Amendments in the FEMA, 1999
RBI Updates January 2024
A. Significant Amendments Under the Foreign Exchange (Compounding Proceedings), Rules
On 12th September 2024, the Ministry of Finance notified the Foreign Exchange (Compounding Proceedings) Rules, 2024, and the provisions came into effect On 12th September 2024. The Finance Ministry of India altered the compounding process by introducing the Foreign Exchange (Compounding Proceedings) Rules, 2024, and made significant amendments to the laws, such as raising the monetary maximum for settling disputes by RBI officials, permitting online payments, and so on.
- Vide: RBI/FED/2024-25/78 – A.P. (DIR Series) Circular.No.17/2024-25
- Dated: October 01, 2024
Contravention
Under the Foreign Exchange Management Act (FEMA), 1999, when a person using foreign exchange does not comply with the provisions of “FEMA” he commits a contravention. Contravention means non-compliance of provisions of the act and it includes rules/ regulations/notifications/ orders/ directions/ circulars issued under the act
Compounding
- The term compounding is a voluntary act through which a person admits to such contravention and seeks redressal for the same. The Reserve Bank is empowered to compound any contravention as defined under section 13 of FEMA, 1999 except the contravention under section 3(a).
- Therefore, under this process, a person committing a contravention will file an application to the compounding authority (defined under rule 3 of the FEMA rules) voluntarily accepting the contravention, and to be excused, the contravener must pay the penalty assessed by the RBI and will be given the opportunity of personal hearing.
Key Points of the Amendments in the Foreign Exchange (Compounding Proceedings) Rules, 2024:
1. Compounding Authority
The following can be the Compounding Authority of RBI to compound various contraventions under these rules:
- The Director of Enforcement
- An Officer of the Directorate of Enforcement not below the rank of Deputy Director or Deputy Legal Adviser.
- An Officer of the Reserve Bank not below the rank of the Assistant General Manager.
2. Compounding Authorities of the Reserve Bank to compound various contraventions:
Where the amount involved in contravention (other than a contravention of clause (a) of section 3):
- Does not exceed Rupees 60 lakh – Officer not below the rank of Assistant General Manager of RBI.
- Does not exceed Rupees 2 and a half crore – Officer not below the rank of Deputy General Manager of RBI.
- Does not exceed Rupees 5 crore – Officer not below the rank of General Manager of RBI.
- Above Rupees 5 crore – Officer not below the rank of Chief General Manager of RBI.
3. Compounding Authorities of the Reserve Bank to compound various contraventions:
Where the amount involved in contravention is covered under clause (a) of section 3:
- Rupees 5 lakh or below– Deputy Director of the Directorate of Enforcement
- More than Rupees 5 lakh but less than Rupees 10 lakh– Additional Director of the Directorate of Enforcement
- More than Rupees 10 lakh but less than Rupees 1 crore– Special Director of the Directorate of Enforcement
- More than Rupees 50 lakh but less than Rupees 1 crore– Special Director along with Deputy Legal Adviser of the Directorate of Enforcement
- More than Rupees 1 crore – Director of Enforcement along with Special Director of the Directorate of Enforcement
Contravention within 3 Years
The above matrix shall not apply to a contravention committed by any person within a period of three years from the date on which a similar contravention committed by him was compounded under these rules.
Second or Subsequent Contravention
Any second or subsequent contravention committed after the expiry of a period of three years from the date on which the contravention was previously compounded shall be deemed to be a first contravention.
4. Contraventions not to be compounded in certain cases (Exceptions to Compounding)
These are situations when the contraventions cannot be compounded:
- Where the amount involved is not quantifiable.
- where the provisions of section 37A of the Act are applicable; or
- Where the Directorate of Enforcement is of the view that the proceeding relates to a serious contravention suspected of money laundering, terror financing, or affecting the sovereignty and integrity of the nation. (In such cases the matter has to be referred to the competent Adjudicating Authority for formal adjudication as provided in section 13 of the Act).
- where the Adjudicating Authority has already passed an order imposing a penalty under section 13 of the Act. (This is to do away with the problem of duplicity of prosecution and ensures that court determinations are conclusive)
- Where the compounding authority believes the contravention involved requires further investigation by the Directorate of Enforcement to ascertain the amount of contravention. (This helps in better analysis of the complex cases)
5. Application Fees For Filing The Application For Compounding of Contravention
The fees for filing the application forms under Rules 4 and 5 have also been enhanced from Rs. 5000 Rs. to Rs. 10000 + GST by way of demand draft, National Electronic Fund Transfer (NEFT), or other permissible electronic or online modes of payment, in favor of the compounding authority.
6. Changes In Payment Methods
The prior norm was that the payment was to be made by demand draft in favor of the compounding authority. On the compounding order, the payment period was set at fifteen days.
The new rule expands the payment options still more while keeping the same fifteen-day payment period intact, however, it permits payment to be made not only by demand draft but through National Electronic Fund Transfer (NEFT), Real Time Gross Transfer (RTGS) and any other electronic or on-line mode of payment as per the approved methods by Bank.
7. Discontinuation of adjudication
In case any contravention is compounded before the adjudication of such contravention, no inquiry will be initiated or continued.
8. Continuation of pending proceedings
Any compounding application pending, on 12-9-2024, will be governed by the provisions of Foreign Exchange (Compounding Proceedings) Rules, 2000. The modified rules shall not be applied retrospectively, i.e. pending cases shall be governed by the old rules.
9. Compounding Amount
- The penalty for contraventions can be up to three times the amount involved in the contravention, or ₹2 lakhs if the amount cannot be quantified.
- A systematic matrix for computing the compounding amount based on the nature of the contravention is provided, including both fixed and variable components.
10. Order Issuance and Payment
- The compounding authority must issue the order within 180 days from the application date after conducting a personal hearing if requested.
- The order will detail the contraventions and the specified compounding amount
- The compounding amount specified must be paid within 15 days of the order issuance.
- Payments can be made via a demand draft or electronic transfer methods (NEFT/RTGS).
- Failure to pay the compounding amount within the stipulated time will result in the application being considered void, and the original contravention provisions will apply.
- A certificate will be issued upon successful payment confirming the compounding.
11. Superseded Circulars
- The new circular supersedes multiple earlier A.P. (DIR Series) circulars.
- The Compounding Rules, 2024 supersede the earlier Compounding Rules, 2000, and various associated circulars which provided previous guidelines for compounding under FEMA.
12. Guidance Note on Computation Matrix
Payment of the amount for which contravention is compounded.
- For calculating the compounding amount in respect of reporting contraventions under para I.1 of the above matrix, the period of contravention may be considered proportionately {(approx. rounded off to next higher month ÷ 12) X amount for 1 year}. The total no. of days does not exclude Sundays/holidays.
- In case of failure to pay the sum compounded within the time specified in the compounding order and Compounding Rules, 2024, it shall be deemed that the contravener had never made an application for compounding of any contravention under these Rules.
- On realization of the sum for which contravention is compounded, a certificate in this regard shall be issued by the Reserve Bank subject to the specified conditions, if any, in the order.
The link to the aforesaid Circular is as follows:
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/78APDIR01102024FEF1F4D3296446078986E87F12B397A3.PDF
B. Extension of Interest Equalization Scheme (IES) on Pre and Post-Shipment Rupee Export Credit
- Vide: RBI/FED/2024-25/78 – A.P. (DIR Series) Circular.No.17/2024-25
- Dated: October 01, 2024
1. Extension of the IES:
- The Interest Equalization Scheme (IES) on Pre and Post Shipment Rupee Export Credit is extended for three months until December 31, 2024.
- This extension is based on Trade Notice No.18/2024-2025 issued by the Government of India.
2. Limit on Fiscal Benefits:
- Fiscal benefits for each MSME are capped at ₹50 lakhs for the Financial Year 2024-25 up to December 31, 2024.
- MSME exporter manufacturers who have previously claimed ₹50 lakhs in benefits will be ineligible for further benefits in this extended period.
3. Conditions Unchanged:
- Other existing terms and conditions of the scheme remain unchanged despite the extension.
- The scheme continues to apply to all scheduled banks, excluding certain cooperatives.
The link to the aforesaid Circular is as follows:
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT80FF664C5E72AA4BCCAEC9976B9FF1DC8D.PDF
C. Submission of information to Credit Information Companies (CICs) by ARCs
- Vide: RBI/2024-25/82 DoR.FIN.REC.No.46/26.03.001/2024-25
- Dated: October 10, 2024
1. Mandate for ARCs Membership:
- All Asset Reconstruction Companies (ARCs) must become members of all Credit Information Companies (CICs).
- This change aligns ARC reporting requirements with those for banks and Non-Banking Financial Companies (NBFCs).
2. Data Submission Guidelines:
- ARCs are required to update information to CICs on a fortnightly basis or as agreed.
- Timely submission is crucial to maintain accurate credit histories after loan transfers.
3. Best Practices Implementation:
- ARCs should adopt standard operating procedures for data management and customer grievance redressal.
- Prominent focus on ensuring complete and timely updates of repayment information is necessary.
4. Compliance Timeline:
- ARCs must implement these guidelines by January 1, 2025.
- Monitoring deviations from compliance is mandatory for periodic reporting to the Board.
The link to the aforesaid Circular is as follows:
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT82D77886396CE0430A81D969BFCFF36677.PDF
D. Submission of information to Credit Information Companies (CICs) by ARCs
- Vide: RBI/2024-25/82 DoR.FIN.REC.No.46/26.03.001/2024-25
- Dated: October 10, 2024
1. Overview of Access Criteria:
- The Reserve Bank of India (RBI) has issued new Directions for access criteria to the Negotiated Dealing System-Order Matching (NDS-OM) electronic trading platform.
- This update broadens direct access to various regulated entities in the Government Securities market.
2. Effective Date:
- The new Directions come into effect immediately from October 18, 2024.
- Prior circulars regarding access criteria are now withdrawn and replaced by these new Directions.
3. Eligible Entities for Direct Access:
- Any person/entity eligible to invest in Government securities in terms of the applicable rules/ guidelines issued by the Government of India / State Governments / the Reserve Bank, as amended from time to time shall be eligible to access NDS-OM either through direct access or through indirect access.
- Banks, standalone primary dealers, and non-banking financial companies are among those eligible for direct access.
- Other entities include mutual funds, provident funds, pension funds, and regulated market infrastructure institutions.
4. Direct vs. Indirect Access:
- Direct access allows entities to execute and report transactions on NDS-OM independently.
- Indirect access involves transactions facilitated through entities with direct access, responsible for settlement.
5. Requirements for Direct Access:
- Entities must maintain an SGL account with the RBI and a current account with a designated settlement bank and Membership in the securities settlement segment of the Clearing Corporation of India Limited is also required.
6. Application Process:
- Eligible entities can apply for direct access via a specified format addressed to the RBI’s Financial Markets Regulation Department. Alternatively, seek direct access through the procedure stipulated under Master Directions on Access Criteria for Payment Systems.
7. Granting of Access:
- The RBI will review applications and may request additional information or clarifications as needed.
- Direct access will be granted subject to fulfillment of eligibility criteria and any additional terms set by the RBI.
8. Purpose of New Directions:
- These Directions aim to enhance participation and efficiency in the Government Securities market.
- By streamlining access processes, the RBI seeks to adapt to evolving market dynamics and promote financial stability.
9. Direct Access Restrictions:
- Entities violating Reserve Bank provisions may face access termination.
- Final decisions by the Reserve Bank on access are non-negotiable.
10. Eligibility for Indirect Access:
- Non-eligible direct access entities can seek indirect access to NDS-OM.
- Indirect access involves working with an entity that holds direct access.
11. SGL and Constituent Accounts:
- Eligible entities can choose between direct and indirect access options.
- Maintenance of SGL and a constituent account allows for flexible access.
The link to the aforesaid Circular is as follows:
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/124MD825F9F7127044B6F9BD2BDAA7C96D4B9.PDF
E. Designation of one organization under Section 35(1) (a) and 2(1) (m) of the Unlawful Activities (Prevention) Act, 1967, and its listing in the First Schedule of the Act- Reg
- Vide: RBI/2024-25/84 DOR.AML.REC.48/14.06.001/2024-25
- Dated: October 19, 2024
The Gazette notification dated October 10, 2024, of the MHA in respect of one organization that has been declared as a ‘Terrorist Organisation’ and has been listed in Schedule I of the UAPA 1967, under Section 35 (1) (a) and 2(1) (m) of UAPA 1967.
The organization “Hizb-Ut-Tahrir (HuT)’ and all its manifestations and front organizations” have been included in Schedule I of the UAPA.
Implications for Regulated Entities:
- Regulated Entities (REs) are required to ensure compliance with the new listing and mandates.
- REs must also monitor any future amendments to the UAPA for compliance.
The link to the aforesaid Circular is as follows:
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT84C2136375F75045ABBBF01CADB0CE81A5.PDF
F. Directions for Central Counterparties (CCPs)
- Vide: RBI/2024-25/84 DOR.AML.REC.48/14.06.001/2024-25
- Dated: October 19, 2024
Central Counterparty” (CCP) means a system provider, who by way of novation interposes between system participants in the transactions admitted for settlement, thereby becoming the buyer to every seller and the seller to every buyer, for the purpose of effecting settlement of their transactions.
1. Introduction to Directions for CCPs:
- The directions govern the operational framework for Central Counterparties (CCPs) in India.
- These directions provide a review and update on the previously established guidelines.
2. Applicability of the Directions:
- The directions apply to domestic CCPs recognized under the Payment and Settlement Systems Act, 2007.
- Foreign CCPs seeking operation recognition in India must comply with these provisions.
3. Net Worth Requirements for CCPs:
- Applicants must have a minimum net worth of ₹300 crore for authorisation, subject to RBI review.
- CCPs cannot distribute profits until the stipulated net worth level is achieved.
4. Governance Structure:
- Each CCP’s Board must consist of a diverse membership, including independent and nominee directors.
- The Board’s composition is designed to balance oversight and stakeholder representation.
5. Roles and Responsibilities of the Board:
- The Board must establish strategic objectives and monitor senior management performance.
- Oversight of risk management and compliance with supervisory requirements is mandatory.
6. Director Appointment Conditions:
- Directors are appointed based on ‘fit and proper’ criteria recommended by the Nomination and Remuneration Committee.
- All directors, including the Chairperson, must meet eligibility standards set by the RBI.
7. Chairperson’s Role and Appointment:
- The Chairperson must be an Indian citizen with a term not exceeding three years, subject to performance review.
- Approval of the Chairperson’s appointment requires compliance with RBI’s fit and proper scrutiny.
8. Term Limits for Directors:
- Directors can serve a maximum of two consecutive terms or until the age of 70, whichever comes first.
- Post-termination, a cooling-off period of three years applies before reappointment.
9. Conclusion:
- The new directions enhance governance and operational integrity for CCPs in India.
- Compliance ensures a stabilized financial environment and fosters public confidence.
10. Director Appointment Process:
- Directors must inform the RBI within 15 days of appointment, including profiles and compliance declarations.
- The authorized CCP must disclose any Board changes to the RBI within the specified timeline.
11. Managing Director Qualifications:
- The Managing Director must be an Indian citizen and meet criteria set by the Companies Act and RBI.
- Their term is capped at five years, extendable only upon satisfactory review and RBI’s approval.
12. Reappointment Procedures:
- Reappointment of Managing Directors requires a fresh selection process.
- The CCP must initiate successor identification well in advance of term completion.
13. Senior Management Responsibilities:
- Senior management is responsible for aligning activities with Board objectives and ensuring compliance.
- They must regularly review internal controls and allocate resources efficiently for risk management.
14. Fit and Proper Criteria for Directors:
- Directors must demonstrate fairness, integrity, and a clean legal History.
- RBI’s decision on a Director’s fitness is final, especially concerning serious disqualifications.
15. Nomination and Remuneration Committee:
- The committee consists of primarily independent directors tasked with Director qualifications and performance evaluations.
- It ensures remuneration policies are appealing enough to attract quality leadership.
16. Risk Management Committee Framework:
- Chaired by an independent director, this committee oversees compliance with risk management policies.
- They are required to meet regularly and advise on significant changes affecting risk management procedures.
17. Audit Committee Functions:
- The committee must consist of a majority of independent directors and review financial statements and auditor performance.
- It handles all matters related to internal controls and compliance with legal requirements.
18. Role of Audit Committee:
- The Audit Committee oversees financial statement reviews and discussions with auditors and management.
- It has the authority to investigate and obtain external advice on specified matters.
19. Functions of Technical Committee:
- Every authorised CCP must establish a Technical Committee chaired by an Independent Director knowledgeable in IT.
- The committee formulates and annually reviews an IT policy aligned with the CCP’s business strategy.
20. Responsibilities of Regulatory Compliance Committee:
- This committee ensures compliance with regulatory directives and monitors recommendations from inspections.
- It is chaired by an Independent Director and operates based on a written terms of reference.
The link to the aforesaid Circular is as follows:
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT84C2136375F75045ABBBF01CADB0CE81A5.PDF
IMPORTANT PRESS RELEASES
A. Lending and deposit rates of scheduled commercial banks (SCBs)
Data on lending and deposit rates of scheduled commercial banks (SCBs) (excluding regional rural banks and small finance banks) received during the month of October 2024 are set out below.
Lending Rates:
- The weighted average lending rate (WALR) on fresh rupee loans of SCBs stood at 9.37 per cent in September 2024 (9.41 per cent in August 2024).
- The WALR on outstanding rupee loans of SCBs was placed at 9.90 per cent in September 2024 (9.91 per cent in August 2024).1
- 1-Year median Marginal Cost of fund-based Lending Rate (MCLR) of SCBs remained unchanged at 8.95 per cent in October 2024 from that of September 2024.
Deposit Rates:
- The weighted average domestic term deposit rate (WADTDR) on fresh rupee term deposits of SCBs stood at 6.54 per cent in September 2024 as compared to 6.46 per cent in August 2024.
- The weighted average domestic term deposit rate (WADTDR) on outstanding rupee term deposits of SCBs was placed at 6.95 per cent in September 2024 (6.93 per cent in August 2024).
The link to the aforesaid press release is as follows:
https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR14113A2C67FBBD8F4FCCA9E564EE69998ACB.PDF
B. Monthly Data on India’s International Trade in Services for the Month of September 2024
The link to the aforesaid press release is as follows:
https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR140908BA34552A9048C3BA538E13E707A2D4.PDF
C. The Central Government has re-appointed Shri M. Rajeshwar Rao as Deputy Governor, the Reserve Bank of India for a period of one year with effect from October 09, 2024, or until further orders, whichever is earlier.
D. The Reserve Bank of India (RBI) has appointed Shri Aviral Jain as Executive Director (ED) with effect from October 01, 2024.
E. Seven NBFCs surrender their Certificate of Registration to RBI
F. RBI cancels Certificate of Registration of Two NBFCs
G. Buyback of Government of India Dated Securities
The link to the aforesaid press release is as follows:
https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR1321806694EF70C6470A9B118DD097ECE4A3.PDF
IMPORTANT PRESS RELEASES ON PENALTY LEVIED BY RBI
(CONSIDERED CASES WHERE PENALTY EXCEEDS 5 LAKHS)
A. The Vaijapur Merchants Co-operative Bank Limited, Vaijapur, Maharashtra
Reason:
The bank had:
- made donation to certain entity and offered higher interest rates on deposits (fresh/renewal) than those offered by State Bank of India in non-adherence to directions issued under SAF.
- failed to put in place a robust software to throw alerts as part of effective identification and reporting of suspicious transactions.
Amount
₹7.50 lakh (Rupees Seven lakh fifty thousand only)
The link to the aforesaid press release is as follows:
https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR1388E46F628962B440D99B2AA9CF5E005F00.PDF
B. SG Finserve Limited (formerly known as M/s Moongipa Securities Limited) (The Company)
Reason:
- The financial statements of the company for FY 2022-23 revealed inter alia, non-compliance with the specific conditions of the CoR.
- The company had accepted public funds and extended loans in violation of the specific conditions of the CoR issued to it.
Amount
₹28.30 lakh (Rupee Twenty-Eight Lakh Thirty Thousand only)
The link to the aforesaid press release is as follows:
https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR12841660872BBB824A7A8BEA9619B7A7CCA8.PDF
C. Arunachal Pradesh Rural Bank
Reason:
The bank had:
- failed to classify certain loan accounts as non-performing assets (NPA) resulting into divergence in asset classification of loan accounts; and
- allotted multiple Unique Customer Identification Code (UCIC) to its individual customers.
Amount
₹14.00 lakh (Rupees Fourteen Lakh only)
The link to the aforesaid press release is as follows:
https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR12886DFA5C38ABD84A7CA12CA9AFF32171E
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