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FAQs on Master Directions on Priority Sector Lending Guidelines

A. Computation of Adjusted Net Bank Credit (ANBC)

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

updated: جون 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.