What changed
Previously, fund-based or non-fund-based facilities to FIIs were not permitted under FEMA Guarantee Regulations. This circular now explicitly allows custodian banks to issue IPCs to stock exchanges or clearing corporations for FIIs' PIS transactions, with compliance to RBI's capital market exposure guidelines and DBOD circular dated September 30, 2010.
What it means for you
Banks acting as custodians can now facilitate FII share purchases by issuing IPCs, reducing settlement risk for stock exchanges. This expands the permissible non-fund facility for FIIs under PIS, but banks must ensure adherence to overall capital market exposure limits and DBOD instructions.
What you must do
- Review and update internal policies to permit IPC issuance for FII clients under PIS.
- Ensure IPC issuance complies with RBI's capital market exposure norms and DBOD circular DBOD Dir. BC.46/13.03.00/2010-11.
- Train relevant staff on FEMA Guarantee Regulations amendments and IPC processing procedures.
- Communicate the new facility to FII clients and custodial account holders.
Who it affects
AD Category-I banks (custodian banks), FIIs registered with SEBI, Stock exchanges and clearing corporations
What is an Irrevocable Payment Commitment (IPC)?
An IPC is a non-fund based commitment issued by a custodian bank to a stock exchange or clearing corporation, guaranteeing payment for securities purchased by an FII under the Portfolio Investment Scheme.
Are there any additional compliance requirements for issuing IPCs?
Yes, banks must comply with RBI's capital market exposure regulations and the instructions in DBOD circular DBOD Dir. BC.46/13.03.00/2010-11 dated September 30, 2010.
Does this circular change the FEMA Guarantee Regulations?
The circular states that necessary amendments to FEMA 8/2000-RB will be issued separately. Until then, IPC issuance is permitted under the existing framework with these instructions.