RBI Regulatory Updates & Developments

Resolution of Stressed Assets – Revised Framework

RBI has issued various instructions aimed at resolution of stressed assets in the economy, including the introduction of certain specific schemes at different points of time. In view of the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC), RBI has decided to substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets. The details of the revised framework are in the circular issued by RBI (see circular dated 12th February 2018).


Risk Management and Inter-Bank Dealings: Revised Guidelines relating to participation of a person resident in India and FPIs in the Exchange Traded Currency Derivatives Market

Currently, Foreign Portfolio Investors (FPIs) and Indian residents are allowed to take a long (bought) or short (sold) position in USD-INR up to USD 15 million per exchange without having to establish existence of underlying exposure. In addition, residents & FPIs are allowed to take long or short positions in EUR-INR, GBP-INR and JPY-INR pairscombined, up to USD 5 million equivalent per exchange without having to establish existence of any underlying exposure.

RBI has now decided to permit persons resident in India and FPIs to take positions (long or short), without having to establish existence of underlying exposure, up to a single limit of USD 100 million equivalent across all currency pairs involving INR combined across all exchanges.

These limits would also be monitored by the exchanges, and breaches, if any, may be reported to RBI.


Relief for MSME Borrowers registered under GST

In the transition to a formalised business environment after the introduction of Goods and Service Tax (GST), RBI has decided that the exposure of banks and NBFCs to a borrower classified as micro, small and medium enterprise under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, would continue to be classified as a standard asset in the books of banks and NBFCs subject to the following conditions:

  1. The borrower is registered under the GST regime as on 31st January 2018.
  2. Including non-fund based facilities, the aggregate exposure of banks and NBFCs to the borrower does not exceed INR 250 million as on 31st January 2018.
  3. The borrower’s account was standard as on 31st August 2017.
  4. The amount from the borrower overdue as on 1st September 2017 and payments from the borrower due between 1st September 2017 and 31st January 2018 are paid not later than 180 days from their respective original due dates.
  5. A provision of 5% shall be made by the banks/NBFCs against the exposures not classified as Non-Performing Assets (NPAs) in terms of this circular. The provision in respect of the account may be reversed as and when no amount is overdue beyond the 90/120-day norm, as the case may be.
  6. The additional time is being provided only for the purpose of asset classification and not for income recognition i.e., if the interest from the borrower is overdue for more than 90/120 days, the same shall not be recognised on accrual basis.


Ombudsman Scheme for NBFCs, 2018 - Appointment of the Nodal Officer/Principal Nodal Officer

Beginning 23rd February 2018, RBI began the Ombudsman Scheme for NBFCs, 2018 (The Scheme). The Scheme is available on the RBI website. NBFCs that are covered under the Scheme are advised to ensure that a suitable mechanism exists for receiving and addressing complaints from their customers with specific emphasis on resolving such complaints expeditiously and in a fair manner.


Press Releases

RBI has issued a consolidated list of 248 returns for commercial, co-operative, small finance and payment banks as well as non-banking finance companies, primary dealers and other financial institutions. The aforesaid list does not include certain returns which seek confidential supervisory information in specific cases, which are communicated directly to regulated entities. For the convenience of reporting entities, the related circulars and formats are also linked to the press release on the RBI website as ready reference for ensuring data quality. This list will be updated regularly to facilitate ease of reporting.

Nine NBFCs have surrendered the Certificates of Registration granted to them by RBI and RBI, in turn, has cancelled them. These companies cannot transact the business of a Non-Banking Financial Institution, as laid down in clause (a) of Section 45-I of the RBI Act, 1934.

Following RBI’s cancellation of registration certificates of six NBFCs, these companies cannot now undertake the business of a Non-Banking Financial Institution, as laid down under clause (a) of Section 45-I of the Reserve Bank of India Act, 1934.

SEBI Regulatory Updates & Developments

The total expense ratio (TER), is a measure of the total cost of a fund to the investor. Mutual Funds are permitted to charge additional TER up to 30 basis points on daily net assets of the scheme, if the new inflows from B15 cities (beyond the top 15 cities) are at least 30% of gross net inflows in the scheme or are at least 15% of the average assets under management of the scheme, whichever is higher.

The additional TER for inflows from B15 cities was allowed with the objective of increasing penetration of mutual funds in B15 cities. It has now been decided that the additional TER of up to 30 basis points would be allowed for inflows from beyond top 30 cities instead of beyond top 15 cities.

This would be applicable with effect from 1st April 2018.

Asset Management Companies (AMCs) are permitted to charge additional expenses, incurred towards different heads, not exceeding 0.20% of daily net assets of the scheme.

SEBI has since clarified (see circular dated 2nd February 2018) that AMCs would not be eligible to charge the above additional expenses in respect of Mutual Fund schemes, including close ended schemes, where exit load is not levied/not applicable.

Existing Mutual Fund schemes including close ended schemes, wherein exit load is not levied/not applicable, would need to discontinue the levy of the above mentioned additional expenses, if any, with immediate effect.

In order to bring uniformity in the disclosure of actual TER charged to mutual fund schemes, and to enable the investor to take an informed decision, SEBI has issued the following instructions:

  • AMCs would be required to prominently disclose on a daily basis the TER of all schemes under a separate heading - “Total Expense Ratio”- on their website.
  • Any change or increase in the base TER charged to any scheme shall be communicated at least three working days prior to effecting such change and shall be prominently displayed on the website.
  • However, any decrease in TER due to a decrease in applicable limits would not require issuance of any prior notice to the investors. Such decrease in TER would be immediately communicated to investors of the scheme through email or SMS and uploaded on the website.
  • Change in the base TER charged to the scheme shall be intimated to the Board of Directors of AMC along with the rationale recorded in writing. The changes in TER need to be placed before the Trustees on a quarterly basis along with the rationale for such changes.

The aforesaid provisions would be applicable immediately to new schemes launched on or after 5th February 2018 and to all the existing schemes with effect from 1st March 2018.

A new framework is being implemented with regard to tenure of independent trustees and independent directors of Mutual Funds.

In terms of the circular issued by SEBI (see circular dated 30th November 2017), independent trustees and directors who have held office for 9 years or more were permitted to continue in their respective position for a maximum of 1 additional year. The period of 1 year has now been extended to 2 years, within which compliance may be ensured in a phased manner (see circular dated 7th February 2018).

Further, auditors who have conducted audit of a mutual fund for more than 9 years have been permitted to continue till the end of Financial Year 2018-19.

It has been decided to have a uniform policy for calculation of minimum compensation payable to investors in scenarios where the applicants in an Initial Public Offering (IPO) have failed to get allotment of specified securities and, in the process, may have suffered an opportunity loss due to the following factors:

  • Failure on part of the Self Certified Syndicate Banks (SCSBs) to make bids in the concerned exchange system even after the amount has been blocked in the investors’ bank accounts with such SCSB.
  • Failure on part of the SCSB to process the Applications Supported by Blocked Amount (ASBA) even when they have been submitted within time.
  • Any other failures on part of an SCSB, which have resulted in the rejection of the application form.

SEBI has prescribed a formula for calculation of the minimum fair compensation, in its circular dated 15th February 2018. In case of issues which are subscribed between 90 and 100%, that is non-oversubscribed issues, the applicants would be compensated for all the shares which would have been allotted to them. However, no compensation would be payable to the applicant in case the listing price is below the issue price.

Any applicant whose application has not been considered for allotment, due to failure on the part of the SCSB, shall have the option to seek redressal of the same within three months of the listing date with the concerned SCSB. On receipt of such application, the SCSB would be required to resolve the same within 15 days failing which, it would have to pay interest at the rate of 15 % per annum for any delay beyond the said period of 15 days.

SEBI has eased the norms for FPIs through its circular dated 15th February 2018. The following changes have been introduced in extant regulatory provisions.

  • No prior approval from SEBI would be required where an FPI or its Global Custodian wishes to change its local custodian/Designated Depository Participant (DDP).  
  • At the time of such change, the new local custodian/DDP may rely on the due diligence carried out by the earlier DDP. However, the new DDP is required to carry out adequate due diligence when the FPI applies for continuance of its registration on an on-going basis.
  • At the time of FPI registration, declarations relating to Protected Cell Companies (PCC)/ Multi Class Share Vehicles (MCV) and information relating to the FPI investor group are required to be provided. Where there is no change in the information, the requirement of resubmission of this information at the time of applying for continuance of the FPI registration is not necessary.
  • Private banks/merchant banks, classified as Category II FPIs, may invest on behalf of their clients provided they submit a declaration to the effect that:
    • the details of beneficial owners are available and will be provided as and when required to the regulators and
    • the banks do not have any secrecy arrangement with the investors and all required legal/regulatory arrangements have been put in place in order to ensure that any secrecy laws or confidentiality clauses do not impede disclosure of beneficial owner details, as and when required by Indian regulators.

SEBI had issued guidelines for functioning of Stock Exchanges and Clearing Corporations in the International Financial Services Centre (IFSC) (see circular dated 28th November 2016). The paragraph on eligible collateral has been revised as below (see circular dated 20th February 2018).

Clearing corporations in IFSC would be permitted to accept cash and cash equivalents (which would include major foreign currencies as may be decided by the clearing corporation from time to time, term deposit receipts and bank guarantees issued by bank branches located in IFSC), Indian securities held with foreign depositories, foreign securities including units of liquid mutual funds and gold, as eligible collateral for trades in all product categories. However, cash and cash equivalents would need to form at least 50% of the total liquid assets at all times.

During November 2015, SEBI issued a circular prescribing various methods that may be adopted by a listed entity to achieve compliance with the minimum public shareholding requirements as mandated under the Securities Contracts (Regulation) Rules, 1957 (SCRR) and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. A more recent circular (22nd February 2018) indicates that certain additional methods have now been permitted.

  • Open market Sale: Sale of shares held by the promoters/promoter group up to 2% of the total paid –up share capital of the listed entity in the open market, subject to five times’ average monthly trading volume of the shares of the listed entity.
  • Qualified Institutional Placement: Allotment of eligible securities through QIPs.

Additionally, SEBI has issued an Annexure to the circular compiling all methods allowed for achieving compliance with the minimum public shareholding requirements.


SEBI has amended its Issue of Capital and Disclosure Requirements, Regulations 2009. Regulation 82 specifies the various conditions for QIPs. The condition that the listed company should have complied with the minimum public shareholding requirement, has now been removed.

India Market Updates

To empower RBI, the Finance Minister has proposed to amend the RBI Act, 1934. Based on the proposal, RBI would have to come with an additional instrument for liquidity management i.e., Standing Deposit Facility Scheme.

This would be beneficial in cases when the money market liquidity is in excess and would be dealt with in a post-demonetisation scenario.

RBI is scrutinising companies’ hedging practices and vetting borrowers more closely to prepare for any financial-market fallout from an increase in U.S. interest rates.

The new process is reportedly resulting in slower approvals in recent weeks for offshore debt sales. Such scrutiny is expected to further improve the trust of international investors in Indian issuers.

RBI has ordered commercial banks to link their core software with the SWIFT interbank messaging system by the end of April 2018. This instruction was issued after the fraud at Punjab National Bank (PNB).

The fraud at PNB remained undetected as the bank’s staff did not enter the transactions into its core software after using SWIFT to send instructions to overseas banks. Consequently, it has been identified that many Indian banks, including PNB, have not linked their core banking system with the SWIFT network, which is widely used by global banks to communicate with each other on transactions. Thus, RBI has decided to tighten regulations following the alleged fraud.

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