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Core Investment Companies

B. Registration and related matters:

20. Whether NBFCs already registered with the Bank as NBFC-Base layer whose asset size is below ₹ 100 crore, but fulfilling the CIC criteria, can seek voluntary deregistration (as such companies are not otherwise required to get registered with the Bank under the extant norms)? If so, which source should be relied upon viz certificate from Statutory auditor or audited balance sheet for one year or more?

Ans: Yes, CICs presently registered with the Bank but fulfilling the criteria for ‘Unregistered CICs’ as defined under para 6 of the Master Direction DoR(NBFC).PD.003/03.10.119/2016-17 date August 25, 2016 can seek voluntary deregistration. Both audited balance sheet and auditor’s certificate are required to be submitted for the purpose.

All you wanted to know about NBFCs

B. Entities Regulated by RBI and applicable regulations

20. What are the regulations for lending against security of shares by NBFCs?

NBFCs shall comply with the regulations contained in para 36 of the Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) 2023 (as amended from time to time) while granting loans against security of shares. The regulations include, inter alia, maintaining a Loan to Value (LTV) ratio of 50% at all times, accept only Group 1 securities as collateral for loans of value more than ₹5 lakh where lending is done for investment in capital markets, undertake necessary reporting to stock exchanges on shares pledged in their favour, etc.
In addition to the above, there are other related regulations on NBFCs viz., there shall be ceiling of ₹1 crore per borrower for financing subscription to Initial Public Offer (IPO) and NBFCs can fix more conservative limits. Further, NBFCs are prohibited from lending against security of their own shares and debentures.

Coordinated Portfolio Investment Survey – India

Some important definitions and concepts

Q20. What are long-term debt securities? +

Ans: Debt securities with original maturity of more than one year is classified as long-term debt securities. These include bonds, debentures, and notes that usually give the holder the unconditional right to a fixed cash flow or contractually determined variable money income.

Foreign Investment in India

Q.21: Can a foreign investor invest in Rights shares issued by an Indian company at a discount ? +

Answer: There are no restrictions under FEMA for investment in Rights shares issued at a discount by an Indian company under the provisions of the Companies Act, 2013. The offer on rights basis to the persons resident outside India shall be:

in case of shares of a company listed on a recognized stock exchange in India, at a price, as determined by the company; and
in case of shares of a company not listed on a recognized stock exchange in India, at a price, which is not less than the price at which the offer on right basis is made to resident shareholders.

FAQs on Non-Banking Financial Companies

Mutual benefit financial companies (nidhis)

21. The nidhi companies have been precluded from accepting deposits in the nature of a Current Account. Whether they can open Savings Bank Account ? +

A. There is no prohibition for Nidhi companies opening Savings Bank Account.

Business restrictions imposed on Paytm Payments Bank Limited vide Press Releases dated January 31 and February 16, 2024

Merchants using Paytm Payments Bank to receive payments

21. I am a merchant and I accept payments using a Paytm QR code, Paytm soundbox or Paytm POS terminal, linked to another bank account (not with Paytm Payments Bank). Can I continue to use this set-up even after March 15, 2024? +

Yes. If your receipt and transfer of funds is linked to any bank account other than Paytm Payments Bank, you can continue to use this arrangement even after March 15, 2024.

Annual Return on Foreign Liabilities and Assets (FLA) under FEMA 1999

Procedure for submission of the FLA return

Q21. How can an entity get approval for revising the previous year returns? +

Ans: Please follow the below given step to revise the FLA return for a previous year:

Visit https://flair.rbi.org.in/fla/faces/pages/login.xhtml → Login to FLAIR → Click on MENU tab on the left-hand side of the homepage → ONLINE FLA FORM → FLA ONLINE FORM → “Please click here to get the approval to fill revised FLA form for current year after due date /previous year” → select "Year" and click on → Click “Request”.

Your request status will be visible in the table below available on the screen. After sending request to RBI through FLA portal, entities need to wait for at least one working day for approval. Entities can check the status of their request in “Multiple Year Enable Screen” under menu on the left corner. Once approved by DSIM, RBI, the entity can revise FLA return for selected year.

External Commercial Borrowings (ECB) and Trade Credits

G. ALL-IN-COST

21. Does all-in-cost ceiling apply on a continuous basis or can it be calculated even on an average basis? +

All-in-cost should be within the applicable ceiling at all times, e.g., breach of all-in-cost ceiling in the first year and a much lower all-in-cost in the second year so as to comply on an average, is not permitted.

Government Securities Market in India – A Primer

21. What are the basic mathematical concepts one should know for calculations involved in bond prices and yields? +

The time value of money functions related to calculation of Present Value (PV), Future Value (FV), etc. are important mathematical concepts related to bond market. An outline of the same with illustrations is provided in Box II below.

BOX II

Time Value of Money

Money has time value as a Rupee today is more valuable and useful than a Rupee a year later.

The concept of time value of money is based on the premise that an investor prefers to receive a payment of a fixed amount of money today, rather than an equal amount in the future, all else being equal. In particular, if one receives the payment today, one can then earn interest on the money until that specified future date. Further, in an inflationary environment, a Rupee today will have greater purchasing power than after a year.

Present value of a future sum

The present value formula is the core formula for the time value of money.

The present value (PV) formula has four variables, each of which can be solved for:

Present Value (PV) is the value at time=0
Future Value (FV) is the value at time=n
i is the rate at which the amount will be compounded each period
n is the number of periods

The cumulative present value of future cash flows can be calculated by adding the contributions of FV_t, the value of cash flow at time=t

An illustration

Taking the cash flows as;

Period (in Yrs)	1	2	3
Amount	100	100	100

Assuming that the interest rate is at 10% per annum;

The discount factor for each year can be calculated as 1/(1+interest rate)^no. of years

The present value can then be worked out as Amount x discount factor

The PV of ₹100 accruing after 3 years:

Year	Amount	discount factor	P.V.
1	100	0.9091	90.91
2	100	0.8264	82.64
3	100	0.7513	75.13

The cumulative present value = 90.91+82.64+75.13 = ₹ 248.69

Net Present Value (NPV)

Net present value (NPV) or net present worth (NPW) is defined as the present value of net cash flows. It is a standard method for using the time value of money to appraise long-term projects. Used for capital budgeting, and widely throughout economics, it measures the excess or shortfall of cash flows, in present value (PV) terms, once financing charges are met.

Formula

Each cash inflow/outflow is discounted back to its present value (PV). Then they are summed. Therefore

Where
t - the time of the cash flow
N - the total time of the project
r - the discount rate (the rate of return that could be earned on an investment in the financial markets with similar risk.)
C_t - the net cash flow (the amount of cash) at time t (for educational purposes, C₀ is commonly placed to the left of the sum to emphasize its role as the initial investment.).

In the illustration given above under the Present value, if the three cash flows accrues on a deposit of ₹ 240, the NPV of the investment is equal to 248.69-240 = ₹ 8.69

Retail Direct Scheme

Nomination related queries

21. Is nomination compulsory for opening Retail Direct Gilt (RDG) Account? +

Yes.

Domestic Deposits

II. Deposits of Non-Residents Indians (NRIs)

21. Whether FCNR(B) deposits can be renewed from retrospective effect (i.e. from the maturity date)? If yes, what is the rate of interest payable? +

The bank may, at its discretion, renew an overdue FCNR(B) deposit or a portion thereof provided the overdue period from the date of maturity till the date of renewal (both days inclusive), does not exceed 14 days and the rate of interest payable on the amount of the deposit so renewed shall be the appropriate rate of interest for the period of renewal as prevailing on the date of maturity or on the date when the depositor seeks renewal, whichever is lower. In the case of overdue deposits where the overdue period exceeds 14 days, the deposits can be renewed at the prevailing rate of interest on the date when the renewal is sought. If the depositor places the entire amount of overdue deposit or a portion thereof as a fresh FCNR(B) deposit, banks may fix their own interest for the overdue period on the amount so placed as a fresh term deposit. Banks are free to recover the interest so paid for the overdue period if the deposit is withdrawn before completion of minimum stipulated period under the scheme, after renewal.

Indian Currency

C) Different Types of Bank Notes and Security Features of banknotes

1. What are the various types of banknotes issued since independence of India? +

The details are as under:

i. Ashoka Pillar Banknotes:

The first banknote issued by independent India was the one rupee note issued in 1949. While retaining the same designs the new banknotes were issued with the symbol of Lion Capital of Ashoka Pillar at Sarnath in the watermark window in place of the portrait of King George.

The name of the issuer, the denomination and the guarantee clause were printed in Hindi on the new banknotes from the year 1951. The banknotes in the denomination of ₹1000, ₹5000 and ₹10000 were issued in the year 1954. Banknotes in Ashoka Pillar watermark Series, in ₹10 denomination were issued between 1967 and 1992, ₹20 denomination in 1972 and 1975, ₹50 in 1975 and 1981, and ₹100 between 1967-1979. The banknotes issued during the above period, contained the symbols representing science and technology, progress, orientation to Indian Art forms. In the year 1970, banknotes with the legend "Satyameva Jayate", i.e., truth alone shall prevail were introduced for the first time. In October 1987, ₹500, banknote was introduced with the portrait of Mahatma Gandhi and the Ashoka Pillar watermark.

ii. Mahatma Gandhi (MG) Series 1996

The details of banknotes issued in MG Series – 1996 is as under:

Denomination	Month and year of introduction
₹5	November 2001
₹10	June 1996
₹20	August 2001
₹50	March 1997
₹100	June 1996
₹500	October 1997
₹1000	November 2000

All the banknotes of this series bear the portrait of Mahatma Gandhi on the obverse (front) side, in place of symbol of Lion Capital of Ashoka Pillar, which has also been retained and shifted to the left side next to the watermark window. This means that these banknotes contain Mahatma Gandhi watermark as well as Mahatma Gandhi's portrait.

iii. Mahatma Gandhi series – 2005 banknotes

MG series 2005 banknotes were issued in the denomination of ₹10, ₹20, ₹50, ₹100, ₹500 and ₹1000 and contain some additional/new security features as compared to the 1996 MG series. The year of introduction of these banknotes is as under:

Denomination	Month and year of Introduction
₹50 and ₹100	August 2005
₹500 and ₹1000	October 2005
₹10	April 2006
₹20	August 2006

The Legal tender of banknotes of ₹500 and ₹1000 of this series was subsequently withdrawn w.e.f. the midnight of November 8, 2016.

iv. Mahatma Gandhi (New) Series (MGNS) – Nov 2016

The Mahatma Gandhi (New) Series, introduced in the year 2016, highlights the cultural heritage and scientific achievements of the country. The banknotes in the series are more wallet friendly, being of reduced dimensions and hence expected to incur less wear and tear. For the first time, designs for banknotes has been indigenously developed on themes reflecting the diverse history, culture and ethos of the country as also its scientific achievements. The colour scheme is sharp and vivid to make the banknotes distinctive.

The first banknote from the new series was introduced on November 8, 2016 in a new denomination i.e. ₹2000 with the theme of Mangalyaan. Subsequently, banknotes in this series in denomination of ₹500, ₹200, ₹100, ₹50, ₹20, and ₹10 have also been introduced.

Core Investment Companies

B. Registration and related matters:

21. CICs which presently have an asset size of less than ₹ 100 crore are required to apply to the Bank within three months of the date of achieving a balance sheet size of ₹ 100 crore. Would the date of achieving balance sheet size of ₹ 100 crore be the date of the last audited balance sheet ?

Ans: Yes, company which is a CIC and has achieved the balance sheet size of ₹ 100 crore as per its last audited annual financial statement is required to apply to the Bank for registration as a CIC, subject to its meeting the other conditions for being identified as a CIC.

All you wanted to know about NBFCs

B. Entities Regulated by RBI and applicable regulations

21. Will the regulations on Lending against security of shares be applicable on restructured accounts?

The resolution of stressed assets are subject to the provisions of (a) the Prudential Framework for Resolution of Stressed Assets as contained in para 18 and (b) norms on restructuring of advances as contained in para 22, 23, 24 and 25 of the Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) 2023 (as amended from time to time). The acquisition of shares due to conversion of debt into equity during a restructuring process will be exempted from regulatory ceilings on capital market exposures.

Coordinated Portfolio Investment Survey – India

Some important definitions and concepts

Q21. What are short-term debt securities? +

Ans: Debt securities with original maturity of one year or less is classified as short-term debt securities. Examples of short-term securities are treasury bills, negotiable certificates of deposit, bankers’ acceptances, promissory notes, and commercial paper.

Foreign Investment in India

Q.22: Whether RBI approval is required for renunciation of rights shares ? +

Answer: No, renunciation of rights shares shall be done in accordance with the instructions contained in Para 6.11 of Master Direction - Foreign Investment in India dated January 4, 2018, read with Regulation 6 of FEMA 20(R).

FAQs on Non-Banking Financial Companies

Mutual benefit financial companies (nidhis)

22. Whether the freedom from ceiling on interest rate allowed to the nidhi companies shall continue as hitherto ? +

Yes. However, exemption from the ceiling on interest rate applies only to those nidhi companies which comply with the conditions stipulated by RBI in January 1997 and to which exemption certificates have been issued by RBI.

Annual Return on Foreign Liabilities and Assets (FLA) under FEMA 1999

Some Useful Definitions

Q22. What is Direct investment? +

Ans: Direct investment is a category of international investment in which a resident entity in one economy [Direct Investor (DI)] acquires a lasting interest in an enterprise resident in another economy [Direct Investment Enterprise (DIE)]. It consists of two components, viz., Equity Capital and Other Capital.

External Commercial Borrowings (ECB) and Trade Credits

G. ALL-IN-COST

22. Can interest during construction stage be paid out of ECB borrowings? +

The definition of all-in-cost prohibiting use of ECB proceeds for payment of interest/charges is not applicable to ECBs raised for project finance and utilised for payment of guarantee fees (like ECA Premium) and interest during construction, provided the said components are part of project cost and capitalised by the borrower.

Government Securities Market in India – A Primer

22. How is the Price of a bond calculated? What is the total consideration amount of a trade and what is accrued interest? +

The price of a bond is nothing but the sum of present value of all future cash flows of the bond. The interest rate used for discounting the cash flows is the Yield to Maturity (YTM) (explained in detail in question no. 24) of the bond. Price can be calculated using the excel function ‘Price’ (please refer to Annex 6).

Accrued interest is the interest calculated for the broken period from the last coupon day till a day prior to the settlement date of the trade. Since the seller of the security is holding the security for the period up to the day prior to the settlement date of the trade, he is entitled to receive the coupon for the period held. During settlement of the trade, the buyer of security will pay the accrued interest in addition to the agreed price and pays the ‘consideration amount’.

An illustration is given below;

For a trade of ₹ 5 crore (face value) of security 8.83% 2023 for settlement date Jan 30, 2014 at a price of ₹100.50, the consideration amount payable to the seller of the security is worked out below:

Here the price quoted is called ‘clean price’ as the ‘accrued interest’ component is not added to it.

Accrued interest:

The last coupon date being Nov 25, 2013, the number of days in broken period till Jan 29, 2014 (one day prior to settlement date i.e. on trade day) are 65.

The accrued interest on ₹100 face value for 65 days	= 8.83 x (65/360)
	= ₹1.5943

When we add the accrued interest component to the ‘clean price’, the resultant price is called the ‘dirty price’. In the instant case, it is 100.50+1.5943 = ₹102.0943