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FAQs on Master Directions on Priority Sector Lending Guidelines

H. Weaker Sections

Query 26: Can banks rely on customer’s declaration for Minority / SC / ST category to be included under Weaker section ? +

Clarification: Our guidelines do not mandate banks to obtain documentary evidence for classifying credit facilities to Minorities and SCs/STs under weaker section. Therefore, declaration by the customer in the application form would suffice. However, it needs to be ensured that for classification under weaker sections, the loans should first be eligible for classification under priority sector lending as per underlying activity.I. Investment by Banks in securitized assets / Transfer of Assets through Direct Assignment/ Outright Purchase

Foreign Investment in India

Q.9: For an FPI investment, once the investment is classified as FDI (basis total holding), if the FDI holding comes back to <10%, will the holdings be classified as FPI again ? +

Answer: Once an FDI always an FDI.

Core Investment Companies

Core Investment Companies (CICs)

9. What items are included in the 10% of Net assets which CIC’s/CIC’s-ND-SI can hold outside the group? +

Ans: These would include real estate or other fixed assets which are required for effective functioning of a company, but should not include other financial investments/loans in non group companies.

Indian Currency

B) Banknotes

1. What is the meaning of "I promise to pay" clause on the banknotes? +

As per Section 26 of Reserve Bank of India Act, 1934, the Bank is liable to pay the value of banknote. This is payable on demand by RBI, being the issuer.

The promissory clause printed on the banknotes i.e., "I promise to pay the bearer the sum of Rupees …” denotes the obligation on the part of the Bank towards the holder of the bank note.

Housing Loans

9. What is pre-EMI interest? +

Sometimes loan is disbursed in installments, depending on the stages of completion of the housing project. Pending final disbursement, you may be required to pay interest only on the portion of the loan disbursed. This interest called pre-EMI interest. Pre-EMI interest is payable every month from the date of each disbursement up to the date of commencement of EMI.

However, many banks offer a special facility whereby customers can choose the installments they wish to pay for under construction properties till the time the property is ready for possession. Anything paid over and above the interest by the customer goes towards Principal repayment. The customer benefits by starting EMI payment earlier and hence repays the loan faster. Please check with your banker whether this facility is available before availing of the loan.

Government Securities Market in India – A Primer

9. Who are the major players in the G-Secs market? +

Major players in the G-Secs market include commercial banks and PDs besides institutional investors like insurance companies. PDs play an important role as market makers in G-Secs market. A market maker provides firm two way quotes in the market i.e. both buy and sell executable quotes for the concerned securities. Other participants include co-operative banks, regional rural banks, mutual funds, provident and pension funds. Foreign Portfolio Investors (FPIs) are allowed to participate in the G-Secs market within the quantitative limits prescribed from time to time. Corporates also buy/ sell the G-Secs to manage their overall portfolio.

FAQs on Non-Banking Financial Companies

Definition of public deposits

9. The deposits from a foreign citizen are not to be treated as public deposit. What is the status of the deposits from an NRI ? +

An NRI can be an Indian national or a foreign national of Indian origin. If the depositor is an NRI holding a foreign passport, he is to be treated as foreign national despite the fact he is of Indian origin. It is for the depositor to disclose to the company that he is a foreign citizen and for the company to keep on its record an evidence that it had received deposit from a foreign citizen to claim the exemption from the Non-Banking Financial Companies (Reserve Bank) Directions, 1998 on Acceptance of Public Deposits.

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

Eligible entities and requirements to submit the FLA return

Q9. If an entity did not receive FDI or made overseas investment in any of the previous year(s) including the current year, do we need to submit the FLA return? +

Ans: If the Indian entity does not have any outstanding investment in respect of inward and outward FDI as on end-March of reporting year, they need not submit the FLA return.

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

Money Transfer Service Scheme (MTSS)

9. Who is an Overseas Principal ? +

The Overseas Principal should be a registered entity, licenced by the Central Bank / Government or financial regulatory authority of the country concerned for carrying on Money Transfer Activities. The country of registration of the Overseas Principal should be AML compliant. The Overseas Principal should obtain necessary authorisation from the Department of Payment and Settlement Systems, Reserve Bank of India under the provisions of the Payment and Settlement Systems Act (PSS Act), 2007 to commence/ operate a payment system.

Domestic Deposits

I. Domestic Deposits

9. How and when banks are required to pay interest on the deposits maturing on holiday/ non-business working day/ Sunday? +

Banks should pay interest at the originally contracted rate on the deposit amount for the holiday/ Sunday/ non-business working day intervening between the date of expiry of the specified term of the deposit and the date of payment of the proceeds of the deposits on the succeeding working day.

Coordinated Portfolio Investment Survey – India

Important points to remember while participating in CPIS

Q9. What are the points the reporting entities should remember while filling the survey schedule? +

Ans: The reporting entities should follow the below-mentioned points for filling and submitting the survey schedule:

i. The company must use the latest survey schedule, which is in .xls format, without incorporating any macros.

ii. The company is required to save the survey schedule in Excel 97-2003 workbook, i.e., in .xls format by following the below-mentioned steps:

Go to Office Button / File → Save As → Save As type
Select “Excel 97-2003 Workbook” and Save the survey schedule in .xls format.

iii. The company is requested not to incorporate any macro in the survey schedule while submitting the same.

iv. Survey schedule submitted in any other format (other than .xls format) will be rejected by the system.

v. Ensure that all information furnished in the survey schedule are complete and no information is missed out.

vi. After filling required details, the responding entities have to fill the declaration present in the survey schedule, which helps in validating that the information entered by the entity are reconfirmed before submission to RBI. This helps to avoid data entry errors, missed data and other errors.

FAQs on Master Directions on Priority Sector Lending Guidelines

I. Investment by Banks in securitized assets / Transfer of Assets through Direct Assignment/ Outright Purchase

Query 27: How should banks ensure due diligence to ascertain priority sector status of PTC portfolio ? +

Clarification: The bank may rely on a CA certificate by the originating entity certifying the PSL composition of the pool. Additionally, bank may conduct a sample check of say 10% of the pool for PSL eligibility. The additional check may be conducted by the bank through its own staff or by engaging a CA for this purpose.J. PSLCs

Indian Currency

B) Banknotes

2. Which denomination banknotes are currently in circulation? +

Banknotes in India are currently being issued in the denomination of ₹10, ₹20, ₹50, ₹100 ₹200, ₹500, and ₹2000. These notes are called banknotes as they are issued by the Reserve Bank of India. The printing of notes in the denominations of ₹2 and ₹5 has been discontinued and these denominations have been coinised as the cost of printing and servicing these banknotes was not commensurate with their life. However, such banknotes issued earlier can still be found in circulation and these banknotes continue to be legal tender. ₹1 notes are issued by the Government of India from time to time and such notes including those issued in the past also continue to be legal tender for transactions.

Housing Loans

10. What security will you have to provide? +

The security for a housing loan is typically a first mortgage of the property, normally by way of deposit of title deeds. Banks also sometimes ask for other collateral security as may be necessary. Some banks insist on margin / down payment (borrowers contribution to the creation of an asset) to be maintained / made also.

Collateral security assigned to your bank could be life insurance policies, the surrender value of which is set at a certain percentage to the loan amount, guarantees from solvent guarantors, pledge of shares/ securities and investments like KVP/ NSC etc. that are acceptable to your banker. Banks would also require you to ensure that the title to the property is free from any encumbrance. (i.e., there should not be any existing mortgage, loan or litigation, which is likely to affect the title to the property adversely).

Targeted Long Term Repo Operations (TLTROs)

FAQs pertaining to TLTRO 2.0

Q10: What happens if a bank fails to deploy the funds availed under the TLTRO 2.0 scheme in specified securities within the stipulated timeframe? +

Ans: Based on the feedback received from banks and taking into account the disruptions caused by COVID-19, it has been decided to extend the time available for deployment of funds under the TLTRO 2.0 scheme from 30 working days to 45 working days from the date of the operation. Funds that are not deployed within this extended time frame will be charged interest at the prevailing policy repo rate plus 200 bps for the number of days such funds remain un-deployed. The incremental interest liability will have to be paid along with regular interest at the time of maturity.

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

Money Transfer Service Scheme (MTSS)

10. Who is an Indian Agent ? +

To become an Indian Agent, the applicant should be an Authorised Dealer Category-I bank or an Authorised Dealer Category-II or a Full Fledged Money Changer (FFMC) or the Department of Posts. Further, the Indian agents can also appoint sub-agents which can be retail outlets, commercial entities having a place of business, and whose bonafides are acceptable to the Indian Agent.

FAQs on Non-Banking Financial Companies

Definition of public deposits

10. Whether External Commercial Borrowings (ECBs) are exempted borrowings i.e. outside the purview of public deposit ? +

Subject to the Exchange Control Regulations, the NBFCs can receive external commercial borrowings from foreign Overseas Corporate Bodies, individuals, FIIs, and other trusts or persons. The moneys received from all these sources are excluded from the definition of public deposit as per the provisions of NBFC Directions. However, Indian companies are required to obtain prior approval of the Exchange Control Department for acceptance of deposits from non-residents.

Foreign Investment in India

Q.10: Whether any approval is required for an entity which has received foreign investment under automatic route and subsequently the sector was brought under approval route +

Answer: As long as the foreign shareholding in the entity remains the same and there is no corporate action pursuant to the sector being brought under approval route, approval is not required.

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

Eligible entities and requirements to submit the FLA return

Q10. If an entity has only share application money, then is that entity supposed to submit the FLA return? +

Ans: If an entity has received only share application money and does not have any foreign direct investment or overseas direct investment outstanding as on end-March of the latest FY, it is not required to fill the FLA return.

Government Securities Market in India – A Primer

10. What are the Do's and Don’ts prescribed by RBI for the Co-operative banks dealing in G-Secs? +

While undertaking transactions in securities, UCBs should adhere to the instructions issued by the RBI. The guidelines on transactions in G-Secs by the UCBs have been codified in the master circular DCBR. BPD (PCB).MC.No. 4/16.20.000/2015-16 dated July 1, 2015 which is updated from time to time. This circular can also be accessed from the RBI website under the Notifications – Master circulars section. The important guidelines to be kept in view by the UCBs relate to formulation of an investment policy duly approved by their Board of Directors, defining objectives of the policy, authorities and procedures to put through deals, dealings through brokers, preparing panel of brokers and review thereof at annual intervals, and adherence to the prudential ceilings fixed for transacting through each of the brokers, etc.

The important Do’s & Don’ts are summarized in the Box I below.

BOX I

Do’s & Don’ts for Dealing in G-Secs

Do’s

Segregate dealing and back-office functions. Officials deciding about purchase and sale transactions should be separate from those responsible for settlement and accounting.
Monitor all transactions to see that delivery takes place on settlement day. The funds account and investment account should be reconciled on the same day before close of business.
Keep a proper record of the SGL forms received/issued to facilitate counter-checking by their internal control systems/RBI inspectors/other auditors.
Seek a Scheduled Commercial Bank (SCB), a PD or a Financial Institution (FI) as counterparty for transactions.
Give preference for direct deals with counter parties.
Insist on Delivery versus Payment for all transactions.
Take advantage of the NCB facility for acquiring G-Secs in the primary auctions conducted by the RBI.
Restrict the role of the broker only to that of bringing the two parties to the deal together, if a deal is put through with the help of broker.
Have a list of approved brokers. Utilize only brokers registered with NSE or BSE or OTCEI for acting as intermediary.
Place a limit of 5% of total transactions (both purchases and sales) entered into by a bank during a year as the aggregate upper contract limit for each of the approved brokers. A disproportionate part of the business should not be transacted with or through one or a few brokers.
Maintain and transact in G-Secs only in dematerialized form in SGL Account or Gilt Account maintained with the CSGL Account holder.
Open and maintain Gilt account or dematerialized account
Open a funds account for securities transactions with the same Scheduled Commercial bank or the State Cooperative bank with whom the Gilt Account is maintained.
Ensure availability of clear funds in the designated funds accounts for purchases and sufficient securities in the Gilt Account for sales before putting through the transactions.
Observe prudential limits and abide by restrictions for investment in permitted non-SLR securities (Prudential limit : shall not exceed 10% of the total deposits of bank as on March 31 of the preceding financial year) ( Instruments : (i) “A” or equivalent and higher rated CPs, debentures and bonds, (ii) units of debt mutual funds and money market mutual funds, (iii) shares of market infrastructure companies eg. CCIL, NPCI, SWIFT).
The Board of Directors to peruse all investment transactions at least once a month

Don’ts

Do not undertake any purchase/sale transactions with broking firms or other intermediaries on principal to principal basis.
Do not use brokers in the settlement process at all, i.e., both funds settlement and delivery of securities should be done with the counter-parties directly.
Do not give power of attorney or any other authorisation under any circumstances to brokers/intermediaries to deal on your behalf in the money and securities markets.
Do not undertake G-Secs transaction in the physical form with any broker.
Do not routinely make investments in non-SLR securities (e.g., corporate bonds, etc) issued by companies or bodies.