by the Reserve Bank of India as per “Depositor Education and Awareness” (DEA) Fund Scheme, 2014"
Now RBI has reviewed the scheme and it has issued comprehensive guidelines on the measures to be put in place by the banks covering various aspects of classifying accounts and deposits as inoperative accounts and unclaimed deposits, as the case may be, periodic review of such accounts and deposits, measures to prevent fraud in such accounts/deposits, grievance redressal mechanism for expeditious resolution of complaints, steps to be taken for tracing the customers of inoperative accounts/ unclaimed deposits including their nominees/ legal heirs for re-activation of accounts, settlement of claims or closure and the process to be followed by them. These instructions (provided in the Annex) are expected to complement the ongoing efforts and initiatives taken by banks and the Reserve Bank, to reduce the quantum of unclaimed deposits in the banking system and return such deposits to their rightful owners/ claimants.
Some of the operational guidelines given to the banks by RBI are
For activation of accounts :
6.1 The banks shall make available the facility of updation of KYC for activation of inoperative accounts/ unclaimed deposits at all branches (including non-home branches) and through Video-Customer Identification Process (V-CIP) if requested by the account holder, subject to the facility of V-CIP being provided by the bank. The V-CIP related instructions under Master Direction - Know Your Customer (KYC) Direction, 2016 dated February 25, 2016 (as updated from time to time) shall be adhered to by the bank.
6.2 The banks shall activate the inoperative accounts/ unclaimed deposits, including those which are under freeze by orders of various agencies like Courts, Tribunals, Law Enforcement Agencies, only after adhering to the KYC guidelines provided in the Master Direction - Know Your Customer (KYC) Direction, 2016 dated February 25, 2016 (as updated from time to time) such as Customer Due Diligence (CDD), customer identification, risk categorisation, etc.
6.3 The banks shall ensure that activation of inoperative account/ unclaimed deposits in CBS necessarily requires second level of authorisation by another officer at the same or higher level (i.e., through maker and checker). System logs shall invariably be maintained in case of any activity in or activation of inoperative accounts/unclaimed deposits for concurrent audit purpose. The preservation period of such system logs shall be as per the internal guidelines of the bank.
6.4 The bank shall automatically intimate the inoperative account/ unclaimed deposit holders though SMS and registered email stating that on the basis of the KYC documents submitted by them, the inoperative status of the account has been removed. The intimation shall also mention the remedial measures available to them to report unauthorised access, if any. This would alert the account/ unclaimed deposit holder against any possible fraudulent activity in his/her inoperative account. The banks shall have in place adequate operational safeguards to ensure that the claimants in case of inoperative accounts/ unclaimed deposits are genuine. The banks shall process requests for activation of inoperative account/ unclaimed deposits within three working days from the receipt of the complete application.
7. Payment of Interest
Interest on savings accounts shall be credited on a regular basis irrespective of the fact that the account is in operation or not.
8. Levy of Charges
8.1 The banks are not permitted to levy penal charges for non-maintenance of minimum balances in any account that is classified as an inoperative account.
8.2 No charges shall be levied for activation of inoperative accounts.
9. Display of Unclaimed Deposits and Search Facility
Banks shall host the details of unclaimed deposits {only name, address (without pin code) and Unclaimed Deposit Reference Number (UDRN)}, which have been transferred to DEA Fund of RBI on their respective websites, which shall be updated regularly, at least on a monthly basis. The banks, which do not have their own websites shall make available the above list of unclaimed deposits in their respective branches. The database hosted on the website shall provide a search option to enable the public to search for their unclaimed deposits using name in combination with the address of the account holder/ entity. Upon a successful search, details of unclaimed deposits shall be displayed in a format comprising account holder’s name(s), his/her address (without pincode) and UDRN only. In case such accounts are not in the name of individuals, the search input and result should include names of individuals authorised to operate the accounts. However, the account number, its type, outstanding balance and the name of the branch shall not be disclosed on the bank’s website.
10. Fraud Risk Management in Inoperative Accounts
10.1 The banks shall not allow any debit transaction in an inoperative account unless there is a customer induced activation as per the procedure mentioned in paragraph 6 of these guidelines. Further, banks may also consider imposing a cooling-off period on reactivation, with restrictions on the number and amount of transactions, as may be applicable for newly opened accounts with the bank.
10.2 The banks shall ensure that there is no unauthorised access to customer data pertaining to the inoperative accounts. The banks shall also ensure that adequate steps are taken to prevent data theft and related misuse for fraudulent purposes.
NON-CALLABLE DEPOSIT - MINIMUM DEPOSIT AMOUNT RAISED
Dated 27.10.2023 : So far banks could take non-callable deposits from the public on a deposit amount of Rs 15 lakhs or more . Non-callable deposits fetch higher rate of interest while premature closure is not allowed .
Now , as per notification issued by Reserve Bank of India ( RBI ) . banks will not be able to receive such deposits for an amount less than Rupees one crore . The minimum amount for offering non-callable TDs is increased from Rupees fifteen lakh to Rupees one crore i.e., all domestic term deposits accepted from individuals for amount of Rupees one crore and below shall have premature-withdrawal-facility . The instruction is also applicable for Non-Resident (External) Rupee (NRE) Deposit / Ordinary Non-Resident (NRO) Deposits. .
To read RBI NOTIFICATION DATED 26.10.2023 , CLICK HERE