HELD FOR TRADING (HFT) PORTFOLIOS

 Held for Trading investment are financial assets that are held with the sole intent of generating short term profits. HFT investments are reported at its fair value on the balance sheet and any change in any the value of investment or dividend and interest income received during the period of holding will be reported in the profit and loss statement.

 The securities under HFT category have to be sold within 90 days of investment. If the bank is not able to sell the security within 90 days due to exceptional circumstances such as tight liquidity conditions or extreme volatility or market becoming unidirectional, the security should be shifted to the Available for Sale category.

WHAT IS SECONDARY MARKET?

 The secondary market, also called the aftermarket and follow on public offering is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold.

 The term "secondary market" is also used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market (for example, corn has been traditionally used primarily for food production and feedstock, but a "second" or "third" market has developed for use in ethanol production).

 With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or

private placement, or directly from the federal government in the case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market.

OVER-THE-COUNTER GOVERNMENT SECURITIES TRANSACTION BY FOREIGN PORTFOLIO INVESTORS (FPIS) – SETTLEMENT PERIOD 

WHAT WAS THE NOTIFICATION?

 Earlier, Foreign Portfolio Investors (FPIs) are required to settle transactions in Government Securities in the Over-the-Counter-(OTC) market on a T+2 basis.

 It has now been decided to permit FPIs to settle OTC secondary market transactions in Government Securities either on T+1 or on T+2 basis. It may be ensured that all trades are reported on the trade date itself.

SECONDARY MARKET TRANSACTIONS IN GOVERNMENT SECURITIES – NOTIONAL SHORT SALE

WHY THIS NOTIFICATION?

Earlier, market participants undertaking ‘notional’ short sale are not permitted to use securities from their HTM/AFS/HFT portfolio for delivery against the short sale.

WHAT WAS THE NOTIFICATION?

 It has now been decided that market participants undertaking ‘notional’ short sale need not compulsorily borrow securities in the repo market

 While the short selling entity may ordinarily borrow securities from the repo market, in exceptional situations of market stress (e.g. short squeeze), it may deliver securities from its own HTM/AFS/HFT portfolios

 If securities are delivered out of its own portfolio, it must be accounted for appropriately and reflect the transactions as internal borrowing. All ‘notional’ short sales must be closed by an outright purchase in the market.

 It may be ensured that the securities so borrowed are brought back to the same portfolio, without any change in book value.

 The short selling entity must adhere to the extant regulations and accounting norms governing sale or valuation of securities in its portfolios.

 The bank may frame a Board approved policy for this purpose.

WHAT ARE HELD TO MATURITY (HTM) PORTFOLIOS?

 Held to Maturity investments are investments made by the bank. which it intends to hold till maturity. Only debt securities can be classified as HTM because they have a definite maturity.

A HTM investment is reported on balance sheet at its amortized cost.

LINE OF CREDIT(LOC)

 A line of credit, abbreviated as LOC, is an arrangement between a financial institution, usually a bank, and a customer that establishes a maximum loan balance that the lender permits the

borrower to access or maintain.

 The borrower can access funds from the line of credit at any time, as long as he does not exceed the maximum amount set in the agreement and as long as he meets any other requirements set by the financial institution, such as making timely minimum payments.

EXIM BANK'S GOVERNMENT OF INDIA SUPPORTED LINE OF CREDIT OF USD 81 MILLION TO THE GOVERNMENT OF THE REPUBLIC OF RWANDA

WHAT WAS THE NOTIFICATION?

 Export-Import Bank of India (Exim Bank) has entered into an Agreement on May 24, 2017 with the Government of the Republic of Rwanda for making available to the latter, a Government of

India supported Line of Credit (LoC) of USD 81 million (USD Eighty one million only) for the purpose of financing establishment of ten Vocational Training Centers and four Business Incubation Centers in the Republic of Rwanda.

 Under the arrangement financing export of eligible goods and services from India would be allowed which are eligible for export under the Foreign Trade Policy of the Government of India

and whose purchase may be agreed to be financed by the Exim Bank under this agreement.

UTKARSH SMALL FINANCE BANK LIMITED

INCLUSION OF “UTKARSH SMALL FINANCE BANK LIMITED” IN THE SECOND SCHEDULE TO THE RESERVE BANK OF INDIA ACT, 1934

WHAT WAS THE NOTIFICATION? 

 The “Utkarsh Small Finance Bank Limited” has been included in the Second Schedule to the Reserve Bank of India Act, 1934. 

 With this announcement, Utkarsh Small Finance Bank Limited is a scheduled bank. 

EXIM BANK'S GOVERNMENT OF INDIA SUPPORTED LINE OF CREDIT OF USD 500 MILLION TO THE SBM (MAURITIUS) INFRASTRUCTURE DEVELOPMENT COMPANY LTD.

WHAT WAS THE NOTIFICATION? 

 Export-Import Bank of India (Exim Bank) has entered into an Agreement on May 27, 2017 with the SBM (Mauritius) Infrastructure Development Company Ltd. for making available to the latter, a Government of India supported Line of Credit (LoC) of USD 500 million (USD Five hundred million only) for the purpose of financing its participation through Redeemable Preference Shares in public sector entities to implement infrastructure or other projects in Mauritius. 

 Under the arrangement financing export of eligible goods and services from India would be allowed which are eligible for export under the Foreign Trade Policy of the Government of India and whose purchase may be agreed to be financed by the Exim Bank under this agreement. 

 The goods include plant, machinery and equipment and services include consultancy services. Out of the total credit by Exim Bank under this agreement, goods and services of the value of at least 75 per cent of the contract price shall be supplied by the seller from India and the remaining 25 per cent of goods and services may be procured by the seller for the purpose of the eligible contract from outside India. 

Cheque Book Facility

 Banks shall issue cheque books to customers, whenever a request is received, through a requisition slip which is part of the cheque book issued earlier. 

 Banks are advised to provide minimum 25 cheque leaves every year, if requested, in savings bank account, free of charge.  Banks shall not insist on physical presence of any customer including senior citizens and differently abled persons for getting cheque books.

 Banks may also issue cheque books, on requisition, by any other mode as per bank’s laid down policy. 

 It is further clarified that providing such facility in BSBDA will not render the account to be classified as non-BSBDA 

 Automatic conversion of status of accounts Presently, in some banks, even fully KYC - compliant accounts are not automatically converted into ‘Senior Citizen Accounts’ on the basis of date of birth maintained in the bank’s records. Banks are advised that a fully KYC compliant account should automatically be converted into a ‘Senior Citizen Account’ based on the date of birth available in bank’s records. 

 Additional Facilities to visually impaired customers Banks are advised that the facilities provided to sick/old/incapacitated persons on Customer Service in Banks (regarding operations of accounts through identification of thumb/toe impression/mark by two independent witnesses and authorising a person who would withdraw the amount on behalf of such customers) shall also be extended to the visually impaired customers. 

 Ease of filing Form 15G/H Banks are advised to provide senior citizens and differently abled persons Form 15G/H once in a year (preferably in April) to enable them to submit the same, where applicable, within the stipulated time. (What is 15G: The bank includes deposits held in all its branches to calculate this limit. But if your total income is below the taxable limit, you can submit Forms 15G and 15H to the bank requesting them not to deduct any TDS on your interest.) 

 Door Step Banking However, in view of the difficulties faced by senior citizens of more than 70 years of age and differently abled or infirm persons (having medically certified chronic illness or disability) including those who are visually impaired, banks are advised to make concerted effort to provide basic banking facilities, such as pick up of cash and instruments against receipt, delivery of cash against withdrawal from account, delivery of demand drafts, submission of Know Your Customer (KYC) documents and Life certificate at the premises/ residence of such customers

STATEMENT ON DEVELOPMENTAL AND REGULATORY POLICIES

STATEMENT ON DEVELOPMENTAL AND REGULATORY POLICIES - OCTOBER 4, 2017- BANKING FACILITY FOR SENIOR CITIZENS AND DIFFERENTLY ABLED PERSON

WHY THIS NOTIFICATION? 

It has been observed that there are occasions when banks discourage or turn away senior citizens and differently abled persons from availing banking facilities in branches. Notwithstanding the need to push digital transactions and use of ATMs, it is imperative to be sensitive to the requirements of senior citizens and differently abled persons. 

WHAT WAS THE NOTIFICATION? 

In view of the above, banks are required to put in place appropriate mechanism with the following specific provisions for meeting the needs of such customers so that they are able to avail of the bank’s services without difficulty. 

 Dedicated Counters/Preference to Senior Citizens, Differently abled persons Banks are advised to provide a clearly identifiable dedicated counter or a counter which provides priority to senior citizens and people who are differently abled including visually impaired persons. 

 Ease of submitting Life Certificate As per extant guidelines issued by Department of Government and Bank Accounts, in addition to the facility of Digital Life Certificate under “Jeevan Praman” Scheme (refer circular DGBA.GAD.H2529/45.01.001/2014-15 dated December 9, 2014), pensioners can submit physical Life Certificate form at any branch of the pension paying bank. However, it is observed that often the same is not updated promptly by the receiving branch in the Core Banking Solution (CBS) system of the bank, resulting in avoidable hardship to the pensioners. It is, therefore, advised that banks shall ensure that when a Life Certificate is submitted in any branch, including a non-home branch, of the pension paying bank, the same is updated/ uploaded promptly in CBS by the receiving branch itself, to avoid any delay in credit of pension.

COMMONWEALTH BANK OF AUSTRALIA

EXCLUSION OF “COMMONWEALTH BANK OF AUSTRALIA” FROM THE SECOND SCHEDULE OF THE RESERVE BANK OF INDIA ACT, 1934

WHAT WAS THE NOTIFICATION?

 The “Commonwealth Bank of Australia” has been excluded from the Second Schedule of the Reserve Bank of India Act, 1934 

 With this announcement, Commonwealth Bank of Australia is not a scheduled bank.

INCLUSION OF “AU SMALL FINANCE BANK LIMITED” IN THE SECOND SCHEDULE OF THE RESERVE BANK OF INDIA ACT, 1934 

WHAT WAS THE NOTIFICATION? 

 The “Au Small Finance Bank Limited” has been included in the Second Schedule to the Reserve Bank of India Act, 1934

  With this announcement, Au Small Finance Bank Limited is a scheduled bank.

DIRECTIONS ON MANAGING RISKS AND CODE OF CONDUCT IN OUTSOURCING OF FINANCIAL SERVICES BY NBFCS 

WHAT WAS THE NOTIFICATION? 

 In the notification, the RBI on has asked non-banking finance companies (NBFCs) to put in place necessary safeguards for activities outsourced by them. 

 Among others, the safeguards relate to evaluation of the service provider’s capability, customer confidentiality and security, responsibilities of agents, and monitoring and control of outsourced activities.

  NBFCs are advised to conduct a self-assessment of their existing outsourcing arrangements and bring these in line with the aforesaid Directions within two months from the date of this circular.

FOREIGN EXCHANGE MANAGEMENT

PARTICULARS OF THE NOTIFICATION 

Any investment made by a person resident outside India shall be subject to the entry routes, sectoral caps or the investment limits, as the case may be, and the attendant conditionalities for such investment as laid down in these Regulations. A person resident outside India may make investment as under: 

 A person resident outside India may subscribe, purchase or sell capital instruments of an Indian company. Provided that a person who is a citizen of Bangladesh or Pakistan or is an entity incorporated in Bangladesh or Pakistan cannot purchase capital instruments without the prior Government approval. Provided further, a person who is a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/ activities other than defence, space, atomic energy and sectors/ activities prohibited for foreign investment. 

 A Foreign Portfolio Investor (FPI) may purchase or sell capital instruments of a listed Indian company on a recognised stock exchange in India 

 A Non- Resident Indian or an Overseas Citizen of India may on repatriation basis purchase or sell capital instruments of a listed Indian company on a recognised stock exchange in India 

 A Non- Resident Indian or an Overseas Citizen of India may, on non-repatriation basis, purchase or sell capital instruments of an Indian company or purchase or sell units or contribute to the capital of a LLP or a firm or proprietary concern 

 Person resident outside India, permitted for the purpose by the Reserve Bank in consultation with Central Government, may purchase or sell securities other than capital instruments

  A person resident outside India, other than a citizen of Bangladesh or Pakistan or an entity incorporated in Bangladesh or Pakistan, may invest, either by way of capital contribution or by way of acquisition/ transfer of profit shares of an LLP 

DATED GOVERNMENT SECURITIES

WHAT ARE DATED GOVERNMENT SECURITIES? 

 Dated Government Securities are longer term securities and carry a fixed or floating coupon (interest rate) paid on the face value, payable at fixed time periods (usually half-yearly). 

 The Public Debt Office (PDO) of the RBI acts as the registry/depository of Government securities and deals with the issue, interest payment and repayment of principal at maturity. 

 Most of the dated securities are fixed coupon securities. 

 The nomenclature of a typical dated fixed coupon Government security has the following features- coupon, name of the issuer, maturity and face value.

DIFFERENT TYPES OF GOVERNMENT DATED SECURITIES 

 Zero Coupon Bonds 

 Floating Rate Bond 

 Tap Stock 

 Partly Paid Stock 

 Capital Indexed Bonds 

 Inflation linked Bonds 

 Fixed Rate Bonds

CONVERSION OF DEBT INTO EQUITY- REVIEW

WHAT WAS THE NOTIFICATION? 

 On a review of the limit imposed on shareholding of the post converted equity of the borrower company under reconstruction by Asset Reconstruction Companies (ARCs), it has been decided to exempt ARCs from the cap of 26% subject to compliance with the provisions of the SARFAESI Act, 2002, Guidelines/ Instructions issued by Reserve Bank of India from time to time as applicable to ARCs as well as Foreign Exchange Management Act, 1999, Reserve Bank of India Act, 1934, Companies Act, 2013, SEBI Regulations and other relevant Statutes. 

 The extent of shareholding post conversion of debt into equity shall be in accordance with permissible Foreign Direct Investment (FDI) limit for that specific sector. 

PARTICULARS OF THE E-KUBER SYSTEM OF THE RBI

 e-Kuber is the Core Banking Solution of Reserve Bank of India. E-Kuber provides the provision of a single current account for each bank across the country, with decentralised access to this account from anywhere-anytime using portal based services in a safe manner. 

 e-Kuber enables ease of operations. The system also benefits state /central Governments as users. Some of the facilities offered include the provision of portal based access which allows Government departments to access on anywhere-anytime basis and view their balances – of all types including the Ways and Means Advances, drawings, funds positions and the like – all in a consolidated manner so as to help them in better funds management. The capability of consolidating revenue collections by banks through the e-Kuber offers the potential for better flexibility for the Government in managing its finances apart from moving over towards higher levels of electronic banking. 

 The e-kuber system can be accessed either through INFINET or Internet. The INFINET is a Closed User Group Network for the exclusive use of member banks and financial institutions and is the communication backbone for the National Payments System, which caters mainly to inter-bank applications like Real Time Gross Settlement (RTGS), Delivery Vs Payment, Government Transactions, Automatic Clearing House, etc. 

 The e-kuber system, implemented in 2012, is reported to be one of the foremost central bank oriented Core Banking Systems in the world. 

 Auction of Government securities is done through e-kuber system. Sovereign Gold Bonds are available for subscription at the branches of scheduled commercial banks and designated post offices through RBI’s e-kuber system. Goods and Service Tax (GST) settlements are also proposed to be done through e-kuber. On 7 April 2016, RBI launched a platform to enable trading in the priority sector lending certificates (PSLC) through its Core Banking Solution (CBS) portal (e-Kuber)