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  • Writer's pictureAK & Partners

AKP Banking & Finance Digest- October 17, 2022

  1. INDIA

Reserve Bank of India notified the Reserve Bank of India (Unhedged Foreign Currency Exposure) Directions, 2022 on October 11, 2022, which will take effect on January 1, 2023, and will apply to all commercial banks (excluding Payments Banks and Regional Rural Banks). The framework's goal was for banks to price the risk of Unhedged Foreign Currency Exposure (UFCE) as a credit risk premium, which would nudge entities to hedge their foreign currency exposures in the market. Further Following feedback from banks, a few changes were made to the guidelines to improve operational clarity and the accuracy of the information obtained. These included, among other things, allowing the collection of UFCE information directly from entities (via self-certified/audited UFCE certificates); clarification on the capital treatment of the incremental provisioning requirement for UFCE; and treatment in the event the bank is unable to obtain UFCE information from the entity.[1]

Banks must now obtain prior approval from Reserve Bank of India before making any appropriation from the Statutory Reserve or any other reserve. Banks were also advised that All expenses, including provisions and write-offs, recognized in a period, whether mandatory or prudential, must be reflected as 'above the line item in the profit and loss account for the period (i.e. before arriving at the net profit/loss for the year); Drawdowns from reserves shall be made only 'below the line' (i.e. after arriving at the net profit/loss for the year) with the prior approval of the Reserve Bank of India, and suitable disclosures of such drawdowns shall be made in the 'Notes on Accounts' to the Balance Sheet.[2]

Reserve Bank of India increased the minimum capital requirement for asset reconstruction companies (ARC) and broadened their activities by allowing them to act as resolution applicants under bankruptcy law. Furthermore, the revised framework requires ARCs to conduct due diligence to determine the person's suitability for the management position, based on track record, integrity, and other 'fit and proper' criteria. ARCs must obtain the necessary information and declarations from the appointed/existing directors and MD/CEO in the prescribed format for this purpose. Among the changes introduced is the introduction of corporate governance norms for ARCs which are bound to strengthen the corporate governance of ARCs.[3]

RBI has issued a clarification that NBFCs that are part of a group or are floated by joint promoters shall not be perceived on a stand-alone basis for their placement as mentioned in the RBI's Scale Based Regulations framework. The placement of NBFCs within a group is determined by the total assets held by the Group. If the consolidated asset size exceeds 1000 crores, the NBFCs can be placed in the middle layer collectively. The purpose of this article is to decode the most recent RBI circular on a group of NBFCs. This restructuring will assist the RBI in identifying flaws in the regulatory environment and will result in a positive change in the legal and regulatory structure of NBFCs in the country.[4]

Reserve Bank of India (RBI) has permitted banks to derive risk weights for their unrated exposures based on the ratings available for a specific rated debt in a circular dated October 10, 2022, subject to the conditions that the bank's facility ranks pari passu or senior to the specific rated debt in all respects and the maturity of the unassessed claim is not later than the maturity of the rated claim.[5]

It is strongly advised that bank loan ratings not rely on declarations issued by External Credit Assessment Institutions. These policies will go into effect on March 31, 2023.

RBI issued prudential regulation that expanded the powers of SPDs in order to regulate the structure of SPDs in the securities market and strengthen their role as market makers. As a result, the RBI has decided that SPDs may offer foreign exchange products to their foreign portfolio investors in accordance with the RBI's terms and conditions from time to time and that such offering shall be considered a part of their non-core activity. Furthermore, the circular has expanded the activities of SPDs that offer limited foreign currency business.[6]

Reserve Bank of India has cancelled the Certificates of Registration of S.R.M. Properties and Finance Company Pvt. Ltd, North-East Region Finservices Limited, Sowjenvee Finance Limited, and Opel Finance Limited in the exercise of the powers conferred on it by Section 45-IA (6) of the Reserve Bank of India Act, 1934. The companies listed above shall not conduct the business of a Non-Banking Financial Institution in India.[7]

RBI has cancelled the license of "The Seva Vikas Co-operative Bank Ltd., Pune, Maharashtra" in an order dated October 10, 2022. The Reserve Bank revoked the bank's license because it lacked adequate capital and earning potential. The bank has failed to comply with the requirements of Sections 22(3)(a), 22(3)(b), 22(3)(c), 22(3)(d), and 22(3)(e) read with Section 56 of the Banking Regulation Act, 1949; the bank's continued existence is prejudicial to the interests of its depositors; the bank, in its current financial position, would be unable to pay its current depositors in full; and the public interest would be harmed if the bank is permitted to continue operations.[8]

2. Sri Lanka

Mrs Kman Daulagala is appointed as the New Deputy Governor of the Central Bank of Sri Lanka

The Central Bank of Sri Lanka has directed that all Licensed Banks and Licensed Finance Companies record a Unique Identification Number for each depositor when opening deposit accounts. The Central Bank of Sri Lanka expects that by implementing this new measure, it will strengthen the soundness and integrity of the information management processes of Licensed Banks and Licensed Finance Companies, as well as facilitate information compilation by the Sri Lanka Deposit Insurance and Liquidity Support Scheme.

3. Bangladesh

The Bangladesh Bank (BB) eased conditions on single-borrower and large loan exposure limits in order to continue to support industrial growth and ensure competitive financing. According to a circular issued by the central bank, the restrictions will not apply to credit facilities provided to the government or against government guarantees, as well as guarantees provided by Multilateral Development Bank (MDB) or Export Credit Agency (ECA) with AAA ratings.[9]

3.2. Bangladesh Bank Circular Prohibition regarding dealing of virtual assets & virtual currencies and facilitating their exchange/transfer/trading

Through a circular issued on Wednesday, the Bangladesh Bank reiterated its commitment to monitoring and preventing transactions and other activities involving cryptocurrencies such as bitcoins. According to the Circular, various foreign virtual asset service providers (VASP) were conducting transactions using virtual currency, cryptocurrency, and foreign currencies via their websites and apps using the customer accounts of some scheduled banks operating in Bangladesh, and the banks were ordered to take steps to stop any kind of assistance in such activities and to increase monitoring for this purpose.[10]

[1] Press Release: RBI/2022-23/131, Reserve Bank of India, October 11, 2022.

[2] Press Release: RBI/2022-23/130, Reserve Bank of India, October 11, 2022

[3] Press Release: RBI/2022-23/128, Reserve Bank of India, October 11, 2022

[4] Press Release: RBI/2022-23/129, Reserve Bank of India, October 11, 2022

[5] Press Release: RBI/2022-23/125, Reserve Bank of India, October 10, 2022

[6] Press Release: RBI/2022-23/127, Reserve Bank of India, October 11, 2022

[7] Press Release: 2022-2023/1028, Reserve Bank of India, October 11, 2022

[8] Press Release: 2022-2023/1019, Reserve Bank of India, October 10, 2022

[9] BRPD Circular Letter No. 39 dated 11th October 2022

[10] BRPD Circular Letter No. 40 dated 11th October 2022


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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