Inquisitive Mind

Reserve Bank of India (RBI) has published the scheme for trading and settlement of Sovereign Green Bonds (SGrBs) in the International Financial Services Centre (IFSC) in India. Which are eligible securities under the Scheme? Sovereign Green Bonds (SGrBs) issued by the Government of India shall be eligible for investment under the Scheme. Who are eligible investors under the Scheme? The following persons will be eligible investors under the Scheme – Persons resident outside India as defined in Section 2(w) of the FEMA, 1999, that are eligible to invest in the IFSC, and are not incorporated in High-Risk Jurisdictions subject to a Call for Action as identified by FATF. An IFSC Banking Unit (IBU) of a foreign bank which does not have a branch or subsidiary licensed to undertake banking business in India. Persons resident outside India as treated under Foreign Exchange Management (International Financial Services Centre) Regulations, 2015, that are eligible to invest in the IFSC, and are no...

Reserve Bank of India (RBI) has reviewed the regulatory framework for Housing Finance Companies (HFCs) and harmonised the regulations applicable to HFCs and Non-Banking Financial Companies (NBFCs). What are the revised regulations on maintenance of minimum percentage of liquid assets by HFCs? In terms of Section 29B of the National Housing Bank (NHB) Act, 1987, all deposit taking HFCs shall maintain, on an ongoing basis, liquid assets as a percent of the public deposits held by them, as specified below – Timeline Unencumbered approved securities, to be held as a percent of public deposits Total liquid assets along with unencumbered approved securities to be held as a percent of public deposits Currently 6.5% 13% January 01, 2025 8% 14% July 01, 2025 10% 15% What are the revised regulations on deposits accepted by HFCs? Extant regulations Revised regulations ...

Reserve Bank of India (RBI) has released draft framework on alternative authentication mechanisms for digital payment transactions. What is the rationale behind the draft framework? RBI had mandated additional factor of authentication (AFA) for all transactions undertaken using cards, prepaid instruments and mobile banking channels. No specific factor was mandated for authentication, but the digital payments ecosystem has primarily adopted SMS-based OTP as AFA. While OTP is working satisfactorily, technological advancements have made available alternative authentication mechanisms. Therefore, RBI has released a draft framework on alternative authentication mechanisms for digital payment transactions to enable the ecosystem to adopt alternative authentication mechanisms.  To whom shall the framework be applicable? The framework applies to all Payment System Providers and Payment System Participants (banks and non-banks), who shall comply with the framework within 3 months from the d...

Reserve Bank of India (RBI) has issued draft directions on due diligence of Aadhaar Enabled Payment System (AePS) touchpoint operators. What is Aadhaar Enabled Payment System (AePS)? Aadhaar Enabled Payment System (AePS) is a payment system in which transactions are enabled through Aadhaar number and biometrics / OTP authentication.  AePS is operated by National Payment Corporation of India (NPCI).  AePS facilitate interoperable financial transactions through the Business Correspondent (BC) / Bank Mitra of any bank, using the Aadhaar authentication.  AePS enables basic banking services, viz., cash withdrawal, balance enquiry, mini statement, cash deposit, fund transfer, etc. AePS plays a prominent role in enabling financial inclusion. What is AePS Touchpoint? AePS Touchpoint is the terminal deployed by acquirer banks to facilitate AePS transactions, using Aadhaar based biometric / OTP authentication. Who is AePS Touchpoint Operator? AePS Touchpoint Operator is the agent o...

Reserve Bank of India (RBI) has issued directions on cyber resilience and digital payment security controls for non-bank Payment System Operators (PSOs). To whom are the directions applicable? The directions shall apply to all authorised non-bank Payment System Operators (PSOs). To effectively manage cyber and technology related risks arising out of linkages of PSOs with unregulated entities (like payment gateways, third party service providers, vendors, etc.), PSOs shall ensure adherence to the directions by such unregulated entities as well, subject to mutual agreement.  What are different categories of non-bank PSOs? Large non-bank PSOs – Clearing Corporation of India Limited (CCIL) National Payments Corporation of India (NPCI) NPCI Bharat Bill Pay Limited Card Payment Networks Non-bank ATM Networks White Label ATM Operators (WLAOs) Large Prepaid Payment Instrument (PPI) Issuers Trade Receivables Discounting System (TReDS) Operators Bharat Bill Payment Operating Units (BBPOUs) ...

Reserve Bank of India (RBI) has issued guidelines on prudential treatment of bad and doubtful debt reserve by Primary (Urban) Co-operative Banks (UCBs), State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs). What violations are observed in treatment of bad and doubtful debt reserve? Several co-operative banks have created Bad and Doubtful Debt Reserve (BDDR). While in some cases, BDDR is created by recognising an expense in the Profit and Loss (P&L) Account, in other cases it is created through appropriations from net profits. In terms of Accounting Standard (AS) 5, all expenses which are recognised in a period should be included in the determination of net profit or loss for the period. Not recognising the required provisions for Non-Performing Assets (NPAs) as an expense while arriving at the net profit in the P&L Account is not in consonance with extant Accounting Standards.  The treatment of BDDR for regulatory capital and reckoning of net NPAs varies a...

Reserve Bank of India (RBI) has published the modified interest subvention scheme for short term loans for agriculture and allied activities availed through Kisan Credit Card (KCC) during the financial year 2024-25. Which loans are covered under modified interest subvention scheme (MISS)? The short-term crop loans and short-term loans for allied activities including animal husbandry, dairy, fisheries, bee keeping etc. up to an overall limit of ₹3 lakh to farmers through KCC during the year 2024-25 will be covered for interest subvention. Which lending institutions are covered under MISS? The MISS is applicable to the lending institutions viz. Public Sector Banks (PSBs) and Private Sector Banks (in respect of loans given by their rural and semi-urban branches only), Small Finance Banks (SFBs) and computerized Primary Agriculture Cooperative Societies (PACS) ceded with Scheduled Commercial Banks (SCBs), on use of their own resources.  How much is the interest subvention? The applicab...

Reserve Bank of India (RBI) has issued directions on wilful defaulters and large defaulters. What is wilful default? Wilful default shall be deemed to have occurred – When the borrower defaults in meeting payment / repayment obligations to the lender. When the guarantor does not honour the guarantee when invoked by the lender. and any one or more of the following features are noticed – Conditions / features Applicable to Borrower Applicable to Guarantor Has the capacity to honour the said obligations. ✓ ✓ Has diverted the funds availed under the credit facility from lender. ✓ NA Has siphoned off the funds availed under the credit facility from lender. ✓ NA Has disposed of immovable / movable assets provided for securing the credit facility without the approval of the lender. ✓ ✓ Has failed in its commitment to the lender to infuse eq...