In a parallel development, the central bank has freed all commercial banks from seeking the RBI permission for hiring new premises for branch expansion. It has also given a blanket permission to banks to spend 1 per cent of the previous year's net profit in donations to support welfare activities.

"The objective is to gradually move away from micro management. At the same time, the supervision system will be strengthened and there will be no compromise on the prudential norms," a senior RBI official said. The central bank is expected to tighten the asset classification and provisioning norms from the next fiscal.

The new private banks, which have since inception been required to seek the RBI permission to fix sitting fees for board of directors and certain other perquisites likeleave travel allowance for their CEOs, are now free to decide on these, in accordance with the Companies Act. However, they still need the RBI approval for appointment of chairmen and managing directors and their remuneration packages in terms of section 35(B) of the Banking Regulation Act.

The freedom given to banks in regard to hiring premises for branch expansion follows the dilution of branch licensing norms. The RBI had some time back allowed banks with a three-year track record, minimum 9 per cent net non-performing assets and Rs 100 crore net worth to open new branches without seeking the central bank's permission.

"The RBI norms on hiring premises for new branches have become outdated with the real estate prices zooming. A committee, headed by DRS Chaudhary, joint secretary, banking division of the finance ministry, looked into the issue and following its recommendations, the central bank relaxed the stipulation on new branch premises," sources said.

The central bank has also given a blanketpermission to profit-making banks to spend up to 1 per cent of their net profit of the previous year to support welfare activities.

So far, banks were allowed to spend 1 per cent of their net profit in welfare activities. Over and above this limit, they are allowed to contribute to prime minister's relief fund and other welfare funds to help victims of natural calamities after seeking the RBI approval. They are also required to seek the central bank's approval for donation towards capital expenditures.

"Now, all such donations will come under the 1 per cent cap and banks will not be required to seek the RBI permission," sources said. The new rule aims at bringing in greater degree of transparency.

Bankers have hailed the operational freedom given through these relaxations. "We will not be required to run to the RBI for every small thing... This is a welcome relief. The central bank should focus more and more on macro regulations and leave the day-to-day operations to banks' internal management," asenior banker said.