RBI Regulatory Updates & Developments
Notifications

Includes:

  • Notification to SCBs
  • Notification to AD Banks
  • Notification to NBFCs
  • Notification to Authorised Person
  • Notification to All Market Participants
Notification to Scheduled Commercial Banks

• Individual Housing Loans: Rationalisation of Risk-Weights and LTV Ratios
On a review, it has been decided to fix the Loan to Value (LTV) ratios and risk weights for individual housing loans as detailed in the circular.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10063

• Risk Weights for Claims on Foreign Central Banks
Claims on the foreign sovereigns and their central banks, will attract risk weights as per the rating assigned to them / sovereign and central bank claims by the International Rating Agency as detailed in the circular. Accordingly, claims on them denominated in the domestic currency of that jurisdiction, met out of resources of the same currency will attract a risk weight of zero percent. However, in case a Host Supervisor requires a more conservative treatment to such claims in the books of the foreign branches of the Indian Banks, they should adopt the requirements prescribed by the Host Country supervisors for computing capital adequacy.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10065

• Gold Monetisation Scheme, 2015
This scheme modifies the existing Gold Deposit Scheme and Gold Metal Loan Scheme. It is intended to mobilise gold held by households and institutions of the country and facilitate its use for productive purposes, and in the long run, to reduce country’s reliance on the import of gold.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10084

• Amendment to Prevention of Money Laundering (Maintenance of Records) Rules, 2005 – Submitting ‘Officially Valid Documents’ - Change in name on account of marriage or otherwise
Regulated entities are advised that they may accept a copy of marriage certificate issued by the State Government or Gazette notification indicating change in name together with a certified copy of the ‘officially valid document’ in the existing name of the person while establishing an account based relationship or while undergoing periodic updation exercise.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10090

• Sovereign Gold Bonds, 2015-16
As the Government of India has decided to issue Sovereign Gold Bonds, 2015 during 5th November 2015 to 20th November 2015, RBI has laid down certain terms and conditions therefor, as detailed in the circular.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10095

Notification to AD Banks

• Risk Management & Inter-Bank Dealings: Booking of Forward Contracts – Liberalisation
With a view to further liberalising the existing hedging facilities, it has been decided to allow all resident individuals, firms and companies, who have actual or anticipated foreign exchange exposures, to book foreign exchange forward and FCY-INR options contracts up to USD 1,000,000 (USD one million) without any requirement of documentation on the basis of a simple declaration. While the contracts booked under this facility would normally be on a deliverable basis, cancellation and rebooking of contracts are permitted.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10064

• Memorandum of Procedure for channelling transactions through Asian Clearing Union (ACU)
In view of the understanding reached among the members of the ACU during the 44th Meeting of the ACU Board in June, 2015, it has been decided to permit the use of the Nostro accounts of the commercial banks of the ACU member countries, i.e., the ACU Dollar and ACU Euro accounts, for settling the payments of both exports and imports of goods and services among the ACU countries.
Now all eligible export/import transactions with other ACU member countries (except in the case of certain countries where specific exemptions have been provided by the Reserve Bank of India) shall invariably be settled through the ACU mechanism.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10066

• Annual Return on Foreign Liabilities and Assets (FLA Return) – Reporting by Limited Liability Partnerships
In order to capture the statistics relating to Foreign Direct Investments (FDI), both inward and outward, by Limited Liabilities Partnerships (LLPs) in India, it has been decided that henceforth, all LLPs that have received FDI and/or made FDI abroad (i.e. overseas investment) in the previous year(s) as well as in the current year, shall submit the FLA return in the prescribed format to the RBI by July 15 every year.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10083

• No fresh permission/ renewal of permission to Liaison office (Los) of foreign law firms- Supreme Court’s directions
No foreign law firm shall be permitted to open any LO in India till further orders/notification/till the policy is reviewed based on, among others, final disposal of the matter by the Hon’ble Supreme Court.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10092

• Subscription to National Pension System by Non-Resident Indians (NRIs)
NRIs may subscribe to National Pension System (NPS) governed and administered by the Pension Fund Regulatory and Development Authority (PFRDA), provided such subscriptions are made through normal banking channel or out of funds held in NRE/FCNR/NRO account and the person is eligible to invest as per the provisions of the PFRDA Act.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10093

Notification NBFCs

• Non-Banking Financial Company-Micro Finance Institutions (NBFC-MFIs) – Directions – Modifications
In order to enable NBFC-MFIs to act as channelizing agents of National Scheduled Castes Finance & Development Corporation (NSFDC), it has been decided that the condition relating to the maximum variance between the minimum and maximum interest rates on loans cannot exceed 4% shall not be applicable to loans extended by NBFC-MFIs against funding by NSFDC.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10053

• 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)
It has been decided that the modifications made in the Framework by the Department of Banking Regulation (DBR) vide their circular dated 24th September 2015 will also be, applicable to NBFCs, mutatis mutandis.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10091

Notification to All Authorised Persons

• Investment by Foreign Portfolio Investors (FPI) in Government Securities
RBI has pronounced a medium term framework for FPI Limits in Government securities to provide a more predictable regime. The features of the scheme are detailed in the circular.
For the current financial year, the limit for investment by FPIs in Government Securities has been enhanced in two tranches from 12th October 2015 and 1st January 2016.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10059

Notification to All Market Participants

• Secondary Market Transactions in Government Securities – Short Selling
With a view to facilitate retail participation in Government securities and enhance liquidity in the Government securities market, it has been decided to permit short sale by a custodian to its Gilt Account Holder (GAH) subject to observance of conditions laid down in the circular.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10094

Press Releases

Includes:

  • RBI Signs MoU on “Supervisory Cooperation and Exchange of Supervisory Information” with the Bank of Botswana, Central Bank of UAE and Bangladesh Bank
  • RBI Opens Sub-offices at Aizawl and Imphal
  • RBI Seeks Comments/Feedback on Report of the Working Group on Implementation of Ind AS by Banks in India
RBI Signs MoU on “Supervisory Cooperation and Exchange of Supervisory Information” with the Bank of Botswana, Central Bank of UAE and Bangladesh Bank

On 12th, 19th and 26th October, Reserve Bank of India signed a Memorandum of Understanding (MoU) on “Supervisory Cooperation and Exchange of Supervisory Information” with the Bank of Botswana, Central Bank of UAE and Bangladesh Bank respectively. With this, the Reserve Bank has now signed 30 such MoUs, one Letter for Supervisory Co-operation and one Statement of Co-operation.
Signing the MoU and the Letter for Supervisory Co-operation with supervisors of other countries is aimed at promoting greater co-operation and sharing supervisory information among the authorities.

RBI Opens Sub-offices at Aizawl and Imphal

RBI opens sub-offices at Aizawl and Imphal on 15th and 17th October 2015, respectively. These offices will have Financial Inclusion and Development Department, Consumer Education and Protections Cell, Market Intelligence Cell, etc.

RBI Seeks Comments/Feedback on Report of the Working Group on Implementation of Ind AS by Banks in India

On 20th October 2015, RBI has placed for suggestions/comments, on its website the Report of the Working Group on the Implementation of Indian Accounting Standards (Ind AS) by Banks in India.
As the urgent need was felt for convergence of the current Indian Accounting Standards with International Financial Reporting Standards a Working Group was constituted to look into the issues in implementation of India Accounting Standards (Ind AS) by banks.

SEBI Regulatorty Updated & Developments
Circulars

Includes:

  • Guidelines on Overseas Investments and Other Issues/Clarifications for AIFs/VCFs
  • Comprehensive Risk Management Framework for National Commodity Derivatives Exchanges
  • Investments by Foreign Portfolio Investments (FPIs) in Government Securities
  • Format of Uniform Listing Agreement
  • Risk Management for Regional Commodity Derivatives Exchanges
Guidelines on Overseas Investments and Other Issues/Clarifications for AIFs/VCFs

On 21st May 2012, SEBI had notified its (Alternative Investment Funds) Regulation, 2012, repealing the SEBI (Venture Capital Funds) Regulations, 1996. SEBI has now issued some amendments to the same.
• Overseas Investment by Venture Capital Funds (VCFs) registered under SEBI (Venture Capital Funds) Regulations, 1996 (now repealed)
a. Under this regulation, VCFs were permitted to invest in Offshore Venture Capital Undertakings, which have an Indian connection up to 10% of the investible funds of the VCF, as detailed in SEBI’s circular dated 9th August 2007.
b. SEBI, vide its circular dated 1st October 2015, has introduced certain changes to the aforementioned circular:

  • With effect from 1st October 2015, VCFs would be permitted to invest in Offshore Venture Capital Undertakings, which have an Indian connection, up to 25% of the investible funds of the VCF
  • VCFs will not be permitted to invest in Joint venture/Wholly owned Subsidiary, while making overseas investments.
  • VCFs will have to adhere to FEMA Regulations and other guidelines specified by RBI from time to time with respect to any structure, which involves Foreign Direct Investment (FDI) under Overseas Direct Investment route.
  • In case where more than 50% of the funds of the VCF has been contributed by a single NBFC, VCFs would have to comply with all requirements prescribed under RBI guidelines on opening of branches/subsidiaries/Joint venture/undertaking investment abroad by NBFCs
  • VCFs would be required to take prior approval from SEBI for making investments in Offshore Venture Capital Undertakings.

• Overseas Investment by Alternative Investment Funds (AIFs):
a. As per the SEBI (AIF) Regulations, AIFs are permitted to invest in securities of companies incorporated outside India, subject to conditions or guidelines stipulated or issued by RBI and SEBI. These are governed by RBI circulars dated 30th April 2007 and 4th May 2007 respectively.
b. Now, in line with the above dated circulars, SEBI has stipulated that, AIFs can invest in equity and equity-linked instruments of offshore venture capital undertakings, subject to an overall limit of USD 500 million (combined limit for AIFs and VC Funds registered with SEBI).

  • AIFs planning to make investments in Offshore Venture Capital Undertakings are required to submit their proposal for investment to SEBI for approval and no separate permission from RBI is necessary in this regard.
  • The term “Offshore Venture Capital Undertaking” has been defined to mean a foreign company whose shares are not listed on any of the recognized stock exchange in India or abroad.
  • Such Investments would be made only in those companies, which have an Indian connection, and where investments do not exceed 25% of the investible funds of the scheme of the AIF.
  • With regard to AIFs, the allocation of investment limits would be done on a “first come first serve basis”, depending on the availability in the overall limit of USD 500 million.
  • AIFs would not permitted to invest in Joint Venture/ Wholly owned Subsidiary while making overseas investments.
  • The FEMA regulations and other guidelines stipulated by RBI would need to be complied with.
  • The AIF will have a time limit of 6 months from the date of approval from SEBI to make allocated investments in Offshore Venture Capital Undertakings. In case the applicant does not utilise the limits allocated within the stipulated period, then SEBI may allocate such unutilised limit to other applicants.

• Other issues:
a. The tenure of any scheme of AIF would be calculated from the date of final closing of the scheme.
b. Managers of AIFs have been advised to organise, operate and manage the AIFs and its schemes in the interest of unitholders of the AIF/scheme and not take any action that is prejudicial to their interest.

Comprehensive Risk Management Framework for National Commodity Derivatives Exchanges

On 1st October 2015, SEBI issued a circular aligning and streamlining the risk management framework across National Commodity Derivatives Exchanges. Subsequent to notification made under the Finance Act and by Central Government, SEBI has stipulated that all recognised associations would be deemed to be stock exchanges under the Securities Contracts (Regulation) Act, 1956, with effect from 28th September 2015 and this circular will be implemented by 1st January 2016.
Exchanges have been advised to adhere to the risk management framework as stipulated in Annexure 1 of the circular. (http://www.sebi.gov.in/cms/sebi_data/attachdocs/1443700933819.pdf ) The norms specified by the Forward Markets Commission would continue to be in force to the extent not modified or repealed by this circular.

Investments by Foreign Portfolio Investments (FPIs) in Government Securities

In consultation with Government of India, RBI, on 29th September 2015, announced a Medium Term Framework for FPI limits in Government securities. It was decided that the limits for FPI investment in debt securities would henceforth be announced/fixed in rupee terms.
The limit for investment by FPIs in Government Securities is as follows:

  • The limit for FPIs in central government securities would be increased to INR 1,29,900 crore and INR 1,35,400 crore on 12th October and 1st January 2016, respectively, from the existing limit of INR 1,24,432 crore.
  • The limit for long term FPIs (sovereign wealth funds, multilateral agencies, insurance funds, pension funds and foreign central banks) in government securities would be increased to INR 36,600 crore and INR 44,100 crore on 12th October 2015 and 1st January 2016, respectively. Currently, the existing limit is INR 29,137 crore for long term FPIs.
  • There will be a separate limit for investment by all Foreign Portfolio Investors (FPIs) in the State Development Loans (SDLs). Debt limits of INR 3,500 crore each would be released on 12th October 2015 and 1st January 2016 respectively.
  • With regard to FPI investments in central government securities, there would be a security-wise limit of 20% of the amount outstanding under each such security. Existing investments, where aggregate FPI investment is over 20%, are permitted to continue. However, fresh purchases by such investors in these securities would not be permitted till the corresponding security-wise investments fall below 20%.
  • Central government securities in which the aggregate FPI investment is more than 20% of the outstanding would be placed in a negative investment category, in which fresh investments would not be permitted.
  • In partial modification to SEBI circular dated 9th October 2014, it has been stipulated that all future investments by long-term FPIs, including the limits vacated when the current investment by such FPIs runs off either through sale or redemption, shall be required to be made in central government securities having a minimum residual maturity of 3 years. The stipulation on minimum residual maturity of 3 years would also apply to SDLs.
Format of Uniform Listing Agreement

SEBI, on 13th October 2015, has simplified the format of the listing agreement, which is uniform across various types of securities. The format would be applicable to specified securities (equity and convertible securities on main board, SME platform or Institutional Trading Platform) and Indian Depository Receipts (IDRs), non-convertible debt securities, non-convertible redeemable preference shares, securitised debt instruments and mutual funds.
A listed entity, which has previously entered into agreement with a stock exchange to list its securities, would be required to execute a fresh listing agreement with such exchange within six months of the date of notification of SEBI (Listing Obligations and Disclosure Requirements) Regulations, i.e., 2nd September 2015.

Risk Management for Regional Commodity Derivatives Exchanges

All recognised associations under the Forward Contracts (Regulation) Act, 1952 are deemed to be stock exchanges under the Securities Contracts (Regulation) Act, 1956, with effect from 28th September 2015. Exchanges would have to comply with the norms stipulated with regard to member deposits, ordinary margins, other margins, margin computation, collateral type, mark to market settlement etc., as brought out in the circular dated 21st October 2015, latest by 1st April 2016.

Regulation

Includes:

  • SEBI (Issue of Capital and Disclosure Requirements) (Seventh Amendment) Regulations, 2015
SEBI (Issue of Capital and Disclosure Requirements) (Seventh Amendment) Regulations, 2015

SEBI, on 27th October 2015, introduced certain amendments to its ICDR (Issue of Capital and Disclosure Requirements) Regulations, 2009, modifying the format to the abridged prospectus. Further, SEBI has laid down a few general instructions with regard to the abridged prospectus, as brought out below:

  • One copy of the abridged prospectus would be required to be submitted to SEBI
  • The abridged prospectus including the application form is not to exceed 5 sheets that would be printed on both sides in booklet form of A4 size paper.
  • Information which is of generic nature and not specific to the issuer would be brought out in the form of a General Information Document (GID).
  • The font size prescribed for printing abridged prospectus is Times New Roman size 11 (or equivalent) with 1.0 line spacing.
  • Relevant Information may be given in Tabular Format instead of running text format.
  • The order in which items would appear in the abridged prospectus would be as specified by SEBI.
  • The application form would have to be so positioned that on the tearing-off of the application form, no part of the information given in the abridged prospectus is mutilated.

The revised format of the abridged prospectus is brought out in Annexure I of SEBI’s Circular dated 30th October 2015 (http://www.sebi.gov.in/cms/sebi_data/attachdocs/1446196585797.pdf). Besides, SEBI has also modified the format of disclosure of price information of past issues handled by merchant bankers, vide the said circular.

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