RBI Regulatory Updates & Developments
Notifications
  • Large Exposures Framework

RBI has introduced amendments to the Large Exposures Framework (LEF), which came into effect on 1st April 2019, in order to align the instructions with international norms and to capture exposures and concentration risk more accurately:

  1. Under current RBI directions, exposures to the Government of India and State Governments, are exempted from the LEF. It has now been clarified that, where two or more entities which are controlled by, or economically dependent upon, an entity that falls within the scope of the sovereign exemption, such entities will not be deemed to constitute a group of connected counterparties.
  2. The criteria of economic interdependence has now been introduced within the definition of connected counterparties
  3. In case banks invest in structures, which themselves have exposures to assets underlying those structures - such as securitisation vehicles, collective investment undertakings and other structures with underlying assets - such exposures should be assigned to specific counterparties of the underlying assets, as per the “Look Through Approach” prescribed.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11573

 

  • Basel III Capital Regulations- Implementation of Leverage Ratio

RBI has prescribed a minimum leverage ratio of 4% for Domestic Systemically Important Banks (DSIBs) and 3.5% for other banks. Both the capital measure and the exposure measure along with leverage ratio are to be disclosed on a quarterly basis. Banks must meet the minimum leverage ratio requirement at all times. These guidelines shall be effective from the quarter commencing 1st October 2019.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11606

  • Change in Bank Rate

RBI has reduced the bank rate by 25 basis points from 6.25% to 6% with effect from 6th June 2019.

All penal interest rates on shortfall in reserve requirements, which are specifically linked to the bank rate, also stand revised as indicated in the annex (See circular dated June 6, 2019).

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11576

  • LAF – Repo and Reverse Repo Rates

RBI has reduced the policy repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 6% to 5.75% with effect from 6th June 2019.

Consequently, the reverse repo rate under the LAF stands adjusted to 5.5% with effect from 6th June 2019.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11574

  • Prudential Framework for Resolution of Stressed Assets

RBI has issued directions on Prudential Framework for Resolution of Stressed Assets, which apply to Scheduled Commercial Banks (excluding Regional Rural Banks), All India Term Financial Institutions, Small Finance Banks and Systemically Important Non-Deposit taking Non-Banking Financial Companies (NBFC-ND-SI) and Deposit taking Non-Banking Financial Companies (NBFC-D).  They are as follows:

  1. All lenders would be required to put in place board approved policies for resolution of stressed assets.
  2. Under the new norms, defaults are to be recognised within 30 days. During this review period of 30 days, lenders may decide on the resolution strategy, including the nature of the Resolution Plan (RP) and the approach for its implementation. Banks would need to make additional provisions in case of failure to implement a RP within given timelines.
  3. In cases where RP is to be implemented, all lenders shall enter into an Inter-Creditor Agreement (ICA).
  4. RP shall provide for payment of not less than the liquidation value due to the dissenting lenders.
  5. Lenders would need to recognise incipient stress in loan accounts, immediately on default, by classifying such assets as ‘special mention’ accounts.
  6. Lenders would be required to report credit information to the Central Repository of Information on Large Credits (CRILC) on all borrowers who have an aggregate exposure of INR 5 crore and above.
  7. Previous instructions issued by RBI on revitalising distressed assets, corporate debt restructuring schemes, and flexible structuring of existing long-term project loans have been withdrawn.
  8. This framework would not be available to borrowers to whom specific instructions have already been issued for initiation of insolvency proceedings under the Insolvency and Bankruptcy Code, 2016. Furthermore, borrowers, who have committed fraud, malfeasance or wilful default, will remain ineligible for restructuring.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11580

  • Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks - Sale of Investments Held Under HTM Category

In case the value of sales and transfer of securities to or from Held to Maturity (HTM) category exceeds 5% of the book value of investments held in HTM category at the beginning of the year, banks are required to disclose the market value of the investments held in the HTM category and indicate the excess of book value over market value for which provision is not made.

Apart from transactions that are already exempted from inclusion in the 5% cap, it has been decided that repurchase of State Development Loans (SDLs) by the concerned state government shall also be exempted.  https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11581

 

  • Revision in Proforma and Reporting of Bank or Banking Outlet Details Under CISBI

RBI has implemented a new reporting system called the Central Information System for Banking Infrastructure (CISBI) to replace the Master Office File (MOF) system, which is more consistent with the needs of branch licencing and financial inclusion policies.

Under the new system, all entities would be required to submit their information in one proforma, unlike the earlier system of collecting Proforma-I & Proforma-II separately. All past information reported by banks has been migrated to CISBI and additional information would now need to be reported in CISBI. 

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11609

  • NEFT and RTGS systems – Waiver of Charges

RBI has now decided to waive processing and time varying charges previously levied on banks for outward transactions undertaken using the Real Time Gross Settlement (RTGS) system, as well as waiving processing charges for transactions in the National Electronic Funds Transfer (NEFT) system.  This came into effect on 1st July 2019.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11586

  • Directions for CCPs

RBI has updated existing guidance relating to capital requirements and governance framework for Central Counterparties (CCPs):

  1. For domestic CCPs eligible to operate in India, the upper age limit for appointment of Director, Nominee Director, Independent Director and Chairperson has now been raised to 70 years.
  2. The upper age limit for appointment of Managing Director shall continue to be 65 years.

The updated directions governing the functioning of CCPs are given in the annex.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11587

  • Rollout of the Foreign Exchange Trading Platform for Retail Participants – FX-Retail

RBI has announced the introduction of an electronic trading platform for buying and selling foreign exchange by retail customers of banks. The platform, FX-Retail, is ready for rollout by the Clearing Corporation of India Limited (CCIL) on 5th August 2019.

The FX-Retail platform can be accessed by any customer of a bank (through the website https://www.fxretail.co.in) who has a need to purchase or sell US Dollars against the Rupee for delivery on cash basis (same day), tom basis (next day) or spot basis (two days after date of transaction), subject to the following conditions:

  1. There is no cap on the number of transactions per customer during a day. The total amount of transactions of a customer shall be subject to the limit assigned by the bank.
  2. The size of a single transaction is not allowed to exceed USD 5 million.
  3. No transaction charges shall be levied by CCIL on customer transactions if such transactions do not exceed USD 50,000 per day.
  4. A transaction charge of 0.0004% shall be charged by CCIL for transactions in excess of USD 50,000 per day.

Any fees charged by banks shall be indicated on the FX-Retail platform. Banks may recover the transaction and settlement charges levied by the CCIL from its customers.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11597

 

  • Financial Benchmark Administrators (Reserve Bank) Directions, 2019

On 26th June 2019, RBI issued the Financial Benchmark Administrators (Reserve Bank) Directions, 2019, which are applicable to Financial Benchmark Administrators (FBA) administering ‘Significant Benchmarks’ for financial instruments regulated by the Reserve Bank. FBAs would need to:

  1. be a company incorporated in India, which would be required to maintain a minimum net worth of INR 1 crore at all times
  2. ensure adherence to the accepted standards of governance, quality of benchmarks, quality of methodology and accountability of the benchmark administration process
  3. develop an appropriate oversight function for regular review of various aspects of the significant benchmark determination process. The oversight function shall be carried out by a committee
  4. provide effective controls over data collection, storage, processing and dissemination to maintain data security, confidentiality and integrity
  5. put in place transparent written policies setting out the roles and obligations of any agency to which it outsources work to act as a calculating agent, or any other function that affects the value of the benchmark and it shall regularly monitor their compliance with the policies
  6. have a formal mechanism to handle complaints related to ‘significant benchmark’ administration 
  7. preserve all data in their possession in connection with ‘significant benchmarks’ for a period of ten years from the date of receipt or creation of data
  8. make public the ‘significant benchmarks’, either on the day of its release or within 15 days from the release.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11601

  • Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2019

On 27th June 2019, RBI issued norms for rupee Interest Rate Derivatives (IRD) with a view to consolidating, rationalising and simplifying all previous regulations issued for such contracts. These directions are applicable to Rupee IRD transactions undertaken on recognised stock exchanges and Over-the-Counter (OTC) markets, including on Electronic Trading Platforms (ETPs). The key provisions are as below:

  1. Any person resident in India and any non-resident, to the extent specified in the Directions, is eligible to participate in IRDs.
  2. All regulated entities shall participate in IRDs with the permission of, and subject to, the terms and conditions fixed by their respective regulators.
  3. An Indian or non-resident parent company, any group company, or centralised treasury can transact in IRDs on behalf of their wholly owned subsidiaries or group companies provided they meet the criteria for non-retail users.
  4. IRD contracts can be transacted either on Recognised Stock Exchanges or OTC.
  5. Instruments traded in the OTC market such as the forward rate agreements, interest rate options and European Interest Rate Options can be offered to retail users only for hedging interest rate risk.
  6. Non-retail users, who have more financial resources and understand these products better, can use these products for trading or speculation.
  7. Complex products such as swaptions and structured derivative products would be available only to non-retail users.
  8. Floating interest rates or indices used in the OTC contracts have to be benchmarked to indices published by FBAs or approved by the Fixed Income Money Market and Derivatives Association of India (FIMMDA).
  9. NRIs have been permitted a higher trading limit of $3.5 billion in Overnight Indexed Swap (OIS).

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11602

  • Annual Return on Foreign Liabilities and Assets Reporting by Indian Companies

In terms of RBI’s directions issued in June 2012, all Indian companies which have received Foreign Direct Investment (FDI) or made an overseas investment should file an annual return on Foreign Liabilities and Assets (FLA) with RBI by July 15 of every year. This was later expanded to include reporting of inward and outward Foreign Affiliate Trade Statistics (FATS) and reporting by the Limited Liability Partnerships (LLP).

It has now been decided that the present email-based reporting system for submission of the FLA return will be replaced by the web-based system online reporting portal.

Indian entities not complying with the above will be treated as non-compliant with the Foreign Exchange Management Act, 1999 and regulations made thereunder. These directions would come into force with immediate effect and would be applicable for reporting of information for the year 2018-19.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11607

Press Release

During June 2019, 4 NBFCs surrendered their Certificates of Registration to RBI, who, in turn, cancelled the registration certificates of a further 23 NBFCs. None of these companies can undertake the business of a Non-Banking Financial Institution, as laid down under clause (a) of Section 45-I of the Reserve Bank of India Act, 1934.

SEBI Regulatory Updates & Developments
Circulars

SEBI has issued guidelines for Credit Rating Agencies (CRA) to strengthen the existing disclosures regime and enhance the rating standards (See circular dated June 13, 2019). Additional disclosures in the rating document have been laid out in order to make the rating process more transparent. The key provisions are as below:

  • CRAs would need to disclose the computation of cumulative default rates as per the methodology laid out by SEBI.
  • On their websites, they would be required to prepare and disclose standardised and uniform Probability of Default (PD) benchmarks for each category rating and to include one-year, two-year and three-year cumulative default rates, both for the short-run and the long-run. This has to be done on a consolidated basis for all financial instruments rated by a CRA by 31st December 2019.
  • A specific section has been mandated on ''rating sensitivity'' in the press releases from the CRA to indicate possible trigger for an upward or downward rating change.
  • Rating agencies would need to make meaningful disclosures about liquidity conditions by using simple terms like ‘superior’, ‘strong’, ‘adequate’, ‘stretched’ or ‘poor’, with proper explanations to help the end users understand the terms better.
  • CRAs will have to devise a model to track deviations in bond spreads.
  • CRAs would be required to assign the suffix ''CE'' (Credit Enhancement) to rating of instruments which have an explicit credit enhancement. 

SEBI has now decided to permit recognised stock exchanges with a commodity derivative segment to introduce futures on commodity indices (See circular dated June 18, 2019).  Construction of, and futures on, commodity indices shall be as per the annexes to the circular. The recognised stock exchanges will need to have prior approval from SEBI for launching such contracts and the exchanges will need to augment their monitoring and surveillance capacity.

SEBI has outlined guidance to ensure an applicant can be assured of confidentiality while filing a plea under the settlement mechanism (See circular dated June 18, 2019):

  • In order to assure confidentiality to an applicant who provides assistance in examination proceedings, SEBI may assess the information provided or cooperation given during such examination proceedings by considering various factors such as nature of assistance provided and the gravity of the matter.  It would also be ascertained whether the information provided was truthful, complete and reliable.
  • While taking into account the gravity of matter, factors like nature and type of defaults under the securities laws, age of the applicant, repetitive nature of defaults and the effect of defaults on investors will be considered.
  • The grounds for rejection of confidentiality have also been outlined and, amongst other factors, would include any applicant’s history of violation of securities laws and any delays in reporting of violations.

Clients’ securities lying in certain accounts has been precluded from being pledged to banks and NBFCs, even if the same is authorised by the clients. (See circular dated June 10, 2019). This would be applicable for clients' securities lying with the Trading Member (TM) or Clearing Member (CM) in client collateral, client margin trading securities and client unpaid securities accounts.

Securities that have not been paid for in full by the clients (unpaid securities) will need to be put into a separate client account titled “client unpaid securities account”, which would be opened by the TM or CM. All existing client securities accounts opened by the TM or CM, other than a pool account, client margin trading securities account and client collateral account, shall be wound up on or before 31st August 2019.

The closing of specified accounts, as well as the opening of clients' unpaid securities accounts, need to be reported to respective exchanges and clearing corporations within a given time frame and in a prescribed format.

SEBI has updated its previous guidance in relation to the mechanism for levying penalties on short-collection or non-collection of margins. Previously all the penalties collected were to be credited to the Investor Protection Fund (IPF) of the Exchange, but it has now been clarified that all penalties levied on short-collection or non-collection of margins shall be credited to Core Settlement Guarantee Fund (SGF) only. (See circular dated June 20, 2019).

SEBI has laid out measures for streamlining the process of public issue of equity shares and convertibles (See circular dated June 28, 2019). The use of Unified Payments Interface (UPI) as a payment mechanism with Application Supported by Block Amount (ASBA) for applications in public issues by retail individual investors was introduced with effect from 1st January 2019. The timeline for implementation of Phase I was extended till 30th June 2019 in order to ensure that the transition to UPI in ASBA is smooth for all the stakeholders. The changes introduced are as below:

  • Implementation of Phase II: Phase II (in terms of the circular dated 1st November 2018), shall become effective from 1st July 2019. Thereafter, the existing process of submitting bid application forms by the investors through the intermediaries and movement of such application forms from intermediaries to Self-Certified Syndicate Banks (SCSBs) for blocking of funds, will be discontinued.   The implementation of Phase III shall be effective from the date of completion of Phase II.
  • Retention of forms by Intermediaries: Physical application forms submitted by retail individual investors with the UPI as a payment mechanism, would be required to be kept by the intermediaries for a period of six months. Thereafter, they would need to forward the same to the issuer or the registrar to the issue. However, in case of electronic forms, printouts of such applications need not be retained or sent to the issuer. Intermediaries shall, at all times, maintain the electronic records relating to such forms for a minimum period of three years
India Market Updates

RBI has imposed monetary penalties on the following banks and Prepaid Payment Instrument (PPI) issuers:

  • a penalty of INR 20 million on Kotak Mahindra Bank Limited for non-compliance with the directions issued to the bank by RBI.
  • a penalty of INR 11.25 Lakhs each on PPI issuers: ZipCash Card Services Pvt. Ltd and Yes Bank Limited, for non-compliance with regulatory guidelines.
  • a penalty of INR 10 million on HDFC Bank Limited for non-compliance with the directions issued by RBI on ‘Know Your Customer (KYC) and Anti-Money Laundering (AML) norms, and on reporting of frauds.
  • a penalty of INR 1 million on South Indian Bank Limited for non-compliance with the directions issued by RBI on ‘Guarantees and Co-acceptances’.

SEBI has imposed the following penalties:

  • a penalty of INR 90.7 lakhs on twelve entities and three individuals for indulging in fraudulent trades in the illiquid stock options segment of the Bombay Stock Exchange (BSE).

 

Name of the Entities and Individuals

Fines (in INR)

Rector Investments Pvt. Ltd

19.5 Lakhs

ENPAR Fortune Pvt Ltd

5 Lakhs

Flyhigh Exports Pvt Ltd

5 Lakhs

Sun Star Securities

5 Lakhs

Arham Share Consultants Pvt Ltd

6.20 Lakhs

Anuj Katta

5 Lakhs

Sourabh H Bora

5 Lakhs

Mittal Pigments Pvt Ltd

5 Lakhs

MMG Steels Pvt Ltd

5 Lakhs

Manoj Goel

5 Lakhs

Hotel Polo Towers Pvt Ltd

5 Lakhs

Hollyfield Traders Pvt Ltd

5 Lakhs

Jaideep Halwasiya

9 Lakhs

Shyam Rathi HUF

4 Lakhs

Nishith M Shah

2 Lakhs

 

  • a penalty of INR 39 lakhs on five entities for lapses in disclosures under SEBI (Substantial Acquisition of Shares and Takeovers) norms and Insider Trading provisions.

 

Name of the Entities

Fines (in INR)

Mallya Pvt Ltd

6 Lakhs

Pharma Trading Co. Pvt. Ltd.

6 Lakhs

Castex Technologies

5 Lakhs

Metalyst Forgings

10 Lakhs

New Delhi Television Ltd

12 Lakhs

 

  • a penalty of INR 1.25 crore on ex-MCX Director, Mr. Hariharan for selling the shares of MCX when in possession of the unpublished price-sensitive information and averting the losses and for violating the provisions of the SEBI (Prohibition of Insider Trading) Regulations.

SEBI has taken action against All Time Buildtech Pvt Ltd, Anuradha Arora, B G Freight Shoppe India, Girraj Kumar Gupta HUF, and Ever Bright Trading Pvt Ltd and has barred these entities from the securities market for four years. SEBI revealed that the intention of these entities was to mark the share price higher and then not to enter into the sale transactions. They have thus violated SEBI (Prohibition of Fraudulent and Unfair Trade Practices) norms.

SEBI has banned GV Films and its 5 directors for a period of five years from the securities market for manipulating the issuance of Global Depository Receipts (GDRs) and also for violating SEBI (Prohibition of Fraudulent and Unfair Trade Practices).

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