Tag: rbi

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.

Survey on Foreign Collaboration in Indian Industry: 2023–2025 – Data Release

by Pushkar Mer

Reserve Bank released the results of the fifteenth round of its biennial survey on foreign collaboration in Indian industry (FCS) covering the financial years 2023-24 and 2024-25. This survey captures information on financial parameters and operations of the Indian companies having technical collaboration with foreign companies.

Highlights:

  • Foreign technical collaboration (FTC) agreements were primarily present in the foreign direct investment (FDI) companies, which were either foreign subsidiaries (i.e., single foreign investor holding more than 50 per cent of total equity) or foreign associate companies (i.e., foreign investors’ equity holding ranging between 10 to 50 per cent), with 68 per cent and 21 per cent share of the total FTCs, respectively.
  • The FTCs in the manufacturing sector entities accounted for 78.4 per cent of the total reported FTCs, of which, machinery and motor vehicles together accounted for 30.6 per cent; while FTCs in the services sector constituted 16.6 per cent.
  • Japan, the United States of America (USA) and Germany remained the top three countries contributing to the technical collaborations in the Indian entities.
  • Around 61 per cent of FTCs involved technology know-how transfer by the foreign collaborators and 8 per cent FTCs were for use of trademarks / brand names.
  • Royalty payments, inclusive both royalty and lump sum technical fees, was the payment mode for around two-thirds of FTCs.
  • Of the 601 reported FTC agreements, 187 had export restriction clauses and 188 FTC had provision for exclusive rights on assets transferred.
  • Manufacturing sector had the highest share in value of production among the FTC companies. Within manufacturing, motor vehicles sector had the largest share.
  • The exports of the FTC reporting entities grew at a faster pace (20.3 per cent) as compared to the imports (4.6 per cent) in 2024-25 – they had 17.7 per cent and 18.6 per cent shares, respectively, in the total value of production.
  • Average profitability of FTC reporting companies, measured by the ratio of gross profit to capital employed, stood at 14.4 per cent in the current survey round.

Amendments to Directions – Compounding of Contraventions under FEMA 1999

by Pushkar Mer

Reserve Bank of India’s (RBI) updated Master Directions on Compounding of Contraventions under the Foreign Exchange Management Act, 1999 (FEMA), issued on April 22, 2025, vide Notification No. RBI/FED/2025-26/135, FED Master Direction No.04/2025-26) and amended via RBI/FED/2025-26/32, A.P. (DIR Series) Circular No. 04/2025-26 dated April 24, 2025. The said guidelines aim to streamline the compounding process, promote voluntary compliance, and enhance transparency in handling FEMA violations.

Below is a summary of the key aspects in reference to the Master Directions:

1. What is Compounding?


Compounding is a process that allows individuals or entities to voluntarily admit breaches of FEMA provisions, plead guilty, and seek redressal by paying a penalty.

This simplifies resolution, minimizes legal proceedings, and ensures compliance.

2. Key Updates in the Master Direction:

• Revised Compounding Rules: The Foreign Exchange (Compounding Proceedings) Rules, 2024, notified on September 12, 2024, have replaced the Foreign Exchange (Compounding Proceedings) Rules, 2000,

introducing higher monetary limits for compounding authorities and modernized payment methods.
• Application Process: Applications for compounding can be submitted physically or via the RBI’s PRAVAAH Portal with a fee of ₹10,000 plus GST. The application must include details such as foreign direct investment, external commercial borrowings, or branch/liaison office activities, along with an undertaking that the applicant is not under investigation by the Directorate of Enforcement (DoE).
• Compounding Authorities: The RBI’s Regional Offices and the Foreign Exchange Department (FED), CO Cell in New Delhi, are authorized to handle compounding applications.

• Non-Compoundable Cases: Contraventions involving unquantifiable amounts, serious offenses like money laundering, terror financing, or those already adjudicated by the DoE are not eligible for compounding.

Repeated contraventions within three years or cases under DoE investigation may also be ineligible.
• Payment of Penalty: The compounding amount, as specified in the order, must be paid within 15 days via demand draft or NEFT or RTGS or other permissible electronic modes in favor of the RBI. Failure to pay deems the application invalid, potentially leading to DoE referral.
• Compounding Matrix: A refined matrix provides transparency in calculating penalties, considering factors like undue gains, loss caused, and the contravener’s conduct. For non-reporting contraventions, the compounding authority may cap the penalty at ₹2,00,000 per contravention in exceptional cases, promoting a less punitive approach for technical lapses.
• Certificate of Compliance: Upon payment, the RBI issues a certificate confirming compliance with the compounding order.

It may be ensured that intimation of payment of application fee, to respective Regional Office, CO Cell, or Central Office, as the case may be. The compounding application must be accompanied by the payment details including the UTR number evidencing the payment of the application fee.

Please refer to the RBI’s official guidelines at https://www.rbi.org.in or contact the RBI’s Foreign Exchange Department for further details.

Disclaimer: This is for informational purposes only and does not constitute legal advice.

Storage of Payment System Data

by Pushkar Mer

The entire payment data shall be stored in systems located only in India, except in cases clarified herein.

The data should include end-to-end transaction details and information pertaining to payment or settlement transaction that is gathered / transmitted / processed as part of a payment message / instruction. This may, interalia, include – Customer data (Name, Mobile Number, email, Aadhaar Number, PAN number, etc. as applicable); Payment sensitive data (customer and beneficiary account details); Payment Credentials (OTP, PIN, Passwords, etc.); and, Transaction data (originating & destination system information, transaction reference, timestamp, amount, etc.).

  • There is no bar on processing of payment transactions outside India if so desired by the PSOs. However, the data shall be stored only in India after the processing. The complete end-to-end transaction details should be part of the data.
  • In case the processing is done abroad, the data should be deleted from the systems abroad and brought back to India not later than the one business day or 24 hours from payment processing, whichever is earlier. The same should be stored only in India.
  • However, any subsequent activity such as settlement processing after payment processing, if done outside India, shall also be undertaken / performed on a near real time basis. The data should be stored only in India.
  • In case of any other related processing activity, such as chargeback, etc., the data can be accessed, at any time, from India where it is stored.

Banks having server outside India have been strictly directed by RBI for not sharing customer account sensitive data in bank statement

In order to be in adherence to the Reserve Bank of India (RBI) Directive, the below listed information will not be available in the periodic banks statement/s for RTGS and NEFT transactions undertaken at your end (in cases if banks are storing data outside India):-

  • Serial Number of the Transaction
  • Message to Beneficiary
  • Beneficiary IFSC Number
  • Remitting IFSC Number
  • Address of the Remitter
  • Remarks
  • Debit Account Number
  • Beneficiary Account Number
  • Remitter Account Number
  • Reject Reason Description
  • Sender to Receiver Information

Digitalization of Import/Export documentation in India

by Pushkar Mer

Information technology (IT) simplified export import functioning in India. It made all working of Custom department and Banking system very easy and systematic.

There are three revolutionary changes witnessed by Indian exporters/importers which transforms physical documentation into digitalization.

Directorate General Foreign Trade (DGFT) launched eBRC platform in 2012, RBI launched EDPMS and IDPMS system in 2014 and 2016 respectively.

eBRC platform introduced by Directorate General of Foreign Trade (DGFT) in 2012. Prior to eBRC era, it was quite cumbersome task to get Bank Realization Certificate (BRC) from AD. Once export gets inward remittance from overseas vendors, Original physical Exchange Control Copy of shipping bills needs to be submitted along with BRC application, thereafter AD was issuing BRC to exporter.

Export Data Processing and Monitoring System (EDPMS) was launched by RBI in March 2014 to monitor payments against Export Bill (Shipping Bill) . It is a system where all export transactions are captured and followed up till their realization. Outstanding get recorded by AD mentioned in shipping bill at the time of export.

AD send reminders to exporter if inward remittance not received within time period of 6 months.

If exporter continuous ignored communication from AD, then AD is liable to report to RBI for default of such exporters, thereafter RBI initiate panel action against violation of FEMA provisions.

IDPMS (IMPORT DATA PROCESSING AND MONITORING SYSTEM) LAUNCHED BY RESERVE BANK OF INDIA (RBI) IN 2016

This was the revolutionary step for digital control of Import towards a paperless documentation. Prior to IT based IDPMS era, importers and custom department required to keep original copies of bill of entry (Original for custom, duplicate for availing CENVAT Credit, Triplicate exchange control copy for making foreign remittance against imported goods). If importer lost triplicate copy, it required huge documentation process to make remittance against import. Bank mandatorily required Exchange Control Copy to avoid double payment against single bill of entry.

Post IDPMS era, importer does not require to keep original bill of entry, photocopy of bill of entry is enough for availing Input Tax Credit (ITC) and Bank also does not ask for original bill of entry for making foreign remittances.

In order to enhance ease of doing business and facilitate efficient data processing for payment of import transactions and effective monitoring thereof, Import Data Processing and Monitoring System has been developed in consultation with the customs authorities and other stakeholders.

RBI does not directly interact with imports. RBI interact with importers through Authorized Dealer (AD).

An Authorized Dealer (AD) is any person specifically authorized by the Reserve Bank under Section 10(1) of FEMA, 1999, to deal in foreign exchange or foreign securities

If we will have to start import transactions with overseas vendors, you would have to first get your self registered with Directorate General of Foreign Trade (DGFT) and get a Import Export Code (IEC). You would have to register AD code with Custom Department. For registering Code with Custom, you would have to submit details of AD code of your banker on banker letter head.

Primary data on import transactions from Customs and SEZ will first flow to the RBI secured server and thereupon depending on the AD code shall be shared with the respective banks for taking the transactions forward. The AD bank shall enter every subsequent activity, viz. document submission, outward remittance data, etc. in IDPMS so as to update the RBI database on real time basis.

All transactions are being updating in IDPMS, so there is no risk of double remittance, as a result no need of physical exchange control copy of bill of entry. If you will proceed double remittance by mistake, bank will deny for such remittance because after remittance it will automatically remove from outstanding list and will shift to settled bill of entry.

If you will not make foreign remittance within time limit as per RBI guideline, AD will send you reminders for settlement of outstanding to overseas vendors. If you will ignore such reminders, AD will be liable to intimate RBI for default of FEMA. RBI will initiate penal action against importer towards violation of FEMA.