RBI issues guidelines for penalizing payments systems and banks1 min read . Updated: 21 Oct 2016, 01:36 AM IST
According to RBI's new guidelines, payments systems and banks can be told to fork out penalties between Rs5 lakh and Rs1 crore
Mumbai: The Reserve Bank of India (RBI) released on Thursday guidelines for penalizing payments systems and banks under the Payments and Settlements Systems Act, 2007.
According to the framework issued by RBI, payments systems and banks can be told to fork out penalties between Rs5 lakh and Rs1 crore. Under the Act, no person can operate a payment system without RBI authorization. Only stock exchanges are exempt from obtaining such authorization.
As per RBI’s guidelines, any violations of the guidelines will be considered as ground for penalties. The entity, on which a penalty has been levied, shall disclose the penalty in its annual financial statement for the year in which the penalty was imposed, RBI said.
“Reserve Bank of India shall also make the penalty levied public by disclosing the same on its website," the regulator said on its website.
Separately, the central bank has allowed foreign investments up to 100% under automatic route in any activity regulated by the financial sector regulator.
An RBI notification on Thursday said, “On a review, in consultation with the government of India, it has been decided to allow foreign investment up to 100% under the automatic route in ‘Other Financial Services’. Other Financial Services will include activities which are regulated by any financial sector regulator, viz. Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority, Pension Fund Regulatory and Development Authority, National Housing Bank or any other financial sector regulator as may be notified by the government of India in this eregard."
Legal experts say this move will help attract foreign investments under the automatic route into services like mutual funds, depository participants, currency derivative brokers, commodity brokers, and mutual fund distributors.
“Earlier commodity broking required FIPB (Foreign Investment Promotion Board) approval for raising FDI investments. But now they can come via the automatic route," said Tejesh Chitlangi, partner, IC Legal.
The current FEMA (Foreign Exchange Management Act) guidelines allow foreign investment up to 100% under the automatic route in non-banking financial companies (NBFCs) engaged in 18 listed activities. However, legal experts say that there is some lack of clarity on issues related to investments in RBI regulated entities like core investment companies, and investing companies which require FIPB approval.