Reserve Bank of India - Non Banking Financial Companies(NBFCs)

Non Banking Financial Companies(NBFCs)

(10 kb)
Amendment to RBI Regulations for NBFCs Safe custody of liquid asset securities in an exclusive demat account
DNBS (PD) C.C. No. 28 / 02.02 / 2002-03 July 31 , 2003 To All Non-Banking Financial Companies (including Residuary Non-Banking Companies) Dear Sirs, Amendment to RBI Regulations for NBFCs Safe custody of liquid asset securities in an exclusive demat account Keeping in view certain developments and changes in market conditions, the Bank has decided to amend the regulatory framework for NBFCs relating to Non- Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 (NBFC Directions); Residuary Non-Banking Companies (Reserve Bank) Directions, 1987 (RNBC Directions); and Reserve Bank of India (Non-Banking Financial Companies) Returns Specifications, 1997 (Returns Directions) as per details given below: The NBFCs including RNBCs are required to maintain liquid assets in the form of Government securities/guaranteed bonds as per the provisions of Section 45-IB of the RBI Act and lodge such securities in a Constituents’ Subsidiary General Ledger (CSGL) Account with a scheduled commercial bank (SCB) / Stock Holding Corporation of India Ltd., (SHCIL) or in a demat account with a depository through a depository participant (DP) registered with Securities & Exchange Board of India (SEBI) or with a branch of SCB to the extent such securities are yet to be dematerialised. As you are aware, RBI has permitted NBFCs, vide circular IDMC/PDRS/ 3432 / 10.02.01/2002-03 dated February 21, 2003 (copy enclosed for ready reference), to enter into ready forward contracts in gilts (including reverse ready forward contracts). The NBFCs should scrupulously adhere to the restrictions and requirements for entering into such deals and meticulously comply with the related instructions. It may be noted that NBFCs can undertake the above types of transactions in Government securities held in excess of the prescribed statutory liquid assets requirement meaning thereby that the market value of the liquid asset securities, as in (i) above, maintained on any day should not be less than the stipulated percentage of public deposits outstanding as at the last working day of the second preceding quarter. In order to protect the interest of depositors, it has been decided that NBFCs including RNBCs shall maintain an exclusive CSGL or demat account to hold Government securities held for the purpose of compliance with Section 45-IB of the RBI Act. This account should be operated only for purchase or sale of securities due to increase or decrease in the quantum of public deposits or withdrawal of securities for encashment on maturity or for repayment to depositors in special circumstances, if permitted by Reserve Bank of India or any other authority. This account should not be used to undertake repo or other transactions. In case an NBFC (including RNBC) enters into ready forward contracts in gilts (including reverse ready forward contracts) or deal in the government securities in a manner other than that permitted in sub-paragraph (iv) above, the NBFC shall open another CSGL account with a SCB or SHCIL or demat account with a depository through SEBI approved DP for keeping the Government securities for this purpose. This instruction is given in partial modification of the direction to have only one demat account earlier issued by RBI [paragraph (i) of CC.21/02.01/2002-03 dated October 1, 2002]. Although the NBFCs were directed, in terms of our circular, ibid, to dematerialise the government securities held by them and report to Reserve Bank within a week of doing so, it is observed that some of the NBFCs have either not dematerialised the government securities or have dematerialized but failed to report the same to the RBI. For this purpose the quarterly liquid asset return in the reporting formats of NBS 3 and NBS 3A has been amended to include the information about the demat accounts, which will ensure that the information in this regard is not omitted by NBFCs. The amending Notifications Nos. 170-172 of date as also the Notifications Nos. DFC. 118 /DG (SPT) – 98 dated January 31, 1998; DFC. 55 / DG (O) – 87 dated May 15, 1987; and DFC (COC) 108.ED (JRP)-97 dated April 30, 1997 (as amended up-to-date) are enclosed for your information and meticulous compliance. 2. Please acknowledge receipt to the Regional Office of the Department of Non-Banking Supervision, Reserve Bank of India under whose jurisdiction the registered Office of your company is situated. Yours faithfully Sd/- ( O. P. Aggarwal ) Chief General Manager-in-Charge Ready Forward Contracts IDMC/PDRS/3432/10.02.01/2002-03 February 21, 2003 All RBI regulated entities (Commercial Banks, Co-operative Banks, Primary Dealers, Financial Institutions, RRBs and NBFCs) Dear Sirs, Ready Forward Contracts Please refer to paragraph 96 of the 'Mid-term review of Monetary and Credit Policy for the year 2002-2003' wherein the proposal to extend eligibility for ready forward (Repo) contracts to select categories of gilt account holders, with adequate safeguards to ensure Delivery Vs Payment (DVP) and transparency was announced. 2. Accordingly, in supersession of the relevant instructions contained in earlier circulars issued by the Reserve Bank of India in this regard, the following instructions are being issued which will come into effect from March 3, 2003. 3. The terms and conditions subject to which ready forward contracts (including reverse ready forward contracts) may be entered into will be as under: Eligibility (a) Ready forward contracts may be undertaken only in i) dated securities and Treasury Bills issued by the Government of India and ii) dated securities issued by the State Governments. (b) Ready forward contracts in the above mentioned securities may be entered into by (i) persons or entities maintaining a Subsidiary General Ledger (SQL) account with the Reserve Bank of India, Mumbai and (ii) the following category of entities who do not maintain SQL accounts with the Reserve Bank of India but maintain gilt accounts (i.e. gilt account holders) with a bank or any other entity (i.e. the custodian) permitted by the Reserve Bank of India to maintain Constituent Subsidiary General Ledger Account (CSGL Account) with its Public Debt Office, Mumbai: i) Any scheduled bank, ii)Any primary dealer authorised by the Reserve Bank of India, iii)Any non-banking financial company registered with the Reserve Bank of India, other than Government companies as defined in section 617 of the Companies Act, 1956, iv) Any mutual fund registered with the Securities and Exchange Board of India, v) Any housing finance company registered with the National Housing Bank, and vi) Any insurance company registered with the Insurance Regulatory Development Authority. Restrictions (c) All persons or entities specified at (b) above can enter into ready forward transactions among themselves subject to the following restrictions: i) An SQL account holder may not enter into a ready forward contract with its own constituent. That is, ready forward contracts should not be undertaken between a custodian and its gilt account holder. ii)Any two gilt account holders maintaining their gilt accounts with the same custodian (i.e., the CSGL account holder) may not enter into ready forward contracts with each other, and iii)Cooperative banks may not enter into ready forward contracts with the non-banking financial companies. Other Requirements (d) All ready forward contracts shall be reported on the Negotiated Dealing' System (NDS). In respect of ready forward contracts involving gilt account holders, the custodian (i.e., the CSGL account holder) with whom the gilt accounts are maintained will be responsible for reporting the deals on the NDS on behalf of the constituents (i.e. the gilt account holders). (e) All ready forward contracts shall be settled through the SQL Account/CSGL Account maintained with the Reserve Bank of India, Mumbai, with the Clearing Corporation of India Ltd (CCIL) acting as the central counter party for all such Ready Forward transactions. (f) The custodians should put in place an effective system of internal control and concurrent audit to ensure that: (i) ready forward transactions are undertaken only against the clear balance of securities in the gilt account, (ii) all such transactions are promptly reported on the NDS, and (iii) other terms and conditions referred to above have been complied with. (g) The RBI regulated entities can undertake ready forward transactions only in securities held in excess of the prescribed Statutory Liquidity Ratio (SLR) requirements, (h) No sale transaction shall be put through without actually holding the securities in the portfolio by a seller of securities in the first leg of a ready forward transaction, (i) Securities purchased under the ready forward contracts shall not be soldduring the period of the contract. 4. The above terms and conditions will be the relevant terms and conditions specified by the Reserve Bank of India under its Notification No.S.O 131 (E) dated January 22, 2003 (copy enclosed) issued in exercise of the powers conferred on the Reserve Bank of India under section 16 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) vide Government of India Notification No. 183(E) dated 1^st March, 2000, issued under Section 29A of the Act, ibid. 5. Please acknowledge receipt. ; Yours faithfully, Sd/- (H.R.Khan) Chief General Manager

(10 kb)

Amendment to RBI Regulations for NBFCs
Safe custody of liquid asset securities in an
exclusive demat account

DNBS (PD) C.C. No. 28 / 02.02 / 2002-03

July 31 , 2003

All Non-Banking Financial Companies
(including Residuary Non-Banking Companies)

Dear Sirs,

Amendment to RBI Regulations for NBFCs
Safe custody of liquid asset securities in an
exclusive demat account

Keeping in view certain developments and changes in market conditions, the Bank has decided to amend the regulatory framework for NBFCs relating to

Non- Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 (NBFC Directions);

Residuary Non-Banking Companies (Reserve Bank) Directions, 1987 (RNBC Directions); and

Reserve Bank of India (Non-Banking Financial Companies) Returns Specifications, 1997 (Returns Directions)

as per details given below:

The NBFCs including RNBCs are required to maintain liquid assets in the form of Government securities/guaranteed bonds as per the provisions of Section 45-IB of the RBI Act and lodge such securities in a Constituents’ Subsidiary General Ledger (CSGL) Account with a scheduled commercial bank (SCB) / Stock Holding Corporation of India Ltd., (SHCIL) or in a demat account with a depository through a depository participant (DP) registered with Securities & Exchange Board of India (SEBI) or with a branch of SCB to the extent such securities are yet to be dematerialised.

As you are aware, RBI has permitted NBFCs, vide circular IDMC/PDRS/ 3432 / 10.02.01/2002-03 dated February 21, 2003 (copy enclosed for ready reference), to enter into ready forward contracts in gilts (including reverse ready forward contracts). The NBFCs should scrupulously adhere to the restrictions and requirements for entering into such deals and meticulously comply with the related instructions.

It may be noted that NBFCs can undertake the above types of transactions in Government securities held in excess of the prescribed statutory liquid assets requirement meaning thereby that the market value of the liquid asset securities, as in (i) above, maintained on any day should not be less than the stipulated percentage of public deposits outstanding as at the last working day of the second preceding quarter.

In order to protect the interest of depositors, it has been decided that NBFCs including RNBCs shall maintain an exclusive CSGL or demat account to hold Government securities held for the purpose of compliance with Section 45-IB of the RBI Act. This account should be operated only for purchase or sale of securities due to increase or decrease in the quantum of public deposits or withdrawal of securities for encashment on maturity or for repayment to depositors in special circumstances, if permitted by Reserve Bank of India or any other authority. This account should not be used to undertake repo or other transactions.

In case an NBFC (including RNBC) enters into ready forward contracts in gilts (including reverse ready forward contracts) or deal in the government securities in a manner other than that permitted in sub-paragraph (iv) above, the NBFC shall open another CSGL account with a SCB or SHCIL or demat account with a depository through SEBI approved DP for keeping the Government securities for this purpose. This instruction is given in partial modification of the direction to have only one demat account earlier issued by RBI [paragraph (i) of CC.21/02.01/2002-03 dated October 1, 2002].

Although the NBFCs were directed, in terms of our circular, ibid, to dematerialise the government securities held by them and report to Reserve Bank within a week of doing so, it is observed that some of the NBFCs have either not dematerialised the government securities or have dematerialized but failed to report the same to the RBI. For this purpose the quarterly liquid asset return in the reporting formats of NBS 3 and NBS 3A has been amended to include the information about the demat accounts, which will ensure that the information in this regard is not omitted by NBFCs.

The amending Notifications Nos. 170-172 of date as also the Notifications Nos.

DFC. 118 /DG (SPT) – 98 dated January 31, 1998;

DFC. 55 / DG (O) – 87 dated May 15, 1987; and

DFC (COC) 108.ED (JRP)-97 dated April 30, 1997

(as amended up-to-date) are enclosed for your information and meticulous compliance.

2. Please acknowledge receipt to the Regional Office of the Department of Non-Banking Supervision, Reserve Bank of India under whose jurisdiction the registered Office of your company is situated.

Yours faithfully

Sd/-
( O. P. Aggarwal )
Chief General Manager-in-Charge

Ready Forward Contracts

IDMC/PDRS/3432/10.02.01/2002-03

February 21, 2003

All RBI regulated entities
(Commercial Banks, Co-operative Banks, Primary Dealers, Financial
Institutions, RRBs and NBFCs)

Dear Sirs,

Ready Forward Contracts

Please refer to paragraph 96 of the 'Mid-term review of Monetary and Credit Policy for the year 2002-2003' wherein the proposal to extend eligibility for ready forward (Repo) contracts to select categories of gilt account holders, with adequate safeguards to ensure Delivery Vs Payment (DVP) and transparency was announced.

2. Accordingly, in supersession of the relevant instructions contained in earlier circulars issued by the Reserve Bank of India in this regard, the following instructions are being issued which will come into effect from March 3, 2003.

3. The terms and conditions subject to which ready forward contracts (including reverse ready forward contracts) may be entered into will be as under:

Eligibility

(a) Ready forward contracts may be undertaken only in

i) dated securities and Treasury Bills issued by the Government of India and

ii) dated securities issued by the State Governments.

(b) Ready forward contracts in the above mentioned securities may be entered into by

(i) persons or entities maintaining a Subsidiary General Ledger (SQL) account with the Reserve Bank of India, Mumbai and

(ii) the following category of entities who do not maintain SQL accounts with the Reserve Bank of India but maintain gilt accounts (i.e. gilt account holders) with a bank or any other entity (i.e. the custodian) permitted by the Reserve Bank of India to maintain Constituent Subsidiary General Ledger Account (CSGL Account) with its Public Debt Office, Mumbai:

i) Any scheduled bank,

ii)Any primary dealer authorised by the Reserve Bank of India,

iii)Any non-banking financial company registered with the Reserve Bank of India, other than Government companies as defined in section 617 of the Companies Act, 1956,

iv) Any mutual fund registered with the Securities and Exchange Board of India,

v) Any housing finance company registered with the National Housing Bank, and

vi) Any insurance company registered with the Insurance Regulatory Development Authority.

Restrictions

(c) All persons or entities specified at (b) above can enter into ready forward transactions among themselves subject to the following restrictions:

i) An SQL account holder may not enter into a ready forward contract with its own constituent. That is, ready forward contracts should not be undertaken between a custodian and its gilt account holder.

ii)Any two gilt account holders maintaining their gilt accounts with the same custodian (i.e., the CSGL account holder) may not enter into ready forward contracts with each other, and

iii)Cooperative banks may not enter into ready forward contracts with the non-banking financial companies.

Other Requirements

(d) All ready forward contracts shall be reported on the Negotiated Dealing' System (NDS). In respect of ready forward contracts involving gilt account holders, the custodian (i.e., the CSGL account holder) with whom the gilt accounts are maintained will be responsible for reporting the deals on the NDS on behalf of the constituents (i.e. the gilt account holders).

(e) All ready forward contracts shall be settled through the SQL Account/CSGL Account maintained with the Reserve Bank of India, Mumbai, with the Clearing Corporation of India Ltd (CCIL) acting as the central counter party for all such Ready Forward transactions.

(f) The custodians should put in place an effective system of internal control and concurrent audit to ensure that: (i) ready forward transactions are undertaken only against the clear balance of securities in the gilt account, (ii) all such transactions are promptly reported on the NDS, and (iii) other terms and conditions referred to above have been complied with.

(g) The RBI regulated entities can undertake ready forward transactions only in securities held in excess of the prescribed Statutory Liquidity Ratio (SLR) requirements,

(h) No sale transaction shall be put through without actually holding the securities in the portfolio by a seller of securities in the first leg of a ready forward transaction,

(i) Securities purchased under the ready forward contracts shall not be soldduring the period of the contract.

4. The above terms and conditions will be the relevant terms and conditions specified by the Reserve Bank of India under its Notification No.S.O 131 (E) dated January 22, 2003 (copy enclosed) issued in exercise of the powers conferred on the Reserve Bank of India under section 16 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) vide Government of India Notification No. 183(E) dated 1^st March, 2000, issued under Section 29A of the Act, ibid.

5. Please acknowledge receipt. ;

Yours faithfully,

Sd/-

(H.R.Khan)
Chief General Manager