FEB 2017

A SUMMARY OF NOTIFICATIONS ISSUED BY RBI DURING JANUARY 2017

Additional Limits for MSME
On Aug 27, 2015, banks were advised by RBI to incorporate with their Boards approval, in their lending policy to MSEs, a clause for fixing a separate additional limit, at the time of sanction / renewal of working capital limits, specifically for meeting the temporary increase in working capital requirements arising mainly due to unforeseen / seasonal increase in demand for products produced by them. Banks have since confirmed to RBI having put such a policy in place.
Consequent upon withdrawal of legal tender status of Specified Bank Notes (SBN) of Rs.500 and Rs. 1000 denominations and based on feedback that some MSEs are facing temporary difficulties in carrying out their normal business due to cash flow mismatches, RBI decided to review the above instructions.
Accordingly, RBI advised banks (Dec 29) that they may use the facility of providing above additional working capital limit (approved by their boards as above) to their MSE borrowers, to overcome the difficulties arising out of such cash flow mismatches also. This would be a onetime measure up to March 31, 2017 and should thereafter be normalised in fresh working capital assessment cycle.

Prohibition on Indian Party from making direct investment in countries identified by the Financial Action Task Force (FATF) as Non Co-operative countries and territories
At present, there is no restriction on an Indian Party with regard to the countries, where it can undertake Overseas Direct Investment. In order to align, the instructions with the objectives of FATF, on a review, RBI decided (Jan 25) to prohibit an Indian Party from making direct investment in an overseas entity (set up or acquired abroad directly as JV/ WOS or indirectly as step down subsidiary) located in the countries identified by the FATF as non co-operative countries and territories as per list available on FATF or as notified by the RBI from time to time.

Evidence of Import under Import Data Processing and Monitoring System (IDPMS)
Extant guidelines of RBI outline the procedure, mode/manner of payment for imports and submission of related returns. According to this procedure, Bill of Entry (BoE) data is received in IDPMS from Customs Department for EDI ports and from NSDL for SEZ on daily basis. BoE data for non-EDI ports are entered by AD Category I bank of the importer on receipt of BoE (importers copy) and then the bank uploads the data in IDPMS through Manual BOE reporting process. In order to enhance ease of doing business and reduce transaction costs, RBI decided (Jan 12) to discontinue submission of hardcopy of Evidence of Import documents i.e. BoE, with effect from December 01, 2016, as it is available in IDPMS. The revised procedures are as set out below:
i. AD Category I bank will enter BoE details (BoE number, port code and date) as received from the importer and download the BoE message data from BOE Master in IDPMS. Thereafter, match and settle the BoE data with Outward Remittance Message (ORM) associated with the payment for import as per the message format BOE Settlement in IDPMS. Multiple ORMs can be settled against single BoE and also multiple BoE(s) can be settled against one ORM.
ii. In respect of imports on Delivery against Acceptance basis, on request of importer, AD Category I bank shall verify the evidence of import from IDPMS at the time of effecting remittance of import bill.
iii. On settlement of ORM with evidence of import, AD Category I bank shall in all cases issue an acknowledgement slip to the importer containing the following particulars:
a. importers full name and address with code number ;
b. number and date of BoE and the amount of import; and
c. a recap advice on number and amount of BoE and ORM not settled for the importer.
iv. The importer needs to preserve the printed Importer copy of BoE as evidence of import and acknowledgement slip for future use.
The extant instructions and guidelines forEvidence of Import in Lieu of Bill of Entrywill apply mutatis mutandis. The evidence of import in lieu of BoE in permitted/approved conditions will be created and uploaded by AD Category I bank of the importer in the form of BoE data as per message format Manual BOE reporting in IDPMS.
Follow-up for Evidence of Import : AD Category I banks shall continue to follow up for outward remittance made for import (i.e. unsettled ORM) in terms of extant guidelines and instructions on the subject. In cases where relevant evidence of import data is not available in IDPMS on due dates against the ORM, AD Category I bank shall follow up with the importer for submission of documentary evidence of import. Similarly, if BoE data is not settled against ORM within the prescribed period AD Category I banks shall follow up with the importer in terms of extant instructions.
Verification and Preservation:Internal inspectors and IS auditors (including external auditors appointed by AD Category I bank) should carry out verification and IS audit and assurance of the BOE Settlement process in IDPMS. Data and process followed by AD Category I bank for BOE Settlement should be preserved in terms of the guidelines under Cyber Security Framework in the bank. However, in respect of cases which are under investigation by investigating agencies, the data, process and/or documents may be destroyed only after obtaining clearance from the investigating agency concerned.

Issue of Convertible Notes by Startup Companies
RBI made the following amendments (Jan 10, 2017) in the Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations, 2000 to make provision for issue of convertible notes by Startup Companies:
Convertible note means an instrument issued by a startup company evidencing receipt of money initially as debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of such startup company, within a period not exceeding five years from the date of issue of the convertible note, upon occurrence of specified events as per the other terms and conditions agreed to and indicated in the instrument;
Issue of Convertible Notes by startup companies:
(1) A person resident outside India (other than an individual who is citizen of Pakistan or Bangladesh or an entity which is registered / incorporated in Pakistan or Bangladesh), may purchase convertible notes issued by an Indian startup company for an amount of Rs.25 lac (twenty five lakh rupees) or more in a single tranche.
(2) A startup company engaged in a sector where foreign investment requires Government approval may issue convertible notes to a non-resident only with approval of the Government.
(3) A startup company issuing convertible notes to a person resident outside India shall receive the amount of consideration by inward remittance through banking channels or by debit to the NRE / FCNR (B) / Escrow account maintained by the person concerned in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time to time.
Provided that an escrow account for the above purpose shall be closed immediately after the requirements are completed or within a period of six months, which ever is earlier. However, in no case continuance of such escrow account shall be permitted beyond a period of six months.
(4) NRIs may acquire convertible notes on non-repatriation basis in accordance with Schedule 4 of the Principal Regulations.
(5) A person resident outside India may acquire or transfer, by way of sale, convertible notes, from or to, a person resident in or outside India, provided the transfer takes place in accordance with the pricing guidelines as prescribed by RBI. Prior approval from the Government shall be obtained for such transfers in case the startup company is engaged in a sector which requires Government approval.
(6) The startup company issuing convertible notes shall be required to furnish reports as prescribed by Reserve Bank.

Purchase and sale of securities other than shares or convertible debentures of an Indian company by a person resident outside India
In terms of notification dated 03.05.2000, eligible investors, viz., SEBI registered Foreign Institutional Investors (FIIs), Qualified Foreign Investors (QFIs), registered Foreign Portfolio Investors (FPIs) and long term investors registered with SEBI, may purchase securities indicated in Schedule 5 on repatriation basis and subject to such terms and conditions as may be specified by the SEBI and RBI from time to time.
With a view to providing flexibility in regard to the manner in which non-convertible debentures/bonds issued by Indian companies can be acquired by FPIs, RBI decided (Dec 27, 2016) to allow them to transact in such instruments either directly or in any manner as per the prevalent/approved market practice.

Issuance and Operations of Prepaid Payment Instruments
In order to facilitate greater adoption of digital payments, the extant instructions have been partially modified by RBI (Dec 27, 2016) as under:
1. Banks may extend the provisions to include other entities / employers such as unlisted corporates / partnership firms / sole proprietorship / public organizations like municipal corporations, urban local bodies, etc. (employers) for onward issuance to their staff / employees / contract workers, etc.
2. Banks shall extend this facility only to those entities / employers that have a bank account with them and after obtaining an undertaking that they are not availing of this facility from any other bank.
3. Verification of the identity of the staff / employees / contract workers, etc. shall be the responsibility of the concerned employer. The bank should put in place proper systems to capture and maintain details of the employees to whom the cards are issued by the employer along with copies of photograph and identity proof of such employees. The employer is also required to make available details of bank accounts (if any) of the employees to the bank.
4. Banks shall load/reload PPIs after obtaining necessary authorisation and above mentioned details of the employees/staff/contract workers, etc. from the employers.

Interest Subvention Scheme for Short Term Crop Loans during the year 2016-17- Grant of grace period of 60 days beyond due date
In view of the constraints faced by farmers for timely repayment of loan dues on account of withdrawal of legal tender status of Specified Bank Notes (SBNs), GoI decided to providean additional grace period of 60 daysfor prompt repayment incentive of 3% to those farmers whose crop loan dues are falling due between 1st November, 2016 and 31st December, 2016 if such farmers repay the same within 60 days from the above period.
RBI advised banks (Dec 26) to consider the above while submitting their one-time consolidated 3% additional subvention claims pertaining to the disbursements made during the entire year 2016-17.

Facility for exchange of Specified Bank Notes (SBNs) during Grace Period
In terms of the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 dated December 30, 2016 the captioned facility has been formulated by RBI to afford an opportunity to those Indian citizens who could not avail facilities of exchange of SBNs under the earlier facility, as they were not present in the country during November 9, 2016 to December 30, 2016. The provisions of the facility are as under:
Places of Exchange: This facility will be made available through five of the offices of the Reserve Bank viz. the Reserve Bank offices at Mumbai, New Delhi, Chennai, Kolkata, and Nagpur.
Eligible persons: The facility can be availed only by Indian citizens in their individual capacity and only on one occasion during the period. No third party tender is permissible under the facility.
Among Indian citizens, two categories of individuals, holding SBNs, can avail of the facility:
i. Resident Indians who were abroad during the period from November 9 to December 30, 2016, and
ii. Non Resident Indians (NRIs) who were not in India during the period from November 9 to December 30, 2016
This facility is not available for Indian citizens resident in Nepal, Bhutan, Pakistan and Bangladesh.
The terms/ conditions and modalities of the facility for the two eligible categories defined above are as under:
a. Resident Indians
1. Only those residents who were abroad during the period from November 9, 2016 to December 30, 2016 will be eligible to avail this facility only once during the tenure of the facility.
2. There will be no monetary limit for submission of SBNs in the tender.
3. Tenders should be submitted in a Tender Formwith necessary documentary evidence to prove they were abroad during the said period.
4. A copy of Passport with immigration stamp as proof of the individuals absence from the country during the period November 9, 2016 to December 30, 2016 should be submitted. Passport in original should be presented at the RBI counter for verification.
5. Copies of all bank account statements evidencing that no SBNs were deposited during November 10, 2016 to December 30, 2016.
6. Tender should be accompanied by Valid ID Proof and Aadhaar number along with applicants KYC compliant bank account details.
7. Requisite document as per provisions of Section 114B of IT Rules, 1962 will be required
8. An acknowledgment of receipt will be issued to the tenderers pending credit of admissible amount.
9. On ascertaining that the tenderer was abroad during the period from November 9, 2016 and December 30, 2016, the account is KYC compliant, fulfilment of other conditions and the genuineness of the notes tendered, admissible amount will be credited to the account under advice to the tenderer.
b. Non Resident Indians (NRIs)
1. Only those NRIs who were not present in India during the period from November 9, 2016 to December 30, 2016 will be eligible to avail this facility once during the tenure of the facility.
2. Tenders should be submitted along with a Tender Form.
3. Tenders will be restricted to a maximum of Rs.25,000 per individual depending on when the notes were taken out of India as per relevant FEMA rules.
4. A Copy of Passport with immigration stamp as proof of the individuals absence from the country during the period November 9, 2016 to December 30, 2016 should be submitted. Passport in original should be presented at the RBI counter for verification.
5. A certificate issued by Indian Customs on arrival through Red Channel after December 30, 2016 indicating the import of SBNs, with details and value thereof should also be submitted.
6. Copies of statements of all bank accounts in India evidencing that no SBNs were deposited during November 10, 2016 to December 30, 2016.
7. Requisite document as per provisions of Section 114B of IT Rules, 1962 are required to be submitted.
8. An acknowledgment of receipt will be issued to the tenderers pending credit of admissible amount.
9. On ascertaining that the tenderer was abroad during the period from November 9, 2016 and December 30, 2016, the account is KYC compliant, fulfilment of other conditions and the genuineness of the notes tendered, admissible amount will be credited to the account under advice to the tenderer.
Duration: The facility will remain open for residents from January 2, 2017 to March 31, 2017 and for NRIs from January 2, 2017 to June 30, 2017.
Representation: Any person, aggrieved by the refusal of the Reserve Bank to credit the value of SBNs tendered, may represent to the Central Board of the Reserve Bank within fourteen days of the communication of such refusal to him.
Limits on Cash withdrawals from Bank accounts and ATMs – Restoration of status quo ante
On a review of the pace of remonitisation, RBI decided (Jan 30) to partiallyrestore status quo anteas under:
1. Limits placed vide the circulars cited above on cash withdrawals from Current accounts/ Cash credit accounts/ Overdraft accounts stand withdrawn with immediate effect.
2. The limits on Savings Bank accounts will continue for the present and are under consideration for withdrawal in the near future.
3. Limits vide the circulars cited above placed on cash withdrawals from ATMs stand withdrawn from February 01, 2017. However, banks may, at their discretion, have their own operating limits as was the case before November 8, 2016, subject to 2 (ii) above.
4. Further, banks are urged to encourage their constituents to sustain the movement towards digitisation of payments and switching over of payments from cash mode to non-cash mode.
White Label ATM Operators (WLAOs) – Sourcing of cash from retail outlets
In order to facilitate cash availability for WLAOs, RBI decided (Dec 30) to allow them to source cash from retail outlets subject to following conditions:
1. WLAOs shall be solely responsible for the quality and genuineness of currency notes dispensed through their ATMs. Only ATM fit notes shall be used for this purpose,
2. WLAOs may enter into bilateral arrangement with retail outlets from where they desire to source cash based on their Board approved policy,
3. Liability and disputes, if any, arising out of such arrangements shall be the responsibility of WLAOs,
4. WLAOs shall be responsible for resolving customer disputes and shall make good any loss caused to a customer including those on account of fake notes,
5. 60% of the cash sourced using such arrangement(s) shall be dispensed through WLAs located in rural and semi-urban areas.
6. All other extant instructions pertaining to WLAOs remain unchanged.
Closure of the scheme of exchange of Specified Bank Notes (SBNs) at banks on December 30th 2016- Accounting
With the closure of the facility of exchange of SBNs as at the close of business on December 30, 2016, all banks should report information on collection of SBNs on December 30, 2016 itself. Banks should make arrangements to gather the information from all its branches accordingly.
All bank branches (other than those of DCCBs) who have accumulated SBNs as at the close of business on December 30, 2016 are required to deposit the same in any Issue Office of the Reserve Bank or a currency cheston December 31, 2016itself.
SBNs cannot form part of banks cash balances from the close of business as on December 31, 2016.
However, DCCBs may retain the SBNs received between November 10 and 14, 2016 till receipt of further instructions.
Banks maintaining currency chests may make necessary arrangements to facilitate the deposit of SBNs received through linked branches /other branches of banks /post offices. Reporting of the transactions in ICCOMS will be enabled beyond 9.00 PM till all the deposits are received and accounted for.
To facilitate storage of SBNs, banks maintaining currency chests may utilise additional space in their existing currency chest or additional storage space at the same centre with the proviso that it is as safe and secure as a currency chest.