The Banking Regulation Review: India

Introduction

The Reserve Bank of India (RBI), as the central bank of the country, was set up in April 1935 on the basis of the recommendations of the Hilton Young Commission, under the aegis of the Reserve Bank of India Act 1934 (the RBI Act). Since then, RBI's functions and focus have evolved in response to the changing economic environment and encompass core central banking functions such as pan-India monetary policy, bank supervision and regulation, foreign exchange control management, oversight of the payments system, and development of the financial markets.

In addition to the RBI Act, the primary legislation governing banks in India is the Banking Regulation Act 1949 (the BR Act). Additionally, RBI periodically issues various circulars, directions and guidelines to be followed by banks.

Depending on whether the companies are licensed to carry out banking business in India, or whether they have been listed in the Second Schedule to the RBI Act or not, banks in India may be scheduled banks or non-scheduled banks. Scheduled banks are further categorised as cooperative banks, whether urban (UCB) or rural, and commercial banks, which include public sector banks (PSBs), private sector banks (PVBs) (including domestic PVBs and foreign banks) and regional rural banks (RRBs). Recent entrants into the banking sector include small finance banks (SFBs) and payment banks (PBs), which may be scheduled or non-scheduled. In addition, certain development banks have also been set up under special statutes, such as National Bank for Agriculture and Rural Development and National Housing Bank.

The Indian banking system consists of 12 PSBs, 22 PVBs, 45 foreign banks, 43 active RRBs, approximately 1,534 urban cooperative banks and 96,508 rural cooperative credit institutions. As of 31 March 2021, there were 2,13,575 ATMs, 62 million credit cards and 898.2 million debit cards in India.2 Further, powered by the recent digital financial inclusion movement in India, total bank account penetration in the Indian adult population has more than doubled since 2011, to 80 per cent.3

Based on asset size alone, the five largest PSBs in India are State Bank of India, Bank of Baroda, Punjab National Bank, Canara Bank and Union Bank of India, and the five largest PVBs in India are HDFC Bank Limited, ICICI Bank Limited, Axis Bank Limited, Kotak Mahindra Bank Limited and IndusInd Bank Limited.4

Overall, profitability of scheduled commercial banks (SCBs) increased in 2020–2021, as their income remained stable and their expenditure declined. This change was exemplary in its own way when compared to the previous years where PSBs incurred losses and the profitability of PVBs had worsened. Further, even though there was a marginal decline in interest income, the total income of banks remained stable.5

Recently, banks' capacity to lend has been severely affected because of mounting non-performing assets (NPAs). However, the enactment of the Insolvency and Bankruptcy Code 2016 (IBC) has been a game changer in the resolution of stressed assets, and, to support the IBC framework, the RBI also instituted a remedial framework through the Prudential Framework Circular of 7 June 2019, which envisages the time-bound implementation of a resolution plan, failing which disincentives in the form of additional provisions will kick in. Further, in the wake of the coronavirus pandemic, RBI issued two circulars dated 6 August 2020 (further extended by circulars dated 5 May 2021) allowing banks to restructure covid-19-related stressed accounts of the borrower with a limited time window to implement a resolution plan in respect of eligible corporate exposures without deterioration in the asset classification. As a result of these and other efforts to improve banking asset quality, there has been a decline in gross NPA ratios.6

On 1 October 2021, RBI introduced the master circular on 'Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances,7 with the objective of initiating greater consistency and transparency in published accounts. However, in view of the resurgence of the coronavirus pandemic in 2021, and recognising the difficulties it may pose for lenders and borrowers, on 12 November 2021, RBI issued clarifications with respect to the master circular,8 and the clarifications aimed to provide for customer education and details and steps for the classification of borrower accounts as special mention accounts and non-performing assets (NPAs).

Prior to the IBC, in 2006,9 RBI issued guidelines with respect to the securitisation of standard assets by banks, All India Term-Lending and Refinancing Institutions and non-banking financial companies (NBFCs). These guidelines threw light on the criteria for 'true sale' as well as the policy on provision of credit enhancement facilities, liquidity facilities and accounting treatment of such transactions. However, in the wake of the global financial crisis around 2007–2008, the guidelines were revised (see the RBI Revisions to the Guidelines on Securitization Transactions)10 to introduce a minimum holding period and minimum retention requirement to align investors' and originators' interests, to develop an orderly and healthy securitisation market along with regulation of direct assignment of standard assets transactions. Sales of banks' NPAs were governed by the Guidelines on sale of financial assets to Securitisation Company (SC)/ Reconstruction Company (RC) (created under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002), dated 23 April 2003. These guidelines were revised by the RBI Framework for Revitalising Distressed Assets in the Economy – Refinancing of Project Loans, Sale of NPA and Other Regulatory Measures, dated 26 February 2014.11 These guidelines on the sale of NPAs by banks were further revised to improve the framework for sale of stressed assets through the Guidelines on Sale of Stressed Assets by Banks, dated 1 September 2016.12

With the introduction of the Transfer of Loan Exposures Direction(the TLE Directions) in 2021,13 RBI harmonised the extant guidelines on transfer of loan exposures, made them consistent with the IBC mechanisms and included the sale of assets under default to replace the 2012 Guidelines on direct assignment of standard assets.

RBI also introduced the Securitisation of Standard Assets Directions, 202114 (the Securitisation Directions), and the major changes brought by those Directions include:

  1. removal of the bar on securitisation of purchased loans, which was set by the 2012 RBI Revisions to the Guidelines on Securitization Transactions;
  2. permitting securitisation of single assets, which was prohibited by the above 2012 Guidelines; and
  3. reducing the minimum holding period to six months in cases where the tenure of the loan is more than two years, and three months in the case of loans where the tenure is up to two years.

In addition to the 2012 Guidelines, in 201615 RBI advised that banks should ensure that, when packaging and selling performing or non-performing assets to securitisation companies or reconstruction companies, the pool of assets being sold does not contain any loan originated fraudulently or any loan that has been classified as fraudulent as on the date of sale. With the advent of the TLE Directions, loans that are in default have now been permitted to be transferred to a wider range of transferees. Even loan exposures classified as fraud are now able to be transferred to asset reconstruction companies (ARCs) along with the responsibilities of continuous reporting, monitoring, filing of complaints with law enforcement agencies and proceedings. However, in the case of transfer of loan exposures classified as fraud, the RBI has clearly specified that transferors will not be absolved from their responsibilities in respect of the loan exposure, and that transferor will still be required to fix staff accountability as required under the extant instructions on fraud.

There is increased focus on financial inclusion and on increasing the level of penetration of banking services to unserved and underserved areas. In particular, leveraging the latest technology to develop state-of-the-art national payments infrastructures and digitisation platforms is on RBI's policy agenda.

The ongoing spate of privatisation and consolidation of PSBs is also a significant step for the banking industry. In August 2019, the Indian government announced the mergers of 10 major PSBs in India. This consolidation exercise in the banking space was concluded in April 2020. This was the biggest public banking sector restructuring since the nationalisation of 14 private banks in July 1969, and was intended to improve the governance and accountability of the affected PSBs.

The regulatory regime applicable to banks

i Banking business and licensing requirements

Banks in India are required to obtain a licence from the RBI to carry on banking business in India. 'Banking business', as per Section 6 of the BR Act, refers to acceptance of public deposits for the purpose of lending or investment, which would be repayable and capable of withdrawal, and includes guarantee and indemnity business, discounting, dealing in negotiable instruments, underwriting, participating or managing of any issue, and other incidental activities.

On-tap banking licences (rather than banking by invitation licences) were introduced in 2016, subject to the bank complying with conditions such as: (1) the ability to pay present and future depositors in full as their claims accrue; (2) conducting banking affairs in a manner not detrimental to the interests of present or future depositors; (3) adequate capital structure and earning prospects; and (4) maintenance of public interests. Additionally, depending on the nature of the banking business, specialised requirements may also apply. The RBI has the power to revoke or cancel the licence if a bank fails to meet the conditions or if the bank ceases to carry on banking operations in India.

Under a special dispensation, on 5 December 2019 RBI issued guidelines for on-tap licensing of SFBs, after gaining from the experience of the earlier SFB licensing regime introduced in 2014, with minimum paid-up voting equity capital/net worth requirements of 2 billion rupees. For primary UCBs desirous of voluntarily transitioning into SFBs, the initial requirement of net worth has been set at 1 billion rupees, which will have to be increased to 2 billion rupees within five years of the date of commencement of business. All eligible PBs have been permitted to apply for conversion into SFBs after five years of operation. However, in a report released in November 2020 (the IWG Report),16 an internal working group constituted by RBI in June 2020 had, inter alia, recommended that the minimum initial paid-up voting equity capital/net worth required to set up a new SFB be increased to 3 billion rupees, and for UCBs transiting to SFBs, the initial paid-up voting equity capital/ net worth should be 1.5 billion rupees, which should be increased to 3 billion rupees within five years. The IWG Report also recommended that the minimum initial capital requirement for licensing new banks should be enhanced from 5 billion rupees to 10 billion rupees for universal banks. Because SFBs would also target small ticket and underbanked borrowers, this new regime is being positioned as a game changer in the small lending space to supplement the work UCBs have been doing in the past. RBI accepted 21 out of 33 recommendations made by the IWG Report, and the recommendations were detailed in a press release dated 26 November 2021.17 In addition, some other recommendations were accepted:

  1. no change is required to the extant instructions related to initial lock-in requirements, which may continue as a minimum of 40 per cent of the paid-up voting equity share capital of the bank for the first five years;
  2. no intermediate sub-targets between five and 15 years are required; and
  3. for PBs intending to convert into SFBs, three years' experience as a PB is sufficient.

However, one key recommendation by the IWG Report regarding granting banking licences to large businesses, corporates and industrial houses was not accepted by RBI.

In May 2017, branches of banks were redefined as 'banking outlets' for the purpose of harmonising the treatment of different forms of bank presence including those in underserved areas. A banking outlet now covers all points of service delivery by banks, whether full-time or part-time, including all branches, extension counters, and satellite offices. This relaxation is a significant step for facilitating financial inclusion and providing flexibility to banks on their choice of delivery channel.

The RBI's permission is no longer required to open banking outlets in Tier 1 to Tier 6 centres.18 However, it has mandated that banks must open 25 per cent of these outlets in unbanked rural centres (Tiers 5 and 6) that do not have any bricks-and-mortar structure for a scheduled bank, local area bank or cooperative bank to carry out core banking customer transactions. Further, banks with this general permission may shift, merge or close all banking outlets at their discretion, but the merger, closure or shifting of any rural outlets or sole semi-urban outlets requires approval from the relevant district committee. RRBs are required to obtain prior approval from the RBI for opening bricks-and-mortar branches in Tier 1 to 4 centres (as per the Indian Census 2011). For Tier 5 and 6 centres, RRBs have general permission for opening banking outlets, with post facto reporting. In March 2020, the requirement of prior RBI approval for branch expansion of SFBs during the first three years of operating was eliminated. SFBs now also have general permission to open banking outlets, subject to the condition that at least 25 per cent of their banking outlets are in unbanked rural centres.19

ATMs, e-lobbies, bunch note acceptor machines, cash deposit machines, e-kiosks and mobile branches fall outside the purview of banking outlets. These can, therefore, be set up by banks at centres or places of their choosing.

As has been observed during the past few years, branch expansions into rural areas remained relatively passive because the business correspondent (BC) model,20 coupled with an emphasis on digitisation and modernisation of technological infrastructure, has progressively subdued the need to set up bricks-and-mortar branches. The BC regime gained popularity in urban, as well as rural, areas. Further, the growth in the number of basic savings deposit accounts and deposits mobilised through BCs remained higher than for those generated in physical bank branches.21

ii Legal structures for banking entities

Banks in India are mostly set up as companies (including foreign companies). As such, domestic banks are also subject to the purview of the Indian Companies Act 2013 (CA) to the extent applicable, and if such banks are listed on a stock exchange in India, additional trading or listing rules apply.

At present, foreign banks, if eligible, are allowed by the RBI to set up business in India through a single mode of presence (i.e., either through a branch model or a wholly owned subsidiary (WOS) model). In particular, the WOS would be given near-national treatment, including in the opening of branches, as the WOS structure was deemed to be more financially stable given the lessons learned from the economic crisis of 2007–2009. Owing to incentives given for the subsidiarisation model, the presence of foreign banks in India increased during 2018 and 2019.

In recent years, there has been increased focus by the RBI and the government on consolidating, recapitalising and providing technological assistance to other banking sector players; namely, to RRBs, cooperative banks, SFBs and PBs, as these banks represent the key to greater financial inclusion.

RRBs were formed under the RRB Act 1976 with the objective of providing banking facilities to small farmers, agricultural labourers, artisans and other rural impoverished citizens. Cooperative banks, on the other hand, play a crucial role in extending financial inclusion through their geographic and demographic outreach. For recalibrating the cooperative banks sector, the Banking Regulation Amendment Act 2020 was passed by the Rajya Sabha, the upper house of the Indian parliament, in its September 2020 session. The Act has several provisions that will have a long-standing impact on the banking industry. It has amended the BR Act and extended its boundaries over the conduct of cooperative banks, including provisions for supervision and audits by the RBI. Up until the amendment came into force, cooperative banks were regulated under a dual regulatory framework, with the Registrar of Cooperative Societies regulating the administrative aspects of these banks, including the control of management, elections and audit-related matters, and the RBI regulating the aspects pertaining to liquidity, such as licence, maintaining cash reserve, statutory liquidity and capital adequacy ratios, and inspection. Following the amendment: the BR Act now applies to all the cooperative banks except the primary agricultural credit societies or cooperative societies whose principal business is long-term financing for agricultural development, and RBI will have the power to relax the ceiling on share and security issuance to existing members of cooperative societies and to supersede the board of directors of primary and multistate cooperative banks. The amendment also brought in the concept of issuing various categories of securities by UCBs, to raise capital, including special shares and preference shares. However, the amendments lacked clarity in relation to the treatment of these special shares and preference shares and on how voting rights associated with these shares will be dealt with by RBI (if at all). In July 2021, RBI came up with draft guidelines for UCBs to augment capital through the issuance of equity shares, preference shares and debt instruments pursuant to the Banking Regulation Amendment Act 2020. Accordingly, UCBs are permitted to raise share capital by issue of equity to persons within their area of operation enrolled as members, and also through additional equity shares to existing members. The UCBs, as per the proposed draft, will be permitted to raise Tier-I and Tier-II capital by issuing perpetual non-cumulative preference shares, perpetual cumulative preference shares, redeemable non-cumulative preference shares or redeemable cumulative preference shares and will also be allowed to issue perpetual debt instruments, which will be eligible to be included in Tier-I capital and long-term subordinated bonds as Tier-II capital. The draft guidelines further set out the terms and conditions of such instruments. The feedback from the industry on these draft guidelines remains to be seen.

The more recent players, SFBs and PBs, have a smaller operational scale than RRBs and cooperative banks, but also fewer regulatory constraints. SFBs were set up in 2016 to offer basic banking services such as accepting deposits and lending to the underserved sections, including small businesses, marginal farmers, micro and small enterprises (MSEs) and the unorganised sector. PBs were established to improve financial inclusion by specifically harnessing technology services via mobile telephony. Unlike SFBs, PBs cannot undertake lending activities and their design is functionally equivalent to that of prepaid instrument (digital wallet) providers. However, since the RBI issued the 'Guidelines for on “tap licensing” of Small Finance Banks in the Private Sector' in December 2019, all eligible PBs may apply for conversion into SFBs after five years of operation. It is pertinent to note that this conversion option has not been welcomed by the industry because of the lack of clarity in relation to the regime, including in terms of: (1) the process for promoter identification by UCBs prior to conversion; (2) how investments in UCBs would be treated upon conversion; and (3) whether capital infusion by a group of promoters would be permitted.

Further, with respect to PBs, in 2020, the RBI issued draft guidelines for setting up a self-regulatory organisation (SRO),22 to set and enforce rules and standards for participants in the digital payments industry, and a new umbrella entity (NUE),23 to act as a settlement agency for digital payments. There are other SROs in the banking industry, including the Indian Banks' Association, which almost operates like an SRO for Indian banks. Along similar lines, the digital payments sector will also have an SRO that will be a recognised industry body for these companies. Currently, the Payments Council of India operates as a representative body for digital payment companies, and the larger fintech ecosystem is also represented by the Fintech Convergence Council. These bodies, if they apply for the licence, could transform into SROs, with due approval from the RBI. With respect to NUEs, the RBI wants to create multiple entities similar to the National Payments Corporation of India (NPCI), to reduce the concentration risk on the NPCI; however, it is pertinent to note that, unlike the NPCI, NUEs could be 'for profit' entities.

Prudential regulation

i Relationship with the prudential regulator

As a 'banker to banks' and as 'lender of last resort', RBI directly controls the prudential regulation of banks, introducing norms for income recognition, asset classification and provisioning for the advance portfolios of banks, and ensuring consistency and transparency in published accounts.

The BR Act specifically requires banks to maintain books and records in a particular manner and file the same with the regulatory authority on a periodic basis. The RBI's directives on know your customer (KYC) and anti-money laundering provide for transactional and identification records to be maintained for a minimum period of 10 years from the date of transaction and 10 years from the cessation of relationship with the client, respectively. The provisions for production of documents and availability of records for inspection by shareholders as stipulated under the CA and the rules thereunder also apply to banks.

Further, for more effective supervision over the burgeoning NPA situation, the RBI has set up the Central Repository of Information on Large Credits to collect, store and disseminate data reporting entities' exposure to the borrower (as individuals or as a group, or both) under various heads, including 'special mention accounts' with aggregate debt exposure of 50 million rupees and above.

The RBI is empowered under the BR Act to conduct periodical on-site inspections on matters relating to banks' portfolios, risk management systems, internal controls, credit allocation and regulatory compliance, at regular intervals. Further, the RBI also conducts on-site supervision of selected branches with respect to their general operations and foreign exchange transactions. To this end and to enable off-site monitoring and surveillance by the RBI, banks are also required to periodically report to the RBI on these and other aspects.

ii Management of banks

The appointment, reappointment or termination of the appointment of a chairperson, managing director, full-time director or chief executive officer of a bank shall have effect only if made with the prior approval of the RBI.

No amendments in relation to (1) the maximum permissible number of directors or the appointment, reappointment or termination of the appointment or remuneration of a chairperson, managing director, full-time director or chief executive officer of a bank; or (2) the remuneration of the chairperson, managing director, full-time director, any other director or chief executive officer shall have effect unless approved by the RBI. The RBI is also empowered to remove a chairperson, managing director or full-time director from office on the grounds of public interest or the interests of depositors or in securing proper management of the bank. The relevant provisions of the CA relating to appointment and remuneration of managerial personnel shall not apply to such matters that require RBI approval.

The RBI may, at any time, in the interest of the public, banking policy, depositors or the bank itself, pass certain orders in writing, such as:

  1. convening board and general meetings to discuss any matter in relation to the bank, including the election of new directors;
  2. requiring the bank to discuss any relevant matter with an officer of the RBI, and submit relevant disclosures;
  3. appointing one or more RBI officers as observers of the bank;
  4. making such changes to the management of the bank as it deems necessary; and
  5. superseding the board of directors of a banking company for a period of six to 12 months.

The RBI has directed PVBs to undertake a process of due diligence to determine the suitability of candidates for appointment or reappointment as a director on the board of directors of a bank, based upon qualification, expertise, track record, integrity and other relevant factors. Additionally, at least half the board of a PVB must comprise independent directors. Moreover, for foreign banks that have adopted the WOS model: (1) at least 50 per cent of their directors must be Indian residents (with at least one-third being Indian national residents); (2) the chief executive officer must be an Indian resident; and (3) at least two-thirds of directors must be non-executive directors.

To ensure minimum political intervention and transparency, the following are not eligible to be members of a PSB's board:

  1. members of Parliament, state legislatures or local governments;
  2. statutory auditors of PSBs; and
  3. persons on the board of any other bank, financial institution or other competing body.

The decision-making process in banks is participative and conducted as per the procedural guidelines for board and shareholders' meetings stipulated in the CA. Moreover, it is expected that the RBI will soon issue guidelines on corporate governance for regulated entities to align the current regulatory framework with global best practices while being mindful of the context of the domestic financial system.

To prevent misaligned remuneration and incentive schemes for bank managers and employees, in November 2019 the RBI directed that a substantial proportion of compensation of full-time directors, chief executive officers, material risk-takers and control function staff (i.e., at least 50 per cent), should be variable and paid on the basis of individual, business unit and firm-wide measures that adequately measure performance. The total variable pay shall be limited to a maximum of 300 per cent of the fixed pay. Moreover, if variable pay is up to 200 per cent of the fixed pay, a minimum of 50 per cent of the variable pay should be via non-cash instruments; and if variable pay is above 200 per cent, a minimum of 67 per cent of the variable pay should be via non-cash instruments.

For senior executives, deferral arrangements for a minimum of 60 per cent of the total variable pay must invariably exist for the variable pay, regardless of the quantum of pay, and should also be subject to clawbacks in the case of subdued or negative financial performance of the bank. These guidelines are applicable to PVBs, including local area banks, SFBs and PBs, as well as to foreign banks operating in a WOS structure, for pay cycles beginning from and after 1 April 2020.

The RBI has also introduced another layer of management for UCBs. The RBI has issued guidelines on constituting boards of management (BOMs) in UCBs, which shall assist the UCBs' boards of directors in steering the UCBs. The roles and responsibilities of the BOMs are akin to the directors of UCBs, albeit in an advisory capacity.

iii Regulatory and capital and liquidity

The RBI has set out the minimum capital adequacy standards for banks based on the guidelines of the Basel Committee on Banking Supervision. The RBI Basel III Capital Regulations became effective on 1 April 2013 and were fully implemented by March 2020, in a phased manner. Under the RBI guidelines, the minimum total capital to risk-weighted assets ratios to be maintained for three years from commencement of operations are as follows:

  1. for PVBs: 9 per cent
  2. for PSBs: 12 per cent: and
  3. for WOS-model foreign banks: 10 per cent.

These percentages are all higher than the Basel III prescription.

Presently, a bank's capital comprises Common Equity Tier 1 (CET1) capital and Common Equity Tier 2 (CET2) capital with a restriction that CET2 capital cannot be more than 100 per cent of CET1 capital. CET1 capital typically comprises ordinary equity shares, with or without voting rights, and innovative instruments up to 15 per cent thereof. CET2 capital may be in the form of debt capital instruments and preference shares capital instruments, as long as these instruments have certain loss absorption features. Further, the RBI has permitted banks to raise Additional Tier 1 capital in the form of perpetual non-cumulative preference shares and certain types of debt capital instruments that have principal loss absorption through either conversion into common shares at an objective pre-specified trigger point or a write-down mechanism, which allocates losses to the instrument at a pre-specified trigger point.

The Basel III framework prescribes two minimum liquidity standards: the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). While the LCR promotes short-term resilience of banks in dealing with potential liquidity disruptions lasting for 30 days, the NSFR requires banks to fund their activities with stable sources of funding over the time horizon extending to one year. The former has been implemented in India since 1 January 2015 and the latter – defined as the ratio of available stable funding to required stable funding – has been effective since 1 April 2020.

Other Basel-prescribed capital reserves required to be maintained include the cash reserve ratio, as a percentage of banks' demand and time liabilities (DTL), by way of a balance in an interest-free current account with the RBI, and the statutory liquidity ratio (SLR), a percentage of DTL to be maintained by way of liquid assets such as cash, gold or approved unencumbered securities, against which banks may avail funds from the RBI on an overnight basis under the marginal standing facility. Similar capital adequacy requirements or buffers also apply to WOS-model foreign banks.

iv Recovery and resolution

There is no separate resolution framework for failed banks in India. Even the IBC, which is a comprehensive reform of the legislative framework for insolvency and bankruptcy, does not directly cover bankruptcy of 'financial firms' such as banks, insurance companies and stock exchanges, and instead empowers the central government to notify the same.24 Further, for any winding-up petition against a bank, RBI approval would be required. Specifically, in terms of resolution of development or cooperative banks, the RBI's powers are further limited. That being said, the BR Act confers significant powers on the RBI (with or without consultation with the central government) to exercise control over, or make changes to, the management of the board of a failed bank. The RBI may also be appointed as the liquidator for winding-up the bank or apply to courts to suspend a mismanaged bank's business. The scheduled commercial banks are placed, by RBI, under a prompt corrective action (PCA) framework (last revised on 2 November 2021)25 based on capital, asset quality, profitability and leverage ratios.

Bank deposit insurance was introduced in India in 1962 pursuant to the Deposit Insurance and Credit Guarantee Corporation Act 1961. The Deposit Insurance and Credit Guarantee Corporation (DICG), a WOS of the RBI, insures deposits of up to 100,000 rupees of all commercial banks in India, including foreign banks, local area banks, RRBs and most cooperative banks. With effect from 4 February 2020, the DICG raised the limit of insurance cover for depositors in insured banks to 500,000 rupees per depositor with the approval of the Government of India,26 with the objective of providing a greater measure of protection to depositors in banks.

Section 45 of the BR Act was amended by the 2020 amendments to the BR Act, enabling the RBI to enact a scheme for reconstruction or amalgamation of entities for the purpose of protecting the interests of depositors and the public at large, or to ensure proper management, without imposing a moratorium on the bank. The amendment could enable banks under moratorium to discharge their liabilities and make payments under the scheme and protect the financial system at large from being disrupted by the placing of distressed banks under moratorium.

Conduct of business

In recent years, the responsibility on banks to protect customer data has increased, whether as a result of the enhanced degree of care required under the Information Technology Act 2000, read with the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules 2011, or as a result of the global harmonisation required under the European Union's General Data Protection Regulation. RBI issued a circular dated 6 April 2018 directing banks to ensure that all data relating to payment systems operated by them are stored only in India.27 Further, the Personal Data Protection Bill 2019 (the PDP Bill) was tabled before Parliament for consultation, and was then referred to the joint parliamentary committee (JPC) for further consideration. On 16 December 2021, the JPC published its report on the PDP Bill along with the revised draft of the bill (renamed as the Data Protection Bill). The revised draft of the bill now encompasses protection of both personal and non-personal data within its ambit.28 In addition, the Ministry of Electronics and Information Technology has devised a framework for governing non-personal data. If data relates to customers' identification, additional guidelines stipulated by the Unique Identification Authority of India, the NPCI and directives periodically issued by the RBI also apply.

Exceptions to such confidentiality arise with respect to disclosures and periodic reporting to be made to RBI by the banks, including with respect to any borrowers and promoters that are wilful defaulters, and reporting of any NPAs, fraud, suspicious transactions and cybersecurity failures.

The RBI has prescribed priority sector lending areas for all scheduled banks to include the agriculture, MSE, education, housing, social infrastructure, export credit and renewable energy sectors. Currently, the total priority sector lending target for domestic banks is 40 per cent of adjusted net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure, whichever is higher. ANBC is calculated as outstanding bank credit minus bills rediscounted with the RBI and other approved financial institutions plus permitted non-SLR bonds or debentures in the held-to-maturity category plus other eligible investments.

Banks are liable for multiple penalties under the RBI Act and the BR Act, for breach of any statutory provisions thereof or of any circulars and directions as periodically issued by the RBI. Criminal liability under corresponding provisions of the Indian Penal Code 1860 would also apply to such banks, for example, on the grounds of fraud, misappropriation of funds, cheating, forgery and criminal breach of trust. In addition, the RBI has the power to suspend, revoke or cancel banking licences or impose additional supervisory restrictions and limitations on the deviant bank.

Funding

In addition to banking, the RBI permits SCBs (other than RRBs) to engage in certain kinds of financial services, which include dealing in credit information, operation of payment systems, stock exchanges or depositories, securitisation or asset reconstruction, merchant banking, portfolio management, stock broking, investment advisory, business of credit rating agency, collective investment schemes, pension fund management and authorised dealing in foreign exchange. Such banks can also make equity investments in other companies undertaking such financial services, or the banks' subsidiaries.

Banks must maintain tiered capital compliant with Basel III. Further, in April 2021, RBI came up with the Master Direction – Reserve Bank of India (Call, Notice and Term Money Markets) Directions, 2021,29 which allow SCBs (excluding local area banks), payment banks, small finance banks, regional rural banks, cooperative banks and primary dealers to engage in call, notice and term money markets, both as borrowers and lenders. A participant can set prudential limitations on borrowing and lending transactions with the approval of its board of directors within the regulatory framework prescribed by the RBI.

The liquidity adjustment facility (LAF) is a facility extended by the RBI to SCBs and authorised dealers in foreign exchange to avail of liquidity if required or to park excess funds with the RBI in the operation of LAF conducted by way of repurchase agreements, with the RBI being the counterparty to all the transactions. To offer RRBs a new avenue for liquidity management, RBI, in 2020, extended the LAF and Marginal Standing Facility to RRBs.

Control of banks and transfers of banking business

i Control regime

In November 2015, the RBI issued regulations for prior approval for acquisition of shares or voting rights in PVBs, except urban cooperative banks, foreign banks and banks licensed under specific statutes. Prior RBI approval is required by any person seeking to acquire, directly or indirectly, shares or voting rights of a bank, directly or with persons acting in concert, where such acquisition results in aggregate shareholding or voting rights of such person (along with holdings of relatives, associate entities and persons acting in concert) of 5 per cent or more. In certain cases of fresh acquisition by an existing major shareholder (i.e., with shareholding above 5 per cent), the aggregate limit may be increased to 10 per cent. The proposed acquirer must also be a 'fit and proper' person as per RBI norms. Further, recently, increased scrutiny into beneficial ownership of shareholders has been allowed under the CA, which allows piercing the corporate veil to several levels above existing capital structure of banks (including their holding companies).

Overall, the shareholding limits for banks are as follows:

  1. for individuals and non-financial entities (other than promoters or promoter groups), the limit is 10 per cent of the paid-up capital; however, if promoters are individuals or non- financial entities in existing banks, the shareholding limit is 15 per cent of the paid-up capital;
  2. for entities in the financial sector, other than regulated or diversified or listed entities, the limit is 15 per cent of the paid-up capital;
  3. for 'regulated, well diversified, listed entities from the financial sector' and shareholdings by supranational institutions or public sector undertakings or government, a limit of 40 per cent of the paid-up capital is prescribed; and
  4. a higher stake or strategic investment by promoters or non-promoters through capital infusion by domestic or foreign entities or institutions shall be permitted on a case-by-case basis under circumstances such as relinquishment by existing promoters, rehabilitation or restructuring of problematic or weak banks, entrenchment of existing promoters or in the interest of the bank or consolidation in the banking sector.

The internal working group set up by the RBI in June 2020 to review the extant guidelines on ownership and corporate structure for Indian private sector banks, in the IWG Report, inter alia, recommended that the cap of promoter shareholding in the long run (15 years) be raised to 26 per cent from the existing 15 per cent of paid-up voting equity capital. The IWG has also recommended that non-promoter shareholding may be capped at 15 per cent of paid-up voting equity capital for all shareholders. With respect to promoter shareholding, RBI has accepted the recommendations set forth by the IWG Report as is. However, with respect to non-promoter shareholding, RBI, in a press release dated 26 November 2021,30 has modified its recommendations and stated that in the case of natural persons and non-financial institutions, non-promoter shareholding will be capped at 10 per cent of the paid-up voting equity share capital of the bank entities and in the case of all categories of financial institutions or entities, supranational institutions, public sector undertaking or government, non-promoter shareholding will be capped at 15 per cent of the paid-up voting equity share capital of the bank.

Finally, pursuant to Section 12(2) of the BR Act, no shareholder in a bank can exercise voting rights in a poll in excess of 26 per cent of total voting rights of all the shareholders of the bank. At all times, at least 26 per cent of the paid-up capital will have to be held by residents (except in the case of WOS-model foreign banks). In the 2020 amendments to the BR Act, the application of Section 12 of the Act was extended to apply to cooperative banks with modifications. A cooperative bank may now, with the prior approval of the RBI, issue equity, preference or special shares, at face value or at a premium, and unsecured debentures, bonds or similar securities (with an initial or original maturity of not less than 10 years), to any member of the bank or any other person residing within its area of operation, subject to conditions and a ceiling, limit or restriction on the issue, subscription or transfer, as may be specified by RBI. These may be issued by way of public issue or private placement The modus operandi of these approvals and the consequent issuance of the securities is yet to be experienced, given the peculiar membership and control framework of cooperative societies. Investments in Indian companies can be made by both non-resident and resident Indian entities. Under the Foreign Direct Investment Policy 2020, the total foreign ownership in an Indian PVB cannot exceed 74 per cent of paid-up capital under the approval route or 49 per cent of paid-up capital under the automatic route. Foreign ownership beyond 24 per cent of paid-up capital will also require shareholder approval. Similarly, the aggregate shareholding of an Indian non-resident individual cannot exceed 10 per cent of the paid-up capital of a bank, unless approved by the shareholders.

ii Transfers of banking business

In 2005, the RBI issued its first guidelines on mergers and amalgamation of two PVBs and of a bank with a non-banking financial company. For both scenarios, RBI approval is required for amalgamation before it is finally approved by the company law tribunal. Amalgamation will also require approval from the Competition Commission of India, from an antitrust perspective.

There is no specific duty on banks to seek customer consent for amalgamations; however, as best practice, intimations are circulated to all customers well in advance, and corporate and regulatory approvals of the merger are also announced in the public domain. Continuity of customer service is also one of the considerations for the approval of the amalgamation scheme.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002, and related RBI guidelines issued periodically, provide for the sale or assignment of financial assets by banks and financial institutions to securitisation or asset reconstruction companies. Banks may not sell financial assets at a contingent price with an agreement to bear a part of the shortfall on ultimate realisation, and the sale is non-recourse after careful due diligence by the assignee or purchaser. However, banks may sell specific financial assets with an agreement to share in any surplus realised by the asset reconstruction company in the future. Consideration for the sale may be in the form of cash, bonds or debentures, security receipts or pass-through-certificates issued by the asset reconstruction company or trusts set up by it to acquire the financial assets.

The contractual provisions of the agreement with customers determine whether customers only have to be advised of changes in lender or service provider, or whether customer consent also has to be obtained.

The year in review

i Digital banking

Conventional bricks-and-mortar banking has given way to digital banking as technological innovations and regulatory developments have encouraged alternative cost-effective models of extensive lending and capital raising. In this regard, real-time payment systems, digital wallets, mobile banking, invoice financing (i.e., the trade receivables discounting system) and digital lending have been the most significant recent developments in the sector.31 The main developments have been as follows.

  1. In January 2020, RBI introduced a video-based customer identification process (V-CIP)32 for individuals, to enable digital onboarding of customers and to improve convenience. Further, in May 2021, RBI amended the provisions of master direction on KYC with respect V-CIP33 to simplify and rationalise the process of updating KYC. Under the amendment, the definition of KYC recognises the V-CIP process as an alternate method of consent-based customer identification with facial recognition and customer due diligence conducted by an authorised official of the regulated entity through live interaction. It is pertinent to note that the information received by the customer can be further verified through independent verification and by maintaining an audit trail of the process. The use of Aadhaar authentication or offline verification and the mandatory permanent account number requirement is expected to mitigate the risks associated with the V-CIP process of onboarding customers remotely.
  2. In December 2020,34 RBI introduced the system of Legal Entity Identifier (LEI) for Cross-border Transactions. LEI is a 20-digit number used to uniquely identify parties to financial transactions worldwide to improve the quality and accuracy of financial data systems. LEI has been introduced by the Reserve Bank in a phased manner for participants in over-the-counter derivative and non-derivative markets, large corporate borrowers and large-value transactions in centralised payment systems. To further harness the benefits of LEI, from 1 October 2022, banks shall obtain LEI numbers from resident entities (non-individuals) undertaking capital or current account transactions of 500 million rupees and above (per transaction) under the Foreign Exchange Management Act 1999. As regards non-resident counterparts or overseas entities, in the case of non-availability of LEI information, banks may process the transactions to avoid disruption. Further, banks may encourage concerned entities to voluntarily furnish LEI while undertaking transactions even before 1 October 2022. Once an entity has obtained an LEI number, it must be reported in all transactions of that entity, irrespective of transaction size. As per the notification, RBI has directed AD Category-I banks to put systems in place to capture the LEI information and ensure that any LEI captured is validated against the global LEI database available on the website of the Global Legal Entity Identifier Foundation. The launch and operability of Unified Payments Interface (UPI) has boosted mobile banking as it allows interbank account money transfers, using only a single virtual address identifier of the user, instead of the tedious supply of sensitive personal information at every log-in. The biggest advantage of UPI is its interoperability among different banking platforms, even including overdraft accounts. In October 2020, based on the recommendations of the Committee for Analysis of QR Codes35 and stakeholder comments, the RBI decided to continue with the two interoperable quick response (QR) codes in India: UPI QR and Bharat QR. Payment system operators that use proprietary QR codes were advised to shift to one or more interoperable QR codes by 2022.
  3. In August 2021,36 RBI issued a circular with the aim of creating a framework to govern the outsourcing of payment- and settlement-related activities by payment system operators. This circular applies to all payment system operators including prepaid payment instrument issuers, and prescribes certain essential standards and requirements for any payment- and settlement-related outsourcing arrangement of a payment system operator. Payment system operators were required to comply with this framework by 31 March 2022. This circular also prohibits payment system operators from outsourcing certain core management functions. The circular also contains a non-exhaustive list of essential requirements and provisions for in-scope outsourcing; in light of this, payment system operators are required to align their existing agreements and in the case of any inconsistency execute necessary addendums or amendments. Such a step by RBI is a welcome regulatory measure and lays more importance on protecting customer rights. It will also be instrumental in restricting data leaks attributed by payment system operators or third-party service providers.
  4. On 27 August 2021, RBI issued Master Directions on Prepaid Payment Instruments.37 The Master Directions mandate that all prepaid payment instruments (PPIs) must have the prior authorisation of RBI under the Payment and Settlement Systems Act 2007 before setting up and operating. They have introduced regulatory framework changes for PPIs, such as (1) two-factor authentication has been made compulsory for all the PPI transactions except for gift PPIs and PPIs used in mass transit systems; and (2) PPIs must comply with RBI circulars on enhancing the security of card transactions, enhancing public awareness in the face of increasing fraud and e-mandates for recurring card transactions. Such regulatory changes have helped to create a level playing field for banks and non-banks.
  5. Regarding the storage of customer card data by non-bank payment aggregators and merchants onboarded by them, RBI has extended the timeline for this until 30 June 2022.38 Post-June 2022, non-bank payment aggregators will be restricted from storing card details of their customers. This step was taken to boost data security and to promote the method of tokenisation, where the card details are not saved with the merchants. This, in turn, prevents the leakage of card details.
  6. In January 2022, the RBI, via press release Framework for Facilitating Small Value Digital Payments in Offline Mode,39 allowed offline payments up to 200 rupees per transaction, subject to an overall limit of 2,000 rupees. In this offline mode, payments will be carried out face-to-face using instruments such as cards, wallets and mobile devices. This step was taken to promote digital payment in rural and semi-urban areas.
  7. Changes have been made to the applicable average base rate to be charged by NBFC-Micro Finance Institutions (NBFC-MFIs).40 In supersession of the previous rate set in February 2014, an RBI circular dated 30 September 2021 stated that the interest charged by NBFC-MFIs would be the lower of the cost of funds plus margin or the average base rate of the five largest commercial banks by assets multiplied by 2.75. The RBI also set the average interest rate at 7.95 per cent for the quarter beginning 1 October 2021. On the last working day of every quarter, the RBI now sets the rate for the following three months, taking an average of the base rates of the country's five largest commercial banks. The RBI has introduced the base rate system to bring in more transparency in the interest-rate setting process. The base rate is the minimum rate at which lending institutions can give loans. Typically, institutions charge other components above the base rate, to arrive at the final lending rate.
  8. In September 2019,41 RBI's task force, in its report on the development of a secondary market for corporate loans, recommended setting up such a market in India. In light of this, in August 2021, 10 major banks (Kotak Mahindra Bank, Deutsche Bank, Bank of Baroda, Punjab National Bank, Axis Bank, HDFC Bank, State Bank of India, ICICI Bank, Canara Bank and Standard Chartered Bank) came together to set up a secondary loan market association (SLMA) for promoting the growth of a secondary market for loans in India. SLMA will be a self-regulatory body consisting of its member banks. It will be involved in promoting and setting up an online system for the standardisation and simplification of primary loan documentation and other trading mechanisms. The goal for setting up SLMA is that an active secondary market for loans in India will benefit various stakeholders by way of capital optimisation, liquidity management, risk management, exposure rebalancing and an efficient price discovery mechanism. It has been observed that smaller banks do not participate in large lending exposures during the time of origination of the loans, but with the advent of a secondary loan market they will have the opportunity to participate in such exposures at a later stage.
  9. The RBI notification dated 28 July 2021 (Access for Non Banks to Centralized Payment Systems)42 states that non-bank entities such as PPIs, card networks and white label ATM operators will be eligible to participate in centralised payment systems such as real time gross settlement and the National Electronic Fund Transfer.
  10. Through its circular dated 19 May 2021,43 RBI has instructed all licensed PPIs or mobile wallets such as Paytm and PhonePe to be interoperable from financial year 2023. Accordingly, from April 2022, a fully vetted mobile wallet user will be able to send and receive money from different mobile wallets. For card-based PPIs, this will be achieved by card network interoperability, and for e-wallets through UPI.
  11. To resolve the liquidity issue that emerged due to piled up large stocks of legacy NPAs in the books of the banks, the National Asset Reconstruction Company Limited (NARCL) and the India Debt Resolution Company Limited (IDRCL) have been formed.44 NARCL has been set up by banks to aggregate and consolidate stressed assets for their subsequent resolution wherein the PSBs have 51 per cent ownership in NARCL. NARCL proposes to acquire stressed assets of about 2 trillion rupees in phases within the regulations of RBI. NARCL will acquire NPAs by making an offer to the lead bank (an anchor bid) and the lead bank will run a Swiss challenge process wherein other interested ARCs or bidders will be invited to better the anchor bid. After acquiring the assets (where NARCL is the preferred bidder) in the specified trust, IDRCL will prepare and suggest the proposed restructuring or resolution plan, strategies, etc., for the underlying assets trust. Additionally, security receipts (SRs) issued by NARCL will be backed by government guarantee, valid for five years. The government will charge a guarantee fee on the amount that it guarantees, which will increase annually to incentivise an early and timely resolution.

There has also been a major focus on customer protection, including the introduction of two-factor authentication, more stringent rules on electronic signatures and prevention of personal data leakage. As an enhanced complaint redressal mechanism, a digital ombudsman scheme was also introduced. To strengthen and streamline the mechanism, RBI integrated the existing three ombudsman schemes and introduced the 'One Nation One Ombudsman' approach, which is jurisdiction-neutral and also known as the Integrated Ombudsman Scheme.45 The new scheme aims to strengthen the grievance redressal mechanism for customer compliant against entities regulated by RBI, such as banks and NBFCs. A Centralised receipt and processing centre has been set up in Chandigarh for registering complaints through emails and in person.

In the coming years, digital transformation in the Indian banking space is anticipated to ride on three pillars: blockchain, artificial intelligence and the internet of things. To allow banks to live test innovative products using these technologies, the RBI enabled a regulatory sandbox (RS) system in August 2019. The RS allows the regulator, innovators, banks and customers to conduct field tests on technological applications in various banking segments (such as retail payments, digital KYC and wealth management), to collect evidence on the benefits and risks of new financial innovations, while carefully monitoring and containing their risks or providing limited relaxations.

ii Major steps taken by RBI

  1. In January 2021, RBI issued a risk-based internal audit framework46 for strengthening governance arrangements for commercial banks, local area banks, SFBs and PBs to promote uniformity in the approach taken by banks, as well as to match the requirements of the internal audit function with best practices.
  2. RBI identified the potential of ARCs in resolving stressed assets situations. It formed a committee in April 2021 to make recommendations with respect to the growing requirements of the financial sector, and also to review the workings of ARCs. The committee released its report on 2 November 202147 and made 42 recommendations focusing mainly on (1) the extant legal and regulatory framework including streamlining of legal provisions and processes; (2) acquisition, securitisation and reconstruction measures for financial assets; (3) liquidity and trading of security receipts; and (4) operational efficiency of ARCs. One of the most important recommendations was for ARCs to become resolution applicants under the IBC through their SR trust or through an alternative investment fund. This is a pivotal recommendation because ARCs are currently restricted from participating in the asset resolution process through the IBC mechanism.
  3. With the aim of streamlining the use of multiple accounts by borrowers and containing diversion of funds, RBI placed restrictions on banks for opening an operating current account48 and cash credit or overdraft facilities for borrowers. With the advent of this policy, banks were prohibited from opening current accounts for customers who have availed credit facilities in the form of cash credit or overdraft from the banking system. All transactions of such borrowers would be routed through the cash credit or overdraft account alone. In the case of customers who have not availed themselves of a cash credit or overdraft facility from any bank, they may be allowed to open current accounts under certain conditions. RBI extended the deadlines for the implementation multiple times and thereafter modified the rules due to operational constraints in implementation on 29 October 2021.49 RBI eased restrictions on borrowers with exposure to the banking system of less than 50 million rupees; however, if the threshold of 50 million rupees is crossed then the borrowers are required to inform the banks. It also provided that for borrowers where exposure to the banking system is 50 million rupees or more, the borrower can maintain current accounts with any one of the banks with which it has a cash credit or overdraft facility, provided that the bank has at least 10 per cent of the exposure of the banking system to that borrower.
  4. To revamp the regulatory framework for NBFC, RBI issued the Framework for Scale Based Regulation for Non-Banking Financial Companies.50 This framework will come into force on 1 October 2022, but one provision came into force on 1 April 2022: the provision dealing with a ceiling on funding for an initial public offering. The framework stipulates that the regulatory structure for NBFCs shall comprise of four layers that will be based on their size, activity and perceived riskiness. The four-layered structure is as follows: (1) NBFC – base layer; (2) NBFC – middle layer; (iii) NBFC – upper layer; (4) NBFC – top layer. Under the new framework, RBI has also modified the NPA classification to more than 90 days for all categories of NBFCs.
  5. On 14 December 2021, RBI released a PCA Framework for NBFCs.51 This step was taken by RBI due to the growing size and interconnectedness of NBFC with other sectors and segments of the financial system. The PCA Framework will be applicable to all deposit-taking NBFCs (excluding government NBFCs) and all non-deposit taking NBFCs in the middle, upper and top layers (excluding NBFCs not accepting public funds; government companies; primary dealers and housing finance companies). The PCA Framework provides certain mandatory and discretionary actions such as restrictions on dividend distribution, requirement of promoters to infuse additional capital, reduction in leverage and concentration of exposures, restriction on branch expansion, capital expenditure, borrowings and staff expansion.

Outlook and conclusions

In recent years, the banking policy focus areas for the RBI have been in strengthening stressed asset resolution, modernising payment and settlement systems, and calibrating macroprudential regulations to the best international norms. The RBI's recent National Strategy for Financial Inclusion (2019–2024) has also set forth the vision, key objectives and methodologies for increasing access to broad-based, formal and affordable financial services and promoting financial literacy and consumer protection.

Further, following the global financial crisis, financial stability has also emerged as a key priority for the RBI. It has taken several policy actions in recent months, encompassing monetary and liquidity measures as well as macroprudential measures to reinvigorate domestic demand and accelerate the pace of economic growth.

It is also expected that the RBI will continue to introduce structural reforms for inflation control by maintaining price stability and lowering capital costs and increasing accountability in, and regulatory harmonisation across, banks and non-banking financial companies, in the coming years.

Footnotes

1 Vineetha M G is the founding partner, Pratik Patnaik is a principal associate, Namit Gehlot is a senior associate and Shubham Bharti is an associate at Samvād: Partners.

2 RBI Report on Trend and Progress of Banking in India 2020–21, dated 28 December 2021, https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/0RTP2020CF9C9E7D1DE44B1686906D7E3EF36F13.PDF.

3 Chapter 1, The Global Findex Database 2017 (World Bank), https://globalfindex.worldbank.org/.

4 RBI Statistical Tables Relating to Banks in India, Time-Series Publications https://dbie.rbi.org.in/DBIE/dbie.rbi?site=publications#!4.

5 Page 54 of RBI trends report; see footnote 2.

6 RBI trends report; see footnote 2.

7 RBI Master Circular on Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances, dated 1 October 2021, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/MCIRACP535F1B4DE5494B4F82F69AB36B11538E.PDF.

8 RBI Clarification on Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances, dated 12 November 2021, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/125IRAC5D423E89A957430AAEEE46913F90155E.PDF.

9 RBI Guidelines on Securitization of Standard Assets, dated 1 February 2006, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/68628.pdf.

10 RBI Revisions to the Guidelines on Securitization Transactions, dated 7 May 2012, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/FIGUSE070512.pdf.

13 RBI Master Direction on Transfer of Loan Exposures, 2021, dated 24 September 2021, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/86MDLOANEXPOSURESC6B1DFB428C349D885619396317F04DE.PDF.

14 RBI Master Direction on Securitisation of Standard Assets, 2021, dated 24 September 2021, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/85MDSTANDARDASSETSBE149B86CD3A4B368A5D24471DAD2300.PDF.

15 RBI Master Directions on Fraud – Classification and Reporting by commercial banks and select FIs, dated 1 July 2016, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/MD28A4C421E7F7724C07B38E3C6207F3548E.PDF.

16 RBI Report of the Internal Working Group to Review Extant Ownership Guidelines and Corporate Structure for Indian Private Sector Banks, dated 26 October 2020, https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/IWG988615AAEB4A42729542102111DCA5FC.PDF.

17 RBI Recommendations of the Internal Working Group to Review Extant Ownership Guidelines and Corporate Structure for Indian Private Sector Banks, dated 26 November 2021, https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR125317C5B1D423D14D4BBF825F8C5A7DE150.PDF.

18 The tier system relates to an area's population (e.g., Tier 1 centres have a population of 100,000 and above, while Tier 6 centres have a population of less than 5,000).

19 RBI Guidelines for Licensing of Small Finance Banks in Private Sector, dated 27 November 2014, Modifications to existing norms, https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11845&Mode=0.

20 Business correspondents are authorised as third-party agents by banks and deliver banking and financial services on behalf of the banks.

21 RBI Report on Trend and Progress of Banking in India 2019–20, dated 29 December 2020, https://rbi.org.in/scripts/AnnualPublications.aspx?head=Trend+and+Progress+of+Banking+in+India.

22 RBI Framework for Recognition of a Self-Regulatory Organisation for Payment System Operators, dated 22 October 2020, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT583EB873C7EE0B4AEF8ACE7893E7588CDE.PDF.

23 RBI Press Release with respect to Framework for Authorisation of pan-India Umbrella Entity for Retail Payments, dated 18 August 2020, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/FRAMEWORKCC3A86B01E974EB3BDD6930ED922B31C.PDF.

24 On 15 November 2019, the central government introduced the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules 2019 to bring specific categories of financial service providers within the ambit of the Insolvency and Bankruptcy Code 2016. So far, the central government has only included non-banking financial companies with an asset size of at least 5 billion rupees as one category of financial service providers to which these rules will apply.

25 RBI Prompt Corrective Action (PCA) Framework for Scheduled Commercial Banks, dated 2 November 2021, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/118PCAFSCBS880BBE6644424AE9878105762689BA34.PDF.

26 RBI Deposit Insurance and Credit Guarantee Corporation (DICGC) increases the insurance coverage for depositors in all insured banks to ₹ 5 lakh, dated: 4 February 2020, https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR18780D756E42C4CD4326AEBD8A3F6B9ACC7B.PDF.

27 RBI Notification on Storage of Payment System Data, dated 6 April 2018, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/153PAYMENTEC233862ECC4424893C558DB75B3E2BC.PDF.

29 RBI Master Direction RBI (Call, Notice and Term Money Markets) Directions, 2021, dated 1 April 2021, https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=12061.

30 RBI Recommendations of the Internal Working Group to review Extant Ownership Guidelines and Corporate Structure for Indian Private Sector Banks, dated 26 November 2021, https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR125317C5B1D423D14D4BBF825F8C5A7DE150.PDF.

31 Inaugural address by Shri Shaktikanta Das, Governor RBI delivered at the First Annual Economics Conference, Amrut Mody School of Management - 'Indian Banking at Crossroads; Some Reflections', dated 16 November 2019, https://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/PSBSTC161120198E89A3C818EB47A393B25529E1CE6C4D.PDF. See also Report of the Steering Committee on Fintech Related Issues (2019), Department of Economic Affairs, Ministry of Finance, Government of India, https://dea.gov.in/sites/default/files/Report%20of%20the%20Steering%20Committee%20on%20Fintech_1.pdf.

32 RBI Amendment to the KYC Master Direction, 2016, dated 9 January 2020, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/MD18KYCF6E92C82E1E1419D87323E3869BC9F13.PDF.

33 RBI Amendment to the Master Direction on KYC, dated 10 May 2021, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT354BE2BCC23B344982BD5793737940EFF3.PDF.

34 RBI notification on Introduction of Legal Entity Identifier for Cross-border Transactions, dated 10 December 2021, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NOT1375CB7650223C74E4EA18E95F06C242143.PDF.

35 RBI Report of the Committee on the Analysis of QR Code, dated 22 July 2020, https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR8931D8E481EACE47FA86E48C565DB79363.PDF.

36 RBI Notification on Framework for Outsourcing of Payment and Settlement-related Activities by Payment, dated 3 August 2021, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NOT765729DDE076804962B2A6A35CA343D2F2.PDF.

37 RBI Master Directions on Prepaid Payment Instruments (PPIs), dated 27 August 2021 (updated on 12 November 2021), https://rbidocs.rbi.org.in/rdocs/notification/PDFs/82MDPPIS2708202181CF0A6FCD1B47B88CAE8E92A228B160.PDF.

38 RBI Notification on Restriction on storage of actual card data (i.e., Card-on-File (CoF)), dated 23 December 2021, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT142A0F19E38D78F4F779A73977873648A85.PDF.

39 RBI Framework for Facilitating Small Value Digital Payments in Offline Mode, dated 3 January 2022, https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR1483F5507608B7BF4C9BA24A2ED20FD79039.PDF.

40 RBI Circular, Applicable Average Base Rate to be Charged by NBFC-Micro Finance Institutions, dated 30 September 2021, https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=52320#:~:text=The%20Reserve%20Bank%20of%20India,will%20be%207.95%20per%20cent.

41 RBI Report of the Task Force on the Development of Secondary Market for Corporate Loans, dated September 2019, https://rbidocs.rbi.org.in/rdocs//PublicationReport/Pdfs/DSMCLOANSBB7C3EDF738D4038B734E909AC054D68.PDF.

42 RBI notification with respect to Access for Non Banks to Centralized Payment Systems, dated 28 July 2021, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT73EDEE40AF1C2C4B5FBE3EE35521E90DFF.PDF.

43 RBI circular on Prepaid Payment Instruments, dated 19 May 2021, https://rbidocs.rbi.org.in/rdocs/Notification/PDFs/40PPII884045ABAA6446E7A63937EBBBB44A66.PDF.

44 Refer to Box 1 in Chapter 4 of Economic Survey 2021–2022, https://www.indiabudget.gov.in/economicsurvey/doc/eschapter/echap04.pdf.

45 RBI on Integrated Ombudsmen Scheme, 2021, dated 12 November 2021, https://rbidocs.rbi.org.in/rdocs/content/pdfs/RBIOS2021_121121.pdf.

46 RBI notification on Risk Based Audit Framework – Strengthening Governance Arrangements, dated 7 January 2021, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/SCBSRBIA879C4EA3C1B741E884EA035CB6883AFF.PDF.

47 RBI Report of the Committee to Review the working of the Asset Reconstruction Companies, dated 2 November 2021, https://rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=1188.

48 RBI Circular on Opening of Current Accounts by Banks – Need for Discipline, dated 6 August 2020, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT20097D966B84C34C0CA1B6D2E0A62B5BFD.PDF.

49 RBI Clarification on Opening of Current Accounts by Banks – Need for Discipline, dated 29 October 2021, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/CURRENTACCOUNTS8D0BAC9CED0240EAA1D3259B4DABAF0B.PDF.

50 RBI Notification on Scale Based Approach: A Revised Regulatory Framework for NBFC, dated 22 October 2021 https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT1127AD09AD866884557BD4DEEA150ACC91A.PDF.

51 RBI Notification on Prompt Corrective Action Framework for Non Banking Financial Companies, dated 14 December 2021, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/139PCANBFCSC3389782516C440DAF56D30473BF005B.PDF.

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