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

Money Transfer through UPI/ IMPS

26. Can I withdraw my money from my Paytm Payments Bank account through UPI/ IMPS after March 15, 2024? +

Yes. You can withdraw your money from Paytm Payments Bank account through UPI/ IMPS upto the balance available in your account.

Coordinated Portfolio Investment Survey – India

UPDATED: Dec 01, 2023

Special instructions for banks

Q26. Should portfolio investment assets made by branches of your bank located in IFSC zone of India to the rest of the world (i.e., excluding India) be included in CPIS?

Ans: Yes, it should be included.

Government Securities Market in India – A Primer

27. What is Duration? +

27.1 Duration (also known as Macaulay Duration) of a bond is a measure of the time taken to recover the initial investment in present value terms. In simplest form, duration refers to the payback period of a bond to break even, i.e., the time taken for a bond to repay its own purchase price. Duration is expressed in number of years. A step by step approach for working out duration is given in the Box IV below.

Box: IV

Calculation for Duration

First, each of the future cash flows is discounted to its respective present value for each period. Since the coupons are paid out every six months, a single period is equal to six months and a bond with two years maturity will have four time periods.

Second, the present values of future cash flows are multiplied with their respective time periods (these are the weights). That is the PV of the first coupon is multiplied by 1, PV of second coupon by 2 and so on.

Third, the above weighted PVs of all cash flows is added and the sum is divided by the current price (total of the PVs in step 1) of the bond. The resultant value is the duration in no. of periods. Since one period equals to six months, to get the duration in no. of year, divide it by two. This is the time period within which the bond is expected to pay back its own value if held till maturity.

Illustration:

Taking a bond having 2 years maturity, and 10% coupon, and current price of ₹101.79, the cash flows will be (prevailing 2 year yield being 9%):

Time period (half year)	1	2	3	4	Total
Inflows (₹)	5	5	5	105	Total
PV at a yield of 9%	4.78	4.58	4.38	88.05	101.79
PV*time	4.78	9.16	13.14	352.20	379.28

Duration in number of periods = 379.28/101.79 = 3.73

Duration in years = 3.73/2 = 1.86 years

More formally, duration refers to:

The weighted average term (time from now to payment) of a bond's cash flows or of any series of linked cash flows.
The higher the coupon rate of a bond, the shorter the duration (if the term of the bond is kept constant).
Duration is always less than or equal to the overall life (to maturity) of the bond.
Only a zero coupon bond (a bond with no coupons) will have duration equal to its maturity.

What is Modified Duration?

27.2 Modified duration (MD) is a modified version of Macaulay Duration. It refers to the change in value of the security to one per cent change in interest rates (Yield). The formula is

Illustration

In the above example given in Box IV, MD = 1.86/(1+0.09/2) = 1.78

Duration is useful primarily as a measure of the sensitivity of a bond's market price to interest rate (i.e., yield) movements. It is approximately equal to the percentage change in price for one percent change in yield. For example the duration is the approximate percentage by which the value of the bond will fall for a 1% per annum increase in market interest rate. So, a 15-year bond with a duration of 7 years would fall approximately 7% in value if the interest rate increased by 1% per annum. In other words, duration is the elasticity of the bond's price with respect to interest rates. This ignores convexity explained in para 24.7

What is PV 01?

27.3 PV01 describes the actual change in price of a bond if the yield changes by one basis point (equal to one hundredth of a percentage point). It is the present value impact of 1 basis point (0.01%) (1%=100 bps) movement in interest rate. It is often used as a price alternative to duration (a time measure). Higher the PV01, the higher would be the volatility (sensitivity of price to change in yield).

Illustration

From the modified duration (given in the illustration under 27.2), we know that the security value will change by 1.78% for a change of 100 basis point (1%) change in the yield. In value terms that is equal to 1.78*(101.79/100) = ₹ 1.81.

Hence the PV01 = 1.81/100 = ₹0.018, which is 1.8 paise. Thus, if the yield of a bond with a Modified Duration of 1.78 years moves from say 9% to 9.05% (5 basis points), the price of the bond moves from ₹101.79 to ₹101.70 (reduction of 9 paise, i.e., 5x1.8 paise).

What is Convexity?

27.4 Calculation of change in price for change in yields based on duration works only for small changes in yields. This is because the relationship between bond price and yield is not strictly linear. Over large variations in yields, the relationship is curvilinear i.e., the reduction in option free bond price is less than the change calculated based only on duration for yield increase, and increase in option free bond price will be more than the change calculated based only on duration for yield decrease. This is measured by a concept called convexity, which is the change in duration of a bond due to change in the yield of the bond.

Indian Currency

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

7. How can one distinguish the MG series-2005 banknotes? +

In addition to the security features listed above, banknotes issued after introduction of MG series-2005 have the year of printing on the reverse of the banknotes which is not present in the pre-2005 series.

Core Investment Companies

Core Investment Companies (CICs)

27. If a company is a CIC but does not exactly meet the criteria specified, does the company need to register as an NBFC? +

Ans: A holding company not meeting the criteria for a CIC laid down in para 2 of Notification No DNBS. (PD) 219/CGM(US)-2011 dated January 5, 2011 would require to register as an NBFC. However, if such company wishes to register as CIC-ND-SI/ be exempted as CIC, it would have to apply to RBI with an action plan achievable within the specific period to reorganize its business as CIC. If it is not able to do so, it would need to comply with NBFC requirements and prudential norms.

All you wanted to know about NBFCs

B. Entities Regulated by RBI and applicable regulations

27. NBFCs are charging high interest rates from their borrowers. Is there any ceiling on interest rate charged by the NBFCs to their borrowers? +

Reserve Bank of India has deregulated interest rates to be charged to borrowers by financial institutions (other than NBFC- Micro Finance Institution). The rate of interest to be charged by the company is governed by the terms and conditions of the loan agreement entered into between the borrower and the NBFCs. However, the NBFCs have to be transparent and the rate of interest and manner of arriving at the rate of interest to different categories of borrowers should be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter etc.

Foreign Investment in India

Q.27: What are the instructions for transfer of shares against deferred payment ? +

Answer: In case of transfer of shares between a resident buyer and a non-resident seller or vice-versa, not more than twenty five per cent of the total consideration can be paid by the buyer on a deferred basis, within a period not exceeding eighteen months from the date of the transfer agreement. The amount deferred can also be either in the form of an indemnity or an Escrow. In all cases, the pricing guidelines should be complied with.

Retail Direct Scheme

Investment and Account holdings related queries

27. What are the risks of investing in Government Securities? +

G-Secs are credit risk free instruments in domestic currency. However, there are market risks if you sell before maturity. You may refer to ‘Government Securities Market- A primer’, published on RBI website, to understand various risks associated with government securities.

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

Some Useful Definitions

Q27. What are participating and non-participating preference shares? +

Ans: Participating preference shares are those shares which have one or more of the following rights:

(a) To receive dividend, out of surplus profit after paying the dividend to equity shareholders.

(b) To have share in surplus assets remaining after the entire capital is paid in case of winding up of the company.

On the other hand, non-participating preference shares are those shares which do not have any of the above said rights.

External Commercial Borrowings (ECB) and Trade Credits

G. END-USES

27. Can ECB proceeds be used by eligible resident borrowers for investment in their overseas JV/WOS as per the extant overseas investment guidelines? +

Yes. ECB proceeds can be utilized for overseas investment as permitted under the overseas investment guidelines.

Coordinated Portfolio Investment Survey – India

UPDATED: Dec 01, 2023

Special instructions for banks

Q27. Should portfolio investment assets made by branches of your bank located in non IFSC zone of India to other branches located in IFSC zone be included in CPIS?

Ans: No, it should not be included, as it will be considered as resident to resident transaction.

FAQs on Non-Banking Financial Companies

Time frame for compliance of regulations

27. How will the NBFCs meet the stipulation of bringing down their deposit portfolio in alignment with the new regulations? +

The NBFCs have been permitted to regularise their excess public deposits by 1/3rd every year so as to pay off/regularise by obtaining/improving their Credit Rating or by augmenting NOF or by substituting public deposits by other form of debt the entire excess by 31st December, 2000. While the companies having the prescribed minimum level of Rating can accept fresh public deposit and renew such maturing deposit, the NBFCs which are unrated or rated below the minimum grade can only renew the maturing deposits. Within this period, the NBFCs are expected to augment their NOF, obtain or improve their Credit Rating, substitute public deposits by borrowings from other avenues. RBI does not intend to order the NBFCs to prematurely repay their deposits. The NBFCs may repay their deposits only on maturity. If the deposits accepted before January 2, 1998 are maturing after December 31, 2000 and the concerned NBFC holds these deposits in excess of its entitlements, this would not tantamount to violation of the RBI directions. It should, however, report the matter to the concerned Regional Office of Reserve Bank of India.

Domestic Deposits

III. Advances

27. (i) What are the ‘intermediary agencies’? (ii) What are ‘housing finance intermediary agencies’? +

An illustrative list of Intermediary Agencies is as under;

State Sponsored organizations for on-lending to Weaker Sections@
Distributors of agricultural inputs/ implements.
State Financial Corporations (SFCs)/ State Industrial Development Corporations (SIDCs) to the extent they provide credit to weaker sections.
National Small Industries Corporation (NSIC).
Khadi and Village Industries Commission (KVIC)
Agencies involved in assisting the decentralized sector.
Housing and Urban Development Corporation Ltd. (HUDCO)
Housing Finance Companies approved by National Housing Bank (NHB) for refinance.
State sponsored organization for SCs/STs (for purchase and supply of inputs to and/or marketing of output of the beneficiaries of these organizations).
Micro Finance Institutions/ Non-Government Organizations (NGOs) on lending to SHGs.

@ ‘Weaker Sections’ in Priority Sector includes following:

Small and marginal farmers with land holdings of 5 acres and less, landless labourers, tenant farmers and share-croppers;
Artisans, village and cottage industries where individual credit requirements do not exceed Rs.25,000/-.
Small and marginal farmers, sharecroppers, agricultural and non-agricultural labourers, rural artisans and families living below the poverty lines are the beneficiaries. The family income should not exceed Rs.11,000/- per annum.
Scheduled Castes and Scheduled Tribes.
Beneficiaries are persons whose family income from all sources does not exceed Rs.7200/- per annum in urban or semi urban areas or Rs.6400/- per annum in rural areas. They should not own any land or the size of their holding does not exceed one acre in the case of irrigated land and 2.5 acres in the case of unirrigated land (land holding criteria do not apply to SC/ST).
Beneficiaries under Scheme of Liberation and Rehabilitation of Scavengers (SLRs).
Advances granted to Self-Help Groups (SHGs) for reaching the rural poor.

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

Paytm Payments Bank Business Correspondent

27. I have an account with Paytm Payments Bank. Can the Paytm Payments Bank Business Correspondent (also referred to as Paytm Payments Bank Agent) help me in withdrawing funds from my account after March 15, 2024. +

Yes. The Paytm Payments Bank Business Correspondent (Bank Agent) can help you to withdraw money from your bank account upto the balance available in your account.

External Commercial Borrowings (ECB) and Trade Credits

G. END-USES

28. Is on-lending treated as working capital for borrowers who are engaged in the business of on-lending? +

For the purpose of ECB, on-lending by borrowers who are engaged in the business of on-lending is not treated as working capital. Additionally, the borrowers shall need to adhere to the guidelines issued by the concerned sectoral or prudential regulator in this regard.

Foreign Investment in India

Q.28. In case of transfer of capital instruments between a person resident in India and a person resident outside India on deferred payment basis, at which stage the form FC-TRS is required to be filed ? +

Answer: Form FC-TRS has to be filed with the AD bank on receipt of every tranche of payment. The onus of reporting shall be on the resident transferor/ transferee.

Domestic Deposits

III. Advances

28. Whether banks can charge interest rate without reference to their own BPLR? +

Yes. The banks are free to determine the rates of interest without reference to BPLR and regardless of the size, in respect of following loans:

(i) a. Loans for purchase of consumer durables.

b. Loans to individuals against shares and debentures/ bonds

c. Other non-priority sector personal loans.

d. Advances/ overdrafts against domestic/ NRE/ FCNR(B) deposits with the bank, provided that the deposit/s stands/ stand either in the name(s) of the borrower himself/ borrowers themselves, or in the names of the borrower jointly with another person.

e. Finance granted to intermediary agencies (excluding those of housing) for on lending to ultimate beneficiaries and agencies providing input support.

f. Finance granted to housing finance intermediary agencies for on lending to ultimate beneficiaries

g. Discounting of Bills

h. Loans/Advances/Cash Credit/Overdrafts against commodities subject to Selective Credit Control

ii. Loans covered by participation in interest refinancing schemes of term lending institutions.

Banks are free to charge rates as per stipulations of the refinancing agencies without reference to BPLR

Indian Currency

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

8. What features on the banknote Mahatma Gandhi (New) Series (MGNS) can help visually challenged people identify the different denominations? +

The Mahatma Gandhi (New) Series banknotes have a sharp colour contrast scheme to facilitate identification by the partially visually challenged. The banknotes from ₹100 denomination onwards, have angular bleed lines (4 lines in 2 blocks in ₹100, 4 angular bleed lines with two circles in between in ₹200, 5 lines in 3 blocks in ₹500, 7 in ₹ 2000) and identification mark for the benefit of the visually challenged. There is an identification mark on the front side of each note which is in raised print (intaglio) and has different shapes for different denominations for e.g. Horizontal rectangle for ₹2000, circle for ₹500, raised Identification mark H for ₹200, triangle for ₹100. Further, in these denominations numerals are prominently displayed in the central area of the notes in raised print.

Core Investment Companies

Core Investment Companies (CICs)

28. Whether a Holding Company which is not able to comply with the CIC criteria (all four conditions), would still need to comply with NBFC requirements and prudential norms even in the event that it is not satisfying the asset-income criteria. (For example: the holding company owns 60 per cent equity in another group company and is not meeting other three conditions Therefore, it does not qualify as a CIC. Further, the income from financial assets is also less than 50 per cent of total income. Whether such a company would require compliance with NBFC norms). +

Ans: No, since the Company is not fulfilling the Principal Business Criteria (asset-income pattern) of an NBFC i.e. more than 50 % of its total assets should be financial assets and the income derived from these assets should be more than 50% of the gross income, it is not required to register as an NBFC under Section 45 IA of the RBI Act, 1934. However it should register itself as an NBFC as soon as it fulfills the criteria of an NBFC and comply with the NBFC norms.

All you wanted to know about NBFCs

B. Entities Regulated by RBI and applicable regulations

28. RBI permits NBFCs to hedge their exposure through dealing in IRFs. Currently, IRFs are on single stock 10 yr 8.40% 2024 security. The Composition of Balance Sheet is mix of fixed/ floating interest rate and different credit profile. Whether 10 yr single security can be used for hedging 2-3 yr liability and asset (Duration adjusted) or can be used for investment in other long tenor securities or corporate bonds. Alternatively, whether IRFs can be used holistically for hedging assets and liabilities in dynamic interest rate scenarios within total Balance Sheet amount and within hedging definition? +

IRF may be used to hedge interest rate risk associated with single asset/ liability or a group of assets/ liabilities. Hence, NBFCs are permitted to use duration based hedging for managing interest rate risk.