FEMA

CA. Manoj Shah, CA Atal Bhanja

Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023 – FEMA 14(R)/2012-RB

RBI has notified a new Notification 14(R)/2023-RB dated December 21, 2023 in supersession of earlier issued notification No. 14(R)/2016-RB on Manner of Receipt of Payment under FEMA. This notification deals with permissible modes of receipt and payment for transactions of persons residents in India with persons resident outside India.

Under the new notification there is a segregation of regulations for trade and non-trade transactions. In erstwhile notification Regulation 3 and 4 dealt with receipt of foreign exchange and Regulation 5 and 6 dealt with payment of foreign exchange. In new one Regulation 3(2)(I) delas with both receipt and payment for trade transactions and Regulation 3(2)(II) delas with receipt and payment for non-trade transactions.

Trade transactions are usually in relation to exports and imports and non-trade relate to transactions such as investments, loans and other types of capital or current account transactions.

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.

(Comments: The new notification refers to ACU mechanism or directions issued by RBI for manner of receipt or payment. However, such mechanism or directions have not been elaborated or issued. Need to wait for further guidance in this matter.

Another important change between both notifications is use of words “freely convertible currency” which was used in erstwhile notification in comparison to use of words “any foreign currency” in new notification. With use of term “any foreign currency” now monies can be received or paid in other currencies as well in addition to freely convertible currencies.)

Investment in Equity Shares of Public companies incorporated in India and Listed on International Exchanges

Amendment to Non-Debt Instruments Rules – Vide Notification dated January 24, 2024

A new Chapter IX (Rule 34) has been inserted in Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 with regards to Investment in equity shares of Indian Public companies listed on International Exchanges.

As per Rule 34, (1) A permissible holder may purchase or sell equity shares of a public Indian company which is listed or to be listed on an International Exchange under Direct Listing of Equity Shares of Companies Incorporated in India on International Exchanges Scheme as specified in Schedule XI.

(2) The mode of payment and other attendant conditions for remittance of proceeds of issue shall be as specified by the Reserve Bank.

For more details visit at https://egazette.gov.in/(S(ypeswm4qlocpbgk0rtwvzpr2))/ViewPDF.aspx

1. RBI NOTIFICATION NO. RBI/2023-24/120 DoR.AUT.REC.74/24.01.041/2023-24 Dated February 09, 2024

Participation of Indian Banks on India International Bullion Exchange IFSC Limited (IIBX)

  • Please refer to the circular Branches of Indian Banks operating in GIFT-IFSC – acting as Professional Clearing Member (PCM) of India International Bullion Exchange IFSC Limited (IIBX) dated June 07, 2022. On review, it has been decided to additionally allow:

    1. Branch/subsidiary/joint venture of an Indian bank in GIFT-IFSC to act as a Trading Member (TM)/Trading and Clearing Member (TCM) of IIBX, and

    2. Indian banks authorized to import gold/silver to act as Special Category Client1 (SCC) of IIBX.

    The detailed instructions in this regard are at ANNEX to this Circular.

  • These instructions are issued in exercise of the powers conferred on the Reserve Bank of India under Section 35A of the Banking Regulation Act, 1949. In the event of non-compliance with extant guidelines, or if the Reserve Bank is satisfied that it is necessary and expedient in the public interest to do so, it may issue further necessary directions (including revocation of approval) and/or impose additional conditions, as it deems fit.

  • The provisions contained in the circular shall be effective from the date of this circular.

  • This circular is applicable to all Scheduled Commercial Banks (other than Regional Rural Banks).

ANNEX [Encl. to circular DoR.AUT.REC.74/24.01.041/2023-24 dated February 09, 2024]

A. Permitted Activity

1. Trading Member/Trading and Clearing Member (TM/TCM) of IIBX

  1. The TM/TCM shall execute trades only on behalf of clients (without proprietary trading).

  2. The bank in its role as TM/TCM shall ensure adherence to the terms and conditions as outlined in para 5 of the circular on Branches of Indian Banks operating in GIFT-IFSC – acting as PCM of IIBX dated June 07, 2022.

  3. The bank shall ensure adherence to extant RBI instructions as contained in the Master Circular – Loans and Advances – Statutory and Other Restrictions dated July 01, 2015 (as updated from time to time).

  4. The bank shall comply with the conditions, if any, stipulated by other regulatory bodies that may be relevant for its role.

2. Special Category Client (SCC) of IIBX

As per the extant Foreign Trade Policy, the Reserve Bank grants annual import authorization to banks for import of gold/silver. Such banks, in addition to the consignment model in domestic tariff area, are hereby allowed to operate as a SCC on IIBX for import of gold/silver.

  1. The SCC shall execute only buy trades on behalf of clients.

  2. The bank shall ensure adherence to extant RBI instructions as contained in the Master Circular – Loans and Advances – Statutory and Other Restrictions dated July 01, 2015 (as updated from time to time).

  3. The SCCs will appoint one of the IFSC Banking Units (IBUs) to act as clearing member on their behalf.

  4. The bank shall comply with the conditions, if any, stipulated by other regulatory bodies that may be relevant for its role.

B. Risk Management

  1. All client trades placed on the exchange shall be against 110% advance pay-in of funds (buy order) of the expected value of bullion (quantity & quality specification) intended to be purchased and securities (sell order) in the account of the bank, as is applicable.

  2. With reference to the Net Open Overnight Position Limit (NOOPL) for a bank as prescribed in Master Direction - Risk Management and Inter-Bank Dealings dated July 05, 2016 (as updated from time to time), the Board may determine a global sub-limit for net overnight open position in gold/silver, which shall not exceed one tonne of gold equivalent.

C. Procedure of Application to RBI

  1. For TM/TCM activities, the parent bank (‘bank’) shall seek a No Objection Certificate (NOC) from the Reserve Bank prior to its branch/subsidiary/joint venture in GIFT-IFSC seeking TM/TCM status on IIBX, subject to fulfilment of the prudential regulations as set out in Para 21 of the Master Direction/DBR.FSD.No.101/24.01.041/2015-16 dated May 26, 2016 (as updated from time to time). An eligible bank shall, with prior approval of its Board, make an application to the Department of Regulation, Reserve Bank of India with details of its proposed business plan as a TM/TCM for facilitating client trade along with particulars of the risk management architecture.

    2. [A bank which has already been granted NOC by the Reserve Bank for its branch in GIFT-IFSC to act as Professional Clearing Member (PCM) of IIBX (as on date) need not take a separate approval from the Reserve Bank for obtaining TM/TCM status on IIBX. They should, however, give a prior intimation to the Department of Regulation, Reserve Bank of India while seeking to take up activities as TM/TCM on the IIBX].

  2. Banks authorized to import gold/silver can undertake the activities of an SCC by sending prior intimation to the Department of Regulation, Reserve Bank of India.

  3. A bank acting as a TM/TCM/SCC of IIBX shall be required to seek additional approval from the Department of Regulation, Reserve Bank of India in case of any change in their role or scope of activities at IIBX from those permitted by this circular.

2. RBI NOTIFICATION NO. RBI/2023-24/121 DoR.HGG.GOV.REC.75/29.67.001/2023-24 Dated February 9, 2024

Review of Fixed Remuneration granted to Non-Executive Directors (NEDs)

  • Please refer to paragraph 9 of circular dated April 26, 2021 (Corporate Governance in Banks - Appointment of Directors and Constitution of Committees of the Board) as per which ceiling of ₹20 lakh per annum was specified in respect of remuneration of Non-Executive Directors (NEDs), other than the Chair of the Board.

  • Considering the crucial role of NEDs in efficient functioning of bank Boards and its various Committees and in order to further enable the banks to sufficiently attract qualified competent individuals on their Boards, it has been decided to revise the aforementioned ceiling to ₹30 lakh per annum.

  • The banks are required to have suitable criteria for granting fixed remuneration to its NEDs, with the approval of its Board before any review of the extant remuneration. The Board of the bank may fix a lower amount within the ceiling limit of ₹30 lakh per annum depending upon the size of the bank, experience of the NED and other relevant factors.

  • As hitherto, private sector banks would be required to obtain regulatory approval regarding remuneration to Part-time Chairman in terms of Section 10B(1A)(i) and 35B of the Banking Regulation Act, 1949.

  • Banks are required to make disclosure on remuneration paid to the directors on an annual basis at a minimum, in their Annual Financial Statements.

Applicability and Commencement

  • The instructions would be applicable to all the Private Sector Banks including Small Finance Banks (SFBs) and Payment Banks (PBs) as also the wholly owned subsidiaries of Foreign Banks. The instructions would come into force with immediate effect.

Power exercised

  • The instructions have been issued in exercise of powers conferred by Section 35B of the Banking Regulation Act, 1949.

Repeal

  • The instructions on Guidelines on Compensation of Non-executive Directors of Private Sector Banks issued vide circular DBR.No.BC.97/29.67.001/2014-15 dated June 1, 2015 stand repealed.

3. RBI NOTIFICATION NO. RBI/2023-24/124 DOR.STR.REC.78/04.02.001/2023-24 Dated February 22, 2024

Interest Equalization Scheme (IES) on Pre and Post Shipment Rupee Export Credit

  • Please refer to the instructions issued vide circulars No. DOR.STR.REC.93/04.02.001/2021-22 dated March 8, 2022 and DOR.STR.REC.39/04.02.001/2022-23 dated May 31, 2022.

  • Government of India has allowed for extension of the Interest Equalization Scheme for Pre and Post Shipment Rupee Export Credit (‘Scheme’) up to June 30, 2024. The rate of interest equalization shall be 2% for Manufacturers and Merchant Exporters exporting under specified 410 HS lines and 3% to the MSME manufacturers exporting under any HS line.

  • Further, Government has advised the following modifications to the scheme:

    1. Average interest rate: With effect from FY 2023-24, the banks which have priced the loans covered under this scheme at an average interest rate of greater than Repo Rate + 4% prior to subvention would be subjected to certain restrictions under the scheme. Based on an assessment undertaken for FY 2023-24, Director General of Foreign Trade (DGFT) will identify the banks which are in breach of the above provision. Such banks shall be restricted from participating in the scheme till they furnish an undertaking (in the format as enclosed in the Annex) to DGFT. Any further breach as assessed by DGFT thereafter may lead to debarment from the scheme.

      For Annex, follow link; https://www.rbi.org.in/Scripts/NotificationUser.aspx/NotificationUser.aspx?Id=12610&Mode=0

    2. Cap on subvention amount: The annual net subvention amount has been already capped at Rs 10 Cr per Importer-Exporter Code (IEC) in a given financial year and the same has been communicated to the trade & industry and banks vide DGFT Trade Notice No.05 dated May 25, 2023. Accordingly, all disbursement from April 1, 2023 shall be reckoned for this purpose.

  • All other provisions of the aforesaid circulars shall remain unchanged.

4. RBI NOTIFICATION NO. RBI/2023-24/125 DoR.FIN.REC.77/03.10.123/2023-24 Dated February 22, 2024

Inclusion of Clearing Corporation of India Limited as a Financial Information Provider under Account Aggregator Framework

  • Please refer to the Master Direction – Non-Banking Financial Company - Account Aggregator (Reserve Bank) Directions, 2016.

  • The RBI Retail Direct Scheme (‘Scheme’) was launched on November 12, 2021 to facilitate retail investors to invest in Government Securities. The Scheme enables individuals to open Retail Direct Gilt Accounts with the Bank and access the Government Securities market - both primary and secondary. To enable aggregation of financial information on Government Securities held by retail investors in their Retail Direct Gilt accounts under the Scheme, Clearing Corporation of India Limited has been included as a Financial Information Provider.

  • The Master Direction – Non-Banking Financial Company - Account Aggregator (Reserve Bank) Directions, 2016 is being modified accordingly.

5. RBI NOTIFICATION NO. RBI/2023-24/126 CO.DPSS.POLC.No.S1092/02-14-006/2023-2024 Dated February 23, 2024

Amendment to Master Direction on Prepaid Payment Instruments

  • This has reference to the Master Directions CO.DPSS.POLC.No.S-479/02.14.006/2021-22 dated August 27, 2021 on Prepaid Payment Instruments (MD-PPIs) (as amended from time to time), which prescribes, inter alia, the various types of PPIs which banks and non-banks can issue after obtaining necessary approval / authorisation from RBI.

  • Public transport systems across the country cater to a multitude of commuters on a daily basis. To provide convenience, speed, affordability, and safety of digital modes of payment to commuters for transit services, it has been decided to permit authorised bank and non-bank PPI issuers to issue PPIs for making payments across various public transport systems. The MD-PPIs has been updated by revising paragraph 10.2 thereof.

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