Retail borrowers concerned about the impact of COVID-19 on their finances, and thus, their ability to repay their loans have got some breathing space, thanks to the Reserve Bank of India’s (RBI’s) mega relief package announced on Friday.

They stand to benefit from the policy rate cuts, and a moratorium on all term loans, including home, auto, education, personal and credit card dues. The measures will benefit especially those whose equated monthly instalments (EMI) are due between March 1, 2020 and May 31, 2020. Considering the state of paralysis the domestic and global economies are slipping into, the RBI has given borrowers a lifeline to tide over any temporary financial crunch.

Choose shorter tenure, not lower EMIs

The repo rate cut of 75 basis points – from 5.15 per cent to 4.4 per cent – will mean huge savings on interest outgo for retail borrowers, particularly the ones whose home loans are linked to repo rates.


    NEW DELHI : Notwithstanding the 21-day coronavirus lockdown, the Reserve Bank of India (RBI) has decided to go ahead with the merger plan of ten state-run banks into four larger bank from April 1. The apex bank has issued four separate releases announcing that the branches of merging banks will operate as of the banks in which these have been amalgamated from next month.

    RBI’s statement comes after Finance Minister Nirmala Sitharaman’s clarification on Thursday that the mega bank consolidation plan was very much on track and would take effect from April 1.

    The government on March 4 had notified the amalgamation schemes for 10 state owned banks into four as part of its consolidation plan to create bigger size stronger banks in the public sector.



      On a wing and a prayer

      RBI took control of the country’s fifth-largest private sector lender YES Bank on Thursday and imposed limits on withdrawals, spreading confusion and fear among account holders.

      Shares of YES Bank, which traded at Rs 404 at its peak in August 2019, fell to a record low of 5.65 rupees on Friday, with the stock plunging nearly 85 per cent. The fall wiped out Rs 79.43 billion ($1.08 billion) from YES Bank’s market value.

      Here’s a look at the events leading up to the Reserve Bank of India’s move.


      Change in leadership (Sept 2018- Feb 2019)

      Sept. 19, 2018 – RBI refuses to give Chief Executive Officer Rana Kapoor an extension to his term – Kapoor to step down by end of January 2019

      Nov. 27 – Moody’s cuts bank’s foreign currency issuer rating; changes outlook to ‘negative’ from ‘stable’ citing concerns over corporate governance

      Jan. 24, 2019 – YES Bank hires the head of Deutsche Bank India Ravneet Gill as its new CEO

      Feb. 13 – YES Bank says RBI observed no divergences from central bank norms in the bank’s asset classification and provisioning


      Downfall begins (April 2019- July 2019)

      April 8 – Pressed for capital, YES Bank says it will consider raising funds by issuing shares and debt securities

      April 26 – Rising levels of bad loans trigger YES Bank’s first-ever quarterly loss; Macquarie Research double-downgrades stock to ‘underperform’, stock tanks 30 per cent on next trading day

      May 14 – RBI appoints ex-central bank Deputy Governor R. Gandhi as additional director to YES Bank’s board – a rare move signalling an increased level of scrutiny on the lender

      July 17 – YES Bank reports 91 per cent drop in first-quarter profit, as provisions surge and asset quality deteriorates sharply; gross bad loan ratio stood at 5.01 per cent


      Glimmer of hope (Sept 2019- Oct 2019)

      Sept. 10 – YES Bank CEO Gill says lender is close to securing a deal to sell a minority stake to a global technology company to help boost its capital

      Oct. 3 – CEO Gill says bank is in talks with private equity firms, strategic investors and family offices to raise additional capital

      Oct. 31 – YES Bank gets binding investment offer of $1.2 billion from global investor, sends stock 39 per cent higher


      Phantom pain & RBI’s entry (Nov 2019- Now)

      YES Bank reports bigger-than-expected loss for the second quarter, as bad loan ratio deteriorates to 7.39 per cent and provisions swell to 13.36 billion rupees

      Nov. 29 – YES Bank says it aims to raise up to $2 billion in a massive issue of new shares to institutional investors and family offices; says it is in talks to sell shares worth $1.2 billion to Canadian investor Erwin Singh Braich and Hong Kong-based SPGP Holdings, which he backs

      Jan. 10, 2020 – YES Bank rejects Braich’s investment, says will launch a $1.4 billion share sale, after a board member’s resignation casts more doubt on the lender’s future

      Feb. 12 – The lender says it will delay disclosing its October-December earnings by at least a month, and that it was in talks with potential investors for a cash infusion

      Feb. 12 – Bank says it received non-binding expressions of interest from JC Flowers, Tilden Park Capital Management, OHA (UK) and Silver Point Capital.

      March 5 – India places YES Bank under moratorium, with RBI taking over from its board for 30 days and imposing limits on withdrawals to protect depositors

      The Reserve Bank of India has imposed a monetary penalty of ₹1.50 crore each on Allahabad Bank, Bank of Maharashtra and Indian Overseas Bank, and ₹1 crore on Andhra Bank.

      The penalty has been imposed on the public sector banks (PSBs) for non-compliance with various directions issued on monitoring of end use of funds, exchange of information with other banks, classification and reporting of frauds, and on restructuring of accounts.

      The central bank also imposed a monetary penalty of ₹20 lakh each on HDFC Bank, IDBI Bank and Kotak Mahindra Bank for non-compliance with various directions issued by the RBI on Know Your Customer (KYC) norms / anti-money laundering (AML) standards,

      In the case of these seven banks, the RBI, in a statement, said: “These penalties have been imposed in exercise of powers vested in RBI under the provisions of …the Banking Regulation Act, 1949, taking into account failure of the above banks to adhere to the aforesaid directions issued by RBI.

      “This action is based on deficiencies in regulatory compliance, and is not intended to pronounce upon the validity of any transaction or agreement entered into by the banks with their customers.

      Activities permitted :
      a) Export/import of goods.
      b) Rendering professional or consultancy services.
      c) Carrying out research work in which the parent company is engaged.
      d) Promoting technical or financial collaborations between Indian companies and parent
      or overseas group company.
      e) Representing the parent company in India and acting as buying/ selling agent in India.
      f) Rendering services in Information Technology and development of software in India.
      g) Rendering technical support to the products supplied by parent/group companies.
      h) Representing a foreign airline/shipping company.
      A branch office cannot carry out manufacturing activities on its own but can subcontract
      these to any manufacturer based in India. Branch Offices can remit the profits to its parent
      company after paying taxes on the same (RBI).

      Basic rules :
      • All the expenses of the BRANCH office are met by the head office, if it does not have
      the revenue from Indian operations.
      • The foreign parent company planning to setup a Branch office should have a
      profitable track record during immediately preceding 5 years.
      • The Net worth of the foreign company should be more than or equal to USD 100,000.
      • Net Worth: Total of paid-up capital and free reserves, less intangible assets as per the
      latest Audited Balance Sheet or Account Statement certified by a Certified Public
      Accountant or any Registered Accounts Practitioner by whatever name called.
      • An applicant that is not financially sound and is a subsidiary of another company may
      submit a Letter of Comfort (LOC) from its parent/ group company, subject to the
      condition that the parent/ group company satisfies the prescribed criteria for net worth
      and profit.

      Document Checklist :

      The application for forming a branch office is to be given to the AD Category – I bank (i.e. an
      AD Category – I bank identified by the applicant with whom they intend to pursue banking
      relations) in India. The bank then submits the application to RBI for approval

      The following documents are required to open a branch office in India:
      • A Indian resident who will be responsible for branch operations and will be liable to
      make the tax payments and regular compliances
      • Form FNC 1 (Three copies)
      • Letter from the principal officer of the Parent company to RBI.
      • Letter of authority from the parent company in favor of Local Representative.
      • Letter of authority/ Resolution from parent company for setting up BRANCH office
      in India.
      • Comfort letter from the parent company intending to support the operation in India, if
      • Two copies of the English version of the Certificate of Incorporation, Memorandum
      & Articles of association (Charter Document) of the parent company duly attested by
      the Indian embassy or notary public in the country of registration.
      • Certification of Incorporation, Memorandum & Articles of association (Charter
      Document) – Translated & Duly Notarized and properly authenticated.
      • The Latest audited Balance sheet and annual accounts of parent company duly
      Translated notarized for past Three years and properly authenticated
      • Name, Address, email ID and telephone number of the authorized person in Home
      • Details of Bankers of the Organization the Country of Origin along with the bank
      account number
      • Details Relating to address of the proposed local office, number of persons likely to
      be employed, number of Foreigners among such employees and address of the head of
      the Local office, if decided
      • Details of Activity carried out in Home Country by the applicant organization in brief
      about the product and services of company in Brief.
      • Bankers Certificate/Report from the bank of the parent company about the details of
      parent company and duration of banking with parent company
      • Latest Proof of identity of all the Directors – Properly Certified by Banker in Home
      Country and duly authenticated
      • Latest Proof of address all of Directors – Properly Certified by Banker in Home
      Country and duly authenticated
      • Structure of the Organization and its Shareholding pattern
      • Complete KYC of Shareholders holding Equity in the Applicant Company

      Process to be followed by AD Banker :

      AD Category-I bank shall forward a copy of the Form FNC along with the details of the
      approval proposed to be granted by it to the General Manager, Reserve Bank of India, CO
      Cell, New Delhi, for allotment of Unique Identification Number (UIN) to each BO. After
      receipt of the UIN from the Reserve Bank, the AD Category-I bank shall issue the
      approval letter to the non-resident entity for establishing BO in India.

      An applicant that has received permission for setting up of a BO shall inform the
      designated AD Category I bank as to the date on which the BO has been set up. The AD
      Category I bank in turn shall inform Reserve Bank accordingly

      The approval granted by the AD Category I bank should include a proviso to the effect
      that in case the BO for which approval has been granted is not opened within six months
      from the date of the approval letter, the approval shall lapse. In cases where the nonresident
      entity is not able to open the office within the stipulated time frame due to reasons
      beyond its control, the AD Category-I bank may consider granting extension of time for a
      further period of six months for setting up the office. Any further extension of time shall
      require the prior approval of Reserve Bank of India in this regard

      Annual Compliance with Registrar of Companies(RoC)

      Every year a branch office is required to undertake the following activities:
      • Book Keeping
      • Audit
      • Annual activity Certificate with RBI
      • Filling of financials with Registrar of Companies

      foreign company shall, within thirty days of the establishment of its place of
      business in India, deliver to the Registrar for registration in Form FC-1—
      a) a certified copy of the charter, statutes or memorandum and articles, of the company
      or other instrument constituting or defining the constitution of the company and, if the
      instrument is not in the English language, a certified translation thereof in the English
      b) the full address of the registered or principal office of the company;
      c) a list of the directors and secretary of the company containing such particulars as may
      be prescribed;
      d) the name and address or the names and addresses of one or more persons resident in
      India authorised to accept on behalf of the company service of process and any
      notices or other documents required to be served on the company;
      e) the full address of the office of the company in India which is deemed to be its
      principal place of business in India;
      f) particulars of opening and closing of a place of business in India on earlier occasion
      or occasions;
      g) declaration that none of the directors of the company or the authorised representative
      in India has ever been convicted or debarred from formation of companies and
      management in India or abroad; and
      h) any other information as may be prescribed.

      After submission of above document, RoC will issue Certificate of Registration.

      After Incorporation, the following registrations are also necessary for a branch office:
      • Permanent account number – PAN
      • Tax deduction number – tan number Shop & establishment
      • Registration GST Registration if providing services to Indian Customers

      As subsequent to the introduction of an external benchmark system, the monetary policy transmission has improved in respect of the sectors where new floating rate loans have been linked to the external benchmarks. With a view to further strengthening monetary policy transmission, RBI has decided that all new floating rate loans to the Medium Enterprises extended by banks from April 01, 2020, shall be linked to the external benchmarks. The move is aimed at further strengthening monetary policy transmission so that the benefits of reduction in key lending rate (repo) can be passed on to medium enterprises also.