**Summary:**
RBI Circular RBI/2019-20/44 (A.P. DIR Series Circular No. 06) dated August 16, 2019, addresses amendments to the Foreign Exchange Management (Deposit) Regulations, 2016, specifically regarding the acceptance of deposits through the issuance of Commercial Papers (CPs). The circular, directed to all Category I Authorised Dealers and Authorised Banks, announces the deletion of Sub-regulation 3 of Regulation 6 of Notification No. FEMA 5/R/2016-RB. This sub-regulation previously allowed companies to accept deposits through the issuance of CPs.
The deletion, enacted via GOI Notification No. FEMA 5/R/2019-RB dated July 16, 2019, aims to align the Foreign Exchange Management regulations with other statutory provisions, including Section 45(U)(b) of the RBI Act, 1934, and Section 2(c) of the Companies (Acceptance of Deposits) Rules, 2014, which treat CPs as money market instruments and exclude them from the definition of deposits, respectively. Furthermore, the circular acknowledges that the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 (FEMA 20(R)), already permit investments in CPs issued by Indian companies.
Authorised Dealer Category I banks are instructed to inform their constituents and customers about these changes. The directions within the circular are issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and do not supersede any other legal requirements or approvals.
R.K. Moolchandani, Chief General Manager, is the contact person for this circular.
Key Entities Referenced
Reserve Bank of India (RBI): The central bank of India, responsible for regulating the banking sector and managing foreign exchange.
Foreign Exchange Management Act, 1999: An act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Foreign Exchange Management Deposit Regulations, 2016: Regulations pertaining to the acceptance of deposits under the Foreign Exchange Management Act.
Commercial Paper (CP): A short-term, unsecured promissory note issued by companies to raise funds.
RBI Act, 1934: The Reserve Bank of India Act, 1934, is the legislation under which the Reserve Bank of India was established.
Companies Acceptance of Deposits, Rules 2014: Rules governing the acceptance of deposits by companies in India.
Foreign Exchange Management Transfer or Issue of Security by a Person Resident outside India Regulations, 2017: Regulations governing the transfer or issue of security by a person resident outside India.
R. K. Moolchandani: Chief General Manager at Reserve Bank of India.
RBI/2019-20/44
A.P. (DIR Series) Circular No. 06 August 16, 2019
To
All Category - I Authorised Dealers and Authorised Banks
Dear Sir / Madam
Foreign Exchange Management (Deposit) (Amendment) Regulations, 2019 –
Acceptance of Deposits by issue of Commercial Papers
Attention of Authorised Dealers (ADs) is invited to the Foreign Exchange Management
(Deposit) Regulations, 2016 notified vide Notification No. FEMA 5(R)/2016-RB dated April 1,
2016, as amended from time to time and the relevant directions issued thereunder.
2. We advise that Sub-regulation (3) of Regulation 6 of the above Regulations, in terms of
which a Company may accept deposits through issue of Commercial Paper (CP), has been
reviewed vis-à-vis other Statutes/Regulations – notably Section 45 U(b) of RBI Act, 1934
describing CP as one of the Money Market Instruments and Section 2(c) of Companies
(Acceptance of Deposits), Rules 2014 which excludes any amount received against issue of,
inter alia, CPs from definition of deposits. It has also been considered that Foreign Exchange
Management (Transfer or Issue of Security by a Person Resident outside India) Regulations,
2017 – FEMA 20(R), already allow investments in CPs issued by the Indian Companies.
3. Therefore, with a view to bring in consistency in statutory provisions/regulations relating
to Commercial Papers (CPs), we advise that sub-regulation (3) of Regulation 6 of FEMA
5(R)/2016-RB has been deleted vide GOI Notification No. FEMA 5(R)(2)/2019-RB dated July
16, 2019.
4. AD Category – I banks may bring the contents of this circular to the notice of their
constituents and customers concerned.
5. The directions contained in this circular have been issued under sections 10(4) and 11(1)
of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to
permissions / approvals, if any, required under any other law.
Yours faithfully
(R. K. Moolchandani)
Chief General Manager