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External Commercial Borrowings (ECB) and Trade Credits

I. HEDGING UNDER ECB FRAMEWORK

35. What are the permitted derivative products for hedging of ECB? +

Users may refer to Master Direction on Risk Management and Inter-bank dealings dated July 5, 2016, as amended from time to time.

Government Securities Market in India – A Primer

Annex 3 +

Sample of Auction Calendar

Domestic Deposits

III. Advances

35. Consequent on the deregulation of interest rate on advances over Rs.2 lakhs with effect from October 18, 1994, whether banks should pay DICGC Guarantee fees in respect of priority sector advances? +

As regards DICGC Guarantee fees, the banks have been given discretion to absorb or to pass on the guarantee fees to the borrower in case of advances over Rs.25,000/- excluding advances to weaker sections. Banks should bear DICGC guarantee fees in respect of advances upto Rs.25,000/- and all advances to weaker sections.

Retail Direct Scheme

Investment and Account holdings related queries

35. What amount should I pay at the time of placing a bid in primary auctions? +

For dated G-Sec, T-Bills and SDLs, the amount per unit will be based on the indicative price of the security, the accrued interest and a mark-up.

For SGBs, the funding will be based on the Issue Price declared by RBI for that particular issue.

Indian Currency

D) Soiled, Mutilated and Imperfect Banknotes

7. What types of banknotes are eligible/not eligible for payment under the Note Refund Rules?

The details are available on our website at the following link: www.rbi.org.in >> Currency Management >>Notifications.

A summary of the old (2009) and amended NRR (2018) is as under:

Note Refund Rules - Amended

Sr. No.	As per Old NRR (2009)	As per Amended NRR (2018)
1	Notes up to ₹20 denominations i) area of single largest undivided piece of the note > 50% - Full value ii) area of largest undivided piece of the note =/< 50% - Reject	No change
2	Notes of ₹50/- and above denominations i) If area is less than 40% - Reject ii) If the area is equal to or more than 40% and less than or equal to 65% - Half value iii) If the area of the single largest undivided pieces is more than 65% - Full value	Notes of ₹50/- & above denominations i) If area is less than 40% - Reject ii) If the area is more than or equal to 40% and less than or equal to 80% - Half value iii) If the area of the single largest undivided pieces is more than 80% - Full value

All you wanted to know about NBFCs

D. Definition of deposits, Eligible / Ineligible Institutions to accept deposits and Related Matters

35. Which entities can legally accept deposits from public? +

Banks, including co-operative banks, can accept deposits. NBFCs (including Housing Finance Companies), which have been issued Certificate of Registration by the Reserve Bank with a specific licence to accept deposits, are entitled to accept public deposit. In other words, not all NBFCs registered with the Reserve Bank are entitled to accept deposits but only those that hold a deposit accepting Certificate of Registration, can accept deposits. Further, these deposit accepting NBFCs can accept deposits, only to the extent permissible. Companies authorized by Ministry of Corporate Affairs under the Companies (Acceptance of Deposits) Rules framed by Central Government under the Companies Act can also accept deposits upto a certain limit. Cooperative Credit Societies can accept deposits from their members but not from the general public. The Reserve Bank regulates the deposit acceptance only of banks, cooperative banks and NBFCs.

It is not legally permissible for other entities to accept public deposits. Unincorporated bodies like individuals, partnership firms, and other association of individuals are prohibited from carrying on the business of acceptance of deposits as their principal business. Such unincorporated bodies are prohibited from accepting deposits even if they are carrying on financial business.

Further, The First Schedule of the ‘The Banning of Unregulated Deposit Schemes Act, 2019’ may be referred for the list of regulated deposit schemes.

FAQs on Non-Banking Financial Companies

Liquid Asset requirement

36. Whether the liquid assets are required to be maintained only on the principal amount of public deposits or the interest accrued on such deposits should be included in the deposit liabilities? +

The liquid assets are required to be maintained in relation to the deposit outstanding together with the amount of interest accrued but not paid.

Government Securities Market in India – A Primer

Annex 4 +

Sample of Auction notification

Domestic Deposits

III. Advances

36. Whether interest on loans and advances could be charged at varying periods ranging from monthly rests to yearly rests? +

With effect from April 1, 2002 banks have been charging interest on loans and advances at monthly rests except in the case of agricultural advances (including short term loans and other allied activities) where the existing practice continues.

External Commercial Borrowings (ECB) and Trade Credits

J. Reporting

36. What precautions have to be taken at the time of filing of Form ECB in respect of an ECB? +

Any draw-down in respect of an ECB should happen only after obtaining the Loan Registration Number (LRN) from RBI by filing duly certified Form ECB to the Director, External Commercial Borrowings Division, Department of Statistics and Information Management (DSIM), Reserve Bank of India, Bandra-Kurla Complex, Mumbai – 400 051. It should be ensured that all terms and conditions of the ECB are reported correctly in Form ECB and none of the columns are left blank (such columns which are not applicable for the borrowing or against which ‘nil’ information has to be given, should be suitably covered). Changes in ECB parameters, whether under the automatic route with the approval of Authorised Dealer Category –I banks or under the approval route with prior approval of the RBI, should also be reported to the DSIM through revised Form ECB at the earliest, in any case not later than 7 days from the changes effected. While submitting revised Form ECB, the changes should be specifically mentioned in the communication. Any failure to comply with reporting guidelines in respect of Form ECB for an ECB may invite penal action under FEMA.

Foreign Investment in India

III. Investment in other securities

Q.36: Can a person resident outside India invest in Government Securities/ Treasury bills/ corporate debt/ other securities ? +

Answer: Foreign Portfolio Investors (FPIs), Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), Foreign Central Banks, Multilateral Development Bank, Long term investors like Sovereign Wealth Funds (SWFs), Multilateral Agencies, Endowment Funds, Insurance Funds and Pension Funds which are registered with SEBI Long Term Investors may invest in other securities as specified in Schedule 5 to Notification No FEMA 20.

Retail Direct Scheme

Investment and Account holdings related queries

36. At what price will the securities be allotted in primary auctions? +

At the weighted average price of the successful bids in the auction.

Indian Currency

D) Soiled, Mutilated and Imperfect Banknotes

8. What if a banknote is found to be non-payable?

Non-payable banknotes are retained by the receiving banks and sent to the Reserve Bank where they are destroyed.

All you wanted to know about NBFCs

D. Definition of deposits, Eligible / Ineligible Institutions to accept deposits and Related Matters

36. Can all NBFCs accept deposits? Is there any ceiling on acceptance of Public Deposits? What is the rate of interest and period of deposit which NBFCs can accept? +

All NBFCs are not entitled to accept public deposits. Only those NBFCs that hold a deposit accepting Certificate of Registration, and have a minimum investment grade credit rating of ‘BBB–‘ from any of the SEBI-registered credit rating agencies, are allowed to accept/ hold public deposits up to a limit of 1.5 times of their Net Owned Funds. Presently, the maximum rate of interest an NBFC can offer is 12.5%. The interest may be paid or compounded at rests not shorter than monthly rests. The NBFCs are allowed to accept/ renew public deposits which are repayable after 12 months but not later than 60 months. They cannot accept deposits repayable on demand.

However, as a matter of public policy, Reserve Bank has decided that only banks should be allowed to accept public deposits and as such, has, since 1997, not issued any Certificate of Registration (CoR) to new NBFCs for acceptance of public deposits.

Foreign Investment in India

III. Investment in other securities

Q.37: Who is an FVCI ? +

Answer: Foreign Venture Capital Investor’ (FVCI) means an investor incorporated and established outside India and registered with Securities and Exchange Board of India under Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000

FAQs on Non-Banking Financial Companies

Liquid Asset requirement

37. What is the ratio of liquid asset requirement and the base of deposits to which the liquid asset are linked ? +

The minimum level of liquid asset between January 1 and March 31, 1998 remains unchanged at 10 per cent and 5 per cent of the regulated deposits outstanding as on September 30, 1997 for equipment leasing/hire purchase finance companies and loan/investment companies respectively, depending upon their Registration status under erstwhile Registration Scheme. However, on and from April 1, 1998, the requirement of liquid assets would be uniform for all these NBFCs except RNBCs at 12.5 per cent of the "public deposits". The ratio will be 15 per cent of public deposits on and from April 1, 1999. For RNBCs, the ratio shall remain unchanged at 10 per cent of the deposits outstanding.

External Commercial Borrowings (ECB) and Trade Credits

J. Reporting

37. How are actual transactions of an ECB reported to RBI? +

The borrowers are required to report actual ECB transactions, correctly and fully, through duly certified Form ECB 2 through the Authorised Dealer Category-I bank to DSIM as per the periodicity specified by the RBI. None of the columns in Form ECB 2 should be left blank (such columns which are not applicable for the borrowing or against which ‘nil’ information has to be given, should be suitably covered). The Form ECB 2 should reach DSIM within seven working days from the close of month to which it relates. Changes, if any, in ECB parameters should also be incorporated in Form ECB 2 suitably. Any failure to comply with reporting guidelines in respect of Form ECB 2, including failure to adhere to periodicity of reporting, may invite penal action under FEMA.

Government Securities Market in India – A Primer

Annex 5 +

Specimen of Deal slip

Domestic Deposits

III. Advances

37. What rate of interest is chargeable on loans/ advances granted to Staff Members of the banks or Staff Members of Co-operative Credit Societies? +

The interest rate directives on advances granted by banks will not be applicable to loans or advances or other financial accommodation made or provided or renewed by a scheduled bank, inter alia, to its own employees. Where the advances are provided by the bank to co-operative credit societies formed by the bank’s staff members for lending to constituents (i.e. staff of the bank), the interest rate directives of the RBI will not apply in such advances.