Notifications

Circulars Review of Margin Framework for Commodity Derivatives Segment: SEBI

Posted on by in CIVIL, Securities Law and tagged , , .

SEBI/HO/CDMRD/DRMP/CIR/P/2020/15 January 27, 2020

To,

The Managing Directors / Chief Executive Officers,

All Clearing Corporations having Commodity Derivatives Segment

Sir / Madam,

Sub: Review of Margin Framework for Commodity Derivatives Segment

1. SEBI vide Circular CIR/CDMRD/DRMP/01/2015 dated October 01, 2015 and SEBI/HO/CDMRD/DRMP/CIR/P/2016/77 dated September 01, 2016 prescribed Risk Management Framework for the Commodity Derivatives Segment (CDS). These circulars, inter alia, stipulated minimum value for Initial Margin(IM) and Margin Period of Risk (MPOR).

2. CPSS-IOSCO Principles for Financial Market Infrastructure (PFMI) inter alia prescribes under Key Considerations for Principle 6 on margin that margining model should to the extent practicable and prudent, limit the need for destabilising, pro-cyclical changes.

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RBI issued guidelines for Enhancing Security of Card Transactions- 15/01/2020

Posted on by in Reserve Bank of India and tagged .

RBI/2019-20/142
DPSS.CO.PD No.1343/02.14.003/2019-20

January 15, 2020

The Chairman / Managing Director / Chief Executive Officer
All Scheduled Commercial Banks (SCBs) including Regional Rural Banks (RRBs) /
Urban Co-operative Banks (UCBs) / State Co-operative Banks (StCBs) /
District Central Co-operative Banks (DCCBs) / Payments Banks (PBs) /
Small Finance Banks (SFBs) / Local Area Banks (LABs) /
Authorised Card Payment Networks / Non-Bank PPI issuers

Madam / Dear Sir,

Enhancing Security of Card Transactions

Over the years, the volume and value of transactions made through cards have increased manifold. To improve user convenience and increase the security of card transactions, it has been decided as under:

a) At the time of issue / re-issue, all cards (physical and virtual) shall be enabled for use only at contact-based points of usage [viz. ATMs and Point of Sale (PoS) devices] within India. Issuers shall provide cardholders a facility for enabling card not present (domestic and international) transactions, card present (international) transactions and contactless transactions, as per the process outlined in para 1 (c).

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Sikhs For Justice (SFJ) is an unlawful association: MHA Notification

Posted on by in Terrorism, Unlawful Activities (Prevention) Act 1967 and tagged , .
The Government and Security

EXTRAORDINARY
II ii
PART II—Section 3—Sub-section (ii)
PUBLISHED BY AUTHORITY

NEW DELHI, WEDNESDAY, JANUARY 8, 2020/ PAUSHA 18, 1941

MINISTRY OF HOME AFFAIRS

NOTIFICATION

Government of india

New Delhi, the 8th January, 2020

S.O. 112 (E).—Whereas the Central Government in exercise of the powers conferred by sub-sections (1) and (3) of section 3 of the Unlawful Activities (Prevention) Act, 1967(37 of 1967) (hereinafter referred to as said Act), declared the Sikhs For Justice (SFJ) to be unlawful association vide notification of the Government of India in the Ministry of Home Affairs number S.O. 2469 (E), dated the 10th July, 2019, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii) dated 10th July, 2019 (hereinafter referred to as said notification);

And, whereas, the Central Government in exercise of the powers conferred by sub-section (1) of section 5 of the said Act constituted the Unlawful Activities (Prevention) Tribunal (hereinafter referred to as the said Tribunal) consisting of Mr. Justice D.N. Patel, Chief Justice, High Court of Delhi vide notification of the Government of India in the Ministry of Home Affairs number S.O. 2856 (E), dated 7th August, 2019, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii) dated 7th August, 2019;

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Gazette Notification on creation of Chief of Defence Staff For Indian Mititary

Posted on by in Defence of India Rules and tagged .
Government of india

The Gazette of India

Extra Ordinary

PART II—Section 4

NEW DELHI, SATURDAY, DECEMBER 28, 2019/PAUSHA 7, 1941

MINISTRY OF DEFENCE
(Department of Defence)

NOTIFICATION
New Delhi, the 28th December, 2019

S.R.O. 17(E).—In exercise of the powers conferred by section 191 of the Army Act, 1950 (46 of 1950), the Central Government hereby makes the following rules further to amend the Army Rules, 1954, namely :—

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The Citizenship (Amendment) Act 2019

Posted on by in Citizenship, Citizenship Act and tagged , .

(Act No. 47 of 2019)

An Act further to amend the Citizenship Act, 1955.

Be it enacted by Parliament in the Seventieth Year of the Republic of India as follows:-

1. Short title and commencement

 (1) This Act may be called the Citizenship (Amendment) Act, 2019.

(2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

2. Amendment of section 2

In the Citizenship Act, 1955 (57 of 1955) (hereinafter referred to as the principal Act), in section 2, in sub-section (1), in clause (b), the following proviso shall be inserted, namely:-

“Provided that any person belonging to Hindu, Sikh, Buddhist, Jain, Parsi or Christian community from Afghanistan, Bangladesh or Pakistan, who entered into India on or before the 31st day of December, 2014 and who has been exempted by the Central Government by or under clause (c) of sub-section (2) of section 3 of the Passport (Entry into India) Act, 1920 (34 of 1920) or from the application of the provisions of the Foreigners Act, 1946 (31 of 1946) or any rule or order made thereunder, shall not be treated as illegal migrant for the purposes of this Act;”.

3. Insertion of new section 6B.

After section 6A of the principal Act, the following section shall be inserted, namely:-

‘6B. Special provisions as to citizenship of person covered by proviso to clause (b) of sub-section (1) of section 2

(1) The Central Government or an authority specified by it in this behalf may, subject to such conditions, restrictions and manner as may be prescribed, on an application made in this behalf, grant a certificate of registration or certificate of naturalisation to a person referred to in the proviso to clause (b) of sub-section (1) of section 2.

(2) Subject to fulfilment of the conditions specified in section 5 or the qualifications for naturalisation under the provisions of the Third Schedule, a person granted the certificate of registration or certificate of naturalisation under sub-section (1) shall be deemed to be a citizen of India from the date of his entry into India.

(3) On and from the date of commencement of the Citizenship (Amendment) Act, 2019, any proceeding pending against a person under this section in respect of illegal migration or citizenship shall stand abated on conferment of citizenship to him:

Provided that such person shall not be disqualified for making application for citizenship under this section on the ground that the proceeding is pending against him and the Central Government or authority specified by it in this behalf shall not reject his application on that ground if he is otherwise found qualified for grant of citizenship under this section:

Provided further that the person who makes the application for citizenship under this section shall not be deprived of his rights and privileges to which he was entitled on the date of receipt of his application on the ground of making such application.

(4) Nothing in this section shall apply to tribal area of Assam, Meghalaya, Mizoram or Tripura as included in the Sixth Schedule to the Constitution and the area covered under “The Inner Line” notified under the Bengal Eastern Frontier Regulation, 1873, (Reg. 5 of 1873.)’.

4. Amendment of section 7D

In section 7D of the principal Act,-

(i) after clause (d), the following clause shall be inserted, namely:-

“(da) the Overseas Citizen of India Cardholder has violated any of the provisions of this Act or provisions of any other law for time being in force as may be specified by the Central Government in the notification published in the Official Gazette; or”;

(ii) after clause (f), the following proviso shall be inserted, namely:-

“Provided that no order under this section shall be passed unless the Overseas Citizen of India Cardholder has been given a reasonable opportunity of being heard.”.

5. Amendment of section 18

In section 18 of the principal Act, in sub-section (2), after clause (ee), the following clause shall be inserted, namely:-

“(eei) the conditions, restrictions and manner for granting certificate of registration or certificate of naturalisation under sub-section (1) of section 6B;”.

6. Amendment of Third Schedule

In the Third Schedule to the principal Act, in clause (d), the following proviso shall be inserted, namely:-

‘Provided that for the person belonging to Hindu, Sikh, Buddhist, Jain, Parsi or Christian community in Afghanistan, Bangladesh or Pakistan, the aggregate period of residence or service of Government in India as required under this clause shall be read as “not less than five years” in place of “not less than eleven years”.’

The Citizenship Act 1955

Gazette Notification on -12th December 2019.

 

THE ARMS (AMENDMENT) BILL 2019

Posted on by in Arms Act 1959 and tagged , , .

THE ARMS (AMENDMENT) BILL, 2019
A
BILL
further to amend the Arms Act, 1959.

BE it enacted by Parliament in the Seventieth Year of the Republic of India as follows:—

1. (1) This Act may be called the Arms (Amendment) Act, 2019.

(2) It shall come into force on such date as the Central Government may, by notification
in the Official Gazette, appoint.

2. In the Arms Act, 1959 (hereinafter referred to as the principal Act), in section 2, after
clause (e), the following clause shall be inserted, namely:—

‘(ea) “licence” means a licence issued in accordance with the provisions of this Act and rules made thereunder and includes a licence issued in the electronic form;’.

3. In section 3 of the principal Act, in sub-section (2),—

(i) for the words “three firearms”, the words “two firearm” shall be substituted;

(ii) for the proviso, the following provisos shall be inserted, namely:—

“Provided that a person who has in his possession more firearms than two at the commencement of the Arms (Amendment) Act, 2019, may retain with him any two of such firearms and shall deposit, within one year from such commencement, the remaining firearm with the officer in charge of the nearest police station or, subject to the conditions prescribed for the purposes of sub-section (1) of section 21, with a licensed dealer or, where such person is a member of the armed forces of the Union, in a unit armoury referred to in that sub-section after which it shall be delicensed within ninety days from the date of expiry of aforesaid one year:

Provided further that while granting arms licence on inheritance or heirloom basis, the limit of two firearms shall not be exceeded.”.

4. In section 5 of the principal Act, in sub-section (1), in clause (a), for the word “manufacture,”, the words “manufacture, obtain, procure,” shall be substituted.

5. In section 6 of the principal Act, after the words “convert an imitation firearm into a firearm”, the words and figures “or convert from any category of firearms mentioned in the Arms Rules, 2016 into any other category of firearms” shall be inserted.

6. In section 8 of the principal Act, in sub-section (1), for the word “firearm”, the words “firearm or ammunition” shall be substituted.

7. In section 13 of the principal Act, in sub-section (3), in clause (a), in sub-clause (ii), for the words and figures “point 22 bore rifle or an air rifle”, the word “firearm” shall be substituted.

8. In section 15 of the principle Act, in sub-section (1),—

(a) for the words “period of three years”, the words “period of five years” shall be substituted;

(b) after the proviso, the following proviso shall be inserted, namely:—

“Provided further that the licence granted under section 3 shall be subject to the conditions specified in sub-clauses (ii) and (iii) of clause (a) of sub-section (1) of section 9 and the licensee shall produce the licence along with the firearm or ammunition and connected document before the licensing authority after every five years from the date on which it is granted or renewed.”.

9. In section 25 of the principal Act,—

(i) in sub-section (1),—

(a) in clause (a), for the word “manufactures,”, the words “manufactures, obtains, procures” shall be substituted;

(b) in clause (b), after the words “convert an imitation firearm into a firearm”, the words and figures “or convert from any category of firearms mentioned in the Arms Rules, 2016 into any other category of firearms,” shall be inserted;

(c) in the long line, for the words “three years but which may extend to seven years”, the words “seven years but which may extend to imprisonment for life” shall be substituted;

(ii) in sub-section (1A),—

(a) for the words “five years but which may extend to ten years”, the words “seven years but which may extend to fourteen years” shall be substituted;

(b) the following proviso shall be inserted, namely:—

“Provided that the Court may, for any adequate and special reasons to be recorded in the judgment, impose a sentence of imprisonment for a term of less than seven years.”;

(iii) after sub-section (1A), the following sub-section shall be inserted, namely:—

“(1AB) Whoever, by using force, takes the firearm from the police or armed forces shall be punishable with imprisonment for a term which shall not be less than ten years but which may extend to imprisonment for life and shall
also be liable to fine.”;

(iv) in sub-section (1AA), for the words “seven years”, the words “ten years” shall be substituted;

(v) in sub-section (1B),—

(a) in the long line, for the words “one year but which may extend to three years”, the words “two years but which may extend to five years and shall also be liable to fine” shall be substituted;

(b) in the proviso, for the words “one year”, the words “two years” shall be substituted;

(vi) after sub-section (5), the following sub-sections shall be inserted, namely:—

‘(6) If any member of an organised crime syndicate or any person on its behalf has at any time has in his possession or carries any arms or ammunition in contravention of any provision of Chapter II shall be punishable with imprisonment for a term which shall not be less than ten years but which may extend to imprisonment for life and shall also be liable to fine.

(7) Whoever on behalf of a member of an organised crime syndicate or a person on its behalf,—

(i) manufactures, obtains, procures, sells, transfers, converts, repairs, tests or proves, or exposes or offers for sale or transfer, conversion, repair, test or proof, any arms or ammunition in contravention of section 5; or

(ii) shortens the barrel of a firearm or converts an imitation firearm into a firearm or converts from any category of firearms mentioned in the Arms Rules, 2016 into any other category of firearms in contravention of section 6; or

(iii) brings into, or takes out of India, any arms or ammunition of any class or description in contravention of section 11, shall be punishable with imprisonment for a term which shall not be less than ten years but which may extend to imprisonment for life and shall also be liable to fine.

Explanation.—For the purposes of sub-sections (6) and (7),—

(a) “organised crime” means any continuing unlawful activity by any person, singly or collectively, either as a member of an organised crime syndicate or on behalf of such syndicate, by use of violence or threat of violence or intimidation or coercion, or other unlawful means, with the objective of gaining pecuniary benefits, or gaining undue economic or other advantage for himself or any person;

(b) “organised crime syndicate” means a group of two or more persons who, acting either singly or collectively, as a syndicate or gang indulge in activities of organised crime.

(8) Whoever involves in or aids in the illicit trafficking of firearms and ammunition in contravention of sections 3, 5, 6, 7 and 11 shall be punishable with imprisonment for a term which shall not be less than ten years but which may extend to imprisonment for life and shall also be liable to fine.

Explanation.—For the purposes of this sub-section, “illicit trafficking” means the import, export, acquisition, sale, delivery, movement or transfer of firearms and ammunition into, from or within the territory of India, if the firearms and ammunition are not marked in accordance with the provisions of this Act or are being trafficked in contravention of the provisions of this Act including smuggled firearms of foreign make or prohibited arms and prohibited ammunition.

(9) Whoever uses firearm in a rash or negligent manner in celebratory gunfire so as to endanger human life or personal safety of others shall be punishable with an imprisonment for a term which may extend to two years, or with fine which may extend to rupees one lakh, or with both.

Explanation.—For the purposes of this sub-section, “celebratory gunfire” means the practice of using firearm in public gatherings, religious places, marriage parties or other functions to fire ammunition.’.

10. In section 27 of the principal Act, in sub-section (3), for the words “shall be punishable with death”, the words “shall be punishable with imprisonment for life, or death and shall also be liable to fine” shall be substituted.

11. In section 44 of the principal Act, in sub-section (2), in clause (f),—

(a) for the words “firearm shall be stamped or otherwise shown thereon”, the words “firearm or ammunition shall be stamped or otherwise shown thereon for the purposes of tracing” shall be substituted;

(b) the following Explanation shall be inserted, namely:—

‘Explanation.—For the purposes of this clause, “tracing” means the systematic tracking of firearms and ammunition from manufacturer to purchaser for the purpose of detecting, investigating and analysing illicit manufacturing and illicit trafficking;’.

(As passed by Lok Sabha)
MGIPMRND—4252LS(S3)—09-12-2019.

THE CONSTITUTION (ONE HUNDRED AND TWENTY-SIXTH AMENDMENT) BILL 2019

Posted on by in Reservation and tagged , , .

THE CONSTITUTION (ONE HUNDRED AND TWENTY-SIXTH
AMENDMENT) BILL, 2019

A

BILL

further to amend the Constitution of India.

BE it enacted by Parliament in the Seventieth Year of the Republic of India as follows:—

1. (1) This Act may be called the Constitution (One Hundred and Twenty-sixth Amendment) Act, 2019.

(2) It shall come into force on the 25th day of January, 2020.

2. In article 334 of the Constitution,—

(a) for the marginal heading, the following marginal heading shall be substituted, namely:—

“Reservation of seats and special representation to cease after certain period”;

(b) in the long line, after clauses (a) and (b), for the words “seventy years”, the words “eighty years in respect of clause (a) and seventy years in respect of clause (b)” shall be substituted.

STATEMENT OF OBJECTS AND REASONS

Article 334 of the Constitution lays down that the provisions of the Constitution relating to the reservation of seats for the Scheduled Castes and the Scheduled Tribes and the representation of the Anglo-Indian community by nomination in the House of the People and Legislative Assemblies of the States shall cease to have effect on the expiration of the period of 70 years from the commencement of the Constitution. In other words, these provisions will cease to have effect on the 25th January, 2020, if not extended further.

2. Although the Scheduled Castes and the Scheduled Tribes have made considerable progress in the last 70 years, the reasons which weighed with the Constituent Assembly in making provisions with regard to the aforesaid reservation of seats have not yet ceased to exist. Therefore, with a view to retaining the inclusive character as envisioned by the founding fathers of the Constitution, it is proposed to continue the reservation of seats for the Scheduled Castes and the Scheduled Tribes for another ten years i.e. up to 25th January, 2030.

3. The Bill seeks to achieve the above objects.

NEW DELHI; RAVI SHANKAR PRASAD.

The 4th December, 2019.

ANNEXURE

EXTRACT FROM THE CONSTITUTION OF INDIA

  1. Notwithstanding anything in the foregoing provisions of this Part, the
    provisions of this Constitution relating to—

(a) the reservation of seats for the Scheduled Castes and the Scheduled Tribes in the House of the People and in the Legislative Assemblies of the States;

and

(b) the representation of the Anglo-Indian community in the House of the People and in the Legislative Assemblies of the States by nomination, shall cease to have effect on the expiration of a period of seventy years from the commencement of this Constitution:

Provided that nothing in this article shall affect any representation in the House of the People or in the Legislative Assembly of a State until the dissolution of the then existing House or Assembly, as the case may be.

Shri Ravi Shankar Prasad

(Minister of Law and Justice, Communications and Electronics and Information, Technology)

MGIPMRND—4121LS(S3)—05-12-2019

Guidelines for ‘on tap’ Licensing of Small Finance Banks in the Private Sector

Posted on by in BANKING, Reserve Bank of India and tagged , , .

Licensing of Small Finance Banks in the Private Sector

Guidelines for ‘on tap’ Licensing of Small Finance Banks in the Private Sector

I. Introduction

The Reserve Bank had issued the Guidelines for Licensing of “Small Finance Banks” in the Private Sector on November 27, 2014. The process of licensing culminated in granting in-principle approval to ten applicants and they have since established the banks. It was notified in these Guidelines that after gaining experience in dealing with these banks, the Reserve Bank will consider ‘on tap’ licensing of these banks. After a review of the performance of the existing small finance banks and to encourage competition, it was announced in the Second Bi-monthly Monetary Policy Statement, 2019-20 dated June 06, 2019 that the Reserve Bank would put out draft guidelines for ‘on tap’ licensing of such banks. Accordingly, the draft guidelines were published on the RBI website on September 13, 2019 inviting comments from the stakeholders and members of the public. The final Guidelines, taking into consideration the responses received, are given below.

II. Guidelines

1. Registration, licensing and regulations

The small finance bank shall be registered as a public limited company under the Companies Act, 2013. It will be licensed under Section 22 of the Banking Regulation Act, 1949 and governed by the provisions of the Banking Regulation Act, 1949; Reserve Bank of India Act, 1934; Foreign Exchange Management Act, 1999; Payment and Settlement Systems Act, 2007; Credit Information Companies (Regulation) Act, 2005; Deposit Insurance and Credit Guarantee Corporation Act, 1961; other relevant Statutes and the Directives, Prudential Regulations and other Guidelines/ Instructions issued by Reserve Bank of India (RBI) and other regulators from time to time. The small finance banks will be given scheduled bank status once they commence their operations.

2. Objectives

The objectives of setting up of small finance banks will be for furthering financial inclusion by (i) provision of savings vehicles primarily to unserved and underserved sections of the population, and (ii) supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations.

3. Eligible promoters

(a) Eligibility Criteria:

Resident individuals/professionals (Indian citizens), singly or jointly, each having at least 10 years of experience in banking and finance at a senior level; and Companies and Societies in the private sector, that are owned and controlled by residents (as defined in FEMA Regulations, as amended from time to time), and having successful track record of running their businesses for at least a period of five years, will be eligible as promoters to set up small finance banks. Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local Area Banks (LABs) in the private sector, that are controlled by residents (as defined in FEMA Regulations, as amended from time to time), and having successful track record of running their businesses for at least a period of five years, can also opt for conversion into small finance banks after complying with all legal and regulatory requirements of various authorities and if they conform to these guidelines. Further, existing Payments Banks (PBs) which are controlled by residents and have completed five years of operations are also eligible for conversion into small finance banks after complying with all legal and regulatory requirements of various authorities and if they conform to these guidelines. However, joint ventures by different promoter groups for the purpose of setting up small finance banks would not be permitted. As local focus and the ability to serve smaller customers will be the key criteria in licensing such banks, this may be a more appropriate vehicle for local players or players who are focused on lending to unserved / underserved sections of the society. Accordingly, proposals from Government owned / public sector entities and large industrial house / business groups, including from NBFCs and PBs promoted by them, autonomous boards / bodies set up under enactment of a state legislature, state financial corporations, subsidiaries of development financial institutions, will not be entertained. For the purpose of these guidelines, a group with assets of ₹ 5,000 crore or more with the non-financial business of the group accounting for 40 per cent or more in terms of total assets / gross income, will be treated as a large industrial house / business groups. (In taking a view on whether the companies, either as promoters or investors, belong to a large industrial house or to a company connected to a large industrial house, the decision of the RBI will be final). Further, proposals from Alternative Investment Funds (AIFs) will also not be entertained.

Primary (Urban) Co-operative Banks (UCBs), which are desirous of voluntarily transiting into small finance bank, may refer to Scheme on voluntary transition of Urban Co-operative Bank into a Small Finance Bank (Circular reference no. DCBR.CO.LS.PCB. Cir.No.5/07.01.000/2018-19 dated September 27, 2018). UCBs applying for transiting to small finance bank or obtaining in-principle approval for such transition (under the above referred scheme), will be required to ensure compliance with these ‘on tap’ licensing guidelines from the date of commencement of business as small finance bank except the guideline on minimum capital. The minimum net worth of such small finance banks shall be ₹ 100 crore from the date of commencement of business. However they will have to increase their minimum net worth to ₹ 200 crore within five years from the date of commencement of business.

(b) ‘Fit and Proper’ criteria

Promoters / Promoter Groups1 should be ‘fit and proper’ in order to be eligible to promote small finance banks. RBI would assess the ‘fit and proper’ status of the applicants on the basis of their past record of sound credentials and integrity; financial soundness and successful track record of professional experience or of running their businesses, etc. for at least a period of five years.

(c) Corporate Structure:

The promoters / promoter group may choose to set up the small finance bank either as a standalone entity or under a holding company, which shall act as the promoting entity of the bank. However, if there is an intermediate company between the small finance bank and its promoting entity, it should be a Non-Operative Financial Holding Company (NOFHC). If the promoters desire to set up the small finance bank under a holding company structure, without an NOFHC, the holding company / the promoting entity shall be registered as an NBFC – CIC with the Reserve Bank. In case the small finance bank is set up under an NOFHC, the NOFHC would be required to conform to all requirements relating to NOFHC stipulated under paragraph 2 (C) II of the Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector dated August 1, 2016. The general principle for reorganisation of the activities in the group is that all activities permitted to a bank under Section 6 (a) to (o) of Banking Regulation Act, 1949 shall be carried out from the bank. However, if the Promoters desire to continue existing specialized activities from a separate entity proposed to be held under the NOFHC, prior approval from RBI would be required and it should be ensured that similar activities are not conducted through the bank. Further, the activities not permitted to the bank would also not be permitted to the group i.e. entities under the NOFHC would not be permitted to engage in activities that the bank is not permitted to engage in. However, small finance banks will not be allowed to set up any subsidiaries.

4. Scope of activities

The small finance bank, in furtherance of the objectives for which it is set up, shall primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.

It can also undertake other non-risk sharing simple financial services activities, not requiring any commitment of own fund, such as distribution of mutual fund units, insurance products, pension products, etc. with the prior approval of the RBI and after complying with the requirements of the sectoral regulator for such products. After three years from the date of commencement of operations of the bank, requirement for prior approval from the Reserve Bank will no longer apply and the bank will be governed by the extant norms as applicable to scheduled commercial banks.

The small finance bank can also become a Category II Authorised Dealer in foreign exchange business for its clients’ requirements.

Small finance banks will have general permission to open banking outlets from the date of commencement of business as per RBI circular on “Rationalisation of Branch Authorisation Policy- Revision of Guidelines” dated May 18, 2017, as amended from time to time subject to the condition that the requirement of opening at least 25 per cent of its banking outlets in unbanked rural centers (population upto 9,999 as per the latest census). Where the small finance bank has been formed by conversion of an existing NBFC – MFI, the transition of existing branches to banking outlets will be governed by the provisions of paragraph 7 of the RBI circular on “Rationalisation of Branch Authorisation Policy- Revision of Guidelines” dated May 18, 2017, as amended from time to time.

There will not be any restriction in the area of operations of small finance banks; however, preference will be given to those applicants who, in the initial phase, set up the bank in a cluster of under-banked States / districts, such as in the North-East, East and Central regions of the country. These applicants will not have any hindrance to expand to other regions in due course. It is expected that the small finance bank should primarily be responsive to local needs. After the initial stabilization period of five years, and after a review, RBI may liberalize the scope of activities of the small finance banks.

The other financial and non-financial services activities of the promoters, if any, should be kept distinctly ring-fenced and not comingled with the banking business.

The small finance bank will be required to use the words “Small Finance Bank” in its name in order to differentiate it from other banks.

5. Capital requirement

The minimum paid-up voting equity capital for small finance banks shall be ₹ 200 crore, except for such small finance banks which are:

a. transited from UCBs for which the capital requirement will be as prescribed in paragraph 3 (a) above.

b. converted from NBFC/MFI/LAB/PB for which the capital requirement will be as prescribed in paragraph 10 below.

In view of the inherent risk of a small finance bank, it shall be required to maintain a minimum capital adequacy ratio of 15 per cent of its risk weighted assets (RWA) on a continuous basis, subject to any higher percentage as may be prescribed by RBI from time to time. Tier I capital should be at least 7.5 per cent of RWAs. Tier II capital should be limited to a maximum of 100 per cent of total Tier I capital. Basel II norms will be generally applicable to the small finance banks, unless stipulated otherwise.

6. Promoters’ contribution

The promoters shall hold a minimum of 40 per cent of the paid-up voting equity capital of the bank at all times during the first five years from the date of commencement of business of the bank. If the initial shareholding by promoters in the bank is in excess of 40 per cent of paid-up voting equity capital, it should be brought down to 40 per cent within a period of five years. Whether a promoter ceases to be a promoter or could exit from the bank, after completing the lock-in period of five years, would depend on the RBI’s regulatory and supervisory comfort / discomfort and SEBI regulations in this regard. Further, the promoters’ stake should be brought down to a maximum of 30 per cent of the paid-up voting equity capital of the bank within a period of 10 years, and to a maximum of 15 per cent within 15 years from the date of commencement of business of the bank.

Further, in the case of such small finance banks which are transited from UCBs the promoters shall hold a minimum of 26 per cent of paid-up voting equity capital at all times during the first five years from commencement of business of the bank. Promoters’ holding may be brought down to 15 per cent over a period of 15 years from the date of reaching net worth of ₹ 200 crore by such UCBs.

Proposals having diversified shareholding, subject to the initial minimum shareholding of promoters, and a time frame for listing of the bank will be preferred. However, listing will be mandatory within three years after the small finance bank reaches the net worth of ₹ 500 crore for the first time. Small finance banks having net worth of below ₹ 500 crore could also get their shares listed voluntarily, subject to fulfillment of the requirements of the capital markets regulator. Any proposed material change2 in the shareholding pattern in the promoter entity at the time of application and during the period between the application and grant of license should be brought to the prior notice of RBI. Thereafter, such a change would require prior approval of RBI.

7. Foreign shareholding

The foreign shareholding in the small finance bank would be as per the extant Foreign Direct Investment (FDI) policy for private sector banks, subject to paragraph 6 above.

8. Voting rights and transfer / acquisition of shares

As per Section 12 (2) of the Banking Regulation Act, 1949, read with RBI notification dated July 21, 2016, published in the Gazette of India dated September 17, 2016, any shareholder’s voting rights in private sector banks are currently capped at 26 per cent of the total voting rights of all the shareholders of the banking company. Further, as per Section 12 (B) of the Act ibid, any acquisition of 5 per cent or more of paid-up share capital in a private sector bank or voting rights therein will require prior approval of RBI. These provisions will apply to the small finance banks also. However, shareholding limits of promoters / promoter group will be guided by paragraph 6 of these guidelines.

9. Prudential norms

The newly set up small finance banks should ensure that they put in place a robust risk management framework. The small finance bank will be subject to all prudential norms and regulations of RBI as applicable to existing commercial banks including requirement of maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). No forbearance would be provided for complying with the statutory provisions.

In view of the objectives for which small finance banks are set up, the bank will be required to extend 75 per cent of its Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL) by RBI. While 40 per cent of its ANBC should be allocated to different sub-sectors under PSL as per the extant PSL prescriptions, the bank can allocate the balance 35 per cent to any one or more sub-sectors under the PSL where it has competitive advantage. The first audited balance sheet as on March 31st, post commencement of operations of the small finance bank, would form the basis for the first PSL target for the bank (for the subsequent financial year). During the ‘intervening period’ i.e. the period between date of commencement of business and the date of first audited balance sheet (i.e. March 31st), the small finance banks are not allowed to sell Priority Sector Lending Certificates.

The maximum loan size and investment limit exposure to a single and group obligor would be restricted to 10 per cent and 15 per cent of its capital funds, respectively. Further, in order to ensure that the bank extends loans primarily to small borrowers, at least 50 per cent of its loan portfolio should constitute loans and advances of up to ₹ 25 lakh on an ongoing basis. For assessing compliance with this requirement, the entire loan portfolio of the bank, as on the date of commencement of operations, would be considered and not just the fresh loans disbursed after the commencement of operations. Further, the criteria of upper limit of ₹ 25 lakh shall be borrower wise.

After the initial stabilization period of five years, and after a review, RBI may relax the above exposure limits.

In addition to the restrictions placed on banks’ loans and advances to its directors and the companies in which its directors are interested under Section 20 of the Banking Regulation Act, 1949, the small finance bank is precluded from having any exposure to its promoters, major shareholders (who have shareholding of 10 per cent or more of paid-up voting equity shares in the bank), the relatives [as defined in Section 2 (77) of the Companies Act, 2013 and Rules made there under] of the promoters as also the entities in which they have significant influence or control (as defined under Accounting Standards Ind AS 28 and Ind AS 110).

10. Additional conditions for NBFCs/MFIs/LABs/PBs converting into a bank

An existing NBFC/MFI/LAB/PB, if it meets the conditions under these guidelines, could apply to convert itself into a small finance bank, after complying with all legal and approval requirements from various authorities. In such a case, the entity shall have a minimum net worth of ₹ 200 crore or it shall infuse additional paid-up voting equity capital to achieve net worth of ₹ 200 crore within eighteen months from the date of in-principle approval or as on the date of commencement of operations, whichever is earlier. It may be noted that on conversion into a small finance bank, the NBFC / MFI / PB will cease to exist and all its business which a bank can undertake should fold into the bank and the activities which a bank cannot statutorily undertake be divested / disposed of. Further, the branches of the NBFC / MFI / PB should either be converted into bank branches within a period of three years from the date of commencement of operations or be merged / closed. The small finance bank and the NBFC / MFI cannot co-exist.

Banks are precluded from creating floating charge on their assets. For such NBFCs / MFIs, which succeed in obtaining licenses to convert into small finance banks, if they have created floating charges on their assets for secured borrowings which stand in their balance sheets on the day of conversion into a small finance bank, RBI will permit grandfathering of such borrowings till their maturity. An additional risk weight of 25 per cent will be imposed on the assets on which charge / lien has been created by the converting entity, in favour of the existing lenders / debenture holders, until such time these liabilities are extinguished in order to protect the interest of the depositors.

If the existing NBFCs/MFIs/LABs have diluted the promoters’ shareholding to below 40 per cent, but above 26 per cent, due to regulatory requirements or otherwise, RBI may not insist on the promoters’ minimum initial contribution as indicated in paragraph 6 of the guidelines. In such cases, the promoters’ have to ensure that their holding does not fall below 26% of paid-up voting equity capital during the first five years from commencement of business of the bank, even if fresh equity is infused.

11. Business plan

The applicants for small finance bank licenses will be required to furnish their business plans along with project reports with their applications. The business plan will have to address how the bank proposes to achieve the objectives behind setting up of small finance banks and in the case of an NBFC / MFI applicant, how the existing business of NBFC / MFI will fold into the bank or divested / disposed of. The business plan submitted by the applicant should be realistic and viable. In case of deviation from the stated business plan after issue of license, RBI may consider restricting the bank’s expansion, effecting change in management and imposing other penal / regulatory measures as may be necessary.

12. Corporate governance

  1. The Board of the small finance bank should have a majority of independent Directors3.
  2. The bank should comply with the corporate governance guidelines including ‘fit and proper’ criteria for Directors as issued by RBI from time to time.

13. Other conditions

  1. A promoter will not be granted licenses for both universal bank and small finance bank even if the proposal is to set them up under the NOFHC structure.
  2. If a promoter of a payments bank desires to set up a small finance bank, both the banks should be under NOFHC structure.
  3. Individuals (including relatives) and entities other than the promoters will not be permitted to have shareholding in excess of 10 per cent of the paid-up voting equity capital of the bank. In case of existing NBFCs/MFIs/LABs converting into small finance bank, where there is shareholding in excess of 10 per cent of the paid-up voting equity capital by entities other than the promoters (including private equity funds), RBI may consider providing time up to 3 years from the date of the ‘in principle’ approval for the shareholding to be brought down to a maximum of 10 per cent.
  4. The small finance bank cannot be a Business Correspondent (BC) for another bank. However, it can have its own BC network.
  5. The operations of the bank should be technology driven from the beginning, conforming to generally accepted standards and norms; while new approaches (such as for data storage, security and real time data updation) are encouraged, a detailed technology plan for the same should be furnished to RBI.
  6. The bank should have a high powered Customer Grievances Cell to handle customer complaints. The small finance banks will come under the purview of RBI’s Banking Ombudsman Scheme, 2006, as amended from time to time.
  7. The compliance of terms and conditions laid down by RBI is an essential condition of grant of license. Any non-compliance will attract penal measures or regulatory actions including cancellation of license of the bank.

14. Transition path

The small finance bank may choose to continue as a differentiated bank. If it aspires to transit into a universal bank, such transition will not be automatic, but would be subject to it applying to RBI for such conversion and fulfilling minimum paid-up voting equity capital / net worth requirement as applicable to universal banks; its satisfactory track record of performance as a small finance bank for a minimum period of five years and the outcome of RBI’s due diligence exercise. On transition into a universal bank, it will be subjected to all the norms including NOFHC structure as applicable under the Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector dated August 1, 2016.

15. Procedure for application

In terms of Rule 11 of the Banking Regulation (Companies) Rules, 1949, applications shall be submitted in the prescribed form (Form III). In addition, the applicants should furnish the business plan as per paragraph 11 and other requisite information as per the Annex II. Applications for setting up of small finance banks in the private sector, along with other details as mentioned above, contained in an envelope superscripted “Application for Small Finance Bank” should be addressed to:

The Chief General Manager,
Department of Regulation,
Reserve Bank of India,
Central Office, 13th Floor,
Central Office Building,
Shahid Bhagat Singh Road,
Mumbai – 400001

The licensing window will be open on-tap. As such, applications in the prescribed form along with requisite information could be submitted to RBI at any point of time, as desired by the applicant.

16. Procedure for RBI decisions

  1. At the first stage, the applications will be screened by RBI to assess the eligibility of the applicants, vis-à-vis the criteria laid down in these guidelines. RBI may apply additional criteria to determine the suitability of applications, in addition to the ‘fit and proper’ criteria prescribed at paragraph 3 above. Thereafter, the applications will be referred to a Standing External Advisory Committee (SEAC) to be set up by RBI.
  2. The SEAC will comprise of eminent persons with experience in banking, financial sector and other relevant areas. The tenure of the SEAC will be for three years.
  3. The SEAC will set up its own procedures for screening the applications. The SEAC will meet periodically, as and when required. The Committee will reserve the right to call for more information as well as have discussions with any applicant/s and seek clarification on any issue as may be required by it. The Committee will submit its recommendations to RBI for consideration.
  4. The Internal Screening Committee (ISC), consisting of the Governor and the Deputy Governors will examine all the applications. The ISC will also deliberate on the rationale of the recommendations made by the SEAC and then submit its recommendations to the Committee of the Central Board (CCB) of RBI for the final decision to issue ‘in-principle approval’.
  5. The validity of the ‘in-principle approval’ issued by RBI will be 18 months from the date of granting ‘in-principle approval’ and would thereafter lapse automatically. Therefore, the -applicant will have to obtain the license within a period of 18 months of granting the ‘in-principle approval’.
  6. After issue of the ‘in-principle approval’ for setting up of a small finance bank, if any adverse features are noticed regarding the Promoters or the companies / entities with which the Promoters are associated and the group in which they have interest, the RBI may impose additional conditions and if warranted, may withdraw the ‘in-principle approval’.
  7. The names of applicants that are found suitable for grant of in-principle approval will also be placed on the RBI website.
  8. An applicant who has not been found suitable for issue of license will be advised of the Reserve Bank’s decision. Such applicants will not be eligible to make an application for a banking license for a period of three years from the date of that decision.
  9. Applicants aggrieved by the decision of the Committee of the Central Board can prefer an appeal against the decision to the Central Board of Directors, within one month from the date of receipt of communication from RBI relating to the application not being considered as at paragraph 16 (h) above.

Annex I

Definitions

I. Promoter

Promoter means, the person who together with his relatives [as defined in Section 2 (77) of the Companies Act, 2013 and Rules made there under], by virtue of his ownership of voting equity shares, is in effective control of the bank / NOFHC, and includes, wherever applicable, all entities which form part of the Promoter Group.

II. Promoting entity

Promoting entity means the entity that promotes the bank.

III. Promoter Group

“Promoter Group” includes:

(i) the promoter;

(ii) relatives of the promoter [as defined in Section 2 (77) of the Companies Act, 2013 and Rules made there under]; and

(iii) in case promoter is a body corporate:

(A) a subsidiary or holding company of such body corporate;

(B) any body corporate in which the promoter holds ten per cent or more of the equity share capital or which holds ten per cent or more of the equity share capital of the promoter;

(C) any body corporate in which a group of individuals or companies or combinations thereof which hold twenty per cent or more of the equity share capital in that body corporate also holds twenty per cent or more of the equity share capital of the promoter;

(D) Joint venture/Associate (as defined in terms of InD AS 28) with the promoter;

(E) Related party (as defined in terms of InD AS 24) of the promoter; and

(iv) in case the promoter is an individual:

(A) any body corporate in which ten per cent or more of the equity share capital is held by the promoter or a relative of the promoter or a firm or Hindu Undivided Family in which the promoter or any one or more of his immediate relative is a member;

(B) any body corporate in which a body corporate as provided in (A) above holds ten per cent or more, of the equity share capital;

(C) any Hindu Undivided Family or firm in which the aggregate shareholding of the promoter and his immediate relatives is equal to or more than ten per cent of the total; and

(v) all persons who are declared as promoters in the Articles of Association of the bank/ group companies.

(vi) all persons whose shareholding is aggregated for the purpose of disclosing in the prospectus4 under the heading “shareholding of the promoter group”;

(vii) Entities sharing a common brand name with entities discussed in A, B, C, D, E, where the promoter is a body corporate and A, B, C where the promoter is an individual;

Provided that a financial institution, scheduled commercial bank, foreign institutional investor or mutual fund shall not be deemed to be promoter group merely by virtue of the act that ten per cent or more of the equity share capital of the promoter is held by such institution unless such investment is strategic in nature.

Annex II

Additional Information to be furnished by promoters along with relevant supporting documents

I. Existing Structure

1. Information on the individual promoter :

  1. Self-declaration by the individual promoters as per Appendix I.
  2. Detailed profiles on the background and experience of the individual promoters, his/their expertise, track record of business.

2. Information on the individuals and entities in the promoter group :

  1. Names and details of other entities in the promoter group as per Appendix II (if not covered in Appendix I).
  2. Shareholding pattern of all the entities in the promoter group.
  3. A pictorial organogram indicating the corporate structure of all the entities in the group indicating the shareholding and total assets of the entities.
  4. Annual reports of the past five years of all the group entities.

3. Information on the entity converting/promoting the bank :

  1. Declaration by the promoting / converting entity as per Appendix III.
  2. Shareholding pattern of the promoting / converting entity.
  3. Memorandum and Articles of Association and financial statements of the promoter entity for the past five years (including a tabulation of important financial indicators for the said years), board composition and representation of the Directors over a period of ten years, income tax returns for last three years, C.A certificate indicating source of funds for promoting / converting entity.

II. Proposed Structure

  1. The applicants should furnish detailed information about the persons/entities, who would subscribe to 5 per cent or more of the paid-up voting equity capital (shareholding pattern) of the proposed bank, including foreign equity participation, in the proposed bank and the sources of capital of the proposed investors.
  2. The proposed promoter shareholding and plan for dilution of promoter shareholding in compliance with the guidelines.
  3. Proposed management of the bank, if finalised.

III. Project Report

A project report covering business potential and viability of the proposed bank, the proposed area of operation, the business plan5, any other financial services proposed to be offered, plan for compliance with prudential norms on CRR/SLR6, composition of loan portfolio, priority sector, etc. as per the guidelines, and any other information that is considered relevant. The project report should give as much concrete details as feasible, based on adequate ground level information and avoid unrealistic or unduly ambitious projections. The business plan should address how the bank proposes to achieve financial inclusion7 and in the case of an NBFC / MFI applicant, how the existing business of NBFC / MFI will fold into the bank or divested / disposed of.

IV. Any other information

The promoters may furnish any other relevant information and documents supporting the applications. Further, the RBI may call for any other additional information, as may be required, in due course.

1 The definitions of ‘promoter’ and ‘promoter group’ are provided in Annex I.

2 Material Change means any change of 10% or above of shareholding.

3 Independent Directors: As defined in Companies Act, 2013

4 As per SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2018

5 Business plan should, inter alia, include (but not limited to), the underlying assumptions, the existing infrastructure/ network/ branches, and the proposed product lines, target clientele, target locations, usage of technology, risk management, plans relating to human resources, branch network, alternative points of presence, opening of branches in unbanked rural areas, priority sector compliance, financial projections for five years, etc.

6 In case of NBFC applicants, information on existing CRR / SLR requirement, projected CRR / SLR requirement and plan for compliance with statutory norms on CRR / SLR may be given.

7 Financial Inclusion Plan should include (but not limited to), details of joint venture or partnership for offering financial inclusion products, promoting financial literacy, achieving the objective of small finance banks, etc.

 

RBI-Statement on Developmental and Regulatory Policies: 05/12/2019

Posted on by in Reserve Bank of India and tagged , , .

Date: Dec 05, 2019

Statement on Developmental and Regulatory Policies

This Statement sets out various developmental and regulatory policy measures for strengthening regulation and supervision; broadening and deepening of financial markets; and improving payment and settlement systems.

I. Regulation and Supervision

1. Primary (Urban) Co-operative Banks – Exposure Limits and Priority Sector Lending

With a view to reducing concentration risk in the exposures of primary (urban) co-operative banks (UCBs) and to further strengthen the role of UCBs in promoting financial inclusion, it is proposed to amend certain regulatory guidelines relating to UCBs. The guidelines would primarily relate to exposure norms for single and group/interconnected borrowers, promotion of financial inclusion, priority sector lending, etc. These measures are expected to strengthen the resilience and sustainability of UCBs and protect the interest of depositors. An appropriate timeframe will be provided for compliance with the revised norms. A draft circular proposing the above changes for eliciting stakeholder comments will be issued shortly.

2. Primary (Urban) Co-operative Banks – Reporting to Central Repository of Information on Large Credits (CRILC)

The Reserve Bank has created a Central Repository of Information on Large Credits (CRILC) of scheduled commercial banks, all India financial institutions and certain non-banking financial companies with multiple objectives, which, among others, include strengthening offsite supervision and early recognition of financial distress. With a view to building a similar database of large credits extended by primary (urban) co-operative banks (UCBs), it has been decided to bring UCBs with assets of ₹500 crores and above under the CRILC reporting framework. Detailed instructions in this regard will be issued by December 31, 2019.

3. Comprehensive Cyber Security Framework for Primary (Urban) Cooperative Banks (UCBs) – A Graded Approach

The Reserve Bank had prescribed a set of baseline cybersecurity controls for primary (Urban) cooperative banks (UCBs) in October 2018. On further examination, it has been decided to prescribe a comprehensive cybersecurity framework for the UCBs, as a graded approach, based on their digital depth and interconnectedness with the payment systems landscape, digital products offered by them and assessment of cybersecurity risk. The framework would mandate implementation of progressively stronger security measures based on the nature, variety and scale of digital product offerings of banks. Such measures would, among others, include implementation of bank-specific email domain; periodic security assessment of public-facing websites/applications; strengthening the cybersecurity incident reporting mechanism; strengthening of governance framework; and setting up of Security Operations Center (SOC). This would bolster cybersecurity preparedness and ensure that the UCBs offering a range of payment services and higher Information Technology penetration are brought at par with commercial banks in addressing cybersecurity threats.

Detailed guidelines in this regard will be issued by December 31, 2019.

4. Development of Secondary Market for Corporate Loans – setting up of Self-Regulatory Body

As recommended by the Task Force on Development of Secondary Market for Corporate Loans, the Reserve Bank will facilitate the setting up of a self-regulatory body (SRB) as a first step towards the development of the secondary market for corporate loans. The SRB will be responsible, inter-alia, for standardising documents, covenants and practices related to secondary market transactions in corporate loans and promoting the growth of the secondary market in line with regulatory objectives.

5. On Tap Licensing of Small Finance Banks

In the Second Bi-monthly Monetary Policy Statement, 2019-20 of June 06, 2019, it was announced that the Draft Guidelines for ‘On tap’ Licensing of Small Finance Banks will be issued by the end of August 2019. Accordingly, the Draft Guidelines were placed on the RBI’s website on September 13, 2019 inviting comments from the stakeholders and members of the public. After examining the responses received, the ‘On tap’ Licensing Guidelines for Small Finance Banks have now been finalised and are being issued today.

6. International Financial Service Centre Banking Unit (IBU)

With a view to facilitating ease of operations for IBUs and having regard to the Liquidity Coverage Ratio being maintained by them, it has been decided to allow IBUs to:

open foreign currency current accounts of their corporate borrowers subject to the provisions of FEMA 1999 and regulations issued thereunder, wherever applicable; and

accept fixed deposits in foreign currency of tenor less than one year from non-bank entities and consequently remove the current restriction on premature withdrawal of deposits.

However, the current prohibition on acceptance of retail deposits including from high net worth individuals (HNIs) will continue. Necessary instructions are being issued shortly.

7. Review of NBFC-P2P Directions- Aggregate Lender Limit and escrow accounts

The Reserve Bank had issued directions for Non-Banking Financial Company-Peer to Peer Lending platform (NBFC-P2P) on October 4, 2017. At present, the aggregate limits for both borrowers and lenders across all P2P platforms stand at ₹10 lakh, whereas exposure of a single lender to a single borrower is capped at ₹50,000 across all NBFC-P2P platforms. A review of the functioning of the lending platforms and lending limit was carried out and it has been decided that in order to give the next push to the lending platforms, the aggregate exposure of a lender to all borrowers at any point of time, across all P2P platforms, shall be subject to a cap of ₹50 lakh. Further, it is also proposed to do away with the current requirement of escrow accounts to be operated by bank promoted trustee for transfer of funds having to be necessarily opened with the concerned bank. This will help provide more flexibility in operations. Necessary instructions in this regard will be issued shortly.

8. Baseline Cyber Security Controls for ATM Switch application service providers of RBI regulated entities

A number of commercial banks, urban cooperative banks and other regulated entities are dependent upon third party application service providers for shared services for ATM Switch applications. Since these service providers also have exposure to the payment system landscape and are, therefore, exposed to the associated cyber threats, it has been decided that certain baseline cyber security controls shall be mandated by the regulated entities in their contractual agreements with these service providers. The guidelines would require implementation of several measures to strengthen the process of deployment and changes in application softwares in the ecosystem; continuous surveillance; implementation of controls on storage, processing and transmission of sensitive data; building capacity for forensic examination; and making the incident response mechanism more robust. Detailed guidelines in this regard will be issued by December 31, 2019.

II. Financial Markets

9. Hedging of foreign exchange risk by residents and non-residents – Issue of final guidelines

An announcement regarding the review of foreign exchange hedging facilities was made in February 2019, followed by issue of draft regulations for public comments on February 15, 2019. The Task Force on Offshore Rupee markets (Chairperson: Smt. Usha Thorat) also suggested some changes based on its review. The draft regulations have been modified based on the feedback and the recommendations of the Task Force. The important changes are as follows: –

Users may undertake over the counter (OTC) currency derivative transactions up to USD 10 million, without the need to evidence underlying exposure.

Banks shall be provided with the discretion, in exceptional circumstances, to pass on net gains on hedge transactions booked on anticipated exposures.

Strengthening of the safeguards to ensure, that complex derivatives are sold only to users that are capable of managing the risks.

The final directions will be issued after notification of the changes to Foreign Exchange Management Act (FEMA) Regulations.

III. Payment and Settlement System

10. New Pre-Paid Payment Instruments (PPI)

Prepaid Payment Instruments (PPIs) have been playing an important role in promoting digital payments. To further facilitate its usage, it is proposed to introduce a new type of PPI which can be used only for purchase of goods and services up to a limit of ₹10,000. The loading/reloading of such PPI will be only from a bank account and used for making only digital payments such as bill payments, merchant payments, etc. Such PPIs can be issued on the basis of essential minimum details sourced from the customer. Instructions in this regard will be issued by December 31, 2019.

(Yogesh Dayal)
Chief General Manager

Press Release: 2019-2020/1351

SECURITIES AND EXCHANGE BOARD OF INDIA (FOREIGN PORTFOLIO INVESTORS) REGULATIONS, 2019

Posted on by in SEBI Rules ,Regulations and Notifications and tagged , , .

GAZETTE OF INDIA

EXTRAORDINARY

PART – III – SECTION 4

PUBLISHED BY AUTHORITY

SECURITIES AND EXCHANGE BOARD OF INDIA

NOTIFICATION

Mumbai, the 23rd September 2019

SECURITIES AND EXCHANGE BOARD OF INDIA (FOREIGN PORTFOLIO INVESTORS) REGULATIONS, 2019

No. SEBI/LAD-NRO/GN/2019/36 – In exercise of the powers conferred by sub-section (1) of Section 30 read with sub section (1) of Section 11, clause (ba) of sub-section (2) of Section 11 and sub-sections (1) and (1A) of Section 12 of the Securities and Exchange Board of India Act, 1992, and under Section 25 of the Depositories Act, 1996, the Securities and Exchange Board of India hereby, makes the following regulations, to provide the framework for registration and procedures with regard to foreign investors who propose to make portfolio investment in India, namely,—

CHAPTER I

PRELIMINARY

Short title and commencement.

1. (1) These regulations may be called the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019.

(2) They shall come into force on the date of their publication in the Official Gazette.

Definitions.

2. (1) In these regulations, unless the context otherwise requires, the terms defined herein shall bear the meanings assigned to them below, and their cognate expressions and variations shall be construed accordingly,—

(a) “Act” means the Securities and Exchange Board of India Act, 1992;

(b) “appropriately regulated” entity means an entity which is regulated by the securities market regulator or the banking regulator of home jurisdiction or otherwise, in the same capacity in which it proposes to make investments in India;

(c) “Bilateral Memorandum of Understanding with the Board” shall mean a bilateral

Memorandum of Understanding between the Board and any authority outside India that provides for information sharing arrangement as specified under clause (ib) of sub-section
(2) of Section 11 of the Act;

(d) “Board” means the Securities and Exchange Board of India established under section 3 of the Act;

(e) “certificate” means a certificate of registration granted to a foreign portfolio investor by the designated depository participant on behalf of the Board under these regulations;

(f) “control” includes the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of shareholding or management rights or shareholders agreements or voting agreements or in any other manner;

(g) “custodian” means a person registered under the Securities and Exchange Board of India (Custodian) Regulations, 1996;

(h) “designated bank” means a scheduled bank in India, which has been authorised by the Reserve Bank of India to act as a banker to foreign portfolio investors;

(i) “designated depository participant” means a person who has been approved by the Board under Chapter III of these regulations;

(j) “foreign portfolio investor” means a person who has been registered under Chapter II of these regulations and shall be deemed to be an intermediary in terms of the provisions of the Act;

(k) “Form” means an application form for obtaining registration as foreign portfolio investor as notified by the Government of India or as specified by the Board;

(l) “International Financial Services Centre” or “IFSC” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005;

(m) “investment manager” shall include an entity performing the role of investment management or any equivalent role, including trustee(s);

(n) “non-resident Indian” and “overseas citizen of India” shall have the same meaning as assigned to such terms under regulation 2 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 made under the Foreign Exchange Management Act, 1999;

(o) “offshore derivative instrument” means any instrument, by whatever name called, which is issued overseas by a foreign portfolio investor against securities held by it in India, as its underlying;

(q) “resident Indian” shall have the same meaning assigned to the term “person resident in India” under the Foreign Exchange Management Act, 1999;

(r) “Schedule” means a Schedule to these regulations;

(s) ‘stock exchange’ means a recognised stock exchange under the Securities Contracts

(Regulation) Act, 1956.

(2) Words and expressions used and not defined in these regulations, but defined in the Act or the Foreign Exchange Management Act, 1999, the Companies Act, 2013, the Securities Contracts (Regulation) Act, 1956, the Depositories Act, 1996 or the rules and regulations made thereunder shall have the same meaning respectively assigned to them in those Acts or rules or regulations or any statutory modification or re-enactment thereto.

CHAPTER II

REGISTRATION OF FOREIGN PORTFOLIO INVESTORS

Application for grant of certificate as a foreign portfolio investor.

3. (1) No person shall buy, sell or otherwise deal in securities as a foreign portfolio investor unless it has obtained a certificate granted by a designated depository participant on behalf of the Board.

Explanation – An offshore fund floated by an asset management company that has received no-objection certificate in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, shall be required to obtain registration as a foreign portfolio investor, for investment in securities in India, within one hundred and eighty days from the date of notification of these regulations.

(2) An application for the grant of certificate as a foreign portfolio investor shall be made to a designated depository participant in the Form specified by the Government or the Board from time to time and shall be supported by the fee specified in Part A of the Second Schedule.

Eligibility criteria of foreign portfolio investor.

4 A designated depository participant shall consider an application for grant of certificate of registration as a foreign portfolio investor if the applicant satisfies the following conditions namely: –

(a) the applicant is not a resident Indian;

(b) the applicant is not a non-resident Indian or an overseas citizen of India;

(c) non-resident Indians or overseas citizens of India or resident Indian individuals can be constituents of the applicant provided they meet conditions specified by the Board from time to time;

(d) the applicant is a resident of the country whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral

Memorandum of Understanding (Appendix A Signatories) or a signatory to the bilateral Memorandum of Understanding with the Board:

Provided that an applicant being Government or Government related investor shall be considered as eligible for registration, if such applicant is a resident in the country as may be approved by the Government of India;

(e) the applicant being a bank is a resident of a country whose central bank is a member of Bank for International Settlements:

Provided that a central bank applicant need not be a member of Bank for International Settlements;

(f) the applicant or its underlying investors contributing twenty-five per cent or more in the corpus of the applicant or identified on the basis of control, shall not be the person(s) mentioned in the Sanctions List notified from time to time by the United Nations Security Council and is not a resident in the country identified in the public statement of Financial Action Task Force as –

(i) a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or

(ii) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies;

(g) the applicant is a fit and proper person based on the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008;

(h) any other criteria specified by the Board from time to time:

Provided that clause (a), (d) and (e) shall not apply to an applicant incorporated or established in an International Financial Services Centre.

Categories of foreign portfolio investor.

5. An applicant seeking registration as a foreign portfolio investor may apply in one of the categories mentioned hereunder or any other category as may be specified by the Board from time to time –

(a) “Category I foreign portfolio investor” which shall include –

(i) Government and Government related investors such as central banks, sovereign wealth funds, international or multilateral organizations or agencies including entities controlled or at least 75% directly or indirectly owned by such Government and Government related investor(s);

(ii) Pension funds and university funds;

(iii)Appropriately regulated entities such as insurance or reinsurance entities, banks, asset management companies, investment managers, investment advisors, portfolio managers, broker dealers and swap dealers;

(iv) Entities from the Financial Action Task Force member countries which are –

I. appropriately regulated funds;

II. unregulated funds whose investment manager is appropriately regulated and registered as a Category I foreign portfolio investor:

Provided that the investment manager undertakes the responsibility of all the acts of commission or omission of such unregulated fund;

III. university related endowments of such universities that have been in existence for more than five years;

(v) An entity (A) whose investment manager is from the Financial Action Task Force member country and such an investment manager is registered as a Category I foreign portfolio investor; or (B) which is at least seventy-five per cent owned, directly or indirectly by another entity, eligible under sub-clause (ii), (iii) and (iv) of clause (a) of this regulation and such an eligible entity is from a Financial Action Task Force member country:

Provided that such an investment manager or eligible entity undertakes the responsibility of all the acts of commission or omission of the applicants seeking registration under this sub-clause.

(b) “Category II foreign portfolio investor” shall include all the investors not eligible under Category I foreign portfolio investors such as –

(i) appropriately regulated funds not eligible as Category-I foreign portfolio investor;

(ii) endowments and foundations;

(iii) charitable organisations;

(iv) corporate bodies;

(v) family offices;

(vi) Individuals;

(vii) appropriately regulated entities investing on behalf of their client, as per conditions specified by the Board from time to time;

(viii) Unregulated funds in the form of limited partnership and trusts;

Explanation: An applicant incorporated or established in an International Financial Services Centre shall be deemed to be appropriately regulated.

Furnishing of information, and personal representation.

6.(1) The Board or the designated depository participant may require the applicant to furnish such further information or clarification as may be considered necessary for the grant of the certificate of registration as a foreign portfolio investor.

(2) The applicant or his authorised representative shall, if so required by the Board or the designated depository participant, appear before them for personal representation in connection with the grant of a certificate.

Certificate of registration

7.(1) The designated depository participant shall on behalf of the Board grant the certificate of registration, bearing registration number generated by National Securities Depositories Limited, as specified in the First Schedule to an applicant if it is satisfied that the applicant is eligible and fulfils the requirements as specified in these regulations.

(2) The designated depository participant shall endeavour to dispose of the application for grant of certificate of registration as soon as possible but not later than thirty days after receipt of application by the designated depository participant, or after the information called for under regulation 6 has been furnished; whichever is later.

(3) Upon grant of certificate of registration to the applicant, the designated depository participant shall remit the fees, as specified in Part A of the Second Schedule, received from the applicant to the Board.

(4) If an applicant seeking registration as a foreign portfolio investor has any grievance with respect to its application or if the designated depository participant has any question in respect of interpretation of any provision of this regulation, it may approach the Board for appropriate instructions.

(5) The foreign portfolio investor needs to have a valid registration as long as it is holding securities or derivatives in India:

Provided that a foreign portfolio investor whose registration is not valid and who is holding securities or derivatives in India shall be allowed to sell such securities or wind up their open position in derivatives within one year from the date of publication of these regulations.

Application to conform to the requirements

8 (1) An application for grant of certificate of registration to act as a foreign portfolio investor, which is not complete in all respects or is false or misleading in any material particular or does not satisfy the requirements specified in these regulations shall be deemed to be deficient and liable to be rejected by the designated depository participant:

Provided that before rejecting any such application, the applicant shall be given a reasonable opportunity of being heard and to remove the deficiency, within the time as specified by the designated depository participant.

(2) The decision to reject the application shall be communicated by the designated depository participant to the applicant in writing indicating the grounds for rejection of the application.

(3) The applicant, who is aggrieved by the decision of the designated depository participant under sub-regulation (1) may, within a period of thirty days from the date of receipt of communication under sub-regulation (2), apply to the Board for reconsideration of the decision of the designated depository participant:

Provided that such application for reconsideration shall not be considered by the Board where the rejection was on account of technical reasons such as non-submission of complete information, documents, including non-payment of specified fees.

(4) The Board shall, as soon as possible, after considering the submissions made in the application seeking reconsideration made under sub-regulation (3) and after giving a reasonable opportunity of being heard, communicate its decision in writing to the applicant.

Suspension, cancellation or surrender of certificate.

9. (1) Subject to the compliance with the provisions of the Act, these regulations and the circulars issued thereunder, the registration granted by the designated depository participant on behalf of the Board under these regulations shall be permanent unless suspended or cancelled by the Board or surrendered by the foreign portfolio investor.

(2) The suspension and cancellation of the certificate of registration granted by the Board under these regulations, shall be dealt with in the manner as provided in Chapter V of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.

(3) When the foreign portfolio investor fails to pay the required fees for continuance of registration within the specified due date and such foreign portfolio investor does not have any cash or security or derivative position in India, such foreign portfolio investor shall be deemed to have applied for surrender of its registration and the designated depository participant of such foreign portfolio investor shall process the surrender after obtaining the approval from the Board.

(4) Any foreign portfolio investor desirous of surrendering the certificate of registration may request for such surrender to the designated depository participant who shall accept the surrender of the certificate of registration after obtaining approval from the Board.

(5) While accepting the surrender of registration, the designated depository participant may impose such conditions as may be specified by the Board.

CHAPTER III

APPROVAL OF DESIGNATED DEPOSITORY PARTICIPANT

Application to act as a designated depository participant.

10. (1) No person shall act as a designated depository participant unless it has obtained the approval of the Board.

(2) An application for approval to act as a designated depository participant shall be made to the Board through a depository with which the applicant has an agreement to act as a participant and shall be accompanied by the application fee specified in Part B of the Second Schedule which shall be paid in the manner specified therein.

(3) The depository shall forward the application to the Board, as early as possible, but not later than thirty days from the date of its receipt by the depository, along with its recommendations and after certifying that the participant has complied with the eligibility criteria as provided for in these regulations.

Eligibility criteria of designated depository participant.

11. (1) The Board shall not consider an application for the grant of approval as designated depository participant unless the applicant satisfies the following conditions,

(a) the applicant is a registered depository participant under the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996;

(b) the applicant is a registered Custodian under the Securities and Exchange Board of India (Custodian) Regulations, 1996;

(c) the applicant is an Authorised Dealer Category-1 bank authorised by the Reserve Bank of India under the Foreign Exchange Management Act, 1999;

(d) the applicant has a multinational presence, either through its branches or through agency relationships with overseas intermediaries regulated in their respective home jurisdictions;

(e) the applicant has systems and procedures to comply with the requirements of the Financial Action Task Force Standards, Prevention of Money Laundering Act, 2002, Rules prescribed thereunder and the circulars issued from time to time by the Board;

(f) the applicant is a fit and proper person based on the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008; and

(g) any other criteria as may be specified by the Board from time to time.

(2) Notwithstanding anything contained in sub-regulation (1) of this regulation, the Board may consider an application from an entity, regulated in India or in its home jurisdiction, for grant of approval to act as designated depository participant, upon being satisfied that the applicant has sufficient experience in providing custodial services and that the grant of such approval is in the interest of the development of the securities market:

Provided that such entity shall be registered with the Board as a participant and custodian, and shall have a tie up with Authorised Dealer Category-1 bank.

Furnishing of information, clarification and personal representation.

12. (1) The Board may require the applicant or the depository of which the applicant is a participant to furnish such further information or clarification as may be considered necessary for grant of approval to act as a designated depository participant.

(2) The applicant or its authorised representative shall, if so required by the Board, appear before it for personal representation in connection with the grant of approval.

Procedure for granting of approval to designated depository participant.

13. (1) After considering the application made under regulation 10 of these regulations, the Board may grant approval to the applicant, upon being satisfied that the applicant is eligible and fulfils the requirements as specified in these regulations including payment of fees as specified in Part B of Second Schedule.

(2) The Board shall dispose of the application for grant of approval as soon as possible but not later than thirty days after receipt of application by the Board or, after all the information called for under regulation 12 has been furnished, whichever is later.

Application to conform to the requirements.

14. An application for grant of approval to act as designated depository participant which is not complete in all respects or is false or misleading in any material particular, shall be deemed to be deficient and shall be liable to be rejected by the Board:

Provided that, before rejecting any such application, the applicant shall be given a reasonable opportunity to remove the deficiency, within the time as specified by the Board.

Procedure where approval is not granted.

15. (1) Where an application for grant of an approval does not satisfy the requirements specified in these regulations, the Board may reject the application after giving the applicant a reasonable opportunity of being heard.

(2) The decision to reject the application shall be communicated by the Board to the applicant in writing stating therein the grounds on which the application has been rejected.

(3) The applicant, who is aggrieved by the decision of the Board under sub-regulation (1) may, within a period of thirty days from the date of receipt of communication under sub-regulation
(2), apply to the Board for reconsideration of its decision.

(4) The Board shall, as soon as possible, in light of the submissions made in the application for reconsideration made under sub-regulation (3) and after giving a reasonable opportunity of being heard, convey its decision in writing to the applicant.

Validity of approval.

16. Subject to the compliance with the provisions of the Act, these regulations and the circulars issued thereunder, the approval granted by the Board under these regulations shall be permanent unless suspended or withdrawn by the Board or surrendered by the designated depository participant.

Suspension or withdrawal of approval.

17. Where any designated depository participant who has been granted approval under these regulations-

(a) fails to comply with any conditions subject to which an approval has been granted to him under these regulations, or

(b) contravenes any of the provisions of the securities laws or directions, instructions or circulars issued thereunder;

the Board may, without prejudice to any action under the securities laws or directions, instructions or circulars issued thereunder, by an order suspend or withdraw such approval after providing the designated depository participant a reasonable opportunity of being heard.

Surrender of approval.

18. (1) Any designated depository participant, who has been granted approval under these regulations, desirous of surrendering the approval granted, may make a request for such surrender to the Board.

(2) While accepting the surrender under sub-regulation (1), the Board may impose such conditions as it deems fit for the protection of investors or the clients of the designated depository participant or the securities market and such person shall comply with such conditions.

CHAPTER IV

INVESTMENT CONDITIONS AND RESTRICTIONS

Commencement of investment.

19. No foreign portfolio investor shall make any investment in securities in India without complying with the provisions of this Chapter.

Investment restrictions.

20. (1) A foreign portfolio investor shall invest only in the following securities, namely-

(a) shares, debentures and warrants issued by a body corporate; listed or to be listed on a recognized stock exchange in India;

(b) units of schemes launched by mutual funds under Chapter V, VI-A and VI-B of the Securities and Exchange Board of India (Mutual Fund) Regulations, 1996;

(c) units of schemes floated by a Collective Investment Scheme in accordance with the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999;

(d) derivatives traded on a recognized stock exchange;

(e) units of real estate investment trusts, infrastructure investment trusts and units of Category III Alternative Investment Funds registered with the Board;

(f) Indian Depository Receipts;

(g) any debt securities or other instruments as permitted by the Reserve Bank of India for foreign portfolio investors to invest in from time to time; and

(h) such other instruments as specified by the Board from time to time.

(2) Where a foreign portfolio investor, prior to commencement of these regulations, holds equity shares in a company whose shares are not listed on any recognised stock exchange, and continues to hold such shares after the initial public offering and listing thereof, such shares shall be subject to lock-in for the same period, if any, as is applicable to shares held by a foreign direct investor placed in similar position, under the policy of the Government of India relating to foreign direct investment for the time being in force.

(3) Nothing contained in sub-regulation (2) shall be deemed to prejudice the applicability of any other law, regulation or guideline.

(4) In respect of investments in the secondary market, the following additional conditions shall apply –

(a) A foreign portfolio investor shall transact in the securities in India only on the basis of taking and giving delivery of securities purchased or sold;

(b) Nothing contained in clause (a) shall apply to –

(i) any transactions in derivatives on a recognized stock exchange;

(ii) short selling transactions in accordance with the framework specified by the Board;

(iii) any transaction in securities pursuant to an agreement entered into with the merchant banker in the process of market making or subscribing to unsubscribed portion of the issue in accordance with Chapter IX of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018;

(iv) any other transaction specified by the Board;

(c) The transaction involving dealing in securities by a foreign portfolio investor shall be only through stock brokers registered with the Board;

(d) Nothing contained in clause (c) of this sub-regulation shall apply to –

(i) transactions in Government securities and such other securities falling under the purview of the Reserve Bank of India carried out in the manner as specified by the Reserve Bank of India;

(ii) sale of securities in response to a letter of offer sent by an acquirer in accordance with the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;

(iii) sale of securities in response to an offer made by any promoter or acquirer in accordance with the Securities and Exchange Board of India (Delisting of Equity shares) Regulations, 2009;

(iv) sale of securities in accordance with the Securities and Exchange Board of India (Buy-back of Securities) Regulations, 2018;

(v) divestment of securities in response to an offer by Indian companies in accordance with Operative Guidelines for Disinvestment of Shares by Indian Companies in the overseas market through issue of American Depository Receipts or Global Depository Receipts as notified by the Government of India from time to time;

(vi) any bid for, or acquisition of, securities in response to an offer for disinvestment of shares made by the Central Government or any State Government;

(vii) any transaction in securities pursuant to an agreement entered into with merchant banker in the process of market making or subscribing to unsubscribed portion of the issue in accordance with Chapter IX of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018;

(viii) transactions in corporate bonds by foreign portfolio investors;

(ix) transactions on the electronic book provider platform of recognised stock exchanges;

(x) transactions to receive, hold and sell unlisted securities as referred at regulation 20(2) and transactions in unlisted securities received through involuntary corporate actions including a scheme of a merger or demerger approved in accordance with the provisions of the Companies Act, 2013 as well as the applicable guidelines issued by the Board or pursuant to implementation of any resolution plan approved under the Insolvency and Bankruptcy Code, 2016 or in accordance with the guidelines issued by the Government of India or the Reserve Bank of India or any other regulator for a scheme of debt resolution:

Provided that such unlisted holdings of the foreign portfolio investor shall be treated as Foreign Direct Investment;

(xi) transactions for transfer of right entitlements;

(xii) purchase or sale transactions of illiquid or suspended or delisted securities by a foreign portfolio investor;

Explanation – Illiquid securities shall mean those securities that are not frequently traded in terms of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018;

(xiii) transactions between registered foreign portfolio investors, who are multi investment manager structure of the same beneficial owner and have common Permanent Account Number; and

(xiv) any other transaction as may be specified by the Board;

(e) A foreign portfolio investor shall hold, deliver or cause to be delivered securities only in the dematerialized form:

Provided that any shares held in the physical form, before the commencement of these regulations, may continue to be held in the physical form, if such shares cannot be dematerialised:

Provided further that all the Rights Entitlements may be held or transferred in non-dematerialized form.

(5) In respect of investments in the debt securities, the foreign portfolio investors shall also comply with terms, conditions or directions, specified or issued by the Board or Reserve Bank of India, from time to time, in addition to other conditions specified in these regulations.

(6) Unless otherwise approved by the Board, securities shall be registered in the name of the foreign portfolio investor as a beneficial owner as defined in clause (a) of sub-section (1) of section 2 of the Depositories Act, 1996.

(7) The purchase of equity shares of each company by a single foreign portfolio investor including its investor group shall be below ten per cent of the total paid-up equity capital on a fully diluted basis of the company:

Provided that where the total investment under these regulations by a foreign portfolio investor including its investor group exceeds the threshold of below ten per cent of the total paid up equity capital in a listed or to be listed company on a fully diluted basis, the foreign portfolio investor shall divest the excess holding within five trading days from the date of settlement of the trades resulting in the breach:

Provided further that in case the foreign portfolio investor fails to divest the excess holding, the entire investment in the company by such foreign portfolio investor including its investor group shall be considered as investment under the Foreign Direct Investment, as per the procedure specified by the Board and the foreign portfolio investor and its investor group shall not make further portfolio investment in that company under these regulations,

Explanation I – ‘investor group’ shall have the meaning as provided under regulation 22(3) of these regulations.

Explanation II – ‘fully diluted basis’ means the total number of shares that would be outstanding if all possible sources of conversion are exercised.

(8) An entity, registered as a foreign portfolio investor shall be permitted to invest in Indian securities as a person resident outside India in accordance with provisions of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 made under the Foreign Exchange Management Act, 1999.

(9) In cases where the Government of India enters into agreements or treaties with other sovereign Governments and where such agreements or treaties specifically recognize certain entities to be distinct and separate, the Board may, during the validity of such agreements or treaties, recognize them as such, subject to conditions as may be specified by it.

(10) A foreign portfolio investor may lend or borrow securities in accordance with the framework specified by the Board in this regard.

(11) The investment by the foreign portfolio investor shall also be subject to such other conditions and restrictions as may be specified by the Government of India from time to time.

Conditions for issuance of offshore derivative instruments.

21. (1) No foreign portfolio investor may issue, subscribe to or otherwise deal in offshore derivative instruments, directly or indirectly, unless the following conditions are satisfied –

(a) such offshore derivative instruments are issued only by persons registered as Category I foreign portfolio investor;

(b) such offshore derivative instruments are issued only to persons eligible for registration as Category I foreign portfolio investors;

Explanation – For the purpose of this sub-regulation, where an entity has an investment manager who is from the Financial Action Task Force member country, the investment manager shall not be required to be registered as a Category I foreign portfolio investor;

(c) such offshore derivative instruments are issued after compliance with the ‘know your client’ norms as specified by the Board; and

(d) such other conditions as may be specified by the Board from time to time.

(2) A foreign portfolio investor shall ensure that any transfer of offshore derivative instruments issued by or on behalf of it, is subject to the following conditions –

(a) such offshore derivative instruments are transferred to persons subject to the fulfilment of sub-regulation (1); and

(b) prior consent of the foreign portfolio investor is obtained for such transfer, except in cases, where the persons to whom the offshore derivative instruments are to be transferred, are pre-approved by the foreign portfolio investor.

(3) A foreign portfolio investor shall fully disclose to the Board any information concerning the terms of and parties to off-shore derivative instruments, by whatever names they are called, entered into by it relating to any securities listed or proposed to be listed in any stock exchange in India, as and when and in such form as the Board may specify.

(4) A foreign portfolio investor shall collect the regulatory fee, as specified in Part C of the Second Schedule, from every subscriber of the offshore derivative instrument issued by it and deposit the same with the Board.

CHAPTER V

GENERAL OBLIGATIONS AND RESPONSIBILITIES OF FOREIGN PORTFOLIO INVESTORS

General obligations and responsibilities of foreign portfolio investors.

22. (1) The foreign portfolio investor shall –

(a) comply with the provisions of these regulations, as far as they may apply, circulars issued thereunder and any other terms and conditions specified by the Board from time to time;

(b) forthwith inform the Board and designated depository participant in writing, if any information or particulars previously submitted to the Board or designated depository participant are found to be false or misleading, in any material respect;

(c) forthwith inform the Board and designated depository participant in writing, if there is any material change in the information including any direct or indirect change in its structure or ownership or control, previously furnished by him to the Board or designated depository participant;

(d) as and when required by the Board or any other Government agency in India, submit any information, record or documents in relation to its activities as a foreign portfolio investor;

(e) forthwith inform the Board and the designated depository participant, in case of any penalty, pending litigation or proceedings, findings of inspections or investigations for which action may have been taken or is in the process of being taken by an overseas regulator against it;

(f) obtain a Permanent Account Number from the Income Tax Department;

(g) in relation to its activities as foreign portfolio investor, at all times, subject itself to the extant Indian laws, rules, regulations, guidelines and circulars issued from time to time;

(h) be a fit and proper person based on the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008;

(i) undertake necessary KYC on its shareholders/investors in accordance with the rules applicable to it in the jurisdiction where it is organised;

(j) provide any additional information or documents including beneficiary ownership details of their clients as may be required by the designated depository participant or the Board or any other enforcement agency to ensure compliance with the Prevention of Money Laundering Act, 2002 and the rules and regulations specified thereunder, the Financial Action Task Force standards and circulars issued from time to time by the Board; and

(k) ensure that securities held by foreign portfolio investors are free from all encumbrances.

Explanation – An encumbrance created to meet any statutory and regulatory requirements shall not be considered under this clause.

(2) In case of jointly held depository accounts, each of the joint holders shall meet the requirements specified for foreign portfolio investor and each shall be deemed to be holding a depository account as a foreign portfolio investor.

(3) Multiple entities registered as foreign portfolio investors and directly or indirectly, having common ownership of more than fifty per cent or common control, shall be treated as part of the same investor group and the investment limits of all such entities shall be clubbed at the investment limit as applicable to a single foreign portfolio investor:

Provided that in case the limit is breached due to transaction(s) by foreign portfolio investors under these regulations, the excess holding shall be divested within five trading days from the date of settlement of the trades causing the breach.

Provided further that in case the foreign portfolio investor fails to divest the excess holding, the entire investment in the company by such foreign portfolio investors including its investor group shall be considered as investment under the Foreign Direct Investment as per the procedure specified by the Board and the foreign portfolio investor and its investor group shall not make further portfolio investment in that company under these regulations.

(4) Notwithstanding anything contained in sub-regulation (3), the clubbing of investment limit of foreign portfolio investors having common control shall not be applicable where –

(a) foreign portfolio investors are appropriately regulated public retail funds; or

(b) the foreign portfolio investors are public retail funds where the majority is owned by appropriately regulated public retail fund on look through basis; or

(c) foreign portfolio investors are public retail funds and investment managers of such foreign portfolio investors are appropriately regulated.

Explanation – Public retail funds means –

(i) mutual funds or unit trusts which are open for subscription to retail investors and which do not have specific investor type requirements like accredited investors;

(ii) insurance companies where segregated portfolio with one to one correlation with a single investor is not maintained; and

(iii)pension funds.

(5) In case of any direct or indirect change in structure or common ownership or control of the foreign portfolio investor, it shall forthwith bring the same to the notice of its designated depository participant.

Code of conduct.

23. A foreign portfolio investor shall, at all times, abide by the code of conduct as specified in the Third Schedule of these regulations.

Engagement of designated depository participant

24. An applicant seeking registration as a foreign portfolio investor shall engage a designated depository participant to avail its services for obtaining a certificate of registration as foreign portfolio investor and at all times the designated depository participant and the custodian of the foreign portfolio investor shall be the same entity.

Appointment of custodian.

25. (1) A foreign portfolio investor or a global custodian who is acting on behalf of the foreign portfolio investor, shall enter into an agreement with the designated depository participant engaged by it to act as a custodian, before making any investment under these regulations.

(2) In addition to the obligation of custodian under any other regulations, the custodian shall –

(a) report to the depositories and the Board on a daily basis the transactions entered into by the foreign portfolio investor in the form and manner specified by the Board or depositories from time to time;

(b) monitor investment of the foreign portfolio investors;

(c) maintain the relevant true and fair records, books of accounts, and documents including the records relating to transactions of foreign portfolio investors;

(d) report the holdings of foreign portfolio investors who form part of investor group to the depositories and the depositories shall club the investment limits to ensure that combined holdings of all these foreign portfolio investors remains below ten per cent of the total paid-up equity capital on a fully diluted basis of a investee company at any time.

Appointment of designated bank.

26. A foreign portfolio investor shall appoint a branch of a bank authorised by the Reserve Bank of India for opening a foreign currency denominated account and special non-resident rupee account before making any investments in India.

Appointment of compliance officer.

27. (1) Every foreign portfolio investor shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines and instructions issued by the designated depository participant or the Board or the Central Government:

Provided that in case of a foreign portfolio investor who is an individual, such individual shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines and instructions issued by the designated depository participant or the Board or the Central Government.

(2) The compliance officer shall immediately and independently report any non-compliance observed by him to the Board and the designated depository participant.

Investment advice in publicly accessible media.

28. (1) A foreign portfolio investor, or any of its employees shall not render directly or indirectly any investment advice about any security in the publicly accessible media, whether real-time or otherwise, unless a disclosure of its interest including long or short position in the said security has been made, while rendering such advice.

(2) In case, an employee of the foreign portfolio investor is rendering such advice, he shall also disclose the interest of his dependent family members and his employer including their long or short position in the said security, while rendering such advice.

Maintenance of proper books of accounts, records and documents.

29. Every foreign portfolio investor shall maintain the following books of accounts, records and documents, namely –

(a) true and fair accounts relating to remittances of funds to India for buying and selling; and realising capital gains or losses on investment made from such remittances;

(b) bank statement of accounts;

(c) contract notes relating to purchase and sale of securities; and

(d) communication including in electronic mode from and to the designated depository participants, stock brokers and depository participants regarding investments in securities.

Preservation of books of accounts, records and documents.

30. Subject to the provisions of any other law, for the time being in force, every foreign portfolio investor shall preserve the books of accounts, records and documents specified in regulation 29 for a minimum period of five years from the date of approval of the surrender or cancellation of registration by the Board.

CHAPTER VI

GENERAL OBLIGATIONS AND RESPONSIBILITIES OF DESIGNATED

DEPOSITORY PARTICIPANTS

Obligations and responsibilities of designated depository participants.

31. (1) All designated depository participants who have been granted approval by the Board shall –

(a) comply with the provisions of these regulations, as far as they may apply, circulars issued thereunder and any other terms and conditions specified by the Board from time to time;

(b) forthwith inform the Board in writing, if any information or particulars previously submitted to the Board are found to be false or misleading, in any material respect;

(c) forthwith inform the Board in writing, if there is any material change in the information previously furnished by him to the Board;

(d) furnish such information, record or documents to the Board and Reserve Bank of India, as may be required, in relation to its activities as a designated depository participant;

(e) ensure that only registered foreign portfolio investors are allowed to invest in securities market;

(f) have adequate systems to ensure that in case of jointly held depository accounts, each of the joint holders meet the requirements specified for foreign portfolio investors and shall perform KYC due diligence for each of the joint holders;

(g) in case of any penalty, pending litigation or proceedings, findings of inspections or investigations for which action may have been taken or is in the process of being taken by any regulator against a designated depository participant, the designated depository participant shall bring such information forthwith, to the attention of the Board, depositories and stock exchanges;

(h) be guided by the relevant circular on Anti-Money Laundering or Combating the Financing of Terrorism specified by the Board from time to time.

(2) The designated depository participant engaged by an applicant seeking registration as foreign portfolio investor shall –

(a) ascertain at the time of granting registration and whenever applicable, whether the applicant forms part of any investor group;

(b) open a dematerialized account for the applicant only after ensuring compliance with all the requirements under Prevention of Money Laundering Act, 2002 and rules and regulations specified thereunder, Financial Action Task Force standards and circulars issued by the Board in this regard, from time to time and shall also ensure that foreign portfolio investors comply with all these requirements on an ongoing basis;

(c) carry out necessary due diligence to ensure that no other depository account per depository is held by any of the concerned applicant as a foreign portfolio investor, before opening a depository account

Provided that a foreign portfolio investor can open separate depository accounts for holding securities under the Voluntary Retention Route or any other scheme as specified by the Reserve Bank of India or the Board;

(d) collect and remit fees to the Board, in the manner as specified in Part A of Second Schedule; and

(e) in case of change in structure or constitution or direct or indirect change in common ownership or control reported by the foreign portfolio investor, re-assess the eligibility of such foreign portfolio investor.

(3) The designated depository participant shall maintain segregation of activities such that there is no conflict of interest between the activity of grant of registration to a foreign portfolio investor in the capacity of a designated depository participant and its other activities.

(4) The designated depository participant shall submit the reports as specified by the Board from time to time.

(5) The designated depository participant shall carry out an annual review of its systems, procedures and controls by an independent professional.

Explanation: The review shall cover the systems and procedures being followed by them to meet its obligations towards its clients, regulators and other relevant bodies and compliance with the requirements of the regulations and circulars issued by the Board.

(6) The designated depository participant shall furnish to the Board annual audit reports on its internal control for a particular calendar year within ninety days of the next calendar year.

(7) The designated depository participant shall submit the Action Taken Report, if any, on the audit report on a quarterly basis to the Board.

Maintenance of proper books of accounts, records and documents.

32. (1) Every designated depository participant shall maintain the relevant true and fair records, books of accounts, and documents including the physical or electronic records relating to registration of foreign portfolio investors.

(2) The designated depository participant shall intimate to the Board in writing the location where such books, records and documents shall be maintained.

(3) Subject to the provisions of any other law for the time being in force, every designated depository participant shall preserve the books of accounts, physical or electronic records and documents specified in this regulation at all times.

Appointment of compliance officer.

33. (1) Every designated depository participant shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines and instructions issued by the Board or the Central Government.

(2) The compliance officer shall immediately and independently report any non-compliance observed by him to the Board.

Information to the Board or the Reserve Bank of India.

34. Every designated depository participant shall, as and when required by the Board or the Reserve Bank of India, submit to the Board or the Reserve Bank of India, as the case may be, any information, such records or documents in relation to its activities of foreign portfolio investor.

Investment advice in publicly accessible media.

35. (1) A designated depository participant, or any of its employees shall not render directly or indirectly any investment advice about any security in the publicly accessible media, whether real-time or otherwise, unless a disclosure of its interest including long or short position in the said security has been made, while rendering such advice.

(2) In case, an employee of the designated depository participant is rendering such advice, he shall also disclose the interest of his dependent family members and his employer including their long or short position in the said security, while rendering such advice.

CHAPTER VII

INSPECTION

Board’s right to inspect.

36. The Board may suo moto or upon receipt of any information or complaint, appoint one or more persons as inspecting authority to undertake inspection of the books of account, records and documents relating to a designated depository participant for any of the following purposes, namely, –

(a) to ensure that the books of account, records including telephone records and electronic records and documents are being maintained by the designated depository participants;

(b) to ascertain whether any circumstances exist that would render the designated depository participants unfit or ineligible;

(c) to inquire into the complaints received from investors, clients, other market participants or any other person on any matter having a bearing on the activities of the designated depository participants;

(d) to ascertain whether the provisions of the securities laws and the directions or circulars issued thereunder are being complied with by the designated depository participants;

(e) to ascertain whether the established and are being adequate; and

systems, procedures and safeguards which have been followed by the designated depository participants are

(f) to investigate suo moto into the affairs of the designated depository participants in the interest of the securities market or in the interest of investors.

Notice before inspection.

37. (1) Before undertaking an inspection under regulation 36, the Board shall give not less than ten days’ notice to the designated depository participants:

Provided that where the Board is satisfied that, in the interest of the investors, no such notice should be given, it may, by an order in writing direct that such inspection be taken up without such notice.

(2) During the course of an inspection, the designated depository participants against whom the inspection is being carried out shall be bound to discharge its obligation as provided in regulation 38.

Obligations of designated depository participants in connection with inspection by the Board.

38. (1) It shall be the duty of the designated depository participants whose affairs are being inspected, and of every director, officer and employee thereof to produce to the inspecting officer such books, securities, accounts, records and other documents in its custody or control and furnish him with such statements and information relating to its activities, as the inspecting officer may require, within such reasonable period as the inspecting officer may specify.

(2) The designated depository participants shall allow the inspecting officer to have reasonable access to the premises occupied by such designated depository participant or by any other person on its behalf and also extend reasonable facility for examining any books, records, documents and computer data in the possession of the designated depository participants or such other person and also provide copies of documents or other materials which in the opinion of the inspecting officer are relevant for the purposes of the inspection.

(3) The inspecting officer, in the course of inspection, shall be entitled to examine or to record the statements of any director, officer or employee of the designated depository participants.

(4) It shall be the duty of every director, officer or employee of the designated depository participants to give to the inspecting officer all assistance in connection with the inspection, which the inspecting officer may reasonably require.

Submission of report to the Board.

39. The inspecting officer shall, as soon as possible, on completion of the inspection or investigation as the case may be, submit a report to the Board:

Provided that if directed to do so by the Board, the inspecting officer may submit interim report(s).

Action on inspection report.

40. The Board shall after consideration of the inspection report, take such action as it may deem fit including action under Chapter V of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.

Appointment of an auditor.

41. The Board shall have the power to appoint an auditor to inspect or investigate, as the case may be, into the books of account, records, documents, infrastructures, systems and procedures or affairs of the applicant or the designated depository participants, as the case may be:

Provided that the auditors so appointed shall have the same powers as vested in the inspecting officer under regulation 36 and the applicant or designated depository participants and its directors, officers and employees shall be under the same obligations, towards the auditor so appointed, as are mentioned in regulation 38.

Board to recover the expenses.

42. The Board shall be entitled to recover from the designated depository participants or applicant, as the case may be, such expenses including the fees paid to the auditors as may be incurred by it for the purposes of inspecting or investigating the books of account, records, documents, infrastructures, systems and procedures or affairs of the designated depository participants or applicant, as the case may be.

CHAPTER VIII

PROCEDURE FOR ACTION IN CASE OF DEFAULT

Liability for action in case of default.

43. A foreign portfolio investor, designated depository participant, depository or any other person who contravenes any of the provisions of these regulations shall be liable for action under the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 or the relevant provisions of the Act or the Depositories Act, 1996 and the regulations made thereunder.

CHAPTER IX

MISCELLANEOUS

Power of the Board to issue clarifications.

44. In order to remove any difficulties in the application or interpretation of the provisions of these regulations, the Board may issue clarifications and guidelines in the form of circulars or issue separate circular or guidelines or framework for each category of foreign portfolio investors or designated depository participant.

Repeal, rescission and saving.

45. (1) The Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 shall stand repealed.

(2) Notwithstanding such repeal–

(a) anything done or any action taken or purported to have been done or taken, including registration or approval granted, fees collected, registration or approval, suspended or cancelled, any adjudication, enquiry or investigation commenced or show-cause notice issued under the repealed regulations, shall be deemed to have been done or taken under the corresponding provisions of these regulations;

(b) a foreign portfolio investor registered under the Securities and Exchange Board of India (Foreign Portfolio Investor) Regulations, 2014 shall be re-categorised by their respective designated depository participant;

(c) any offshore derivative instrument issued under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 before the commencement of these regulations shall be deemed to have been issued under the corresponding provisions of these regulations;

(d) any application made to the Board under the repealed regulations, prior to such repeal, and pending before it shall be deemed to have been made under the corresponding provisions of these regulations; and

(e) the previous operation of the repealed regulations or anything duly done or suffered thereunder, any right, privilege, obligation or liability acquired, accrued or incurred under the repealed regulations, any penalty, incurred in respect of any violation committed against the repealed regulations, or any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty as aforesaid, shall remain unaffected as if the repealed regulations has never been repealed;

(3) After the repeal of Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014, any reference thereto in any other regulations made, guidelines or circulars issued thereunder by the Board shall be deemed to be a reference to the corresponding provisions of these regulations.

FIRST SCHEDULE

SECURITIES AND EXCHANGE BOARD OF INDIA

(FOREIGN PORTFOLIO INVESTORS) REGULATIONS, 2019

[See regulation 7(1)]

CERTIFICATE OF REGISTRATION

I. In exercise of the powers conferred by sub-section (1A) of section 12 of the Securities and Exchange Board of India Act, 1992 (the “Act”), read with the regulations made thereunder the Board hereby grants a certificate of registration to _________________________________ as

a foreign portfolio investor, subject to the conditions specified in the Act and in the regulations made thereunder.

II. The category and sub-category of the foreign portfolio investor is _______and

__________respectively.

III. The registration number for the foreign portfolio investor is …/…/…/…/….

IV. The address of the foreign portfolio investor is __________________.

V. This certificate shall be valid till it is suspended, cancelled or surrendered in accordance with the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019.

Date:

Place:

By Order

Signature

Name and Designation of the Authorised Signatory of

Designated depository participant

Issued on behalf of

Securities and Exchange Board of India

SECOND SCHEDULE

PART A

PAYMENT OF FEES APPLICABLE TO FOREIGN PORTFOLIO INVESTOR

[See regulation 3 and regulation 7(3)]

Registration Fee

(1) Foreign portfolio investor belonging to Category I and II shall pay registration fees of US $ 3000 and US $300, respectively or any other amount specified by the Board from time to time at the time of submission of the Form to the designated depository participant.

(2) Foreign portfolio investor belonging to Category I and II shall pay registration fees for every block of three years, till the validity of its registration,

(3) International or multilateral agency such as World Bank and other institutions, established outside India for providing aid, which have been granted privileges and immunities from payment of tax and duties by the Central Government shall be exempted from the payment of registration fees.

(4) The designated depository participants of the respective foreign portfolio investors shall collect the registration fees in advance once in every three years from all the foreign portfolio investors registered by it, and remit the fees to the Board in the manner specified by the Board from time to time.

(5) Every designated depository participant shall remit the fees collected from the foreign portfolio investors during the immediate preceding month, to the Board, by 5th working day of every month, along with the details in the format, as may be specified from time to time.

PART B

PAYMENT OF FEES APPLICABLE TO DESIGNATED DEPOSITORY

PARTICIPANT

[See regulation 10(2) and regulation 13(1)]

(1) Every designated depository participant shall pay application fees and approval fees, before commencement of its activity.

(2) Every designated depository participant shall pay application fees of ` 10,000/- at the time of making application, by way of direct credit through NEFT/RTGS/IMPS in the bank account in the name of “Securities and Exchange Board of India” payable at Mumbai.

(3) Every designated depository participant shall pay approval fees of ` 5,00,000/- by way of direct credit through NEFT/RTGS/IMPS in the bank account in the name of “Securities and Exchange Board of India” payable at Mumbai, at the time of grant of prior approval by the Board.

PART C

COLLECTION OF REGULATORY FEES BY FOREIGN PORTFOLIO INVESTOR

FROM ODI SUBSCRIBERS

[See sub-regulation (4) of Regulation 21]

Regulatory Fee

(1) A foreign portfolio investor shall collect the regulatory fee of US $ 1000 or any other amount, as may be specified by the Board from time to time, from every subscriber of offshore derivative instrument issued by it and deposit the same with the Board by way of electronic transfer in the designated bank account of the Board.

(2) The regulatory fee shall be deposited once every three years beginning April 1, 2017.

THIRD SCHEDULE

SECURITIES AND EXCHANGE BOARD OF INDIA (FOREIGN PORTFOLIO

INVESTORS) REGULATIONS, 2019

CODE OF CONDUCT

[See regulation 23]

1. A foreign portfolio investor and its key personnel shall observe high standards of integrity, fairness and professionalism in all dealings in the Indian securities market with intermediaries, regulatory and other government authorities.

2. A foreign portfolio investor shall, at all times, render high standards of service, exercise due diligence and independent professional judgment.

3. A foreign portfolio investor shall ensure and maintain confidentiality in respect of trades done on its own behalf or on behalf of its clients.

4. A foreign portfolio investor shall ensure the following –

(a) Clear segregation of its own money and securities and that of its client’s money and securities.

(b) Arm’s length relationship between its business of fund management/investment and its other business.

5. A foreign portfolio investor shall maintain an appropriate level of knowledge and competency and abide by the provisions of the Act, regulations made thereunder and the circulars and guidelines, which may be applicable and relevant to the activities carried on by it. Every foreign portfolio investor shall also comply with award of the Ombudsman and decision of the Board under Securities and Exchange Board of India (Ombudsman) Regulations, 2003.

6. A foreign portfolio investor shall not make any untrue statement or suppress any material fact in any documents, reports or information to be furnished to the designated depository participant and/or Board.

7. A foreign portfolio investor shall ensure that good corporate policies and corporate governance policies are observed by it.

8. A foreign portfolio investor shall ensure that it does not engage in fraudulent and manipulative transactions in the securities listed in any stock exchange in India.

9. A foreign portfolio investor or any of its directors or managers shall not, either through its/his own account or through any associate or family members, relatives or friends indulge in any insider trading.

10. A foreign portfolio investor shall not be a party to or instrumental for – a) creation of false market in securities listed or proposed to be listed in any stock exchange in India; b) price rigging or manipulation of prices of securities listed or proposed to be listed in any stock exchange in India; c) passing of price sensitive information to any person or intermediary in the securities market.

Sd/-

AJAY TYAGI
CHAIRMAN
SECURITIES AND EXCHANGE BOARD OF INDIA