banking magazine india jan 2016

BANKING POLICY : 2 Old series bank notes - prior 2005 Mobile banking transactions Cross currency futures / options SLR holdings under HTM Evidence of Imports

BANKING FEATURES : 4-8, 20 Marginal Cost based Lending Rate Interest Equalization Scheme Masala Bonds Maintenance of SLR Rules Central KYC Records Registry

DIARY OF EVENTS : Dec-2015: 9 Policy, Economy Banking Developments Capital Markets & Insurance

General Awareness : 13

Multi-Option questions:15-18

Data Bank : 20

Contents of this Issue

Executive Editor - S. Chand Singh, Editor in Chief - Sh. N S Toor

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Registration RNI No.67802/98Postal Regn. No.CHD/0001/2015-17

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Banking events updatE January 20162

(COMPILATION- SAPANDEEP TOOR & MANJOT TOOR, in Sydney, Australia - on the basis of information available on RBI Website)

to extend the date for exchanging the pre-2005 banknotes to June 30, 2016.However, from January 01, 2016, such facility will be available only at identi-fied bank branches and Issue Offices of RBI.Banks have been advised to facilitate the exchange of such notes withoutcausing any inconvenience to the public, whatsoever. These notes will retaintheir legal tender status.Further banks have been asked to stop re-issue of the pre- 2005 seriesbanknotes and ensure that such notes are not dispensed through the ATMs /over counters.

Priority Sector Lending Targets and Classification for RRBsRBI issued (Dec 03, 2015) comprehensive revised guidelines on Priority Sec-tor Lending for Regional Rural Banks to be implemented w.e.f. 1.1.2016.Some of the salient features of the guidelines are as under:-1. PS Lending Targets: 75% of total outstanding.2. Agriculture: 18%% of total outstanding.3. Small and Marginal Farmers: 8% of total outstanding*4. Micro Enterprises: 7.5% of total outstanding**5. Weaker Sectors: 15% of total outstanding.(* RRBs that have not achieved the 8% sub target may achieve in a phasedmanner i.e. 7% by March 2016 and 8% by March 2017.)(**RRBs that have not achieved the 7.5% sub target may achieve in aphased manner i.e. 7% by March 2016 and 7.5% by March 2017.)Mobile Banking Transactions in India - Operative Guidelines for

Banks Customer Registration for Mobile BankingGiven the high mobile density in the country, the policy focus of RBI has beento encourage banks to leverage on the mobile channel for widening the ac-cess to banking services. Irrespective of whether the services are offeredthrough SMS, USSD or application channels, customer registration for mobilebanking is critical. Towards this end, RBI has been reiterating the need forsimplification of procedure and greater degree of standardization in proce-dures relating to registering of customers for mobile banking.Mobile Banking Registration through ATMs: National Payment Corporation ofIndia (NPCI) has developed the mobile banking registration service / option onthe National Financial Switch (NFS) and the service is ready to be deployed onATMs of all the NFS member banks.RBI advised (Dec 17, 2015) banks, participating in NFS to carry out changesin their respective ATM switches and enable the capability of customer regis-tration for mobile banking at all their ATMs latest by 31st March 2016.Registration through other Channels and Customer Awareness: In additionto the above, banks have been asked to strive to facilitate customer registra-tion for mobile banking through other channels including internet banking,IVR, phone banking, etc. As customer registration is an important pre-requi-site for offering mobile banking services, banks should also use multiple chan-nels to create awareness among their customers regarding mobile bankingservices and options available for customer registration.Cross-Currency Futures and Exchange Traded Option Contracts

At present, persons resident in India and persons resident outside India viz.,foreign portfolio investors (FPIs) can participate in the currency futures andexchange traded currency options market in India. They can trade in USDollar (USD) - Indian Rupee (INR), Euro (EUR)-INR, Pound Sterling (GBP)-INRand Japanese Yen (JPY)-INR currency futures contracts and USD-INR cur-rency option contract in recognized stock exchanges.RBI permitted (Dec 10, 2015) the recognized stock exchanges to offer cross-currency futures contracts and exchange traded option contracts in the cur-rency pairs of EUR-USD, GBP-USD and USD-JPY and also offer exchangetraded currency option contracts in EUR-INR, GBP-INR and JPY-INR in addi-tion to the existing USD-INR option contract.

Market Participants can take positions in cross-currencyfutures and exchange traded cross-currency option con-tracts without establishing underlying exposure subjectto the position limits as prescribed by the exchanges.The existing position limits of USD 15 million for USD-INRcontracts and USD 5 million for non USD-INR contracts,all put together, per exchange, shall remain unchanged.AD Category-I banks can undertake trading in all permit-ted exchange traded currency derivatives within theirNet Open Position Limit (NOPL) subject to limits stipu-lated by the exchanges (for the purpose of risk manage-ment and preserving market integrity) provided that anysynthetic USD-INR position created using a combinationof exchange traded FCY-INR and cross-currency con-tracts shall have to be within the position limit prescribedby the exchange for the USD-INR contract.When Issued transactions in Govt. Securities

RBI permitted (Dec 10, 2015) scheduled commercialbanks to take short positions in 'When Issued' (WI) mar-ket for both new and reissued securities. RBI also al-lowed other eligible entities viz., mutual funds, insurancecompanies, pension funds, housing finance companies,NBFCs and UCBs to take long position in the WI market.The open position limits in the WI market have beenrevised and will be subject to the following limits both incase of new securities as well as reissued securities:1. Primary Dealers and scheduled commercial banks :Long position - No limits, short position - Not exceeding5% of the notified amount2. Other eligible entities : Long position - No Limits,Short position - Not PermittedFurther, aggregate net short positions (sum of all netshort positions across all entities) in a new security willbe capped at 90% of the notified amount and the samewill be monitored on NDS-OM.In case an entity with a net short position is unable todeliver securities after the auction on the settlementdate, the transaction will be settled as per the defaultsettlement mechanism of CCIL.The requirement of reporting WI transactions on a dailybasis stands discontinued.SLR Holdings under Held to Maturity CategoryPresently, all banks (including Regional Rural banks) arepermitted to exceed the limit of 25% of total invest-ments under HTM category provided (a) the excess com-prises only of SLR securities, and (b) the total SLR secu-rities held in the HTM category are not more than 23.50%of their NDTL with effect from Jan 10, 2015, 23.0% witheffect from April 4, 2015, 22.5% with effect from July11, 2015 and 22.0% with effect from Sept 19, 2015.The SLR was reduced to 21.50% of NDTL w.e.f. Feb 7,2015. Further, it shall be progressively brought down by0.25% every quarter till March 31, 2017. Concurrently itshall reduce the abovementioned ceiling on SLR holdingsunder HTM in alignment with the SLR requirement.RBI advised (Dec 10, 2015) that banks can exceed 25%limit of total investments under HTM category provided:a. the excess comprises only of SLR securities, andb. the total SLR securities held under the HTM categoryare not more than:

Old Series Banknotes : prior to 2005On a review of the matter, RBI decided (Dec 23, 2015)

ANKINGPOLICYB

Banking events updatE January 2016 3

21.50% from January 9, 2016

21.25% from April 2, 2016;

21.00% from July 9, 2016;

20.75% from October 1, 2016;

20.50% from January 7, 2017.As per extant instructions, banks may shift investments to/from HTM with the approvalof the Board of Directors once a year and such shifting will normally be allowed at thebeginning of the accounting year. RBI decided to allow such shifting of the excesssecurities, as also direct sale from HTM category, at the beginning of every quarterwhen the HTM ceiling is brought down. This would be in addition to the shifting permittedat the beginning of the accounting year, i.e., in the month of April. Such transfer to AFS/HFT category as well as sale of securities from HTM category, to the extent required toreduce the SLR securities in HTM category in accordance with the regulatory instruc-tions, would be excluded from the 5% cap prescribed for value of sales and transfers ofsecurities to/from HTM category.

Investment by Foreign Portfolio Investors (FPI) in Corporate BondsAs per extant RBI guidelines, all future investments by Foreign Portfolio Investors (FPI)in NCDs/bonds are to be made in securities with a min residual maturity of three years.On a review, RBI decided (26.11.15) to permit FPI to acquire NCDs/bonds, which areunder default, either fully or partly, in the repayment of principal on maturity or principalinstallment in the case of amortising bond. The revised maturity period of such NCDs/bonds, restructured based on negotiations with the issuing Indian company, should bethree years or more.Such investment should be within the overall limit prescribed for corporate debt fromtime to time (currently Rs. 2443.23 billion). All other existing conditions for investmentby FPIs in the debt market remain unchanged.Advance Remittance for Import of aircrafts /helicopters / other aviation

related purchasesAs per extant RBI guidelines, AD Category I banks could allow advance remittance,without bank guarantee or an unconditional, irrevocable standby letter of credit up toUSD 50 million, in the case of import of aircrafts/ helicopters/ other aviation relatedpurchases by scheduled air transport operators permitted by the Director General ofCivil Aviation (DGCA), after ensuring that the requisite approval of the Ministry of CivilAviation (MoCA)/ DGCA / other agencies in terms of the extant Foreign Trade Policy, hadbeen obtained by the company for import.The Director General of Foreign Trade vide Notification dated October 9, 2015 hasannounced that the approval from MoCA will not be required. (RBI direction 26.11.15)

Import of Goods into India Evidence of ImportAs per extant RBI policy (19.10.2003), an importer has to submit as evidence of import,(a) the exchange control copy of the Bill of Entry for home consumption; (b) the ex-change control copy of the Bill of Entry for warehousing, in the case of 100% ExportOriented Units (EOUs); or (c) Customs Assessment Certificate or Postal Appraisal Formas declared by the importer to the Customs Authorities.RBI advised AD banks (26.11.15) to consider the Bill of Entry issued by Customs Authori-ties (in Free Trade Warehouse Zones / SEZ Unit warehouse) named as Ex-Bond Bill ofEntry or by any other similar nomenclature, as evidence for physical import of goods.Further, in cases where goods have been imported through couriers, the Courier Bill ofEntry, as declared by the courier companies to the Customs Authorities, may also beconsidered as evidence of import of goods.

Bank Finance to Factoring CompaniesIn terms of extant RBI guidelines, banks can extend financial assistance to support thefactoring business of Factoring Companies complying with certain criteria, which, inter-alia, included: They derive at least 75% of their income from factoring activity. The receivables purchased / financed, irrespective of whether on with recourse or

without recourse basis, form at least 75% of the assets of the Factoring Company.The criteria regarding asset and income of factoring companies eligible for bank financehave been revised by RBI (26.11.15) to 50% from 75%.

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Banking events updatE January 20164 BANKING FEATURES

Compilation : Arundeep Toor (Sydney - Australia) (Source RBI Website).

To improve the efficiency of monetary policy transmis-sion, RBI advised banks (Dec 17, 2015) to move to mar-ginal-cost-of-funds-based determination of their Base Rateand follow the following guidelines to price their advances:a) Internal Benchmark : i. All rupee loans sanctioned andcredit limits renewed w.e.f. April 1, 2016 to be pricedw.r.t. Marginal Cost of Funds based Lending Rate (MCLR).It will be internal benchmark for such purposes.ii. The MCLR will comprise of (a) Marginal cost of funds;(b) Negative carry on account of CRR; (c) Operating costs;(d) Tenor premium.iii. Marginal Cost of funds: It has two components (a)Marginal cost of borrowings and (b) return on networth.iv. Negative Carry on mandatory CRR: It arises due to re-turn on CRR balances being nil. It will be calculated as:Required CRR x (marginal cost) / (1- CRR)The marginal cost of funds arrived at (iii) above will beused for arriving at negative carry on CRR.v. Operating Costs: All operating costs associated with pro-viding the loan product including cost of raising funds willbe included. The costs of providing those services whichare separately recovered by way of service charges shouldnot form part of this component.vi. Tenor premium: These costs arise from loan commit-ments with longer tenor. The change in tenor premiumshould not be borrower or loan class specific. It shouldbe uniform for all types of loans for a given residual tenor.vii. MCLR is a tenor linked benchmark. Hence banks shallarrive at MCLR of a particular maturity by adding the cor-responding tenor premium to sum of Marginal cost of funds,Negative carry on account of CRR and Operating costs.viii. Banks are to publish the internal benchmark for thefollowing maturities: (a) overnight MCLR, (b) one-monthMCLR, (c) three-month MCLR, (d) six month MCLR, (e)One year MCLR. In addition, banks can publish MCLR ofany other longer maturity.b) Spread : Banks should have a Board approved policydelineating the components of spread charged to a cus-tomer. The policy shall include principles:a. To determine quantum of each component of spread.b. To determine range of spread for a given category ofborrower / type of loan.c. To delegate powers in respect of loan pricing.Component of spread : The banks shall adopt the follow-ing broad components of spread:a. Business strategy: The component will be arrived attaking into consideration the business strategy, marketcompetition, embedded options in the loan product, mar-ket liquidity of the loan etc.b. Credit risk premium: The credit risk premium chargedto the customer representing the default risk arising fromloan sanctioned should be arrived at, based on an appro-priate credit risk rating/scoring model and after takinginto consideration customer relationship, expected losses,collaterals, etc.iii. The spread charged to an existing borrower should

not be increased except on account of deterioration inthe credit risk profile of the customer. Any such decisionregarding change in spread on account of change in creditrisk profile should be supported by a proper risk profilereview of customer. This stipulation is not applicable toloans under consortium / multiple banking arrangements.c) Interest Rates on Loansi. Actual lending rates will be determined by adding thecomponents of spread to the MCLR. There will be nolending below the MCLR of a particular maturity for allloans linked to that benchmark.ii. The reference benchmark rate used for pricing theloans should form part of the terms of the loan contract.d) Exemptions from MCLRi. Loans covered by schemes formulated by Govt. of Indiawherein banks have to charge interest rates as per thescheme.ii. Working Capital Term Loan (WCTL), Funded Interest TermLoan (FITL), etc. granted as part of the rectification/re-structuring package.iii. Loans granted under various refinance schemes for-mulated by Govt. of India or any Government Undertak-ings wherein banks charge interest at the rates prescribedunder the schemes to the extent refinance is available.Interest rate charged on the part not covered under re-finance should adhere to the MCLR guidelines.iv. The following loans can be priced without being linkedto MCLR as the benchmark for determining interest rate:(a) Loan to banks depositors against their own deposits.(b) Loan to banks own employees including retired em-ployees.(c) Advances granted to the Chief Executive Officer / WholeTime Directors.(d) Loans linked to a market determined external bench-mark.(e) Fixed rate loans granted by banks. However, in case ofhybrid loans where the interest rates are partly fixed andpartly floating, interest rate on the floating portion shouldadhere to the MCLR guidelines.e) Review of MCLRi. Banks shall review and publish their MCLR of differentmaturities every month on a pre-announced date withthe approval of the Board or any other committee, towhich powers have been delegated.ii. Banks not having adequate systems to carry out thereview of MCLR on a monthly basis, may review their ratesonce a quarter on a pre-announced date for the firstone year i.e. upto March 31, 2017. Thereafter, they shouldadopt the monthly review system.f) Reset of interest ratesi. Banks may specify interest reset dates on their floatingrate loans. Banks can offer loans with reset dates linkedeither to the date of sanction of the loan/credit limits orto the date of review of MCLR.ii. MCLR prevailing on the day the loan is sanctioned, willbe applicable till the next reset date, irrespective of thechanges in the benchmark during the interim.iii. The periodicity of reset shall be one year or lower.

Marginal Cost Based Lending Rate

Banking events updatE January 2016 5BANKING FEATURESThe exact periodicity of reset shall form part of terms of loan contract.g) Treatment of interest rates linked to Base Rate charged to existingborrowersi. Existing loans and credit limits linked to the Base Rate may continue tillrepayment or renewal, as the case may be.ii. Banks will continue to review and publish Base Rate as hitherto.iii. Existing borrowers will also have the option to move to the MarginalCost of Funds based Lending Rate (MCLR) linked loan at mutually accept-able terms. However, this should not be treated as a foreclosure of exist-ing facility.

Methodology for computing marginal cost of fundsMarginal cost of funds = (Rates offered on deposits on date of review / rate at whichfund raised) x Balance outstanding as on previous day of review as a percentage oftotal funds other than equity.Notes : 1. Deposits a) Current Deposits : The core portion of current deposits identified based on ALMguidelines (Oct 24, 2007) should be reckoned for arriving at the balance outstanding.b) Savings Deposits : The core portion of savings deposits identified based on ALMguidelines (Oct 24, 2007) should be reckoned for arriving at the balance outstanding.c) Fixed Rate Term deposits various maturities should be included.d)Floating rate Term deposits : The rate should be arrived at based on the prevailingexternal benchmark rate on the date of review.e) Foreign currency deposits to the extent used for lending in rupees, should beincluded. The swap/hedge cost of should be reckoned for computing marginal cost.2. Borrowings a) Short term Rupee Borrowings : Interest payable on each type of short termborrowing will be arrived at using the average rates at which such short term borrowingswere raised in the last one month.b) Long term Rupee Borrowings - Option 1: Interest payable on each type of borrow-ing will be arrived at using average rates at which such long term borrowings wereraised.Option2: The appropriate benchmark yield for bank bonds published by FIMMDA forvaluation purposes will be used as the proxy rate for calculating marginal cost.c) Foreign Currency Borrowings including HO borrowings by foreign banks (otherthan those forming part of Tier-I capital) - FC borrowings, to the extent deployed forlending in rupees, should be included in computing marginal cost of funds. The all-in-cost of raising foreign currency borrowings including swap cost and hedge cost wouldbe reckoned for computing marginal cost of funds.Marginal cost of borrowings : The marginal cost of borrowings shall have a weightageof 92% of Marginal Cost of Funds while return on networth will have the balanceweightage of 8%.Methodology for computing Return on networthAmount of common equity Tier 1 capital required to be maintained for Risk WeightedAssets as per extant capital adequacy norms shall be included for computing marginalcost of funds. Since currently, the common equity Tier 1 capital is (5.5% +2.5%) 8%of RWA, the weightage given for this component in the marginal cost of funds will be8%.In case of newly set up banks (either domestic or foreign banks operating as branchesin India) where lending operations are mainly financed by capital, the weightage forthis component may be higher ie in proportion to the extent of capital deployed forlending. This dispensation will be available for a period of three years from the dateof commencing operations.The cost of equity will be the minimum desired rate of return on equity computed asa mark-up over the risk free rate. Banks could follow any pricing model such as CapitalAsset Pricing Model (CAPM) to arrive at the cost of capital. This rate can be reviewedannually.Marginal cost of funds = 92% x Marginal cost of borrowings + 8% x Return onnetworth

Tax payers seeking non-deduction of tax fromincomes are to file a self declaration in Form No.15G or 15H u/s 197A of the Income-tax Act,1961. Central Board of Direct Taxes (CBDT) on29.09.15 simplified the format and procedurefor self declaration in Form No.15G or 15H. Theprocedure for submission of the Forms by thedeductor has also been simplified which has be-come effective from 01.10.2015.Manner of furnishing 15G or 15H: The dec-laration may be furnished in any of the followingmanners, namely:-(a) in paper form;(b) electronically after duly verifying through anelectronic process in accordance with the speci-fied procedures, formats and standards.Role and responsibility of the person re-ceiving 15G or 15H (i.e. the deductor): Thedeductor responsible for paying any income ofthe nature referred to in of section 197A, shallallot a unique identification number to each dec-laration received by him in Form No.15G and FormNo.15H respectively during every quarter of thefinancial year.The particulars of declaration received by thedeductor during any quarter of the financial yearshall be furnished along with the unique identifi-cation number allotted by him, in the statementof deduction of tax of the said quarter.The deductor shall furnish the statement of de-duction of tax referred to above containing theparticulars of declaration received by him duringeach quarter of the financial year along with theunique identification number allotted by him irre-spective of the fact that no tax has been de-ducted in the said quarter.An income-tax authority may, before the end of7 years from the end of the financial year inwhich the declaration has been received, requirethe deductor to furnish or make available thedeclaration for the purposes of verification orany proceeding under the Act.Role of the Principal Director General ofIncome-tax (Systems) : He shall specify theprocedures, formats and standards for furnish-ing and verification of the declaration, allotmentof unique identification number and furnishing ormaking available the declaration to the incometax authority and shall be responsible for theday-to-day administration in relation to the fur-nishing of the particulars of declaration.The Principal Director General of Income-tax (Sys-tems) shall make available the information ofdeclaration furnished by the person to the Prin-cipal Chief Commissioner or Chief Commissioneror Principal Commissioner or Commissioner towhom the Assessing Officer having jurisdictionto assess the person who has furnished the dec-laration is subordinate.

Submission of Form No.15G and 15H(Section 197A of Income Tax Act)


The Govt. approved the Interest Equalisation Scheme forPre-shipment and Post-Shipment Rupee Export Credit w.e.f1st April, 2015 for 5 years. The details are as follows:(a) The rate of interest equalisation @ 3% per annum willbe available on Pre-Shipment Rupee Export Credit andPost-Shipment Rupee Export Credit.(b) The scheme would be applicable w.e.f 01.04.2015 for 5years. Govt. can modify the Scheme at any time.(c) The scheme is available to all exports under 416 tarifflines [ITC (HS) code of 4 digit] and exports made by Micro,Small & Medium Enterprises across all ITC(HS) codes.(d) Scheme would not be available to merchant exporters.(e) Banks are required to completely pass on the benefitof interest equalisation, as applicable, to the eligibleexporters upfront and submit the claims to RBI forreimbursement, duly certified by the external auditor.(f) Ministry of Commerce and Industry will place funds inadvance with RBI for a requirement of one month andreimbursement would be made on a monthly basis througha revolving fund system.(g) All eligible exports would have to meet the criteria ofminimum processing for goods to be called as Originatingfrom India (as per Foreign Trade Policy 2015-20).Scheduled commercial banks have been advised by RBI(Dec 04, 2015) to adhere to the following operational pro-cedure for claiming reimbursement:A. Procedure for passing on the benefit of interestequalisation to exporters:1. For the period April 1, 2015 to November 30, 2015,banks shall identify the eligible exporters as per the Govt.of India scheme and credit their accounts with the eli-gible amount of interest equalisation.2. From Dec 2015 onwards, banks shall reduce the in-terest rate charged to the eligible exporters as per RBI'sextant guidelines on interest rates on advances by therate of interest equalisation provided by Govt. of India.3. The interest equalisation benefit will be available fromthe date of disbursement up to the date of repayment orup to the date beyond which the outstanding exportcredit becomes overdue. However, the interestequalisation will be available to the eligible exporters onlyduring the period the scheme is in force.B. Procedure to claim reimbursement of benefit of inter-est equalisation already passed on to eligible exporters:1. The sector-wise consolidated reimbursement claimfor the period April 1, 2015 to Nov 30, 2015 for the amountof interest equalisation already passed on to eligible ex-porters should be submitted to RBI by Dec 15, 2015.2. The sector-wise consolidated monthly reimbursementclaim for interest equalisation for Dec 2015 onwards shouldbe submitted in original within 15 days from the end ofthe respective month, with banks seal and signed byauthorised person, in the prescribed format.3. The claims should be accompanied by an ExternalAuditors Certificate (with stamp and membership num-ber) certifying that "the claim for interest equalisation of

Interest Equalization Scheme for RupeePre-shipment and Post-shipment credit

Compilation : Sapandeep Toor (in Sydney - Australia) (Source RBI Website).

Masala bondsMasala Bonds represent the bonds issued for rupee-denominated borrowings by Indian entities in overseasmarkets. The International Finance Corporation (IFC), aninvestment arm of World Bank, issued Rs.1,000 crore bonds(which named it Masala Bonds) to fund infrastructureprojects in India in Nov 2014. These bonds were listed onthe London Stock Exchange (LSE). The name Masala bondswas chosen to give a flavour of Indian culture and cuisine.The debt instruments (bonds) have been named afterfood stuffs in the past also (Chinese bonds, named Dim-sum bonds after a popular dish in Hong Kong, Japanesebonds named Samurai after the countrys warrior class).Benefit of issuing Masala Bonds: An Indian company orissuer of an overseas bond offering bonds in foreign cur-rency runs the risk exchange price fluctuation (foreignexchange risk). The weakening of the Rupee during thetenure of the bond can add significantly to costs at thetime of redemption or repayment. By pricing or issuingbonds in Rupees, is able to pass on the exchange risk tothe investors.In addition, borrowing overseas can be relatively cheapcompared to borrowing in India, with average costs dif-ference of at least 200 basis points.Further, it offers new and diversified set of investors forIndian companies, and more liquidity in exchanges suchas London, apart from bank funding and the corporatebond market in India.Benefit to foreign investor: An investor buying such bondgains around 200 basis points above the globally acceptedpricing benchmark LIBOR (London Inter-bank Offered Rate)after hedging for foreign exchange risks. With Indias GDPor national income rising, and projected to grow at areasonably fast rate over the next few years, many over-seas investors may like to buy into such bonds to earnhigher returns compared to the US and Europe whereinterest rates are still low.Impact : Many Indian companies with large borrowingsabroad donot hedge their debt exposure or cover theirrisks. From the external balance sheet management pointof view, issue of Masala Bonds will provide a natural hedgeas it not give risk to foreign exchange risk.Investment in Masala Bonds shall be a sign of acceptanceof the Indian currency in trading and settlement overseas.This will be testing the internationalisation of the Indiancurrency over the medium and long term.

Rupees.. for the month ended .. has beenverified and found to be strictly in accordance with theprovisions of the Government scheme". Claims for reim-bursement will be considered for settlement only afterreceipt of this certificate.4. The claims may be sent to RBI Central Office, Mumbai.5. The reimbursement of interest equalisation claim willbe made when the funds are received from Govt. of India.RBI shall send a monthly report to Deptt of Commerce/DGFT indicating reimbursement made commodity wise/bankwise, as per the prescribed format.

.......Interest Equalization Scheme for Export Credit

Banking events updatE January 2016 7BANKING FEATURES

1) A customer had deposited a cheque of Rs. 24 lac in his a/c. The amount was dulytransferred to his a/c and he withdrew Rs. 80000 on the same day after which the balancein his a/c was Rs. 2320008. He claimed that he did not do any further transactions in theaccount. On next day somebody apparently in collusion with some employee of the bankcredited Rs.100000 to his a/c and thereafter, the entire amount of Rs. 24 lac was creditedback to the a/c of the drawer of the cheque. The bank did not take any action on hiscomplaint. In its reply to BO, the bank stated that there was an internal family disputebetween the complainant and his wife, who had issued the said cheque. The bank encloseda representation from the drawer of the cheque wherein she claimed that the cheque hadbeen fraudulently got signed by the beneficiary/complainant. BO observed that the bankhad not offered any comment as to how the disputed transactions in the a/c had beencarried out at the banks end irrespective of the underlying dispute between the drawerand the drawee. In a meeting with bank officials BO asked bank officials to explain whetherthe reversal of transaction was in conformity with existing banking law and practices. Thebank officials had no valid justification. The bank was advised to immediately refund entireamount along with interest at fixed deposit rate for the delayed period to the complainant.2) The complainant had deposited a cheque for collection in the cheque drop box of hisbank provided in the ATM kiosk. However, the cheque amount was not credited to hisaccount. The bank officials informed that the cheque was stolen by miscreants from thecheque drop box and misused. FIR about theft was lodged with police. As per extant RBIguidelines, in such cases where there is no fault of bank and the customer, the onus ofpayment of compensation (up to a limit) lies with the collecting bank as part of Boardapproved policy. BO advised the bank to pay the cheque amount along with interest atsavings bank rate for delayed period.3) Proprietor of a firm lodged a complaint with the BO office that five cheques issued in thename of his firm were deposited by his supervisor in his savings account by writing hissavings account number in the pay-in-slip and the proceeds of these cheques were wronglycredited to his personal savings account. The BO called for original documents and theaction taken on the earlier complaint received by the bank from the complainant. After dueexamination of all the documents including the internal investigation report, it was observedthat bank was negligent in collecting and crediting the cheques drawn in the name of thefirm to the personal account of the supervisor. As the protection of Section 131 of NegotiableInstrument Act was not available to the bank, an advisory was issued directing the bank tocredit the amount of cheques to firms account.4) The complainant alleged that there was a fraudulent transfer of funds through combovoucher from his account to an unknown account in other bank. The complainant submitteda copy of reply by the bank in response to his RTI query wherein the bank had categoricallystated that transfer voucher was meant for internal use of the bank and transfer of fundwas being done on written request of the account holder/authorized person. On taking upthe matter, the bank replied that the transfer of funds was made on the basis of combovoucher, which had the signature of depositor which tallied with account opening form heldon their record.Bank also stated that the authority letter required as per internal circular was not obtainedand an internal investigation had been done and disciplinary action initiated against erringofficials of the bank. However, the bank pleaded that since general authority and signaturetallied, the bank had the mandate to debit the account. BO observed that the banks standthat mere signature on the transfer voucher constituted proper mandate, was notacceptable, as the bank had been obtaining separate mandate for transfer of funds. Apurported mandate on the combo voucher was not complete in as much as the name of thebeneficiary was not proper as also the amount was mentioned only in figures and not inwords. BO passed an award against the bank directing to pay the value of disputedtransaction with interest at extant savings bank rate from the date of transaction till thedate of payment to the complainant.5) The complainant alleged that his bank had withheld operations in his pension account forsix months and deducted Rs 1,26,000 and was further demanding Rs.1,98,659 due toinadvertent credit of excess amount by bank itself. On examination, it was observed thatthe mistake was on the part of the bank as it had credited the excess amount to thecomplainants account. It was observed that the bank should not have withheld theoperations in the pension account. On intervention by the OBO, the bank allowed operationsin the pension account and agreed to recover the outstanding in suitable installments.

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RBI decided (Dec 10, 2015) to reduce the Statutory Liquidity Ratio(SLR) of scheduled commercial banks, local area banks, primary(Urban) co-op banks (UCBs), state co-op banks and central co-operative banks from 21.5% of their Net Demand and Time Liabili-ties (NDTL) to:(i) 21.25% from April 2, 2016;(ii) 21.00% from July 9, 2016;(iii) 20.75% from October 1, 2016; and(iv) 20.50% from January 7, 2017of their total NDTL in India as on the last Friday of the secondpreceding fortnight, valued in accordance with the method of valu-ation specified by RBI from time to time.Hencewith effective from the dates given above these banks shallmaintain in India, SLR assets the value of which shall not, at theclose of business on any day, be less than the percentages above.For SLR assets:A. Scheduled commercial banks & local area banks:(a) cash; or (b) gold valued at a price not exceeding the currentmarket price: or (c) unencumbered investment in any of the follow-ing instruments :(1) Dated securities of Govt. of India issued under the marketborrowing programme and the Market Stabilization Scheme ; or(2) Treasury Bills of the Government of India; or(3) State Development Loans (SDLs) of the State Governmentsunder the market borrowing programme:(d) the deposit and unencumbered approved securities required,under Section 11 of the Banking Regulation Act, to be made withRBI by a banking company incorporated outside India;(e) balance maintained by a scheduled bank with RBI in excess ofthe CRR balance to be maintained by it u/s 42 of RBI Act,1934 ;The instruments referred to in items (1) to (3) above acquired fromRBI under Liquidity Adjustment Facility (LAF), shall not be includedas SLR securities for the purpose of maintenance of SLR assets;Further, the following securities shall not be treated as encum-bered for the purpose of maintenance of SLR assets:(a) securities lodged with another institutionfor an advance or anyother credit arrangement to the extent to which such securitieshave not been drawn against or availed of;(b) securities offered as collateral to RBI for availing liquidity assis-tance from Marginal Standing Facility (MSF) up to the permissiblepercentage of the total NDTL in India, carved out of the requiredSLR portfolio of the bank concerned; and(c) securities offered as collateral to RBI for availing liquidity assis-tance under Facility to Avail Liquidity for Liquidity Coverage Ratio.B. Primary (Urban) co-operative banks:(a) Cash, or (b) Gold valued at a price not exceeding the currentmarket price, or (c) Unencumbered investment in approved securi-ties as defined in section 5(a) of the Banking Regulation Act, 1949read with section 56 thereof:Provided that the instruments acquired from RBI under LAF shallnot be included as SLR securities for maintenance of SLR assets;Provided further that the following securities shall not be treatedas encumbered for maintenance of SLR assets:The securities lodged with another institutionfor an advance or anyother credit arrangement to the extent to which such securitieshave not been drawn against or availed of;C. State co-op bank (StCB) and Central co-op bank (CCB):(a) Cash, or (b) Gold valued at a price not exceeding the currentmarket price, or (c) Unencumbered investment in approved securi-ties as defined in Section 5(a) of the Banking Regulation Act, 1949read with Section 56 thereof.

Compilation : Manjot Kaur Toor (Sydney - Australia) (Source Website of RBI).

Maintenance of SLR

R

Provided that the following securities shall not be treated as en-cumbered for the purpose of maintenance of SLR assets:The securities lodged with another institution for an advance orany other credit arrangement to the extent to which such securi-ties have not been drawn against or availed of.Notwithstanding anything contained hereinabove,i. Unencumbered balances maintained by a Central co-op bank withthe State co-op bank of the State concerned, in excess of the CRRbalance required to be maintained by it u/s 18 of the BankingRegulation Act, 1949 read with section 56 thereof;ii. Any unencumbered term deposits maintained by a Central coopbank with the State co-op bank of the State concerned; andiii. Unencumbered term deposits held by a State co-op bank or acentral co-op bank with SBI or a subsidiary bank or a correspondingnew bank or IDBI Bank Ltd.shall also be deemed to be assets for calculating the percentagespecified, till March 31, 2017. However, SLR on incremental NDTLover the level as on July 25, 2014 shall be maintained by StCBs /CCBs in the form of approved assets. Maintenance of SLR in theform of approved assets on NDTL as on July 25, 2014 shall be asper the roadmap advised as under.

March 31, 2016 : 10% of NDTL as on July 25, 2014 to be maintainedin assets as mentioned at (c) aboveFrom April 1, 2017: Entire SLR as prescribed by RBI as on that datein assets as mentioned in (a) to (c) above

Green bondsA bond is a debt instrument with which an issuer raisesmoney from investors. A green bond is a bond wherethe issuer of the bond, publicly states that capital isbeing raised to fund green projects. Green projectstypically include those projects that relate to renew-able energy, emission reductions and so on.The green bonds are issued by multilateral agenciessuch as the World Bank, corporations, government agen-cies and municipalities. Institutional investors and pen-sion funds generally invest in these bonds.In the past, certain Indian entities (such as Indian Re-newable Energy Development Agency Ltd and Greenko)issued bonds without the tag of green bonds, but theproceed were used for financing renewable energy.In March 2015, Exim Bank of India issued a five-year$500 million green bond, which is Indias first dollar-denominated green bond. Exim Bank proposes to usethe net proceeds to fund eligible green projects incountries including Bangladesh and Sri Lanka.In February 2015, Yes Bank also raised Rs 1,000 croreby issue 10-year Green Infrastructure bonds.Important of Green Bonds for India: India has an ambi-tious target of building 175 gigawatt of renewable en-ergy capacity by 2022 (30 gigawatt at present) whichrequires a massive funding of $200 billion. The budgetallocations for this have been insufficient. Further, asper reports, the higher interest rates and unattrac-tive terms under which debt is available in India, raisesthe cost of renewable energy by 24-32% compared tothe U.S. and Europe.In the light of these, for funding the renewable energyin India, the green bonds appear to be a good option.


GOVT. PROPOSES TO MAKE INDIA DEFENCE EXPORT HUB: The proposedDefence Procurement Procedure (DPP) 2015 is expected to facilitate exportpromotion, making India a Global Hub for arms shipments. To achieve this, theMinistry of Defence plans to establish a separate export promotion body incollaboration with the Ministry of Commerce and Industry. The new DPP will alsomake India self-reliant in defence production with lower import dependence,besides the emphasis on:Make in India. Finally, the government wants theDefence Sector to be transformed into a Global Exporting Hub.

CBDT INKS MORE UNILATERAL APAs: The Central Board of Direct Taxes(CBDT) has entered into 11 more unilateral Advance Pricing Agreements (APAs).With this round of signing CBDT has so far entered into 31 APAs (30 unilateraland one bilateral) An APA is an agreement between a taxpayer and the taxauthority concerning the transfer pricing method and the rate applicable to thetaxpayers inter-company transactions and normally covers multiple years. Whileseven of these APAs have rollback provisions contained in them, the other fouragreements are for future five years.

CSS PANEL RECOMMENDATIONS ON SOCIAL WELFARE SCHEMES: TheCentrally-Sponsored Schemes (CSS) Panel headed by MP Chief Ministerrecommended that the schemes be divided into core of the core schemes, coreschemes and optional schemes for determining the funding pattern. Allowingstates choice among optional schemes is an innovation. Depending on ease ofits implementation, the same option of preferred allocation in core schemes mayalso be introduced, subject to conditions. The innovative idea can be introducedon the condition that all states mandatorily participate in all the core schemes.

NATIONAL CONSUMER COMMISSION RULING ON CONSUMER COURT:The National Consumer Commission has ruled that when there is an allegation offraud or forgery, consumer forums can not adjudicate the issue invokingdeficiency in service. It can hear the complaint only after the criminality hasbeen established by the investigation.

SEBI ISSUES NEW LISTING NORMS FOR EXCHANGES: SEBI has issued thebroad guidelines for an initial public offer (IPO) by the bourses. SEBI has madeit mandatory for stock exchanges to ensure that the minimum public shareholdingis at least 51%. Trading members, associates and agents can hold the balance49%. SEBI has also permitted listing of depositories, which will be governed bythe same norms as those applicable to stock exchanges.

SEBI RELAXED DE-LISTING NORMS FOR SMALL COMPANIES: SEBI hasrelaxed delisting norms for small companies. Currently, one pre-condition forde-listing is that the shares of the company should not have been traded for thepreceding year. Now, small companies, whose trading of equity shares duringthe 12 calendar months is less than 10% of the total number of shares of suchcompany will also be eligible.

EPFO EASES PF CLAIM NORMS: The Employees Provident Fund Organization(EPFO) said that Aadhar-seeded Universal Account Number (UAN) holders will,with immediate effect, no longer require employer attestation to make providentfund claims. Employees whose details like Aadhar number and bank accountnumber have been seeded in their UAN and their UAN has been activated , maysubmit prescribed claim forms to their respective regional office without havingto seek employers attestation.

CHINAS YUAN INCLUSION IN SDR BASKET: The decision to add the Yuan inthe Special Drawing Rights (SDR) basket alongside the dollar, euro, pound

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sterling and yen is an important milestone in Chinasintegration into global finances and nod to theprogress it has made with the reforms. To meet theIMFs criteria, China has undertaken flurry ofreforms in recent months, including better accessfor foreigners to Chinese currency markets, morefrequent debt issuances and expanded Yuan tradinghours. In this regard, RBI Governor said thatinclusion of Yuan in SDR Basket may lead todevaluation.

EPFO INTRODUCED NEW FACILITIES UNDERNPS: The Pension Fund Regulatory andDevelopment Authority (PFRDA) have introducednew facilities for members of the National PaymentSystem. Now subscribers will be able to transferfunds from their investment (Tier-II) to pension (Tier-I) accounts and points of presence will be able toprocess voluntary contributions made by anycorporate subscriber. The government employeeswho are members of the NPS will also have thefacility of opening investment accounts. Thegovernment sector nodal offices have now beenprovided with utility for activating the Tier-II accountand its operation for all government employees.

PMAC FOR REVIVAL OF CONVERTIBLESECURITY ISSUANCES: The Primary MarketAdvisory Committee (PMAC) has recommended thatlisted entities may issue compulsorily convertiblesecurities for a maximum period of five years torevive the issuance of convertible securities.Currently, there is no such cap. These are securitieswhich have features of both debt and equity. SEBIalso said that holders of convertible securities shouldalso be allowed to offload their holdings to the publicakin to equity shares.

GOVT. LAUNCHED ACCESSIBLE INDIACAMPAIGN: The Union Finance Ministerinaugurated Accessible India Campaign with thelaunch of mobile-based app and web portalSugamya Bharat which would enable citizens totake photographs of inaccessible public places andhelp state governments and the centre in makingthem accessible. The Government has alsointroduced a reward system for proactive citizens.The Campaign aims to provide universal accessibilityfor all, including differently-abled persons.

SEBI OUTLINES ROADMAP FOR E-BOOK FORCORPORATE BONDS: SEBI has proposed to set

10 Banking events updatE January 2016 Financial Events

up a platform for online sale of privately-placed corporate debt. SEBI hasproposed two approaches to set up the electronic book platform. In the firstmodel, the electronic book may be provided as an alternative to the existingmechanism. Subsequently, based on the performance acceptability of such abook, this could be made mandatory for all issuers for issuance of privately-placed non-convertible debentures that are proposed to be listed. In thesecond model, the electronic book will be made mandatory for all privateplacement issues having a threshold of Rs.500-1000 Crore in terms of theamount being raised.

FOREIGN GOVERNMENT TO TAP MASALA BONDS: Masala bonds arebasically rupee-denominated bonds issued in offshore capital markets. Thesebonds are offered and settled in US Dollar to raise rupees from internationalinvestors for infrastructure development in India. No government has issuedbonds in the offshore INR masala bonds market. Now British Columbia, locatedin Western Canada, may become the First Foreign Government to investonshore in India as it plans to tap the Masala Bonds. It plans to raise at leastRs.500 Crore via Masala Bonds in January-March next year.

SEBI BARS OUTSOURCING OF DEPOSITORY-RELATED ACTIVITIES:SEBI has said that activities such as processing of applications from depositoryparticipants, issuers, registrar and others, allocating International SecuritiesIdentification Number and maintaining beneficial owner data, should not beoutsourced. Depositories are entities that hold securities in dematerializedform and operate through a network of depository participants. Depositorieshave three months time to implement the system.

FINMIN TO SET UP BANK BOARD BURAEU: The Finance Ministry is tostart the process of setting up the proposed Bank Board Bureau, the firststep towards a holding company structure for state-run banks by the end ofthis month. A search committee which includes RBI Governor will shortlist sixcandidates and a chairman for the part time body which will take over theselection process for public sector banks and also discuss their businessstrategy. The whole process will be completed by February 2016. Thegovernment will transfer its stake in state-run banks to the proposed BankInvestment Committee, which will help raise capital for banks and reduce thegovernment stake to below 51%.

GOVT. BONDS TO BE ISSUED UNDER UDAY SCHEME: Last month theCabinet cleared the Ujwal Discom Assurance Yojna (UDAY) a restructuringpackage to rescue stressed power distribution utilities. As of March 2015,discoms had accumulated losses of around Rs.3.8 Lakh Crore and debt ofnearly Rs.4.3 Lakh Crore. As per UDAY Scheme, discoms will pass on theirdebt to states over a two year period. In turn, states will issue Non-SLRBonds either in the market or directly to the bank/ financial institution with aninterest rate not more than the banks base rate plus 0.1%.

LCR TO IMPACT PROFITABILITY OF BANKS: According to India Ratingsand Research, the introduction of liquidity coverage ratio (LCR) is a positivestep for the banking sector but it could come at a high transition cost. LCR isa regulatory requirement for banks to set aside a certain amount of highly-liquid assets, such as cash or treasury bonds, to meet short term liquiditydisruptions.

CHINA PERMITS YUAN CONVERTIBILITY ON CAPITAL ACCOUNT: Chinahas allowed Yuan convertibility on the capital account within $10 million inthree Free Trade Zones. The move came less than two weeks after theRenminbi (RMB) was admitted by the International Monetary Fund into itsSpecial Drawing Rights basket alongside the dollar, euro, pound sterling andyen on November 30. China, two decades ago also had permitted RMBconvertibility but almost all capital account transactions are under varyingdegrees of control. The guidelines encourage banks in the free trade zonesto deal with transactions between RMB and foreign exchange derivatives.

INDIAS FIRST GOLD SPOT EXCHANGE LAUNCHED: The India Bullionand Jewellers Association with the Bombay Stock Exchange (BSE) is to launchthe countrys First Gold Spot Exchange. After getting regulatory approval,the exchange may commence trading in April 2016. BSE will provide the

technology and technical know-how for owning 30%in the Exchange. The Exchange will collect the goldfrom consumers who are willing to sell and recycle itfor use within the country to bring down imports.India imports about 1000 tonnes of gold every year.

SEBI CHANGES DEMAT ACCOUNT RULES: SEBIdecided that all demat accounts would be consideredas a Basic Services Demat Account (BSDA) unless thedemat a/c holder specifically opts to continue with aregular demat account. Depository Participants haveto asses the eligibility of the beneficial owner (demataccount holder) at the end of the current billing cycleand convert eligible demat accounts into BSDA.Finding few takers after the BSDA was introducedand the conversion option in place, SEBI took thisdecision with the objective of achieving wider financialinclusion and to encourage holding of demat accounts.

SUPREME COURT RULING ON BUSINESSEXPENDITURE: Supreme Court has ruled that theinterest paid by a company on borrowings from banksto advance money to its own subsidiary is BusinessExpenditure on which tax deduction can be claimed.

INSURANCE BUREAU LAUNCHES HOSPITALREGISTRY: The Insurance Information Bureau ofIndia has launched a registry of 32, 651 uniquehospitals called the Registry of Hospitals in Networkof insurance to ease inefficiencies in claim settlements.This portal will provide an electronic exchange ofmedical records between hospitals and insurancecompanies to ensure faster claims processing. Thiswill also facilitate national state, regional levelanalytical reporting on health-care such asgeography-based trends, patterns of diseaseoccurrence and cost patterns which will helpdetermine standardized treatment costs.

GOVT. TRIMS MARKET BORROWING TARGET:The Government has trimmed its Market Borrowingstarget for the second half of the fiscal by Rs.15, 000Crore. The gross market borrowings have beenadjusted down by Rs.15, 000 Crore to take intoaccount expected government borrowings throughSovereign Gold Bonds and Gold Monetization Scheme.The Centre plans to raise Rs.2.49 Lakh Crore in thesecond half of the fiscal out of gross borrowingstarget of Rs.6 Lakh Crore. Of this, it plans to raiseRs.2.34 Lakh Crore through government securities.

NHB UNVEILS SPECIAL REFINANCE PACKAGEFOR TAMIL NADU: Housing Finance RegulatorNational Housing Bank has unveiled an Rs.100 CroreSpecial Refinance Package to provide relief to peoplein flood-affected areas of Tamil Nadu. Under thepackage, Rs.100 Crore has been earmarked at aconcessional interest rate of 6.5% a year to housingfinance companies for providing refinance assistanceto individuals. Both existing and new home loanborrowers can make use of this special package.

GOVT. TO DISPENSE WITH PLAN AND NON-PLANSPEND CLASSIFICATION: After shuttering thePlanning Commission, the Government is consideringto drop the Plan and Non-Plan Spend classification inthe budget. The budget also has capital and


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revenue spending classification, which the finance ministry feels is better ableto link expenditure to outcomes. An expert committee headed by C.Rangrajanhad also in 2011 proposed that the distinction between plan and non-planexpenditure be abolished for both the Centre and the States.

COMPUTER-BASED SCRUTINY TO BE USED BY CBDT: The process ofselecting tax cases is being replaced by a system-based centralized approach.For the past several years, the process of selecting of cases for scrutiny on arandom basis has been dispensed away with. Instead, CBDT has devised asystem-based in a centralized manner through CASS (Computer Assisted ScrutinySelection) whereby the selection is made on the basis of detailed analysis of riskparameters and 360 degree data profiling of tax payers.

PARLIAMENTARY PANEL FOR HUB OF INSTITUIONAL ARBITRATION:The Parliamentary Panel headed by EM Sudarshna Natchappan recommendedthat institutional arbitration with accredited arbitrators may be provided to thecommercial entities so that they could avail themselves in India the route ofeither commercial court or arbitration for resolving their commercial disputes.The report of the panel highlighted that most of the commercial entities preferinternational arbitration available in Singapore, London and Dubai. The committeealso said that the award of the arbitration should be binding on the partieswithout giving the option to the parties to challenge the same in the court of law.

CBDT SIMPLIFIED ONLINE TAX RECTIFICATION: In a move aimed to helpingtax payers, the Central Board of Direct Taxes (CBDT) has simplified the processof online rectification of incorrect tax deducted at source (TDS) details filed in theincome tax return. A new facility has been provided for pre-filling of TDS schedulewhile submitting the online rectification request on the e-filing portal for easycorrection and updating of such details.

GOVT. TO EMPOWER BBB TO SELECT AUDIT FIRMS FOR PSBs: Thegovernment is likely to empower the proposed Bank Board Bureau (BBB) to selectAudit Firms for Public Sector Banks as part of its larger initiative to strengthentheir corporate governance practices. At present, individual public sector banks(PSBs) choose their auditors themselves from a list of approved firms by RBI.

CBDT REVISES MONETARY LIMITS FOR APPEALS: In order to cut down onfrivolous litigation and taxpayers grievances, CBDT has issued fresh directivesrevising the monetary limits for the taxmen to appeal at two important legalforums- ITAT and high courts. It has asked the Income Tax Department to go intoappeal at the Income Tax Appellate Tribunal (ITAT) only when the tax effect inquestion is Rs.10 Lakh (Earlier Rs.4 Lakh) and Rs.20 Lakh from earlier Rs.10 Lakhif the appeal is to be filed in high court. Monetary limit for filing appeals or SpecialLeave Petitions in Supreme Court has been kept unchanged at Rs.25 Lakh.

SUPREME COURT RULING ON BOUNCED CHEQUES: The Supreme Court hasruled in a large number of appeals that in case of bounced cheques, the complaintcould be filed in the place where the cheques were dishonored and not where itwas issued. This principle which was laid down by the court last year has nowbeen affirmed in the Negotiable Instruments (Amendment) Ordinance this year.This rule has come into effect with retrospective effect from June this year.

EDUCATION LOAN INTEREST SUBSIDY CLAIMS: The Central Scheme ofInterest Subsidy on Education Loans was announced in the Union Budget 2014and has now been closed in accordance with the instructions from the Ministry ofFinance. Canara Bank has been the Nodal bank for its implementation. Thesubsidy has been released to all member banks as per claims. From the total

position it has been revealed that Tamil Nadu hastopped the States of the country having receivedthe maximum claims.

PAN MADE MANDATORY FOR ALLTRANSACTIONS: The Finance Ministry has mademandatory to furnish PAN for all transactions overRs.2 Lakh from January 1, 2016. CBDT has alsoamended the reporting requirement of PAN forother specified transactions. Pan will be mandatoryfor all transactions of immovable property of overRs.10 Lakh from the earlier limit of Rs.5 Lakh. Itwill also be required for all term deposits of overRs.50, 000 in not only banks but also in co-operativebanks, post offices, NBFCs. Further, PAN will alsobe mandatory for opening of an account (Exceptbasic account) in any bank including co-op bank.PAN will no longer be required for installation oftelephone or cell-phone connection.

IMGC TO RBI TO INCREASE LTV TO EXPANDHOSING FINANCE: India Mortgage GuaranteeCorporation (IMGC) is the sole provider ofmortgage guarantee in the country. Till date, IMGChas signed with only four lenders- ICICI Bank,Dewan Housing Finance, Reliance home Financeand First Home for this facility. Their next target isto bring Public Sector Banks into their fold. Theyhave asked RBI to increase the loan-to-value (LTV)ratio so as to expand the market for housingfinance. They have advised RBI for allowing LTVto go up to 90% so long as there is a mortgageguarantee along with the loan product. They wantRBI to restrict this facility to first time homebuyers.

SUPREME COURT RULING ON RTI TO BANKS:The Supreme Court has ruled that RBI andcommercial banks can not hide routine informationsuch as the names of top defaulters, the lossessuffered by banks and details of action takenagainst erring banks, sought by the public underthe Right to information Act. RBI and commercialbanks hitherto denied such information held in afiduciary capacity and could not be revealed tothe public at large.

EUROPEAN UNION OKAYS TOUGH DATAPROTECTION RULES: The European Unionapproved long-awaited Data ProtectionRegulations to give people a greater say overhow their digital information is collected andmanaged. Among the policies approved are toallow national watchdogs to issue fines potentially

12 Banking events updatE January 2016totaling the equivalent of hundreds of millions of dollars ifcompanies misuse peoples online data, including obtaininginformation without peoples consent. Rule also says obligingany one under 16 to obtain parental consent before issuingpopular services like Facebook, Snapchat and Instagramunless any national government lowers the age limit to 13.

CVC ALERTS BANKS ON FAKE CA CERTIFICATES: TheCentral Vigilance Commission has asked public sector banksto put in place a system to check the rising instances of fakeChartered Accountants Certificates being submitted byborrowers to get loans. To tackle this menace, the Commissionhas suggested that the banks check with the charteredaccountants whether they have actually certified theborrowers balance sheets and profit & loss accounts. Furtherit has recommended that the Institute of CharteredAccountants of India make available an online directory of itsmembers to banks. This will help bankers to easily get intouch with the CAs to confirm the genuineness of thecertificates presented at the pre-loan sanction stage.

SEBI ISSUES PROCEDURAL NORMS FORINFRASTRUCTURE INVESTMENT TRUSTS: SEBI hasunveiled procedural guidelines for infrastructure investmenttrusts. Accordingly, investment managers can allocate onlyup to 60% of the qualified institutional buyer (QIB) portion toanchor investors. At least two anchor investors should beallowed on a discretionary basis for allocation of up to Rs.250Crore in the IITrusts and should have at least five anchorinvestors in case the amount exceeds Rs.250 Crore. Theinvestment manager should appoint one or more merchantbankers with one being a lead merchant banker. Theinvestment manager should also appoint other intermediariesin consultation with the lead merchant banker to carry outthe obligations relating to the issue.

BILL FOR INSOLVENCY AND BANKRUPTCY CODE 2015INTRODUCED IN LOK SABHA: A bill to consolidate andamend all laws relating to insolvency resolution so as to tacklethe issue of undue delays has been introduced in the LokSabha. The bill has been introduced as Money Bill which meansRajya Sabha can not reject or amend it once it is passed bythe Lok Sabha. The proposed legislation fixes a time limit of180 days extended by a further 90 days for completion ofthe corporate insolvencyresolution process. The currentsystem is delay-ridden and it takes 5 to 15 years for lendersto recover money in the event of corporate default.

EU WATCHDOG FOR SOFTER BONUS REGIME: EuropeanUnion watchdog, European Banking Authority said that thestaff in smaller banks should not have to defer large chunksof their bonuses over several years. After the 2007-09financial crises the European union introduced rules to stopbankers from taking excessive risks to win bigger bonusesand because state bailouts of failed banks had angered taxpayers. At least 40% of a bonus must be deferred for atleast three years with half of the deferred portion paid inshares or bonds rather than cash .

RBI PLANS GUIDELINES FOR PEER-TO-PEER LENDING:RBI is working on guidelines for Peer-to-Peer lendingarrangements offered by online platforms. This form of lendingis popular among individual borrowers and lenders, especiallyin the small and medium enterprises segment. These lendersdo not need regulatory approval and are not registered asNBFCs. These portals connect lenders and borrowers for afee. Investors earn returns of anything between 12% and

36% by lending on the platform. BONUS BILL FOR WORKERS PASSED: The Lok Sabha passed the

Payment of Bonus (Amendment) Bill 2015 allowing doubling the wageceiling for calculating bonus to Rs.7000 per month for factory workerswith establishments with 20 or more workers with benefits beingapplicable retrospectively from April 2014. It also enhanced theeligibility limit for payment of bonus from Rs.10, 000 per month toRs.21, 000 per month.

FINMIN RELEASES DRAFT GUIDELINES FOR POEM: The FinanceMinistry (FINMIN) has issued the draft guidelines for deciding thePlace of Effective Management (POEM) of a company. The proposedguideline would be used to determine whether a company qualifiesas a resident taxpayer. POEM means a place where key managementand commercial decisions that are necessary for the conduct of thebusiness of an entity as a whole are, in substance, made. SinceResidence is to be determined on year to year basis.

CBDT INSTRUCTIONS TO ITS STAFF ON MAT: The Central Boardof Direct Taxes (CBDT) issued new instructions to its field authoritiesdetailing the situations in which Minimum Alternate Tax (MAT) wouldnot apply on foreign companies for the period prior to April 1, 2015.The CBDT has now reiterated that with effect from April 1, 2001 theMAT provision in income tax law will not apply to a foreign companyincluding a foreign institutional investor/ foreign portfolio investor solong as certain conditions are met.

RBI ON BITCOIN FOR TRANSFORMATION OF FINANCIALMARKETS: Bitcoin, a form of digital currency is looked with suspicionacross the world. RBI in its Financial Stability Report said that theblock-chain technology underlying Bitcoin has the potential to bringabout a major transformation in the financial markets. Bitcoin is aninnovative payment system which gets created electronically usingcomplex logarithms. It is not held in a physical form but in an electronicformat. Movement of currency is not monitored by any Central Bank.

RBI TELLS PSBs ON DIVIDEND POLICY: RBI said it is imperativethat Public Sector Banks (PSBs) approach their dividend decisions asstrategic business decisions which are in keeping with their objectiveof shareholder wealth maximization. PSBs pay out significant amountsas dividend to the government and other shareholders which haveno relevance to their balance sheet and capital planning. RBI saidthe payout also reveals a cross-subsidisation by better banks (giventheir relatively higher payouts but a disproportionately higher capitalinfusion into weaker banks by the government).

GOVT. EASED AUDIT RULES ON CORPORATE FRAUDS: TheCorporate Affairs Ministry has said that the statutory auditors willnow have to mandatorily report to the Centre all corporate fraudsamounting to Rs.1 Crore and above. First, the auditor has to informthe Board or Audit Committee and seek their views within 45 days.On receipt of audit committees views the auditor would have tosend his report within 15 days. For frauds involving amounts lowerthan Rs.1 Crore, the auditor now needs to report the matter only tothe Audit Committee of the company. The reporting would have tobe done not later than two days of his knowledge of the fraud. Priorto this move, the Company Law Board required statutory auditors toreport to the Centre all frauds by the company or against it.

GOVT. ALLOWED 41 MORE HFCs TO USE SARFAESI LAW: TheFinance Ministry has allowed 41 more Housing Finance Companies(HFCs) to use the SARFAESI law for recovery of their dues andreduce NPA. Taken together with the 19 HFCs notified earlier forusing the law almost the entire housing finance industry regulatedby the National Housing Bank can now use this law for recovery oftheir dues. SARFAESI Act 2002, empowers the banks and financialinstitutions to attach pledged assets of the borrower in the event ofthe non-repayment of dues by the borrower.

Banking events updatE January 2016 2015 13

The Institute which plans e-hearing facilityfor disciplinary cases- CA Institute.

Industrialist who launched Nyay BhartiInitiative with annual corpus of Rs.100Crore being legal aid to the poor- Sunil BhartiMittal, Chairman of Bharti Enterprises-

As per India Skills Report, the State whichranks First among all states with largestemployability level- Andhra Pradesh.

New technology which can offer internetspeed one hundred times faster than theWiFi and achieve up to 224 GB per second-LiFi.

Private Banking operations have been shutdown in India by- HSBC Holdings.

The Billionaire, who is turning his energy toa stationary bicycle that can meet a ruralhouseholds electricity needs for 24 hours-Manoj Bhargava.

As per India Skills report, the State whichhas ranked First among preferred states forworking women in India- Tamil Nadu.

The state where the President openedWorlds largest Mahatma Gandhis Archiveat the Sabarmati Ashram- Gujarat.

The place where Global Climate Summit is totake place on November 30- Paris.

To make Chinese currency accessible toregional and global participants, the DubaiGold and Commodities Exchange is set tolaunch Yuan Futures

As per survey conducted by Nielsen, theBank which is the only bank to be featuredin 100 brands Indias Most Valued BankingBrand- SBI.

The State which has topped in operationalSpecial Economic Zones- Tamil Nadu.

The State where countrys First SmartManufacturing Hub is likely to come up-Telengana.

The Bank which has celebrated its SecondFoundation Day on 19th November- BhartiyaMahila Bank..

Facebook Founder who gave away 99% oftheir company shares worth about $45 billionto make the world a better place for theirnewborn daughter-Mark Zuckerberg-

The Indian University which stands at16 ranking among top 200 universitiesas per Times rankings- Indian Instituteof Science.

As per Boston list of Worlds 50 MostInnovative Companies, India has onlyone company which ranks 16th- TataMotors.

The First Indian Entity to issue GreenBond- Yes Bank.

Accessible India Campaign has beeninaugurated by the Union FM with thelaunch of a mobile-based app and a webportal- Sugamya Bharat.

The Airline which has been rated asAirline of the Year for the thirdconsecutive year- Air New Zealand.

The country whose President Rousseffis facing impeachment for violatingcountrys fiscal laws and manipulatinggovt. finances- Brazil.

The German Chancellor, who has beennamed as Person of the Year by TimeMagazine- Angela Merkel.

The Foreign Government which will beFirst to tap Masala Bonds- BritishColumbia.

The temple which is to deposit 160 Kgof gold with banks to start pick up ofGold Monetization Scheme- SiddhivinaikTemple.

As per Global Financial Integrityresearch, the country which has beenranked 4th biggest source of black moneywith $51 billion annually on average-India.

The Mission under which of the 100 cities98 have been short-listed and ten mayget funding this year- Smart CityMission.

At global level, while PM Narendra Modiis among top 10 in the Facebook Chart,the person who leads- US PresidentBarrack Obama.

The City where National green Tribunalissued order that diesel passengervehicles will not be registered- Delhi.

The Country which allowed Yuanconvertibility on the capital account inthree free trade zones- China.

The bank which has celebrated its 97thFoundation Day on 18th November-Union Bank of India.

The bank which celebrated its 93rdFoundation day on 28th November-Andhra Bank.

As per survey, India has been ratedthe Second Most Ignorant Nation after-

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GENERAL AWARENESS

Banking events updatE January 201614 DIARY OF EVENTS

Compilation : SP Sharma & Sapandeep Toor Source : Financial Newspapers, Financial News-Magazines & Financial and Institutional Web-sites

Mexico. The country which has been rated 6th in number of total annual research

papers published and contributed 4.36% of the global output in 2013- India. The Rating agency which has affirmed Indias BBB rating with a stable outlook

while pegging the countrys growth rate at 7.5% this fiscal- FITCH. The Accounts in which PM Narenra Modi came 3rd while Amitabh Bacchan

tops-Twitter Account. The Bureau which has launched a registry of 32, 651 unique hospitals in

Network of Insurance- Insurance Information Bureau. The League which suspended two of high-profile franchises Chennai Super

Kings and Rajasthan Royals for two years due to Sport Fixing Scandal- IndianPremier League.

Manila-based Bank, which will provide $1 Billion loan to Power Grid Corporationfor high voltage transmission lines in Punjab and Rajasthan-ADB.

UPAs Scheme, which has been scrapped by the present Government- Schemeof Performance Monitoring and Evaluation System

The country which will allow millions of unregistered citizens to obtain documentsvital to secure education and health services long denied to them- China.

The country with whose funds and technology, India is to set up its FirstBullet Train Project connecting Mumbai and Ahemdabad at cost of Rs.98, 000Crore-Japan.

The Tribunal which has banned the use of Plastics along the stretch of Gangafrom Uttrakhands Gomukh to Hardwar- National Green Tribunal.

Two States whose enacted laws have been upheld by the Supreme Court onconfiscation of wealth of corrupt babus, politicians even at the pre-trialstage-Bihar and Odisha.

The Apex Direct Taxes Body, which has simplified norms of pre-filing TDS dataonline- CBDT.

The Conference in which 195 countries in the World signed a Deal to limitglobal warming to well below 2 degrees celsus- UN Climate Change Conference.

The platform which India plans to set up exclusively for the countrysmanufacturers and exporters-Business to Business International EcommercePlatform.

The Panel which has recommended conferring executive powers to NITIAyog- Parliamentary Panel.

The Conservative Islamic Kingdom where First Woman has been elected toMunicipal Council- Saudi Arabia.

Ailing Legendary Actor, who was awarded Padma Vibhushan by Union HomeMinister for his contribution to Hindi cinema spanning over six decades.- DilipKumar

As per UNDP Report, the index in which India placed low at 130th rank- HumanDevelopment Index.

Government has appointed a Judicial Panel on One Rank One Pension whichis to be headed by- Justice L. Narasmha Reddy (Retd. Chief Justice of PatnaHigh Court).

The country which has been accepted as Member of the European Bank forReconstruction and Development- China.

The country whose design of National Flag is going to be changed- New-Zealand.

The country whose SoftBank won its First Solar Power Project in India- Japan. The City in which the Supreme Court has banned registration of diesel-run

SUVs and cars with an engine capacity beyond 2000cc till March 31, 2016-Delhi.

The country in whose Presidential Election, First time, a run-off ballot is beingheld because of 115 islands covering 93000 people- Seychelles.

The Internet Giant who is to provide free WiFi at 100 Railway Stations in Indiaby 2016-end- Google.

The corporation which is the sole provider of mortgage guarantee in thecountry- India Mortgage Guarantee Corporation.

The State in which countrys First Medical Devices Parkis to be set up under the Make in India Mission-Gujarat.

The country whose Rating has been cut to Junk withNegative Outlook by FITCH- Brazil.

The city in India which has been rated 6th MostExpansive Office Hub in the World- Delhis ConnaughtPlace.

The bank which becomes the First Bank in the countryto introduce e-sign an online electronic signatureservice- Axis Bank.

Former Defence Secretary RK Mathur has beenappointed as Chief Information Commissioner.

Noble Laureate who has been made a Saint of RomanCatholic Church- Mother Teresa.

The company which has made to the Top 50 League ofthe Worlds Biggest Companies in terms of R&Dinvestments- Tata Motors.

The company whose 116 employees are drawing morethan Rs.1 Crore in annual remuneration but 70% ofthem are Koreans- Samsung India.

The country which got First Beauty Queen (ShyamaaAbdelrahman) since 1972- Iraq.

The Tribunal which has banned both President andVice-President of FIFA for 8 years from all footballactivity due to high scandal- Ethics Tribunal of FIFA.

The country which allowed couples to have twochildren to counter shrinking work force and a rapidlyageing population-China.

The Bill, which passed by Rajya Sabha, provides forthe treatment of juveniles between the ages of 16and 18 as adults when accused of heinous crimessuch as murder and rape- Juvenile Justice Bill.

The Bill which has been referred to the JointParliamentary Panel by the Lok Sabha- Insolvencyand Bankruptcy Code 2015.

The Country which became the First Asian country toapprove the sale of the Worlds First dengue vaccine-Philippines.

The commodity for which the Government has doneaway with the Minimum Export Price due to fallingprices in the domestic market- Onions.

The Country which issued Pollution Red- Alert- China. The Car which has won the 2016 Trophy- Hyundai

Creta. The Vehicles whose age has been fixed at 15 years

and which to be off-roads as per Govt. Notificationlikely to come soon- Commercial Vehicles.

The country whose Parliament Building has beeninaugurated by PM Narendra Modi on 24thAfghanistan.

The country whose President Salva Kiir created 28new states- Sudan.

The popular social networking platforms, which theEmployees Provident Fund Organization launchedduring Good Governance Day Event-Facebook andTwitter.

China-backed Bank in which India , a Founder Memberwith other 56 countries has been established in Beijingon 25th- Asian Infrastructure Investment Bank.

Disclaimer : We have taken every care to provide information, we believe to be accurateand reliable and do not assume responsibility of any kind nor shall be liable for losses &consequence arising from use thereof. Since this information is based on the publishedreports mostly, correctness or otherwise thereof may be verified by the user with theoriginal sources, in advance. .......................................................................Editor

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Banking events updatE January 2016 15MOCK-TEST

PAPERQuestions based on RBI Policy

01 The pre-2005 banknotes can beexchanged at identified bank branchesand Issue Offices of RBI up to:

a 01.01.2016b 01.04.2016c 30.06.2016d 30.09.201602 As per RBI guidelines, the residents and

eligible non-resident market participantscan trade in (1) US Dollar (USD) - IndianRupee (INR), (2) Euro (EUR)-INR, (3)Pound Sterling (GBP)-INR (4) JapaneseYen (JPY)-INR currency futures contracts

a 1 onlyb 1 and 3 onlyc 1, 3 and 4 onlyd 1 to 4 all03 The recognized stock exchanges can offer

cross-currency futures contracts andexchange traded option contracts in thecurrency pairs of (1) EUR-USD, (2) GBP-USD (3) USD-JPY (4) USD-INR).

a 1 onlyb 1 and 3 onlyc 1, 2 and 3 onlyd 1 to 4 all04 Statutory Liquidity Ratio (SLR) shall be

20.5% of net demand and time liabilitiesof banks w.e.f:

a 02.04.2016b 09.07.2016c 01.10.2016d 07.01.201705 To comply with the requirement of

investment in SLR assets, the followingsecurities are included in unencumberedinvestment (1) dated securities of Govt.of India (2) Treasury bills of Govt. of India(3)State Development Loans (4) highrated corporate security

a 1 onlyb 1 to 3 onlyc 1, 3 and 4 onlyd 1 to 4 all06 Under liquidity adjustment facility, the

Repo Auctions of RBI are meant to:a absorb excess liquidityb regulate liquidityc inject liquidityd control liquidity07 Under liquidity adjustment facility, the

Reverse Repo Auctions of RBI aremeant to:

a absorb excess liquidityb regulate liquidityc inject liquidityd control liquidity08 Banks can shift investments to/from

held to maturity (HTM) with theapproval of the Board of Directors:

a in the beginning of every quarterb in the beginning of financial yearc twice during the financial yeard discretion of bank concerned09 The rate of interest equalisation

available on Pre-Shipment RupeeExport Credit and Post-Shipment RupeeExport Credit is ___ % per annum:

a 2%b 3%c 4%d 5%10 The duration of interest equalisation

scheme for Pre-Shipment Rupee ExportCredit and Post-Shipment Rupee ExportCredit is ____ w.e.f 01.04.2015:

a 5 yearsb 4 yearsc 3 yearsd 1 year11 The benefit of interest equalisation

scheme for Pre-Shipment Rupee ExportCredit and Post-Shipment Rupee ExportCredit is not available to which of thefollowing:

a SEZ exportersb Warehouse exportsc merchant exportersd gold card holder exporters12 Banks can submit the claims to RBI

under interest equalisation scheme forPre-Shipment Rupee Export Credit andPost-Shipment Rupee Export Credit on______ basis, within ____:

a quarterly, within 20 daysb monthly, within 15 daysc half-yearly, within 25 daysd annually, within 30 days13 As per RBI guidelines of Dec 2015, loans

to priority sector target for RegionalRural Banks w.e.f 1.1.2016 is :

a 60% of ANBCb 60% of total outstandingc 75% of ANBCd 75% of total outstanding

14 As per RBI guidelines of Dec 2015, thelending to agriculture sector withinpriority sector for Regional Rural Banksw.e.f 1.1.2016 should be:

a 18% of ANBCb 18% of total outstandingc 25% of ANBCd 25% of total outstanding15 As per RBI guidelines of Dec 2015, the

lending to small and marginal farmerswithin agriculture sector for RegionalRural Banks w.e.f 1.1.2016 should be:

a 8% of ANBCb 8% of total outstandingc 7.5% of ANBCd 7.5% of total outstanding16 As per RBI guidelines of Dec 2015, the

lending to micro enterprises withinpriority sector for Regional Rural Banksw.e.f 1.1.2016 should be:

a 8% of ANBCb 8% of total outstandingc 7.5% of ANBCd 7.5% of total outstanding17 As per RBI guidelines of Dec 2015, the

lending to weaker section for RegionalRural Banks w.e.f

banking magazine india jan 2016

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