FEMA

CA. Manoj Shah, CA Atal Bhanja

Trade Credits for imports into India – Submission of returns of bank guarantees for Trade Credits on the Centralised Information Management System (CIMS)

A.P. (DIR Series) Circular No. 10 dated December 22, 2023

With the launch of the Reserve Bank’s next generation data warehouse viz., the Centralised Information Management System (CIMS), it has been decided to shift the arrangement for reporting of quarterly data on issuance of guarantees for trade credits by AD banks, from XBRL platform to CIMS. The statement has been assigned return code- ‘R131’ on CIMS.

AD Category I banks have already been onboarded on the CIMS platform and are currently submitting the aforesaid return on XBRL site as well as the CIMS portal. Henceforth, AD Category- I banks shall furnish the return only on the CIMS portal (URL: https://sankalan.rbi.org.in/) as submission of the return through the XBRL site will be discontinued with effect from December 26, 2023.

Liberalised Remittance Scheme (LRS) for Resident Individuals – Reporting of monthly return and daily transactions

A.P. (DIR Series) Circular No. 11 dated December 22, 2023

With effect from December 26, 2023, the submission of both the returns through the XBRL site will be discontinued and shifted to the Centralised Information Management System (CIMS), which is the Bank’s new data warehouse. AD Category-I banks have already been onboarded on CIMS portal, and are currently submitting both the returns on XBRL site as well as CIMS portal. The LRS monthly return and LRS daily return have been assigned return codes- ‘R089’ and ‘R010’ respectively on CIMS portal.

Accordingly, AD Category-I banks shall upload the LRS monthly return on or before fifth of the succeeding month commencing from the reporting month of December 2023, and LRS daily return from December 26, 2023 onwards on the next working day on CIMS portal (URL: https://sankalan.rbi.org.in). In case no data is to be furnished, AD Category-I banks shall upload a ‘NIL’ report.

CIMS Project Implementation – Discontinuation of submission of legacy XBRL

A.P. (DIR Series) Circular No. 12 dated December 22, 2023

It has now been decided to discontinue submission of the return through the XBRL system and shift to Centralised Information Management System (CIMS), Bank’s new data warehouse for data collection, with effect from December 26, 2023. AD Category-I banks have already been onboarded on CIMS portal and are currently undertaking parallel submission of the return on both XBRL site as well as CIMS portal. The returns have been named ‘Import of gold by EOUs, units in SEZ/EPZ and nominated agencies(M)’, ‘‘Import of gold by EOUs, units in SEZ/EPZ and nominated agencies(HY)’ and has been assigned return codes- ‘R132’ & ‘R133’ respectively on CIMS portal.

Accordingly, AD Category-I banks shall upload the two statements as mentioned at para 1 (i) and (ii) on CIMS portal (URL: https://sankalan.rbi.org.in) with effect from December 26, 2023. In case no data is to be furnished, AD Category-I banks shall upload a ‘NIL’ report.

1. RBI NOTIFICATION NO. RBI/2023-24/93 A.P. (DIR Series) Circular No.11 Dated December 22, 2023

Liberalised Remittance Scheme (LRS) for Resident Individuals- Reporting of monthly return and daily transactions

  • Attention of all Authorised Dealer Category-I (AD Category- I) banks is invited to A.P. (DIR Series) Circular No. 07 dated June 17, 2021, in terms of which, AD Category-I banks were required to upload data in respect of number of applications received and the total amount remitted under Liberalised Remittance Scheme (LRS) on a monthly basis on XBRL site and A.P. (DIR Series) Circular No. 23 dated April 12, 2018, in terms of which, AD Category-I banks were required to upload daily transaction-wise information undertaken by them under LRS on XBRL site.

  • It has now been decided that, with effect from December 26, 2023, the submission of both the returns through the XBRL site will be discontinued and shifted to the Centralised Information Management System (CIMS), which is the Bank’s new data warehouse. AD Category-I banks have already been onboarded on CIMS portal, and are currently submitting both the returns on XBRL site as well as CIMS portal. The LRS monthly return and LRS daily return have been assigned return codes- ‘R089’ and ‘R010’ respectively on CIMS portal.

  • Accordingly, AD Category-I banks shall upload the LRS monthly return on or before fifth of the succeeding month commencing from the reporting month of December 2023, and LRS daily return from December 26, 2023 onwards on the next working day on CIMS portal (URL: https://sankalan.rbi.org.in). In case no data is to be furnished, AD Category-I banks shall upload a ‘NIL’ report.

  • AD Category-I banks may bring the contents of this circular to the notice of their constituents.

  • The directions contained in this circular have been issued under Section 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law.

2. RBI NOTIFICATION NO. RBI/2023-24/95 A.P. (DIR Series) Circular No.09 Dated December 22, 2023

Rupee Drawing Arrangement - Submission of statement/return on CIMS Portal

  • Attention of Authorised Dealer Category – I (AD Category – I) banks is invited to the A.P. (DIR Series) Circular No.71 dated May 19, 2016, in terms of which AD Category – I banks were required to submit statement E on total remittances received every quarter.

  • It has now been decided that with effect from December 26, 2023, submission of the above-mentioned statement through the XBRL site will be discontinued and shifted to the Centralized Information Management System (CIMS), which is Bank’s new data warehouse. AD Category – I banks have already been onboarded on CIMS portal and are currently submitting the return on XBRL site as well as CIMS portal. The statement has been assigned return code - ‘R129’ on CIMS portal.

  • Accordingly, all AD Category – I banks shall upload the above-mentioned statement on CIMS portal (URL: https://sankalan.rbi.org.in) from the quarter ending December 2023. In case no data is to be furnished, AD Category – I banks shall upload a ‘NIL’ report.

  • FED Master Direction No. 18/2015-16 dated January 1, 2016 is being updated to reflect the changes.

  • The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

3. RBI NOTIFICATION NO. RBI/2023-24/96 A.P. (DIR Series) Circular No. Dated December 22, 2023

Trade Credit for imports into India – Submission of return on issuance of bank guarantees for Trade Credits on the Centralised Information Management System (CIMS)

  • Attention of Authorised Dealer Category – I banks is invited to A.P. (DIR Series) Circular No. 75 November 19, 2013 read with A.P. (DIR Series) Circular No. 20 dated March 13, 2018 relating to Trade Credits for imports into India and submission of quarterly statement on issuance of guarantees therefor by AD banks on the eXtensible Business Reporting Language (XBRL) platform.

  • With the launch of the Reserve Bank’s next generation data warehouse viz., the Centralised Information Management System (CIMS), it has been decided to shift the arrangement for reporting of quarterly data on issuance of guarantees for trade credits by AD banks, from XBRL platform to CIMS. The statement has been assigned return code- ‘R131’ on CIMS.

  • AD Category I banks have already been onboarded on the CIMS platform and are currently submitting the aforesaid return on XBRL site as well as the CIMS portal. Henceforth, AD Category-I banks shall furnish the return only on the CIMS portal (URL: https://sankalan.rbi.org.in/) as submission of the return through the XBRL site will be discontinued with effect from December 26, 2023.

  • The Master Direction - External Commercial Borrowing, Trade Credit and structured Obligation dated March 26, 2019 (as amended from time to time) shall accordingly be updated to reflect the above changes. AD banks may bring the contents of this circular to the notice of their constituents.

  • The directions contained in this circular have been issued under Section 10(4) and 11(2) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law.

4. RBI NOTIFICATION NO. FEMA 14(R)/2023-RB Dated December 21, 2023

Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023

In exercise of the powers conferred by Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999) and in supersession of Notification No. FEMA 14(R)/2016-RB dated May 02, 2016, except as respects things done or omitted to be done before such supersession, the Reserve Bank makes the following regulations, namely:

1. Short title and commencement. - (1) These regulations shall be called the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. Definitions. - (1) In these regulations, unless the context otherwise requires,-

  1. ‘Act’ means the Foreign Exchange Management Act, 1999 (42 of 1999);

  2. ‘Authorised Bank’ shall have the same meaning as given in the Foreign Exchange Management (Deposit) Regulations, 2016 as amended from time to time.

(2) The words and expressions used but not defined in these regulations shall have the same meanings respectively assigned to them in the Act.

3. Manner of receipt and payment. – (1) Save as otherwise in a manner as provided in the Act or the rules or regulations made or directions issued under the Act, no person resident in India shall make or receive payment from a person resident outside India:

Provided that the Reserve Bank may, on an application made to it, permit a person resident in India to make or receive payment under the Act.

(2) The receipt and payment between a person resident in India and a person resident outside India shall, unless provided otherwise, be made through an Authorised Bank or Authorised Person and in the manner as specified below:

(I) Trade transactions - (a) receipt/payment for export to or import from the countries given below of eligible goods and services shall be made as under:

  1. Nepal and Bhutan - in Indian Rupees provided that in case of exports from India where the importer in Nepal has been permitted by the Nepal Rashtra Bank to make payment in foreign currency, such receipts towards the amount of the export may be in foreign currency;

  2. Member countries of ACU, other than Nepal and Bhutan - through ACU mechanism or as per the directions issued by the Reserve Bank to authorised dealer from time to time:

    Provided that in case of imports where the goods are shipped to India from a member country of the ACU (other than Nepal and Bhutan) but the supplier is resident of a country other than a member country of the ACU, the payment may be made in a manner as specified at (iii) below.

  3. Countries other than member countries of ACU - In Indian Rupees or in any foreign currency.

(b) Notwithstanding anything contained in this sub-regulation, receipts and payments may also be made in a manner as may be provided in the extant Foreign Trade Policy framed by the Central Government.

Explanation: The expression ‘ACU’ (Asian Clearing Union) shall have the same meaning assigned to it under Article I of the ACU agreement and the ACU mechanism shall be construed accordingly.

(II) Transactions other than trade transactions - receipt and payment shall be made as under:

  1. Nepal and Bhutan - In Indian Rupees provided that in case of overseas investment in Bhutan, payment may also be made in foreign currency;

  2. Other Countries – In Indian Rupees or any foreign currency.

(3) Payment and receipt in India for any current account transaction, other than a trade transaction, between any person resident in India and a person resident outside India, who is on a visit to India, may be made only in Indian Rupees.

Provided that any payment or receipt under regulation 3 may also be made by debit/ credit to a bank account maintained in terms of the rules, regulations or directions issued under the Act.

5. RBI NOTIFICATION NO. RBI/2023-24/97 FMRD.DIRD.No.05/14.03.061/2023-2024 Dated December 27, 2023

Reserve Bank of India (Government Securities Lending) Directions, 2023

  • Please refer to paragraph 1 of the Statement on Developmental and Regulatory Policies, issued as a part of the Bi-monthly Monetary Policy Statement for 2022-23 dated February 08, 2023 on introduction of Securities Lending and Borrowing in Government Securities. In pursuance of the announcement, the Draft Reserve Bank of India (Government Securities Lending) Directions, 2023 were placed on the Reserve Bank’s website, on February 17, 2023, to invite comments from banks, market participants and other interested parties.

  • Based on the comments received, the Directions have been finalized and are being issued herewith.

  • These Directions have been issued in exercise of the powers conferred under section 45W of the Reserve Bank of India Act, 1934 read with section 45U of the Act and of all the powers enabling it in this behalf.

  • These Directions shall come into immediate effect.

  • Detailed Notification can be found at https://www.rbi.org.in/Scripts/NotificationUser.aspx/NotificationUser.aspx?Id=12580&Mode=0

6. RBI NOTIFICATION NO. RBI/2023-24/98 FMRD.FMSD.07/03.07.35/2023-24 Dated December 28, 2023

Reserve Bank of India (Financial Benchmark Administrators) Directions, 2023

  • Please refer to paragraph 1 of the Statement on Developmental and Regulatory Policies dated August 10, 2023 regarding review of the Financial Benchmark Administrators (Reserve Bank) Directions, 2019 dated June 26, 2019 (‘the Directions’).

  • Accordingly, the Directions have been reviewed to put in place a holistic risk-based framework covering all benchmark administrators in financial markets regulated by the Reserve Bank. The revised Directions are enclosed herewith.

  • These Directions have been issued in exercise of the powers conferred under section 45W of the Reserve Bank of India Act, 1934 read with section 45U of the Act and of all the powers enabling it in this behalf.

  • Detailed Notification can be found at https://www.rbi.org.in/Scripts/NotificationUser.aspx/NotificationUser.aspx?Id=12581&Mode=0

7. RBI NOTIFICATION NO. RBI/2023-24/99 DOR.STR.REC.60/21.04.048/2023-24 Dated December 28, 2023

MHP Exemption for Transfer of Receivables

  • Please refer to clause 39, of the Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 (“MD-TLE”), regarding requirement of Minimum Holding Period (MHP) on transfer of loans.

  • In order to develop secondary market operations of receivables acquired as part of ‘factoring business’ as defined under the Factoring Regulation Act, 2011, it has been decided that transfer of such receivables by eligible transferors will be exempted from MHP requirement, subject to fulfilment of the following conditions:

    1. The residual maturity of such receivables, at the time of transfer, should not be more than 90 days, and
    2. As specified under clauses 10 and 35 of these directions, the transferee conducts proper credit appraisal of the drawee of the bill, before acquiring such receivables.

  • Accordingly, a suitable proviso has been added to clause 39 of MD-TLE, through amendment dated December 28, 2023.

  • All other provisions of the MD-TLE shall continue to be applicable, as hitherto.

8. RBI NOTIFICATION NO. RBI/2023-24/100 FIDD.MSME & NFS.BC.No.13/06.02.31/2023-24 Dated December 28, 2023

Classification of MSMEs

  • Please refer to para 2.4 to 2.7 of the Master Direction - Lending to Micro, Small & Medium Enterprises (MSME) Sector dated July 24, 2017 (as updated on July 29, 2022), inserted in terms of the circular FIDD.MSME & NFS.BC.No.3/06.02.31/2020-21 dated July 2, 2020 on the new definition of MSME. The revised criteria for classification of enterprises as Micro, Small and Medium enterprises were notified by the Ministry of MSME, GoI vide Gazette Notification S.O. 2119 (E) dated June 26, 2020. Subsequent amendment has been made to the above notification by Government of India (GoI) vide Gazette Notification S.O. 4926 (E) dated October 18, 2022.

  • As classification / re-classification of MSMEs is the statutory responsibility of Ministry of MSME, GoI as per the provisions of the MSMED Act, 2006, regulated entities shall be guided by the notifications issued by the Ministry of MSME in this regard, from time to time.

  • Accordingly, the following amendments are made in the above Master Direction- Lending to Micro, Small & Medium Enterprises (MSME) Sector:

    • Existing para

    Revised para

    Para 2.2: All the above enterprises are required to register online on the Udyam Registration portal and obtain ‘Udyam Registration Certificate’.

    Para 2.2: All the above enterprises are required to register online on the Udyam Registration portal and obtain ‘Udyam Registration Certificate’. For PSL purposes banks shall be guided by the classification recorded in the Udyam Registration Certificate (URC).

    Para 2.4 to 2.7

    Deleted

  • The Master Direction has been updated accordingly.

9. RBI NOTIFICATION NO. RBI/2023-24/101 CO.DPSS.POLC.No.S940/02-29-005/2023-24 Dated December 29, 2023

Payments Infrastructure Development Fund – Extension of Scheme and Enhancements

Please refer to the Reserve Bank of India circular DPSS.CO.AD No.900/02.29.005/2020-21 dated January 05, 2021, on “Operationalisation of Payments Infrastructure Development Fund (PIDF) Scheme” and subsequent amendments made thereto.

  • As announced in the Statement on Development and Regulatory Policies dated October 06, 2023, the PIDF Scheme is being extended by two years, i.e., upto December 31, 2025. Further, with a view to provide impetus to deployment of acceptance infrastructure, the following enhancements are being made to the Scheme:

    1. The beneficiaries identified as part of the PM Vishwakarma Scheme, across the country, shall be included as merchants for deployment under the PIDF Scheme. All eligible installations since the inception of the PM Vishwakarma Scheme, i.e., September 17, 2023, may prefer claims under the PIDF Scheme.

    2. The PIDF Scheme presently subsidises deployment of acceptance infrastructure based on category of device – physical or digital. It has been decided to enable other contemporary devices, viz., (i) Soundbox devices – providing instant audio payment confirmation along with payment acceptance by “scan & pay” and Near Field Communication (NFC), and (ii) Aadhaar-enabled biometric devices – certified biometric scanner devices facilitating Aadhaar authentication for acceptance of payment by merchant through BHIM Aadhaar Pay, would be eligible for subsidy under the Scheme, for installations made from October 01, 2023 onwards.

    3. The amount of subsidy for devices deployed in special focus areas, viz., North Eastern States, Union Territories of Jammu & Kashmir and Ladakh, is increased from 75% to 90% of the total cost, irrespective of the type of device, for installations made from October 01, 2023 onwards.

  • The above enhancements, along with detailed guidelines, have been incorporated in the framework of PIDF Scheme, enclosed as Annex

    (https://www.rbi.org.in/Scripts/NotificationUser.aspx/NotificationUser.aspx?Id=12584&Mode=0)

  • These instructions are issued under Section 18 read with Section 10 (2) of Payment and Settlement Systems Act, 2007 (Act 51 of 2007).

10. RBI NOTIFICATION NO. RBI/CEPD/2023-24/108 CEPD.PRD.No.S1228/13.01.019/2023-24 Dated December 29, 2023

Master Direction - Reserve Bank of India (Internal Ombudsman for Regulated Entities) Directions, 2023

  • The Reserve Bank institutionalized the Internal Ombudsman mechanism in various regulated entities vide instructions / guidelines contained in the Internal Ombudsman Scheme 2018- Implementation by banks dated September 3, 2018, Internal Ombudsman Scheme for Non-Bank System Participants, 2019 dated October 22, 2019, Appointment of Internal Ombudsman by Non-Banking Financial Companies dated November 15, 2021 and Reserve Bank of India (Credit Information Companies - Internal Ombudsman) Direction, 2022 dated October 6, 2022. The Internal Ombudsman mechanism has been set up with a view to strengthen the Internal Grievance Redress system of the regulated entities.

  • A review of Internal Ombudsman schemes has been undertaken by the Reserve Bank in line with the integration of the erstwhile three RBI Ombudsman Schemes as also with the objective to improve the customer service standards in regulated entities. The framework reaffirms that the Internal Ombudsman mechanism should work as envisaged and the Internal Ombudsman shall be positioned as an independent, apex level authority on consumer grievance redress within the regulated entities.

  • Accordingly, in exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949, Section 45L read with 45M of the Reserve Bank of India Act, 1934, sub-section (1) of Section 11 of Credit Information Companies (Regulation) Act, 2005 and Section 18 of the Payment and Settlement Systems Act, 2007, the Reserve Bank of India, being satisfied that it is necessary and expedient in public interest to do so, hereby directs that all the regulated entities as indicated in Clause 4 of the Master Direction shall comply with the Direction with immediate effect.

  • The regulated entities are further advised as follows:

    1. The Internal Ombudsman appointed by the regulated entity, under the erstwhile Internal Ombudsman Schemes / Direction shall continue to hold office till the expiry of their tenure.

    2. The regulated entities not currently falling under the Internal Ombudsman Schemes / Direction may closely monitor their eligibility as per the prescribed provisions for timely appointment of Internal Ombudsman in their entity, as required.

    3. The regulated entities are advised to forward the contact details of the Internal Ombudsman / Deputy Internal Ombudsman to Consumer Education and Protection Department, Central Office, Reserve Bank of India, 1st Floor, Amar Building, Sir P M Road, Fort, Mumbai 400 001 (e-mail: iocepd@rbi.org.in) and ensure to update the same as and when there is any change.

  • Detailed Notification can be accessed at; https://www.rbi.org.in/Scripts/NotificationUser.aspx/NotificationUser.aspx?Id=12586&Mode=0

11. RBI NOTIFICATION NO. RBI/2023-24/103 DOR.LRG.REC.62/03.10.001/2023-24 Dated December 29, 2023

Basel III Framework on Liquidity Standards – Net Stable Funding Ratio (NSFR) – Review of National Development Banks

  • Please refer to circular DBR.BP.BC.No.106/21.04.098/2017-18 dated May 17, 2018 on Basel III Framework on Liquidity Standards - Net Stable Funding Ratio (NSFR) – Final Guidelines.

  • NABARD, NHB and SIDBI are considered as National Development Banks (NDBs) under the extant NSFR framework. On a review, it has been decided that the other All India Financial Institutions (AIFIs) i.e. EXIM Bank and National Bank for Financing Infrastructure and Development (NaBFID) shall also be considered as NDBs for NSFR computation.

  • Further, unencumbered loans to NDBs with a residual maturity of one year or more that would qualify for a 35 per cent or lower risk weight under the Standardised Approach for credit risk1 shall be assigned a Required Stable Funding (RSF) factor of 65 per cent (as against 100 per cent currently).

  • Accordingly, the select instructions have been amended as detailed in Annex.

  • This circular is applicable to all Scheduled Commercial Banks (excluding Payments Banks and Regional Rural Banks).

  • These instructions shall come into force with immediate effect.

12. RBI NOTIFICATION NO. RBI/FMRD/2023-24/109 FMRD.DIRD.09/14.02.001/2023-24 Dated January 03, 2024

Master Direction – Reserve Bank of India (Commercial Paper and Non-Convertible Debentures of original or initial maturity upto one year) Directions, 2024

  • Please refer to paragraph 6 of the Statement on Developmental and Regulatory Policies, announced as a part of the second Bi-monthly Monetary Policy Statement for 2019-20 dated June 06, 2019 regarding Comprehensive Review of Money Market Directions. Accordingly, the draft Directions on Call, Notice and Term Money, Certificate of Deposit and the Commercial Paper and Non-Convertible Debentures of original or initial maturity upto one year markets were released for market feedback on December 04, 2020. The Master Direction - Reserve Bank of India (Call, Notice and Term Money Markets) Directions, 2021 and the Master Direction – Reserve Bank of India (Certificate of Deposit) Directions, 2021 were issued on April 01, 2021 and June 04, 2021 respectively.

  • The Directions on Commercial Paper and Non-Convertible Debentures of original or initial maturity upto one year have been reviewed based on market feedback and the Master Direction - Reserve Bank of India (Commercial Paper and Non-Convertible Debentures of original or initial maturity upto one year) Directions, 2024 are being issued herewith.

  • These Directions have been issued in exercise of the powers conferred under section 45J, 45K, 45L and 45W of the Reserve Bank of India Act, 1934 read with section 45U of the Act and of all the powers enabling it in this behalf.

  • Detailed Notification can be accessed at; https://www.rbi.org.in/Scripts/NotificationUser.aspx/NotificationUser.aspx?Id=12592&Mode=0

13. RBI NOTIFICATION NO. RBI/2023-24/108 A. P. (DIR Series) Circular No. 13 Dated January 05, 2024

Risk Management and Inter-Bank Dealings – Hedging of foreign exchange risk

  • Please refer to paragraph 1 of the Statement on Developmental and Regulatory Policies, issued as a part of the Bi-monthly Monetary Policy Statement for 2023-24 dated December 08, 2023 on review of the regulatory framework for hedging of foreign exchange risks. Attention of Authorised Persons is invited to the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 03, 2000 (Notification No. FEMA.25/RB-2000 dated May 03, 2000), as amended from time to time and Master Direction – Risk Management and Inter-Bank Dealings dated July 05, 2016, as amended from time to time.

  • The Foreign Exchange Management (Foreign Exchange Derivative Contracts) (First Amendment) Regulations, 2020 (Notification no. FEMA.398/RB-2020 dated February 18, 2020) and A. P. (DIR Series) circular no. 29 dated April 07, 2020 (which came into effect from September 01, 2020) were issued after a comprehensive review and public consultation. The foreign exchange risk management facilities have been further reviewed based on the feedback received from market participants and experience gained since the revised framework came into force. Also, the Directions in respect of all types of foreign exchange transactions (including cash, tom and spot) have been consolidated. Further, the Directions contained in the Currency Futures (Reserve Bank) Directions, 2008 (Notification No. FED.1/DG(SG)-2008 dated August 06, 2008), as amended from time to time, and Exchange Traded Currency Options (Reserve Bank) Directions, 2010 (Notification No. FED.01/ED(HRK)-2010 dated July 30, 2010), as amended from time to time, are now being incorporated in the Master Direction – Risk Management and Inter-Bank Dealings.

  • The revised Directions are provided at Annex-I to this circular. (https://www.rbi.org.in/Scripts/NotificationUser.aspx/NotificationUser.aspx?Id=12594&Mode=0

    These Directions shall come into effect from April 05, 2024, replacing the existing Directions in Part A (Section I) of the Master Direction – Risk Management and Interbank Dealings dated July 5, 2016, as amended from time to time, and in supersession of the notifications listed in the Annex-II.

  • Authorised Persons shall mean Authorised Dealer Category - I banks and for the purpose of exchange traded currency derivatives, Recognised Stock Exchanges and Recognised Clearing Corporations, authorised under Section 10 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999).

  • The Directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and Section 45W of the Reserve Bank of India, 1934 (02 of 1934) and are without prejudice to permissions/ approvals, if any, required under any other law.

14. RBI NOTIFICATION NO. RBI/2023-24/112 DOR.CRE.REC.70/21.01.003/2023-24 Dated January 15, 2024

Credit/Investment Concentration Norms – Credit Risk Transfer

  • Please refer to the following instructions, as amended from time to time: (i) paragraphs 32, 91 and 110.4.2 of Master Direction - Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023 (“MD on NBFC”); and (ii) paragraph 20 of Master Direction - Non-Banking Financial Company – Housing Finance Company (Reserve Bank) Directions, 2021 dated February 17, 2021 (“MD on HFC”).

  • The guidelines on Large Exposures Framework (LEF) are applicable to NBFC-Upper Layer (NBFC-UL) in terms of paragraph 110 of the MD on NBFC. The NBFC-Base Layer (NBFC-BL) and NBFC-Middle Layer (NBFC-ML) are, however, governed by the credit/investment concentration norms prescribed at paragraphs 32 and 91 of the MD on NBFC, paragraph 20 of MD on HFC and circular on Scale Based Regulation (SBR): A Revised Regulatory Framework for NBFCs dated October 22, 2021. In order to ensure uniformity and consistency in computation of concentration norms among NBFCs, a review of the extant concentration norms has been carried out and it has been decided as under:

A. Regulations for NBFC-ML

  • Computation of exposure – Credit Risk Transfer Instruments

    • Aggregate exposure to a counterparty comprising both on and off-balance sheet exposures are calculated based on the method prescribed for capital computation in MD on NBFC and MD on HFC; i.e., on-balance sheet exposures are reckoned at the outstanding amount 1 while the off-balance sheet exposures are converted into credit risk equivalent by applying the credit conversion factor prescribed under capital requirements. Further, as per Annex XIV of the MD on NBFC, credit default swaps (CDS) are currently allowed as credit risk transfer instruments for offsetting exposure to the underlying counterparty. Henceforth, the exposures of NBFC-ML shall also be offset with credit risk transfer instruments listed below:

    1. Cash margin/caution money/security deposit held as collateral on behalf of the borrower against the advances for which right to set off is available;

    2. Central Government guaranteed claims which attract 0 per cent risk weight for capital computation;

    3. State Government guaranteed claims which attract 20 per cent risk weight for capital computation 2;

    4. Guarantees issued under the Credit Guarantee Schemes of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH) and individual schemes under National Credit Guarantee Trustee Company Ltd (NCGTC) subject to meeting the conditions of circular on ‘Review of Prudential Norms – Risk Weights for Exposures guaranteed by Credit Guarantee Schemes (CGS)’ dated September 07, 2022, as amended from time to time.

    Provided that to be eligible as a credit risk transfer instrument, guarantees shall be direct, explicit, irrevocable and unconditional.

  • Exemptions from credit/investment concentration norms

    • In addition to the exposures already exempted from credit/investment concentration norms in terms of paragraph 91 of MD on NBFC and paragraph 20 of MD on HFC, exposures listed below shall also be exempt from credit/investment concentration norms:

    1. Exposure to the Government of India and State Governments which are eligible for zero percent risk weight under capital regulations applicable to NBFC 3;

    2. Exposure where the principal and interest are fully guaranteed by the Government of India 3.

  • Disclosure: The exposures where the NBFC has exceeded the prudential exposure limits during the year are required to be disclosed in the Notes to Accounts in the annual financial statements, presently as per paragraph 3.5.4 of Annex XXII of the MD on NBFC and paragraph 3.7.4 of Annex IV of the MD on HFC. Henceforth, computation of exposure limit for disclosure requirements shall be reckoned as per paragraphs 3 and 4 of this circular.

    • B. Regulations for NBFC-BL

    NBFC-BL shall put in place an internal Board approved policy for credit/investment concentration limits for both single borrower/party and single group of borrowers/parties. Computation of exposure shall be on similar lines as that for NBFC-ML as given at paragraphs 3 and 4 of this circular.

    C. Regulations for NBFC-UL

    • A reference is drawn to paragraph 110.4.2 of MD on NBFC which lists out the credit risk transfer instruments. It is clarified that to be eligible as a credit risk transfer instrument, guarantees shall be direct, explicit, irrevocable and unconditional.

    • The above instructions shall come into force from the date of issuance of the circular.

    • All other terms and conditions for LEF and credit/investment concentration norms shall continue as per the extant instructions.

    15. RBI NOTIFICATION NO. RBI/2023-24/113 Ref.No.DOS.ARG/SEC.8/08.91.001/2023-24 Dated January 15, 2024

    Guidelines on Appointment / Re-appointment of Statutory Auditors of State Co-operative Banks and Central Co-operative Banks

    • The Banking Regulation (Amendment) Act, 2020 (No. 39 of 2020), notified in the Gazette of India on September 29, 2020 (vide Notification No. 64 of that date), has come into force with effect from April 01, 2021 (Gazette Notification No. 4113 dated December 23, 2020), for Rural Co-operative Banks i.e., State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs).

    • Accordingly, Reserve Bank of India (RBI), in exercise of its powers conferred under Section 30(1A) of the Banking Regulation Act, 1949, has framed the guidelines enclosed as Annex of the Circular which shall be applicable to StCBs and CCBs for seeking prior approval of RBI for appointment, re-appointment or removal of Statutory Auditor (SA), and other related matters.

    • These guidelines shall come into effect from April 1, 2024. Accordingly, for all accounting periods commencing on or after April 1, 2024, all StCBs and CCBs shall submit application for prior approval of RBI before July 31 of the reference accounting year, in accordance with the guidelines.

    • Detailed Annex can be accessed at; https://www.rbi.org.in/Scripts/NotificationUser.aspx/NotificationUser.aspx?Id=12599&Mode=0

    16. RBI NOTIFICATION NO. RBI/2023-24/114 DoR.CRE.REC.71/07.10.002/2023-24 Dated January 16, 2024

    Master Circular- Exposure Norms and Statutory / Other Restrictions - UCBs

    Please refer to RBI Master Circular DCBR.CO.BPD. (PCB) MC No.13/13.05.000/2015-16 dated July 1, 2015 on the captioned subject (available at RBI website www.rbi.org.in). The updated Master Circular consolidates all the instructions / guidelines on the subject issued till date.

    The details can be accessed at; https://www.rbi.org.in/Scripts/NotificationUser.aspx/NotificationUser.aspx?Id=12600&Mode=0

    17. RBI NOTIFICATION NO. RBI/2023-24/115 DoR.REG/LIC.No.72/16.05.000/2023-24 Dated January 17, 2024

    Second Schedule to the Reserve Bank of India Act, 1934 – Norms for inclusion

    • Please refer to RBI circular UBD.CO.BPD(PCB).No.20/16.05.000/2013-14 dated September 27, 2013 on the captioned subject.

    • Subsequent to release of the Revised Regulatory Framework for Urban Co-operative Banks (UCBs) on July 19, 2022, revised categorization norms for UCBs for regulatory purposes was notified vide circular DOR.REG.No.84/07.01.000/2022-23 dated December 01, 2022 and the criteria for classifying a UCB as Financially Sound and Well Managed (FSWM) have been revised vide circular DOR.REG.No.85/07.01.000/2022-23 dated December 01, 2022.

    • It has now been decided to revise the eligibility norms for inclusion of UCBs in the Second Schedule to the Reserve Bank of India Act, 1934 to bring them in conformity with the Revised Regulatory Framework.

    • In this regard, Government of India notification F.No.3/16/2023-AC dated September 04, 2023 has been published in Gazette of India on September 23, 2023 notifying that licensed Tier 3 and Tier 4 Primary (Urban) Co-operative Banks, fulfilling the criteria stipulated for Financially Sound and Well Managed Urban Co-operative Banks by the Reserve Bank of India, subject to maintenance of minimum deposits required for categorisation as a Tier 3 Urban Co-operative Bank for two consecutive years, would be the eligible financial institutions for the purpose of sub-clause (iii) of clause (a) of sub-section (6) of section 42 of the Reserve Bank of India Act, 1934 (copy enclosed).

    • Such eligible UCBs satisfying the following criteria shall be considered for inclusion in the Second Schedule:

      1. CRAR of at least 3 per cent more than the minimum CRAR requirement applicable to the UCB; and

      2. No major regulatory and supervisory concerns.

    • The information at 5(a) shall be based on the assessed financials and findings of RBI inspection report or audited financial statements, whichever is latest. Such eligible UCBs may submit their application for inclusion in the Second Schedule to the Reserve Bank of India Act, 1934 to the concerned Regional Office of Department of Supervision (in case of UCBs under jurisdiction of Mumbai office, the application should be sent to Department of Supervision, RBI, Central Office) of the Reserve Bank along with the following documents (two sets):

      1. Copy of resolution passed by the Annual General Body/Board of Directors to make an application to RBI for inclusion in the Second Schedule to the Reserve Bank of India Act, 1934 and containing the name(s) of bank official(s) authorized to correspond with RBI in this regard; and

      2. Major financial details of the bank together with copies of the published balance sheet for the last three years.

    • These instructions are issued under clause (a) of sub-section (6) of section 42 of the Reserve Bank of India Act, 1934.

    • The revised instructions shall come into force from the date of issue of the circular. The circular UBD.CO.BPD(PCB).No.20/16.05.000/2013-14 dated September 27, 2013 will thus stand repealed.

      • ________________________________________

      1. Netting is allowed only for assets where provisions for depreciation or for bad and doubtful debts have been made.

      2. To the extent of State Government guarantee used for offsetting exposures by NBFC-ML, the exposure shall shift to the State Government with applicable risk weight of 20%. No cap has been fixed for shifting of exposure on the State Government.

      3. As per Chapter IX of MD on NBFC and Chapter IV of MD on HFC.