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External Commercial Borrowings (ECB) and Trade Credits

G. END-USES

23. Is the reimbursement of expenditure incurred in the past a permissible end-use under the ECB framework? +

The reimbursement of expenditure incurred in the past is not a permissible end-use under the ECB framework.

Government Securities Market in India – A Primer

23. What is the relationship between yield and price of a bond? +

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:

When the market price of the bond is less than the face value, i.e., the bond sells at a discount, YTM > > coupon yield.
When the market price of the bond is more than its face value, i.e., the bond sells at a premium, coupon yield > > YTM.
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)

23. Can I make payments through the Bharat Bill Payment System (BBPS) using my account with Paytm Payments Bank? +

Yes. You can continue to make payments from your Paytm Payments Bank account through Bharat Bill Payment System upto the balance available in your account. Since you will not be able to credit any further funds into your accounts or wallets with Paytm Payments Bank after March 15, 2024, it is advised that you may make alternative arrangements with another bank account for BBPS before March 15, 2024

Retail Direct Scheme

Nomination related queries

23. Can nominees be changed later? +

Yes, investors, if they so desire, can change the nominee details through the Retail Direct portal later.

Domestic Deposits

II. Deposits of Non-Residents Indians (NRIs)

23. Under what circumstances additional interest over and above the declared rate of interest can be paid in case of FCNR(B) deposits? +

In respect of deposit accepted in the name of –

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
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 –

the depositor or all the depositors of a joint account is/ are non-resident/s of Indian nationality or origin, and
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

3. What is the status of withdrawal of pre-2005 series banknotes? Where can they be exchanged?

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

Coordinated Portfolio Investment Survey – India

Contact Details for query related to CPIS

Q24. Whom to contact in case of any query related to the 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

Core Investment Companies

Core Investment Companies (CICs)

24. How can a company register as a CIC-ND-SI? +

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

24. Whether PoA/ Non-Disposal undertaking structure by whatever name called is covered under the Circular on Lending against shares? +

Yes, the Circular would be applicable and the type of encumbrance created is immaterial.

Foreign Investment in India

Q.24: Is a person resident outside India permitted to acquire capital instruments on stock exchange ? +

Answer: The following persons can acquire capital instruments on the stock exchanges:

FPIs registered with SEBI
NRIs
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

24. The criterion for classification into equipment leasing/hire purchase finance has been modified and increased to 60 per cent of its assets and income. Will it not cause difficulties to the companies ? +

The NBFCs have been allowed sufficient time to achieve the ratio of 60 per cent of its net assets and derive its net income from these activities taken together. Therefore NBFCs are not expected to face much difficulty in achieving these norms.

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

Some Useful Definitions

Q24. What is “Other Capital” under Direct Investment? +

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

24. Can ECB be availed of for making equity investment domestically or buying goodwill? +

No. Equity investment either directly or indirectly (through purchase of goodwill) is not permitted.

Government Securities Market in India – A Primer

24. How is the yield of a bond calculated? +

24.1 An investor who purchases a bond can expect to receive a return from one or more of the following sources:

The coupon interest payments made by the issuer;
Any capital gain (or capital loss) when the bond is sold/matured; and
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).

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.

102 = 4/(1+r/2)¹+ 4/(1+r/2)² + 4/(1+r/2)³ + 104/(1+r/2)⁴

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)

24. Can I make withdrawals from my Paytm Payments Bank account with biometric authentication under Aadhar enabled Payment System? +

Yes. You can continue to withdraw using the AePS authentication, upto the balance available in your account.

Retail Direct Scheme

Nomination related queries

24. Can a Government securities holder nominate an individual other than blood relation as a nominee? +

Yes. A Government securities holder may nominate any one as a nominee provided that the nominee should be eligible to invest in the particular loan as per the specific Government Loan Notification.

Domestic Deposits

II. Deposits of Non-Residents Indians (NRIs)

24. In the case of deceased depositor’s NRE/FCNR(B) deposit, in the event of legal heirs effecting premature withdrawal before completion of minimum prescribed period, whether any interest is payable? +

No. A deposit has to run for a minimum stipulated period, which is at present one year for both FCNR(B) and NRE deposits, to be eligible to earn interest.

Indian Currency

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

4. What happens to the old design banknotes when a new design is introduced?

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.

All you wanted to know about NBFCs

B. Entities Regulated by RBI and applicable regulations

25. Does the definition of “companies in a group” as given in Systemically Important Non-Banking Financial (non-deposit accepting or holding) companies Prudential Norms Directions, 2015 apply in respect of concentration of credit/ investment norms. +

No, the definition of “companies is a group” is only for the purpose of determining the applicability of prudential norms on multiple NBFCs in a group.