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  • Writer's pictureAK & Partners

AKP Banking & Finance Digest- April 01, 2024

1. Regulatory Updates

1.1. India

1.1.1. RBI relaxes norms for investment in AlFs by regulated entities

The Reserve Bank of India (“RBI”), through its circular dated March 27, 2024, has relaxed the norms governing investment by Regulated Entities (“REs”) in Alternative Investment Funds (“AIFs”). Previously, through the circular dated December 19, 2023 (“Circular”), RBI directed REs not to invest in any scheme of AIFs which has a direct or indirect downstream investment in a company to which RE has previously provided the loan. The Circular further provided a 30 (thirty) days’ timeline for REs who have already invested in such AIFs to either liquidate their investment or make 100 percent (one hundred percent) provisions on such investments. The recent circular, while relaxing the previous stringent provisions, has stated that the above-mentioned 100 percent (one hundred percent) provisioning shall only be required to the extent of the RE's investment in the AIF scheme that is further invested in the debtor company. The recent circular further clarifies that REs should not be required to create provisioning on the total investment by the RE in such an AIF scheme. The recent circular has also excluded investments made in AIFs in the equity shares of the debtor company of the RE from the scope of the Circular.  As per industry experts, the recent notification would lower the burden on the Non-Banking Financial Companies (“NBFCs”), which had done 100 percent (One Hundred percent) provisioning for the total investments in AIFs after the lapse of the 30 (thirty) days’ period given by RBI to liquidate such assets. As some of the entities have already made provisions, there could be a write-back of provisions in the current quarter. RBI


1.1.2. Monetary Penalties

RBI imposes monetary penalties on the following financial institutions:


Name of the financial institution

Penalty Imposed


INR 1,00,000/- (Indian Rupees One Lakh Only)

Contravention of/non-adherence with Section 9 read with Section 56 of the Banking Regulation Act, 1949 (“BR Act”).

INR 28,30,000/- (Indian Rupees Twenty-Eight Lakh Thirty Thousand Only)

Contravention of/non-adherence with directions issued by RBI on ‘Constitution of Board of Management in Primary Urban Co-operative Banks (“UCB”)’ and prohibitory order/direction issued under Supervisory Action Framework (“SAF”).

INR 59,90,000/- (Indian Rupees Fifty Nine Lakh Ninety Thousand Only)

Contravention of/non-adherence with directions issued by RBI on ‘Constitution of Board of Management (BoM) in Primary UCBs’, ‘Exposure Norms and Statutory / Other Restrictions – UCBs’ and specific order issued by RBI under ‘SAF for Primary UCBs’.

INR 25,000/- (Indian Rupees Twenty Five Thousand Only)

Contravention of/non-adherence with directions issued by RBI on ‘Exposure Norms and Statutory/ Other Restrictions – UCBs’.

INR 50,000/- (Indian Rupees Fifty Thousand Only)

Contravention of/non-adherence with the directions issued by National Bank for Agriculture and Rural Development (NABARD) on ‘Frauds - Guidelines for Classification, Reporting and Monitoring’.

INR 6,00,000/- (Indian Rupees Six Lakh Only)

Contravention of/non-adherence with directions issued by RBI on ‘Placement of Deposits with Other Banks by Primary UCBs’.

INR 1,00,000/- (Indian Rupees One Lakh Only)

Contravention of/non-adherence with directions issued by RBI on ‘Know Your Customer (KYC) Directions, 2016’.

INR 50,000/- (Indian Rupees Fifty Thousand Only)

Contravention of/non-adherence with provisions of section 26A read with section 56 of the BR Act.

INR 1,00,000/- (Indian Rupees One Lakh Only)

Contravention of/non-adherence with provisions of section 26A read with section 56 of the BR Act.

INR 70,000/- (Indian Rupees Seventy Five Thousand Only)

Contravention of/non-adherence with directions issued by RBI on ‘Board of Directors - UCBs’ read with ‘Loans and advances to directors, their relatives, and firms/concerns in which they are interested’ and ‘Exposure Norms and Statutory / Other Restrictions – UCBs’. This penalty has been imposed in the exercise of powers vested in RBI, conferred under the provisions of section 47A (1) (c) read with section 46(4)(i) and section 56 of the BR Act.


1.2. Bangladesh

1.2.1. Bangladesh Bank circular sets criteria for managing directors of NBFIs

According to a recent circular from Bangladesh Bank dated March 25, 2024, individuals who are loan or tax defaulters or who have ceased payments to creditors or declared bankrupt by a court are ineligible to serve as managing directors of Non-Bank Financial Institutions (NBFIs). The circular outlines requirements for managing director appointments, including a clean criminal record, no involvement in forgery or financial crimes, and compliance with regulatory rules. It also prohibits association with establishments whose licenses have been revoked or decommissioned. The Business Standard


1.2.2. Bangladesh plans AI legislation to safeguard human rights

Law Minister Anisul Huq has announced plans to draft new legislation concerning Artificial Intelligence (“AI”) by September this year. He stressed the global significance of AI and the necessity for Bangladesh to establish its legal framework accordingly. Recognising AI's complexity, he highlighted the need for a comprehensive understanding before formulating laws. Discussions on the draft's framework have begun, with a focus on protecting human rights and ensuring ethical AI use. Anisul Huq emphasised regulatory oversight to mitigate potential negative impacts while leveraging AI for societal benefit. He reiterated his commitment to upholding human rights and public welfare through AI regulation. The Daily Star


1.3. Sri Lanka


1.3.1. Sri Lanka's central bank cuts interest rates to stimulate growth

The Monetary Policy Board of the Central Bank of Sri Lanka reduced the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) by 50 (fifty) basis points each, now at 8.50 percent (eight point five percent) and 9.50 percent (nine point five percent), respectively. This decision aimed to maintain inflation around 5 percent (five percent) while stimulating economic growth, considering factors like subdued demand, minimal impact of recent tax changes on inflation, and manageable external pressures. Despite potential near-term inflation risks, the Board remains optimistic about the medium-term outlook due to below-average economic activity. It stressed the importance of swiftly transmitting these monetary easing measures to market interest rates, particularly lending rates, to expedite the normalisation of market rates. Central Bank of Sri Lanka


2. Trends

2.1. South African brokerage firm Banxso announces plan to enter Indian market

South African brokerage firm Banxso has announced plans to enter the Indian market. Banxso specialises in various financial services like forex, stocks, indices, commodities, and cryptocurrencies. As the Indian fintech sector continues to evolve, Banxso promises to provide advanced solutions specifically designed to curtail the needs of the Indian market. Times of India


2.2. Paytm likely to tap HDFC Bank as a third merchant acquiring partner

Paytm, a leading fintech company run by One97 Communications Ltd., is planning to onboard HDFC Bank as its third partner for migrating merchants. This came out after RBI directed Paytm Payments Bank Limited to stop all banking operations from March 15, 2024. However, RBI has permitted One97 Communication’s merchants and Unified Payments Interface (“UPI”) users to keep using their handles, QR codes, and point-of-sale (PoS) machines even after March 15 to prevent any disruption to merchant and consumer payments. As per the Money Control report, HDFC Bank is likely to go live this week as a payment service provider (PSP) bank for Paytm’s third-party application provider (TPAP) business. Paytm is also in talks with Canara Bank and Kotak Mahindra Bank for merchant acquisition business. MoneyControl


2.3. NPCI Bharat Billpay, banks, and fintechs in talks to implement interoperable payment system

India's National Payments Corporation of India (“NPCI”) Bharat Billpay (“NBBL”) is currently engaged in discussions with banks and fintech firms to implement an interoperable payment system. This initiative follows the recent approval from RBI for an interoperable payment system for internet banking transactions by NBBL. The same is in pursuance of RBI's vision to centralise all payment rails under a unified payment system. Internet banking, currently outside this umbrella, is being fast-tracked to be brought under this centralised system. The Economic Times


2.4. HDFC Bank to divest stake in HDFC Education through Swiss Challenge method

HDFC Bank has announced its intention to divest its entire stake in HDFC Education and Development Services Private Ltd. The sale will be conducted through the Swiss challenge method, as stated in a regulatory filing. On March 30, 2024, HDFC Bank entered into a binding term sheet with an interested party, which will set the initial bid for other potential buyers to counter. The bank will select the final purchaser based on the outcome of the Swiss challenge process. HDFC Education is involved in offering services to three educational institutions. The Economic Times 


3. Sector Overview



4. Business Updates


4.1. Aye Finance secures INR 137 crore debt from German impact investor – Invest in Visions

Aye Finance has received INR 137 crore (Indian Rupees One Hundred Thirty-Seven Crore only) of debt funding from German impact and portfolio management firm – ‘Invest in Visions’. As per the company statement, the fund shall be used for on-lending to micro and small business units for their business expansion. The company is a finance company that provides business loans to small and micro enterprises across India. The Economic Times                 


4.2. PhonePe expands digital payment services to UAE through Mashreq Bank partnership

PhonePe, a prominent player in the fintech industry, announced on Thursday, March 28, that its users are now able to conduct digital transactions in the United Arab Emirates (“UAE”). Enabled through UPI, this service is exclusively accessible at Mashreq Bank's NEOPAY terminals. Users can effortlessly scan QR codes, with transactions being debited in INR at prevailing currency exchange rates. This collaboration has been made possible through Mashreq's partnership with NPCI International Payments Limited (NIPL), the international division of NPCI. Additionally, non-resident Indians (NRIs) possessing UAE mobile numbers can integrate their existing NRE and NRO accounts with their PhonePe app for seamless payments. Inc 42



The note is prepared for knowledge dissemination and does not constitute legal, financial or commercial advice. AK & Partners or its associates are not responsible for any action taken based on its contents.

For further queries or details, you may contact:

Mr Anuroop Omkar

Partner, AK & Partners


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