PwC s Banking Insights February 2018

Transcription

1 PwC s Banking Insights February 2018

2 of regulatory changes in February

3 Preface Earlier this month, the Reserve Bank of India (RBI) barred banks from issuing letters of undertaking (LoUs), in light of the recently perpetrated 2 billion USD fraud by one of India s public sector banks. This move by the Regulator is likely to have an impact on trade financing in India and raise credit costs for importers who have relied on LoUs for cheaper overseas credit to pay suppliers. The move also puts companies that have received credit based on LoUs in a spot as they have to now repay their borrowings since there will be no rollover of existing LoUs. The Regulator has also barred lenders from issuing letters of comfort (LoCs) as trade credit for importing goods into India with immediate effect. It has, however, allowed banks to continue to issue letters of credit and bank guarantees. Borrowers will now have to explore alternative instruments like bank guarantees and letters of credit, and, in the long run, foreign funding like external commercial borrowings (ECBs). The Ministry of Finance has also directed all public sector banks to probe all NPAs and NPA accounts amounting to 50 crore INR and above for possible frauds and report all such cases to the Central Bureau of Investigation (CBI). Besides, the ministry had asked banks to monitor loans above 250 crore INR and red flags whenever the original covenants of the loans are violated. This directive could have an unnerving effect on lending by public sector bankers as the priority is now likely to shift to unearthing fraud. RBI Governor Urjit Patel in his recent speech has also stressed on the need for ownership neutrality to ensure a level-playing field in its supervisory enforcement and have enough control to put in place preventive measures to pre-empt frauds. 3 PwC PwC s Banking Insights

4 Preface The Regulator has been getting a lot of heat in light of this fraud. The fact that the three-level scrutiny, adopted for audit of banks in India, failed to unearth this fraud is particularly alarming. Banks concurrent auditors are expected to run daily checks on all transactions. Further, quarterly inspections by statutory auditors and an annual inspection by the Regulator is also expected to be conducted. Considering this, there is an increasing need for a strong audit framework, as well as the need to record off balance sheet exposure items, which were at the centre of the fraud, somewhere within the formal reporting mechanisms. Further, as rightly pointed out by the Regulator, there is a strong link between such corporate frauds and the stressed assets problem that the economy is grappling with. Some common causes of frauds include serious gaps in underwriting standards and liberal cash flow projections at the credit assessment stage. Almost all of these fraud cases get seasoned for 2 to 3 years as NPAs before they are reported as fraud. The revised stressed asset framework is a great move in this direction and will lay down a steady-step approach. This approach is aimed at ensuring early resolution of stressed assets in a transparent and timebound manner so that maximum value could be realised by the lenders while also recognising the potential value of stressed assets, as well as strengthening the credit culture in the economy for both borrowers and banks. This issue covers an impact analysis of key regulations issued in the month of February 2018, including those around the payment of agency commission for small saving schemes, relief to MSME borrowers under the Goods and Service Tax (GST) framework, as well as revised guidelines relating to the participation of a person resident in India and foreign portfolio investors (FPIs) in the Exchange Traded Currency Derivatives (ETCD) market. Our thought leadership on the revised stressed assets framework is also part of this document. 4 PwC PwC s Banking Insights

5 Preface Special article: Resolution of Stressed Assets Revised Framework 1 Circular reference: RBI/ /131 DBR.No.BP BC.101/ / Dated 12 February 2018 Introduction Non-performing assets (NPAs) have become a major challenge for both public and private sector banks in India. In the exuberant milieu that started way back in and continued for three years until the global financial crisis of 2008, large corporations conceived major project proposals in capital-intensive sectors such as power, ports, airports, housing and highway construction. Banks were only too keen to lend, often without sufficient evaluation of risks and returns. Things started worsening with the policy paralysis brought about by the spectrum and coal mining scandals. Applicability: All Scheduled Commercial Banks (Excluding Regional Rural Banks (RRB), All-India Financial Institutions (Exim Bank, NABARD, NHB and SIDBI) Soon, most projects were getting stuck, especially in power and highways. Banks found their loans going sour, which led to the whole situation of NPAs. Initially, the extent of NPA was hidden by ever-greening. It was revealed later as the Reserve Bank of India (RBI) tightened the norms. In the recent past too, Indian banks have been saddled with increasing levels of stressed assets and NPAs. Indian banks gross NPAs stood at 8.40 lakh crore INR as on 30 September The ratio of NPAs was particularly disturbing when it came to public sector banks (PSBs): Gross NPAs (in lakh crore INR) Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Public Sector Banks Private Banks Total PwC PwC s Banking Insights

6 In this context, the RBI and the government are proactively taking steps to resolve NPA challenges in the banking sector. The government has empowered the RBI to chalk out plans for addressing the bad loans problem, with a focus on large stressed accounts that have been classified partly or wholly as non-performing from amongst the top 500 exposures in the banking system, and mandated that a dozen such Stressed assets accounts be taken to the bankruptcy courts (Insolvency and Bankruptcy Code [IBC], 2016). During , while deposit growth of scheduled commercial banks (SCBs) picked up, credit growth remained sluggish, putting pressure on net interest income (NII), particularly of PSBs, and they also continued to show a negative return on assets (RoA). The gross non-performing advances (GNPAs) of the banking sector rose along with the worsening of the banking stability indicator (BSI) between September 2016 and March 2017 due to deterioration in asset quality and profitability. The macro stress test 2 indicates that under the baseline scenario, GNPAs of SCBs may rise from 9.6% in March 2017 (as shown in the chart below) to 10.2% by March Percentage Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 PSBs PVBs FBs All SCBs GNPA to total advances Restructured standard advances to total advances Source: Moneylife.in 2. Financial Stability Report, RBI, June PwC PwC s Banking Insights

7 The RBI also reinforced its supervisory and enforcement frameworks by revising the prompt corrective action (PCA) framework and establishing an Enforcement Department. Once PCA is triggered by the regulator, the bank faces restrictions on spending money on opening branches, recruiting staff and giving increments to employees. Further, the bank can disburse loans only to those companies whose borrowing is above investment grades. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) Act, 2002, was amended in 2016 as it took banks years to recover the assets. Experts have pointed out that the NPA problem has to be tackled before the time a company starts defaulting. This needed risk assessment by the lenders and red-flagging of the early signs of a possible default. Why did the existing schemes fail? The NPA story is not new in India and several steps have been taken by the government on legal, financial and policy-level reforms. Taking note of the existing stressed assets and NPA situation, the RBI introduced a host of schemes and frameworks with the aim of curtailing the growing NPAs. These are tabled as under: Joint Lenders Forum and Corrective Action Plan Strategic Debt Restructuring (SDR) Insolvency and Bankruptcy Code, 2016 Scheme for Sustainable Structuring of Stressed Assets (S4A) Banks would need to constitute a committee called JLF and roll out a CAP comprising rectification, restructuring and recovery of loans. This was introduced with the aim of helping banks to recover their loans by taking control of distressed listed companies. This is the strongest measure taken so far, yet due to lack of operational guidelines and a legal framework, the code too has its fair share of critics. RBI introduced (S4A) for the resolution of bad loans of large projects. This is aimed at strengthening the lenders ability to deal with stressed assets by providing an avenue for reworking the financial structure of entities facing genuine difficulties. January 2014 June 2015 May 2016 June PwC PwC s Banking Insights

8 However, these measures have been riddled with their own set of problems: As NPAs kept on increasing, the RBI rolled out quite a few measures to improve the asset quality of banks. The RBI had strong notions that some of the banks are underreporting their NPAs. Asset classification practices were not as per the set standards and several banks resorted to ever-greening of accounts. Here, banks were postponing bad-loan classification while depicting accounts as performing. To resolve this, during 2015, the RBI had conducted an inspection of selected banks balance sheets at random and released an Asset Quality Review (AQR) report. This report revealed a higher level of asset quality deterioration or NPAs with the inspected banks. As per the review, almost all PSBs had higher NPAs than reported. In the case of private sector banks, the impact was limited to big lenders in the industry. The so-called Joint Lenders Forums (JLFs) mandated that banks adopt measures for early identification to tackle stressed loans, which gave them a jumpstart, especially in large and complex cases of corporate debt, because of differences among creditors on how best to resolve them. As per the JLF framework, at least 75% of creditors by value of the loan and 60% by number of lenders in the JLF were needed to agree to the restructuring plan. Obtaining consensus of creditors was a major bone of contention for the JLF, which in turn reduced the effectiveness of the forum. The Strategic Debt Restructuring (SDR) mechanism introduced soon after was also not lucrative for lenders. While the scheme seemed interesting to begin with, it was soon evident that there were no buyers in cases where it was being invoked. Soon after, the RBI introduced the S4A Scheme. This scheme, however, only covered projects that had already started commercial production. Further, the scheme was also silent about unsecured creditors, who could always approach a court of law and play spoilsport. Ultimately, by being unsecured creditors, they would not get their dues, but they could certainly delay the process; the banks would then lose time, precious for the revival of a company. 8 PwC PwC s Banking Insights

9 The revised framework The RBI has issued various instructions aimed at the resolution of stressed assets in the economy, including the introduction of certain schemes at different points of time. In view of the enactment of the IBC, it has been decided to substitute the existing guidelines with a harmonised and simplified generic framework for the resolution of stressed assets. What s in store for lenders under the revised framework? As per the Framework for Revitalising Distressed Assets in the Economy Guidelines on Joint Lenders Forum (JLF) and Corrective Action Plan (CAP), banks were required to identify incipient stress in the account by creating three sub-categories under the Special Mention Account (SMA), before a loan turned into an NPA, as stated in the table below: Subcategories SMA-0 SMA-1 SMA-2 Basis for classification principal or interest payment or any other amount wholly or partly overdue between 1 30 days days days The revised framework, however, requires banks to identify signs of incipient stress in loan accounts and classify stressed assets as SMAs, immediately on default. Further, banks would also have to incorporate changes in their reporting process to include the following: -- The CRILC Main report will now be sent monthly, as against the quarterly frequency. -- Banks will also need to submit a weekly report on all borrower entities in default with an exposure of 50 million INR and above. The first such weekly report shall be submitted for the week ending 23 February This will ensure early identification and reporting of stressed assets by banks. Formation and implementation of resolution plans (RPs) by lenders -- Under the revised framework, all lenders must put in place board-approved policies for the resolution of stressed assets, including the timelines for resolution. As soon as there is a default in the borrower entity s account with any lender, all lenders singly or jointly shall initiate steps to cure the default. This means that the revised clause eliminates chances of banks interpreting assets. Currently, while one bank classified an account as stressed, or NPA, others continued to show them as standard. This required the RBI auditors to force show them as divergence in NPA reporting. -- RPs framed by banks against defaulting entities shall be deemed to have been implemented only on satisfaction of conditions laid down by the RBI. This involves ensuring that the borrower is no longer in default. In case the RP involves restructuring, banks will also need to ensure that all related documentation has been completed by all lenders and the new capital structure and/or terms and conditions post-restructuring are duly reflected in the books of accounts. Banks will need to disclose the implementation of RPs in their notes to accounts. 9 PwC PwC s Banking Insights

10 -- In case of RPs involving restructuring, banks will need to engage with a CRA for an independent credit evaluation of the residual debt. Additionally, where the exposure is 5 billion INR and above, banks will need to obtain 2 such independent credit evaluations (ICEs). Further, banks need to ensure that RPs with a credit opinion of RP4 or better only are taken up for implementation. -- The new framework puts down strict timelines over which insolvency proceedings must be initiated. These timelines come into effect starting 1 March For accounts with an exposure of 2,000 crore INR or more, banks will have to ensure that a resolution plan is in place within 180 days after a default. If the resolution plan is not implemented within 180 days, the account must be referred to the IBC within 15 days. For large accounts where a resolution plan is being implemented, the account should not be in default at any point during the specified period. If there is a default within the specified period, the lenders should file an insolvency application. For accounts with exposure of 100 crore INR to 2,000 crore INR, a timeline for resolution will be announced over a two-year period. These timelines will lead to speedy recovery of the loan from the borrower. -- The revised framework lays down additional requirements for upgrading large accounts, post NPA classification. Banks will need to ensure that, in addition to demonstrating satisfactory performance, the credit facilities of the borrowers shall also be rated as investment grade (BBB or better) by CRAs at the end of the specified period. -- The new framework will subsume almost all stressed asset schemes. This includes: Corporate Debt Restructuring Scheme Flexible structuring of existing long-term project loans Strategic Debt Restructuring (SDR) Scheme Change in ownership outside SDR Scheme for Sustainable Structuring of Stressed Assets (S4A) The JLF which was overseeing stressed asset negotiations in the case of large consortium loans also stands disbanded. 10 PwC PwC s Banking Insights

11 Conclusion With the new framework in place, the RBI aims at a harmonised and simplified generic mechanism for the resolution of stressed assets. This framework has been introduced keeping in mind the regulator s stance on ensuring speedy resolution of bad loans in the future. A predominant theme of the new framework is reliance on the IBC to resolve stressed assets while doing away with a number of interim schemes introduced before India adopted a bankruptcy code in In the long run, the new reforms will bring a good structural change that can strengthen the banking system in future. The new rules will instil a sense of transparency and more investor confidence in the financials of banks and change the way banks do business. There will be greater prudence in lending. Cowboy lending, especially towards larger projects where banks lack the capacity to conduct proper appraisals, could be on its way out. Chief financial officers will read loan covenants more carefully because the tolerance for defaults is being lowered considerably. They will need to ensure loan repayment terms are more realistic. The entire process should involve a high degree of transparency and precision. With the intensity of frauds and scams increasing in the banking sector, it is essential to ensure the accuracy and integrity of reporting. There must be a strong audit framework in place to ensure that banks accurately report the required information to the RBI as well as integrate regulatory submissions like risk-based supervision (RBS) and Central Repository of Information on Large Credits (CRILC) reporting. Strengthening this would ensure early and accurate identification of bad loans and NPAs and subsequent remedial action by the RBI and the government. While bank books might get worse over the next 12 months, in the long term, the new NPA rules will ensure that the books reflect the actual underlying asset quality. 11 PwC PwC s Banking Insights

12 Small savings schemes Payment of agency commission 3 Circular reference: DGBA.GBD.No.1972/ / Dated 1 February 2018 Applicability: All Agency Banks handling Small Saving Schemes Background and objective: All public sector banks, ICICI Bank Ltd., Axis Bank Ltd. and HDFC Bank Ltd. were authorised to receive subscriptions under four small savings schemes namely, National Saving Time Deposit Scheme, 1981, National Saving (Monthly Income Account) Scheme, 1987, National Saving Recurring Deposit Scheme, 1981 and National Saving Certificates (VIII Issue) Scheme, 1989, in addition to the existing small saving schemes such as the Sukanya Samriddhi Account Scheme, 2016, Public Provident Fund Scheme, 1968, and Senior Citizen Savings Scheme Rules, 2004, etc. As a result of this, the RBI has decided to pay agency commission to the authorised banks for handling the work relating to the additional four small saving schemes along with the existing ones as per the extant rates advised by the RBI Department of Government and Bank Accounts circular. Extract from the regulation: Please refer to Government of India Notification F. No. 7/10/2014-NS dated October 10, 2017, wherein, all Public Sector Banks, ICICI Bank Ltd., Axis Bank Ltd., and HDFC Bank Ltd., were authorized to receive subscriptions under National Saving Time Deposit Scheme, 1981, National Saving (Monthly Income Account) Scheme, 1987, National Saving Recurring Deposit Scheme, 1981 and National Saving Certificates (VIII Issue) Scheme, 1989 in addition to the existing small saving schemes. In view of the above, it has been decided to pay agency commission to authorized banks for handling the work relating to the above four small saving schemes also as per the extant rates advised by our Master Circular RBI/ /2 DGBA.GBD. No.2/ / dated July 1, Agency banks are advised to expedite the implementation of the above schemes. All the transactions i.e. receipt, payment, penalty, interest, etc. may be directly reported to the Central Account Section, Reserve Bank of India, Nagpur on a daily basis like the transactions of Public Provident Fund, 1968, in order to have uniformity in reporting, reconciliation and accounting. The Agency banks are required to observe the rules and regulations of the respective scheme. Non-observance of rules and regulations would attract penal action. Pecuniary liabilities, if any, arising from such non-observance shall be borne entirely by the bank PwC PwC s Banking Insights

13 All the authorised banks have to report all their transactions that is, receipt, payment, penalty, interest, etc. to the Central Account Section, RBI, Nagpur. The bank has to ensure that it has a dedicated software for the operation and accounting of small savings schemes with specific functionalities for each scheme. All banks shall ensure that remittances are credited to the government account of the RBI, Central Accounts Section, Nagpur, within one day in case of core banking solution branches and three days in case of non-core banking solution branches. Every bank shall also submit periodic reports to the Central Government concerning the deposits of subscription and withdrawals etc. under the said scheme. In case of any pecuniary liability arising from the non-observance of reporting under the schemes, it is to be entirely borne by the respective bank. Also, all banks are entitled to receive agency commission as per the following rates based on their reports submitted to the RBI: Rates for agency commission Sr. no. Type of transaction Unit Revised rate a. (i) Receipts - Physical mode Per transaction 50/- (ii) Receipts - e-mode Per transaction 12/- b. Pension payments Per transaction 65/- c. Payments other than pension Per 100 turnover 5.5 paise 13 PwC PwC s Banking Insights

14 Relief for MSME Borrowers registered under Goods and Services Tax (GST) 4 Circular reference: RBI/ /129 DBR.No.BP. BC.100/ / Dated 7 February 2018 Applicability: All banks and NBFCs regulated by the Reserve Bank of India Background and objective: The government s move to GST created upheaval among unorganised and small business entities to the extent that the entities started facing severe liquidity crunch. Consequently, the quality of the loans extended by the banks or NBFCs to these MSME borrowers also deteriorated, thereby creating pressure to qualify assets as non-performing. However, in line with the government s intention to support MSMEs, the RBI has rolled out some relief in the non-performing asset (NPA) classification for MSME borrowers. Extract from the regulation: It has been represented to us that formalisation of business through registration under GST had adversely impacted the cash flows of the smaller entities during the transition phase with consequent difficulties in meeting their repayment obligations to banks and NBFCs. As a measure of support to these entities in their transition to a formalised business environment, it has been decided that the exposure of banks and NBFCs to a borrower classified as micro, small and medium enterprise under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, shall continue to be classified as a standard asset in the books of banks and NBFCs subject to the following conditions: The borrower is registered under the GST regime as on January 31, The aggregate exposure, including non-fund based facilities, of banks and NBFCs, to the borrower does not exceed INR 250 million as on January 31, The borrower s account was standard as on August 31, The amount from the borrower overdue as on September 1, 2017 and payments from the borrower due between September 1, 2017 and January 31, 2018 are paid not later than 180 days from their respective original due dates. A provision of 5% shall be made by the banks/ NBFCs against the exposures not classified as NPA in terms of this circular. The provision in respect of the account may be reversed as and when no amount is overdue beyond the 90/120 day norm, as the case may be. The additional time is being provided for the purpose of asset classification only and not for income recognition, i.e., if the interest from the borrower is overdue for more than 90/120 days, the same shall not be recognised on accrual basis PwC PwC s Banking Insights

15 Consequent to the regulation, the banks need not classify overdues from the entities classified as MSME, subject to the fulfilment of certain conditions: The relief can only be passed on to the borrowers who hold a valid registration under GST, as on 31 January The lenders shall continue to classify the assets as standard, despite the fact that the advance has been overdue for a period more than 90/120 days from the due date. However, the lender should ensure that the loan was standard as on 31 August Payments due between 1 September 2017 and 31 January 2018 need to be repaid by the borrower within 180 days from the due date. The benefit of not classifying the account as an NPA shall not be applicable if dues are not paid within 180 days from the due date. Despite the relief in NPA classification, the regulator has continued its prudent stance by mandating banks/nbfcs to create provision of 5% for assets which fall into such a category. Also, there is no change in the income recognition for NPAs that is, if the account is overdue for more than 90/120 days, income shall be recognised on a cash basis only, even though the loan account continues to be standard. 15 PwC PwC s Banking Insights

16 Levy of Penal Interest Delayed Reporting 5 Circular reference: RBI/ /130 DCM (CC) No. 2885/ / Dated 9 February 2018 Applicability: All Banks having currency chests and Director Treasuries (State Governments) Background and objective: With the objective of making good quality currency notes and coins available to citizens and withdrawing soiled notes from circulation, the RBI formulated a Clean Note Policy. For realising the objectives of the Clean Note Policy and ensuring discipline among banks on timely and accurate reporting of currency chest transactions, the RBI has issued guidelines/instructions on the levy of penal interest for delayed reporting/ wrong reporting/non-reporting of currency chest transactions and inclusion of ineligible amounts in currency chest balances. These guidelines are updated from time to time and as and when fresh instructions are issued. Extract from the regulation: Presently, penal interest is levied for all cases where the bank has enjoyed ineligible credit in its current account with the RBI on account of wrong/delayed/non-reporting of transactions i.e. the currency chest had reported a net deposit. However, instances of delayed reporting where the currency chest had net deposit i.e. the currency chest did not enjoy RBI funds, are being dealt with differently by issue offices due to absence of clear instructions on the subject. On a review, it has been decided that, penal interest at the prevailing rate for delayed reporting of the instances where the currency chest had reported net deposit may not be charged. However, in order to ensure proper discipline in reporting currency chest transactions, a flat penalty of 50,000 may be levied on the currency chests for delayed reporting as in the case of wrong reporting of soiled note remittances to RBI/diversions shown as Withdrawal (para 1.5 of the Master Direction). Other instructions contained in the Master Direction remain unchanged PwC PwC s Banking Insights

17 As per RBI s notification - RBI/ /130 DCM (CC) No. 2885/ / dated 9 February 2018, banks having currency chests will no longer have to pay penal interest at the rate of 2% over the prevailing bank rate for the period of delayed reporting of ineligible amounts in chest balances. However, they will continue to report all currency chest transactions as per the timelines defined by the RBI in its Master Direction, RBI/DCM/ /59 Master Direction DCM (CC) No. G - 2/ / , failing which they will attract a penalty of 50,000 INR irrespective of the value of remittance and period of such delayed reporting. Banks having currency chests will continue to adhere to the following timelines for reporting their currency chest transactions: -- All currency chest transactions shall be invariably reported through Integrated Computerised Currency Operations and Management System (ICCOMS) on the same day by 9 PM by uploading data through secured website (SWs) to their respective link offices. Link offices should invariably report the consolidated position to the issue offices latest by 11 PM on the same day. -- The sub-treasury offices (STOs) should report all transactions directly to the issue office of the RBI by 11 PM on the same day. All the other instructions contained in the RBI s Master Direction on the Levy of Penal Interest for Delayed Reporting/Wrong Reporting/Non-Reporting of Currency Chest Transactions and Inclusion of Ineligible Amounts in Currency Chest Balances will remain unchanged. The banks will have to make operational changes in light of this revision. The changes will include keeping a record of penalties with respect to any delayed reporting after 9 February PwC PwC s Banking Insights

18 Risk Management and Inter-bank Dealings: Revised guidelines relating to participation of a person resident in India and Foreign Portfolio Investor (FPI) in the Exchange Traded Currency Derivatives (ETCD) Market 6 Circular reference: RBI/ /134 A. P. (DIR Series) Circular No. 18 Dated 26 February 2018 Applicability: All Category-I Authorised Dealer Banks Background and objective: Persons resident in India and foreign portfolio investors (FPIs) are permitted to take positions (long and short) up to a certain limit with defined thresholds for each currency pair (USD-INR, GBP-INR) per exchange. However, the limits have now been revised in terms of value and the limits per exchange have been revised for all exchanges. Extract from the regulation: Currently, persons resident in India and FPIs are allowed to take a long (bought) or short (sold) position in USD-INR up to USD 15 million per exchange without having to establish existence of underlying exposure. In addition, residents & FPIs are allowed to take long or short positions in EUR-INR, GBP-INR and JPY-INR pairs, all put together, up to USD 5 million equivalent per exchange without having to establish existence of any underlying exposure. It has now been decided to permit persons resident in India and FPIs to take positions (long or short), without having to establish existence of underlying exposure, up to a single limit of USD 100 million equivalent across all currency pairs involving INR, put together, and combined across all exchanges. The onus of complying with the provisions of this circular rests with the participant in the ETCD market and in case of any contravention the participant shall be liable to any action that may be warranted as per the provisions of Foreign Exchange Management Act, 1999 and the regulations, directions, etc. issued thereunder. These limits shall also be monitored by the exchanges, and breaches, if any, may be reported to the Reserve Bank of India. All other operational guidelines, terms and conditions shall remain unchanged. This circular has been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions/approvals, if any, required under any other law PwC PwC s Banking Insights

19 Persons resident in India and FPIs can now take long (bought) or short (sold) positions without having to establish the existence of underlying exposure, up to a single limit of 100 million USD equivalent across all currency pairs that is, USD-INR, EUR-INR, GBP-INR and JPY-INR combined across all exchanges. The participants of the ETCD market, including all category-i authorised dealer banks shall transact in accordance with and ensure compliance with the revised guidelines under this notification. The exchanges will monitor these limits and report any breaches to the RBI. If the participants contravene with the provisions of this circular, they shall be liable to any action that may be warranted as per the provisions of the Foreign Exchange Management Act, 1999, and the regulations, directions, etc. issued thereunder. It is expected that after the revision of the currency derivatives trading limit, the Indian market will receive a boost. This move made by the RBI will make investing in stock exchanges more attractive compared to other exchanges (Singapore and Dubai) which offer lower tax rates. The Indian market will also have an advantage of getting more volumes in the derivatives segment as a result of the positive news. 19 PwC PwC s Banking Insights

20 Preface Circular ref. no. RBI/ /132 Dated 15 February Name of the circular Acceptance of coins Brief instructions Banks to issue a direction to all its branches to accept coins of all denominations tendered at their counters either for exchange or for deposit in accounts. Banks to arrange for polythene bags where such denominations may be kept and a notice to this effect should be displayed suitably inside as also on the outside of the branch premises for the information of the public. Banks should modify their existing policies and procedures around the currency chest procedure to also allow coins to be remitted as part of the process PwC PwC s Banking Insights

21 Vivek Iyer Partner Mobile: Dnyanesh Pandit Director Mobile: Vernon Dcosta Director Mobile: Rajeev Khare Manager Mobile: Dhruv Khandelwal Assistant Manager Mobile: Sharon Mathias Experienced Consultant Mobile: View our previous issues of Banking Insights a monthly newsletter View our other thought leaderships publications and insights 21 PwC PwC s Banking Insights

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