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FAQs on Master Directions on Priority Sector Lending Guidelines

J. PSLCs

Query 31: Whether service tax/ stamp duty/ transaction tax will be applicable while paying fee for PSLC ?

Clarification: PSLCs may be construed in the nature of 'goods' in the course of inter-state trade or commerce, dealing in which has been notified as a permissible activity under section 6(1)(o) of BR Act vide Government of India Notification dated May 4, 2016. GST on PSLCs for the period July 01, 2017 to May 28, 2018 has to be paid by the seller bank on forward charge basis at the rate of 12%. With effect from May 28, 2018, GST has to be paid by the buyer bank under Reverse Charge Mechanism (RCM) at the rate of 18%. Further, IGST is payable on the supply of PSLC traded over e-kuber portal. If a bank which was liable to pay GST had already paid CGST/SGST or CGST/UGST, the bank is not required to pay IGST towards such supply. Further, as per the extant guidelines, no transaction charge/ fees is applicable on the participating banks payable to RBI for usage of the PSLC module on e-Kuber portal.

(The clarification given above is not a legal advice or opinion in the matter and it may not necessarily reflect the most current legal developments. The market participants should seek the advice of the tax experts/consultants/specialists before acting upon any of the information provided above).

Query 32: Whether PSL – Weaker Sections or PSL – Export Credit can be traded as PSLCs ? +

Clarification: There are only four eligible categories of PSLCs i.e. PSLC General, PSLC Small and Marginal Farmer, PSLC Agriculture & PSLC Micro Enterprises.

Query 33: Whether Export Credit may form a part of PSLC 'General' and whether banks’ surplus in Export Credit can be sold as PSLC 'General’ ? +

Clarification: 'Export Credit' can form a part of underlying assets against the PSLC - General. However, any bank issuing PSLC-General against 'Export Credit' shall ensure that the underlying 'Export Credit' portfolio is also eligible for priority sector classification by domestic banks.

Query 34: Are Foreign Banks with less than 20 branches permitted to buy PSLC-General for achieving the target of 8% of lending to ‘other than exports’ ? +

Clarification: Foreign banks with less than 20 branches are not allowed to buy PSLC General for achieving their 8% target of lending to sectors other than exports. However, such banks are allowed to buy PSLC Agriculture, PSLC Micro Enterprises and PSLC Small and Marginal Farmer for the same.

Query 35: Where can the banks look for market information like prevailing prices, lot size, and historical transactions done by other market participants? Will this information be available in E-Kuber? +

Clarification: The trade summary of PSLC market is available to the participants through the e-Kuber portal. Any new functionality will be notified to the participants via 'News & Announcements' section under e-Kuber portal.

Query 36: Can a purchasing bank re-sell PSLCs? Will only the net PSLC position be reckoned for ascertaining the underlying asset? +

Clarification: A bank can purchase PSLCs as per its requirements. Further, a bank is permitted to issue PSLCs upto 50 percent of previous year’s PSL achievement without having the underlying in its books. This is applicable category-wise. The net position of PSLCs (PSLC Buy – PSLC Sell) has to be considered while reporting the quarterly and annual priority sector returns. However, with regard to ascertaining the underlying assets, as on March 31st, the bank must have met the priority sector target by way of the sum of outstanding priority sector portfolio and net of PSLCs issued and purchased.

Query 37: What happens if the RBI inspection team, at a later date, de-classifies a particular PSLC (which has been already traded by the bank as PSLC) ineligible ? +

Clarification: The misclassifications, if any, will have to be reduced from the achievement of PSLC seller bank only. There will be no counterparty risk for the PSLC buyer, even if, the underlying asset of the traded PSLC gets misclassified.

Query 38: The buyer would pay a fee to the seller of the PSLC which will be market determined. Is there any standard/ minimum fee prescribed by the RBI, for purchase of any PSLC ? +

Clarification: The premium will be completely market determined. No floor/ ceiling has been prescribed by RBI in this regard.

Query 39: How the charges/commission shall be paid through E-Kuber portal or separate RTGS is required to be made ? +

Clarification: There will be real time settlement of the matched premium and accordingly respective current accounts of the participating banks with RBI will be debited/ credited to the extent of matched premium

Query 40: Will there be automatic matching of trades or can the buyer/seller select the counterparty? Will partial matching also happen? +

Clarification: The order matching will be done on anonymous basis through the portal and the buyer/ seller cannot select the counterparty. Partial matching will happen depending on the matching of premium and availability of category wise PSLC lots for sale and purchase.

Query 41: What are the timings of PSLC market in eKuber portal ? +

Clarification: The normal trading hours shall be from 10 AM to 4:30 PM. The PSLC market operates on all days except Saturdays, Sundays, holidays declared under The Negotiable Instruments Act, 1881 by the Government of Maharashtra. and such holidays as RBI may declare from time to time.

Query 42: Can a bank know the counterparty details in PSLC trades or settle deals on bilateral basis and report the same on e-kuber portal subsequently ? +

Clarification: The nature of PSLC trading has been kept anonymous to maintain most efficient price discovery. There is no provision for settling deals on bilateral basis and reporting on the portal subsequently. RBI has the discretion to cancel any deals which is settled at substantially higher/ lower premiums as compared to the prevailing rates on the portal.

External Commercial Borrowings (ECB) and Trade Credits

D. RECOGNISED LENDERS/ INVESTORS

11. Individuals can be recognised lenders if they are foreign equity holders or for subscription to bonds/debentures listed abroad. Should such lenders also be from FATF/IOSCO compliant jurisdictions? +

Yes.

Retail Direct Scheme

Account opening related queries

11. Can I open a Retail Direct Gilt (RDG) account if I have already invested in Government securities through other channels? +

Yes.

Biennial survey on Foreign Collaboration in Indian Industry (FCS)

Details of survey launch

Q11. What if the reporting entity does not receive the soft copy of the survey schedule by email? +

Ans.: In case the reporting entity does not receive the soft-form of the survey schedule, they may download the same from RBI website www.rbi.org.in---> ‘Regulatory Reporting’-→ ‘List of Returns’-→ ‘FCS – Survey Schedule’ or Forms→Survey or send a request to the email: fcsquery@rbi.org.in.

Targeted Long Term Repo Operations (TLTROs)

FAQs pertaining to TLTRO 2.0

Q11: Under the TLTRO 2.0 scheme, will the specified eligible instruments 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: In order to provide banks flexibility in investment, this condition will not be applicable for funds availed under TLTRO 2.0.

Housing Loans

11. What precautions do you need to take if you are purchasing a property that is not a newly built one? +

Ensure that the documents being provided to you are not colour photocopies. Check the internet for other modus operandi to fraud and ensure clear title to the asset. Seek advice only from authentic sources such as your bank.

Get the no encumbrance certificate to find the true title holder and if it is mortgaged to any financier. Obtain all tax papers to ensure that all documents are up to date.

Indian Currency

B) Banknotes

3. Can banknotes be issued only in these denominations? +

Not necessarily. In terms of Section 24 of the Reserve Bank of India Act, 1934, bank notes shall be of the denominational values of two rupees, five rupees, ten rupees, twenty rupees, fifty rupees, one hundred rupees, five hundred rupees, one thousand rupees, five thousand rupees and ten thousand rupees or of such other denominational values, not exceeding ten thousand rupees, as the Central Government may, on the recommendation of the Central Board, specify in this behalf.

Government Securities Market in India – A Primer

11. How are the dealing transactions recorded by the dealing desk? +

11.1 For every transaction entered into by the trading desk, a deal slip should be generated which should contain data relating to nature of the deal, name of the counter-party, whether it is a direct deal or through a broker (if it is through a broker, name of the broker), details of security, amount, price, contract date and time and settlement date. The deal slips should be serially numbered and verified separately to ensure that each deal slip has been properly accounted for. Once the deal is concluded, the deal slip should be immediately passed on to the back office (it should be separate and distinct from the front office) for recording and processing. For each deal, there must be a system of issue of confirmation to the counter-party. The timely receipt of requisite written confirmation from the counter-party, which must include all essential details of the contract, should be monitored by the back office. The need for counterparty confirmation of deals matched on NDS-OM will not arise, as NDS-OM is an anonymous automated order matching system. In case of trades finalized in the OTC market and reported on NDS-OM reported segment, both the buying and selling counter parties report the trade particulars separately on the reporting platform which should match for the trade to be settled.

11.2 Once a deal has been concluded through a broker, there should not be any substitution of the counterparty by the broker. Similarly, the security sold / purchased in a deal should not be substituted by another security under any circumstances.

11.3 On the basis of vouchers passed by the back office (which should be done after verification of actual contract notes received from the broker / counter party and confirmation of the deal by the counter party), the books of account should be independently prepared.

All you wanted to know about NBFCs

B. Entities Regulated by RBI and applicable regulations

11. What are the powers of the Reserve Bank with regard to 'Non-Bank Financial Companies’, that is, companies that meet the 50-50 Principal Business Criteria? +

The Reserve Bank has been given the powers under the RBI Act 1934 to register, lay down policy, issue directions, inspect, regulate, supervise and exercise surveillance over NBFCs that meet the 50-50 criteria of principal business. The Reserve Bank can penalize NBFCs for violating the provisions of the RBI Act or the directions or orders issued by RBI under RBI Act. The penal action can also result in RBI cancelling the Certificate of Registration issued to the NBFC, or prohibiting them from accepting deposits and alienating their assets or filing a winding up petition.