A daunting New Vocabulary :

FOLLOWING ARE SOME LATEST VOCABULARY USED IN FINANCIAL MARKET:


SFB: Small Finance Banks,

PB: Payment Banks,

P2P: Peer to Peer,

PPI: Prepaid Payment Instruments,

TReDS: Trade Receivables Discounting System,

UPI: Unified Payments Interface



TLAC: Total Loss Absorbency Capacity,

CCB: Capital Conservation Buffer,

LCR: Liquidity Coverage Ratio,

NSFR: Net Stable Funding Ratio,

SIFIs: Systemically Important Financial Intermediaries,

IFRS: International Financial Reporting Standards

LIVING WILL: A living will, also called a directive to physicians or advance directive, is a document that lets people state their wishes for end-of-life medical care, in case they become unable to communicate their decisions. It has no power after death.



The Volcker Rule: refers to Section 619(12 U.S.C. Section 1851) of the Dodd–Frank Wall Street Reform and Consumer Protection Act, originally proposed by American economist and former United States Federal Reserve Chairman Paul Volcker to restrict United States banks from making certain kinds of speculative investments that do not benefit their customers.Volcker argued that such speculative activity played a key role in the financial crisis of 2007–2010. The rule is often referred to as a ban on proprietary trading by commercial banks, whereby deposits are used to trade on the bank's own accounts, although a number of exceptions to this ban were included in the Dodd-Frank law.

Dishonour of cheques – Modification in procedure

1. Banks were advised to introduce a condition for operation of accounts with cheque facility that in the event of dishonour of a cheque valuing rupees one crore and above drawn on a particular account of the drawer on four occasions during the financial year for want of sufficient funds in the account, no fresh cheque book would be issued. Also, the bank may consider closing current account at its discretion.

2. The above instructions have been reviewed and it has been decided to leave it to the discretion of the banks to determine their response to dishonour of cheques of the account holders. Banks should put in place an appropriate policy approved by the Board or its Committee taking into consideration the need to prevent misuse of the cheque drawing facility and avoid penalising customers for unintended dishonour of cheques.

3. This policy should be transparent, made known to every customer upfront and implemented fairly.

Masala bonds

Masala bonds

A number of Indian firms are gearing up to raise funds from issuing what are known as ‘masala bonds.’ Coinciding with Prime Minister Narendra Modi’s recent visit to the UK, organisations such as Housing Development Finance Corp., Yes Bank, and the Railways had announced they were going to raise funds through this route from the London market. Ratings agency S&P expects the issuance of masala bonds to touch $5 billion annually over the next two to three years. Here is an explainer on what masala bonds are all about:

What are masala bonds?

Bonds are instruments of debt - typically used by corporates to raise money from investors. Masala bonds have to be explained in the context of Indian corporates raising money from overseas investors. Before masala bonds, corporates have had to rely on avenues such as external commercial borrowings or ECBs. The challenge with the likes of ECBs is the entity raising money is faced with a currency risk - they have to be raised and repaid in dollar terms. A year is a long time in forex markets - currencies fluctuate sharply. So, imagine the risk a bond issuing entity, especially one with largely rupee earnings, if issue and repayment are years apart.

Enter masala bonds! They are rupee-denominated bonds issued to overseas buyers. This is how it is different from other instruments. With a masala bond, a corporate could issue Rs. 10 billion worth of bonds with the promise of paying back Rs. 11 billion in one year. But as the Indian rupee has limited convertibility, the investors will lend the dollar equivalent of the Rs. 10 billion. After one year, the Indian corporate needs to pay back the dollar equivalent of Rs. 11 billion. The currency risk is with the investor.

How did the tag masala come about?

The International Finance Corporation (IFC), the investment arm of the World Bank, issued a Rs. 1,000 crore bond in November last year. The purpose of the issue was to fund infrastructure projects in India. IFC named them ‘masala’ bonds to reflect the Indian angle to it. This kind of naming has been done before. This is, in fact, much like IFC's Chinese yuan-denominated Dim sum bonds. It isn't unusual in the foreign bonds market to encounter names such as Yankee and Bulldog. By the way, Japanese yen-denominated bonds are called Samurai. There was even much speculation about what the rupee-denominated bonds would be called before 'masala' was confirmed. Samosa, Ganga, and Peacock were apparently some of the names doing the rounds.

What has been the regulator's stance on this?

The Reserve Bank of India has issued guidelines allowing Indian companies, non-banking finance companies (HDFC, India Bulls Housing Finance are examples of such companies) and infrastructure investment trusts and real investment trusts (investment vehicles that pool money from various investors and invest in infrastructure and real estate sectors) to issue rupee-denominated bond overseas.

The rules put the issue limit to $750 million and also has a pricing cap for various tenures of issue. Experts say the move to permit masala bonds is an attempt to increase the international status of rupee and is also a step toward full currency convertibility (the freedom to convert Indian currency into other internationally accepted currency without any restrictions).

Why should investors look at masala bonds?

The Finance Ministry has cut the withholding tax (a tax deducted at source on residents outside the country) on interest income of such bonds to 5 per cent from 20 per cent, making it attractive for investors. Also, capital gains from rupee appreciation are exempted from tax.

Globally, there is ample liquidity thanks to lower interest rates in developed markets, but there are very few investment options due to weak economic conditions globally. India is that rare fast-growing large economy, and masala bonds is one way for investors to take advantage of this.

By the way, these bonds are bought by retail investors as well as big institutions overseas.

What do masala bonds mean to the issuer?

An important consideration for issuers is the access to cheaper funding than what's available in the domestic markets, according to ratings firm S&P. For corporates, who would be the main issuers, masala bonds will be one other key source of funding apart from banks and local debt markets. Another ratings firm India Ratings and Research says such bonds would lower the cost of capital over a period of time - the cost remains one of the highest in Asia. This also makes sense given that Indian banks are reluctant to lend to sectors facing weak demand and heavy debt.

Is there anything investors need to worry about?

Investors would need to keenly watch the credibility of the issuer. For example, it would easy for an HDFC or NTPC to easy to raise the bond when compared to a smaller firm. Higher the credit rating of a firm, the better would be the appetite for their issues. Since the currency risk is on the investors, they will like the rupee to be stable. S&P says the initial excitement over masala bonds will give way to the ultimate realisation that because currency and economic growth are external factors, investors will subject issuers to a lot more scrutiny.

To make masala bonds more attractive, the Reserve Bank of India (RBI) has reduced the minimum tenure of such bonds that an Indian company can issue offshore to three years from the previously stated five years.

“It has been decided to reduce the minimum maturity period for the rupee-denominated bonds issued overseas to three years in order to align with the maturity prescription regarding foreign investment in corporate bonds through the foreign portfolio investment (FPI) route,” the central bank said in a circular on Wednesday.

Money raised through masala bonds overseas will be counted in the overall investment limit for FPIs in corporate bonds, which now stands at Rs.2.44 trillion. FPI investment limit in corporate bonds will be expressed in rupees instead of dollars, bringing it on a par with limits in government bonds. The maximum amount a single issuer can raise through masala bonds is Rs.5,000 crore, RBI said.

According to bankers, the reduction in maturity of the bond may not make a big difference in terms of attracting investors.

“This was one of the demands but until the withholding tax and allowing domestic banks to invest is addressed, there is unlikely to be a significant improvement in demand for such bonds,” said a banker on condition of anonymity.

Masala bonds are issued in rupees but can be settled in US dollars and thus besides the credit risk of the issuer, risk of the exchange rate also falls on the investor. In addition, the investor also has to pay 5% withholding tax.

In the pursuit of adequate compensation for credit and exchange rate risk, and the cost of withholding tax, foreign investors have sought higher yield from companies that marketed masala bonds over the last five months.

But to match the yield demanded by investors, companies will have to forego their advantage of borrowing cheap from the offshore market compared with local rates.

Further, Indian banks can only act as arrangers or underwriters of such bonds and cannot invest in them. If an Indian bank does underwrite a masala bond issue, it will have to offload the investment in six months.

Indian companies were allowed to issue rupee-denominated bonds in the offshore market in September last year but so far no company has been able to raise funds through this route.

The idea of masala bonds was first floated by RBI in April 2015 following which the central bank issued guidelines for the same in September. Over the last four months, Indian Railway Finance Corp. (IRFC), Housing Development and Finance Corp., NTPC Ltd, Shriram Transport Finance and Dewan Housing Finance Ltd have all hawked masala bonds without success. Adani Transmission Ltd was the latest to market masala bonds overseas last month.

The guidelines allow multilateral agencies such as the World Bank to also borrow through masala bonds and invest the proceeds in the Indian infrastructure sector.

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WHAT IS COUNTER TRADE IN FOREX

Counter trade is an arrangement involving adjustment of  value of goods imported into India against value of goods  exported from India in terms of the Reserve Bank guidelines.

Computation of Adjusted Net Bank Credit (ANBC)

Computation of Adjusted Net Bank Credit (ANBC)

Bank Credit in India [As prescribed in item No.VI of Form ‘A’ under Section 42 (2) of the RBI Act, 1934].	I
Bills Rediscounted with RBI and other approved Financial Institutions.	II
Net Bank Credit (NBC)*	III (I-II)
Bonds/debentures in Non-SLR categories under HTM category+ other investments eligible to be treated as priority sector +Outstanding Deposits under RIDF and other eligible funds with NABARD, NHB, SIDBI and MUDRA Ltd. on account of priority sector shortfall + outstanding PSLCs	IV
Eligible amount for exemptions on issuance of long-term bonds for infrastructure and affordable housing as per	V
Eligible advances extended in India against the incremental FCNR (B)/NRE deposits, qualifying for exemption from CRR/SLR requirements.	VI
ANBC	III+IV-V-VI
* For the purpose of priority sector computation only. Banks should not deduct / net any amount like provisions, accrued interest, etc. from NBC.

It has been observed that some banks are subtracting prudential write off at Corporate/Head Office level while reporting Bank Credit as above. In such cases it must be ensured that bank credit to priority sector and all other sub-sectors so written off should also be subtracted category wise from priority sector and sub-target achievement.

All types of loans, investments or any other items which are treated as eligible for classification under priority sector target/sub-target achievement should also form part of Adjusted Net Bank Credit.

Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015

1.   Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015

2.  In line with the Government of India’s startup initiative, it has been decided that an Indian startup, having an overseas subsidiary, may open a foreign currency account with a bank outside India for the purpose of crediting to the account the foreign exchange earnings out of exports/sales made by the said startup or its overseas subsidiary. The balances held in such accounts, to the extent they represent exports from India, shall be repatriated to India within the period prescribed for realization of exports, in Foreign Exchange Management (Export of Goods and Services) Regulations, 2015 dated January 12, 2016, as amended from time to time.

3.   In addition, payments received in foreign exchange by an Indian startup arising out of sales/ export made by the startup or its overseas subsidiaries will be a permissible credit to the Exchange Earners Foreign Currency (EEFC) account maintained in India by the startup.

4.  A startup will mean an entity which complies with the conditions laid down in Notification No. GSR 180(E) dated February 17, 2016 issued by Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India.

5.   Further, the existing facility of opening foreign currency account outside India, available to the Life Insurance Corporation of India or the General Insurance Corporation of India and their subsidiaries for the purpose of meeting the expenditure incidental to the insurance business carried on by them has now been liberalised. Accordingly, any insurance/ reinsurance company registered with the Insurance Regulatory and Development Authority of India (IRDA) may open a foreign currency account with a bank outside India to carry out insurance/ reinsurance business.

National Rural Livelihood Mission

National Rural Livelihood Mission (NRLM) :

is a poverty alleviation project implemented by Ministry of Rural Development, Government of India. 

This scheme is focused on promoting self-employment and organization of rural poor. 

The basic idea behind this programme is to organize the poor into SHG (Self Help Groups) groups and make them capable for self-employment. In 1999 after restructuring Integrated Rural Development Programme(IRDP), Ministry of Rural Development (MoRD) launched Swarnajayanti Grameen Swarojgar Yojana (SGSY) to focus on promoting self-employment among rural poor. SGSY is now remodeled to form NRLM thereby plugging the shortfalls of SGSY programme.

This scheme was launched in 2011 with a budget of $5.1 billion and is one of the flagship programmes of Ministry of Rural Development. This is one of the world's largest initiatives to improve the livelihood of poor. This programme is supported by World Bank with a credit of $1 Billion.

Foreign currency accounts by a person resident in India- part-III

Continued.....................



(E) Diamond Dollar Accounts (DDAs)

An Authorized Dealer Category-I bank in India may allow firms and companies who comply with the eligibility criteria stipulated in the Foreign Trade Policy of Government of India, in force from time to time and the directions as may be issued by Reserve Bank of India, from time to time, to open, hold and maintain Diamond Dollar Accounts (DDAs) in India subject to the terms and conditions of the DDA Scheme specified in Schedule II.

(F) Exporters

A person resident in India, being an exporter who has undertaken a construction contract or a turnkey project outside India or who is exporting services or engineering goods from India on deferred payment terms may open, hold and maintain a Foreign Currency Account with a bank in India, provided that -approval as required under the Foreign Exchange Management (Export of goods and services) Regulations, 2015 has been obtained for undertaking the contract/ project/ export of goods or services, and the terms and conditions stipulated in the letter of approval have been duly complied with.

What is 'Brexit'

Brexit is an abbreviation of "British exit" that mirrors the term Grexit. It refers to the possibility that Britain will withdraw from the European Union. The country will hold an in-out referendum on its EU membership on June 23.

Supporters of Brexit base their opinion on a variety of factors from the global competitiveness of British businesses to concerns about immigration. Britain has already opted out of the EU's monetary union (meaning that it uses the pound instead of the euro) and the Schengen Area (meaning that it does not share open borders with a number of other European states). "Out" campaigners argue that Brussels' bureaucracy is a drag on the British economy and that EU laws and regulations are a threat to British sovereignty.

Foreign currency accounts by a person resident in India

Continued.....................

(D) A Unit in a Special Economic Zone (SEZ) 

A unit located in a Special Economic Zone may open hold and maintain a Foreign Currency Account with an authorized dealer in India provided that, 

(a) all foreign exchange funds received by the unit in the Special Economic Zone (SEZ) are credited to such account, 

(b) no foreign exchange purchased in India against rupees shall be credited to the account without prior permission from the Reserve Bank, 

(c) the funds held in the account shall be used for bona fide trade transactions of the unit in the SEZ with the person resident in India or otherwise, 

(d) the balances in the accounts shall be exempt from the restrictions imposed under Rule 5, except item 1(ii) of the Schedule III, of the Government of India Notification No.GSR.381(E) dated May 3, 2000, as amended from time to time. 

Provided that the funds held in these accounts shall not be lent or made available in any manner to any person or entity resident in India not being a unit in Special Economic Zones.

To be Continued........

Opening, holding and maintaining Foreign Currency Accounts in India

Opening, holding and maintaining Foreign Currency Accounts in India

(A) Exchange Earners’ Foreign Currency Account:- A person resident in India may open, hold and maintain with an authorised dealer in India, a Foreign Currency Account to be known as Exchange Earners’ Foreign Currency (EEFC) Account, subject to the terms and conditions of the Exchange Earners' Foreign Currency Account Scheme specified in the Schedule I. 

(B) Resident Foreign Currency Account:-

(1) A person resident in India may open, hold and maintain with an authorised dealer in India a Foreign Currency Account, to be known as a Resident Foreign Currency (RFC) Account, out of foreign exchange – 

(a) received as pension or any other superannuation or other monetary benefits from his employer outside India; or 

(b) realised on conversion of the assets referred to in sub-section (4) of section 6 of the Act, and repatriated to India; or 

(c) received or acquired as gift or inheritance from a person referred to in sub-section (4) of section 6 of the Act; or

(d) referred to in clause (c) of section 9 of the Act, or acquired as gift or inheritance there from; or 

(e) received as the proceeds of life insurance policy claims/ maturity/ surrender values settled in foreign currency from an insurance company in India permitted to undertake life insurance business by the Insurance Regulatory and Development Authority.

(2) The funds in a Resident Foreign Currency Account opened or held or maintained in terms of sub-regulation 

(1) shall be free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment in any form, by whatever name called, outside India. 

(2) Resident individuals are permitted to include resident relative(s) as joint holder(s) in their Resident Foreign Currency account on ‘former or survivor’ basis. 

However, such resident Indian relative joint account holder shall not be eligible to operate the account during the life time of the resident account holder. 

Explanation – For the purpose of this sub-regulation, the expression ‘relative’ shall have the same meaning as assigned to it under section 2(77) of the Companies Act, 2013.

 (C) Resident Foreign Currency (Domestic) Account 

(1) A resident Individual may open, hold and maintain with an Authorised Dealer in India a foreign currency account, to be known as Resident Foreign Currency (Domestic) Account, out of foreign exchange acquired in the form of currency notes, bank notes and travellers’ cheques as under: 

(a) by way of payment for services not arising from any business in or anything done in India while on a visit to any place outside India; or 

(b) from any person not resident in India and who is on a visit to India, as honorarium or gift or for services rendered or in settlement of any lawful obligation; or

(c) by way of honorarium or gift while on a visit to any place outside India; or 

(d) in the form of unspent amount of foreign exchange acquired by him from an authorised person for travel abroad; or 

(e) as gift from a relative; Explanation - For the purpose of this sub-regulation, the expression ‘relative’ shall have the same meaning as assigned to it under section 2(77) of the Companies Act, 2013. 

(f) by way of earning through export of goods/ services, or as royalty, honorarium or by any other lawful means; 

(g) representing the disinvestment proceeds received by the resident account holder on conversion of shares held by him to ADRs/ GDRs under the DR Scheme, 2014 approved by the Government of India. 

(h) by way of earnings received as the proceeds of life insurance policy claims/ maturity/ surrender values settled in foreign currency from an insurance company in India permitted to undertake life insurance business by the Insurance Regulatory and Development Authority

(2) Debits to the account shall be for payments towards a current account transaction in accordance with the provisions of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 and towards a capital account transaction permissible under the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000. 

(3) The account shall be maintained in the form of Current Account and shall not bear any interest. 

(4) There shall be no ceiling on the balances in the account

to be continued..................

Scheme for Sustainable Structuring of Stressed Assets

Scheme for Sustainable Structuring of Stressed Assets

June 13, 2016 Scheme for Sustainable Structuring of Stressed Assets In order to strengthen the lenders’ ability to deal with stressed assets, Reserve Bank of India has been issuing, from time to time, guidelines and prudential norms on stressed assets resolution by regulated lenders. 2. Resolution of large borrowal accounts which are facing severe financial difficulties may, inter-alia, require co-ordinated deep financial restructuring which often involves a substantial write-down of debt and/or making large provisions. Citing the case of the Strategic Debt Restructuring (SDR) mechanism which provides 18 months for banks to make prescribed provisions for the residual debt and mark-to-market (MTM) provisions on their equity holding arising from conversion of debt, banks have represented for allowing more time to write down the debt and make the required provisions in cases of resolution of large accounts. 3. In order to ensure that adequate deep financial restructuring is done to give projects a chance of sustained revival, the Reserve Bank, after due consultation with banks, has decided to facilitate the resolution of large accounts, which satisfy the conditions set out in the following paragraphs. 4. Eligible Accounts For being eligible under the scheme, the account1 should meet all the following conditions: (i) The project has commenced commercial operations; (ii) The aggregate exposure (including accrued interest) of all institutional lenders in the account is more than Rs.500 crore (including Rupee loans, Foreign Currency loans/External Commercial Borrowings,); (iii) The debt meets the test of sustainability as outlined in para 5 below. 5. Debt Sustainability A debt level will be deemed sustainable if the Joint Lenders Forum (JLF)/Consortium of lenders/bank conclude through independent techno-economic viability (TEV) that debt of that principal value amongst the current funded/non-funded liabilities owed to institutional lenders can be serviced over the same tenor as that of the existing facilities even if the future cash flows remain at their current level. For this scheme to apply, sustainable debt should not be less than 50 percent of current funded liabilities. This is referred to as Part A in paragraph 6.2 below. 6. Sustainable Debt 6.1 The resolution plan may involve one of the following options with regard to the post-resolution ownership of the borrowing entity: (a) The current promoter continues to hold majority of the shares or shares required to have control; (b) The current promoter has been replaced with a new promoter, in one of the following ways: Through conversion of a part of the debt into equity under SDR mechanism which is thereafter sold to a new promoter; In the manner contemplated as per Prudential Norms on Change in Ownership of Borrowing Entities (Outside SDR Scheme); (c) The lenders have acquired majority shareholding in the entity through conversion of debt into equity either under SDR or otherwise and allow the current management to continue or hand over management to another agency/professionals under an operate and manage contract. Note: Where malfeasance on the part of the promoter has been established, through a forensic audit or otherwise, this scheme shall not be applicable if there is no change in promoter or the management is vested in the delinquent promoter. 6.2 In any of the circumstances mentioned above, the JLF/consortium/bank shall, after an independent TEV, bifurcate the current dues of the borrower into Part A and Part B as described below; (a) Determine the level of debt (including new funding required to be sanctioned within next six months and non-funded credit facilities crystallising within next 6 months) that can be serviced (both interest and principal) within the respective residual maturities of existing debt, from all sources, based on the cash flows available from the current as well as immediately prospective (not more than six months) level of operations. For this purpose, free cash flows (i.e., cash flow from operations minus committed capital expenditure) available for servicing debt as per latest audited/reviewed financial statement will be considered. Where there is more than one debt facility, the maturity profile of each facility shall be that which exists on the date of finalising this resolution plan. For the purpose of determining the level of debt that can be serviced, the assessed free cash flow shall be allocated to servicing each existing debt facility in the order in which its servicing falls due. The level of debt so determined will be referred to as Part A in these guidelines. (b) The difference between the aggregate current outstanding debt, from all sources, and Part A will be referred to as Part B in these guidelines. (c) The security position of lenders will, however, not be diluted and Part A portion of loan will continue to have at least the same amount of security cover as was available prior to this resolution. 7. The Resolution Plan 7.1 The Resolution Plan shall have the following features: There shall be no fresh moratorium granted on interest or principal repayment for servicing of Part A. There shall not be any extension of the repayment schedule or reduction in the interest rate for servicing of Part A, as compared to repayment schedule and interest rate prior to this resolution. Part B shall be converted into equity/redeemable cumulative optionally convertible preference shares. However, in cases where the resolution plan does not involve change in promoter, banks may, at their discretion, also convert a portion of Part B into optionally convertible debentures. All such instruments will continue to be referred to as Part B instruments in this circular for ease of reference. 7.2 Valuation and marking to market For the purpose of this scheme, the fair value for Part B instruments will be arrived at as per the following methodologies: • Equity - The equity shares in the bank's portfolio should be marked to market preferably on a daily basis, but at least on a weekly basis. Equity shares for which current quotations are not available or where the shares are not listed on the stock exchanges, should be valued at the lowest value arrived using the following valuation methodologies: Break-up value (without considering 'revaluation reserves', if any) which is to be ascertained from the company's latest audited balance sheet (which should not be more than one year prior to the date of valuation). In case the latest audited balance sheet is not available the shares are to be valued at Re.1 per company. The independent TEV will assist in ascertaining the break-up value. Discounted cash flow method where the discount factor is the actual interest rate charged to the borrower plus 3 per cent, subject to floor of 14 per cent. Further, cash flows ( cash flow available from the current as well as immediately prospective (not more than six months) level of operations) occurring within 85 per cent of the useful economic life of the project only shall be reckoned. • Redeemable cumulative optionally convertible preference shares/optionally convertible debentures - The valuation should be on discounted cash flow (DCF) basis. These will be valued with a discount rate of a minimum mark up of 1.5 per cent over the weighted average actual interest rate charged to the borrower for the various facilities. Where preference dividends are in arrears, no credit should be taken for accrued dividends and the value determined as above on DCF basis should be discounted further by at least 15 per cent if arrears are for one year, 25 per cent if arrears are for two years, so on and so forth (i.e., with 10 percent increments). 7.3 Where the resolution plan does not involve a change in promoter or where existing promoter is allowed to operate and manage the company as minority owner by lenders, the principle of proportionate loss sharing by the promoters should be met. In such cases, lenders shall, therefore, require the existing promoters to dilute their shareholdings, by way of conversion of debt into equity /sale of some portion of promoter’s equity to lenders, at least in the same proportion as that of part B to total dues to lenders. JLF/Consortium/bank should also obtain promoters’ personal guarantee in all such cases, for at least the amount of Part A. 7.4 The upside for the lenders will be primarily through equity/quasi equity, if the borrowing entity turns around. The terms for exercise of option for the conversion of preference shares/debentures to equity shall be clearly spelt out. The existing promoter or the new promoter, as the case may be, may have the right of first refusal in case the lenders decide to sell the share, at a price beyond some predetermined price. The lenders may also include appropriate covenants to cover the use of cash flows arising beyond the projected levels having regard to quasi-equity instruments held in Part B 7.5 Other important principles for this scheme are the following: The JLF/Consortium/bank shall engage the services of credible professional agencies to conduct the TEV and prepare the resolution plan. While engaging professional agencies, the JLF/Consortium/bank shall ensure that the agency is reputed, truly independent/free from any conflict of interest, has proven expertise and will be in a position to safeguard the interest of lenders while preserving the economic value of the assets. Further, from a risk management perspective, lenders should avoid concentration of such assignments in any one particular professional agency. The resolution plan shall be agreed upon by a minimum of 75 percent of lenders by value and 50 percent of lenders by number in the JLF/consortium/bank. At individual bank level, the bifurcation into Part A and part B shall be in the proportion of Part A to Part B at the aggregate level. 8. Overseeing Committee An Overseeing Committee (OC), comprising of eminent persons, will be constituted by IBA in consultation with RBI. The members of OC cannot be changed without the prior approval of RBI. The resolution plan shall be submitted by the JLF/consortium/bank to the OC. The OC will review the processes involved in preparation of resolution plan, etc. for reasonableness and adherence to the provisions of these guidelines, and opine on it. The OC will be an advisory body. 9. Asset Classification and Provisioning (A) Where there is a change of promoter– In case a change of promoter takes place, i.e. a new promoter comes in, the asset classification and provisioning requirement will be as per the ‘SDR’ scheme or ‘outside SDR’ scheme as applicable. (B) Where there is no change of promoters – Asset classification as on the date of lenders’ decision to resolve the account under these guidelines (reference date) will continue for a period of 90 days from this date. This standstill clause is permitted to enable JLF/consortium/bank to formulate the resolution plan and implement the same within the said 90 day period. If the resolution is not implemented within this period, the asset classification will be as per the extant asset classification norms, assuming there was no such ‘stand-still’ In respect of an account that is ‘Standard’ as on the reference date, the entire outstanding (both Part A and part B) will remain Standard subject to provisions made upfront by the lenders being at least the higher of 40 percent of the amount held in part B or 20 percent of the aggregate outstanding (sum of Part A and part B). For this purpose, the provisions already held in the account can be reckoned. In respect of an account that is classified as non-performing asset on the date of this resolution, the entire outstanding (both Part A and part B) shall continue to be classified and provided for as a non-performing asset as per extant IRAC norms. Lenders may upgrade Part A and Part B to standard category after one year of satisfactory performance of Part A loans. In case of any pre-existing moratorium in the account, the upgrade will be permitted one year after completion of the longest moratorium, subject to satisfactory performance of Part A debt during this period. However, lenders will continue to mark to market Part B instruments as per the norms stated herein. Any provisioning requirement on account of difference between the book value of Part B instruments and their fair value as indicated in para 7.2 ibid, in excess of the minimum requirements prescribed as per the above para (ii) and (iii), shall be made within four quarters commencing with the quarter in which the resolution plan is actually implemented in the lender’s books, such that the MTM provision held is not less than 25 percent of the required provision in the first quarter, not less than 50 percent in the second quarter and so on. For this purpose, the provision already held in the account can be reckoned. If the provisions held by the bank in respect of an account prior to this resolution are more than the cumulative provisioning requirement prescribed in the applicable sub-paragraphs above, the excess can be reversed only after one year from the date of implementation of resolution plan (i.e. when it is reflected in the books of the lender, hereinafter referred to as ‘date of restructuring’), subject to satisfactory performance during this period. The resolution plan and control rights should be structured in such a way so that the promoters are not in a position to sell the company/firm without the prior approval of lenders and without sharing the upside, if any, with the lenders towards loss in Part B. If Part A subsequently slips into NPA category, the account will be classified with slippage in category with reference to the classification obtaining on the reference date and necessary provisions should be made immediately. Where a bank/NBFC/AIFI chooses to make the prescribed provisions/write downs over more than one quarter and this results in the full provisioning/write down remaining to be made as on the close of a financial year, banks/NBFCs/AIFIs should debit 'other reserves' [i.e., reserves other than the one created in terms of Section 17(2) of the Banking Regulation Act 1949] by the amount remaining un-provided/not written down at the end of the financial year, by credit to specific provisions. However, bank/NBFC/AIFI should proportionately reverse the debits to ‘other reserves’ and complete the provisioning/write down by debiting profit and loss account, in the subsequent quarters of the next financial year. Banks shall make suitable disclosures in Notes to Accounts with regard to the quantum of provision made during the year under this scheme and the quantum of unamortised provisions debited to ‘other reserves’ as at the end of the year. 10. Fees and Charges The IBA will collect a fee from the lenders as a prescribed percentage of the outstanding debt of the borrowal entity to the consortium/JLF/consortium/bank and create a corpus fund. This fund will be used to meet the expenses of the OC. 11. Mandatory Implementation Once the resolution plan prepared/presented by the lenders is ratified by the OC, it will be binding on all lenders. They will, however, have the option to exit as per the extant guidelines on Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP). Yours faithfully, (Sudarshan Sen) Principal Chief General Manager Related pressrelease Jun 13, 2016 RBI introduces a ‘Scheme for Sustainable Structuring of Stressed Assets’ 1 In respect of Securitisation Companies/ Reconstruction Companies (SCs/RCs), only those accounts are eligible which, in addition to meeting the listed criteria, have been acquired against consideration in cash only, i.e. not by issuing any Security Receipts.

Foreign Direct Investment (FDI)

A Foreign Direct Investment (FDI) is an investment made by a company or entity based in one country, into a company or entity based in another country. Foreign direct investments differ substantially from indirect  investments such as portfolio flows, wherein overseas institutions invest in equities listed on a nation's stock exchange. Entities making direct investments typically have a significant degree of influence and control over the company into which the investment is made. Open economies with skilled workforces and good growth prospects tend to attract larger amounts of foreign direct investment than closed, highly regulated economies.

Export Data Processing and Monitoring System (EDPMS)-Caution / De-caution Listing of Exporters

To streamline the procedure, cautioning / de-cautioning of exporters has been automated. The AD category – I banks can access the updated list of caution listed exporters through EDPMS on daily basis. The list of all caution listed exporters would also be made available to AD category – I banks through their registered e-mail. Criteria laid down for cautioning / de-cautioning of exporters in EDPMS are as under:

1. The exporters would be caution listed if any shipping bill against them remains open for more than two years in EDPMS provided no extension is granted by AD Category –I bank / RBI. Date of shipment will be considered for reckoning the realisation period.

2. Once related bills are realised and closed or extension for realisation is granted, the exporter will automatically be de-caution listed.

3. The exporters can also be caution listed even before the expiry of two years period based on the recommendation of AD banks. The recommendation may be based on cases where exporter has come to adverse notice of the Enforcement Directorate(ED) / Central Bureau of Investigation (CBI) / Directorate of Revenue Intelligence (DRI) /any such other law enforcement agency or the case where exporter is not traceable or not making any serious efforts for realisation of export proceeds. In such cases, AD may forward its findings to the concerned regional office of RBI recommending inclusion of the name of the exporter in the caution list.

4. Reserve Bank will caution / de-caution the exporters in such cases based on the recommendation of AD Category – I banks.

Understanding the loan to value (LTV) RATIO

Simply stated the loan to value (LTV) is the ratio of the amount that you wish to borrow for a home to the actual value of the home. The LTV can be calculated from the actual worth of the home, the mortgage being taken and the down payment that has been made prior to the loan. 

For example, the value of a house is Rs.40,00,000 and a down payment of Rs.400,000 has been made a loan of the balance amount that is Rs.36,00,000 is being sought. In this case the LTV comes to be Rs.36,00,000 of the actual value of R40,00,000, which works out to 90%. Thus the LTV is 90%.

Transactions in derivatives by regulated institutional entities on electronic platforms.

At present regulated entities, other than scheduled banks, are unable to conduct transactions on electronic platforms for interest rate swaps (IRS) as one party to such transactions has to be either the Reserve Bank of India (RBI) or a scheduled bank or such other agency falling under the regulatory purview of the RBI which may be specified by the RBI in this regard. In this context, the Reserve Bank of India, in exercise of its powers conferred by Section 45V of the Reserve Bank of India Act, 1934 and of all the powers enabling it in this behalf, hereby specifies the Clearing Corporation of India Ltd (CCIL) as an approved counterparty for IRS transactions undertaken on electronic trading platforms where CCIL is the central counterparty.

A reference is invited to para 37 of the First Bi-monthly Monetary Policy Statement announced on April 5, 2016, in terms of which, it was proposed to review the existing guidelines on OTC derivatives in order to make participation in OTC derivative markets through electronic platforms more broad-based. Accordingly, it has been decided to enable any institutional entity regulated by the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI), the Pension Fund Regulatory and Development Authority (PFRDA) and the National Housing Bank (NHB) to trade in interest rate swaps (IRS) on electronic trading platforms.

The above guidelines would become effective from June 1st, 2016.

Discontinuation of Statements on Special Agriculture Credit Plan (SACP)

Discontinuation of Statements on Special Agriculture Credit Plan (SACP)


In order to monitor and augment the flow of credit to Agriculture, Special Agriculture Credit Plans (SACP) were introduced for Public Sector banks in 1994 and extended to Private Sector Banks in 2004. Under SACP, the banks are required to fix self-set targets for achievement during the year (April-March), with an increase of about 25% over the disbursement made in the previous year. The banks were required to forward half yearly statements to RBI (FIDD) indicating their progress of implementation as at the end of March and September every year.

It has been decided to discontinue the submission of the above statements from April 2016. Accordingly, banks are advised not to furnish half yearly statements as above for the year 2016-17 to FIDD

Escrow Account under FEMA

Escrow Account  under FEMA

i) Resident/ non-resident acquirers and non-resident corporates may open Escrow account in INR with an Authorized Dealer in India as an escrow agent subject to the terms and conditions specified in Schedule 5 of the Deposit Regulations.

ii) Transactions shall be in accordance with the Foreign Exchange Management (Transfer or Issue of Security by a person resident Outside India) Regulations, 2000 and regulations of the Securities and Exchange Board of India (SEBI), as applicable.

iii) The accounts shall be non-interest bearing.

iv) No fund/ non-fund based facility would be permitted against the balances in the account.

Escrow Account under FEMA

 Escrow Account under FEMA

i) Resident/ non-resident acquirers and non-resident corporate's may open Escrow account in INR with an Authorized Dealer in India as an escrow agent subject to the terms and conditions specified in Schedule 5 of the Deposit Regulations.

ii) Transactions shall be in accordance with the Foreign Exchange Management (Transfer or Issue of Security by a person resident Outside India) Regulations, 2000 and regulations of the Securities and Exchange Board of India (SEBI), as applicable.

iii) The accounts shall be non-interest bearing.

iv) No fund/ non-fund based facility would be permitted against the balances in the account.

S N R R ----Special Non-Resident Rupee (SNRR) Account.

S N R R ---Special Non-Resident Rupee                                               (SNRR) Account.

i) Any person resident outside India, having a business interest in India, may open an SNRR account in Indian Rupee with Authorized Dealers for the purpose of putting through bona fide transactions in rupees, subject to the conditions specified in Schedule 4 of the Deposit Regulations.

ii) The SNRR account shall carry the nomenclature of the specific business for which it is opened and shall not earn any interest.

iii) The debits/ credits and the balances in the account shall be incidental and commensurate with the business operations of the account holder.

iv) The tenure of the account should be concurrent to the tenure of the contract/ period of operation/ the business of the account holder and shall in no case exceed seven years.

v) The balances in the SNRR account shall be eligible for repatriation.

vi) Opening of account by individual/ entities of Pakistan/ Bangladesh nationality/ ownership will require prior approval of the Reserve Bank of India.

CHANGES IN FEMA (DEPOSIT) REGULATIONS

CHANGES IN FEMA (DEPOSIT) REGULATIONS;

CHANGES IN A) Non-Resident (External) Account (NRE) Scheme:

i) Authorised Dealers/ banks in India may grant loans against the security of the funds held in NRE accounts to the account holder/ third party in India, without any limits, subject to the usual margin requirements. The loan sanctioned to the account holder can be repaid either by adjusting the deposits or through inward remittances from outside India through banking channels or out of balances held in the NRO account of the account holder. The loan shall be used for the purpose laid down in the regulations and cannot be repatriated outside India.

ii) Authorised Dealers may allow their branches/ correspondents outside India to grant loans outside India to the non-resident depositor or to a third party against the security of deposits, subject to the conditions laid down in the regulations.

iii) The facility for premature withdrawal of the deposits shall not be available where loans against such deposits are availed of.

iv) The term “loan” shall include all types of fund based/ non-fund based facilities.

v) Income from interest on the balances in the account is exempt from income tax and balances are exempt from wealth tax.

vi) Current income like rent, dividend, pension, interest, etc. of NRIs and PIOs will be construed as a permissible credit to their NRE account provided the Authorised Dealer is satisfied that the credit represents current income of the NRI/ PIO account holder and income tax thereon has been deducted/ paid/ provided for, as the case may be.

(I D P M S)--Import of Goods: Import Data Processing and Monitoring System

Import of Goods: Import Data Processing and Monitoring System (IDPMS)

1. Reserve Bank of India had constituted a Working Group (Chairman: Shri A. K. Pandey, CGM, FED) comprising of representatives from Customs, Directorate General of Foreign Trade (DGFT), Special Economic Zone (SEZ), Foreign Exchange Dealers Association of India (FEDAI) and select Authorised Dealer banks (AD banks), to suggest putting in place a comprehensive IT- based system to facilitate efficient processing of all import transactions and effective monitoring thereof. The Working Group had recommended development of a robust and effective IT- based system “Import Data Processing and Monitoring System “(IDPMS) on the lines of “Export Data Processing and Monitoring System” (EDPMS) in consultation with the Customs authorities and other stakeholders.

2. To track the import transactions through banking system, Customs will modify the Bill of Entry format to display the AD Code of bank concerned, as reported by the importers. Primary data on import transactions from Customs and SEZ will first flow to the RBI secured server and thereupon depending on the AD code shall be shared with the respective banks for taking the transactions forward. The AD bank shall enter every subsequent activity, viz. document submission, outward remittance data, etc. in IDPMS so as to update the RBI database on real time basis. It is therefore, necessary that AD banks upload and download data on daily basis.

3. For non EDI (manual) Customs ports, till they are upgraded to EDI (computerised) ports, nodal branch of AD Category – I banks will upload Bills of Entry (BoE) data based on original BoE with stamp/signature of the Customs as submitted by importer. Under no circumstances, AD category – I banks will process the transactions till the concerned BoE is reflected in the IDPMS. Customs will share a copy of manual BoE with respective Regional Office of RBI for information as they presently do for shipping bills in the case of exports.

4. The date of operationalization of IDPMS will be notified shortly. All import remittances outstanding as on the notified date shall have to be uploaded in IDPMS. Further, to facilitate smooth processing of import transactions and closure of BoE and advance remittances in IDPMS, the following guidelines will be followed by the AD category – I banks:

5. Write off of import bills

i) AD Category I banks can consider closure of bills in IDPMS that involve write off to the extent of 5% of invoice value in cases where the amount declared in BoE varies from the actual remittance marginally due to discounts, fluctuation in exchange rates, change in the amount of freight, insurance, etc. Cases, where write off is on account of quality issues; short shipment or destruction of goods by the port / Customs / health authorities, may be closed with remarks subject to submission of satisfactory documentation for the same, irrespective of the amount involved.

ii) While allowing write off, AD Category - I banks must ensure that:

The case is not the subject matter of any pending civil or criminal suit;

The importer has not come to the adverse notice of the Enforcement Directorate or the Central Bureau of Investigation or any such other law enforcement agency; and

There is a system in place under which internal inspectors or auditors of the AD category – I banks (including external auditors appointed by authorised dealers) should carry out random sample check / percentage check of write-off of import bills; and

iii) Cases not covered by the above instructions / beyond the above limits, may be referred to the concerned Regional Office of Reserve Bank of India.

iv) The above guidelines are only meant to facilitate closure of bills in IDPMS and do not in any way absolve the importer from remitting / receiving the amount in case circumstances change.

7. Extension of Time

i) AD Category – I banks can consider granting extension of time for settlement of import dues up to a period of six months at a time (maximum up to the period of three years) irrespective of the invoice value for delays on account of disputes about quantity or quality or non-fulfilment of terms of contract; financial difficulties and cases where importer has filed suit against the seller. In cases where sector specific guidelines have been issued by Reserve Bank of India for extension of time (i.e. rough, cut and polished diamonds), the same will be applicable.

ii) While granting extension of time, AD Category –I banks must ensure that:

The import transactions covered by the invoices are not under investigation by Directorate of Enforcement / Central Bureau of Investigation or other investigating agencies;

While considering extension beyond one year from the date of remittance, the total outstanding of the importer does not exceed USD one million or 10 per cent of the average import remittances during the preceding two financial years, whichever is lower; and

Where extension of time has been granted by the AD Category – I banks, the date up to which extension has been granted may be indicated in the ‘Remarks’ column.

iii) Cases not covered by the above instructions / beyond the above limits, may be referred to the concerned Regional Office of Reserve Bank of India.

8. Follow-up for Evidence of Import

i) As per extant guidelines, AD Category - I banks have to submit a statement on half-yearly basis as at the end of June & December of every year, in form BEF furnishing details of import transactions, exceeding USD 100,000 in respect of which importers have defaulted in submission of appropriate document evidencing import within six months from the date of remittance using the online eXtensible Business Reporting Language (XBRL) system on bank-wide basis to the respective Regional Offices of the RBI.

ii) On operationalization of IDPMS, all outstanding import remittances, irrespective of the amount involved, will be uploaded into the system and submission of a separate BEF statement would be discontinued from a date to be notified separately.

iii) AD Category – I banks are required to follow up submission of evidence of import and remittance within stipulated time irrespective of the amount involved.

9. AD Category – I banks shall put in place a system to ensure that all import transactions and related remittances are processed only through IDPMS from the date to be notified shortly. The AD category – I banks should, therefore be in readiness mode for switching to the proposed IT based system. The requisite message formats and technical specifications have been shared with AD category –I banks via e-mail. 

Brownfield Projects

Brownfield Projects

The term brownfield was originally used in construction and development to reference land that at some point was occupied by a permanent structure. In a brownfield project the structure would need to be demolished or renovated. Today, the term brownfield project is used in many industries, including software development, to mean to start a project based on prior work or to rebuild (engineer) a product from an existing one.

What are greenfield projects?

What are greenfield projects?

1)

The term greenfield was originally used in construction and development to reference land that has never been used (e.g. green or new), where there was no need to demolish or rebuild any existing structures. Today, the term greenfield project is used in many industries, including software development where it means to start a project without the need to consider any prior work

2)

A greenfield project is one which is not constrained by prior work. It is constructing on unused land where there is no need to remodel or demolish an existing structure. Such projects are often coveted by engineers.

Some examples of greenfield projects are new factories, power plants or airports which are built from scratch. Those facilities which are modified/ upgraded are called brownfield projects.

Masala Bonds

Indian curry is quite a hit in the West. So can global investors be tempted to try out Masala bonds? That’s something the Indian Railway Finance Corporation, which recently approved the raising of $1 billion through the issue of Masala bonds and other firms such as NTPC, are trying out now.

What is it?

The term is used to refer to rupee-denominated borrowings by Indian entities in overseas markets. The International Finance Corporation (IFC), the investment arm of the World Bank, last November, issued a ₹1,000 crore bond to fund infrastructure projects in India. These bonds were listed on the London Stock Exchange (LSE). IFC then named them Masala bonds to give a local flavour by calling to mind Indian culture and cuisine. While it may seem odd to name a staid debt instrument after food stuffs, it has been done in the past. Chinese bonds, named Dim-sum bonds after a popular dish in Hong Kong, have been around for while. So have Japanese bonds named Samurai after the country’s warrior class.

Why is it important?

It was not due to a whim or loyalty to one’s country that led to such a colourful christening for the local currency bonds. Masala bonds, if they take off, can be quite a significant plus for the Indian economy. They are issued to foreign investors and settled in US dollars. Hence the currency risk lies with the investor and not the issuer, unlike external commercial borrowings (ECBs), where Indian companies raise money in foreign currency loans. While ECBs help companies take advantage of the lower interest rates in international markets, the cost of hedging the currency risk can be significant. If unhedged, adverse exchange rate movements can come back to bite the borrower. But in the case of Masala bonds, the cost of borrowing can work out much lower. The RBI in its April policy said that it would issue guidelines for allowing corporates to issue rupee bonds in overseas markets.

Liquidity Adjustment Facility – Repo and Reverse Repo Rates

Liquidity Adjustment Facility – Repo and Reverse Repo Rates

It has been decided to reduce the Repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 6.75 per cent to 6.50 per cent.

Further, the Reverse Repo rate under the LAF has been increased by 25 basis points from 5.75 percent to 6.00 percent.

These changes will come into force with immediate effect. All other terms and conditions of the current LAF Scheme will remain unchanged.

Marginal Standing Facility (MSF)

Marginal Standing Facility

(MSF) rate refers to the rate at which the scheduled banks can borrow funds overnight from RBI against government securities. MSF is a very short term borrowing scheme for scheduled commercial banks.

Marginal Standing Facility As announced by RBI, it has been decided to reduce the Marginal Standing Facility (MSF) rate by 75 basis points from 7.75 per cent to 7.00 percent with immediate effect. All other terms and conditions of the current MSF scheme will remain unchanged.

Dark money

In the politics of the United States, dark money is a term that describes funds given to nonprofit organizations—primarily 501(c)(4) (social welfare) and 501(c)(6) (trade association) groups—that can receive unlimited donations from corporations, individuals, and unions, and spend funds to influence elections, but are not required to disclose their donors