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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.

Foreign Investment in India

Q.11: Whom to approach for Government approval or in case of doubt regarding the concerned Administrative Ministry/ Department or regarding the classification of an activity or the sectoral route ? +

Answer: Please refer to the ‘Standard Operating Procedure (SOP) for Processing FDI Proposals’ issued by Department of Industrial Policy & Promotion, Government of India → http://fifp.gov.in/Forms/SOP.pdf

Domestic Deposits

I. Domestic Deposits

11. Whether additional interest admissible to bank’s staff can be paid on the compensation awarded by the court to minor child and deposited in the joint name of minor child and parent? +

No. As the money belongs to the minor child and not the bank’s staff, additional interest cannot be paid.

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

Eligible entities and requirements to submit the FLA return

Q11. If an entity has not received any inward FDI / made overseas investment in the latest FY, do they need to submit the FLA return? +

Ans: If an entity has not ‘received any fresh FDI and/or ODI (overseas direct investment)’ in the latest FY but has outstanding FDI and/or ODI as at end-March of that financial year, then it is required to submit their outstanding position as on March 31 in the FLA return every year by July 15.

Remittances (Money Transfer Service Scheme (MTSS) and Rupee Drawing Arrangement (RDA))

Money Transfer Service Scheme (MTSS)

11. What are the permissions needed for carrying out MTSS ? +

Indian Agents need permission from the Regional Office concerned of the Foreign Exchange Department, Reserve Bank of India to operate under the MTSS framework. Further, the Overseas Principal also need to obtain necessary authorisation from the Department of Payment and Settlement Systems, Reserve Bank of India under the provisions of the Payment and Settlement Systems Act (PSS Act), 2007.

Core Investment Companies

Core Investment Companies (CICs)

11. Whether investments in a group entity other than a Company, say partnership firms, LLPs, Trusts, Association of Persons, etc by CICs-ND-SI could be regarded as investments in Group Companies for the purpose of calculating 90% investment in Group Companies. +

Ans: No, only investments in companies registered under Section 3 of the Companies Act 1956 would be regarded as investments in Group companies for the purpose of calculating 90% investment in Group companies. Moreover, CICs are prohibited from contributing capital to any partnership firm or to be partners in partnership firms including Limited Liability Partnerships (LLPs) or any association of person similar in nature to partnership firms.

FAQs on Non-Banking Financial Companies

Exemptions to the companies not accepting public deposits

11. The companies not accepting public deposits and engaged in leasing, hire purchase finance, loan and general investment activities have been exempted from the requirement of capital adequacy but asked to comply with other prudential norms. Why ? +

The prudential norms relating to income recognition, accounting standards, asset classification, provisioning against bad and doubtful debts are the norms which have a bearing on disclosure of true and fair picture of the financial health of the NBFC. These companies normally borrow from other corporate bodies as also from banks and financial institutions. These are also the companies which may commence accepting public deposits at short notice. It is necessary that their Balance Sheets on which all the lenders would rely should be transparent and clean, else these companies would be able to inflate their profits and conceal the decline in the value of their investments as also unprovided NPAs. Such companies might turn out to be potential defaulters in servicing their borrowings from the financial system. The exemptions from capital adequacy and credit/ investment concentration norms have been given because public deposits are not involved.

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

Paytm Payments Bank Wallet

11. I have a wallet with Paytm Payments Bank. Can I continue to use money from this wallet after March 15, 2024? +

Yes. You can continue to use, withdraw or transfer to another wallet or bank account upto the balance available in the wallet. Minimum KYC wallets can, however, be used only for merchant payments

Coordinated Portfolio Investment Survey – India

What to report under CPIS?

Q11. What information should be reported under CPIS? +

Ans: The survey collects details of portfolio investment assets of domestic residents made in securities issued by unrelated non-residents i.e., securities issued by unrelated non-residents and owned by residents.

FAQs on Master Directions on Priority Sector Lending Guidelines

K. On-lending under Priority Sector

Query 43: While lending to intermediaries for on-lending to priority sector, can the bank reckon the total outstanding loan to the NBFCs / MFIs / HFCs towards its priority sector achievement. +

Clarification: In the case of bank’s lending to NBFCs / MFIs / HFCs for on-lending, only that portion of the portfolio should be reckoned for PSL classification that has been disbursed by the NBFC / MFI / HFC to the ultimate borrower/s as on the reporting date. The reckoning of residual portfolio, if any, can be done on subsequent reporting dates, based on the disbursement of eligible loans and reported by the NBFC / MFI / HFC to the bank.

Query 44: What is the methodology to be followed by a bank for lending to eligible entities for on-lending to priority sector ? +

Clarification: The Master Directions on Priority Sector Lending, 2020 under para 21, 22, 23 allows banks to classify as PSL its lending to NBFCs including HFCs and NBFC-MFIs and other MFIs (Societies, Trusts etc.) which are members of RBI recognised SRO for the sector for on-lending to eligible priority sectors. Banks may adopt a uniform methodology for on-lending as follows:

a) Classification under PSL:

• The banks can classify on-lending to NBFC in the respective categories of PSL. The classification will be allowed only when the NBFC has disbursed the Priority Sector Loans to the ultimate beneficiary after receiving the funds from the bank.

• The NBFCs must provide a CA certificate to the banks stating that the individual loans of the portfolio, against which on-lending benefit is being claimed, are not being used to claim benefit from any other bank(s). Also, NBFC must put in place a suitable process to flag such loan(s) in their systems to enable its internal/statutory auditors as well as RBI supervisors to verify the same.

b) Information sharing:

• The banks may devise internal control mechanisms to ensure that the portfolio under on-lending is PSL compliant and adheres to co-terminus clause. The same should be made available to RBI supervisor/s as and when required. The following information/record should be collected by the bank from the EI:

Name of the beneficiary, Amount sanctioned, Loan amount outstanding, Loan tenure, disbursement date, category of PSL.
A statement to the effect that the portfolio is PSL compliant must be certified by a CA and shared by the EI with the bank on a quarterly basis in line with the PSL reporting by the bank to RBI. With respect to adherence to the co-terminus clause, the bank should ensure the same as on March 31 each year.

c) Adherence to co-terminus condition:

• The banks availing benefit of on-lending for PS assets must adhere to the condition that the tenure of the loan under on-lending to an EI is broadly co-terminus with the tenure of PS assets created by the EI.

• In view of the operational difficulties of exactly matching the co-terminus duration, the banks are allowed a variance of 3 months from the portfolio duration. An illustration for calculating adherence to the co-terminus duration is given below:

Sr. No.	Loan outstanding (A)	31st March of current FY (B)	Loan end date (C)	Loan period (days) (D= C-B)	Weighted average loan outstanding days (E=A*D)
1	50000	31-03-21	01-02-23	672	33600000
2	80000	31-03-21	01-05-24	1127	90160000
3	100000	31-03-21	11-08-23	863	86300000
4	300000	31-03-21	16-10-22	564	169200000
5	400000	31-03-21	23-11-22	602	240800000
Total	930000				620060000
	Weighted maturity of portfolio in days (F=(sum of E)/(sum of A)				666.73
	In months (F/30)				22.22
	In years (F/365)				1.83

In the above illustration, the residual maturity of bank loan to NBFC should be around 22.22 months. Banks are expected to calculate the weighted average residual maturity of portfolio ever year as on March 31 and ensure that residual maturity of bank loan to NBFC matches with the weighted average residual maturity of on-lending portfolio within the tolerance limit of +-3 months.

d) Treatment of pre-payment, foreclosure loans:

The PS assets created by the entity may undergo pre-payment or foreclosure thereby changing the ‘weighted maturity’ of the portfolio.
As the banks are required to calculate ‘weighted maturity’ at the end of FY, the loan outstanding in the event of pre-payment/foreclosure will also change accordingly.
The NBFC may add PS assets to the on-lending portfolio. However, it must meet conditions mentioned above such as disbursements for the PS asset by the eligible entity must be on/after receipt of funds from the bank. The addition of PS assets to the portfolio pool can also be done in case of pre-payment/foreclosure of other PS assets in the pool to ensure adherence to the co-terminus clause.

Query 45: What is the cap for bank lending to NBFCs and HFCs for on-lending ? +

Clarification: Bank lending to NBFCs (other than MFIs) and HFCs are subjected to a cap of 5% of average PSL achievement of the four quarters of the previous financial year. In case of a new bank the cap shall be applicable on an on-going basis during its first year of operations. The prescribed cap is not applicable for bank lending to registered NBFC-MFIs and other MFIs (Societies, Trusts, etc.) which are members of RBI recognised ‘Self-Regulatory Organisation’ of the sector. Bank lending to such MFIs can be classified under different categories of PSL in accordance with conditions specified in our Master Directions FIDD.CO.Plan.BC.5/04.09.01/2020-21 dated September 04, 2020 and updated from time to time.

Biennial survey on Foreign Collaboration in Indian Industry (FCS)

Some important definitions and concepts

Q12. What is the meaning of Foreign Technical Collaboration? +

Ans.: Indian company which has entered into an agreement with a foreign entity in terms of technology transfer, know-how transfer, use of patent, brand name etc, then such type of agreement are treated as Foreign Technical Collaborations (FTC).

Retail Direct Scheme

Account opening related queries

12. What is the cost of opening and maintaining Retail Direct Gilt (RDG) Account? +

RDG Account can be opened and maintained with RBI free of cost.Know Your Customer (KYC) related queries

Targeted Long Term Repo Operations (TLTROs)

FAQs pertaining to TLTRO 2.0

Q12: The Reserve Bank while announcing the fourth TLTRO on April 15, 2020 advised that the maximum amount that a particular bank can invest in the securities issued by a particular entity or group of entities out of the allotment received by it under the TLTRO shall be capped at 10 per cent. Is this condition also applicable to TLTRO conducted before April 15, 2020? Will this condition apply for deployment of funds under TLTRO 2.0? +

Ans: This condition applies only to the fourth TLTRO conducted on April 17, 2020. It does not apply to the TLTROs conducted before April 17, 2020. It also does not apply to TLTRO 2.0.

Housing Loans

12. What should be your strategy in dealing with the banks? +

Give yourself comfortable time. Do not hurry your purchase or loan in any case. Shopping around for a home loan will help you to get the best financing deal. Shopping, comparing, seeking clarification and negotiating with banks may save you thousands of rupees.

a) Obtain information from several banks

Home loans are available from mainly two types of lenders--commercial banks and housing finance companies. Different lenders may quote you different rates of interest and other terms and conditions, so you should contact several lenders to make sure you’re getting the best value for money.

Find out how much of a down payment you are required to pay, and find out all the costs involved in the loan (including processing fees, administrative charges and prepayment charges levied by banks). Knowing just the amount of the EMI or the interest rate is not good enough. Similarly, ask for information on loan amount, loan term, and type of loan (fixed or floating) so that you can compare the information and take an informed decision.

The following is some important information that you will require.

i) Rates

Ask your lender about its current home loan interest rates and whether the rate is fixed or floating. Remember that when interest rates in the economy go up so does the floating rates and hence the monthly re-payment.

If the rate quoted is a floating rate, ask how your rate and loan payment will vary, including the extent to which your loan payment will be reduced when rates go down by a certain percentage. Ask your lender to what index your floating home loan is referenced / linked and the periodicity of updation of that index. Also ask your bank whether the index is internal or external and how and where it is published.

Ask about the loan’s annual percentage rates (APR). The APR takes into account not only the interest rate but also fees and certain other charges that you may be required to pay, expressed as a yearly rate. Banks are obliged to reveal the APR if requested for by the customer.

ii) Reset Clause

Check the reset clause, especially in the case of fixed interest rate loan as the rates will not be fixed throughout the tenure of the loan.

iii) Spread/Mark up

Check if the margin in the case of the floating rate is fixed or variable. The rate of interest you have to pay will vary accordingly.

iv) Fees

A home loan often requires payment of various fees, such as loan origination or processing charges, administrative charges, documentation, late payment, changing the loan tenure, switching to different loan package during the loan tenure, restructuring of loan, changing from fixed to floating interest rate loan and vice versa, legal fee, technical inspection fee, recurring annual service fee, document retrieval charges and pre-payment charges, if you want to prepay the loan. Every lender should be able to give you an estimate of its fees. Many of these fees are negotiable / can be waived also.

Ask what each fee includes. Sometimes several components are lumped into one fee. Ask for an explanation of any fee you do not understand. Also, remember that most of these fees are perhaps negotiable! Do negotiate with your bank before agreeing to a particular fee. See how the all inclusive rate compares with the all inclusive rates offered by other banks. While planning your finances, don't forget to include the costs of stamp duty and registration.

v) Down Payments / Margin

Some lenders require 20/30 percent of the home’s purchase price as a down payment from you. However, many lenders also offer loans that require less than 20/30 percent down payment, sometimes as little as 5 percent .Ask about the lender’s requirements for a down payment and also negotiate with him to reduce the down payments.

b) Obtain the best deal

Once you know what each bank has to offer in terms of rates, fees and down payments, negotiate for the best deal. Ask the lender to write down all the costs associated with the loan. Then ask if the bank will waive or reduce one or more of its fees or agree to a lower rate. Do make sure that the bank is not agreeing to lower one fee while raising another or to lower the rate while raising the fees. Ask for clarification in case you do not understand any particular term. All banks are obliged to explain the most important terms and conditions of the home loan in detail.

Once you are satisfied with the terms you have negotiated, please do obtain a written offer letter from the lender and keep a copy with you. Read the offer letter carefully before signing.

Indian Currency

B) Banknotes

4. What was the highest denomination note ever printed? +

The highest denomination note ever printed by the Reserve Bank of India was the ₹10000 note in 1938 which was demonetized in January 1946. The ₹10000 was again introduced in 1954. These notes were demonetized in 1978.

Government Securities Market in India – A Primer

12. What are the important considerations while undertaking security transactions?

The following steps should be followed in purchase of a security:

Which security to invest in – Typically this involves deciding on the maturity and coupon. Maturity is important because this determines the extent of risk an investor like an UCB is exposed to – normally higher the maturity, higher the interest rate risk or market risk. If the investment is largely to meet statutory requirements, it may be advisable to avoid taking undue market risk and buy securities with shorter maturity. Within the shorter maturity range (say 5-10 years), it would be safer to buy securities which are liquid, that is, securities which trade in relatively larger volumes in the market. The information about such securities can be obtained from the website of the CCIL (http://www.ccilindia.com/OMMWCG.aspx), which gives real-time secondary market trade data on NDS-OM. Pricing is more transparent in liquid securities, thereby reducing the chances of being misled/misinformed. The coupon rate of the security is equally important for the investor as it affects the total return from the security. In order to determine which security to buy, the investor must look at the Yield to Maturity (YTM) of a security (please refer to Box III under para 24.4 for a detailed discussion on YTM). Thus, once the maturity and yield (YTM) is decided, the UCB may select a security by looking at the price/yield information of securities traded on NDS-OM or by negotiating with bank or PD or broker.
Where and Whom to buy from- In terms of transparent pricing, the NDS-OM is the safest because it is a live and anonymous platform where the trades are disseminated as they are struck and where counterparties to the trades are not revealed. In case, the trades are conducted on the telephone market, it would be safe to trade directly with a bank or a PD. In case one uses a broker, care must be exercised to ensure that the broker is registered on NSE or BSE or OTC Exchange of India. Normally, the active debt market brokers may not be interested in deal sizes which are smaller than the market lot (usually ₹ 5 cr). So it is better to deal directly with bank / PD or on NDS-OM, which also has a screen for odd-lots (i.e. less than ₹ 5 cr). Wherever a broker is used, the settlement should not happen through the broker. Trades should not be directly executed with any counterparties other than a bank, PD or a financial institution, to minimize the risk of getting adverse prices.
How to ensure correct pricing – Since investors like UCBs have very small requirements, they may get a quote/price, which is worse than the price for standard market lots. To be sure of prices, only liquid securities may be chosen for purchase. A safer alternative for investors with small requirements is to buy under the primary auctions conducted by RBI through the non-competitive route. Since there are bond auctions almost every week, purchases can be considered to coincide with the auctions. Please see question 14 for details on ascertaining the prices of the G-Secs.

All you wanted to know about NBFCs

B. Entities Regulated by RBI and applicable regulations

12. What action can be taken against persons/financial companies making false claim of being regulated by the Reserve Bank? +

It is illegal for any financial entity or unincorporated body to make a false claim of being regulated by the Reserve Bank to mislead the public to collect deposits and is liable for penal action under the Indian Penal Code. Information in this regard may be forwarded to the nearest office of the Reserve Bank and the Police.

Foreign Investment in India

Q.12: Whether the definition of Indian company in FEMA 20(R) covers companies incorporated under both the Companies Act, 1956 and Companies Act, 2013 +

Answer: Indian company includes all those entities covered under section 1(4) of the Companies Act, 2013.

Domestic Deposits

I. Domestic Deposits

12. Whether banks are permitted to offer differential rate of interest on other deposits? +

Banks can formulate special fixed deposit schemes specifically for senior citizens offering higher and fixed rates of interest as compared to normal deposits on any size.

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

Eligible entities and requirements to submit the FLA return

Q12. Whether FLA return is required to be submitted by Registered Partnership Firms (Registered under Partnership Registration Act) or branches or trustees, who have made Overseas Direct Investment or it is mandatory only for Companies (Registered under Companies Act, 1956)? +

Ans: If the Partnership firms, Branches or Trustees have any outward FDI outstanding as on end-March of the latest FY, then they are required to file the FLA return.

External Commercial Borrowings (ECB) and Trade Credits

E. AVERAGE MATURITY PERIOD

12. How is average maturity period calculated? +

You may refer to /documents/87730/39016390/12EC160712_A6.pdf for illustration purposes.

Remittances (Money Transfer Service Scheme (MTSS) and Rupee Drawing Arrangement (RDA))

Money Transfer Service Scheme (MTSS)

12. What are the types of remittances which can be received under the MTSS ? +

Only cross-border personal remittances, such as, remittances towards family maintenance and remittances favouring foreign tourists visiting India are allowed under this arrangement. Donations/contributions to charitable institutions/trusts, trade related remittances, remittance towards purchase of property, investments or credit to NRE Accounts are not allowed through this arrangement.

Core Investment Companies

Core Investment Companies (CICs)

12. Are CICs-ND-SI exempt from the Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015? +

Ans: No, they are only exempt from norms regarding submission of Statutory Auditor Certificate regarding continuance of business as NBFC, capital adequacy and concentration of credit / investments norms.

FAQs on Non-Banking Financial Companies

Exemptions to the companies not accepting public deposits

12. Core investment companies are required to comply with three basic conditions. What happens if a company complies with two of the three conditions ? +

The investment companies which have at least 90 per cent of their total assets (not total investments alone) in the securities issued by their group/subsidiary/holding companies are the core investment companies. The other two conditions are that they should not accept public deposits and should not trade in these shares. All the three conditions are required to be complied with fully. If any company fails to comply with even one of these three conditions, it is not entitled to the total exemptions from the provisions of Reserve Bank Directions on Acceptance of Public Deposits and Prudential Norms. In such a situation, the company would fall either in the category of public deposit taking company (if it has accepted public deposits) and be subject to all the regulations of RBI or in the category of general investment company and be subject to prudential norms to the extent these are applicable to it.

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

Paytm Payments Bank Wallet

12. I have a wallet with Paytm Payments Bank. Can I top-up or transfer money into this wallet after March 15, 2024? Can I receive money from any other person into this wallet after March 15, 2024? +

No. After March 15, 2024 you will not be able to top-up or transfer money into the wallet or receive any credits, other than cashbacks, or refunds into this wallet.

Coordinated Portfolio Investment Survey – India

What to report under CPIS?

Q12. At what value should the portfolio investment assets be reported? +

Ans: The portfolio investment assets are required to be reported on marked to market basis as at the end of the reference period, with the breakups into type of securities viz., equity securities, short-term debt securities (with and original maturity of up to one year) and long-term debt securities (with an original maturity of more than a year) and country of residence of issuer.

FAQs on Master Directions on Priority Sector Lending Guidelines

L. Co-lending by Banks & NBFCs

Query 46: Whether Co-lending Arrangement allows NBFCs to retain 100% of the risk ? +

Clarification: While the guidelines allow sharing of risks and rewards between the bank and the NBFC for ensuring appropriate alignment of respective business objectives, the priority sector assets on the bank’s books should at all times be without recourse to the NBFC.

Query 47: Are direct assignment of assets applicable only where bank can exercise its discretion ? +

Clarification: Only if the bank can exercise its discretion regarding taking into its books the loans originated by NBFC as per the Agreement, the arrangement will be akin to a direct assignment transaction. If the Agreement entails a prior, irrevocable commitment on the part of the bank to take into its books its share of the individual loans as originated by the NBFC, it shall not be akin to direct assignment transaction.

Query 48: Does the term "Mandatorily" in CLM guidelines means that the bank must take all the loans originated by NBFC or a cap can be affixed on the number and amount in the Master Agreement. +

Clarification: Both entities, the bank & the NBFC shall be guided by the bilateral Master Agreement entered by them for implementing the Co-lending Model (CLM). The agreement may state any cap on the number and amount of loans that can be originated by the NBFC under the Co-lending model.