The Reserve Bank of India and the Ministry of Electronics and Information Technology recently established a new regulatory framework for setting limits on and payments of merchant discount rates and encouraging digital payments. Rates will now be determined based not only on the basis of transaction value, but also on turnover. However, in its effort to curb transaction costs for merchants, the government risks imposing significant charges on other system participants.
The Reserve Bank of India (RBI) recently issued a press release stating that given the rapid changes to the payments solutions space, it was in the process of reviewing the regulatory framework governing pre-paid payment instruments. The RBI also stated that it will grant no new licences for the issue of pre-paid payment instruments until the end of February 2017. This temporary suspension will not apply to applications made by new small finance banks and payment banks.
The Supreme Court recently held that a dishonoured post-dated cheque for repayment of a loan instalment that was described as 'security' in the loan agreement was covered by the criminal liability set out in Section 138 of the Negotiable Instruments Act. While deciding whether dishonoured cheques issued to discharge existing liability fall under Section 138, the court explained that the question of whether a post-dated cheque is for "discharge of debt or liability" depends on the nature of the transaction.
The Reserve Bank of India recently issued guidelines for the at-will licensing of universal banks in the private sector which, for the first time, will allow applicants to apply for a banking licence at will. The at-will regime will lead to increased transparency, better innovation and more realistic valuations, and is a significant step towards a healthier licensing regime for new private banks.
The Supreme Court recently clarified that all bank employees (including those employed by private sector banks) will be treated as public servants for the purposes of anti-corruption law. This ruling has significant implications, as all employees, officers and key managerial personnel of banking companies (ie, private and public sector banks and branches of foreign banks) will now come under the purview of the Prevention of Corruption Act.
The Reserve Bank of India recently introduced the Strategic Debt Restructuring Scheme, which allows banks to convert outstanding loan payments into equity shares through strategic debt restructuring if defaulting borrowers fail to achieve projected viability milestones set out under the restructuring package. While the success of the scheme remains to be seen, it is a powerful tool for banks to manage their stressed accounts.
A May 2014 circular issued by the Reserve Bank of India gave Indian exporters the opportunity to obtain foreign currency financing against performance of export supply contracts at rates lower than those available under general foreign currency borrowing. However, another circular issued in April 2015 has made lenders and exporters reconsider the viability of the scheme, as most exporters were using this financing option to repay rupee loans.
The Factoring Regulation Act aims to regulate factors and lay down a framework for the assignment of receivables. Under the act, a factoring company must register with the Reserve Bank of India (RBI) as a non-banking financial company (NBFC) and comply with the relevant prudential regulations. The RBI has recently introduced a new category of NBFCs, known as NBFC factors, and issued directions for such factors.
Following concerns over the discrepancy in regulation between banks and non-banking financial companies (NBFCs), the Reserve Bank of India (RBI) recently set up a working group to review the regulatory framework for NBFCs. On receipt of the group's report, the RBI released new draft guidelines for NBFCs, which seek to revamp completely the existing regulatory environment.
Factoring is a useful financial tool for micro and small enterprises. However, in the absence of a consolidated legal framework regulating factoring in India, it has so far played a limited role in business financing. The Factoring Regulation Act 2011 provides for and regulates the assignment of receivables and is intended to provide a much-needed legal framework for factoring in India.
The Reserve Bank of India (RBI) recently released a revised set of draft guidelines for the licensing of new banks in the private sector, which has received much attention in the banking and financial industries. The 2011 guidelines lay down a framework for the granting of banking licences by the RBI to corporate entities and non-banking financial companies, a significant departure from the RBI's earlier policy.
The central government recently announced new privacy rules under the Information Technology Act 2000. The rules will have a significant impact on the banking industry, given that a large volume of information that banks receive will be defined as 'sensitive information'. Banks that fail to comply will be exposed to potential claims for compensatory damages by affected persons.
With a view to facilitating the expansion of Indian companies' operations abroad, the prudential limit of credit and non-credit facilities extended by banks to Indian joint ventures and wholly owned subsidiaries abroad has now been increased from 10% to 20% of the bank's unimpaired capital funds (Tier I and Tier II).
The Reserve Bank of India has issued a circular requesting that all non-banking financial companies submit a certificate from their statutory auditors annually in order to notify the Reserve Bank that they are continuing to carry on business as an NBFC and thus require a certificate of registration to do so.
With a view to increasing the transparency of the Indian credit system and improving customer protection, the Reserve Bank of India has prescribed broad fair practice guidelines to be formulated and approved by the board of directors of all non-banking financial companies.
The Reserve Bank of India has amended the requirements for non-banking financial companies to provide public notice before any change in their control or management. Instead of the previous requirement of three months' prior public notice, non-banking financial companies now need give only 30 days' prior public notice of a merger, amalgamation or change in the management or control of the company.
In order to help banks and other financial institutions improve their financial health, the Indian government has allowed 49% of foreign direct investment in the equity capital of asset reconstruction companies. India is now set to open up asset reconstruction companies for the benefit of financial institutions with bad debts.
The Reserve Bank of India has published a circular permitting foreign banks to become established in India in two phases. During the first phase foreign banks can establish wholly owned subsidiaries or convert existing branches into wholly owned subsidiaries according to certain guidelines.
The government has promulgated a new ordinance designed to establish tighter recovery times for lenders in order to reduce the current large non-performing asset value. The ordinance amends the Sarfaesi Act, which allows banks and financial institutions to attach defaulters' assets without intervention by the courts or debt recovery tribunals.
The government has incorporated a clause in its recent policy changes on foreign direct investment in the banking sector, according to which the acquisition of 100% equity in a local bank is now open to the wholly owned subsidiaries of foreign banks.