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Gist of RBI Guidelines Issued in August  2014



Rajesh Goyal 

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Details of Guidelines

RBI announces revised Liquidity Management Framework

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 banking system,

·          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 banks.

The above facility will be available only once during the life of the existing project loans.

Additional Disclosures by RRBs in Notes to Accounts

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)

·         Sector-wise 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 Transactions

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 manner.

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 control systems.


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 collateral.


RBIs Annual Report for 2013-14

RBI has 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; and
iv) All other terms and conditions of the loan should remain unchanged or enhanced in favour of the lenders.





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Annexure 1

Revised Liquidity Management Framework

(wef 5th September, 2014)

Sl. No.





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 separately)


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 Reverse Repo.

No restriction on quantity.

Daily (Monday-Friday): 7.00-7.30 PM


Overnight Variable Rate Reverse Repo Auctions

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 necessary.


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