Sept 2016

A SUMMARY OF NOTIFICATIONS ISSUED BY RBI DURING AUGUST 2016

Factoring Transactions – Priority Sector Rule
To increase liquidity support for MSME sector RBI decided (Aug 11, 2016) that factoring transactions on ‘with recourse’ basis shall be eligible for priority sector classification by banks, which are carrying out the business of factoring departmentally. The factoring transactions taking place through TReDS shall also be eligible for classification under priority sector upon operationalization of the platform.
Banks may classify outstanding factoring portfolio on reporting dates under MSME category where the ‘assignor’ in a factoring transaction is an MSME, subject to limits for investment in plant and machinery/ equipment and other extant guidelines for priority sector classification.
RBI reiterated that the borrower’s bank may also obtain from the borrower periodical certificates regarding factored receivables to avoid double financing/ counting. Further, the ‘factors’ must intimate the limits sanctioned to the borrower to the concerned banks and details of debts factored taking responsibility to avoid double financing.

Short Term Crop Loan Interest Subvention Scheme 2016-17
As directed by the Govt. of India and in pursuance of the budget announcement relating to the Interest Subvention Scheme 2016-17 (the Scheme) RBI advised (04.08.16) that Government of India has approved the implementation of the Scheme for the year 2016-17 for short term crop loans upto Rs 3 lakh with the following stipulations:
i) A subvention of 2% p.a. will be made available to Public Sector Banks (PSBs) and in respect of loans given by the rural and semi–urban branches of Private Sector Scheduled Commercial Banks, for short term crop loan upto Rs.3 lac per farmer provided the lending institutions make available short term credit at the ground level at 7% p.a. to farmers. The 2% interest subvention will be calculated on the crop loan amount from the date of its disbursement/drawal upto the date of actual repayment of the crop loan by the farmer or upto the due date of the loans fixed by the banks, whichever is earlier, subject to a maximum period of one year.
ii) An additional interest subvention of 3% p.a. will be available to the prompt payee farmers from date of disbursement of crop loan upto the actual date of repayment by farmers or upto the due date fixed by the bank for repayment of crop loan, whichever is earlier, subject to a maximum period of one year from the date of disbursement. This also implies that the farmers paying promptly would get short term crop loans @ 4% per annum during the year 2016-17. This benefit would not accrue to farmers who repay after one year of availing such loans.
iii) To discourage distress sale by farmers and to encourage them to store their produce in warehouses against warehouse receipts, the benefit of interest subvention will be available to small and marginal farmers having Kisan Credit Card for a further period of upto six months post-harvest on the same rate as available to crop loan against negotiable warehouse receipt for keeping their produce in warehouses.
iv) To provide relief to farmers affected by natural calamities, the interest subvention of 2% will continue to be available to banks for the first year on the restructured amount. Such restructured loans may attract normal rate of interest from the 2nd year onwards as per policy laid down by the RBI.
Claims: i) Claims in respect of 2% interest subvention and 3% additional interest subvention may be submitted to RBI.
ii) For 2% interest subvention, banks are to submit claims on a half-yearly basis as at Sept 30, 2016 and March 31, 2017. The latter needs to be accompanied by a Statutory Auditor’s certificate certifying the claims for the entire year ended March 31, 2017 as true and correct. Any remaining claim pertaining to the disbursements made during the year 2016-17 and not included in the claim for March 31, 2017, may be consolidated separately and marked as an ‘Additional Claim’ duly audited by Statutory Auditors certifying the correctness.
iii) For 3% additional subvention, banks may submit one-time consolidated claims for disbursements made during the entire year 2016-17 latest by April 30, 2018, duly audited by Statutory Auditors certifying the correctness.

Dishonour of cheques – Modification in procedure
As per extant guidelines (26.06.2003 and 12.05.14) banks were advised by RBI to introduce a condition for operation of accounts with cheque facility that in the event of dishonour of a cheque valuing Rs.1 cr and above drawn on a particular account of the drawer on 4 occasions during the financial year for want of sufficient funds in the account, no fresh cheque book would be issued. Also, the bank may consider closing current account at its discretion.
These instructions have been reviewed by RBI and RBI decided (04.08.16) to leave it to the discretion of the banks to determine their response to dishonour of cheques of the account holders. Banks should put in place an appropriate policy approved by the Board or its Committee taking into consideration the need to prevent misuse of the cheque drawing facility and avoid penalising customers for unintended dishonour of cheques.

Half yearly/Quarterly Review of Accounts of Public Sector Banks
RBI revised (28.07.16) the existing reporting format (Jun 05, 2003) for HY / Q review of accounts of PSBs and directed banks to prepare the review in revised format effective from the next review date.
Guidelines for Relief Measures by NBFCs in areas affected by Natural Calamities
RBI had issued guidelines to banks for matters relating to relief measures to be provided in areas affected by natural calamities vide circulars dated 25.03.15, 21.08.15 and 30.06.16. RBI decided (July 28, 2016) to extend these guidelines, mutatis mutandis, to NBFCs, in areas affected by natural calamities as identified for implementation of suitable relief measures by the institutional framework viz., District Consultative Committee/ State Level Bankers’ Committee.

Priority Sector Lending –Targets and Classification- Bank loans to MFIs for on-lending – Qualifying asset – Revised loan limit
As per extant RBI guidelines (July 07, 2016) the limit of the loans extended by NBFC- Micro Finance Institutions (NBFC-MFIs) for which the tenure of the loan shall not be less than 24 months, is Rs.15000. This has been raised to Rs.30,000, with right to borrower of prepayment without penalty.

Retail Participation by Demat Account Holders in the Government Securities (G-Sec) Market: Access to NDS-OM Platform
The secondary market in G-Sec predominantly comprises of Banks, Primary Dealers, Insurance Companies, Mutual Funds, Financial and other institutional investors. These maintain their holdings in Govt. Securities in their Subsidiary General Accounts (SGL) with the Public Debt Office of RBI. A few maintain Gilt Accounts with market players having Constituent SGL Accounts with RBI.
Secondary market trades in G-Sec is largely carried out on the Negotiated Dealing System – Order Matching (NDS-OM) owned by RBI & hosted, maintained and operated by Clearing Corporation of India Limited (CCIL) on behalf of RBI. NDS-OM provides direct access to SGL A/c holders & supports access to Gilt A/c Holders through its Web Based Extension i.e., NDS-OM-Web based on requests by the concerned Primary Member. Both NDS-OM and NDS-OM-Web facilitate anonymous dealing on the Order Matching Segment as also reporting of bilateral trades concluded outside the system.
RBI decided (July 28, 2016) to facilitate access w.e.f. 16.08.2016 to NDS-OM by retail segment (individual investors) having demat accounts with the depositories viz. National Securities Depository Limited and/or Central Depository Services (India) Limited, desirous of participating in the G-Sec market, by using their demat accounts for their transactions and holdings in G-Sec.
Any individual investor maintaining a demat a/c with a depository would be eligible for these services. Initially, this access would be facilitated through any of the existing NDS-OM Primary Members, who also act as Depository Participants for NSDL and/or CSDL.
Dealing / Access to NDS-OM – option with individual to trade:
(i) NDS-OM Web: Primary members of NDS-OM who are also Depository Participants can grant demat account holders access to the NDS-OM Web Module for placing buy / sell orders directly on NDS-OM.
(ii) NDS-OM Main: Individuals holding demat accounts can instruct their Depository Participants, who are also primary members of NDS-OM, to place orders on their behalf on the NDS-OM trading platform, similar to the facility available to Gilt Account Holders.
(iii) Bilateral trades in Voice Market: Demat a/c holders can conclude a trade in the bilateral voice market. The responsibility of reporting such trades on the Reported Deal Segment of NDS-OM will rest with the Primary member concerned.
Settlement & Risk Management: (i) Trades concluded and/or reported for a retail individual investor holding Demat A/c under this Scheme, shall flow to CCIL for settlement, which would act as Central Counterparty for such trades and undertake clearing and settlement of these trades as per its Regulations.
(ii) Primary members shall ensure that demat account holders do not place sell order without sufficient balance of securities in the demat account.
(iii) Trades executed by demat account holders under this Scheme shall be subject to the code of conduct prescribed for NDS-OM.