- Notification to Scheduled Commercial Banks (SCBs)
- Notification to AD Banks
- Notification to NBFCs
- Notification to All Market Participants
Notification to Scheduled Commercial Banks (SCBs)
• Bucketing of excess Statutory Liquidity Ratio (SLR) and Marginal Standing Facility (MSF) securities in Structural Liquidity Statement
Banks can slot their excess SLR securities and MSF eligible securities under the Day-1 bucket.
• Discount Rate for Computing Present Value of Future Cash Flows
It has been decided that a rate equal to the actual interest rate charged to the borrower before restructuring may be used to discount the future cash flows for the purpose of determining the diminution in fair value of loans on restructuring.
• Opening of Current Accounts by Banks - Need for Discipline
Keeping in view the importance of credit discipline, especially for reduction in Non-Performing Assets (NPA) level in banks, banks are advised to make use of the information available in Central Repository of Information on Large Credits (CRILC) and not limit their due diligence to seeking No Objection Certificate (NOC) from the bank with whom the customer is supposed to be enjoying the credit facilities as per his declaration.
• Data Format for Furnishing of Credit Information to Credit Information Companies and other Regulatory Measures
With a view to setting out a uniform Credit Reporting Format for the purpose of reporting credit information to the Credit Information Companies (CICs), it has been decided to create a new status value viz; ‘Restructured due to Natural Calamity’ for the fields ‘Written Off and Settled Status’ in the Consumer Bureau and ‘Major reasons for restructuring’ in the Commercial Bureau. This modification is intended to enable banks/FIs to report to CICs restructured/rescheduled agricultural loans on account of any declared natural calamities.
• Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances – Credit Card Accounts
It has been decided that, with effect from 16th July 2015, ‘past due’ status of a credit card account for the purpose of asset classification would be reckoned from the payment due date mentioned in the monthly credit card statement.
However, banks shall report a credit card account as ‘past due’ to Credit Information Companies (CICs) or levy penal charges, viz. late payment charges, etc., if any, only when a credit card account remains ‘past due’ for more than three days. The number of ‘days past due’ and late payment charges shall, however, be computed from the payment due date mentioned in the credit card statement.
• Deposits placed with National Bank for Agriculture and Rural Development (NABARD)/ Small Industries Development Bank of India (SIDBI)/ National Housing Bank (NHB) for meeting shortfall in Priority Sector Lending by Banks-Reporting in Balance Sheet
For accounting periods commencing on or after 1st April 2015, deposits placed with NABARD/SIDBI/NHB on account of shortfall in priority sector targets should be included under Schedule 11- ‘Other Assets’ under the subhead ‘Others’ of the Balance Sheet.
• Priority Sector Lending – Targets and Classification
Banks are directed to ensure that their overall direct lending to non-corporate farmers does not fall below the system-wide average of the last three years achievement (to be notified shortly, and henceforth at the beginning of each year), failing which they will attract the usual penalties for shortfall. They should also continue to maintain all efforts to reach the level of 13.5 percent direct lending to the beneficiaries who earlier constituted the direct agriculture sector.
• Concurrent Audit System in Commercial Banks - Revision of RBI's Guidelines
Concurrent Audit guidelines have been revised, with immediate effect, in view of changes in banks’ organizational structure, business models, use of technology (implementation of Core Banking Solution), etc. The revised guidelines are set out in Annexure I to the Circular.
Banks have been advised to continue to bestow serious attention to the implementation of various aspects of this system and take a review of the present system so as to carry out necessary amendments therein in light of the revised guidelines.
• Provision of Factoring Services by Banks – Review
Banks can now carry out the business of factoring departmentally without obtaining prior approval from RBI subject to the condition laid down in the Annexure to the Circular.
Setting up of factor subsidiaries or investments by banks in factoring companies will be subject to extant guidelines on investments by banks in subsidiaries and other companies. Further, investment of a bank in the shares of factoring companies inclusive of its subsidiary carrying on factoring business shall not, in the aggregate, exceed 10% of the paid up capital and reserves of the bank.
Subsidiaries and JVs of banks, including the existing ones would be regulated as NBFC-Factors vide circular DNBS (PD) CC No.297/Factor/22.10.91/2012-13 dated 23rd July, 2012.
Notification to AD Banks
• Re-export of unsold rough diamonds from Special Notified Zone of Customs without Export Declaration Form (EDF) formality
In order to facilitate re-export of unsold rough diamonds imported on free of cost basis at Special Notified Zone (SNZ), it is clarified that the unsold rough diamonds, when re-exported from the SNZ (being an area within the Customs) without entering the Domestic Tariff Area (DTA), do not require any EDF formality.
• Investment in companies engaged in tobacco related activities
It has been clarified that the prohibition applies only to manufacturing of the products mentioned in the Notification No. FEMA. 242/2012- RB dated 19th October 2012.and foreign direct investment in other activities relating to these products including wholesale cash and carry, retail trading etc. shall be governed by the sectoral restrictions laid down in the FDI policy framed by the Department of Industrial Policy & Promotion, Ministry of Commerce and Industry, Government of India and in the Schedule 1 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 as amended from time to time.
• Issue of shares under Employees Stock Options Scheme and/or sweat equity shares to persons resident outside India
It has been decided that an Indian company may issue “employees’ stock option” and/or “sweat equity shares” to its employees/directors or employees/directors of its holding company or joint venture or wholly owned overseas subsidiary/subsidiaries who are resident outside India, subject to certain conditions laid down in the circular.
• Export factoring on non-recourse basis
It has been decided to permit AD banks to factor the export receivables on a non-recourse basis, so as to enable the exporters to improve their cash flow and meet their working capital requirements subject to conditions laid down in the circular.
• Foreign Investment in India by Foreign Portfolio Investors
It is clarified that the restriction on investments with less than three years residual maturity shall not be applicable to investment by FPIs in Security Receipts (SRs) issued by Asset Reconstruction Companies (ARCs). However, investment in SRs shall be within the overall limit prescribed for corporate debt from time to time.
Notification to NBFCs
• Returns to be submitted by NBFCs (Asset Size below INR. 500 crore)
All non-deposit taking NBFCs (NBFCs-ND), with assets less than INR. 500 crore are required to submit an Annual Return within 30 days of closing of the financial year, i.e. by 30th April of every year.
• Requirement for obtaining prior approval of RBI in cases of acquisition/ transfer of control of Non-Banking Financial Companies (NBFCs)
Henceforth, prior written RBI approval shall be required for any takeover or acquisition of control of an NBFC, which may or may not result in change of management; acquisition/ transfer of shareholding of 26 per cent or more of the paid up equity capital of the NBFC; any change in the management of the NBFC which would result in change in more than 30 per cent of the directors.
• Early Recognition of Financial Distress, Prompt Steps for Resolution and Fair Recovery for Lenders: Framework for Revitalising Distressed Assets in the Economy - Review of the Guidelines on Joint Lenders' Forum (JLF) and Corrective Action Plan (CAP)
The framework for revitalizing distress assets in the economy was issued by RBI on 30th January 2014 and to the extent applicable said framework was made applicable to NBFCs during March 2014.
Subsequently, certain modifications to the framework were issued in December 2014 and June 2015. This modifications shall also be mutatis mutandis, applicable to NBFCs.
• Review of Guidelines on Restructuring of Advances by NBFCs
This circular contains detailed guidelines on restructuring of advances by NBFCs.
Notification to All Market Participants
• Financial Benchmarks India Pvt. Ltd.(FBIL)- Benchmark Administrator
In order to overcome the possible conflicts of interest in the benchmark setting process arising out of the current governance structure of the Fixed Income Money Market and Derivative Association of India (FIMMDA) and Foreign Exchange Dealers’ Association of India (FEDAI), an independent body named ‘Financial Benchmarks India Pvt. Ltd. (FBIL), has been floated jointly by the FIMMDA, the FEDAI and the Indian Banks’ Association (IBA).
The FBIL will act as an independent benchmark administrator and gradually take over the benchmarks currently being disseminated by other agencies.
- RBI Central Board Meets at Chennai: RBI to Allow Account Aggregator NBFCs; to Set Up Financial Inclusion Advisory Committee
- Yes Bank Limited Authorised as Primary Dealer
- RBI Releases Final Guidelines on PPI for Mass Transit System (PPI-MTS)
- RBI Imposes Monetary Penalty on M/s Muthoottu Mini Financiers Pvt Ltd.
- RBI Introduces Straight Through Processing (STP) of Fixed Rate Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) Operations
RBI Central Board Meets at Chennai: RBI to Allow Account Aggregator NBFCs; to Set Up Financial Inclusion Advisory Committee
RBI will put in place a regulatory framework to allow a new kind of Non-Banking Finance Company (NBFC), which could act as an account aggregator to enable the common man to see all his accounts across financial institutions in a common format.
Yes Bank Limited Authorised as Primary Dealer
RBI has authorised Yes Bank Limited to undertake Primary Dealership business departmentally with effect from 13th July 2015.
RBI Releases Final Guidelines on PPI for Mass Transit System (PPI-MTS)
RBI, on 9th July 2015, placed on its website the final guidelines on Prepaid Payment Instruments for Mass Transit System (PPI-MTS) enabling the issuance of a separate category of semi-closed prepaid payment instruments for mass transit systems. The PPI-MTS will enhance commuter convenience and will also facilitate the migration to electronic payments in line with the country’s vision of moving to a less-cash society.
RBI Imposes Monetary Penalty on M/s Muthoottu Mini Financiers Pvt Ltd.
RBI has imposed a monetary penalty of INR 5 lakh on M/s Muthoottu Mini Financiers Pvt Ltd. (the company) under section 58 G(1)(b) read with sub-section 5(aa) of section 58B of the RBI Act, 1934 for violation of various directions/orders issued by RBI from time to time.
RBI Introduces Straight Through Processing (STP) of Fixed Rate Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) Operations
As part of the endeavour to smoothen the liquidity management operations, it has been decided by the RBI to introduce Straight Through Processing (STP) in fixed rate LAF Repo, fixed rate LAF Reverse Repo and MSF operations. This will enable eligible participants to receive the credit or debit immediately on placement of the bids or offers, subject to the availability of the collateral or funds, within the prescribed time window. There will be no change in the process of placing bids/offers by the eligible participants. The STP has been introduced with effect from 3rd August 2015 (Monday).
- Review of Minimum Contract Size in Equity Derivatives Segment
- Policy for Annulment of Trades Undertaken on Stock Exchanges
Review of Minimum Contract Size in Equity Derivatives Segment
On a review undertaken by SEBI, it was observed that the minimum contract size in equity derivatives segment is INR 2 lakhs and it has been recently decided to increase the same to INR 5 lakh.
Modifications have been brought out, vide SEBI’s circular dated 13th July 2015, in the framework pertaining to determination of lot size for derivatives contracts, which are highlighted below.
- The lot size for derivatives contracts in equity derivatives segment would be fixed in such a manner that the contract value of the derivative on the day of review is within INR 5 lakh and INR 10 lakh.
- For stock derivatives with minimum lot sizes (in units of underlying) of 50, the subsequent lot sizes will be fixed as a multiple of 25. However, if the contract value of the minimum lot size of 50 is more than INR 10 lakhs, then the subsequent lot size will be a multiple of 5, provided the lot size is not below 10.
- In case of index derivatives, the lot size (in units of underlying) would be fixed as a multiple of 5, provided the lot size is not less than 10.
- Stock exchanges have been advised to jointly ensure that the lot size is the same for an underlying traded across exchanges.
- In addition, once in every six months, stock exchanges have been advised to review the lot size, based on the average of the closing price of the underlying for the last one month.
- The revision would be made effective from the next trading day after expiry of October 2015 contracts.
Policy for Annulment of Trades Undertaken on Stock Exchanges
Vide its circular dated 16th July 2015, SEBI has set out rules for annulment of trades undertaken on stock exchanges arising on account of material mistakes or erroneous orders. Stock exchanges would be guided by the provisions brought out in SEBI’s circular with regard to the mechanism for annulment. The key provisions are highlighted below.
- Stock exchanges can, either on their own or on request from a stock broker, consider annulment of a trade. However, suitable criteria would need to be defined to discourage frivolous trade annulment requests from brokers.
- The procedure for submission of requests by stock brokers, including the mechanism to submit requests in electronic form, would be as prescribed by stock exchanges.
- Stock brokers will have to submit such request to the stock exchange within 30 minutes from execution of trade(s), which is sought to be annulled. However, the stock exchange may consider requests received after 30 minutes, but not longer than 60 minutes, only in exceptional cases and after examining and recording reasons for such consideration.
- In addition, stock exchanges would be required to inform details of such requests to all its stock brokers in a time bound manner. They should examine and decide on such requests not later than the start of the next trading day.
- As an alternate mechanism, stock exchanges may consider resetting the price of trade(s) under consideration to an appropriate price(s), if price reset is deemed to be a less disruptive mechanism as compared to trade annulment.
- Stock exchanges would undertake trade annulment or price reset only in exceptional cases, after recording reasons in writing, in the interest of the investors, market integrity, and maintaining sanctity of the price discovery mechanism.
- SEBI (Issue and Listing of Debt Securities by Municipalities) Regulations, 2015
SEBI (Issue and Listing of Debt Securities by Municipalities) Regulations, 2015
SEBI has issued regulations on the issue and listing of debt securities, vide notification dated 15th July, 2015. The key provisions of the regulations are brought out below.
- The concerned municipality should be eligible to raise funds under its constitution.
- Accounts of the municipality would be required to be prepared in accordance with the National Municipal Accounts Manual or in accordance with similar Municipal Accounts Manual adopted by the respective State Government for at least three immediately preceding financial years;
- The municipality should not have a negative net worth in the three immediately preceding financial years and should not have defaulted in repayment of debt securities or loans obtained from banks or financial institutions, during the last three hundred and sixty five days.
- A corporate municipal entity, its promoter, group company or directors should not have been named in the list of the wilful defaulters published by RBI or should not have defaulted on payment of interest or repayment of principal amount in respect of debt instruments issued by it to the public.
- A public issue of debt securities shall be only through issue of revenue bonds.
- Revenue bonds intended to be issued through a public issue of debt would be required to have a minimum investment rating and it should be for a minimum tenure of three years or such period, as specified by SEBI from time to time, with the maximum tenure not exceeding thirty years.
- One or more merchant bankers registered with SEBI would need to be appointed, with at least one of them as a lead merchant banker.
- A separate escrow account for servicing of revenue bonds with earmarked revenue would need to be created.
- A monitoring agency such as a public financial institution or a scheduled commercial bank would be required to be appointed in order to monitor the earmarked revenue in the escrow account.
- Where the issuer is a corporate municipal entity, a debenture trustee registered with SEBI would need to be appointed.
- Bonds issued through a public issue would have to mandatorily be listed in the stock exchanges.
- The amount of minimum subscription, which is sought to be raised by issue of debt securities, may be decided upon by the issuer, though such amount should not be less than seventy five percent of the issue size. The same would need to be disclosed in the offer document. In the event of non-receipt of minimum subscription, the application money received in the public issue would be required to be refunded to the applicants, within twelve days from the date of the closure of the issue.
- As regards listing of the debt securities on a private placement basis, the minimum subscription amount per investor should not be less than INR 25 lakh or such amount, as may be specified by SEBI from time to time.