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

Aadhar enabled Payment System (AePS)

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

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

Government Securities Market in India – A Primer

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

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

The coupon interest payments made by the issuer;
Any capital gain (or capital loss) when the bond is sold/matured; and
Income from reinvestment of the interest payments that is interest-on-interest.

The three yield measures commonly used by investors to measure the potential return from investing in a bond are briefly described below:

i) Coupon Yield

24.2 The coupon yield is simply the coupon payment as a percentage of the face value. Coupon yield refers to nominal interest payable on a fixed income security like G-Sec. This is the fixed return the Government (i.e., the issuer) commits to pay to the investor. Coupon yield thus does not reflect the impact of interest rate movement and inflation on the nominal interest that the Government pays.

Coupon yield = Coupon Payment / Face Value

Illustration:

Coupon: 8.24
Face Value: ₹100
Market Value: ₹103.00
Coupon yield = 8.24/100 = 8.24%

ii) Current Yield

24.3 The current yield is simply the coupon payment as a percentage of the bond’s purchase price; in other words, it is the return a holder of the bond gets against its purchase price which may be more or less than the face value or the par value. The current yield does not take into account the reinvestment of the interest income received periodically.

Current yield = (Annual coupon rate / Purchase price) X100

Illustration:

The current yield for a 10 year 8.24% coupon bond selling for ₹103.00 per ₹100 par value is calculated below:

Annual coupon interest = 8.24% x ₹100 = ₹8.24

Current yield = (8.24/103) X 100 = 8.00%

The current yield considers only the coupon interest and ignores other sources of return that will affect an investor’s return.

iii) Yield to Maturity

24.4 Yield to Maturity (YTM) is the expected rate of return on a bond if it is held until its maturity. The price of a bond is simply the sum of the present values of all its remaining cash flows. Present value is calculated by discounting each cash flow at a rate; this rate is the YTM. Thus, YTM is the discount rate which equates the present value of the future cash flows from a bond to its current market price. In other words, it is the internal rate of return on the bond. The calculation of YTM involves a trial-and-error procedure. A calculator or software can be used to obtain a bond’s YTM easily (please see the Box III).

BOX III

YTM Calculation

YTM could be calculated manually as well as using functions in any standard spread sheet like MS Excel.

Manual (Trial and Error) Method

Manual or trial and error method is complicated because G-Secs have many cash flows running into future. This is explained by taking an example below.

Take a two year security bearing a coupon of 8% and a price of say ₹ 102 per face value of ₹ 100; the YTM could be calculated by solving for ‘r’ below. Typically, it involves trial and error by taking a value for ‘r’ and solving the equation and if the right hand side is more than 102, take a higher value of ‘r’ and solve again. Linear interpolation technique may also be used to find out exact ‘r’ once we have two ‘r’ values so that the price value is more than 102 for one and less than 102 for the other value.

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

Spread Sheet Method using MS Excel

In the MS Excel programme, the following function could be used for calculating the yield of periodically coupon paying securities, given the price.

YIELD (settlement,maturity,rate,price,redemption,frequency,basis)

Wherein;

Settlement is the security's settlement date. The security settlement date is the date on which the security and funds are exchanged. Maturity is the security's maturity date. The maturity date is the date when the security expires.

Rate is the security's annual coupon rate.

Price is the security's price per ₹100 face value.

Redemption is the security's redemption value per ₹100 face value.

Frequency is the number of coupon payments per year. (2 for Government bonds in India)

Basis is the type of day count basis to use. (4 for Government bonds in India which uses 30/360 basis)

Foreign Investment in India

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

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

FPIs registered with SEBI
NRIs
Other than (a) and (b) above, a person resident outside India, can acquire capital instruments on stock exchange, subject to the condition that the investor has already acquired and continues to hold the control of such company in accordance with SEBI (Substantial Acquisition of Shares and Takeover) Regulations and subject to conditions specified in Annex I of the Master Direction – Foreign Investment in India.

Indian Currency

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

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

Both old and new design notes usually circulate together for a while. The old design notes are then gradually withdrawn from circulation when they become unfit to be re-issued.

Core Investment Companies

D. Miscellaneous:

24. Would Current Liabilities also form part of Outside Liabilities? What will be the treatment of DTL, Advance Tax Due and Provision for Income Tax? Will they be Outside Liabilities?

Ans: Anything that has to be repaid to any other legal entity/ person will be an outside liability.

Portfolio Investment Positions (PIP) by Counterpart Economy (formerly CPIS) – India

Contact Details for query related to PIP

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

Ans: Queries/clarifications on PIP may be sought from the RBI at the following address:

International Investment Position Division (IIPD)
Department of Statistics and Information Management (DSIM)
Reserve Bank of India
C-9/5 th Floor, Bandra - Kurla Complex, Bandra East
Mumbai, Maharashtra – 400 051
Email : cpis@rbi.org.in

All you wanted to know about NBFCs

D. Depositor Protection Issues

24. In case an NBFC defaults in repayment of deposit, what course of action can be taken by depositors?

If an NBFC defaults in repayment of deposit, the depositor can approach the Company Law Board (now National Company Law Tribunal) or Consumer Forum or file a civil suit in a Court of Law to recover the deposits. Further, at the level of the State Government, the State Legislations on Protection of Interest of Depositors (in Financial Establishments) empowers the State Governments to take action even before the default takes place or complaints are received from depositors. If there is perpetration of an offence and if the intention is to defraud, the State Government can even attach properties. NBFCs are also advised to lay down an appropriate grievance redressal mechanism as indicated in reply to question 26 below.

FAQs on Non-Banking Financial Companies

Classification of NBFCs into sub-groups

25. For arriving at the composition of assets and income in the equipment leasing and hire purchase finance activities, please clarify whether the ratio should be correlated to the gross assets/gross income or net assets/net income ? +

The NBFCs are entitled to depreciation benefits as a lessor on the assets leased out by them. The Guidance Note on Accounting for Leases issued by ICAI may entail creation of lease equalisation account/lease adjustment account. As per accounting practice, the entire amount of lease rentals is shown as gross lease income on the credit side of the profit and loss account. The income from equipment leasing, therefore, has to be computed on the basis of gross lease income net of depreciation on assets leased out and the lease equalisation account, if any. In the case of hire purchase finance, only the component of finance charges is taken to the Profit and Loss Account and therefore, such finance charges will be taken as hire purchase finance income. The composition of assets in the equipment leasing and hire purchase finance activities has to be worked out as a percentage of the total assets net of depreciation and net of lease adjustment account, if any, as disclosed in the audited Balance Sheet of the company. Hire purchase assets should be taken as stock on hire less unmatured finance charges. The sum total of debit balance in Profit and Loss Account, deferred revenue expenditure and intangible assets like Goodwill will also be excluded from the total assets.

Domestic Deposits

II. Deposits of Non-Residents Indians (NRIs)

25. Whether banks can pay interest on NRE and FCNR(B) deposits for the intervening Saturday, Sunday and holidays between the date of maturity and payment? +

Yes. Whenever the due dates fall on Saturday/Sunday/non-business working day/holidays, banks are permitted to pay interest on NRE and FCNR(B) deposits at the originally contracted rate for the intervening period between the due date and date of payment so that no interest loss is suffered by the depositors.

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

Some Useful Definitions

Q25. What is meant by “Residence of Enterprises”? +

Ans: An enterprise is said to have a centre of economic interest and to be a resident unit of a country (economic territory) when the enterprise is engaged in a significant amount of production of goods and/or services in that centre or when it owns land or buildings located in that centre. The enterprise must maintain at least one production establishment in the country and must plan to operate the establishment indefinitely or over a long period of time.

Retail Direct Scheme

Nomination related queries

25. What happens if one of the joint nominees to a Government security dies? +

In such cases where a nomination in respect of a Government security has been made in favour of two and either or any of the nominees is dead, the surviving nominee will be entitled to the Government security and payment thereon.

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

Money Transfer through UPI/ IMPS

25. Can I transfer my money into my Paytm Payments Bank account through UPI/ IMPS after March 15, 2024? +

No. You cannot transfer the money into your Paytm Payments Bank account after March 15, 2024

Government Securities Market in India – A Primer

25. What are the day count conventions used in calculating bond yields? +

Day count convention refers to the method used for arriving at the holding period (number of days) of a bond to calculate the accrued interest. As the use of different day count conventions can result in different accrued interest amounts, it is appropriate that all the participants in the market follow a uniform day count convention.

For example, the conventions followed in Indian market are given below.

Bond market: The day count convention followed is 30/360, which means that irrespective of the actual number of days in a month, the number of days in a month is taken as 30 and the number of days in a year is taken as 360.

Money market: The day count convention followed is actual/365, which means that the actual number of days in a month is taken for number of days (numerator) whereas the number of days in a year is taken as 365 days. Hence, in the case of T-Bills, which are essentially money market instruments, money market convention is followed.

In some countries, participants use actual/actual, some countries use actual/360 while some use 30/actual. Hence the convention changes in different countries and in different markets within the same country (eg. Money market convention is different than the bond market convention in India).

Foreign Investment in India

Q.25: Within how many days from the date of receipt of the consideration should the capital instrument be issued ? +

Answer: The capital instrument has to be issued by the Indian company within sixty days from the date of receipt of the consideration.

Indian Currency

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

5. What is the need for printing different series of banknotes? +

Central banks the world over change the design of their banknotes and introduce new security features primarily to make counterfeiting difficult and to stay ahead of counterfeiters. India also follows the same policy.

Core Investment Companies

D. Miscellaneous:

25. While instruments that are compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue are excluded from Outside Liabilities, in terms of the Companies Act such instruments are excluded from the definition of ‘public deposit’ if they are convertible with a period of 20 years?

Ans: The period of 10 years was specified as a prudential measure not necessarily in alignment with a provision of the Companies Act. Moreover, the issue here is not public deposits but Outside Liabilities.

Portfolio Investment Positions (PIP) by Counterpart Economy (formerly CPIS) – India

UPDATED: Dec 01, 2023

Special instructions for banks

Q25. Should portfolio investments assets made by branches of the banks outside India be included in PIP?

Ans: No, investments made by branches of your bank located outside India should not be included in PIP.

All you wanted to know about NBFCs

D. Depositor Protection Issues

25. What is the role of Company Law Board (CLB), now National Company Law Board (NCLT), in protecting the interest of depositors? How can one approach it?

When an NBFC fails to repay any deposit or part thereof in accordance with the terms and conditions of such deposit, the CLB/NCLT either on its own motion or on an application from the depositor, direct by order, the NBFC to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the order. After making the payment, the company will need to file the compliance with the local office of the Reserve Bank of India.

As explained above, the depositor can approach CLB/NCLT by mailing an application in prescribed form to the appropriate bench of the CLB/NCLT according to its territorial jurisdiction.

FAQs on Non-Banking Financial Companies

Classification of NBFCs into sub-groups

26. Whether the classification of NBFCs into sub-groups as equipment leasing/hire purchase finance/loan/investment companies is still relevant when the overall ceiling on borrowing have been abolished? +

The NBFCs in the category of equipment leasing and hire purchase finance companies are allowed higher leveraging of their NOF for accepting public deposits as compared to the loan and investment companies. As a result, the classification into sub-groups of the NBFCs is relevant only for the purpose of ceiling on public deposits.

Retail Direct Scheme

Investment and Account holdings related queries

26. What is the periodicity of Primary market auctions? +

While the primary auctions are conducted generally on specified days of the week as given in the table below, these days may differ due to holidays or other considerations. Half yearly indicative calendars are published on RBI website for Government of India’s dated securities and Sovereign Gold Bonds whereas quarterly indicative calendars are published for Treasury Bills and State Development loans. For details visit /en/web/rbi

S. No.	Government security	Primary auction usually held on
1	Government of India Treasury Bills (T-Bills)	Wednesdays
2	Government of India dated securities (dated G-Sec)	Fridays
3	State Development Loans (SDLs)	Tuesdays
4	Sovereign Gold Bonds (SGB)	Weekly windows announced by RBI in its press release