Disruptions & Opportunities in the Financial Sector (RBI updates 17th June 2022)

Disruptions & Opportunities in the Financial Sector
(Address by Shri Shaktikanta Das, Governor, Reserve Bank of India – June 17, 2022 – Delivered at the Financial Express Modern BFSI Summit in Mumbai)

It is my pleasure to be here amongst such a distinguished gathering to deliver the inaugural address at the Financial Express Modern BFSI Summit. The theme of my address “Disruptions & Opportunities in the Financial Sector’ will resonate in the current context of technological innovations and fast evolving business models in the financial sector.

2. The impact of Covid-19 pandemic, the recent geo-political crisis and the all-pervasive technological innovations sweeping across economies are challenging the traditional financial intermediation processes. In my address today, I would like to focus more on the banking and the financial services space. I propose to share my thoughts on possible implications of technology on the financial services industry.

The Changing Paradigm of Banking

3. The edifice of growth and development in modern economies is built on the foundation of a vibrant, resilient and well-functioning financial sector. The core functions of the financial sector in an economy, viz. intermediation, asset price discovery, risk transfer and payments are globally undergoing a process of transformation. This is primarily driven by technological advancements. The Indian financial sector has also been a part of this churning and is adopting and propelling these transformations.

4. Over the past few years, the business of banking has witnessed a shift from traditional branch banking to digital banking. This paradigm shift has been possible due to innovations in information technology (IT), growth in mobile and internet connectivity, market-based financial intermediation, and the advent of Fintech. Financial service providers are now devising new products and services and are adopting new business models for reaching out to the target customers.

5. Improvements in technology have also enhanced the cause of financial inclusion and tech-enabled public goods delivery. Direct Benefit Transfer (DBT) through the digital mode is among the best examples of tech-enabled public goods delivery. Digital-mobile-anywhere-anytime banking is becoming the order of the day. The indigenously developed Unified Payments Interface (UPI) and Aadhaar Enabled Payment Service (AePS) have become the backbone of our retail payments system.

6. Alongside these advancements, the Reserve Bank’s regulatory approach has been realigned to support and foster such innovations. The regulatory guidelines for account aggregators and peer-to-peer lending operators are indicative of a proactive regulatory approach. An enabling framework for Regulatory Sandbox has been in place for last three years. The Reserve Bank Innovation Hub (RBIH) has also been set up by the RBI to catalyse innovations in the Fintech sector. We are now moving towards the introduction of a central bank digital currency (CBDC).

Technology as a Disruptor – Opportunities and challenges

7. With the advent of new technologies, we are witnessing a new era of disruption. Given the growing role of technology, data and network effects, there is a feeling among the banks that having an ethos of a technology company, while offering banking services, is the need of the hour. This is an area of opportunity for the banks; but there are associated challenges which need to be mitigated. Greater attention needs to be given to building customers’ trust by (i) offering products and services appropriate and fit for customer’s needs and circumstances; (ii) ensuring robust security controls, reliable and efficient delivery of services, transparency of terms and conditions to customers; and (iii) by handling customer grievances satisfactorily and building necessary awareness among customers. All of these aspects need to be factored in when financial institutions introduce or enhance technology driven products and services.

8. Talking about opportunities, it would be relevant to note that what we have seen until now could be just the tip of the iceberg. The use of artificial intelligence (AI) and machine learning (ML) to determine the creditworthiness of clients for small ticket loans by analyzing data from a wide range of traditional and non-traditional data sources, has the potential to enhance access to credit for marginalized customers. Here also it would be necessary to understand the associated risks and mitigate them suitably through various safeguards and precautions. Risks relating to cyber security, software development, limitations in transaction capacity, privacy of customer data, and data security need to be factored in. The methodology of algorithms underpinning digital financial services has to be clear, transparent, explainable and free from exclusionary biases. The credit scoring models using innovative techniques can be useful but they should be subject to a robust model governance framework. Comprehensive assessment of risks has also to be undertaken while planning to move to cloud with customer sensitive data.

9. In all these digital initiatives, the plan should also factor in those sets of customers who may not be digitally savvy and who may want to engage physically with the bank. It is, therefore, crucial that while driving various tech-enabled initiatives, the existing systems and processes do not see frequent disruptions and non-availability. We have already seen instances of the damage that disruptions in technology systems can bring and the reputation risk they carry for financial entities. A casual approach to handling technology issues even as basic as wrongful deletion of a single system file or inadequate care in patch updating often lead to financial and operational losses.

10. The IT systems and platforms are also exposed to obsolescence and require frequent upgradation. This calls for adequate investment in IT infrastructure by all financial sector entities. This is one of the important focus areas of RBI’s supervision of its regulated entities, especially the Banks and the NBFCs.

11. It has also to be recognised that human resource can turn out to be the weakest link in technology enabled financial services. There is thus a vital need for ongoing training and skill building programmes.

12. At end of the day, the bottomline is how technology improves the financial system in terms of efficiency, effectiveness, resolving bottlenecks in economic functions and provide value addition to the customers.

Collaboration between Finance and Technology Firms

13. Large technology companies (BigTech) which have entered into provision of financial services could potentially be another source of disruption to the financial system. As you would be aware, such companies, whether from e-commerce, social media and search engine platforms, ride hailing and similar businesses have started to offer financial services in a big way on their own or on behalf of others. These companies have an enormous amount of customer data which has helped them to offer tailored financial services to entities and individuals lacking credit history or collateral. Even the banks and other lenders are sometimes utilising platforms provided by fintech companies in their internal processes for credit risk assessment. Such large scale use of new methodologies in credit risk assessment can create systemic concerns like over-leverage, inadequate credit assessment, etc. Authorities and regulators have to strike a fine balance between enabling innovation and preventing systemic risks.

14. The big techs also pose concerns related to competition, data protection, data sharing and operational resilience of critical services in situations where Banks and NBFCs utilise the services of big tech companies. These concerns can also materialise in sectors other than financial services. The provision of financial services through the digital channel, including lending through online platforms and mobile apps, have brought in issues relating to unfair practices, data privacy, documentation, transparency, conduct, breach of licensing conditions, etc. The Reserve Bank will soon issue suitable guidelines and measures to make the digital lending ecosystem safe and sound while enhancing customer protection and encouraging innovation.

What kind of Regulation and Supervision?

15. The need for FinTech regulation emanates from the challenges they pose to the financial system and the new risks they carry. These risks have a bearing on overall financial stability and market integrity.

16. The approach to regulation of FinTech could be by way of Activity Based Regulation wherein similar activities are treated similarly, regardless of the legal status or nature of the entity undertaking the activity. It could also be Entity Based Regulation which requires that regulations are applied to licensed entities or groups that engage in similar and specified activities, such as deposit taking, payment facilitation, lending, and securities underwriting, etc. The approach could also be an Outcome Based Regulation by setting out some basic, common and technology or business model-neutral outcomes that entities must ensure.

17. India has traditionally followed a hybrid form of regulation that combines Activity and Entity Based regulation. As a principle, the RBI has been applying comprehensive regulatory, supervisory and oversight requirements to various segments of financial sector in its domain to create an enabling ecosystem for such activities to grow in an orderly fashion. The underlying theme has always been to maintain financial stability. Going forward, the RBI will continue to finetune its regulatory and supervisory measures keeping in mind the evolving dynamics of the financial sector.

Does Regulation require collaboration with different Regulators?

18. When it comes to technology, it may transcend regulatory or national boundaries. The most relevant example in this case would be the blockchain technology. Different blockchain platforms cannot be limited to a regulator or a nation. Another example can be the case of De-centralised Finance (DeFi) in which financial applications are processed on a blockchain with limited or no involvement of centralised intermediaries. DeFi poses unique challenges to regulators as its anonymity, lack of a centralised governance body, and legal uncertainties can make the traditional approach to regulation ineffective. There is, therefore, a case for a globally coordinated regulatory approach and inter-regulatory co-ordination to enable comprehensive assessment of such activities and mitigation of their risks.

Some recent initiatives of the RBI

19. I would now like to focus on certain supervisory steps taken by the RBI recently to deal with the emerging challenges from fintech. In the specific area of cyber security, the RBI has recently conducted Phishing Simulation exercises for select Supervised Entities (SEs) to assess their email security standards and cyber security preparedness. We have also initiated the process of conducting Cyber Reconnaissance exercises this year. This will provide pre-emptive information on the cybersecurity risk vectors of SEs. Besides, Cyber Drills which are conducted periodically are being further enhanced in terms of coverage and periodicity.

20. The increasing use of technology and digital services has led to more incidents of digital frauds and customer dissatisfaction. The recommendations of the RBI Working Group on digital lending in this area are under examination for issuance of guidelines.

21. In the context of customer service, another area which is engaging the attention of the RBI is the harsh recovery methods used by certain lenders, without having adequate checks and controls over their recovery agents. We have received complaints of customers being contacted by recovery agents at odd hours, even past midnight. There are also complaints of recovery agents using foul language. Such kind of actions by recovery agents are unacceptable and pose reputational risk for the financial entities themselves. We have taken serious note of such instances and will not hesitate to take stringent action in cases where regulated entities are involved. Such complaints against unregulated entities will have to be taken up with appropriate law enforcement agencies.

22. We have recently set up of a Committee for Review of Customer Service Standards in the RBI Regulated Entities (REs) which would inter alia review the emerging and evolving needs of the customer service landscape, especially in the context of evolving digital financial products and their distribution, and suggest measures for strengthening the overall consumer protection framework.

Governance and Risk Management

23. I have often spoken about the importance of good corporate governance in banks and financial institutions. A good governance structure will have to be supported by effective risk management and compliance functions. The cost of compliance to rules and regulations should be perceived as an investment, as inadequacy in this regard can prove to be highly costly. Compliance culture should ensure adherence to not only laws, rules and regulations, but also integrity, ethics and codes of conduct.

24. The Global Financial Crisis was preceded by a wave of financial innovations related to securitisation and other innovative financial instruments. These allowed the financial system to grow at a pace that was beyond its capacity to manage, especially from the point of view of the connected risks. Given such past experience, prudence demands that introduction of innovations in the financial system should be done responsibly and in a calibrated manner, taking into account the capacity of financial entities to manage potential risks. It goes without saying that innovations which provide opportunities through high risk taking need to be managed by sound corporate governance and risk management practices within the financial institutions. The senior management and internal control mechanisms in financial institutions should also ensure that their IT systems are robust and transparent, and not open to manipulation that may camouflage the true state of affairs in the organisation.

Conclusion

25. Let me conclude by saying that we are in the midst of a technological revolution in the sphere of financial services. Technology and Innovation per se are neither destructive nor constructive. It is the use cases that present the responsible or irresponsible sides of any particular innovation or technology. Reserve Bank shall continue with its approach where innovations which provide benefits to society are encouraged without compromising the stability of the financial system.

26. The trend of technology driven changes in the financial services sector will continue in the future. Participants and players in this sector will have to strive hard to remain relevant in the ever changing economic environment by continuously improving the quality of their governance; reworking their business strategies and business models; designing products and services with the customer in mind; ensuring operational resilience and risk management; and focussing on more efficient products and services by leveraging on technology. The possibilities are immense only if we are ready to embrace them while meeting the challenges!

Thank you.

Processing of e-mandates for recurring transactions (RBI updates 16th June 2022)

RBI/2022-23/73
CO.DPSS.POLC.No.S-518/02.14.003/2022-23

June 16, 2022

The Chairman / Managing Director / Chief Executive Officer
All Scheduled Commercial Banks, including Regional Rural Banks /
Urban Co-operative Banks / State Co-operative Banks /
District Central Co-operative Banks / Payments Banks /
Small Finance Banks / Local Area Banks /
Non-bank Prepaid Payment Instrument Issuers / Authorised Card Payment Networks /
National Payments Corporation of India

Madam / Dear Sir,

Processing of e-mandates for recurring transactions

A reference is invited to our circulars DPSS.CO.PD.No.447/02.14.003/2019-20 dated August 21, 2019, DPSS.CO.PD No.1324/02.23.001/2019-20 dated January 10, 2020, DPSS.CO.PD No.754/02.14.003/2020-21 dated December 04, 2020 and CO.DPSS.POLC.No.S34/02-14-003/2020-2021 dated March 31, 2021 (collectively referred to as “e-mandate framework”). The e-mandate framework prescribed an Additional Factor of Authentication (AFA), inter alia, while processing the first transaction in case of e-mandates / standing instructions on cards, prepaid payment instruments and Unified Payments Interface. For subsequent transactions with transaction values up to ₹5,000/- (AFA limit), prescription of AFA was waived.

2. On a review of implementation of the e-mandate framework and the protection available to customers, it has been decided to increase the aforesaid AFA limit from ₹5,000/- to ₹15,000/- per transaction.

3. This circular is issued under Section 10 (2) read with Section 18 of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007), and shall come into effect immediately.

Yours faithfully,

(P. Vasudevan)
Chief General Manager

RBI hikes Repo Rate by 50 basis points (Press release 08th June 2022)

RBI hikes Repo Rate by 50 basis points


Retains GDP growth forecast at 7.2%, Inflation projected at 6.7% during FY 2022-23

Credit Cards, beginning with RuPay card can be linked with UPI

e-Mandate transaction limit increased to Rs 15,000

Upper limit on housing loans by Cooperative banks hiked by more than 100%

Key Policy Rates

  • The Monetary Policy Committee of Reserve Bank of India, which met from 6-8 June 2022, has unanimously decided to hike the Repo Rate by 50 basis points to 4.90 %
  • Consequently, Standing Deposit Facility Rate stands adjusted to 4.65% and Marginal Standing Facility rate and Bank Rate to 5.15%
  • The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.
  • Inflation

Assuming normal monsoon in 2022 and average crude oil price of $105 per barrel in Indian basket, inflation is projected at 6.7% in 2022-23

Q1 – 7.5%

Q2 – 7.4%

Q3 – 6.2%

Q4 – 5.8%

  • Growth forecast

The MPC has observed that the global economy continues to grapple with multi-decadal high inflation and slowing growth, persisting geopolitical tensions and sanctions, elevated prices of crude oil and other commodities and lingering COVID-19 related supply chain bottlenecks.

  • Economic indicators for April –May indicate a broadening of the recovery in economic activity in India. Urban demand is recovering and rural demand is gradually improving. Merchandise exports posted robust double-digit growth for the fifteenth month in a row during May while non-oil non-gold imports continued to expand at a healthy pace, pointing to recovery of domestic demand.
  • Real GDP growth for 2022-23 is estimated at 7.2%

Q1 – 16.2%

Q2 – 6.2%

Q3 – 4.1%

Q4 – 4.0%

  • According to NSO provisional estimates released on May 31, India’s GDP growth in 2021-22 is estimated at 8.7%, higher than pre-pandemic level.

Measures to benefit Cooperative Banks

  1. Taking into account the increase in housing prices since the limits were last revised and considering the customer needs, it has been decided to increase the existing limits on individual housing loans by cooperative banks. Accordingly, the limits for Tier I /Tier II UCBs shall stand revised from ₹30 lakh/ ₹70 lakh to ₹60 lakh/ ₹140 lakh, respectively. As regards RCBs, the limits shall increase from ₹20 lakh to ₹50 lakh for RCBs with assessed
  2. net worth less than ₹100 crore; and from ₹30 lakh to ₹75 lakh for other RCBs.
  3. Urban cooperative banks can now extend doorstep banking services to customers Will enable these banks to better meet the needs of their customers, especially senior citizens and differently abled persons-
  • Rural cooperative banks can now extend finance to commercial real estate (loans to residential housing projects) within existing aggregate housing finance limit of 5% of total assets
  • Enhancement of limit on e-mandate transactions

To further augment customer convenience  and facilitate recurring payments like subscriptions, insurance premia and education fees of larger value, limit per transcation for e-mandate based recurring payments increased from ₹5,000 to ₹ 15,000

  • Enhancing scope of UPI payment system. 

Now, credit cards too can be linked with UPI platform, beginning with RuPay cards.  This will provide additional convenience to users and enhance scope of digital payments.  UPI has become the most inclusive mode of payment in India. Currently, over 26 crore unique users and 5 crore merchants are onboarded on the UPI platform.

  • The Monetary Policy Committee, besides the Governor Shri Shaktikanta Das comprised Dr. Shashanka Bhide, Dr. Ashima Goyal, Prof. Jayanth R. Varma, Dr. Rajiv Ranjan and  Dr. Michael Debabrata Patra

The next meeting of the MPC is scheduled during August 2-4, 2022

RBI Governor’s Detailed statement can be seen here

The next meeting of the MPC is scheduled during August 2-4, 2022

RBI Governor’s Detailed statement can be seen here

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@PIBMumbai
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RBI Constitutes Committee for Review of Customer Service Standards in RBI Regulated Entities

As part of the Statement on Developmental and Regulatory Policies released along with the Monetary Policy Statement on April 08, 2022, the Reserve Bank of India had announced setting up of a Committee for Review of Customer Service Standards in RBI Regulated Entities (REs) for examining and reviewing the state of customer service in the REs and adequacy of customer service regulations and suggest measures to improve customer service. Accordingly, the Reserve Bank of India has constituted a Committee with the following composition:

Chief General Manager, Consumer Education and Protection Department, Central Office, Reserve Bank of India will be the member secretary of the Committee. The Committee may also invite domain experts and RBI officials, as may be required, for consultations and/or to participate in its deliberations. The terms of reference of the Committee will be as under:

  1. Evaluate the efficacy, adequacy and quality of customer service in entities regulated by RBI vis-à-vis the existing RBI guidelines on customer service and identify gaps, if any;
  2. Review the emerging and evolving needs of the customer service landscape, especially in the context of evolving digital/ electronic financial products and distribution landscape and suggest suitable regulatory measures;
  3. Identify the best practices, adopted globally and domestically, in customer service and grievance redressal, especially for improvement in services rendered to retail and small customers, including pensioners and senior citizens;
  4. Suggest measures to leverage technology for enhancing customer service efficiencies, upgrading internal grievance redress mechanism in REs and strengthening the overall consumer protection framework of RBI;
  5. Any other matter relevant to customer service and consumer protection.

The Committee will submit its report within three months from the date of its first meeting.

RBI Press Release: 2022-2023/251 dated 23 Nay 2022

Reserve Bank cancels Certificate of Registration (CoR) of five NBFCs due to irregular lending practices

In exercise of the powers conferred under Section 45-IA (6) (iv) of the Reserve Bank of India Act, 1934, the Reserve Bank has cancelled the Certificate of Registration (CoR) issued to the following five Non-Banking Financial Companies (NBFCs):

As such, the above companies shall not transact the business of a Non-Banking Financial Institution (NBFI), as defined in clause (a) of Section 45-I of the RBI Act, 1934.

The CoR of the abovementioned NBFCs have been cancelled on account of violation of RBI guidelines on outsourcing and Fair Practices Code in their digital lending operations undertaken through third party apps which was considered detrimental to public interest. These companies were also not complying with the extant regulations pertaining to charging of excessive interest and had resorted to undue harassment of customers for loan recovery purposes.

RBI Press Release: 2022-2023/265

IFSCA Issues Framework for FinTech Entity in International Financial Services Centers (IFSCs) (27 April 2022)  

The International Financial Services Centres Authority (IFSCA), in furtherance of its mandate to develop and regulate financial products, financial services and financial institutions in the International Financial Services Centres (IFSC) and to encourage promotion of financial technologies (‘FinTech’) across the spectrum of banking, insurance, securities, and fund management in IFSC has issued a detailed “Framework for FinTech Entity in the IFSCs”.

The “Framework for FinTech Entity in the IFSCs” is aimed at giving boost to the establishment of a world class FinTech Hub at GIFT IFSC comparable with other International Financial Centers (IFCs). The framework proposes to cover (i) financial technology (FinTech) solutions resulting in new business models, applications, process or products in areas/activities linked to financial services regulated by IFSCA and (ii) advanced/innovative technological solutions which aid and assist activities in relation to financial products, financial services and financial institutions (TechFin).

The framework provides for a dedicated Regulatory Sandbox for FinTech products or solutions namely IFSCA FinTech Regulatory Sandbox and empowers IFSCA to grant Limited Use Authorization within FinTech Regulatory Sandbox to the eligible financial technology entities in IFSC. This would enable them to apply and avail Grants under the IFSCA FinTech Incentive Scheme 2022.

Further, it also enables some class/categories of technology companies having (i) a deployable advanced/innovative technology solution which aids and assists activities in relation to financial products, financial services, financial institutions and, (ii) credible  track record including financial performance, to obtain Direct Entry (Authorization by IFSCA) by IFSCA without entering into the Regulatory Sandbox.

The framework also incorporates the Inter Operable Regulatory Sandbox (IoRS) mechanism.  IoRS is a proposed mechanism to facilitate testing of innovative hybrid financial products / services falling within the regulatory ambit of more than one financial sector regulators. IFSCA will facilitate Indian FinTech’s seeking access to foreign markets and foreign FinTech’s seeking entry into India.   

The framework proposes a Regulatory Referral mechanism which shall be governed as per the provisions of the Memorandum of Understanding (MoU) or collaboration or special arrangement between IFSCA and corresponding overseas Regulator(s)

IFSCA endeavors to support FinTech firms for proof of concept (PoC), minimum viable product (MVP), prototype development, product trials, commercialization, and global market access etc.

The GIFT-IFSC offers the unique advantage of being a separate financial jurisdiction within India which is treated like an offshore jurisdiction from FEMA angle with no restriction on currency convertibility. The framework issued by IFSCA, a unified regulator for Banking, Capital Markets, Insurance and Funds Management in IFSC, would enable FinTech firms having innovative ideas or solutions across the banking, capital or insurance sector to have seamless interaction with a single regulator.

The detailed framework may be accessed at https://ifsca.gov.in/Viewer/Index/292

Legal Entity Identifier (LEI) for Borrowers ( RBI Circular dated 21st April 2022)

It has been decided that the guidelines on LEI stand extended to Primary (Urban) Co-operative Banks (UCBs) and Non-Banking Financial Companies (NBFCs).

It is further advised that non-individual borrowers enjoying aggregate exposure of ₹5 crore and above from banks and financial institutions (FIs) shall be required to obtain LEI codes as per the timeline given below:

“Exposure” for this purpose shall include all fund based and non-fund based (credit as well as investment) exposure of banks/FIs to the borrower. Aggregate sanctioned limit or or outstanding balance, whichever is higher, shall be reckoned for the purpose. Lenders may ascertain the position of aggregate exposure based on information available either with them, or CRILC database or declaration obtained from the borrower.

Borrowers who fail to obtain LEI codes from an authorized Local Operating Unit (LOU) shall not be sanctioned any new exposure nor shall they be granted renewal/enhancement of any existing exposure. However, Departments/Agencies of Central and State Governments (not Public Sector Undertakings registered under Companies Act or established as Corporation under the relevant statute) shall be exempted from this provision.

These directions are issued under sections 21, 35A and 56 of the Banking Regulation Act, 1949, sections 45JA and 45L of the Reserve Bank of India Act, 1934, section 30A of the National Housing Bank Act, 1987 and section 6 of the Factoring Regulation Act, 2011.

Download Circular from given link

https://m.rbi.org.in/Scripts/NotificationUser.aspx?Id=12301&Mode=0

Consolidated Circular on Opening of Current Accounts and CC/OD Accounts by Banks (RBI Circular dated 19th April 2022)

A. Purpose

This Circular consolidates earlier instructions issued by the Reserve Bank of India, on opening and operation of current accounts and CC/OD accounts with a view to enforce credit discipline amongst the borrowers as well as to facilitate better monitoring by the lenders.

B. Previous Instructions

This circular consolidates instructions contained in the following circulars issued on the above subject:

  1. DOR.No.BP.BC/7/21.04.048/2020-21 dated August 6, 2020
  2. DOR.No.BP.BC.27/21.04.048/2020-21 dated November 02, 2020
  3. DOR.No.BP.BC.30/21.04.048/2020-21 dated December 14, 2020
  4. DOR.CRE.REC.35/21.04.048/2021-22 dated August 4, 2021
  5. DOR.CRE.REC.63/21.04.048/2021-22 dated October 29, 2021

C. Applicability

The provisions of these instructions shall apply to current accounts and CC/OD accounts opened or maintained with the following Regulated Entities (REs):

All Scheduled Commercial Banks

All Payments Banks

D. Definitions

“Exposure” for the purpose of these instructions shall mean sum of sanctioned fund based and non-fund-based credit facilities availed by the borrower2. All such credit facilities carried in their Indian books shall be included for the purpose of exposure calculation.

“Banking System” for the purpose of these instructions, shall include Scheduled Commercial Banks and Payments Banks only.

1. Opening of Current Accounts for borrowers availing Cash Credit/ Overdraft Facilities from the Banking System

1.1 For borrowers, where the aggregate exposure3 of the banking system is less than ₹5 crore, banks can open current accounts without any restrictions placed vide this circular subject to obtaining an undertaking from such customers that they (the borrowers) shall inform the bank(s), if and when the credit facilities availed by them from the banking system becomes ₹5 crore or more.

1.2 Where the aggregate exposure of the banking system is ₹5 crore or more:

1.2.1 Borrowers can open current accounts with any one of the banks with which it has CC/OD facility, provided that the bank has at least 10 per cent of the aggregate exposure of the banking system to that borrower. In case none of the lenders has at least 10 per cent of the aggregate exposure, the bank having the highest exposure among CC/OD providing banks may open current accounts.

1.2.2 Other lending banks may open only collection accounts subject to the condition that funds deposited in such collection accounts will be remitted within two working days of receiving such funds, to the CC/OD account maintained with the above-mentioned bank (para 1.2.1) maintaining current accounts for the borrower. The balances in such collection accounts shall not be used for repayment of any credit facilities provided by the bank, or as collateral/ margin for availing any fund or non-fund based credit facilities. However, banks maintaining collection accounts are permitted to debit fees/ charges from such accounts before transferring funds to CC/OD account.

1.2.3 Non-lending banks are not permitted to open current/ collection accounts.

2. Opening of Current Accounts for borrowers not availing Cash Credit/ Overdraft Facilities from the banking system

2.1 In case of borrowers where aggregate exposure of the banking system is ₹50 crore or more:

2.1.1 Banks shall be required to put in place an escrow mechanism. Borrowers shall be free to choose any lending bank as their escrow managing bank. All lending banks should be part of the escrow agreement. The terms and conditions of the agreement may be decided mutually by lending banks and the borrower.

2.1.2 Current accounts of such borrowers can only be opened/ maintained by the escrow managing bank.

2.1.3 Other lending banks can open ‘collection accounts’ subject to the condition that funds will be remitted from these accounts to the said escrow account at the frequency agreed between the bank and the borrower. Further, balances in such collection accounts shall not be used for repayment of any credit facilities provided by the bank, or as collateral/ margin for availing any fund or non-fund based credit facilities. While there is no prohibition on amount or number of credits in ‘collection accounts’, debits in these accounts shall be limited to the purpose of remitting the proceeds to the said escrow account. However, banks maintaining collection accounts are permitted to debit fees/ charges from such accounts before transferring funds to the escrow account.

2.1.4 Non-lending banks shall not open any current account for such borrowers.

2.2 In case of borrowers where aggregate exposure of the banking system is ₹5 crore or more but less than ₹50 crore, there is no restriction on opening of current accounts by the lending banks. However, non-lending banks may open only collection accounts as detailed at para 2.1.3 above.

2.3 In case of borrowers where aggregate exposure of the banking system is less than ₹5 crore, banks may open current accounts subject to obtaining an undertaking from them that they (the customers) shall inform the bank(s), if and when the credit facilities availed by them from the banking system becomes ₹5 crore or more. The current account of such customers, as and when the aggregate exposure of the banking system becomes ₹5 crore or more, and ₹50 crore or more, will be governed by the provisions of para 2.2 and para 2.1 respectively.

2.4 Banks are free to open current accounts of prospective customers who have not availed any credit facilities from the banking system, subject to necessary due diligence as per their Board approved policies.

2.5 Banks are free to open current accounts, without

 any of the restrictions placed in this Circular, for borrowers having credit facilities only from NBFCs/ FIs/ co-operative banks/ non-bank institutions, etc. However, if such borrowers avail aggregate credit facilities of ₹5 crore or above from the banks covered under these guidelines, the provisions of the Circular shall be applicable.

3. Opening of Cash Credit/ Overdraft Facilities

3.1 When a borrower approaches a bank for availing CC/OD facility, the bank can provide such facilities without any restrictions placed vide this circular if the aggregate exposure of the banking system to that borrower is less than ₹5 crore. However, the bank must obtain an undertaking from such borrowers that they (the borrowers) shall inform the bank(s), if and when the credit facilities availed by them from the banking system becomes ₹5 crore or more.

3.2 For borrowers, where the aggregate exposure of the banking system is ₹5 crore or more:

3.2.1 Banks having a share of 10 per cent or more in the aggregate exposure of the banking system to such borrower can provide CC/OD facility without any restrictions placed vide this circular.

3.2.2 In case none of the banks has at least 10 per cent exposure, bank having the highest exposure among CC/OD providing banks can provide such facility without any restrictions.

3.2.3 Where a bank’s exposure to a borrower is less than 10 per cent of the aggregate exposure of the banking system to that borrower, while credits are freely permitted, debits to the CC/OD account can only be for credit to the CC/OD account of that borrower with a bank that has 10 per cent or more of aggregate exposure of the banking system to that borrower. Funds will be remitted from these accounts to the said transferee CC/OD account at the frequency agreed between the bank and the borrower. Further, the credit balances in such collection accounts shall not be used for repayment of any credit facilities provided by the bank, or as collateral/ margin for availing any fund or non-fund based credit facilities. However, banks are permitted to debit interest/ charges pertaining to the said CC/OD account and other fees/ charges before transferring the funds to the CC/OD account of the borrower with bank(s) having 10 per cent or more of the aggregate exposure. It may be noted that banks with exposure to the borrower of less than 10 per cent of the aggregate exposure of the banking system can offer working capital demand loan (WCDL)/ working capital term loan (WCTL) facility to the borrower.

3.2.4 In case there is more than one bank having 10 per cent or more of the aggregate exposure, the bank to which the funds are to be remitted may be decided mutually between the borrower and the banks.

4. Exemptions Regarding Specific Accounts

4.1 Banks are permitted to open and operate the following accounts without any of the restrictions placed in terms of paras 1, 2 and 3 of this Circular:

(a) Specific accounts which are stipulated under various statutes and specific instructions of other regulators/ regulatory departments/ Central and State Governments. An indicative list of such accounts is given below:

  1. Accounts for real estate projects mandated under Section 4 (2) l (D) of the Real Estate (Regulation and Development) Act, 2016 for the purpose of maintaining 70 per cent of advance payments collected from the home buyers
  2. Nodal or escrow accounts of payment aggregators/ prepaid payment instrument issuers for specific activities as permitted by Department of Payments and Settlement Systems (DPSS), Reserve Bank of India under Payment and Settlement Systems Act, 2007
  3. Accounts for the purpose of IPO/ NFO/ FPO/ share buyback/ dividend payment/ issuance of commercial papers/ allotment of debentures/ gratuity etc. which are mandated by respective statutes or by regulators and are meant for specific/ limited transactions only

(b) Accounts opened as per the provisions of Foreign Exchange Management Act, 1999 (FEMA) and notifications issued thereunder including any other current account if it is mandated for ensuring compliance under the FEMA framework


(c) Accounts for payment of taxes, duties, statutory dues, etc. opened with banks authorized to collect the same, for borrowers of such banks which are not authorized to collect such taxes, duties, statutory dues, etc.

(d) Accounts for settlement of dues related to debit card/ ATM card/ credit card issuers/ acquirers

(e) Accounts of White Label ATM Operators and their agents for sourcing of currency

(f) Accounts of Cash-in-Transit (CIT) Companies/ Cash Replenishment Agencies (CRAs) for providing cash management services

(g) Accounts opened by a bank funding a specific project for receiving/monitoring cash flows of that specific project, provided the borrower has not availed any CC/OD facility for that project

(h) Inter-bank accounts

(i) Accounts of All India Financial Institutions (AIFIs), viz., EXIM Bank, NABARD, NHB, and SIDBI

(j) Accounts attached by orders of Central or State governments/ regulatory body/ Courts/ investigating agencies etc. wherein the customer cannot undertake any discretionary debits

4.2 Banks maintaining accounts listed in para 4.1 shall ensure that these accounts are used for permitted/ specified transactions only. Further, banks shall flag these accounts in the CBS for easy monitoring. Lenders to such borrowers may also enter into agreements/ arrangements with the borrowers for monitoring of cash flows/ periodic transfer of funds (if permissible) in these accounts.

5. Other Instructions

5.1 In case of borrowers covered under guidelines on loan system for delivery of bank credit issued vide circular DBR.BP.BC.No.12/21.04.048/2018-19 dated December 5, 2018, bifurcation of working capital facility into loan component and cash credit component shall continue to be maintained at individual bank level in all cases, including consortium lending

5.2 All banks, whether lending banks or otherwise, shall monitor all accounts regularly, at least on a half-yearly basis, specifically with respect to the aggregate exposure of the banking system to the borrower, and the bank’s share in that exposure, to ensure compliance with these instructions. If there is a change in exposure of a particular bank or aggregate exposure of the banking system to the borrower which warrants implementation of new banking arrangements, such changes shall be implemented within a period of three months from the date of such monitoring.

5.3 Banks shall put in place a monitoring mechanism, both at head office and regional/ zonal office levels to monitor non-disruptive implementation of the circular and to ensure that customers are not put to undue inconvenience during the implementation process.

5.4 Banks should not route drawal from term loans through CC/ OD/ Current accounts of the borrower. Since term loans are meant for specific purposes, the funds should be remitted directly to the supplier of goods and services. In cases where term loans are meant for purposes other than for supply of goods and services and where the payment destination is identifiable, banks shall ensure that payment is made directly, without routing it through an account of the borrower. However, where the payment destination is unidentifiable, banks may route such term loans through an account of the borrower opened as per the provisions of the circular. Expenses incurred by the borrower for day-to-day operations may be routed through an account of the borrower.

Union MSME Minister Narayan Rane launches Union Bank MSME RuPay Credit Card (Press release 25th Feb 2022)

Union Minister for Micro, Small & Medium Enterprises, Shri Narayan Rane today launched the Union MSME RuPay Credit Card of Union Bank of India in Sindhudurg at the two day MSME Conclave being held in the district.  The card is being offered by Union Bank of India in association with National Payments Corporation of India (NPCI).  It provides a simplified payment mechanism to MSMEs to meet their business-related operational expenses.

The RuPay Card offers benefits like anytime digital payments, interest-free period and will carry interest rate similar to the rate charged for loans. MSME borrowers will be able to enjoy an interest-free credit period of up to 50 days on their business spends. The card also offers the EMI facility to the customers on their business-related purchases. MSMEs will also get specially curated efficient business services on this card which will help them in taking their business on most of the digital platforms.

The RuPay Credit card will simplify and expedite payment mechanism for MSMEs while enabling banks to monitor the transactions at granular level. The Credit card will also reduce the demand for cash withdrawal by the businesses due to availability of the digital payment tool.

Other benefits include accidental insurance coverage, lounge access, and other rewards being offered by NPCI on RuPay cards. Besides this, the card offers variety of additional features and business services for the MSMEs. 

During the MSME Conclave, the Union Minister distributed the first batch of RuPay cards to select MSME entrepreneurs.

***

PIB Mumbai 001 / DJM / JSP /DLakshmi/ PK

Also read PIB Release

Rs 200 crore MSME Technology Centre to be set up in Sindhudurg
https://pib.gov.in/PressReleasePage.aspx?PRID=1801096

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Directors/ managers can’t be prosecuted and punished merely because the Company violated the law (SC)

Dayle De’souza Vs Government of India (Supreme Court of India) dated 29/10/2021

Facts- M/s. Writer Safeguard Pvt. Ltd. (Company) has entered into an agreement titled ‘Agreement for Servicing and Replenishment of ATM’ with M/s. NCR Corporation, the latter having earlier entered into an agreement with the SBI for maintenance and upkeep of SBI’s ATM.

A notice was issued by Labour Enforcement Officer to the appellant and one Vinod Singh, head of the company alleging non-compliance with the provisions of Minimum Wages Act, 1948 and Minimum Wages (Central) Rules, 1950 at the ATM.

Labour Enforcement Officer, on non-appearing, filed a criminal complain before the court of Chief Judicial Magistrate, under section 22A of the Act. Notably, the company is not enlisted as an accused in the complaint and has not been summoned to stand trial.

Conclusion- In absence of any specific averment, the prosecution in the present case doesn’t and cannot reply on section 22C(2) of the Act. Unless the company as a principal accused has committed the offence, the persons mentioned in sub-section (1) would not be liable and cannot be prosecuted. Section 141(1) of the Negotiable Instruments Act, extends vicarious criminal liability to the officers of a company by deeming fiction, which arises only when the offence is committed by the company itself and not otherwise.