RBI Regulatory Updates & Developments
Notifications
  • ECBs – Rationalisation of End-Use Provisions

RBI has now relaxed the end-use restrictions in respect of External Commercial Borrowings (ECBs) permitting eligible borrowers to raise ECBs for the following purposes from recognised lenders, except foreign branches or overseas subsidiaries of Indian banks:

  1. ECBs can now be raised with a minimum average maturity period of 10 years for working capital purposes and general corporate purposes.
  2. Borrowing by Non-Banking Finance Companies (NBFCs) for a maturity period of 10 years for on-lending for the above purposes is also permitted.
  3. ECBs can be raised with a minimum average maturity period of 7 years by eligible borrowers for repayment of rupee loans availed from Banks and Institutions in India for capital expenditure. ECBs with a similar maturity period can also be raised by  NBFCs for on-lending for repayment of such rupee loans.
  4. For repayment of rupee loans availed from Banks and Institutions in India for purposes other than capital expenditure and for on-lending by NBFCs for the same, the minimum average maturity period of the ECB is required to be 10 years.
  • Foreign Exchange Management (Deposit) (Amendment) Regulations, 2019-Acceptance of Deposits by issue of CPs

RBI has deleted Sub-regulation (3) of Regulation 6 of FEMA Notification No. 5( R) / 2016- RB dated April 1, 2016, which allowed  a company to accept deposits through issue of Commercial Papers (CPs) in order to bring in consistency in statutory provisions  and regulations relating to CPs. For further details, click here.

  • Basel III Framework on Liquidity Standards

RBI has announced an additional liquidity facility to banks for purchase of assets from, and on-lending to, NBFCs and Housing Finance Companies (HFCs). It has now been decided that banks will be permitted to reckon the increase in Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) of 1% of their Net Demand and Time Liabilities (NDTL) as Level 1 High Quality Liquid Assets (HQLA) for computing LCR, to the extent of incremental outstanding credit to NBFCs and HFCs. This would be over and above the amount of credit to NBFCs and HFCs outstanding on their books as on the date of the circular.

  • Priority Sector Lending- Lending by Banks to NBFCs for On- Lending

RBI has stipulated that bank credit to registered NBFCs (other than Micro Finance Institutions) for on-lending will be eligible for classification as priority sector under respective categories and subject to the conditions prescribed as under:

  • Agriculture: On-lending by NBFCs for ‘Term lending’ component under Agriculture will be allowed up to INR 10 lakh per borrower.
  • Micro & Small Enterprises: On-lending by NBFCs will be allowed up to INR 20 lakh.
  • Housing: Existing limit for on-lending by HFCs has been increased from INR 10 lakh per borrower to INR 20 lakh per borrower.

Banks can classify only the fresh loans sanctioned by NBFCs, out of the amounts borrowed from banks on or after August 13, 2019. Further, bank credit to NBFCs for on-lending will be allowed up to a limit of five percent of the individual bank’s total priority sector lending.

The above instructions are valid up to March 31, 2020. For further details, click here.

  • Interest Subvention Scheme for Kisan Credit Card (KCC) to Fisheries and Animal Husbandry farmers during the years 2018-19 and 2019-20

RBI has extended the benefits of Interest Subvention at 2 % and Prompt Repayment Incentive (PRI) at 3 % to fisheries and animal husbandry farmers to meet their working capital needs under the KCC Scheme. Additional interest subvention of 3 % per annum will be provided to those farmers who repay both their short-term crop loan and working capital loan for animal husbandry or fisheries on time.

  • Levy of Foreclosure Charges or Pre-payment Penalty on Floating Rate Term Loans

Previously, banks have been permitted by RBI to charge foreclosure charges or pre-payment penalties on home loans and all floating rate term loans sanctioned to individual borrowers. However, RBI has now clarified that banks shall not charge foreclosure charges or pre-payment penalties on any floating rate term loan sanctioned for purposes other than business, to individual borrowers with, or without, co-obligants.

  • Processing of e-mandate on Cards for Recurring Transactions

RBI has decided to permit processing of e-mandates on cards for recurring transactions (merchant payments) with Additional Factor of Authentication (AFA) during e-mandate registration, modification and revocation, and also for the first transaction, and simple or automatic subsequent successive transactions, subject to conditions listed in the Annex. (See circular dated August 21, 2019).

This instruction is applicable to transactions performed using all types of cards- debit, credit and Prepaid Payment Instruments (PPIs), including wallets.

The maximum permissible limit for a transaction under this arrangement shall be INR 2,000.

For further details, click here.

  • LAF - Repo and Reverse Repo Rates

RBI has reduced the policy Repo rate under the Liquidity Adjustment Facility (LAF) by 35 basis points from 5.75 percent to 5.40 percent with effect from August 7, 2019.Consequently, the Reverse Repo rate under the LAF stands adjusted to 5.15 percent with effect from August 7, 2019.

  • Change in Bank Rate

RBI has reduced the Bank Rate by 35 basis points from 6.00 percent to 5.65 percent with effect from August 7, 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. For further details, click here.

  • Direct Benefit Transfer (DBT) Scheme - Implementation

RBI had advised banks to use Aadhaar card to facilitate delivery of social welfare benefits by direct credit to the bank accounts of beneficiaries (Direct Benefit Transfer). Banks have now been advised to ensure that any new bank accounts for eligible beneficiaries opened for this purpose are in conformity with the provisions of the Master Direction on KYC (updated as on May 29, 2019) and the Prevention of Money Laundering (PML) Rules.

  • Usage of ATMs - Free ATM Transactions - Clarifications

RBI has clarified that transactions which fail on account of technical reasons, like hardware, software, communication issues, non-availability of currency notes in the ATM, invalid PIN or validation etc., shall not be counted as valid ATM transactions for the customer. Consequently, no charges shall be levied by the bank.

Non-cash withdrawal transactions (such as balance enquiry, cheque book request, payment of taxes, funds transfer) which constitute ‘on us’ transactions (i.e. when a card is used at an ATM of the bank which has issued the card) shall also not be considered in the number of permitted free ATM transactions.

  • RTGS System - Increase in operating hours

At present, the Real Time Gross Settlement (RTGS) system is available for customer transactions from 8 a.m. to 6 p.m. and for inter-bank transactions from 8 a.m. to 7.45. p.m. RBI has now decided to extend the operating hours of RTGS and commence operations for customers and banks from 7 a.m.

The RTGS time window with effect from August 26, 2019 will be as follows:

  

Sr.No

 

                           Event

 

            Time

   1.

 Open for Business

        07:00 hours

   2.

 Customer transactions (Initial cut-off)       

        18:00 hours

   3.

 Inter-bank transactions (Final cut-off)

        19:45 hours

   4.

 IDL Reversal

19:45 hours - 20:00 hours

   5.

 End of Day

        20:00 hours

Press Release

During July 2019, RBI cancelled the Certificates of Registration of ten NBFCs. In August 2019, eleven NBFCs surrendered their Certificates of Registration to RBI, who, in turn, cancelled the registration certificates of a further eighteen NBFCs. All of these companies cannot now 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. 

Further details can be viewed here:

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=47641

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=47780

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=48013

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=47776

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=48012

SEBI Regulatory Updates & Developments
Circulars

SEBI has prescribed a new format for the compliance report on corporate governance to be submitted by listed companies to stock exchanges. (See Circular dated July 16, 2019). This would be applicable to disclosures to be made on a quarterly basis and for those to be made at the end of the financial year. Disclosures to be made within six months from the end of the financial year can be submitted along with the second quarter report. The provisions of the circular would come into force with effect from the quarter ended September 30, 2019.

In line with the revised RBI requirements, all banks which have listed specified securities will be required to disclose divergences in the asset classification and provisioning to the Stock Exchanges, if either or both of the following conditions are satisfied:

  • the additional provisioning for Non-Performing Assets (NPAs) assessed by RBI exceeds 10% of the reported profit before provisions and contingencies for the reference period,
  • the additional Gross NPAs identified by RBI exceed 15% of the published incremental Gross NPAs for the reference period.

For further details, click here

SEBI has revised the formats for limited review and audit reports of listed entities in order to align them with the revised auditing standards issued by the Institute of Chartered Accountants of India (ICAI).

In terms of the SEBI (Prohibition of Insider Trading) Regulations, 2015, the Board of Directors of every listed company, intermediary and fiduciary is required to formulate a Code of Conduct to be adhered to by the designated persons and their immediate relatives.  Listed entities, intermediaries and fiduciaries would now be required to report insider trading lapses by such persons in a standardised format as prescribed by SEBI

Under the Liquidity Enhancement Scheme (LES), brokers and other market intermediaries are given incentives for a specified period of time to bring in liquidity and generate investor interest in securities which have limited trading activity. SEBI has eased the conditions for exchanges to provide incentives under LES in the first five years of their operations, subject to the following conditions:

  • The yearly incentives that an exchange can earmark for LES shall not exceed 25% of the audited net worth of the said exchange as on the last day of the previous financial year.
  • The exchange would be required to create a reserve specifically to meet its LES incentives or expenses, and transfer funds to such reserve accordingly. However, such reserves shall not be included in the calculation of its net worth.
  • The exchange shall continuously comply with the minimum net worth requirement as per the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018.

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 through intermediaries came into effect on January 1, 2019. Implementation of the same was to be carried out in a phased manner to ensure gradual transition to UPI with ASBA.

The current process for retail investor applications of submitting a bid-cum-application form with any intermediary along with bank account details, and movement of such application forms from intermediaries to Self-Certified Syndicate Banks (SCSBs) for blocking of funds, has been discontinued from July 1st 2019. For such applications, only the UPI mechanism would be permissible.

While applying for an initial public offer, an investor would need to ensure that the name of his bank appears in the list of SCSBs displayed on the SEBI website which are live on UPI. Further, the investor would be required to ensure that the name of the app and the UPI handle being used for making the application is also in the aforesaid list.

For further details, click here

Clearing corporations and stock exchanges have been advised to devise a standard framework for levying fines on trading members for non-reporting or misreporting of margins collected from clients. The principle of 'proportionality' would need to be considered and the fine shall be charged based on the level of non-compliance by the member, which may include factors such as number of instances, repeated violations, etc. The fine amount to be imposed on the trading member may extend to 100% of such false or incorrectly reported amount of margin. It may also include suspension of trading for appropriate number of days.

For further details, click here.

SEBI has instructed depositories to freeze the securities of promoters and directors of listed companies which failed to ensure the updating of their database with the distinctive number of equity shares. In addition, the corporate benefits accrued to beneficiary accounts of promoters and directors of such companies shall also be frozen.

SEBI has prescribed additional disclosure requirements relating to encumbrance of securities by promoters of listed entities:

  • The promoter of every listed company shall specifically disclose detailed reasons for encumbrance if the combined encumbrance by the promoter along with the Persons Acting in Concert (PACs) equals or exceeds 50% of their shareholding in the company or 20% of total share capital of the company.
  • Such disclosures will be warranted on every occasion, when the extent of encumbrance (having already breached the above threshold limits) increases further from the prevailing levels.
  • Disclosures as per Annexure-II of the circular shall be in addition to the disclosure as per Annex– I of SEBI’s earlier circular issued on August 05, 2015.
  • Listed companies shall disclose the contents of Annex – II on their websites within two working days of receipt of such disclosure.

The provisions of this Circular shall come into effect from October 01, 2019.

SEBI has clarified that provisions for domestic Alternative Investment Funds (AIFs) will also be applicable for such entities operating in the International Financial Services Centre (IFSC).

Accordingly, AIFs incorporated in the IFSC shall be permitted to make investments as per the provisions and guidelines of the SEBI (AIF) Regulations, 2012. For further details, click here.

As per SEBI (Mutual Funds) Regulations, a mutual fund may invest funds in short-term deposits of scheduled commercial banks, subject to certain conditions. It has been stipulated that Trustees and Asset Management Companies (AMCs) shall ensure that no funds of a scheme are parked in a short-term deposit of a bank which has invested in that scheme. Further, Trustees and AMCs have been advised to ensure that the banks in which a scheme has a short-term deposit do not invest in the same scheme during the period of such deposit.

For further details, click here.

SEBI has instructed stock exchanges to impose fines in case of non-compliance with certain provisions of Issue of Capital and Disclosure Requirements (ICDR) Regulations:

  • The fine will be applicable if a bonus issue is delayed beyond 15 days from the date of approval of the issue by the board of directors in cases where shareholders' approval for making the bonus issue is not required. In cases where the issuer is required to seek shareholders' approval for making the bonus issue, a fine would be levied if the bonus shares are not issued within two months from the date of the meeting of the board of directors.
  • A fine will also be levied on entities that do not complete the conversion of convertible securities and allotment of shares within 18 months from the date of allotment of such securities.
  • Entities that fail to approach the stock exchanges for listing of equity shares within 20 days from allotment and that fail to make the application for trading approval to the stock exchanges within seven days from the date of grant of listing approval, are also liable for paying the penalty.
Regulations

The SEBI (Listing Obligations and Disclosure Requirements) (LODR) Regulations have been amended in relation to corporate governance provisions for listed entities, which have issued shares with Superior Rights (SRs). Key changes introduced are as follows:

  • The SR equity shares shall be treated at par with the ordinary equity shares in every respect, including dividends, except in the case of voting on resolutions.
  • The total voting rights of SR shareholders (including ordinary shares) shall not at any point of time exceed 74%.
  • At least half of the board of directors of such companies shall comprise of independent directors.
  • The audit committee of the company shall have only independent directors.

Two thirds of the Nomination and Remuneration Committee (NRC), Stakeholders’ Relationship Committee (SRC) and the Risk Management Committee (RMC) of the Company shall comprise of independent directors.

The SEBI (Substantial Acquisition of Shares and Takeovers) (SAST) Regulations, 2011 have been amended and key changes are:

  • An increase in the voting rights of any shareholder beyond the threshold limits stipulated under the regulations, without the acquisition of control, pursuant to the conversion of equity shares with superior voting rights into ordinary equity shares, would be exempted from the obligation to make an open offer.
  • The term "encumbrance" has been significantly broadened to also include the following:
  • any restriction on the free and marketable title to shares, whether executed directly or indirectly
  • pledge, lien, negative lien, non-disposal undertaking
  • any covenant, transaction or condition or arrangement in the nature of encumbrance, whether executed directly or indirectly
  • Further, promoters of listed companies would be required to declare, on a yearly basis, that they, along with PACs, have not made any encumbrance other than those already disclosed during the financial year.

The SEBI (Buy-back of Securities) Regulations, 2018 have been amended so now these regulations would also be applicable to shares with superior voting rights.

Press Release

The SEBI Board met in Mumbai on August 21, 2019 and took the following decisions:

  • Review of SEBI (Foreign Portfolio Investors) Regulations

Recommendations from the working group for reviewing the SEBI (Foreign Portfolio Investors) Regulations, 2014 were considered and the following amendments were approved:  

  1. Measures for simplification of the registration process and bringing about ease in compliance requirements for FPIs have been introduced.
  2. The broad-based eligibility criteria for institutional foreign investors has ended.
  3. Re-categorisation of FPIs into two categories - Category I and II, instead of the present requirement of three categories, will come into effect
  4. Registration for multiple investment manager (MIM) structures has been simplified.
  5. Central banks that are not the members of BIS (Bank for International Settlement) shall also be eligible for FPI registration.
  6. The entities established in the international financial services center (IFSC) will be deemed to have met the jurisdiction criteria for FPIs.
  7. Documentation requirements for KYC have been simplified.
  8. FPIs shall be permitted to undertake off-market transfer of securities which are unlisted, suspended or illiquid, to a domestic or foreign investor.
  9. Offshore funds floated by Indian Mutual Funds shall now be permitted to invest in India after obtaining registration as FPI.
  10. The requirements for issuance and subscription of Offshore Derivative Instruments (ODIs) have been rationalised.
  • Norms for permitting companies listed on the IGP to trade under regular category

SEBI has approved the norms for migration of companies listed on the Innovators Growth Platform (IGP) to the regular trade category of the main board. The key proposals approved are as follows:

  1. The company should have been listed on the IGP for a minimum period of one year.
  2. At the time of making the application for trading under the regular category of main board, the number of shareholders should be minimum 200.
  3. The company should have profitability or net worth track record of 3 years or have 75% of its capital as on the date of application for migration held by Qualified Institutional Buyers.
  4. Minimum promoter’s contribution shall be 20%, which shall be locked in for 3 years.
  • Review of Buy-backs

SEBI has approved the following proposals regarding buy-back of securities:

  1. The current approach of allowing buybacks if post buy-back debt to equity ratio is not more than 2:1 (except for companies for which higher debt to equity has been notified under the Companies Act, 2013) based on both standalone and consolidated basis would continue.
  2. If post buy-back debt to equity ratio is not more than 2:1 on standalone basis and exceeding 2:1 on consolidated basis, buy-back would be permitted if prescribed conditions are met.
  • Amendments to SEBI (Issue and Listing of Debt securities by Municipalities) Regulations, 2015

A two-step process for account auditing will be adopted in order to ensure that those municipalities and issuers audited by the Comptroller and Auditor General (CAG), are able to submit their audited accounts to the stock exchanges, debenture trustees and regulatory bodies within the specified timeline and appropriate guidelines for public listed undertakings. The timelines for submission of annual and half yearly financial results have been revised.

  • Proposed SEBI (Prohibition of Insider Trading) (Third Amendment) Regulations, 2019

SEBI has approved a detailed set of rules for the new “Informant Mechanism” under its Prohibition of Insider Trading Regulations, 2019. A new mechanism to reward informants for any credible inside information through a specially created hotline has been announced. The reward would be given in cases in which the information provided leads to a disgorgement of at least INR one crore. The total amount of monetary reward shall be 10 % of the monies collected but shall not exceed INR one crore. An interim reward not exceeding INR 10 lacs may be given at the stage of issuance of the final order by SEBI against the person directed to disgorge.

SEBI has also proposed a possible amnesty or settlement for minor wrongdoings in return for cooperation in the probe.

  • Amendments to SEBI (Mutual Funds) Regulations, 1996

SEBI has approved the proposal for amendments to its Mutual Funds Regulations with respect to prudential norms for Investment and Valuation of Debt and Money Market Instruments. Flexibility will be given to mutual funds to invest in unlisted non-convertible debentures (NCDs) up to a maximum of 10% of the debt portfolio of the scheme, subject to such investments in unlisted NCDs having simple structures, being rated, secured and with monthly coupons. This shall be implemented in a phased manner by June 2020.

 

India Market Updates

RBI has imposed monetary penalties on the following banks and other entities:

  • INR 70 million on State Bank of India for non-compliance with the directions issued by RBI on:
  • Income Recognition and Asset Classification (IRAC) norms
  • Code of conduct for opening and operating current accounts and reporting of data on Central Repository of Information on Large Credits (CRILC)
  • Fraud risk management and classification and reporting of frauds.
  • INR 1 million on Union Bank of India for non-compliance with the directions on cyber security framework in banks.
  • INR 10 million on Corporation Bank for non- compliance with the directions issued by RBI on (i) Cyber Security Framework in Banks and (ii) Frauds Classification and Reporting by commercial banks and select Financial Institutions (FIs).
  • Four banks for non-compliance with certain provisions of the RBI directions on Know Your Customer (KYC) norms and Anti Money Laundering (AML) Standards and Opening of Current Accounts, as detailed below:                                                  

Sr.No.

Name of the Bank

Amount of Penalty (INR in million) 

       1.         

Allahabad Bank

 5

       2.

Corporation Bank

 2.5

       3.

Punjab National Bank

 5

       4.

UCO Bank

 5

 

  • Eleven banks for non-compliance with certain provisions of its directions on frauds classification and reporting by commercial banks and select FIs, as detailed below:

Sr.No.

Name of the Bank

Amount of Penalty (INR in million)

   1.

         Bank of Baroda

 5

   2.

         Corporation Bank

 5

   3.

          Federal Bank Limited

 5

   4.

         Indian Overseas Bank

 10

   5.

         Jammu and Kashmir Limited

 5

   6.

         Oriental Bank of Commerce

 15

   7.

         Punjab and Sind Bank

 10

   8.

         Punjab National Bank

 5

   9.

         State Bank of India

 5

  10.

         UCO Bank

 10

  11.

         United Bank of India

 10

 

  • Seven banks for non-compliance with certain provisions of directions issued by it on “Code of Conduct for Opening and Operating Currents Accounts”, “Opening of Current Accounts by banks - Need  for Discipline”, “Discounting and Rediscounting of Bills by Banks” and Reserve Bank of India (Frauds  Classification and reporting by commercial banks and select FIs) Directions 2016”, as detailed below:

Sr.No.

Name of the Bank

Amount of Penalty (INR in million)

    1.

Allahabad Bank

 20

    2.

Bank of Baroda

 15

    3.

Bank of India

 15

    4.

Bank of Maharashtra

 20

    5.

Indian Overseas bank

 15

    6.

Oriental Bank of Commerce

 10

    7.

Union Bank of India

 15

 

  • Two Prepaid Payment Instrument (PPI) issuers for non-compliance with regulatory guidelines:

 Sr.No.

 Name of the PPI Issuer

   Amount of Penalty (INR in million)

     1

One Mobikwik Systems Private Limited

 1.5

     2  

 Hip Bar Private Limited

 1

  • A penalty of INR 1 million has been imposed on Mr. Purshottam Khandelwal for indulging in manipulative trading in the scrip of M/s Sumeet Industries Ltd who was found to have violated the provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations.

An aggregate penalty of INR 8.52 million has been imposed on eleven entities for indulging in fraudulent trades in the illiquid stock options segment of the Bombay Stock Exchange (BSE).

  • An aggregate penalty of INR 130 million has been imposed on M/s JLG Securities and seven individuals for fraudulent trading in the scrip of Regency Hospital resulting in creating artificial volume in the scrip of the company and influencing the price of the scrip of the company. The trades of the entities were found to be in violation of the SEBI (Prohibition of Insider Trading) Regulations.
  • A penalty of INR 1.2 million has been imposed on the ex- vice-president of Financial Technologies India Ltd, Mr. Naisadh P Desai, for failing to comply with his obligation to obtain pre-clearance in respect of his trades in the scrip of the company, thus violating the SEBI (Prohibition of Insider Trading) Regulations.
  • An aggregate penalty of INR 0.8 million has been imposed on two stock broking firms, M/s AC Agarwal Share Brokers and M/s IIFL Securities Ltd, for utilizing the funds of their clients for purposes other than those permitted and for breaching the terms and conditions of the member-client agreement.
  • A penalty of INR 11.5 million was imposed on M/s Syncom Healthcare Ltd and its officials for violation of various markets norms while manipulating issuance of Global Depository Receipts (GDR).
  • A fine of over INR 180 million was imposed on 35 entities for indulging in circular trading and share price manipulation in the matter of Octant Interactive Technologies Ltd (OTIL).
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