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Finance and Banking current affairs for RBI GRADE B

(January to June 2018)
RBI raises FPI limit in G-Secs, SDLs Reserve Bank of India (RBI) has raised the limits for
investment by foreign portfolio investors (FPIs) for the January-March 2018 quarter by `6,400
crore in Central Government Securities (G-Secs) and `5,800 crore in State Development Loans
(SDLs). W.e.f. January 1, 2018, the revised investment limit for FPIs in G-Secs will be `2,56,400
crore.

IRDAI guidelines for insurance firms to set up offices in financial service SEZs The
Insurance Regulatory and Development Authority of India (IRDAI) has cleared the way for
setting up of IFSC (International Financial Services Centre) Insurance Offices (IIOs). With this,
it has put in place the process of registration and operation of insurers and re-insurers in IFSC
Special Economic Zones, in alignment with the objectives of IFSC-SEZ. As per the guidelines,
no person or entity shall commence or undertake insurance or reinsurance business from an IFSC
without obtaining prior registration as an IIO from the Authority. The registered IIO may be
permitted to transact direct insurance business and reinsurance business within the IFSC, from
other SEZs and from outside India. The applicant should demonstrate a minimum assigned
capital or `10 crores.

Centre unveils Electoral Bonds scheme: Recently, the centre unveiled the Electoral Bonds
scheme, which seeks to ensure the flow of clean money to political parties without revealing the
donors' name. Electoral bonds will be an interest-free, bearer instrument (like a Promissory
Note). A citizen of India or a body incorporated in India will be eligible to purchase the bond
from specified branches of the State Bank of India (SBI), for any value in multiples of `1,000;
`10,000, `1 lakh; ` 10 lakhs, and `1 crore. Since the identity of the donor and the donee will be
kept anonymous, people will be free to donate to any political party of their choice. To benefit
from this scheme, the parties should be registered with the Election Commission and should have
bagged not less than 1% of the votes polled in the most recent general election to the Lok Sabha
or a State Legislative Assembly. The parties can encash these bonds only through a designated
bank account with an authorized bank; for which, each party has to submit details of one
designated account to the Election Commission. Electoral bonds under the scheme will be
available for purchase for ten days each in the months of January-April, July and October.

SEBI prescribes Total Return Index to measure fund performance: In order to help
investors to better compare the performance of mutual fund (MF) schemes, the Securities and
Exchange Board of India (SEBI) has asked MF houses to adopt Total Return Index (TRI) as a
benchmark, in place of the present Price Return variant of an Index (PRI), which only captures
capital gains of the index constituent. TRI considers all dividends and interest payments that are
generated from the basket of constituents that make up the index, in addition to the capital gains.

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IBBI notifies norms for grievance handling The Insolvency and Bankruptcy Board of India
(IBBI) that implements the Insolvency and Bankruptcy Code (IBC), has notified revised
regulations for grievance handling procedure. Accordingly, the filing fee will be refunded to the
stakeholder if the complaint is found to be not “frivolous or malicious”. The regulations will be
applicable to all stakeholders, including creditors, debtors and service providers. Depending on
the complaint, the IBBI can order an investigation or issue a show-cause notice to the entities
concerned.

Definition of MSMEs revised: The Government has changed the criteria to define Micro, Small
and Medium Enterprises (MSMEs), to sync it with the Goods and Services tax (GST) regime.
The current classification was based on investment in plant and machinery for goods companies
and in equipment for services firms. Now, MSMEs will be classified on the basis of their annual
turnover. Accordingly, micro enterprises would now be those with annual turnover of up to `5
crores. Those having annual turnover of more than `5 crores to `75 crores would be termed small
enterprises. Companies with annual turnover of more than `75 crores and up to `250 crores
would be classified as medium enterprises.

Regulator tweaks insolvency rules to raise bid value: The Insolvency and Bankruptcy Board
of India (IBBI) has amended rules to prevent low bidding for stressed assets being restructured
through the National Company Law Tribunal (NCLT). The changes have come amid differences
between lenders and bidders on the proper valuation of a stressed company. IBBI has made it
mandatory for a resolution professional to appoint two registered valuers to determine both, the
fair value as well as the liquidation value, of a stressed company, instead of assessing only the
liquidation value. Furthermore, the fair value and liquidation value will be kept secret from the
bidders to ensure more transparency in bidding. In order to prevent low bids, IBBI has also
shortened the period for resolution professionals to present a resolution plan to NCLT to prevent
low bids.

RBI warns of fake website Reserve Bank of India (RBI) has revealed that it has come across a
fake website www.indiareserveban.org created by some unknown person(s) with a layout similar
to the original RBI website and containing a provision for “Bank verification with online
account-holders’. RBI has clarified and cautioned the public, that it does not hold any accounts
for individuals and never asks for personal information such as bank account details, passwords,
etc.

SEBI to provide flexibility to bourses for IRFs' daily settlement value calculation: In
cognizance of the views of all stakeholders, Securities and Exchange Board of India (SEBI) has
provided flexibility to stock exchanges with regards to the computation methodology of daily
contract settlement value of Interest Rate Futures (IRFs). The circular has been issued to protect
the interests of investors in securities and promote the development of, and to regulate the
securities market.

RBI withdraws SDR, S4A; gives 180-days for NPA resolution: The RBI has precluded
chances of banks reporting divergent asset classification norms on the same account by stating
that, if in a consortium a bank faced default, others must start taking action to recover the dues.
The revised framework on resolving stressed accounts has obliterated many existing guidelines

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while simplifying them under a single code. The extant instructions on resolution of stressed
assets such as Framework for Revitalizing Distressed Assets, Corporate Debt Restructuring
(CDR) Scheme, Flexible Structuring of Existing Long-Term Project Loans, Strategic Debt
Restructuring (SDR), change in ownership outside SDR, Scheme for Sustainable Structuring of
Stressed Assets (S4A) and Joint Lenders’ Forum (JLF-as an institutional mechanism) stand
withdrawn with immediate effect. The new guidelines will not impact the existing loan
resolution cases. The said transition arrangement shall not be available for borrower entities for
which specific instructions have already been issued by RBI to the banks for reference under the
Insolvency and Bankruptcy Code (IBC).

Relaxed NPA norms for MSME loans: The RBI has eased its Non-Performing Asset (NPA)
recognition criterion for banks and NBFCs for some of their exposure to Micro, Small and
Medium Enterprises (MSMEs). Accordingly, certain exposures shall continue to be classified as
a standard asset even if the dues are paid within 180 days from their respective original due
dates, instead of the present 90-day and 120-days delinquency norms for banks and NBFCs
respectively. However, for this, three conditions need to be satisfied: the MSMEs must be GST-
registered; the aggregate exposure, including non-fund based facilities, should not exceed `25
crore on January 31, 2018; and the borrower account should be standard on August 31, 2017. It
would apply to loans overdue as on September 1, 2017, and for payment from the borrower due
between September 1, 2017 and January 31, 2018. A provision of 5% will have to be made by
the banks and NBFCs against these exposures.

RBI raises currency derivative trading limit: RBI has boosted the currency futures trading by
raising the position limit for trading in currency derivatives on stock exchanges, for both resident
and non-resident Indians, to $100 million across all currency pairs involving the rupee. Earlier,
the limit was $15 million per exchange for dollar-rupee pair - the most active contract in the
segment.

RBI announces Ombudsman scheme for NBFCs: RBI has brought Non-Banking Financial
Companies (NBFC) under an Ombudsman Scheme, by which an aggrieved person can file a
complaint against an NBFC registered with RBI under Section 45-IA of the RBI Act, 1934. The
move is expected to provide cost-free and expeditious complaint redressal mechanism for
deficiency in NBFCs' services. For now, the scheme will cover deposit-taking NBFCs and will
later include those with an asset size of `1 billion and above with a customer interface. The
offices of the NBFC ombudsmen will function at four metro centres -- Chennai, Kolkata,
Mumbai and New Delhi.

"If the NBFC does not reply within a period of one month after receipt of the complaint, or the
NBFC rejects the complaint, or if the complainant is not satisfied with the reply given by the
NBFC, the complainant can file the complaint with the NBFC Ombudsman under whose
jurisdiction the branch/ registered office of the NBFC falls.

The Ombudsman may, also award compensation not exceeding one hundred thousand rupees to
the complainant, taking into account the loss of time, expenses incurred, harassment and mental
anguish suffered by the complainant.

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RBI sets up panel on frauds The RBI has set up an expert panel to look into factors leading to
an increasing incidence of frauds in banks, and measures needed to curb and prevent the same.
The panel will also analyze the reasons for high divergence in asset classification and
provisioning by banks vis-a-vis RBI’s supervisory assessment, and the steps needed to prevent it.
Further, it will look into the role and effectiveness of various bank audits in mitigating such
divergence and frauds.

IRDAI to insurers: Transfer unclaimed money to senior citizens’ welfare fund: The
Insurance Regulatory and Development Authority of India (IRDAI) has asked insurers to transfer
unclaimed amounts of policy holders for a period of more than 10 years as on September, 30,
2017, to the Senior Citizens’ Welfare Fund (SCWF). The transfer should be made on or before
March 1, 2018.

Government sets up fintech panel for easier norms To make regulations more flexible and
promote financial inclusion, the Finance Ministry has set up an 8-member panel to study various
issues related to fintech.Headed by the Economic Affairs Secretary, the panel will suggest ways
to enhance entrepreneurship in the fintech space, where India has distinctive comparative
strengths visà-vis other emerging economies.

RBI’s first bi-monthly monetary policy statement, 2018-19: The first bi-monthly monetary
policy 2018-19 was held on April 4 and April 5, 2018. The key highlights are: Ÿ Benchmark
repo rate unchanged at 6%. Reverse repo stands at 5.75% and bank rate at 6.25% Ÿ Exports to
get boost from improvement in global demand.

IBBI amendments – Insolvency resolutions get a boost The Insolvency and Bankruptcy Board
of India has amended the IBBI (Insolvency Resolution Process for Corporate Persons)
Regulations, 2018 to fix a time frame for identifying resolution applicants. The amended
regulation makes it mandatory to identify the applicants by the 105th day. This shall enable the
resolution process to be completed in a timely manner within the stipulated 180 days.

FBIL takes over from FIMMDA for valuation of govt. securities Reserve Bank of India has
appointed the Financial Benchmark India (FBIL) for valuation of portfolios of government
securities, which earlier used to be done by FIMMDA. As per RBI directive, FIMMDA has
ceased to publish prices/yield of government securities from March 31, 2018.

Financial Benchmark India (FBIL): Financial Benchmark India Private Ltd (FBIL) was jointly
promoted by Fixed Income Money Market & Derivative Association of India (FIMMDA),
Foreign Exchange Dealers’ Association of India (FEDAI) and Indian Banks’ ‘Association (IBA).
It was incorporated on 9th December 2014 under the Companies Act 2013. It was recognised by
Reserve bank of India as an independent Benchmark administrator on 2nd July 2015. The main
object of the company is to act as the administrators of the Indian interest rate and foreign
exchange benchmarks and to introduce and implement policies and procedures to handle the
benchmarks. Its headquarter is located at Mumbai.

RBI tightens private sector lending norms for MNC banks The Reserve Bank of India (RBI)
has tightened its priority sector lending (PSL) norms for foreign banks having more than 20

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branches. These banks have been directed to mandatorily create sub-targets to ensure they lend a
portion of their loans to small and marginal farmers and micro-enterprises from April 2018. The
PSL norms also mandate foreign banks to lend 40% of their total loan book to priority sector,
such as agriculture, rural infra, and MSMEs, among others, from April 2020.

RBI disallows hedging of price risk in gold, gems and precious stones RBI has revised its
directions on ‘Hedging of Commodity Price Risk and Freight Risk in Overseas Markets’. It has
excluded gold, gems and precious stones from the list of commodities whose price risk can be
hedged.

RBI obliterates LoUs: RBI has disallowed banks from issuing letters of undertaking (LoUs) or
guarantees for trade credit for imports in India, except if they meet the apex bank's conditions.

RBI wants all payment data in India: RBI has asked all payment system operators in India, to
move to a system of storing data within India. This move will accord unfettered access to all
payment data for supervisory purposes. The operators have been given six months to make this
change; compliance of the same will be reported to RBI latest by October 15, 2018.

RBI to banks: Stop services to virtual currency dealers RBI has directed all regulated entities,
including banks, not to provide any services to businesses dealing in virtual currencies like
bitcoins. Entities already providing such services have been given three months to stop their
activities. This move is to protect consumer interest and check money laundering.

ICAI hails the Ind AS 115: Ind AS 115, the new accounting standard for revenue recognition to
become effective, has been hailed by the Institute of Chartered Accounts of India (ICAI) for
bringing in a comprehensive and robust framework for recognition, measurement and disclosure
of revenue. Ind AS 115 aims to establish the principles for entities to apply, for reporting
information to users of financial statements about the nature, amount, timing and uncertainty of
revenue and cash flows arising from a contract with a customer.

Club investment limits of foreign govt, related entities: SEBI has announced that two or more
foreign government(s) and its related entities from the same jurisdiction, will be considered a
single FPI for the investment cap of 10% in a listed Indian company. The move comes because
various stakeholders have been seeking guidance on the issue.

RBI allows banks to provide for MTM losses over 4 quarters RBI has allowed banks the
option to spread provisioning for mark to market (MTM) losses made in Q3 and Q4 on
investments held in the available-for-sale (AFS) and held-for-trading (HFT) category equally
over four quarters. This has been done in view of the systemic impact of the sharp rise in G-Sec
yields. RBI has also advised banks to create an Investment Fluctuation Reserve (IFR) with effect
from the current fiscal, to protect against a possible rise in yields. An amount not less than the
lower of the net profit on sale of investments during the year or the net profit for the year less
mandatory appropriations, should be transferred to the IFR, until it is at least 2% of the HFT and
AFS portfolio. Where feasible, it should be achieved in a period of three years.

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No time bar for FPI investment in bonds: RBI In an attempt to keep foreign investors invested
in the local bond market, the RBI has allowed them to invest in any maturity of their choice. This
obliterates the earlier restrictive clause that required them to invest in paper that had at least three
years to maturity. In case of corporate bonds, the minimum residual maturity has been relaxed
from three years to one year.

Cap on FPI investment in gilts raised: RBI has raised the cap on aggregate FPI investments in
any gilt from 20% to 30%. There would be no auction for FPI limits, but utilization limits shall
be monitored online after June 1. However, RBI has also stated that an FPI or its affiliate should
not invest more than 50% in any corporate bond issue, and a single corporate should not
constitute more than 20% of the portfolio.

RBI prescribes Net Stable Funding Ratio for banks Reserve Bank of India (RBI) has released
final guidelines prescribing 100 percent Net Stable Funding Ratio (NSFR), a long-term liquidity
measurement included in the Basel III liquidity standards, to ensure banks maintain adequate
liquid resources for more resilience. The NSFR would be supplemented by supervisory
assessment of the stable funding and liquidity risk profile of a bank.

PFRDA okays partial NPS fund withdrawal Pension fund regulator PFRDA has allowed
NPS subscribers to partially withdraw funds from their accounts for pursuing higher education or
setting up/acquire new business. The cap on equity investment in ‘active choice’ category has
also been increased from 50% to 75%, for private sector subscribers of NPS. Further, the
PFRDA board has approved a proposal on changing the investment grade rating from AA to A
for corporate bonds and a proposal on adoption of Common Stewardship Code, as a measure of
good corporate governance.

FPIs can invest in T-bills issued by Central Govt. Foreign Portfolio Investors (FPIs) have now
been allowed by the Reserve Bank of India (RBI) to invest in treasury bills (T-bills) issued by
the Central Government. However, investment in securities with residual maturity below one
year by an FPI under either category (G-secs, SDLs or corporate bonds) cannot exceed 20% of
the total investment of that FPI in that category.

RBI modifies norms for establishing IFSC banking units RBI has modified the norms for
establishing IFSC banking units. Accordingly, now, the parent bank will be required to provide
and constantly maintain a minimum capital of $20 million to its IBU. Stakeholders have
requested RBI to consider minimum prescribed regulatory capital at the parent level rather than
at the IBU level. However, the minimum prescribed regulatory capital, including for the
exposures of the IBU, will have to be maintained on an on-going basis at the parent level. Also,
the parent bank will be required to provide a Letter of Comfort for extending financial assistance
in the form of capital/liquidity support to IBU.

New Appointments:
Mr. Dilip Asbe Appointed as MD-CEO of National Payments Corporation of India (NPCI)

Ms. Usha Ananthasubramanian Elected as Chairman of Indian Banks' Association (IBA)

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Mr. Debashish Mukherjee Appointed as Executive Director of Canara Bank

Mr. Murali Ramaswami Appointed as Executive Director of Vijaya Bank

Mr. Bhanu Pratap Sharma Appointed as Chairman of the Banks Board Bureau (BBB)

Mr. Subhash Chandra Khuntia Appointed as Chairman of IRDAI

Alliance:
Union Bank of India with Receivable Exchange of India Ltd. (RXIL) for discounting invoice of
MSMEs on digital platform.

Bank of Maharashtra with AVIVA to distribute Aviva's products.

Bank of Baroda with Invoicemart to discount invoices for MSMEs.

Fino Payments Bank: Rajasthan Government as its corporate business correspondent to give
banking services to people in the state.

SohanLal Commodity Management (SLCM) with HDFC Bank and IndusInd Bank to help
improve farmers’ access to post-harvest credits at affordable interest rates. Also, to provide easy
access to scientific storage facilities for a fair price discovery of their produce in the market.

Export-Import Bank of India (Exim) with United Nations Development Programme (UNDP) for
financing a project on “Capacity Building of MSMEs in North East India for Export
Competiveness".

NABARD with Solar Energy Corporation of India (SECI) to install rooftop solar systems on
NABARD's premises across the country.

Indian Bank with PFMS (Public Financial Management System) aimed at benefiting government
agencies for taking up payment service.

Bank of Baroda with SIDBI Working together to strengthen credit delivery system and facilitate
smooth, hassle-free flow of credit to the MSMEs and startups.

State Bank of India with Chennai Metro Launched SBI Pay app exclusively for the commuters of
Chennai metro.

The New Development Bank and International Solar Alliance to promote solar energy across the
world

National e-Repository Limited (NERL) with Bank of Baroda for managing electronic Negotiable
Warehouse Receipts (e-NWRs)

Lakshmi Vilas Bank with Fisdom for providing online wealth management service.

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IndusInd Bank with Tapzo Providing all-in-one app Store on its Indus Mobile banking App

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Glossary:

Electoral Bonds Electoral Bond is a financial instrument for making donations to political
parties. These are issued by Scheduled Commercial banks upon authorisation from the Central
Government to intending donors, but only against cheque and digital payments (it cannot be
purchased by paying cash). These bonds shall be redeemable in the designated account of a
registered political party within the prescribed time limit from issuance of bond.

Strike Price A strike price, in an option contract, is a prefixed price which gives the option
holder the right to buy/sell the underlying product on a specified future date.

Interest Rate Futures (IRFs) An IRF is a contract between a buyer and a seller, agreeing to the
future delivery of any interest-bearing asset, such as government bonds. The cash-settled IRFs
provide market participants an option to hedge risks arising from fluctuations in interest rates.

Perpetuity: A Perpetuity is a constant cash flow paid (or received) at regular time intervals
forever.

Financial Stability Report (FSR): The FSR reflects the overall assessment on the stability of
India’s financial system and its resilience to risks emanating from global and domestic factors.
Besides, the Report also discusses issues relating to development and regulation of the financial
sector.

Yield to Maturity (YTM): The Yield to maturity (YTM) is the yield promised to the
bondholder on the assumption that the bond will be held to maturity and coupon payments will
be reinvested at the YTM. It is a measure of the return of the bond.

Investment Fluctuation Reserve (IFR) Investment Fluctuation Reserve (IFR) is a reserve to

guard against any possible reversal of the interest rate environment in future due to unexpected
developments. It consists of realized gains from sale of investments in securities. The unrealized
gains on valuation of the investment portfolio is not to be taken to this reserve.

Standard Deviation Standard Deviation is a measure of the spread or dispersion of a set of data.
It is calculated by taking the square root of the variance. The more widely the values are spread
out, the larger the standard deviation.

Net Interest Margin (NIM): Net Interest Margin (NIM) is the Net Interest Income (NII) divided
by average interest earning assets.

Priority Sector Lending (PSL) Priority Sector Lending (PSL) refers to those sectors of the
economy which may not get timely and adequate credit in the absence of this special

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dispensation. It is an important role given by the Reserve Bank of India (RBI) to the banks for
providing a specified portion of the bank lending to few specific sectors like agriculture and
allied activities, micro and small enterprises, poor people for housing, students for education and
other low income groups and weaker sections. This is essentially meant for an all round
development of the economy

Net Stable Funding Ratio (NSFR) The NSFR is defined as the amount of available stable
funding relative to the amount of required stable funding. The NSFR promotes resilience over a
longer-term time horizon by requiring banks to fund their activities with more stable sources of
funding on an ongoing basis.

Net Asset Value (NAV) The value of a mutual fund’s holdings (assets minus liabilities) divided
by the number of shares outstanding.

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