Tag: economy

IMPORTANT PRESS RELEASE – RESERVE BANK OF INDIA

by Pushkar Mer

Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2025

Please refer to Reserve Bank of India (Commercial Banks – Credit Risk Management) Directions, 2025 dated November 28, 2025 (hereinafter referred to as ‘the Directions’).

2. On a review, in exercise of the powers conferred by the sections 21 and 35A of the Banking Regulation Act, 1949 and all other provisions / laws enabling the Reserve Bank of India (hereinafter called the Reserve Bank) in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby issues the Amendment Directions hereinafter specified.

3. The Amendment Directions modifies the Directions as under:

(1) Chapter XI – ‘Opening of Current Accounts and CC / OD Accounts by Banks’ of the Directions shall be deleted and substituted with a new chapter as under:

Chapter XIA – Maintenance of Cash Credit Accounts, Current Accounts and Overdraft Accounts by Banks

91A. Current Accounts, Cash Credit Accounts (CC), and Overdraft Accounts (OD) may all be used as transaction accounts by the customers, which raises concerns relating to credit monitoring by the lenders. With a view to strengthening credit discipline and facilitating better monitoring of transactions and utilisation of funds, this Chapter provides a framework for maintaining such accounts banks.

A. Cash Credit Accounts

91B. CC account is operationally different from a current account or OD account, given its primary nature as a working capital facility linked to the value of the borrower’s current assets. A bank may provide such cash credit facilities as per the needs of the customer, without any restriction under this Chapter.

B. Current Accounts and OD Accounts

91C. A bank may maintain current account or OD account without any restriction in case of customers where the aggregate exposure of the banking system to the customer is less than ₹10 crore.

Explanation (1): ‘Banking System’ for the purpose of this Chapter shall include Commercial Banks (including Small Finance Banks, Local Area Banks, and Regional Rural Banks, but excluding Payments Banks), Urban Co-operative Banks and Rural Co-operative Banks (State Co-operative Banks and Central Co-operative Banks).

Explanation (2): ‘Exposure’ for the purpose of this Chapter means the sum of all sanctioned fund-based credit facilities and non-fund-based facilities availed by the borrower from the banking system.

91D. In case of customers to whom the exposure of the banking system is ₹10 crore or more:

(1) A bank may maintain current accounts or OD accounts as per the needs of the customer provided that the bank has either:

  1. A minimum 10 per cent share in banking system’s aggregate exposure to the borrower; or
  2. A minimum 10 per cent share in banking system’s aggregate fund-based exposure to the borrower.

Provided that, in case no bank within the banking system meets the above criteria, or only one bank meets the above criteria, two banks from the banking system having the largest exposures to the borrower may maintain current accounts or OD accounts.

Provided further that, in case where only one bank within the banking system has any exposure to the borrower, one more bank of the customer’s choice within the banking system may maintain current accounts, subject to furnishing of a no-objection certificate (NOC) from the bank that has the exposure to the borrower.

Provided further that, in case where no Scheduled Commercial Bank (SCB) meets the above criteria, but the borrower nevertheless desires to have a current account with an SCB, such borrowers may maintain current accounts with any one SCB of their choice, subject to furnishing of NOCs from all lending banks within the banking system.

(2) A bank, not meeting the eligibility criteria at paragraph (1) above , may maintain only collection accounts.

Explanation: ‘Collection Account’ for the purpose of this Chapter means a current account or OD account used primarily for receipts of cash inflows of the accountholder. Restricted payments / cash outflows from such account shall be subject to the conditions outlined in paragraph 91F of these Directions.

91E. With a view to ensuring credit discipline, lenders may include additional covenants as per their policies in their loan agreements in mutual agreement with borrowers.

C. Collection Accounts

91F. Funds credited into a collection account shall be remitted within two working days of receipt of such funds to a CC account, current account, or OD account maintained with any bank in the banking system and designated by the borrower for this purpose (hereinafter referred to as ‘designated account’ in this Chapter). Any disbursement of overdraft limit from an OD account, which is in the nature of a collection account, shall be through the designated account only.

Provided that statutory dues such as taxes, and dues, if any, to the bank maintaining the collection account may be debited before remitting the funds.

D. Exemptions

91G. The restrictions placed in terms of paragraph 91D(1) of these Directions shall not be applicable to the accounts mentioned below:

(1) Accounts opened as per the provisions of Foreign Exchange Management Act, 1999 (FEMA) and notifications issued thereunder, including accounts mandated for ensuring compliance under the FEMA framework.

(2) Specific accounts or transactions which are stipulated under a statute or a specific instruction of a financial sector regulator, or the Central Government or a State Government.

Explanation: ‘Financial sector regulator’ for the purpose of this Chapter refers to the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority (PFRDA).

(3) Accounts of entities regulated by a financial sector regulator, used for the purpose of carrying out their regulated activities.

Provided that banks operating the above-mentioned exempted accounts shall ensure that transactions in such accounts are used only for the permitted / specified purposes. Surplus funds, if any, in such accounts shall be remitted to the designated account.

91H. Banks, in certain cases, offer products or services that inherently require routing transactions through a current account maintained with themselves. In such cases, banks which are otherwise not eligible to maintain accounts in terms of paragraph 91D(1) of these Directions may also maintain current accounts, subject to the conditions specified below:

(1) Such accounts shall only be opened in accordance with a Board-approved policy for the product / service, which shall detail and justify, inter alia, the necessity of operating these accounts.

(2) Transactions in such accounts shall be limited for the specified purpose(s). Cash transactions, debits at the discretion of customers, and issuance of instruments like electronic cards and cheque books shall not be permitted in such accounts. Surplus funds, if any, in such accounts shall be remitted to the designated account.

(3) Banks shall implement adequate safeguards to ensure that such accounts are not used as substitutes for current accounts, or employed to circumvent restrictions placed on current accounts, or misused for activities such as fund diversion or fraud.

E. Compliance Monitoring

91I. For the purpose of ensuring ongoing compliance with this Chapter, all banks shall monitor accounts maintained with them on a regular basis, and in any case at least once every half-year.

91J. In case it is observed that a bank is no longer eligible to maintain a current account or OD account opened in terms of:

(1) paragraph 91C due to increase in exposure of banking system to the borrower up to or beyond the specified threshold of ₹10 crore; or

(2) paragraph 91D(1), due to changes in the bank’s share in banking system’s aggregate exposure or in aggregate fund-based exposure to the borrower; or due to non-availability of NOC from banks that have exposure to the borrower;

then the bank shall notify the customer(s) concerned promptly, and in any case within one month from the date of observing such ineligibility, that the account must either be converted to a collection account or closed. The conversion or closure process, as the case may be, shall be completed within three months of observing such ineligibility.

91K. Accounts opened in terms of these Directions shall be appropriately flagged in the bank’s core banking solution (CBS) to ensure clear identification and to facilitate effective monitoring. Banks maintaining multiple accounts for a borrower shall ensure that such accounts and transactions and cashflows therein are monitored at the borrower level as also at the account level.

F. Other Provisions

91L. A bank shall ensure that an accountholder utilize their account solely for transactions related to their authorized business or activities. These accounts shall not, under any circumstances, be used as pass-through channels for facilitating third-party transactions.

Provided that entities expressly licensed or authorized by a financial sector regulator to facilitate third-party transactions may continue to do so. However, such activities shall strictly be limited to the specific transactions they are authorized to do and shall not extend beyond that scope. Any account that has been permitted to carry out such third-party transactions shall be appropriately flagged in the bank’s CBS to ensure clear identification and to facilitate effective monitoring.

91M. A bank shall ensure that an accountholder, who is not licensed or authorized by the Reserve Bank to accept deposits or to provide payment services, do not engage in such activities through accounts maintained with them.

91N. Robust monitoring systems shall be implemented to detect the above prohibited usage, including mechanisms to flag accounts exhibiting unusually high transaction volumes, frequent pass-through activities, or inconsistencies between the accountholder’s stated line of business and transactions carried out through the account.

91O. Term loans sanctioned by the bank shall preferably be remitted directly to the intended beneficiary’s account(s) or for the specified end-use, where such beneficiary is identifiable, rather than routing the funds through the borrower’s account.

4. The above amendments shall come into force from April 1, 2026. Banks may however decide to implement the amendments in entirety from an earlier date.

Key Changes in External Commercial Borrowings (ECB) Framework under FEMA

by Pushkar Mer

The Reserve Bank of India (RBI) has notified the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (Notification No. FEMA 3(R)(5)/2026-RB, dated February 9, 2026, and published in the Official Gazette on February 16, 2026).

Key Highlights of the Amendments

1. Expanded Eligible Borrowers and Recognized Lenders
• Broader inclusion of entities (e.g., any person resident in India except individuals, subject to incorporation/registration under applicable laws).
• Enhanced recognition of foreign lenders to increase funding options.

2. Revised Borrowing Limits
• Eligible borrowers can now raise ECBs up to the higher of:
• USD 1 billion (outstanding ECBs), or
• Total outstanding borrowings (external + domestic) up to 300% of net worth (based on the last audited standalone balance sheet).

3. Removal of Cost of Borrowing Restrictions
• All-in-cost ceilings (previously benchmark + margin) have been removed.
• Pricing is now fully market-driven.
• For refinancing, the earlier requirement of lower cost/credit spread has also been eliminated.

4. Rationalized Minimum Average Maturity Period (MAMP)
• Uniform MAMP of 3 years for most ECBs.
• Manufacturing sector borrowers: MAMP between 1–3 years, subject to outstanding ECB ≤ USD 150 million.
• Longer maturity requirements (e.g., 5/7/10 years in older tracks) have been streamlined or removed.

5. Refinancing Provisions
• Refinancing (full or partial) of existing ECBs by fresh ECB is permitted.
• Safeguard: Refinancing must not result in failure to meet the MAMP requirement applicable to the original borrowing (or weighted outstanding maturity for multiple borrowings).
• This allows flexibility in rollovers while preventing undue shortening of the original maturity profile.

6. Strengthened End-Use Restrictions (New Regulation 3A)
• Detailed prohibitions/restrictions introduced to prevent misuse, including:
• Investment in chit funds, Nidhi companies.
• Real estate business (with limited exceptions, e.g., clarified for land/immovable property in permitted cases).
• Capital market transactions (except certain strategic corporate actions).
• On-lending restrictions in some cases.
• Repayment of certain restricted domestic loans or NPAs.
• End-uses now more tightly monitored for productive purposes.

7. Simplification of Reporting and Compliance
• Streamlined requirements (e.g., updated forms, event-based reporting via ECB-2).
• Enhanced clarity on security creation, conversion to non-debt instruments, corporate actions.

UNION BUDGET 2026-27

by Pushkar Mer

Direct Taxes

The basic tax slabs for individual and HUF remain unchanged in the old and new regime.

Corporate tax rates remain unchanged

MINIMUM ALTERNATE TAX (‘MAT’)

Rate of MAT reduced from 15 to 14 per cent.

  • No credit for tax paid under MAT for domestic companies under old

regime.

  • Accumulated MAT credit available for set-off up to 15 years for

domestic companies under new regime. Utilization restricted to 25

per cent of normal tax liability.

  •  No impact on foreign companies.

INTERNATIONAL TAXATION

  • Tax holiday until 2047 for income earned by a foreign company from providing cloud services using data center services procured from India. Income attributable to Indian customers is also eligible for tax exemption provided such services are routed through an Indian reseller entity.
  •  Income of a foreign company from supply of capital goods, equipment or tooling to an Indian contract manufacturer of electronic goods based in a custom bonded area, eligible for tax exemption for a period of five years.
  • Overseas income of a non-resident individual providing specified services in India under a notified scheme, is exempt from tax for a period of five years.

FOREIGN ASSETS OF SMALL TAXPAYERS DISCLOSURE SCHEME, 2026 (FAST-DS 2026)

TYPE OF ASSETS OR INCOMETAX AMOUNT PAYABLECONDITIONS
No disclosure in tax returnAggregate of the below  30 per cent of FMV of the asset as on March 31, 2026,  30 per cent of undisclosed foreign income as tax, and  100 per cent of the aboveAggregate of undisclosed foreign income and FMV of undisclosed foreign assets ≤ ₹10 million
a. No disclosure in tax return but taxes paid b. No disclosure upon becoming a resident but assets acquired as non-residentFee of ₹0.1 millionFMV of undisclosed foreign assets

IT Sector Tax Incentives Unified Safe Harbour Framework

Software development, IT enabled services, KPO, and contract R&D services clubbed under single category with common 15.5% safe harbour margin. Threshold enhanced from ₹300 crore to ₹2,000 crore. Automated rule-driven approval process with 5-year continuity option.

Cloud Services

Tax holiday till 2047 for foreign cloud service providers using Indian data centres.

Indirect Taxes

Customs Duty Reforms

Personal Imports

Tariff rate on dutiable goods for personal use reduced from 20% to 10%. Basic customs duty exempted on 17 drugs and medicines. Seven more rare diseases added for duty exemption on personal imports.

Export Competitiveness

Duty-free import limit for seafood processing inputs increased from 1% to 3% of FOB value. Duty-free imports extended to leather and synthetic footwear exports. Fish  catch in EEZ made duty-free.

Export Timeline Extension

Export time frame for final products extended from six months to one year for exporters of leather or textile garments, leather or synthetic footwear, and other leather products.

Manufacturing Support

BCD exemption extended for capital goods manufacturing lithium-ion cells. Capital goods for critical minerals processing exempted. Nuclear power project imports exempted till 2035.

Aviation Sector

BCD exempted on components for civilian and training aircraft manufacture. Raw materials for aircraft parts in defence sector MRO exempted from basic customs duty.

SEZ Domestic Sales

One-time measure allowing eligible manufacturing units in special economic zones (SEZs) to sell goods in domestic tariff area at concessional duty rates, addressing underutilization of manufacturing capacity due to global trade disruptions.

Central Goods and Services Tax(CGST) Amendments

The Union Budget 2026-27 introduces several key amendments to the CGST Act, 2017, streamlining processes and providing clarity on various tax aspects.

Section 15: Valuation of Supply

Clarifies that post-supply discounts are permissible for valuation if a credit note is issued by the supplier and the recipient reverses the input tax credit (ITC) attributable to such discount.

Section 34: Credit and Debit Notes

Aligns with the amendment in Section 15, allowing for the issuance of credit notes for post-supply discounts that meet the specified conditions.

Section 54: Refunds

Expands the scope of refund claims to include unutilized input tax credit.

Excludes cases of tax refund on exported goods (with tax payment) from certain sub-sections, streamlining export refunds.

Section 101A: National Appellate Authority (NAA)

Introduces an interim provision allowing the Government to empower existing authorities to hear appeals under Section 101B until the NAA is constituted. This ensures continuity in the appellate process.

Disclaimer

All information presented in this document is based on announcements made by the Finance Minister during the Union Budget 2026-27 speech. The applicability and enforceability of these provisions will come into effect only upon their official publication through notifications under the relevant Acts and Laws.

Extension of Time for delayed foreign remittance against import of goods or services

by Pushkar Mer

Reserve Bank of India (RBI) issues Master Circular to regulate import of goods and services in India. For delay remittance following guidelines of RBI Master circular should be complied

  • AD Category – I banks can consider granting extension of time for settlement of import dues up to a period of six months at a time (maximum up to the period of three years) irrespective of the invoice value for delays on account of disputes about quantity or quality or non-fulfilment of terms of contract; financial difficulties and cases where importer has filed suit against the seller. In cases where sector specific guidelines have been issued by Reserve Bank of India for extension of time (i.e. rough, cut and polished diamonds), the same will be applicable.
  •  While granting extension of time, AD Category –I banks must ensure that:

a.    The import transactions covered by the invoices are not under investigation by Directorate of Enforcement / Central Bureau of Investigation or other investigating agencies;

b.    While considering extension beyond one year from the date of remittance7 , the total outstanding of the importer does not exceed USD one million or 10 per cent of the average import remittances during the preceding two financial years, whichever is lower; and

c.     Where extension of time has been granted by the AD Category – I banks, the date up to which extension has been granted may be indicated in the ‘Remarks’ column.

(iii)                  Cases not covered by the above instructions / beyond the above limits, may be referred to the concerned Regional Office of Reserve Bank of India.

(iv)                 The above shall be reported in IDPMS as per message “Bill of Entry Extension” and the date up to which extension is granted will be indicated in “Extension Date” column.