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Remittances (Money Transfer Service Scheme (MTSS) and Rupee Drawing Arrangement (RDA))

Rupee Drawing Arrangement (RDA)

7. Can the remittance be credited to the bank account of the beneficiary even if the bank does not have any tie-up with a non-resident Exchange House ? +

Yes, foreign inward remittances received by the AD Category-I Bank having RDA with a Non Resident Exchange House may be credited directly to the account of the beneficiary held with a bank other than the AD Category-I Bank through electronic mode, such as, NEFT, IMPS, etc.Money Transfer Service Scheme (MTSS)

FAQs on Non-Banking Financial Companies

Definition of public deposits

7. What is the status of optionally fully convertible debentures in `public deposits? +

A. Optionally Fully Convertible Debentures (OFCDs), which were brought within the purview of Regulations in the year 1996, have now (in 1998) been taken out of the Regulations. Any money raised by issue of OFCDs is not to be treated as public deposit.

Annual Return on Foreign Liabilities and Assets (FLA) under FEMA 1999

Eligible entities and requirements to submit the FLA return

Q7. If an old/new entity wants to fill the previous year FLA form, can they do so? +

Ans: Yes, entities can fill the FLA return even after due date, after taking approval from RBI. But in that case, penalty clause may be invoked on the entity for late submission.

Foreign Investment in India

Q.7: What is meant by capital on a fully diluted basis ? +

Answer: Fully diluted basis means the total number of shares that would be outstanding if all possible sources of conversion are exercised.

Domestic Deposits

I. Domestic Deposits

7. Whether banks can refuse premature withdrawal of term deposits? +

Banks may not normally refuse premature withdrawal of term deposits of individuals and Hindu Undivided Families (HUF), irrespective of the size of the deposit. However, the bank at its discretion, may disallow premature withdrawal of large deposits held by entities other than individuals and Hindu Undivided Families. Banks should notify such depositors of its policy of disallowing premature withdrawals in advance i.e. at the time of acceptance of deposits.

Framework for Compromise Settlements and Technical Write-offs

B. TECHNICAL WRITE-OFF

7. The circular also permits the lenders to undertake technical write-offs of amount outstanding relating to borrowers in default. Doesn’t such a practice encourage default behavior, as the costs of default are borne entirely by the lenders and defaulting borrowers do not face any consequences? +

No. As defined in the circular, technical write-off refers to cases where the NPAs remain outstanding at borrowers’ loan account level, but are derecognised by the lenders only for accounting purposes. Technical write-off is a normal banking practice undertaken by the lenders to cleanse the balance sheets of bad debts which are either considered unrecoverable or whose recovery is likely to consume disproportionate resources of the lenders. However, such technical write-offs do not entail any waiver of claims against the borrower and thus the lenders’ right to recovery is not undermined in any manner. Therefore, the defaulting borrowers are not benefited in any manner and their legal obligation as well as the costs of such defaults for them remain unchanged vis-à-vis the position prior to technical write-offs.

The circular only provides clarity on definition of technical write-off and a broad guidance on the process to be followed by the lenders for technical write-offs, which will ensure consistency in the approach followed by various lenders.

Coordinated Portfolio Investment Survey – India

Details for survey launch

Q7. What is the due date for participating in CPIS? +

Ans: In general, the due date for participating in CPIS for end-March and end-September position is July 15 and December 31 of that year respectively.

FAQs on Master Directions on Priority Sector Lending Guidelines

G. Social Infrastructure

Query 23: How is PSL classification considered for lending to Social Infrastructure activities viz. Schools etc. (prescribed limit of ₹5 crore) and Health Care Facilities (prescribed limit of ₹10 crore) which can also be classified as MSME (Service) based on definition as per MSME Act. +

Clarification: As per Udyam Registration Portal- NIC Codes, under Services as ‘Major Activity’, ‘Education’ & ‘Health Activities’ are eligible activities for classification under MSME (Services). Therefore, bank loans for above purposes can be classified under MSME (Services), wherein no cap on credit has been prescribed. However, banks can classify such activities either under MSME (Services) or Social Infrastructure, and not under both. It may be noted that for classification under Social Infrastructure, the associated cap on credit shall be applicable.

Foreign Investment in India

Q.8: Whether the foreign investment will be classified as FDI or FPI based on the schedule under which the investment is being made. +

Answer: No, FDI and FPI are agnostic from the point of view of the schedule under which investment has been made. It is the percentage which defines whether it is direct or portfolio investment.

Core Investment Companies

Core Investment Companies (CICs)

8. In case an existing NBFC-ND-SI is converted into a CIC-ND-SI after fulfilling the stipulated criteria, will the existing CoR continue or will a fresh application need to be made? +

Ans: As there would be a separate application form for CICs-ND-SI, they would have to apply afresh.

Indian Currency

A) Basics of Indian Currency/Currency Management

8. How does the Reserve Bank distribute currency to the people? +

The Reserve Bank presently manages the currency operations through its 19 Issue Offices located at Ahmedabad, Bengaluru, Belapur, Bhopal, Bhubaneswar, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur, New Delhi, Patna, Thiruvananthapuram and a currency chest at its Kochi office. Further, a wide network of currency chests maintained and managed by scheduled banks are part of currency management architecture. The Issue Offices receive fresh banknotes from the currency printing presses which in turn send fresh banknote remittances to the currency chests. Direct remittances by the presses to the currency chests also happens.

The Reserve Bank offices located at Hyderabad, Kolkata, Mumbai and New Delhi (Mint Linked Offices) receive coins from the mints. These offices then send the coins to the other offices of the Reserve Bank who in turn send the same to Currency Chests and Small Coin Depots. The banknotes and rupee coins are stocked at the currency chests and small coins at the small coin depots. The bank branches receive the banknotes and coins from the Currency Chests and Small Coin Depots for further distribution among the public.

Housing Loans

8. What is an amortization schedule? +

This is a table that gives details of the periodic principal and interest payments on a loan and the amount outstanding at any point of time. It also shows the gradual decrease of the loan balance until it reaches zero. (See annex)

Government Securities Market in India – A Primer

8. How does the trading in G-Secs take place and what regulations are applicable to prevent abuse? Whether value free transfer of G-Secs is allowed? +

8.1 There is an active secondary market in G-Secs. The securities can be bought / sold in the secondary market either through (i) Negotiated Dealing System-Order Matching (NDS-OM) (anonymous online trading) or through (ii) Over the Counter (OTC) and reported on NDS-OM or (iii) NDS-OM-Web (para 8.5) and (iv) Stock exchanges (para 8.6)

i. NDS-OM

In August 2005, RBI introduced an anonymous screen-based order matching module called NDS-OM. This is an order driven electronic system, where the participants can trade anonymously by placing their orders on the system or accepting the orders already placed by other participants. Anonymity ensures a level playing field for various categories of participants. NDS-OM is operated by the CCIL on behalf of the RBI (Please see answer to the question no.19 about CCIL). Direct access to the NDS-OM system is currently available only to select financial institutions like Commercial Banks, Primary Dealers, well managed and financially sound UCBs and NBFCs, etc. Other participants can access this system through their custodians i.e. with whom they maintain Gilt Accounts. The custodians place the orders on behalf of their customers. The advantages of NDS-OM are price transparency and better price discovery.

8.2 Gilt Account holders have been given indirect access to the reporting module of NDS-OM through custodian institutions.

8.3 Access to NDS-OM by the retail segment, comprising of individual investors having demat account with depositories viz. NSDL and/or CDSL, desirous of participating in the G-Sec market is facilitated by allowing them to use their demat accounts for their transactions and holdings in G-Sec. This access would be facilitated through any of the existing NDS-OM primary members, who also act as Depository Participants for NSDL and/or CDSL. The scheme seeks to facilitate efficient access to retail individual investor to the same G-Sec market being used by the large institutional investor in a seamless manner.

ii. Over the Counter (OTC)/ Telephone Market

8.4 In the G-Sec market, a participant, who wants to buy or sell a G-Sec, may contact a bank / PD/financial institution either directly or through a broker registered with SEBI and negotiate price and quantity of security. Such negotiations are usually done on telephone and a deal may be struck if both counterparties agree on the amount and rate. In the case of a buyer, like an UCB wishing to buy a security, the bank's dealer (who is authorized by the bank to undertake transactions in G-Secs) may get in touch with other market participants over telephone and obtain quotes. Should a deal be struck, the bank should record the details of the trade in a deal slip (specimen given at Annex 5). The dealer must exercise due diligence with regard to the price quoted by verifying with available sources (See question number 14 for information on ascertaining the price of G-Secs). All trades undertaken in OTC market are reported on the Reported segment of NDS-OM within 15 minutes, the details of which are given under the question number 15.

iii. NDS-OM-Web

8.5 RBI has launched NDS-OM-Web on June 29, 2012 for facilitating direct participation of gilt account holders (GAH) on NDS-OM through their primary members (PM) (as risk controller only and not having any role in pricing of trade). The GAH have access to the same order book of NDS-OM as the PM. GAH are in a better position to control their orders (place/modify/cancel/hold/release) and have access to real time live quotes in the market. Since notifications of orders executed as well as various queries are available online to the GAH, they are better placed to manage their positions. Web based interface that leverages on the gilt accounts already maintained with the custodian Banks/PDs provides an operationally efficient system to retail participants. NDS OM Web is provided at no additional cost to its users. PMs, however, may recover the actual charges paid by them to CCIL for settlement of trades or any other charges like transaction cost, annual maintenance charges (AMC) etc. It has been made obligatory for the Primary Members to offer the NDS-OM-Web module to their constituent GAHs (excluding individual) for online trading in G-sec in the secondary market. Constituents not desirous of availing this facility may do so by opting out in writing. On the other hand, individual GAHs desirous of the NDS-OM-Web facility may be provided the web access only on specific request.

iv. Stock Exchanges

8.6 As advised by SEBI, the stock exchanges (like NSE, BSE, MCX) have been asked to create dedicated debt segment in their trading platforms. In compliance to this, stock exchanges have launched debt trading (G-Secs as also corporate bonds) segment which generally cater to the needs of retail investors. The process involved in trading of G-Secs in Demat form in stock exchanges is as follows:

a. The Gilt Account Holder (GAH), say XYZ provident fund, approaches his custodian bank, (say ABC), to convert its holding held by custodian bank in their CSGL account (to the extent he wishes to trade, say ₹ 10,000), into Demat form.

b. ABC reduces the GAH’s security balance by ₹ 10,000 and advises the depository of stock exchange (NSDL/CSDL) to increase XYZ’s Demat account by ₹ 10,000. ABC also advises to PDO, Mumbai to reduce its CSGL balance by ₹ 10,000 and increase the CSGL balance of NSDL/CSDL by ₹ 10,000.

c. NSDL/CSDL increases the Demat balance of XYZ by ₹ 10,000.

d. XYZ can now trade in G-Sec on stock exchange.

v. Regulations applicable to prevent abuse

8.7 RBI vide FMRD.FMSD.11/11.01.012/2018-19 dated March 15, 2019 issued directions to prevent abuse in markets regulated by RBI. The directions are applicable to all persons dealing in securities, money market instruments, foreign exchange instruments, derivatives or other instruments of like nature as specified from time to time.

vi. Guidelines for Value free transfer (VFT) of Government Securities

8.8 VFT of the government securities shall mean transfer of securities from one SGL/CSGL to another SGL/CSGL account, without consideration. Such transfers could be on account of posting of margins, inter-depository transfers of government securities arising from trades in exchanges between demat account holders of different depositories, gift/inheritance and change of custodians etc. VFT would also be required in the case of distribution of securities to the beneficiary demat/gilt accounts on allotment after participation in the non-competitive segment of the primary auction.

RBI vide notification IDMD.CDD.No.1241/11.02.001/2018-19 dated November 16, 2018 issued separate guidelines for VFT to enable more efficient operations in the Government securities market. Value Free Transfers between SGL/CSGL accounts not covered by these guidelines will require specific approval of the Reserve Bank. The guidelines prescribes list of permitted transactions for VFT and application for permission for VFT for any other purpose may be submitted to Public Debt Office, Mumbai Regional Office, RBI, Fort, Mumbai

Remittances (Money Transfer Service Scheme (MTSS) and Rupee Drawing Arrangement (RDA))

Money Transfer Service Scheme (MTSS)

8. What is Money Transfer Service Scheme (MTSS) ? +

Money Transfer Service Scheme (MTSS) is a way of transferring personal remittances from abroad to beneficiaries in India. Only inward personal remittances into India such as remittances towards family maintenance and remittances favouring foreign tourists visiting India are permissible. Under the scheme there is a tie-up between reputed money transfer companies abroad known as Overseas Principals and agents in India known as Indian Agents who would disburse funds to beneficiaries in India at ongoing exchange rates.

FAQs on Non-Banking Financial Companies

Definition of public deposits

8. Whether secured debentures could be partly secured for the purpose of exemption from NBFC Directions ? What happens if the value of security behind the secured debentures declines after the date of issue ? +

For the purpose of exemption from NBFC Directions, (1998) on Acceptance of Public Deposits, the debentures are required to be fully secured on the date of issue and to the fullest satisfaction of the trustees.

Annual Return on Foreign Liabilities and Assets (FLA) under FEMA 1999

Eligible entities and requirements to submit the FLA return

Q8. If an old/new entity wants to modify the previous version of FLA form, can they do so? +

Ans: Yes, entities can modify the already submitted FLA return after taking the approval from RBI.

Domestic Deposits

I. Domestic Deposits

8. Whether banks can levy penalty for premature withdrawal? +

Banks have freedom to determine their own penal rates of interest for premature withdrawal of term deposits.

Coordinated Portfolio Investment Survey – India

Details for survey launch

Q8. What if the reporting entity does not receive the soft copy of the survey schedule by email? +

Ans: In case the reporting entity does not receive the soft-form of the survey schedule, they may download the same from RBI website (www.rbi.org.in) under the head ‘Regulatory Reporting’-→ ‘List of Returns’-→ ‘CPIS – Survey Schedule’[ or under the head ‘Forms’ (available under ‘More Links’ at the bottom of the home page) and sub-head ‘Survey’] or send a request to the email .

FAQs on Master Directions on Priority Sector Lending Guidelines

H. Weaker Sections

Query 24: In case of Partnership Firms/ Pvt. Limited, can the loan granted be tagged as SMF and Weaker Section, if any of the Partner/ Director is holding Agriculture land upto 2 hectares / 5 acres. +

Clarification: As per extant guidelines, SMF includes individuals, SHGs, JLGs, Farmers’ Producer Companies (FPC) and Co-operatives of farmers with the accompanying criteria of membership by number and land-holding. Therefore, loans to partnership firms/ co-borrowers or any director of a Company holding Agriculture land upto 2 hectares / 5 acres are not eligible to be classified under the Small and Marginal farmers category of PSL

Query 25: In case of a Partnership firm, if majority of the partners belong to one or the other of the specified minority communities, whether advances granted to such partnership firms can be treated as advances granted to minority communities. Further, in case of Private / Public Ltd. Company, if any of the borrowers belong to Minority Community, can the loan be classified under weaker section category ? +

Clarification: As per extant guidelines, priority sector loans are eligible for classification as loans to minority communities as per the list notified by the GoI from time to time. The same may be read with Master Circular- Credit Facilities to Minority Communities which under para 2.2 states “In the case of a partnership firm, if the majority of the partners belong to one or the other of the specified minority communities, advances granted to such partnership firms may be treated as advances granted to minority communities. Further, if the majority beneficial ownership in a partnership firm belongs to the minority community, then such lending can be classified as advances to the specified communities. A company has a separate legal entity and hence advances granted to it cannot be classified as advances to the specified minority communities.”