Government of India has allowed for extension of the Interest Equalization Scheme for Pre and Post Shipment Rupee Export Credit (‘Scheme’) up to June 30, 2024. The rate of interest equalization shall be 2% for Manufacturers and Merchant Exporters exporting under specified 410 HS lines and 3% to the MSME manufacturers exporting under any HS line.
Cap on subvention amount: The annual net subvention amount has been capped at Rs 10 Cr per Importer-Exporter Code (IEC) in a given financial year, and all disbursement from April 1, 2023 shall be reckoned for this purpose.
IES from July to August: Government of India, vide Trade Notice No.07/2024-2025 dated June 28, 2024 has allowed for an extension of the Interest Equalization Scheme for Pre and Post Shipment Rupee Export Credit (‘Scheme’) up to August 31, 2024 i.e. from July 1, 2024 to August 31, 2024.
Further, Government has advised the following modifications to the scheme:
Eligibility of borrowers: With effect from July 1, 2024, only MSME Manufacturer exporters would be eligible under the Scheme. Hence, the Scheme benefits will not be available to non-MSME exporters, and such claims are not to be entertained beyond June 30, 2024.
Cap on subvention amount: The interest equalization will be capped at ₹1.66 Crore per Importer-Exporter Code (IEC) for the aforesaid extended period of the scheme.
IES for September 2024: Government of India (Gol), vide Trade Notice No.16/2024-2025 dated August 31, 2024, has allowed for an extension of the Interest Equalization Scheme for Pre and Post Shipment Rupee Export Credit (‘Scheme’) from September 1, 2024, to September 30, 2024.
Further, the Government has advised the following modifications/clarifications to the Scheme:
a) The aforesaid extension is applicable only for MSME Manufacturer exporters.
b) The annual net subvention amount is capped at ₹10 Crore per Importer-Exporter Code (IEC) for a given financial year, accordingly a cap of ₹5 Crore per IEC for MSME Manufacturer exporters is imposed till September 30, 2024, for the financial year starting from April 1, 2024.
c) It is further advised that for Manufacturer Exporters and Merchant Exporters under the non-MSME category, the cap shall be ₹2.5 Crore per IEC till June 30, 2024, as per the Government’s Trade Notice No.17/2024-2025 dated September 17, 2024.
Applicability: The guidelines issued vide the said circular are applicable to all commercial banks and Financial Institutions including Exim Bank, SIDBI NABARD, NaBFID, NHB.
Governance Structure: All banks shall have approved policy, ensuring principles of natural justice, on fraud risk management, where roles and responsibilities of Bard/Board committees and senior management of the banks shall be delineated. The minimum which shall the policy of the banks include is
Issuance of Show Cause Notice (SCN) to the Persons, Entities and its Promoters/whole time and executive directors against whom allegations of fraud is being examined. The SCN shall provide complete details of transactions/ actions/ events basis which declaration and reporting of a fraud is being contemplated under the directions.
A reasonable time of not less than 21 days shall be provided to the parties to whom the notice is given.
The banks shall have well laid out system of issuance of SCN and examination of the responses submission made by the persons/entities prior to declaring such Persons/ Entities as fraudulent.
A reasonable order shall be served on Persons/ Entities conveying the decision of the bank regarding declaration/classification of the account as fraud or otherwise. Such order(s) must contain the relevant facts. circumstances relied upon, the submission made gains the SCN and the reasons for classification as fraud or otherwise.
The policy shall be reviewed by the Board at least once in three years or more frequently as the board may prescribe.
Special Committee of the Board for Monitoring and Follow up of cases of Fraud: Banks shall constitute special Committee of the Board for Monitoring and follow up of cases of Fraud (SCBMF) with a minimum of three members of the Board, consisting of a whole time director and a minimum of two independent directors / non executive directors.
The committee shall oversee the effectiveness of the fraud risk management of the bank. It shall review and monitor cases of fraud, including root cause analysis and suggest mitigating measures for strengthening the internal controls, risk management framework and minimizing the incidents of frauds.
Role of Senior Management: It shall be responsible for implementation of the fraud risk management policy approved by the board. A periodic review of the incidents of fraud shall be placed before the board/audit committee of the board.
A senior official of the bank not below the rank of General Manager shall be responsible for monitoring and reporting of frauds.
Banks shall have a framework for Early Warning Signals (EWS) and Red Flagging of Accounts (RFA) under the overall Fraud Risk Management Policy approved by the Board. The Risk Management Committee of the Board (RMCB) shall oversee the effectiveness of the framework for EWS and RFA. The Senior Management shall be responsible for implementation of a robust Framework for EWS and RFA within the bank.
The EWS indicators identified for monitoring credit facilities / loan accounts and other banking transactions shall be approved by the RMCB. Appropriate Turnaround Time (TAT), preferably not more than 30 days, for examination of EWS alerts / triggers shall be prescribed by the RMCB.
EWS / RFA Framework for Credit Facilities / Loan Accounts
The EWS system shall be comprehensive and designed to include both the quantitative and qualitative indicators to make the framework robust and effective.
Data Analytics and Market Intelligence (MI) Unit: Banks shall set up a dedicated Data Analytics and MI Unit keeping in view their size, complexity, business mix, risk profile, etc. Such Unit shall facilitate collection and processing of relevant information to enable an early detection and prevention of potentially fraudulent activities. An account meeting the CRILC reporting threshold by the reporting entity, once red flagged, shall be reported to the Reserve Bank within seven days of being red flagged
EWS Framework for other banking / non-credit related transactions
Banks shall develop / strengthen their EWS system by identifying suitable indicators and parameterising them in their EWS system for monitoring other banking / non-credit related transactions within 6 months of the issuance of these directions.
In case of a credit facility / loan account classified as red-flagged account, banks shall use an external auditor an internal audit as per their Board approved Policy, for further investigation in such accounts.
The loan agreement with the borrower shall contain clauses for conduct of such audit at the behest of lender(s) consequent upon red flagging of the account. In cases where the audit report submitted remains inconclusive or is delayed due to non-cooperation by the borrower, banks shall conclude on status of the account as a fraud or otherwise based on the material available on their record and their own internal investigation / assessment in such cases.
The decision to classify any account, either standard or NPA, as a red-flagged account shall be at the individual bank level and such bank(s) shall report the status of the account on the Reserve Bank’s CRILC platform immediately (not later than seven days from date of classification as red-flagged account).
Once an account has been red-flagged, the entire process of classification of the account as fraud or removal of red-flagged status shall ordinarily be completed within 180 days from the date of first reporting of the account as red-flagged on the CRILC platform. Cases remaining in red-flagged status beyond 180 days shall be reported to the SCBMF for review with adequate reasoning / justification thereof. Such cases shall also be subject to supervisory review by the Reserve Bank.
In case an account is identified as a fraud by any bank, the borrowal accounts of other group companies, in which one or more promoter(s) / whole-time director(s) are common, shall also be subjected to examination by banks concerned from fraud angle under these Directions.
In cases where Law Enforcement Agencies (LEAs) have suo moto initiated investigation involving a borrower account, bank/s shall immediately red-flag the account and follow the usual process for classification of account as fraud and complete the same within the stipulated period.
Independent confirmation from the third-party service providers including professionals
Banks place reliance on various third-party service providers as part of pre-sanction appraisal and post-sanction monitoring. Therefore, banks may incorporate necessary terms and conditions in their agreements with third-party service providers to hold them accountable in situations where wilful negligence / malpractice by them is found to be a causative factor for fraud.
Banks shall, after complying with the principles of natural justice, report to Indian Banks’ Association (IBA) the details of such third parties or professionals involved in frauds. IBA would, in turn, prepare caution lists of such third parties for circulation among the banks.
Staff Accountability
Banks shall initiate and complete the examination of staff accountability in all fraud cases in a time-bound manner in accordance with their internal policy.
PSBs and AIFIs shall conduct examination of staff accountability as per the guidelines issued by the Central Vigilance Commission (CVC). In terms of CVC Order, PSBs and AIFIs shall also refer all fraud cases of amount involving ₹3 crore and above for examining the role of all levels of officials / whole-time directors (including ex-officials / ex-WTDs) to the Advisory Board for Banking and Financial Frauds (ABBFF) constituted by the CVC.
In cases involving very senior executives of the bank (MD & CEO / Executive Director / Executives of equivalent rank), the ACB shall initiate examination of their accountability and place it before the Board. However, in case of PSBs and AIFIs, such cases shall also be referred to the ABBFF.
Penal Measures
Persons / Entities classified and reported as fraud by banks and also Entities and Persons associated with such Entities, shall be debarred from raising of funds and / or seeking additional credit facilities from financial entities regulated by RBI, for a period of five years from the date of full repayment of the defrauded amount / settlement amount agreed upon in case of a compromise settlement.
Lending to such Persons / Entities, being commercial decisions, the lending banks shall have the sole discretion to entertain or decline such requests for credit facilities after the expiry of the mandatory cooling period.
Treatment of accounts under Resolution
In case an entity classified as fraud has subsequently undergone a resolution either under IBC or under the resolution framework of RBI22 resulting in a change in the management and control of the entity / business enterprise, the bank shall examine whether the entity shall continue to remain classified as fraud or the classification as fraud could be removed after implementation of the Resolution Plan under IBC or aforesaid prudential framework. This would, however, be without prejudice to the continuance of criminal action against erstwhile promoter(s) / director(s) / person(s) who were in charge and responsible for the management of the affairs of the entity / business enterprise.
The penal measures as detailed above shall not be applicable to entities / business enterprises after implementation of the Resolution Plan under IBC or aforesaid prudential framework.
The penal measures as detailed shall continue to apply to the erstwhile promoter(s) / director(s) / persons who were in charge and responsible for the management of the affairs of the entity / business enterprise.
Banks shall immediately report the incidents of fraud to LEAs, subject to applicable laws, as indicated below:
Category of bank
Amount involved in the fraud
LEA to whom complaint should be lodged
Remarks
Private Sector / Foreign Banks
Below ₹1 crore
State / Union Territory (UT) Police
₹1 crore and above
In addition to State/UT Police, Serious Fraud Investigation Office (SFIO), Ministry of Corporate Affairs, Government of India
Details of fraud are to be reported to SFIO in Fraud Monitoring Return (FMR) format.
Public Sector Banks / Regional Rural Banks
(a) Below ₹6 crore
State / UT Police
(b) ₹6 crore and above
Central Bureau of Investigation (CBI)
Banks shall establish suitable nodal point(s) / designate officer(s) for reporting incidents of fraud to LEAs and for proper coordination to meet the requirements of the LEAs
Reporting of Incidents of Fraud to Reserve Bank of India (RBI)
To ensure uniformity and consistency while reporting incidents of fraud to RBI through Fraud Monitoring Returns (FMRs) using online portal, banks shall choose the most appropriate category from any one of the following:
Misappropriation of funds and criminal breach of trust;
Fraudulent encashment through forged instruments;
Manipulation of books of accounts or through fictitious accounts, and conversion of property;
Cheating by concealment of facts with the intention to deceive any person and cheating by impersonation;
Forgery with the intention to commit fraud by making any false documents/electronic records;
Wilful falsification, destruction, alteration, mutilations of any book, electronic record, paper, writing, valuable security or account with intent to defraud;
Fraudulent credit facilities extended for illegal gratification;
Fraudulent electronic banking / digital payment related transactions committed on banks; and
Other type of fraudulent activity not covered under any of the above.
Central Fraud Registry (CFR)
Modalities of Reporting Incidents of Fraud to RBI: Banks are required to report payment system related disputed / suspected or attempted fraudulent transactions to Central Payments Fraud Information Registry (CPFIR), maintained by RBI. However, such transactions, if subsequently concluded as fraud committed on bank(s), shall invariably be reported through FMR so as to be reflected in CFR.
Modalities of Reporting Incidents of Fraud to RBI
Banks shall furnish FMR in individual fraud cases, irrespective of the amount involved, immediately, but not later than 14 days from the date of classification of an incident / account as fraud
Banks shall also report frauds perpetrated in their group entities to RBI separately, if such entities are not regulated / supervised by any financial sector regulatory / supervisory authority. However, in case of overseas banking group entity of Indian banks, the parent bank shall also report incidents of fraud to RBI. The group entities will have to comply with the principles of natural justice before declaration of fraud
Closure of Fraud Cases Reported to RBI
Banks shall close fraud cases using ‘Closure Module’ where the actions as stated below are complete:
The fraud cases pending with LEAs / Court are disposed off; and
The examination of staff accountability has been completed.
Banks are allowed, for limited statistical / reporting purposes, to close those reported fraud cases involving amount up to ₹1 crore, where examination of staff accountability and disciplinary action, if any, have been taken and:
The investigation is going on or charge-sheet has not been filed in the Court by LEA for more than three years from the date of registration of First Information Report (FIR); or
The charge-sheet is filed by the LEAs in trial court and the trial in the court has not commenced or is pending before the court for more than three years from the date of registration of FIR.
In all closure cases of reported frauds, banks shall maintain details of such cases for examination by auditors.
Cheque Related Frauds – Reporting to LEAs and RBI / NABARD
To ensure uniformity and avoid duplication, reporting of frauds involving forged instruments, including fake / forged instruments sent in clearing in respect of truncated instruments, shall continue to be done by the paying banker and not by the presenting banker. In such cases the presenting bank shall immediately handover the underlying instrument to the drawee / paying bank, as and when demanded, to enable them to inform LEAs for investigation and further action under law and to report the fraud to RBI.
However, in the case of presentment of an instrument which is genuine but payment has been made to a person who is not the true owner; or where the amount has been credited before realisation and subsequently the instrument is found to be fake / forged and returned by the paying bank, the presenting bank which is defrauded or is put to loss by paying the amount before realisation of the instrument shall file the fraud report with the RBI and inform the LEAs for investigation and further action under law.
Legal Audit of Title Documents in respect of Large Value Loan Accounts
Banks shall subject the title deeds and other related title documents in respect of all credit facilities of ₹5 crore and above to periodic legal audit and re-verification, till the loan is fully repaid.
Specific to Small Finance Banks, Local Area Banks and Regional Rural Banks, the threshold amount for periodic legal audit of title deeds and other related title documents shall continue to be ₹1 crore.
Treatment of Accounts classified as Fraud and sold to other Lenders / Asset Reconstruction Companies (ARCs)
Banks shall complete the investigation from fraud angle before transferring the loan account / credit facility to other lenders / ARCs. In cases where banks conclude that a fraud has been perpetrated in the account, they shall report it to RBI / NABARDbefore selling the accounts to other lenders / ARCs
‘Date of Occurrence’, ‘Date of Detection’ and ‘Date of Classification’ of Fraud – for the purpose of reporting under FMR
The ‘date of occurrence’ is the date when the actual misappropriation of funds has started taking place, or the event occurred, as evidenced / reported in the audit or other findings.
The ‘date of detection’ to be reported in FMR is the actual date when the fraud came to light in the concerned branch / audit / department, as the case may be, and not the date of approval by the competent authority of the bank.
The ‘date of classification’ is the date when due approval from the competent authority has been obtained for such classification, and the reasoned order is passed.
Reporting Cases of Theft, Burglary, Dacoity and Robbery
Banks shall report instances of theft, burglary, dacoity and robbery (including attempted cases), to Fraud Monitoring Group (FMG), Department of Supervision, Central Office, Reserve Bank of India, immediately (not later than seven days) from their occurrence. Banks shall also submit a quarterly Return (RBR) on theft, burglary, dacoity and robbery to RBI using online portal, covering all such cases during the quarter. This shall be submitted within 15 days from the end of the quarter to which it relates.
With reference to the Press Release: 2022-2023/1033 dated October 12, 2022 in terms of which, regulated entities/market participants were advised that in respect of ratings/credit evaluations required in terms of any guidelines issued by the Reserve Bank, no such fresh ratings/evaluations shall be obtained from Brickwork Ratings India Private Limited (the CRA).
The RBI in revision has permitted to banks to use the ratings of the CRA i.e. Brickworks for risk weighting their claims for capital adequacy purposes, subject to the following:
In respect of fresh rating mandates, rating may be obtained from the CRA for bank loans not exceeding Rs.250 crore.
In respect of existing ratings, the CRA may undertake rating surveillance irrespective of the rated amount, till the residual tenure of such loans.
Provided that in case of existing ratings assigned to working capital facilities exceeding Rs.250 crore, the CRA shall undertake rating surveillance only till the next renewal of such facility by the banks.
RBI vide its circular Master Circular DOR.CAP.REC.4/21.06.201/2024-25 dated April 1, 2024 has given the list of eligible credit rating agencies, which banks may use for the purpose of risk weighting their claims for capital adequacy purpose
(a) Acuite Ratings & Research Limited (Acuite)
(b) CARE Ratings Limited;
(c) CRISIL Ratings Limited
(d) ICRA Limited;
(e) India Ratings and Research Private Limited (India Ratings); and (f) INFOMERICS Valuation and Rating Pvt Ltd. (INFOMERICS)
The FI-Index has been conceptualised as a comprehensive index incorporating details of banking, investments, insurance, postal as well as the pension sector in consultation with Government and respective sectoral regulators. The index captures information on various aspects of financial inclusion in a single value ranging between 0 and 100, where 0 represents complete financial exclusion and 100 indicates full financial inclusion. The FI-Index comprises of three broad parameters (weights indicated in brackets) viz., Access (35%), Usage (45%), and Quality (20%) with each of these consisting of various dimensions, which are computed based on a number of indicators.
The Index is responsive to ease of access, availability and usage of services, and quality of services, comprising in all 97 indicators. A unique feature of the Index is the Quality parameter which captures the quality aspect of financial inclusion as reflected by financial literacy, consumer protection, and inequalities and deficiencies in services.
The FI-Index has been constructed without any ‘base year’ and as such it reflects cumulative efforts of all stakeholders over the years towards financial inclusion. The FI-Index will be published annually in July every year.
FI Index for FY 2024: The FI-Index for the year ending March 2024 has since been prepared. The value of the Index for March 2024 stands at 64.2 vis-à-vis 60.1 in March 2023, with growth witnessed across all sub-indices. Improvement in FI-Index is mainly contributed by Usage dimension, reflecting deepening of financial inclusion.
The UPI Lite facility currently allows a customer to load his UPI Lite wallet upto ₹2000/- and make payments upto ₹500/- from the wallet. In order to enable the customers to use the UPI Lite seamlessly, and based on the feedback received from various stakeholders, it is proposed to bring UPI Lite within the ambit of the e-mandate framework by introducing an auto-replenishment facility for loading the UPI Lite wallet by the customer, if the balance goes below a threshold amount set by him/her. Since the funds remain with the customer (funds move from his/ her account to wallet), the requirement of additional authentication or pre-debit notification is proposed to be dispensed with. Related guidelines in respect of the above proposal will be issued shortly. As per Statement on Development and Regulatory Policies by RBI dated 07.06.2024.
The Reserve Bank of India (RBI) has imposed a monetary penalty of ₹1,31,80,000 on Punjab National Bank for non-compliance with certain directions issued by RBI on ‘Loans and Advances – Statutory and Other Restrictions’, and ‘Reserve Bank of India (Know Your Customer (KYC) Direction, 2016’. This penalty has been imposed in exercise of powers vested in RBI conferred under the provisions of section 47 A (1) (c) read with sections 46 (4) (i) and section 51(1) of the Banking Regulation Act, 1949.
The Statutory Inspection for Supervisory Evaluation (ISE 2022) of the bank was conducted by RBI with reference to its financial position as on March 31, 2022. ISE found non-compliance with RBI directions. The RBI, considering reply to its the notice and oral submissions made during the personal hearing, found, inter alia, that the charges against the bank were sustained and it warranted imposition of monetary penalty. The following charges as per RBI were sustained against the bank
Sanctioned working capital demand loans to two State Government owned Corporations against amounts receivable from Government by way of subsidies/ refunds/ reimbursements, and
failed to preserve the records pertaining to the identification of customers and their addresses obtained during the course of business relationship in certain accounts.
The RBI has decided to transfer surplus of Rs. 2.11 trillion to the government for year FY 2024. The transfer is made even after increasing the buffer to 6.5%. The Jalan Committee has proposed to maintain buffer in the range of 5.5% to 6.5% of the RBI’s balance sheet. The ongoing growth of economy has prompted the RBI to increase buffer at 6.5% and also pay an amount of Rs. 2.11 trillion to the government. This payment will provide the government a cushion and greater elbow room for expenditure management.
The transfer of surplus amounting to Rs. 2.11 trillion will help the government to reduce its budget deficit and ensure that aim of government to maintain fiscal deficit to GDP ratio at 5.1% is maintained or even can be lowered further. The government has set a target of 4.5% of fiscal deficit to GDP ratio by 2026.
