Recent Updates on Legislative/Policy Reforms

The Government has taken / proposed to take many measures including legislative measures recently to further develop banking sector in India. A brief account of the legislations introduced and proposed is as follows:

i. The “Banning of Unregulated Deposit Schemes and Protection of Depositors’ Interests Bill”

In the recent past, the issue of unauthorised deposit taking or Ponzi Schemes has been raised in a number of fora, including the Parliament. Standing Committee on Finance (SCF), in its 21st Report on “Efficacy of Regulation of Collective Investment Schemes (CIS), Chit Funds, etc.”, submitted to the 16th Lok Sabha in September, 2015, has made a number of observations / recommendations to strengthen the regulatory framework for unauthorised deposit taking activities. This Report of SCF can be accessed through the official website of Lok Sabha, i.e., The Government of India had constituted an Inter-Ministerial Group (IMG) for identifying gaps in the existing regulatory framework for deposit-taking activities and to suggest administrative / legislative measures, including formulation of a new law, to cover all relevant aspects of ‘deposit-taking’. IMG has finalized its Report and has recommended a number of legislative and non-legislative measures, including legislation of a comprehensive Central law called the “Banning of Unregulated Deposit Schemes and Protection of Depositors’ Interests Bill” (“the Banning Bill”). Further, the Government has announced in the Budget 2016-17 that it proposes to bring in a comprehensive Central legislation in 2016-17 to deal with the menace of unauthorized deposit taking schemes. The Report of the IMG and the Banning Bill is uploaded on this website for public comments on the Report, including on the proposed Banning Bill.

ii) Central Know Your Customer (KYC) Records Registry

To introduce uniform KYC norms and inter-usability of the KYC records across the entire financial sector (as was announced in the Union Budget 2014-15) a Central KYC Records Registry (CKYCR) is being operationalised through CERSAI. The enabling legal framework for CKYCR has been created by amending PMLA Rules and designating CERSAI as the Central KYC Registry.

(iii) The Negotiable Instruments (Amendment) Act, 2015

The Negotiable Instruments (Amendment) Act, 2015 has been enacted and notified in the official Gazette on 29th December, 2015 The Amendment Act, is focused on clarifying the jurisdiction related issues for filing cases for offence committed under section 138 of the Negotiable Instruments Act (NI Act). The Amendment Act, facilitates filing of cases only in a court within whose local jurisdiction the bank branch of the payee, where the payee delivers the cheque for payment through his account, is situated, except in case of bearer cheques, which are presented to the branch of the drawee bank and in that case the local Court of that branch would get jurisdiction. The Amendment Act, provides for retrospective validation for the new scheme of determining the jurisdiction of a court to try a case under section 138 of the N.I. Act. The Amendment Act, also mandate centralization of cases against the same drawer.

(iv) The Payment and Settlement Systems (Amendment) Act, 2015

The Payment and Settlement Systems (Amendment) Act, 2015, received the assent of the President on 13.05.2015 and was brought into force with effect from 01.06.2015. The Payment and Settlement Systems Act, 2007 was enacted for the regulation and supervision of payment systems in India and to designate the Reserve Bank of India as the authority for that purpose and for matters connected therewith. After the enactment of the Act, the country has witnessed orderly growth of payment systems, and these payments systems are granted authorisation on the principles of safety security, soundness, efficiency and accessibility. After the global financial crisis in 2007-08, several developments took place, driven primarily by the G20, for reforming the Over the Counter derivatives markets. Some of these new initiatives include setting up of Trade Repositories and Legal Entity Identification System. The amendments to the Payment and Settlement Systems Act, 2007 in the form of the Payment and Settlement Systems (Amendment) Act, 2015, have been necessitated in view of international initiatives flowing from the mandate of the G20 to introduce reforms to increase the transparency of the Over the Counter Derivatives market and to strengthen the payment and settlement system to bring it on par with international norms, so as to ensure stability and transparency of Indian financial sector is improved and the Indian financial sector entities are also enabled to deal with international financial sector entities in the globally integrated financial world without any difficulty or disruption. The amended Act provides for (i) netting and settlement finality in the event of insolvency, liquidation or resolution of the Central Counterparty (CCP) itself, (ii) protect the customers’ interest in the event of insolvency or bankruptcy of prepaid instruments (PPIs) operators / issuers; and (iii) provide a legal framework to deal with new developments, such as Trade Repositories (TRs) and Legal Entity Identification System (LEIS) as well as plugged the gaps relating to netting and protection of customers’ interest in respect of “escrowed” balance of PPI issuers.