RBI Circulars March 2024

1 For any issue related to capsule, mail us at [email protected] | Download Adda247 App: Scan Here
 RBI Circulars March 2024

RBI Circulars March 2024

1. Recently, RBI stated that they may undertake a Capital adequacy framework for PBs:
comprehensive review of the architecture of payment
banks (PBs).
• The regulatory capital framework for Small Finance
Banks (SFBs) is under consideration, as highlighted
in the Report on Trend and Progress of Banking in
India (2022-23).
• This review will also have implications for Payments
Payments Banks Deposits:
Banks (PBs) seeking to transition into SFBs. 1. Deposits in Payments Banks (PBs):
• Key aspects under review include governance • PBs are permitted to accept savings and current
standards, the sustainability of the payment bank deposits from customers, subject to a total
business model, and requisite modifications. deposit limit per customer set at ₹200,000.
• Payment banks can accumulate a substantial
• The objective of the exercise is to evaluate the pool of funds for distribution among multiple
comprehensive performance, governance, and long- accounts, provided that the aggregate balance
term viability of payment banks within the dynamic does not exceed ₹200,000 by the end of the day.
financial environment. 2. Collaborative Arrangements:
• PBs have the option to collaborate with other
Profitability of Payment Banks: scheduled commercial banks or small finance
• Payment banks (PBs) achieved profitability in FY23, banks to manage funds exceeding the prescribed
marking the first time since their establishment limits, subject to the customer's prior written
consent.
nearly a decade ago. 3. Documentation:
• Interest income growth surpassed interest expenses, • Passbooks are not mandatory for deposit
and crucial profitability metrics such as return on accounts with PBs; however, they may furnish
assets and return on equity were positive in FY23. paper account statements upon customer
request.
• Net interest margins rose to 3.7% from 2.3% in FY22,
• Electronic confirmation, such as SMS, email, or
reversing a trend of decline over three consecutive printed receipts, should be provided by PBs for
fiscal years. each account transaction. Inter-bank
Borrowings:
What are Payments Banks? • PBs are permitted to engage in borrowing and
Payments banks are financial institutions established by lending activities in the call money and CBLO
the RBI to improve financial inclusion, particularly for market among banks, subject to specified limits
marginalized communities. on call money borrowings similar to scheduled
commercial banks. Investment Classification and
Key characteristics include:
Valuation Norms:
• Limited Operations: Payment banks function on a 1. Lending Prohibition:
smaller scale compared to conventional banks, • Payments banks are prohibited from
focusing primarily on fundamental financial services engaging in lending activities and must
while avoiding credit-related risks. allocate their investments accordingly.
• PBs are required to invest 75% of
• Deposit Limits: They are permitted to accept
their funds in government securities
deposits up to a specified threshold, typically set at (G-Secs) and 25% in deposits of
Rs. 2 lakh. commercial banks.
• Financial Inclusion: Payments banks strive to 2. Investment Mandate:
advance financial inclusion by offering services such • PBs are mandated to maintain a
minimum investment equivalent to at
as savings accounts and facilitating payment
least 75% of 'demand deposit balances'
transactions. (DDB) in government securities or
• No Credit Facilities: Unlike traditional banks, Treasury Bills with a maturity of up to
payment banks do not provide lending services such one year, recognized by the RBI as
as loans or credit cards. eligible securities for Statutory Liquidity
Ratio (SLR).
2 For any issue related to capsule, mail us at [email protected] | Download Adda247 App: Scan Here
 RBI Circulars March 2024
3. Deposit Management: Scope of Activities:
• Payment banks (PBs) are required to • Payments banks can accept demand deposits, issue
maintain balances in demand and time ATM/debit cards, offer payments and remittance
deposits with other Scheduled services, provide internet banking (subject to RBI
Commercial Banks (SCBs), not approval), function as Business Correspondents
exceeding 25% of their Demand Deposit (BCs) of other banks, handle cross-border remittance
Balances (DDB). transactions, and undertake other non-risk sharing
financial services activities with prior RBI approval.
• The combined investments and deposits
Capital Requirement:
made under the aforementioned
• The minimum paid-up equity capital of a payments
guidelines should constitute at least
bank shall be ₹100 crore.
100% of the DDB.
• The payments bank should maintain a leverage ratio
• Excess balances with other SCBs beyond of not less than 3%, calculated as tier 1 capital
the 25% limit of DDB are permissible if divided by on and off-balance sheet liabilities
sourced from funds other than DDB, (exposures).
including earnest money deposits of • Leverage ratio = capital measure/exposure
Business Correspondents (BCs). measure, a. where capital measure is tier 1 capital
4. Investment Regulations: and exposure measure are on and off-balance sheet
• PBs are prohibited from categorizing liabilities (exposures).
investments, except those sourced from Promoters’ Contribution:
their funds, as Held to Maturity (HTM). 1. Given that payment banks do not engage in lending
• They are not permitted to engage in activities, there is no requirement for them to
'when issued' and 'short sale' maintain a diversified ownership structure, and no
maximum shareholding limit for promoters is
transactions.
specified.
• PBs are allowed to invest in bank
2. For the initial five years of operation, the promoters
Certificates of Deposit (CDs) within the
of a payments bank must collectively hold a minimum
limit applicable to bank deposits. of 40% of its paid-up equity capital.
5. Registration, Licensing, and Regulations: 3. Once a payments bank attains a net worth of Rs. 500
• Payments banks are registered as public crores, making it systemically important, it must
limited companies under the Companies transition to a diversified ownership structure and
Act, of 2013, and licensed under Section list on the stock exchange within three years of
22 of the Banking Regulation Act, of reaching this net worth threshold.
1949. Foreign Shareholding:
• They are covered under the Deposit 1. Foreign investment in private sector banks, including
Insurance and Credit Guarantee payments banks, is capped at a maximum of 74% of
Corporation (DICGC). the paid-up capital, with automatic approval granted
for investments up to 49% and approval required via
Main Objective:
the route beyond 49% up to 74%.
• The primary goal of establishing payment banks is
2. At least 26% of the paid-up capital must be held
to enhance financial inclusion by providing small
by residents, while individual holding by Non-
savings accounts and payment/remittance services
Resident Indians (NRIs) is limited to 5% of the total
to various segments of the population, especially low- paid-up capital, with an aggregate limit not exceeding
income households, small businesses, and other 10%, extendable to 24% with a special resolution.
unorganized sector entities. Voting Rights and Acquisition:
Eligible Promoters: 1. Shareholders’ voting rights in private sector banks,
• Various entities, including existing non-bank Pre- including payments banks, are limited to 10%,
paid Payment Instrument (PPI) issuers, individuals, although this limit can be gradually increased to 26%
professionals, NBFCs, corporate BCs, mobile in stages by the Reserve Bank of India (RBI).
telephone companies, super-market chains, real 2. Any acquisition of 5% or more of the paid-up share
sector cooperatives, and public sector entities, may capital of a private sector bank, including payment
apply to set up payment banks. banks, requires prior approval from the RBI.

3 For any issue related to capsule, mail us at [email protected] | Download Adda247 App: Scan Here
 RBI Circulars March 2024
2. RBI issues directions to card networks for the 3. RBI amends these debit card, and credit card rules:
issuance of credit cards to customers What cardholders should know
The Reserve Bank of India (RBI) has issued guidelines The Reserve Bank of India (RBI) amended the regulations
aimed at enhancing options and flexibility for customers governing credit and debit cards. The RBI has requested
in the issuance of credit cards by card networks. business card issuers to put in place an adequate system
According to the RBI, authorized card networks
to track the use of money. The new provisions are effective
collaborate with both banks and non-bank entities for
from March 7, 2024, as per RBI.
credit card issuance.
The decision on which network to use for a customer's Who is it applicable to?
card, whether it is a bank or a non-bank institution, rests • It applies to all credit card issuing banks and non-
with the card issuer and is influenced by agreements banking financial companies (NBFCs).
between issuers and card networks.
• Instructions relating to debit cards shall apply to
After conducting a review, the RBI observed that certain
every bank operating in India.
arrangements between card networks and issuers were
restricting customer choices. Consequently, leveraging its Amended Provision-
authority under the Payment and Settlement Systems Act, • Card issuers have the authority to issue business
of 2007, the RBI has mandated: credit cards to business entities or individuals to
a) Card issuers must refrain from entering into any
cover business expenses.
agreement with card networks that limits their
• These business credit cards can take various forms
ability to utilize services from other card networks.
b) Card issuers must offer eligible customers the option such as charge cards, and corporate credit cards, or
to select from multiple card networks during card be linked to credit facilities like overdrafts or cash
issuance. For existing cardholders, this choice may be credits specifically designed for business purposes.
provided at the time of the next renewal. • Issuers are required to implement an efficient
The directive identifies authorized card networks as mechanism to monitor the utilization of funds
American Express Banking Corp., Diners Club associated with these business credit cards.
International Ltd., MasterCard Asia/Pacific Pte. Ltd., • Additionally, card issuers have the flexibility to issue
National Payments Corporation of India–Rupay, and Visa add-on cards along with business credit cards as
Worldwide Pte. Limited. Both card issuers and networks
needed.
are required to comply with these provisions in existing
• In case the closure process for a business credit card
agreements, upon amendment or renewal, as well as in
new agreements. account exceeds seven working days, card issuers will
However, it is clarified that these guidelines do not apply incur a penalty of ₹500 per calendar day of delay
to credit card issuers with fewer than 10 lakh active cards. payable to the cardholder until the closure is
Additionally, issuers issuing credit cards on their completed, provided there are no outstanding
authorized card networks are exempt from the circular's balances remaining in the account.
applicability. • Card issuers are obligated to educate cardholders
The directive concerning customer choice during about the consequences of making only the minimum
issuance will be effective six months from March 6, 2024. payment due on their credit card bills.
• A prominent warning message stating, “Making only
the minimum payment every month would result in
the repayment stretching over months/years with
consequential compounded interest payment on
your outstanding balance," must be displayed in all
billing statements to alert cardholders about the risks
associated with paying only the minimum amount
due.
• Additionally, the MITC (Most Important Terms and
Conditions) provided by the card issuer should
explicitly clarify that the 'interest-free credit period'
will be suspended if any balance from the previous
month's bill remains outstanding.

4 For any issue related to capsule, mail us at [email protected] | Download Adda247 App: Scan Here
 RBI Circulars March 2024
• Card issuers are permitted to report a credit card (b) These alternative form factors are subject to all
account as 'past due' to credit information companies specific and general guidelines applicable to the
(CICs) or impose penal charges, including late respective cards.
payment fees, only if the account remains 'past due' (c) Card issuers are required to offer options for
for more than three days. disabling or blocking the use of these alternative
• The calculation of the 'days past due' and late form factors, following the instructions issued by
payment charges should be based on the payment the Reserve Bank of India periodically.
due date mentioned in the credit card statement, as • Co-branded cards must indicate that they are issued
specified in the regulatory instructions on 'Prudential under a co-branding agreement, not as standalone
norms on Income Recognition, Asset Classification products.
and Provisioning about Advances' that are • The co-branding partner (CBP) is forbidden from
periodically amended. promoting the co-branded card as its product.
• Late payment charges and other related fees should • All marketing and advertising materials must
be applied solely to the outstanding amount after the prominently feature the name of the card issuer.
due date and not to the total amount due. • The CBP is not permitted to access transaction
• Card issuers offer flexibility in billing cycles for credit information associated with the co-branded card.
cards, as they do not adhere to a standard billing cycle • After the issuance of the card, the CBP must not be
for all issued cards. involved in any processes or controls related to the
• To accommodate cardholders' preferences, they are co-branded card, except as the initial point of contact
provided with the option to modify the billing cycle of for grievances.
their credit card at least once, according to their • However, for the cardholder's convenience,
convenience. transaction-related data may be accessed directly
• Before labeling a credit cardholder as a defaulter and from the card issuer's system in an encrypted form
reporting their default status to a Credit Information and displayed on the CBP platform with robust
Company (CIC), card issuers must adhere to a security measures.
procedure approved by their Board.
• The information displayed on the CBP's platform
• Card issuers are required to notify the cardholder must only be visible to the cardholder and cannot be
before reporting their default status to the CIC.
accessed or stored by the CBP.
• In case the cardholder settles their dues after being
• Co-branded cards must indicate that they are issued
reported as a defaulter, the card issuer must update
under a co-branding agreement, not as standalone
the status with the CIC within 30 days from the date
products.
of settlement.
• The co-branding partner (CBP) is forbidden from
• Card issuers need to exercise caution, especially in
promoting the co-branded card as its product.
cases where there are pending disputes associated
• All marketing and advertising materials must
with the credit cards.
prominently feature the name of the card issuer.
• Information disclosure regarding defaults should
• The CBP is not permitted to access transaction
only occur after the resolution of disputes, and a
information associated with the co-branded card.
transparent procedure must be followed consistently,
• After the issuance of the card, the CBP must not be
which should also be outlined in the Most Important
involved in any processes or controls related to the
Terms and Conditions (MITC).
co-branded card, except as the initial point of contact
• Banks are prohibited from issuing debit cards to cash
for grievances.
credit/loan accounts; however, this restriction does
not apply to linking overdraft facilities provided with • However, for the cardholder's convenience,
Pradhan Mantri Jan Dhan Yojana accounts or Kisan transaction-related data may be accessed directly
Credit Card accounts with a debit card. from the card issuer's system in an encrypted form
• Regarding the issue of form factors: and displayed on the CBP platform with robust
(a) Card issuers are permitted to issue alternative security measures.
form factors, such as wearables, alongside or • The information displayed on the CBP's platform
instead of traditional plastic debit/credit cards, must only be visible to the cardholder and cannot be
with explicit consent from the customer. accessed or stored by the CBP.

5 For any issue related to capsule, mail us at [email protected] | Download Adda247 App: Scan Here
 RBI Circulars March 2024
4. RBI issues omnibus framework for recognizing SROs • This merger, one of the initial consolidations in the
for regulated entities relatively new Small Finance Bank (SFB) sector, has
• Self-regulatory organizations (SROs) representing received approval under the powers vested in sub-
banks, non-banking financial companies (NBFCs), section (4) of Section 44A of the Banking Regulation
fintech firms, and others are required to keep the Act of 1949, as stated by the central bank.
Reserve Bank informed about developments within • The agreement between the two entities was
their respective sectors and promptly report any announced by their leaders in late October 2023, to
regulatory violations. complete the merger by February following the
• In the "Omnibus Framework for Recognizing SROs necessary clearances.
for Regulated Entities (REs) of RBI," the central
bank stipulated that SROs must submit an annual 6. The Reserve Bank of India and Bank Indonesia Sign a
report to the Reserve Bank within three months of
Memorandum of Understanding (MoU) to Promote
the end of the accounting year.
the Use of Local Currencies for Bilateral Transactions
• These SROs, organized as not-for-profit companies
1. The Reserve Bank of India (RBI) and the Bank
registered under Section 8 of the Companies Act,
Indonesia (BI) signed a Memorandum of
2013, are also mandated to submit periodic or ad hoc
Understanding (MoU) to establish a framework
returns as prescribed by the RBI.
promoting the use of local currencies - the Indian
• The RBI highlighted the need for better industry
Rupee (INR) and the Indonesian Rupiah (IDR) - for
standards for self-regulation due to the growth in the
number and scale of operations of REs (banks, NBFCs, cross-border transactions. Governor Shaktikanta Das
fintechs, etc.), increased adoption of innovative of RBI and Governor Perry Warjiyo of Bank Indonesia
technologies, and expanded customer outreach. signed the MoU.
• SROs play a crucial role in enhancing regulatory 2. The MoU aims to facilitate cross-border transactions
effectiveness by leveraging the technical expertise of in local currencies between India and Indonesia. It
practitioners and providing insights on technical, and encompasses all current account transactions,
practical aspects, nuances, and trade-offs involved in permissible capital account transactions, and other
framing or fine-tuning regulatory policies. agreed economic and financial transactions. This
• RBI requires SROs to engage in regular interactions initiative allows exporters and importers to invoice
and expects them to consider the broader and settle transactions in their domestic currencies,
industry/segment perspective when offering views, fostering the development of an INR-IDR foreign
inputs, or suggestions. exchange market. The use of local currencies is
• The Reserve Bank reserves the right to inspect the expected to streamline transaction costs and
books of the SRO or arrange for an audit firm to settlement times.
conduct such inspections if necessary. 3. This collaboration signifies a significant milestone in
• RBI emphasizes the importance of the applicant enhancing bilateral cooperation between RBI and BI.
being fit and proper for SRO recognition, ensuring The adoption of local currencies in bilateral
compliance with the objectives and responsibilities transactions is anticipated to bolster trade between
outlined in the framework. India and Indonesia, foster financial integration, and
• When granting recognition as an SRO, RBI may reinforce the longstanding historical, cultural, and
impose additional conditions to safeguard against economic ties between the two nations.
any adverse impact on public interest.
• The central bank retains the authority to revoke
recognition granted to an SRO if its functioning is
deemed detrimental to the public interest or any
other stakeholder.

5. RBI approves Fincare Small Finance Bank Ltd. – AU

Small Finance Bank Ltd. Amalgamation
• The Reserve Bank approved the $530 million all-
stock merger between AU Small Finance Bank and
Fincare Small Finance Bank.
• The effective date of the amalgamation is set for April
1 of this year, and all branches of Fincare SFB will
operate as branches of AU SFB starting from that date,
according to a release by the apex bank.

6 For any issue related to capsule, mail us at [email protected] | Download Adda247 App: Scan Here
 RBI Circulars March 2024
7. RBI releases Annual Report of Ombudsman Scheme, 8. RBI organizes the Annual Conference of the RBI
2022-23 Ombudsmen
1. This report highlighted a significant surge of over 68 1. The Reserve Bank of India (RBI) hosted the Annual
percent in complaints filed under the Reserve Bank's Conference of the RBI Ombudsmen in Mumbai,
ombudsman schemes during the fiscal year 2022-23, Maharashtra.
totaling 7.03 lakh. 2. The conference's theme centered on "Protecting the
2. The complaints encompassed various issues such as Consumers – Building Robust Systems and
mobile/electronic banking, loans and advances, Procedures."
ATM/debit cards, credit cards, pension payments, 3. The inauguration of the conference was done by Shri
Shaktikanta Das, the Governor of RBI.
remittances, and para banking.
4. Shri Dipak Misra, former Chief Justice of the Supreme
3. The Annual Report of the Ombudsman Scheme 2022-
Court of India, delivered the keynote address,
23 marked the first stand-alone report under the
highlighting the unique aspects of the Reserve Bank –
Reserve Bank Integrated Ombudsman Scheme (RB- Integrated Ombudsman Scheme, 2021.
IOS), 2021, elucidating the activities of the 22 Offices 5. Key features discussed included 'deficiency in
of the RBI Ombudsman (ORBIOs), Centralised service,' centralization, and procedural justice.
Receipt and Processing Centre (CRPC), and the 6. Deputy Governors of the Reserve Bank, Shri M
Contact Centre during the year. Rajeshwar Rao, and Shri Swaminathan J emphasized
4. Under RB-IOS, 2021, there was a notable increase in RBI's initiatives in consumer protection and
the number of complaints, with a total of 7,03,544 grievance redressal.
complaints received at the ORBIOs and CRPC in 2022- 7. Sessions during the conference delved into global
23, reflecting a surge of 68.24 percent, attributed to perspectives on alternate grievance redress and
intense public awareness initiatives and the strategies for developing resilient systems in fraud
simplified process for lodging complaints under RB- prevention and detection.
IOS. 8. The conference concluded with an interactive session
5. Complaints against banks constituted the largest among the Ombudsmen.
9. The Banking Ombudsman Scheme, established under
portion, with 1,96,635 complaints, accounting for
Section 35 A of the Banking Regulation Act, 1949, by
83.78 percent of complaints received by the ORBIOs.
RBI in 1995, offers customers a swift and cost-
6. The ORBIOs handled 2,34,690 complaints, while
effective platform to address grievances related to
4,68,854 were disposed of at the CRPC.
specific banking services.
7. The RBI noted that complaints disposed of at the 10. The current iteration, the Banking Ombudsman
ORBIOs had an average turnaround time (TAT) of 33 Scheme 2006, incorporates amendments up to July 1,
days during 2022-23, significantly improved from 44 2017, outlining the grounds for complaints and
days in 2021-22. providing a mechanism for dispute resolution
8. The majority (57.48 percent) of maintainable between banks and customers.
complaints disposed of under RB-IOS, 2021, were
resolved through mutual settlement, conciliation, or 9. Financial Literacy Week 2024 (February 26 – March
mediation. 01, 2024)
9. Complaints related to mobile/electronic banking
were the highest contributors to the total number of
complaints received against banks and non-bank
payment system participants, while complaints
related to non-adherence to fair practices code were
predominant concerning NBFCs.
10. Chandigarh, NCT of Delhi, Haryana, Rajasthan, and
Gujarat were the top five contributors to ombudsman
complaints, while Mizoram, Nagaland, Meghalaya,
Manipur, and Arunachal Pradesh were the lowest
contributors during 2022-23.

7 For any issue related to capsule, mail us at [email protected] | Download Adda247 App: Scan Here
 RBI Circulars March 2024
1. Since 2016, the Reserve Bank of India (RBI) has 10. Sovereign Gold Bond Scheme 2023-24
annually observed Financial Literacy Week (FLW) to
spread financial education messages aimed at Launch Year November 2015
empowering the public to make informed financial To reduce the demand for
decisions. physical gold and shift a part of the
2. This year's FLW, scheduled from February 26 to Objective domestic savings, used for the
March 1, 2024, adopts the theme "Make a Right purchase of gold, into financial
Start: Become Financially Smart." The focus areas savings.
include "Saving and Power of Compounding,"
Scheduled Commercial banks (except
"Banking Essentials for Students," and "Digital
Small Finance Banks, Payment Banks,
and Cyber Hygiene," aligning with the objectives of
and Regional Rural Banks)
the National Strategy for Financial Education: 2020-
2025. • Stock Holding Corporation of
3. The theme for FLW 2024 is tailored towards young SGBs will be India Limited (SHCIL)
adults, particularly students, to raise awareness sold through • Clearing Corporation of India
about the benefits of cultivating financial discipline Limited (CCIL)
from an early age. • Designated post offices, and
4. The inaugural function of FLW at the RBI Ahmedabad • Recognized stock exchanges (NSE
Regional Office (ARO) was officiated by Shri Ashok and BSE)
Parikh, General Manager (Officer-In-Charge). During To be issued by the Reserve Bank of
the event, he inaugurated FLW, released relevant Issuance India on behalf of the Government of
messages, and unveiled Financial Literacy Posters India.
featuring the theme of FLW 2024. A person who is a resident of India as
5. The event was attended by officials from RBI,
defined under the Foreign Exchange
NABARD, SLBC, UTLBC, and senior bankers from the
Management Act, 1999 is eligible to
state. Shri Parikh encouraged all stakeholders to
invest in SGB. He can be an individual,
widely promote the messages of FL Week 2024.
joint holder, minor HUF, trust,
6. Banks have been instructed to disseminate
information and raise awareness among the masses Eligibility university and charitable institution.
during FLW by prominently displaying posters Individual investors with subsequent
developed by RBI on their websites, ATMs, mobile change in residential status from
applications, and digital display boards at their resident to non-resident may
branches. continue to hold SGB till early
7. Additionally, as part of the FLW campaign for 2024, redemption/maturity.
RBI has announced a Financial Literacy Ideathon. The SGBs will be denominated in
This initiative aims to gather innovative ideas from Denomination multiples of gram(s) of gold with a
postgraduate students on creative strategies to basic unit of One gram.
enhance financial literacy among youth, empowering The tenor of the SGB will be for eight
them to make responsible financial choices. years with an option of premature
Tenor redemption after 5th year to be
exercised on the date on which
interest is payable.
The minimum permissible
Minimum size
investment will be One gram of gold.
The maximum limit is 4 kg for
individuals and HUF. In the case of
joint holding, the limit applies to the
first applicant. Each family member
Maximum limit
can buy the bonds in his/her name. An
investor can buy 4 Kg every year as
the ceiling has been fixed on a fiscal
year.

8 For any issue related to capsule, mail us at [email protected] | Download Adda247 App: Scan Here
 RBI Circulars March 2024
Launch Year November 2015 12. Investments in Alternative Investment Funds (AIFs)
In the case of joint holding, the • The RBI has issued a directive preventing regulated
Joint holder investment limit of 4 Kg will be entities (REs) from investing in Alternative
applied to the first applicant only. Investment Funds (AIFs) that have direct or indirect
The investors will be compensated at investments in a debtor company of the REs.
a fixed rate of 2.50 percent per annum • REs must liquidate their investments in such AIFs
Interest rate
payable semi-annually on the nominal within 30 days from the AIF's downstream
value.
investment or from the date of the circular, applicable
The interest on SGBs shall be taxable
as per the provision of the Income Tax to existing investments.
Act, 1961 (43 of 1961). The capital • A 'debtor company' is defined as any company to
gains tax arising on redemption of which the RE has, or had, loan or investment
Tax treatment
SGB to an individual is exempted. The exposure in the last 12 months.
indexation benefits will be provided • This measure is aimed at stopping REs, including
to long-term capital gains arising to NBFCs, from engaging in 'evergreening' of loans.
any person on transfer of the SGB
• In common scenarios, REs invests in AIFs which then
Tradability Eligible
invest in non-convertible debentures (NCDs) of the
debtor company. The debtor company uses these
11. RBI’s Digital Payments Index (DPI)
funds to repay overdue loans, making it appear as
1. The Reserve Bank of India (RBI) has introduced the
"RBI’s Digital Payments Index” (DPI) to effectively though the debt has been cleared while the RE
gauge the level of digitization in payments. maintains exposure indirectly.
2. The DPI is a composite index based on multiple • Such evergreening practices are used to safeguard the
parameters, accurately reflecting the penetration and debtor company's creditworthiness without directly
expansion of various digital payment methods. resolving the underlying financial issues.
3. Description: The Reserve Bank of India (RBI) Digital
• However, the RBI's blanket ban on investments in
Payments Index assesses the level of digital payment
AIFs with downstream investments in debtor
adoption throughout the nation.
4. Base Year: The RBI-DPI is anchored to March 2018 companies may lead to unintended outcomes,
as the reference period, with the DPI score for March including:
2018 established at 100. • Potential misclassification of all AIF investments as
5. Release: The RBI disseminates the RBI-DPI semi- 'evergreening' activities, even those involving
annually, with a delay of 4 months. financially stable companies.
6. Components: The RBI-DPI incorporates five
• The requirement for REs and AIFs to conduct
overarching criteria to gauge DPI. These criteria
encompass extensive due diligence and establish internal
controls to ensure compliance, which could deter
investments.
• Disadvantaging domestic institutional capital
compared to foreign institutional investors who
typically invest through NCDs or external commercial
borrowing routes.

Also, certain practical challenges may have to be

considered while complying with the circular.
• AIFs involved in NCD investments are usually
Category 1/2 AIFs, which are close-ended, making it
challenging to redeem units promptly due to illiquid
investments and restrictions set by investment
managers and lock-in periods.
• Regulated entities may face difficulties in finding
buyers for the AIF units because potential buyers
might be cautious, given the recent circular.

9 For any issue related to capsule, mail us at [email protected] | Download Adda247 App: Scan Here
 RBI Circulars March 2024
• When REs serve as sponsors for these AIFs, the
requirement to liquidate their investments means
they must identify a new sponsor and secure
approval from the Securities Exchange Board of India,
aligning with SEBI AIF regulations that mandate
sponsors' continued interest in the AIF.
• While the RBI's efforts to curb evergreening practices
are understandable, the circular's broad approach
may inconvenience legitimate REs and introduce
practical challenges. Clarifications from the RBI to
resolve these concerns and smooth out
implementation issues for REs and the AIF sector are
anticipated.

10 For any issue related to capsule, mail us at [email protected] | Download Adda247 App: Scan Here