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AKP Banking & Finance Digest- April 17, 2023

Weekly Round-up | Updates


1. INDIA

Reserve Bank of India ("RBI") issued Master Direction on Outsourcing Information Technology Services as Regulated Entities (REs) have been extensively leveraging Information Technology (IT) and IT-enabled Services (ITeS) to support their business models, products and services offered to their customers. REs also outsource a substantial portion of their IT activities to third parties, which exposes them to various risks. In order to ensure effective management of attendant risks, the Statement on Developmental and Regulatory Policies dated February 10, 2022, proposed the issuance of suitable regulatory guidelines on the Outsourcing of IT Services. Accordingly, a draft Master Direction on Outsourcing IT Services was released for public comments in June 2022. Based on feedback received, the finalised Reserve Bank of India (Outsourcing of Information Technology Services) Directions, 2023 are released.[1]


Climate change has been recognised as one of the most critical challenges faced by the global society and economy in the 21st century. The financial sector can play a pivotal role in mobilizing resources and their allocation thereof in green activities/projects. Green finance is also progressively gaining traction in India. Deposits constitute a major source for mobilizing of funds by the Regulated Entities (REs). It is seen that some REs are already offering green deposits for financing green activities and projects. Taking this forward and with a view to fostering and developing a green finance ecosystem in the country, RBI has decided to put in place the enclosed framework for acceptance of Green Deposits for the REs. The framework shall come into effect from June 1, 2023.[2]


Please refer to our Master Circular DOR.CRE.REC.No.49/09.22.010/2022-23 dated June 23, 2022, on the captioned subject (available at RBI website https://rbi.org.in/). The Master Circular consolidates and updates all the instructions/guidelines on the subject issued to date.[3]


The attention of Authorised Dealer (AD) Category-I banks and AD Category-II entities is invited to paragraph 4 of A.P. (DIR Series) Circular No. 50 dated February 11, 2016, on ‘Compilation of R-Returns: Reporting under FETERS’ in terms of which AD banks, offering internet banking facilities to their customers were permitted to allow online submission of Form A2. It has now been decided to permit AD Category-II entities also to allow online submission of Form A2. AD Category-II entities shall frame appropriate guidelines with the approval of their Board within the ambit of an extant statutory and regulatory framework.[4]


RBI issued directions to Sri Sharada Mahila Co-operative Bank Limited, Tumkur, Karnataka under Section 35 A read with Section 56 of the Banking Regulation Act, 1949 vide Directive BLR.DOS.SSMS.No.S530/13-04-179/2022-23 dated July 07, 2022. RBI is satisfied that in the public interest, it is necessary to extend the period of operation of Directive BLR.DOS.SSMS.No.S530/13-04- 179/2022-23 dated July 07, 2022, issued to Sri Sharada Mahila Co-operative Bank Limited, Tumkur, Karnataka. Accordingly, RBI, in the exercise of powers vested in it under sub-section (1) of Section 35A read with Section 56 of the Banking Regulation Act, 1949, hereby directs that the Directive [BLR.DOS.SSMS.No.S530/13-04-179/2022-23] dated July 07, 2022, issued to Sri Sharada Mahila Co-operative Bank Limited, Tumkur, Karnataka, shall continue to apply to the bank for a further period of three months from April 09, 2023, to July 08, 2023, subject to review.[5]


RBI launched the 61st round of its Order Books, Inventories and Capacity Utilisation Survey (OBICUS). The survey is for the reference period January - March 2023 (Q4:2022-23). RBI has been conducting the Order Books, Inventories and Capacity Utilisation Survey (OBICUS) of the manufacturing sector on a quarterly basis since 2008. The information collected in the survey includes quantitative data on new orders received during the reference quarter, backlog of orders at the beginning of the quarter, pending orders at the end of the quarter, total inventories with a breakup between finished goods (FG), work-in-progress (WiP) and raw material (RM) inventories at the end of the quarter, item-wise production in terms of quantity and value during the quarter vis-à-vis the installed capacity from the targeted group and the reasons for changes in production / installed capacity during the quarter. The level of capacity utilisation (CU) is estimated from these responses. The survey provides valuable input for monetary policy formulation. The survey findings are released on the website of the Bank regularly. The latest results pertaining to the quarter of October - December 2022 were released on April 6th, 2023.[6]


RBI issued directions to The Adoor Co-operative Urban Bank Ltd, Adoor, Kerala under Section 35 A read with Section 56 of the Banking Regulation Act, 1949 (AACS), vide Directive DCBS.CO.PCC.D-4/12.26.004/2018-19 dated November 02nd, 2018, from close of business on November 09, 2018, for a period of six months, which were extended from time to time, last being up to April 09, 2023, vide Directive DOR.MON/D-83/12.26.004/2022-23 dated March 08, 2023. RBI is satisfied that in the public interest, it is necessary to extend the period of operation of the aforesaid directions. Accordingly, vide the Directive DOR.MON/D-04/12.26.004/2023-24 dated April 06th, 2023, in the exercise of powers vested in it under sub-section (1) of Section 35 A read with Section 56 of the Banking Regulation Act, 1949, RBI has directed that the Directive DCBS.CO.PCC.D4/12.26.004/2018-19 dated November 02nd, 2018, issued to the Adoor Co-operative Urban Bank Limited, Adoor, Kerala, the validity of which was last extended up to April 09, 2023, shall continue to apply to the bank for a further period of one month, from April 10, 2023, to May 09, 2023, subject to review.[7]


RBI has undertaken a comprehensive review of the system of processing applications for registration as Core Investment Companies (CICs) to make the registration process smoother and hassle-free. Accordingly, the application form has been revamped to make it structured and aligned with the extant CIC regulations. Also, the number of documents to be furnished along with the application form has been reduced to 18 from the existing set of 52 documents to make the registration process user-friendly.[8]


RBI placed on its website a Working Paper titled, “Impact of Foreign Direct Investment on Profitability: Evidence from the Indian Corporate Sector” under the Reserve Bank of India Working Paper Series*. The paper is co-authored by Haridwar Yadav, Vishal Shinde and Samir Kumar Das and it empirically assesses the impact of foreign direct investment (FDI) on the capital structure and profitability of Indian companies. Using a multivariate GMM panel regression model and a novel panel dataset constructed by taking data from RBI releases on FDI-receiving companies along with data on company financials from the Prowess database from 2013-14 to 2018-19, the paper finds that an increase in the share of FDI in equity raises the profitability of FDI-receiving companies.[9]


In pursuance of the announcement made in the Statement on Developmental and Regulatory Policies dated February 08, 2023, regarding the review of extant regulatory guidelines on the levy of penal interest, the Reserve Bank of India has released the Draft Circular on Fair Lending Practice - Penal Charges in Loan Accounts.


Comments by the stakeholders on the ‘Draft Circular’ may be submitted by May 15, 2023, to the Chief General Manager, Department of Regulation, Central Office, Reserve Bank of India, 12th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai – 400001 or by e-mail with the subject line “Draft Circular on Fair Lending Practice - Penal Charges in Loan Accounts”.[10]


22 Non-Banking Financial Companies (NBFC) have surrendered the Certificate of Registration (CoR) granted to them by the Reserve Bank of India (RBI). RBI, in the exercise of powers conferred on it under Section 45-IA (6) of the Reserve Bank of India Act, 1934, has therefore cancelled its CoR. The reasons for surrendering their NBFC Certificate are:

  • Due to exit from Non-Banking Financial Institution (NBFI) business

  • Due to meeting the criteria prescribed for unregistered Core Investment Companies (CIC) that do not require registration

  • Due to NBFC ceasing to be a legal entity due to amalgamation/ merger/dissolution/ voluntary strike-off, etc.[11]


Reserve Bank of India, in the exercise of powers conferred on it under Section 45-IA (6) of the Reserve Bank of India Act, 1934, has cancelled the Certificate of Registration of the following companies.

  • BRD Securities Ltd

  • Lakshmi Finance Private Limited[12]


In terms of GOI Notification F. No. 4(25) - W&M/2017 dated October 06th, 2017 (SGB 2017-18, Series III - Issue date October 16, 2017) on Sovereign Gold Bond Scheme, premature redemption of Gold Bond may be permitted after fifth year from the date of issue of such Gold Bond on the date on which interest is payable. Accordingly, the second due date of premature redemption of the above tranche shall be April 15th, 2023 (April 16, 2023, being a Sunday). Further, the redemption price of SGB shall be based on the simple average of the closing gold price of 999 purity of the previous three business days from the date of redemption as published by the India Bullion and Jewellers Association Ltd (IBJA). Accordingly, the redemption price for the premature redemption due on April 15th, 2023 (April 16th, 2023, being a Sunday) shall be ₹6063/- (Rupees Six thousand sixty-three only) per unit of SGB based on the simple average of closing gold price for the last three days April 11, April 12th and April 13th, 2023.[13]



2. Bangladesh

As per the FE Circular No. 45, dated December 31, 2017, in terms of which Authorized Dealers (ADs) can borrow US Dollar funds from EDF against their foreign currency loans to manufacturer-exporters for input procurements. The eligible limit for borrowing from EDF for eligible exporters has been outlined in paragraph 5 of the said circular and its subsequent amendments. To bring wider range of customers for EDF loans, it has been decided to reset the ceiling to USD 10.00 million from USD 15.00 million for input procurements under back-to-back LCs (BBLCs) against relevant export orders. The limit for imports under BBLCs by individual member mills of BGMEA and BKMEA is set at USD 20.00 million and USD 15.00 million respectively, including USD 15.00 million for individual exporters of leather goods and footwear sectors.[14]


As per the o FEID Circular Letter No. 02 and 01 dated July 14th, 2022 and January 4th, 2023, Offshore Banking Operations (OBOs) are allowed to place funds to their DBUs with a limit not exceeding 25% of the total regulatory capital of the bank to settle the import payment of capital machinery, industrial raw materials and imports by the government. This facility will remain valid till June 30th, 2023. To bring further flexibility for external transactions, DBUs may receive funds from any OBOs up to 40% of their total regulatory capital to settle permissible payment obligations as per prevailing foreign exchange rules and regulations. The relaxation shall remain valid till December 31st, 2023.[15]


As per Paragraph 3 of FE Circular No. 45, dated December 31st, 2017, in terms of which EDF loans from Bangladesh Bank are repayable by Authorized Dealers (ADs) within 180 days from dates of disbursement, extendable by Bangladesh Bank up to 270 days. The applicable interest rate on borrowings from EDF is mentioned in paragraph 02 of the said circular and its subsequent amendments. It has been decided that in case of an extension of tenure beyond 180 days, the interest rate prevailing at the time of such extension will be applicable for the extended period.[16]


3. Sri Lanka


The Phase II subscription for ISINs LKA09123G147 and LKA36424D127 was open until 3.30 PM of the business day prior to the settlement date (i.e.,12.04.2023) at the WAYRs determined for the said ISINs at the auction. The aggregate eligible amount for subscription from the said maturities would be the difference between the amount accepted vs the amount offered plus 25% of the aggregate amount offered at the auction. In the event of oversubscription, allocation will be made based on aggregate successful participation by participants at the auction. Any bid for subscription is required to be forwarded via email to ‘fopdd@cbsl.lk’ within the stipulated time period through an Authorized Primary Dealer. The minimum bidding requirement for the primary auction remains applicable for Phase II.[17]

[1] Notification: RBI/2023-24/102, April 10, 2023, Reserve Bank of India [2] Notification: RBI/2023-24/14, April 11, 2023, Reserve Bank of India [3] Notification: RBI/2023-24/15, April 11, 2023, Reserve Bank of India [4] Notification: RBI/2023-24/16, April 12, 2023, Reserve Bank of India [5] Press Release: 2023-2024/39, April 09, 2023, Reserve Bank of India [6] Press Release: 2023-2024/42, April 10, 2023, Reserve Bank of India [7] Press Release: 2023-2024/43, April 10, 2023, Reserve Bank of India [8] Press Release: 2023-2024/44, April 10, 2023, Reserve Bank of India [9] Press Release: 2023-2024/49, April 11, 2023, Reserve Bank of India [10] Press Release: 2023-2024/56, April 12, 2023, Reserve Bank of India [11] Press Release: 2023-2024/61, April 13, 2023, Reserve Bank of India [12] Press Release: 2023-2024/62, April 13, 2023, Reserve Bank of India [13] Press Release: 2023-2024/65, April 13, 2023, Reserve Bank of India [14] FE Circular No. 06: April 09, 2023, Bangladesh Bank [15] FEID Circular Letter No. 04: April 09, 2023, Bangladesh Bank [16] FE Circular No. 07: April 13, 2023, Bangladesh Bank [17] Public Debt Department, April 11, 2023, Central Bank of Sri Lanka


Disclaimer 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.


* Image credits: RBI


For further queries or details, you may contact:

Mr Anuroop Omkar,

Partner, AK & Partners

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