RBI-Jun2015

A SUMMARY OF NOTIFICATIONS ISSUED BY RBI DURING THE MONTH

Change in RBI Policy Rates
W.e.f. 02.06.2015, RBI changed policy rates as under:
Repo rate under the Liquidity Adjustment Facility : from 7.50% to 7.25%.
Reverse Repo rate under the LAF : 6.5% to 6.25% .
Marginal Standing Facility (MSF) rate : 8.5% to 8.25% .
Bank Rate : 8.50% to 8.25%.

Priority Sector Lending – Revised Reporting System
It was advised by RBI on 23.04.15, that separate guidelines relating to priority sector data reporting system will be issued in due course. Accordingly, RBI revised the format (11.06.15) and discontinued Monthly Statement on Priority Sector Advances and Sectoral Deployment of Credit. The banks are to furnish data on priority sector advances, in the revised formats on quarterly and yearly bases to RBI Central Office, within 15 days and one month, respectively, from the reference date starting from June 2015 for quarterly statement and March 31, 2016 for the yearly one.

Amendment to Prevention of Money Laundering (Maintenance of Records) Rules, 2005 – additional documents for the limited purpose of ‘proof of address’
Provisions relating to applicability of ‘simplified measures’ to verify the proof of identity of ‘low risk customers’ if they do not have Officially Valid Documents (OVDs) for proof of identity, were circulated by RBI on 17.07.14.
Government has amended the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 providing additional relaxations for the purpose of proof of address in addition to the relaxations in proof of identity under ‘simplified measures’ as contained in paragraph 2(d) of PML Rules. Thus, for the limited purpose of proof of address the following additional documents are deemed to be OVDs under ‘simplified measures’.
a. Utility bill which is not more than two months old of any service provider (electricity, telephone, postpaid mobile phone, piped gas, water bill);
b. Property or Municipal Tax receipt;
c. Bank account or Post Office savings bank account statement;
d. Pension or family pension payment orders issued to retired employees by Govt. Department or Public Sector Undertakings, if they contain address;
e. Letter of allotment of accommodation from employer issued by State or Central Govt. departments, statutory or regulatory bodies, public sector undertakings, scheduled commercial banks, financial institutions and listed companies. Similarly, leave and license agreements with such employers allotting official accommodation; and
f. Documents issued by Govt. departments of foreign jurisdictions and letter issued by Foreign Embassy or Mission in India.
These additional documents shall be deemed to be OVDs under ‘simplified measure’ for the ‘low risk’ customers for the limited purpose of proof of address where customers are unable to produce any OVD for the same.

External Commercial Borrowings (ECB) for Civil Aviation Sector
In terms of extant scheme, ECB can be raised by airline companies for working capital as a permissible end-use, under the approval route. It was available up to 31.03.15. On a review, RBI decided (11.06.15) that the scheme will continue till March 31, 2016 with the same terms and conditions.
ECB for low cost affordable housing projects
In terms of extant guidelines, External Commercial Borrowings (ECB) can be raised by eligible borrowers, for low cost affordable housing projects, under the approval route. On a review, RBI decided (11.06.15) that the scheme will continue for the financial year 2015-16 with the same terms and conditions.
Subscription to chit funds by NRIs on non-repatriation basis
In terms of FEMA regulation dated 03.05.2000, no person resident outside India can make investment in India, in any form, in a company or partnership firm or proprietary concern or any entity, whether incorporated or not, which is engaged or proposes to engage “in the business of chit fund”. RBI decided (11.06.15) to permit Non-Resident Indians (NRIs) to subscribe to the chit funds, without limit, on non-repatriation basis subject to following conditions:
· The Registrar of Chits or an officer authorised by the State Government in accordance with the provisions of the Chit Fund Act in consultation with the State Government concerned, may permit any chit fund to accept subscription from Non-Resident Indians on non-repatriation basis;
· The subscription to the chit funds shall be brought in through normal banking channel, including through an account maintained with a bank in India.

Guidelines on Sale of Financial Assets to Securitisation Company (SC)/Reconstruction Company (RC) and Related Issues
Extant guidelines dated 09.04.14 of RBI, stipulated that, for non-performing assets (NPAs) sold on or after Feb 26, 2014 to SCs/RCs, banks can reverse the excess provision on sale of NPAs, if the sale value is for a value higher than the net book value (NBV).
RBI decided (11.06.15) to permit All-India Term Lending and Refinancing Institutions(AIFIs) to reverse the excess provision (when the sale is for a value higher than the NBV) on sale of NPAs (sold prior to Feb 26, 2014 to SCs/RCs) to their profit and loss account. AIFIs can reverse excess provision arising out of sale of NPAs only when the cash received (by way of initial consideration and/or redemption of security receipts/pass through certificates) is higher than the NBV of the NPAs sold to SCs/RCs. Further, the quantum of excess provision reversed to profit and loss account will be limited to the extent to which cash received exceeds the NBV of the NPAs sold.
The excess provision reversed to on account of sale of NPAs shall be disclosed in the financial statements of the bank under ‘Notes to Accounts’.

Submission of Long Form Audit Report (LFAR) by Concurrent Auditors
As per extant RBI guidelines dated 17.04.02, LFAR in respect of a branch should be addressed by the branch auditors to the Chairman of the bank concerned, with a copy thereof to the Central Statutory Auditors. RBI decided (04.06.15) that henceforth Concurrent Auditors, who are chartered accountants, of branches below the cut-off point will submit LFAR only to the Chairman of the bank. The banks in turn will consolidate/compile all such LFARs submitted by the Concurrent Auditors and submit to Statutory Central Auditor as an internal document of the bank.
Guidelines on Compensation of Non-executive Directors of Private Sector Banks
RBI finalized the guidelines on 01.06.15. The summary is provided as under:
Compensation Policy: The Board of Directors, in consultation with its Remuneration Committee, should formulate and adopt a comprehensive compensation policy for the non-executive Directors (other than the part-time non-executive Chairman). While formulating the policy, the Board shall ensure compliance with the provisions of the Companies Act, 2013.
The Board at its discretion, can provide for in the policy, payment of compensation in the form of profit related commission out of profits. Such compensation, however, shall not exceed Rs.1 million per annum for each director.
Sitting fees and reimbursement of expenses: In addition to the directors’ compensation mentioned above, the bank may pay sitting fees to the non-executive directors and reimburse their expenses for participation in the Board and other meetings, subject to compliance with the provisions of the Companies Act, 2013.
Regulatory Approval / Supervisory Oversight: As hitherto, banks in private sector would be required to obtain prior approval of RBI for granting remuneration to the part-time non-executive Chairman under Section 10B (1A)(i) and 35B of the Banking Regulation Act, 1949. The compensation policies of banks would be subject to supervisory oversight including review under the Supervisory Review and Evaluation Process (SREP) under Pillar 2 of Basel II framework. Deficiencies would have the effect of increasing the risk profile of banks with attendant consequences, including a requirement of additional capital if the deficiencies are very significant.
Disclosure: Banks are required to make disclosure on remuneration paid to the directors on an annual basis at the minimum, in their Annual Financial Statement

Foreign Exchange Management (Permissible Capital Account Transactions) (Third Amendment) Regulations, 2015
RBI made the following Regulations (26.05.15) to amend the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000. In Regulation 4, in sub-regulation (a), for the existing provisos, the following shall be substituted:
(a) a resident individual may, draw from an authorized person foreign exchange not exceeding USD 250,000 per financial year or amount as decided by RBI from time to time for a capital account transaction specified in Schedule I.
Explanation: Drawal of forex as per item number 1 of Schedule III to Foreign Exchange Management (Current Account Transactions) Rules, 2000 dated 3rd May 2000 as amended from time to time, shall be subsumed within the limit under proviso (a) above.
(b) Where the drawal of foreign exchange by a resident individual for any capital account transaction specified in Schedule I exceeds USD 250,000 per financial year, or as decided by RBI from time to time as the case may be, the limit specified in the regulations relevant to the transaction shall apply with respect to such drawal.
PROVIDED FURTHER that no part of the foreign exchange of USD 250,000, drawn under proviso (a) shall be used for remittance directly or indirectly to countries notified as non-co-operative countries and territories by Financial Action Task Force (FATF) from time to time and communicated by RBI to all concerned.”