FAQ Page 1 - ആർബിഐ - Reserve Bank of India
Government Securities Market in India – A Primer
If market interest rate levels rise, the price of a bond falls. Conversely, if interest rates or market yields decline, the price of the bond rises. In other words, the yield of a bond is inversely related to its price. The relationship between yield to maturity and coupon rate of bond may be stated as follows:
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When the market price of the bond is less than the face value, i.e., the bond sells at a discount, YTM > > coupon yield.
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When the market price of the bond is more than its face value, i.e., the bond sells at a premium, coupon yield > > YTM.
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When the market price of the bond is equal to its face value, i.e., the bond sells at par, YTM = coupon yield.
Business restrictions imposed on Paytm Payments Bank Limited vide Press Releases dated January 31 and February 16, 2024
Bharat Bill Payment System (BBPS)
Coordinated Portfolio Investment Survey – India
Some important definitions and concepts
Ans: When actual market values are not available, an estimate is required. Alternative methods of approximating market value of shareholders’ equity in a direct investment enterprise include the following:
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Recent transaction price: Unlisted instruments may trade from time to time, and recent prices, within the past year, at which they were traded may be used. Recent prices are a good indicator of current market values to the extent that conditions are unchanged. This method can be used as long as there has been no material change in the corporation’s position since the transaction date. Recent transaction prices become increasingly misleading as time passes and conditions change.
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Net asset value: Appraisals of untraded equity may be conducted by knowledgeable management or directors of the enterprise or provided by independent auditors to obtain total assets at current value less total liabilities (excluding equity) at market value. Valuations should be recent (within the past year) and should preferably include intangible assets.
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Present value and price-to-earnings ratios: The present value of unlisted equity can be estimated by discounting the forecast future profits. At its simplest, this method can be approximated by applying a market or industry price-to-earnings ratio to the (smoothed) recent past earnings of the unlisted enterprise to calculate a price. This method is most appropriate in which there is a paucity of balance sheet information but earnings data are more readily available.
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Market capitalization method: Book values reported by enterprises can be adjusted at an aggregate level by the statistical compiler. For untraded equity, information on “own funds at book value” can be collected from enterprises, and then adjusted with ratios based on suitable price indicators, such as the ratio of market capitalization to book value for listed companies in the same economy with similar operations. Alternatively, assets that enterprises carry at cost (such as land, plant, equipment, and inventories) can be revalued to current period prices using suitable asset price indices.
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Own funds at book value: This method for valuing equity uses the value of the enterprise recorded in the books of the direct investment enterprise, as the sum of (a) paid-up capital (excluding any shares on issue that the enterprise holds in itself and including share premium accounts); (b) all types of reserves identified as equity in the enterprise’s balance sheet (including investment grants when accounting guidelines consider them company reserves); (c) cumulated reinvested earnings; and (d) holding gains or losses included in own funds in the accounts, whether as revaluation reserves or profits or losses. The more frequent the revaluation of assets and liabilities, the closer the approximation to market values. Data that are not revalued for several years may be a poor reflection of market values.
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Apportioning global value: The current market value of the global enterprise group can be based on the market price of its shares on the exchange on which its equity is traded, if it is a listed company. Where an appropriate indicator may be identified (e.g., sales, net income, assets, or employment), the global value may be apportioned to each economy in which it has direct investment enterprises, on the basis of that indicator, by making the assumption that the ratio of net market value to sales, net income, assets, or employment is a constant throughout the transnational enterprise group. (Each indicator could yield significantly different results from the others).
Retail Direct Scheme
Nomination related queries
Domestic Deposits
II. Deposits of Non-Residents Indians (NRIs)
In respect of deposit accepted in the name of –
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member or a retired member of the bank’s staff, either singly or jointly with any other member or members of his/ her family, or
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the spouse of a deceased member or a deceased retired member of the bank’s staff,
the bank may, in its discretion, allow additional interest at a rate not exceeding one per cent per annum over and above the rate of interest stipulated, subject to the condition that overall ceiling prescribed for FCNR(B) deposits is not breached,
Provided that –
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the depositor or all the depositors of a joint account is/ are non-resident/s of Indian nationality or origin, and
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the bank shall obtain a declaration from the depositor concerned that the moneys so deposited or which may, from time to time, be deposited, shall be moneys belonging to the depositor as stated in clause (a) and (b) above.
Explanation: The word “family” shall mean and include the spouse of the member/ retired member of the bank’s staff, his/her children, parents, brothers and sisters who are dependent on such a member/ retired member but shall not include a legally separated spouse.
Indian Currency
C. Different Types of Bank Notes and Security Features of banknotes
Reserve Bank of India decided to withdraw from circulation all banknotes issued prior to 2005 as they have fewer security features as compared to banknotes printed after 2005. It is a standard international practice to withdraw old series notes. The RBI has already been withdrawing these banknotes in a routine manner through banks. It is estimated that the volume of such banknotes (pre-2005) in circulation is not significant enough to impact the general public in a big way. The exchange facility for pre-2005 banknotes is available only at the following offices of the Reserve Bank: Ahmedabad, Bengaluru, Belapur, Bhopal, Bhubaneswar, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur, New Delhi, Patna, Thiruvananthapuram and Kochi. This, however, did not imply that banks cannot accept deposits of pre-2005 banknotes for crediting to the customers’ accounts. Please refer to our Press Release no. 2016-17/1565 dated December 19, 2016 in this regard which can be accessed at the following link /en/web/rbi/-/press-releases/banks-should-accept-pre-2005-banknotes-in-deposit-rbi-clarifies-38951
Core Investment Companies
Core Investment Companies (CICs)
Ans: The application form for CICs-ND-SI available on the Bank’s website can be downloaded and filled in and submitted to the Regional Office of the DNBS in whose jurisdiction the Company is registered along with necessary supporting documents mentioned in the application form.
All you wanted to know about NBFCs
B. Entities Regulated by RBI and applicable regulations
Foreign Investment in India
Answer: The following persons can acquire capital instruments on the stock exchanges:
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FPIs registered with SEBI
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NRIs
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Other than (a) and (b) above, a person resident outside India, can acquire capital instruments on stock exchange, subject to the condition that the investor has already acquired and continues to hold the control of such company in accordance with SEBI (Substantial Acquisition of Shares and Takeover) Regulations and subject to conditions specified in Annex I of the Master Direction – Foreign Investment in India.
FAQs on Non-Banking Financial Companies
Classification of NBFCs into sub-groups
Annual Return on Foreign Liabilities and Assets (FLA) under FEMA 1999
Some Useful Definitions
Ans: The other capital component (receivables and payables, except equity and participating preference shares investment) of direct investment covers the outstanding liabilities or claims arising due to borrowing and lending of funds, investment in debt securities, trade credits, financial leasing, share application money etc., between direct investors and DIEs and between two DIEs that share the same direct Investor. Non-participating preference shares owned by the direct investor are treated as debt securities & should be included in ‘other capital’.
External Commercial Borrowings (ECB) and Trade Credits
G. END-USES
Government Securities Market in India – A Primer
24.1 An investor who purchases a bond can expect to receive a return from one or more of the following sources:
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The coupon interest payments made by the issuer;
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Any capital gain (or capital loss) when the bond is sold/matured; and
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Income from reinvestment of the interest payments that is interest-on-interest.
The three yield measures commonly used by investors to measure the potential return from investing in a bond are briefly described below:
i) Coupon Yield
24.2 The coupon yield is simply the coupon payment as a percentage of the face value. Coupon yield refers to nominal interest payable on a fixed income security like G-Sec. This is the fixed return the Government (i.e., the issuer) commits to pay to the investor. Coupon yield thus does not reflect the impact of interest rate movement and inflation on the nominal interest that the Government pays.
Coupon yield = Coupon Payment / Face Value
Illustration:
Coupon: 8.24
Face Value: ₹100
Market Value: ₹103.00
Coupon yield = 8.24/100 = 8.24%
ii) Current Yield
24.3 The current yield is simply the coupon payment as a percentage of the bond’s purchase price; in other words, it is the return a holder of the bond gets against its purchase price which may be more or less than the face value or the par value. The current yield does not take into account the reinvestment of the interest income received periodically.
Current yield = (Annual coupon rate / Purchase price) X100
Illustration:
The current yield for a 10 year 8.24% coupon bond selling for ₹103.00 per ₹100 par value is calculated below:
Annual coupon interest = 8.24% x ₹100 = ₹8.24
Current yield = (8.24/103) X 100 = 8.00%
The current yield considers only the coupon interest and ignores other sources of return that will affect an investor’s return.
iii) Yield to Maturity
24.4 Yield to Maturity (YTM) is the expected rate of return on a bond if it is held until its maturity. The price of a bond is simply the sum of the present values of all its remaining cash flows. Present value is calculated by discounting each cash flow at a rate; this rate is the YTM. Thus, YTM is the discount rate which equates the present value of the future cash flows from a bond to its current market price. In other words, it is the internal rate of return on the bond. The calculation of YTM involves a trial-and-error procedure. A calculator or software can be used to obtain a bond’s YTM easily (please see the Box III).
YTM Calculation YTM could be calculated manually as well as using functions in any standard spread sheet like MS Excel. Manual (Trial and Error) Method Manual or trial and error method is complicated because G-Secs have many cash flows running into future. This is explained by taking an example below. Take a two year security bearing a coupon of 8% and a price of say ₹ 102 per face value of ₹ 100; the YTM could be calculated by solving for ‘r’ below. Typically, it involves trial and error by taking a value for ‘r’ and solving the equation and if the right hand side is more than 102, take a higher value of ‘r’ and solve again. Linear interpolation technique may also be used to find out exact ‘r’ once we have two ‘r’ values so that the price value is more than 102 for one and less than 102 for the other value.
Spread Sheet Method using MS Excel In the MS Excel programme, the following function could be used for calculating the yield of periodically coupon paying securities, given the price. YIELD (settlement,maturity,rate,price,redemption,frequency,basis) Wherein; Settlement is the security's settlement date. The security settlement date is the date on which the security and funds are exchanged. Maturity is the security's maturity date. The maturity date is the date when the security expires. Rate is the security's annual coupon rate. Price is the security's price per ₹100 face value. Redemption is the security's redemption value per ₹100 face value. Frequency is the number of coupon payments per year. (2 for Government bonds in India) Basis is the type of day count basis to use. (4 for Government bonds in India which uses 30/360 basis) |
Business restrictions imposed on Paytm Payments Bank Limited vide Press Releases dated January 31 and February 16, 2024
Aadhar enabled Payment System (AePS)
Coordinated Portfolio Investment Survey – India
Contact Details for query related to CPIS
Ans: Queries/clarifications on CPIS may be sought from the RBI at the following address:
International Investment Position Division (IIPD)
Department of Statistics and Information Management (DSIM)
Reserve Bank of India
C-9/5 th Floor, Bandra - Kurla Complex, Bandra East
Mumbai, Maharashtra – 400 051
Email : cpis@rbi.org.in
Retail Direct Scheme
Nomination related queries
Domestic Deposits
II. Deposits of Non-Residents Indians (NRIs)
Indian Currency
C. Different Types of Bank Notes and Security Features of banknotes
Both old and new design notes usually circulate together for a while. The old design notes are then gradually withdrawn from circulation when they become unfit to be re-issued.