A SUMMARY OF NOTIFICATIONS ISSUED BY RBI DURING NOVEMBER 2015

Trade Payments with Myanmar
As per extant guidelines, the border trade between Myanmar and India may be settled through barter system which was permitted to facilitate exchange of locally produced commodities along the Indo-Myanmar border. Further, the trade transactions with Myanmar may be settled in any permitted currency in addition to the Asian Clearing Union mechanism.
RBI decided (Nov 05, 2015), to do away with the barter system of trade at the Indo-Myanmar border and switch over completely to normal trade with effect from December 1, 2015. Accordingly, all trade transactions with Myanmar, including those at the Indo-Myanmar border with effect from December 1, 2015 would be settled in any permitted currency in addition to the Asian Clearing Union mechanism.
Provision of Factoring Services by Banks – Review
As per extant RBI guidelines, in order to ensure that the banks offering factoring services have enough margin to cover any deficiencies in the payment of the related invoice, it should be ensured that the pre-payment amount offered by banks for the receivables acquired under factoring should not exceed 80% of the invoice value. On a review, RBI allowed (Nov 19, 2015) banks to decide percentage of the invoice to be paid upfront based on their own assessment of the credit worthiness of the assignor/ buyer, due diligence carried out by them and other commercial considerations.
Non-Operative Financial Holding Company (NOFHC) – Application of Capital Adequacy Norms
The extant RBI guidelines inter alia require setting up of wholly-owned Non-Operative Financial Holding Company (NOFHC) by eligible entities / groups in the private sector for carrying out business of banking and other permissible financial activities. Further, the capital adequacy norms are required to be applied to the NOFHC on consolidated basis as applicable to the existing banking groups.
RBI clarified (Nov 19, 2015) that consolidated (Group) level capital adequacy would also mean application of consolidated capital adequacy norm to the NOFHC after consolidating the relevant entities held by it.
Payment of agency commission
Banks are required to submit to RBI agency commission claims with certification from by external auditors (Chartered Accountants). The certificate has been amended. Banks have been advised (Nov 10, 2015) that henceforth the claims be accompanied by a revised certificate.
Risk Management & Inter-Bank Dealings: Relaxation of facilities for residents for hedging of foreign currency borrowings
Under the existing guidelines, residents having long term foreign currency liability can hedge exchange rate and/or interest rate risk exposure thereof by undertaking a foreign currency-INR swap to move from a foreign currency liability to a rupee liability with an AD Cat-I bank.
RBI decided (Nov 05, 2015) to permit them to enter in to FCY-INR swaps with Multilateral or International Financial Institutions (MFI/IFI) in which Govt. of India is a shareholding member, subject to the following terms and conditions:
(i) Such swap transactions shall be undertaken by the MFI / IFI concerned on a back-to-back basis with an AD Category-I bank in India.
(ii) The FCY-INR swaps shall have a minimum tenor of three years.
(iii) In the event of a default by the resident borrower on its swap obligations, the MFI / IFI concerned shall bring in foreign currency funds to meet its corresponding liabilities to the counterparty AD Cat-I bank in India.
Internet Banking Facility for Customers of Cooperative Banks
As per extant guidelines (26.09.11) Internet Banking for Customers of UCBs, scheduled Urban Cooperative Banks (UCBs) satisfying certain criteria were permitted to provide internet banking with transactional facility to their customers with prior approval of RBI.
Further on Oct 13, 2014, ‘Internet Banking (view only) facility for Customers of UCBs’ was permitted to all UCBs complying with certain condition to extend internet banking with ‘view only’ facility, without approval of RBI.
State Cooperative Banks (StCBs) and District Central Cooperative Banks (DCCBs) so far were not allowed to provide internet banking facilities to their customers.
RBI decided (Nov 05, 2015) to allow StCBs and DCCBs to extend the facility of internet banking (view only and with transactional facility) to their customers subject o the guidelines of RBI.
Software Export – Filing of bulk SOFTEX-further liberalisation
As per extant guidelines, a software exporter, whose annual turnover is at least Rs.1000 cr or who files at least 600 SOFTEX forms annually on an all India basis, is eligible to declare all the off-site software exports in bulk in the form of a statement in excel format, to the competent authority for certification on monthly basis.
RBI decided (Nov 05, 2015) to extend this facility to all software exporters.
Accordingly, all software exporters can file single as well as bulk SOFTEX form in excel format to the competent authority for certification. Since the SOFTEX data from STPI/SEZ is being transmitted in electronic format to RBI, the exporters are required to submit the SOFTEX form in duplicate. STPI/SEZ will retain one copy and handover duplicate copy to the exporters after due certification.
The software exporters can generate SOFTEX form number (single as well as bulk) for use in off-site software exports from the RBI website.
FEMA 1999 requires exporters to complete the SOFTEX form using the number so allotted and submit it first to the competent authority for certification and then to the AD for further necessary action, as hitherto.
Internet Banking Facility for Customers of Regional Rural Banks
To enhance customer service and taking into account demand for such services, RBI decided (Nov 19, 2015) to allow RRBs to extend the facility of internet banking to their customers. The guidelines are as follows:
I. Internet Banking (View only) facility
1. RRBs which have implemented Core Banking Solution (CBS) and migrated to Internet Protocol Version 6 (IPv6) and comply with the prescribed guidelines may offer Internet Banking (View only) facility to their customers, without prior approval of RBI. In case, any service offered under ‘view only’ facility requires two-factor authentication or One Time Password (OTP), banks may adopt the security features prescribed in Annex II to this circular, as appropriate to such services.
2. RRBs should ensure that the facility is strictly for non-transactional services such as balance enquiry, balance viewing, account statement download, request for supply of cheque books, etc. and no online fund-based transactions are allowed.
3. RRBs shall report commencement of the service to the concerned Regional Office of RBI and NABARD within one month of operationalization.
II. Internet Banking with Transactional facility
RRBs which have implemented CBS and have also migrated to Internet Protocol Version 6 (IPv6) and fulfilling the following criteria may offer Internet Banking with transactional facility to their customers with prior approval of RBI:
a. CRAR of not less than 10 per cent.
b. Networth is Rs.100 crore or more as on March 31 of preceding financial year.
c. Gross NPAs less than 7 % and Net NPAs not more than 3%
d. The bank should have made a net profit in the preceding financial year and overall, should have made net profit at least in three out of the preceding four financial years.
e. It should not have defaulted in maintenance of CRR/SLR during preceding FY.
f. The bank has a track record of regulatory compliance and no monetary penalty has been imposed on the bank for violation of RBI directives/guidelines during the two financial years, preceding the year in which the application is made.
g. It has sound internal control system which should be approved by a CISA qualified independent auditor.
h. The bank should not have accumulated losses.
RRB shall submit an application to the concerned Regional Office of RBI through NABARD.
Priority Sector Lending – Targets and Classification
RBI had planned to communicate to banks, the system-wide average of the last 3 years achievement with regard to overall direct lending to non-corporate farmers at the beginning of each year.
RBI advised (Nov 18, 2015) that the applicable system wide average figures for computing achievements under priority sector lending for the FY 2015-16 is 11.57 percent.
Prior Approval for acquisition of shares or voting rights in Private Sector Banks: Directions, 2015
RBI issued the (Prior approval for acquisition of shares or voting rights in private sector banks) Directions, 2015 on Nov 19, 2015.
Applicability : The provisions shall apply to the existing and proposed “major shareholders” of the Private Sector Banks and all Private Sector Banks including Local Area Banks, licensed to operate in India.
Every person who intends to make an acquisition / make an agreement for acquisition which will / is likely to take the aggregate holding of such person together with shares / voting rights / compulsorily convertible debentures / bonds held by him, his relatives, associate enterprises and persons acting in concert with him, to 5 per cent or more of the paid-up share capital of the concerned bank or entitles him to exercise 5 per cent or more of the total voting rights of the concerned bank, shall seek prior approval of RBI.
The decision of the Reserve Bank to accord or deny permission or accord permission for acquisition of a lower quantum than that has been applied for, shall be conveyed to the applicant and the concerned bank and the decision shall be binding on the applicant and the concerned bank.
Increase in shareholding : Fresh acquisition by an existing major shareholder, who has already obtained prior approval of the Reserve Bank for having a major shareholding in a bank prior to such fresh acquisition, shall be subject to the following provisions :
a) Where the acquisition results in the aggregate holding of the major shareholder of upto 10 per cent of the shares or voting rights of the concerned bank, prior approval of the Reserve Bank is not necessary,
b) Where the acquisition shall result in the aggregate holding of the major shareholder exceeding 10 per cent of the shares or voting rights of the concerned bank, he shall seek a fresh prior approval of Reserve Bank for the proposed aggregate holding in the above manner
Monitoring arrangements for due diligence in case of existing major shareholders:
It is the responsibility of the concerned bank to ensure that all its major shareholders are fit and proper and for this purpose every bank shall,
(a) obtain, within one month of the close of financial year, an annual declaration from all its major shareholders.
(b) furnish a certificate, by the end of September every year, to the Reserve Bank regarding continuance of the “fit and proper” status of all its major shareholders.