RBI Regulatory Updates & Developments
Notifications
  • External Benchmark Based Lending

The Internal Study Group (ISG) constituted by RBI has recommended a switchover to an external benchmark as the present lending rate system has not delivered effective monetary policy.

The all new floating rate for personal or retail loans (housing, auto, etc.) and for floating rate loans to Micro and Small Enterprises extended by banks from October 01, 2019 shall be benchmarked to one of the following:

  1. Reserve Bank of India policy repo rate
  2. Government of India 3-Months Treasury bill yield published by the Financial Benchmarks India Private Ltd (FBIL)
  3. Government of India 6-Months Treasury bill yield published by the FBIL
  4. Any other benchmark market interest rate published by the FBIL.

Banks are free to offer such external benchmark linked loans to other types of borrowers as well but must adopt a uniform external benchmark within a loan category. The interest rate under external benchmark shall be reset at least once in three months.  For further details, click here

  • Risk Weight for Consumer Credit Except Credit Card Receivables

Currently consumer credit, including personal loans and credit card receivables but excluding educational loans, attracts a risk weight of 125% of risk weighted assets or higher, if warranted by the external rating of the counterparty. On review, it has been decided to reduce the risk weight for consumer credit, including personal loans, but excluding credit card receivables, to 100%.

  • Priority Sector Targets - Lending to Non-Corporate Farmers - FY 2019-20

Domestic banks have been directed to ensure that their overall direct lending to non-corporate farmers does not fall below the system-wide average of the last three years’ achievement. RBI has stated that the applicable system wide average figure for computing achievement under priority sector lending for FY 2019-20 is 12.11% of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.  For further details, click here

  • Concurrent Audit System

RBI has revised the existing guidelines on Concurrent Audit System leaving the scope of work to be entrusted to concurrent auditors, with coverage of business and branches of banks etc. to the discretion of the Head of Internal Audit of banks. This would need to be done with prior approval of the Audit Committee of the Board of Directors of the bank or the Local Management Committee in the case of foreign banks.

Revised guidelines also cover areas such as appointment of auditors, their accountability, maximum tenure of external concurrent auditors, their remuneration and reporting system.  For further details, click here

  • Priority Sector Lending (PSL) - Classification of Exports under Priority Sector

RBI has relaxed the priority sector lending norms for exporters by introducing the following measures:

  • The existing criteria of exporters with turnover of up to INR 1 billion being eligible for credit under PSL norms has been removed.
  • The maximum sanction limit of loans to exporters has been increased from INR 250 million per borrower to INR 400 million per borrower.
  • There is no change to the present instructions to foreign banks.

For further details, click here

  • Large Exposure Framework

It has now been decided that a bank’s exposure to a single NBFC (excluding gold loan companies) will be increased to 20% of that bank’s eligible capital base as against the earlier limit of 15%. Bank finance to NBFCs predominantly engaged in lending against gold will continue to be governed by the present limit of 7.5% of banks’ capital funds as prescribed by RBI in its circular dated May 18, 2012.

  • Harmonisation of Turn Around Time and Customer Compensation for Failed Transactions

RBI has put in place a framework for Turn Around Time (TAT) for failed transactions and compensation, resulting in resolution of customer complaints, which will bring in uniformity in the processing of failed transactions and the compensation framework across all authorised payment systems.  The framework emphasises that the prescribed TAT is the outer limit for resolution of failed transactions and banks and other operators, and system participants shall endeavour towards quicker resolution of such failed transactions.  For further details, click here

 

Press Release

During September 2019, RBI cancelled the Certificates of Registration of 26 NBFCs.  2 NBFCs surrendered their Certificates of Registration to RBI. All of these companies cannot now undertake the business of a Non-Banking Financial Institution, as laid down under clause (a) of Section 45-I of the Reserve Bank of India Act, 1934.

Further details can be viewed here:

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=48287

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=48286

 

SEBI Regulatory Updates & Developments
Circulars

Listed companies would need to settle their outstanding dues to SEBI, Stock Exchanges and Depositories before filing any scheme of arrangement for mergers or demergers. In case of unpaid dues or fines, the listed entity will have to submit a ‘Report on the Unpaid Dues', in the prescribed format, to the Stock Exchanges.  For further details, click here

The list of commodities or commodity groups permitted as Liquid Assets consists of Bullion, Steel and Agricultural commodities. It has now been decided to include diamond, base metals and alloys in the list of permissible liquid assets, subject to concentration limits for non-bullion collateral as specified in the SEBI Circular dated October 14, 2016 and a minimum haircut as mentioned below:

Item

Minimum Haircut

Base metals and Alloys

30%

Diamond

40%

 

For further details, click here

SEBI has introduced a risk management framework for liquid funds and overnight funds. The key provisions are as below.

Liquid funds shall hold at least 20% of their net assets in liquid assets, which would include cash, government securities, T-bills and repo on Government Securities.

  1. Liquid Funds and Overnight Funds shall not park funds, pending deployment, in short term deposits of scheduled commercial banks. They are also precluded from investing in debt securities which have structured obligations or credit enhancements. However, they are permitted to invest in debt securities with a government guarantee.
  2. Mutual Funds shall levy an exit load on investors who exit from the Liquid Fund within 7 days of their investment which, for all fresh investments, will come into force on 20th October 2019.
  3. The Association of Mutual Funds of India (AMFI) has been advised to prescribe the minimum exit load in a liquid fund on a graded basis in consultation with SEBI.

For further details, click here

It has been decided that a waterfall approach shall be followed for the valuation of money market and debt securities, for arriving at security level pricing. The key aspects to be considered are:

  1. Under the approach, all traded securities shall be valued on the basis of traded yields, subject to identification of outlier trades by the valuation agencies.
  2. Volume Weighted Average Yield (VWAY) for trades in the last one hour of trading would be used as the basis for valuation of Government Securities (including T-bills).
  3. Valuation of all other money market and debt securities, including Government securities not traded in the last one hour, shall be done on the basis of VWAY of all trades during the day.
  4. Guidelines would be issued by AMFI on polling by valuation agencies and on the responsibilities of Mutual Funds in the polling process, as part of the aforesaid waterfall approach.
  5. Valuation agencies shall identify the Mutual Funds who shall participate in the polling process on a particular day, taking into account factors such as diversification of poll submitters and portfolio holding of the Mutual Funds. The minimum number of polls to be considered for valuation along-with the operational modalities of polling shall be specified.
  6. Asset Management Companies (AMCs) shall have a written policy, approved by the Board of the AMC and Trustees, on governance of the polling process.

Guidelines have been prescribed for classification of a security as “below investment grade” or “default”.

1. A money market or debt security shall be classified as “below investment grade” if the long-term rating of the security    issued by a SEBI registered Credit Rating Agency (CRA) is below BBB- or if the short-term rating of the security is below A3.

2. A money market or debt security shall be classified as “Default” if the interest or the principal amount has not been received on the day such amount was due or when such security has been downgraded to “Default” grade by a CRA.

For further details, click here

The position limits in Interest Rate Derivatives have been reviewed as below:

  • Banks and Primary Dealers dealing as clients shall have the same position limits as are applicable to Trading Members.
  • Institutions belonging to Category I and II FPIs (i.e. other than individuals, family offices and companies) shall have the same position limits as are applicable to Trading Members, whereas non-institutions belonging to Category II FPIs (i.e. individuals, family offices and companies) shall have the same position limits as are applicable to clients.
  • Position limits have been revised for Interest Rate Derivatives falling in specified residual maturity buckets.

For further details, click here

Regulations

Amendments have made to SEBI’s regulations on prohibition of insider trading. Chapter III-A has been introduced, which governs the provisions relating to procedure for giving information, informant reward and confidentiality. Key highlights of the amendment are as below:

  1. Section 7A (b) defines ‘Informant’ as a “person voluntarily submitting a form detailing credible, complete and original information relating to an act of insider trading” and the term “original information”  has been defined as “any relevant information derived from independent knowledge which is not known to SEBI through any source and which is sufficiently specific and credible.”
  2. The Informant would be required to submit original information by furnishing the voluntary information disclosure form to the office of Informant Protection of SEBI. The information and the identity of the informant shall be kept confidential. On receipt of original information, the officer of informant protection shall submit it to the relevant department for further examination.
  3. SEBI may, at its sole discretion, declare an Informant eligible for a reward and determine the amount of reward, in accordance with the regulations.
  4. If any employee during his employment files a voluntary information disclosure form, irrespective of whether the information is considered or rejected, such employee shall be protected against retaliation and victimisation.
  5. These regulations shall not be deemed to provide any amnesty or immunity to an Informant for violation of securities law.
  6. The amendment shall be effective from 26th December 2019.  

For further details, click here

The Foreign Portfolio Investor (FPI) Regulations have been revised by SEBI and are now referred to as SEBI (FPI) Regulations 2019 and which replace the existing SEBI (FPI) Regulations, 2014. Key changes in the amended regulations are as below:

  1. Categorisation of FPIs: In terms of the earlier regulations, FPIs were classified into three categories: Category I, II and III. With the amendment, Category III has been discarded and all the entities presently registered as Category III will be upgraded to Category II. The list of entities eligible for Category I registration has been expanded to include certain regulated funds.
  2. Non-BIS member central banks permitted to register as FPIs: Any foreign central bank can now register in India as an FPI regardless of whether it is a member of Bank for International Settlements (BIS) or not.
  3. Removal of broad-based criteria: In terms of the earlier regulations, a fund was considered to be broad based if it had at least 20 investors (directly or on a look through basis) with no investor holding more than 49% shares of the fund. Alternatively, the fund could be deemed as a broad-based fund if more than 50% t ownership in the fund was held either by a bank, a sovereign wealth fund, an insurance, re-insurance company or a pension fund. This criteria has been removed.
  4. Requirement to ensure that FPIs do not have opaque structures removed: Since FPIs are required to provide information on their beneficial owners both on ownership as well as control basis, the obligation on Designated Depository Participants (DDPs) to ensure that FPIs do not have an opaque structure has been done away with.
  5. Entities set up in the IFSC eligible to register as FPIs: An entity set up in the International Financial Services Center (IFSC) will now qualify to register as an FPI even if such an entity is domestic.
  6. Revision in registration fees: FPI registration fees have been revised to USD 3,000 for Category I FPIs and USD 300 for Category II FPIs compared to the earlier provision of no fees for Category I FPIs and USD 3000 for Category II FPIs. No registration fee would be payable by international or multilateral agencies such as the World Bank and other institutions which are eligible for privileges or immunities from payment of tax and duties.
  7. Non-payment of fees: In case of non-payment of fees by an FPI for continuance of its registration after a block of three years, it would be deemed that the FPI has surrendered its registration, provided there are no securities positions or cash balance held by the FPI.

For further details, click here

 

SEBI has introduced amendments to its Mutual Funds Regulations and key changes introduced are:

  1. Restrictions have been imposed on investments by Mutual Fund schemes in unlisted debt instruments including commercial papers, except Government Securities and other money market instruments. Investments in unlisted non-convertible debentures are permitted up to a maximum of 10% of the debt portfolio of the scheme, subject to such conditions as may be specified by SEBI.
  2. All investments by a mutual fund scheme in equity shares and equity related instruments shall only be made in securities that are listed or to be listed.

For further details, click here

SEBI has introduced amendments to its buy-back regulations by way of a notification dated September 17, 2019. Key changes are as below:

  1. It has been decided to continue with the current approach of allowing buybacks resulting in a post-buyback debt-to-equity ratio of up to 2:1, except for companies for which a higher ratio has been notified under the Companies Act, based on both standalone and consolidated basis.
  2. Government companies carrying out non-banking finance and housing finance activities are permitted to launch buybacks resulting in a debt-equity ratio of up to 6:1 post the share repurchase.
  3. Under the new rules, the financial statements would be considered on both standalone and consolidated basis to determine the maximum permissible buyback size and other related requirements.

For further details, click here

SEBI has amended its regulations for Credit Rating Agencies (CRAs)  requiring clients  to provide explicit consent to the CRA to obtain the details related to their existing and future borrowing, its repayment, any delay or default in servicing of the borrowing, either from the lender or any other organisation maintaining such information. The client would be required to co-operate with the CRA in order to enable them to carry out a periodic review of the rating during the tenure of the rated instrument.  For further details, click here

SEBI has introduced amendments to its regulations on the issue and listing of debt securities by municipalities. The key changes are as below:

  1. In terms of the earlier regulations, this fund-raising route was available only to issuers defined as (i) a municipality under the relevant articles of the Constitution of India or (ii) corporate municipal entities set up as a subsidiary of a municipality for the purpose of raising funds for a specific municipality. With the amendment, municipal bonds can now be raised by a larger segment, including urban development authorities and special purpose vehicles set up under the Central Government's 'Smart Cities Mission'.
  2. Certain previous requirements are no longer needed, such as: appointment of a monitoring agency, filing of viability certificate or a detailed Project Appraisal Report, setting up of a separate project implementation cell, maintenance of 100% asset cover with specification of resources and mandatory backing of the State or Central Government.
  3. Norms relating to accounting, auditing and disclosure of financial statements have been revised.
  4. The provisions relating to a minimum tenure of three years and a maximum of five for issuance of revenue bonds are no longer required.
  5. In case of private placements, the minimum subscription amount per investor has been reduced to INR 10 lakhs from INR 25 lakhs, prescribed earlier.

For further details, click here

India Market Updates

RBI has imposed directions under Section 35A of the Banking Regulation Act, 1949 on Punjab and Maharashtra Cooperative Bank Limited, Mumbai, Maharashtra. Depositors will be allowed to withdraw a sum not exceeding INR 25,000 of the total balance in every savings bank account or current account or any other deposit account with the above bank, subject to conditions stipulated in the RBI Directions.

The Bank will also not be able to grant or renew any loans and advances, make any investment, incur any liability, disburse or agree to disburse any payment or enter into any compromise or arrangement without the prior approval in writing from RBI. The Directions shall remain in force for a period of six months from the close of business of the bank on September 23, 2019.

 

RBI has released the ‘Draft Guidelines for ‘on tap’ Licensing of Small Finance Banks in the Private Sector’ for comments of stakeholders and members of the public.  For further details, click here

SEBI has settled an alleged insider trading case with an individual, Mr. Kailash Pratap Mariwala,  in respect of the shares of  Sabero Organics Ltd  on payment of over INR  1 crore as settlement charges for alleged disgorgement of illegal gains in violation of the Prohibition of Insider Trading Rules.

Yes Bank and its Compliance Officer, Mr. Shivanand Shettigar, have settled a case with SEBI, related to alleged disclosure lapses to the exchanges by paying a total amount of INR  66 lakhs towards settlement charges.

  • A penalty of INR 5 lakh each was imposed on M/s Meenakshi Bright Steel Bars Pvt Ltd, M/s Ocean International, Mr. Atul Singal and M/s Geo Fresh Organic through separate orders for indulging in fraudulent trade in illiquid stock options segment of the Bombay Stock Exchange (BSE).
  • Further, a fine of over INR 19 lakh was imposed on two entities, M/s Akashganga Agencies Pvt Ltd and Ajeit PS Rajbans HUF, for executing fraudulent trades in the illiquid stock option segment on the BSE.
  • A penalty of INR 22.6 crore was imposed on M/s Aurobindo Pharma, its promoter, Mr. P V Ramprasad Reddy, his wife, Ms. P Suneela Rani and other connected entities for violating insider trading
  • A penalty of INR 10 lakhs was imposed on M/s Infrastructure Leasing & Financial Services (IL&FS) for non-disclosure of price sensitive information to stock exchanges.
  • A fine of INR 12 lakhs was imposed on ICICI Bank Ltd and its compliance officer, Mr. Sandeep Batra, for disclosure lapses, including delayed disclosure of a binding agreement signed with Bank of Rajasthan.
  • A fine of INR 6 lakhs was levied on M/s SRU Securities for indulging in manipulative trading in the shares of Cerebra Integrated Technologies Limited. The order was issued pursuant to an investigation conducted by SEBI between December 2014 and January 2016.

 

SEBI has barred C G Power’s ex-chairman, Mr.  Gautam Thapar, former directors, Mr. Madhav Acharya and Mr. B Hariharan and Chief Financial Officer, Mr. V R Venkatesh, from accessing the securities market for alleged fraudulent transfer of funds from the company. They have also been restrained from being associated with any market intermediary or listed company.

 

 

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