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FAQs on Master Directions on Priority Sector Lending Guidelines

L. Co-lending by Banks & NBFCs

Query 49: What will be the fate of loans originated by NBFC, which do not qualify under due diligence checks to comply with RBI regulations on KYC and Outsourcing of activities. +

Clarification: If the Agreement entails a prior, irrevocable commitment on the part of the bank, it has been advised that the partner bank and NBFC shall have to put in place suitable mechanisms for ex-ante due diligence by the bank. Such due diligence should ensure compliance with RBI regulations on KYC and outsourcing of activities before disbursal of the loans by the NBFC.

Query 50: Does the term back-to-back mean loan accounts will first be opened by NBFC and thereafter bank will open loan accounts in its books or both will open loan accounts and fund them simultaneously based on the loan agreement signed by the borrower with the NBFC. +

Clarification: Back-to-back basis implies that the loans will be first opened by NBFC and then bank will open loan accounts subsequently.

Query 51: Based on the loan documents executed, will the NBFC sanction and disburse the whole amount and thereafter approach the bank for reimbursement or will it sanction/ disburse its part of the loan and then approach the bank to sanction/ disburse its part. +

Clarification: The bank and the NBFC can decide on this aspect as per the Master agreement between them.

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

Eligible entities and requirements to submit the FLA return

Q13. Is it required to submit Annual Performance Report for ODI if we have submitted FLA Return? +

Ans: FLA return and Annual Performance Report (APR) for ODI are two different returns and monitored by two different departments of RBI. So, you are required to submit both the returns if these are applicable for your entity. For more information on APR, please refer to the Master Direction – Reporting under Foreign Exchange Management Act, 1999 on RBI’s website.

Biennial survey on Foreign Collaboration in Indian Industry (FCS)

Some important definitions and concepts

Q13. What is a foreign subsidiary? +

Ans.: An Indian company is called as a Foreign Subsidiary if a non-resident investor owns more than 50 per cent of the voting power / equity capital or where a non-resident investor and its subsidiary(s) combined own more than 50 per of the voting power / equity capital of an Indian enterprise.

Government Securities Market in India – A Primer

13. Why does the price of G-Sec change? +

The price of a G-Sec, like other financial instruments, keeps fluctuating in the secondary market. The price is determined by demand and supply of the securities. Specifically, the prices of G-Secs are influenced by the level and changes in interest rates in the economy and other macro-economic factors, such as, expected rate of inflation, liquidity in the market, etc. Developments in other markets like money, foreign exchange, credit, commodity and capital markets also affect the price of the G-Secs. Further, developments in international bond markets, specifically the US Treasuries affect prices of G-Secs in India. Policy actions by RBI (e.g., announcements regarding changes in policy interest rates like Repo Rate, Cash Reserve Ratio, Open Market Operations, etc.) also affect the prices of G-Secs.

Retail Direct Scheme

Know Your Customer (KYC) related queries

13. What are the ways of doing my KYC verification for Retail Direct Gilt (RDG) account? +

There are two ways of doing KYC verification – CKYC based and video KYC.

Housing Loans

13. Can you repay your loan ahead of schedule? Is pre-payment of loan allowed? +

Yes, most banks allow you to repay the loan ahead of schedule by making lump sum payments. However, many banks charge early repayment penalties up to 2-3% of the principal amount outstanding. Prepayment penalty may vary according to the reasons and source of funds - if you obtain a loan from another bank for pre-payment the charges are usually higher than when you pay from your own sources. However, you may credit more than your EMI amount into your loan account on a periodic basis and bring down your interest burden as and when funds are available with you. Most banks do not charge a pre-payment penalty if you deposit more than your EMI payable on a periodic basis. Please check such stipulations while availing the loan.

Indian Currency

B) Banknotes

5. What is currency paper made up of? +

The paper currently being used for printing of banknotes in India is made by using 100% cotton.

All you wanted to know about NBFCs

B. Entities Regulated by RBI and applicable regulations

13. What action is taken if financial companies which are lending or making investments as their principal business do not obtain a Certificate of Registration from the Reserve Bank? +

If companies that are required to be registered with the Reserve Bank as NBFCs, are found to be conducting non-banking financial activity, such as, lending, investment or deposit acceptance as their principal business, without seeking registration, the Reserve Bank can impose penalty or fine on them or can even prosecute them in a court of law. If members of public come across any entity which does non-banking financial activity but does not figure in the list of authorized NBFC on RBI website, they should inform the nearest Regional Office of the Reserve Bank, for appropriate action to be taken for contravention of the provisions of the RBI Act, 1934.