Change in RBI Policy Rates
RBI changed policy rates w.e.f. 5.4.2016, as under 1. The Bank Rate adjusted by 75 basis points from 7.75% to 7.0%.
2. The Repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 6.75 per cent to 6.50 per cent.
3. The Reverse Repo rate under the LAF has been increased by 25 basis points from 5.75 percent to 6.00 percent.
4. The Marginal Standing Facility (MSF) rate has been reduced by 75 basis points from 7.75 per cent to 7.00 percent with immediate effect.
Change in Daily Minimum CRR Maintenance Requirement
RBI decided (05.04.16) to reduce the minimum daily maintenance of the Cash Reserve Ratio from 95 per cent of the requirement to 90 per cent effective from the fortnight beginning April 16, 2016.
Cautioning public against placing deposits in dubious schemes
In the recent years there have been several incidents of unscrupulous entities duping general public by floating various dubious schemes for mobilisation of funds by way of deposits/investments etc. The absence of financial literacy and lack of alertness to fraudulent schemes/calls are the main reasons behind the innocent depositors falling prey to such schemes.
RBI decided (21.04.16) that banks may in their own interest and as customer education effort in the interest of the public, consider designing suitable posters or pamphlets or flyers or notices containing following messages:
Never respond to unsolicited offers of money received through emails/phone/other media * No one really gives you money for free * Be careful while investing in seemingly attractive schemes offering high returns * Don’t invest in unregulated companies/entities * Don’t rely on hearsay – Check for yourself * High return means higher risk including potential loss of entire money – Check your risk-appetite! * Take care of your money – it is hard to earn but easy to lose * When in doubt check with a trusted financial adviser
Such messages may be displayed or distributed in bank branches (in official language of the State) to enable easy notice by the customers. It will help to disseminate the information to the public. Banks may consider places like Automated Teller Machines or Business Correspondent Points where such messages could get wider visibility.
Security / Inspection needs and Movement of Treasure
RBI decided (13.04.16) that all the banks having currency chests should ensure conducting of fire audits bi-annually (once in two years) by the officials from the District Fire Department. The banks may also ensure that the working condition of the Hotline and other security related gadgets, viz. access control, CCTV, etc. are checked once in a fortnight by the CC officials.
Oversight of Government Business in Agency Banks
In terms of the agency agreement entered into with agency banks for conduct of government business, RBI carries out periodical review/inspection of government business. RBI decided (07.04.16) to put in place a new system of oversight of government business with following main changes:
a. The scope of the review/inspection will also cover government business at the Head Offices of agency banks. Various branches and CPPCs will continue to be visited as hitherto.
b. The current practice of issuing reports at the end of the review/inspection will be discontinued.
c. Comments in respect of action points marked as “Major” may be submitted to the Regional Offices of RBI under which the branch/office falls.
d. As regards other action points, necessary rectification may be ensured by the bank itself. However, its quality and sustenance may be examined and commented upon by internal audit.
RBI decided to introduce offsite monitoring of government business under which agency banks may report details of their government business as per prescribed formats. The first such report may relate to the quarter ending March 31, 2016, and be submitted within 15 days from the date to which it relates.
RBI decided to have periodical interactions with senior executives of banks dealing with government business, to maintain a line of communication with the agency bank and to have first-hand information and feedback on government business being conducted by it.
Deendayal Antyodaya Yojana (DAY)-National Urban Livelihoods Mission
With a view to improving the livelihood opportunities for the poor in urban areas, Ministry of Housing and Urban Poverty Alleviation (UPA Division), Government of India decided to enhance the scope of National Urban Livelihoods Mission. The Mission with enhanced scope will be renamed as ”Deendayal Antyodaya Yojana (DAY)-National Urban Livelihoods Mission”.
Issue and Pricing of shares by Private Sector Banks, Directions, 2016
RBI issued RBI (Issue and Pricing of Shares by Private Sector Banks) Directions, 2016 u/s 35-A of Banking Regulation Act 1949 (effective date : 21.04.2016).
The provisions of these Directions shall apply to all private sector banks licensed by RBI to operate in India.
Banks normally issue shares by way of:
i) Public Issues (a) Initial Public Offer (b) Further Public Offer
ii) Private Placement (a) Preferential Issue (b) Qualified Institutional Placement
iii) Rights Issue
iv) Bonus Issues
A private sector bank has general permission for issue of shares through all the routes mentioned above subject to the following conditions:
i. The issue of shares shall be in compliance with the provisions of FEMA 1999 and extant Foreign Investment Policy of Government of India for Private Sector Banks, extant SEBI guidelines, provisions of Companies Act and rules made thereunder.
ii. The issue of shares shall have the approval from the bank’s Board / AGM, as the case may be in compliance with the Companies Act 2013 /SEBI guidelines.
iii. Pricing of shares by listed banks shall be as per SEBI formula, while for unlisted banks the pricing shall be as per Companies Act and rules made thereunder.
iv. Allotment of shares shall be subject to compliance with the extant RBI Master Directions 19.11.15 on Prior approval for acquisition of shares or voting rights in private sector banks which requires investors to obtain specific prior approval of RBI if the proposed acquisition results in aggregate holding of 5% or more of the paid-up capital of the bank.
v. On completion of allotment process complete details of the issue shall be reported to RBI.
Investment Advisory Services by Banks
Investment Advisory Services (IAS) is defined and regulated by SEBI under the SEBI (Investment Advisors) Regulations, 2013, and entities offering these activities need to be registered with SEBI. In view of the same RBI advised (21.04.16) that henceforth, banks cannot undertake IAS departmentally. Accordingly, banks desirous of offering these services may do so either through a separate subsidiary set up for the purpose or one of the existing subsidiaries after ensuring that there is an arm’s length relationship between bank and the subsidiary.
The sponsor bank should obtain specific prior approval of Department of Banking Regulation before offering IAS through an existing subsidiary or for setting up a subsidiary for this purpose. (Setting up of any subsidiary will, as hitherto, be subject to the extant guidelines on para-banking activities of banks).
All bank sponsored subsidiaries offering IAS will be registered with SEBI and regulated as per the SEBI (Investment Advisors) Regulations, 2013, and shall adhere to all relevant SEBI rules and regulations in this regard.
IAS provided by the bank sponsored subsidiaries should only be for the products and services in which banks are permitted to deal in as per Banking Regulation Act, 1949.
Foreign Investment in units issued by Real Estate Investment Trusts, Infrastructure Investment Trusts and Alternative Investment Funds
RBI decided (21.04.16) to allow foreign investment in the units of Investment Vehicles registered and regulated by SEBI or any other competent authority which include:
· Real Estate Investment Trusts registered /regulated under SEBI Regulations 2014;
· Infrastructure Investment Trusts registered / regulated under SEBI Regulations;
· Alternative Investment Funds registered / regulated under SEBI Regulations 2012.
The salient features of the new investment regime are:
1. A person resident outside India including a Registered Foreign Portfolio Investor (RFPI) and a Non-Resident Indian (NRI) may invest in units of Investment Vehicles.
2. The payment shall be made by an inward remittance through the normal banking channel including by debit to an NRE or an FCNR account.
3. Purchased units may be sold/transferred/redeemed as per RBI/SEBI regulations.
4. Downstream investment by an Investment Vehicle shall be regarded as foreign investment if Sponsor or Manager or Investment Manager is not Indian ‘owned.
5. If sponsors or managers or investment managers are in a form other than companies or LLPs, SEBI shall determine whether it is foreign owned and controlled.
6. Downstream investment by an Investment Vehicle that is reckoned as foreign investment shall have to conform to the sectoral caps and conditions / restrictions.
7. Downstream investment in an LLP by an Investment Vehicle that is reckoned as foreign investment has to conform to the provisions of Schedule 9 of the Principal Regulations as well as the extant FDI policy for foreign investment in LLPs.
8. An Alternative Investment Fund Category III with foreign investment shall make portfolio investment in only those securities in which a RFPI is allowed to invest.
9. The Investment Vehicle receiving foreign investment shall be required to make such report and in such format to RBI or SEBI as prescribed by them from time to time.
RBI has clarified that foreign investment in units of REITs registered and regulated under the SEBI (REITs) Regulations, 2014 will not be included in “real estate business” for the purpose of these regulations.
Acceptance of deposits by Indian companies from a person resident outside India for nomination as Director
In terms RBI notification dated 01.04.16, no person resident in India shall accept any deposit from, or make any deposit with, a person resident outside India. U/s 160 of Companies Act, 2013, a person who intends to nominate himself or any other person as a director in an Indian company is to place a deposit with that company. RBI clarified (13.04.16) that keeping deposits with an Indian company by persons resident outside India, as per Section 160 of the Companies Act, 2013, is a current account (payment) transaction and does not require any approval from RBI. All refunds of such deposits, arising in the event of selection of the person as director or getting more than 25% votes, shall be treated similarly.
Financial Assistance to UCB for Implementation of Core Banking Solution
As a part of the MOU with State Governments/Central Govt. on Urban Cooperative Banks (UCBs), RBI had agreed to provide IT support. RBI decided (13.04.16) to prescribe standards and benchmarks for CBS in UCBs and provide technical support to UCBs through Institute for Development and Research in Banking Technology (IDRBT).
A scheme for providing financial assistance to UCBs for implementation of CBS has been formulated by RBI and would be implemented by IDRBT/Indian Financial Technology and Allied Services (IFTAS) (a subsidiary of IDRBT). The initial set up cost of Rs.4 lakh will be paid by RBI to IFTAS. Thereafter, the recurring cost of Rs.15,000 per branch per month will be borne by the UCB.