In the reporting week, the increase in the forex kitty was due to a rise in foreign currency assets (FCAs), a major component of the overall reserves, as per weekly data by the Reserve Bank of India (RBI).
The country’s foreign exchange reserves increased by $889 million to a lifetime high of $621.464 billion in the week ended August 6, 2021, RBI data showed on Friday.
In the previous week ended July 30, 2021, the reserves had surged by $9.427 billion to reach $620.576 billion.
In the reporting week, the increase in the forex kitty was due to a rise in foreign currency assets (FCAs), a major component of the overall reserves, as per weekly data by the Reserve Bank of India (RBI).
FCAs rose by $1.508 billion to $577.732 billion in the reporting week.
Gold reserves were down by $588 million to $37.057 billion in the reporting week, the data showed.
The special drawing rights (SDRs) with the International Monetary Fund (IMF) dipped by $1 million to $1.551 billion.
The country’s reserve position with the IMF also fell by $31 million to $5.125 billion, as per the data.
The RBI notified Rotation Policy instead of Cooling Period for Bank Branch Audit for CAs.
The Reserve Bank of India (RBI) notified the change in norms on eligibility, empanelment, the appointment of Statutory Branch Auditors in Public Sector Banks from years 2020-21 onwards.
The RBI notified Rotation Policy instead of Cooling Period for Bank Branch Audit for CAs. In other words, the concept of compulsory rest for two years for audit firms located in the specified centres, after completion of four years of continuous branch audit, followed till Financial Year 2019-20 has been done away with.
Instead, the branch auditors across all the centres of the country, on completion of four years of continuous branch audit, will be subjected to the policy of rotation i.e. they may be considered for appointment as SBAs of any other PSB.
However, the audit firms will not be eligible to be re-appointed as SBAs, in the same bank where they completed their audit assignment prior to rest/rotation, at least for one cycle of four years.
The RBI further notified the change on norms for selection of branches of Public Sector Banks (PSBs) for Statutory Audit.
Firstly, statutory branch audit of PSBs should be carried out so as to cover 90% of all funded and 90% of all non-funded credit exposures of a bank.
The selection of branches for statutory audit shall include a representative cross section of rural/semi-urban/urban and metropolitan branches, predominantly including branches which are not subjected to concurrent audit.
CPUs/LPUs/and other centralised hubs, by whatever nomenclature called, would be included for branch audit every year.
The selection of branches shall be finalised by each PSB with the consent of their Statutory Central Auditor/s. Secondly, in respect of those branches, which are subject to concurrent audit by chartered accountants and not selected for branch audit, LFARs and other certifications done by concurrent auditors will be submitted to the Managing Director & CEO of the bank.
The banks in turn will consolidate/compile all such LFARs and other certifications submitted by the Concurrent Auditors and submit to Statutory Central Auditor/s as an internal document of the bank.
The RBI notified the change in the procedure for appointment of Statutory Branch Auditors.
Firstly, the list of eligible auditors/audit firms will be prepared by the Institute of Chartered Accountants of India (ICAI) as per the norms prescribed by RBI.
Secondly, the list will be subjected to scrutiny by RBI for identifying the continuing and rested firms and excluding audit firms who have been denied audit.
Thirdly, RBI will, thereafter, forward the final list of all eligible auditors/audit firms to PSBs for selection of the required number of branch auditors/audit firms.
Banks will be required to clearly advise the selected audit firms that each audit firm can take up audit assignments (branch audit) in one PSB only. The audit firm should give its consent in writing for consideration of appointment in the bank concerned for the particular year and the subsequent continuing years.
Fourthly, the consent given by an audit firm is irrevocable and no request from audit firms for changing the bank, after giving its consent will be entertained.
Fifthly, after the selection of branch auditors, PSBs will be required to recommend the names of both continuing and selected branch auditors to RBI for seeking its prior approval before their actual appointment, as per statutory requirement.
The RBI while elaboration on the change in general guidelines applicable to appointment of Statutory Branch Auditors stated that SBAs will have a maximum tenure of four years in a particular bank.
The appointment of SBAs will be made on an annual basis, subject to their fulfilling the eligibility norms prescribed by RBI from time to time, and also subject to their suitability.
“While allotting branches, banks are required to select auditors/audit firms which are in close proximity to their offices/branches. Banks are also required to have a suitable mix of various categories of auditors / audit firms while selecting the branch auditors keeping in view the size of the branches to be audited.
Banks are advised to allot branches, to the extent possible, to the audit firms taking into consideration their category and audit experience in such a way that specialised and larger branches are audited by bigger/experienced audit firms,” the RBI said.
The audit firms retiring as Statutory Central Auditors from a PSB shall not be eligible to be appointed as SBAs of the same PSB during the prescribed cooling period for SCAs from that particular PSB.
The RBI notified change in the eligibility norms for the empanelment of audit firms to be appointed as Statutory Branch Auditors in PSBs.
Amid a severe hit to the Indian economy by the Covid pandemic in the past eight months, the country’s foreign exchange reserves increased by more than $100 billion since the Covid-induced lockdown was enforced in March-end.
From $469.9 billion in the week ended March 20, 2020, the forex reserves jumped by $102.8 billion to a lifetime high of $572.7 billion in the week ended November 13, 2020, according to the data released by the Reserve Bank of India.
Importantly, the reserves grew by $4.277 billion from the week ended November 6, 2020. The jump was on account of Foreign Currency Assets (FCA), a major component of the country’s reserves, that increased by $5.526 billion to $530.2 billion from $524.7 billion in the preceding week.
However, the gold reserves reduced by $1.233 billion from $37.587 billion to $36.354 billion in the week. On the other hand, the special drawing rights with the International Monetary Fund (IMF) were unchanged from the preceding week at $1.488 billion, the data showed.
Foreign portfolio investors (FPI) have invested Rs 49,553 crore in Indian markets in November so far on the back of high liquidity along with improving global indicators and clarity after the US presidential elections, PTI reported.
The investment stood at Rs 44,378 crore in equities and Rs 5,175 crore in the debt segment between November 3-20 while FPI’s October investment was Rs 22,033 crore.
On the other hand, India saw its highest ever Foreign Direct Investment (FDI) during the first five months April-August of the current financial year. The total inflow was $35.73 billion, according to the Ministry of Commerce and Industry that was also 13 per cent up from the year-ago period.
Meanwhile, bank credit grew 5.67 per cent to Rs 104.04 lakh crore in the fortnight ended November 6, 2020, according to the RBI data.
The bank credit stood at Rs 98.46 lakh crore in the fortnight ended November 8, 2019. Moreover, deposits had jumped 10.63 per cent to Rs 143.80 lakh crore from Rs 129.98 lakh crore during the said period.
For improving the ease of doing business in India and to reduce the cost of compliance, RBI has made a review of requirements of submission of various forms and reports under FEMA and has decided to discontinue submission of 17 such returns/ reports with immediate effect.
Discontinuation of Returns/ Reports under Foreign Exchange Management Act, 1999
1. The attention of Authorised Persons is invited to the Master Direction- Reporting under Foreign Exchange Management Act, 1999 dated January 01, 2016, as amended from time to time, and other reporting related instructions issued by the Reserve Bank of India.
2. With a view to improve the ease of doing business and reduce the cost of compliance, the existing forms and reports prescribed under FEMA, 1999, were reviewed by the Reserve Bank. Accordingly, it has been decided to discontinue the 17 returns/ reports as listed in the Annexure with immediate effect.
3. The Master Direction- Reporting under Foreign Exchange Management Act, 1999 dated January 01, 2016, shall accordingly be updated to reflect the above changes. AD banks may bring the contents of this circular to the notice of their constituents.
4. The directions contained in this circular have been issued under Section 10(4) and 11(2) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/ approvals, if any, required under any other law.
List of Discontinued Reports
Sl. No.
Name of Report
Reporting Entity
Frequency
1
Category-wise transaction where the amount exceeds USD 5000 per transaction
AD Category-II
Monthly
2
Category-wise, transaction-wise statement where the amount exceeds USD 25,000 per transaction
AD Category- II
Monthly
3
Statement of Purchase transactions of USD 10,000 and above (including transactions of their franchisees)
FFMCs and AD Category- II
Monthly
4
Extension of Liaison Offices (LOs)
AD Category-I banks
As and when extension is granted
5
Extension of Project Offices (POs)
AD Category-I banks
As and when extension is granted
6
FII/FPI daily: Daily inflow/outflow of foreign fund on account of investment by FPIs
AD banks
Daily
7
FII/FPI Return (Monthly): Data relating to actual inflow/ outflow of remittances on account of investments by Foreign Institutional Investors (FIIs) in the Indian Capital market
AD Category-I banks
Monthly
8
FVCI reporting: Inflows/outflows of remittances on account of investments by Foreign Venture Capital Investor (FVCIs) and Market value of Investments made by FVCIs
AD Category-I banks/Custodian banks
Monthly
9
Reporting of Inflow/ Outflow details in respect of Mutual Fund by Asset Management Companies
Asset Management Companies
Quarterly
10
Market value of FII Investment in India on fortnightly basis
AD Category-I banks
Fortnightly
11
Market value of FII Investment in India on Monthly basis
AD Category-I banks
Monthly
12
FII holdings as percentage of floating stock
AD Category-I banks
Monthly
13
Form DRR for Issue/ transfer of sponsored/ unsponsored Depository Receipts (DRs)-Hardcopy**
Custodian
At the time of issue/transfer of depository receipts
14
ADR/ GDR Movement Report- two way fungibility
AD Category-I banks
Monthly
15
Repatriation of Sales proceeds of underlying shares represented by FCCBs/ GDRs/ ADRs
Custodian
Monthly
16
GDR/ ADR underlying shares issued, re deposited and released monthly reporting
Custodian
Monthly
17
Monitoring of disinvestments by Overseas Corporate Bodies
AD banks
Monthly
** Please note that it is only the hardcopy filing of form DRR that has been discontinued. The domestic custodian may continue to report the form DRR on FIRMS application in terms of Regulation 4(5) of FEM (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019.
– The rate of interest as of February 29 that will be used to calculate the interest differential will not include any penalties or any penal rate of interest applied to the loan. – The package will be available for eligible borrowers irrespective of whether they have availed or partially availed or not availed the moratorium on repayment announced by RBI
Borrowers will not need to apply for the interest-on-interest waiver scheme for the six-month loan moratorium, the finance ministry has said, asking lenders to credit ex-gratia relief amount into the accounts of those eligible.
The ministry late Tuesday issued a set of 20 clarifications on the scheme in form of frequently asked questions or FAQs
The lending institutions will draw up a list of their borrowers eligible under the criteria laid down by the government and refund the difference between the compound interest and simple interest paid between March 1 and August 31.
The benefit is available to all eligible borrowers including those who did not opt for moratorium. The lenders can seek a refund from the government that will foot the bill.
According to a Crisil report, 75% of borrowers will be covered under the scheme, which likely to cost the government Rs 7,500 crore.
The scheme is not applicable to accounts classified as non-performing assets (NPAs) at the end of February as also loans against fixed deposits, bonds, shares or other interest-bearing instruments and loans given for investment in financial assets such as shares and debentures.
While the scheme includes any outstanding amount on credit cards, relief will not be paid to those credit card holders with a card balance in ‘credit’, as per the FAQs.
The Rs 2 crore limit is based on the borrower’s aggregate loans across lending institutions as on February 29.
Non-fund based limits such as letters of credit and guarantees would not count towards the Rs 2 crore limit.
For calculating the interest differential, lending institutions will consider the contracted interest rate on loans as of February 29. For zero interest loans, the lender’s base rate should be used while for credit card dues, the weighted average lending rate for the transactions between March 1 and August 31 should be applied, the ministry said.
On October 23, the government had announced the scheme for ex-gratia payment of difference between compound interest and simple interest for six months (March 1, 2020 to August 31, 2020) to borrowers in specified loan accounts.
The move was in response to the Supreme Court (SC) seeking clarity on the waiver of ‘interest on interest’ in the ongoing case filed for relief of borrowers availing the moratorium on loan repayments granted by the Reserve Bank of India (RBI).
The case was filed on behalf of borrowers, seeking relief from payment of the interest accruing on the monthly instalments that were paused for six months.
The SC has set the next hearing for November 2 to assess the implementation of the scheme, which the government said would be completed by November 5.
“Banks will not have to go through individual borrowers, only the categories need to be selected and the scheme needs to be applied. It will all be system-based, there is not much manual intervention required,” said Mukesh Kumar Jain, former managing director and CEO of the erstwhile Oriental Bank of Commerce.
The FAQs said banks would use the information they had along with information from credit bureaus to assess a borrower’s aggregate loans. Jain said this should not be an issue as, “Normally, loans up to Rs 2 crore are taken from a single bank since it is a relatively small amount”.
The overall objective of the LFAR should be to identify and assess the gaps and vulnerable areas in the business operations, risk management, compliance and the efficacy of internal audit and provide an independent opinion on the same to the Board of the bank and provide their observations
The Reserve Bank on Saturday came up with revised long format audit report (LFAR) norms with a view to improving efficacy of internal audit and risk management systems.
The LFAR, which applies to statutory central auditors (SCA) and branch auditors of banks, has been updated keeping in view the large scale changes in the size, complexities, business model and risks in the banking operations, the RBI said.
The Chairman / Managing Director / Chief Executive Officer All Scheduled Commercial Banks (Excluding RRBs) All Local Area Banks All Small Finance Banks and All Payment Banks
Madam /Dear Sir,
Long Form Audit Report (LFAR) – Review
Please refer to RBI circular No. DBS.CO.PP.BC.11/11.01.005/2001-2002 dated April 17, 2002 on revision of Long Form Audit Report (LFAR).
2. Keeping in view the large scale changes in the size, complexities, business model and risks in the banking operations, a review of the LFAR formats, in consultation with the stakeholders, including the Institute of Chartered Accountants of India (ICAI), was undertaken and it has been decided to make the following changes.
3. The format of LFAR, as mentioned below, have been revised:
Annex I for Statutory Central Auditors (SCA)
Annex II for Branch Auditors
An Appendix as part of Annex II for the specialized branches and
Annex III on Large / Irregular / Critical accounts for branch auditors.
The revised formats are enclosed.
4. The revised LFAR formats are required to be put into operation for the period covering FY 2020-21 and onwards. The mandate and scope of the audit will be as per this format and if the SCA feels the need of any material additions, etc., this may be done by giving specific justification by the SCA and with the prior intimation of the bank’s Audit Committee of Board (ACB).
5. Regarding other operational issues relating to submission of LFAR, we further advise as under:
Timely receipt of LFARs from the auditors should be ensured;
The LFAR on the bank, after due examination, should be placed before the ACB / Local Advisory Board of the bank indicating the action taken/proposed to be taken for rectification of the irregularities, if any, mentioned therein; and
A copy each of the LFAR (i.e. for the bank / all Indian Offices of foreign bank as a whole) and the relative agenda note, together with the Board’s views or directions, should be forwarded to the concerned Senior Supervisory Manager (SSM) in the Department of Supervision, Reserve Bank of India within 60 days of submission of the LFAR by the statutory auditors.
6. The LFAR format and other instructions issued vide RBI circular No. DBS.CO.PP.BC.11/11.01.005/2001-2002 dated April 17, 2002 stand repealed.
Banks cannot open a current account for a customer, who has already availed himself of credit facilities from the banking system.
The Reserve Bank of India set new conditions for banks to open current accounts for large borrowers in order to strengthen credit discipline. Use of multiple operating accounts by borrowers—both current well as cash/overdraft accounts—has been observed to be prone to vitiating credit discipline, the RBI said its Statement on Developmental and Regulatory Policies on Thursday.
“The checks and balances put in place in the extant framework, for opening of current accounts, are found to be inadequate,” it said, adding that the central bank has revised its guidelines to bring in appropriate safeguards
The revised norms are also expected to bring in the requisite discipline in collective actions by creditors for speedier resolution of stress in the accounts of borrowers, it said.
The purpose of the revised guidelines is to ensure that borrowers route their payments to and from a current account with a bank that has the largest exposure to the borrower, instead of having multiple current accounts across banks.
Here are the revised guidelines:
Opening Current Accounts
For a borrower with an existing CC or OD Facility The bank cannot open a current account for the borrower and all transactions have to be routed through the cash credit or overdraft account.
For a borrower with No existing CC or OD Facility Banks can open a current account if the total exposure to the borrower is less than Rs 5 crore. As and when the exposure goes beyond Rs 5 crore, the borrower has to inform the bank and, thereafter, it will be governed differently.
Credit Facilities of Rs 5 Crore to Rs 50 Crore
Any lender can open a current account, while non-lending banks can only open a collection account.
Credit Facilities of more than Rs 50 Crore
Any lender can open a current account, while non-lending banks can only open a collection account. Credit Facilities of more than Rs 50 Crore Banks have been mandated to create an escrow mechanism and only the escrow-managing lender or agent can open the current account for the borrower.
The balances in such accounts cannot be used as a margin for availing any non-fund based credit facilities. While there is no prohibition on the amount or the number of credits in ‘collection accounts’, any debits will be limited to the purpose of remitting the proceeds to the escrow account.
The banks should not route any withdrawal transaction from term loans availed by the borrower through current accounts and, instead, funds from term loans should be remitted directly to the supplier of goods and services.
Expenses incurred by the borrower for day-to-day operations should be routed through the cash credit/overdraft account, if the borrower has one; else, it should be routed through a current account.
Conditions to avail CC Or OD Facility When a bank’s exposure to a borrower is less than 10% of Aggregate Banking System Exposure
The CC and OD facility can be availed but it can only be used for credits. Any debit transaction can only be to remit funds to the borrower’s CC or OD account held with a bank which has an exposure of 10% or more of the banking system’s total exposure to the borrower.
When a bank’s exposure to a borrower is more than 10% of Aggregate Banking System Exposure
Banks can provide the borrower with a CC/OD facility. If the borrower has availed loans from more than one bank and more than one bank has an exposure of 10%, the bank to which the funds are to be remitted may be decided mutually between the borrower and the banks.
All large borrowers that have a working capital facility bifurcated between a loan component and a cash credit component need to maintain the balances at individual banks in all cases, including consortium lending.
“The RBI has been concerned about diversion of funds. Therefore, the norm that RBI has put in place is that if a bank opens a current account, they receive a no-objection-certificate from the lending bank, so that the lending bank knows another current account is being opened for its loan customer,” said Rajiv Anand, executive director, Axis Bank.
These conditions have been put in place to bring in credit discipline and ensure that the issue if diversion of funds is much better managed than it is today, he said.
According to Ajay Shaw, partner, DSK Legal, the new conditions are aimed at ensuring that large borrowers do not use multiple accounts and route money to and from them.
“The RBI is insisting that all current accounts should be unified and for large borrowers there should be an escrow or trust and retention mechanism, with a waterfall, to ensure that there is a control of cash-flows.”
In an extreme case, if a borrower had an escrow account in a consortium loan and another lender is brought in, the borrower would then route all payments to the new lender and not to others, he said.
The RBI, according to Shaw, is trying to avoid these situations. “Banks will need to review all their current accounts and they have already begun informing their clients to close accounts and to maintain only one,” he said.
