IIBF's Banking & Finance Year Book | 2023

© INDIAN INSTITUTE OF BANKING AND FINANCE, MUMBAI, 2023

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Edition : 2023

Price : ` 425

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Foreword

“The information revolution has changed wealth. Intellectual capital is far more important than money.”

Walter Wriston (Ex-Banker, Author & Orator)

Indeed, the world of banking and financial services is currently undergoing a transformation world-over, buoyed by a digital surge in every facet of the business starting from customer on-boarding, designing & delivery of products, eventually culminating in service experiences that are increasingly informationdriven and objective. For a traditionally knowledge-driven industry like Banking & Financial Services, the modern-day banker must find an effective way to keep pace with the ongoing breakneck changes and to excel at the same time. Indian Banking Sector has undergone a paradigm shift especially in the last decade. As banking professionals, one should be well informed about the changes that are taking place, both immediate and transitional.

IIBF, with its 94-year-old legacy of serving the Banking industry in India, has always endeavoured to be an effective learning partner for the banking and finance professionals through its carefully designed courseware and training programmes. With constant changes in regulations keeping pace with the changing contours of banking and financial sector, it is not only imperative to be aware of the regulatory changes but devote time and effort to imbibe the same in the regular operations. This underlying need has eventually formed the cognitive base for publication of this compendium – “IIBF Year Book on Banking & Finance.”

The Year Book is a comprehensive repository of regulatory changes covering different verticals of banks namely, Credit, Retail, Digital Banking /Information Technology, Treasury/Risk Management, Compliance, Rural Banking, Legal, etc. Further, topics on recent developments in banking & finance, extracts of speeches rendered by senior officials of RBI, select articles published in IIBF’s journal Bank Quest have been included for giving the reader a wholesome reading experience.

With the overwhelming response from the BFSI fraternity on the first edition of the book published a year ago, we sincerely believe that the second edition of the Year Book will continue to be more than a useful reference for the banking & finance professionals, especially for those officers who plan to appear for their promotional exams and interviews.

We shall be glad to receive suggestions from readers for further improvement of this initiative in our next edition.

Mumbai

6-2-2023

(Biswa Ketan Das)

Chief Executive Officer

International Banking

International Trade Settlement in Indian Rupees (INR)

Introduction:

In order to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in INR. Before putting in place this mechanism, AD banks shall require prior approval from the Foreign Exchange Department of Reserve Bank of India, Central Office at Mumbai.

Summary:

The broad framework for cross border trade transactions in INR under Foreign Exchange Management Act, 1999 (FEMA) is as delineated below:

Invoicing:All exports and imports under this arrangement may be denominated and invoiced in Rupee (INR).

Exchange Rate:Exchange rate between the currencies of the two trading partner countries may be market determined.

Settlement:The settlement of trade transactions under this arrangement shall take place in INR in accordance with the procedure laid down in Para 3 of this circular.

In terms of Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016, AD banks in India have been permitted to open Rupee Vostro Accounts. Accordingly, for settlement of trade transactions with any country, AD bank in India may open Special Rupee Vostro Accounts of correspondent bank/s of the partner trading country. In order to allow settlement of international trade transactions through this arrangement, it has been decided that:

Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro account

of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller/supplier.

Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country.

Comments/Rationale:

This measure is aimed at promoting the domestic currency as a valid exchange medium.

The bank of a partner country may approach an AD bank in India for opening of Special INR VOSTRO account. The AD bank will seek approval from the Reserve Bank with details of the arrangement. AD bank maintaining the special Vostro Account shall ensure that the correspondent bank 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.

Reference/Link:

RBI/2022-23/90 A.P. (DIR Series) Circular No.10 dated July 11, 2022

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12358&Mode=0

Interest Equalization Scheme on Pre and Post Shipment Rupee Export Credit – Extension

Introduction:

Government of India has approved the extension of Interest Equalization Scheme for Pre and Post Shipment Rupee Export Credit (‘Scheme’) up to March 31, 2024 or till further review, whichever is earlier.

Summary:

The extension takes effect from October 1, 2021 and ends on March 31, 2024. The modifications made by the Government to the Scheme are detailed below:

Eligible CategoryRate of Interest Equalization

MSME manufacturer exporters exporting under any HS lines*

Manufacture exporters and Merchant exporters (excluding 6 HS lines pertaining to Telecom Sector)*

Items

3%All Harmonized System (HS) Line eligible for exports.

2%410 HS lines

*Will not be available for the segment for which exporter is availing benefit under any Production Linked Incentive (PLI) scheme of the Government.

Comments/Rationale:

The banks shall reduce the interest rate charged to the eligible exporters as per the extant guidelines by the rate of interest equalization provided by Government of India, and submit the claims in original within 15 days from the end of the respective month. This measure is aimed at increasing price-competitiveness of Indian products in overseas export markets.

Reference/Link:

RBI/2021-22/180 DOR.STR.REC.93/04.02.001/2021-22 dated March 8, 2022

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12252&Mode=0

RBI/2022-23/60 DOR.STR.REC.39/04.02.001/2022-23 dated May 31, 2022

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12327&Mode=0

Revised Guidelines on import of gold

Introduction:

16 Banks, along with specific agencies, have been nominated by RBI to import gold into the country upto 31st March, 2023. These Banks are: Axis Bank Limited, Bank of Baroda, Bank of India, Federal Bank Limited, HDFC Bank Limited, Industrial and Commercial Bank of China Limited,ICICI Bank Limited, IndusInd Bank Limited, Indian Overseas Bank, Kotak Mahindra Bank Limited, Karur Vysya Bank Limited,Punjab National Bank, RBL Bank Limited, State Bank of India, Union Bank of India, Yes Bank Limited. And the Agencies nominated by DGFT for import of gold are: MMTC, The Handicraft and Handlooms Exports Corporation of India Ltd, PEC limited, STCL limited, MSTC ltd., Diamond India Limited.

Summary:

Qualified Jewellers as notified by The International Financial Services Centers Authority (IFSCA)will now be permitted to import gold under specific ITC(HS) Codes through India International Bullion Exchange (IIBX).

Regulations/Acts/Policy modified:

Master Direction – Import of Goods and Servicesand the AP Dir Series Circulars issued for import of Gold by Reserve Bank of India under FEMA, 1999; Regulations issued by the International Financial Services Centers Authority (IFSCA) under International Financial Services Centers Authority Act, 2019.

Foreign Trade Policy, 2015-20

Comments/Rationale:

Subsequently, following directions under FEMA have been issued-

i.AD banks may allow Qualified Jewellers to remit advance payments for eleven days for import of Gold through IIBX in compliance to the extant Foreign Trade Policy and regulations issued under IFSC Act.

ii.AD banks shall ensure that advance remittance for such import through exchange/s authorised by IFSCA shall be as per the terms of the sale contract or other document in the nature of an irrevocable purchase order in terms of IFSC Act and regulations made thereunder by IFSCA.

iii.AD bank shall carry out all the due diligence and ensure the remittances sent are only for the bona fide import transactions through exchange/s authorised by IFSCA.

iv.The advance remittance for import of Gold should not be leveraged in whatso-ever form for importing Gold worth more than the advance remittance made.

v.In case the import of Gold through IFSCA authorised exchange, for which advance remittance has been made, does not materialize, or the advance remittance made for the purpose is more than the amount required, the unutilised advance remittance shall be remitted back to the same AD bank within the specified time limit of eleven days.

vi.For gold imported through IIBX, QJ shall submit the Bill of Entry (or any other such applicable document issued/approved by Customs Department for evidence of import), issued by Customs Authorities to the AD bank from where advance payment has been remitted.

vii.All payments by qualified jewellers for imports of gold through IIBX, shall be made through exchange mechanism as approved by IFSCA in terms of IFSC Act and regulations.

Reference/Link:

RBI/2022-23/57 A.P. (DIR Series) Circular No.04 dated May 25, 2022 https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12324&Mode=0

Master Direction – Foreign Exchange Management (Hedging of Commodity Price Risk and Freight Risk in Overseas Markets)

Directions, 2022

Summary:

Banks may permit eligible entities to hedge commodity price risk and freight risk overseas, including IFSC, using permitted products and may remit foreign exchange in respect of such transactions after satisfying themselves that:

a.The entity has exposure to commodity price risk or freight risk, contracted or anticipated.

b.The quantity proposed to be hedged and the tenor of the hedge are in line with the exposure.

c.In case of OTC derivatives, the requirement to undertake OTC hedges is justified.

d.In case of hedging using a benchmark price other than that of the commodity exposed to, the requirement to undertake such hedges is justified.

e.Such hedging is taken up by the management of the entity under a policy approved by the Board of Directors of a company or equivalent forum for other.

f.The entity has the necessary risk management policies in place.

g.The entity has reasonable understanding of the utility and likely risks associated with the products proposed to be used for hedging.

OTC contracts shall be booked with a bank or with non-bank entities which are permitted to offer such derivatives by their regulators. For this purpose, a list of acceptable jurisdictions shall be specified by FEDAI.

Structured products may be permitted to eligible entities who are (a) listed on recognized domestic stock exchanges or (b) fully owned subsidiaries of such entities or (c) unlisted entities whose net worth is higher than INR 200 crore, subject to the

condition that such product are used for the purpose of hedging as defined under these directions.

All payments/receipts related to hedging of exposure to commodity price risk and freight risk shall be routed through a special account with the bank for this purpose.

Comments/Rationale:

These Directions lay down the modalities for the AD Cat-I banks for facilitating hedging of commodity price risk and freight risk in overseas markets by their customers/constituents.

Reference/Link:

RBI/2022-23/94 A. P. (DIR Series) Circular No. 20 dated December 12, 2022 https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12427&Mode=0

Hedging of Gold Price Risk in Overseas Markets

Summary:

Resident entities in India are currently not permitted to hedge their exposure to price risk of gold in overseas markets. On a review, it has been decided to permit eligible entities to hedge their exposure to price risk of gold on exchanges in the International Financial Services Centre (IFSC) recognised by the International Financial Services Centres Authority (IFSCA).

The Master Direction – Foreign Exchange Management (Hedging of Commodity Price Risk and Freight Risk in Overseas Markets) Directions, 2022 (A. P. (DIR Series) Circular No. 21 dated December 12, 2022) have been issued accordingly.

Comments/Rationale:

With a view to providing greater flexibility to these entities to hedge the price risk of their gold exposures efficiently, it has been decided to permit resident entities to hedge their gold price risk on recognised exchanges in the International Financial Services Centre (IFSC).

Reference/Link:

RBI/2022-23/151 A.P. (DIR Series) Circular No. 19 dated December 12, 2022 https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12423&Mode=0

Rupee Drawing Arrangement - Enabling Bharat Bill Payment System (BBPS) to process cross-border inbound Bill Payments

Summary:

As per ‘Rupee Drawing Arrangement – Direct to Account Facility’, foreign inward remittances received under Rupee Drawing Arrangement (RDA) can be transferred to the KYC compliant beneficiary bank accounts through electronic mode, such as, NEFT, IMPS, etc. subject to the procedure and conditions specified.

Subsequently, as announced in Para 6 of theStatement on Developmental and Regulatory Policies issued on August 5, 2022, it has been decided to allow foreign inward remittances received under the Rupee Drawing Arrangement (RDA), to be transferred to the KYC compliant bank account of the biller (beneficiary) through Bharat Bill Payment System (BBPS), subject to the conditions mentioned in Para 3 ofA.P. (DIR Series) Circular No.120 dated April 10, 2014.

Comments/Rationale:

Bharat Bill Payment System (BBPS), owned and operated by NPCI Bharat BillPay Ltd. (NBBL), has transformed the bill payment experience in the country. BBPS offers an interoperable platform for standardised bill payment experience, centralised customer grievance redress mechanism, uniform customer convenience fee, etc. Over 20,000 billers have been on-boarded on the system and more than eight crore transactions are processed on a monthly basis. BBPS is currently accessible only for residents in India.

To facilitate Non-Resident Indians (NRIs) undertake utility, education and other bill payments on behalf of their families in India, it is proposed to enable BBPS to accept cross-border inward payments. This will also benefit payment of bills of any biller on-boarded on the BBPS platform in an interoperable manner.

Reference/Link:

RBI/2022-23/115 A.P. (DIR Series) Circular No. 14 dated September 15, 2022

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12386&Mode=0

Foreign Exchange Management (Overseas Investment) Directions, 2022

Introduction:

Overseas investments by persons resident in India enhance the scale and scope of business operations of Indian entrepreneurs by providing global opportunities for

growth. Such ventures through easier access to technology, research and development, a wider global market and reduced cost of capital along with other benefits increase the competitiveness of Indian entities and boost their brand value. These overseas investments are also important drivers of foreign trade and technology transfer thus boosting domestic employment, investment and growth through such interlinkages.

In keeping with the spirit of liberalisation and to promote ease of doing business, the Central Government and the Reserve Bank of India have been progressively simplifying the procedures and rationalising the rules and regulations under the Foreign Exchange Management Act, 1999. In this direction, a significant step has been taken with operationalisation of a new Overseas Investment regime.

Summary:

Some of the significant changes brought about through the new rules and regulations are summarised below:

(i)enhanced clarity with respect to various definitions;

(ii)introduction of the concept of “strategic sector”;

(iii)dispensing with the requirement of approval for:

deferred payment of consideration;

investment/disinvestment by persons resident in India under investigation by any investigative agency/regulatory body;

issuance of corporate guarantees to or on behalf of second or subsequent level step down subsidiary (SDS);

write-off on account of disinvestment;

(iv)introduction of “Late Submission Fee (LSF)” for reporting delays.

Comments/Rationale:

The new regime simplifies the existing framework for overseas investment by persons resident in India to cover wider economic activity and significantly reduces the need for seeking specific approvals. This will reduce the compliance burden and associated compliance costs.

Reference/Link:

RBI/2022-23/110 A.P. (DIR Series) Circular No.12 dated August 22, 2022

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12381&Mode=0

External Commercial Borrowings (ECB) Policy – Liberalisation Measures

Introduction:

As per FED Master Direction No.5 on ‘External Commercial Borrowings, Trade Credits and Structured Obligations’, dated March 26, 2019(as amended from time to time), in terms of which eligible ECB borrowers are allowed to raise ECB up to USD 750 million or equivalent per financial year under the automatic route, wherein the all-in-cost ceiling for ECBs has been specified.

Summary:

As announced in paragraph five of thepress release on “Liberalisation of Forex Flows” dated July 6, 2022, it has been decided, in consultation with the Central Government, to:

i.increase the automatic route limit from USD 750 million or equivalent to USD 1.5 billion or equivalent.

ii.increase the all-in-cost ceiling for ECBs, by 100 bps. The enhanced all-in-cost ceiling shall be available only to eligible borrowers of investment grade rating from Indian Credit Rating Agencies (CRAs). Other eligible borrowers may raise ECB within the existing all-in-cost ceiling, as hitherto.

Comments/Rationale:

The above relaxations would be available for ECBs to be raised till December 31, 2022 and is aimed at increasing the Indian borrower’s access to foreign currency funds.

Reference/Link:

RBI/2022-23/98 A.P. (DIR Series) Circular No. 11 dated August 1, 2022

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12366&Mode=0

Banking & Finance Year Book | 2023

AUTHOR : INDIAN INSTITUTE OF BANKING & FINANCE

PUBLISHER : TAXMANN

DATE OF PUBLICATION : FEBRUARY 2023

EDITION : 2023 EDITION

ISBN NO : 9789356226791

NO. OF PAGES : 242

BINDING TYPE : PAPERBACK

Description

The main objective of the book is three-fold, namely:

Rs. 425 | USD 34

u Keep pace with the changing contours of the banking and financial sector

u Be aware of the regulatory changes

u Ensure compliance

This book also covers the recent developments in the banking & finance sector

This Year Book will be a helpful reference book for the banking & finance professionals and executives appearing for promotional exams and interviews.

The Present Publication is the 2nd Edition, published exclusively by Taxmann, with the following noteworthy features:

u [Comprehensive Digest of Regulatory Changes] covering different verticals of banks

u [Covering Topics on Recent Developments] in the Banking, Financial Services, and Insurance Sectors

u [Extracts of Speeches] rendered by the senior officials of the Reserve Bank of India (RBI)

u [Articles] published in IIBF’s Journal – Bank Quest

Coverage of this book includes:

u Regulatory Changes

 Credit

 Retail Banking

 Digital Banking/Information Technology

 International Banking

 Treasury/Risk Management

 Compliance

 Rural Banking, Co-operative Banks, NBFCs and Differentiated Banks

 Sustainable Finance

u Legal Changes

u Economic Changes

u Other Developments in BFSI Sector

u Important Perspective/Developments in Banking & Finance

u Important Articles – Bank Quest

u Trends in Banking Sector – A Snapshot

u Enhanced Access and Service Excellence (EASE Reforms)

u Financial Snippets

u Glossary of Banking Terms