Crack Grade B 1

NAVIGATOR
DECEMBER

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SOURCES COVERED
• BUSINESS STANDARD
• LIVE MINT
• INDIAN EXPRESS
• RBI WEBSITE
• SEBI WEBSITE
• IRDAI WEBSITE

RELEVANT FOR
• RBI GRADE B
• IRDAI GRADE A
• NABARD GRADE A
• PFRDA GRADE A
• BANKING EXAMS
• INSURANCE EXAMS

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Regulatory Bodies in NEWS:

Central Banking in Uncertain Times: The Indian
Experience
RBI reins in P2P lending practices over violations
What is in the News?

The Reserve Bank of India (RBI) has told peer-to-peer lending platforms
to halt certain activities after inspections found rule violations and
misleading sales practices.

Highlights:

• The central bank conducted inspections of at least 10 lenders in the

fast-growing sector between June and September.
• They declined to be identified because discussions with the regulator
are not public.
• They added that some lenders had already begun halting certain
services and practices in line with the central bank’s guidance,
while failure to comply could risk future penalties or restrictions.
• The six largest lending platforms of 24 doing business in India, also
did not respond.
• The regulators found a variety of violations and questionable
practices, including improper relending of repaid funds and
marketing of products as an alternative to bank deposits.
• India’s regulators have been intensifying their scrutiny of rapidly
growing consumer finance services, including peer-to-peer lending,
which industry executives estimate is worth Rs.8,000 crore to
Rs.10,000 crore ($960 million-$1.20 billion) in assets under
management.

Picture of resilience: RBI ups FY24 growth forecast to

7%
What is in the News?

The six-member Monetary Policy Committee of the Reserve Bank of

India (RBI) decided to keep the policy repo rate unchanged at 6.5 per cent

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for the fifth straight review meeting, as well as the withdrawal of
accommodation stance, while stopping short of clearly communicating
that the rate cycle had peaked.

Highlights:

• One of the key highlights of this no-action policy was the sharp
revision of the FY24 GDP growth rate, which is now projected at 7
per cent as compared to 6.5 per cent earlier.
• The inflation projection for FY24 has been retained at 5.4 per cent,
with a word of caution for the November and December prints.

Sebi eases accredited investor registration

What is in the News?

The Securities and Exchange Board of India (Sebi) issued steps to

simplify the requirements for registering as an ‘Accredited Investor’ along
with an extension to the validity of the certification.

Highlights:

• SEBI said that accreditation agencies will be able to grant certification

solely based on the Know- Your-Customer (KYC) and financial
information of the applicants.
• As KYC registration agencies (KRAs) act as accreditation agencies,
they will now be able to access KYC documents from the database for
this certification.

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• Accredited investors are considered to have the ability to bear the
financial risks associated with certain investment products.
• They may not be subject to the same regulatory oversight as
applicable to investment by other investors.
• In schemes like Alternative Investment Funds (AIFs), these
investors are allowed to go be - low the minimum threshold.
• For individuals, Hindi Undivided Families (HUFs) and trusts, Sebi
also removed the requirement for certain documents like certificate
from a chartered accountant stating net worth for three financial
years, proof of basis of valuation of assets like demat account
statements, ‘ready reckoner rate’ applicable for real estate assets.
Instead, copies of Income Tax Return (ITR) and financial statements
have been sought.
• The requirements have been eased for corporate bodies too.
• According to regulatory officials, there are only 200 accredited
investors registered in the country.

Master Direction - Reserve Bank of India (Internal

Ombudsman for Regulated Entities) Directions, 2023
Applicability:

1. All Scheduled Commercial Banks (excluding RRBs)

2. All NBFCs
3. Non-Bank System Participants
4. All Credit Information Companies

Highlights:

• The Internal Ombudsman mechanism has been set up with a view to

strengthen the Internal Grievance Redress system of the regulated
entities.
• A review of Internal Ombudsman schemes has been undertaken by
the Reserve Bank in line with the integration of the erstwhile three
RBI Ombudsman Schemes as also with the objective to improve the
customer service standards in regulated entities.
• The framework reaffirms that the Internal Ombudsman mechanism
should work as envisaged and the Internal Ombudsman shall be
positioned as an independent, apex level authority on consumer
grievance redress within the regulated entities.
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• Accordingly, in exercise of the powers conferred by Section 35A of the
Banking Regulation Act, 1949, Section 45L read with 45M of the
Reserve Bank of India Act, 1934, sub-section (1) of Section 11 of
Credit Information Companies (Regulation) Act, 2005 and Section
18 of the Payment and Settlement Systems Act, 2007, the Reserve
Bank of India, being satisfied that it is necessary and expedient in
public interest to do so, hereby directs that all the regulated entities
shall comply with the Direction with immediate effect.
• The regulated entities are further advised as follows:
(i) The Internal Ombudsman appointed by the regulated entity, under
the erstwhile Internal Ombudsman Schemes / Direction shall
continue to hold office till the expiry of their tenure.
(ii) The regulated entities not currently falling under the Internal
Ombudsman Schemes / Direction may closely monitor their
eligibility as per the prescribed provisions for timely appointment
of Internal Ombudsman in their entity, as required.
(iii) The regulated entities are advised to forward the contact details of
the Internal Ombudsman / Deputy Internal Ombudsman to
Consumer Education and Protection Department, Central Office,
Reserve Bank of India.

Appointment of Internal Ombudsman:

• The Internal Ombudsman shall either be a retired or serving officer,

in the rank equivalent to a General Manager of another bank /
Financial Sector Regulatory Body / NBSP / NBFC / CIC, having
necessary skills and experience of minimum seven years of working
in areas such as banking, non-banking finance, regulation,
supervision, payment and settlement systems, credit information or
consumer protection.
• The Internal Ombudsman shall previously not have been employed,
nor presently be employed, by the regulated entity or the regulated
entity’s related parties.
• The Internal Ombudsman shall not be over 70 years of age before
the completion of the tenure.
• The Deputy Internal Ombudsman shall functionally report to the
Internal Ombudsman, who will be the final authority / decision-
making authority while dealing with the complaints. In the temporary

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absence of the Internal Ombudsman, not exceeding a period of 15
working days.
• The appointment of the Internal Ombudsman / Deputy Internal
Ombudsman in the regulated entity is of a contractual nature.
• The tenure of the Internal Ombudsman / Deputy Internal
Ombudsman in the regulated entity shall be a fixed term of not less
than three years, but not exceeding five years.
• The Internal Ombudsman / Deputy Internal Ombudsman shall not
be eligible for reappointment or for extension of term in the same
regulated entity.

Fair Lending Practice - Penal Charges in Loan

Accounts: Extension of Timeline for Implementation of
Instructions
Applicability:

• All Commercial Banks (including Small Finance Banks, Local Area

Banks, and Regional Rural Banks, excluding Payments Banks)
• All Primary (Urban) Co-operative Banks
• All NBFCs (including HFCs) and
• All India Financial Institutions (EXIM Bank, NABARD, NHB, SIDBI
and NaBFID)

Highlights:

• Reserve Bank has issued various guidelines to the Regulated Entities

(REs) to ensure reasonableness and transparency in disclosure of
penal interest.
• Under the extant guidelines, lending institutions have the
operational autonomy to formulate Board approved policy for levy of
penal rates of interest.
• It has been observed that many REs use penal rates of interest, over
and above the applicable interest rates, in case of defaults / non-
compliance by the borrower with the terms on which credit facilities
were sanctioned.
• The instructions were to come into effect from January 1, 2024.
• However, considering that certain clarifications and additional time
has been sought by some regulated entities (REs) to reconfigure their
internal systems and operationalize the circular, it has been decided
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to extend the timeline for implementation of the instructions by
three months.
• Accordingly, REs shall ensure that the instructions are implemented
in respect of all the fresh loans availed from April 1, 2024
onwards.
• In the case of existing loans, the switchover to new penal charges
regime shall be ensured on the next review/ renewal date falling on or
after April 1, 2024, but not later than June 30, 2024.

Payments Infrastructure Development Fund –

Extension of Scheme and Enhancements
PIDF Scheme is being extended by two years, i.e., upto December 31,
2025.

Further, with a view to provide impetus to deployment of acceptance

infrastructure, the following enhancements are being made to the Scheme:

a. The beneficiaries identified as part of the PM Vishwakarma Scheme,

across the country, shall be included as merchants for deployment
under the PIDF Scheme. All eligible installations since the inception
of the PM Vishwakarma Scheme, i.e., September 17, 2023, may
prefer claims under the PIDF Scheme.
b. The PIDF Scheme presently subsidises deployment of acceptance
infrastructure based on category of device – physical or digital. It
has been decided to enable other contemporary devices, viz., (i)
Soundbox devices – providing instant audio payment confirmation
along with payment acceptance by “scan & pay” and Near Field
Communication (NFC), and (ii) Aadhaar-enabled biometric devices
– certified biometric scanner devices facilitating Aadhaar
authentication for acceptance of payment by merchant through BHIM
Aadhaar Pay, would be eligible for subsidy under the Scheme, for
installations made from October 01, 2023 onwards.
c. The amount of subsidy for devices deployed in special focus areas, viz.,
North Eastern States, Union Territories of Jammu & Kashmir and
Ladakh, is increased from 75% to 90% of the total cost, irrespective
of the type of device, for installations made from October 01, 2023
onwards.
Highlights:
Validity Period and PIDF Target:
• Five years from January 01, 2021.
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• Increasing payments acceptance infrastructure by adding 30 lakh
touch points every year.
Governance Structure of PIDF:
PIDF shall be governed by an ex-officio Advisory Council (AC).
Target Geographies:
• The primary focus shall be to create payment acceptance
infrastructure in Tier-3 to Tier-6 centres.
• The Scheme shall include eligible beneficiaries covered under PM
Street Vendor’s AtmaNirbhar Nidhi (PM SVANidhi Scheme) and PM
Vishwakarma Scheme in Tier-1 and Tier-2 centres.
• North Eastern States of the country and Union Territories of Jammu
and Kashmir, and Ladakh (UTs of J & K and Ladakh) shall be given
special focus.
Subsidised amount of cost of physical and digital devices based on
location of deployment shall be as under:

Initial Corpus:
RBI shall contribute ₹250 crore to the corpus; the authorised card networks
shall contribute in all ₹100 crore.
Master Direction - Lending to Micro, Small & Medium
Enterprises (MSME) Sector
Applicability:
All Scheduled Commercial Banks (excluding Regional Rural Banks).
Highlights:
Micro, Small and Medium Enterprises Development (MSMED) Act,
2006:
In terms of Gazette Notification S.O. 2119 (E) dated June 26, 2020, an
enterprise shall be classified as a micro, small or medium enterprise on
the basis of the following criteria viz.,
i. a micro enterprise, where the investment in plant and machinery or
equipment does not exceed ₹1 crore and turnover does not exceed
₹5 crore;
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ii. a small enterprise, where the investment in plant and machinery or
equipment does not exceed ₹10 crore and turnover does not
exceed ₹50 crore; and
iii. a medium enterprise, where the investment in plant and machinery or
equipment does not exceed ₹50 crore and turnover does not exceed
₹250 crore.
• All the above enterprises are required to register online on the Udyam
Registration portal and obtain ‘Udyam Registration Certificate’.
• For PSL purposes banks shall be guided by the classification
recorded in the Udyam Registration Certificate (URC).
• Retail and Wholesale trade are included as MSMEs for the limited
purpose of priority sector lending and are allowed to be registered on
Udyam Registration Portal.
• The certificate issued on Udyam Assist Portal (UAP) to Informal
Micro Enterprises (IMEs) shall be treated at par with Udyam
Registration Certificate for the purpose of availing Priority Sector
Lending benefits.
• IMEs with an Udyam Assist Certificate shall be treated as micro
enterprises for the purpose of PSL classification.
In terms of the recommendations of the Prime Minister’s Task Force on
MSMEs, banks are advised to achieve:
• 20 per cent year-on-year growth in credit to micro and small
enterprises,
• 10 per cent annual growth in the number of micro enterprise
accounts and
• 60 per cent of total lending to MSE sector as of the corresponding
quarter of the previous year to micro enterprises.
Collateral:

• Banks are mandated not to accept collateral security in the case of

loans up to ₹10 lakh extended to units in the MSE sector.

Card-on-File Tokenisation (CoFT) – Enabling

Tokenisation through Card Issuing Banks
Applicability:

All Payment System Providers and Payment System Participants.

Highlights:

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• The card tokenisation services are being currently provided by card
issuers and card networks.
• As announced in the Statement on Development and Regulatory
Policies dated October 6, 2023, it has been decided to enable CoFT
directly through card issuing banks / institutions also.
• This will provide cardholders with an additional choice to tokenise
their cards for multiple merchant sites through a single process.

CoFT through card issuers – Requirements:

• Generation of CoF Tokens for a card, through the card issuer, can be
enabled through mobile banking and internet banking channels.
• CoFT generation shall be done only on explicit customer consent, and
with AFA validation. If the cardholder selects multiple merchants for
which to tokenise his/her card, AFA validation may be combined for
all these merchants.
• The tokens thus generated shall be made available on the merchant’s
payment page, in the cardholder’s account with the merchant.
• The cardholder may tokenise the card at any time of his
convenience, either on receipt of the new card or later.
• The card issuer shall provide a complete list of merchants for whom
it can provide tokenisation services. The cardholders shall select the
merchants with whom he/she wishes to maintain tokens.
(Alternatively – “The cardholder can make his selection from the list”).
• The card token so issued may be either by the card network or the
issuer or both.

Domestic Systemically Important Bank (D-SIB)

Framework - Review of the Assessment Methodology
• The Reserve Bank had issued the framework for dealing with
Domestic Systemically Important Banks (D-SIBs) on July 22,
2014.
• In terms of this framework, the Bank is required to identify and
disclose the names of banks designated as D-SIBs annually.
• Further, in terms of the framework, the assessment methodology, for
assessing the systemic importance of banks and identification of the
D-SIBs, is required to be reviewed on a periodic basis.

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• Based on the review, while there is no change in the selected
indicators or their respective weights, the Bank has decided to effect
the following revisions to the methodology:

(a) ‘Payments’ sub-indicator under ‘Substitutability’ indicator: The data

requirement under this sub-indicator stands revised from “Payments made
in INR using RTGS and NEFT systems” to:

• Total value of Digital Payments made in INR (75 per cent weightage)
• Total volume of Digital Payments made in INR (25 per cent weightage)

(b) Timeline for annual assessment and disclosures: The computation of

systemic importance scores, based on the end-March data of all the banks
in the sample, will be performed annually in the months of August-October,
and names of the banks classified as D-SIBs will be disclosed in the month
of November every year.
Accordingly, banks will be required to be in readiness to submit the required
data to RBI by August 15 of each year.
(c) Other modifications in the data requirements - The major revisions in
this regard include:
• (i) For ‘Total Marketable Securities issued by the bank’ under
Interconnectedness indicator - The value of securities reported under
this head shall be based on their market value.
• (ii) For ‘Securities in Held for Trading (HFT) and Available for Sale
(AFS) categories1’ under Complexity indicator - The subset of
securities held in these categories that meet the definition of Level 1
and Level 2 assets (with applicable haircuts), as defined in the Basel III
liquidity coverage ratio (LCR) guidelines2, shall be deducted.
• (iii) For Securities Financing Transactions (SFTs) and Over the
counter (OTC) derivatives reported within Intra-Financial Assets and
Intra-Financial Liabilities under Interconnectedness indicator - Where
effective bilateral netting contracts as specified in the Basel III Capital
Adequacy guidelines are in place, banks may report such transactions
on a net basis.
RBI releases the Financial Stability Report, December
2023
Reserve Bank released the 28th issue of the Financial Stability Report
(FSR), which reflects the collective assessment of the Sub-Committee of the
Financial Stability and Development Council (FSDC) on risks to financial
stability and the resilience of the Indian financial system.

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Highlights:
• The global economy faces multiple challenges: prospects of slowing
growth; large public debt; increasing economic fragmentation; and
prolonging geopolitical conflicts.
• The Indian economy and the domestic financial system remain
resilient, supported by strong macroeconomic fundamentals, healthy
balance sheets of financial institutions, moderating inflation,
improving external sector position and continuing fiscal consolidation.
• The capital to risk-weighted assets ratio (CRAR) and the common
equity tier 1 (CET1) ratio of scheduled commercial banks (SCBs) stood
at 16.8 per cent and 13.7 per cent, respectively, in September 2023.
• SCBs’ gross non-performing assets (GNPA) ratio continued to decline
to a multi-year low of 3.2 per cent and the net non-performing assets
(NNPA) ratio to 0.8 per cent in September 2023.
• Macro stress tests for credit risk reveal that SCBs would be able to
comply with minimum capital requirements, with the system-level
CRAR in September 2024 projected at 14.8 per cent, 13.5 per cent
and 12.2 per cent, respectively, under baseline, medium and severe
stress scenarios.
• The resilience of the non-banking financial companies (NBFCs) sector
improved with CRAR at 27.6 per cent, GNPA ratio at 4.6 per cent
and return on assets (RoA) at 2.9 per cent, respectively, in September
2023.
Report on Trend and Progress of Banking in India
2022-23
Reserve Bank of India released the Report on Trend and Progress of
Banking in India 2022-23, a statutory publication in compliance with
Section 36 (2) of the Banking Regulation Act, 1949.
This Report presents the performance of the banking sector, including
co-operative banks and non-banking financial institutions, during 2022-23
and 2023-24 so far.
Highlights
• The consolidated balance sheet of scheduled commercial banks
(SCBs) in 2022-23 expanded by 12.2 per cent, driven by credit to retail
and services sectors; deposit growth also picked up, although it trailed
credit growth.
• The capital to risk weighted assets ratio (CRAR) of SCBs was 16.8
per cent at end-September 2023, with all bank groups meeting the

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regulatory minimum requirement and the common equity tier 1
(CET1) ratio requirement.
• The improvement in asset quality of banks that began in 2018-19
continued during 2022-23 and H1:2023-24, with gross non-
performing assets (GNPA) ratio at 3.2 per cent at end-September
2023.
• Higher net interest income and lower provisioning boosted net
interest margin (NIM) and profitability in 2022-23.
• The combined balance sheet of urban co-operative banks (UCBs)
expanded by 2.3 per cent in 2022-23, driven by loans and advances.
Their capital buffers and profitability improved through 2022-23 and
Q1:2023-24.
• The consolidated balance sheet of non-banking financial companies
(NBFCs) expanded by 14.8 per cent in 2022-23, led by double digit
credit growth.
• Profitability and asset quality of the sector also improved in 2022-23
and in H1:2023-24, even as the sector remained well-capitalised with
CRAR higher than the regulatory requirement.
Investments in Alternative Investment Funds (AIFs)
Applicability:

• All Commercial Banks (including Small Finance Banks, Local Area

Banks and Regional Rural Banks)
• All Primary (Urban) Co-operative Banks/State Co-operative Banks/
Central Co-operative Banks
• All All-India Financial Institutions
• All Non-Banking Financial Companies (including Housing Finance
Companies)

Highlights:

• Regulated entities (REs) make investments in units of AIFs as part of

their regular investment operations. However, certain transactions of
REs involving AIFs that raise regulatory concerns have come to our
notice. These transactions entail substitution of direct loan exposure of
REs to borrowers, with indirect exposure through investments in units
of AIFs.
• In order to address concerns relating to possible evergreening through
this route, it is advised as under:

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(i) REs shall not make investments in any scheme of AIFs which has
downstream investments either directly or indirectly in a debtor company of
the RE.
(ii) If an AIF scheme, in which RE is already an investor, makes a
downstream investment in any such debtor company, then the RE shall
liquidate its investment in the scheme within 30 days from the date of such
downstream investment by the AIF.
If REs have already invested into such schemes having downstream
investment in their debtor companies as on date, the 30-day period for
liquidation shall be counted from date of issuance of this circular. REs shall
forthwith arrange to advise the AIFs suitably in the matter.
(iii) In case REs are not able to liquidate their investments within the
above-prescribed time limit, they shall make 100 percent provision on
such investments.
• In addition, investment by REs in the subordinated units of any AIF
scheme with a ‘priority distribution model’ shall be subject to full
deduction from RE’s capital funds.
Processing of e-mandates for recurring transactions
Applicability:

• All Scheduled Commercial Banks, including Regional Rural Banks

• Urban Co-operative Banks / State Co-operative Banks /
District Central Co-operative Banks
• Payments Banks
• Small Finance Banks
• Local Area Banks
• Non-bank Prepaid Payment Instrument issuers / Authorised Card
Payment Networks
• National Payments Corporation of India

Highlights:

• A reference is invited to in terms of which relaxation in Additional

Factor of Authentication (AFA) was permitted while processing e-
mandates standing instructions on cards, Prepaid Payment
Instruments and Unified Payments Interface, for subsequent
recurring transactions with values up to ₹15,000/-, subject to
conditions listed therein.
• In this regard, as announced in the Statement on Developmental and
Regulatory Policies dated December 08, 2023, it has been decided to
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increase the limit from ₹15,000/- to ₹1,00,000/- per transaction for
the following categories: (a) subscription to mutual funds, (b) payment
of insurance premiums, and (c) credit card bill payments.
• This circular is issued under Section 10 (2) read with Section 18 of
the Payment and Settlement Systems Act, 2007 (Act 51 of 2007),
and shall come into effect immediately.

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