RBI April 2024 - AmitaDesai

Amendments in the FEMA, 1999

RBI Updates January 2024

1. Master Direction on Counterfeit Notes, 2024 - Detection, Reporting and Monitoring

RBI vide Circular RBI/DCM/2024-25/115 DCM (FNVD)/G4/16.01.05/2024-25 dated April 01, 2024, issued a Master Direction incorporating and updating the extant guidelines/instructions/directives on Detection, Reporting, and Monitoring of Counterfeit Notes enabling banks to have access to all the current instructions on Counterfeit Notes at one place.

The link for the aforesaid Circular is as follows:
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/115MDCN01042024F088EFA4F3F04DC9968AD7EC6844AFE9.PDF

2. Launch of RBI’s new website and mobile application

RBI vide Press Release 2024-2025/57 (PR) dated April 05, 2024, intimated the launch of its new website and mobile application.

The new website can be accessed using the URL https://website.rbi.org.in or through the QR code given in the PR and the new mobile application can be downloaded from the Play Store for Android users and App Store for iOS users. Users can also download the mobile application using the QR code given in the PR.

The link for the aforesaid Press Release is as follows:
https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR57LAUNCHOFRBISNEWWEBSITED8CF3F465D8541768F9F63F9A8E90A38.PDF

3. Key Facts Statement (KFS) for Loans & Advances

RBI Circular DOR.STR.REC.13/13.03.00/2024-25 on April 15, 2024

This Circular shall apply to REs i.e. all Commercial Banks (including Small Finance Banks, Local Area Banks, and Regional Rural Banks, excluding Payments Banks), Primary (Urban) Co-operative Banks, State Co-operative Banks, Central Co-operative Banks, and Non-Banking Financial Companies (including Housing Finance Companies).

As announced by RBI, in the Statement on Developmental and Regulatory Policies dated February 8, 2024, it has been decided to harmonize the instructions on the Key Facts Statement (KFS) for Loans & Advances.

The harmonized instructions shall be applicable in cases of all retail and MSME Term Loan products extended by all Regulated Entities (REs). REs shall provide a KFS to all prospective borrowers to help them take an informed view before executing the loan contract, as per the standardized format given in the Circular.

For the said purpose, RBI vide Circular DOR.STR.REC.13/13.03.00/2024-25 on April 15, 2024, defined the following terms:

a. Key Facts of a loan agreement between an RE/a group of REs and a borrower are legally significant and deterministic facts that satisfy basic information required to assist the borrower in taking an informed financial decision.

b. Key Facts Statement (KFS) is a statement of key facts of a loan agreement, in simple and easier to understand language, provided to the borrower in a standardized format.

c. Annual Percentage Rate (APR) is the annual cost of credit to the borrower which includes interest rate and all other charges associated with the credit facility.

d. Equated Periodic Instalment (EPI) is an equated or fixed amount of repayments, consisting of both the principal and interest components, to be paid by a borrower towards repayment of a loan at periodic intervals for a fixed number of such intervals; and which result in complete amortization of the loan. EPIs at monthly intervals are called EMIs.

The KFS shall provide for the following:

A unique proposal number;
Validity Period;
Computation sheet of APR;
Amortization schedule of the loan over the loan tenor;
Summary box to be exhibited as part of the loan agreement

The APR shall include:

All charges which are levied by REs;
Charges recovered from the borrowers by the Regulated Entities on behalf of third-party service providers on an actual basis, such as insurance charges, legal charges, etc.

Any fees, charges, etc. which are not mentioned in the KFS, cannot be charged by the REs to the borrower at any stage during the term of the loan, without explicit consent of the borrower.

Exemption:

Credit card receivables are exempted from the provisions contained under the Circular.

REs shall put in place the necessary systems and processes to implement the above guidelines at the earliest in any case, all new retail and MSME term loans sanctioned on or after October 01, 2024, including fresh loans to existing customers, shall comply with the Circular in letter and spirit without any exception.

The link for the aforesaid Circular is as follows:

https://rbidocs.rbi.org.in/rdocs/notification/PDFs/CIRCULARKFS1504242AE2500BAF494C2A82442B0B642705C1.PDF

4. Regulation of Payment Aggregators (PAs) – Draft Directions

RBI vide Press Release 2024-2025/116 dated April 16, 2024, intimated that it has placed on its website the below-mentioned two draft directions on the regulation of Payment Aggregators (PA) for public comments:

New draft directions on the regulation of Payment Aggregators: Physical Point of Sale; and
Amendments to the existing directions on Payment Aggregators.

RBI in its “Statement on Developmental and Regulatory Policies” dated September 30, 2022, had announced regulation of offline PAs, who handle proximity / face-to-face payments. The new draft directions at (i) above cover such physical Point-of-Sale activities of PAs.

Additionally, given the growth in digital transactions and the significant role that PAs play in this space, the current directions on PAs are proposed to be updated as at (ii) above. These updates cover, inter alia, KYC and due diligence of merchants, operations in Escrow accounts, etc, and are intended to further strengthen the payment ecosystem.

The link for the aforesaid Press Release is as follows:
https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR116PASDRAFT%20DIRECTIONS57D123C3C6CD4EDD97B4318DD39AD865.PDF

5. Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2024

Ministry of Finance vide Notification S.O 1722(E) dated April 16, 2024, amended the Foreign Exchange Management (Non-Debt Instruments) Rules, 1999.

Vide this amendment, Serial Number 12 of Schedule I to these Rules is amended with substitution as follows with reference to Foreign Direct Investments (FDIs) in the Space Sector.

(1)	(2)	(3)	(4)
12	Space Sector
12.1	a. Satellites-Manufacturing and Operation b. Satellite Data Products c. Ground Segment and User Segment	100%	Automatic up to 74% Government route beyond 74%
12.2	a. Launch Vehicles and associated systems or sub-systems b. Creation of Spaceports for launching and receiving Spacecraft	100%	Automatic up to 49% Government route beyond 49%
12.3	Manufacturing of components and systems or sub-systems for satellites, Ground Segment and User Segment	100%	Automatic
12.4	The investee entity shall be subject to sectoral guidelines as issued by the Department of Space from time to time.
12.5	Definitions: (a) Satellites – Manufacturing and Operation: End-to-end manufacturing and supply of satellite or payload, establishing the satellite systems including control of in-orbit operations of the satellite and payloads; (b) Satellite Data Products: Reception, generation, or dissemination of earth observation or remote sensing satellite data and data products including Application Interfaces (API); (c) Ground Segment and User Segment: (i) Ground Segment: Supply of satellite transmit or receive earth stations including earth observation data receive station, gateway, teleports, satellite Telemetry, Tracking and Command (TTC) station, and Satellite Control Centre (SCC), etc.; (ii) User Segment: Supply of user ground terminals for communicating with the satellite, which are not covered under the ground segment; (d) Launch Vehicles and Associated Systems or Sub-systems: A vehicle and its stages or components that is designed to operate in or place spacecraft with payloads or persons, in a sub-orbital trajectory, or earth orbit, or outer space; (e) Creation of Spaceports for launching and receiving Spacecraft: A spaceport (also referred to as a launch site) may be regarded as the base from which spacecraft are launched, and consists of facilities involving devices for transportation to, from, and via outer space; (f) Manufacturing of components and systems or sub-systems for satellites Ground Segment and User Segment: Comprises the manufacturing and supply of the electrical, electronic, and mechanical components systems or sub-systems for satellites, Ground Segment, and User Segment.

These new Rules are effective from April 16 and align with the Cabinet’s decision in February to relax FDI caps. These new rules aimed at attracting more foreign investors to the Indian Space Sector.

The notification stipulates that the investee entity must adhere to sectoral guidelines issued by the Department of Space. It also provides clear definitions for various satellite-related terms and activities, including manufacturing and operation, satellite data products, ground and user segments, and spacecraft, to eliminate any ambiguity regarding the FDI policy.

Satellite manufacturing and operation encompass the end-to-end manufacturing and supply of satellites or payloads, including the establishment of satellite systems and control of in-orbit operations.

Satellite data products involve the reception, generation, or dissemination of earth observation or remote sensing satellite data and associated products, including application interfaces.

The link for the aforesaid Notification is as follows:
https://egazette.gov.in/(S(4cejekcsoyoexafbesk2anzk))/ViewPDF.aspx

6. Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Amendment) Regulations, 2024

RBI vide Notification FEMA. 395(2) /2024-RB dated April 19, 2024, amended the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 (Principal Regulations).

In sub-regulation 3 of the Principal Regulations with respect to the Mode of Payment and Remittance of sale proceeds, a new Schedule XI is inserted for the Purchase or Subscription of Equity Shares of Companies Incorporated in India on International Exchanges Scheme by Permissible Holder which reads as follows:

A. Mode of Payment

The amount of consideration for the purchase/subscription of equity shares of an Indian Company listed on an International Exchange shall be paid, –

through banking channels to a foreign currency account of the Indian company held in accordance with the Foreign Exchange Management (Foreign currency accounts by a person resident in India) Regulations, 2015, as amended from time to time; or
as inward remittance from abroad through banking channels.

Explanation: The proceeds of the purchase/subscription of equity shares of an Indian Company listed on an International Exchange shall either be remitted to a bank account in India or deposited in a foreign currency account of the Indian company held in accordance with the Foreign Exchange Management (Foreign currency accounts by a person resident in India) Regulations, 2015, as amended from time to time.

B. Remittance of sale proceeds

The sale proceeds (net of taxes) of the equity shares may be remitted outside India or may be credited to the bank account of the permissible holder maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

Sub-regulation 4(8) of the Principal Regulation with respect to the Reporting Requirements is substituted and states as follows about reporting in Form LEC (FII).

Form LEC(FII):

(i) The Authorised Dealer Category I banks shall report to the Reserve Bank in Form LEC (FII) about the purchase/transfer of equity instruments by FPIs on the stock exchanges in India.

(ii) The Investee Indian Company through an Authorised Dealer Category I bank shall report to the Reserve Bank in Form LEC (FII) the purchase/subscription of equity shares (where such purchase/subscription is classified as Foreign Portfolio Investment under the rules) by permissible holder, other than transfers between permissible holders, on an International Exchange.

The link for the aforesaid Notification is as follows:

Reserve Bank of India – Notifications (rbi.org.in)

7. Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) (Amendment) Regulations, 2024

RBI vide Notification FEMA. 10R(3) /2024-RB dated April 23, 2024, amended the Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015 (Principal Regulation).

Regulation 5(F)(1) of the Principal Regulation with respect to Opening, Holding, and Maintaining a Foreign Currency Account outside India is substituted as follows:

Subject to compliance with the conditions in regard to the raising of External Commercial Borrowings (ECB) or raising of resources through American Depository Receipts (ADRs) or Global Depository Receipts (GDRs) or through a direct listing of equity shares of companies incorporated in India on International Exchanges, the funds so raised may, pending their utilization or repatriation to India, be held in foreign currency accounts with a bank outside India.

The link for the aforesaid Notification is as follows:
Reserve Bank of India – Foreign Exchange Management Act Notification (rbi.org.in)

8. RBI Bulletin – April 2024

RBI released the April 2024 issue of its monthly Bulletin on April 23, 2024. The Bulletin includes the Monetary Policy Statement for the FY 2024-2025, five speeches, six articles, and current statistics.

The six articles are:

State of the Economy;
What Drives India’s Services Exports;
Food and Fuel Prices: Second Round Effects on Headline Inflation in India;
India’s Foreign Exchange Reserves in High Volatility Episodes – An Empirical Assessment;
Gauging Linguistic Complexity of Regulatory Communication: A Case Study for India; and
Off-site Monitoring System for Surveys (OMOSYS): A Geographic Information System (GIS) Based Approach for Quality Assurance.

The link for the aforesaid Press Release is as follows:
https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR164RBIBULLETINAPRIL20240C8065590CFD45EA82A59C2A4ABE4A27.PDF

9. Master Direction – Reserve Bank of India (Asset Reconstruction Companies) Directions, 2024

Asset Reconstruction Companies (ARCs) play a critical role in the resolution of stressed financial assets of banks and financial institutions, enhancing the overall health of the financial system. To ensure the prudent and efficient functioning of ARCs and to protect the interest of investors, RBI vide Circular DoR.FIN.REC.16/26.03.001/2024-25 dated April 24, 2024, issued the Master Direction – Reserve Bank of India (Asset Reconstruction Companies) Directions, 2024.

The Master Direction consolidates the existing regulatory guidelines issued to ARCs vide Master Circular on ARCs and Master Direction – Fit and Proper Criteria for Sponsors – Asset Reconstruction Companies (Reserve Bank) Directions, 2018.

The link for the aforesaid Circular is as follows:
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/115MD2404242C46DA28A8444FAE9BD210D08DC3D1C1.PDF

10. Supervisory Action against Kotak Mahindra Bank Limited under Section 35A of the Banking Regulation Act, 1949

RBI on April 24, 2024, in the exercise of its powers under Section 35A of the Banking Regulation Act, 1949, directed Kotak Mahindra Bank Limited (‘the Bank’) to cease and desist, with immediate effect, from

onboarding of new customers through its online and mobile banking channels; and
issuing fresh credit cards.

The Bank shall, however, continue to provide services to its existing customers, including its credit card customers.

The link for the aforesaid Press Release is as follows:
https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR172C67A06D91783486B9E897DE57DAA3491.PDF

11. RBI issued Master Direction for Master Circular - Bank Finance to Non-Banking Financial Companies (NBFCs)

On April 24, 2024 RBI vide Circular No. DOR.CRE.REC.No.17/21.04.172/2024-25 issued a Master Circular stating to note to refer to the Master Circular DOR.CRE.REC.No.07/21.04.172/2023-24 dated April 03, 2023 for Bank Finance to Non-Banking Financial Companies (NBFC). And shared a revised Master Circular, updated to reflect all instructions issued as of the date on the said matter, and clarified that this Master Circular only consolidates all instructions on the above matter issued up to April 23, 2024, and does not contain any new instructions/guidelines.

The link for the aforesaid Master Circular is as follows:
Reserve Bank of India – Notifications (rbi.org.in)

12. RBI cautions the public against Prepaid Payment Instruments issued by unauthorized entities

It has come to the notice of RBI, that TalkCharge Technologies Private Limited (“the Company”), having its registered office at Unit No. 323, JMD Megapolis, 3rd Floor, Sohna Road, Sector 48, Gurgaon, Haryana-122018, was issuing Prepaid Payment Instruments (Wallets) through its website and app ‘TalkCharge’ without obtaining the required authorization from RBI under the provisions of the Payment and Settlement Systems Act, 2007.

Accordingly, RBI issued directions to the Company on April 02, 2024, to stop the issuance and operation of its Prepaid Payment Instruments/Wallets and refund the balances held in the wallets to the customers within 15 days (which was later extended on the entity’s request to 45 days, i.e., by May 17, 2024).

RBI noticed that the Company issued legal notices to its customers demanding the return of Cashback, failing which the matter will be reported to the RBI. Thus, the Company has created an impression in the minds of its customers that demand for repayment of cashback amount is being made as per the directions of the RBI. Hence, RBI clarified that it has only directed the Company to refund the prepaid amount lying in the wallets, to the customers.

RBI vide Press Release 2024-2025/186 dated April 25, 2024, urged the public to exercise utmost caution while using the website/application and parting with their money to any such unauthorized entity. The public should verify and satisfy themselves that the website/application used or the entity they are dealing with is authorized to carry out the activity it performs.

The list of authorized payment system providers/authorized payment system operators is displayed on the RBI website at https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=12043.

The link for the aforesaid Press Release is as follows:
https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=57783

13. Draft Guidelines on ‘Digital Lending – Transparency in Aggregation of Loan Products from Multiple Lenders’

RBI vide Circular DOR.STR.REC.***/21.07.001/2024-25 issued draft guidelines on Digital Lending – Transparency in Aggregation of Loan Products from Multiple Lenders to promote transparency in the digital lending space.

RBI earlier vide Circular DOR.CRE.REC.66/21.07.001/2022-23 dated September 02, 2022, issued the ‘Guidelines on Digital Lending’ and on December 08, 2023, issued Statement on Developmental and Regulatory Policies wherein it was announced to issue a regulatory framework for aggregation of loan products by Lending Service Providers (LSPs).

To enable the borrowers to have prior information about the potential lenders to make an informed decision, the Regulated Entities (REs) are advised to ensure as under:

The LSP shall provide a digital view of all the loan offers available to the borrower, as per his/her requirements, from all the willing lenders with whom the LSP has arrangements with.
While the LSP may adopt any mechanism to ascertain the willingness of the lenders to offer a loan, it shall follow a consistent approach in this regard, which shall be disclosed suitably on its website.
The digital view shall include the name(s) of the RE(s) extending the loan offer, the amount and tenor of the loan, the Annual Percentage Rate (APR), and other key terms and conditions that enable the borrower to make a fair comparison between various offers. A link to the Key Facts Statement (KFS) shall also be provided in respect of each of the REs.
The content displayed by the LSP shall be unbiased and shall not directly/indirectly promote or push a product of a particular RE, including by use of any practices or deceptive patterns, i.e., using ‘dark patterns’ designed to mislead borrowers into choosing a particular loan offer.

The link for the aforesaid Circular is as follows:
https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR194DRAFTCIRCULARONDIGITALLENDING065E3A8AF53F40C38AD8D21CE004767D.PDF

14. Master Direction – Reserve Bank of India (Electronic Trading Platforms) Directions, 2024 – Draft

RBI issued a draft Master Direction to all entities operating Electronic Trading Platforms (ETP) and invited comments/ feedback from Electronic Trading Platform operators, banks, market participants, and other interested parties by May 31, 2024.

These Directions include the following:

Short title, scope, and commencement of the directions
Definitions
General Conditions
Eligibility Criteria i.e General Criteria, Financial Criteria, and Technological Criteria for authorization of ETP
Grant of Authorisation to operate ETP and cancellation of Authorisation
‘In-principle’ approval for setting up an ETP
Operating Framework including access, participation, and risk management
Surveillance
Transparency
Outsourcing of operations
Technology and Information security (IS)
Preservation, access, and use of data
Reporting Requirements
Termination of operation
Offshore ETPs
Exemptions

The link for the aforesaid draft Master Direction is as follows:
https://rbidocs.rbi.org.in/rdocs/Content/PDFs/ETPDIRECTIONDRAFT64281F3CDA204300BEE5753006DCC011.PDF

15. Fair Practices Code for Lenders – Charging of Interest by Banks and NBFC, Housing Finance Companies and other REs

On April 29, 2024, RBI vide Notification RBI/2024-25/ 30 DoS. CO. PPG. SEC. 1/11. 01. 005 /2024-25 addressed to all Commercial Banks (including Small Finance Banks, Local Area Banks, and Regional Rural Banks) excluding Payments Banks, all Primary (Urban) Co-operative Banks/ State Co-operative Banks/ District Central Co-operative Banks, all Non-Banking Financial Companies (including Microfinance Institutions and Housing Finance Companies). This notification is effective immediately from April 29, 2024.

The Notification reads that RBI has found during the course of the onsite examination of Reporting Entities (Res) for the period ended March 31, 2023, few instances of lenders resorting to certain unfair practices in charging of interest. Some of the unfair practices observed are briefly explained below:

Charging of interest from the date of sanction of loanor date of execution of loan agreement and not from the date of actual disbursement of the funds to the customer. Similarly, in the case of loans being disbursed by cheque, instances were observed where interest was charged from the date of the cheque whereas the cheque was handed over to the customer several days later.
In the case of disbursal or repayment of loans during the course of the month, some REs were charging interest for the entire month, rather than charging interest only for the period for which the loan was outstanding.
In some cases, it was observed that REs were collecting one or more installments in advance but reckoning the full loan amount for charging interest.

RBI stated that these and other such non-standard practices of charging interest do not align with the spirit of fairness and transparency while dealing with customers. These are matters of serious concern to the Reserve Bank. Wherever such practices have come to light, RBI through its supervisory teams has advised REs to refund such excess interest and other charges to customers. REs are also being encouraged to use online account transfers in lieu of cheques being issued in a few cases for loan disbursal.

Therefore, in the interest of fairness and transparency, all REs are directed to review their practices regarding the mode of disbursal of loans, application of interest, and other charges and take corrective action, including system-level changes, as may be necessary, to address the issues highlighted above.

The link for the aforesaid Notification is as follows:
Reserve Bank of India – Notifications (rbi.org.in)

16. Issue of Guidance Note on Operational Risk Management and Operational Resilience

On April 30, 2024, RBI vide Notification RBI/2024-25/31 DOR.ORG.REC.21/ 14.10.001/2024-25 issued a “Guidance Note on Operational Risk Management and Operational Resilience” and repealed the “Guidance Note on Management of Operational Risk” dated October 14, 2005.

This Guidance Note shall apply to the following Res;

All Commercial Banks;
All Primary (Urban) Co-operative Banks/State Co-operative Banks/Central Co-operative Banks;
All All-India Financial Institutions (viz., Exim Bank, NABARD, NHB, SIDBI, and NaBFID); and
All Non-Banking Financial Companies including Housing Finance Companies.

In the Notification, RBI has also mentioned the Key changes carried out in this Guidance Note vis-à-vis the repealed Guidance Note given in the Annex.