RBI, FEDAI and Gazette Notifications during the period 1st January

2020 to 30th June 2020

BFM, CAIIB Elective Treasury, CTP, FX

Reporting of OTC Currency Derivative transactions to trade repository

RBI/2019-20/132 FMRD.FMID No.23/02.05.002/2019-20 January 01, 2020

All Category-I Authorised Dealer Banks

Please refer to our circular FMD.MSRG.No.94/02.05.002/2013-14 dated December 04, 2013

on the captioned subject, wherein a threshold of USD 1 million, and equivalent thereof in
other currencies, was stipulated for reporting client transactions in currency derivatives
(currency swaps and FCY FRA/IRS) to the Trade Repository (TR).

2. It has now been decided that all client transactions in currency derivatives, including those
with notional amount of below USD 1 mn, shall now be reported to the TR, with effect from
January 06, 2020.

3. As a one-time measure, in order to update the transactions in the Trade Repository, AD

Category – I banks shall report all outstanding client transactions with notional amount below
USD 1 mn to the TR by January 31, 2020.

4. These directions are issued under section 45W of RBI Act and shall come into force with
effect from the date of these directions.

BFM, CAIIB Elective Treasury, CTP

Financial Benchmark Administrators (Reserve Bank) Directions, 2019

RBI/2019-20/133 FMRD.FMSD.22/03.07.035/2019-20 January 01, 2020

To
All the Financial Benchmark Administrators

Please refer to the Financial Benchmark Administrators (Reserve Bank) Directions, 2019,
dated June 26, 2019.

2. As provided in paragraph 3(i) of the above directions, the Reserve Bank hereby notifies the
following benchmarks administered by Financial Benchmarks India Pvt. Ltd. (FBIL) as a
‘significant benchmark’:

 Overnight Mumbai Interbank Outright Rate (MIBOR)

 Mumbai Interbank Forward Outright Rate (MIFOR)
 USD/INR Reference Rate

1
  Treasury Bill Rates
 Valuation of Government Securities
 Valuation of State Development Loans (SDL)

3. Further, in terms of paragraph 3(ii) of the above directions, the person administering the
‘significant benchmark’, shall make an application to the Reserve Bank within a period of
three months from the date of this notification for authorization to continue administering
these benchmarks.

4. This notification has been issued by the Reserve Bank as required under the Financial
Benchmark Administrators (Reserve Bank) Directions, 2019, dated June 26, 2019.

Diploma - UCBs, CAIIB Elective Coop Banking

Supervisory Action Framework for Primary (Urban) Co-operative Banks (UCBs)

RBI/2019-20/135 DOR (PCB).BPD. Cir No. 9/12.05.001/2019-20 January 6, 2020

The Chief Executive Officer, All Primary (Urban) Co-operative Banks

Please refer to our circular UBD.BPD.(PCB). Cir No. 3/12.05.001/2014-15 dated November
27, 2014 on the captioned subject containing the Supervisory Action Framework (SAF) for
UCBs. Keeping in view the experience gained, it has been decided to further rationalize the
SAF to make it more effective in bringing about the desired improvement in the UCBs as also
expeditious resolution of UCBs experiencing financial stress. Reserve Bank will continue to
monitor asset quality, profitability and capital / net worth of UCBs under the revised SAF.
The main features of the revised SAF are indicated herein below:

2. Thresholds/triggers and Supervisory Action

The revised SAF envisages initiation of corrective action by the UCB and/or supervisory
action by the Reserve Bank on breach of the specified thresholds (triggers) in respect of the
specified financial parameters/indicators. The actions mentioned in the following paragraphs
may be taken on breach of the specified thresholds.

2.1 Asset quality: A UCB may be placed under SAF when its Net NPAs exceed 6% of its net
advances. Depending on the severity of stress, Reserve Bank may take one or more of the
following actions:

a. Advising the UCB to submit a Board-approved Action Plan for reducing its Net NPAs
below 6%
b. Advising the Board of Directors of the UCB to review the progress under the Action
Plan on quarterly/monthly basis
c. Advising the UCB to submit the post-review progress report to Reserve Bank
d. Restriction on declaration/payment of dividend/donation without prior approval of
RBI
e. Curtailment of sanction/renewal of credit facilities to sectors/segments having high
proportion of NPAs/defaults
f. Reduction in exposure limits for fresh loans and advances

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 g. Restriction on fresh loans and advances carrying risk-weights more than 100%

2.2 Profitability: A UCB may be placed under SAF when it incurs losses for two consecutive
financial years or has accumulated losses on its balance sheet. Depending on the severity of
stress, Reserve Bank may take one or more of the following actions:

a. Advising the UCB to submit a Board-approved Action Plan for restoring the
profitability and/or wiping out the accumulated losses
b. Advising the Board of Directors of the UCB to review of progress under the Action
Plan on quarterly (or more frequent) basis.
c. Prohibition on declaration/payment of dividend/donation
d. Restriction on incurring capital expenditure beyond a specified limit, without prior
approval of the Reserve Bank
e. Measures for reduction in interest and operating/administrative expenses

2.3 Capital to Risk-weighted Assets ratio (CRAR): A UCB may be placed under SAF
when its CRAR falls below 9%. Depending on the severity of stress, Reserve Bank may take
one or more of the following actions:

a. Advising the UCB to submit a Board-approved Action Plan for increasing the CRAR
to 9% or above within 12 months
b. Advising the Board of Directors of the UCB to review the progress under the Action
Plan on quarterly/monthly basis and submit the post-review progress report to
Reserve Bank
c. Seeking a Board-approved proposal for merging the UCB with another bank or
converting itself into a credit society
d. Prohibition on declaration/payment of dividend/donation
e. Restriction on incurring capital expenditure beyond a specified limit, without prior
approval of the Reserve Bank
f. Measures for reduction in interest and operating/administrative expenses
g. Reduction in exposure limits for fresh loans and advances
h. Restriction on fresh loans and advances carrying risk-weights beyond the specified
limit
i. Restriction on expansion of size of the balance sheet
j. Restriction on fresh borrowings, except for meeting temporary liquidity mismatches
k. Prohibition on sanction/disbursal of fresh loans and advances other than loans against
collateral security of term deposits / NSCs / KVPs / insurance policies
l. Prohibition on expansion of size of the deposits

2.4 Actions such as imposition of all-inclusive directions under section 35A of the Banking
Regulation Act, 1949 (as applicable to co-operative societies) and issue of show cause notice
for cancellation of banking license may be considered by the Reserve bank when continued
normal functioning of the UCB is no longer considered to be in the interest of its depositors /
public.

3. Implementation of the revised SAF

3.1 Supervisory action will normally be initiated on the basis of the financial position of
UCBs as assessed during the statutory inspection. However, action may also be taken on the

3
basis of the reported/audited financial position which may be subsequently reviewed, if
necessary, on the basis of the statutory inspection findings.

3.2 Although supervisory action taken will primarily be based on the criteria specified under
the revised SAF, Reserve Bank will not be precluded from taking appropriate supervisory
action in case stress is noticed in other important indicators/parameters or in case of serious
governance issues. Reserve Bank will also not be precluded from taking any supervisory
actions other than those indicated in this circular, based on merits of each case.

3.3 The revised SAF will be implemented with immediate effect. Supervisory action already
taken under the earlier SAF will be reviewed and revised instructions, if any, will be issued to
the UCBs concerned.

4. A copy of this circular should be placed before the Board of Directors of your bank in its
next meeting and a confirmation thereof should be sent to the concerned Regional Office of
Department of Supervision of Reserve Bank of India.

BFM, CAIIB Elective Treasury, Risk, CTP, CRFS

Risk Management and Inter-bank Dealings- Permitting AD Cat-I banks to voluntarily

undertake user and Inter-Bank transactions beyond onshore market hours

RBI/2019-20/136 A.P. (DIR Series) Circular No. 15 January 6, 2020

All Authorised Dealers Category-I

Attention of Authorised Dealers (ADs) is invited to the Foreign Exchange Management

(Foreign Exchange Derivative Contracts) Regulations, 2000 notified vide Notification No.
FEMA.25/RB-2000 dated May 3, 2000) issued under clause (h) of sub-section (2) of Section
47 of FEMA, 1999 (Act 42 of 1999), as amended from time to time and the Master Direction-
Risk Management and Inter-bank Dealing dated July 05, 2016, as amended from time to
time.

2. As announced in the Statement of Developmental and Regulatory Policies dated October

04, 2019 it has been decided to accept the recommendation of the Task Force on Offshore
Rupee Market to permit AD Cat-I banks to offer foreign exchange prices to users at all times,
out of their Indian books, either by a domestic sales team or through their overseas branches.

3. Accordingly, the following section is being added in Part C (Inter-Bank Foreign Exchange
Dealings) of the Master Direction- Risk Management and Inter-Bank Dealings:

“6. Customer and inter-bank transactions beyond onshore market hours

Authorised dealers may undertake customer (persons resident in India and persons resident
outside India) and inter-bank transactions beyond onshore market hours. Transactions with
persons resident outside India, through their foreign branches and subsidiaries may also be
undertaken beyond onshore market hours.”

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4. The directions contained in this circular have been issued under sections 10(4) and 11(1) of
the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to
permissions/approvals, if any, required under any other law.

JAIIB Banking, AML KYC

Amendment to Master Direction (MD) on KYC

RBI/2019-20/138 DOR.AML.BC.No.27/14.01.001/2019-20 January 9, 2020

The Chairpersons/ CEOs of all the Regulated Entities

Government of India, vide Gazette Notification G.S.R. 582(E) dated August 19, 2019 and
Gazette Notification G.S.R. 840(E) dated November 13, 2019, has notified amendment to the
Prevention of Money-laundering (Maintenance of Records) Rules, 2005. Further, with a view
to leveraging the digital channels for Customer Identification Process (CIP) by Regulated
Entities (REs), the Reserve Bank has decided to permit Video based Customer Identification
Process (V-CIP) as a consent based alternate method of establishing the customer’s identity,
for customer onboarding.

2. The consequent changes carried out in the Master Direction on KYC dated February 25,
2016, with the aforementioned amendments to the PML Rules and V-CIP are as under:

A. Changes due to amendments to the PML Rules

a) “Digital KYC” has been defined in Section 3 as capturing live photo of the customer and
officially valid document or the proof of possession of Aadhaar, where offline verification
cannot be carried out, along with the latitude and longitude of the location where such live
photo is being taken by an authorised officer of the Reporting Entity (RE) as per the
provisions contained in the Act. Steps to carry out the Digital KYC process have also been
stipulated.

b) “Equivalent e-document” has been defined in Section 3 as an electronic equivalent of a

document, issued by the issuing authority of such document with its valid digital signature
including documents issued to the digital locker account of the customer as per Rule 9 of the
Information Technology (Preservation and Retention of Information by Intermediaries
Providing Digital Locker Facilities) Rules, 2016.

c) Section 16 has been amended and accordingly,

I. customer, for the purpose of Customer Due Diligence CDD) process, shall submit:

i. the Aadhaar number where he is desirous of receiving any benefit or subsidy under
any scheme notified under section 7 of the Aadhaar (Targeted Delivery of Financial
and Other subsidies, Benefits and Services) Act, 2016 (18 of 2016); or he decides to
submit his Aadhaar number voluntarily to a banking company or any reporting entity
notified under first proviso to sub-section (1) of section 11A of the PML Act; or

5
 ii. the proof of possession of Aadhaar number where offline verification can be carried
out; or
iii. the proof of possession of Aadhaar number where offline verification cannot be
carried out or
iv. any Officially Valid Document (OVD) or the equivalent e-document thereof
containing the details of his identity and address; and
v. the Permanent Account Number or the equivalent e-document thereof or Form No. 60
as defined in Income-tax Rules, 1962; and
vi. such other documents including in respect of the nature of business and financial
status of the client, or the equivalent e-documents thereof as may be required by the
RE.

II. Provided that where the customer has submitted

i. Aadhaar number under paragraph (c.I.i) above to a bank or to a RE notified under first
proviso to sub-section (1) of section 11A of the PML Act, such bank or RE shall carry
out authentication of the customer’s Aadhaar number using e-KYC authentication
facility provided by the Unique Identification Authority of India.
ii. proof of possession of Aadhaar under clause (c.I.ii) above where offline verification
can be carried out, the RE shall carry out offline verification
iii. an equivalent e-document of any OVD, the RE shall verify the digital signature as per
the provisions of the Information Technology Act, 2000 (21 of 2000) and any rules
issues thereunder and take a live photo as specified under Annex I of the Master
Direction.
iv. proof of possession of Aadhaar number where offline verification cannot be carried
out under clause (c.I.iii) above or any OVD under clause (c.I.iv), the RE shall carry
out verification through digital KYC as specified under Annex I of the Master
Direction.

Provided, for a period not beyond such date as may be notified by the Government for a class
of REs, instead of carrying out digital KYC, the RE pertaining to such class may obtain a
certified copy of the proof of possession of Aadhaar number or the OVD and a recent
photograph where an equivalent e-document is not submitted.

III. Equivalent e-document has also been permitted for accounts of non-individual customer.

IV. Where a customer has provided his Aadhaar number under paragraph (c.I.i) above for
identification and wants to provide a current address, different from the address as per the
identity information available in the Central Identities Data Repository, he may give a self-
declaration to that effect to the Regulated Entity.

B. Changes due to introduction of Video based Customer Identification Process (V-CIP)

a. Definition of V-CIP has been inserted in Section 3 of the Master Direction

b. The process of V-CIP has been specified in Section 18 in terms of which, REs may
undertake live V-CIP, to be carried out by an official of the RE, for establishment of
an account based relationship with an individual customer, after obtaining his
informed consent and shall adhere to the following stipulations:

6
i. The official of the RE performing the V-CIP shall record video as well as capture
photograph of the customer present for identification and obtain the identification
information as below:

 Banks: can use either OTP based Aadhaar e-KYC authentication or Offline
Verification of Aadhaar for identification. Further, services of Business
Correspondents (BCs) may be used by banks for aiding the V-CIP.

 REs other than banks: can only carry out Offline Verification of Aadhaar for
identification.

ii. RE shall capture a clear image of PAN card to be displayed by the customer during the
process, except in cases where e-PAN is provided by the customer. The PAN details shall be
verified from the database of the issuing authority.

iii. Live location of the customer (Geotagging) shall be captured to ensure that customer is
physically present in India

iv. The official of the RE shall ensure that photograph of the customer in the Aadhaar/PAN
details matches with the customer undertaking the V-CIP and the identification details in
Aadhaar/PAN shall match with the details provided by the customer.

v. The official of the RE shall ensure that the sequence and/or type of questions during video
interactions are varied in order to establish that the interactions are real-time and not pre-
recorded.

vi. In case of offline verification of Aadhaar using XML file or Aadhaar Secure QR Code, it
shall be ensured that the XML file or QR code generation date is not older than 3 days from
the date of carrying out V-CIP.

vii. All accounts opened through V-CIP shall be made operational only after being subject to
concurrent audit, to ensure the integrity of process.

viii. RE shall ensure that the process is a seamless, real-time, secured, end-to-end encrypted
audiovisual interaction with the customer and the quality of the communication is adequate to
allow identification of the customer beyond doubt. RE shall carry out the liveliness check in
order to guard against spoofing and such other fraudulent manipulations.

ix. To ensure security, robustness and end to end encryption, the REs shall carry out software
and security audit and validation of the V-CIP application before rolling it out.

x. The audiovisual interaction shall be triggered from the domain of the RE itself, and not
from third party service provider, if any. The V-CIP process shall be operated by officials
specifically trained for this purpose. The activity log along with the credentials of the official
performing the V-CIP shall be preserved.

xi. REs shall ensure that the video recording is stored in a safe and secure manner and bears
the date and time stamp.

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xii. REs are encouraged to take assistance of the latest available technology, including
Artificial Intelligence (AI) and face matching technologies, to ensure the integrity of the
process as well as the information furnished by the customer. However, the responsibility of
customer identification shall rest with the RE.

xiii. RE shall ensure to redact or blackout the Aadhaar number in terms of Section 16.

xiv. BCs can facilitate the process only at the customer end and as already stated in para B(b)
above, the official at the other end of V-CIP interaction should necessarily be a bank official.
Banks shall maintain the details of the BC assisting the customer, where services of BCs are
utilized. The ultimate responsibility for customer due diligence will be with the bank.

3. The Master Direction on KYC dated February 25, 2016, is hereby updated to reflect the
above changes and shall come into force with immediate effect.

JAIIB Banking, Digital Banking, CAIIB Elective – Retail Banking, Diploma in Retail
Banking

Processing of e-mandate in Unified Payments Interface (UPI) for recurring transactions

RBI/2019-20/139 DPSS.CO.PD No.1324/02.23.001/2019-20 January 10, 2020

The Managing Director & CEO

National Payments Corporation of India

Please refer to our circular DPSS.CO.PD.No.447/02.14.003/2019-20 dated August 21, 2019

on “Processing of e-mandate on cards for recurring transactions” whereby processing of e-
mandate on cards / Prepaid Payment Instruments (PPIs) was permitted for recurring
transactions (merchant payments), with Additional Factor of Authentication (AFA) during e-
mandate registration, modification and revocation, as also for the first transaction, and simple
/ automatic subsequent successive transactions, subject to certain conditions.

2. On a review of the developments since this facilitation, it has been decided to extend the
above instructions to cover UPI transactions as well. All the instructions / conditions outlined
in the circular under reference would apply, mutatis mutandis, while processing e-mandate in
UPI. This is also in line with the measures proposed for furthering digital payments
announced vide, the RBI Press Release dated November 8, 2019.

3. This directive is issued under Section 10 (2) read with Section 18 of Payment and
Settlement Systems Act, 2007 (Act 51 of 2007).

4. This may be brought to the notice of all the members of UPI.

JAIIB Banking, Digital Banking, CAIIB Elective – Retail Banking, Diploma in Retail
Banking, AMLKYC

Framework for imposing monetary penalty on authorised payment system operators /

banks under the Payment and Settlement Systems Act, 2007

8
RBI/2019-20/140 DPSS.CO.OD.No.1328/06.08.005/2019-20 January 10, 2020

The Chairman / Managing Director / Chief Executive Officer

Authorised Payment System Operators / Banks

Please refer to the Reserve Bank of India (RBI) circular

DPSS.CO.OD.No.1082/06.08.005/2016-17 dated October 20, 2016 advising the framework
for imposition of monetary penalty and compounding of contraventions / offences under
Sections 30 and 31, respectively of the Payment and Settlement Systems (PSS) Act, 2007.

2. The payment system landscape has witnessed rapid developments since then with
increased adoption of technology, availability of payment products, entry of more non-bank
players, dis-intermediation, significant surge in turnover, etc. To ensure that the payment
systems are safe and secure and the various stakeholders conform to regulatory requirements,
on review it has been decided to revise the process of levy of penalty on payment system
operators by the Reserve Bank of India.

3. A table showing the changes made to the existing framework is in Annex 1; salient
features of the revised framework are in Annex 2. The revised framework continues to centre
around objectivity and transparency in the decision-making process. It may be noted that
action taken under this framework would be without prejudice to any other laws of the
country.

Annex 1

Framework for imposing monetary penalty on authorised payment system operators /

banks under the Payment and Settlement Systems Act, 2007 – Existing framework vis-
à-vis the Revised framework

Sr. Existing Framework Revised Framework

No Subject (Circular dated October (Circular dated January 10,
. 20, 2016) 2020)
1. Powers of RBI to Powers of RBI to impose RBI has powers to impose
impose fine and fine and compound monetary penalty in respect of
compound contraventions have been certain contraventions as well as
mentioned; the type of compound certain contraventions.
contravention / violation for The type / nature of contravention
which RBI has powers to for which penalty can be imposed
impose fine and compound, and compounded are different and
are not explicitly indicated. vary. This has been detailed
including the procedure to be
followed.
2. Procedure for Single procedure for Considering that the powers of
imposing imposing monetary penalty / RBI to impose monetary penalty
monetary penalty fine in respect of and compound contraventions are
/ fine contraventions identified by different, and further that the
RBI as well as compounding nature of identification of
of contraventions. contraventions is also different,
separate procedures have been

9
 proposed.
3. Delegation of There is no mention of The powers to impose monetary
powers to impose delegation of powers or penalty on account of RBI
fine and about the designated identified contraventions and
compound authority. compounding of contraventions
contraventions have been separated.
4. Issuance of Show In case RBI is not satisfied The decision to issue SCN will be
Cause Notice with the explanation based on certain parameters
(SCN) furnished by the contravener, dovetailed in a Scoring Matrix.
a SCN shall be issued. There
is no methodology for
considering various
parameters to decide on its
issue.
5. Action based on No such procedure. Will depend on whether the
nature of contraventions are quantifiable or
contravention non-quantifiable.
6. Amount of For quantifiable Objective methodology dovetailed
monetary penalty contraventions – a minimum into a scoring matrix to determine
penalty of Rs. 5 lakh. the amount of penalty to be
imposed, including action for non-
For non-quantifiable compliance.
contraventions - a penalty of
minimum Rs. 5 lakh with a
maximum of Rs. 1 crore.
7. Type of All contraventions could be All offences mentioned in Section
contraventions compounded. 26 of PSS Act, 2007 except those
that can be relating to sub-section 2 of
compounded Section 26, can be compounded.

All eligible contraventions,

irrespective of its nature of being
quantifiable or non-quantifiable,
shall be compounded.

Annex 2

1. Offences and Penalties

1.1 Section 26 of the Payment and Settlement Systems (PSS) Act, 2007 defines the following
activities as offences, which are punishable with imprisonment or fine or both:

i. operation of a payment system without authorisation by RBI;

ii. failure to comply with the terms and conditions subject to which authorisation was
issued;
iii. wilful submission of a false statement of information or wilful omission to submit a
material statement in any application for authorisation or return or other document;
iv. failure to produce any statement, information, returns or documents;
v. disclosure of any prohibited information;

10
 vi. non-compliance of RBI directions or failure to pay the penalty imposed by RBI; and
vii. contravention of any provisions of the Act or of any regulation, order or direction
made or given thereunder, in respect of which no penalty has been specified.

2. Powers of RBI to impose fine

2.1 In terms of Section 30 of the PSS Act, RBI is empowered to impose a penalty not
exceeding ₹ 5 lakh or twice the amount involved in such contravention or default where such
amount is quantifiable, whichever is more, in case of contraventions / defaults of the nature
mentioned in Section 26 (2) and 26 (6) of the Act. Further, if such contravention or default is
a continuing one, a further penalty up to ₹ 25,000/- for every day after the first during which
the contravention or default continues, can be imposed.

3. Powers of RBI to compound offences

3.1 Section 31 of PSS Act empowers RBI to compound contraventions of any of the
punishable offences under the Act, not being an offence punishable with imprisonment /
imprisonment and fine.

4. With the continuous evolution and increased pace of development of payment landscape in
the country, including the entry of non-bank players leveraging the technological
developments, and the consequent requirement to ensure safe, secure and efficient payment
systems, a need was felt to review the entire process of levy of penalty so as to ensure the
efficacy of implementation of various RBI directions and regulations.

5. Accordingly, the entire process has been reviewed and a revised framework, as briefed
below, is being put in place with immediate effect.

6. Principles for imposing monetary penalty / compounding a contravention

6.1 Following factors will be considered for determining the materiality of a contravention,
whether on account of those identified by RBI or a compounding application from the
contravener:

i. Severity of contravention in terms of degree of breach of norms/limits (isolated,

localised, extensive, widespread);
ii. Period and frequency of a similar contravention during the past 5 years;
iii. Seriousness of the contravention; Percentage of amount involved in the contravention
vis-à-vis total value of transactions handled by the contravener during the period
under consideration;
iv. Amount involved in the contravention; and
v. Submission of wrong / false / incomplete compliance.

6.2 Following factors will be considered for determining the amount of monetary penalty to
be imposed on any entity, resulting from 6.1 above:

i. Amount of gain or unfair advantage, wherever quantifiable, accruing to the

contravener as a result of the contravention;
ii. Amount of loss caused to any other authority / agency / exchequer and / or to any
other market participant;

11
 iii. Monetary benefits accruing to the contravener from delayed / non-compliance;

7. Imposition of monetary penalty for RBI identified contraventions

(i) An indicative list of the contraventions / violations is as under:

a. Wilful submission of a false statement of information or wilful omission of a material

statement to RBI;
b. Delay / non / incomplete / incorrect submission of various statutory / regulatory
returns / statements / documents, etc.;
c. Contravention of any provisions of the Act or of any regulation, directions /
instructions made thereunder;
d. Issues in maintenance of net worth requirements, etc.
e. Non-compliance with Know Your Customer (KYC) and Anti-Money Laundering
(AML) norms;
f. Issues in maintenance of nodal / escrow accounts;
g. Breach of limits in loading, fund transfer, etc. of PPIs;
h. Inadequacies in storage of payment system data in India; and
i. Any other contravention of directions / instructions – specific or general.

(ii) Designated authority to impose penalty

 In case of quantifiable contraventions, a Committee of Senior Officers, comprising of

the Chief General Manager / Officer-in-Charge, Department of Payment and
Settlement Systems (DPSS), Central Office and senior officers from two other
Departments of RBI, shall be the designated authority.
 In case of non-quantifiable contraventions, a Committee, comprising of ED in-Charge
of DPSS and Chief General Managers from two other Departments of RBI
(Committee of CGMs), shall be the designated authority.
 For contraventions, partly quantifiable and partly non-quantifiable, the Committee of
CGMs shall be the designated authority.

(iii) Procedure for imposing penalty

(a) Call for information: On receipt of information on a contravention, RBI may call for
additional information from the contravener.
(b) Issue of Explanation Letter: On identification of a contravention, a letter calling for
explanation would be issued to the contravener.
(c) Issue of Show Cause Notice (SCN):
 If the RBI is not satisfied with the reasons / explanations furnished by the
contravener, an SCN may be issued based on the parameters mentioned in para
6.1 above, advising the contravener to show cause as to why the amount specified
in the notice should not be imposed as penalty. For the purpose, a matrix has been
formulated to derive a weighted score based on certain parameters.
 In cases where a contravener has already been issued with more than one
Cautionary / Warning / Displeasure letters for a particular type of contravention
by RBI on earlier occasions of contraventions during the last 5 years, an SCN
shall be issued on the subsequent occasion/s irrespective of the overall weighted
score arrived at.

12
 (d) Personal Hearing: The contravener shall be provided with a reasonable opportunity
of being heard, if requested by the contravener in reply to the SCN.
(e) Issue of Speaking Order: The Designated Authority shall pass a Speaking Order
based on the information and supportive documents presented by the contravener and
also the submissions made in this connection by them during the personal hearing.

(iv) Amount of monetary penalty:

(a) The amount of monetary penalty may vary depending on impact on account of
various factors.
(b) The amount of monetary penalty for a contravention shall not exceed ₹ 5 lakh or
double the amount of contravention, whichever is higher, where such amount is
quantifiable. For non-quantifiable contravention, the maximum penalty shall be ₹ 5
lakh per contravention.
(c) A Matrix has been formulated for determining the amount of penalty. The actual
amount may vary depending on the circumstances of the cases.
(d) The amount of penalty, after considering the mitigating factors, may differ depending
upon the extent of overall weighted score, as given in Appendix 1. In case where the
amount of resultant penalty may affect the viability of the contravener or otherwise
disproportionate or unfair, or even where neither the extent of impact nor the intent of
committing the contravention is clearly established, the designated authority may
exercise its discretionary power and take a fair view to either reduce or impose an
appropriate amount of penalty, subject to statutory limits.

(v) Payment of monetary penalty:

(a) The monetary penalty shall be payable within a period of thirty days from the date of
the order.
(b) In case of failure in payment of penalty amount, RBI will initiate appropriate action
against the contravener as per Section 8 or Section 30 (3) or Section 33 of PSS Act.

(vi) Disclosure:

(a) The entities shall disclose the details of monetary penalty paid in their Notes to
Accounts that are part of Annual Financial Statements for the financial year in which
the penalty is levied.
(b) RBI shall disclose the penalty levied on its website.

8. Compounding of contraventions

(i) An indicative list of the contraventions / violations for compounding, is as under:

a. Failure to comply with the terms and conditions of authorisation issued by RBI;
b. Failure to produce / furnish any statement, information, returns or other documents to
RBI or answer any question relating to the operation of payment system;
c. Disclosure of any information prohibited under Section 22 of PSS Act;
d. Non-compliance / contravention of any provisions of the Act / Regulation / order /
directions made or given in respect of which no penalty has been specified in the Act;
e. Violations of KYC / AML norms;

13
 f. Delay / non / incomplete / incorrect submission of various statutory / regulatory
returns / statements / documents, etc. (other than an act punishable under sub-section
2 of Section 26)
g. Issues in maintenance of nodal/escrow accounts;
h. Breach of limits in loading, fund transfer, etc. of PPIs;
i. Inadequacies in storage of payment system data in India; and
j. Any other contravention of directions / instructions – specific or general.

(ii) Compounding Authority – The CGM / Officer-in-charge, DPSS, Central Office will be
the Compounding Authority for cases of compounding involving quantifiable contraventions,
and ED-in-charge of DPSS will be the Compounding Authority for compounding cases
involving non-quantifiable contraventions.

(iii) Eligibility for compounding:

a. All contraventions (quantifiable or non-quantifiable) of the nature of offences

mentioned in Section 26 (1), (3), (4), (5) and (6) of PSS Act, 2007, are liable to be
compounded.
b. The cases which involve money laundering, terror financing or affect sovereignty and
integrity of nation, shall not be compounded by RBI.
c. The applications submitted for compounding of eligible contraventions shall be
accepted by RBI even if the same is pending before any court of law (on the basis of
complaint filed by RBI).
d. Where a contravention has been compounded by RBI, no proceeding or further
proceeding shall be initiated or continued, as the case may be, against the person
committing such contravention, in respect of the contravention so compounded.

(iv) Procedure for compounding:

a. Submission of compounding application: A contravener wishing to seek

compounding of eligible contraventions, shall submit an application, along with
information relating to facts and circumstances resulting in commission of
contravention, a copy of Memorandum and Articles of Association and latest audited
balance sheet, in the prescribed format (Appendix 2) to the Chief General Manager,
Department of Payment and Settlement Systems, Reserve Bank of India, Central
Office, Mumbai. He / she shall also give an undertaking that they are not under any
enquiry / investigation / adjudication by any Law Enforcement Agency, such as
Directorate of Enforcement, Directorate of Revenue Intelligence, Central Bureau of
Investigation, etc.
b. Examination of Compounding Application: On receipt of the application for
compounding, the same shall be examined by RBI and taken up for compounding
process.
c. Call for information: The RBI may call for any information, record or any other
documents relevant to the contravention.
d. Personal Hearing: The contravener shall be provided with a reasonable opportunity of
being heard by the respective Compounding Authority irrespective of whether the
contravener has opted for the same.
e. Issue of Compounding Order: The Compounding Authority shall pass an order in the
compounding application as expeditiously as possible, but not later than a period of 6
months from the date of receipt of the complete Compounding Application.

14
(v) Compounding Amount:

a. The basis for calculation of compounding amount will be the same as for penalties (as
prescribed in Appendix 1).
b. The compounding amount may be 25% less than the calculated amount (as per
Appendix 1) that would have otherwise been imposed under Section 30 of the Act.
c. The compounding amount shall not exceed ₹ 5 lakh or double the amount of
contravention, whichever is higher, in case of quantifiable contraventions, whereas in
respect of non-quantifiable contraventions it shall not exceed ₹ 5 lakh.
d. In case of repeated contraventions (within a period of 5 years) in respect of which
compounding has been done on earlier occasion, the compounding amount may be
increased by 50 per cent of the calculated amount (as per Appendix 1).

(vi) Payment of compounding amount:

a. The amount specified in the Order of Compounding shall be paid within a period of
30 days from the date of the Order.
b. In case of failure to pay the compounding amount for which contravention was earlier
compounded, it shall be deemed that the contravener did not make an application for
compounding of contravention under the PSS Act, and the RBI shall be free to take
appropriate action under the Act.

(vii) Disclosure: RBI shall make public the compounding amount levied on the entity for
compounding of contraventions on its website.

JAIIB Banking, Digital Banking, CAIIB Elective – Retail Banking, Diploma in Retail
Banking

Enhancing Security of Card Transactions

RBI/2019-20/142 DPSS.CO.PD No.1343/02.14.003/2019-20 January 15, 2020

The Chairman / Managing Director / Chief Executive Officer

All Scheduled Commercial Banks (SCBs) including Regional Rural Banks (RRBs) / Urban
Co-operative Banks (UCBs) / State Co-operative Banks (StCBs) / District Central Co-
operative Banks (DCCBs) / Payments Banks (PBs) / Small Finance Banks (SFBs) / Local
Area Banks (LABs) / Authorised Card Payment Networks / Non-Bank PPI issuers

Over the years, the volume and value of transactions made through cards have increased
manifold. To improve user convenience and increase the security of card transactions, it has
been decided as under:

a) At the time of issue / re-issue, all cards (physical and virtual) shall be enabled for use only
at contact-based points of usage [viz. ATMs and Point of Sale (PoS) devices] within India.
Issuers shall provide cardholders a facility for enabling card not present (domestic and
international) transactions, card present (international) transactions and contactless
transactions, as per the process outlined in para 1 (c).

15
b) For existing cards, issuers may take a decision, based on their risk perception, whether to
disable the card not present (domestic and international) transactions, card present
(international) transactions and contactless transaction rights. Existing cards which have
never been used for online (card not present) / international / contactless transactions shall be
mandatorily disabled for this purpose.

c) Additionally, the issuers shall provide to all cardholders:

a. facility to switch on / off and set / modify transaction limits (within the overall card
limit, if any, set by the issuer) for all types of transactions – domestic and
international, at PoS / ATMs / online transactions / contactless transactions, etc.;
b. the above facility on a 24x7 basis through multiple channels - mobile application /
internet banking / ATMs / Interactive Voice Response (IVR); this may also be offered
at branches / offices;
c. alerts / information / status, etc., through SMS / e-mail, as and when there is any
change in status of the card.

2. The provisions of this circular are not mandatory for prepaid gift cards and those used at
mass transit systems.

3. Issuers and card networks may give wide publicity to the provisions of this circular.

4. These directions are issued under Section 10(2) of the Payment and Settlement Systems
Act, 2007 (Act 51 of 2007) and shall come into effect from March 16, 2020.

JAIIB Banking, ABM, Credit Management, CAIIB Elective Coop Banking, Diploma
-UCBs.

Reporting of Large Exposures to Central Repository of Information on Large Credits

(CRILC) – UCBs

RBI/2019-20/144 DoS.OSMOS.No.4633/33.05.018/2019-20 January 16, 2020

Primary (Urban) Co-operative Banks

We draw your attention to RBI Circular DOR (PCB). BPD.Cir.No.7/13.05.000/2019-20 dated

December 27, 2019 on "Reporting of Large Exposures to Central Repository of Information
on Large Credits (CRILC) - UCBs". In terms of the instructions, Primary (Urban) Co-
operative Banks (UCBs) having total assets of ₹500 crore and above as on 31st March of the
previous financial year (hereinafter referred to as “banks”) shall report credit information,
including classification of an account as Special Mention Account (SMA), on all borrowers
having aggregate exposures of ₹5 crore and above with them to Central Repository of
Information on Large Credits (CRILC) maintained by the Reserve Bank. Aggregate exposure
shall include all fund-based and non-fund based exposure, including investment exposure on
the borrower.

2. The operational guidelines for reporting the CRILC– UCBs return are as follows:

16
 i. The reporting frequency of the CRILC– UCBs return is quarterly to start with. The
banks need to submit the data on large exposures within 30 days from the end of the
quarter through XBRL reporting platform of RBI. Banks may put in place appropriate
systems to be in readiness to submit the return on a more frequent periodicity.

ii. CRILC – UCBs return will comprise of three sections viz. Section 1: Exposure to
Large Borrowers, Section 2: Reporting of Technically / Prudentially Written-off
Accounts and Section 3: Reporting of Balance in Current Account, as below:

a. In Section 1: Exposure to Large Borrowers, the bank needs to report the credit
information of all borrowers having aggregate exposures (fund-based, non-
fund based and investment exposure) of ₹5 crore and above.
b. In Section 2: Reporting of Technically / Prudentially Written-off Accounts,
the bank needs to report the data on the amount written off, if any, for
borrowers whose technically/prudentially written off amount is ₹5 crore or
more and which are not reported in Section 1.
c. In Section 3: Reporting of balance in Current Account, the bank needs to
report the data on Current Account holders whose (i) balance (either credit or
debit) in current account as on reporting date is ₹1 crore and above or (ii) total
of credit summation (sum of all credit transactions) during the reporting
quarter is ₹5 crore and above or (iii) total of debit summation (sum of all debit
transactions) during the reporting quarter is ₹5 crore and above.

iii. The detailed instructions for each Section is provided in the CRILC-UCBs return
installer (macro enabled excel template).

iv. Banks are advised to take utmost care about data accuracy and integrity while
submitting the data on large credits to the Reserve Bank of India, failing which penal
action would be undertaken.

3. In the light of DoR instructions referred above and in exercise of the powers conferred
under Section 27 (2) read with Section 56 (a)(i) of the Banking Regulation Act, 1949(AACS),
you are advised to submit the data in CRILC-UCBs return with effect from the quarter ended
December 31, 2019. The format of reporting is enclosed.

JAIIB Banking, NBFCs

Lending against security of single product – Gold jewellery

RBI/2019-20/148 DOR.NBFC (PD).CC.No.108/03.10.001/2019-20 January 21, 2020

All Non-Banking Financial Companies (excluding Primary Dealers)

Please refer to paragraph 27 of Master Direction – Non-Banking Financial Company –

Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve
Bank) Directions, 2016; and paragraph 27 of Master Direction – Non-Banking Financial
Company – Non-Systemically Important Non-Deposit taking Company (Reserve Bank)
Directions, 2016.

17
2. On a review, it has been decided that NBFCs can pool gold jewellery from different
branches in a district and auction it at any location within the district, subject to meeting the
following conditions:
a. The first auction has failed.
b. The NBFC shall ensure that all other requirements of the extant directions regarding
auction (prior notice, reserve price, arms-length relationship, disclosures, etc.) are
met.

3. Non-adherence to the above conditions will attract strict enforcement action. The
aforementioned Master Directions are being modified accordingly.

BFM, Forex, ITF, CAIIB – International Banking, DIBF

Investment by Foreign Portfolio Investors (FPI) in Debt

RBI/2019-20/150 A.P. (DIR Series) Circular No.18 January 23, 2020

To
All Authorised persons

Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to Foreign

Exchange Management (Debt Instruments) Regulations, 2019 notified vide Notification No.
FEMA. 396/2019-RB dated October 17, 2019, as amended from time to time, and the
relevant directions issued thereunder. A reference is also invited to the A.P. (DIR Series)
Circular No. 31 dated June 15, 2018 (hereinafter, Directions) read with A.P. (DIR Series)
Circular No. 19 dated February 15, 2019.

2. On a review, the following changes are made to the Directions: -

a) In terms of paragraph 4(b) (i) of the Directions, short-term investments by an FPI shall not
exceed 20% of the total investment of that FPI in either Central Government Securities
(including Treasury Bills) or State Development Loans. This short-term investment limit is
hereby increased from 20% to 30%.

b) In terms of paragraph 4(b) (ii) of the Directions, short-term investments by an FPI shall not
exceed 20% of the total investment of that FPI in corporate bonds. This short-term
investment limit is hereby increased from 20% to 30%.

c) FPI investments in Security Receipts are currently exempted from the short-term
investment limit (paragraph 4 (b)(ii)) and the issue limit (paragraph 4(f)(iii)). These
exemptions shall also extend to FPI investments in the following securities:

i. Debt instruments issued by Asset Reconstruction Companies; and

ii. Debt instruments issued by an entity under the Corporate Insolvency Resolution
Process as per the resolution plan approved by the National Company Law Tribunal
under the Insolvency and Bankruptcy Code, 2016

3. The updated Directions are attached.

18
4. These directions are issued under sections 10(4) and 11(1) of the Foreign Exchange
Management Act, 1999 (42 of 1999) and are without prejudice to permissions/ approvals, if
any, required under any other law.

BFM, Forex, ITF, CAIIB – International Banking, DIBF

‘Voluntary Retention Route’ (VRR) for Foreign Portfolio Investors (FPIs) investment
in debt – relaxations

RBI/2019-20/151 A.P. (DIR Series) Circular No.19 January 23, 2020

To
All Authorised persons

Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to the Foreign
Exchange Management (Debt Instruments) Regulations, 2019 notified vide Notification No.
FEMA. 396/2019-RB dated October 17, 2019, as amended from time to time, and relevant
directions issued thereunder. Attention is also invited to A.P. (DIR Series) Circular No. 34
dated May 24, 2019 (hereinafter Directions).

2. On a review, the following changes are made to the Directions governing investment
through the Voluntary Retention Route (VRR).

a) The investment cap is increased to Rs. 1,50,000 crores from Rs. 75,000 crores.
b) FPIs that have been allotted investment limits under VRR may, at their discretion,
transfer their investments made under the General Investment Limit to VRR.
c) FPIs are also allowed to invest in Exchange Traded Funds that invest only in debt
instruments.

3. The updated Directions are attached.

4. These directions are issued under sections 10(4) and 11(1) of the Foreign Exchange
Management Act, 1999 (42 of 1999) and are without prejudice to permissions/ approvals, if
any, required under any other law.

BFM, Forex, ITF, CAIIB – International Banking, DIBF

Merchanting Trade Transactions (MTT) – Revised Guidelines

RBI/2019-20/152 A.P. (DIR Series) Circular No.20 January 23, 2020

To
All Category – I Authorised Dealer Banks

Attention of Authorised Dealer Category-I banks (AD banks) is invited to A.P. (DIR Series)
Circular No.115 dated March 28, 2014 containing directions relating to merchanting trade
transactions.

19
2. With a view to further facilitate merchanting trade transactions, the existing guidelines
have been reviewed and the revised guidelines as under, are being issued in supersession of
the A.P. (DIR Series) Circular ibid:

i. For a trade to be classified as merchanting trade, goods acquired shall not enter the
Domestic Tariff Area.
ii. Considering that in some cases, the goods acquired may require certain specific
processing/ value-addition, the state of goods so acquired may be allowed
transformation subject to the AD bank being satisfied with the documentary evidence
and bonafides of the transaction.
iii. The MTT shall be undertaken for the goods that are permitted for exports / imports
under the prevailing Foreign Trade Policy (FTP) of India as on the date of shipment.
All rules, regulations and directions applicable to exports (except Export Declaration
Form) and imports (except Bill of Entry) shall be complied with for the export leg and
import leg respectively.
iv. AD bank shall satisfy itself with the bonafides of the transactions. Further, KYC and
AML guidelines shall be scrupulously adhered to by the AD bank while handling
such transactions.
v. The entire merchanting trade is to be routed through the same AD bank. The AD bank
shall verify the documents like invoice, packing list, transport documents and
insurance documents (if originals are not available, Non-negotiable copies duly
authenticated by the bank handling documents may be taken) and satisfy itself about
the genuineness of the trade. The AD bank may, if satisfied, rely on online
verification of Bill of Lading/ Airway Bill on the website of International Maritime
Bureau or Airline web check facilities. However, the AD bank shall ensure that the
requisite details are made available /retrievable at the time of
Inspection/Audit/investigation of the transactions.
vi. The entire MTT shall be completed within an overall period of nine months and there
shall not be any outlay of foreign exchange beyond four months. The commencement
date of merchanting trade shall be the date of shipment / export leg receipt or import
leg payment, whichever is first. The completion date shall be the date of shipment /
export leg receipt or import leg payment, whichever is the last.
vii. Short-term credit either by way of suppliers' credit or buyers' credit may be extended
for MTT to the extent not backed by advance remittance for the export leg, including
the discounting of export leg LC by the AD bank, as in the case of import
transactions. However, Letter of Undertaking (LoU)/ Letter of Comfort (LoC) shall
not be issued for supplier’s/ buyer’s credit.
viii. Any receipts for the export leg, prior to the payment for import leg, may be parked
either in Exchange Earners Foreign Currency (EEFC) account or in an interest-
bearing INR account till the import leg liability arises. It shall be strictly earmarked/
lien-marked for the payment of import leg and the liability of the import leg, as soon
as it arises, shall be extinguished out of these funds without any delay. If such receipts
are kept in interest-bearing INR account, hedging thereof may be allowed by the AD
bank at the request of its customer, as per extant regulations. No fund/non-fund-based
facilities shall be extended against these balances.
ix. In case of discounting of export leg LC where payment for import leg is still to be
made (even if partially), the proceeds shall be utilized in the manner prescribed at
point no. 2 (viii) above.

20
 x. Payment for import leg may also be allowed to be made out of the balances in EEFC
account of the merchant trader.
xi. Merchanting traders may be allowed to make advance payment for the import leg on
demand made by the overseas supplier. In case where inward remittance from the
overseas buyer is not received before the outward remittance to the overseas supplier,
AD bank may handle such transactions based on its commercial judgement. It may,
however, be ensured that any such advance payment for an import leg beyond USD
500,000/- per transaction, shall be made against Bank Guarantee / an unconditional,
irrevocable standby Letter of Credit from an international bank of repute. Overall
prudential limits on allowing such advance payments by a customer may be fixed by
the AD bank.
xii. Letter of Credit to the supplier for the import leg is permitted against confirmed
export order, keeping in view the foreign exchange outlay of four months and
completion of the MTT within nine months and subject to compliance with the
instructions issued by Department of Banking Regulation on “Guarantees and Co-
acceptances”, as amended from time to time.
xiii. AD bank shall ensure one-to-one matching in case of each MTT and report defaults in
any leg by the traders to the concerned Regional Office of the Reserve Bank, on half
yearly basis in the format as annexed, within 15 days from the close of each half year,
i.e. June and December;
xiv. Merchant traders with outstanding of 5% or more of their annual export earnings shall
be liable for caution listing.

3. The merchanting traders shall be genuine traders of goods and not mere financial
intermediaries. Confirmed orders must be received by them from the overseas buyers. AD
banks shall satisfy themselves about the capabilities of the merchanting trader to perform the
obligations under the order. The merchanting trade shall result in profit which shall be
determined by subtracting import payments and related expenses from export proceeds for
the specific MTT.

4. Write-off of unrealized amount of export leg:

i. AD bank may write-off the unrealized amount of export leg, without any ceiling, on the
request made by the Merchanting trader, in the following circumstances:

a. The MTT buyer has been declared insolvent and a certificate from the official
liquidator specifying that there is no possibility of recovery of export proceeds has
been produced.

b. The goods exported have been auctioned or destroyed by the Port / Customs / Health
authorities in the importing country and a certificate to that effect has been produced.

c. The unrealized amount of the export leg represents the balance due in a case settled
through the intervention of the Indian Embassy, Foreign Chamber of Commerce or
similar Organization;

provided, the MTT is in adherence to all other provisions except the delays in timelines
(either for outlay or completion period of MTT or both) attributed to reasons mentioned at a,
b and c above.

21
ii. In addition to above, write-off as at (i) shall be subject to following conditions:

a. AD bank shall satisfy itself with the bonafides of the transactions and ensure that
there are no KYC/AML concerns.

b. The transaction shall not be under investigation under FEMA by any of the
investigating agency/ies.

c. The counterparty to the merchant trader is not from a country or jurisdiction in the
updated FATF Public Statement on High Risk & Non-Co-operative Jurisdictions on
which FATF has called for counter measures.

5. Third party payments for export and import legs of the MTT are not allowed.

6. Agency commission is not allowed in MTTs. However, AD banks may allow payment of
agency commission up to a reasonable extent by way of outward remittance under
exceptional circumstances, subject to the following conditions:

a. MTT has been completed in all respects.

b. The payment of agency commission shall not result in the MTT ending into a loss.

c. The Merchanting trader shall make a specific request to the AD bank in this regard.

7. AD bank may approach Regional Office (RO) concerned of the Reserve Bank for
regularization of the MTT for deviation, if any, from the prescribed guidelines and the MTT
shall be closed only after receiving approval from the RO concerned of the Reserve Bank.

8. Reporting for merchanting trade transactions under FETERS shall be done on gross basis,
against the undermentioned codes:

Purpose Code
Trade Description
under FETERS
Goods sold under merchanting /receipt against
Export P0108
export leg of merchanting trade
Goods acquired under merchanting /payment
Import S0108
against import leg of merchanting trade

9. AD banks shall bring the contents of this circular to the notice of their constituents
concerned for strict compliance.

10. The directions contained in this circular have been issued under sections 10(4) and 11(1)
of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) and are without
prejudice to permissions / approvals, if any, required under any other law.

Digital Banking, Retail Banking, JAIIB Banking

Cash withdrawal using Point of Sale (PoS) terminals

22
RBI/2019-20/154 DPSS.CO.PD No.1465/02.14.003/2019-20 January 31, 2020

The Chairman / Managing Director / Chief Executive Officer

All Scheduled Commercial Banks (SCBs) including Regional Rural Banks (RRBs) / Urban
Co-operative Banks (UCBs) / State Co-operative Banks (StCBs) / District Central Co-
operative Banks (DCCBs) / Payments Banks (PBs) /Small Finance Banks (SFBs) /
Authorised Card Payment Networks

Please refer to our circulars DPSS.CO.PD.No.147/02.14.003/2009-10 dated July 22, 2009,

DPSS.CO.PD.No.563/02.14.003/2013-14 dated September 5, 2013,
DPSS.CO.PD.No.449/02.14.003/2015-16 dated August 27, 2015 and
DPSS.CO.PD.No.501/02.14.003/2019-20 dated August 29, 2019, in terms of which banks are
required to obtain one time permission from the Reserve Bank of India (RBI) for offering the
facility of cash withdrawal at PoS terminals deployed by them.

2. It has been decided that the requirement of obtaining permission from the RBI be
dispensed with and that henceforth, banks may, based on the approval of their Board, provide
cash withdrawal facility at PoS terminals. The designated merchant establishments may be
advised to clearly indicate / display the availability of this facility along with the charges, if
any, payable by the customer.

3. All other provisions, including those pertaining to the submission of data / reports to RBI,
shall continue as hitherto.

4. These directions are issued under Section 10(2) of Payment and Settlement Systems Act,
2007 (Act 51 of 2007).

MSMEs, JAIIB -- Banking

Interest Subvention Scheme for MSMEs

RBI/2019-20/155 FIDD.CO.MSME.BC.No.17/06.02.031/2019-20 February 5, 2020

The Chairman / Managing Director & CEOs

All Scheduled Commercial Banks (including Regional Rural Banks)

Please refer to the operational guidelines for the captioned scheme contained in circular on
‘Interest Subvention Scheme for MSMEs’ issued vide
FIDD.CO.MSME.BC.No.14/06.02.031/2018-19 dated February 21, 2019.

2. In this regard, it has been decided by the Government of India to bring, inter alia,
following modifications in the operational guidelines:

i. Submission of statutory auditor certificate by June 30, 2020 and in the meantime,
settle claims based on internal / concurrent auditor certificate.
ii. Acceptance of claims in multiple lots for a given half year by eligible institutions.

23
 iii. Requirement of Udyog Aadhar Number (UAN) may be dispensed with for units
eligible for GST. Unit not required to obtain GST, may either submit Income Tax
Permanent Account Number (PAN) or their loan account must be categorized as
MSME by the concerned bank.
iv. Allow trading activities also without Udyog Aadhar Number (UAN)

3. Further, with the trading activity also eligible for interest subvention as indicated at (iv)
above, the ‘Format of Certificate for claiming Subsidy’ i.e. Annex I of the above referred
circular has been revised. Banks are advised to submit claims to SIDBI as per the revised
format.

4. You are requested to apprise your branches / controlling offices about the above changes in
the scheme.

JAIIB Banking, Rural Banking Operations, CAIIB Elective Rural Banking

Guidelines on Merchant Acquiring Business – Regional Rural Banks

RBI/2019-20/156 DOR.RRB.BL.BC.No.31/31.01.001/2019-20 February 06, 2020

The Chairmen
All Regional Rural Banks

As announced in para II (7) of the Statement on Developmental and Regulatory Policies

issued along with Sixth Bi-monthly Monetary Policy Statement 2019-20, it has been decided
to allow RRBs to act as merchant acquiring banks using Aadhaar Pay – BHIM app and POS
terminals.

In this connection, the instructions are as under:

1. All RRBs intending to act as merchant acquiring banks (Aadhaar pay – BHIM app), shall
be permitted to deploy their own devices subject to fulfilling the conditions as under:

a) The RRB should have the permission for mobile banking from the Reserve Bank

b) Additionally, the RRB shall be required to fulfil the following conditions:

i. The bank's IT systems & CBS should have been subjected to an IS Audit not earlier
than six months from the date of application to confirm that the system is adequately
secure.
ii. The bank must ensure necessary infrastructure for application development, safety
and security of the transactions and handling of customer grievance.
iii. A customer grievance redressal mechanism duly approved by the bank's board should
be in place;
iv. The bank should have a board approved policy on merchant acquisition for card
transactions;
v. There should not be any restrictions imposed on the bank for accepting deposits/
withdrawals by Reserve Bank of India.
vi. No penalty should have been imposed in last two financial years.

24
2. All RRBs intending to act as merchant acquiring bank (POS terminals), shall be permitted
to deploy their own devices provided they meet the conditions mentioned at 1 (a) and (b)
above, as also the conditions given hereunder:

c) In the preceding financial year, the RRB should have

i. Net worth of ₹100.00 crore or more as on March 31 of the preceding financial year
ii. Minimum CRAR at 9%
iii. Net NPA below 5%.
3. Apart from meeting the above eligibility criteria, the RRBs may be required to comply
with instructions and guidelines on Merchant Acquisition for card transactions and POS
issued by Department of Payment and Settlement Systems, RBI from time to time.

4. RRBs shall inform the respective Regional Offices of Reserve Bank, within a period of 15
days from the date of operationalising the merchant acquisition business.

5. The RRBs shall furnish the requisite information to DPSS, CO, RBI directly, as indicated
in the enclosed annex.

JAIIB Banking, Credit Management, ABM

Prudential Norms on Income Recognition, Asset Classification and Provisioning

Pertaining to Advances - Projects under Implementation

RBI/2019-20/158 DOR.No.BP.BC.33/21.04.048/2019-20 February 07, 2020

The Chairman / Chief Executive Officer

All Scheduled Commercial Banks (excluding RRBs)/ All Small Finance Banks

Please refer to the circular DBR.No.BP.BC.84/21.04.048/2014-15 dated April 6, 2015 on the

subject. It has been decided to harmonise the guidelines for deferment of date of
commencement of commercial operations (DCCO) for projects in non-infrastructure and
commercial real estate (CRE) sectors. Accordingly, the revised guidelines for deferment of
DCCO for CRE projects are as under:

i. Revisions of the date of DCCO and consequential shift in repayment schedule for equal or
shorter duration (including the start date and end date of revised repayment schedule) will not
be treated as restructuring provided that:

a. The revised DCCO falls within the period of one year from the original DCCO
stipulated at the time of financial closure for CRE projects; and

b. All other terms and conditions of the loan remain unchanged.

ii. In case of CRE projects delayed for reasons beyond the control of promoter(s), banks may
restructure them by way of revision of DCCO up to another one year (beyond the one-year

25
period quoted at paragraph i (a) above) and retain the ‘standard’ asset classification if the
account continues to be serviced as per the revised terms and conditions under the
restructuring.

iii. Banks while restructuring such CRE project loans under instructions at (ii) above will
have to ensure that the revised repayment schedule is extended only by a period equal to or
shorter than the extension in DCCO.

iv. Banks may fund cost overruns that arise on account of extension of DCCO (within the
limits at (i) and (ii) above), subject to the instructions issued vide circular
DBOD.No.BP.BC.33/21.04.048/2014-15 dated August 14, 2014 and the mailbox clarification
dated April 20, 2016.

v. It is re-iterated that a loan for a project may be classified as NPA during any time before
commencement of commercial operations as per record of recovery (90 days overdue). It is
further re-iterated that the dispensation at (ii) above is subject to the condition that the
application for restructuring should be received before the expiry of period mentioned at
paragraph (i) (a) above and when the account is still standard as per record of recovery.

vi. At the time of extending DCCO, Boards of banks should satisfy themselves about the
viability of the project and the restructuring plan.

vii. All other aspects related to restructuring, income recognition, asset classification,
provisioning as applicable for projects under implementation shall continue to apply.

viii. Banks shall ensure that all provisions of the Real Estate (Regulation and Development)
Act, 2016 are complied with.

2. The project loans to CRE sector shall be identified on the basis of instructions issued vide
circulars DBOD.BP.BC.No.42/08.12.015/2009-10 dated September 9, 2009 and
DBOD.BP.BC. No.104/08.12.015/2012-13 dated June 21, 2013.

JAIIB Banking, ABM, CAIIB Elective Treasury

Incentivising Bank Credit to Specific Sectors – Exemption from CRR Maintenance

RBI/2019-20/159 DOR.No.Ret.BC.30/12.01.001/2019-20 February 10, 2020

All Scheduled Commercial Banks

It has been announced in paragraph 3 of the Statement on Developmental and Regulatory

Policies of February 6, 2020, that the Reserve Bank is actively engaged in revitalising the
flow of bank credit to productive sectors having multiplier effects to support growth
impulses. Accordingly, banks are allowed to deduct the equivalent amount of incremental
credit disbursed by them as retail loans to automobiles, residential housing, and loans to
micro, small and medium enterprises (MSMEs), over and above the outstanding level of
credit to these segments as at the end of the fortnight ended January 31, 2020 from their net
demand and time liabilities (NDTL) for maintenance of the cash reserve ratio (CRR).

26
Banks are advised that they can claim the first such deduction from the NDTL of February
14, 2020 for the amount equivalent to the incremental credit extended to the sectors indicated
above over the outstanding level of credit as at the end of the fortnight ended January 31,
2020.

An amount equivalent to the incremental credit outstanding from the fortnight beginning
January 31, 2020 and up to the fortnight ending July 31, 2020 will be eligible for deduction
from NDTL for the purpose of computing the CRR for a period of five years from the date of
origination of the loan or the tenure of the loan, whichever is earlier.

Banks are required to report the exemption availed at the end of a fortnight under
“exemptions/others” in the Section-42 return, prescribed in Annex A to Form A as per Master
Circular on Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) dated July 1,
2015. Proper fortnightly records of net incremental credit extended to the select
sectors/NDTL exemption claimed, duly certified by the Chief Financial Officer (CFO) or an
equivalent level officer, must be maintained by banks for supervisory review.

JAIIB Banking, MSMEs, NBFCs

Micro, Small and Medium Enterprises (MSME) sector – Restructuring of Advances

RBI/2019-20/160 DOR.No.BP.BC.34/21.04.048/2019-20 February 11, 2020

All banks and NBFCs regulated by the Reserve Bank of India

Please refer to the circular DBR.No.BP.BC.18/21.04.048/2018-19 dated January 1, 2019. It

has been decided to extend the one-time restructuring of MSME advances permitted in terms
of the aforesaid circular. Accordingly, a one-time restructuring of existing loans to MSMEs
classified as 'standard' without a downgrade in the asset classification is permitted, subject to
the following conditions:

i. The aggregate exposure, including non-fund based facilities, of banks and NBFCs to
the borrower does not exceed ₹25 crore as on January 1, 2020.
ii. The borrower’s account was in default but was a ‘standard asset’ as on January 1,
2020 and continues to be classified as a ‘standard asset’ till the date of
implementation of the restructuring.
iii. The restructuring of the borrower account is implemented on or before December 31,
2020.
iv. The borrowing entity is GST-registered on the date of implementation of the
restructuring. However, this condition will not apply to MSMEs that are exempt from
GST-registration. This shall be determined on the basis of exemption limit obtaining
as on January 1, 2020.

2. It is clarified that accounts which have already been restructured in terms of the circular
dated January 1, 2019 shall be ineligible for restructuring under this circular.

3. All other instructions specified in the circular dated January 1, 2019 shall be applicable.

27
JAIIB Banking, CAIIB Rural Banking, Rural Banking Operations

Short Term Crop Loans eligible for Interest Subvention Scheme (ISS) and Prompt
Repayment Incentive (PRI) through KCC

RBI/2019-20/166 FIDD.CO.FSD.BC.No.1785/05.02.001/2019-20 February 26, 2020

The Chairman/Managing Director/Executive Officer

All Public & Private Sector Scheduled Commercial Banks (Excluding Regional Rural Banks
and Small Finance Banks)

Ministry of Agriculture & Farmers Welfare vide their Office Memorandum, No. F. 1-
20/2018-Credit-I, dated January 23, 2020 has advised that Short Term Crop Loans eligible
for Interest Subvention Scheme (ISS) and Prompt Repayment Incentive (PRI) should be
extended only through KCC thus making KCC a prerequisite for claiming Interest
Subvention (IS) and Prompt Repayment Incentive (PRI) by farmers w.e.f. April 1, 2020.

2. In view of this, banks are advised to ensure that all Short Term Crop Loans eligible for
Interest Subvention (IS) and Prompt Repayment Incentive (PRI) benefit are extended only
through KCC w.e.f. April 1, 2020. The existing Short Term Crop Loans which are not
extended through KCC shall be converted to KCC loans by March 31, 2020.

3. Accordingly, reimbursement of interest subvention for Short Term Crop Loans through
non-KCC accounts shall not be considered beyond March 31, 2020.

JAIIB Banking, Retail Banking, MSMEs, SFBs

External Benchmark Based Lending – Medium Enterprises

RBI/2019-20/167 DOR.DIR.BC.No.39/13.03.00/2019-20 February 26, 2020

All Scheduled Commercial Banks (excluding RRBs)/All Small Finance Banks/All Local
Area Banks

Please refer to the circular DBR.DIR.BC.No.14/13.03.00/2019-20 dated September 04, 2019,

in terms of which all new floating rate personal or retail loans (housing, auto, etc.) and
floating rate loans to Micro and Small Enterprises (MSEs) extended by banks with effect
from October 01, 2019 were linked to external benchmarks.

2. Subsequent to the introduction of an external benchmark system, the monetary policy

transmission has improved in respect of the sectors where new floating rate loans have been
linked to the external benchmarks.

3. With a view to further strengthening monetary policy transmission, it has now been
decided that all new floating rate loans to the Medium Enterprises extended by banks from
April 01, 2020 shall be linked to the external benchmarks as indicated in the aforesaid
circular. All the other instructions as contained in the aforesaid circular remain unchanged.

4. Accordingly, Master Direction - Reserve Bank of India (Interest Rate on Advances)

Directions, 2016 dated March 03, 2016 has been modified and is available on RBI’s website.

28
BFM, CAIIB- Intl Banking, FX

Foreign Exchange Management (Manner of Receipt and Payment) (Second

Amendment) Regulations, 2020

Notification No. FEMA 14(R)/(2)/2020-RB March 04, 2020

In exercise of the powers conferred by Section 47 of the Foreign Exchange Management Act,
1999 (42 of 1999), the Reserve Bank of India makes the following amendments in the
Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016
[Notification No. FEMA 14(R)/2016- RB dated May 02, 2016] (hereinafter referred to as 'the
Principal Regulations'), namely:

1. Short title and commencement: -

i. These Regulations may be called the Foreign Exchange Management (Manner of

Receipt and Payment) (Second Amendment) Regulations, 2020.
ii. They shall come into force from the date of their publication in the official Gazette.

2. In the Principal Regulations,

(i) in sub-Regulation 1 (A) of Regulation 3, the following shall be substituted, namely:

“Members of Asian Clearing Union (ACU)”

(ii) in sub-Clause (a) of Clause (i) of sub-Regulation (1)(A) of Regulation 3, the following
shall be substituted, namely:

“Receipt for export of eligible goods and services by debit to the ACU Dollar account and /
or ACU Euro account and / or ACU Japnese Yen account in India of a bank of the member
country in which the other party to the transaction is resident or by credit to the ACU Dollar
account and / or ACU Euro Account and / or ACU Japnese Yen account of the authorized
dealer maintained with the correspondent bank in that member country;”

(iii) in sub-regulation 1(A) of Regulation 5, the following shall be substituted, namely:

“Members of Asian Clearing Union (ACU)”

(iv) in sub-Clause (a) of Clause (i) of sub-Regulation (1)(A) of Regulation 5, the following
shall be substituted, namely:

“Payment for import of eligible goods and services by credit to ACU Dollar account and / or
ACU Euro account and / or ACU Japnese Yen account in India of a bank of the member
country in which the other party to the transaction is resident or by debit to the ACU Dollar
account and / or ACU Euro account and / or ACU Japnese Yen account of the authorized
dealer maintained with the correspondent bank in that member country:”

29
JAIIB Accounts, Accounting & Auditing, NBFCs

Implementation of Indian Accounting Standards

RBI/2019-20/170 DOR (NBFC).CC.PD.No.109/22.10.106/2019-20 March 13, 2020

To
Non-Banking Financial Companies
and Asset Reconstruction Companies
implementing Indian Accounting Standards

Non-Banking Financial Companies (NBFCs) covered by Rule 4 of the Companies (Indian

Accounting Standards) Rules, 2015 are required to comply with Indian Accounting Standards
(Ind AS) for the preparation of their financial statements. In order to promote a high quality
and consistent implementation as well as facilitate comparison and better supervision, the
Reserve Bank has framed regulatory guidance on Ind AS given in the Annex which will be
applicable on Ind AS implementing NBFCs and Asset Reconstruction Companies (ARCs) for
preparation of their financial statements from financial year 2019-20 onwards.

2. The annexed instructions and guidelines relate to specific prudential aspects of Ind AS
implementation by NBFCs/ARCs and are not meant to provide a comprehensive commentary
on the accounting standards or comprehensive technical interpretation of the standards, nor
intended to cover all possible situations. Accordingly, with respect to matters not dealt with
in the Annex, NBFCs/ARCs are required to refer to the notified accounting standards,
application guidance, educational material and other clarifications issued by the Institute of
Chartered Accountants of India (ICAI).

JAIIB Banking, Credit Mgmt, ABM, Rural Banking Operations, CAIIB Elective Rural
Banking, CAIIB Elective Coop Banking, UCBs.

Limits on exposure to single and group borrowers/parties and large exposures and
Revision in the target for priority sector lending – UCBs

RBI/2019-20/171 DOR (PCB).BPD.Cir No.10/13.05.000/2019-20 March 13, 2020

The Chief Executive Officer

All Primary (Urban) Co-operative Banks

Limits on exposure to single and group borrowers/parties and large exposures and Revision
in the target for priority sector lending – UCBs

Please refer to paragraph 1 of the Statement on Developmental and Regulatory Policies dated
December 5, 2019 (extract enclosed) and the subsequent draft circular on the subject issued
on the RBI website, vide Press Release 2019-2020/1541 dated December 30, 2019, for
eliciting comments from the stakeholders. After examining the comments received in this
regard, the final guidelines on the subject are given below.

2. Prudential Exposure Limits

30
2.1 In terms of our circular UBD.DS. Cir.No.44/13.05.00/2004-05 dated April 15, 2005,
Primary (Urban) Co-operative Banks (UCBs) were permitted to have exposures up to 15 per
cent and 40 per cent of their capital funds to a single borrower and a group of borrowers,
respectively. On a review, it has been decided that, henceforth, the prudential exposure limits
for UCBs for a single borrower/party and a group of connected borrowers/parties shall be 15
per cent and 25 per cent, respectively, of their tier-I capital.

2.1.1 The revised exposure limits shall apply to all types of fresh exposures taken by UCBs.
UCBs shall bring down their existing exposures which are in excess of the revised limits to
within the aforesaid revised limits by March 31, 2023. However, where the existing exposure
comprises only term loans and non-fund-based facilities, while no further exposure shall be
taken on such borrowers, these facilities may be allowed to continue as per their respective
repayment schedule / till maturity.

2.1.2 Tier-I capital as on March 31 of the preceding financial year shall be reckoned for the
purpose of fixing the exposure limits. Tier-I capital for the purpose will be the same as that
prescribed for computation of capital adequacy of UCBs (vide Master Circular dated July 1,
2015 on Prudential Norms on Capital Adequacy), as amended from time to time.

2.1.3 Whether borrowers/parties belong to a ‘group of connected borrowers/parties’ shall be

determined based on the instructions contained at para 2.2.3 and 2.2.4 of the Master Circular
DCBR.CO.BPD. (PCB) MC No.13/13.05.000/2015-16 dated July 1, 2015, as amended from
time to time.

2.1.4 All other extant instructions on the subject, including the definition of exposure, will
remain unchanged.

2.2 UCBs shall have at least 50 per cent of their aggregate loans and advances comprising
loans of not more than ₹25 lakh or 0.2% of their tier I capital, whichever is higher, subject to
a maximum of Rs.1 crore, per borrower/party. Tier I capital for this purpose shall be
reckoned in the manner provided in paragraph 2.1.2 above. Notwithstanding the above, UCBs
shall adhere to the revised exposure limits stipulated at para 2.1 above. UCBs which do not,
at present, comply with the prescribed threshold shall be in conformity with the above
requirements by March 31, 2024.

2.2.1 It is clarified that ‘loans’ for the purpose shall include all types of funded and non-
funded exposures in the nature of credit.

3. Revised Priority Sector Lending Target

3.1 In terms of the circular DCBR.BPD (PCB).Cir.No.07/09.09.002/2017-18 dated May 10,

2018, the overall priority sector lending (PSL) target for UCBs stood at 40% of the adjusted
net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure
(CEOBSE), whichever is higher. On a review, it has been decided that the overall PSL target
for UCBs shall stand increased to 75 per cent of ANBC or CEOBSE, whichever is higher.

3.1.1 UCBs shall comply with the above target by March 31, 2024 as per the following
milestones:

31
 PSL targets to be achieved by
March 31, 2021 March 31, 2022 March 31, 2023 March 31, 2024
45% of ANBC or 50% of ANBC or 60% of ANBC or 75% of ANBC or
CEOBSE, CEOBSE, CEOBSE, CEOBSE,
whichever is higher whichever is higher whichever is higher whichever is higher

3.1.2 The extant sub-targets under the priority sector shall remain unchanged.

4. UCBs shall prepare, with the approval of their Board, an Action Plan for compliance with
the aforesaid revised exposure limits and priority sector lending targets. They are also advised
to establish an appropriate mechanism to regularly monitor the progress made under the
Action Plan for compliance with the above instructions.

5. A copy of this circular should be placed before the Board of Directors of the UCB in its
next meeting and a confirmation thereof should be sent to the concerned Regional Office of
Department of Supervision, Reserve Bank of India.

Credit Mgmt, Retail Banking, JAIIB Banking,

Issue of Long Term Bonds by Banks – Financing of Infrastructure and Affordable

Housing

RBI/2019-20/176 DOR.No.BP.BC.41/08.12.014/2019-20 March 17, 2020

All Scheduled Commercial Banks (excluding RRBs)

Please refer to the circular DBOD.BP.BC.No.25/08.12.014/2014-15 dated July 15, 2014 and
subsequent circulars on the above subject. Also refer to the circular
DBR.BP.BC.No.42/08.12.014/2016-17 dated December 1, 2016 advising that for the purpose
of definition of ‘Infrastructure Lending’, banks and select All India Term-Lending and
Refinancing Institutions may be guided by the Gazette Notifications issued by the
Department of Economic Affairs, Ministry of Finance, Government of India, from time to
time.

2. For the purpose of circular dated July 15, 2014 mentioned above, ‘Infrastructure Sub-
sectors’ and ‘affordable housing’ have been defined under paragraphs 2(i) and 2(ii) of the
Annex therein. Affordable housing has since been included in the harmonised master list
(HML) of infrastructure subsectors issued vide gazette notification dated March 30, 2017. For
lending to infrastructure sector, banks/FIs shall continue to follow the definition of affordable
housing projects as per the definition in the HML, as amended from time to time.

3. On account of inclusion of affordable housing under the HML, it has now been decided to
align the definition of lending to affordable housing under the above-mentioned circular
dated July 15, 2014 with the definition provided in the HML of infrastructure subsectors.
Accordingly, for the purpose of issue of long terms bonds, it is advised as under:

Lending to affordable housing for individual units

Existing definition Revised definition
Housing loans eligible under Housing loans eligible to be classified

32
 priority sector lending by the RBI under priority sector lending (as
(please see the Appendix to updated from time to time) and
the circular dated July 15, housing loans to individuals for
2014 and as updated from time to acquiring dwelling units within the
time), and also housing loans to prescribed threshold under the
individuals upto Rs. 50 lakhs for affordable housing definition in the
houses of values upto Rs. 65 lakhs HML.
located in the six metropolitan
centres viz. Mumbai, New Delhi,
Chennai, Kolkata, Bengaluru and
Hyderabad and Rs. 40 lakhs for
houses of values upto Rs. 50 lakhs
in other centres for
purchase/construction of dwelling
unit per family.

4. All other instructions on issue of long term bonds and lending to infrastructure sector
remain unchanged.

FX, BFM, CAIIB International Banking

Settlement system under Asian Clearing Union (ACU) Mechanism

RBI/2019-20/177 A. P. (DIR Series) Circular No. 22 March 17, 2020

To,
All Authorised Dealer Category - I Banks

The Board of Directors of ACU have decided to permit Japanese Yen for settling payments
among the ACU member countries. Accordingly, clause (a) and (b) of Article IV of the
General Provisions of Agreement establishing the Asian Clearing Union have been revised
and the Asian Monetary Unit is now denominated as "ACU Dollar", “ACU Euro” and “ACU
Yen” which shall be equivalent in value to one US Dollar, one Euro and one Japanese Yen
respectively.

2. Attention of Authorised Dealer Category - I banks (AD banks) is invited to Regulations 3

and 5 of Notification No. FEMA 14(R)/2016-RB [Foreign Exchange Management (Manner
of Receipt and Payment) Regulations, 2016] dated May 02, 2016 and the necessary
amendments reflecting the above, which have been notified in the Gazette of India on March
06, 2020.

3. In order to facilitate transactions / settlements, effective March 06, 2020, participants in the
Asian Clearing Union will have the option to settle their transactions either in ACU Dollar or
ACU Euro or in ACU Japanese Yen.

4. Further, AD banks are allowed to open and maintain ACU Dollar, ACU Euro and ACU
Japanese Yen accounts with their correspondent banks in other participating countries. All
eligible payments are required to be settled by the concerned banks through these accounts.

33
5. The amended Memorandum of Procedure for Channelling Transactions through Asian
Clearing Union (ACU) [Memorandum ACM] is enclosed.

6. Notwithstanding the above, it may be noted that as per circular RBI/2015-16/441 A.P.
(DIR Series) Circular No. 81 dated June 30, 2016, operations in ‘ACU Euro’ has been
temporarily suspended with effect from July 01, 2016.

7. AD banks may bring the contents of this circular to the notice of their constituents
concerned.

8. The directions contained in this circular has been issued under sections 10(4) and 11(1) of
the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) and is without prejudice
to permissions / approvals, if any, required under any other law.

JAIIB Banking, Credit Mgmt, ABM, CAIIB – Corporate Banking

Large Exposures Framework

RBI/2019-20/178 DOR.No.BP.BC.43 /21.01.003/2019-20 March 23, 2020

All Scheduled Commercial Banks (Excluding Regional Rural Banks)

Please refer to our circular No.DBR.No.BP.BC.43/21.01.003/2018-19 dated June 03, 2019 on

the captioned subject.

2. In terms of para 7.13 of the circular, any Credit Risk Mitigation (CRM) instrument (e.g.
SBLC/BG from Head Office/other overseas branch) from which CRM benefits like shifting
of exposure/ risk weights etc. are not derived, may not be counted as an exposure on the
CRM provider.

3. Banks have sought clarity on whether the above-mentioned guidelines will apply to
exposures to a person resident outside India also. In this connection, it is clarified that the
above clause will also apply to non-fund based credit facilities provided to a person resident
outside India ie., the exposure can be reckoned on the person resident outside India instead of
treating it as an exposure on Head Office/ other overseas branch, provided the transaction is
otherwise compliant with Foreign Exchange Management (Guarantees) Regulations, 2000
(FEMA 8).

4. The exposures thus shifted to a person resident outside India, will attract a minimum risk
weight of 150%.

5. It has been decided that non-centrally cleared derivatives exposures will be outside the
purview of exposure limits till April 01, 2021.

JAIIB Banking, NBFCs,

Priority Sector Lending - Lending by banks to NBFCs for On-Lending

34
RBI/2019-20/179 FIDD.CO.Plan.BC.No.19/04.09.01/2019-20 March 23, 2020

The Chairman/ Managing Director/Chief Executive Officer

All Scheduled Commercial Banks (Excluding Regional Rural Banks & Small Finance Banks)

Please refer to our Circular No. FIDD.CO.Plan.BC.07/04.09.01/2019-20 dated August 13,

2019 advising, inter alia, that the bank loans to registered NBFCs (other than MFIs) for on-
lending will be eligible for classification as priority sector under respective categories up to
March 31, 2020 and will be reviewed thereafter.

2. Accordingly, after undertaking a review, it has been decided to extend the priority sector
classification for bank loans to NBFCs for on-lending for FY 2020-21. Further, existing loans
disbursed under the on-lending model will continue to be classified under Priority Sector till
the date of repayment/maturity.

3. Bank credit to registered NBFCs (other than MFIs) and HFCs for on-lending will be
allowed up to an overall limit of five percent of individual bank’s total priority sector lending.
Further, banks shall compute the eligible portfolio under on-lending mechanism by averaging
across four quarters, to determine adherence to the prescribed cap.

JAIIB -Legal

Legal Entity Identifier: Extension of deadline

RBI/2019-20/185 FMRD.FMID.No.24/11.01.007/2019-20 March 27, 2020

To
All eligible market participants

A reference is invited to circular FMRD.FMID.No.10/11.01.007/2018-19 dated November

29, 2018 issued by Reserve Bank of India on requirement of Legal Entity Identifier (LEI) for
participation in non-derivative markets. Reference is also invited to circular
FMRD.FMID.No.15/11.01.007/2018-19 dated April 26, 2019 on revised timelines for
implementation of LEI for non-derivative markets.

2. Based on the feedback and requests received from market participants, in the context of the
difficulties arising from the outbreak of novel coronavirus disease (COVID-19), and with a
view to enabling smoother implementation of the LEI system in non-derivative markets, the
timeline for implementation (Phase III) is extended as under:

Net Worth of
Phase Current Deadline Extended Deadline
Entities
Phase III Up to ₹ 200 crore March 31, 2020 September 30, 2020

3. These directions are issued under section 45W, read with section 45U, of the Reserve Bank
of India Act, 1934.

JAIIB Banking, Credit Mgmt, ABM, CAIIB – Corporate Banking, MSMEs

35
COVID-19 – Regulatory Package (Revised).
RBI/2019-20/186 DOR.No.BP.BC.47/21.04.048/2019-20 March 27, 2020

All Commercial Banks (including Small Finance Banks, Local Area Banks and Regional
Rural Banks) /All Primary (Urban) Co-operative Banks/State Co-operative Banks/ District
Central Co-operative Banks /All All-India Financial Institutions/ All Non-Banking Financial
Companies (including Housing Finance Companies)

Please refer to the Statement of Development and Regulatory Policies released on March 27,
2020 where inter alia certain regulatory measures were announced to mitigate the burden of
debt servicing brought about by disruptions on account of COVID-19 pandemic and to ensure
the continuity of viable businesses. In this regard, the detailed instructions are as follows:

(i) Rescheduling of Payments – Term Loans and Working Capital Facilities

2. In respect of all term loans (including agricultural term loans, retail and crop loans), all
commercial banks (including regional rural banks, small finance banks and local area banks),
co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance
companies) (“lending institutions”) are permitted to grant a moratorium of three months on
payment of all instalments1 falling due between March 1, 2020 and May 31, 2020. The
repayment schedule for such loans as also the residual tenor, will be shifted across the board
by three months after the moratorium period. Interest shall continue to accrue on the
outstanding portion of the term loans during the moratorium period.

3. In respect of working capital facilities sanctioned in the form of cash credit/overdraft

(“CC/OD”), lending institutions are permitted to defer the recovery of interest applied in
respect of all such facilities during the period from March 1, 2020 upto May 31, 2020
(“deferment”). The accumulated accrued interest shall be recovered immediately after the
completion of this period.

(ii) Easing of Working Capital Financing

4. In respect of working capital facilities sanctioned in the form of CC/OD to borrowers

facing stress on account of the economic fallout of the pandemic, lending institutions may
recalculate the ‘drawing power’ by reducing the margins and/or by reassessing the working
capital cycle. This relief shall be available in respect of all such changes effected up to May
31, 2020 and shall be contingent on the lending institutions satisfying themselves that the
same is necessitated on account of the economic fallout from COVID-19. Further, accounts
provided relief under these instructions shall be subject to subsequent supervisory review
with regard to their justifiability on account of the economic fallout from COVID-19.

Classification as Special Mention Account (SMA) and Non-Performing Asset (NPA)

5. Since the moratorium/deferment/recalculation of the ‘drawing power’ is being provided

specifically to enable the borrowers to tide over economic fallout from COVID-19, the same
will not be treated as concession or change in terms and conditions of loan agreements due to
financial difficulty of the borrower under paragraph 2 of the Annex to the Reserve Bank of
India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 dated June

36
7, 2019 (“Prudential Framework”). Consequently, such a measure, by itself, shall not result in
asset classification downgrade.

6. The asset classification of term loans which are granted relief as per paragraph 2 shall be
determined on the basis of revised due dates and the revised repayment schedule. Similarly,
working capital facilities where relief is provided as per paragraph 3 above, the SMA and the
out of order status shall be evaluated considering the application of accumulated interest
immediately after the completion of the deferment period as well as the revised terms, as
permitted in terms of paragraph 4 above.

7. The rescheduling of payments, including interest, will not qualify as a default for the
purposes of supervisory reporting and reporting to Credit Information Companies (CICs) by
the lending institutions. CICs shall ensure that the actions taken by lending institutions
pursuant to the above announcements do not adversely impact the credit history of the
beneficiaries.

Other Conditions

8. Lending institutions shall frame Board approved polices for providing the above-
mentioned reliefs to all eligible borrowers, inter alia, including the objective criteria for
considering reliefs under paragraph 4 above and disclosed in public domain.

9. Wherever the exposure of a lending institution to a borrower is ₹ 5 crore or above as on

March 1, 2020, the bank shall develop an MIS on the reliefs provided to its borrowers which
shall inter alia include borrower-wise and credit-facility wise information regarding the
nature and amount of relief granted.

10. The instructions in this circular come into force with immediate effect. The Board of
Directors and the key management personnel of the lending institutions shall ensure that the
above instructions are properly communicated down the line in their respective organisations,
and clear instructions are issued to their staff regarding their implementation.

BFM, Risk, CRFS

Basel III Framework on Liquidity Standards – Net Stable Funding Ratio (NSFR)

RBI/2019-20/187 DOR.BP.BC.No.46/21.04.098/2019-20 March 27, 2020

All Scheduled Commercial Banks (excluding RRBs)

Please refer to paragraph 8 of Statement on Developmental and Regulatory Policies of

Seventh Bi-monthly Monetary Policy Statement, 2019-20 dated March 27, 2020 and our
circular DBR.BP.BC.No.08/21.04.098/2018-19 dated November 29, 2018 on final Net Stable
Funding Ratio (NSFR) guidelines.

2. On a review, it has now been decided to defer the implementation of NSFR guidelines by
six months. These guidelines will now come into effect from October 1, 2020 as against April
1, 2020.

37
BFM, Risk, CRFS

Basel III Capital Regulations - Review of transitional arrangements

RBI/2019-20/188 DOR.BP.BC.No.45/21.06.201/2019-20 March 27, 2020

All Scheduled Commercial Banks (Excluding RRBs and LABs)

As announced in para 9 of the Statement on Developmental and Regulatory Policies issued

along with the Seventh Bi-monthly Monetary Policy Statement 2019-20, the implementation
of the last tranche of 0.625% of Capital Conservation Buffer (CCB) shall stand deferred from
March 31, 2020 to September 30, 2020.

2. Accordingly, minimum capital conservation ratios in para 15.2.2 of Part D ‘Capital

Conservation Buffer Framework’ of Master Circular, DBR.No.BP.BC.1/21.06.201/2015-16
dated July 1, 2015 on ‘Basel III Capital Regulations’, as applicable from March 31, 2018,
will also apply for a further period of six months from March 31, 2020 till the CCB attains
the level of 2.5% on September 30, 2020.

3. Further, the pre-specified trigger for loss absorption through conversion / write-down of
Additional Tier 1 instruments (PNCPS and PDI) shall remain at 5.5% of RWAs and will rise
to 6.125% of RWAs on September 30, 2020.

ABM, BFM, Treasury Mgmt, CTP

Section 42(1) of the Reserve Bank of India Act, 1934 - Change in Daily Minimum Cash
Reserve Maintenance Requirement

RBI/2019-20/192 DOR.No.Ret.BC.51/12.01.001/2019-20 March 27, 2020

All Scheduled Banks

Please refer to our Circular DBR.No.Ret.BC.91/12.01.001/2015-16 dated April 05, 2016 on

the captioned subject.

2. As announced in the Seventh Bi-monthly Monetary Policy Statement, 2019-20, March 27,
2020, it has been decided to reduce the minimum daily maintenance of the Cash Reserve
Ratio from 90 per cent of the requirement to 80 per cent effective from the fortnight
beginning March 28, 2020. This is a one-time dispensation available up to June 26, 2020.

ABM, BFM, Treasury Mgmt, CTP

Maintenance of Cash Reserve Ratio (CRR)

RBI/2019-20/191 DOR.No.Ret.BC.49/12.01.001/2019-20 March 27, 2020

All Banks

38
Please refer to our Circular DBOD.No.Ret.BC.76/12.01.001/2012-13 dated January 29, 2013
and Circular RPCD.CO.RCB.RRB.BC.No.61/03.05.33/2012-13 dated January 29, 2013 on
the captioned subject.

2. As announced in the Seventh Bi-monthly Monetary Policy Statement, 2019-20, March 27,
2020, it has been decided to reduce the Cash Reserve Ratio (CRR) of all banks by 100 basis
points from 4.00 per cent to 3.00 per cent of their Net Demand and Time Liabilities (NDTL)
with effect from the reporting fortnight beginning March 28, 2020 for a period of one year,
ending on March 26, 2021.

3. A copy of the relative notification DOR.No.Ret.BC.50/12.01.001/2019-20 dated March 27,

2020 is enclosed.

JAIIB Banking, Risk, CRFS, Treasury, CTP, FX, Intl Banking

Risk Management and Inter-bank Dealings- Participation of Banks in Offshore Non-

deliverable Rupee Derivative Markets

RBI/2019-20/193 A.P. (DIR Series) Circular No.23 March 27, 2020

All Authorised Dealer Category-I Banks

Attention is invited to the Foreign Exchange Management (Foreign Exchange Derivative

Contracts) Regulations, 2000 (Notification no. FEMA.25/RB-2000 dated May 3, 2000), as
amended from time to time, and Master Direction- Risk Management and Inter-bank
Dealings dated July 06, 2016, as updated from time to time (Master Direction)

2. As stated in paragraph 10 of the Statement on Developmental and Regulatory Policies

dated March 27, 2020, banks in India having an Authorised Dealer Category-1 license under
Foreign Exchange Management Act (FEMA), 1999, and operating International Financial
Services Centre (IFSC) Banking Units (IBUs), shall be eligible to offer non-deliverable
derivative contracts involving the Rupee, or otherwise, to persons not resident in India. Banks
can undertake such transactions through their branches in India, through their IBUs or
through their foreign branches (in case of foreign banks operating in India, through any
branch of the parent bank).

3. Accordingly, the following amendments are being made to the Master Direction. The
amendments shall come into effect from June 1, 2020.

(a) In Part-A (Section II) of the Master Direction, a new paragraph (9A) is added as follows:

“9A. Non-deliverable derivative contracts (NDDC)

i. Non-deliverable derivative contract (NDDC) means a foreign exchange derivative contract

involving the Rupee, entered into with a person not resident in India and which is settled
without involving delivery of Rupee.

39
ii. Banks in India having an Authorised Dealer Category-1 license under FEMA, 1999, and
operating International Financial Services Centre (IFSC) Banking Units (IBUs) (as specified
in circular no. RBI/2014-15/533.DBR.IBD.BC.14570/ 23.13.004/2014-15 dated April 1,
2015 (as amended from time to time)), shall be eligible to offer non-deliverable derivative
contracts involving the Rupee, or otherwise, to persons not resident in India. Banks can
undertake such transactions through their IBUs or through their branches in India or through
their foreign branches (in case of foreign banks operating in India, through any branch of the
parent bank).

(b). In Part C of the Master Direction, a new paragraph is added as follows:

“3A. Transaction in Non-deliverable derivative contracts (NDDC)

Authorised dealers having an IFSC Banking Unit (IBU) (as specified in circular
no.RBI/2014-15/533.DBR.IBD.BC.14570/23.13.004/2014-15 dated April 1, 2015 (as
amended from time to time)) may transact in Non-deliverable derivative contracts (NDDCs)
with other AD Category 1 banks having IBUs and banks overseas. Banks can undertake such
transactions through their IBUs or through their branches in India or through their foreign
branches (in case of foreign banks operating in India, through any branch of the parent
bank).”

4. The directions contained in this circular have been issued under Sections 10(4) and 11(1)
of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to
permissions /approvals, if any, required under any other law.

SFBs

‘Guidelines for Licensing of Small Finance Banks in Private Sector’ dated November
27, 2014 – Modifications to existing norms

RBI/2019-20/196 DOR.NBD.No.44/16.13.218/2019-20 March 28, 2020

Managing Director and Chief Executive Officers of Small Finance Banks

Please refer to the ‘Guidelines for Licensing of Small Finance Banks in Private Sector’ dated
November 27, 2014 under which licenses were issued to 10 Small Finance Banks (SFBs) and
the ‘Guidelines for ‘on-tap’ Licensing of Small Finance Banks in Private Sector’ released by
Reserve Bank on December 5, 2019.

2. To harmonise the instructions for existing SFBs with those SFBs to be licensed under
‘Guidelines for ‘on-tap’ Licensing’, it has been decided to:

Grant general permission to all existing SFBs to open banking outlets subject to adherence to
Unbanked Rural Centre norms as per RBI circular on ‘Rationalisation of Branch
Authorisation Policy - Revision of Guidelines’ dated May 18, 2017, as amended from time to
time.

40
Exempt all existing SFBs from seeking prior approval of Reserve Bank for undertaking such
non risk sharing simple financial service activities, which do not require any commitment of
own fund, after three years of commencement of business of SFB.

3. Further, in case of existing SFBs, it is clarified that -

Whether a promoter could cease to be a promoter or could exit from the bank after
completion of a period of five years, would depend on the RBI’s regulatory and supervisory
comfort / discomfort and SEBI regulations in this regard at that time (Reference: Response to
query number 101 of ‘Clarifications to queries on guidelines for licensing of Small Finance
Banks in the Private Sector’ dated January 1, 2015).

The phrase ‘paid-up equity capital’ in ‘Guidelines for Licensing of SFBs in Private Sector -
2014’ means ‘paid-up voting equity capital’ (Reference: Response to query number 104 of
‘Clarifications to queries on guidelines for licensing of Small Finance Banks in the Private
Sector’ dated January 1, 2015).

4. The provisions of this circular shall come into force with immediate effect.

JAIIB Banking, Rural, Coop Banking, Rural Banking Operations

Short Term Crop Loans eligible for Interest Subvention Scheme (ISS) and Prompt
Repayment Incentive (PRI) through KCC

RBI/2019-20/202 FIDD.CO.FSD.BC.No.23/05.02.001/2019-20 March 31, 2020

The Chairman/Managing Director/Executive Officer

All Public & Private Sector Scheduled Commercial Banks (Excluding Regional Rural Banks
and Small Finance Banks)

Please refer to the circular FIDD.CO.FSD.BC.No.1785/05.02.001/2019-20, dated February

26, 2020 advising banks to ensure that all Short Term Crop Loans eligible for Interest
Subvention (IS) and Prompt Repayment Incentive (PRI) benefit are extended only through
KCC w.e.f. April 1, 2020 and the existing Short Term Crop Loans which are not extended
through KCC shall be converted to KCC loans by March 31, 2020.

2. In view of the complete lockdown in most of the states in the country and restrictions on
movement except for providing essential services, it has been decided, in consultations with
Ministry of Agriculture & Farmers Welfare, that the banks may convert the existing Short
Term Crop Loans including agriculture gold loans into KCC loans by June 30, 2020 with
commensurate extension of Interest Subvention (IS) and Prompt Repayment Incentive (PRI)
benefit against such accounts till June 30, 2020.

JAIIB Banking, AML, Retail Banking, Customer Service

Doorstep Banking Services for Senior Citizens and Differently Abled Persons

RBI/2019-20/203 DOR.CO.Leg.BC.No.59/09.07.005/2019-20 March 31, 2020

41
All Scheduled Commercial Banks (including RRBs)/ All Payments Banks/ All Small Finance
Banks/ All Local Area Banks

Please refer to para 2(g) of our circular DBR.No.Leg.BC.96/09.07.005/2017-18 dated

November 9, 2017 on the captioned subject.

2. Banks were advised to make concerted efforts to offer certain basic banking services to
senior citizens of more than 70 years of age and differently abled persons at the doorstep of
such customers. Although banks were advised to implement the instructions by December 31,
2017, it has been observed that such services are yet to be offered by banks or were restricted
to select branches.

3. In order to make the doorstep banking services for senior citizens and differently abled
persons effective, banks are advised to incorporate the following aspects in their Board
approved policy for such services:

i. Banks shall offer the doorstep banking services on pan India basis. Banks should
develop a Board approved framework for determining the nature of branches/centres
where these services will be provided mandatorily and those where it will be provided
on a best effort basis and make the policy public. The list of branches offering such
doorstep banking services shall be displayed/updated on the bank’s website regularly.

ii. Banks shall give adequate publicity to the availability of these services in their public
awareness campaigns. The charges, in this regard, shall also be prominently indicated
in brochures and published in their websites.

4. Banks shall report the progress made in this regard to the Customer Service Committee of
the Board every quarter. Further, they must ensure strict compliance with the above
instructions by April 30, 2020.

Compliance

Appointment of Managing Director and Chief Executive Officer (MD & CEO) / CEO /
part-time Chairperson (PTC) in Banks – ‘Declaration and Undertaking’ and allied
matters

RBI/2019-20/204 DoR.Appt.No.58/29.67.001/2019-20 March 31, 2020

All Private Sector Banks (including Local Area Banks, Small Finance Banks, Payments
Banks) and Foreign Banks operating in India

To complete the appointment of Managing Director and Chief Executive Officer (MD &
CEO)/ CEO/ part-time Chairperson (PTC) in Banks in a timely manner, the following
instructions have been reviewed:

42
 a. DBOD.No.ARS.BC.75/C.318(C)-72 dated September 2, 1972 on ‘Section 35B of the
Banking Regulation Act, 1949’, prescribing Form A, B and C relating to appointment/
re-appointment/ remuneration, etc. of Chairman, Chief Executive Officer or any other
Director or Termination of Appointment of a Director;
b. DBOD.No.App.BC.47/C.318(C)-83 dated June 7, 1983 on the same subject (as
above), advising banks to submit application seeking approval for appointment/ re-
appointment of Chairman and Chief Executive Officer at least four months before
expiry of the term of office of the present incumbent;
c. DBOD.No.BC.64/08.94.002/2002 dated February 13, 2002 addressed to Chairman/
CEO/ MD of all private sector banks advising banks to forward a panel of three
names while submitting proposal for appointment of CEO; and
d. DBOD.No.BC.No.95/29.39.001/2010-11 dated May 23, 2011 advising modifications
in the format of ‘Declaration and Undertaking’ prescribed for conducting due
diligence of Directors to determine their ‘fit and proper’ status.

2. Based on the review, the ‘Declaration and Undertaking’ (Annex I) and specimen of ‘Form
A’ as well as ‘Form B’ have been revised and are enclosed with this circular.

3. To enable Reserve Bank to convey the requisite approval in time on the re-appointment of
an MD & CEO/ CEO in banks, the complete applications in the prescribed forms i.e., ‘Form
B’ along with ‘Declaration and Undertaking’ from candidate(s), along with the remarks of
Nomination and Remuneration Committee of having satisfied itself that the information is
true and complete should be submitted to the Department of Regulation, Central Office,
Reserve Bank of India, Mumbai, at least six months before the expiry of the term of office of
the incumbent.

4. Proposals for appointment of a new MD & CEO/ CEO, should invariably contain a panel
of at least two names in the order of preference. The proposals should be submitted to the
Reserve Bank at least four months before the expiry of the term of office of the present
incumbent.

5. Henceforth, banks should use, at the minimum, the revised format for obtaining the
declaration and undertaking from all the directors.

6. Adherence to the instructions be ensured.

BFM, FX, Intl Banking,

Foreign Exchange Management (Export of Goods and Services) (Amendment)

Regulations, 2020

Notification No. FEMA 23(R)/(3)/2020-RB March 31, 2020

In exercise of the powers conferred by clause (a) of sub-section (1), sub-section (3) of section
7 and clause (b) of sub-section (2) of section 47 of the Foreign Exchange Management Act,
1999 (42 of 1999), the Reserve Bank of India makes the following amendments in the
Foreign Exchange Management (Export of Goods & Services) Regulations, 2015
[Notification No. FEMA 23(R)/2015-RB dated January 12, 2016] (hereinafter referred to as
'the Principal Regulations'), namely:

43
1. Short title and commencement: -

These Regulations may be called the Foreign Exchange Management (Export of Goods and
Services) (Amendment) Regulations, 2020.

2. In the Principal Regulations, in regulation 9, in sub-regulation (1) and sub-regulation (2)

(a), for the words “nine months”, the words “nine months or within such period as may be
specified by the Reserve Bank, in consultation with the Government, from time to time” shall
be substituted. Similarly, in sub-regulation (1) (a), for the words “fifteen months”, the words
“fifteen months or within such period as may be specified by the Reserve Bank, in
consultation with the Government, from time to time “shall be substituted.

3. In Regulation 9 (1)(b), for the words “period of nine months or fifteen months, as the case
may be”, the words “said period” shall be substituted.

4. In proviso to Regulation 9 (2)(a), for the words “period of nine months”, the words “said
period” shall be substituted.

BFM, FX, Intl Banking,

Export of Goods and Services- Realisation and Repatriation of Export Proceeds-

Relaxation

RBI/2019-20/206 A. P. (DIR Series) Circular No. 27 April 01, 2020

To,
All Authorised Dealer Category – I Banks

The Government of India as well as the Reserve Bank has been receiving representations
from Exporters Trade bodies to extend the period of realisation of export proceeds in view of
the outbreak of pandemic COVID- 19. It has, therefore, been decided, in consultation with
Government of India, to increase the present period of realization and repatriation to India of
the amount representing the full export value of goods or software or services exported, from
nine months to fifteen months from the date of export, for the exports made up to or on July
31, 2020.

2. The provisions in regard to period of realization and repatriation to India of the full export
value of goods exported to warehouses established outside India remain unchanged.

3. AD Category - I banks may please bring the contents of this Circular to the notice of their
constituents concerned.

4. The directions contained in circular have been issued under Section 10(4) and 11(1) of
Foreign Exchange Management Act, 1999 (42 of 1999) and without prejudice to
permissions / approvals, if any, required under any other law.

JAIIB – Banking, AML/KYC

Amendment to Master Direction (MD) on KYC

44
RBI/2019-20/207 DOR.AML.BC.No.61/14.01.001/2019-20 April 01, 2020

The Chairpersons/ CEOs of all the Regulated Entities

Government of India, vide Gazette Notification G.S.R. 228(E) dated March 31, 2020 has
notified amendment to the Prevention of Money-laundering (Maintenance of Records) Rules,
2005.

2. Consequent to the aforementioned amendment to the PML Rules, Master Direction on

KYC dated February 25, 2016 has been updated as under:

Clause (g) has been inserted in the conditions stipulated for Small Accounts in Section 23 of
the MD. Clause (g) reads as,

“Notwithstanding anything contained in clauses (e) and (f) above, the small account shall
remain operational between April 1, 2020 and June 30, 2020 and such other periods as may
be notified by the Central Government.”

3. The Master Direction on KYC dated February 25, 2016, is hereby amended to reflect the
above change and shall come into force with immediate effect.

BFM, CAIIB Risk Mgmt, CRFS, FX,

Risk Management and Inter-bank Dealings – Hedging of foreign exchange risk

RBI/2019-20/210 A.P.(DIR Series) Circular No. 29 April 7, 2020

To,
Authorised Dealers Category – I

Attention of Authorised Dealers Category – I (AD Category – I) banks is invited to the

Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000
dated May 3, 2000 (Notification No.FEMA.25/RB-2000 dated May 3, 2000), as amended
from time to time and Master Directions on Risk Management and Inter-Bank Dealings dated
July 5, 2016, as amended from time to time.

2. As announced in the Statement on Developmental and Regulatory Policies dated

December 5, 2019, the existing facilities for non-residents and residents to hedge their
foreign exchange risk on account of transactions permitted under Foreign Exchange
Management Act (FEMA), 1999 have been revised. The revised directions are provided at
Annex–I to this circular. All previous operational guidelines, terms and conditions in this
regard shall stand withdrawn from the date that these directions come into effect.

3. Necessary amendments (Notification No.FEMA.398/RB-2020 dated February 18, 2020) to

Foreign Exchange Management (Foreign Exchange Derivatives Contracts) Regulations, 2000
(Notification No.FEMA.25/RB-2000 dated May 3, 2000) (Regulations) have been notified in
the Official Gazette vide Gazette Id no. CG-MH-E-06032020-216549 dated March 3, 2020, a

45
copy of which is annexed to this circular. These regulations have been issued under clause (h)
of sub-Section (2) of Section 47 of FEMA, 1999 (42 of 1999).

4. The directions shall come into effect from June 1, 2020 and replace the existing directions
in Part A - Section I and II and Part D of the Master Direction on Risk Management and
Interbank Dealings dated July 5, 2016, as amended from time to time.

5. The following reports prescribed in Part E of the Master Directions on Risk Management
and Inter-Bank Dealings dated July 5, 2016, as amended from time to time, shall stand
withdrawn from the date that these directions come into effect.

i. Cross Currency Derivative Transactions (Half yearly) – Annex IV

ii. Report on Booking of Forward Contracts on Past Performance Basis (Monthly) –

Annex X

iii. Details of Forward cover undertaken by FPI clients (Monthly) – Annex XIII

iv. Details of Forward Contracts/Options booked and cancelled by SMEs and Resident
Individuals, Firms and Companies within the first week of the following month
(Quarterly) – Annex XIV

v. Derivative Transactions undertaken by Non-Resident Importer/Exporter (Quarterly) –

Annex XIX

6. The directions contained in this circular have been issued under Sections 10(4) and 11(1)
of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to
permissions/ approvals, if any, required under any other law.

NBFCs

Prudential Norms on Income Recognition, Asset Classification and Provisioning

Pertaining to Advances - Projects under Implementation

RBI/2019-20/216 DoR.NBFC (PD).CC.No.110/03.10.001/2019-20 April 17, 2020

All Non-Banking Financial Companies

Please refer to paragraph 25 of Master Direction – Non-Banking Financial Company –

Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve
Bank) Directions, 2016; and paragraph 25 of Master Direction – Non-Banking Financial
Company – Non-Systemically Important Non-Deposit taking Company (Reserve Bank)
Directions, 2016 on ‘Norms for restructuring of advances’. The Reserve Bank has issued
guidelines to banks on deferment of date of commencement of commercial operations
(DCCO) for projects in commercial real estate (CRE) sector vide circular number
DOR.No.BP.BC.33/21.04.048/2019-20, dated February 07, 2020.

2. In this connection, it has been decided to extend the above-mentioned guidelines issued to
banks, mutatis mutandis, to NBFCs as well.

46
3. The Master Directions are being modified accordingly.

JAIIB Banking, BFM, Risk Mgmt, CRFS

Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR)

RBI/2019-20/217 DOR.BP.BC.No.65/21.04.098/2019-20 April 17, 2020

All Commercial Banks

(excluding Regional Rural Banks, Local Area Banks and Payments Banks)

Please refer to our circular DBOD.BP.BC.No.120/21.04.098/2013-14 dated June 9, 2014 and

associated circulars thereon.

2. As part of post Global Financial Crisis (GFC) reforms, Basel Committee on Banking
Supervision (BCBS) had introduced Liquidity Coverage Ratio (LCR), which requires banks
to maintain High Quality Liquid Assets (HQLAs) to meet 30 days net outgo under stressed
conditions. Further, as per Banking Regulation Act, 1949, the banks in India are required to
hold liquid assets to maintain Statutory Liquidity Ratio (SLR). In view of the fact that liquid
assets under SLR and HQLAs under LCR are largely the same, we have been allowing banks
to use a progressively increasing proportion of the SLR securities for being considered as
HQLAs for LCR so that the need to maintain liquid assets for both the requirements is
optimised.

3. At present the assets allowed as Level 1 High Quality Liquid Assets (HQLAs), inter alia,
includes among others within the mandatory SLR requirement, Government securities to the
extent allowed by RBI under (i) Marginal Standing Facility (MSF) and (ii) Facility to Avail
Liquidity for Liquidity Coverage Ratio (FALLCR) [15 per cent of the bank's NDTL with
effect from April 1, 2020]. Given that SLR has now been reduced to 18 per cent of NDTL
from April 11, 2020, and with increase in MSF from 2 per cent to 3 per cent of the banks’
NDTL (with effect from March 27, 2020 and applicable upto June 30, 2020), entire SLR-
eligible assets held by banks are now permitted to be reckoned as HQLAs for meeting LCR.

4. Further, banks1 are required to maintain LCR of 100 per cent with effect from January 1,
2019. In order to accommodate the burden on banks’ cash flows on account of the Covid19
pandemic, banks are permitted to maintain LCR as under:

From date of circular to September 30, 2020 - 80 per cent

Oct 1, 2020 to March 31, 2021 - 90 per cent
April 1, 2021 onwards - 100 per cent

Banks shall prepare LCR restoration plans upon breach of the aforesaid prescribed LCR
requirement, for scrutiny by the Department of Supervision, Reserve Bank of India.

Credit Mgmt, CAIIB Corporate Banking, NBFCs,

47
COVID19 Regulatory Package – Review of Resolution Timelines under the Prudential
Framework on Resolution of Stressed Assets

RBI/2019-20/219 DOR.No.BP.BC.62/21.04.048/2019-20 April 17, 2020

All Scheduled Commercial Banks (excluding Regional Rural Banks)/ All India Financial
Institutions (NABARD, NHB, EXIM Bank, and SIDBI)/ All Systemically Important Non-
Deposit taking Non-Banking Financial Companies (NBFC-ND-SI) and Deposit taking Non-
Banking Financial Companies (NBFC-D).

Please refer to the Governor’s Statement of April 17, 2020 announcing certain additional
regulatory measures aimed at alleviating the lingering impact of Covid19 on businesses and
financial institutions in India, consistent with the globally coordinated action committed by
the Basel Committee on Banking Supervision. In this regard, the detailed instructions relating
to extension of resolution timelines under the Prudential Framework on Resolution of
Stressed Assets dated June 7, 2019 (‘Prudential Framework’) are as under:

2. In terms of paragraph 11 of the Prudential Framework, lenders are required to implement a

resolution plan in respect of entities in default within 180 days from the end of Review Period
of 30 days.

3. On a review, it has been decided that in respect of accounts which were within the Review
Period as on March 1, 2020, the period from March 1, 2020 to May 31, 2020 shall be
excluded from the calculation of the 30-day timeline for the Review Period. In respect of all
such accounts, the residual Review Period shall resume from June 1, 2020, upon expiry of
which the lenders shall have the usual 180 days for resolution.

4. In respect of accounts where the Review Period was over, but the 180-day resolution
period had not expired as on March 1, 2020, the timeline for resolution shall get extended by
90 days from the date on which the 180-day period was originally set to expire.

5. Consequently, the requirement of making additional provisions specified in paragraph 17

of the Prudential Framework shall be triggered as and when the extended resolution period,
as stated above, expires.

6. In respect of all other accounts, the provisions of the Prudential Framework shall be in
force without any modifications.

7. The lending institutions shall make relevant disclosures in respect of accounts where the
resolution period was extended in the ‘Notes to Accounts’ while preparing their financial
statements for the half year ending September 30, 2020 as well as the financial years FY2020
and FY2021.

Credit Mgmt, CAIIB Corporate Banking

COVID 19 Regulatory Package - Asset Classification and Provisioning

RBI/2019-20/220 DOR.No.BP.BC.63/21.04.048/2019-20 April 17, 2020

48
All Commercial Banks (including Small Finance Banks, Local Area Banks and Regional
Rural Banks) /All Primary (Urban) Co-operative Banks/State Co-operative Banks/ District
Central Co-operative Banks/ All All-India Financial Institutions/ All Non-Banking Financial
Companies (including Housing Finance Companies)

Please refer to the Governor’s Statement of April 17, 2020 announcing certain additional
regulatory measures aimed at alleviating the lingering impact of Covid19 pandemic on the
businesses and financial institutions in India, consistent with the globally coordinated action
committed by the Basel Committee on Banking Supervision. In this regard, the detailed
instructions with regard to asset classification and provisioning are as follows:

(i) Asset Classification under the Prudential norms on Income Recognition, Asset
Classification (IRAC)

2. In terms of the circular DOR.No.BP.BC.47/21.04.048/2019-20 dated March 27, 2020

(‘Regulatory Package’), the lending institutions were permitted to grant a moratorium of
three months on payment of all term loan instalments falling due between March 1, 2020 and
May 31, 2020 (‘moratorium period’). As such, in line with the clarification provided by the
Basel Committee on Banking Supervision, in respect of all accounts classified as standard as
on February 29, 2020, even if overdue, the moratorium period, wherever granted, shall be
excluded by the lending institutions from the number of days past-due for the purpose of
asset classification under the IRAC norms.

3. Similarly in respect of working capital facilities sanctioned in the form of cash

credit/overdraft (“CC/OD”), the Regulatory Package permitted the recovery of interest
applied during the period from March 1, 2020 upto May 31, 2020 to be deferred (‘deferment
period’). Such deferment period, wherever granted in respect of all facilities classified as
standard, including SMA, as on February 29, 2020, shall be excluded for the determination of
out of order status.

4. NBFCs which are required to comply with Indian Accounting Standards (IndAS) shall, as
hitherto, continue to be guided by the guidelines duly approved by their Boards and as per
ICAI Advisories for recognition of the impairments.

(ii) Provisioning

5. In respect of accounts in default but standard where provisions of paragraphs (2) and (3)
above are applicable, and asset classification benefit is extended, lending institutions shall
make general provisions of not less than 10 per cent of the total outstanding of such accounts,
to be phased over two quarters as under:

(i) Quarter ended March 31, 2020 – not less than 5 per cent

(ii) Quarter ending June 30, 2020 – not less than 5 per cent

6. The above provisions may be adjusted against the actual provisioning requirements for
slippages from the accounts reckoned for such provisions. The residual provisions at the end
of the financial year can be written back or adjusted against the provisions required for all
other accounts.

49
7. The above provisions shall not be reckoned for arriving at net NPAs till they are adjusted
against the actual provisioning requirements as under paragraph 6 above. Further, till such
adjustments, these provisions shall not be netted from gross advances but shown separately in
the balance sheet as appropriate.

8. All other provisions required to be maintained by lending institutions, including the

provisions for accounts already classified as NPA as on February 29, 2020 as well as
subsequent ageing in these accounts, shall continue to be made in the usual manner.

Other Conditions

9. The exclusions permitted in terms of para 2 and 3 above shall be duly reckoned by the
lending institutions in their supervisory reporting as well as reporting to credit information
companies (CICs); i.e., the days past due and SMA status, where applicable, as on March 1,
2020 will remain unchanged till May 31, 2020.

10. The lending institutions shall suitably disclose the following in the ‘Notes to Accounts’
while preparing their financial statements for the half year ending September 30, 2020 as well
as the financial years 2019-20 and 2020-2021:

(i) Respective amounts in SMA/overdue categories, where the moratorium/deferment was

extended, in terms of paragraph 2 and 3;

(ii) Respective amount where asset classification benefits is extended.

(iii) Provisions made during the Q4FY2020 and Q1FY2021 in terms of paragraph 5;

(iv) Provisions adjusted during the respective accounting periods against slippages and the
residual provisions in terms of paragraph 6.

JAIIB Banking, AMLKYC

Internal ML/TF risk assessment by REs - Amendment to Master Direction (MD) on
KYC

RBI/2019-20/221 DOR.AML.BC.No.66/14.01.001/2019-20 April 20, 2020

The Chairpersons/ CEOs of all the Regulated Entities

The Master Direction on KYC dated February 25, 2016, is hereby updated to reflect the
following changes in line with Rule 9(13) of the PML Rules 2005:

A new section (5A) has been added to chapter II of the MD on KYC requiring REs to carry
out ‘Money Laundering (ML) and Terrorist Financing (TF) Risk Assessment’ exercise
periodically to identify, assess and take effective measures to mitigate its money laundering
and terrorist financing risk for clients, countries or geographic areas, products, services,
transactions or delivery channels, etc. While assessing the ML/TF risk, the REs are required
to take cognizance of the overall sector-specific vulnerabilities, if any, that the
regulator/supervisor may share with REs from time to time. Further, the internal risk

50
assessment carried out by the RE should be commensurate to its size, geographical presence,
complexity of activities/structure, etc.

Also, the REs shall apply a Risk Based Approach (RBA) for mitigation and management of
the identified risk and should have Board approved policies, controls and procedures in this
regard.
2. The above instructions shall come into force with immediate effect. It may be noted that
the first such internal risk assessment by the REs should be completed by June 30, 2020 and
thereafter reviewed periodically.

CAIIB Coop Banking, UCBs

Provisioning on interbank exposure of Primary (Urban) Co-operative Banks (UCBs)

under All Inclusive Directions

RBI/2019-20/222 DOR.(PCB).BPD.Cir.No.11/16.20.000/2019-20 April 20, 2020

The Chief Executive Officer

All Primary (Urban) Co-operative Banks

As you are aware, the imposition of All-inclusive Directions (AID) on an Urban Co-operative
Bank (UCB), inter alia, restricts the bank from discharging its liabilities except as permitted
by RBI. This impacts the withdrawal of interbank deposits placed by other UCBs with such
bank as also timely discharge of interbank exposures such as discounted bills drawn under
Letter of Credit (LC) issued by the UCB under AID.

2. In order to ensure that such exposures are objectively recognised in the financial
statements of UCBs and also with a view to addressing the systemic impact of provisioning
requirements on such exposures, it has been decided as under:

a. The interbank exposures arising from deposits placed by UCBs with a UCB under
AID and their non-performing exposures arising from discounted bills drawn under
LCs issued by a UCB under AID shall be fully provided within five years at the rate
of 20% annually. Further, the interest receivable on the deposits shall not be
recognised as income by the UCBs.

b. If the UCBs choose to convert such deposits into long term perpetual debt instruments
(e.g. Innovative Perpetual Debt Instrument - IPDI) which may be recognised as
capital instrument under a scheme of restructuring/ revival of a UCB under AID,
provision on the portion of deposits converted into such instruments shall not be
required.

3. The above instructions will come into force with immediate effect.

Digital Banking, Retail Banking

Electronic Cards for Overdraft Accounts

51
RBI/2019-20/225 DOR.FSD.BC.No.67/24.01.041/2019-20 April 23, 2020

All Scheduled Commercial Banks

Please refer to Para II.2 of ‘Master Circular on Credit Card, Debit Card and Rupee
Denominated Co-branded Pre-paid Card Operations of Banks and Credit Card issuing
NBFCs’ dated July 1, 2015 wherein banks have been permitted to issue debit cards to
customers having Saving Bank/Current Accounts but not to cash credit/loan account holders.
In this connection, it has been decided to permit banks to issue electronic cards to natural
persons having Overdraft Accounts that are only in the nature of personal loan without any
specific end-use restrictions. The card shall be issued for a period not exceeding the validity
of the facility and shall also be subject to the usual rights of the banks as lenders.

2. The electronic card for Overdraft Accounts in the nature of personal loans shall be allowed
to be used for domestic transactions only. Further, adequate checks and balances shall be put
in place to ensure that the usage of such cards is restricted to facilitate online/ non-cash
transactions. The restriction on cash transaction will not apply to overdraft facility provided
along with Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts.

3. Prior to launching the product, the banks shall frame a Board approved policy on issuance
of electronic cards to above mentioned Overdraft Accounts, encompassing appropriate risk
management, periodic review procedures, grievance redressal mechanism, etc., which will be
subject to supervisory review.

4. The card shall be issued subject to instructions on terms and conditions, security, grievance
redressal, confidentiality of customer information as applicable for debit cards and all other
relevant instructions on card operations issued by the Reserve Bank.

CAIIB Coop Banking, UCBs

Non-achievement of Priority Sector Lending Targets by Primary (Urban) Co-operative

Banks (UCBs) - Contribution to the Rural Infrastructure Development Fund (RIDF)
and other funds

RBI/2019-20/226 DOR (PCB).BPD.Cir.No.12/09.09.002/2019-20 April 24, 2020

The Chief Executive Officer

All Primary (Urban) Co-operative Banks

Please refer to the circular DCBR.BPD (PCB).Cir.No.07/09.09.002/2017-18 dated May 10,

2018 on Revised Guidelines on Lending to Priority Sector for Primary (Urban) Co-operative
Banks (UCBs).

2. On a review of the extant guidelines, it has been decided that, with effect from March 31,
2021, all UCBs (excluding those under all-inclusive directions) will be required to contribute
to Rural Infrastructure Development Fund (RIDF) established with NABARD and other
Funds with NABARD / NHB / SIDBI / MUDRA Ltd., against their priority sector lending
(PSL) shortfall vis-à-vis the prescribed target. The operational details in this regard are as
under:

52
The PSL achievement will be determined at the end of the financial year based on the average
of priority sector target / sub-target achievement as at the end of each quarter of the year.
UCBs (excluding those under all-inclusive directions) having shortfall in PSL lending targets
will be allocated amounts for contribution to the Rural Infrastructure Development Fund
(RIDF) established with NABARD and other relevant funds, as decided by the Reserve Bank
from time to time.

The interest rates on UCBs’ contribution to RIDF and other funds, tenure of deposits, etc.
will be fixed by Reserve Bank of India from time to time.

The misclassifications reported by the Reserve Bank's Department of Supervision, if any,

would be adjusted / reduced from the achievement of that year to which the amount of
declassification / misclassification pertains, for allocation to various funds in subsequent
years.

3. It has also been decided that, non-achievement of PSL targets will not be included as one
of the criteria for classifying a UCB as Financially Sound and Well Managed (FSWM) with
effect from March 31, 2021. However, it will continue to be taken into account while
granting regulatory clearances/approvals for various purposes.

4. A copy of this circular should be placed before the Board of Directors of your bank in its
next meeting and a confirmation thereof should be sent to the concerned Regional Office of
Department of Supervision of Reserve Bank of India.

BFM, CAIIB – Intl Banking, DIBF, FX, ITF

Interest Equalisation Scheme on Pre and Post Shipment Rupee Export Credit-
Extension

RBI/2019-20/231 DOR.Dir.BC.No.69/04.02.001/2019-20 May 13, 2020

All Scheduled Commercial Banks (excluding RRBs)/ Small Finance Banks, Primary (Urban)
Cooperative Banks/ and EXIM Bank

Please refer to the operational instructions for the captioned Scheme contained in RBI
circular on Interest Equalisation Scheme on Pre and Post Shipment Rupee Export Credit
issued vide DBR.Dir.BC.No.62/04.02.001/2015-16 dated December 4, 2015;
DCBR.CO.SCB.Cir.No.1/13.05.000/2015-16 dated February 11, 2016,
DBR.Dir.BC.No.09/04.02.001/2018-19 dated November 29, 2018 and
DBR.Dir.BC.No.22/04.02.001/2018-19 dated January 11, 2019.

2. In this connection, Government of India has approved the extension of Interest

Equalization Scheme for pre and post shipment Rupee export credit, with same scope and
coverage, for one more year i.e. upto March 31, 2021. The extension shall take effect from
April 01, 2020 and end on March 31, 2021 covering a period of one year.

3. Consequently, the extant operational instructions issued by the RBI under the captioned
Scheme shall continue to remain in force upto March 31, 2021.

53
BFM, CAIIB – Intl Banking, Risk Mgmt, CRFS, DIBF, FX, ITF

Risk Management and Inter-bank Dealings – Hedging of Foreign Exchange Risk-Date

of Implementation

RBI/2019-20/232 A.P.(DIR Series) Circular No.31 May 18, 2020

To
Authorised Dealers Category – I

A reference is invited to the Directions on Hedging of Foreign Exchange Risk issued vide
A.P. (DIR Series) Circular No. 29 dated April 7, 2020. The Directions were to come into
effect from June 1, 2020.

2. Based on the requests received from market participants and in the context of the
difficulties arising from the outbreak of novel coronavirus disease (COVID-19), it has been
decided that the Directions will now come into effect from September 1, 2020.

3. Directions on the participation of Banks in Offshore Non-deliverable Rupee Derivative

Markets issued vide A.P. (DIR Series) Circular No. 23 dated March 27, 2020 will come into
effect from June 1, 2020, as hitherto.

4. The Directions contained in this circular have been issued under Sections 10(4) and 11(1)
of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to
permissions/ approvals, if any, required under any other law.

BFM, CAIIB – Intl Banking, Treasury Mgmt, DIBF, FX, ITF

Reporting Platform for OTC Derivatives – Transactions undertaken by IFSC Banking

Units (IBUs) and non-deliverable derivative contracts (involving Rupee or otherwise)

RBI/2019-20/233 FMRD.FMID.26/02.05.002/2019-20 May 18, 2020

All Authorised Dealer Category-I Banks

In terms of A.P. (DIR Series) circular no.23 dated March 27, 2020, banks in India having an
Authorised Dealer Category-1 license under FEMA, 1999, and operating IBUs have been
permitted, with effect from June 1, 2020, to offer non-deliverable derivative contracts
(NDDCs) involving the Rupee, or otherwise, to persons not resident in India. Banks can
undertake such transactions through their IBUs or through their branches in India or through
their foreign branches (in case of foreign banks operating in India, through any branch of the
parent bank).

2. All foreign exchange non-deliverable derivative contracts (involving Rupee or otherwise)

undertaken by banks in India through their IBUs or through their branches in India or through
their foreign branches (in case of foreign banks operating in India, through any branch of the
parent bank), shall be reported to CCIL’s reporting platform with effect from June 1, 2020.

54
3. Further, in terms of circular no. DBR.IBD.BC.14570/23.13.004/2014-15 dated April 01,
2015, as amended from time to time, IBUs were permitted to undertake derivative
transactions including structured products that the banks operating in India have been allowed
to undertake as per the extant RBI directions. For undertaking any other derivative product,
IBUs are required to obtain the prior approval of the RBI.

4. RBI has mandated that all OTC foreign exchange, interest rate and credit derivative
transactions, both inter-bank and client, will be reported to CCIL’s trade reporting platform.
The matter has been further discussed with banks operating IBUs and CCIL. Accordingly, it
has been decided that IBUs shall report all OTC foreign exchange, interest rate and credit
derivative transactions - both interbank and client transactions - undertaken by them to
CCIL’s reporting platform with effect from June 1, 2020. Additionally, as a one-time
measure to ensure completeness of data, all matured and outstanding transactions as on May
31, 2020, shall be reported by July 31, 2020.

5. The Clearing Corporation of India (CCIL) shall communicate the methodology of such
reporting to its members.

6. These directions are issued under the powers vested in the Reserve Bank of India under
Section 45W of the Reserve Bank of India Act, 1934 and is without prejudice to permissions/
approvals, if any, required under any other law.

Banking, AML KYC, Retail Banking

Extending Master Direction – Know Your Customer (KYC) Direction, 2016 to Housing
Finance Companies

RBI/2019-20/235 DOR.NBFC (HFC).CC.No.111/03.10.136/2019-20 May 19, 2020

To
Housing Finance Companies

The Master Direction – Know Your Customer (KYC) Direction, 2016 issued by the Bank has
consolidated directions on Know Your Customer (KYC), Anti-Money Laundering (AML)
and Combating the Financing of Terrorism (CFT) and is applicable to all Regulated Entities
of the Bank. In this connection, attention is invited to our Press Release no.2019-2020/419
dated August 13, 2019 on transfer of regulation of Housing Finance Companies to Reserve
Bank of India.

2. It has been decided to extend the Master Direction – Know Your Customer (KYC)
Direction, 2016 to all Housing Finance Companies.

3. Instructions/ guidelines/ regulations contained in the circulars mentioned in the Appendix,

issued by National Housing Bank (erstwhile regulator of Housing Finance Companies) stand
repealed.

BFM, Intl Banking, DIBF, FX,

55
Import of goods and services- Extension of time limits for Settlement of import payment

RBI/2019-20/242 A.P. (DIR Series) Circular No.33 May 22, 2020

To
All Category - I Authorised Dealer Banks

Please refer to para 5 of Statement on Developmental and Regulatory Policies issued today.
In this connection the attention of Authorised Dealer Category -I banks is invited to para
B.5.1 (i) of the ‘Master Direction on Import of Goods and Services’ dated January 01, 2016
(as amended from time to time), in terms of which remittances against normal imports (i.e.
excluding import of gold/diamonds and precious stones/ jewellery) should be completed not
later than six months from the date of shipment, except in cases where amounts are withheld
towards guarantee of performance etc.

2. In view of the disruptions due to outbreak of COVID- 19 pandemic, it has been decided to
extend the time period for completion of remittances against such normal imports (except in
cases where amounts are withheld towards guarantee of performance etc.) from six months to
twelve months from the date of shipment for such imports made on or before July 31, 2020.

3. AD banks may bring the contents of this circular to the notice of their constituents
concerned.

4. The directions contained in this circular have been issued under Section 10 (4) and Section
11 (1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) and are without
prejudice to permissions / approvals, if any, required under any other law.

Banking, Credit Mgmt, ABM, CAIIB Corporate Banking

Large Exposures Framework – Increase in Exposure to a Group of Connected

Counterparties

RBI/2019-20/243 DOR.No.BP.BC.70/21.01.003/2019-20 May 23, 2020

All Scheduled Commercial Banks

(Excluding Regional Rural Banks)

Please refer to our circular No.DBR.No.BP.BC.43/21.01.003/2018-19 dated June 03, 2019 on

the captioned subject. In terms of para 5.2 of the circular, the sum of all the exposure values
of a bank to a group of connected counterparties must not be higher than 25 percent of the
bank’s available eligible capital base at all times.

2. On account of the COVID-19 pandemic, debt markets and other capital market segments
are witnessing heightened uncertainty. As a result, many corporates are finding it difficult to
raise funds from the capital market and are predominantly dependent on funding from banks.
Therefore, with a view to facilitate greater flow of resources to corporates, it has been
decided, as a one-time measure, to increase a bank’s exposure to a group of connected
counterparties from 25% to 30% of the eligible capital base of the bank.

56
3. The increased limit will be applicable up to June 30, 2021.

Banking, Credit, UCBs, Coop Banking, NBFCs, SFBs

COVID-19 – Regulatory Package

RBI/2019-20/244 DOR.No.BP.BC.71/21.04.048/2019-20 May 23, 2020

All Commercial Banks (including Small Finance Banks, Local Area Banks and Regional
Rural Banks)/All Primary (Urban) Co-operative Banks/State Co-operative Banks/ District
Central Co-operative Banks/All All-India Financial Institutions /All Non-Banking Financial
Companies (including Housing Finance Companies)

Please refer to the Circular DOR.No.BP.BC.47/21.04.048/2019-20 dated March 27, 2020 and
Circular DOR.No.BP.BC.63/21.04.048/2019-20 dated April 17, 2020 announcing certain
regulatory measures in the wake of the disruptions on account of COVID-19 pandemic and
the consequent asset classification and provisioning norms. As announced in the Governor’s
Statement of May 22, 2020, the intensification of COVID-19 disruptions has imparted
priority to relaxing repayment pressures and improving access to working capital by
mitigating the burden of debt servicing, prevent the transmission of financial stress to the real
economy, and ensure the continuity of viable businesses and households. Consequently, the
detailed instructions in this regard are as follows:

(i) Rescheduling of Payments – Term Loans and Working Capital Facilities

2. In view of the extension of lockdown and continuing disruption on account of COVID-19,

all commercial banks (including regional rural banks, small finance banks and local area
banks), co-operative banks, All-India Financial Institutions, and Non-banking Financial
Companies (including housing finance companies) (“lending institutions”) are permitted to
extend the moratorium by another three months i.e. from June 1, 2020 to August 31, 2020 on
payment of all instalments in respect of term loans (including agricultural term loans, retail
and crop loans). Accordingly, the repayment schedule for such loans as also the residual
tenor, will be shifted across the board. Interest shall continue to accrue on the outstanding
portion of the term loans during the moratorium period.

3. In respect of working capital facilities sanctioned in the form of cash credit/overdraft

(“CC/OD”), lending institutions are permitted to allow a deferment of another three months,
from June 1, 2020 to August 31, 2020, on recovery of interest applied in respect of all such
facilities. Lending institutions are permitted, at their discretion, to convert the accumulated
interest for the deferment period up to August 31, 2020, into a funded interest term loan
(FITL) which shall be repayable not later than March 31, 2021.

(ii) Easing of Working Capital Financing

4. In respect of working capital facilities sanctioned in the form of CC/OD to borrowers

facing stress on account of the economic fallout of the pandemic, lending institutions may, as
a one-time measure,

57
(i) recalculate the ‘drawing power’ by reducing the margins till August 31, 2020. However, in
all such cases where such a temporary enhancement in drawing power is considered, the
margins shall be restored to the original levels by March 31, 2021; and/or,

(ii) review the working capital sanctioned limits upto March 31, 2021, based on a
reassessment of the working capital cycle.

5. The above measures shall be contingent on the lending institutions satisfying themselves
that the same is necessitated on account of the economic fallout from COVID-19. Further,
accounts provided relief under these instructions shall be subject to subsequent supervisory
review with regard to their justifiability on account of the economic fallout from COVID-19.

6. Lending institutions may, accordingly, put in place a Board approved policy to implement
the above measures.

Asset Classification

7. The conversion of accumulated interest into FITL, as permitted in terms of paragraph 3

above, and the changes in the credit terms permitted to the borrowers to specifically tide over
economic fallout from COVID-19 in terms of paragraph 4 above, will not be treated as
concessions granted due to financial difficulty of the borrower, under Paragraph 2 of the
Annex to the Reserve Bank of India (Prudential Framework for Resolution of Stressed
Assets) Directions, 2019 dated June 7, 2019 (‘Prudential Framework’), and consequently,
will not result in asset classification downgrade.

8. In respect of accounts classified as standard as on February 29, 2020, even if overdue, the
moratorium period, wherever granted in respect of term loans, shall be excluded by the
lending institutions from the number of days past-due for the purpose of asset classification
under the IRAC norms. The asset classification for such accounts shall be determined on the
basis of revised due dates and the revised repayment schedule.

9. Similarly, in respect of working capital facilities sanctioned in the form of cash

credit/overdraft (“CC/OD”), where the account is classified as standard, including SMA, as
on February 29, 2020, the deferment period, wherever granted in terms of paragraph 3 above
shall be excluded for the determination of out of order status.

10. All other provisions of circulars dated March 27, 2020 and April 17, 2020 shall remain
applicable mutatis mutandis.

Banking, Credit, UCBs, Coop Banking, NBFCs, SFBs

Banking, Credit, UCBs, Coop Banking, NBFCs, SFBs

COVID19 Regulatory Package – Review of Resolution Timelines under the Prudential

Framework on Resolution of Stressed Assets

RBI/2019-20/245 DOR.No.BP.BC.72/21.04.048/2019-20 May 23, 2020

All Scheduled Commercial Banks (excluding Regional Rural Banks);/ All India Financial
Institutions (NABARD, NHB, EXIM Bank, and SIDBI);/ All Systemically Important Non-

58
Deposit taking Non-Banking Financial Companies/ (NBFC-ND-SI) and Deposit taking Non-
Banking Financial Companies (NBFC-D).

Please refer to the Circular DOR.No.BP.BC.62/21.04.048/2019-20 dated April 17, 2020

relating to extension of resolution timelines under the Prudential Framework on Resolution of
Stressed Assets dated June 7, 2019 (‘Prudential Framework’). Given the continued challenges
to resolution of stressed assets, in partial modification of the above, as announced in the
Governor’s Statement of May 22, 2020, the timelines are being extended further as under:

2. In respect of accounts which were within the Review Period as on March 1, 2020, the
period from March 1, 2020 to August 31, 2020 shall be excluded from the calculation of the
30-day timeline for the Review Period. In respect of all such accounts, the residual Review
Period shall resume from September 1, 2020, upon expiry of which the lenders shall have the
usual 180 days for resolution.

3. In respect of accounts where the Review Period was over, but the 180-day resolution
period had not expired as on March 1, 2020, the timeline for resolution shall get extended by
180 days from the date on which the 180-day period was originally set to expire.

4. Consequently, the requirement of making additional provisions specified in paragraph 17

of the Prudential Framework shall be triggered as and when the extended resolution period,
as stated above, expires.

5. All other provisions of the circular dated April 17, 2020 shall continue to remain
applicable.

BFM, Intl Banking, FX, ITF, DIBF

Pre-shipment and Post-shipment Export Credit – Extension of Period of Advance

RBI/2019-20/246 DOR.DIR.BC.No.73/04.02.002/2019-20 May 23, 2020

All Scheduled Commercial Banks (excluding RRBs)/ All Primary Urban Co-operative
Banks/All Small Finance Banks

Please refer to the Master Circular on ‘Rupee / Foreign Currency Export Credit and Customer
Service to Exporters’ issued vide DBR.No.DIR.BC.14/04.02.002/2015-16 dated July 1, 2015
and other associated circulars on the subject.

2. In view of the outbreak of Covid-19 pandemic, the exporters have been facing genuine
difficulties such as delay / postponement of orders, delay in realisation of bills, etc. In this
regard, RBI has already permitted the period of realisation and repatriation of the export
proceeds to India to be increased from nine months to 15 months from the date of export in
respect of exports made upto July 31, 2020. In line with this relaxation, it has been decided to
increase the maximum permissible period of pre-shipment and post-shipment export credit
sanctioned by banks from one year to 15 months, for disbursements made upto July 31, 2020.

Banking, Rural, Coop Banking, Rural Banking Operations

59
Interest Subvention (IS) and Prompt Repayment Incentive (PRI) for Short Term Loans
for Agriculture including Animal Husbandry, Dairy and Fisheries for extended period
on account of Covid-19

RBI/2019-20/250 FIDD.CO.FSD.BC.No.25/05.02.001/2019-20 June 4, 2020

The Chairman / Managing Director & CEOs

All Public & Private Sector Scheduled Commercial Banks

Please refer to our circular FIDD.CO.FSD.BC.No.24/05.02.001/2019-20 dated April 21,

2020 advising banks on the Governments’ decision to continue the availability of 2% IS and
3% PRI to farmers for the extended period of repayment upto May 31, 2020 or date of
repayment, whichever is earlier.

2. In view of the extension of lockdown and continuing disruption on account of COVID-19,

the RBI vide circular dated May 23, 2020 has permitted all lending institutions to extend
moratorium by another three months, i.e., upto August 31, 2020. In order to ensure that
farmers do not pay higher interest during the extended moratorium period, the Government
has decided to continue the availability of 2% IS and 3% PRI to farmers for the extended
period of repayment upto August 31, 2020 or date of repayment, whichever is earlier. This
benefit will be applicable to all short term loans for Agriculture and Animal Husbandry,
Dairy and Fisheries (AHDF) upto ₹3 lakh per farmer (upto ₹2 lakh for AHDF farmers).

3. All other terms and conditions remained unchanged.

Digital Banking, Retail Banking, Central Banking, Risk Mgmt, Credit Mgmt, Intl
Banking, FX, Treasury Mgmt, CTP, CRFS

Reserve Bank of India publishes the Oversight Framework for Financial Market
Infrastructures and Retail Payment Systems

Jun 13, 2020

The Reserve Bank has today (Jun 13, 2020) placed on its website the Oversight Framework
for Financial Market Infrastructures (FMIs) and Retail Payment Systems (RPSs).

The Committee on Payments and Market Infrastructures (CPMI) (earlier known as the
Committee on Payment and Settlement Systems (CPSS)) and the International Organisation
of Securities Commissions (IOSCO) have established, over the years, international risk-
management standards for Systemically Important Payment Systems (SIPS), Central
Securities Depositories (CSDs), Securities Settlement Systems (SSSs), Central Counterparties
(CCPs) and Trade Repositories (TRs) (collectively termed as Financial Market
Infrastructure). In April 2012, the then CPSS and IOSCO published a comprehensive set of
24 principles as part of the report titled “Principles for Financial Market Infrastructures”
(PFMI). The main objectives of the PFMIs are to enhance safety and efficiency in payment,
clearing, settlement, and recording arrangements, and more broadly, to limit systemic risk
and foster transparency and financial stability. These standards are designed to ensure that the

60
infrastructure supporting global financial markets is robust and well placed to withstand
financial shocks.

The Reserve Bank had adopted the PFMIs for supervising and assessing the FMIs regulated
by it and had in June 2013 prepared a document titled “Regulation and Supervision of FMIs
regulated by RBI”. The scope of the document was limited to oversight activities and tools
used for supervision of the FMIs prevailing then.

Over the following years, the supervisory rigour for FMIs – both onsite and offsite – has
increased. Additionally, RPSs have assumed importance given their acceptance, convenience
and availability of multiple payment options. National Payments Corporation of India
(NPCI), the umbrella organisation for RPSs in the country, has emerged as a System Wide
Important Payment System (SWIPS) because of the significant volume of transactions
processed in the payment systems operated by it. Reserve Bank undertakes onsite and/or
offsite supervision of RPSs like PPI issuers, ATM networks, TReDS platforms, MTSS
operators, card networks, etc.

Accordingly, in line with the commitment made in the Reserve Bank’s Payment and
Settlement Systems Vision 2019-2021, this Oversight Framework document for FMIs and
RPSs is updated to incorporate the supervisory framework for the payment system entities as
well as the supervisory considerations that have arisen since the time of the previous
document. It details the oversight objectives and supervisory processes of Reserve Bank as
well as the assessment methodology of FMIs and SWIPS under PFMIs.

This document, by enhancing supervisory transparency and disclosure, would enable better
regulatory compliance by payment systems operators, and enhance customer awareness,
eventually contributing to the safety and stability of our payment systems.

Objective

This document sets out the policy framework adopted by the Reserve Bank of India for the
oversight of Financial Market Infrastructures (FMIs) and Retail Payment Systems (RPSs)
operating in India.

Section 1: Background

A Financial Market Infrastructure (FMI) is defined as a multilateral system among

participating institutions, including the operator of the system, used for the purposes of
clearing, settling, or recording payments, securities, derivatives, or other financial
transactions. The term FMI generally refers to Systemically Important Payment Systems
(SIPS), Central Securities Depositories (CSDs), Securities Settlement Systems (SSSs),
Central Counter Parties (CCPs), and Trade Repositories (TRs) that facilitate the clearing,
settlement, and recording of financial transactions.

1.2 FMIs form the backbone of the financial system and contribute to financial stability and
economic growth by providing reliable, safe, secure and efficient payment, clearing and
settlement services to the users. They perform a unique role in the financial system by
connecting a variety of financial institutions and financial markets together by way of their
transactions with each other. Market functioning and financial stability rely on ensuring the
continuity of the services that these infrastructures provide.

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1.3 Payment and settlement systems enable lending and repayment of money, allow
businesses to receive payments for goods and services offered, and facilitate payment of
salaries and benefits to the general public. They also enable the transfer of money and
financial instruments between economic entities. Payment systems typically handle large
volumes and values of transactions, which are necessary for any market economy to function.

1.4 SSSs enable the purchase and sale of equities and bonds, and also effect their settlement
by book entry according to a set of predetermined multilateral rules. A CSD provides
securities accounts, central safekeeping services, and asset services, which may include the
administration of corporate actions and redemptions and play an important role in ensuring
the integrity of securities issues. These are systems that keep records of ownership of
individual securities and also facilitate the transfer of ownership of these securities between
people or entities. On the other hand, CCPs sit between the buyers and sellers of financial
contracts and offer their guarantee and assurance to the participants that their contractual
obligations in a range of financial and commodity markets will be honoured even if the
original counterparty defaults. A TR is an entity that maintains a centralised electronic record
(database) of transaction data.

1.5 Central Banks are closely involved and have interest in FMIs for the purpose of conduct
of its monetary policy and implementation of Government’s fiscal policy as well as achieving
enhanced financial inclusion, which largely depend on the availability of reliable and
effective FMIs. The fundamental purpose of money to function as a means of exchange is
fulfilled only by efficient payment and settlement systems. This in-turn affects the Central
Banks’ objective of maintaining public confidence in money and in the instruments and
systems used to transfer money.

1.6 While safe and efficient FMIs contribute to maintaining financial stability and promoting
economic growth, several incidents in the financial market have also shown that there could
be major financial risks embedded in them. If these risks are not managed prudently, they
could create a systemic risk situation in which the financial market could stop functioning
and be a potential source of financial shocks, such as liquidity dislocations and credit losses.

1.7 Retail payment systems, especially the electronic ones, which consist of different systems
and platforms, payment products and services that allow firms, corporates, individuals,
governments, and other economic agents to transfer money on a daily basis without having to
use cash, have become increasingly prevalent in the Indian economy. This has been largely
due to the dynamism the digital innovation has brought with new mobile and online payment
solutions and products. The retail electronic payments eco-system in the country is now
characterized by the existence of a wide variety of payment systems, payment instruments
and payment channels that can be used by different segments of users (individuals,
corporate / businesses, and government) to meet their differing payment needs.

1.8 Among the new ways adopted by retail payment systems are the use of mobile phones as
a device and access channel for making and receiving payments (mobile payments), use of
internet on different devices for making purchases (internet payments), use of payment cards
in ATM and PoS networks and with contactless technology (card payments and
tokenization), electronic billing and use of various systems and platforms for making instant
payments. Further, although retail payment systems have traditionally been generated by
banks and other financial institutions, the payment space has now been increasingly opened

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up for non-bank players acting as operators of platforms for payment systems or as payment
system providers (PSPs).

1.9 While efforts continue to be made for promoting universal access to and use of financial
services in an attempt to reduce poverty and improve opportunities and living standards for
people, retail electronic payment systems is being represented as a highly potential
instrument for fostering financial inclusion as individuals and firms interact in the economy
via the payments they make to each other. Unlike large value payment systems focused on
meeting the needs of financial institutions and large corporations in different financial
markets, retail payment systems focus on the needs of each individual for making and
receiving payments.

1.10 Efficiency is thus very relevant for retail payment systems. The speed and ease with
which payments can be executed will have the potential to affect economic activity. The
speed of processing, the accessibility and convenience of the system, its reliability and
accuracy are various aspects of quality that may add value to the users. Central Banks have
an operational role in the clearing and settlement services and also perform oversight role on
retail payment systems.

1.11 It is important that FMIs as well as retail payment systems are resilient to disruption,
including financial and operational shocks, so that they continue to provide critical service to
the economy and support wider financial stability and economic development. As such,
Central Banks have an important role to play in this area given their responsibility to preserve
the smooth functioning of payments systems, and more recently to support efforts for
promoting financial inclusion.

Section 2: Introduction

2.1 The Committee on Payment and Settlement Systems (CPSS, now Committee on
Payments and Market Infrastructures – CPMI), in May 2005, published the report on “Central
bank oversight of payment and settlement systems”1. The report highlights the importance of
Oversight and states as follows:

“Oversight of payment and settlement systems is a central bank function whereby the
objectives of safety and efficiency are promoted by monitoring existing and planned systems,
assessing them against these objectives and, where necessary, inducing change.”

2.2 This report has listed five general principles to be followed by the central banks for
conducting effective oversight of payment and settlement systems, regardless of the
differences between central banks in the scope of oversight in terms of the broad public
policy objectives of safety and efficiency, which are reproduced below:

i. General oversight principle A: Transparency – Central banks should set out

publicly their oversight policies, including the policy requirements or standards for
systems and the criteria for determining which systems these apply to.
ii. General oversight principle B: International standards – Central banks should
adopt, where relevant, internationally recognised standards for payment and
settlement systems.

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 iii. General oversight principle C: Effective powers and capacity – Central banks
should have the powers and capacity to carry out their oversight responsibilities
effectively.
iv. General oversight principle D: Consistency – Oversight standards should be
applied consistently to comparable payment and settlement systems, including
systems operated by the central bank.
v. General oversight principle E: Cooperation with other authorities – Central
banks, in promoting the safety and efficiency of payment and settlement systems,
should cooperate with other relevant central banks and authorities.

2.3 The CPSS and International Organisation of Securities Commissions (IOSCO) have
established, over the years, international risk-management standards for payment systems that
are systemically important, CSDs, SSSs, and CCPs. In February 2010, the CPSS and the
Technical Committee of IOSCO launched a comprehensive review of the three existing sets
of standards for FMIs2 – the Core Principles for Systemically Important Payment Systems
(CPSIPS), the Recommendations for Securities Settlement Systems (RSSS), and the
Recommendations for Central Counterparties (RCCP) – in support of the FSB’s broader
efforts to strengthen core financial infrastructures and markets by ensuring that gaps in
international standards are identified and addressed. Accordingly, a comprehensive set of 24
principles were issued as part of the report titled “Principles for Financial Market
Infrastructures” (PFMI)3 published in April 2012.

2.4 The main objectives of these principles for FMIs are to enhance safety and efficiency in
payment, clearing, settlement, and recording arrangements, and more broadly, to limit
systemic risk and foster transparency and financial stability.

2.5 The document has, in addition to the Principles, indicated five responsibilities that are
expected from the central banks, market regulators and other relevant authorities for FMIs.
These are reproduced below:

i. Responsibility A – Regulation, supervision and oversight of FMIs – FMIs should be

subject to appropriate and effective regulation, supervision, and oversight by a central
bank, market regulator, or other relevant authority.
ii. Responsibility B – Regulatory, supervisory, and oversight powers and resources –
Central Banks, market regulators, and other relevant authorities should have the
powers and resources to carry out effectively their responsibilities in regulating,
supervising, and overseeing FMIs.
iii. Responsibility C – Disclosure of policies with respect to FMIs – Central Banks,
market regulators, and other relevant authorities should clearly define and disclose
their regulatory, supervisory, and oversight policies with respect to FMIs.
iv. Responsibility D – Application of the Principles for FMIs – Central Banks, market
regulators, and other relevant authorities should adopt the CPSS-IOSCO PFMIs and
apply them consistently.
v. Responsibility E – Cooperation with other authorities – Central Banks, market
regulators, and other relevant authorities should cooperate with each other, both
domestically and internationally, as appropriate, in promoting the safety and
efficiency of FMIs.

2.6 The Reserve Bank of India (RBI) has adopted the above international standards, i.e. “the
PFMIs” and “Central Bank Oversight of Payment and Settlement Systems” for

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implementation by the FMIs regulated by it, through issuance of Policy document on
“Regulation and Supervision of FMIs regulated by RBI”, in June 2013. This document
describes in detail the criteria for designating an FMI4, applicability of the PFMIs to the
FMIs, oversight of FMIs and other related aspects.

2.7 From 1998 onwards, RBI has been continuously bringing out a Payment Systems Vision
document covering a period of three years, enlisting the road map for implementation. As per
Vision 2012-15, the approach was to proactively encourage electronic payment systems for
ushering in a less-cash society in India and to ensure payment and settlement systems in the
country are safe, efficient, interoperable, authorised, accessible, inclusive and compliant with
international standards. Subsequently, the Vision 2015-18 laid stress on building best of class
payment and settlement systems for a ‘less-cash’ India through responsive regulation, robust
infrastructure, effective supervision and customer centricity. While building on the constructs
and achievements of the Vision statement of 2015-18, the Payment Systems Vision 2019-21
recognises the need for continued emphasis on innovation, cyber security, financial inclusion,
customer protection and competition. While the core theme of the current Vision statement is
“Empowering Exceptional (e)Payment Experience”, it focusses on empowering every Indian
with access to a bouquet of e-payment options that is safe, secure, convenient, quick and
affordable. While the pursuit towards a ‘less cash’ society continues, accompanied by the
ambition to have a less-card India as well, the endeavour is to also ensure increased
efficiency, uninterrupted availability of safe, secure, accessible and affordable payment
systems as also to serve segments of the population which are hitherto untouched by the
payment systems.

2.8 The efforts made by RBI have resulted in continuous expansion of payment landscape not
only in terms of growth in payment infrastructure but also in terms of volume and value of
digital payment transactions. There has been continued decrease in the share of paper-based
clearing instruments, coupled with consistent growth and launch of new payment systems in
individual segments of retail electronic payment systems as well as increase in registered
customer base for mobile banking. Especially, the Retail Payment Systems (RPS) have risen
to prominence with the new payment systems, such as Unified Payments Interface (UPI) and
Aadhaar enabled Payment System (AePS), put in place by National Payments Corporation of
India (NPCI) gaining traction, entry of non-bank players in the payment ecosystem bringing
in innovation by leveraging technological advancements, and a gradual shift in the customer
behaviour from cash to digital payments. With the continuously changing payment system
landscape, the oversight objectives and activities have also concomitantly evolved over a
period of time. Supervision involves assessing the safety and soundness of payment systems,
providing feedback as appropriate, and using powers for timely intervention where necessary.
With changing landscape of the payment ecosystem and the need for transparency and clarity
among the stakeholders as well as central bank’s responsibility to clearly define and disclose
their regulatory, supervisory, and oversight policies with respect to FMIs and RPSs, the
Reserve Bank of India has revised / updated the existing policy document (published on RBI
website in June 2013) as “Oversight Framework for FMIs and Retail Payment Systems”.

2.9 This revised policy document describes the approach of RBI in its oversight of not only
FMIs (regulated by RBI) but also the RPSs operating in India. In addition to FMIs, the
applicability of PFMIs to some of the important RPSs is also discussed and provided for.
Since some of the Principles may not be relevant for certain specific types of FMIs and
important RPSs, RBI may impose higher requirements, depending on the gravity of the risks

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the RPSs expose to the market participants or in the context of wider financial sector stability.
The table of acronyms used in the document is given as Appendix 11.

Section 3: Legal Framework for Oversight

3.1 The Payment and Settlement Systems Act, 2007 (PSS Act) has designated and confers
upon the RBI the right to regulate and supervise Payment Systems 5 within the country. The
RBI exercises its powers, performs the functions and discharges the duties conferred on it
under the PSS Act through the “Board for Regulation and Supervision of Payment and
Settlement Systems (BPSS)”. Exercising these powers, the RBI has prescribed standards for
payment instruments such as cheques, for secure message transmission in the form of SFMS
(Structured Financial Messaging System), etc.

3.2 Chapter III of the PSS Act lays down that “no person, other than the Reserve Bank, shall
commence or operate a payment system except under and in accordance with an authorisation
issued by the Reserve Bank under the provisions of this Act”. Thus, it is clear that all
payment systems functioning in India, involving payment obligations as a result of clearing
or settlement of one or more payment instructions relating to funds, securities or foreign
exchange or derivatives or other transactions, have to be authorised by the RBI. The PSS Act
also provides powers to RBI to issue authorisation for operating the payment systems, and
also to revoke the authorisation given to such system providers in case of contraventions of
any provisions of PSS Act, PSS Regulations, 2008, orders or directions issued by the RBI or
operation of payment system in contrary to the terms and conditions subject to which the
authorisation was issued.

3.3 After the global financial crisis in 2007-08, several developments took place, driven
primarily by the G20, for reforming the Over the Counter (OTC) derivatives markets. The
TRs emerged as a new type of FMI particularly in the OTC derivatives market. In line with
the G20 commitment and the global developments, the PSS Act was amended to include
Trade Repository6 as another category of payment system. Accordingly, the provisions of
PSS Act also apply to the TRs that have been designated as such by the RBI.

3.4 Chapter IV of the PSS Act and its various Sections / clauses provide for the Regulation
and Supervision of such Payment Systems. The powers to regulate and supervise comprise:

i. Section 10: Power to determine and prescribe standards – in respect of format,

size and shape of payment instructions, timings to be maintained by payment systems,
manner of fund transfers, criteria of membership of payment systems and their rights
and obligations, and issuance of guidelines for effective management of payment
systems.
ii. Section 11: Notice of change in the Payment System – system providers shall not
cause any change effecting the structure and operation of the payment system without
prior approval of RBI.
iii. Section 12: Power to call for returns, documents or other information –
empowers RBI to call for returns, documents or other information from any system
provider regarding operations of payment systems operated by them.
iv. Section 13: Access to information – empowers RBI to access any information
relating to any payment system with the system provider and the system participants.

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 v. Section 14: Power to enter and inspect – empowers RBI to enter and inspect any
premises where a payment system is operated and any equipment including any
computer system or other documents.
vi. Section 16: Power to carry out audit and inspection – empowers RBI to conduct or
get conducted audits and inspections of a payment system or system participants.
vii. Section 17: Power to issue specific direction – empowers RBI to issue directions to
a system provider or system participant to cease and desist from any act, omission or
course of conduct that would result in systemic risks or affects the payment system,
monetary or credit policy of the country.
viii. Section 18: Power of RBI to give directions generally – empowers RBI to lay down
policies relating to the regulation of payment systems, including electronic, non-
electronic, domestic and international payment systems affecting domestic
transactions, and give directions to system providers or the system participants either
generally or to any such agency, pertaining to the conduct of business relating to
payment systems.
ix. Section 19: Directions of RBI to be generally complied with – imposes a duty on
every person to whom a direction is issued by the RBI to comply with such direction
and submit compliance.

3.5 Chapter VII of PSS Act and its Sections deal with Offences and Penalties and empowers
RBI to impose monetary penalties on persons contravening or committing default of the
nature pertaining to wilful omission of any material statement or wilful submission of any
false statement, information, returns or other documents, or in case of contravention of any
provision of PSS Act or any regulation, order or direction issued thereunder. It also
empowers RBI to compound the contraventions of any offence punishable under PSS Act,
which are not punishable with imprisonment only, or with imprisonment and also with fine.

3.6 The PSS Act also provides legal basis for gross or netting procedure and ensures finality
and irrevocability of settlement, as soon as the money, securities, foreign exchange or
derivatives or other transactions payable as a result of settlement is determined, whether or
not such money, securities or foreign exchange or derivatives of other transactions is actually
paid. It also mandates the system providers to disclose to the existing or potential system
participants, the terms and conditions including the charges and the limitations of liability
under the payment system, supply them with copies of the rules and regulations governing
the operation of the payment system, netting arrangements and other relevant documents.

3.7 In exercise of powers conferred by sub-section (1) read with clauses (b) to (f) of sub-
section (2) of Section 38 of PSS Act, the RBI notified the Payment and Settlement System
Regulations, 2008. The Regulations provide for process and procedures for authorisation of a
Payment System; specification of standards7, issued by RBI, to be followed by the authorised
system providers; and furnishing of returns, documents and other information including
accounts and Balance sheet to the RBI. The PSS Act and the Regulations framed thereunder,
provide the legal framework for the conduct of oversight of payment systems, SSSs, CCPs
and TRs by RBI.

Section 4: Designation of FMIs Regulated by RBI

4.1 The CPSS-IOSCO – PFMIs defines an FMI as a multilateral system among participating
institutions, including the operator of the system, used for the purposes of clearing, settling or

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recording payments, securities, derivatives, or other financial transactions. The Principles are
designed to apply to all SIPS, CSDs, SSSs, CCPs and TRs.

4.2 One of the responsibilities of regulatory authorities is to define and publicly disclose the
criteria used to identify FMIs that should be subject to regulation, supervision and oversight.
Though the expression ‘FMI’ has not been defined explicitly in the PSS Act, the definition of
payment system therein includes all categories of FMIs, including TRs, as well as non-
systemically important payment systems.

4.3 Criteria for declaring a payment system as SIPS – A payment system, authorised by
RBI, would be categorised as an FMI if it has the potential to trigger or transmit systemic
disruptions, or as and when it reaches systemic or system wide importance. The parameters
considered are: (i) volume and value of transactions handled / processed; (ii) share in the
overall payment systems; (iii) markets in which it is operating; (iv) number and types of
participants; (v) degree of interconnectedness and interdependencies; (vi) criticality in terms
of concentration of payment activities, etc. Based on the above parameters, the RBI shall
declare the names of payment systems as SIPS.

4.4 FMIs operated by RBI – The RTGS system is the only large value payment system
functioning in India and the value of transactions processed as a percentage of total payment
transactions is 77% during the month of March 2020. It also settles Multilateral Net
Settlement Batch (MNSB) files emanating from other ancillary payment systems including
the systems operated by the CCIL8 and NPCI9. Accordingly, it has been designated as a SIPS.
Further, the SSS for the government securities10, both for outright and repo transactions
conducted in the secondary market, operated by the RBI, is designated as an FMI. RBI also
acts as the CSD for government securities, and thus designated as an FMI.

4.5 FMIs operated by private sector and regulated by RBI – The CCIL, functioning as a
central counterparty in various segments of the financial markets regulated by the RBI (viz.
the government securities segment, tripartite repo, USD-INR and forex forward segments) 11,
is designated as an FMI as per the definition provided in the PFMI Report. RBI has also
designated CCIL as a Trade Repository 12 under Section 34 A (2) of PSS Act for OTC interest
rate, credit and forex derivative transactions as mandated from time to time, and thus
designated as an FMI. NPCI is the umbrella organisation for operating retail payment systems
in the country; its share as against the entire payment landscape of India stood at 64.5% by
volume and 4.07% by value during the month of March 2020. With the growing retail
volumes handled by NPCI and the resultant increase in the extent of concentration of retail
payments under NPCI, and given the criticality of its operations in terms of volume of
transactions handled, any disruption can have an impact on the payment and settlement of
transactions initiated by public at large, especially the lower and middle class population, and
the financial inclusion drive of the Government and RBI. Accordingly, NPCI has been
designated as a system wide important payment system (SWIPS) and would be assessed
against the PFMIs.

4.6 Other critical market infrastructures which are designated as FMIs

4.6.1 The PFMIs in general are not addressed to market infrastructures such as trading
exchanges, trade execution facilities, or multilateral trade-compression systems. However,
the report states that the relevant authorities may decide to apply some or all of these
principles to types of infrastructures not formally covered by the report. Considering the

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criticality of the Negotiated Dealing System-Order Matching (NDS-OM) 13 in the government
securities market, it was designated as an FMI in the policy document of June 2013. The
CPSS-IOSCO subsequently came out with the ‘Assessment methodology for the oversight
expectations applicable to critical service providers’. Accordingly, the NDS-OM would be
assessed as per this methodology. Accordingly, NDS-OM is not classified as an FMI, but will
be overseen and assessed as per the methodology prescribed by CPSS-IOSCO for critical
service providers.

4.6.2 The operations of the FMIs / payment systems are dependent on some critical
infrastructure viz. Indian Financial Network (INFINET) – the communication network and
SFMS – the messaging infrastructure operated by The Indian Financial Technology and
Allied Services (IFTAS). RBI has also given approval to SWIFT India Domestic Services
Private Limited (SIDSPL) to provide messaging services for domestic financial transactions
in India. The critical infrastructure would thus be assessed against the CPMI-IOSCO
“Assessment methodology for the oversight expectations applicable to critical service
providers”14 (to the extent applicable to infrastructure providers). The entities covered would
be

i. The Negotiated Dealing System-Order Matching (NDS-OM) which is a critical

infrastructure for the government securities market;
ii. Indian Financial Network (INFINET) /-SFMS; and
iii. SIDSPL.

4.7 Applicability of PFMIs to FMIs in India

4.7.1 As mentioned earlier, RBI has adopted the PFMIs through its policy document
“Regulation and Supervision of FMIs regulated by RBI”. Accordingly, all RBI authorised
payment systems declared as SIPS / SWIPS on the basis of above criteria and SSSs, CCPs,
CSDs and TRs are expected to comply with the PFMI standards. Thus, RTGS, NPCI, SSS /
CSD, and CCIL (as CCP and TR)15 are mandated by RBI to comply with the PFMI standards.
They would also be assessed using the PFMI framework16.

4.7.2 Most principles in PFMI report are applicable to all types of FMIs covered. However, a
few principles are only relevant to specific types of FMIs. The applicability of the principles
and key considerations to specific types of FMIs in India is shown in Appendix 9.

4.7.3 The RPSs, those not designated as SIPS / SWIPS, but regulated by RBI, such as Prepaid
Payment Instrument Issuers, card payment networks, ATM networks, Cross-border Money
Transfer (in-bound) operators, White Label ATM Operators, Instant Money Transfer
Operators, Trade Receivables Discounting System (TReDS) operators, Bharat Bill Payment
System (BBPS) Operator, and Bharat Bill Payment Operating Units (BBPOUs), would not be
subject to assessment against all PFMIs, except for submission of Self-Assessment Template
(SAT) dovetailed to their specific requirements on an annual basis. However, some of the
PFMIs are so fundamental that they should also be observed by even these RPSs. For the
purpose, the RBI will be classifying such RPSs as Important Retail Payment Systems (IRPS)
and Other Retail Payment Systems (ORPS).

4.7.4 Although both IRPS and ORPS are required to comply with a select set of PFMIs, a
differentiation has been made between the two types of retail payment systems according to
their share in payment landscape, the potential effects on account of their failure and the

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potential to undermine public confidence in payment systems. In the light of this, the RBI has
identified the PFMIs with which IRPS and ORPS should comply with. The same is given in
Appendix 10. The RBI has decided that 12 and 7 PFMIs out of 17 applicable to payment
systems, are applicable to IRPS and ORPS, respectively.

Section 5: Definition and Scope of Oversight

5.1 Definition of Oversight

5.1.1 The definition of “Oversight of payment and settlement system” provided by CPSS in
the report on Central Bank Oversight of Payment and Settlement Systems, has been adopted
by the RBI.

5.1.2 By convention, “the term oversight is reserved to designate the specific responsibilities
and tools central banks have with regard to payment and settlement systems due to their
unique character of being both a public authority and a bank. Oversight is a necessary
complement to any other means central banks may use to achieve their public policy
objectives for payment and settlement systems (such as operating certain systems themselves
or providing settlement services to systems).”17

5.2 Oversight Responsibilities

5.2.1 As indicated earlier, the PSS Act, 2007 and PSS Regulations, 2008 provide for the RBI
to conduct oversight of payment and settlement systems, as part of its mandate. The RBI is
empowered under the PSS Act to issue guidelines for the proper and efficient management of
the payment systems generally or with reference to any particular payment system.

5.3 Oversight Objectives

5.3.1 The main objective of PFMIs is to enhance safety and efficiency in payment, clearing,
settlement and recording arrangements, and more broadly, to limit systemic risk and foster
transparency and financial stability. Poorly designed and operated FMIs can contribute to and
exacerbate systemic crises if the risks of these systems are not adequately managed, and as a
result, financial shocks could be transmitted from one participant or FMI to others. The
effects of such disruption could extend beyond and thus threaten the stability of broader
economy.

5.3.2 RBI issues bank notes and provides banking facilities in the form of current accounts to
all banks and financial institutions functioning in the country. RBI promotes settlement of all
payment transactions in central bank money and plays a role in ensuring safety and efficiency
in FMIs so as to prevent systemic risk.

5.3.3 Prevention of systemic risk – RBI oversees FMIs and all authorised payment systems,
including RPSs, so as to contain the systemic risk implications that have the potential to
affect nation’s financial system and consequently its monetary and financial stability. Any
malfunctioning of an FMI is likely not only to have a negative effect on the FMI’s
participants but it could also give rise to broader risk externalities, if participants are no
longer able to complete their payment or securities transactions on time. The situation could
worsen due to the interconnectedness feature of payment systems. As a result, the liquidity
strains of the participants might spread more widely through the financial system, putting

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pressure on asset prices and reducing market confidence and thus potentially endangering the
stability of financial system. Furthermore, if FMIs including payment and settlement systems,
which facilitate the exchange of money for goods, services and financial assets, were
inefficient or failed altogether, money would not fulfill its function of acting as means of
exchange effectively and one of the key tasks of central banks, namely to maintain public
confidence in money and in the instruments and systems used to transfer money, would not
be achieved.

5.3.4 Payment and Settlement Systems typically exhibit economies of scale, i.e. they have
high fixed costs and marginal costs that are very low with increase in number of processed
transactions. In such a scenario, concentration among a few large-scale providers, or even a
natural monopoly, may be the most efficient market structure. Significant market
concentration, however, may lead to a high dependency on a few key payment and settlement
systems, without readily available alternatives. Moreover, market concentration may be
significant enough to give payment and settlement providers market power that leads them to
provide lower levels of services at higher prices, lower investment in risk reduction and
perhaps a lower level of innovation than is socially optimal.

5.3.5 Considering the above issues, the RBI has, apart from safety, security and efficiency of
FMIs and payment systems, adopted customer confidence, wider accessibility and customer
convenience, and customer protection as its oversight objectives, and transformed them into
its various regulations, standards, directions, and guidelines applicable to them. These
objectives are also enshrined in RBI’s Payment Systems Vision Document.

5.3.6 With a view to promoting safety, security and efficiency of FMIs and RPSs, the RBI
aims for following outcomes:

5.3.6.1 Governance arrangements – They should document clear and transparent

governance arrangements18 with clear lines of roles and responsibilities as well as
accountability of its Board, its board level sub-committees and management. They should
have objectives in line with those with RBI, and also support the stability of the broader
financial system. Their Board and Management should be composed of suitable members
with an appropriate mix of skills, experience, and knowledge of the FMI and / or RPSs.

5.3.6.2 Comprehensive management of risks – They should have a board approved sound
risk management framework, including policies, processes, procedures and systems, for
identification and assessment, measurement, monitoring and management of range of risks
(such as legal, credit, liquidity, operational, business and other risks) arising in or out of the
business as well as it poses to other entities as a result of interdependencies. Their Board
should regularly monitor 5.3.6.2 Comprehensive management of risks their risk profile to
ensure that it is consistent with their business strategy and risk-tolerance policy.

5.3.6.3 Credit risk management19 – They may face credit risk from their participants, its
payment and settlement processes, or both. The default of a participant (and its affiliates)
could have the potential to cause severe disruptions to an FMI / RPS, its other participants,
and more broadly to the financial markets. Therefore, FMIs and RPSs should establish a
robust framework to manage their credit exposures to their participants and the credit risk
arising from their payment, clearing, and settlement processes.

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5.3.6.4 Liquidity risk management – They should have a robust framework to manage their
liquidity risk arising from their participants, settlement banks, nostro agents, custodian banks,
liquidity providers and other entities. They should also maintain sufficient liquid resources,
with thorough rigorous stress testing by considering wide range of stress scenarios, in all
relevant currencies to effect same day settlement or intraday or multiday settlement, of
payment obligations with high degree of confidence.

5.3.6.5 Collateral – In order to manage the risk from a participant default, they should
consider the impact of participant defaults by collateralising their current and potential future
credit exposures. The collateral should be with low credit, liquidity and market risks after
enforcing appropriately conservative haircuts and concentration limits in order to ensure that
the liquidation value of the collateral is greater than or equal to the obligation that the
collateral secures in extreme but plausible market conditions.

5.3.6.6 Default management – They should have clearly defined rules and procedures that
enable them to meet their obligations to non-defaulting participants in the event of a
participant default as well as for replenishment of resources.

5.3.6.7 Operational risk management – Operational risk is the risk that arises from
deficiencies in information systems, internal processes, and personnel or disruptions from
external events, that result in the reduction, deterioration, or breakdown of services provided
by the FMIs. Thus, the FMIs and RPSs should establish a robust framework to manage their
operational risks with appropriate systems, policies, procedures and controls. They should
also ensure that the systems have scalable capacity so as to handle increasing volumes. As a
part of the framework, they should also have a business continuity plan that addresses events
posing a significant risk of disrupting operations, for timely recovery of operations and
fulfilment of FMI’s obligations, including in the event of a wide-scale or major disruption.

5.3.6.8 Recovery and Resolution Plans – The FMIs should ensure that they can continue to
provide critical services in all circumstances. However, it is possible that in certain extreme
circumstances, an FMI may become non-viable as a going concern or insolvent. Such a
situation would lead to systemic disruptions to the institutions and markets supported by the
FMI and financial system more broadly. The FMIs should, therefore, identify scenarios that
may potentially prevent them from providing their critical operations and services as a going
concern, and prepare a host of viable range of options for their recovery to normalcy or their
ultimate resolution and orderly wind-down, for instance transferring their critical operations
and services to an alternate entity. The range of options for recovery should be documented in
the form of Recovery and Resolution Plan (RRP), which should contain, inter-alia,
identification of FMI’s critical operations and services, summary of key recovery or
resolution strategies, and description of measures to be taken to implement the key strategies.
The RRP shall be approved by the RBI on an annual basis.

5.3.6.9 Disclosure of rules and procedures – In order to help the current and prospective
participants, authorities and public to understand risks, fees and other material costs, the
FMIs and RPSs should have clear and comprehensive rules and procedures, which should be
publicly disclosed. The rules shall, inter-alia, include the system’s design and operations,
rights and obligations of FMI / RPS and its participants, risk-based objective criteria for
participation by direct and indirect (tiered) participants and other FMIs / RPS, as well as
procedures for facilitating the suspension and orderly exit of a participant that breaches or no
longer meets the participation requirements.

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5.3.6.10 Settlement finality – They should provide clear and certain final settlement. The
same should be clearly defined in their rules and procedures.

5.3.6.11 Settlement in central bank money – They should preferably conduct their money
settlements in central bank money, where practical and available, to avoid credit and liquidity
risks.

5.3.6.12 The FMIs and RPSs should be efficient and effective in meeting the requirements of
their participants and the markets they serve.

5.4 Scope of Oversight

5.4.1 The term “scope of oversight” refers to those FMIs and RPSs that central banks oversee
by applying some form of standards or policies. The PSS Act, designates the RBI as the
authority to regulate and supervise payment systems in India and for matters related therewith
or incidental thereto. Accordingly, the scope of oversight is enshrined in the PSS Act. The
scope of oversight thus covers all authorised payment systems and aspects / matters related to
payment systems. It includes all types of payment systems, SSSs, CSDs, CCPs and TRs.

5.4.2 The PSS Act, also provides that no person can operate a payment system without
authorisation from the RBI. It is necessary to ensure that all payment systems operate in a
safe and efficient manner as also as per the provisions of the statute, Regulations framed
thereunder and the instructions / guidelines / circulars / directives issued by the RBI from
time to time. In addition, as indicated earlier, the RBI also lays out its strategies and focus as
part of its Payment System Vision document. Thus, all designated FMIs and RPSs 20 fall
within the scope of oversight by RBI.

5.4.3 Availability of robust infrastructure to support electronic payments is a critical factor

influencing the adoption of electronic payments. The service providers of the following
critical infrastructure also fall within the scope. Oversight of these service providers would be
undertaken by following the CPMI-IOSCO “Assessment methodology for the oversight
expectations applicable to critical service providers”21 (to the extent applicable to
infrastructure providers).

i. NDS-OM;
ii. INFINET / SFMS; and
iii. SIDSPL.

5.4.4 Presently, the card payment networks, except NPCI, and Cross-border Money Transfer
(in-bound service) operators are regulated and overseen by way of off-site surveillance only
as they are incorporated in foreign jurisdictions. These entities are required to submit System
Audit Report of their entire systems, including the domestic infrastructure, on an annual
basis. Continuous engagements are made with these entities to understand any gaps in their
risk assessments and customer grievance redressal mechanism and also mandate them to
make further improvements, if considered necessary. Going forward, steps shall be taken to
further intensify the oversight process for such entities by way of on-site inspections, if
required.

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5.4.5 Some designated FMIs, such as SSS and CSD are owned and operated by RBI. Though
RBI is exempted from the authorisation requirements as an operator of payment systems
under the PSS Act, RBI oversees as well as assesses these FMIs against the international
standards22 with the same rigour as in case of other FMIs and, where necessary, takes action
to remedy deficiencies, if any.

5.4.6 CCIL has been designated as TR for OTC interest rate and forex derivative transactions.
TRs have emerged as a new type of FMI and have recently grown in importance, particularly
in the OTC derivatives market, especially as a channel for reporting transaction data to
relevant authorities and the public, for the purpose of enhancing the transparency of the OTC
derivatives market. In addition to the principals to a trade, their agents, CCPs, and other
service providers offering complementary services, the data stored in a TR may be used by a
wider range of entities and stakeholders. Considering that the continuous availability,
reliability, and accuracy of such data is critical, RBI also oversees TRs.

5.4.7 Regulation of Payment Gateway Service Providers and Payment Aggregators and
outsourced technology service providers

5.4.7.1 Annex F of the PFMIs outlines five oversight expectations for critical service
providers in order to support a financial market infrastructure’s (FMI) overall safety and
efficiency. The operational reliability of an FMI may be dependent on the continuous and
adequate functioning of third-party service providers that are critical to an FMI’s operations,
such as information technology and messaging providers.

5.4.7.2 With the enhanced facilitation by banks and PPI Issuers, the use of electronic / online
payment modes for payments to merchants for goods and services like bill payments, online
shopping, etc., has gained large scale momentum over the years, which has led to increasing
role of Technology Service Providers (TSPs), Third Party Application Service Providers,
intermediaries such as Payment Gateways (PGs) 23 and Payment Aggregators (PAs)24, etc.
Further, Electronic Commerce and Mobile Commerce (e-commerce and m-commerce)
service providers act as intermediaries by providing platforms for facilitating such payments.
These outsourced TSPs and intermediaries act as the bridge between the merchants and
customers, and also play a role in processing and completion of payment transactions. Being
part of the payment process chain these entities also handle sensitive customer data.
Managing customer data, data privacy, Know Your Customer (KYC) requirements of
merchants are also important from the point of view of security and customer confidence in
the ecosystem. In addition, currently most of acquiring of merchants is done by third party
aggregators and technology providers. Entities may also provide cross border settlement
services and are governed by guidelines issued by Foreign Exchange Department (FED, RBI)
on Online Payment Gateway Service Providers (OPGSPs).

5.4.7.3 The customer, ordinarily has very limited / no access to these service providers and
intermediaries and thus has to rely on merchants or banks who only can seek redress from the
service providers and intermediaries. Lack of proper redress mechanism and uniformity in
practice across the entities is also a matter of concern. The technology set-up of the service
providers and intermediaries varies amongst the entities and the architecture changes over
time keeping in view their predominant business objective including the need to provide
efficient processing, seamless customer experience, etc. They may resort to multiple
integration to provide redundancy.

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5.4.7.4 RBI had earlier issued guidelines on managing risks in respect of outsourcing of
financial services by banks. Further, with a view to safeguard the interests of the customers
and users and to ensure that the payments made by the intermediaries (PGs and / or PAs)
using electronic / digital / online payment modes were duly accounted for by the
intermediaries receiving such payments and transmitted to the accounts of the merchants or to
similar other entities, certain guidelines were issued to banks and payment system operators
for addressing a few aspects of the functioning of intermediaries. As such, these entities were
not subjected to direct regulation nor regulations for outsourcing arrangements were made
applicable to them.

5.4.7.5 Since these service providers and intermediaries also have exposure to the payment
system landscape and are, therefore, exposed to the associated cyber threats, and thus could
be potential source of risk in such a technology and customer experience intensive business,
RBI had announced measures in its Monetary Policy Statements for 2018-19 for mandating
certain regulatory controls on these entities. Based on the feedback received on discussion
paper and taking into account the important functions of the intermediaries in the online
payments space as also keeping in view their role vis-à-vis handling funds, it was decided to
(a) regulate in entirety the activities of PAs, and (b) provide baseline technology-related
recommendations to PGs. Accordingly, the RBI shall regulate and supervise non-bank PAs
and the existing non-bank PAs are also required to submit application seeking for
authorisation on or before June 30, 2021. On the other hand, the PGs shall be considered as
‘technology providers’ or ‘outsourcing partners’ of banks or non-banks, as the case may be
and have been prescribed to put in place certain baseline technology related cyber security
controls.

5.4.7.6 Recognizing the cyber threat that critical service providers pose to the payment
system landscape, certain base lines requirements have been mandated for such service
providers of the banking sector through the RBI regulated entities. To start with, instructions
were issued mandating baseline Cyber Security Controls for the third-party ATM Application
Switch Service Providers. The RBI regulated entities have also been advised and are required
to ensure that the contract agreement signed between them and the third party ATM
Application Switch Service Providers as well as those providing any other type of payment
system related services to them (limited to the IT ecosystem, such as physical infrastructure,
hardware, software, reconciliation system, network interfaces, security solutions, hardware
security module, middleware, associated people, processes, systems, data, information, etc.)
necessarily mandate such service providers to comply with the specified cyber security
controls on an ongoing basis and to provide access to the RBI for on-site / off-site
supervision.

Section 6: Oversight Activities

6.1 The three key ways in which oversight activity is carried out are through (i) monitoring
existing and planned systems; (ii) assessment of the FMIs and RPSs against the oversight
objectives; and (iii) inducing change for improvements, where necessary. The activities and
the tools used for the same are briefly indicated below25:

6.2 Monitoring existing and planned systems

6.2.1 Monitoring a system implies that the overseer (regulator) has a good understanding of
the system. To obtain such an understanding, the overseer has to have information on the

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design, risk management, operations and other aspects of the payment system. To this end,
information on the system is obtained from various sources, which are as under:

(i) Sources of information

 Official system documentation such as system rules, member documentation, business

continuity plans, system operational processes and procedures;
 Reports on system activity, including volume and value of transactions, and operating
performance;
 Information on financial position of the entity, including balance sheet and profit and
loss information;
 Internal reports of board and other board level sub-committee meetings;
 Reports from auditors (internal and external);
 Bilateral and multilateral meetings with system provider and system participants;
 Meetings with industries or participation in committees;
 On-site inspections;
 Expert legal opinions;
 Customer feedback;
 Information from other regulators;
 Market Intelligence; and
 Any other source.

(ii) Powers to obtain information: Powers to obtain information and perform on-site
inspections are closely related to regulatory authorities’ powers to induce change. RBI has
adequate powers under its statute, i.e. PSS Act and PSS Regulations to call for returns,
documents or other information from any authorised payment system operator in regard to
the operation of particular payment systems in such form and in such manner as it may
prescribe from time to time. RBI also has powers to enter any premises where a payment
system is being operated and may inspect any equipment, including any computer system or
other documents situated at such premises and call upon any employee of such system
provider or participant thereof, to furnish any information or documents required.

(iii) Information on system participants: The central banks typically use some information
about the individual participants in systems in order to carry out oversight. This is required
because participants’ behaviour can affect the safety, security and efficiency of the FMI or
payment system. Thus, it becomes necessary to judge whether the design or process and
procedure of FMI or payment system needs to be changed. Such aspects are expected to be
controlled at the time of initial on-boarding of the participants in the FMI or payment system
and continuous inspection and audit to be conducted of the system participants, as per the
documented operation rules of FMI or payment systems. The rules, inter-alia, include risk-
based objective criteria for participation by direct and indirect (tiered) participants and other
FMIs, as well as procedures for facilitating the suspension and orderly exit of a participant
that breaches or no longer meets the participation requirements.

6.2.2 Monitoring of Planned systems

6.2.2.1 Authorisation process26: The authorisation is a pre-emptive process set up by the

RBI to monitor new and planned payment systems. The details regarding the design,
operation of the system, access criteria (business rules), process flow of transaction,

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technology to be used, security features, interoperability, financials, fit-and-proper criteria of
the promoters, etc. are examined and vetted by RBI, before authorisation is granted. As such,
authorisation process set up by RBI in respect of new and planned systems ensures weeding
out payment systems with weak system design, risk and financial parameters. The details of
information sought from various payment systems at the time of authorisation are given in
Appendix 2.

6.2.2.2 Other data / information sources: Apart from the information furnished by the
entity seeking authorisation, the RBI may request for additional information based on the
system proposed to be operated, e.g. for entities desirous of operating cross-border payment
systems, the license issued by the overseas regulators is sought for. Also for entities
incorporated in India, information / no objection from the respective regulators is obtained.

6.2.2.3 Approval by the BPSS / Empowered Committee: The information submitted by an

applicant of new payment system is examined before proposing to the BPSS / Empowered
Committee for final approval for authorisation. The powers for authorisation shall be handled
in accordance with the powers delegated by the appropriate authority (BPSS / Empowered
Committee). The entities are issued in-principle approval for the proposed payment system
and the final Certificate of Authorisation (CoA) is issued only after submission of a
satisfactory system audit report of the systems proposed to be operated as payment system.

6.2.3 Monitoring of existing systems

6.2.3.1 RBI has adopted a risk-based approach for conducting oversight of existing payment
and settlement systems. More focus of its oversight activities is directed to the largest risks to
the financial system. The oversight of FMIs is typically accompanied by an assessment of the
importance of particular FMI to financial stability and to the functioning of the economy as a
whole.

6.2.3.2 Oversight Process and Tools – The oversight of FMIs and RPSs is primarily a
combination of offsite supervision / surveillance and onsite inspection.

6.2.3.2.1 Off-site surveillance – The off-site surveillance and monitoring of FMIs and
authorised RPSs are conducted by way of various tools, such as (a) submission of prescribed
data / information by the regulated entities, (b) fraud monitoring / system of alerts, (c) regular
meetings with authorised payment system operators, (d) market intelligence, and (e)
oversight reports and surveys.

(i) Data / Information collection and compilation

a. The PSS Regulations details the types of returns, documents and other information
that are to be submitted by FMIs and authorised RPSs to RBI. The returns /
information that have been mandated for submission at prescribed frequencies are
given in Appendix 1, Appendix 3, Appendix 4 and Appendix 8.

b. RBI is also empowered to call for / access any information relating to the operation of
the FMIs / payment systems as well as their participants which helps to measure and
monitor the performance of the FMIs / payment systems against the oversight
objectives. In addition, RBI collects periodic and ad-hoc information and data. The
formats for submission of data by the authorised entities / participants in payment

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 systems are given in Appendix 8. Some returns (presently nine) have been migrated
to eXtensible Business Reporting language (XBRL).

c. The data / information collected would be confidential unless required to be shared as

per section 15 (2) of the PSS Act. The RBI may disclose the information on aggregate
basis in the public domain. The disclosure on disaggregated basis would be after
internal analysis within the RBI and in the interest of the public. This is applicable for
RBI operated systems as well.

(ii) Fraud Monitoring / System of Alerts

a. With the digital payment ecosystem making substantial progress in terms of growth of
payment infrastructure as well as volume and value of digital payment transactions,
fraud risk monitoring and management by the stakeholders has assumed importance.

b. Fraud monitoring is undertaken by ensuring that FMIs and RPSs have a system of
alerts, to be reported within and to RBI on occurrence of any abnormal event. The
timely alert to RBI enables it to take necessary corrective action and ensure efficient
functioning of the payment system. The entities are required to put in place adequate
information and data security infrastructure and systems for prevention and detection
of frauds.

c. The FMIs and RPSs are required to put in place a mechanism for proactively
reporting on a priority basis any abnormal events/ developments, aberrations, delays,
incidents, etc., to the RBI at the earliest possible time. The system of alerts is to track
the various risk events in a timely manner so as to prevent any disruptions in the
functioning of the FMIs and RPSs.

d. In view of increasing instances of fraudulent transactions reported on account of using

cards, the card networks are required to put in place an Incident Reporting
Mechanism, covering incidents of cyber-attacks / system downtime / fraudulent
transactions / settlement delays, etc., whereby the incidents need to be reported to RBI
immediately, but not later than 24 hours of the incident.

e. Simultaneously, a mechanism has been put in place on pilot basis for reporting of
payment related fraud transactions by some banks / non-bank Prepaid Payment
Instrument (PPI) Issuers / Payment System Operators (PSOs), as reported by their
customers, in a Central Payment Fraud Information Registry created by RBI.
(CPFIR). This will enable RBI to analyse trends, release periodic reports and ensure
robust fraud risk monitoring and management by the stakeholders. It is envisaged that
over time a comprehensive database would be available with details of suspect
account numbers, mobile numbers, email ids, website, PAN, Aadhaar Number, etc.,
used for undertaking fraudulent transactions, which would be shared with banks / PPI
issuers / PSOs on a near real-time basis to help them take preventive action at their
end to identify the suspect beneficiaries and contain the instances of frauds. The
aggregated fraud data will be published to formulate appropriate and forward-looking
policies and educate customers on emerging risks. A web-based system for online
reporting of payment frauds through a reporting module, is also being put in place.

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(iii) Regular meetings with authorised payment system operators – RBI conducts meetings
with senior executives of FMIs and RPSs, and their major system participants to discuss their
strategic plans and risk management practices. Quarterly review meetings are conducted with
the senior management of CCIL and NPCI, as well as quarterly / half-yearly meetings with
other authorised retail payment system operators. RBI also engages with a broad range of
stakeholders, such as Payments Council of India, Internet and Mobile Association of India,
Confederation of ATM Industry, Indian Banks Association, etc., on periodic basis.

(iv) Market Intelligence – Market Intelligence is a key feature of any oversight process.
Market intelligence is gathered from a variety of sources such as : periodical informal
meetings / discussions with system operators and participants; participation in industry level
meetings / conferences / symposia; media reports; web browsing on a regular basis for
keeping track of payment system developments; participant complaints on frequent
disruptions in promised service functionality / faulty service; customer complaints; surveys;
interactions with other departments within the RBI, etc.

(v) Oversight report / surveys – An important factor which contributes to refinement of

oversight strategy and regulatory framework is, in addition to feedback received through
market intelligence, customer feedback, complaints, etc., the ability to gauge first-hand, the
issues / difficulties faced by customers with respect to usage of payment systems. In order to
ascertain these issues, RBI engages with various stakeholders / professionals to conduct
periodic user / customer surveys on specific aspects of payments systems. The findings from
these engagements / surveys not only provide insights into the ease of usage of existing
payment products and processes by customers for meeting their various payment needs but
also generate ideas for reviewing policies and empowering the users through structured
awareness intervention. Periodic / Need based surveys are undertaken / feedback obtained
from customer. Based on analysis of the data collected, the survey findings are summarised
and published.

6.2.3.2.2 Point of Arrival and Performance Metrics

RBI has created the Point of Arrival (PoA) and Performance Metrics (PM) to assess and
monitor the payment systems and participant entities respectively, on a regular basis. The
purpose of creation of a PoA and PM is to augment the monitoring system through a periodic
assessment with broadened scope and to facilitate the applicants and participants for
conscious efforts to strive towards improvement. It will ensure that all system operators,
participants and prospective entrants in a payment system category are aware of regulatory
and supervisory expectations. It will also help in not only promoting efficiency of payment
systems but also providing a robust environment that enables innovation towards making
them safe, secure and fast.

PoA comprises of specifying goal-posts for a payment system like KYC of system
participants, business proliferation, financial position, customer grievance handling,
regulatory comfort on value to the segment, etc. based on which its continuance or otherwise
in the ecosystem can be decided. PM involves defining a set of targets for identified
parameters like meeting business projections, business and technical declines, uptime /
settlement delays, governance issues, etc., to be fulfilled by the participants at the point of
gaining access along with certain time-based targets for monitoring the efficiency and
effectiveness of the payment system participants. While the former addresses the system-
related aspects of performance, the latter takes care of the participant-related aspects.

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6.3 Assessment

6.3.1 Assessment is carried out to ensure that the entities’ systems meet the relevant policy
guidelines, standards and oversight objectives. For systemically important / system-wide
important payment systems and FMIs that could potentially impact the country’s economy
and financial stability, the RBI uses international standards, i.e. the PFMIs as the benchmark
for oversight, evaluates whether the entities meet the requirements set out in the international
standards, and make its own assessment.

6.3.2 Assessment could be carried out in the form of Self-Assessment by the entities itself,
which help emphasise that the entity has undertaken the responsibility of meeting the
required standards and an external assessment in the form of on-site inspections by the central
bank, which enables the central bank to form its own assessment based on all the information
available to it.

6.3.2.1 Off-site self-assessment

i. The FMIs and SIPS are required to undertake periodic self-assessment against the
CPSS-IOSCO’s PFMIs. The frequency of such self-assessment for FMIs / SIPS is
annual or as advised by RBI from time to time. Payment systems viz., CCIL and
NPCI are required to submit the assessment as per the format applicable to FMIs.

ii. The RPS operators are also required to undertake / conduct self-assessment as per the
Assessment Template for Retail (SAT for retail) prescribed by RBI, on an annual
basis or as per frequency advised from time to time. The SAT consists of
questionnaire based on relevant principles of CP-SIPS.

iii. The template provides inputs to take a risk-based approach for undertaking on-site
inspection. On review of the filled-in self-assessment templates, further supervisory
actions, if considered necessary, are initiated by RBI.

iv. RBI has advised the authorised payment system operators to undertake external and /
or internal independent audit of its operations, IT system, information security and
BCP / DR arrangements. The scope of such audits is to verify the existence of risk
control measures, the suitability of such measures, effectiveness of the risk controls
and adherence to the risk control measures on an ongoing basis. The payment system
operators are required to submit the operational, technology and other audit reports as
prescribed by the RBI along with the compliance measures to the RBI on a periodic
basis. The minimum aspects to be covered as part of audit is given Appendix 6at
Appendix 6.

v. In order to enhance the resilience of the payment systems by improving the current
defenses in addressing new and advanced risks and also to bring in standardisation
and ensure that relevant areas of information system processes and applications are
covered, a revised scope and coverage of system audit has been formulated and
conveyed to authorised non-bank payment system operators. The revised scope is
given in Appendix 7.

6.3.2.2 Onsite Inspection

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(i) Onsite inspection / audit complements the offsite monitoring and surveillance mechanism
put in place for the FMIs / retail payment systems.

(ii) Onsite inspection activity is based on the risk profile of the entity derived from the annual
self-assessment carried out by the entity and the information furnished by the entity and
market intelligence, if any. FMIs and RPSs are subjected to periodic onsite inspection as
determined by RBI from time to time.

(iii) Prior approval of changes – Section 11 of PSS Act enjoins upon the FMIs and payment
systems not to cause any change in the system which would affect the structure or the
operation of payment system, without prior approval from RBI. Thus, the offsite monitoring
as well as on-site inspection would also include assessment of any changes / amendments to
the FMI’s system rules, regulations, bye-laws, notifications, risk management framework, in
order to ensure that such changes are within the accepted risk management and efficiency
standards.

(iv) The on-site inspection of CCIL is conducted on an annual basis, whereas in case of
SWIPS (NPCI), it is done once in two years with a compliance audit to be carried out before
undertaking the on-site inspection. TR is also covered as part of CCIL. The on-site inspection
of RTGS, CSD and SSS is proposed to be carried out periodically. Further, the assessment of
FMIs and SIPS / SWIPS against the PFMIs are also carried out as part of the on-site
inspection by RBI. The assessment of the FMIs operated by RBI are also to be carried out as
per the PFMI.

(v) Since clear and comprehensive disclosures enhance safety and efficiency in payment,
clearing, settlement and recording arrangements, all FMIs and SIPS / SWIPS are also
expected to provide clear and sufficient information to their participants and prospective
participants, authorities and public to enable them to identify clearly and understand fully the
risks and responsibilities of participating in the system. As a measure of enhanced
transparency, CCIL discloses its self-assessment in compliance with the PFMIs on an annual
basis, as per the CPSS-IOSCO ‘Disclosure Framework and Assessment Methodology’ 27,
prescribed in the PFMIs. CCIL also publishes its quantitative disclosures on a quarterly basis
as per the public disclosure standards for CCPs28.

(vi) In case of PPI Issuers, the frequency of on-site inspection has been linked to the
categorisation of the entities based on certain criteria / parameters, i.e. number of PPIs issued,
amount outstanding and value of PPI transactions. The entities have been categorised into
three types, i.e. small, medium and large, as provided hereunder:

 No. of outstanding PPIs as on 31st March of immediate preceding year > 200 lakh;
OR amount outstanding as on 31st March of immediate preceding year > Rs. 50 crore;
OR total value of PPI transactions processed during the immediate preceding financial
year > Rs. 5000 crore – Large PPI Issuer;

 No. of outstanding PPIs as on 31st March of immediate preceding year is between 10

lakh and 200 lakh; OR amount outstanding as on 31st March of immediate preceding
year is between Rs.10 lakh and Rs.50 crore; OR total value of PPI transactions
processed during the immediate preceding financial year is between Rs.1000 crore
and Rs.5000 crore – Medium PPI Issuer;

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  No. of outstanding PPIs as on 31st March of immediate preceding year < 10 lakh; OR
amount outstanding as on 31st March of immediate preceding year < Rs.10 lakh; OR
total value of PPI transactions processed during the immediate preceding financial
year < Rs.1000 crore – Small PPI Issuer.

Accordingly, the on-site inspection periodicity of large PPI Issuers is annual, biennial for
medium and triennial for small PPI Issuers. For new PPI Issuers, on-site inspection shall be
done within six months of commencement of PPI operations. Needless to add, the periodicity
can be flexible and increased / modified depending on market intelligence, developments
and / or other cases of need.

(vii) In case of NEFT system29, keeping in view the volume and value of transactions
processed as part of the total retail payment transactions at 8% and 59% respectively during
the financial year 2019-20, the on-site inspection as well as assessment against the relevant
PFMIs shall be conducted bi-annually by RBI.

(viii) The card networks and cross-border money transfer (in-bound service) operators are
presently assessed through submission of off-site returns and are not within the scope of on-
site inspection by RBI. However, in order to ensure that the technology deployed to operate
the authorised payment system/s is / are being operated in a safe, secure, sound and efficient
manner and as per the process flow submitted by them at the time of authorisation, they have
been mandated to get a System Audit done on an annual basis by a Certified Information
System Auditor (CISA) qualified auditor and registered with the ISACA or by a holder of a
Diploma in Information System Audit (DISA) qualification of the Institute of Chartered
Accountants of India (ICAI). Steps will be taken to conduct on-site inspection of such entities
and to start with, the need for an onsite visit will be examined by RBI for the purpose of
interaction with the executives of the entities as well as the overseas regulators.

(ix) The schedule of activities that would be conducted on an ongoing basis in respect of
various FMIs and RPSs is given in Appendix 1.

6.4 Inducing change

6.4.1 On the basis of information collected and received as part of monitoring and
assessment, in some cases RBI may conclude that the FMIs as well as retail payment
systems’ design, risk management practices, and business operations specific to authorised
systems, has a sufficient degree of safety and efficiency and that no further action is required.
If any deficiencies are observed in systems of FMIs / RPSs and it is concluded that some
issues require improvements and it is necessary to induce change, RBI takes action and
induces change using a range of tools at its disposal30.

6.4.2 Considering that the discussions with the system operator and participants play an
important part in achieving oversight objectives, RBI believes to have regular dialogues /
discussions with the authorised payment system operators and participants with respect to
issues for improvement and inducing change by way of possible solutions that have a bearing
on their system’s design and operational structure. Such dialogues help both RBI as well as
the system operators to come to a common understanding and solution for improvement
which are in line with the oversight objectives of safety, security and efficiency of payment
systems.

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6.4.3 In cases where the issues are identified in majority of the payment systems, RBI issues
advisory in the form of public statements so that the market self-discipline’s itself. Another
important tool used by the RBI is issuance of Displeasure or Cautionary letter and / or taking
penal action in terms of the powers conferred on it under the provisions contained in PSS
Act. The penal action could include revocation of the CoA issued to the entity. In cases where
RBI imposes monetary penalty on authorised payment system operators on account of
contraventions, such entities are mandatorily required to disclose the details of monetary
penalty paid in their Notes to Accounts that are part of Annual Financial Statements for the
financial year in which the penalty was levied. Further, RBI also discloses the information
about penalty levied on its website.

6.4.4 The RBI has powers under PSS Act to issue specific directions to a payment system or
a system participant if its act, omission or course of conduct will result / is likely to result in
systemic risk or affect the payment system, monetary policy or credit policy of the country.

6.4.5 If there are major supervisory concerns against an entity, RBI may also choose not to
renew its Certificate of Authorisation (CoA) at the end of its validity.

6.4.6 Customer protection

6.4.6.1 RBI has put in place following mechanisms for effective redressal of grievances:

(i) Banking Ombudsman (BO) Scheme, 2006 – The BO scheme, introduced in 1995,
provides a cost-free and expeditious complaint redressal mechanism relating to deficiency in
banking or other services provided by banks, irrespective of the pecuniary value of the
deficiency in service complained. The BO is an Alternate Dispute Redressal mechanism for
resolution of disputes between a bank and its customers. The scheme covers grievances of the
customers against Commercial Banks, Scheduled Primary Cooperative Banks and Regional
Rural Banks. In 2006, the Reserve Bank revised the BO scheme to cover all banking
transactions related grievances except their business decisions like sanctioning of credit, etc.

(ii) Ombudsman Scheme for Digital Transactions (OSDT), 2019 – The OSDT scheme
launched by RBI in 2019 provides redressal of customer complaints against deficiency in
services related to digital transactions by the System Participants31 defined therein.

(iii) Internal Ombudsman Scheme for non-bank System Participants, 2019 – The
Internal Ombudsman (IO) scheme for the large non-bank system participants, with more than
one crore PPIs outstanding, was institutionalised in 2019. The scheme facilitates a swift,
efficient and effective complaint redressal mechanism within the entity to ensure that
customer complaints are adequately addressed at the level of non-bank System Participant
itself by an independent authority placed at the apex level in the entity’s grievance redress
mechanism.

(iv) Limiting Liability of Customers in Unauthorised Electronic Banking Transactions –

With the increased thrust on financial inclusion and customer protection from the loss due to
unauthorized transactions, the Reserve Bank has, in July 6, 2017, formulated the criteria for
determining the customer liability in these circumstances to be implemented by commercial
banks. Accordingly, zero liability of customer exists where the unauthorized transactions has
occurred due to contributory fraud/negligence/ deficiency on the part of bank (irrespective of

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whether the transactions is reported by the customer or not) and in case of third party breach
where the deficiency lies neither with the bank nor with the customer but lies elsewhere in the
system, and the customer notifies the bank within three working days of transactions. The
above circular is also applicable to bank PPI Issuers.

Banks are also required to provide customers with 24x7 access through multiple channels (at
a minimum, via website, phone banking, SMS, e-mail, IVR, a dedicated toll-free helpline,
reporting to home branch, etc.) for reporting unauthorised transactions that have taken place
and / or loss or theft of payment instrument such as card, etc. The loss / fraud reporting
system shall also ensure that immediate response (including auto response) is sent to the
customers acknowledging the complaint along with the registered complaint number.

(v) Limiting Liability of Customers in Unauthorised Electronic Payment Transactions

in Prepaid Payment Instruments (PPIs) issued by Authorised Non-banks – Similar
criteria, like those for banks above, have also been formulated for determining the customers’
liability in unauthorised electronic payment transactions resulting in debit to their PPIs issued
by non-bank PPI Issuers. Accordingly, zero liability of customer exists where the
unauthorized transactions has occurred due to contributory fraud/negligence/ deficiency on
the part of PPI Issuer (irrespective of whether the transactions is reported by the customer or
not) and in case of third party breach where the deficiency lies neither with the PPI Issuer nor
with the customer but lies elsewhere in the system, and the customer notifies the PPI Issuer
within three working days of transactions.

(vi) Harmonising Turn Around Time (TAT) for resolution of customer complaints and
compensation for failed payment transactions - A large number of customer complaints
emanate on account of unsuccessful or ‘failed’ transactions. Failure could be on account of
various factors not directly attributable to the customer such as disruption of communication
links, non-availability of cash in ATMs, time-out of sessions, non-credit to beneficiary’s
account due to various causes, etc. Rectification / Compensation paid to the customer for
these ‘failed’ transactions is not uniform.

In order to bring uniformity and discipline in reversal of such failed transactions, RBI has put
in place a framework harmonising the Turn Around Time for resolution of customer
complaints and customer compensation for failed transactions in some payment systems, i.e.
ATMs, Unified Payments Interface (UPI), Immediate Payment Service (IMPS), PPIs and
card payments. The framework has come into effect from October 15, 2019. The framework
prescribes the TAT for failed transactions as also a compensation framework providing suo
moto compensation to customers for delay in execution or reversal of such transactions
beyond the prescribed TAT. Wherever financial compensation is involved, the same shall be
effected to the customer’s account suo moto, without waiting for a complaint or claim from
the customer. The principle behind the TAT is based on the following:

a. If the transaction is a ‘credit-push’ funds transfer and the beneficiary account is not
credited while the debit to originator has been effected, then credit is to be effected
within the prescribed time period failing which the penalty has to be paid to the
beneficiary;

b. If there is delay in initiation of a transaction at the originator bank’s end beyond the
TAT, then penalty has to be paid to the originator.

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6.4.7 Resilience of infrastructure

6.4.7.1 Resilience is ensured by continuously monitoring the technical, operational, and

financial viability of the entities to ensure continuous system viability. Measures are laid out
to ensure that the entities monitor payment and settlement flows, have enough early warning
devices guarding against abnormalities across the payment circuits, and have well-tested
emergency procedures in place. This enables the entities to operate smoothly at all points of
their process, and to be resilient to disturbances.

6.4.8 Guidance on cyber resilience for FMIs

6.4.8.1 The level of cyber resilience, which contributes to an FMI’s operational resilience, is
a decisive factor in the overall resilience of the financial system and the broader economy.
“Cyber resilience” is an FMI’s ability to anticipate, withstand, contain, and rapidly recover
from a cyber-attack. CPMI and IOSCO have published guidance on cyber resilience for
FMIs.

6.4.8.2 An FMI should have a framework that clearly articulates how it determines its cyber
resilience objectives and cyber risk tolerance, as well as how it effectively identifies,
mitigates, and manages its cyber risks to support its objectives. The FMI’s Board should
endorse this framework, ensuring it is aligned with the FMI’s formulated cyber resilience
strategy. The FMI’s cyber resilience framework should support financial stability objectives
while ensuring the ongoing efficiency, effectiveness and economic viability of its services to
its users. To be effective in keeping pace with the rapid evolution of cyber threats, FMIs are
directed to implement an adaptive cyber resilience framework that evolves with the dynamic
nature of cyber risks and allows the FMI to identify, assess and manage security threats and
vulnerabilities for the purpose of implementing appropriate safeguards into its systems.

6.4.8.3 FMIs regulated by RBI are required to have the cyber resilience framework put in
place as per the standards stipulated by RBI from time to time and guided in the CPMI
document32.

6.4.8.4 Measures to Strengthen Cyber Security in Banks / system participants –

(i) In view of the rapid growth in use of Information Technology by banks and their
constituents, RBI had provided guidelines on Information Security, Electronic Banking,
Technology Risk Management and Cyber Frauds in April 2011, advising banks to pro-
actively create/fine-tune/modify their policies, procedures and technologies based on new
developments and emerging concerns.

(ii) With continuous increase in number, frequency and impact of cyber incidents / attacks in
the recent past, and the urgent need to enhance the resilience of the banking system by
improving the current defences in addressing cyber risks, the RBI issued detailed guidelines
in June 2016 advising banks to put in place an adaptive Incident Response, Management and
Recovery framework to deal with adverse incidents / disruptions, if and when they occur.
Banks were also advised to adhere to following:

a. Board approved Cyber-security Policy – A Board approved cyber-security policy

elucidating the strategy containing an appropriate approach to combat cyber threats
given the level of complexity of business and acceptable levels of risk.

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 b. Distinct Cyber Security Policy – The Cyber Security Policy should be distinct and
separate from the broader IT policy / IS Security policy so that it can highlight the
risks from cyber threats and the measures to address / mitigate these risks.
c. Continuous Surveillance – In order to ensure continuous surveillance, banks have
been advised to set up and operationalise a Security Operations Centre (SOC) to
monitor and manage cyber risks in real time.
d. Secured IT architecture – The IT architecture should be designed in such a manner
that it takes care of facilitating the security measures to be in place at all times.
e. An indicative, but not exhaustive, minimum baseline cyber security and resilience
framework has been provided for implementation by the banks.
f. Network and database security – Banks have been mandated to ensure that
unauthorized access to networks and databases is not allowed and wherever permitted,
these are through well-defined processes which are invariably followed.
g. Protection of customer information – Banks, as owners of such data, should take
appropriate steps in preserving the confidentiality, integrity and availability of the
same, irrespective of whether the data is stored/in transit within themselves or with
customers or with the third party vendors.
h. Cyber crisis Management Plan – A Cyber Crisis Management Plan (CCMP) should be
formulated as part of the overall Board approved strategy. The traditional BCP/DR
arrangements may be reviewed to ensure coverage of cyber risks. CCMP should
address the following four aspects: (i) Detection (ii) Response (iii) Recovery and (iv)
Containment. Banks have also been advised to take necessary preventive and
corrective measures in addressing various types of cyber threats including, but not
limited to, denial of service, distributed denial of services (DDoS), ransom-ware /
crypto ware, destructive malware, business email frauds including spam, email
phishing, spear phishing, whaling, vishing frauds, drive-by downloads, browser
gateway fraud, ghost administrator exploits, identity frauds, memory update frauds,
password related frauds, etc.
i. Cyber Security preparedness indicators – Banks should develop indicators for
assessing the level of cyber risk / preparedness as well as for assessing its adequacy
and adherence to cyber resilience framework.
j. Sharing of information on cyber security incidents with RBI - Banks are required to
report all unusual cyber-security incidents (whether they were successful or were
attempts which did not fructify) to the Reserve Bank.
k. Organisational arrangements – Banks should review the organisational arrangements
so that the security concerns are appreciated, receive adequate attention and get
escalated to appropriate levels in the hierarchy to enable quick action.
l. Cyber security awareness among stakeholders / Top Management / Board – Top
Management and Board should also have a fair degree of awareness of the fine
nuances of the threats and appropriate familiarisation may be organized. Banks should
also proactively promote, among their customers, vendors, service providers and other
relevant stakeholders an understanding of the bank’s cyber resilience objectives, and
require and ensure appropriate action to support their synchronised implementation
and testing.

(iii) Standing Committee on Cyber Security – The Reserve Bank of India has set up an Inter-
disciplinary Standing Committee on Cyber Security (with members drawn from academia /
various disciplines) to, inter alia, review the threats inherent in the existing/emerging
technology; study adoption of various security standards/protocols; interface with

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stakeholders; and suggest appropriate policy interventions to strengthen cyber security and
resilience.

(iv) A Crisis Management Group (CMG) has been set up within the RBI to deliberate on the
response measures to be taken by the stakeholders in the wake of critical/potential cyber-
attacks.

(v) Under the guidance of the Standing Committee, four sub-groups have been constituted to
examine in detail, specific areas of concerns, i.e. Card based Payments and Security, Mobile
Banking and Security, Vendor Risk Management, and Cloud computing services and
security.

(vi) A web-based application portal is being developed to further enhance the efficiency and
consistency of offsite monitoring over all the supervised entities.

6.4.9 Storage of Payment System Data

In recent times, there has been considerable growth in the payment ecosystem in the country,
particularly in the realm of digital transactions. Such systems are also highly technology
dependent, which necessitate adoption of safety and security measures, which are best in
class, on a continuous basis. Ensuring safety and security of the payment systems has always
been the cornerstone of the RBI’s approach towards payment system regulation and
development. Multiple players with niche roles are part of each digital transaction and many
of such players have global presence. To ensure better monitoring and to have unfettered
supervisory access to data stored with the system providers as also with their service
providers / intermediaries / third party vendors and other entities in the payment ecosystem,
all system providers are required to ensure that the entire data relating to payment systems
operated by them is stored in a system only in India. This data should include the full end-to-
end transaction details / information collected / carried / processed as part of the message /
payment instruction. For the foreign leg of the transaction, if any, the data can also be stored
in the foreign country, if required.

6.4.10 Publishing of Payment System Indicators

The Reserve Bank publishes data on aggregates of various payment and settlement system
indicators on the RBI website for the information of the stakeholders and general public. The
scope of dissemination of such data has since been enhanced to include more granular
information on payment data covering the payment systems authorised by the Reserve Bank.

6.4.11 Annual Report to BPSS

The activities undertaken by the department during the year, covering the policy initiatives,
authorisation granted to entities and oversight activities pertaining to all the regulated entities
are informed to the BPSS in the form of an Annual Report. The report is also intended to
track the achievement of the Payment System Vision and monitor progress of the activities
undertaken by the department. In addition, ad-hoc reports are placed before the Board on
functioning of various payment and settlement systems.

Section 7: Co-operation with Other Regulatory Authorities

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7.1 While performing oversight, it is important to have a clear understanding about the
interconnectedness and interdependencies of a particular FMI and its participants with other
entities not falling within the regulatory domain of RBI. There could be cross-sectoral risks
arising from such interdependencies between the member participants of a payment system
and their technology service providers. Further, in cases where systems deal with multiple
public authorities, co-operation between the authorities is expected to be beneficial. Effective
co-operation between authorities is thus essential and necessary to help to avoid the
possibility of gaps, inefficiency, duplication and inconsistencies in the oversight function.

7.2 In addition, due to globalisation, the cross-border FMIs and payment systems have
significantly increased over time. Interdependencies between FMIs operating in different
jurisdictions have become more obvious with indirect connections between global banks as
participants across FMIs.

7.3 Inter-Regulatory and Intra-Regulatory Committees – In order to have a coordinated

approach towards regulation and supervision of FMIs and retail payment systems, the RBI
has set up an Inter-regulatory Committee comprising of sectoral regulatory authorities –
SEBI, IRDA, TRAI, etc., to remove frictions in regulation and ease system operator /
customer comfort. The endeavour is also to have a coordinated approach to regulation and
supervision within RBI across different related departments – Department of Regulation,
Department of Supervision, Financial Markets Regulation Department, Financial Markets
Operations Department, Foreign Exchange Department, Customer Education and Protection
Department, Department of Information Technology, Department of Economic and Policy
Research, Department of Statistics and Information Management, Department of Government
and Bank Accounts, etc. Similar engagements are already in place with the subsidiaries of
Reserve Bank – Institute for Development and Research in Banking Technology (IDRBT),
Reserve Bank Information Technology Pvt. Ltd. (ReBIT), etc. Accordingly, an Intra-
regulatory Committee has been set up to encourage regulatory cooperation and sort out issues
in guidelines and instructions. The Committees shall meet at periodic intervals and help
enable coordinated supervision over the regulated entities in the payments space as also
facilitate augmenting growth of digital transactions in the country.

7.4 At present, there are no RBI authorised payment system operators providing payment
services outside India. However, with the availability of low cost innovative digital payment
products in India, many countries have expressed interest in partnering in this growth and
replicating our products based on their country specific requirements. Cross-country co-
operation with Bhutan is already in place with our CTS, NACH and NEFT operational there
as well. NEFT is available for one-way transfers from India to Nepal. Specific interests /
requests are being received for implementing CTS, NEFT, UPI, messaging solutions, etc., by
certain jurisdictions. Thus, there is scope for enhancing global outreach of our payment
systems, including remittance services, through active participation and co-operation in
international and regional fora by collaborating and contributing to standard setting.
Considering that efforts are being taken to increase and widen the scope, coverage and usage
of RuPay card scheme and UPI to enhance their brand value internationally, the risks of such
systems would also be high. The participants in a domestic system might become dependent
on the funds they are to receive in an offshore system to fund their domestic debt position,
leading to possible liquidity risk issues. This could also be on account of different time zones
and also due to lacking nature of suitable depth in the currency markets of such economies,
and more so in the event of financial distress. In such cases, there would be a requirement for
constant cooperation with the concerned central banks and other regulatory authorities.

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7.5 The Reserve Bank has been facilitating the increased participation of non-bank players in
the payments ecosystem in India. These entities are playing a significant role in provision of
payment services by bringing in innovation and convenience to customers and leveraging on
technological developments. Since such entities are not mandated to be necessarily a RBI
regulated one but could also perform other forms of unregulated business, with a view to
ensuring that such entities do not pose a risk to their subsidiaries which also conduct financial
business that are regulated by any one of the financial regulators, a system is put in place for
seeking information from the concerned financial regulator for ensuring fit and proper criteria
of the promoters and management is ensured while granting any authorization / licence to do
relevant financial business.

7.6 Participation in Domestic and International Fora and Committees

RBI is represented in various international and domestic fora pertaining to payment and
settlement systems and financial market infrastructures. These, inter-alia, include the
Committee on Payments and Market Infrastructures (CPMI), Regulatory Oversight of LEI,
Task Force on Payment Aspects of Financial Inclusion (constituted by CPMI), SAARC
Payments Council, SWIFT Oversight Forum.

7.7 Benchmarking Exercise

7.7.1 RBI has undertaken an exercise of benchmarking India’s Payment Systems vis-à-vis
payment systems in a mix of 21 countries, representing advanced economies, Asian
economies and the BRICS nations. The analysis was attempted under 41 indicators covering
21 broad areas including regulation, oversight, payment systems, payment instruments,
payment infrastructure, utility payments, Government payments, customer protection and
grievance redressal, securities settlement and clearing systems and cross border personal
remittances. The study found that India has a strong regulatory system and robust large value
and retail payment systems which have contributed to the rapid growth in the volume of
transactions in these payment systems. There has been substantial growth in e-payments by
Government and also in digital infrastructure in terms of mobile networks.

7.7.2 Such exercises provide a perspective on the performance of India compared to other
countries, in the payment systems space. It highlights strengths and weaknesses relative to
comparable payments and usage trends in other countries. The exercise, therefore, attempted
to (a) arrive at an understanding of preferences Indians have for making and receiving
payments and how these preferences compare with other countries, and (b) measure the
efficiency of our payment systems. Such exhaustive domestic and international assessments
of our payment systems augment their efficiency and provide insights into areas of further
focus.

7.8 Study to assess the progress of digitisation from cash to electronic

7.8.1 With cash being the well-established and widely used payment instrument, and at the
same time rapid increase in non-cash payments, especially those using electronic or digital
modes, prompted RBI to conduct a study to assess the level of digitisation in payments. The
study analysed the measures of cash (proxy for cash payments), the enablers for payment
systems and the measures of electronic payments over a timeframe of the last 5 financial
years to ascertain the shift in India, if any, from cash to digital payments. Further, a

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comparison with the 26 member countries of the Committee on Payments and Market
Infrastructures (CPMI) over the same five-year period has also been attempted to evaluate
India’s performance vis-à-vis other countries.

7.8.2 The parameters considered as indicative of cash payments are Currency in Circulation
(CIC), Share of High Value denominated currency and Low Value denominated currency,
and Cash Withdrawals from ATMs, whereas parameters used for assessing the level of
digitisation were Growth of digital payments, Digital Payments to GDP, and infrastructure.

7.8.3 The study revealed that while CIC across the country increased at a CAGR of 10.2%
over the past 5 years, the CIC to GDP reduced from 11.6% in 2014-15 to 11.2% in 2018-19.
The cash withdrawals from ATMs increased during the same period, however, the percentage
of cash withdrawals to GDP was constant at around 17%. Further, while the digital payments
in the country have witnessed CAGR of 61% and 19% in terms of volume and value,
respectively, the value of digital payments to GDP has also increased from 660% in 2014-15
to 862% in 2018-19. In addition, the deployment of ATMs has grown at a low pace (CAGR –
4%) and the PoS terminals contrastingly grown at high pace (CAGR – 35%).

7.8.4 The study findings indicate that cash, as a payment mode, is still important but it is
increasingly seen as a way to store value, more than to make payments. India’s growing use
of retail digital payments, along with the radical reconstruction of its cash economy, indicates
a shift in the relationship with cash. This is evidenced by the steep growth observed in the
retail digital payments.

Section 8: Organisation of the Oversight Function

8.1 In order to conduct effective oversight, the central banks need to have the ability to carry
out oversight effectively by having sufficient resources, including suitably qualified
personnel and an organisational structure that allows those resources to be used effectively. It
is important that those involved in carrying out oversight are able to draw on the skills and
expertise of other central bank functions (for example, legal, markets, credit, audit and IT).

8.2 A dedicated Oversight Division in the Department of Payment and Settlement Systems
(DPSS) at Central Office of RBI has been institutionalised and is tasked with the
responsibility to conduct oversight of all payment systems. The Central Office Oversight
Division is supported by DPSS cells set-up at four Regional Offices at Mumbai, Delhi,
Chennai and Kolkata. Skilled resources are drawn from other departments while undertaking
the assessment / onsite inspection of FMIs / RPSs. While the DPSS Cells at four Regional
Offices conduct on-site inspection of various retail payment systems and Cheque Clearing
Houses, the Central Office Oversight Division carries out on-site inspection of FMIs and
SWIPS (NPCI).

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Appendix 1

Schedule of Activities

A. FMIs

The FMIs would be overseen as per the “Oversight Framework for Financial Market
Infrastructures and Retail Payment Systems”. The entities covered as part of this framework
and the activities to be undertaken are as follows:

(i) Real Time Gross Settlement System (RTGS): RTGS system is owned and operated
by the RBI. Assessment would be against the PFMIs -

 Alerts / Incident reporting: (i) SOD / EOD, (ii) delay in any of the activity, (iii)
reporting of incidents, if any.
 Self-Assessment undertaken annually by the operator i.e. Division of Bank Accounts,
Mumbai Regional Office.
 On-site inspection and assessment at periodic intervals.

(ii) Central Securities Depository (CSD) - Securities Settlement Systems (SSS): The CSD-
SSS for the Government Securities system is operated by PDO / Mumbai office. Assessment
would be against the PFMIs.

 Self-Assessment undertaken annually by the operator i.e. Integrated Banking

Department of Mumbai Regional Office of RBI.
 On-site inspection and assessment at periodic intervals.

(iii) Clearing Corporation of India Ltd (CCIL)

 Disclose self-assessment on compliance with PFMIs on an annual basis as per the

Disclosure Framework prescribed in PFMI.
 Quantitative Disclosure as per the disclosure Framework prescribed by the CPMI-
IOSCO on a Quarterly basis.
 Onsite inspection and assessment of CCIL to be undertaken annually by DPSS or get
conducted by external agency.
 Before initiation of Onsite inspection, an Onsite Compliance Audit to be undertaken
to verify compliance against the Inspection observations. The minimum coverage
should be as per the framework prescribed.
 To ensure resilience of the system, CCIL to conduct Operations Review on a monthly
basis and also undertake an IT System Review by external auditors and to also submit
a System Audit Report on an annual basis.
 CCIL will undertake a System Audit and submit the report to the RBI on an annual
basis. The minimum coverage of the system audit should be as per the revised scope
prescribed vide letter DPSS.CO.OD.No. 1325/06.11.001/2019-20 dated January 10,
2020.
 CCIL to undertake an annual validation and review of its Risk Management
framework by external auditors to ensure that its systems are resilient.

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  CCIL to seek the RBI’s approval before initiating changes in any systems or
processes and before introducing any new product.
 CCIL is also expected to intimate the RBI in case of any abnormal developments.
 CCIL to furnish on a monthly / quarterly / semi-annual basis the reports / data /
information as prescribed in the Appendices 4 and 8, to the RBI.

(iv) National Electronic Funds Transfer (NEFT): NEFT system is owned and operated by
the RBI. Though it is a retail payment system, keeping in view the volume of transactions
processed by it, it will be assessed on an on-going basis against the PFMIs –

 Self-Assessment to be undertaken annually by National Clearing Cell of Mumbai

Regional Office of RBI.
 On-site inspection and assessment to be conducted periodically.

(v) National Payments Corporation of India (NPCI):

The RBI oversees the NPCI, an umbrella organisation for all retail payments systems in
India.

 NPCI, as per the Disclosure Framework prescribed in PFMI to disclose its self-
assessment on its compliance with PFMIs on an annual basis and also submit a copy
to the RBI.
 On-site inspection and assessment to be conducted bi-annually by the DPSS or get
conducted by external agency.
 Before initiation of Onsite inspection, an On-Site Compliance Audit will be
undertaken to verify NPCI compliance against the Inspection observations.
 To ensure resilience of the payment systems, NPCI will undertake a System Audit and
submit the report to the RBI on an annual basis. The minimum coverage of the system
audit should be as per the revised scope prescribed vide letter DPSS.CO.OD.No.
1325/06.11.001/2019-20 dated January 10, 2020.
 NPCI will also submit its audited financial statements to the RBI on an annual basis.
 NPCI to furnish monthly reports / data / information to the RBI as prescribed in
Appendix 8 for each of the payment system operated by it.

B. Retail Payment Systems

The Retail Payment Systems regulated by the RBI are:

(i) Cards Payment Networks

 Self-Assessment to be submitted annually as per template prescribed.

 Submit System Audit Report and segmented financial statements for India specific
operations to the RBI on an annual basis. The minimum coverage of the system audit
should be as per the revised scope prescribed vide letter DPSS.CO.OD.No.
1325/06.11.001/2019-20 dated January 10, 2020.
 Submit a monthly return on card statistics for Cards affiliated under its scheme in the
format prescribed by RBI.
 The segmented financial statements for India specific operations to be submitted to
the RBI for each quarter and for the entire year.

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  On-site inspection would be restricted to visit if needed / interaction with the
executives of the card networks and with the primary regulator.

(ii) Cross-border Money Transfer – in-bound only – Operators

 Self-Assessment to be submitted to the Department of Payment and Settlement

Systems, Kolkata Regional Office, RBI on an annual basis as per the prescribed
Template.
 Submit System Audit Report to the RBI on an annual basis. The minimum coverage
of the system audit should be as per the revised scope prescribed vide letter
DPSS.CO.OD.No. 1325/06.11.001/2019-20 dated January 10, 2020.
 The segmented financial statements for India specific operations to be submitted to
the RBI for each quarter and also for the entire year.
 On-site inspection would be restricted to visit, if needed / interaction with the
executives of the authorised entity (located overseas) and with the primary regulator.
 Returns as indicated in Appendix 8 to be submitted in the format, form and manner
prescribed by the RBI.

(iii) ATM Networks

 Self-Assessment to be submitted against the prescribed Template on an annual basis.

 ATM Network operators (non-bank operator) to submit the System Audit Report to
the RBI on an annual basis. The minimum coverage of the system audit should be as
per the revised scope prescribed vide letter DPSS.CO.OD.No. 1325/06.11.001/2019-
20 dated January 10, 2020.
 ATM Network operators to submit Financial Statements to the RBI on an annual
basis.
 ATM Network operators to submit a monthly return on ATM Statistics in the format
prescribed.
 ATM Network operators to submit a quarterly return on Deployment of ATM’s
containing State-wise ATMs deployed during the quarter and summary of ATMs
deployed in Metro, Urban, Semi-urban and Rural areas. The returns to be submitted in
the format, form and manner prescribed by the RBI.
 Returns to be submitted in the format, form and manner prescribed by the RBI.
 On-site inspection to be conducted bi-annually by the DPSS or get conducted by
external agency.

(iv) Pre-paid Payment Instruments (PPIs)

 Self-Assessment to be submitted against the prescribed Template on an annual basis

to the DPSS Regional Offices of RBI depending upon the location of the Registered
Offices of the authorised entities.
 PPI issuers need to submit their System Audit Report and Financial statements to the
RBI on an annual basis. The minimum coverage of the system audit should be as per
the revised scope prescribed vide letter DPSS.CO.OD.No. 1325/06.11.001/2019-20
dated January 10, 2020.
 PPI issuers need to submit financial statements to the RBI on an annual basis.

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  PPI issuers need to submit data/information on expired PPIs, Customer Grievances
and a Certificate from the auditor on balance in Escrow Account to the RBI on
quarterly basis in formats indicated in Appendix 8.
 PPI issuers need to submit the PPI Statistics to RBI monthly. The returns to be
submitted in the format, form and manner prescribed by the RBI as indicated in
Appendix 8.
 Fraud monitoring report to be submitted monthly in format indicated in Appendix 8.
 Payment fraud report to be submitted on daily basis to RBI in Electronic Data
Submission Portal (EDSP) as per format indicated in Appendix 8 (going forward, this
shall be replaced with the web-based payment fraud reporting mechanism).
 Returns as indicated in Appendix 8 to be submitted in the format, form and manner
prescribed by the RBI.
 On Site Inspection of PPI providers to be undertaken at least once every three years
by the respective DPSS Regional Office of RBI based on the location of the
Registered Offices of PPI issuer. The frequency of on-site inspection will depend on
its classification as large, medium or small PPI Issuer. The Inspection report will be
submitted by the Regional Offices of DPSS to DPSS, Central Office.

(v) Bharat Bill Payment System (BBPS)

BBPS is an integrated bill payment system which will offer interoperable bill payment
service to customers online as well as through a network of agents. NPCI has been granted
approval to function as the Bharat Bill Payment Central Unit (BBPCU) which is a single
authorised entity operating the BBPS. The BBPCU has formulated necessary operational,
technical and business standards for the entire system and its participants, after approval of
the RBI. Banks and non-bank entities function as Bharat Bill Payment Operating Units
(BBPOU)

 The BBPCU (NPCI) would be covered as part of the NPCI assessment till the activity
is hived off to another entity.
 Oversight of the BBPOUs will be undertaken by the RBI and NPCI (restricted to the
BBPOUs as participant in BBPS).
 BBPOUs to submit System Audit Reports to the RBI annually. The minimum
coverage of the system audit should be as per the revised scope prescribed vide letter
DPSS.CO.OD.No. 1325/06.11.001/2019-20 dated January 10, 2020.
 BBPOUs to submit Financial Statements to the RBI annually.

The Statistical operational information will be sent by the BBPOUs to NPCI. The BBPOUs
will also be required to send all the data/ information reports to NPCI as deemed necessary by
NPCI. Any delay in submission of data to NPCI would attract the same penal action for delay
/ non-submission to RBI. NPCI to report the data to RBI in the format prescribed.

(vi) Trade Receivables Discounting System (TReDS)

 Self-Assessment to be submitted against the prescribed Template on an annual basis.

 TReDS operators to undertake and submit a System Audit report to the RBI on an
annual basis. The minimum coverage of the system audit should be as per the revised
scope prescribed vide letter DPSS.CO.OD.No. 1325/06.11.001/2019-20 dated January
10, 2020.

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  TReDS operators to submit audited financial statements to the RBI on an annual
basis.
 TReDS operators to furnish monthly reports/ data/ information to the RBI as
prescribed. The returns to be submitted in the format, form and manner prescribed by
the RBI as indicated in Appendix 8.

(vii) White Label ATM Operators (WLAOs)

 Self-Assessment to be submitted against the prescribed Template on an annual basis

to the DPSS Regional Offices of RBI depending upon the location of the Registered
Offices of the authorised entities.
 WLA Operators need to submit their System Audit Report and Financial statements to
the RBI on an annual basis. The minimum coverage of the system audit should be as
per the revised scope prescribed vide letter DPSS.CO.OD.No. 1325/06.11.001/2019-
20 dated January 10, 2020.
 Submit returns in the format, form and manner indicated in Appendix 8.

(viii) Other retail payment systems

 Self-Assessment to be submitted against the prescribed Template on an annual basis

to the DPSS Regional Offices depending on the location of Registered Office of
authorised entities.
 System Audit Report and Financial statements to the RBI on an annual basis. The
minimum coverage of the system audit should be as per the revised scope prescribed
vide letter DPSS.CO.OD.No. 1325/06.11.001/2019-20 dated January 10, 2020.
 Business, Customer Grievances on the periodicity prescribed. The operator should
submit the Statistics to the RBI accordingly. The returns to be submitted in the format,
form and manner prescribed by the RBI.
 On Site Inspection of providers will be undertaken at least once every three years by
the respective DPSS RO based on the location of the operator.
 Submit returns in the format, form and manner indicated in Appendix 8.

Any other requirement would be prescribed based on the design / process of operations.

Appendix 2

Information submitted as part of the application

PART – A: Covering the details of the applicant, constitution of applicant, address of

Registered Office and Principal Offices (if applicant is a company), principal place of
business, main business of the applicant company / firm / other entity, management
information, etc.

PART – B: Covering particulars of Payment System sought to be set up (full details to be

furnished) including process flow, technology to be used, security features, inter-operability,
etc., expected benefits to the financial system / country from the operationalisation of the
payment system sought to be set up, previous experience of applicant and associated
companies / firms / entities in the payment systems area, type of payment system proposed to
be set up, method of settlement of payment claims, namely .whether gross, net or a hybrid

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method combining both gross and net methods, whether the applicant or settlement agent will
act as a central counterparty to provide guaranteed / secured settlement, customer grievances
redressal machinery proposed for the payment system sought to be set up, the time proposed
to be taken to dispose customer complaints, etc.

PART – C: covering amount of finance required for executing payment system project,
sources of finances for executing the payment system project, rate of return on investment
expected from the payment system sought to be set up, how does the applicant proposes to
recover investment and earn income, etc.

PART – D: Any other information the applicant wishes to furnish.

Appendix 3

Returns, documents and other information to be submitted by Authorised Payment

Systems

1. Every Authorised Payment System provider shall submit the returns as prescribed and at
the frequency indicated by the RBI.

2. Details of the defaults in fulfilling the payment obligations by the system participants to be
reported on the date of occurrence.

3. Monthly return containing the details of the defaults in fulfilling the payment obligations
by the system participants. This to be submitted within seven working days from the end of
the month. (The return and format for submission is as Appended).

4. Quarterly certificate from the bankers about functioning of system provider's escrow
account with them.

5. Quarterly statement regarding any disputes between participants or between participants

and the system provider. This to be submitted within seven working days from the end of the
quarter.

6. Annual return relating to the staff strength, income and expenditure.

7. Annual return from the system provider showing changes in its Board of Directors or
partners, as the case may be, changes in shareholding pattern whereby the aggregate
shareholding of an individual or a group becomes equivalent to 5% or more of the paid-up
capital of the system provider and changes in Memorandum or Articles of Association of the
system provider.

8. Furnishing of accounts and balance sheets:

(1) Every system provider shall furnish to the Bank within three months from the date on
which its annual accounts are closed and balanced, a copy of its audited balance sheet as on
the last date of the relevant year together with a copy of the profit and loss account for the
year and a copy of the Auditor's report.

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Provided that the Bank may, on an application made by the system provider, extend the said
period of three months for furnishing of returns by a further period not exceeding three
months.

(2) The system provider shall also publish, a copy of its balance sheet, profit and loss account
and Auditor's report submitted to the Bank under sub-regulation (1), in any two leading
newspapers, one in English and the other in Hindi, or place a copy of the same on its website
within a period of one month from the date of submission of the same to the Bank.

The documents / information shall be submitted by the system provider from its registered
office to the RBI (Department of Payment and Settlement Systems, Central Office) situated
in Mumbai. The RBI may at any time, direct that certain returns / data and documents stated
above to be submitted to any of its other office as may be specified.

Appendix 4

Data / Information to be furnished by CCIL

o Authorised CCP shall inform RBI about the appointment / reappointment of the Directors
and shall send to RBI within 15 calendar days from the date of appointment by the Board, the
Directors’ profile, declaration on “fit and proper” criteria submitted by Directors as
prescribed and their consent to act as Directors.

o Authorised CCP shall inform about transfer or divestment within 15 calendar days of
approval of transfer or divestment of equity shares by its Board.

o Monthly and Fortnightly report on Forex Participation and Settlement Statistics.

o Monthly report for trades settled in all segments.

o Details of shortage/ default in any segment to be submitted to the RBI on the same day.
Also submit a monthly report for each segment with the details of shortage/ defaults during
the month.

o Imposition of Volatility Margin / intraday MTM / withdrawal of the Volatility Margin in

any segment to be intimated to the RBI on the same day.

o Monthly certificate from auditors confirming segment-wise segregation of collaterals.

o Annual return on staff strength, income and expenditure.

o Annual return on changes in Board of directors, changes in shareholding and changes in

Memorandum of Association or Articles or Association.

o Submit Audited Balance Sheet, Profit & Loss Account & Auditors Report on an annual
basis.

o Submit Operations audit report, concurrent audit report and implementation status review
of the operations audit report for every month.

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o Submit the IT process review report annually.

o Submit the Systems Audit report from CISA qualified auditor annually.

o Submission of ISO Audit Report annually.

o Comprehensive Risk Management Framework annually.

o Submit the report of Monthly Summary of Stress Test Result.

o Submit the investment policy for the year to the RBI annually.

o Submission of report of risk assessment by external experts annually.

o Deviations in membership eligibility criteria for participants in any segment submitted

annually and periodically in case of interim review.

o Imposition of restrictions on members, as and when any restriction is imposed.

o Report on FX-CLEAR API trading activity.

o Submission of Business Continuity Plan on an annual basis.

o Submission of the Information Security Policy and Cyber Security Policy on an annual
basis.

o Periodic intimation of Business Continuity Drills and submission of report thereof.

o Calendar of review items placed before the board on an annual basis.

o Information regarding any notification issued to members, as and when the notification is
issued.

o Information regarding any changes in Bye-laws, rules and regulations, as and when the
same is revised.

o Intimation and report of Table Top Exercise, as and when conducted.

o Intimation and report of Portfolio Compression Exercise in Derivatives segment, as and

when conducted.

o An exception report for difference in the trade and reporting time stamp (beyond 10 mins)
for Interbank INR IRS trades.

o An exception report for members who have reported the deals as plain vanilla vis-a-vis the
deals where the counterparty has reported them as a strategy.

o Intimation of any disruption or delayed payment, as and when such incident occurs.

o Submission of Quantitative Disclosures on quarterly basis.

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o Submission of Qualitative Disclosures on annual basis.

o Submission of Self Assessment on Annual basis.

o Every authorised CCP shall submit an audited networth certificate as at close of financial
year from the statutory auditor within six months of the closure of the financial year.

Appendix 5

Overview of the Principles for Financial Market Infrastructures

General organisation

Principle 1: Legal basis

An FMI should have a well-founded, clear, transparent, and enforceable legal basis for each
material aspect of its activities in all relevant jurisdictions.

Key considerations

1. The legal basis should provide a high degree of certainty for each material aspect of
an FMI’s activities in all relevant jurisdictions.

2. An FMI should have rules, procedures, and contracts that are clear, understandable,
and consistent with relevant laws and regulations.

3. An FMI should be able to articulate the legal basis for its activities to relevant
authorities, participants, and, where relevant, participants’ customers, in a clear and
understandable way.

4. An FMI should have rules, procedures, and contracts that are enforceable in all
relevant jurisdictions. There should be a high degree of certainty that actions taken by
the FMI under such rules and procedures will not be voided, reversed, or subject to
stays.

5. An FMI conducting business in multiple jurisdictions should identify and mitigate the
risks arising from any potential conflict of laws across jurisdictions.

Principle 2: Governance

An FMI should have governance arrangements that are clear and transparent, promote the
safety and efficiency of the FMI, and support the stability of the broader financial system,
other relevant public interest considerations, and the objectives of relevant stakeholders.

Key considerations

1. An FMI should have objectives that place a high priority on the safety and efficiency
of the FMI and explicitly support financial stability and other relevant public interest
considerations.

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 2. An FMI should have documented governance arrangements that provide clear and
direct lines of responsibility and accountability. These arrangements should be
disclosed to owners, relevant authorities, participants, and, at a more general level, the
public.

3. The roles and responsibilities of an FMI’s board of directors (or equivalent) should be
clearly specified, and there should be documented procedures for its functioning,
including procedures to identify, address, and manage member conflicts of interest.
The board should review both its overall performance and the performance of its
individual board members regularly.

4. The board should contain suitable members with the appropriate skills and incentives
to fulfil its multiple roles. This typically requires the inclusion of non-executive board
member(s).

5. The roles and responsibilities of management should be clearly specified. An FMI’s

management should have the appropriate experience, a mix of skills, and the integrity
necessary to discharge their responsibilities for the operation and risk management of
the FMI.

6. The board should establish a clear, documented risk-management framework that

includes the FMI’s risk-tolerance policy, assigns responsibilities and accountability
for risk decisions, and addresses decision making in crises and emergencies.
Governance arrangements should ensure that the risk-management and internal
control functions have sufficient authority, independence, resources, and access to the
board.

7. The board should ensure that the FMI’s design, rules, overall strategy, and major
decisions reflect appropriately the legitimate interests of its direct and indirect
participants and other relevant stakeholders. Major decisions should be clearly
disclosed to relevant stakeholders and, where there is a broad market impact, the
public.

Principle 3: Framework for the comprehensive management of risks

An FMI should have a sound risk-management framework for comprehensively managing

legal, credit, liquidity, operational, and other risks.

Key considerations

1. An FMI should have risk-management policies, procedures, and systems that enable it
to identify, measure, monitor, and manage the range of risks that arise in or are borne
by the FMI. Risk-management frameworks should be subject to periodic review.

2. An FMI should provide incentives to participants and, where relevant, their customers
to manage and contain the risks they pose to the FMI.

3. An FMI should regularly review the material risks it bears from and poses to other
entities (such as other FMIs, settlement banks, liquidity providers, and service

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 providers) as a result of interdependencies and develop appropriate risk-management
tools to address these risks.

4. An FMI should identify scenarios that may potentially prevent it from being able to
provide its critical operations and services as a going concern and assess the
effectiveness of a full range of options for recovery or orderly wind-down. An FMI
should prepare appropriate plans for its recovery or orderly wind-down based on the
results of that assessment. Where applicable, an FMI should also provide relevant
authorities with the information needed for purposes of resolution planning.

Credit and liquidity risk management

Principle 4: Credit risk

An FMI should effectively measure, monitor, and manage its credit exposures to participants
and those arising from its payment, clearing, and settlement processes. An FMI should
maintain sufficient financial resources to cover its credit exposure to each participant fully
with a high degree of confidence. In addition, a CCP that is involved in activities with a
more-complex risk profile or that is systemically important in multiple jurisdictions should
maintain additional financial resources sufficient to cover a wide range of potential stress
scenarios that should include, but not be limited to, the default of the two participants and
their affiliates that would potentially cause the largest aggregate credit exposure to the CCP
in extreme but plausible market conditions. All other CCPs should maintain additional
financial resources sufficient to cover a wide range of potential stress scenarios that should
include, but not be limited to, the default of the participant and its affiliates that would
potentially cause the largest aggregate credit exposure to the CCP in extreme but plausible
market conditions.

Key considerations

1. An FMI should establish a robust framework to manage its credit exposures to its
participants and the credit risks arising from its payment, clearing, and settlement
processes. Credit exposure may arise from current exposures, potential future
exposures, or both.

2. An FMI should identify sources of credit risk, routinely measure and monitor credit
exposures, and use appropriate risk-management tools to control these risks.

3. A payment system or SSS should cover its current and, where they exist, potential
future exposures to each participant fully with a high degree of confidence using
collateral and other equivalent financial resources (see Principle 5 on collateral). In
the case of a DNS payment system or DNS SSS in which there is no settlement
guarantee but where its participants face credit exposures arising from its payment,
clearing, and settlement processes, such an FMI should maintain, at a minimum,
sufficient resources to cover the exposures of the two participants and their affiliates
that would create the largest aggregate credit exposure in the system.

4. A CCP should cover its current and potential future exposures to each participant
fully with a high degree of confidence using margin and other prefunded financial
resources (see Principle 5 on collateral and Principle 6 on margin). In addition, a CCP

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 that is involved in activities with a more-complex risk profile or that is systemically
important in multiple jurisdictions should maintain additional financial resources to
cover a wide range of potential stress scenarios that should include, but not be limited
to, the default of the two participants and their affiliates that would potentially cause
the largest aggregate credit exposure for the CCP in extreme but plausible market
conditions. All other CCPs should maintain additional financial resources sufficient to
cover a wide range of potential stress scenarios that should include, but not be limited
to, the default of the participant and its affiliates that would potentially cause the
largest aggregate credit exposure for the CCP in extreme but plausible market
conditions. In all cases, a CCP should document its supporting rationale for, and
should have appropriate governance arrangements relating to, the amount of total
financial resources it maintains.

5. A CCP should determine the amount and regularly test the sufficiency of its total
financial resources available in the event of a default or multiple defaults in extreme
but plausible market conditions through rigorous stress testing. A CCP should have
clear procedures to report the results of its stress tests to appropriate decision makers
at the CCP and to use these results to evaluate the adequacy of and adjust its total
financial resources. Stress tests should be performed daily using standard and
predetermined parameters and assumptions. On at least a monthly basis, a CCP should
perform a comprehensive and thorough analysis of stress testing scenarios, models,
and underlying parameters and assumptions used to ensure they are appropriate for
determining the CCP’s required level of default protection in light of current and
evolving market conditions. A CCP should perform this analysis of stress testing
more frequently when the products cleared or markets served display high volatility,
become less liquid, or when the size or concentration of positions held by a CCP’s
participants increases significantly. A full validation of a CCP’s risk-management
model should be performed at least annually.

6. In conducting stress testing, a CCP should consider the effect of a wide range of
relevant stress scenarios in terms of both defaulters’ positions and possible price
changes in liquidation periods. Scenarios should include relevant peak historic price
volatilities, shifts in other market factors such as price determinants and yield curves,
multiple defaults over various time horizons, simultaneous pressures in funding and
asset markets, and a spectrum of forward-looking stress scenarios in a variety of
extreme but plausible market conditions.

7. An FMI should establish explicit rules and procedures that address fully any credit
losses it may face as a result of any individual or combined default among its
participants with respect to any of their obligations to the FMI. These rules and
procedures should address how potentially uncovered credit losses would be
allocated, including the repayment of any funds an FMI may borrow from liquidity
providers. These rules and procedures should also indicate the FMI’s process to
replenish any financial resources that the FMI may employ during a stress event, so
that the FMI can continue to operate in a safe and sound manner.

Principle 5: Collateral

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An FMI that requires collateral to manage its or its participants’ credit exposure should
accept collateral with low credit, liquidity, and market risks. An FMI should also set and
enforce

Key considerations

1. An FMI should generally limit the assets it (routinely) accepts as collateral to those
with low credit, liquidity, and market risks.

2. An FMI should establish prudent valuation practices and develop haircuts that are
regularly tested and take into account stressed market conditions.

3. In order to reduce the need for procyclical adjustments, an FMI should establish stable
and conservative haircuts that are calibrated to include periods of stressed market
conditions, to the extent practicable and prudent.

4. An FMI should avoid concentrated holdings of certain assets where this would
significantly impair the ability to liquidate such assets quickly without significant
adverse price effects.

5. An FMI that accepts cross-border collateral should mitigate the risks associated with
its use and ensure that the collateral can be used in a timely manner.

6. An FMI should use a collateral management system that is well-designed and

operationally flexible. appropriately conservative haircuts and concentration limits.

Principle 6: Margin

A CCP should cover its credit exposures to its participants for all products through an
effective margin system that is risk-based and regularly reviewed.

Key considerations

1. A CCP should have a margin system that establishes margin levels commensurate
with the risks and particular attributes of each product, portfolio, and market it serves.

2. A CCP should have a reliable source of timely price data for its margin system. A
CCP should also have procedures and sound valuation models for addressing
circumstances in which pricing data are not readily available or reliable.

3. A CCP should adopt initial margin models and parameters that are risk-based and
generate margin requirements sufficient to cover its potential future exposure to
participants in the interval between the last margin collection and the close out of
positions following a participant default. Initial margin should meet an established
single-tailed confidence level of at least 99 percent with respect to the estimated
distribution of future exposure. For a CCP that calculates margin at the portfolio level,
this requirement applies to each portfolio’s distribution of future exposure. For a CCP
that calculates margin at more-granular levels, such as at the subportfolio level or by
product, the requirement must be met for the corresponding distributions of future
exposure. The model should (a) use a conservative estimate of the time horizons for

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 the effective hedging or close out of the particular types of products cleared by the
CCP (including in stressed market conditions), (b) have an appropriate method for
measuring credit exposure that accounts for relevant product risk factors and portfolio
effects across products, and (c) to the extent practicable and prudent, limit the need
for destabilising, procyclical changes.

4. A CCP should mark participant positions to market and collect variation margin at
least daily to limit the build-up of current exposures. A CCP should have the authority
and operational capacity to make intraday margin calls and payments, both scheduled
and unscheduled, to participants.

5. In calculating margin requirements, a CCP may allow offsets or reductions in required

margin across products that it clears or between products that it and another CCP
clear, if the risk of one product is significantly and reliably correlated with the risk of
the other product. Where two or more CCPs are authorised to offer cross-margining,
they must have appropriate safeguards and harmonised overall risk-management
systems.

6. A CCP should analyse and monitor its model performance and overall margin
coverage by conducting rigorous daily backtesting and at least monthly, and more-
frequent where appropriate, sensitivity analysis. A CCP should regularly conduct an
assessment of the theoretical and empirical properties of its margin model for all
products it clears. In conducting sensitivity analysis of the model’s coverage, a CCP
should take into account a wide range of parameters and assumptions that reflect
possible market conditions, including the most-volatile periods that have been
experienced by the markets it serves and extreme changes in the correlations between
prices.

7. A CCP should regularly review and validate its margin system.

Principle 7: Liquidity risk

An FMI should effectively measure, monitor, and manage its liquidity risk. An FMI should
maintain sufficient liquid resources in all relevant currencies to effect same-day and, where
appropriate, intraday and multiday settlement of payment obligations with a high degree of
confidence under a wide range of potential stress scenarios that should include, but not be
limited to, the default of the participant and its affiliates that would generate the largest
aggregate liquidity obligation for the FMI in extreme but plausible market conditions.

Key considerations

1. An FMI should have a robust framework to manage its liquidity risks from its
participants, settlement banks, nostro agents, custodian banks, liquidity providers, and
other entities.

2. An FMI should have effective operational and analytical tools to identify, measure,
and monitor its settlement and funding flows on an ongoing and timely basis,
including its use of intraday liquidity.

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3. A payment system or SSS, including one employing a DNS mechanism, should
maintain sufficient liquid resources in all relevant currencies to effect same-day
settlement, and where appropriate intraday or multiday settlement, of payment
obligations with a high degree of confidence under a wide range of potential stress
scenarios that should include, but not be limited to, the default of the participant and
its affiliates that would generate the largest aggregate payment obligation in extreme
but plausible market conditions.

4. A CCP should maintain sufficient liquid resources in all relevant currencies to settle
securities-related payments, make required variation margin payments, and meet other
payment obligations on time with a high degree of confidence under a wide range of
potential stress scenarios that should include, but not be limited to, the default of the
participant and its affiliates that would generate the largest aggregate payment
obligation to the CCP in extreme but plausible market conditions. In addition, a CCP
that is involved in activities with a more-complex risk profile or that is systemically
important in multiple jurisdictions should consider maintaining additional liquidity
resources sufficient to cover a wider range of potential stress scenarios that should
include, but not be limited to, the default of the two participants and their affiliates
that would generate the largest aggregate payment obligation to the CCP in extreme
but plausible market conditions.

5. For the purpose of meeting its minimum liquid resource requirement, an FMI’s
qualifying liquid resources in each currency include cash at the central bank of issue
and at creditworthy commercial banks, committed lines of credit, committed foreign
exchange swaps, and committed repos, as well as highly marketable collateral held in
custody and investments that are readily available and convertible into cash with
prearranged and highly reliable funding arrangements, even in extreme but plausible
market conditions. If an FMI has access to routine credit at the central bank of issue,
the FMI may count such access as part of the minimum requirement to the extent it
has collateral that is eligible for pledging to (or for conducting other appropriate
forms of transactions with) the relevant central bank. All such resources should be
available when needed.

6. An FMI may supplement its qualifying liquid resources with other forms of liquid
resources. If the FMI does so, then these liquid resources should be in the form of
assets that are likely to be saleable or acceptable as collateral for lines of credit,
swaps, or repos on an ad hoc basis following a default, even if this cannot be reliably
prearranged or guaranteed in extreme market conditions. Even if an FMI does not
have access to routine central bank credit, it should still take account of what
collateral is typically accepted by the relevant central bank, as such assets may be
more likely to be liquid in stressed circumstances. An FMI should not assume the
availability of emergency central bank credit as a part of its liquidity plan.

7. An FMI should obtain a high degree of confidence, through rigorous due diligence,
that each provider of its minimum required qualifying liquid resources, whether a
participant of the FMI or an external party, has sufficient information to understand
and to manage its associated liquidity risks, and that it has the capacity to perform as
required under its commitment. Where relevant to assessing a liquidity provider’s
performance reliability with respect to a particular currency, a liquidity provider’s
potential access to credit from the central bank of issue may be taken into account. An

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 FMI should regularly test its procedures for accessing its liquid resources at a
liquidity provider.

8. An FMI with access to central bank accounts, payment services, or securities services
should use these services, where practical, to enhance its management of liquidity
risk.

9. An FMI should determine the amount and regularly test the sufficiency of its liquid
resources through rigorous stress testing. An FMI should have clear procedures to
report the results of its stress tests to appropriate decision makers at the FMI and to
use these results to evaluate the adequacy of and adjust its liquidity risk-management
framework. In conducting stress testing, an FMI should consider a wide range of
relevant scenarios. Scenarios should include relevant peak historic price volatilities,
shifts in other market factors such as price determinants and yield curves, multiple
defaults over various time horizons, simultaneous pressures in funding and asset
markets, and a spectrum of forward-looking stress scenarios in a variety of extreme
but plausible market conditions. Scenarios should also take into account the design
and operation of the FMI, include all entities that might pose material liquidity risks
to the FMI (such as settlement banks, nostro agents, custodian banks, liquidity
providers, and linked FMIs), and where appropriate, cover a multiday period. In all
cases, an FMI should document its supporting rationale for, and should have
appropriate governance arrangements relating to, the amount and form of total liquid
resources it maintains.

10. An FMI should establish explicit rules and procedures that enable the FMI to effect
same-day and, where appropriate, intraday and multiday settlement of payment
obligations on time following any individual or combined default among its
participants. These rules and procedures should address unforeseen and potentially
uncovered liquidity shortfalls and should aim to avoid unwinding, revoking, or
delaying the same-day settlement of payment obligations. These rules and procedures
should also indicate the FMI’s process to replenish any liquidity resources it may
employ during a stress event, so that it can continue to operate in a safe and sound
manner.

Settlement

Principle 8: Settlement finality

An FMI should provide clear and certain final settlement, at a minimum by the end of the
value date. Where necessary or preferable, an FMI should provide final settlement intraday or
in real time.

Key considerations

1. An FMI’s rules and procedures should clearly define the point at which settlement is
final.

2. An FMI should complete final settlement no later than the end of the value date, and
preferably intraday or in real time, to reduce settlement risk. An LVPS or SSS should
consider adopting RTGS or multiple-batch processing during the settlement day.

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 3. An FMI should clearly define the point after which unsettled payments, transfer
instructions, or other obligations may not be revoked by a participant.

Principle 9: Money settlements

An FMI should conduct its money settlements in central bank money where practical and
available. If central bank money is not used, an FMI should minimise and strictly control the
credit and liquidity risk arising from the use of commercial bank money.

Key considerations

1. An FMI should conduct its money settlements in central bank money, where practical
and available, to avoid credit and liquidity risks.

2. If central bank money is not used, an FMI should conduct its money settlements using
a settlement asset with little or no credit or liquidity risk.

3. If an FMI settles in commercial bank money, it should monitor, manage, and limit its
credit and liquidity risks arising from the commercial settlement banks. In particular,
an FMI should establish and monitor adherence to strict criteria for its settlement
banks that take account of, among other things, their regulation and supervision,
creditworthiness, capitalisation, access to liquidity, and operational reliability. An
FMI should also monitor and manage the concentration of credit and liquidity
exposures to its commercial settlement banks.

4. If an FMI conducts money settlements on its own books, it should minimise and
strictly control its credit and liquidity risks.

5. An FMI’s legal agreements with any settlement banks should state clearly when
transfers on the books of individual settlement banks are expected to occur, that
transfers are to be final when effected, and that funds received should be transferable
as soon as possible, at a minimum by the end of the day and ideally intraday, in order
to enable the FMI and its participants to manage credit and liquidity risks.

Principle 10: Physical deliveries

An FMI should clearly state its obligations with respect to the delivery of physical
instruments or commodities and should identify, monitor, and manage the risks associated
with such physical deliveries.

Key considerations

1. An FMI’s rules should clearly state its obligations with respect to the delivery of
physical instruments or commodities.

2. An FMI should identify, monitor, and manage the risks and costs associated with the
storage and delivery of physical instruments or commodities.

3. Central securities depositories and exchange-of-value settlement systems

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Principle 11: Central securities depositories

A CSD should have appropriate rules and procedures to help ensure the integrity of securities
issues and minimise and manage the risks associated with the safekeeping and transfer of
securities. A CSD should maintain securities in an immobilised or dematerialised form for
their transfer by book entry.

Key considerations

1. A CSD should have appropriate rules, procedures, and controls, including robust
accounting practices, to safeguard the rights of securities issuers and holders, prevent
the unauthorised creation or deletion of securities, and conduct periodic and at least
daily reconciliation of securities issues it maintains.

2. A CSD should prohibit overdrafts and debit balances in securities accounts.

3. A CSD should maintain securities in an immobilised or dematerialised form for their

transfer by book entry. Where appropriate, a CSD should provide incentives to
immobilise or dematerialise securities.

4. A CSD should protect assets against custody risk through appropriate rules and
procedures consistent with its legal framework.

5. A CSD should employ a robust system that ensures segregation between the CSD’s
own assets and the securities of its participants and segregation among the securities
of participants. Where supported by the legal framework, the CSD should also support
operationally the segregation of securities belonging to a participant’s customers on
the participant’s books and facilitate the transfer of customer holdings.

6. A CSD should identify, measure, monitor, and manage its risks from other activities
that it may perform; additional tools may be necessary in order to address these risks.

Principle 12: Exchange-of-value settlement systems

If an FMI settles transactions that involve the settlement of two linked obligations (for
example, securities or foreign exchange transactions), it should eliminate principal risk by
conditioning the final settlement of one obligation upon the final settlement of the other.

Key consideration

1. An FMI that is an exchange-of-value settlement system should eliminate principal

risk by ensuring that the final settlement of one obligation occurs if and only if the
final settlement of the linked obligation also occurs, regardless of whether the FMI
settles on a gross or net basis and when finality occurs.

Default management

Principle 13: Participant-default rules and procedures

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An FMI should have effective and clearly defined rules and procedures to manage a
participant default. These rules and procedures should be designed to ensure that the FMI can
take timely action to contain losses and liquidity pressures and continue to meet its
obligations.

Key considerations

2. An FMI should have default rules and procedures that enable the FMI to continue to
meet its obligations in the event of a participant default and that address the
replenishment of resources following a default.

3. An FMI should be well prepared to implement its default rules and procedures,
including any appropriate discretionary procedures provided for in its rules.

4. An FMI should publicly disclose key aspects of its default rules and procedures.

5. An FMI should involve its participants and other stakeholders in the testing and
review of the FMI’s default procedures, including any close-out procedures. Such
testing and review should be conducted at least annually or following material
changes to the rules and procedures to ensure that they are practical and effective.

Principle 14: Segregation and portability

A CCP should have rules and procedures that enable the segregation and portability of
positions of a participant’s customers and the collateral provided to the CCP with respect to
those positions.

Key considerations

1. A CCP should, at a minimum, have segregation and portability arrangements that

effectively protect a participant’s customers’ positions and related collateral from the
default or insolvency of that participant. If the CCP additionally offers protection of
such customer positions and collateral against the concurrent default of the participant
and a fellow customer, the CCP should take steps to ensure that such protection is
effective.

2. A CCP should employ an account structure that enables it readily to identify positions
of a participant’s customers and to segregate related collateral. A CCP should
maintain customer positions and collateral in individual customer accounts or in
omnibus customer accounts.

3. A CCP should structure its portability arrangements in a way that makes it highly
likely that the positions and collateral of a defaulting participant’s customers will be
transferred to one or more other participants.

4. A CCP should disclose its rules, policies, and procedures relating to the segregation
and portability of a participant’s customers’ positions and related collateral. In
particular, the CCP should disclose whether customer collateral is protected on an
individual or omnibus basis. In addition, a CCP should disclose any constraints, such

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 as legal or operational constraints, that may impair its ability to segregate or port a
participant’s customers’ positions and related collateral.

General business and operational risk management

Principle 15: General business risk

An FMI should identify, monitor, and manage its general business risk and hold sufficient
liquid net assets funded by equity to cover potential general business losses so that it can
continue operations and services as a going concern if those losses materialise. Further, liquid
net assets should at all times be sufficient to ensure a recovery or orderly wind-down of
critical operations and services.

Key considerations

1. An FMI should have robust management and control systems to identify, monitor, and
manage general business risks, including losses from poor execution of business
strategy, negative cash flows, or unexpected and excessively large operating
expenses.

2. An FMI should hold liquid net assets funded by equity (such as common stock,
disclosed reserves, or other retained earnings) so that it can continue operations and
services as a going concern if it incurs general business losses. The amount of liquid
net assets funded by equity an FMI should hold should be determined by its general
business risk profile and the length of time required to achieve a recovery or orderly
wind-down, as appropriate, of its critical operations and services if such action is
taken.

3. An FMI should maintain a viable recovery or orderly wind-down plan and should
hold sufficient liquid net assets funded by equity to implement this plan. At a
minimum, an FMI should hold liquid net assets funded by equity equal to at least six
months of current operating expenses. These assets are in addition to resources held to
cover participant defaults or other risks covered under the financial resources
principles. However, equity held under international risk-based capital standards can
be included where relevant and appropriate to avoid duplicate capital requirements.

4. Assets held to cover general business risk should be of high quality and sufficiently
liquid in order to allow the FMI to meet its current and projected operating expenses
under a range of scenarios, including in adverse market conditions.

5. An FMI should maintain a viable plan for raising additional equity should its equity
fall close to or below the amount needed. This plan should be approved by the board
of directors and updated regularly.

Principle 16: Custody and investment risks

An FMI should safeguard its own and its participants’ assets and minimise the risk of loss on
and delay in access to these assets. An FMI’s investments should be in instruments with
minimal credit, market, and liquidity risks.

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Key considerations

1. An FMI should hold its own and its participants’ assets at supervised and regulated
entities that have robust accounting practices, safekeeping procedures, and internal
controls that fully protect these assets.

2. An FMI should have prompt access to its assets and the assets provided by
participants, when required.

3. An FMI should evaluate and understand its exposures to its custodian banks, taking
into account the full scope of its relationships with each.

4. An FMI’s investment strategy should be consistent with its overall risk-management

strategy and fully disclosed to its participants, and investments should be secured by,
or be claims on, high-quality obligors. These investments should allow for quick
liquidation with little, if any, adverse price effect.

Principle 17: Operational risk

An FMI should identify the plausible sources of operational risk, both internal and external,
and mitigate their impact through the use of appropriate systems, policies, procedures, and
controls. Systems should be designed to ensure a high degree of security and operational
reliability and should have adequate, scalable capacity. Business continuity management
should aim for timely recovery of operations and fulfilment of the FMI’s obligations,
including in the event of a wide-scale or major disruption.

Key considerations

1. An FMI should establish a robust operational risk-management framework with

appropriate systems, policies, procedures, and controls to identify, monitor, and
manage operational risks.

2. An FMI’s board of directors should clearly define the roles and responsibilities for
addressing operational risk and should endorse the FMI’s operational risk-
management framework. Systems, operational policies, procedures, and controls
should be reviewed, audited, and tested periodically and after significant changes.

3. An FMI should have clearly defined operational reliability objectives and should have
policies in place that are designed to achieve those objectives.

4. An FMI should ensure that it has scalable capacity adequate to handle increasing
stress volumes and to achieve its service-level objectives.

5. An FMI should have comprehensive physical and information security policies that
address all potential vulnerabilities and threats.

6. An FMI should have a business continuity plan that addresses events posing a
significant risk of disrupting operations, including events that could cause a wide-
scale or major disruption. The plan should incorporate the use of a secondary site and
should be designed to ensure that critical information technology (IT) systems can

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 resume operations within two hours following disruptive events. The plan should be
designed to enable the FMI to complete settlement by the end of the day of the
disruption, even in case of extreme circumstances. The FMI should regularly test
these arrangements.

7. An FMI should identify, monitor, and manage the risks that key participants, other
FMIs, and service and utility providers might pose to its operations. In addition, an
FMI should identify, monitor, and manage the risks its operations might pose to other
FMIs.

Access

Principle 18: Access and participation requirements

An FMI should have objective, risk-based, and publicly disclosed criteria for participation,
which permit fair and open access.

Key considerations

1. An FMI should allow for fair and open access to its services, including by direct and,
where relevant, indirect participants and other FMIs, based on reasonable risk-related
participation requirements.

2. An FMI’s participation requirements should be justified in terms of the safety and

efficiency of the FMI and the markets it serves, be tailored to and commensurate with
the FMI’s specific risks, and be publicly disclosed. Subject to maintaining acceptable
risk control standards, an FMI should endeavour to set requirements that have the
least-restrictive impact on access that circumstances permit.

3. An FMI should monitor compliance with its participation requirements on an ongoing

basis and have clearly defined and publicly disclosed procedures for facilitating the
suspension and orderly exit of a participant that breaches, or no longer meets, the
participation requirements.

Principle 19: Tiered participation arrangements

An FMI should identify, monitor, and manage the material risks to the FMI arising from
tiered participation arrangements.

Key considerations

1. An FMI should ensure that its rules, procedures, and agreements allow it to gather
basic information about indirect participation in order to identify, monitor, and
manage any material risks to the FMI arising from such tiered participation
arrangements.

2. An FMI should identify material dependencies between direct and indirect

participants that might affect the FMI.

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 3. An FMI should identify indirect participants responsible for a significant proportion
of transactions processed by the FMI and indirect participants whose transaction
volumes or values are large relative to the capacity of the direct participants through
which they access the FMI in order to manage the risks arising from these
transactions.

4. An FMI should regularly review risks arising from tiered participation arrangements
and should take mitigating action when appropriate.

Principle 20: FMI links

An FMI that establishes a link with one or more FMIs should identify, monitor, and manage
link-related risks.

Key considerations

1. Before entering into a link arrangement and on an ongoing basis once the link is
established, an FMI should identify, monitor, and manage all potential sources of risk
arising from the link arrangement. Link arrangements should be designed such that
each FMI is able to observe the other principles in this report.

2. A link should have a well-founded legal basis, in all relevant jurisdictions, that
supports its design and provides adequate protection to the FMIs involved in the link.

3. Linked CSDs should measure, monitor, and manage the credit and liquidity risks
arising from each other. Any credit extensions between CSDs should be covered fully
with high-quality collateral and be subject to limits.

4. Provisional transfers of securities between linked CSDs should be prohibited or, at a

minimum, the retransfer of provisionally transferred securities should be prohibited
prior to the transfer becoming final.

5. An investor CSD should only establish a link with an issuer CSD if the arrangement
provides a high level of protection for the rights of the investor CSD’s participants.

6. An investor CSD that uses an intermediary to operate a link with an issuer CSD
should measure, monitor, and manage the additional risks (including custody, credit,
legal, and operational risks) arising from the use of the intermediary.

7. Before entering into a link with another CCP, a CCP should identify and manage the
potential spill-over effects from the default of the linked CCP. If a link has three or
more CCPs, each CCP should identify, assess, and manage the risks of the collective
link arrangement.

8. Each CCP in a CCP link arrangement should be able to cover, at least on a daily basis,
its current and potential future exposures to the linked CCP and its participants, if any,
fully with a high degree of confidence without reducing the CCP’s ability to fulfil its
obligations to its own participants at any time.

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 9. A TR should carefully assess the additional operational risks related to its links to
ensure the scalability and reliability of IT and related resources.

Efficiency

Principle 21: Efficiency and effectiveness

An FMI should be efficient and effective in meeting the requirements of its participants and
the markets it serves.

Key considerations

1. An FMI should be designed to meet the needs of its participants and the markets it
serves, in particular, with regard to choice of a clearing and settlement arrangement;
operating structure; scope of products cleared, settled, or recorded; and use of
technology and procedures.

2. An FMI should have clearly defined goals and objectives that are measurable and
achievable, such as in the areas of minimum service levels, risk-management
expectations, and business priorities.

3. An FMI should have established mechanisms for the regular review of its efficiency
and effectiveness.

Principle 22: Communication procedures and standards

An FMI should use, or at a minimum accommodate, relevant internationally accepted

communication procedures and standards in order to facilitate efficient payment, clearing,
settlement, and recording.

Key consideration

An FMI should use, or at a minimum accommodate, internationally accepted communication

procedures and standards.

Transparency

Principle 23: Disclosure of rules, key procedures, and market data

An FMI should have clear and comprehensive rules and procedures and should provide
sufficient information to enable participants to have an accurate understanding of the risks,
fees, and other material costs they incur by participating in the FMI. All relevant rules and
key procedures should be publicly disclosed.

Key considerations

1. An FMI should adopt clear and comprehensive rules and procedures that are fully
disclosed to participants. Relevant rules and key procedures should also be publicly
disclosed.

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 2. An FMI should disclose clear descriptions of the system’s design and operations, as
well as the FMI’s and participants’ rights and obligations, so that participants can
assess the risks they would incur by participating in the FMI.

3. An FMI should provide all necessary and appropriate documentation and training to
facilitate participants’ understanding of the FMI’s rules and procedures and the risks
they face from participating in the FMI.

4. An FMI should publicly disclose its fees at the level of individual services it offers as
well as its policies on any available discounts. The FMI should provide clear
descriptions of priced services for comparability purposes.

5. An FMI should complete regularly and disclose publicly responses to the CPSS-
IOSCO Disclosure framework for financial market infrastructures. An FMI also
should, at a minimum, disclose basic data on transaction volumes and values.

Principle 24: Disclosure of market data by trade repositories

A TR should provide timely and accurate data to relevant authorities and the public in line
with their respective needs.

Key considerations

1. A TR should provide data in line with regulatory and industry expectations to relevant
authorities and the public, respectively, that is comprehensive and at a level of detail
sufficient to enhance market transparency and support other public policy objectives.

2. A TR should have effective processes and procedures to provide data to relevant

authorities in a timely and appropriate manner to enable them to meet their respective
regulatory mandates and legal responsibilities.

3. A TR should have robust information systems that provide accurate current and
historical data. Data should be provided in a timely manner and in a format that
permits it to be easily analysed.

Appendix 6

IT Audit, Security, Fraud prevention and Risk Management Framework

A strong risk management system is necessary for the entities to meet the challenges of fraud
and ensure customer protection. Entities are expected to put in place adequate information
and data security infrastructure and systems for prevention and detection of frauds.

2. In order to ensure that the technology deployed to operate the payment system/s authorised
is/are being operated in a safe, secure, sound and efficient manner, the authorised entities
were advised in December 2009 to furnish their respective System Audit Report (SAR)
conducted by a Certified Information Systems Auditor (CISA) registered with Information
Systems Audit and Control Association (ISACA) or by a holder of a Diploma in Information
System Audit (DISA) qualification of the Institute of Chartered Accountants of India (ICAI),
on an annual basis within two months of close of their respective financial year. For entities

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which follow an April-March financial year, the system audit report should be submitted by
1st June of that year. Entities, which follow a calendar year annual closing, are advised to
submit their system audit reports by 1st March of the following year. The scope of the
System Audit should include evaluation of the hardware structure, operating systems and
critical applications, security and controls in place, including access controls on key
applications, disaster recovery plans, training of personnel managing systems and
applications, documentation, etc. The audit should also comment on the deviations, if any, in
the processes followed from the process flow submitted to the Reserve Bank while seeking
authorisation.

3. The authorised payment system operators were advised in November 2010 to observe the
following minimum practices:

i. A Strong password policy should be implemented with a history of password usage

being maintained. Periodical change of passwords has to be strictly enforced with the
system barring the user from reusing the three previous passwords.

ii. Regular review of the logs of the application system, database and the operating
system should be done.

iii. A well-documented and tested Business Continuity and Disaster Recovery Plan
should be put in place with proper logs.

iv. Network scanning / monitoring should be done on regular basis for the Denial of
Service (DOS) attack as well as other intrusion and spy ware.

4. In addition, the Prepaid Payment Instrument Issuers were advised to put in place a strong
risk management system and adequate information and data security infrastructure and
systems to meet the challenges of fraud and ensure customer protection. They were also
advised to adopt following best practices:

i. All PPI Issuers shall put in place Board approved Information Security policy for the safety
and security of the payment systems operated by them and implement security measures in
accordance with this policy to mitigate identified risks. Entities shall review the security
measures (a) on on-going basis but at least once a year, (b) after any security incident or
breach, and (c) before / after a major change to their infrastructure or procedures.

ii. Entities shall ensure that a framework is put in place to address the safety and security
concerns, and for risk mitigation and fraud prevention. Entities shall put in place suitable
mechanism to prevent, detect and restrict occurrence of fraudulent transactions. Also, a
suitable internal and external escalation mechanisms in case of suspicious operations, besides
alerting the customer in case of such transactions to be put in place. Entities may also put in
place mechanism for velocity check on the number of transactions effected in an instrument.

iii. Entities may put in place centralised database / management information system (MIS) to
keep a track of the issuance/ usage of the payment instrument.

iv. Where direct interface is provided to their authorised / designated agents, entities shall
ensure that the compliance to regulatory requirements is strictly adhered to by these systems
also.

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v. Authorised non-bank PPI Issuers have also been advised to submit the System Audit
Report, including cyber security audit conducted by CERT-IN empanelled auditors, within
two months of the close of their financial year to the CO / respective Regional Office of
DPSS, RBI. The scope of the Audit shall include the following:

a. Security controls shall be tested both for effectiveness of control design (Test of
Design – ToD) and control operating effectiveness (Test of Operating Effectiveness –
ToE).

b. Technology deployed to ensure that the authorised payment system is being operated
in a safe, secure, sound and efficient manner.

c. Evaluation of the hardware structure, operating systems and critical applications,

security and controls in place, including access controls on key applications, disaster
recovery plans, training of personnel managing systems and applications,
documentation, etc.

d. Evaluating adequacy of Information Security Governance and processes of those

which support payment systems.

e. Compliance as per security best practices, specifically the application security

lifecycle and patch / vulnerability and change management aspects for the authorised
system and adherence to the process flow approved by RBI.

f. Comment on the deviations, if any, in the processes followed from the process flow
submitted to RBI while seeking authorisation.

vi. All entities shall, at the minimum, put in place following framework:

a. Application Life Cycle Security: The source code audits shall be conducted by
professionally competent personnel / service providers or have assurance from
application providers / OEMs that the application is free from embedded malicious /
fraudulent code.

b. Security Operations Centre (SOC): Integration of system level (server), application

level logs of applications with SOC for centralised and co-ordinated monitoring and
management of security related incidents.

c. Anti-Phishing: Entities shall subscribe to anti-phishing / anti-rouge app services from

external service providers for identifying and taking down phishing websites / rouge
applications in the wake of increase of rogue apps / phishing attacks.

d. Risk-based Transaction Monitoring: Risk-based transaction monitoring or

surveillance process shall be implemented as part of fraud risk management system.

e. Vendor Risk Management: (i) Entities shall enter into an agreement with the service
provider that amongst others provides for right of audit / inspection by the regulators
of the country; (ii) RBI shall have access to all information resources (online / in
person) that are consumed by entity, to be made accessible to RBI officials when

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 sought, though the infrastructure / enabling resources may not physically be located in
the premises of entity; (iii) Entities shall adhere to the relevant legal and regulatory
requirements relating to geographical location of infrastructure and movement of data
out of borders; (iv) Entities shall review the security processes and controls being
followed by service providers regularly; (v) Service agreements of authorised entities
with provider shall include a security clause on disclosing the security breaches if any
happening specific to issuer’s ICT infrastructure or process including not limited to
software, application and data as part of Security incident Management standards, etc.

f. Disaster Recovery: Authorised entities shall consider having DR facility to achieve

the Recovery Time Objective (RTO) / Recovery Point Objective (RPO) for the system
to recover rapidly from cyber-attacks / other incidents and safely resume critical
operations aligned with RTO while ensuring security of processes and data is
protected.

5. Entities shall establish a mechanism for monitoring, handling and follow-up of cyber
security incidents and cyber security breaches. The same shall be reported immediately to
DPSS, RBI, Central Office, Mumbai. It shall also be reported to CERT-IN as per the details
notified by CERT-IN.

Appendix 7

System Audit of Authorised Payment System Operators under Payment and Settlement
Systems (PSS) Act, 2007 – Review of Scope and Coverage33

1. Authorised entities shall furnish their respective System Audit Report (SAR) conducted by
CERT-IN empanelled auditors or a Certified Information Systems Auditor (CISA) registered
with Information Systems Audit and Control Association (ISACA) or by a holder of a
Diploma in Information System Audit (DISA) qualification of the Institute of Chartered
Accountants of India (ICAI), on an annual basis within two months of close of their
respective financial year. For entities which follow an April-March financial year, the system
audit report should be submitted by 1st June of that year. Entities, which follow a calendar
year annual closing, are advised to submit their system audit reports by 1st March of the
following year.

2. There should not be any conflict of interest for auditor, i.e. the firm conducting system
audit or any of its sister concerns should not have been engaged in providing any type of
service/s to the audited entity during the last two financial years.

3. The scope of system audit must include the items indicated below. Auditors need to
comment on each item, indicating any observation (or the lack of it). Controls need to be
tested for both Design (Test of Design – ToD) and Operating Effectiveness (Test of
Operating Effectiveness – ToE).

(i) Information Security Governance – Assessment of the top management’s role in

overseeing the development, implementation and maintenance of the organization’s
information security management. It should include the following amongst others:

a. Policies related to information security;

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 b. Defined roles and responsibilities of various governance structure;

c. Identification and assessment of threats and vulnerabilities;

d. Management reviews of information security practices;

e. Additional checks based on the risk perception or threats as they emerge;

f. Key Risk Indicators (KRIs) by the entity as part of self-assessment.

(ii) Access Control – Assessment of the access control mechanism in place to restrict and
filter access to the IT assets of the organisation. It should include the following amongst
others:

a. Granting access on a “need-to-have” and “need-to-know” basis;

b. Periodic user access reviews & revocation of access;

c. Privileged User Access Management;

d. Controlled access to vendors and service providers;

e. Maintaining audit trail for system activities.

(iii) Hardware Management – Assessment of controls with regard to hardware asset

management from acquisition through disposal. Validation of effectiveness of controls on
secure use of removable media.

(iv) Network Security – Assessment of the countermeasures in place to protect the network
from malicious attacks and minimise or eliminate the possibility of any losses being incurred
by the entity as a result of the network being compromised.

(v) Data Security - Assessment of the security measures implemented across the information
life cycle starting from collection/ creation of data to storage, access, transmission and its
eventual archival and/or deletion.

(vi) Physical and Environmental Security – Assessment of the physical and environmental
security controls in place to protect assets from internal and external threats.

(vii) Human Resource Security – Assessment of the controls pertaining to human factors to
prevent threats such as data leakage, data theft and misuse of data. It should include the
following amongst others:

a. Recruitment (background checks, roles and responsibilities);

b. Information security training and user awareness;

c. Termination (removal of access to data and systems).

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(viii) Business Continuity Management – Assessment of the disaster recovery capabilities of
the audited entity and regular BCP drills. Controls should be designed so as to enable the
entity to recover rapidly from any disrupting event and safely resume critical operations
aligned with recovery time and recovery point objectives while ensuring security of processes
and data is protected.

(ix) System Scalability – Assessment of controls relating to scalability of systems from a

growth perspective and Turn Around Time (TAT) of transaction processing.

(x) IT Project Management – Assessment of controls in place for developing or acquiring

new systems focusing on project risk. Examine whether systems are based on sound design
principles which have built in security functionality such as Secure Software Development
Life Cycle (S-SDLC) and are able to withstand malicious attacks by design and ensure that
no security weaknesses have been introduced during the build process.

(xi) Vendor / Third Party Risk Management – Assessment of controls in place to ensure that
outsourcing related risks are managed through adequate oversight measures that should
include the following amongst others:

a. Service level agreement (it should mandatorily include right of audit / inspection by
the home country regulators);

b. Assessment of the security controls during on-boarding or off-boarding

c. Implementation of baseline cyber security controls by the service provider;

d. Responsibility of service providers to get their systems audited to ensure error-free

operation;

e. Mandatory disclosure of any security incident specific to the entity’s systems or

processes.

(xii) Incident Management – Assessment of the entity’s response mechanism in the event of a
security incident. Examine the organisation’s capability to identify the incident, contain the
damage, investigate the incident, effectively respond and restore normal operations as quickly
as possible with the least possible impact. Also, verify the effectiveness of controls around
determination and elimination of the root cause to prevent the occurrence of repeated
incidents.

(xiii) Change Management – Assessment of controls in place for ensuring that changes are
applied appropriately and do not compromise the information security of the organisation.

(xiv) Patch Management – Assessment of the mechanism in place to consistently monitor and
configure systems and applications against known vulnerabilities in operating systems and
other software.

(xv) Log Management – Assessment of the security controls around generation, transmission,
access, analysis, storage, archiving and ultimate disposal of log data.

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(xvi) Secure Mail and Messaging systems – Assessment of controls in place to ensure that the
entity’s inbound and outbound traffic in the form of mail, messages or any other media are
secure.

(xvii) Mobile and/or other Input / Output Device Management Policy – Assessment of
security controls with regard to portable devices (e.g. smartphones, laptops etc.) having
access to sensitive data.

(xviii) Security Testing and Source Code Review – Assessment of the adequacy of system
performance under stress-load scenarios, security controls including vulnerability assessment,
penetration testing, configuration review and source code review.

(xix) Online Systems Security – Assessment of controls in place to ensure security of

payment information processing systems and Application Programming Interfaces (APIs)
provided to internal/ external applications.

(xx) Mobile Online Services (applicable for entities offering services through mobile
applications) – Assessment of the controls in place to protect mobile applications and
provided by the entity to its customers from malicious attacks.

4. The auditors need to check open observations and compliance noted in the previous system
audit so as to ensure sustained compliance.

5. Deviations, if any, in the processes followed by the entity from the process flow submitted
to RBI while seeking authorisation should be mentioned by the auditor.

6. The SAR and compliance status must be placed before the Board of the entity. For each
open observation, specific time-bound (maximum 3 months) corrective action must be taken
and reported to RBI. It is imperative that timelines of compliance should be given adequate
importance. SAR observations shall be closed only after receiving closure acceptance from
the auditor.

Appendix 9

General applicability of principles to specific type of FMIs

Principle PSs CSDs SSSs CCPs TRs
1. Legal basis ● ● ● ● ●
2. Governance ● ● ● ● ●
3. Framework for the comprehensive management of
● ● ● ● ●
risks
4. Credit risk ●   ● ●  
5. Collateral ●   ● ●  
6. Margin       ●  
7. Liquidity risk ●   ● ●  
8. Settlement finality ●   ● ●  
9. Money settlements ●   ● ●  
10. Physical deliveries   ● ● ●  
11. Central Securities Depositories   ●      

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 12. Exchange-of-value settlement systems ●   ● ●  
13. Participant Default Rules and Procedures ● ● ● ●  
14. Segregation and Portability       ●  
15. General business risk ● ● ● ● ●
16. Custody and Investment Risks ● ● ● ●  
17. Operational risk ● ● ● ● ●
18. Access and participation requirements ● ● ● ● ●
19. Tiered participation arrangements ● ● ● ● ●
20. FMI Links   ● ● ● ●
21. Efficiency and effectiveness ● ● ● ● ●
22. Communication procedures and standards ● ● ● ● ●
23. Disclosure of rules, key procedures, and market
● ● ● ● ●
data
24. Disclosure of market data by Trade Repositories         ●

Appendix 10

Applicability of PFMIs to Important Retail Payment Systems (IRPS) and Other Retail
Payment Systems (ORPS)

S. No. Principles for FMIs IRPS ORPS

1. Principle 1: Legal basis X X
2. Principle 2: Governance X X
Principle 3: Framework for comprehensive management of
3. X X
risks
4. Principle 4: Credit Risk    
5. Principle 5: Collateral    
6. Principle 7: Liquidity Risk    
7. Principle 8: Settlement Finality X X
8. Principle 9: Money settlements X  
9. Principle 13: Participant default rules and procedures X  
10. Principle 15: General Business Risk X  
11. Principle 16: Custody and investment risks    
12. Principle 17: Operational risk X X
13. Principle 18: Access and participation requirements X  
14. Principle 21: Efficiency and effectiveness X X
15. Principle 22: Communication procedures and standards X  
Principle 23: Disclosure of rules, key procedures, and
16. X X
market data

Appendix 11

Table of Acronyms
AePS Aadhaar enabled payment system
APBS Aadhaar Payment Bridge System
DPSS Department of Payment and Settlement Systems
BBPCU Bharat Bill Payment Central Unit

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BBPOU Bharat Bill Payment Operating Unit
BBPS Bharat Bill Payment System
CCIL Clearing Corporation of India Limited
CO Central Office
CPMI Committee on Payments and Market Infrastructures
CPSS Committee on Payment and Settlement Systems
CTS Cheque Truncation System
FMI Financial Market Infrastructure
IMPS Immediate Payment Service
IOSCO International Organisation of Securities Commissions
MTSS Money Transfer Service Scheme
NCC National Clearing Cell
NDS-OM Negotiated Dealing System - Order Matching
NEFT National Electronic Fund Transfer
NFS National Financial Switch
NPCI National Payments Corporation of India
PFMI Principles for Financial Market Infrastructures
PPI Pre-Paid Instruments
PSS Payment and Settlement Systems
RO Regional Office
RTGS Real Time Gross Settlement
SFMS Structured Financial Messaging System
SSS Securities Settlement System
SWIPS System Wide Important Payment System
TReDS Trade Receivables Discounting System

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1 CPSS – Central Bank oversight of payment and settlement systems – May 2005

2 CPSS “Core Principles for systemically important payment systems” (January 2001),
CPSS-IOSCO “Recommendations for securities settlement systems” (November 2001), and
CPSS-IOSCO “Recommendations for central counterparties” (November 2004).

3 Available at the BIS website (http://www.bis.org/publ/cpss101a.pdf).

4 Real Time Gross Settlement (RTGS), Securities Settlement Systems (SSSs), Clearing
Corporation of India Ltd. (CCIL) and Negotiated Dealing System (NDS).

5 “Payment system” means a system that enables payment to be effected between a payer and
a beneficiary, involving clearing, payment or settlement service or all of them, but does not
include a stock exchange. It includes the systems enabling credit card operations, debit card
operations, smart card operations, money transfer operations or similar operations. The term
“Payment System” shall be construed as reference to a “designated trade repository”.
“settlement” means settlement of payment instructions and includes the settlement of
securities, foreign exchange or derivatives or other transactions which involve payment
obligations.

6 Trade Repository means a person who is engaged in the business of collecting, collating,
storing, maintaining, processing or disseminating electronic records or data relating to such
derivatives or financial transactions, as may be specified by the RBI from time to time.

7 Schedule to PSS Regulations 2008 includes Uniform Regulations and Rules for Bankers’
Clearing Houses, PGs on National Electronic Funds Transfer (NEFT) System, Operational
Manual on NEFT System, Real Time Gross Settlement (RTGS) system (Membership)
Regulations, 2004, RTGS (Membership) Business Operating Guidelines, 2004, PGs on
Cheque Truncation System (CTS) and Bye Laws, Rules and Regulations of Clearing
Corporation of India Limited (CCIL).

8 CCIL was set up and established in 2001 as RBI’s initiative for creating a guaranteed
platform for systemically important payment systems. The CCIL is owned and managed by
commercial banks. It functions as a CCP for select categories of transactions such as those in
the government securities, inter-bank foreign exchange market, call money market, etc. thus
effectively managing and mitigating the counterparty risks arising out of possible default by
any constituent.

9 NPCI was established in 2009 for acting as an umbrella organisation with the responsibility
to set up and manage country’s retail payment ecosystem. Its major objective was to facilitate
robust, scalable, secured and affordable payment mechanism to benefit the common man
across the country and further the cause of financial inclusion.

10 The Integrated Banking Department (IBD) of RBI, Mumbai manages and operates the
SSS for the government securities, both for outright and repo transactions conducted in the
secondary market. Government securities (outright) are settled using DVP model 3
mechanism on a T+1 basis. Repos are settled on T+0 or T+1 basis. In addition, the IBD also
acts as depository for dematerialised government securities.

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11 In addition to functions of CCP, CCIL also provides non-guaranteed settlement in the
rupee denominated interest rate derivatives like Interest Rate Swaps / Forward Rate
Agreement market. It also provides non-guaranteed settlement of cross currency trades to
banks in India through Continuous Linked Settlement (CLS) bank by acting as a third-party
member of a CLS Bank settlement member.

12 The provisions of PSS Act shall apply to the designated TR as they apply to, or in relation
to, payment systems to the extent applicable.

13 NDS-OM is owned by the RBI and is operated by CCIL on behalf of the RBI. NDS-OM,
introduced in 2005, is an electronic, screen based, anonymous, order driven trading system
for dealing in Government securities. The NDS-OM ensures complete anonymity among the
participants and brings transparency in secondary market transactions in Government
securities. The NDS-OM facilitates Straight-Through-Processing (STP) as all the trades on
the system are automatically sent to CCIL for settlement. With the efficiency and ease of its
operations, the NDS-OM today accounts for around 90 per cent of the trading volume in
government securities.

14 The same is available at https://www.bis.org/cpmi/publ/d123.pdf and

https://www.bis.org/cpmi/publ/d146.pdf.

15 RBI has issued direction to CCIL under Section 10 (2) and 18 of PSS Act that CCIL shall
be subjected to regulation and supervision using the PFMIs. They have also been directed to
adhere with the PFMI requirements for both CCP as well as TR activities.

16 https://www.bis.org/cpmi/info_pfmi.htm?m=3%7C16%7C598.

17 Central Bank Oversight of Payment and Settlement Systems, May 2005, CPSS, BIS

18 RBI has, in October 2018, issued policy directions, under Section 18 of Payment and
Settlement Systems (PSS) Act, 2007, relating to capital requirements and governance
framework for CCPs as also providing a framework for recognition of foreign CCPs.

19 The PFMI Principles relating to credit and liquidity risks are not applicable to CSDs and
TRs as they do not face credit and liquidity risks.

20 The list of 'Payment System Operators’ authorised by RBI to set up and operate in India
under the PSS Act, 2007 is given at https://www.rbi.org.in/Scripts/PublicationsView.aspx?
id=12043.

21 The same is available at https://www.bis.org/cpmi/publ/d123.pdf and

https://www.bis.org/cpmi/publ/d146.pdf

22 The PFMIs say that “In general, the principles are applicable to FMIs operated by central
banks, as well as those operated by the private sector. Central Banks should apply the same
standards to their FMIs as those that are applicable to similar private sector FMIs. However,
there are exceptional cases where the principles are applied differently to FMIs operated by
central banks due to requirements in relevant law, regulation, or policy. (Para 1.23 of PFMIs).

125
23 PGs are entities that provide technology infrastructure to route and facilitate processing of
an online payment transaction without any involvement in handling of funds.

24 PAs are entities that facilitate e-commerce sites and merchants to accept various payment
instruments from the customers for completion of their payment obligations without the need
for merchants to create a separate payment integration system of their own. PAs facilitate
merchants to connect with acquirers. In the process, they receive payments from customers,
pool and transfer them on to the merchants after a time period.

25 Central Bank Oversight of Payment and Settlement Systems, May 2005, CPSS, BIS

26 Section 4 of PSS Act, 2007 implies that any person before commencing or operating a
payment system shall obtain authorisation from the RBI and for the purpose it shall apply in a
prescribed format to RBI as defined in PSS Regulations, 2008.

27 The document CPSS-IOSCO – PFMIs – Disclosure Framework and Assessment

Methodology – December 2012 is available at https://www.bis.org/cpmi/publ/d106.pdf.

28 The document CPSS-IOSCO – Public quantitative disclosure standards for CCPs –

February 2015 is available at file:///C:/Users/sprasad/Downloads/d125.pdf

29 NEFT system is a retail payment system, owned and operated by RBI.

30 The tools available to central banks to induce change vary significantly, ranging from
moral suasion to statutory powers to enforce oversight decisions. The tools include: Moral
suasion, public statements, Voluntary agreements and contracts, Participation in systems,
cooperation with other authorities, statutory power to require change, and enforcement and
sanctions.

31 System participant is defined in OSDT, 2019 as any person other than a bank participating
in a payment system as defined under Section 2 of the PSS Act, 2007 excluding a ‘System
Provider”.

32 https://www.bis.org/cpmi/publ/d146.htm - Guidance on cyber resilience for financial

market infrastructure – June 2016.

33 Implemented vide letter DPSS.CO.OD.No. 1325/06.11.001/2019-20 dated January 10,

2020.

Digital Banking, Retail Banking

Date: Jun 05, 2020

RBI announces creation of Payments Infrastructure Development Fund

The Reserve Bank announces creation of a Payments Infrastructure Development Fund

(PIDF) to encourage acquirers to deploy Points of Sale (PoS) infrastructure (both physical
and digital modes) in tier-3 to tier-6 centres and north eastern states.

126
Over the years, payments ecosystem in the country has evolved with a wide range of options
such as bank accounts, mobile phones, cards, etc. To provide further fillip to digitisation of
payment systems, it is necessary to give impetus to acceptance infrastructure across the
country, more so in underserved areas.

The Reserve Bank will make an initial contribution of ₹250 crores to the PIDF covering half
the fund and remaining contribution will be from card issuing banks and card networks
operating in the country. The PIDF will also receive recurring contributions to cover
operational expenses from card issuing banks and card networks. The Reserve Bank will also
contribute to yearly shortfalls, if necessary.

The PIDF will be governed through an Advisory Council and managed and administered by
Reserve Bank.

Digital Banking, Retail Banking

Reserve Bank sensitises members of public on safe use of digital transactions

Date: Jun 22, 2020

Safety and security of digital transactions are of paramount importance to their users. The
Reserve Bank has put in place many mechanisms to ensure the same by continuously and
actively undertaking digital awareness campaigns in the print and Audio-Visual media,
including through the Bank’s flagship programme “RBI Kehta Hai”.

In recent days there are reports of users falling prey to fraudsters who are luring them on
fictitious pretexts, such as alleged completion of KYC requirements, impersonating identities
and websites of banks and payment system operators, etc.

To promote safe digital transactions among the general public it is reiterated that users should
take care by (i) not sharing with anyone their ATM / Card (Debit / Credit / Prepaid) details;
(ii) not sharing their Password, PIN, OTP, CVV, UPI-PIN, etc.; (iii) avoid undertaking
banking or other financial transactions through public, open or free wifi-networks; and (iv)
not storing important banking data on the mobile, e-mail, electronic wallet or purse.
Consumers may remember that banks and other payment systems operators never ask for
details such as password, PIN, OTP, CVV number.

Banking, MSME, Credit Mgmt, Corporate Banking, ABM

Assignment of Risk Weights on Credit Facilities (Guaranteed Emergency Credit Line)

under the Emergency Credit Line Guarantee Scheme

RBI/2019-20/255 DoR.BP.BC.No.76/21.06.201/2019-20 June 21, 2020

All Member Lending Institutions/ (All Scheduled Commercial Banks including Scheduled
RRBs)/ (NBFCs including HFCs eligible under the captioned scheme)/(All India Financial
Institutions - Small Industries Development Bank of India, National Housing Bank, National
Bank for Agriculture and Rural Development and Export-Import Bank of India)

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Please refer to circular Ref no. 2842/NCGTC/ECLGS dated May 23, 2020 issued by National
Credit Guarantee Trustee Company (NCGTC) in respect of the captioned scheme announced
by the Government of India to extend guaranteed emergency credit line to MSME borrowers.
As credit facilities extended under the scheme guaranteed by NCGTC are backed by an
unconditional and irrevocable guarantee provided by Government of India, it has been
decided that Member Lending Institutions shall assign zero percent risk weight on the credit
facilities extended under this scheme to the extent of guarantee coverage.

Cyber Crimes, Digital Banking,

Instances of Payment Frauds – Enhancing Public Awareness Campaigns Through

Multiple Channels

RBI/2019-20/256 DPSS.CO.OD.No.1934/06.08.005/2019-20 June 22, 2020

The Chairman / Managing Director / Chief Executive Officer

Authorised Payment System Operators (banks and non-banks) / Participants of Payment
Systems (banks and non-banks)

As you are aware, safety and security of digital transactions are of paramount importance.
Reserve Bank has been taking measures to improve awareness through its e-BAAT
programmes and organising campaigns on safe use of digital payment modes, to avoid
sharing critical personal information like PIN, OTP, passwords, etc.

2. Inspite of these initiatives, incidence of frauds continue to bedevil digital users, often using
the same modus operandi users were cautioned about, such as luring them to disclose vital
payment information, swapping sim cards, opening links received in messages and mails, etc.
There are also cases of users being tricked into downloading spurious apps that access critical
information stored on devices. It is, therefore, essential that all payment systems operators
and participants – banks and non-banks – continue and reinforce efforts to spread awareness
about digital safety.

3. All authorised payment systems operators and participants are hereby advised to undertake
targeted multi-lingual campaigns by way of SMSs, advertisements in print and visual media,
etc., to educate their users on safe and secure use of digital payments.

NBFCs

Loans Sourced by Banks and NBFCs over Digital Lending Platforms: Adherence to
Fair Practices Code and Outsourcing Guidelines

RBI/2019-20/258 DOR(NBFC)(PD)CC.No.112/03.10.001/2019-20 June 24, 2020

All Scheduled Commercial Banks (excluding RRBs) /All Non-Banking Financial Companies
(including Housing Finance Companies)

128
It has been observed that many digital platforms have emerged in the financial sector
claiming to offer hassle free loans to retail individuals, small traders, and other borrowers.
Banks and NBFCs are also seen to be engaging digital platforms to provide loans to their
customers. In addition, some NBFCs have been registered with Reserve Bank as ‘digital-
only’ lending entities while some NBFCs are registered to work both on digital and brick-
mortar channels of credit delivery. Thus banks and NBFCs are observed to lend either
directly through their own digital platforms or through a digital lending platform under an
outsourcing arrangement.

2. It has further been observed that the lending platforms tend to portray themselves as
lenders without disclosing the name of the bank/ NBFC at the backend, as a consequence of
which, customers are not able to access grievance redressal avenues available under the
regulatory framework. Of late, there are several complaints against the lending platforms
which primarily relate to exorbitant interest rates, non-transparent methods to calculate
interest, harsh recovery measures, unauthorised use of personal data and bad behavior.

3. Although digital delivery in credit intermediation is a welcome development, concerns

emanate from non-transparency of transactions and violation of extant guidelines on
outsourcing of financial services and Fair Practices Code, etc. issued to banks and NBFCs, a
reference to which is drawn in the Annex. It is, therefore, reiterated that banks and NBFCs,
irrespective of whether they lend through their own digital lending platform or through an
outsourced lending platform, must adhere to the Fair Practices Code guidelines in letter and
spirit. They must also meticulously follow regulatory instructions on outsourcing of financial
services and IT services.

4. It must be noted that outsourcing of any activity by banks/ NBFCs does not diminish their
obligations, as the onus of compliance with regulatory instructions rests solely with them.
Wherever banks and NBFCs engage digital lending platforms as their agents to source
borrowers and/ or to recover dues, they must follow the following instructions:

a) Names of digital lending platforms engaged as agents shall be disclosed on the website of
banks/ NBFCs.

b) Digital lending platforms engaged as agents shall be directed to disclose upfront to the
customer, the name of the bank/ NBFC on whose behalf they are interacting with him.

c) Immediately after sanction but before execution of the loan agreement, the sanction letter
shall be issued to the borrower on the letter head of the bank/ NBFC concerned.

d) A copy of the loan agreement along with a copy each of all enclosures quoted in the loan
agreement shall be furnished to all borrowers at the time of sanction/ disbursement of loans.

e) Effective oversight and monitoring shall be ensured over the digital lending platforms
engaged by the banks/ NBFCs.

f) Adequate efforts shall be made towards creation of awareness about the grievance redressal
mechanism.

129
5. Any violation in this regard by banks and NBFCs (including NBFCs registered to operate
on ‘digital-only’ or on digital and brick-mortar channels of delivery of credit) will be viewed
seriously.

Banking, ABM, Treasury, CTP

Section 42(1) of the Reserve Bank of India Act, 1934 - Change in Minimum Daily
Maintenance of the Cash Reserve Requirement

RBI/2019-20/260 DOR.No.Ret.BC.78/12.01.001/2019-20 June 26, 2020

All Scheduled Banks

Please refer to our circular DOR.No.Ret.BC.51/12.01.001/2019-20 dated March 27, 2020 on
the captioned subject.

2. As announced in the Statement of Developmental and Regulatory Policies of March 27,

2020, the minimum daily maintenance of the Cash Reserve Ratio (CRR) was reduced from
90 per cent of the prescribed CRR to 80 per cent effective the fortnight beginning March 28,
2020 till June 26, 2020.

3. Keeping in view the continuing of hardships faced by banks in terms of social distancing
of staff and consequent strains on reporting requirements, it has now been decided to extend
the relaxation of the minimum daily maintenance of the Cash Reserve Ratio of 80 per cent for
a further period of three months, i.e., up to September 25, 2020.

Banking, ABM, Treasury, CTP

Section 24 of the Banking Regulation Act, 1949 – Maintenance of Statutory Liquidity

Ratio (SLR) – Marginal Standing Facility (MSF)

RBI/2019-20/259 DOR.No.Ret.BC.77/12.02.001/2019-20 June 26, 2020

All Scheduled Banks (excluding Regional Rural Banks)

Please refer to our circular DOR.No.Ret.BC.52/12.01.001/2019-20 dated March 27, 2020 on

Marginal Standing Facility (MSF) Scheme.

2. As announced in the Statement of Developmental and Regulatory Policies dated March 27,
2020, the borrowing limit of scheduled banks under the MSF scheme, by dipping into the
prescribed SLR, was increased from 2 per cent to 3 per cent of their Net Demand and Time
Liabilities (NDTL) outstanding at the end of the second preceding fortnight with immediate
effect. This relaxation was available up to June 30, 2020.

3. On a review, it has now been decided to extend this enhanced limit till September 30,
2020.

4. Banks may continue to access overnight funds under the MSF against their excess SLR
holding as advised in our circular FMD.No.65/01.18.001/11-12 dated December 21, 2011.

130
131
FX, BFM, Intl Banking, DIBF, ITF, Treasury Mgmt, CTP, DTIRM

Date 23rd January 2020

All Members of FEDAI
Dear Sir/Madam,

The Managing Committee in its meeting dated 21st January 2020 approved following
amendment to FEDAI Rules No.1

EXISTING RULE REVISED RULE

Rule No.1.1 The normal market hours for FCY/INR
The exchange trading hours for INR/FCY transactions in Inter-bank forex market as
transactions in Inter-bank forex market in well as client transactions in India would be
India would be from 9.00 a.m. to 5.00 p.m. from 9.00 a.m. to 5.00 p.m. IST on all
No customer transaction for INR/FCY working days
should be undertaken by the Authorised
Dealers after 4.30 p.m. on all working days.
Rule No.1.2
A) Cut-off time limit stated above for (A) Authorised dealers may undertake
Interbank/Customers is not applicable for customer (persons resident in India and
cross currency transactions. persons resident outside India) and inter-
bank transactions on all working days
(B) Cut-off time limit stated above in Rule beyond normal market hours.
1.1, is not applicable to FCY/INR
transaction for individual person (including (B) Transactions with persons resident
joint account or proprietary firm). Any outside India, through their foreign branches
transaction undertaken beyond the market and subsidiaries may also be undertaken on
hours prescribed under Rule 1.1, bank must all working days beyond normal market
ensure that: hours.

i. Charges including exchange rate for (C) However, value Cash transactions may
conversion be confirmed from customer be undertaken only upto 5.00 pm IST,
prior to undertaking the transaction except in case of individual person
(including joint account or proprietary firm)
ii. NOOP Limit is maintained all the times.
In terms of paragraph 7.1 of Internal (D) Transactions, including value cash
Control Guidelines on Foreign Exchange transactions, for individual persons
Business of Reserve Bank of India (including joint account or proprietary firm)
(February 2011), Authorised Dealers are can be undertaken even on Saturdays,
permitted to undertake cross currency Sundays and holidays as per banks internal
transactions during extended hours, policy.
provided the Managements lay down the
policy for extended dealing hours. (E) Any transaction undertaken beyond the
market hours prescribed under Rule 1.1,
bank must ensure that:

NOOP Limit is maintained all the times.

[including transactions executed from EOD
to 9.00 am IST (market opening time) next

132
 working day]

Spot date Roll over for FCY/INR

transactions will take place at 12.00
midnight IST

Member banks are requested to make a note of the above amendments and be guided
accordingly.

FX, BFM, Intl Banking, DIBF, ITF, Treasury Mgmt, CTP, DTIRM

SPL No 2/BV/2020 19th March 2020

All Members of FEDAI

Dear Sir/Madam,

Sub - Novel Coronavirus (COVID 19) – Temporary relaxations in Forex regulations

The spread of Novel Coronavirus has brought about an unprecedented global crisis. To
combat this unprecedented situation many of the business entities have implemented a
number of measures including moving to a remote work environment or where ever possible
operating from home and are facing difficulties in fulfilling some of the regulatory
requirements while managing the Foreign Exchange Risk. To provide some relief to the
corporate in their forex risk management, based on FEDAI’s recommendation, RBI has
permitted following relaxations.

1) Submission of underlying documents - Current Fx hedging guidelines

Quote ‘while details of the underlying have to be recorded at the time of booking the
contract, in the view of logistic issues, a maximum period of 15 days may be allowed for
production of the documents. If the documents are not submitted by the customer within 15
days, the contract may be cancelled, and the exchange gain, if any, should not be passed on to
the customer’. Unquote.

In the present circumstances it may be difficult for corporates to adhere to the requirement of
15-day period and submission of certified true copies (hard copies) of the underlying
documents.
Relaxation–Considering the difficulty faced by corporate AD Banks may allow time of upto
60 days or date of maturity of contract whichever is earlier, for production of underlying
documents by corporates. This would be applicable for the contracts booked between
February 15, 2020 to April 15, 2020. This period may be reviewed/extended based on
evolving situation.

Online submission of documents evidencing exposure instead of physical production of

documents, subject to due diligence by AD Banks on the authenticity of underlying
documents, is permitted. This would be applicable for the contracts booked between February
15, 2020 to April 15, 2020. AD Banks shall ensure that all documents are obtained once
normalcy is restored.

133
2) FEDAI Rules - Presently FEDAI Rule No. 6.4 (iv) requires that if a customer desires to
cancel the contract he must advise the bank accordingly before or latest on the date of
maturity of the contract. If there are no instructions from the customer, banks shall cancel the
overdue contract within 3 working days after the maturity date. However, when a contract is
cancelled after the maturity date, the customer shall not be entitled to the exchange
difference, if any, in his favour, since the contract is cancelled on account of his default. He
shall, however, be liable to pay the exchange difference, against him.

Relaxation–The FEDAI Rule No. 6.4 (iv) is being put in abeyance, AD Banks may permit
the corporate to take delivery of the overdue contract or cancel the contract and pass the gains
if any, during the period (upto 3 days post maturity). This relaxation would be applicable to
all the live contracts (as on date) and the prospective contracts maturing till April 15,2020.

3)Submission of Documents -Submission of all monthly/ quarterly returns related to forex

hedging is also being kept in abeyance till April 30, 2020 and the same may be submitted
with delay thereafter.

Member banks are requested to take note of the same.

FX, BFM, Intl Banking, DIBF, ITF, Treasury Mgmt, CTP, DTIRM

SPL-09/COVID19 Relaxations/2020
11th June 2020
To
All Member Banks

Novel Coronavirus COVID-19 – Temporary Relaxations in forex regulations –

Extension

Dear Sir/ Madam,

We request reference to our Special Circulars No.SPL-02/BV/2020 dated 19th March 2020,
No.SPL-04/COVID19 Relaxations/2020 dated 15th April 2020 and SPL-08/COVID19
Relaxations/2020 dated 19th May 2020.

In the light of opening up of economy in phased manner starting with Unlock 1.0, the
situation was reviewed and it has been decided to continue the relaxations, with some
modifications, for the period starting from 1st June 2020 to 30th June 2020.

1) Submission of underlying documents

Relaxation –
Considering the difficulties faced by corporates AD Banks may allow time of upto 30 days or
date of maturity of contract whichever is earlier, for physical production of underlying
documents by corporates.

AD Banks should ensure online submission of documents within 15 days of booking of the
contract.

134
2) FEDAI Rule No.6.4 (iv)

Relaxation –The FEDAI Rule No. 6.4 (iv) is being put in abeyance, AD Banks may permit
the
corporate to take delivery of the overdue contract or cancel the contract and pass the gains if
any, during the period (upto 3 days post maturity as per banks internal policy).

Banks are advised to be cautious while extending these relaxations. All attempts should be
made to restrict extending these relaxations in areas/to clients where lockdown restrictions
have been relaxed/normalcy is getting restored.

Member banks are requested to be guided accordingly

MSME, Banking, ABM, Credit Mgmt, Corporate Banking

Govt. of India

THE GAZETTE OF INDIA: EXTRAORDINARY [PART II—SEC. 3(ii)]

MINISTRY OF MICRO, SMALL AND MEDIUM ENTERPRISES
NOTIFICATION
1st June, 2020

S.O. 1702(E).—In exercise of the powers conferred by sub-section (1) read with sub-section
(9) of section 7 of the ‘Micro, Small and Medium Enterprises Development Act, 2006 (27 of
2006) and in supersession of the notification of the Government of India, Ministry of Small
Scale Industries, dated the 29th September, 2006, published in the Gazette of India,
Extraordinary, Part II, Section 3, Sub-section(ii), vide S.O. 1642(E), dated the 30th
September 2006 except as respects things done or omitted to be done before such
supersession, the Central Government, hereby notifies the following criteria for classification
of micro, small and medium enterprises, namely:—

i. a micro enterprise, where the investment in Plant and Machinery or Equipment does
not exceed one crore rupees and turnover does not exceed five crore rupees;
ii. a small enterprise, where the investment in Plant and Machinery or Equipment does
not exceed ten crore rupees and turnover does not exceed fifty crore rupees;
iii. a medium enterprise, where the investment in Plant and Machinery or Equipment
does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty
crore rupees.

This notification shall come into effect from 01.07.2020.

Rs 3 lakh crores Collateral-free Automatic Loans for Businesses, including MSMEs

• Businesses/MSMEs have been badly hit due to COVID19 need additional funding to
meet operational liabilities built up, buy raw material and restart business
• Decision: Emergency Credit Line to Businesses/MSMEs from Banks and NBFCs up
to 20% of entire outstanding credit as on 29.2.2020
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 o Borrowers with up to Rs. 25 crore outstanding and Rs. 100 crore turnover
eligible
o Loans to have 4-year tenor with moratorium of 12 months on Principal
repayment
o Interest to be capped
o 100% credit guarantee cover to Banks and NBFCs on principal and interest
o Scheme can be availed till 31st Oct 2020
o No guarantee fee, no fresh collateral
• 45 lakh units can resume business activity and safeguard jobs.

Rs 20,000 crores Subordinate Debt for Stressed MSMEs

• Stressed MSMEs need equity support
• GoI will facilitate provision of Rs. 20,000 cr as subordinate debt
• Two lakh MSMEs are likely to benefit
• Functioning MSMEs which are NPA or are stressed will be eligible
• Govt. will provide a support of Rs. 4,000 Cr. to CGTMSE
• CGTMSE will provide partial Credit Guarantee support to Banks
• Promoters of the MSME will be given debt by banks, which will then be infused by
promoter as equity in the Unit.

Rs 50,000 cr. Equity infusion for MSMEs through Fund of Funds

• MSMEs face severe shortage of Equity.
• Fund of Funds with Corpus of Rs 10,000 crores will be set up.
• Will provide equity funding for MSMEs with growth potential and viability.
• FoF will be operated through a Mother Fund and few daughter funds
• Fund structure will help leverage Rs 50,000 cr of funds at daughter funds level
• Will help to expand MSME size as well as capacity.
• Will encourage MSMEs to get listed on main board of Stock Exchanges.

New Definition of MSMEs

• Low threshold in MSME definition have created a fear among MSMEs of graduating
out of the benefits and hence killing the urge to grow.
• There has been a long-pending demand for revisions.

Announcement:
• Definition of MSMEs will be revised
• Investment limit will be revised upwards
• Additional criteria of turnover also being introduced.
• Distinction between manufacturing and service sector to be eliminated.
• Necessary amendments to law will be brought about.

Existing MSME Classification

Existing MSME Classification

Criteria: Investment in Plant & Machinery or Equipment
Classification Micro Small Medium
Mfg. Enterprises Investment<Rs. 25 Investment<Rs. 5 cr. Investment <Rs. 10
lac cr.

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 Services Enterprise Investment<Rs. 10 Investment< Rs. 2 Investment<Rs. 5 cr.
lac cr.

Revised MSME Classification

Composite Criteria: Investment and Annual Turnover
Classification Micro Small Medium
Manufacturing Investment< Rs. 1 Investment< Rs. 10 Investment< Rs. 20
& Services cr. cr. cr.
and and and
Turnover < Rs. 5 cr. Turnover < Rs. 50 Turnover < Rs. 100
cr. cr.

Other interventions for MSMEs

• MSMEs currently face problems of marketing and liquidity due to COVID.
• e-market linkage for MSMEs to be promoted to act as a replacement for trade fairs
and exhibitions.
• Fintech will be used to enhance transaction-based lending using the data generated by
the e-marketplace.
• Government has been continuously monitoring settlement of dues to MSME vendors
from Government and Central Public Sector Undertakings.
• MSME receivables from Gov and CPSEs to be released in 45 days

Banking, Rural Banking, Coop Banking, Rural Banking Operations

Cabinet approves extension of repayment date for short term loans for agriculture and
allied activities by banks which have become due or shall become due between 1st
March, 2020 and 31st August, 2020

01 JUN 2020 5:39PM by PIB Delhi

The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi has given its approval
to extend repayment date up to 31.08.2020 for Standard Short-Term loans up to Rs.3 lakh
advanced for agriculture and allied activities by banks, which have become due or shall
become due between 1st March, 2020 and 31st August, 2020 with continued benefit of 2%
Interest Subvention (IS) to Banks and 3% Prompt Repayment Incentive (PRI) to farmers.

Benefit:
Extension of repayment date upto 31.08.2020 for Standard Short-Term loans upto Rs.3 lakh
for agriculture and allied activities by banks falling due between 1st March, 2020 and 31st
August, 2020 with continued benefit of 2% IS to Banks and 3% PRI to farmers, shall help the
farmers to repay/renew such loans upto the extended repayment date of 31.08.2020 at 4%
p.a., interest without attracting any penalty and thus help them in avoiding travelling to banks
for such renewal during this COVID pandemic period.

Background
Govt. is providing concessional Standard Short-Term Agri-loans to farmers through banks
with 2% p.a, interest subvention to banks and 3% additional benefit on timely repayment to
farmers thus providing loans upto Rs,3 lakh at 4% p.a. interest on timely repayment. In the

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wake of lockdown due to ongoing Covid 19 pandemic, there have been restrictions imposed
on movement of people. Many farmers are not able to travel to bank branches for payment of
their short-term crop loan dues. Moreover, due to restrictions on movement of people,
difficulty in timely sale, receipt of payment of their produce and the necessity of adhering to
social distancing norms, farmers are finding it difficult to arrange the amount to be deposited
for renewal and are unable to visit the banks to deposit and draw fresh loans.

Credit Mgmt, ABM, Corporate Banking, Legal

MINISTRY OF LAW AND JUSTICE

(Legislative Department)
New Delhi, the 5th June, 2020/Jyaishtha 15, 1942 (Saka)

THE INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT)

ORDINANCE, 2020
NO. 9 OF 2020
Promulgated by the President in the Seventy-first Year of the
Republic of India.

138
2 THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

139
 SEC. 1] THE GAZETTE OF INDIA EXTRAORDINARY 3

MINISTRY OF LAW AND JUSTICE (Legislative Department)

New Delhi, the 13th March 2020/Phalguna 23, 1941 (Saka)

The following Act of Parliament received the assent of the President on the 13th March 2020,
and is hereby published for general information: —

THE INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT) ACT, 2020

NO. 1 OF 2020 [13th March 2020.]

An Act further to amend the Insolvency and Bankruptcy Code, 2016.

BE it enacted by Parliament in the Seventy-first Year of the Republic of India as follows: —

1. (1) This Act may be called the Insolvency and Bankruptcy Code (Amendment) Act, 2020.
(2) It shall be deemed to have come in force on the 28th day of December 2019.

Amendment of section 5.
2. In section 5 of the Insolvency and Bankruptcy Code, 2016 (hereafter referred to as the
principal Act), —

(i) in clause (12), the proviso shall be omitted.

(ii) in clause (15), after the words "during the insolvency resolution process period"
occurring at the end, the words "and such other debt as may be notified" shall be inserted.

Amendment of section 7.
3. In section 7 of the principal Act, in sub-section (1), before the Explanation, the
following provisos shall be inserted, namely: —

"Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6A)
of section 21, an application for initiating corporate insolvency resolution process against the
corporate debtor shall be filed jointly by not less than one hundred of such creditors in the
same class or not less than ten per cent. of the total number of such creditors in the same
class, whichever is less:

Provided further that for financial creditors who are allottees under a real estate project, an
application for initiating corporate insolvency resolution process against the corporate debtor
shall be filed jointly by not less than one hundred of such allottees under the same real estate

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project or not less than ten per cent. of the total number of such allottees under the same real
estate project, whichever is less:

Provided also that where an application for initiating the corporate insolvency resolution
process against a corporate debtor has been filed by a financial creditor referred to in the first
and second provisos and has not been admitted by the Adjudicating Authority before the
commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such
application shall be modified to comply with the requirements of the first or second proviso
within thirty days of the commencement of the said Act, failing which the application shall be
deemed to be withdrawn before its admission.".

Amendment of section 11.

4. In section 11 of the principal Act, the Explanation shall be numbered as Explanation I
and after Explanation I as so numbered, the following Explanation shall be inserted, namely:
—
"Explanation II.—For the purposes of this section, it is hereby clarified that nothing in this
section shall prevent a corporate debtor referred to in clauses (a) to (d) from initiating
corporate insolvency resolution process against another corporate debtor.".

Amendment of section 14.

5. In section 14 of the principal Act, —
(a) in sub-section (1), the following Explanation shall be inserted, namely: —
"Explanation.—For the purposes of this sub-section, it is hereby clarified that
notwithstanding anything contained in any other law for the time being in force, a license,
permit, registration, quota, concession, clearances or a similar grant or right given by the
Central Government, State Government, local authority, sectoral regulator or any other
authority constituted under any other law for the time being in force, shall not be suspended
or terminated on the grounds of insolvency, subject to the condition that there is no default in
payment of current dues arising for the use or continuation of the license, permit, registration,
quota, concession, clearances or a similar grant or right during the moratorium period;";

(b) after sub-section (2), the following sub-section shall be inserted, namely: —
"(2A) Where the interim resolution professional or resolution professional, as the case may
be, considers the supply of goods or services critical to protect and preserve the value of the
corporate debtor and manage the operations of such corporate debtor as a going concern, then
the supply of such goods or services shall not be terminated, suspended or interrupted during
the period of moratorium, except where such corporate debtor has not paid dues arising from
such supply during the moratorium period or in such circumstances as may be specified.";
(c) in sub-section (3), for clause (a), the following clause shall be substituted, namely: —
"(a) such transactions, agreements or other arrangements as may be notified by the Central
Government in consultation with any financial sector regulator or any other authority;".

Amendment of section 16.

6. In section 16 of the principal Act, in sub-section (1), for the words "within fourteen
days from the insolvency commencement date", the words "on the insolvency
commencement date" shall be substituted.

Amendment of section 21.

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7. In section 21 of the principal Act, in sub-section (2), in the second proviso, after the
words "convertible into equity shares", the words "or completion of such transactions as may
be prescribed," shall be inserted.

Amendment of section 23.

8. In section 23 of the principal Act, in sub-section (1), for the proviso, the following
proviso shall be substituted, namely: —

"Provided that the resolution professional shall continue to manage the operations of the
corporate debtor after the expiry of the corporate insolvency resolution process period, until
an order approving the resolution plan under sub-section (1) of section 31 or appointing a
liquidator under section 34 is passed by the Adjudicating Authority.".

Amendment of section 29A.

9. In section 29A of the principal Act, —
(i) in clause (c), in the second proviso, in Explanation I, after the words, "convertible into
equity shares", the words "or completion of such transactions as may be prescribed," shall be
inserted.
(ii) in clause (j), in Explanation I, in the second proviso, after the words "convertible into
equity shares", the words "or completion of such transactions as may be prescribed," shall be
inserted.

Insertion of new section 32A.

10. After section 32 of the principal Act, the following section shall be inserted, namely:
—

Liability for prior offences, etc.

"32A. (1) Notwithstanding anything to the contrary contained in this Code or any other law
for the time being in force, the liability of a corporate debtor for an offence committed prior
to the commencement of the corporate insolvency resolution
process shall cease, and the corporate debtor shall not be prosecuted for such an offence from
the date the resolution plan has been approved by the Adjudicating Authority under section
31, if the resolution plan results in the change in the management or control of the corporate
debtor to a person who was not—
(a) a promoter or in the management or control of the corporate debtor or a related party
of such a person; or
(b) a person with regard to whom the relevant investigating authority has, on the basis of
material in its possession, reason to believe that he had abetted or conspired for the
commission of the offence, and has submitted or filed a report or a complaint to the relevant
statutory authority or Court:
Provided that if a prosecution had been instituted during the corporate insolvency resolution
process against such corporate debtor, it shall stand discharged from the date of approval of
the resolution plan subject to requirements of this sub-section having been fulfilled:
Provided further that every person who was a "designated partner" as defined in clause (j) of
section 2 of the Limited Liability Partnership Act, 2008, (6 of 2009.) or an "officer who is in
default", as defined in clause (60) of section 2 of the Companies Act, 2013, or was in any
manner in charge of, or responsible to the (18 of 2013.)
corporate debtor for the conduct of its business or associated with the corporate debtor in any
manner and who was directly or indirectly involved in the commission of such offence as per
the report submitted or complaint filed by the investigating authority, shall continue to be

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liable to be prosecuted and punished for such an offence committed by the corporate debtor
notwithstanding that the corporate debtor's liability has ceased under this sub-section.
(2) No action shall be taken against the property of the corporate debtor in relation to an
offence committed prior to the commencement of the corporate insolvency resolution process
of the corporate debtor, where such property is covered under a resolution plan approved by
the Adjudicating Authority under section 31, which results in the change in control of the
corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III
of Part II of this Code to a person, who was not—
(i) a promoter or in the management or control of the corporate debtor or a related party
of such a person; or
(ii) a person with regard to whom the relevant investigating authority has, on the basis of
material in its possession reason to believe that he had abetted or conspired for the
commission of the offence, and has submitted or filed a report or a complaint to the relevant
statutory authority or Court.
Explanation. —For the purposes of this sub-section, it is hereby clarified that, —
(i) an action against the property of the corporate debtor in relation to an offence shall
include the attachment, seizure, retention or confiscation of such property under such law as
may be applicable to the corporate debtor.
(ii) nothing in this sub-section shall be construed to bar an action against the property of
any person, other than the corporate debtor or a person who has acquired such property
through corporate insolvency resolution process or liquidation process under this Code and
fulfils the requirements specified in this section, against whom such an action may be taken
under such law as may be applicable.
(3) Subject to the provisions contained in sub-sections (1) and (2), and notwithstanding
the immunity given in this section, the corporate debtor and any person who may be required
to provide assistance under such law as may be applicable to such corporate debtor or person,
shall extend all assistance and co-operation to any authority investigating an offence
committed prior to the commencement of the corporate insolvency resolution process.".

Amendment of section 227.

11. In section 227 of the principal Act, —
(i) for the words "examined in this Code", the words "contained in this Code “shall be
substituted.
(ii) the following Explanation shall be inserted, namely: —
"Explanation.—For the removal of doubts, it is hereby clarified that the insolvency and
liquidation proceedings for financial service providers or categories of financial service
providers may be conducted with such modifications and in such manner as may be
prescribed.".

Amendment of section 239.

12. In section 239 of the principal Act, in sub-section (2), after clause (f), the following
clauses shall be inserted, namely: —
"(fa) the transactions under the second proviso to sub-section (2) of section 21; (fb) the
transactions under Explanation I to clause (c) of section 29A;
(fc) the transactions under the second proviso to clause (j) of section 29A;".

Amendment of section 240.

13. In section 240 of the principal Act, in sub-section (2), after clause (i), the following
clause shall be inserted, namely: —

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"(ia) circumstances in which supply of critical goods or services may be terminated,
suspended or interrupted during the period of moratorium under sub-section (2A) of section
14;".
14. (1) The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 is hereby
repealed. (Ord. 16 of 2019.) (Repeal and savings.)
(2) Notwithstanding such repeal, anything done or any action taken under the Insolvency and
Bankruptcy Code, 2016, as amended by the said Ordinance, shall be deemed to have been
done or taken under the corresponding provisions of the said Code, as amended by this Act.
(31 of 2016.)

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