Appointments & TransfersNews

In terms of paragraph 5 (3) of the ‘Yes Bank Ltd. Reconstruction Scheme, 2020’ notified by Government of India on March 13, 2020 and in exercise of powers conferred to it under sub section (1) of Section 36 AB of the Banking Regulation Act, 1949, Reserve Bank has appointed Shri R Gandhi (former Deputy Governor, Reserve Bank of India) and Shri Ananth Narayan Gopalakrishnan (Associate Professor, S P Jain Institute of Management and Research) as additional directors on the board of Yes Bank Limited, w.e.f. March 26, 2020 for a period of two years.


Reserve Bank of India

[Press Release dt. 20-03-2020]

Case BriefsSupreme Court

Supreme Court: Taking suo motu cognizance of the issue relating to the expeditious trial of cases under Section 138 of Negotiable Instruments Act, 1881, the bench of SA Bobde, CJ and L. Nageswara Rao, J has issued notice to the Union of India through Law Secretary, Registrar General of all the High Courts, the Director General of Police of all the States and Union Territories, Member Secretary of the National Legal Services Authority, Reserve Bank of India and Indian Bank Association, Mumbai as the representatives of Banking institutions.

The said action of the Court came after noticing that despite many changes brought through legislative amendments and various Supreme Court decisions mandating speedy trial and disposal of these cases, the Trial Courts are filled with large number of pendency of these cases. A recent study of the pending cases, reflects pendency of more than 35 lakh, which constitutes more than 15 percent of the total criminal cases pending in the District Courts.

Here’s is what the Court suggested whule posting the matter on April 16, 2020 for further hearing:

  • there is a need to evolve a system of service/execution of process issued by the court and ensuring the presence of the accused, with the concerted efforts of all the stakeholders like Complainant, Police and Banks.
  • an information sharing mechanism may be developed where the banks share all the requisite details available of the accused, who is the account holder, with the complainant and the police for the purpose of execution of process. This may include a requirement to print relevant information, viz the email id, registered mobile number and permanent address of the account holder, on the cheque or dishonour memo informing the holder about the dishonour.
  • RBI, being the regulatory body may also evolve guidelines for banks to facilitate requisite information for the trial of these cases and such other matters as may be required.
  • a separate software-based mechanism may be developed to track and ensure the service of process on the accused in cases relating to an offence under Section 138 of N.I. Act.
  • RBI may consider developing a new proforma of cheques so as to include the purpose of payment, along with other informations mentioned above to facilitate adjudication of real issues.
  • a mechanism may be developed to ensure the presence of the accused even by way of coercive measure, if required, taking effect from Section 83 of Cr.P.C. which allows attachment of property, including movable property.
  • an effort may be evolved to recover interim compensation under Section 143A of the N.I. Act as well as fine or compensation to be recovered as per Section 421 of Cr.P.C.
  • National Legal Services Authority, being the responsible Authority in this regard, may evolve a scheme for settlement of dispute relating to cheque bounce at pre-litigation i.e. before filing of the private complaint. An Award passed at the pre-litigation stage or pre-cognizance stage shall have an effect of a civil decree.

“This measure of prelitigation ADR process can go a long way in settling the cases before they come to Court, thereby reducing docket burden.”

  • High Courts may also consider setting up of exclusive courts to deal with matters relating to Section 138, especially in establishments where the pendency is above a standard figure. Special norms for assessment of the work of exclusive courts may also be formulated giving additional weightage to disposal of case within the time-frame as per legal requirement.

The Court appointed Senior Advocate Siddharth Luthra as Amicus Curiae and Advocate K. Parameshwar to assist the amicus curiae in the matter.

[In Re: Expeditious trial of cases under Section 138 of N.I. Act, 1881, Suo Moto Writ Petition (Criminal), arising out of SPECIAL LEAVE PETITION (CRIMINAL) NO. 5464 OF 2016, order dated 05.03.2020]

Business NewsNews

The Reserve Bank of India has placed in public domain a draft scheme of reconstruction of the Yes Bank Ltd.

The Reserve Bank invites suggestions and comments from members of public, including the banks’ shareholders, depositors and creditors on the draft scheme. The draft scheme has also been sent to Yes Bank Ltd. and State Bank of India for their comments. The suggestions and comments will be received by Reserve Bank of India up to Monday, March 9, 2020. The Reserve Bank will take a final view soon thereafter.

It may be recalled that the Yes Bank Ltd. was placed under an order of moratorium on March 5, 2020 which will be effective upto April 3, 2020.


Reserve Bank of India

Press Release: 2019-2020/2028

[Press Release dt. 06-03-2020]

Business NewsNews

The financial position of Yes Bank Ltd. (the bank) has undergone a steady decline largely due to inability of the bank to raise capital to address potential loan losses and resultant downgrades, triggering the invocation of bond covenants by investors, and withdrawal of deposits.

The bank has also experienced serious governance issues and practices in recent years which have led to steady decline of the bank. The Reserve Bank has been in constant engagement with the bank’s management to find ways to strengthen its balance sheet and liquidity. The bank management had indicated to the Reserve Bank that it was in talks with various investors and they were likely to be successful. The bank was also engaged with a few private equity firms for exploring opportunities to infuse capital as per the filing in stock exchange dated February 12, 2020. These investors did hold discussions with senior officials of the Reserve Bank but for various reasons eventually did not infuse any capital. Since a bank and market-led revival is a preferred option over a regulatory restructuring, the Reserve Bank made all efforts to facilitate such a process and gave adequate opportunity to the bank’s management to draw up a credible revival plan, which did not materialise. In the meantime, the bank was facing regular outflow of liquidity.

After taking into consideration these developments, the Reserve Bank came to the conclusion that in the absence of a credible revival plan, and in public interest and the interest of the bank’s depositors, it had no alternative but to apply to the Central Government for imposing a moratorium under section 45 of the Banking Regulation Act, 1949. Accordingly, the Central Government has imposed moratorium effective from today.

The Reserve Bank assures the depositors of the bank that their interest will be fully protected and there is no need to panic. In terms of the provisions of the Banking Regulation Act, the Reserve Bank will explore and draw up a scheme in the next few days for the bank’s reconstruction or amalgamation and with the approval of the Central Government, put the same in place well before the period of moratorium of thirty days ends so that the depositors are not put to hardship for a long period of time.

The Reserve Bank has also issued certain directions to the bank under section 35A of the Act ibid.


Reserve Bank of India

[Press Release dt. 05-03-2020]

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of Rohinton Fali Nariman, S Ravindra Bhat and V Ramasubramania, JJ has struck down the curb on trading in virtual currency, cryptocurrency and bitcoins in India.

In the 180 pages long verdict penned by Justice Ramasubramania, it was held,

“When the consistent stand of RBI is that they have not banned Virtual currencies (VCs) and when the Government of India is unable to take a call despite several committees coming up with several proposals including two draft bills, both of which advocated exactly opposite positions, it is not possible for us to hold that the impugned measure is proportionate.”

The Court was hearing the matter wherein, the Internet and Mobile Association of India (IAMAI), whose members include cryptocurrency exchanges, and others had objected to a 2018 RBI circular directing regulated entities to not deal with cryptocurrencies. The petitioners had argued that the RBI’s circular taking cryptocurrencies out of the banking channels would deplete the ability of law enforcement agencies to regulate illegal activities in the industry. IAMAI had claimed the move of RBI had effectively banned legitimate business activity via the virtual currencies (VCs).

  • Reserve Bank of India issued a “Statement on Developmental and Regulatory Policies” on April 5, 2018, paragraph 13 of which directed the entities regulated by RBI (i) not to deal with or provide services to any individual or business entities dealing with or settling virtual currencies and (ii) to exit the relationship, if they already have one, with such individuals/ business entities, dealing with or settling virtual currencies (VCs).
  • Following the said Statement, RBI also issued a circular dated April 6, 2018, in exercise of the powers conferred by Section 35A read with Section 36(1)(a) and Section 56 of the Banking Regulation Act, 1949 and Section 45JA and 45L of the Reserve Bank of India Act, 1934 and Section 10(2) read with Section 18 of the Payment and Settlement Systems Act, 2007, directing the entities regulated by RBI (i) not to deal in virtual currencies nor to provide services for facilitating any person or entity in dealing with or settling virtual currencies and (ii) to exit the relationship with such persons or entities, if they were already providing such services to them.

The Court took note of the fact that the VCs are not banned, but the trading in VCs and the functioning of VC exchanges are sent to comatose by the impugned Circular by disconnecting their lifeline namely, the interface with the regular banking sector.

“What is worse is that this has been done

      • despite RBI not finding anything wrong about the way in which these exchanges function and
      • despite the fact that VCs are not banned.”

The Court further said that the concern of RBI is and it ought to be, about the entities regulated by it. Till date, RBI has not come out with a stand that any of the entities regulated by it namely, the nationalized banks/scheduled commercial banks/cooperative banks/NBFCs has suffered any loss or adverse effect directly or indirectly, on account of the interface that the VC exchanges had with any of them.

The Court, however, held that anything that may pose a threat to or have an impact on the financial system of the country, can be regulated or prohibited by RBI, despite the said activity not forming part of the credit system or payment system. It explained,

“RBI is the sole repository of power for the management of the currency, under Section 3 of the RBI Act. RBI is also vested with the sole right to issue bank notes under Section 22(1) and to issue currency notes supplied to it by the Government of India and has an important role to play in evolving the monetary policy of the country, by participation in the Monetary Policy Committee which is empowered to determine the policy rate required to achieve the inflation target, in terms of the consumer price index.”

The Court also rejected the contention that the impugned Circular was vitiated by malice in law and that it is a colorable exercise of power. It said,

“Irrespective of what VCs actually do or do not do, it is an accepted fact that they are capable of performing some of the functions of real currencies. Therefore, if RBI takes steps to prevent the gullible public from having an illusion as though VCs may constitute a valid legal tender, the steps so taken, are actually taken in good faith. The repeated warnings through press releases from December 2013 onwards indicate a genuine attempt on the part of RBI to safeguard the interests of the public.”

[Internet and Mobile Association of India v. Reserve Bank of India, 2020 SCC OnLine SC 275, decided on 04.03.2020]

Legislation UpdatesNotifications

Clarification issued by Reserve Bank of India 

It has come to our notice that transactions that have failed due to technical reasons, non-availability of currency in ATMs, etc., are also included in the number of free ATM transactions.

It is hereby clarified that transactions which fail on account of technical reasons like hardware, software, communication issues; non-availability of currency notes in the ATM; and other declines ascribable directly / wholly to the bank/service provider; invalid PIN/validations; etc., shall not be counted as valid ATM transactions for the customer. Consequently, no charges therefor shall be levied.

Non-cash withdrawal transactions (such as balance enquiry, cheque book request, payment of taxes, funds transfer, etc.), which constitute ‘on-us’ transactions (i.e., when a card is used at an ATM of the bank which has issued the card) shall also not be part of the number of free ATM transactions.

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


[Notification dt. 14-08-2019]

RBI/2019-20/41
DPSS.CO.PD No. 377/02.10.002/2019-20

Reserve Bank of India

Legislation UpdatesNotifications

The Finance (No.2) Act, 2019 (23 of 2019) has amended the National Housing Bank Act, 1987 conferring certain powers for regulation of Housing Finance Companies (HFCs) with Reserve Bank of India. The Central Government has since issued notification appointing August 09, 2019 as the date on which the relevant part of that Act, namely, Part VII of Chapter VI shall come into effect.

HFCs will henceforth be treated as one of the categories of Non-Banking Financial Companies (NBFCs) for regulatory purposes. Reserve Bank will carry out a review of the extant regulatory framework applicable to the HFCs and come out with revised regulations in due course. In the meantime, HFCs shall continue to comply with the directions and instructions issued by the National Housing Bank (NHB) till the Reserve Bank issues a revised framework. NHB will continue to carry out supervision of HFCs and HFCs will continue to submit various returns to NHB as hitherto. The grievance redressal mechanism with regard to HFCs will also continue to be with the NHB.

A housing finance institution, which is a company, desirous of making an application for registration under sub-section 2 of section 29A of the National Housing Bank Act, 1987 (as amended by Act 23 of 2019) may approach the Department of Non-Banking Regulation, Reserve Bank of India.


Press Release: 2019-2020/419

[Press Release dt. 13-08-2019]

Reserve Bank of India

Business NewsNews

On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today decided to:

• reduce the policy repo rate under the liquidity adjustment facility (LAF) by 35 basis points (bps) from 5.75 per cent to 5.40 per cent with immediate effect.

Consequently, the reverse repo rate under the LAF stands revised to 5.15 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 5.65 per cent.

• The MPC also decided to maintain the accommodative stance of monetary policy.

These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.


Reserve Bank of India

[Press Release dt. 07-08-2019]

Business NewsNews

Press Release

The Reserve Bank of India (RBI) has imposed, by an order dated 15-07-2019, monetary penalty of 70 million on State Bank of India (the bank) for non-compliance with the directions issued by RBI on (i) Income Recognition and Asset Classification (IRAC) norms (ii) code of conduct for opening and operating current accounts and reporting of data on Central Repository of Information on Large Credits (CRILC), and (iii) fraud risk management and classification and reporting of frauds. This penalty has been imposed in exercise of powers vested in RBI under the provisions of Section 47A (1)(c) read with Sections 46(4)(i) and 51(1) of the Banking Regulation Act, 1949 (the Act).

This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.

Background

The statutory inspection of the bank with reference to its financial position as on 31-03-2017 revealed, inter alia, non-compliance with directions issued by RBI on IRAC norms, sharing of information about customers with other banks, reporting of data on CRILC, fraud risk management, and classification and reporting of frauds. Based on the inspection report and other relevant documents, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed on it for non-compliance with directions issued by RBI. After considering the bank’s reply and oral submissions made in the personal hearing, RBI came to the conclusion that the aforesaid charges of non-compliance with RBI directions were substantiated and warranted imposition of monetary penalty.


[Press Release dt. 15-07-2019]

Reserve Bank of India

Legislation UpdatesNotifications

National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) systems – Waiver of charges

The Reserve Bank has since reviewed the various charges levied by it on the member banks for transactions processed in the RTGS and NEFT systems. In order to provide an impetus to digital funds movement, it has been decided that with effect from July 1, 2019, processing charges and time varying charges levied on banks by Reserve Bank of India (RBI) for outward transactions undertaken using the RTGS system, as also the processing charges levied by RBI for transactions processed in NEFT system will be waived by the Reserve Bank.

The banks are advised to pass on the benefits to their customers for undertaking transactions using the RTGS and NEFT systems with effect from July 1, 2019, i.e. today.

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

Please note: Circular can be referred here — CIRCULAR


[Circular dt. 11-06-2019]

Reserve Bank of India

Business NewsNews

As reported by PTI, Union Minister of State for Finance Anurag Thakur stated that no bank has the power to employ bouncers in order to recover loans forcefully.

In accordance with the Reserve Bank of India guidelines, recovery agents are to be hired with proper police verification and other formalities required for the purpose of recovering loans. RBI has issued ‘Guidelines on Fair Practices Code for Lenders’ which are required to be adopted by banks, duly approved by their Board.


[Source: PTI]

Hot Off The PressNews

The “Complaint Management System (CMS)” of RBI was launched by the Governor, RBI. It is a software application to facilitate RBI’s grievance redressal processes. Members of the public can access the CMS portal at RBI’s website to lodge their complaints against any of the entities regulated by RBI.

Keeping the convenience of the customers in mind, CMS has been designed to enable online filing of complaints.

Features:

It provides features such as acknowledgment through SMS/Email notification(s), status tracking through unique registration number, receipt of closure advises and filing of Appeals, where applicable. It also solicits voluntary feedback on the customer’s experience.

CMS has self-help material (in video format) to guide the users of the portal; videos on safe banking practices; and on the regulatory initiatives of RBI.

This system facilitates the regulated entities to resolve customer complaints received through CMS by providing seamless access to their Principal Nodal Officers/Nodal Officers. The system provides facilities for the generation of a diverse set of reports to monitor and manage grievances by the Regulated Entities. They can use the information from CMS for undertaking root cause analyses and initiating appropriate corrective action if required.

The CMS also has facilities for RBI officials handling the complaints to track the progress of redressal. The information available in CMS could also be used for regulatory and supervisory interventions if required. With the launch of CMS, the processing of complaints received in the offices of Banking Ombudsman (BO) and Consumer Education and Protection Cells (CEPCs) of RBI has been digitalized.


[Press Release dt. 25-06-2019]

Reserve Bank of India

Case BriefsHigh Courts

Delhi High Court: Vibhu Bhakru, J. allowed a writ petition filed against the action of Andhra Bank in debiting a sum of Rs 68.93 lakhs in the petitioner’s current account as commission charges for the unexpired period of a bank guarantee that was surrendered by the petitioner.

The petitioner, represented by Tarun Johri and Ankit Saini, claimed that the Bank had not informed them at the time of issuance of the bank guarantee that any such charges would be payable, and therefore, levy of such charges was illegal and contrary to guidelines issued by the Reserve Bank of India. The Bank, represented by P.B.A. Srinivasan, claimed that it was entitled to levy such charges.

The foremost question to be considered by the High Court was whether the Bank was obliged to disclose the charges to the petitioner at the time of according to the request of providing the guarantee. Referring to the relevant circulars issued by the RBI, and it’s earlier decision in DLF Ltd. v. Punjab National Bank, 2011 SCC OnLine Del 2465, noted that the RBI clearly stated that levy of charges, which were not initially disclosed to the borrower, would constitute an unfair practice. The Court reiterated the principal to be:

“a person, who is visited with any charges for a facility, should be aware of the same at the time of availing the facility and not at the time of discharging the same. This is a principle of fair play and fair practice, which the banks are obliged to follow. It would make little difference whether the facilities extended by the banks are fund based or non-fund based.” In such view of the matter, the charges levied by the Bank were held to be unsustainable and the Bank was directed to refund the same with an interest at the rate of 6 per cent per annum. [Athena Energy Ventures (P) Ltd. v. Andhra Bank, 2019 SCC OnLine Del 8854, decided on 30-05-2019]

Business NewsNews

‘Changes in RTGS time window’

It has been decided to extend the timings for customer transactions (initial cut-off) in RTGS from 4:30 pm to 6:00 pm. Accordingly, the RTGS time window with effect from June 01, 2019 has been stated in the official notification to which the link is given below.

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

*Please follow the link for official Notification: Notification


[Notification dt. 28-05-2019]

Reserve Bank of India

Business NewsNews

The Reserve Bank of India (RBI) tightened rules on banks’ statutory auditors saying it reserved the right to not approve appointments of such auditors for a specified period if their audit quality was not found satisfactory. The RBI said it will take action against statutory auditors of banks in case of any lapses in their auditing processes including instances such as misstatement of a bank’s financial statement or wrong information in audit report. The framework would cover, inter alia, instances of divergence identified in asset classification and provisioning during the RBI inspection vis-à-vis the audited financial statements of banks.

[Source: The Economic Times]

Legislation UpdatesNotifications

Reserve Bank of India (RBI) has issued instructions to banks regarding the safety of bank lockers for exercising due care and necessary precaution for the protection of the lockers provided to the customer, reviewing the systems in force for their operation on an ongoing basis and taking necessary steps, having well-documented security procedures, properly training staff concerned in the procedure, and internal auditors ensuring that procedures are strictly adhered to. Further, as per an RBI communication to banks (in the context of an incident of bank burglary in which safe deposit lockers were broken open and jewellery reportedly taken away), the liability of the bank depends on the facts and circumstances of the incident and that despite the conditions of the lease agreement that lessees should insure the contents of the lockers, bank can be held liable if negligence is proved (having regard to the conditions of the strong room, the lockers, the safeguards, require in the light of the location etc.).

As per inputs from Public Sector Banks (PSBs), during the last three financial years and for the period up to 31.7.2018 in the current financial year, 43 cases of theft took place in the lockers of PSBs and the approximate amount of loss reportedly suffered by customers is Rs. 16.8 crore? .State / Union territory-wise details of theft from bank lockers of PSBs, reported by PSBs during the said period, are at Annexure. PSBs have informed that FIRs were lodged in all the cases, some arrests have been made by the police, and valuables worth Rs. 6.5 crore have been recovered so far in respect of these cases.

As per inputs from PSBs, banks exercise reasonable care and precaution for the protection of the strong room and the lockers provided, and that security measures including security of locker rooms are reviewed periodically. To strengthen security of lockers, banks also monitor access to locker rooms by CCTV cameras and install burglar alarms. Liability to compensate is governed by provisions of extant applicable laws, such as the Indian Contract Act, 1872, and as such, no specific legislation in this regard is proposed.

Ministry of Finance

Hot Off The PressNews

Supreme Court: The bench of J.S. Khehar, CJ and Dr. D.Y. Chandrachud, J asked the Centre and the Reserve Bank of India to consider the option of allow the deposit of the old Rs. 500 and Rs. 1000 notes to those who were not able to deposit the demonetised notes due to0 genuine and compelling reasons.

Citing an example of one such situation, the Court said that if a person was in jail during the period and was not able to deposit the notes without any fault of his then how can such person be barred.

The Court has granted 2 weeks’ time to the Centre and RBI to submit their response.

Source: PTI

Legislation UpdatesRules & Regulations

The Reserve Bank of India, in exercise of the powers conferred under section 45JA of the Reserve Bank of India Act, 1934 and of all the powers enabling it in this behalf, issued Non-Banking Financial Company – Account Aggregator (Reserve Bank) Directions, 2016  for compliance of the same by every non-banking financial company undertaking the business of Account Aggregator. These directions shall come into force with effect from the date of notification, by the Bank in the Official Gazette, of a non-banking institution that carries on ‘the business of an account aggregator’ to be a non-banking financial company, under sub-clause (iii) of clause (f) of section 45I of the Act. These directions provide a framework for the registration and operation of Account Aggregator in India.

To read the Directions, click HERE

Reserve Bank of India

Amendments to existing laws

In exercise of the powers conferred by Section 6(3)(g) and Section 47(2) of the Foreign Exchange Management Act, 1999, the Reserve Bank of India made amendments to the Foreign Exchange Management (Export and Import of Currency) Regulations, 2000 by an amendment called Foreign Exchange Management (Export and Import of Currency) (Amendment) Regulations, 2014 dated 4th June, 2014. Amendment to Regulation 3(1); has been made according to which any person who is a resident of India should not take outside or bring back to India(except Nepal or Bhutan) currency notes of amount exceeding Rs. 25000 per person. Also, Regulation 3(1A) has been added according to which any person resident outside India (except a citizen of Pakistan or Bangladesh) who is visiting India should not bring into or take outside India currency notes of amount exceeding Rs. 25000 per person.

To read the notification, click here