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Withdrawal of Legal Tender Character of the old Bank Notes in the denominations of ₹ 500/- and ₹ 1000/- (Updated as on December 27, 2016)

Core Investment Companies

FOREWORD

The Reserve Bank of India is entrusted with the responsibility of regulating and supervising the Non-Banking Financial Companies by virtue of powers vested in Chapter III B of the Reserve Bank of India Act, 1934. The regulatory and supervisory objective, is to:

a) ensure healthy growth of the financial companies;

b) ensure that these companies function as a part of the financial system within the policy framework, in such a manner that their existence and functioning do not lead to systemic aberrations; and that

c) the quality of surveillance and supervision exercised by the Bank over the NBFCs is sustained by keeping pace with the developments that take place in this sector of the financial system.

Over last some years, RBI has carved out some specialized NBFCs like Core Investment Companies (CICs), NBFC- Infrastructure Finance Companies (IFCs), Infrastructure Debt Fund- NBFCs, NBFC-MFIs and NBFC-Factors being the most recent one.

It has been felt necessary to explain the rationale underlying the regulatory changes and provide clarification on certain operational matters for the benefit of the NBFCs, members of public, rating agencies, Chartered Accountants etc. To meet this need, the clarifications in the form of questions and answers, is being brought out by the Reserve Bank of India (Department of Non-Banking Supervision) on Specialized NBFCs with the hope that it will provide better understanding of the regulatory framework.

The information given in the FAQ on Systemically Important Core Investment Companies (CICs-ND-SI) is of general nature for the benefit of the public and the clarifications given do not substitute the extant regulatory directions/instructions issued by the Bank to the specialized NBFCs.

Core Investment Companies (CICs)

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Core Investment Companies (CICs)

1. What is a Systemically Important Core Investment Company (CIC-ND-SI)? +

Ans. A CIC-ND-SI is a Non-Banking Financial Company

(i) with asset size of Rs 100 crore and above

(ii) carrying on the business of acquisition of shares and securities and which satisfies the following conditions as on the date of the last audited balance sheet :-

(iii) it holds not less than 90% of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies;

(iv) its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its net assets as mentioned in clause (iii) above;

(v) it does not trade in its investments in shares, bonds, debentures, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;

(vi) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies.

(vii) it accepts public funds

Foreign Investment in India

These FAQs attempt to put in place the common queries that users have on the subject in an easy to understand language. However, for conducting a transaction, the Foreign Exchange Management Act, 1999 (FEMA) and the Regulations made or directions issued thereunder may be referred to. The relevant principal regulations are the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 dated November 7, 2017 as amended from time to time (hereinafter referred to as FEMA 20 (R)). The modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers/ constituents with a view to implementing the regulations framed is laid down in Master Direction on Foreign investment in India.

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Q.1: How can an Indian company receive foreign investment ? +

Answer: The routes under which foreign investment can be made is as under:

Automatic Route: Foreign Investment is allowed under the automatic route without prior approval of the Government or the Reserve Bank of India, in all activities/ sectors as specified in the Regulation 16 of FEMA 20 (R).
Government Route: Foreign investment in activities not covered under the automatic route requires prior approval of the Government. Procedure for applying for Government approval is given at http://fifp.gov.in/Forms/SOP.pdf

Careers FAQ

Remittances are an important source of family and national income and also are one of the largest sources of external financing. Beneficiaries in India can receive cross-border inward remittances through banking and postal channels. Banks have general permission to enter into a partnership with other banks for conducting remittance business. The International Financial System (IFS) platform of Universal Post Union (UPU) is generally used for the postal channel. Besides, there are two more channels for receiving inward remittances, viz. Rupee Drawing Arrangement (RDA) and Money Transfer Service Scheme (MTSS) which are the most common arrangements under which the remittances are received into the country. These FAQs are mainly relating to the common queries relating to RDA and MTSS and may be referred to for general guidance. The Authorised Persons and their constituents may refer to respective circulars/ notifications for detailed information, if so needed.

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Rupee Drawing Arrangement (RDA)

1. What is Rupee Drawing Arrangement (RDA) ? +

Rupee Drawing Arrangement (RDA) is a channel to receive cross-border remittances from overseas jurisdictions. Under this arrangement, the Authorised Category I banks enter into tie-ups with the non-resident Exchange Houses in the FATF compliant countries to open and maintain their Vostro Account.

Targeted Long Term Repo Operations (TLTROs)

updated: مئی 28, 2021

Q1: Will banks be required to maintain specified securities for the amount received in TLTRO in HTM book at all times? +

Ans: Yes. The banks will have to maintain amount of specified securities for the amount received in TLTRO in its HTM book at all times till maturity of TLTRO.

Indian Currency

A) Basics of Indian Currency/Currency Management

1. What is the Indian currency called and what is its symbol? +

The Indian currency is called the Indian Rupee (INR). One Rupee consists of 100 Paise. The symbol of the Indian Rupee is ₹. The design resembles both the Devanagari letter "₹" (ra) and the Latin capital letter "R", with a double horizontal line at the top.

Housing Loans

1. For what purposes can I seek a first time home loan? +

You can generally seek a first time home loan for buying a house or a flat, renovation, extension and repairs to your existing house. Most banks have a separate policy for those who are going for a second house. Please remember to seek specific clarifications on the above-mentioned issues from your commercial bank.

FAQs on Non-Banking Financial Companies

FOREWORD

FAQs on Non-Banking Financial Companies

FOREWORD

ensure healthy growth of the financial companies;

ensure that these companies function as a part of the financial system within the policy framework, in such a manner that their existence and functioning do not lead to systemic aberrations; and that

the quality of surveillance and supervision exercised by the Bank over the NBFCs is sustained by keeping pace with the developments that take place in this sector of the financial system.

In view of the significant growth registered by the NBFC segment during the last decade, the powers of the Bank were enhanced by amending the provisions of the Act during 1997 to facilitate regulation and supervision by RBI covering several aspects of the activities of the NBFCs. Following the amendments to Chapter IIIB of the Act, the Bank has since introduced a new regulatory framework effective January 31, 1998 which directs the focus of the regulatory-cum-supervisory attention primarily on the NBFCs which accept deposits from the public.

The changes introduced in the regulatory framework are comprehensive and broadbased and it has been felt necessary to explain the rationale underlying these changes and provide clarification on certain operational matters for the benefit of the NBFCs, members of public, rating agencies, audit profession, the different Associations of the NBFCs etc. To meet this need, this booklet in the form of questions and answers, is being brought out by the RBI (Department of Non-Banking Supervision) with the hope that it will provide better understanding of the new regulatory framework.

(V.S.N. Murty)
Chief General Manager

RESERVE BANK OF INDIA,
DEPARTMENT OF NON-BANKING SUPERVISION,
CENTRAL OFFICE,
MUMBAI

FEBRUARY 16, 1998

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CONTENTS

1.	Registration
2.	Definition of public deposits
3.	Exemptions to companies not accepting public deposits.
4.	Net Owned Fund
5.	Ceiling on deposits
6.	Inter Corporate Deposits (ICDs)
7.	Mutual Benefit Financial Companies (Nidhis)
8.	Classification of NBFCs into sub-groups
9.	Time frame for compliance of Regulations
10.	Credit Rating
11.	Liquid Asset requirement
12.	Extent of Regulations over NBFCs accepting public deposits and not accepting public deposits
13.	Repayment of matured deposits.
14.	Prudential Norms
15.	Depositor Awareness
16.	Residuary Non-Banking Companies (RNBCs)
17.	Nomination facility

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Registration

1. The main thrust of new NBFC policy is to supervise closely the NBFCs accepting public deposit. Whether the NBFCs not accepting/holding public deposit are exempted from the statutory requirement of Registration with RBI ? +

All the NBFCs are required to seek Registration with RBI irrespective of whether they accept public deposits or not. However, certain types of financial companies viz., insurance companies, housing finance companies, stock broking companies, chit fund companies, companies notified as `nidhis under section 620A of the Companies Act and the companies engaged in merchant banking activities (subject to certain conditions), have been exempted from the requirement of Registration under the Reserve Bank of India Act.

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

General Instructions

Annual return on Foreign Liabilities and Assets (FLA) has been notified under FEMA 1999 (A.P. (DIR Series) Circular No. 45 dated March 15, 2011) and it is required to be submitted by all the India-resident companies/ LLPs / Others [(include SEBI registered Alternative Investment Funds (AIFs), Partnership Firms, Public Private Partnerships (PPP)] (hereafter referred as ‘entities’) which have received FDI and/ or made overseas investment in any of the previous year(s), including the current year.

The Reserve Bank participates in the Co-ordinated Direct Investment Survey (CDIS) and Co-ordinated Portfolio Investment Survey (CPIS) conducted by the International Monetary Fund (IMF). Here, consolidated information collected from FLA return related to foreign financial liabilities and assets position as at end-March of the previous financial year (FY) and end-March of the latest FY of these entities are reported. This information is also used in the compilation of India’s Balance of Payments (BoP) and International Investment Position (IIP).

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Confidentiality Clause

The entity-wise information collected under the FLA return are kept confidential and only consolidated aggregates are released by the Reserve Bank.

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Eligible entities and requirements to submit the FLA return

Q1. Which entities are required to submit the FLA return? +

Ans: The annual return on Foreign Liabilities and Assets (FLA) is required to be submitted by the following entities which have received FDI (foreign direct investment) and/or made FDI abroad (i.e. overseas investment) in the previous year(s) including the current year i.e., who holds foreign assets or/and liabilities in their balance sheets;

A Company within the meaning of section 1(4) of the Companies Act, 2013.
A Limited Liability Partnership (LLP) registered under the Limited Liability Partnership Act, 2008
Others [include SEBI registered Alternative Investment Funds (AIFs), Partnership Firms, Public Private Partnerships (PPP) etc.]

Domestic Deposits

I. Domestic Deposits

1. Whether banks can accept interest free deposits? +

Banks cannot accept interest free deposits other than in current account.

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

These FAQs are mainly relating to the common queries relating to RDA and MTSS and may be referred to for general guidance. The Authorised Persons and their constituents may refer to respective circulars/ notifications for detailed information, if so needed.

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Rupee Drawing Arrangement (RDA)

1. What is Rupee Drawing Arrangement (RDA) ? +

Framework for Compromise Settlements and Technical Write-offs

Circular dated June 8, 2023 on ‘Framework for Compromise Settlements and Technical Write-offs’

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A. COMPROMISE SETTLEMENT IN WILFUL DEFAULT AND FRAUD CASES

1. Is it true that the Reserve Bank, vide the above circular, has introduced a new clause permitting lenders to enter into compromise settlement with borrowers classified as fraud or wilful defaulter? +

No. The said provision enabling banks to enter into compromise settlement in respect of borrowers categorised as fraud or wilful defaulter is not a new regulatory instruction and has been the settled regulatory stance for more than 15 years. This enabler is already available to banks as per the extant instructions, as given under:

RBI had advised IBA vide letter dated May 10, 2007 that, “(i) banks may enter into compromise settlement with wilful defaulters/ fraudulent borrowers without prejudice to the criminal proceeding underway against such borrowers; (ii) All such cases of compromise settlements should be vetted by Management Committee/ Board of banks.”
Master Circular on Wilful Defaulters dated July 1, 2015 envisages lenders agreeing to compromise settlement with borrowers classified as wilful defaulters and states that such cases need not be reported to Credit Information Companies provided inter alia that, “the borrower has fully paid the compromised amount.”
Master Directions on Frauds dated July 1, 2016 provides for compromise settlement with borrowers classified as fraud, subject to the condition that, “No compromise settlement involving a fraudulent borrower is allowed unless the conditions stipulate that the criminal complaint will be continued.”

Coordinated Portfolio Investment Survey – India

General Instructions

The Coordinated Portfolio Investment Survey (CPIS) is a voluntary data collection exercise conducted under the auspices of the International Monetary Fund (IMF). The purpose of the CPIS is to improve the quality of portfolio investment statistics in the international investment position (IIP)—that is, holdings of portfolio investment assets in the form of equity and investment fund shares, long-term debt securities, and short-term debt securities — and the availability of these statistics by counterpart economies. Therefore, the CPIS supports the objective of developing from-whom-to-whom cross-border data and contributes to a better understanding of financial interconnectedness.

India began participating in annual CPIS of the IMF since 2004. Thereafter, as per IMF’s recommendation under G-20 Data Gaps Initiative (DGI), India moved to semi-annual reporting of CPIS in 2014, as per India’s commitment under Special Data Dissemination Standards (SDDS). The Reserve Bank of India submits the CPIS data to IMF on behalf of India.

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Confidentiality Clause

The entity-wise information collected under the CPIS are kept confidential and only consolidated aggregates are submitted by the Reserve Bank of India to IMF.

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Eligible entities and requirements to report under CPIS

Q1. Which entities are eligible to report under CPIS? +

Ans: Presently the banks, mutual fund companies, non-financial companies, non-banking financial companies and insurance companies are surveyed under the CPIS.

FAQs on Master Directions on Priority Sector Lending Guidelines

A. Computation of Adjusted Net Bank Credit (ANBC)

Query 1: How to adjust PSLC buy/PSLC sale in the computation of ANBC ? +

Clarification: The net PSLC outstanding (PSLC Buy minus(-) PSLC Sell) is added to the Net Bank Credit, as mentioned in para 6 of the Master Directions on PSL, 2020 (updated from time to time). Further, a PSLC remains outstanding until its expiry (s. no. ix of Notification on Priority Sector Lending certificates dated April 07, 2016, All PSLCs will expire by March 31st and will not be valid beyond the reporting date (i.e. March 31st), irrespective of the date it was first bought/sold. Accordingly, the effect of PSLC buy is increase in ANBC and conversely the effect of PSLC sell is decrease in ANBC and the net of PSLC buy/sell is adjusted to the ANBC for every quarter. Thus, a PSLC bought or sold in any quarter will have to be taken into account in all subsequent quarters till the end of the FY to which it pertains.

Query 2: The Face Value of securities acquired and kept under HTM category under the TLTRO 2.0 (Press Release 2019-2020/2237 dated April 17, 2020 read with Q.11 of FAQ and SLF-MF- Press Release 2019-2020/2276 dated April 27, 2020 and also Extended Regulatory Benefits under SLF-MF Scheme vide Press Release 2019-2020/2294 dated April 30, 2020 are permitted to be excluded from computation of Adjusted Net Bank Credit (ANBC) for the purpose of determining Priority Sector Lending target/sub-targets. How this exclusion is to be made? +

Clarification: The Master Directions on Priority Sector Lending, 2020 under para 6 provides for computation of Adjusted Net Bank Credit. The face value of securities availed under TLTRO 2.0 and SLF-MF (including the Extended Regulatory Benefits) are to be reduced (as given in ‘IX’ of para 6.1 of the Master Directions on PSL). Since these securities are considered as HTM investments, the banks have to add them as Bonds/debentures in Non-SLR categories under HTM category (as given in ‘X’ of para 6.1 of the Master Directions on PSL). It is envisaged that the Priority Sector Lending target/sub-targets should not increase on account of securities acquired under TLTRO 2.0 and SLF-MF (including the Extended Regulatory Benefits). By adding the face value of securities (X) and reducing the face value of securities (IX) there will be no increase in ANBC due to investments in TLTRO 2.0 and SLF-MF (including the Extended Regulatory Benefits.)

Query 3: Whether the deposits with DFIs viz., NABARD, SIDBI, MUDRA & NHB on account of PSL shortfall can be counted towards achievement of PSL / targets/ sub-targets and ANBC ? +

Clarification: Banks can reckon outstanding deposits with NABARD under Agriculture and overall PSL achievement, while deposits with SIDBI, MUDRA and NHB can be reckoned only for overall PSL achievement. Banks should also add these deposits to Net Bank Credit (NBC) for computation of Adjusted Net Bank Credit (ANBC).However, deposits with NABARD, SIDBI, MUDRA and NHB cannot be reckoned for sub-target achievement viz. SMF, NCF, Micro and weaker section.

Query 4: In terms of paragraph 3 of the circulars DBOD.No.Ret.BC.36/12.01.001/2013-14 dated August 14, 2013, and DBOD.No.Ret.BC.93/12.01.001/2013-14 dated January 31, 2014 banks were advised that advances extended in India against the incremental FCNR (B) / NRE deposits, qualifying for exemption from CRR / SLR requirements under the above circular, will be excluded from the Adjusted Net Bank Credit (ANBC) for computation of priority sector lending targets, till their repayment. What is the method of arriving at the extent of such advances? +

Clarification: i. In terms of circular under reference, the amount eligible for exclusion from ANBC is the incremental advances extended out of the resources generated from the eligible incremental FCNR (B) / NRE deposits. The incremental advance is calculated as the difference between outstanding advances in India as on March 7, 2014 and the Base Date (July 26, 2013).ii. The amount to be excluded from ANBC for computation of priority sector target will of course not exceed incremental FCNR (B) / NRE deposits eligible for exemption from maintenance of CRR / SLR in terms of circulars under reference.iii. In case, the difference in amount of outstanding advances between March 7, 2014 and base date is zero or negative, no amount would be eligible for deduction from ANBC for the purpose of arriving at the priority sector lending targets.

Query 5: Are banks permitted to exclude bills purchased/discounted/negotiated (payment to beneficiary not under reserve) while calculating the ‘Bank Credit in India’ ? +

Clarification: The bills purchased/ discounted/ negotiated (payment to beneficiary not under reserve) under LC is allowed to be treated as Interbank exposure only for the limited purpose of computing exposure and capital requirements. It should not be excluded from the computation of ‘bank credit in India’ [As prescribed in item No.VI of Form 'A’ under Section 42(2) of the RBI Act, 1934] which allows for exclusion of interbank advance. While exposure may be to the LC issuing bank, the bills purchased/discounted amounts to bank credit to its borrower constituent. If this advance is eligible for priority sector classification, then bank can claim it as PSL. Banks have to take note of the above aspect while reporting Net Bank Credit in India as well as computing the Adjusted Net Bank Credit for PSL targets and achievement

B. Adjustment for Weights in PSL Achievement

Foreign Investment in India

Q.2: What are the Capital instruments permitted for receiving foreign investment in an Indian company ? +

Answer: ‘Capital Instruments’ means equity shares, debentures, preference shares and share warrants issued by the Indian company.Equity shares: Equity shares are those issued in accordance with the provisions of the Companies Act, 2013 and will include partly paid equity shares issued on or after July 8, 2014.Share warrants: Share warrants issued on or after July 8, 2014 will be considered as capital instruments.Debentures: ‘Debentures’ means fully, compulsorily and mandatorily convertible debentures.Preference shares: ‘Preference’ shares means fully, compulsorily and mandatorily convertible preference shares.Non-convertible/ optionally convertible/ partially convertible preference shares issued as on and up to April 30, 2007 and optionally convertible/ partially convertible debentures issued up to June 7, 2007 till their original maturity are reckoned to be FDI compliant capital instruments. Non-convertible/ optionally convertible/ partially convertible preference shares issued after April 30, 2007 and optionally convertible/ partially convertible debentures issued after June 7, 2007 shall be treated as debt and shall require conforming to External Commercial Borrowings guidelines regulated under Foreign Exchange Management (Borrowing and Lending in Foreign Exchange Regulations), 2000, as amended from time to time.

Core Investment Companies

Core Investment Companies (CICs)

2. Will existing Core Investment Companies (CICs) which had previously been exempted from registration and whose asset size is less than Rs. 100 crore again be required to submit application for exemption? +

Ans: Existing CICs which were exempted from registration in the past and have an asset size of less than Rs 100 crore are exempted from registration in terms of section 45NC of the RBI Act 1934, as stated in Notification No. DNBS.(PD) 220/CGM(US)-2011 dated January 5, 2011, and as such are not required to submit any application for exemption.

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

Eligible entities and requirements to submit the FLA return

Q2. What is the due date of submission of the FLA return? +

Ans: Entities who comply with the criterion mentioned in Q1 are mandatorily required to submit the FLA return under FEMA 1999 based on audited/ unaudited accounts of the entity by July 15 every year.

Indian Currency

A) Basics of Indian Currency/Currency Management

2. What is legal tender? +

Legal Tender is a coin or a banknote that is legally tenderable for discharge of debt or obligation.

The coins issued by Government of India under Section 6 of The Coinage Act, 2011, shall be legal tender in payment or on account provided that a coin has not been defaced and has not lost weight so as to be less than such weight as may be prescribed in its case. Coin of any denomination not lower than one rupee shall be legal tender for any sum not exceeding one thousand rupees. Fifty paise (half rupee) coin shall be legal tender for any sum not exceeding ten rupees. While anyone cannot be forced to accept coins beyond the limits mentioned above, voluntarily accepting coins for amounts exceeding the limits mentioned above is not prohibited.

Every banknote issued by Reserve Bank of India (₹2, ₹5, ₹10, ₹20, ₹50, ₹100, ₹200, ₹500 and ₹2000), unless withdrawn from circulation, shall be legal tender at any place in India in payment or on account for the amount expressed therein, and shall be guaranteed by the Central Government, subject to provisions of sub-section (2) Section 26 of RBI Act, 1934. ₹1 notes issued by Government of India are also Legal Tender. ₹500 and ₹1000 banknotes of Mahatma Gandhi series issued up to November 08, 2016 have ceased to be Legal Tender with effect from the midnight of November 8, 2016.

Housing Loans

2. How will your bank decide your home loan eligibility? +

Your bank will assess your repayment capacity while deciding the home loan eligibility. Repayment capacity is based on your monthly disposable / surplus income, (which in turn is based on factors such as total monthly income / surplus less monthly expenses) and other factors like spouse's income, assets, liabilities, stability of income etc. The main concern of the bank is to make sure that you comfortably repay the loan on time and ensure end use. The higher the monthly disposable income, higher will be the amount you will be eligible for loan. Typically a bank assumes that about 55-60 % of your monthly disposable / surplus income is available for repayment of loan. However, some banks calculate the income available for EMI payments based on an individual’s gross income and not on his disposable income.

The amount of the loan depends on the tenure of the loan and the rate of interest also as these variables determine your monthly outgo / outflow which in turn depends on your disposable income. Banks generally fix an upper age limit for home loan applicants.

Targeted Long Term Repo Operations (TLTROs)

Q2: Will the bank have to necessarily continue to hold an amount equivalent to what it was holding as on March 26, 2020 in its HFT/AFS portfolio for the tenor of TLTRO borrowing? +

Ans: Under TLTRO scheme, banks will have to invest the amount borrowed under TLTROs in fresh acquisition of securities (i.e., over and above their outstanding statement in specified securities it was holding as on March 26, 2020) from primary/secondary market. However, participation in TLTRO scheme will not impinge on the existing investment of the bank and the bank may continue to operate their AFS/HFT portfolio, as hitherto, in terms of extant regulatory/internal guidelines.

Government Securities Market in India – A Primer

2. Why should one invest in G-Secs? +

2.1 Holding of cash in excess of the day-to-day needs (idle funds) does not give any return. Investment in gold has attendant problems in regard to appraising its purity, valuation, warehousing and safe custody, etc. In comparison, investing in G-Secs has the following advantages:

Besides providing a return in the form of coupons (interest), G-Secs offer the maximum safety as they carry the Sovereign’s commitment for payment of interest and repayment of principal.
They can be held in book entry, i.e., dematerialized/ scripless form, thus, obviating the need for safekeeping. They can also be held in physical form.
G-Secs are available in a wide range of maturities from 91 days to as long as 40 years to suit the duration of varied liability structure of various institutions.
G-Secs can be sold easily in the secondary market to meet cash requirements.
G-Secs can also be used as collateral to borrow funds in the repo market.
Securities such as State Development Loans (SDLs) and Special Securities (Oil bonds, UDAY bonds etc) provide attractive yields.
The settlement system for trading in G-Secs, which is based on Delivery versus Payment (DvP), is a very simple, safe and efficient system of settlement. The DvP mechanism ensures transfer of securities by the seller of securities simultaneously with transfer of funds from the buyer of the securities, thereby mitigating the settlement risk.
G-Sec prices are readily available due to a liquid and active secondary market and a transparent price dissemination mechanism.
Besides banks, insurance companies and other large investors, smaller investors like Co-operative banks, Regional Rural Banks, Provident Funds are also required to statutory hold G-Secs as indicated below:

A. Primary (Urban) Co-operative Banks (UCBs)

2.2 Section 24 (2A) of the Banking Regulation Act 1949, (as applicable to co-operative societies) provides that every primary (urban) cooperative bank shall maintain liquid assets, the value of which shall not be less than such percentage as may be specified by Reserve Bank in the Official Gazette from time to time and not exceeding 40% of its DTL in India as on the last Friday of the second preceding fortnight (in addition to the minimum cash reserve ratio (CRR) requirement). Such liquid assets shall be in the form of cash, gold or unencumbered investment in approved securities. This is referred to as the Statutory Liquidity Ratio (SLR) requirement. It may be noted that balances kept with State Co-operative Banks / District Central Co-operative Banks as also term deposits with public sector banks are now not eligible for being reckoned for SLR purpose w.e.f April 1, 2015.

B. Rural Co-operative Banks

2.3 As per Section 24 of the Banking Regulation Act 1949, the State Co-operative Banks (SCBs) and the District Central Co-operative Banks (DCCBs) are required to maintain assets as part of the SLR requirement in cash, gold or unencumbered investment in approved securities the value of which shall not, at the close of business on any day, be less than such per cent, as prescribed by RBI, of its total net demand and time liabilities. DCCBs are allowed to meet their SLR requirement by maintaining cash balances with their respective State Co-operative Bank.

C. Regional Rural Banks (RRBs)

2.4 Since April 2002, all the RRBs are required to maintain their entire Statutory Liquidity Ratio (SLR) holdings in Government and other approved securities.

D. Provident funds and other entities

2.5 The non- Government provident funds, superannuation funds and gratuity funds are required by the Central Government, effective from January 24, 2005, to invest 40% of their incremental accretions in Central and State G-Secs, and/or units of gilt funds regulated by the Securities and Exchange Board of India (SEBI) and any other negotiable security fully and unconditionally guaranteed by the Central/State Governments. The exposure of a trust to any individual gilt fund, however, should not exceed five per cent of its total portfolio at any point of time. The investment guidelines for non- Government PFs have been recently revised in terms of which minimum 45% and up to 50% of investments are permitted in a basket of instruments consisting of (a) G-Secs, (b) Other securities (not in excess of 10% of total portfolio) the principal whereof and interest whereon is fully and unconditionally guaranteed by the Central Government or any State Government SDLs and (c) units of mutual funds set up as dedicated funds for investment in G-Secs (not more than 5% of the total portfolio at any point of time and fresh investments made in them shall not exceed 5% of the fresh accretions in the year), effective from April 2015.

FAQs on Non-Banking Financial Companies

Registration

2. A new company cannot commence business until it has been granted a Certificate of Registration by the Reserve Bank of India. However, the basic eligibility criterion for Registration of a new NBFC is that it should have minimum Net Owned Fund (NOF) of Rs. 25.00 lakhs. What use could the company make of the idle funds until it is granted the certificate of registration by RBI ? +

The company can keep its capital funds invested in any type of deposits with a bank until it is granted a Certificate of Registration by RBI enabling it to commence its business as a financial institution. Investment in any other type of securities will attract the provisions of section 45-I(c) of the RBI Act.

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

Rupee Drawing Arrangement (RDA)

2. Who are non-resident Exchange Houses ? +

These are companies and financial institutions which are licenced and regulated by the competent authority in the sending country for sourcing the funds from the remitters.

Framework for Compromise Settlements and Technical Write-offs

A. COMPROMISE SETTLEMENT IN WILFUL DEFAULT AND FRAUD CASES

2. Does the above RBI circular dilute the penal measures applicable to borrowers classified as wilful defaulter or fraud? +

No. The penal measures currently applicable to borrowers classified as fraud or wilful defaulter in terms of the Master Directions on Frauds dated July 1, 2016 and the Master Circular on Wilful Defaulters dated July 1, 2015, respectively, remain unchanged and shall continue to be applicable in cases where the banks enter into compromise settlement with such borrowers.

Such penal measures entail inter alia that no additional facilities should be granted by any bank/ FI to borrowers listed as wilful defaulters, and that such companies (including their entrepreneurs/ promoters) get debarred from institutional finance for floating new ventures for a period of five years from the date of removal of their name from the list of wilful defaulters. In addition, borrowers classified as fraud are debarred from availing bank finance for a period of five years from the date of full payment of the defrauded amount.

Domestic Deposits

I. Domestic Deposits

2. Whether banks can pay interest on savings bank accounts quarterly? +

Banks can pay interest on savings bank accounts at quarterly or longer rests.

Coordinated Portfolio Investment Survey – India

Eligible entities and requirements to report under CPIS

Q2. What is the frequency of the survey? +

Ans: Presently, the survey is conducted half-yearly in India for capturing the end-March and end-September position of the latest financial year (FY).

FAQs on Master Directions on Priority Sector Lending Guidelines

B. Adjustment for Weights in PSL Achievement

Query 6: How will the incremental weights be calculated as per revised guidelines ? +

Clarification: As detailed in Para 7 of the Master Directions on Priority Sector lending, 2020 on “Adjustments for weights in PSL Achievement”, differential weightage in the incremental credit to the priority sector areas shall be reckoned from FY 2021-22 onwards. There will be 125% weightage on incremental credit to select 184 districts with low per capita PSL credit and 90% weightage on incremental credit to select 205 districts with high per capita PSL credit. The incremental weights will be calculated on targets/ sub-targets. Accordingly, the allocation to RIDF and other funds shall be done on the basis of total shortfall, including the shortfall calculated on incremental credit as per prescribed differential weights.

Query 7: Will the weights be applicable in case of decline in credit or negative incremental credit ? +

Clarification: If there is a decline in credit, the weighted incremental credit will be zero (0). The methodology as given below will be considered for all the districts for which data is reported in ADEPT. The banks are requested to get in touch with our Statistics Division (fiddstats@rbi.org.in) regarding the format for submission of returns under ADEPT, in case the same have not been submitted till date by the bank. Further, based on the methodology detailed above, banks are expected monitor their own PSL achievement during the year taking into account the prescription of differential weights for credit disbursed in identified districts, for the purpose of trading in PSLCs.

* Avg. achievement will be the average of four quarters of a year, as on reporting dates of QPSA. Similar calculations will be done for other PSL targets.

Query 8: What is the criteria for mapping credit to a particular district ? +

Clarification: For mapping a credit facility to a particular district, the ‘Place of utilization of Credit’ shall be the qualifying criteria.

Query 9: In case of achieving priority sector through indirect routes viz. PSLCs, IBPCs, On-lending, Securitization, Assignment etc., the place of utilization may not be available on ADePT for mapping the individual account level data. How will the incremental credit be calculated in such case ? +

Clarification: While calculating district-wise incremental credit for assigning weights, the organic credit i.e. only the credit directly disbursed by banks and for which the actual borrower/beneficiary wise details are maintained in the books of the bank will be considered. Credit disbursed through the following inorganic routes shall not be considered for incremental weights.

Investments by banks in securitised assets
Transfer of Assets through Direct Assignment /Outright purchase
Inter Bank Participation Certificates (IBPCs)
Priority Sector Lending Certificates (PSLCs)
Bank loans to MFIs (NBFC-MFIs, Societies, Trusts, etc.) for on-lending
Bank loans to NBFCs for on-lending
Bank loans to HFCs for on-lending

Foreign Investment in India

Q.3: Whether extension of compulsorily convertible preference shares (CCPS) or compulsorily convertible debentures (CCDs) requires RBI approval ? +

Answer: Tenor of convertible instruments will be guided by the instructions framed under the Companies Act, 2013 and the rules framed thereunder. However, the investee company should ensure that the price/ conversion formula of convertible capital instruments is determined upfront at the time of issue of the instruments. The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with the extant FEMA regulations.

Indian Currency

A) Basics of Indian Currency/Currency Management

3. Where are bank notes and coins produced/minted?

Bank notes are printed at four currency presses, two of which are owned by the Government of India through its Corporation, Security Printing and Minting Corporation of India Ltd. (SPMCIL) and two are owned by the Reserve Bank, through its wholly owned subsidiary, Bharatiya Reserve Bank Note Mudran Private Ltd. (BRBNMPL). The currency presses of SPMCIL are at Nasik (Western India) and Dewas (Central India). The two presses of BRBNMPL are at Mysuru (Southern India) and Salboni (Eastern India).

Coins are minted in four mints owned by SPMCIL. The mints are located at Mumbai, Hyderabad, Kolkata and NOIDA. The coins are issued for circulation only through the Reserve Bank in terms of Section 38 of the RBI Act.

Housing Loans

3. What is an EMI? +

You repay the loan in Equated Monthly Installments (EMIs) comprising both principal and interest. Repayment by way of EMI starts from the month following the month in which you take full disbursement. (For understanding how EMI is calculated, please see annex).

Targeted Long Term Repo Operations (TLTROs)

Q3: Is there any maturity restriction on the securities to be acquired under TLTRO scheme? +

Ans: There is no maturity restriction on the specified securities to be acquired under TLTRO scheme. However, the outstanding amount of specified securities in bank’s HTM portfolio should not fall below the level of amount availed under TLTRO scheme.

Core Investment Companies

Core Investment Companies (CICs)

3. Would existing CICs which had previously been exempted from registration and whose asset size is less than Rs. 100 crore be required to submit Statutory Auditor's Certificate with reference to position as on March 31 of each year to the effect that the company continues to comply with the earlier norms based on which it was treated as a 'Core Investment Company'. +

Ans: No, Existing CICs which have been exempted from registration in the past and have an asset size of less than Rs 100 crore are exempted from registration as stated in Notification No. DNBS.(PD) 220/CGM(US)-2011 dated January 5, 2011. As such they are not required to submit any auditor’s certificate that they comply with the requirements of the Notification.

Government Securities Market in India – A Primer

3. How are the G-Secs issued? +

3.1 G-Secs are issued through auctions conducted by RBI. Auctions are conducted on the electronic platform called the E-Kuber, the Core Banking Solution (CBS) platform of RBI. Commercial banks, scheduled UCBs, Primary Dealers (a list of Primary Dealers with their contact details is given in Annex 2), insurance companies and provident funds, who maintain funds account (current account) and securities accounts (Subsidiary General Ledger (SGL) account) with RBI, are members of this electronic platform. All members of E-Kuber can place their bids in the auction through this electronic platform. The results of the auction are published by RBI at stipulated time (For Treasury bills at 1:30 PM and for GoI dated securities at 2:00 PM or at half hourly intervals thereafter in case of delay). All non-E-Kuber members including non-scheduled UCBs can participate in the primary auction through scheduled commercial banks or PDs (called as Primary Members-PMs). For this purpose, the UCBs need to open a securities account with a bank / PD – such an account is called a Gilt Account. A Gilt Account is a dematerialized account maintained with a scheduled commercial bank or PD. The proprietary transactions in G-Secs undertaken by PMs are settled through SGL account maintained by them with RBI at PDO. The transactions in G-Secs undertaken by Gilt Account Holders (GAHs) through their PMs are settled through Constituent Subsidiary General Ledger (CSGL) account maintained by PMs with RBI at PDO for its constituent (e.g., a non-scheduled UCB).

3.2 The RBI, in consultation with the Government of India, issues an indicative half-yearly auction calendar which contains information about the amount of borrowing, the range of the tenor of securities and the period during which auctions will be held. A Notification and a Press Communique giving exact particulars of the securities, viz., name, amount, type of issue and procedure of auction are issued by the Government of India about a week prior to the actual date of auction. RBI places the notification and a Press Release on its website (www.rbi.org.in) and also issues advertisements in leading English and Hindi newspapers. Auction for dated securities is conducted on Friday for settlement on T+1 basis (i.e. securities are issued on next working day i.e. Monday). The investors are thus given adequate time to plan for the purchase of G-Secs through such auctions. A specimen of a dated security in physical form is given at Annex 1. The details of all the outstanding dated securities issued by the Government of India are available on the RBI website at http://www.rbi.org.in/Scripts/financialmarketswatch.aspx. A sample of the auction calendar and the auction notification are given in Annex 3 and 4, respectively.

3.3 The Reserve Bank of India conducts auctions usually every Wednesday to issue T-bills of 91day, 182 day and 364 day tenors. Settlement for the T-bills auctioned is made on T+1 day i.e. on the working day following the trade day. The Reserve Bank releases a quarterly calendar of T-bill issuances for the upcoming quarter in the last week of the preceding quarter. e.g. calendar for April-June period is notified in the last week of March. The Reserve Bank of India announces the issue details of T-bills through a press release on its website every week.

3.4 Like T-bills, Cash Management Bills (CMBs) are also issued at a discount and redeemed at face value on maturity. The tenor, notified amount and date of issue of the CMBs depend upon the temporary cash requirement of the Government. The tenors of CMBs is generally less than 91 days. The announcement of their auction is made by Reserve Bank of India through a Press Release on its website. The non-competitive bidding scheme (referred to in paragraph number 4.3 and 4.4 under question No. 4) has not been extended to CMBs. However, these instruments are tradable and qualify for ready forward facility. Investment in CMBs is also reckoned as an eligible investment in G-Secs by banks for SLR purpose under Section 24 of the Banking Regulation Act, 1949. First set of CMB was issued on May 12, 2010.

3.5 Floatation of State Government Loans (State Development Loans)

In terms of Sec. 21A (1) (b) of the Reserve Bank of India Act, 1934, the RBI may, by agreement with any State Government undertake the management of the public debt of that State. Accordingly, the RBI has entered into agreements with 29 State Governments and one Union Territory (UT of Puducherry) for management of their public debt. Under Article 293(3) of the Constitution of India (Under section 48A of Union territories Act, in case of Union Territory), a State Government has to obtain the permission of the Central Government for any borrowing as long as there is any outstanding loan that the State Government may have from the Centre.

Market borrowings are raised by the RBI on behalf of the State Governments to the extent of the allocations under the Market Borrowing Program as approved by the Ministry of Finance in consultation with the Planning Commission.

RBI, in consultation with State Governments announces, the indicative quantum of borrowing on a quarterly basis. All State Governments have issued General notifications which specify the terms and conditions for issue of SDL. Before every auction, respective state governments issue specific notifications indicating details of the securities being issued in the particular auction. RBI places a press release on its website and also issues advertisements in leading English and vernacular newspapers of the respective states.

Currently, SDL auctions are held generally on Tuesdays every week. As in case of Central Government securities, auction is held on the E-Kuber Platform. 10% of the notified amount is reserved for the retail investors under the non-competitive bidding.

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

Rupee Drawing Arrangement (RDA)

3. What are the permissions needed for entering into such arrangements ? +

Only for the first arrangement which the AD Category–I bank enters into with the non–resident Exchange Houses for RDA requires RBI permission. Subsequently, AD Category- I banks may enter into RDAs, subject to the prescribed guidelines and inform the Reserve Bank (immediately).

FAQs on Non-Banking Financial Companies

Registration

3. Some of the companies which were in existence on January 9, 1997 could not submit their Application for Registration before the due date i.e. July 8, 1997. Whether these companies can carry on their business ? +

All the NBFCs which were incorporated before January 9, 1997 were required to submit their Application for Registration with RBI within 6 months i.e. by July 8, 1997. The companies which failed to make such an application cannot carry on their business of a financial institution. Any violation of this provision would render the companies and their management liable for penal action under the provisions of Reserve Bank of India Act, 1934.

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

Eligible entities and requirements to submit the FLA return

Q3. What will be the consequences in case we do not file the said FLA Return by July 15, as our accounts are not yet audited, and we do not wish to file it with unaudited figures. Will there be any imposition of penalty or prosecution initiated against the entity by RBI or FEMA? +

Ans: Non-filing of the return on or before due date (July 15 of every year) will be treated as a violation of FEMA and penalty clause may be invoked for violation of FEMA. For further details on penalty clause, please see the below links:

Domestic Deposits

I. Domestic Deposits

3. Whether banks can pay interest on term deposits monthly? +

Interest on term deposits is payable at quarterly or longer rests. Banks can pay interest monthly by discounting the quarterly interest accrued.

Framework for Compromise Settlements and Technical Write-offs

A. COMPROMISE SETTLEMENT IN WILFUL DEFAULT AND FRAUD CASES

3. Does the minimum cooling period of 12 months prescribed in the above circular imply that even borrowers classified as fraud or wilful defaulter will be able to borrow fresh funds from the lenders after the cooling period? +

No. The cooling period has been introduced as a general prescription for normal cases of compromise settlements, without prejudice to the penal measures applicable in respect of borrowers classified as fraud or wilful defaulter as per the Master Directions on Frauds dated July 1, 2016 and the Master Circular on Wilful Defaulters dated July 1, 2015, respectively, as mentioned at (2) above.

Coordinated Portfolio Investment Survey – India

Eligible entities and requirements to report under CPIS

Q3. Should AIFs report under CPIS? +

Ans: Yes, since AIFs are considered under non-banking financial institutions.

FAQs on Master Directions on Priority Sector Lending Guidelines

C. Agriculture

Query 10: Can bank loans against gold be classified under priority sector ? +

Clarification: The PSL guidelines are activity and beneficiary specific and are not based on type of collateral. Therefore, bank loans given to individuals/ businesses for undertaking agriculture activities do not automatically become ineligible for priority sector classification, only on account of the fact that underlying asset is gold jewellery/ornament etc. It may, however, be noted that as per FIDD Circular dated February 7, 2019 and updated from time to time, it has been advised that banks may waive margin requirements for agricultural loans upto ₹1.6 lakh. Therefore, bank should have extended the loan based on scale of finance and assessment of credit requirement for undertaking the agriculture activity and not solely based on available collateral in the form of gold. Further, as applicable to all loans under PSL, banks should put in place proper internal controls and systems to ensure that the loans extended under priority sector are for approved purposes and the end use is continuously monitored.

Query 11: Can loans given to landless individuals engaged in allied activities be classified under priority sector lending (SMF category) ? +

Clarification: Bank loans up to ₹2 lakh to individuals solely engaged in allied activities without any accompanying land holding criteria are entitled for classification under SMF category of priority sector lending. Further, farmers availing loans under SMF (based on land holding) are also eligible for loans under allied activities upto ₹2 lakhs and the same can be also be classified under SMF category

Query 12: What due diligence should banks ensure while classifying loans under PSL-Agriculture/SMF ? +

Clarification: Bank should ensure proper documentation for classifying agricultural loans under PSL as approved by their board. Particularly while classifying loans under agriculture/SMF category, the bank should maintain details regarding location where the borrower is tilling the land, details of crop grown, hypothecation of crops, if any, sanction of loan based on scale of finance, record of field visit by bank officials to monitor end use of agricultural loans, etc. Some of the above aspects should be available with the bank in the absence of copy of land record/lease deed particularly in case of agriculture loans to landless labourers’, share croppers etc.

Query 13: How should the banks ensure adherence to the credit cap of ₹100 crore from banking system, while extending credit to activities under ‘Agriculture Infrastructure’ or ‘Food & Agro-Processing’ categories ? +

Clarification: As per extant guidelines, loans for Agriculture Infrastructure or loans for Food & Agro-processing activity are each subject to an aggregate sanctioned limit of ₹100 crore per borrower from the banking system. In case aggregate exposure across the banking industry exceeds the limit of ₹100 crore, then total exposure will cease to be classified under PSL category. The sanctioned limit of ₹100 crore has to be ascertained facility wise for a particular entity and is exclusive of the other borrowings of the entity for PSL / non-PSL purposes. However, it needs to be ensured that the bank has assessed and sanctioned separate limits for the specific purpose of Agriculture Infrastructure or Food & Agro Processing activities of the entity to qualify as PSL. Banks should take a declaration from the borrower regarding loan sanctioned by any other bank/s for the same activity and also independently seek confirmation from those banks. In the scenario, where new sanction by the bank leads to overall limit across banks to more than ₹100 crore, it needs to inform other banks too about the same. Accordingly, all other banks need to declassify the same from PSL.

Query 14: Loans are extended to Cargo Companies, Shipping Companies, Roadlines Co., Transport Cos, Logistic Cos., Movers and Carriers etc. for purchasing Commercial Vehicles. These transport and shipping companies act as a Carrier (‘Transporter’) for such Enterprises which are into food and agro processing business. Whether bank loans to such a transporter who acts as a ‘carrier’ and does not have any food and agro processing set-up themselves, are eligible for classification under priority sector. +

Clarification: As per Annex-III of Master Directions on Priority Sector Lending (PSL) dated September 4, 2020, transportation is an eligible activity under indicative list of permissible activities under Food Processing Sector. However, while classifying any facility to transporters for purchasing Commercial Vehicles under “Food & Agro-processing” category, it needs to be ensured that the transporter is using the vehicle exclusively for transportation of food & agro-processed products or is a type of vehicle which is specifically used for “Food & Agro-processing” e.g. cold storage trucks, vans etc. If the commercial vehicle is also used for transportation of products other than those related to food & agro processing, the facility shall not be eligible for classification under ‘Food & Agro-processing’ category. In such cases, the same may be classified under MSME (Services), if it meets the conditions prescribed for the same in our Master Direction on PSL.

Query 15: Can bank loans extended to companies for buying commercial vehicles be eligible for classification under “Agriculture Infrastructure” category of priority sector ? +

Clarification: While classifying any facility to transporters for purchasing Commercial Vehicles under “Agriculture Infrastructure” category, it needs to be ensured that the transporter/ sub-contractor is using the vehicle exclusively for activities that are ancillary to “Agriculture Infrastructure”. If the commercial vehicle is also used for transportation for purposes under non-agriculture infrastructure category, the facility shall not be eligible for classification under ‘Agriculture Infrastructure’. In such cases, the same may be classified under MSME (Services), if it meets the conditions prescribed for the same in our Master Direction on PSL.

Foreign Investment in India

Q.4: What is a convertible note ? +

Answer: A convertible note is an instrument issued by a start-up company evidencing receipt of money initially as debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of such startup company, within a period not exceeding five years from the date of issue of the convertible note, upon occurrence of specified events as per the other terms and conditions agreed to and indicated in the instrument.

Core Investment Companies

Core Investment Companies (CICs)

4. A single group is having under its fold four to five prospective Core Investment Companies with an aggregate asset size of more than Rs. 100 crore. In such a situation, which company among the group companies is required to seek registration as CIC with the Bank. +

Ans: All companies in the group that are CICs would be regarded as CICs-ND-SI (provided they have accessed public fund) and would be required to obtain a Certificate of Registration from the Bank.

Indian Currency

A) Basics of Indian Currency/Currency Management

4. What is a currency chest ? +

To facilitate the distribution of banknotes and rupee coins, the Reserve Bank has authorised select scheduled banks to establish currency chests. These are storehouses where banknotes and rupee coins are stocked on behalf of the Reserve Bank for distribution to bank branches in their area of operation. As on March 31, 2021, there were 3054 currency chests.

[The currency chests are expected to distribute banknotes and rupee coins to other bank branches in their area of operation.]

Housing Loans

4. What documents are generally sought for a loan approval? +

In addition to all legal documents relating to the house being bought, banks will also ask you to submit Identity and Residence Proof, latest salary slip ( authenticated by the employer and self attested for employees ) and Form 16 ( for business persons/ self-employed ) and last 6 months bank statements / Balance Sheet, as applicable . You also need to submit the completed application form along with your photograph. Loan applications form would give a checklist of documents to be attached with the application.

Do not be in a hurry to seal the deal quickly.

Please do discuss and seek more information on any waivers in terms and conditions provided by the commercial bank in this regard. For example some banks insist on submission of Life Insurance Policies of the borrower / guarantor equal to the loan amount assigned in favour of the commercial bank. There are usually amount ceilings for this condition which can also be waived by appropriate authority. Please read the fine print of the bank’s scheme carefully and seek clarifications.

Targeted Long Term Repo Operations (TLTROs)

Q4: Will investment in a longer tenor specified security continue to be classified as HTM even after maturity of TLTRO? +

Ans: The specified securities acquired under TLTRO scheme will be allowed to remain in HTM portfolio till their maturity.

Government Securities Market in India – A Primer

4. What are the different types of auctions used for issue of securities? What is switch/conversion of Government Securities through auction? +

Prior to introduction of auctions as the method of issuance, the interest rates were administratively fixed by the Government. With the introduction of auctions, the rate of interest (coupon rate) gets fixed through a market-based price discovery process.

4.1 An auction may either be yield based or price based.

i. Yield Based Auction: A yield-based auction is generally conducted when a new G-Sec is issued. Investors bid in yield terms up to two decimal places (e.g., 8.19%, 8.20%, etc.). Bids are arranged in ascending order and the cut-off yield is arrived at the yield corresponding to the notified amount of the auction. The cut-off yield is then fixed as the coupon rate for the security. Successful bidders are those who have bid at or below the cut-off yield. Bids which are higher than the cut-off yield are rejected. An illustrative example of the yield-based auction is given below:

Yield based auction of a new security

Maturity Date: January 11, 2026
Coupon: It is determined in the auction (8.22% as shown in the illustration below)
Auction date: January 08, 2016
Auction settlement date/Issue date: January 11, 2016*
Notified Amount: ₹1000 crore

* January 9 and 10 being holidays (Saturday and Sunday), settlement is done on January 11, 2016 (T+1 settlement).

Details of bids received in the increasing order of bid yields
Bid No.	Bid Yield	Amount of bid (₹ Cr)	Cumulative amount (₹ Cr)	Price* with coupon as 8.22%
1	8.19%	300	300	100.19
2	8.20%	200	500	100.14
3	8.20%	250	750	100.13
4	8.21%	150	900	100.09
5	8.22%	100	1000	100
6	8.22%	100	1100	100
7	8.23%	150	1250	99.93
8	8.24%	100	1350	99.87
The issuer would get the notified amount by accepting bids up to bid at sl. no. 5. Since the bid number 6 also is at the same yield, bid numbers 5 and 6 would get allotment on pro-rata basis so that the notified amount is not exceeded. In the above case each of bidder at sl. no. 5 and 6 would get ₹ 50 crore. Bid numbers 7 and 8 are rejected as the yields are higher than the cut-off yield.
*Price corresponding to the yield is determined as per the relationship given under YTM calculation in question 24.

ii. Price Based Auction: A price based auction is conducted when Government of India re-issues securities which have already been issued earlier. Bidders quote in terms of price per ₹100 of face value of the security (e.g., ₹102.00, ₹101.00, ₹100.00, ₹ 99.00, etc., per ₹100/-). Bids are arranged in descending order of price offered and the successful bidders are those who have bid at or above the cut-off price. Bids which are below the cut-off price are rejected. An illustrative example of price based auction is given below:

Price based auction of an existing security 8.22% GS 2026

Maturity Date: January 11, 2026
Coupon: 8.22%
Auction date: January 08, 2016
Auction settlement date: January 11, 2016*
Notified Amount: ₹1000 crore

* January 9 and 10 being holidays (Saturday and Sunday), settlement is done on January 11, 2016 under T+1 cycle.

Details of bids received in the decreasing order of bid price
Bid no.	Price of bid	Amount of bid (₹ Cr)	Implicit yield	Cumulative amount (₹ Cr)
1	100.19	300	8.19%	300
2	100.14	200	8.20%	500
3	100.13	250	8.20%	750
4	100.09	150	8.21%	900
5	100	100	8.22%	1000
6	100	100	8.22%	1100
7	99.93	150	8.23%	1250
8	99.87	100	8.24%	1350
The issuer would get the notified amount by accepting bids up to 5. Since the bid number 6 also is at the same price, bid numbers 5 and 6 would get allotment in proportion so that the notified amount is not exceeded. In the above case each of bidders at sl. no. 5 and 6 would get securities worth ₹ 50 crore. Bid numbers 7 and 8 are rejected as the price quoted is less than the cut-off price.

4.2 Depending upon the method of allocation to successful bidders, auction may be conducted on Uniform Price basis or Multiple Price basis. In a Uniform Price auction, all the successful bidders are required to pay for the allotted quantity of securities at the same rate, i.e., at the auction cut-off rate, irrespective of the rate quoted by them. On the other hand, in a Multiple Price auction, the successful bidders are required to pay for the allotted quantity of securities at the respective price / yield at which they have bid. In the example under (ii) above, if the auction was Uniform Price based, all bidders would get allotment at the cut-off price, i.e., ₹100.00. On the other hand, if the auction was Multiple Price based, each bidder would get the allotment at the price he/ she has bid, i.e., bidder 1 at ₹100.19, bidder 2 at ₹100.14 and so on.

4.3 An investor, depending upon his eligibility, may bid in an auction under either of the following categories:

Competitive Bidding: In a competitive bidding, an investor bids at a specific price / yield and is allotted securities if the price / yield quoted is within the cut-off price / yield. Competitive bids are made by well-informed institutional investors such as banks, financial institutions, PDs, mutual funds, and insurance companies. The minimum bid amount is ₹10,000 and in multiples of ₹10,000 in dated securities and minimum ₹ 10,000 in case of T-Bills and in multiples of ₹ 10,000 thereafter. Multiple bidding is also allowed, i.e., an investor may put in multiple bids at various prices/ yield levels.

Non-Competitive Bidding (NCB):

With a view to encouraging wider participation and retail holding of Government securities, retail investors are allowed participation on “non-competitive” basis in select auctions of dated Government of India (GoI) securities and Treasury Bills. Participation on a non-competitive basis in the auctions will be open to a retail investor who (a) does not maintain current account (CA) or Subsidiary General Ledger (SGL) account with the Reserve Bank of India; and (b) submits the bid indirectly through an Aggregator/Facilitator permitted under the scheme. Retail investor, for the purpose of scheme of NCB, is any person, including individuals, firms, companies, corporate bodies, institutions, provident funds, trusts, and any other entity as may be prescribed by RBI. Regional Rural Banks (RRBs) and Cooperative Banks shall be covered under this Scheme only in the auctions of dated securities in view of their statutory obligations and shall be eligible to submit their non-competitive bids directly. State Governments, eligible provident funds in India, the Nepal Rashtra Bank, Royal Monetary Authority of Bhutan and any Person or Institution, specified by the Bank, with the approval of Government, shall be covered under this scheme only in the auctions of Treasury Bills without any restriction on the maximum amount of bid for these entities and their bids will be outside the notified amount. Under the Scheme, an investor can make only a single bid in an auction.

Allocation of non-competitive bids from retail investors except as specified above will be restricted to a maximum of five percent of the aggregate nominal amount of the issue within the notified amount as specified by the Government of India, or any other percentage determined by Reserve Bank of India. The minimum amount for bidding will be ₹10,000 (face value) and thereafter in multiples in ₹10,000 as hitherto. In the auctions of GoI dated securities, the retail investors can make a single bid for an amount not more than Rupees Two crore (face value) per security per auction.

In addition to scheduled banks and primary dealers, specified stock exchanges are also permitted to act as aggregators/facilitators. These stock exchanges submit a single consolidated non-competitive bid in the auction process and will have to put in place necessary processes to transfer the securities so allotted in the primary auction to their members/clients.

Allotment under the non-competitive segment will be at the weighted average rate of yield/price that will emerge in the auction on the basis of the competitive bidding. The Aggregator/Facilitator can recover up to six paise per ₹100 as brokerage/commission/service charges for rendering this service to their clients. Such costs may be built into the sale price or recovered separately from the clients. It may be noted that no other costs, such as funding costs, should be built into the price or recovered from the client. In case the aggregate amount of bid is more than the reserved amount (5% of notified amount), pro rata allotment would be made. In case of partial allotments, it will be the responsibility of the Aggregator/Facilitator to appropriately allocate securities to their clients in a transparent manner. In case the aggregate amount of bids is less than the reserved amount, the shortfall will be taken to competitive portion.

The updated Scheme for Non-Competitive Bidding Facility in the auctions of Government Securities and Treasury Bills is issued by RBI vide IDMD.1080/08.01.001/2017-18 dated November 23, 2017.

4.4 NCB scheme has been introduced in SDLs from August 2009. The aggregate amount reserved for the purpose in the case of SDLs is 10% of the notified amount (e.g. ₹100 Crore for a notified amount of ₹1000 Crore) subject to a maximum limit of 1% of notified amount for a single bid per stock. The bidding and allotment procedure is similar to that of G-Secs.

Conversion (Switch) of Government of India Securities through auction

RBI has from April 22, 2019 started conducting the auction for conversion of Government of India securities on third Monday of every month. Bidding in the auction implies that the market participants agree to sell the source security/ies to the Government of India (GoI) and simultaneously agree to buy the destination security from the GoI at their respective quoted prices. The source securities along with notified amount and corresponding destination securities are provided in the press release issued before the auction. The market participants are required to place their bids in e-kuber giving the amount of the source security and the price of the source and destination security expressed up to two decimal places. The price of the source security quoted must be equal to the FBIL closing price of the source security as on the previous working day.

FAQs on Non-Banking Financial Companies

Registration

4. Whether under-provisioning or non-provisioning against the non-performing advances and/or decline in the value of investments as per the provisioning requirements of the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 should be reduced from the Owned Fund before computing the Net Owned Fund of the company, for the purpose of Registration? +

Yes. To the extent provisions have not been made against any asset, as required under the Prudential Norms Directions or assessed by the Management, Auditor of the Company or an Inspecting Officer of the Reserve Bank of India, the asset can be considered to be intangible asset. Although the entire asset against which the provisions have not been made does not become intangible asset, the amount of provision required to be made as per the Prudential Norms Directions should be deducted from the Owned Fund of the Company to determine the Net Owned Fund of Rs. 25.00 lakhs required for Registration under the RBI Act.

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

Eligible entities and requirements to submit the FLA return

Q4. What information should be reported in FLA return, if balance sheet of the entity is not audited before the due date of submission? +

Ans: Entities should mandatorily fill the FLA return within the due date. In case the entities do not have their audited balance sheet ready, they may fill the return with the provisional/unaudited numbers. Thereafter, once the audited numbers are ready, request for revision of the previously filed return to RBI needs to be raised. Once approved by RBI, you can revise the previously filed return with audited numbers and re-submit the same to RBI.

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

Rupee Drawing Arrangement (RDA)

4. What are the types of remittances which can be sent under RDA ? +

The cross- border inward remittances into India under RDA is primarily on private account. The remitter and the beneficiary should be individuals barring a few exceptions. Remittances through Exchange Houses for financing of trade transactions are also permitted up to certain limit. This scheme is not used for cross-border outward remittances from India.

Domestic Deposits

I. Domestic Deposits

4. Whether banks can pay differential rates of interest on term deposits aggregating Rs.15 lakhs and above? +

Differential rates of interest can be paid on single term deposit of Rs.15 lakhs and above and not on the aggregate of individual deposits where the total exceeds Rs.15 lakhs.

Framework for Compromise Settlements and Technical Write-offs

A. COMPROMISE SETTLEMENT IN WILFUL DEFAULT AND FRAUD CASES

4. What are the safeguards to ensure that the provisions of compromise settlement with borrowers classified as fraud or wilful defaulter, are not mis-utilized? +

Compromise settlement is not available to borrowers as a matter of right; rather it is a discretion to be exercised by the lenders based on their commercial judgement.

The prudential guidelines provide sufficient safeguards with regard to such settlements considered by the lenders:

All such decisions are required to be taken by lenders as per their Board approved policies, instead of adopting an ad-hoc approach in each case;
The circular further strengthens the regulatory guidance by mandating that all such cases of compromise settlement involving borrowers classified as fraud or wilful defaulter must be approved by the Board;
Such settlements shall be without prejudice to the criminal proceeding underway or to be initiated, if under consideration of the lenders against such borrowers;
As already mentioned, the extant penal provisions continue to remain applicable in such cases.
Wherever recovery proceedings are pending before a judicial forum, any settlement arrived at with the borrower shall be subject to obtaining a consent decree from the concerned judicial authorities.
The Boards of lenders have been entrusted with the oversight of the overall trends in approvals of all compromise settlements, including specifically the breakup of accounts classified as fraud, red-flagged, wilful defaulter and quick mortality accounts.

These guidelines will ensure greater transparency of the whole process.

Coordinated Portfolio Investment Survey – India

Details for survey launch

Q4. How do I know that the survey is launched? +

Ans: The Reserve Bank will send emails to all the eligible entities from generic email IDs of the Reserve Bank to notify them about the launch of the CPIS for the latest reference period. Entities are required to fill in the latest survey schedule attached along with the mail and send to the generic email IDs of the Reserve Bank as per the instruction given in the survey schedule.

FAQs on Master Directions on Priority Sector Lending Guidelines

D. MSME

Query 16: Whether the continuity of the PSL status for 3 years is still applicable to MSMEs that have breached the threshold limit as per the new definition of MSMEs ? +

Clarification: Government of India (GoI), vide Gazette Notification S.O. 2119 (E) dated June 26, 2020 and updated from time to time, has notified the new composite criteria of investment in plant & machinery as well as turnover for classification of an enterprise under MSME. Under the composite criteria, if an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investment or turnover, it will cease to exist in that category and be placed in the next higher category but no enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover. Based on the new definition, the earlier criteria regarding continuity of PSL status for three years even after an enterprise grows out of the MSME category concerned, is no longer valid.

Foreign Investment in India

Q.5: Who can invest in a convertible note and what are the instructions in this regard ? +

Answer: A person resident outside India (other than an individual who is a citizen of Pakistan or Bangladesh or an entity which is registered/ incorporated in Pakistan or Bangladesh), may purchase convertible notes issued by an Indian start-up company for an amount of twenty five lakh rupees or more in a single tranche. A start-up company engaged in a sector where foreign investment requires Government approval may issue convertible notes to a non-resident only with the approval of the Government. The amount of consideration should be received by inward remittance through banking channels or by debit to the NRE/ FCNR (B)/ Escrow account maintained by the person concerned.

Core Investment Companies

Core Investment Companies (CICs)

5. A single group is having under its fold various prospective Core Investment Companies with an aggregate asset size of more than Rs. 100 crore. One of the entities has raised / holds public funds (one of the pre requisites for qualifying as a CIC-ND-SI). In such a situation, whether every CIC within the group or only the parent CIC or the specific entity that has raised/ holds public funds would be regarded as CIC-ND-SI, and thus would be required to seek registration as CIC-ND-SI with the Bank.

For Example: HCo is the parent group CIC holding 100 per cent equity capital of A, B and C, all of which are also CICs . In case C has accessed public funds, whether HCo as well as A, B and C must seek registration as CIC-ND-SI or will just C need registration?

Ans: In such a case only C will be registered, provided C is not funding any of the other CICs either directly or indirectly.

Housing Loans

5. What are the different interest rate options offered by banks? +

Banks generally offer either of the following loan options: Floating Rate Home Loans and Fixed Rate Home Loans. For a Fixed Rate Loan, the rate of interest is fixed either for the entire tenure of the loan or a certain part of the tenure of the loan. In case of a pure fixed loan, the EMI due to the bank remains constant. If a bank offers a Loan which is fixed only for a certain period of the tenure of the loan, please try to elicit information from the bank whether the rates may be raised after the period (reset clause). You may try to negotiate a lock-in that should include the rate that you have agreed upon initially and the period the lock-in lasts.

Hence, the EMI of a fixed rate loan is known in advance. This is the cash outflow that can be planned for at the outset of the loan. If the inflation and the interest rate in the economy move up over the years, a fixed EMI is attractively stagnant and is easier to plan for. However, if you have fixed EMI, any reduction in interest rates in the market, will not benefit you.

Determinants of floating rate:

The EMI of a floating rate loan changes with changes in market interest rates. If market rates increase, your repayment increases. When rates fall, your dues also fall. The floating interest rate is made up of two parts: the index and the spread. The index is a measure of interest rates generally (based on say, government securities prices), and the spread is an extra amount that the banker adds to cover credit risk, profit mark-up etc. The amount of the spread may differ from one lender to another, but it is usually constant over the life of the loan. If the index rate moves up, so does your interest rate in most circumstances and you will have to pay a higher EMI. Conversely, if the interest rate moves down, your EMI amount should be lower.

Also, sometimes banks make some adjustments so that your EMI remains constant. In such cases, when a lender increases the floating interest rate, the tenure of the loan is increased (and EMI kept constant).

Some lenders also base their floating rates on their Benchmark Prime Lending Rates (BPLR). You should ask what index will be used for setting the floating rate, how it has generally fluctuated in the past, and where it is published/disclosed. However, the past fluctuation of any index is not a guarantee for its future behavior.

Flexibility in EMI:

Some banks also offer their customers flexible repayment options. Here the EMIs are unequal. In step-up loans, the EMI is low initially and increases as years roll by (balloon repayment). In step-down loans, EMI is high initially and decreases as years roll by.

Step-up option is convenient for borrowers who are in the beginning of their careers. Step-down loan option is useful for borrowers who are close to their retirement years and currently make good money.

Indian Currency

A) Basics of Indian Currency/Currency Management

5. What is a small coin depot ? +

Some banks are authorised to establish Small Coin Depots to stock and distribute small coins i.e. coins of value below Rupee One to bank branches in their area of operation. As on March 31, 2021, there were 2504 small coin depots.

Targeted Long Term Repo Operations (TLTROs)

Q5: Can a bank categorise specified securities acquired under TLTRO scheme as AFS or HFT? +

Ans: The specified securities acquired under TLTRO scheme will be classified in HTM category. However, if a bank decides to classify such securities under AFS/HFT category at the time of acquisition, it will not be allowed to later shift such securities to HTM category and it should maintain sufficient records to demonstrate and separately identify securities purchased under TLTRO scheme within the AFS/HFT portfolio. Further, all regulations applicable to securities classified under AFS/HFT including those on valuation, will be applicable on such specified securities.

Government Securities Market in India – A Primer

5. What are Open Market Operations (OMOs)? +

OMOs are the market operations conducted by the RBI by way of sale/ purchase of G-Secs to/ from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis. When the RBI feels that there is excess liquidity in the market, it resorts to sale of securities thereby sucking out the rupee liquidity. Similarly, when the liquidity conditions are tight, RBI may buy securities from the market, thereby releasing liquidity into the market.

5 (b) What is meant by repurchase (buyback) of G-Secs?

Repurchase (buyback) of G-Secs is a process whereby the Government of India and State Governments buy back their existing securities, by redeeming them prematurely, from the holders. The objectives of buyback can be reduction of cost (by buying back high coupon securities), reduction in the number of outstanding securities and improving liquidity in the G-Secs market (by buying back illiquid securities) and infusion of liquidity in the system. The repurchase by the Government of India is also undertaken for effective cash management by utilising the surplus cash balances. For e.g. Repurchase of four securities (7.49 GS 2017 worth ₹1385 cr, 8.07 GS 2017 worth ₹50 cr, 7.99 GS 2017 worth ₹1401.417 cr and 7.46 GS 2017 worth ₹125 cr) was done through reverse auction on March 17, 2017. State Governments can also buy-back their high coupon (high cost debt) bearing securities to reduce their interest outflows in the times when interest rates show a falling trend. States can also retire their high cost debt pre-maturely in order to fulfill some of the conditions put by international lenders like Asian Development Bank, World Bank etc. to grant them low cost loans. For e.g. Repurchase of seven securities of Government of Maharashtra was done through reverse auction on March 29, 2017. RBI vide DBR.No.BP.BC.46/21.04.141/2018-19 dated June 10, 2019 notified that apart from transactions that are already exempted from inclusion in the 5 per cent cap, it has been decided that repurchase of State Development Loans (SDLs) by the concerned state government shall also be exempted. Governments make provisions in their budget for buying back of existing securities. Buyback can be done through an auction process (generally if amount is large) or through the secondary market route, i.e. NDS-OM (if amount is not large).

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

Rupee Drawing Arrangement (RDA)

5. Is there any limit on the amount of money which can be sent under RDA ? +

There is no limit on the remittance amount as well as on the number of remittances. However, there is an upper cap of Rs.15.00 lakh for trade related transactions.

FAQs on Non-Banking Financial Companies

Definition of public deposits

5. Are the following types of deposits included in the definition of public deposit? +

Unsecured debentures Inter-Corporate Deposits (ICDs) Money received in trust Security deposits from employees Equated Monthly Investments (EMI) received in advance against lease/hire purchase finance. Unsecured debentures issued to the shareholders by a public limited company and to the general members of public by public and private limited companies are included in the definition of `public deposit. However, unsecured debentures issued to other companies and banks/all India financial institutions are not public deposit. The money received in trust is no longer an exempted borrowing and hence forms part of the public deposit. However, other borrowings by way of ICDs, security deposits from employees (provided these are deposited in an account with a bank or a post office, jointly with the employee) and advance receipt of lease or hire purchase instalments, are exempted borrowings and hence fall outside the purview of public deposit.

Domestic Deposits

I. Domestic Deposits

5. Whether banks can pay commission for mobilizing deposits? +

Banks are prohibited from employing/ engaging any individual, firm, company, association, institution for collection of deposits or selling of deposit linked products on payment of remuneration or fees or commission in any form or manner except commission paid to agents employed to collect door-to-door deposits under a special scheme.

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

Eligible entities and requirements to submit the FLA return

Q5. In case where account closing period of the entity is different from reference period (end-March), can we report the information as per account closing period? +

Ans: No, the entity cannot report the information as per the account closing period, in case it is different from March closing. Information should be reported for the reference period only, i.e., previous March and latest March, based on the entity’s internal assessment.

Framework for Compromise Settlements and Technical Write-offs

A. COMPROMISE SETTLEMENT IN WILFUL DEFAULT AND FRAUD CASES

5. From a public policy perspective, what is the rationale for permitting lenders to enter into compromise settlement with borrowers classified as fraud or wilful defaulter? +

The primary regulatory objective is to enable multiple avenues to lenders to recover the money in default without much delay. Apart from the time value loss, inordinate delays result in asset value deterioration which hampers ultimate recoveries. Compromise settlement is recognized as a valid resolution mechanism under the Prudential Framework on Resolution of Stressed Assets dated June 7, 2019. The imperatives for lenders are no different when it comes to recovery from borrowers classified as fraud or wilful defaulter. Continuing such exposures on the balance sheets of the lenders without resolution due to legal proceedings would lock lenders’ funds in an unproductive asset, which would not be a desirable position. As long as larger policy concerns are suitably addressed and the costs of malafide actions are made to be borne by the perpetrators, early recoveries by lenders should be a preferred option, subject to safeguards. Further, continuation of criminal proceedings underway or to be initiated against the borrowers classified as fraud or wilful defaulter, would ensure that perpetrators of any malafide action do not go scot-free.

Coordinated Portfolio Investment Survey – India

Details for survey launch

Q5. How do I know whether my response has been submitted successfully or not? +

Ans: After sending the duly filled in survey schedule (excel based) to the generic email IDs of the Reserve Bank as per the instruction in the survey schedule, the respondent will receive the system-generated acknowledgement. No separate mail will be sent in this regard. If some error is mentioned in the acknowledgement, then the respondent is required to resubmit the form by rectifying the mentioned error. After corrections, the respondent should receive a successful processing acknowledgement email.

FAQs on Master Directions on Priority Sector Lending Guidelines

E. Export Credit

Query 17: What is the permissible cap for export credit under priority sector lending ? +

Clarification: Bank lending to export credit under agriculture and MSME sectors is classified as PSL under the respective categories viz, agriculture and MSME and there is no cap on credit for the same. Export Credit (other than in agriculture and MSME) is classified as priority sector as per the following table:

Domestic banks / WoS of Foreign banks/ SFBs/ UCBs	Foreign banks with 20 branches and above	Foreign banks with less than 20 branches
Incremental export credit over corresponding date of the preceding year, up to 2 per cent of ANBC or CEOBE whichever is higher, subject to a sanctioned limit of up to ₹40 crore per borrower.	Incremental export credit over corresponding date of the preceding year, up to 2 percent of ANBC or CEOBE whichever is higher.	Export credit up to 32 per cent of ANBC or CEOBE whichever is higher.

Query 18: While calculating cap on Export Credit, whether it can be averaged over four quarters of a financial year ? +

Clarification: With effect from FY 2020-21 all banks are allowed to compute the eligible portfolio under Export Credit by averaging across four quarters, to determine adherence to the prescribed caps i.e. 32 percent for Foreign Banks with less than 20 branches and 2 percent for others. The cap on exports is based on ANBC/CEOBE of Current FY.

Foreign Investment in India

Q.6: What is meant by Foreign Investment, Foreign Direct Investment and Foreign Portfolio Investment ? +

Answer: Foreign Investment means any investment made by a person resident outside India on a repatriable basis in capital instruments of an Indian company or to the capital of an LLP.Foreign Direct Investment (FDI) is the investment through capital instruments by a person resident outside India (a) in an unlisted Indian company; or (b) in 10 percent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.Foreign Portfolio Investment is any investment made by a person resident outside India in capital instruments where such investment is (a) less than 10 percent of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company or (b) less than 10 percent of the paid up value of each series of capital instruments of a listed Indian company.

Core Investment Companies

Core Investment Companies (CICs)

6. Whether the investment of a company in its subsidiary's subsidiary (step down subsidiary) will be taken into account for determining not less than ninety percent of its net assets. +

Ans: All direct investments in group companies, as appearing in the CICs balance sheet will be taken into account for this purpose. Investments made by subsidiaries in step down subsidiaries or other entities will not be taken into account for computing 90 percent of net assets.

Indian Currency

A) Basics of Indian Currency/Currency Management

6. What is the role of the Reserve Bank of India in currency management ? +

In terms of Section 22 of the Act, Reserve Bank has the sole right to issue banknotes in India. Section 25 states that the design, form and material of bank notes shall be such as may be approved by the Central Government after consideration of the recommendations made by the Central Board of RBI.

The Reserve Bank, in consultation with the Central Government and other stake holders, estimates the quantity of banknotes that are likely to be needed denomination-wise in a year and places indents with the various currency printing presses for supply of banknotes. The Reserve Bank in terms of its clean note policy, provides good quality banknotes to the members of public. With this objective in view the banknotes received back from circulation are examined and those fit for circulation are reissued while the others (soiled and mutilated) are destroyed so as to maintain the quality of banknotes in circulation.

In respect of coins, the role of RBI is limited to distribution of coins that are supplied by Government of India. The Government of India is responsible for the designing and minting of coins in various denominations as per the Coinage Act, 2011.

Targeted Long Term Repo Operations (TLTROs)

Q6: What happens if a bank fails to deploy the funds availed under TLTRO scheme in specified securities within the stipulated timeframe? +

Ans: The banks have already been given sufficient time to deploy funds availed under TLTRO scheme. It has now been decided to allow up to 30 working days for deployment in specified securities for those banks who have availed funds under the first tranche of TLTRO conducted on March 27, 2020. However, if a bank fails to deploy funds within the specified time frame, the interest rate on un-deployed funds will increase to prevailing policy repo rate plus 200 bps for the number of days such funds remain un-deployed. This incremental interest will have to be paid along with regular interest at the time of maturity.

Housing Loans

6. What is monthly reducing balances method? +

Borrowers benefit more from a loan that's calculated on a monthly reducing basis than on an annual basis. In case of monthly resets, interest is calculated on the outstanding principal balance for that month. The principal paid is deducted from the opening principal outstanding balance to arrive at the opening principal for the next month and interest is computed on the new, reduced principal outstanding. In case of annual resets, principal paid is adjusted only at the end of the year. Hence, you continue to pay interest on a portion of the principal that has been paid back to the lender.

Government Securities Market in India – A Primer

6. What is Liquidity Adjustment Facility (LAF) and whether Re-repo in Government Securities Market is allowed? +

LAF is a facility extended by RBI to the scheduled commercial banks (excluding RRBs) and PDs to avail of liquidity in case of requirement or park excess funds with RBI in case of excess liquidity on an overnight basis against the collateral of G-Secs including SDLs. Basically, LAF enables liquidity management on a day to day basis. The operations of LAF are conducted by way of repurchase agreements (repos and reverse repos – please refer to paragraph numbers 30.4 to 30.8 under question no. 30 for more details) with RBI being the counter-party to all the transactions. The interest rate in LAF is fixed by RBI from time to time. LAF is an important tool of monetary policy and liquidity management. The substitution of collateral (security) by the market participants during the tenor of the term repo is allowed from April 17, 2017 subject to various conditions and guidelines prescribed by RBI from time to time. The accounting norms to be followed by market participants for repo/reverse repo transactions under LAF and MSF (Marginal Standing Facility) of RBI are aligned with the accounting guidelines prescribed for market repo transactions. In order to distinguish repo/reverse repo transactions with RBI from market repo transactions, a parallel set of accounts similar to those maintained for market repo transactions but prefixed with ‘RBI’ may be maintained. Further market value of collateral securities (instead of face value) will be reckoned for calculating haircut and securities acquired by banks under reverse repo with RBI will be bestowed SLR status.

RBI vide its notification FMRD.DIRD.01/14.03.038/2018-19 dated July 24, 2018 has issued Repurchase Transactions (Repo) (Reserve Bank) Directions, 2018 applicable to all the persons eligible to participate or transact business in market repurchase transactions (repos).

Scheduled commercial banks, Primary Dealers along with Mutual Funds and Insurance Companies (subject to the approval of the regulators concerned) maintaining Subsidiary General Ledger account with RBI are permitted to re-repo the government securities, including SDLs and Treasury Bills, acquired under reverse repo, subject to various conditions and guidelines prescribed by RBI time to time.

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

Rupee Drawing Arrangement (RDA)

6. Can cash payment be made to the beneficiary under RDA ? +

No cash disbursement of remittances is allowed under RDA. The remittances have to be credited to the bank account of the beneficiary.

FAQs on Non-Banking Financial Companies

Definition of public deposits

6. Whether deposits received from relatives and friends of the directors are reckoned as public deposits? +

Money received by a private limited NBFC from relatives and friends of directors who are not its shareholders, is public deposit. In the case of public limited companies, the deposits received from shareholders also are public deposit.

Domestic Deposits

I. Domestic Deposits

6. Whether banks can prematurely repay the term deposit on their own? +

The term deposit is a contract between the bank and the customer for a definite term and it cannot be paid prematurely at bank’s option-. Term deposit can be paid prematurely at the request of the customer.

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

Eligible entities and requirements to submit the FLA return

Q6. If the old/new entity fails to fill the FLA form before the due date, can the entity submit the FLA form? +

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.

Framework for Compromise Settlements and Technical Write-offs

A. COMPROMISE SETTLEMENT IN WILFUL DEFAULT AND FRAUD CASES

6. As per Prudential Framework for Resolution of Stressed Assets dated June 7, 2019, lenders are not permitted to restructure borrower accounts classified as fraud or wilful defaulter, except in case of change in ownership. Why a different treatment is prescribed for compromise settlements for such borrowers?

Restructuring in general entails the lenders having a continuing exposure to the borrower entity even after restructuring and hence, in case of borrowers classified as fraud or wilful defaulter, permitting lenders to continue their credit relationship with the borrower entity would be fraught with moral hazard. On the other hand, a compromise settlement entails a complete detachment of the lender with the borrower. Therefore, permitting lenders to settle with the borrowers as per their commercial judgement would enhance recovery prospects.

Coordinated Portfolio Investment Survey – India

Details for survey launch

Q6. What is the launch timeline of the CPIS? +

Ans: The CPIS is conducted by the Reserve Bank half yearly to collect the required details of the reporting entities as on end-March and end-September of a FY. In general, the survey is launched for end-March and end-September position on June 01 and December 01 of that year respectively.

FAQs on Master Directions on Priority Sector Lending Guidelines

F. Education

Query 19: In the revised PSL guidelines, ₹20 lakh is referred to Outstanding Limit or Sanctioned Limit ? +

Clarification: Only such loans that are within the sanctioned limit of ₹20 lakh shall be eligible for priority sector classification.

Query 20: If the same borrower is having multiple education loans with different opening dates before and after 04-09-20, which value is required to be considered under PSL (0/s of ₹10 lakhs per borrower or Limit of ₹20 lakhs per borrower). For instance, Student had an education loan of ₹12 Lakhs prior to 04.09.2020, then avails second education loan of ₹18 Lakhs after 04.09.2020, how PSL outstanding will be calculated for this particular customer ? +

Clarification: For the loans sanctioned before September 4, 2020, outstanding value up to ₹10 lakh, irrespective of the sanctioned limit, shall continue to be classified under priority sector till maturity. However, while reckoning any fresh loan under PSL to a borrower who had already availed education loan from the bank prior to September 4, 2020, it needs to be ensured that the aggregate sanctioned limit does not exceed ₹20 lakh for classification of the loans under PSL.

In the mentioned scenario, as the combined sanctioned limit becomes ₹30 lakh, the ₹18 lakh loan extended after September 4, 2020 shall not be eligible for PSL classification. However, with regard to the ₹12 lakh loan, which was already PSL as per earlier guidelines, the outstanding value under the facility, up to ₹10 lakh shall continue to be eligible under PSL till maturity.

Query 21: Under revised PSL guidelines, sanctioned limit has been capped at ₹ 20 lakhs. If a customer is sanctioned a loan of ₹20 lakhs and the outstanding amount becomes ₹22 Lakhs, in such a scenario whether entire outstanding will be reckoned for PSL ? +

Clarification: The outstanding value may exceed ₹20 lakh on account of accrued interest due to moratorium on repayment during study period. Accordingly, the entire outstanding amount shall be reckoned for priority sector provided the sanctioned limit does not exceed ₹20 lakh.

Query 22: If a student avails two education loans after September 4, 2020 for ₹12 lakhs and ₹18 lakhs, how PSL will be calculated for this particular customer ? +

Clarification: Post September 4, 2020, if the aggregate sanctioned limit of multiple education loans either from a bank or across banks to a single borrower exceeds ₹20 lakh limit, all loans of the borrower sanctioned after September 4, 2020 shall become ineligible for PSL classification. In this regard, banks should take a declaration from the borrower regarding education loan sanctioned by any other bank/s and also independently seek confirmation from those banks.

Core Investment Companies

Core Investment Companies (CICs)

7. Would Current Liabilities also form part of Outside Liabilities? What will be the treatment of DTL, Advance Tax Due and Provision for Income Tax? Will they be Outside Liabilities? +

Ans: Anything that has to be repaid will be an outside liability.

Indian Currency

A) Basics of Indian Currency/Currency Management

7. Where can one find information regarding notes/coins supplied by RBI or currently in circulation ? +

The information about indent and supply of notes and coins or currency/coins in circulation is available on our website www.rbi.org.in, at the following link https://rbi.org.in/Scripts/AnnualReportMainDisplay.aspx

Targeted Long Term Repo Operations (TLTROs)

Q7: Under TLTRO scheme, the specified eligible instruments will have to be acquired up to fifty per cent from primary market issuances and the remaining fifty per cent from the secondary market. Is this limit fungible between primary and secondary market? +

Ans: The deployment of funds availed under TLTRO in primary market cannot exceed fifty percent of the amount availed. Apart from the above stipulation, the limits are fungible between primary and secondary market deployment.

Housing Loans

7. How does tenure affect cost of loan? +

The longer the tenure of the loan, the lesser will be your monthly EMI outflow. Shorter tenures mean greater EMI burden, but your loan is repaid faster. If you have a short-term cash flow mismatch, your bank may increase the tenure of the loan, and your EMI burden comes down. But longer tenures mean payment of larger interest towards the loan and make it more expensive.

Government Securities Market in India – A Primer

7. How and in what form can G-Secs be held? +

7.1 The Public Debt Office (PDO) of RBI, acts as the registry and central depository for G-Secs. They may be held by investors either as physical stock or in dematerialized (demat/electronic) form. From May 20, 2002, it is mandatory for all the RBI regulated entities to hold and transact in G-Secs only in dematerialized (SGL) form.

a. Physical form: G-Secs may be held in the form of stock certificates. A stock certificate is registered in the books of PDO. Ownership in stock certificates cannot be transferred by way of endorsement and delivery. They are transferred by executing a transfer form as the ownership and transfer details are recorded in the books of PDO. The transfer of a stock certificate is final and valid only when the same is registered in the books of PDO.

b. Demat form: Holding G-Secs in the electronic or scripless form is the safest and the most convenient alternative as it eliminates the problems relating to their custody, viz., loss of security. Besides, transfers and servicing of securities in electronic form is hassle free. The holders can maintain their securities in dematerialsed form in either of the two ways:

SGL Account: Reserve Bank of India offers SGL Account facility to select entities who can hold their securities in SGL accounts maintained with the Public Debt Offices of the RBI. Only financially strong entities viz. Banks, PDs, select UCBs and NBFCs which meet RBI guidelines (please see RBI circular IDMD.DOD.No. 13/10.25.66/2011-12 dt Nov 18, 2011) are allowed to maintain SGL with RBI.
Gilt Account: As the eligibility to open and maintain an SGL account with the RBI is restricted, an investor has the option of opening a Gilt Account with a bank or a PD which is eligible to open a CSGL account with the RBI. Under this arrangement, the bank or the PD, as a custodian of the Gilt Account holders, would maintain the holdings of its constituents in a CSGL account (which is also known as SGL II account) with the RBI. The servicing of securities held in the Gilt Accounts is done electronically, facilitating hassle free trading and maintenance of the securities. Receipt of maturity proceeds and periodic interest is also faster as the proceeds are credited to the current account of the custodian bank / PD with the RBI and the custodian (CSGL account holder) immediately passes on the credit to the Gilt Account Holders (GAH).

7.2 Investors also have the option of holding G-Secs in a dematerialized account with a depository (NSDL / CDSL, etc.). This facilitates trading of G-Secs on the stock exchanges.

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Withdrawal of Legal Tender Character of the old Bank Notes in the denominations of ₹ 500/- and ₹ 1000/- (Updated as on December 27, 2016)

Core Investment Companies

FOREWORD

Core Investment Companies (CICs)

Foreign Investment in India

Careers FAQ

Rupee Drawing Arrangement (RDA)

Targeted Long Term Repo Operations (TLTROs)

updated: مئی 28, 2021

Indian Currency

A) Basics of Indian Currency/Currency Management

Housing Loans

FAQs on Non-Banking Financial Companies

FOREWORD

CONTENTS

Registration

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

General Instructions

Confidentiality Clause

Eligible entities and requirements to submit the FLA return

Domestic Deposits

I. Domestic Deposits

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

Rupee Drawing Arrangement (RDA)

Framework for Compromise Settlements and Technical Write-offs

Circular dated June 8, 2023 on ‘Framework for Compromise Settlements and Technical Write-offs’

A. COMPROMISE SETTLEMENT IN WILFUL DEFAULT AND FRAUD CASES

Coordinated Portfolio Investment Survey – India

General Instructions

Confidentiality Clause

Eligible entities and requirements to report under CPIS

FAQs on Master Directions on Priority Sector Lending Guidelines

A. Computation of Adjusted Net Bank Credit (ANBC)

Foreign Investment in India

Core Investment Companies

Core Investment Companies (CICs)

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

Eligible entities and requirements to submit the FLA return

Indian Currency

A) Basics of Indian Currency/Currency Management

Housing Loans

Targeted Long Term Repo Operations (TLTROs)

Government Securities Market in India – A Primer

FAQs on Non-Banking Financial Companies

Registration

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

Rupee Drawing Arrangement (RDA)

Framework for Compromise Settlements and Technical Write-offs

A. COMPROMISE SETTLEMENT IN WILFUL DEFAULT AND FRAUD CASES

Domestic Deposits

I. Domestic Deposits