Indian Banks' Association (IBA) introduced a formal system of self-discipline in the Indian Banking Industry in the year 1973, by recommending a ceiling rate of interest on inter-bank borrowings in call money market. In the year 1977, the Ground Rules and Code of Ethics (GRACE) were evolved. In a highly regulated environment, GRACE served its purpose for the last over 20 years, in bringing about a standard of ethical behaviour among Member Banks in certain focal areas of interest to the banking public. GRACE also served as a tool defining the boundaries for interpretation of the directives of the Regulatory Authority in key areas. However, the framework of GRACE was predominantly suited to a fully regulated environment.

The environment has undergone transformation following liberalisation and in the context of financial sector reforms. It was, therefore, felt that there was a need for comprehensively revising GRACE.

Keeping the above need in view, the IBA Committee to Monitor Code of Ethics (CMCE) set up a working group drawing members from the CMCE itself to revise the GRACE. The Working Group drafted a code for banking practice for uniform adoption by the banks. The draft code for banking practice was circulated among Member Banks for their comments. The final draft after incorporating suggestions from Member Banks and our legal consultant was approved by the IBA Managing Committee. The Code was then forwarded to the Reserve Bank of India (RBI) for its concurrence. RBI advised that the IBA Code for Banking Practice is in order for uniform adoption by the Member Banks.

The IBA Code for Banking Practice thus evolved, is an attempt towards fulfilling the above need under the liberalised and deregulated environment, aiming to promote a healthy relationship between the banks. This IBA Code for Banking Practice shall replace the extant GRACE with effect from 1st September, 1999 for adoption by all Member Banks.