1. Regulatory Updates
1.1. India
1.1.1. RBI updates foreign investment regulations
Reserve Bank of India (“RBI”) has issued a circular, addressing Category-I Authorised Dealer Banks regarding amendments to the Foreign Exchange Management (Overseas Investment) Directions, 2022. The amendments primarily focus on investments in overseas funds, clarifying regulations governing investment funds across jurisdictions. Notable changes include revised definitions of investment funds overseas and expanded eligibility criteria for making overseas portfolio investments. RBI
1.1.2. RBI amends bulk deposit definition for banks
RBI has amended the definition of “Bulk Deposit” for Scheduled Commercial Banks, Small Finance Banks, and Local Area Banks. Effective immediately, “Bulk Deposit” now mean single rupee term deposits of INR 3,00,00,000 Indian Rupees Three Crore only) and above for Scheduled Commercial Banks and Small Finance Banks, and INR 1,00,00,000 (Indian Rupees One Crore only) and above for Regional Rural Banks and Local Area Banks. This amendment aims to refine regulations on deposit interest rates, enhancing clarity and consistency across banking institutions. RBI
1.1.3. Monetary Penalties
RBI imposes monetary penalties on the following financial institutions:
| Name of the Financial Institution | Penalty Imposed | Reasons |
| India Home Loan Limited, Mumbai Maharashtra | INR 1,00,000/- (Indian Rupees One Lakh only) | Contravention of/non-adherence with The Housing Finance Companies (NHB) Directions, 2010’, read with Master Direction on ‘Non-Banking Financial Company – Housing Finance Company (Reserve Bank) Directions, 2021’ issued by RBI. |
| The Angul United Central Co-operative Bank Limited, Odisha | INR 1,00,000/- (Indian Rupees One Lakh only) | Contravention of/non-adherence with Master Direction issued by RBI on ‘Know your Customer (KYC) Direction, 2016. |
| Vishwakalyan Sahakara Bank Niyamit, Hubli, Karnataka | INR 25,000/- (Indian Rupees Twenty-Five Thousand only) | Contravention of/non-adherence with certain directions issued by RBI on ‘Exposure Norms & Statutory/Other Restrictions-UCBs’. |
| The Prakasam District Co-operative Central Bank Limited, Ongole, Andhra Pradesh | INR 50,000/- (Indian Rupees Fifty Thousand only) | Contravention of/non-adherence with certain directions issued by the National Bank for Agriculture and Rural Development (“NABARD”) on ‘Frauds – Guidelines for Classification, Reporting and Monitoring’. |
| The Kancheepuram Central Co-operative Bank Limited, Kancheepuram, Tamil Nadu | INR 50,000/- (Indian Rupees Fifty Thousand only) | Contravention of/non-adherence with certain directions issued by NABARD on ‘Frauds – Guidelines for Classification, Reporting and Monitoring’. |
| Ramanagaram Urban Co-operative Bank Limited, Karnataka | INR 75,000/- (Indian Rupees Seventy-Fifty Thousand only) | Contravention of/non-adherence with certain directions issued by RBI on ‘Exposure Norms & Statutory/Other Restrictions-UCBs’. |
| Nandani Sahakari Bank Limited, Kolhapur, Maharashtra | INR 2,00,000/- (Indian Rupees Two Lakh only) | Contravention of/non-adherence with certain directions issued by RBI on ‘Gold Loan – Bullet Repayment – UCBs’ and ‘Management of Advances – UCBs’ |
| Gujarat Ambuja Co-operative Bank Limited, Ahmedabad, Gujarat | INR 1,00,000/- (Indian Rupees One Lakh only) | Contravention of/non-adherence with certain directions issued by RBI on ‘Loans and Advances to directors, relatives and firms/concerns in which they are Interested’ read with ‘Loans and Advances to directors etc. – directors as surety/guarantors – Clarification. |
| Central Bank of India | INR 1,45,50,000 (Indian Rupees One Crore Forty-Five Lakh Fifty Thousand only) | Contravention of/non-adherence with certain directions issued by RBI on ‘Loans and Advances – Statutory and Other Restrictions’ and ‘Customer Protection – Limiting Liability of Customers in Unauthorised Electronic Banking Transactions’. |
| Sonali Bank PLC | INR 96,40,000 (Indian Rupees Ninety-Six Lakh and Forty Thousand only | Contravention of/non-adherence with Credit Information Companies (Regulation) Act, 2005, ‘Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016’, and directions issued by RBI on ‘Time-bound implementation and strengthening of SWIFT – related operational controls. |
1.2. Sri Lanka
1.2.1. Central Bank of Sri Lanka tightens regulation on money transfer service
The Central Bank of Sri Lanka (“CBSL”) has introduced new regulations to regulate Money or Value Transfer Service (MVTS) Providers in an effort to ensure financial system stability and combat money laundering and terrorism financing. Effective from June 3, 2024, these regulations require all MVTS providers to be registered and monitored by the CBSL. The regulations outline key requirements for registration, including minimum capital thresholds and exclusive focus on MVTS activities. Existing providers without proper authorisation must apply for registration within one year. CBSL will serve as the regulatory and supervisory authority, issuing certificates of registration and overseeing compliance. Central Bank of Sri Lanka
1.3. Philippines
1.3.1. BSP approves consumer redress mechanism standards for electronic fund transfers
Bangko Sentral ng Pilipinas (BSP) issued a circular on Consumer Redress Mechanism Standards for Electronic Fund Transfers (“EFTs”) under the National Retail Payment System (NRPS) framework. This Circular aims to promptly resolve EFT-related customer concerns, boosting trust in digital payments. It requires originating financial institutions (OFIs) to notify senders about the EFT status and provide updates until resolved, while receiving institutions must inform beneficiaries upon fund crediting. The Circular sets strict timelines for returning funds, reducing response times significantly and ensuring 24×7 customer support. Bangko Sentral Ng Pilipinas
2. Trends
2.1. FIDC urges RBI to reconsider proposed infrastructure loan provisions
Finance Industry Development Council (“FIDC”), representing Non-Banking Finance Companies (“NBFCs”), has asked RBI to review their recent proposal requiring lenders to maintain a 5% general provision in infrastructure project loans. The proposed hike from 0.4% to 5% during the construction phase has been met with opposition from the FIDC, which suggests retaining the provision at the current level. FIDC argues that increased provisions could hinder project selection by lenders, potentially leading to higher interest rates for project finance loans. Financial Express
2.2. IFSCA to clear final norms for direct listing at the Gift City by July, 2024
Final regulations for direct listing of unlisted companies GIFT City will be ready in a month, with the first listing at the International Financial Services Centre (“IFSC”), expected within a quarter, as per the chairperson of IFSC Authority. The current Issuance and Listing of Securities (ILS) Regulations, 2021 may be replaced by the new IFSC Authority (Listing) Regulations, 2024. The proposal exempts issuers with a proposed issue size of USD 100 million or less from seeking IFSC Authority approval and sets standards for eligibility, disclosures, whistleblower mechanisms, and sustainability reporting. Inc42
2.3. SBI chairman predicts decline in deposit rates, RBI likely to ease interest rates
State Bank of India (“SBI”) Chairman Dinesh Kumar Khara forecasts a downward trajectory for deposit rates in the medium term, indicating a peak in the current rates. He also suggests that the RBI may initiate an interest rate easing cycle from the third quarter of the fiscal year. SBI recently increased fixed deposit rates for select short-term maturities, signalling a potential shift in the interest rate landscape. The Tribune
2.4. NBFCs seek overseas funding as RBI tightens domestic investments
NBFCs are looking to international markets for fundraising after the RBI restricted bank investments in them to control excessive credit growth. Some NBFCs have already entered the External Commercial Borrowing (“ECB”) market. Cholamandalam Investment & Finance raised USD 200 million, REC Limited secured USD 147.9 million, and Bajaj Finance obtained USD 125 million in the March quarter. Muthoot Microfin also recently closed a USD 113 million ECB fundraise. With a potential US Fed rate cut, NBFCs are increasing overseas borrowing to manage higher capital costs due to the RBI’s increased risk weightage. This move will help meet funding needs amid high credit demand, benefiting from low hedging costs and softening global interest rates. The Business Line
3. Sector Overview
3.1. NBFC-MFIs the largest provider of micro-credit, as per the industry body report
As per a report published by the Microfinance Industry Network (MFIN), nearly 40% of micro-credit disbursed by the end of fiscal year 2023-24 was by Non-Banking Financial Company-Micro Finance Institutions (“NBFC-MFIs”), and 33% by scheduled banks. The gross loan portfolio of the microfinance industry rose 25% year-on-year (YoY) to INR 4.3 trillion. Assets under management of NBFC-MFIs rose nearly 30% YoY to INR 1.6 trillion. Microfinance Industry Network
3.2. Banks and NBFCs are well-positioned to leverage India’s economic growth as per Moody’s and ICRA Report
As per a recent report by Moody’s and its domestic subsidiary ICRA Ratings, Indian banks and NBFCs are poised to capitalise on the country’s robust economic prospects by extending credit across key sectors such as infrastructure, energy transition, manufacturing, small businesses and retail. The report highlights an improvement in the credit quality of India’s financial system, supported by minimal delinquencies and domestic funding. Moody’s projects a loan growth of 12% to 14% over the next 12-15 months, aligning with deposit growth. Emphasizing technology adoption, risk management, governance, customer experience, and balance-sheet resilience, Moody’s Vice President underscores key priorities for India’s financial institutions. ICRA also estimates credit expansion to reach INR 19.0 trillion – INR 20.5 trillion by the fiscal year ending March 2025, despite a growth moderation. Moody’s Ratings
3.3. World Bank upwardly revises India’s GDP growth forecast for 2024-25
World Bank has revised India’s GDP growth projection for the current fiscal year to 6.6%, up from its earlier estimate of 6.4%. India is anticipated to remain the fastest-growing major economy globally, fuelled by strong public investment and resilient private consumption. The report attributes India’s growth to robust industrial activity and domestic demand, projecting an average growth of 6.7% annually from 2024 to 2026. Business Line
4. Business Updates
4.1. Jupiter secures RBI license for prepaid payments instrument
Bengaluru-based neo-banking startup, Jupiter, has obtained a prepaid payments instrument (PPI) license from the RBI. This license enables Jupiter to offer digital wallets for UPI payments, fund transfers, and bill payments. In addition to its current offerings of digital savings accounts, UPI payments, and financial management services, Jupiter plans to introduce a prepaid account facility in the near future and expand its user base significantly by providing a risk-free account for UPI and similar transactions. Inc42
4.2. Jio Platforms gets regulatory approval to launch internet satellite
Orbit Connect India, a joint venture between Jio Platforms and Luxembourg-based satcom player, SES, has received approval from India’s space regulator, Indian National Space Promotion and Authorisation Centre (“IN-SPACe”), to operate satellites for high-speed internet, according to Reuters. This comes as Elon Musk’s Starlink and Amazon seek similar approvals. IN-SPACe’s chairman stated that increased competition in the sector would benefit consumers by driving innovation and lowering prices. Business Today
Disclaimer
The note is prepared for knowledge dissemination and does not constitute legal, financial or commercial advice. AK & Partners or its associates are not responsible for any action taken based on its contents.
