RBI has put in place a revised framework for liquidity management
wef 5th September 2014. Under the existing arrangements, day-to-day
liquidity requirements were met through
·variable rate 14-day / 7-day Repo auctions equivalent
to 0.75 per cent of net demand and time liabilities (NDTL) of the
· supplemented by daily overnight fixed rate (at the
repo rate) repos equivalent to 0.25 per cent of bank-wise NDTL and
·export credit refinance (at the repo rate) of 32 per
cent of bank-wise outstanding eligible export credit bills (about 0.4
per cent of NDTL).
The detailed and Revised
liquidity management framework for instruments like Overnight Fixed Rate
Repos (at repo rate); Variable Rate 14 Day Term Repo Auctions; Overnight
Marginal Standing Facility; and Export Credit Refinance, are give at
the end of this article under Annexure 1.
Refinancing of Project Loans
RBI has now
permitted refinance existing project loans, by
way of full or partial take-out financing,
even without a pre-determined agreement
with other banks/financial institutions, and fix
a longer repayment period.
Further, this would not be considered as
restructuring in the books of the existing as well as taking over
lenders, if the following conditions are satisfied:
i.The aggregate exposure of all institutional lenders to such
project should be minimum Rs. 1,000 crore;
ii.The project should have started commercial operation after
achieving Date of Commencement of Commercial Operation (DCCO);
iii.The repayment period should be fixed by taking into account the
life cycle of and cash flows from the project, and Boards of the
existing and new banks should be satisfied with the viability of the
project. Further, the total repayment period should not exceed 85
percent of the initial economic life of the project/concession period in
the case of Public-Private Partnership (PPP) projects;
iv.Such loans should be standard in the books of the existing banks
at the time of the refinancing;
v.In case of partial take-out, a significant amount of the loan (a
minimum 25 percent of the outstanding loan by value) should be taken
over by a new set of lenders from the existing financing
banks/financial institutions; and
vi.The promoters should bring in additional equity, if required, so
as to reduce the debt to make the current debt-equity ratio and Debit
Service Coverage Ratio (DSCR) of the project loan acceptable to the
The above facility will be available only once during the life of the
existing project loans.
Additional Disclosures by RRBs in Notes to
RBI has advised all RRBs to disclose sector-wise advances in the
Notes to Accounts to the financial statements as per the prescribed
format given, form the financial year 2014-15 onwards. The additional
disclosure would include information on:
·Concentration of Deposits, Advances, Exposures and
Non-performing Assets (NPAs)
·Movement of NPAs
Third Bi-Monthly Policy Statement, 2014-15
Dr. Raghuram G. Rajan, Governor, announced the Third Bi-Monthly
Monetary Policy Statement, 2014-15 on August 5, 2014
Reserve Bank decided to:
·Reduce the statutory liquidity
ratio (SLR) of scheduled commercial banks by 50 basis points from 22.5
per cent to 22.0 per cent of their NDTL with effect from the fortnight
beginning August 9, 2014; and
Restructuring of SJSRY as NULM
Government of India, Ministry of Housing and Urban Poverty
Alleviation (MoHUPA), has launched the
National Urban Livelihoods Mission (NULM).
This new Scheme was launched after
restructuring the existing Swarna Jayanti Shahari Rozgar Yojana (SJSRY).
The Self Employment Programme (SEP) component of NULM will focus on
providing financial assistance through a provision of interest subsidy
on loans to support establishment of individual and group enterprises
and self-help groups (SHGs) of urban poor.
Further more, the existing provision of capital subsidy for USEP
(Urban Self Employment Programme) and UWSP (Urban Women Self-Help
Programme) components of SJSRY has been replaced by interest subsidy for
loans to individual enterprise (SEP -1), group enterprise (SEP-G) and
self help groups (SHGs).
Security and Risk Mitigation for CNP
RBI has advised banks/authorized card payment network and other
relevant entities to immediately stop
evading the mandatory additional authentication process, where payments
are made by customers for a service via Card Not Present (CNP)
transactions as adopting such practices would lead to willful
non-adherence and violation of extant instructions of the directives
issued the requirements under the Foreign Exchange Management Act 1999.
The Reserve Bank has advised that where cards issued by banks in
India are used for making card not present payments towards purchase of
goods and services provided within the country, the acquisition of such
transaction should necessarily settle only in Indian currency, in
adherence to extant instructions on security of card payments.
RBI rationalizes Number of Free
Transactions on ATMs
RBI has recently advised the banks to
reduce the number of mandated free transactions for savings bank account
holders at other bank ATMs from five to
three per month.
This will apply for transactions done at ATMs
located in six metro centres, namely, Mumbai, New Delhi, Chennai,
Kolkata, Bengaluru and Hyderabad which are well-served on terms
of payment infrastructure.
This reduction will, however not apply
to customers having no-frills/small/Basic Savings Bank Deposit Account (BSBDA)
type of accounts as well as for transactions done by savings bank
account holders at ATMs situated outside these six metro centres.Banks are also free to offer free
transactions above this mandated limit.
Reserve Bank advised the banks to
provide their savings bank account holders with at least five free
transactions per month at their own ATMs. Beyond this banks may
decide to levy transaction charges (not exceeding Rs. 20/- plus
applicable taxes per transaction) which are decided in a transparent
RBI releases NG_RTGS Character Set
RBI has defined and issued a list of special characters that are
allowed and not allowed in RTGS messages. This is in order to have
uniformity in usage of special characters by Indian banking industry for
seamless processing of RTGS messages.
The Next Generation Real Time Gross Settlement (NG-RTGS) System
has several advanced features, such as , liquidity management facility,
extensible markup language (XML) based messaging system conforming to
ISO 20022 and real time information and transaction monitoring and
Issue of Prepaid Forex Cards
RBI has clarified that prepaid
foreign currency cards are a form of foreign currency, similar to
foreign currency notes or travelers cheques. As such, the
authorized dealers/full-fledged money changers (FFMACs) selling pre-paid
foreign currency cards for travel purposes are required to comply with
the same rigorous standards of due diligence and know your customer (KYC)
as they would in case they were selling foreign currency notes/travelers
cheques to their customers.
Lending against Shares
RBI has advised all NBFCs with asset size of Rs. 100 crore and
above (excluding the primary dealers) to maintain a Loan-To-Value (LTV)
ratio of 50 percent in case of loans where shares are taken as
RBIs Annual Report for 2013-14
constituted a Working Group (Convenor- Smt. Balbir Kaur),
to study various issues relating to taxation of financial instruments
in India and suggest rationalization. The terms of reference of the Working Group are;
·To review the current tax structure as applicable to
various financial instruments issued in the Indian financial system.
·To identify possible ‘tax arbitrage’ among financial
instruments under the extant tax structure; and
·To suggest rationalization of tax treatment across
financial instruments to promote financial savings and for minimizing
distortions, taking into account the recommendations of earlier
Committees in this regard and the draft Direct Taxes Code
The Working Group may consult with experts and market participants
as considered necessary. The Working Group is expected to submit is
report within three months of its first meeting.
Prudential Norms on Income Recognition, Asset Classification and
Provisioning Pertaining to Advances - Projects under Implementation
it is observed that,
internationally, project finance
lenders sanction a ‘standby credit facility’ to fund cost overruns if
needed. Such ‘standby credit facilities’ are sanctioned at the
time of initial financial closure; but disbursed only when there is a
cost overrun. At the time of credit assessment of borrowers/project,
such cost overruns are also taken into account while determining the
project Debt Equity Ratio, Debt Service Coverage Ratio, Fixed Asset
Coverage Ratio etc. Such ‘standby credit facilities’ rank pari passu
with base project loans and their repayment schedule is also the same as
that of the base project loans.
5. Accordingly, in cases where
banks have specifically sanctioned a ‘standby facility’ at the time of
initial financial closure to fund cost overruns, they may fund cost
overruns as per the agreed terms and conditions.
6. Where the initial financial closure does not envisage such
financing of cost overruns, based on the representations from banks, it
has been decided to allow banks to fund
cost overruns, which may arise on account of extension of DCCO within
the time limits quoted at paragraph 2 above, without treating the loans
as ‘restructured asset’ subject to the following conditions:
i) Banks may fund additional ‘Interest During Construction’,
which may arise on account of delay in completion of a project;
ii) Other cost overruns (excluding Interest During Construction) up to a
maximum of 10% of the original project cost;
iii) The Debt Equity Ratio as agreed at the time of initial financial
closure should remain unchanged subsequent to funding cost overruns or
improve in favour of the lenders and the revised Debt Service Coverage
Ratio should be acceptable to the lenders;
iv) Disbursement of funds for cost overruns should start only after the
Sponsors/Promoters bring in their share of funding of the cost overruns;
iv) All other terms and conditions of the loan should remain unchanged
or enhanced in favour of the lenders.
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Revised Liquidity Management Framework
5th September, 2014)
Overnight Fixed Rate Repos
(at repo rate)
0.25 per cent of NDTL, bank-wise
Daily (Monday-Friday): 9.30-10.30 AM
Variable Rate 14 Day Term Repo Auctions
0.75 per cent of system-wide NDTL.
Starting from Sept 5, 2014, auctions to be conducted 4 times during
a reporting fortnight, i.e., on every Tuesday and Friday, between
11.00-11.30 AM for an amount equivalent to one-fourth of 0.75 per
cent of NDTL in each auction.
(Rules for transition period of September 2014 are given by RBI
Overnight Variable Rate Repo Auction
The auction amount, if any, will be decided by the Reserve Bank,
based on an assessment of the liquidity conditions as well as
Government cash balances available for auction for the day, and will
be announced around 2.30 PM.
Daily (Monday-Friday):3.00-3.30 PM. The Reserve Bank may decide to
exercise a greenshoe option above the notified amount based on the
evolving liquidity conditions during the day.
Overnight Fixed Rate
No restriction on quantity.
Daily (Monday-Friday): 7.00-7.30 PM
Overnight Variable Rate
The auction amount, if any, will be decided by the Reserve Bank,
based on an assessment of the liquidity conditions and will be
conducted on days when it is considered necessary.
Reserve Bank will announce the notified amount during the day and
conduct the auction between 3.00-3.30 PM
Overnight Marginal Standing Facility
Individual banks can draw funds equivalent up to Excess SLR+2 per
cent below SLR.
Daily (Monday-Friday): 7.00-7.30 PM
Export Credit Refinance
As per the existing limits
Will remain available at fixed repo rate between 10 AM and 5 PM from
Monday to Friday and between 10 AM and 1 PM on Saturday.
In addition to the framework as set out in the table, the Reserve Bank may
announce special variable rate short term repo/reverse repo auctions at short
notice to take care of fast-changing liquidity conditions at any time during the
day. Further, apart from addressing day-to-day liquidity requirements arising
out of frictional factors, the Reserve Bank will also manage liquidity movements
of a more durable nature through open market operations (including those
conducted on the NDS-OM platform) and forex operations.
The Reserve Bank will review the operation of the Revised Liquidity Management
Framework on an ongoing basis and bring about further refinements as considered
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