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Withdrawal of Legal Tender Character of the old Bank Notes in the denominations of ₹ 500/- and ₹ 1000/- (Updated as on December 27, 2016)

Coordinated Portfolio Investment Survey – India

புதுப்பிக்கப்பட்டது: ஜூன் 03, 2024

General Instructions

The Coordinated Portfolio Investment Survey (CPIS) is a voluntary data collection exercise conducted under the auspices of the International Monetary Fund (IMF). The purpose of the CPIS is to improve the quality of portfolio investment statistics in the international investment position (IIP)—that is, holdings of portfolio investment assets in the form of equity and investment fund shares, long-term debt securities, and short-term debt securities — and the availability of these statistics by counterpart economies. Therefore, the CPIS supports the objective of developing from-whom-to-whom cross-border data and contributes to a better understanding of financial interconnectedness.

India began participating in annual CPIS of the IMF since 2004. Thereafter, as per IMF’s recommendation under G-20 Data Gaps Initiative (DGI), India moved to semi-annual reporting of CPIS in 2014, as per India’s commitment under Special Data Dissemination Standards (SDDS). The Reserve Bank of India submits the CPIS data to IMF on behalf of India.

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Confidentiality Clause

The entity-wise information collected under the CPIS are kept confidential and only consolidated aggregates are submitted by the Reserve Bank of India to IMF.

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Eligible entities and requirements to report under CPIS

Q1. Which entities are eligible to report under CPIS?

Ans: Presently the banks, mutual fund companies, non-financial companies, non-banking financial companies and insurance companies are surveyed under the CPIS.

Government Securities Market in India – A Primer

Disclaimer

The contents of this primer are for general information and guidance purpose only. The Reserve Bank will not be liable for actions and/or decisions taken based on this Primer. Readers are advised to refer to the specific circulars issued by Reserve Bank of India from time to time. While every effort has been made to ensure that the information set out in this document is accurate, the Reserve Bank of India does not accept any liability for any action taken, or reliance placed on, any part, or all, of the information in this document or for any error in or omission from, this document.

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Preface

The G-Secs market has witnessed significant changes during the past decade. Introduction of an electronic screen-based trading system, dematerialized holding, straight through processing, establishment of the Clearing Corporation of India Ltd. (CCIL) as the Central Counter Party (CCP) for guaranteed settlement, new instruments, and changes in the legal environment are some of the major aspects that have contributed to the rapid development of the G-Sec market. Major participants in the G-Secs market historically have been large institutional investors. With the various measures for development, the market has also witnessed the entry of smaller entities such as co-operative banks, small pension, provident and other funds etc. These entities are mandated to invest in G-Secs through respective regulations. However, some of these new entrants have often found it difficult to understand and appreciate various aspects of the G-Secs market. The Reserve Bank of India has, therefore, taken several initiatives to bring awareness about the G-Secs market among small investors. These include workshops on the basic concepts relating to fixed income securities/ bonds like G-Secs, trading and investment practices, the related regulatory aspects and the guidelines. This primer is yet another initiative of the Reserve Bank to disseminate information relating to the G-Secs market to the smaller institutional players as well as the public. An effort has been made in this primer to present a comprehensive account of the market and the various processes and operational aspects related to investing in G-Secs in an easy-to-understand, question-answer format. The primer also has, as annexes, a list of primary dealers (PDs), useful excel functions and glossary of important market terminology. I hope the investors, particularly the smaller institutional investors will find the primer useful in taking decisions on investment in G-Secs. Reserve Bank of India would welcome suggestions in making this primer more user-friendly. Shri B.P. Kanungo Deputy Governor

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1. What is a Bond?

1.1 A bond is a debt instrument in which an investor loans money to an entity (typically corporate or government) which borrows the funds for a defined period of time at a variable or fixed interest rate. Bonds are used by companies, municipalities, states and sovereign governments to raise money to finance a variety of projects and activities. Owners of bonds are debt holders, or creditors, of the issuer.

What is a Government Security (G-Sec)?

1.2 A Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more). In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs). G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.

a. Treasury Bills (T-bills)

1.3 Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day. Treasury bills are zero coupon securities and pay no interest. Instead, they are issued at a discount and redeemed at the face value at maturity. For example, a 91 day Treasury bill of ₹100/- (face value) may be issued at say ₹ 98.20, that is, at a discount of say, ₹1.80 and would be redeemed at the face value of ₹100/-. The return to the investors is the difference between the maturity value or the face value (that is ₹100) and the issue price (for calculation of yield on Treasury Bills please see answer to question no. 26).

b. Cash Management Bills (CMBs)

1.4 In 2010, Government of India, in consultation with RBI introduced a new short-term instrument, known as Cash Management Bills (CMBs), to meet the temporary mismatches in the cash flow of the Government of India. The CMBs have the generic character of T-bills but are issued for maturities less than 91 days.

c. Dated G-Secs

1.5 Dated G-Secs are securities which carry a fixed or floating coupon (interest rate) which is paid on the face value, on half-yearly basis. Generally, the tenor of dated securities ranges from 5 years to 40 years.

The Public Debt Office (PDO) of the Reserve Bank of India acts as the registry / depository of G-Secs and deals with the issue, interest payment and repayment of principal at maturity. Most of the dated securities are fixed coupon securities.

The nomenclature of a typical dated fixed coupon G-Sec contains the following features - coupon, name of the issuer, maturity year. For example, - 7.17% GS 2028 would mean:

Coupon	: 7.17% paid on face value
Name of Issuer	: Government of India
Date of Issue	: January 8, 2018
Maturity	: January 8, 2028
Coupon Payment Dates	: Half-yearly (July 08 and January 08) every year
Minimum Amount of issue/ sale	: ₹10,000

In case, there are two securities with the same coupon and are maturing in the same year, then one of the securities will have the month attached as suffix in the nomenclature. eg. 6.05% GS 2019 FEB, would mean that G-Sec having coupon 6.05% that mature in February 2019 along with the other similar security having the same coupon. In this case, there is another paper viz. 6.05%GS2019 which bears same coupon rate and is also maturing in 2019 but in the month of June. Each security is assigned a unique number called ISIN (International Security Identification Number) at the time of issuance itself to avoid any misunderstanding among the traders.

If the coupon payment date falls on a Sunday or any other holiday, the coupon payment is made on the next working day. However, if the maturity date falls on a Sunday or a holiday, the redemption proceeds are paid on the previous working day.

1.6 Instruments:

i) Fixed Rate Bonds – These are bonds on which the coupon rate is fixed for the entire life (i.e. till maturity) of the bond. Most Government bonds in India are issued as fixed rate bonds.

For example – 8.24%GS2018 was issued on April 22, 2008 for a tenor of 10 years maturing on April 22, 2018. Coupon on this security will be paid half-yearly at 4.12% (half yearly payment being half of the annual coupon of 8.24%) of the face value on October 22 and April 22 of each year.

ii) Floating Rate Bonds (FRB) – FRBs are securities which do not have a fixed coupon rate. Instead it has a variable coupon rate which is re-set at pre-announced intervals (say, every six months or one year). FRBs were first issued in September 1995 in India. For example, a FRB was issued on November 07, 2016 for a tenor of 8 years, thus maturing on November 07, 2024. The variable coupon rate for payment of interest on this FRB 2024 was decided to be the average rate rounded off up to two decimal places, of the implicit yields at the cut-off prices of the last three auctions of 182 day T- Bills, held before the date of notification. The coupon rate for payment of interest on subsequent semi-annual periods was announced to be the average rate (rounded off up to two decimal places) of the implicit yields at the cut-off prices of the last three auctions of 182 day T-Bills held up to the commencement of the respective semi-annual coupon periods.

iii) The Floating Rate Bond can also carry the coupon, which will have a base rate plus a fixed spread, to be decided by way of auction mechanism. The spread will be fixed throughout the tenure of the bond. For example, FRB 2031 (auctioned on May 4, 2018) carry the coupon with base rate equivalent to Weighted Average Yield (WAY) of last 3 auctions (from the rate fixing day) of 182 Day T-Bills plus a fixed spread decided by way of auction. Zero Coupon Bonds – Zero coupon bonds are bonds with no coupon payments. However, like T- Bills, they are issued at a discount and redeemed at face value. The Government of India had issued such securities in 1996. It has not issued zero coupon bonds after that.

iv) Capital Indexed Bonds – These are bonds, the principal of which is linked to an accepted index of inflation with a view to protecting the Principal amount of the investors from inflation. A 5 year Capital Indexed Bond, was first issued in December 1997 which matured in 2002.

v) Inflation Indexed Bonds (IIBs) - IIBs are bonds wherein both coupon flows and Principal amounts are protected against inflation. The inflation index used in IIBs may be Whole Sale Price Index (WPI) or Consumer Price Index (CPI). Globally, IIBs were first issued in 1981 in UK. In India, Government of India through RBI issued IIBs (linked to WPI) in June 2013. Since then, they were issued on monthly basis (on last Tuesday of each month) till December 2013. Based on the success of these IIBs, Government of India in consultation with RBI issued the IIBs (CPI based) exclusively for the retail customers in December 2013. Further details on IIBs are available on RBI website under FAQs.

vi) Bonds with Call/ Put Options – Bonds can also be issued with features of optionality wherein the issuer can have the option to buy-back (call option) or the investor can have the option to sell the bond (put option) to the issuer during the currency of the bond. It may be noted that such bond may have put only or call only or both options. The first G-Sec with both call and put option viz. 6.72% GS 2012 was issued on July 18, 2002 for a maturity of 10 years maturing on July 18, 2012. The optionality on the bond could be exercised after completion of five years tenure from the date of issuance on any coupon date falling thereafter. The Government has the right to buy-back the bond (call option) at par value (equal to the face value) while the investor had the right to sell the bond (put option) to the Government at par value on any of the half-yearly coupon dates starting from July 18, 2007.

vii) Special Securities - Under the market borrowing program, the Government of India also issues, from time to time, special securities to entities like Oil Marketing Companies, Fertilizer Companies, the Food Corporation of India, etc. (popularly called oil bonds, fertiliser bonds and food bonds respectively) as compensation to these companies in lieu of cash subsidies These securities are usually long dated securities and carry a marginally higher coupon over the yield of the dated securities of comparable maturity. These securities are, however, not eligible as SLR securities but are eligible as collateral for market repo transactions. The beneficiary entities may divest these securities in the secondary market to banks, insurance companies / Primary Dealers, etc., for raising funds.

Government of India has also issued Bank Recapitalisation Bonds to specific Public Sector Banks in 2018. These securities are named as Special GoI security and are non-transferable and are not eligible investment in pursuance of any statutory provisions or directions applicable to investing banks. These securities can be held under HTM portfolio without any limit.

viii) STRIPS – Separate Trading of Registered Interest and Principal of Securities. - STRIPS are the securities created by way of separating the cash flows associated with a regular G-Sec i.e. each semi-annual coupon payment and the final principal payment to be received from the issuer, into separate securities. They are essentially Zero Coupon Bonds (ZCBs). However, they are created out of existing securities only and unlike other securities, are not issued through auctions. Stripped securities represent future cash flows (periodic interest and principal repayment) of an underlying coupon bearing bond. Being G-Secs, STRIPS are eligible for SLR. All fixed coupon securities issued by Government of India, irrespective of the year of maturity, are eligible for Stripping/Reconstitution, provided that the securities are reckoned as eligible investment for the purpose of Statutory Liquidity Ratio (SLR) and the securities are transferable. The detailed guidelines of stripping/reconstitution of government securities is available in RBI notification IDMD.GBD.2783/08.08.016/2018-19 dated May 3, 2018. For example, when ₹100 of the 8.60% GS 2028 is stripped, each cash flow of coupon (₹ 4.30 each half year) will become a coupon STRIP and the principal payment (₹100 at maturity) will become a principal STRIP. These cash flows are traded separately as independent securities in the secondary market. STRIPS in G-Secs ensure availability of sovereign zero coupon bonds, which facilitate the development of a market determined zero coupon yield curve (ZCYC). STRIPS also provide institutional investors with an additional instrument for their asset liability management (ALM). Further, as STRIPS have zero reinvestment risk, being zero coupon bonds, they can be attractive to retail/non-institutional investors. Market participants, having an SGL account with RBI can place requests directly in e-kuber for stripping/reconstitution of eligible securities (not special securities). Requests for stripping/reconstitution by Gilt Account Holders (GAH) shall be placed with the respective Custodian maintaining the CSGL account, who in turn, will place the requests on behalf of its constituents in e-kuber.

ix) Sovereign Gold Bond (SGB): SGBs are unique instruments, prices of which are linked to commodity price viz Gold. SGBs are also budgeted in lieu of market borrowing. The calendar of issuance is published indicating tranche description, date of subscription and date of issuance. The Bonds shall be denominated in units of one gram of gold and multiples thereof. Minimum investment in the Bonds shall be one gram with a maximum limit of subscription per fiscal year of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the Government from time to time, provided that (a) in case of joint holding, the above limits shall be applicable to the first applicant only; (b) annual ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchased from the secondary market; and (c) the ceiling on investment will not include the holdings as collateral by banks and other Financial Institutions. The Bonds shall be repayable on the expiration of eight years from the date of issue of the Bonds. Pre-mature redemption of the Bond is permitted after fifth year of the date of issue of the Bonds and such repayments shall be made on the next interest payment date. The bonds under SGB Scheme may be held by a person resident in India, being an individual, in his capacity as an individual, or on behalf of minor child, or jointly with any other individual. The bonds may also be held by a Trust, HUFs, Charitable Institution and University. Nominal Value of the bonds shall be fixed in Indian Rupees on the basis of simple average of closing price of gold of 999 purity published by the India Bullion and Jewelers Association Limited for the last three business days of the week preceding the subscription period. The issue price of the Gold Bonds will be ₹ 50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode. The Bonds shall bear interest at the rate of 2.50 percent (fixed rate) per annum on the nominal value. Interest shall be paid in half-yearly rests and the last interest shall be payable on maturity along with the principal. The redemption price shall be fixed in Indian Rupees and the redemption price shall be based on simple average of closing price of gold of 999 purity of previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited. SGBs acquired by the banks through the process of invoking lien/hypothecation/pledge alone shall be counted towards Statutory Liquidity Ratio. The above subscription limits, interest rate discount etc. are as per the current scheme and are liable to change going forward.

x) 7.75% Savings (Taxable) Bonds, 2018: Government of India has decided to issue 7.75% Savings (Taxable) Bonds, 2018 with effect from January 10, 2018 in terms of GoI notification F.No.4(28) - W&M/2017 dated January 03, 2018 and RBI issued notification vide IDMD.CDD.No.1671/13.01.299/2017-18 dated January 3, 2018. These bonds may be held by (i) an individual, not being a Non-Resident Indian-in his or her individual capacity, or in individual capacity on joint basis, or in individual capacity on any one or survivor basis, or on behalf of a minor as father/mother/legal guardian and (ii) a Hindu Undivided Family. There is no maximum limit for investment in these bonds. Interest on these Bonds will be taxable under the Income Tax Act, 1961 as applicable according to the relevant tax status of the Bond holders. These Bonds will be exempt from wealth-tax under the Wealth Tax Act, 1957. These Bonds will be issued at par for a minimum amount of ₹1,000 (face value) and in multiples thereof. RBI vide its notification IDMD.CDD No.21/13.01.299/2018-19 dated July 2, 2018 has issued Master Directions on Relief/Savings Bonds providing details on appointment/delisting of brokers, payment and rates of brokerage for saving bonds and nomination facility etc.

d. State Development Loans (SDLs)

1.7 State Governments also raise loans from the market which are called SDLs. SDLs are dated securities issued through normal auction similar to the auctions conducted for dated securities issued by the Central Government (please see question 3). Interest is serviced at half-yearly intervals and the principal is repaid on the maturity date. Like dated securities issued by the Central Government, SDLs issued by the State Governments also qualify for SLR. They are also eligible as collaterals for borrowing through market repo as well as borrowing by eligible entities from the RBI under the Liquidity Adjustment Facility (LAF) and special repo conducted under market repo by CCIL. State Governments have also issued special securities under “Ujjwal Discom Assurance Yojna (UDAY) Scheme for Operational and Financial Turnaround of Power Distribution Companies (DISCOMs)” notified by Ministry of Power vide Office Memorandum (No 06/02/2015-NEF/FRP) dated November 20, 2015.

Core Investment Companies

FOREWORD

The Reserve Bank of India is entrusted with the responsibility of regulating and supervising the Non-Banking Financial Companies by virtue of powers vested in Chapter III B of the Reserve Bank of India Act, 1934. The regulatory and supervisory objective, is to:

a) ensure healthy growth of the financial companies;

b) ensure that these companies function as a part of the financial system within the policy framework, in such a manner that their existence and functioning do not lead to systemic aberrations; and that

c) the quality of surveillance and supervision exercised by the Bank over the NBFCs is sustained by keeping pace with the developments that take place in this sector of the financial system.

Over last some years, RBI has carved out some specialized NBFCs like Core Investment Companies (CICs), NBFC- Infrastructure Finance Companies (IFCs), Infrastructure Debt Fund- NBFCs, NBFC-MFIs and NBFC-Factors being the most recent one.

It has been felt necessary to explain the rationale underlying the regulatory changes and provide clarification on certain operational matters for the benefit of the NBFCs, members of public, rating agencies, Chartered Accountants etc. To meet this need, the clarifications in the form of questions and answers, is being brought out by the Reserve Bank of India (Department of Non-Banking Supervision) on Specialized NBFCs with the hope that it will provide better understanding of the regulatory framework.

The information given in the FAQ on Systemically Important Core Investment Companies (CICs-ND-SI) is of general nature for the benefit of the public and the clarifications given do not substitute the extant regulatory directions/instructions issued by the Bank to the specialized NBFCs.

Core Investment Companies (CICs)

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Core Investment Companies (CICs)

1. What is a Systemically Important Core Investment Company (CIC-ND-SI)? +

Ans. A CIC-ND-SI is a Non-Banking Financial Company

(i) with asset size of Rs 100 crore and above

(ii) carrying on the business of acquisition of shares and securities and which satisfies the following conditions as on the date of the last audited balance sheet :-

(iii) it holds not less than 90% of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies;

(iv) its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its net assets as mentioned in clause (iii) above;

(v) it does not trade in its investments in shares, bonds, debentures, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;

(vi) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies.

(vii) it accepts public funds

All you wanted to know about NBFCs

A. Definitions

1. What is a Non-Banking Financial Company (NBFC)? +

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).

Foreign Investment in India

These FAQs attempt to put in place the common queries that users have on the subject in an easy to understand language. However, for conducting a transaction, the Foreign Exchange Management Act, 1999 (FEMA) and the Regulations made or directions issued thereunder may be referred to. The relevant principal regulations are the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 dated November 7, 2017 as amended from time to time (hereinafter referred to as FEMA 20 (R)). The modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers/ constituents with a view to implementing the regulations framed is laid down in Master Direction on Foreign investment in India.

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Q.1: How can an Indian company receive foreign investment ? +

Answer: The routes under which foreign investment can be made is as under:

Automatic Route: Foreign Investment is allowed under the automatic route without prior approval of the Government or the Reserve Bank of India, in all activities/ sectors as specified in the Regulation 16 of FEMA 20 (R).
Government Route: Foreign investment in activities not covered under the automatic route requires prior approval of the Government. Procedure for applying for Government approval is given at http://fifp.gov.in/Forms/SOP.pdf

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

General Instructions

Annual return on Foreign Liabilities and Assets (FLA) has been notified under FEMA 1999 (A.P. (DIR Series) Circular No. 45 dated March 15, 2011) and it is required to be submitted by all the India-resident companies/ LLPs / Others [(include SEBI registered Alternative Investment Funds (AIFs), Partnership Firms, Public Private Partnerships (PPP)] (hereafter referred as ‘entities’) which have received FDI and/ or made overseas investment in any of the previous year(s), including the current year.

The Reserve Bank participates in the Co-ordinated Direct Investment Survey (CDIS) and Co-ordinated Portfolio Investment Survey (CPIS) conducted by the International Monetary Fund (IMF). Here, consolidated information collected from FLA return related to foreign financial liabilities and assets position as at end-March of the previous financial year (FY) and end-March of the latest FY of these entities are reported. This information is also used in the compilation of India’s Balance of Payments (BoP) and International Investment Position (IIP).

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Confidentiality Clause

The entity-wise information collected under the FLA return are kept confidential and only consolidated aggregates are released by the Reserve Bank.

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Eligible entities and requirements to submit the FLA return

Q1. Which entities are required to submit the FLA return? +

Ans: The annual return on Foreign Liabilities and Assets (FLA) is required to be submitted by the following entities which have received FDI (foreign direct investment) and/or made FDI abroad (i.e. overseas investment) in the previous year(s) including the current year i.e., who holds foreign assets or/and liabilities in their balance sheets;

A Company within the meaning of section 1(4) of the Companies Act, 2013.
A Limited Liability Partnership (LLP) registered under the Limited Liability Partnership Act, 2008
Others [include SEBI registered Alternative Investment Funds (AIFs), Partnership Firms, Public Private Partnerships (PPP) etc.]

External Commercial Borrowings (ECB) and Trade Credits

PART I – EXTERNAL COMMERCIAL BORROWINGS

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A. BASIC QUERIES

1. Where can one get the details of extant External Commercial Borrowings (ECB) and Trade Credits (TC) framework? +

Master Direction No. 5 on ‘External Commercial Borrowings, Trade Credits and Structured Obligations dated March 26, 2019 may be referred to for guidance on the extant framework on ECB and TC. ECBs and TCs raised under the prior frameworks should continue to be in compliance with the corresponding guidelines applicable at the time of availing the ECBs and TCs.

FAQs on Non-Banking Financial Companies

FOREWORD

FAQs on Non-Banking Financial Companies

FOREWORD

ensure healthy growth of the financial companies;

ensure that these companies function as a part of the financial system within the policy framework, in such a manner that their existence and functioning do not lead to systemic aberrations; and that

the quality of surveillance and supervision exercised by the Bank over the NBFCs is sustained by keeping pace with the developments that take place in this sector of the financial system.

In view of the significant growth registered by the NBFC segment during the last decade, the powers of the Bank were enhanced by amending the provisions of the Act during 1997 to facilitate regulation and supervision by RBI covering several aspects of the activities of the NBFCs. Following the amendments to Chapter IIIB of the Act, the Bank has since introduced a new regulatory framework effective January 31, 1998 which directs the focus of the regulatory-cum-supervisory attention primarily on the NBFCs which accept deposits from the public.

The changes introduced in the regulatory framework are comprehensive and broadbased and it has been felt necessary to explain the rationale underlying these changes and provide clarification on certain operational matters for the benefit of the NBFCs, members of public, rating agencies, audit profession, the different Associations of the NBFCs etc. To meet this need, this booklet in the form of questions and answers, is being brought out by the RBI (Department of Non-Banking Supervision) with the hope that it will provide better understanding of the new regulatory framework.

(V.S.N. Murty)
Chief General Manager

RESERVE BANK OF INDIA,
DEPARTMENT OF NON-BANKING SUPERVISION,
CENTRAL OFFICE,
MUMBAI

FEBRUARY 16, 1998

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CONTENTS

1.	Registration
2.	Definition of public deposits
3.	Exemptions to companies not accepting public deposits.
4.	Net Owned Fund
5.	Ceiling on deposits
6.	Inter Corporate Deposits (ICDs)
7.	Mutual Benefit Financial Companies (Nidhis)
8.	Classification of NBFCs into sub-groups
9.	Time frame for compliance of Regulations
10.	Credit Rating
11.	Liquid Asset requirement
12.	Extent of Regulations over NBFCs accepting public deposits and not accepting public deposits
13.	Repayment of matured deposits.
14.	Prudential Norms
15.	Depositor Awareness
16.	Residuary Non-Banking Companies (RNBCs)
17.	Nomination facility

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Registration

1. The main thrust of new NBFC policy is to supervise closely the NBFCs accepting public deposit. Whether the NBFCs not accepting/holding public deposit are exempted from the statutory requirement of Registration with RBI ? +

All the NBFCs are required to seek Registration with RBI irrespective of whether they accept public deposits or not. However, certain types of financial companies viz., insurance companies, housing finance companies, stock broking companies, chit fund companies, companies notified as `nidhis under section 620A of the Companies Act and the companies engaged in merchant banking activities (subject to certain conditions), have been exempted from the requirement of Registration under the Reserve Bank of India Act.

Careers FAQ

Remittances are an important source of family and national income and also are one of the largest sources of external financing. Beneficiaries in India can receive cross-border inward remittances through banking and postal channels. Banks have general permission to enter into a partnership with other banks for conducting remittance business. The International Financial System (IFS) platform of Universal Post Union (UPU) is generally used for the postal channel. Besides, there are two more channels for receiving inward remittances, viz. Rupee Drawing Arrangement (RDA) and Money Transfer Service Scheme (MTSS) which are the most common arrangements under which the remittances are received into the country. These FAQs are mainly relating to the common queries relating to RDA and MTSS and may be referred to for general guidance. The Authorised Persons and their constituents may refer to respective circulars/ notifications for detailed information, if so needed.

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Rupee Drawing Arrangement (RDA)

1. What is Rupee Drawing Arrangement (RDA) ? +

Rupee Drawing Arrangement (RDA) is a channel to receive cross-border remittances from overseas jurisdictions. Under this arrangement, the Authorised Category I banks enter into tie-ups with the non-resident Exchange Houses in the FATF compliant countries to open and maintain their Vostro Account.

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

Bank Accounts with Paytm Payments Bank

1. I have a savings or current account with Paytm Payments Bank. Can I continue to withdraw money from this account after March 15, 2024? Can I continue to use my debit card issued by Paytm Payments Bank?

Yes. You can continue to use, withdraw or transfer your funds from your account upto the available balance in your account.

Similarly, you can continue to use your debit card to withdraw or transfer funds upto the available balance in your account.

Framework for Compromise Settlements and Technical Write-offs

Circular dated June 8, 2023 on ‘Framework for Compromise Settlements and Technical Write-offs’

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A. COMPROMISE SETTLEMENT IN WILFUL DEFAULT AND FRAUD CASES

1. Is it true that the Reserve Bank, vide the above circular, has introduced a new clause permitting lenders to enter into compromise settlement with borrowers classified as fraud or wilful defaulter? +

No. The said provision enabling banks to enter into compromise settlement in respect of borrowers categorised as fraud or wilful defaulter is not a new regulatory instruction and has been the settled regulatory stance for more than 15 years. This enabler is already available to banks as per the extant instructions, as given under:

RBI had advised IBA vide letter dated May 10, 2007 that, “(i) banks may enter into compromise settlement with wilful defaulters/ fraudulent borrowers without prejudice to the criminal proceeding underway against such borrowers; (ii) All such cases of compromise settlements should be vetted by Management Committee/ Board of banks.”
Master Circular on Wilful Defaulters dated July 1, 2015 envisages lenders agreeing to compromise settlement with borrowers classified as wilful defaulters and states that such cases need not be reported to Credit Information Companies provided inter alia that, “the borrower has fully paid the compromised amount.”
Master Directions on Frauds dated July 1, 2016 provides for compromise settlement with borrowers classified as fraud, subject to the condition that, “No compromise settlement involving a fraudulent borrower is allowed unless the conditions stipulate that the criminal complaint will be continued.”

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

These FAQs are mainly relating to the common queries relating to RDA and MTSS and may be referred to for general guidance. The Authorised Persons and their constituents may refer to respective circulars/ notifications for detailed information, if so needed.

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Rupee Drawing Arrangement (RDA)

1. What is Rupee Drawing Arrangement (RDA) ? +

Biennial survey on Foreign Collaboration in Indian Industry (FCS)

General Instructions

The Reserve Bank has been conducting FCS Survey for a long time because it is not only beneficial for the researchers but also helpful for the industries as it gives them an idea of the potential areas of competition. After introduction of the mandatory FLA census in 2011, this survey was restructured in 2012 to supplement the FLA census.

The survey captures information on a wide range of indicators of performance (production, exports, imports, cost of material, etc.,) along with the crucial features of technology transfer agreements (nature, duration, mode of payment, export restriction, provision of exclusive rights, use of technology after expiry of the agreements, etc.).

The survey is currently conducted biennially for Indian direct investment companies which have entered into foreign technical collaboration agreements with foreign companies as at end-March of the two financial years.

The survey is launched via RBI press release. Simultaneously, email notifications are also sent to the reporting entities along with excel based survey schedules. Reporting entities then submit duly filled-in survey schedule to generic email id of RBI, which are then processed on RBI’s internal intranet portal.

The data submitted by reporting entities are analysed internally and aggregate level results are published on RBI website biennially.

மேலும் படிக்க

Confidentiality Clause

The company-wise information provided will be kept confidential and only consolidated aggregates will be released by the Reserve Bank.

Note: The respondent companies should fill-up the survey schedule in excel format (*.xls format) available on RBI website. Respondents are requested to read the Instruction sheet (available in survey schedule) thoroughly before filling the survey schedule.

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Important points to remember while participating in FCS survey

Q1. What are the points the reporting entities should remember while filling the survey schedule? +

Ans.: The respondent companies should follow the below-mentioned points while filling the survey schedule:

The company must use the latest survey schedule which is in .xls format without any macros.
The company is required to save the survey schedule in Excel 97-2003 workbook i.e., in .xls format only.
In order to save the survey schedule in .xls format, follow the below-mentioned steps:
a. Go to Office Button / File → Save As → Save As type
b. Select “Excel 97-2003 Workbook” and Save the survey schedule in .xls format.
The company must use the .xls format of the survey schedule provided by RBI and are requested not to incorporate any macros in the survey schedule while submitting the same.
Please note that survey schedules submitted in any other format (other than .xls format) will be auto rejected by the system.
Please ensure, all information furnished in the survey schedule are complete and no information is missed out.
After filling Part-I to III, the company has to fill the Declaration sheet. The Declaration sheet helps in confirming and validating that the information entered by the company are double checked before submitting the same to RBI. This would help to avoid errors like data entry errors, missed data etc.
Further the respondents are requested to not use any special characters i.e., [!@#$%^&*_()] and comma while data filing in all parts of survey schedule.

Domestic Deposits

I. Domestic Deposits

1. Whether banks can accept interest free deposits? +

Banks cannot accept interest free deposits other than in current account.

Retail Direct Scheme

Scheme related queries

1. What is the RBI Retail Direct Scheme? +

Retail Direct Scheme is a one-stop solution to facilitate investment in Government Securities by individual investors. Under this scheme individual retail investors can open a Gilt Securities Account – “Retail Direct Gilt (RDG)” account with RBI. Using this account, retail investors can buy and sell government securities through the online portal – https://rbiretaildirect.org.in

Targeted Long Term Repo Operations (TLTROs)

புதுப்பிக்கப்பட்டது: மே 28, 2021

Q1: Will banks be required to maintain specified securities for the amount received in TLTRO in HTM book at all times? +

Ans: Yes. The banks will have to maintain amount of specified securities for the amount received in TLTRO in its HTM book at all times till maturity of TLTRO.

Housing Loans

1. For what purposes can I seek a first time home loan? +

You can generally seek a first time home loan for buying a house or a flat, renovation, extension and repairs to your existing house. Most banks have a separate policy for those who are going for a second house. Please remember to seek specific clarifications on the above-mentioned issues from your commercial bank.

Indian Currency

A) Basics of Indian Currency/Currency Management

1. What is the Indian currency called and what is its symbol? +

The Indian currency is called the Indian Rupee (INR). One Rupee consists of 100 Paise. The symbol of the Indian Rupee is ₹. The design resembles both the Devanagari letter "₹" (ra) and the Latin capital letter "R", with a double horizontal line at the top.

FAQs on Master Directions on Priority Sector Lending Guidelines

A. Computation of Adjusted Net Bank Credit (ANBC)

Query 1: How to adjust PSLC buy/PSLC sale in the computation of ANBC ? +

Clarification: The net PSLC outstanding (PSLC Buy minus(-) PSLC Sell) is added to the Net Bank Credit, as mentioned in para 6 of the Master Directions on PSL, 2020 (updated from time to time). Further, a PSLC remains outstanding until its expiry (s. no. ix of Notification on Priority Sector Lending certificates dated April 07, 2016, All PSLCs will expire by March 31st and will not be valid beyond the reporting date (i.e. March 31st), irrespective of the date it was first bought/sold. Accordingly, the effect of PSLC buy is increase in ANBC and conversely the effect of PSLC sell is decrease in ANBC and the net of PSLC buy/sell is adjusted to the ANBC for every quarter. Thus, a PSLC bought or sold in any quarter will have to be taken into account in all subsequent quarters till the end of the FY to which it pertains.

Query 2: The Face Value of securities acquired and kept under HTM category under the TLTRO 2.0 (Press Release 2019-2020/2237 dated April 17, 2020 read with Q.11 of FAQ and SLF-MF- Press Release 2019-2020/2276 dated April 27, 2020 and also Extended Regulatory Benefits under SLF-MF Scheme vide Press Release 2019-2020/2294 dated April 30, 2020 are permitted to be excluded from computation of Adjusted Net Bank Credit (ANBC) for the purpose of determining Priority Sector Lending target/sub-targets. How this exclusion is to be made?

Clarification: The Master Directions on Priority Sector Lending, 2020 under para 6 provides for computation of Adjusted Net Bank Credit. The face value of securities availed under TLTRO 2.0 and SLF-MF (including the Extended Regulatory Benefits) are to be reduced (as given in ‘IX’ of para 6.1 of the Master Directions on PSL). Since these securities are considered as HTM investments, the banks have to add them as Bonds/debentures in Non-SLR categories under HTM category (as given in ‘X’ of para 6.1 of the Master Directions on PSL). It is envisaged that the Priority Sector Lending target/sub-targets should not increase on account of securities acquired under TLTRO 2.0 and SLF-MF (including the Extended Regulatory Benefits). By adding the face value of securities (X) and reducing the face value of securities (IX) there will be no increase in ANBC due to investments in TLTRO 2.0 and SLF-MF (including the Extended Regulatory Benefits.)

Query 3: Whether the deposits with DFIs viz., NABARD, SIDBI, MUDRA & NHB on account of PSL shortfall can be counted towards achievement of PSL / targets/ sub-targets and ANBC ? +

Clarification: Banks can reckon outstanding deposits with NABARD under Agriculture and overall PSL achievement, while deposits with SIDBI, MUDRA and NHB can be reckoned only for overall PSL achievement. Banks should also add these deposits to Net Bank Credit (NBC) for computation of Adjusted Net Bank Credit (ANBC).However, deposits with NABARD, SIDBI, MUDRA and NHB cannot be reckoned for sub-target achievement viz. SMF, NCF, Micro and weaker section.

Query 4: In terms of paragraph 3 of the circulars DBOD.No.Ret.BC.36/12.01.001/2013-14 dated August 14, 2013, and DBOD.No.Ret.BC.93/12.01.001/2013-14 dated January 31, 2014 banks were advised that advances extended in India against the incremental FCNR (B) / NRE deposits, qualifying for exemption from CRR / SLR requirements under the above circular, will be excluded from the Adjusted Net Bank Credit (ANBC) for computation of priority sector lending targets, till their repayment. What is the method of arriving at the extent of such advances?

Clarification: i. In terms of circular under reference, the amount eligible for exclusion from ANBC is the incremental advances extended out of the resources generated from the eligible incremental FCNR (B) / NRE deposits. The incremental advance is calculated as the difference between outstanding advances in India as on March 7, 2014 and the Base Date (July 26, 2013).ii. The amount to be excluded from ANBC for computation of priority sector target will of course not exceed incremental FCNR (B) / NRE deposits eligible for exemption from maintenance of CRR / SLR in terms of circulars under reference.iii. In case, the difference in amount of outstanding advances between March 7, 2014 and base date is zero or negative, no amount would be eligible for deduction from ANBC for the purpose of arriving at the priority sector lending targets.

Query 5: Are banks permitted to exclude bills purchased/discounted/negotiated (payment to beneficiary not under reserve) while calculating the ‘Bank Credit in India’ ? +

Clarification: The bills purchased/ discounted/ negotiated (payment to beneficiary not under reserve) under LC is allowed to be treated as Interbank exposure only for the limited purpose of computing exposure and capital requirements. It should not be excluded from the computation of ‘bank credit in India’ [As prescribed in item No.VI of Form 'A’ under Section 42(2) of the RBI Act, 1934] which allows for exclusion of interbank advance. While exposure may be to the LC issuing bank, the bills purchased/discounted amounts to bank credit to its borrower constituent. If this advance is eligible for priority sector classification, then bank can claim it as PSL. Banks have to take note of the above aspect while reporting Net Bank Credit in India as well as computing the Adjusted Net Bank Credit for PSL targets and achievement

B. Adjustment for Weights in PSL Achievement

Coordinated Portfolio Investment Survey – India

புதுப்பிக்கப்பட்டது: ஜூன் 03, 2024

Eligible entities and requirements to report under CPIS

Q2. What is the frequency of the survey? +

Ans: Presently, the survey is conducted half-yearly in India for capturing the end-March and end-September position of the latest financial year (FY).

Core Investment Companies

Core Investment Companies (CICs)

2. Will existing Core Investment Companies (CICs) which had previously been exempted from registration and whose asset size is less than Rs. 100 crore again be required to submit application for exemption? +

Ans: Existing CICs which were exempted from registration in the past and have an asset size of less than Rs 100 crore are exempted from registration in terms of section 45NC of the RBI Act 1934, as stated in Notification No. DNBS.(PD) 220/CGM(US)-2011 dated January 5, 2011, and as such are not required to submit any application for exemption.

All you wanted to know about NBFCs

A. Definitions

2. What does conducting financial activity as “principal business” mean? +

Financial activity as principal business is when a company’s financial assets constitute more than 50 per cent of the total assets and income from financial assets constitute more than 50 per cent of the gross income. A company which fulfils both these criteria will be registered as NBFC by RBI. The term 'principal business' is not defined by the Reserve Bank of India Act. The Reserve Bank has defined it so as to ensure that only companies predominantly engaged in financial activity get registered with it and are regulated and supervised by it. Hence if there are companies engaged in agricultural operations, industrial activity, purchase and sale of goods, providing services or purchase, sale or construction of immovable property as their principal business and are doing some financial business in a small way, they will not be regulated by the Reserve Bank. Interestingly, this test is popularly known as 50-50 test and is applied to determine whether or not a company is into financial business.

Foreign Investment in India

Q.2: What are the Capital instruments permitted for receiving foreign investment in an Indian company ? +

Answer: ‘Capital Instruments’ means equity shares, debentures, preference shares and share warrants issued by the Indian company.Equity shares: Equity shares are those issued in accordance with the provisions of the Companies Act, 2013 and will include partly paid equity shares issued on or after July 8, 2014.Share warrants: Share warrants issued on or after July 8, 2014 will be considered as capital instruments.Debentures: ‘Debentures’ means fully, compulsorily and mandatorily convertible debentures.Preference shares: ‘Preference’ shares means fully, compulsorily and mandatorily convertible preference shares.Non-convertible/ optionally convertible/ partially convertible preference shares issued as on and up to April 30, 2007 and optionally convertible/ partially convertible debentures issued up to June 7, 2007 till their original maturity are reckoned to be FDI compliant capital instruments. Non-convertible/ optionally convertible/ partially convertible preference shares issued after April 30, 2007 and optionally convertible/ partially convertible debentures issued after June 7, 2007 shall be treated as debt and shall require conforming to External Commercial Borrowings guidelines regulated under Foreign Exchange Management (Borrowing and Lending in Foreign Exchange Regulations), 2000, as amended from time to time.

External Commercial Borrowings (ECB) and Trade Credits

A. BASIC QUERIES

2. Do FCNR (B) loans given by AD Category I banks come under the ECB framework? +

No, foreign currency loans given domestically by AD Category I banks out of the proceeds of FCNR (B) deposits do not come under the ECB framework.

FAQs on Non-Banking Financial Companies

Registration

2. A new company cannot commence business until it has been granted a Certificate of Registration by the Reserve Bank of India. However, the basic eligibility criterion for Registration of a new NBFC is that it should have minimum Net Owned Fund (NOF) of Rs. 25.00 lakhs. What use could the company make of the idle funds until it is granted the certificate of registration by RBI ? +

The company can keep its capital funds invested in any type of deposits with a bank until it is granted a Certificate of Registration by RBI enabling it to commence its business as a financial institution. Investment in any other type of securities will attract the provisions of section 45-I(c) of the RBI Act.

Government Securities Market in India – A Primer

2. Why should one invest in G-Secs? +

2.1 Holding of cash in excess of the day-to-day needs (idle funds) does not give any return. Investment in gold has attendant problems in regard to appraising its purity, valuation, warehousing and safe custody, etc. In comparison, investing in G-Secs has the following advantages:

Besides providing a return in the form of coupons (interest), G-Secs offer the maximum safety as they carry the Sovereign’s commitment for payment of interest and repayment of principal.
They can be held in book entry, i.e., dematerialized/ scripless form, thus, obviating the need for safekeeping. They can also be held in physical form.
G-Secs are available in a wide range of maturities from 91 days to as long as 40 years to suit the duration of varied liability structure of various institutions.
G-Secs can be sold easily in the secondary market to meet cash requirements.
G-Secs can also be used as collateral to borrow funds in the repo market.
Securities such as State Development Loans (SDLs) and Special Securities (Oil bonds, UDAY bonds etc) provide attractive yields.
The settlement system for trading in G-Secs, which is based on Delivery versus Payment (DvP), is a very simple, safe and efficient system of settlement. The DvP mechanism ensures transfer of securities by the seller of securities simultaneously with transfer of funds from the buyer of the securities, thereby mitigating the settlement risk.
G-Sec prices are readily available due to a liquid and active secondary market and a transparent price dissemination mechanism.
Besides banks, insurance companies and other large investors, smaller investors like Co-operative banks, Regional Rural Banks, Provident Funds are also required to statutory hold G-Secs as indicated below:

A. Primary (Urban) Co-operative Banks (UCBs)

2.2 Section 24 (2A) of the Banking Regulation Act 1949, (as applicable to co-operative societies) provides that every primary (urban) cooperative bank shall maintain liquid assets, the value of which shall not be less than such percentage as may be specified by Reserve Bank in the Official Gazette from time to time and not exceeding 40% of its DTL in India as on the last Friday of the second preceding fortnight (in addition to the minimum cash reserve ratio (CRR) requirement). Such liquid assets shall be in the form of cash, gold or unencumbered investment in approved securities. This is referred to as the Statutory Liquidity Ratio (SLR) requirement. It may be noted that balances kept with State Co-operative Banks / District Central Co-operative Banks as also term deposits with public sector banks are now not eligible for being reckoned for SLR purpose w.e.f April 1, 2015.

B. Rural Co-operative Banks

2.3 As per Section 24 of the Banking Regulation Act 1949, the State Co-operative Banks (SCBs) and the District Central Co-operative Banks (DCCBs) are required to maintain assets as part of the SLR requirement in cash, gold or unencumbered investment in approved securities the value of which shall not, at the close of business on any day, be less than such per cent, as prescribed by RBI, of its total net demand and time liabilities. DCCBs are allowed to meet their SLR requirement by maintaining cash balances with their respective State Co-operative Bank.

C. Regional Rural Banks (RRBs)

2.4 Since April 2002, all the RRBs are required to maintain their entire Statutory Liquidity Ratio (SLR) holdings in Government and other approved securities.

D. Provident funds and other entities

2.5 The non- Government provident funds, superannuation funds and gratuity funds are required by the Central Government, effective from January 24, 2005, to invest 40% of their incremental accretions in Central and State G-Secs, and/or units of gilt funds regulated by the Securities and Exchange Board of India (SEBI) and any other negotiable security fully and unconditionally guaranteed by the Central/State Governments. The exposure of a trust to any individual gilt fund, however, should not exceed five per cent of its total portfolio at any point of time. The investment guidelines for non- Government PFs have been recently revised in terms of which minimum 45% and up to 50% of investments are permitted in a basket of instruments consisting of (a) G-Secs, (b) Other securities (not in excess of 10% of total portfolio) the principal whereof and interest whereon is fully and unconditionally guaranteed by the Central Government or any State Government SDLs and (c) units of mutual funds set up as dedicated funds for investment in G-Secs (not more than 5% of the total portfolio at any point of time and fresh investments made in them shall not exceed 5% of the fresh accretions in the year), effective from April 2015.

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

Bank Accounts with Paytm Payments Bank

2. I have a savings bank or current account with Paytm Payments Bank. Can I deposit or transfer money into this account after March 15, 2024?

No. After March 15, 2024, you will not be able to deposit money into your account with Paytm Payments Bank. No credits or deposits other than interest, cashbacks, sweep-in from partner banks or refunds are allowed to be credited.

Framework for Compromise Settlements and Technical Write-offs

A. COMPROMISE SETTLEMENT IN WILFUL DEFAULT AND FRAUD CASES

2. Does the above RBI circular dilute the penal measures applicable to borrowers classified as wilful defaulter or fraud? +

No. The penal measures currently applicable to borrowers classified as fraud or wilful defaulter in terms of the Master Directions on Frauds dated July 1, 2016 and the Master Circular on Wilful Defaulters dated July 1, 2015, respectively, remain unchanged and shall continue to be applicable in cases where the banks enter into compromise settlement with such borrowers.

Such penal measures entail inter alia that no additional facilities should be granted by any bank/ FI to borrowers listed as wilful defaulters, and that such companies (including their entrepreneurs/ promoters) get debarred from institutional finance for floating new ventures for a period of five years from the date of removal of their name from the list of wilful defaulters. In addition, borrowers classified as fraud are debarred from availing bank finance for a period of five years from the date of full payment of the defrauded amount.

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

Eligible entities and requirements to submit the FLA return

Q2. What is the due date of submission of the FLA return? +

Ans: Entities who comply with the criterion mentioned in Q1 are mandatorily required to submit the FLA return under FEMA 1999 based on audited/ unaudited accounts of the entity by July 15 every year.

Domestic Deposits

I. Domestic Deposits

2. Whether banks can pay interest on savings bank accounts quarterly? +

Banks can pay interest on savings bank accounts at quarterly or longer rests.

Biennial survey on Foreign Collaboration in Indian Industry (FCS)

Details of survey launch

Q2. In which month of the year, the FCS survey is launched by the RBI? +

Ans.: The RBI launches the FCS survey during the month of June every year with the last two financial year end-March as the reference date.

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

Rupee Drawing Arrangement (RDA)

2. Who are non-resident Exchange Houses ? +

These are companies and financial institutions which are licenced and regulated by the competent authority in the sending country for sourcing the funds from the remitters.

Retail Direct Scheme

Scheme related queries

2. Why should I open a Retail Direct Gilt (RDG) account? +

Opening an RDG account will allow individuals to buy Government securities directly in the primary market (auctions) as well as buy/sell in the secondary market. For the retail investor, Government securities offer an option for long term investment. The advantages for retail investors can be listed as under:

G-sec are risk free: G-sec in the domestic market context are risk free and carry no credit risk.
G-sec offer decent yields for longer duration. G-sec yield curve extends up to 40 years. With Government issuing securities at different points on the yield curve, G-sec offer an attractive option for savers who need low risk investment options for longer durations.
G-sec offer prospect of capital gains: As there is an inverse relationship between bond price and interest rate, there is a prospect of capital gains when the interest rates moderate. One, however, must be conscious of market risks that could result in losses in case the interest rate cycle reverses.
G-sec have reasonable liquidity: G-sec have reasonable liquidity and can be transacted on NDS-OM. With the introduction of Retail Direct Portal, retail investors can now participate easily in primary and secondary market.
G-sec help to diversify portfolio: Investments in government securities would help in portfolio diversification and consequently reduce risk for retail investors.
Zero charges under Retail Direct Scheme: Retail Direct Account is completely free of charge and does not involve any intermediary. It would reduce overall transaction charges for individual investors in terms of the charges which they are otherwise required to pay for investing through aggregators or taking indirect exposure through mutual funds.

Targeted Long Term Repo Operations (TLTROs)

Q2: Will the bank have to necessarily continue to hold an amount equivalent to what it was holding as on March 26, 2020 in its HFT/AFS portfolio for the tenor of TLTRO borrowing? +

Ans: Under TLTRO scheme, banks will have to invest the amount borrowed under TLTROs in fresh acquisition of securities (i.e., over and above their outstanding statement in specified securities it was holding as on March 26, 2020) from primary/secondary market. However, participation in TLTRO scheme will not impinge on the existing investment of the bank and the bank may continue to operate their AFS/HFT portfolio, as hitherto, in terms of extant regulatory/internal guidelines.

Housing Loans

2. How will your bank decide your home loan eligibility? +

Your bank will assess your repayment capacity while deciding the home loan eligibility. Repayment capacity is based on your monthly disposable / surplus income, (which in turn is based on factors such as total monthly income / surplus less monthly expenses) and other factors like spouse's income, assets, liabilities, stability of income etc. The main concern of the bank is to make sure that you comfortably repay the loan on time and ensure end use. The higher the monthly disposable income, higher will be the amount you will be eligible for loan. Typically a bank assumes that about 55-60 % of your monthly disposable / surplus income is available for repayment of loan. However, some banks calculate the income available for EMI payments based on an individual’s gross income and not on his disposable income.

The amount of the loan depends on the tenure of the loan and the rate of interest also as these variables determine your monthly outgo / outflow which in turn depends on your disposable income. Banks generally fix an upper age limit for home loan applicants.

Indian Currency

A) Basics of Indian Currency/Currency Management

2. What is legal tender? +

Legal Tender is a coin or a banknote that is legally tenderable for discharge of debt or obligation.

The coins issued by Government of India under Section 6 of The Coinage Act, 2011, shall be legal tender in payment or on account provided that a coin has not been defaced and has not lost weight so as to be less than such weight as may be prescribed in its case. Coin of any denomination not lower than one rupee shall be legal tender for any sum not exceeding one thousand rupees. Fifty paise (half rupee) coin shall be legal tender for any sum not exceeding ten rupees. While anyone cannot be forced to accept coins beyond the limits mentioned above, voluntarily accepting coins for amounts exceeding the limits mentioned above is not prohibited.

Every banknote issued by Reserve Bank of India (₹2, ₹5, ₹10, ₹20, ₹50, ₹100, ₹200, ₹500 and ₹2000), unless withdrawn from circulation, shall be legal tender at any place in India in payment or on account for the amount expressed therein, and shall be guaranteed by the Central Government, subject to provisions of sub-section (2) Section 26 of RBI Act, 1934. ₹1 notes issued by Government of India are also Legal Tender. ₹500 and ₹1000 banknotes of Mahatma Gandhi series issued up to November 08, 2016 have ceased to be Legal Tender with effect from the midnight of November 8, 2016.

FAQs on Master Directions on Priority Sector Lending Guidelines

B. Adjustment for Weights in PSL Achievement

Query 6: How will the incremental weights be calculated as per revised guidelines ? +

Clarification: As detailed in Para 7 of the Master Directions on Priority Sector lending, 2020 on “Adjustments for weights in PSL Achievement”, differential weightage in the incremental credit to the priority sector areas shall be reckoned from FY 2021-22 onwards. From, FY2024-25, there will be 125% weightage on incremental credit to select 196 districts with low per capita PSL credit and 90% weightage on incremental credit to select 198 districts with high per capita PSL credit. The PSL achievement against the applicable PSL target/sub-targets will be calculated after applying weightages on the incremental credit for each low/high per capita PSL credit district and PSL shortfall will be arrived at accordingly.

Query 7: Will the weights be applicable in case of decline in credit or negative incremental credit ?

Clarification: If there is a decline in credit, the weighted incremental credit will be zero (0). The methodology as given below will be considered for all the districts for which data is reported in ADEPT and District-QPSA statement. Further, based on the methodology detailed above, banks are expected to monitor their own PSL achievement during the year taking into account the prescription of differential weights for credit in identified districts, for the purpose of trading in PSLCs.

* Avg. achievement will be the average of four quarters of a year, as on reporting dates of District-QPSA. Similar calculations will be done for other PSL targets.

Query 8: What is the criteria for mapping credit to a particular district ? +

Clarification: For mapping a credit facility to a particular district, the ‘Place of utilization of Credit’ shall be the qualifying criteria.

Query 9: In case of achieving priority sector through indirect routes viz. PSLCs, IBPCs, On-lending, Securitization, Assignment etc., the place of utilization may not be available on ADePT for mapping the individual account level data. How will the incremental credit be calculated in such case ? +

Clarification: While calculating district-wise incremental credit for assigning weights, the organic credit i.e. only the credit directly disbursed by banks and for which the actual borrower/beneficiary wise details are maintained in the books of the bank will be considered. Credit disbursed through the following inorganic routes shall not be considered for incremental weights.

Investments by banks in securitised assets
Transfer of Assets through Direct Assignment /Outright purchase
Inter Bank Participation Certificates (IBPCs)
Priority Sector Lending Certificates (PSLCs)
Bank loans to MFIs (NBFC-MFIs, Societies, Trusts, etc.) for on-lending
Bank loans to NBFCs for on-lending
Bank loans to HFCs for on-lending

Coordinated Portfolio Investment Survey – India

Eligible entities and requirements to report under CPIS

Q3. Should AIFs report under CPIS? +

Ans: Yes, since AIFs are considered under non-banking financial institutions.

Government Securities Market in India – A Primer

3. How are the G-Secs issued? +

3.1 G-Secs are issued through auctions conducted by RBI. Auctions are conducted on the electronic platform called the E-Kuber, the Core Banking Solution (CBS) platform of RBI. Commercial banks, scheduled UCBs, Primary Dealers (a list of Primary Dealers with their contact details is given in Annex 2), insurance companies and provident funds, who maintain funds account (current account) and securities accounts (Subsidiary General Ledger (SGL) account) with RBI, are members of this electronic platform. All members of E-Kuber can place their bids in the auction through this electronic platform. The results of the auction are published by RBI at stipulated time (For Treasury bills at 1:30 PM and for GoI dated securities at 2:00 PM or at half hourly intervals thereafter in case of delay). All non-E-Kuber members including non-scheduled UCBs can participate in the primary auction through scheduled commercial banks or PDs (called as Primary Members-PMs). For this purpose, the UCBs need to open a securities account with a bank / PD – such an account is called a Gilt Account. A Gilt Account is a dematerialized account maintained with a scheduled commercial bank or PD. The proprietary transactions in G-Secs undertaken by PMs are settled through SGL account maintained by them with RBI at PDO. The transactions in G-Secs undertaken by Gilt Account Holders (GAHs) through their PMs are settled through Constituent Subsidiary General Ledger (CSGL) account maintained by PMs with RBI at PDO for its constituent (e.g., a non-scheduled UCB).

3.2 The RBI, in consultation with the Government of India, issues an indicative half-yearly auction calendar which contains information about the amount of borrowing, the range of the tenor of securities and the period during which auctions will be held. A Notification and a Press Communique giving exact particulars of the securities, viz., name, amount, type of issue and procedure of auction are issued by the Government of India about a week prior to the actual date of auction. RBI places the notification and a Press Release on its website (www.rbi.org.in) and also issues advertisements in leading English and Hindi newspapers. Auction for dated securities is conducted on Friday for settlement on T+1 basis (i.e. securities are issued on next working day i.e. Monday). The investors are thus given adequate time to plan for the purchase of G-Secs through such auctions. A specimen of a dated security in physical form is given at Annex 1. The details of all the outstanding dated securities issued by the Government of India are available on the RBI website at http://www.rbi.org.in/Scripts/financialmarketswatch.aspx. A sample of the auction calendar and the auction notification are given in Annex 3 and 4, respectively.

3.3 The Reserve Bank of India conducts auctions usually every Wednesday to issue T-bills of 91day, 182 day and 364 day tenors. Settlement for the T-bills auctioned is made on T+1 day i.e. on the working day following the trade day. The Reserve Bank releases a quarterly calendar of T-bill issuances for the upcoming quarter in the last week of the preceding quarter. e.g. calendar for April-June period is notified in the last week of March. The Reserve Bank of India announces the issue details of T-bills through a press release on its website every week.

3.4 Like T-bills, Cash Management Bills (CMBs) are also issued at a discount and redeemed at face value on maturity. The tenor, notified amount and date of issue of the CMBs depend upon the temporary cash requirement of the Government. The tenors of CMBs is generally less than 91 days. The announcement of their auction is made by Reserve Bank of India through a Press Release on its website. The non-competitive bidding scheme (referred to in paragraph number 4.3 and 4.4 under question No. 4) has not been extended to CMBs. However, these instruments are tradable and qualify for ready forward facility. Investment in CMBs is also reckoned as an eligible investment in G-Secs by banks for SLR purpose under Section 24 of the Banking Regulation Act, 1949. First set of CMB was issued on May 12, 2010.

3.5 Floatation of State Government Loans (State Development Loans)

In terms of Sec. 21A (1) (b) of the Reserve Bank of India Act, 1934, the RBI may, by agreement with any State Government undertake the management of the public debt of that State. Accordingly, the RBI has entered into agreements with 29 State Governments and one Union Territory (UT of Puducherry) for management of their public debt. Under Article 293(3) of the Constitution of India (Under section 48A of Union territories Act, in case of Union Territory), a State Government has to obtain the permission of the Central Government for any borrowing as long as there is any outstanding loan that the State Government may have from the Centre.

Market borrowings are raised by the RBI on behalf of the State Governments to the extent of the allocations under the Market Borrowing Program as approved by the Ministry of Finance in consultation with the Planning Commission.

RBI, in consultation with State Governments announces, the indicative quantum of borrowing on a quarterly basis. All State Governments have issued General notifications which specify the terms and conditions for issue of SDL. Before every auction, respective state governments issue specific notifications indicating details of the securities being issued in the particular auction. RBI places a press release on its website and also issues advertisements in leading English and vernacular newspapers of the respective states.

Currently, SDL auctions are held generally on Tuesdays every week. As in case of Central Government securities, auction is held on the E-Kuber Platform. 10% of the notified amount is reserved for the retail investors under the non-competitive bidding.

All you wanted to know about NBFCs

A. Definitions

3. NBFCs are doing functions similar to banks. What is difference between banks & NBFCs? +

NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:

i. NBFC cannot accept demand deposits;

ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;

iii. deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

Foreign Investment in India

Q.3: Whether extension of compulsorily convertible preference shares (CCPS) or compulsorily convertible debentures (CCDs) requires RBI approval ? +

Answer: Tenor of convertible instruments will be guided by the instructions framed under the Companies Act, 2013 and the rules framed thereunder. However, the investee company should ensure that the price/ conversion formula of convertible capital instruments is determined upfront at the time of issue of the instruments. The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with the extant FEMA regulations.

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

Eligible entities and requirements to submit the FLA return

Q3. What will be the consequences in case we do not file the said FLA Return by July 15, as our accounts are not yet audited, and we do not wish to file it with unaudited figures. Will there be any imposition of penalty or prosecution initiated against the entity by RBI or FEMA? +

Ans: Non-filing of the return on or before due date (July 15 of every year) will be treated as a violation of FEMA and penalty clause may be invoked for violation of FEMA. For further details on penalty clause, please see the below links:

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

Rupee Drawing Arrangement (RDA)

3. What are the permissions needed for entering into such arrangements ? +

Only for the first arrangement which the AD Category–I bank enters into with the non–resident Exchange Houses for RDA requires RBI permission. Subsequently, AD Category- I banks may enter into RDAs, subject to the prescribed guidelines and inform the Reserve Bank (immediately).

FAQs on Non-Banking Financial Companies

Registration

3. Some of the companies which were in existence on January 9, 1997 could not submit their Application for Registration before the due date i.e. July 8, 1997. Whether these companies can carry on their business ? +

All the NBFCs which were incorporated before January 9, 1997 were required to submit their Application for Registration with RBI within 6 months i.e. by July 8, 1997. The companies which failed to make such an application cannot carry on their business of a financial institution. Any violation of this provision would render the companies and their management liable for penal action under the provisions of Reserve Bank of India Act, 1934.

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

Bank Accounts with Paytm Payments Bank

3. I am expecting a refund in my account with Paytm Payments Bank after March 15, 2024. Can this refund be credited into my account?

Yes. Refunds, cashbacks, sweep-in from partner banks or interest are permitted credits into your account even after March 15, 2024

Framework for Compromise Settlements and Technical Write-offs

A. COMPROMISE SETTLEMENT IN WILFUL DEFAULT AND FRAUD CASES

3. Does the minimum cooling period of 12 months prescribed in the above circular imply that even borrowers classified as fraud or wilful defaulter will be able to borrow fresh funds from the lenders after the cooling period? +

No. The cooling period has been introduced as a general prescription for normal cases of compromise settlements, without prejudice to the penal measures applicable in respect of borrowers classified as fraud or wilful defaulter as per the Master Directions on Frauds dated July 1, 2016 and the Master Circular on Wilful Defaulters dated July 1, 2015, respectively, as mentioned at (2) above.

External Commercial Borrowings (ECB) and Trade Credits

A. BASIC QUERIES

3. What precautions have to be taken before raising loan from non-residents? +

Borrowings from overseas have to be in compliance with the applicable ECB guidelines / provisions contained in the Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2018 issued vide Notification No. FEMA 3 (R)/2018-RB dated December 17, 2018, as amended from time to time.

Biennial survey on Foreign Collaboration in Indian Industry (FCS)

Details of survey launch

Q3. What is the frequency of this FCS survey? +

Ans.: Biennial.

Core Investment Companies

Core Investment Companies (CICs)

3. Would existing CICs which had previously been exempted from registration and whose asset size is less than Rs. 100 crore be required to submit Statutory Auditor's Certificate with reference to position as on March 31 of each year to the effect that the company continues to comply with the earlier norms based on which it was treated as a 'Core Investment Company'. +

Ans: No, Existing CICs which have been exempted from registration in the past and have an asset size of less than Rs 100 crore are exempted from registration as stated in Notification No. DNBS.(PD) 220/CGM(US)-2011 dated January 5, 2011. As such they are not required to submit any auditor’s certificate that they comply with the requirements of the Notification.

Domestic Deposits

I. Domestic Deposits

3. Whether banks can pay interest on term deposits monthly? +

Interest on term deposits is payable at quarterly or longer rests. Banks can pay interest monthly by discounting the quarterly interest accrued.

Retail Direct Scheme

Scheme related queries

3. What are the kinds of Government securities that I can invest in through the Retail Direct platform? +

Government of India Treasury Bills (T-Bills)
Government of India dated securities (dated G-Sec)
State Development Loans (SDLs)
Sovereign Gold Bonds (SGB)

Targeted Long Term Repo Operations (TLTROs)

Q3: Is there any maturity restriction on the securities to be acquired under TLTRO scheme? +

Ans: There is no maturity restriction on the specified securities to be acquired under TLTRO scheme. However, the outstanding amount of specified securities in bank’s HTM portfolio should not fall below the level of amount availed under TLTRO scheme.

Housing Loans

3. What is an EMI? +

You repay the loan in Equated Monthly Installments (EMIs) comprising both principal and interest. Repayment by way of EMI starts from the month following the month in which you take full disbursement. (For understanding how EMI is calculated, please see annex).

Indian Currency

A) Basics of Indian Currency/Currency Management

3. Where are bank notes and coins produced/minted?

Bank notes are printed at four currency presses, two of which are owned by the Government of India through its Corporation, Security Printing and Minting Corporation of India Ltd. (SPMCIL) and two are owned by the Reserve Bank, through its wholly owned subsidiary, Bharatiya Reserve Bank Note Mudran Private Ltd. (BRBNMPL). The currency presses of SPMCIL are at Nasik (Western India) and Dewas (Central India). The two presses of BRBNMPL are at Mysuru (Southern India) and Salboni (Eastern India).

Coins are minted in four mints owned by SPMCIL. The mints are located at Mumbai, Hyderabad, Kolkata and NOIDA. The coins are issued for circulation only through the Reserve Bank in terms of Section 38 of the RBI Act.

FAQs on Master Directions on Priority Sector Lending Guidelines

C. Agriculture

Query 10: Can bank loans against gold be classified under priority sector ? +

Clarification: The PSL guidelines are activity and beneficiary specific and are not based on type of collateral. Therefore, bank loans given to individuals/ businesses for undertaking agriculture activities do not automatically become ineligible for priority sector classification, only on account of the fact that underlying asset is gold jewellery/ornament etc. It may, however, be noted that as per FIDD Circular dated February 7, 2019 and updated from time to time, it has been advised that banks may waive margin requirements for agricultural loans upto ₹1.6 lakh. Therefore, bank should have extended the loan based on scale of finance and assessment of credit requirement for undertaking the agriculture activity and not solely based on available collateral in the form of gold. Further, as applicable to all loans under PSL, banks should put in place proper internal controls and systems to ensure that the loans extended under priority sector are for approved purposes and the end use is continuously monitored.

Query 11: Can loans given to landless individuals engaged in allied activities be classified under priority sector lending (SMF category) ? +

Clarification: Bank loans up to ₹2 lakh to individuals solely engaged in allied activities without any accompanying land holding criteria are entitled for classification under SMF category of priority sector lending. Further, farmers availing loans under SMF (based on land holding) are also eligible for loans under allied activities upto ₹2 lakhs and the same can be also be classified under SMF category

Query 12: What due diligence should banks ensure while classifying loans under PSL-Agriculture/SMF ? +

Clarification: Bank should ensure proper documentation for classifying agricultural loans under PSL as approved by their board. Particularly while classifying loans under agriculture/SMF category, the bank should maintain details regarding location where the borrower is tilling the land, details of crop grown, hypothecation of crops, if any, sanction of loan based on scale of finance, record of field visit by bank officials to monitor end use of agricultural loans, etc. Some of the above aspects should be available with the bank in the absence of copy of land record/lease deed particularly in case of agriculture loans to landless labourers’, share croppers etc.

Query 13: How should the banks ensure adherence to the credit cap of ₹100 crore from banking system, while extending credit to activities under ‘Agriculture Infrastructure’ or ‘Food & Agro-Processing’ categories ? +

Clarification: As per extant guidelines, loans for Agriculture Infrastructure or loans for Food & Agro-processing activity are each subject to an aggregate sanctioned limit of ₹100 crore per borrower from the banking system. In case aggregate exposure across the banking industry exceeds the limit of ₹100 crore, then total exposure will cease to be classified under PSL category. The sanctioned limit of ₹100 crore has to be ascertained facility wise for a particular entity and is exclusive of the other borrowings of the entity for PSL / non-PSL purposes. However, it needs to be ensured that the bank has assessed and sanctioned separate limits for the specific purpose of Agriculture Infrastructure or Food & Agro Processing activities of the entity to qualify as PSL. Banks should take a declaration from the borrower regarding loan sanctioned by any other bank/s for the same activity and also independently seek confirmation from those banks. In the scenario, where new sanction by the bank leads to overall limit across banks to more than ₹100 crore, it needs to inform other banks too about the same. Accordingly, all other banks need to declassify the same from PSL.

Query 14: Loans are extended to Cargo Companies, Shipping Companies, Roadlines Co., Transport Cos, Logistic Cos., Movers and Carriers etc. for purchasing Commercial Vehicles. These transport and shipping companies act as a Carrier (‘Transporter’) for such Enterprises which are into food and agro processing business. Whether bank loans to such a transporter who acts as a ‘carrier’ and does not have any food and agro processing set-up themselves, are eligible for classification under priority sector. +

Clarification: As per Annex-III of Master Directions on Priority Sector Lending (PSL) dated September 4, 2020, transportation is an eligible activity under indicative list of permissible activities under Food Processing Sector. However, while classifying any facility to transporters for purchasing Commercial Vehicles under “Food & Agro-processing” category, it needs to be ensured that the transporter is using the vehicle exclusively for transportation of food & agro-processed products or is a type of vehicle which is specifically used for “Food & Agro-processing” e.g. cold storage trucks, vans etc. If the commercial vehicle is also used for transportation of products other than those related to food & agro processing, the facility shall not be eligible for classification under ‘Food & Agro-processing’ category. In such cases, the same may be classified under MSME (Services), if it meets the conditions prescribed for the same in our Master Direction on PSL.

Query 15: Can bank loans extended to companies for buying commercial vehicles be eligible for classification under “Agriculture Infrastructure” category of priority sector ? +

Clarification: While classifying any facility to transporters for purchasing Commercial Vehicles under “Agriculture Infrastructure” category, it needs to be ensured that the transporter/ sub-contractor is using the vehicle exclusively for activities that are ancillary to “Agriculture Infrastructure”. If the commercial vehicle is also used for transportation for purposes under non-agriculture infrastructure category, the facility shall not be eligible for classification under ‘Agriculture Infrastructure’. In such cases, the same may be classified under MSME (Services), if it meets the conditions prescribed for the same in our Master Direction on PSL.

Coordinated Portfolio Investment Survey – India

Details for survey launch

Q4. How do I know that the survey is launched? +

Ans: The Reserve Bank will send emails to all the eligible entities from generic email IDs of the Reserve Bank to notify them about the launch of the CPIS for the latest reference period. Entities are required to fill in the latest survey schedule attached along with the mail and send to the generic email IDs of the Reserve Bank as per the instruction given in the survey schedule.

Government Securities Market in India – A Primer

4. What are the different types of auctions used for issue of securities? What is switch/conversion of Government Securities through auction? +

Prior to introduction of auctions as the method of issuance, the interest rates were administratively fixed by the Government. With the introduction of auctions, the rate of interest (coupon rate) gets fixed through a market-based price discovery process.

4.1 An auction may either be yield based or price based.

i. Yield Based Auction: A yield-based auction is generally conducted when a new G-Sec is issued. Investors bid in yield terms up to two decimal places (e.g., 8.19%, 8.20%, etc.). Bids are arranged in ascending order and the cut-off yield is arrived at the yield corresponding to the notified amount of the auction. The cut-off yield is then fixed as the coupon rate for the security. Successful bidders are those who have bid at or below the cut-off yield. Bids which are higher than the cut-off yield are rejected. An illustrative example of the yield-based auction is given below:

Yield based auction of a new security

Maturity Date: January 11, 2026
Coupon: It is determined in the auction (8.22% as shown in the illustration below)
Auction date: January 08, 2016
Auction settlement date/Issue date: January 11, 2016*
Notified Amount: ₹1000 crore

* January 9 and 10 being holidays (Saturday and Sunday), settlement is done on January 11, 2016 (T+1 settlement).

Details of bids received in the increasing order of bid yields
Bid No.	Bid Yield	Amount of bid (₹ Cr)	Cumulative amount (₹ Cr)	Price* with coupon as 8.22%
1	8.19%	300	300	100.19
2	8.20%	200	500	100.14
3	8.20%	250	750	100.13
4	8.21%	150	900	100.09
5	8.22%	100	1000	100
6	8.22%	100	1100	100
7	8.23%	150	1250	99.93
8	8.24%	100	1350	99.87
The issuer would get the notified amount by accepting bids up to bid at sl. no. 5. Since the bid number 6 also is at the same yield, bid numbers 5 and 6 would get allotment on pro-rata basis so that the notified amount is not exceeded. In the above case each of bidder at sl. no. 5 and 6 would get ₹ 50 crore. Bid numbers 7 and 8 are rejected as the yields are higher than the cut-off yield.
*Price corresponding to the yield is determined as per the relationship given under YTM calculation in question 24.

ii. Price Based Auction: A price based auction is conducted when Government of India re-issues securities which have already been issued earlier. Bidders quote in terms of price per ₹100 of face value of the security (e.g., ₹102.00, ₹101.00, ₹100.00, ₹ 99.00, etc., per ₹100/-). Bids are arranged in descending order of price offered and the successful bidders are those who have bid at or above the cut-off price. Bids which are below the cut-off price are rejected. An illustrative example of price based auction is given below:

Price based auction of an existing security 8.22% GS 2026

Maturity Date: January 11, 2026
Coupon: 8.22%
Auction date: January 08, 2016
Auction settlement date: January 11, 2016*
Notified Amount: ₹1000 crore

* January 9 and 10 being holidays (Saturday and Sunday), settlement is done on January 11, 2016 under T+1 cycle.

Details of bids received in the decreasing order of bid price
Bid no.	Price of bid	Amount of bid (₹ Cr)	Implicit yield	Cumulative amount (₹ Cr)
1	100.19	300	8.19%	300
2	100.14	200	8.20%	500
3	100.13	250	8.20%	750
4	100.09	150	8.21%	900
5	100	100	8.22%	1000
6	100	100	8.22%	1100
7	99.93	150	8.23%	1250
8	99.87	100	8.24%	1350
The issuer would get the notified amount by accepting bids up to 5. Since the bid number 6 also is at the same price, bid numbers 5 and 6 would get allotment in proportion so that the notified amount is not exceeded. In the above case each of bidders at sl. no. 5 and 6 would get securities worth ₹ 50 crore. Bid numbers 7 and 8 are rejected as the price quoted is less than the cut-off price.

4.2 Depending upon the method of allocation to successful bidders, auction may be conducted on Uniform Price basis or Multiple Price basis. In a Uniform Price auction, all the successful bidders are required to pay for the allotted quantity of securities at the same rate, i.e., at the auction cut-off rate, irrespective of the rate quoted by them. On the other hand, in a Multiple Price auction, the successful bidders are required to pay for the allotted quantity of securities at the respective price / yield at which they have bid. In the example under (ii) above, if the auction was Uniform Price based, all bidders would get allotment at the cut-off price, i.e., ₹100.00. On the other hand, if the auction was Multiple Price based, each bidder would get the allotment at the price he/ she has bid, i.e., bidder 1 at ₹100.19, bidder 2 at ₹100.14 and so on.

4.3 An investor, depending upon his eligibility, may bid in an auction under either of the following categories:

Competitive Bidding: In a competitive bidding, an investor bids at a specific price / yield and is allotted securities if the price / yield quoted is within the cut-off price / yield. Competitive bids are made by well-informed institutional investors such as banks, financial institutions, PDs, mutual funds, and insurance companies. The minimum bid amount is ₹10,000 and in multiples of ₹10,000 in dated securities and minimum ₹ 10,000 in case of T-Bills and in multiples of ₹ 10,000 thereafter. Multiple bidding is also allowed, i.e., an investor may put in multiple bids at various prices/ yield levels.

Non-Competitive Bidding (NCB):

With a view to encouraging wider participation and retail holding of Government securities, retail investors are allowed participation on “non-competitive” basis in select auctions of dated Government of India (GoI) securities and Treasury Bills. Participation on a non-competitive basis in the auctions will be open to a retail investor who (a) does not maintain current account (CA) or Subsidiary General Ledger (SGL) account with the Reserve Bank of India; and (b) submits the bid indirectly through an Aggregator/Facilitator permitted under the scheme. Retail investor, for the purpose of scheme of NCB, is any person, including individuals, firms, companies, corporate bodies, institutions, provident funds, trusts, and any other entity as may be prescribed by RBI. Regional Rural Banks (RRBs) and Cooperative Banks shall be covered under this Scheme only in the auctions of dated securities in view of their statutory obligations and shall be eligible to submit their non-competitive bids directly. State Governments, eligible provident funds in India, the Nepal Rashtra Bank, Royal Monetary Authority of Bhutan and any Person or Institution, specified by the Bank, with the approval of Government, shall be covered under this scheme only in the auctions of Treasury Bills without any restriction on the maximum amount of bid for these entities and their bids will be outside the notified amount. Under the Scheme, an investor can make only a single bid in an auction.

Allocation of non-competitive bids from retail investors except as specified above will be restricted to a maximum of five percent of the aggregate nominal amount of the issue within the notified amount as specified by the Government of India, or any other percentage determined by Reserve Bank of India. The minimum amount for bidding will be ₹10,000 (face value) and thereafter in multiples in ₹10,000 as hitherto. In the auctions of GoI dated securities, the retail investors can make a single bid for an amount not more than Rupees Two crore (face value) per security per auction.

In addition to scheduled banks and primary dealers, specified stock exchanges are also permitted to act as aggregators/facilitators. These stock exchanges submit a single consolidated non-competitive bid in the auction process and will have to put in place necessary processes to transfer the securities so allotted in the primary auction to their members/clients.

Allotment under the non-competitive segment will be at the weighted average rate of yield/price that will emerge in the auction on the basis of the competitive bidding. The Aggregator/Facilitator can recover up to six paise per ₹100 as brokerage/commission/service charges for rendering this service to their clients. Such costs may be built into the sale price or recovered separately from the clients. It may be noted that no other costs, such as funding costs, should be built into the price or recovered from the client. In case the aggregate amount of bid is more than the reserved amount (5% of notified amount), pro rata allotment would be made. In case of partial allotments, it will be the responsibility of the Aggregator/Facilitator to appropriately allocate securities to their clients in a transparent manner. In case the aggregate amount of bids is less than the reserved amount, the shortfall will be taken to competitive portion.

The updated Scheme for Non-Competitive Bidding Facility in the auctions of Government Securities and Treasury Bills is issued by RBI vide IDMD.1080/08.01.001/2017-18 dated November 23, 2017.

4.4 NCB scheme has been introduced in SDLs from August 2009. The aggregate amount reserved for the purpose in the case of SDLs is 10% of the notified amount (e.g. ₹100 Crore for a notified amount of ₹1000 Crore) subject to a maximum limit of 1% of notified amount for a single bid per stock. The bidding and allotment procedure is similar to that of G-Secs.

Conversion (Switch) of Government of India Securities through auction

RBI has from April 22, 2019 started conducting the auction for conversion of Government of India securities on third Monday of every month. Bidding in the auction implies that the market participants agree to sell the source security/ies to the Government of India (GoI) and simultaneously agree to buy the destination security from the GoI at their respective quoted prices. The source securities along with notified amount and corresponding destination securities are provided in the press release issued before the auction. The market participants are required to place their bids in e-kuber giving the amount of the source security and the price of the source and destination security expressed up to two decimal places. The price of the source security quoted must be equal to the FBIL closing price of the source security as on the previous working day.

Core Investment Companies

Core Investment Companies (CICs)

4. A single group is having under its fold four to five prospective Core Investment Companies with an aggregate asset size of more than Rs. 100 crore. In such a situation, which company among the group companies is required to seek registration as CIC with the Bank. +

Ans: All companies in the group that are CICs would be regarded as CICs-ND-SI (provided they have accessed public fund) and would be required to obtain a Certificate of Registration from the Bank.

All you wanted to know about NBFCs

A. Definitions

4. Is it necessary that every NBFC should be registered with RBI? +

In terms of Section 45-IA of the RBI Act, 1934, no Non-banking Financial company can commence or carry on business of a non-banking financial institution without a) obtaining a certificate of registration from the Bank and without having a Net Owned Funds of ₹ 25 lakhs (₹ Two crore since April 1999). However, in terms of the powers given to the Bank, to obviate dual regulation, certain categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI viz. Venture Capital Fund/Merchant Banking companies/Stock broking companies registered with SEBI, Insurance Company holding a valid Certificate of Registration issued by IRDA, Nidhi companies as notified under Section 620A of the Companies Act, 1956, Chit companies as defined in clause (b) of Section 2 of the Chit Funds Act, 1982,Housing Finance Companies regulated by National Housing Bank, Stock Exchange or a Mutual Benefit company.

Foreign Investment in India

Q.4: What is a convertible note ? +

Answer: A convertible note is an instrument issued by a start-up company evidencing receipt of money initially as debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of such startup company, within a period not exceeding five years from the date of issue of the convertible note, upon occurrence of specified events as per the other terms and conditions agreed to and indicated in the instrument.

Domestic Deposits

I. Domestic Deposits

4. Whether banks can pay differential rates of interest on term deposits aggregating Rs.15 lakhs and above? +

Differential rates of interest can be paid on single term deposit of Rs.15 lakhs and above and not on the aggregate of individual deposits where the total exceeds Rs.15 lakhs.

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

Eligible entities and requirements to submit the FLA return

Q4. What information should be reported in FLA return, if balance sheet of the entity is not audited before the due date of submission? +

Ans: Entities should mandatorily fill the FLA return within the due date. In case the entities do not have their audited balance sheet ready, they may fill the return with the provisional/unaudited numbers. Thereafter, once the audited numbers are ready, request for revision of the previously filed return to RBI needs to be raised. Once approved by RBI, you can revise the previously filed return with audited numbers and re-submit the same to RBI.

External Commercial Borrowings (ECB) and Trade Credits

A. BASIC QUERIES

4. Whose responsibility is it to ensure compliance with ECB guidelines? +

The primary responsibility for ensuring that the borrowing is in compliance with the applicable ECB guidelines is that of the borrower concerned. Structures which bypass/ circumvent ECB guidelines in any manner and / or raising borrowings in any other manner which is not permitted / disguising borrowing under the wrap of other kind of transactions and / or contravening provisions of Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2018 would also invite penal action under FEMA.

FAQs on Non-Banking Financial Companies

Registration

4. Whether under-provisioning or non-provisioning against the non-performing advances and/or decline in the value of investments as per the provisioning requirements of the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 should be reduced from the Owned Fund before computing the Net Owned Fund of the company, for the purpose of Registration? +

Yes. To the extent provisions have not been made against any asset, as required under the Prudential Norms Directions or assessed by the Management, Auditor of the Company or an Inspecting Officer of the Reserve Bank of India, the asset can be considered to be intangible asset. Although the entire asset against which the provisions have not been made does not become intangible asset, the amount of provision required to be made as per the Prudential Norms Directions should be deducted from the Owned Fund of the Company to determine the Net Owned Fund of Rs. 25.00 lakhs required for Registration under the RBI Act.

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

Bank Accounts with Paytm Payments Bank

4. What will happen to the Deposits maintained with partner banks through ‘sweep in/out’ arrangements, after March 15, 2024?

The existing Deposits of Paytm Payments Bank customers maintained with partner banks can be brought back (sweep-in) to the accounts with Paytm Payments Bank, subject to the ceiling on balance prescribed for a Payments Bank (i.e. ₹2 lakh per individual customer at the end of day). Such sweep-ins for the purpose of making available the balances for use or withdrawal by the customer will continue to be allowed. However, no fresh deposits with partner banks through Paytm Payments Bank will be allowed after March 15, 2024.

Indian Currency

A) Basics of Indian Currency/Currency Management

4. What is a currency chest ? +

To facilitate the distribution of banknotes and rupee coins, the Reserve Bank has authorised select scheduled banks to establish currency chests. These are storehouses where banknotes and rupee coins are stocked on behalf of the Reserve Bank for distribution to bank branches in their area of operation. As on March 31, 2024, there were 2,794 currency chests.

[The currency chests are expected to distribute banknotes and rupee coins to other bank branches in their area of operation.]

Framework for Compromise Settlements and Technical Write-offs

A. COMPROMISE SETTLEMENT IN WILFUL DEFAULT AND FRAUD CASES

4. What are the safeguards to ensure that the provisions of compromise settlement with borrowers classified as fraud or wilful defaulter, are not mis-utilized? +

Compromise settlement is not available to borrowers as a matter of right; rather it is a discretion to be exercised by the lenders based on their commercial judgement.

The prudential guidelines provide sufficient safeguards with regard to such settlements considered by the lenders:

All such decisions are required to be taken by lenders as per their Board approved policies, instead of adopting an ad-hoc approach in each case;
The circular further strengthens the regulatory guidance by mandating that all such cases of compromise settlement involving borrowers classified as fraud or wilful defaulter must be approved by the Board;
Such settlements shall be without prejudice to the criminal proceeding underway or to be initiated, if under consideration of the lenders against such borrowers;
As already mentioned, the extant penal provisions continue to remain applicable in such cases.
Wherever recovery proceedings are pending before a judicial forum, any settlement arrived at with the borrower shall be subject to obtaining a consent decree from the concerned judicial authorities.
The Boards of lenders have been entrusted with the oversight of the overall trends in approvals of all compromise settlements, including specifically the breakup of accounts classified as fraud, red-flagged, wilful defaulter and quick mortality accounts.

These guidelines will ensure greater transparency of the whole process.

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

Rupee Drawing Arrangement (RDA)

4. What are the types of remittances which can be sent under RDA ? +

The cross- border inward remittances into India under RDA is primarily on private account. The remitter and the beneficiary should be individuals barring a few exceptions. Remittances through Exchange Houses for financing of trade transactions are also permitted up to certain limit. This scheme is not used for cross-border outward remittances from India.

Retail Direct Scheme

Scheme related queries

4. Who can open a Retail Direct Gilt (RDG) account? +

a. Retail investors, that is, individuals (natural persons) are allowed to open an RDG account. The following are required to open an account:

Rupee savings bank account maintained in India.
Permanent Account Number (PAN) issued by the Income Tax Department.
Any Officially Valid Document (OVD) for Know Your Customer (KYC) purpose.
Valid email id.
Registered mobile number.

b. Non-Resident retail investors eligible to invest in Government Securities under Foreign Exchange Management Act, 1999.

Biennial survey on Foreign Collaboration in Indian Industry (FCS)

Details of survey launch

Q4. What is the due date for the submission in FCS Survey? +

Ans.: The respondent companies can submit their responses on or before July 15 of the survey year.

Targeted Long Term Repo Operations (TLTROs)

Q4: Will investment in a longer tenor specified security continue to be classified as HTM even after maturity of TLTRO? +

Ans: The specified securities acquired under TLTRO scheme will be allowed to remain in HTM portfolio till their maturity.

Housing Loans

4. What documents are generally sought for a loan approval? +

In addition to all legal documents relating to the house being bought, banks will also ask you to submit Identity and Residence Proof, latest salary slip ( authenticated by the employer and self attested for employees ) and Form 16 ( for business persons/ self-employed ) and last 6 months bank statements / Balance Sheet, as applicable . You also need to submit the completed application form along with your photograph. Loan applications form would give a checklist of documents to be attached with the application.

Do not be in a hurry to seal the deal quickly.

Please do discuss and seek more information on any waivers in terms and conditions provided by the commercial bank in this regard. For example some banks insist on submission of Life Insurance Policies of the borrower / guarantor equal to the loan amount assigned in favour of the commercial bank. There are usually amount ceilings for this condition which can also be waived by appropriate authority. Please read the fine print of the bank’s scheme carefully and seek clarifications.

FAQs on Master Directions on Priority Sector Lending Guidelines

D. MSME

Query 16: Whether the continuity of the PSL status for 3 years is still applicable to MSMEs that have breached the threshold limit as per the new definition of MSMEs ? +

Clarification: Government of India (GoI), vide Gazette Notification S.O. 2119 (E) dated June 26, 2020 and updated from time to time, has notified the new composite criteria of investment in plant & machinery as well as turnover for classification of an enterprise under MSME. Under the composite criteria, if an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investment or turnover, it will cease to exist in that category and be placed in the next higher category but no enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover. Based on the new definition, the earlier criteria regarding continuity of PSL status for three years even after an enterprise grows out of the MSME category concerned, is no longer valid.

Coordinated Portfolio Investment Survey – India

Details for survey launch

Q5. How do I know whether my response has been submitted successfully or not? +

Ans: After sending the duly filled in survey schedule (excel based) to the generic email IDs of the Reserve Bank as per the instruction in the survey schedule, the respondent will receive the system-generated acknowledgement. No separate mail will be sent in this regard. If some error is mentioned in the acknowledgement, then the respondent is required to resubmit the form by rectifying the mentioned error. After corrections, the respondent should receive a successful processing acknowledgement email.

Core Investment Companies

Core Investment Companies (CICs)

5. A single group is having under its fold various prospective Core Investment Companies with an aggregate asset size of more than Rs. 100 crore. One of the entities has raised / holds public funds (one of the pre requisites for qualifying as a CIC-ND-SI). In such a situation, whether every CIC within the group or only the parent CIC or the specific entity that has raised/ holds public funds would be regarded as CIC-ND-SI, and thus would be required to seek registration as CIC-ND-SI with the Bank.

For Example: HCo is the parent group CIC holding 100 per cent equity capital of A, B and C, all of which are also CICs . In case C has accessed public funds, whether HCo as well as A, B and C must seek registration as CIC-ND-SI or will just C need registration?

Ans: In such a case only C will be registered, provided C is not funding any of the other CICs either directly or indirectly.

All you wanted to know about NBFCs

A. Definitions

5. What are the requirements for registration with RBI? +

A company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should comply with the following:

i. it should be a company registered under Section 3 of the companies Act, 1956

ii. It should have a minimum net owned fund of ₹ 200 lakh. (The minimum net owned fund (NOF) required for specialized NBFCs like NBFC-MFIs, NBFC-Factors, CICs is indicated separately in the FAQs on specialized NBFCs)

Foreign Investment in India

Q.5: Who can invest in a convertible note and what are the instructions in this regard ? +

Answer: A person resident outside India (other than an individual who is a citizen of Pakistan or Bangladesh or an entity which is registered/ incorporated in Pakistan or Bangladesh), may purchase convertible notes issued by an Indian start-up company for an amount of twenty five lakh rupees or more in a single tranche. A start-up company engaged in a sector where foreign investment requires Government approval may issue convertible notes to a non-resident only with the approval of the Government. The amount of consideration should be received by inward remittance through banking channels or by debit to the NRE/ FCNR (B)/ Escrow account maintained by the person concerned.

External Commercial Borrowings (ECB) and Trade Credits

B. ELIGIBILITY FOR RAISING ECB

5. Are LLPs eligible to raise ECBs? +

As LLPs are not eligible to receive FDI, they cannot raise ECBs.

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

Rupee Drawing Arrangement (RDA)

5. Is there any limit on the amount of money which can be sent under RDA ? +

There is no limit on the remittance amount as well as on the number of remittances. However, there is an upper cap of Rs.15.00 lakh for trade related transactions.

FAQs on Non-Banking Financial Companies

Definition of public deposits

5. Are the following types of deposits included in the definition of public deposit? +

Unsecured debentures Inter-Corporate Deposits (ICDs) Money received in trust Security deposits from employees Equated Monthly Investments (EMI) received in advance against lease/hire purchase finance. Unsecured debentures issued to the shareholders by a public limited company and to the general members of public by public and private limited companies are included in the definition of `public deposit. However, unsecured debentures issued to other companies and banks/all India financial institutions are not public deposit. The money received in trust is no longer an exempted borrowing and hence forms part of the public deposit. However, other borrowings by way of ICDs, security deposits from employees (provided these are deposited in an account with a bank or a post office, jointly with the employee) and advance receipt of lease or hire purchase instalments, are exempted borrowings and hence fall outside the purview of public deposit.

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

Bank Accounts with Paytm Payments Bank

5. My salary is credited into my account with Paytm Payments Bank. Can I continue to receive my salary into this account?

No. After March 15, 2024, you will not be able to receive any such credits into your account with Paytm Payments Bank. It is suggested that you make alternative arrangements with another bank before March 15, 2024 to avoid inconvenience.

Indian Currency

A) Basics of Indian Currency/Currency Management

5. What is a small coin depot ? +

Some banks are authorised to establish Small Coin Depots to stock and distribute small coins i.e. coins of value below Rupee One to bank branches in their area of operation. As on March 31, 2024, there were 2,460 small coin depots.

Framework for Compromise Settlements and Technical Write-offs

A. COMPROMISE SETTLEMENT IN WILFUL DEFAULT AND FRAUD CASES

5. From a public policy perspective, what is the rationale for permitting lenders to enter into compromise settlement with borrowers classified as fraud or wilful defaulter? +

The primary regulatory objective is to enable multiple avenues to lenders to recover the money in default without much delay. Apart from the time value loss, inordinate delays result in asset value deterioration which hampers ultimate recoveries. Compromise settlement is recognized as a valid resolution mechanism under the Prudential Framework on Resolution of Stressed Assets dated June 7, 2019. The imperatives for lenders are no different when it comes to recovery from borrowers classified as fraud or wilful defaulter. Continuing such exposures on the balance sheets of the lenders without resolution due to legal proceedings would lock lenders’ funds in an unproductive asset, which would not be a desirable position. As long as larger policy concerns are suitably addressed and the costs of malafide actions are made to be borne by the perpetrators, early recoveries by lenders should be a preferred option, subject to safeguards. Further, continuation of criminal proceedings underway or to be initiated against the borrowers classified as fraud or wilful defaulter, would ensure that perpetrators of any malafide action do not go scot-free.

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

Eligible entities and requirements to submit the FLA return

Q5. In case where account closing period of the entity is different from reference period (end-March), can we report the information as per account closing period? +

Ans: No, the entity cannot report the information as per the account closing period, in case it is different from March closing. Information should be reported for the reference period only, i.e., previous March and latest March, based on the entity’s internal assessment.

Domestic Deposits

I. Domestic Deposits

5. Whether banks can pay commission for mobilizing deposits? +

Banks are prohibited from employing/ engaging any individual, firm, company, association, institution for collection of deposits or selling of deposit linked products on payment of remuneration or fees or commission in any form or manner except commission paid to agents employed to collect door-to-door deposits under a special scheme.

Biennial survey on Foreign Collaboration in Indian Industry (FCS)

Details of survey launch

Q5. What is the reference period of this FCS survey? +

Ans.: Last two financial year (FY) starting from April YYYY to March YYYY. For eg., FCS survey for the reference period 2021-2023 covers April 2021 to March 2022 and April 2022 to March 2023.

Retail Direct Scheme

Scheme related queries

5. How many Retail Direct Gilt (RDG) accounts can I open? +

An individual can open only one RDG account. The second holder in a joint RDG account may also open an individual RDG account.

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