Inquisitive Mind

Reserve Bank of India (RBI) has released guidelines on hedging of commodity price risk and freight risk in overseas markets. What is hedging? Hedging is the activity of undertaking a derivative transaction to reduce an identifiable and measurable risk.  What is commodity price risk and freight risk? Commodity price risk is the financial risk arising from fluctuations in the prices of commodities. Freight risk is the financial risk arising from fluctuations in the freight charges. Which entities are eligible for hedging commodity price risk and freight risk? Residents other than individuals are eligible to hedge commodity price risk and freight risk through Authorised Dealer Category-I Banks. How is exposure to commodity price risk and freight risk defined? An eligible entity is said to have direct exposure to commodity price risk if – It purchases / sells a commodity (in India or abroad) whose price is fixed by reference to an international benchmark; or It purchases / sells a prod...

Reserve Bank of India (RBI) has revised the regulatory framework for Primary (Urban) Co-operative Banks (UCBs). What is the basis of revised regulatory framework? Reserve Bank of India (RBI) had constituted the Expert Committee on Urban Co-operative Banks on February 15, 2021, under the Chairmanship of Shri N. S. Vishwanathan, former Deputy Governor, RBI. Based on the recommendations of the committee, RBI has revised the regulatory framework for Primary (Urban) Co-operative Banks (UCBs). What are the revised norms for categorization of UCBs? UCBs have been categorized into following four tiers for regulatory purposes – Tier 1 - All unit UCBs and salary earners’ UCBs (irrespective of deposit size), and all other UCBs having deposits up to ₹100 crore Tier 2 - UCBs with deposits more than ₹100 crore and up to ₹1000 crore Tier 3 - UCBs with deposits more than ₹1000 crore and up to ₹10,000 crore Tier 4 - UCBs with deposits more than ₹10,000 crore The deposits are reckoned as per audited bal...

Reserve Bank of India (RBI) has revised the norms for classification of UCBs as Financially Sound and Well Managed (FSWM). What is the basis of revised norms? Reserve Bank of India (RBI) had constituted the Expert Committee on Urban Co-operative Banks on February 15, 2021, under the Chairmanship of Shri N. S. Vishwanathan, former Deputy Governor, RBI. Based on the recommendations of the committee, RBI has revised the regulatory framework for Urban Co-operative Banks (UCBs) [ What is revised regulatory framework for Urban Co-operative Banks (UCBs) ]? What are the revised norms for classification of UCBs as FSWM? The revised norms for classification of Primary (Urban) Co-operative Banks (UCBs) as Financially Sound and Well Managed (FSWM) are – CRAR shall be at least 1% above the minimum CRAR applicable to an UCB as on the reference date. Net NPA of not more than 3%. Net profit for at least 3 out of the preceding 4 years subject to it not having incurred a net loss in the immediate preced...

Reserve Bank of India (RBI) has notified Modified Mumbai Interbank Forward Outright Rate (MMIFOR) administered by FBIL as a ‘significant benchmark’. What are Financial Benchmarks? Financial Benchmarks mean prices, rates, indices, values or a combination thereof related to financial instruments that are calculated periodically and used as a reference for pricing or valuation of financial instruments or any other financial contract. What is ‘Significant Benchmark’? ‘Significant benchmark’ means any benchmark notified by Reserve Bank of India (RBI) as a ‘significant benchmark’ under Financial Benchmark Administrators (Reserve Bank) Directions, 2019. RBI notifies a benchmark as a ‘significant benchmark’ taking into consideration its use, efficiency and relevance in domestic financial markets. Who is Financial Benchmark Administrator? Financial Benchmark Administrator (FBA) means a person who controls the creation, operation and administration of ‘significant benchmarks’ in the markets for ...

Reserve Bank of India (RBI) has migrated the payments fraud reporting module to DAKSH. What is DAKSH? “दक्ष (DAKSH) - Reserve Bank’s Advanced Supervisory Monitoring System” is a SupTech initiative which is expected to make the Supervisory processes more robust.  DAKSH means ‘efficient’ & ‘competent’, reflecting the underlying capabilities of the application.  What are the features of DAKSH? DAKSH is a web-based end-to-end workflow application through which Reserve Bank of India (RBI) will monitor compliance requirements in a more focused manner with the objective of further improving the compliance culture in Supervised Entities (SEs) like Banks, NBFCs, etc.  The application will also enable seamless communication, inspection planning and execution, cyber incident reporting and analysis, provision of various MIS reports etc., through a Platform which enables anytime-anywhere secure access. What is the payments fraud reporting platform for banks? Earlier, banks were re...

Reserve Bank of India (RBI) has issued consolidated guidelines on Opening of Current Accounts and CC / OD Accounts by Banks. Which entities are covered by the guidelines? The guidelines apply to Current accounts and Cash Credit (CC) / Overdraft (OD) accounts opened / maintained with – All Scheduled Commercial Banks All Payments Banks Opening of Current Accounts for borrowers availing CC / OD facilities from the banking system Aggregate exposure of banking system to the borrower Opening current account Conditions Less than ₹5 crore Banks can open current accounts Banks shall obtain an undertaking from the customers that they shall inform the banks, when the credit facilities availed by them from the banking system becomes ₹5 crore or more. ₹5 crore or more Current accounts with any one of the banks with which it has CC / OD facility Current account by bank having least 10% of the aggregate exposure of the bank...

An active internet connection is necessary for carrying out any digital payments. However, Reserve Bank of India (RBI) has introduced a framework for carrying out small value digital payments in offline mode. What is offline payment? An offline payment means a transaction which does not require internet or telecom connectivity to take effect.  What is the basis of framework for small value digital payments in offline mode? Reserve Bank of India (RBI) had, vide circular dated August 06, 2020, permitted a pilot scheme to encourage technological innovations that enable small value digital transactions in offline mode. It was stated therein that the decision on formalising such a system would be based on the experience gained. With encouraging feedback from the pilots, a framework for carrying out small value digital payments in offline mode across the country has been introduced. What are the instructions for Payment System Operators (PSOs) and Payment System Participants (PSPs)? Auth...

We use different negotiable instruments in various financial transactions. What are Negotiable Instruments? As per Section 13 of Negotiable Instruments Act, 1881, a negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer. What is Promissory Note? As per Section 4 of Negotiable Instruments Act, 1881, a promissory note is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. Who are the parties to Promissory Note? The parties to promissory note are – Maker / promisor – a person who promises to pay Payee / promise – a person to whom it is payable What is Bill of Exchange? As per Section 5 of Negotiable Instruments Act, 1881, a bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain per...

This article consolidates the Net-worth / NOF requirements of various entities regulated by Reserve Bank of India (RBI). Entity Net-worth at the time of application Net-worth at the end of 3rd financial year from receiving final authorisation Non-bank entities seeking authorisation from RBI for issuing Prepaid Payment Instruments (PPIs) ₹5 crore ₹15 crore   Entity Net-worth at the time of application Net-worth by March 31, 2023 Payment Aggregators ₹15 crore ₹25 crore   Entity Net-worth Entity applying under Regulatory Sandbox ₹10 lakh Tier 1 Urban Cooperative Banks (UCBs) operating in single district ₹2 crore All other Urban Cooperative Banks (UCBs) (of all tiers) ₹5 crore Bharat Bill Payment Operating Units (BBPOUs) ₹25 crore Banks and non-bank Pay...