PRS Capsule - May 2024

• 21 Jun 2024

Key Highlights of PRS

• Polity and Governance
  • Draft Explosive Bill, 2024 released for public feedback
• Economy
  • RBI notifies framework for self-regulatory organisations in the FinTech sector
  • IRDAI releases master circular for health insurance products
  • RBI invites comments on prudential framework for project finance
  • Consultation paper issued on investments by Indian mutual funds in certain overseas funds
• Environment
  • National Dam Safety Authority releases regulations on dam safety and surveillance

Polity and Governance

Draft Explosive Bill, 2024 Released for Public Feedback

• The Ministry of Commerce and Industry has released the Draft Explosive Bill, 2024 for public feedback. 
• This bill aims to replace the Explosives Act, 1884, which currently regulates the manufacture, possession, use, sale, transport, import, and export of explosives for commercial purposes. 
  • Granting of Licence:
    • The Act mandates that anyone involved in manufacturing, using, selling, exporting, or importing explosives must apply for a licence to the licensing authority. 
    • The licensing authority, such as the Chief Controller of Explosives, grants licences for specified periods and specifies the allowable quantity of explosives. 
  • Penalties for Offences: 
    • Under the Draft Bill, The draft Bill increases the fines for various offences. 
    • For instance, the maximum fine for illegal manufacturing, importing, or exporting explosives has been increased from five thousand rupees to one lakh rupees. 

Economy

RBI Notifies Framework for Self-Regulatory Organisations in the FinTech Sector

• The Reserve Bank of India (RBI) notified a framework for self-regulatory organisations (SROs) in the FinTech sector.
• Key Features of the Framework Include: 
  • Eligibility and Membership Criteria:
    • SRO applicants must have a minimum net worth of two crore rupees.
    • This requirement must be met within one year of RBI recognition or before starting SRO operations, whichever comes earlier.
    • Shareholding in the SRO should be diversified, with no single entity holding more than 10% of shares.
    • The SRO should represent the sector by including entities of all sizes, stages, and activities. Membership is voluntary, but RBI encourages FinTechs to join recognized SROs.
  • SRO Features:
    • Objective Functioning: SROs operate objectively under RBI oversight.
    • Sustainable Development: SROs aim for sector development and may identify phased regulatory compliance paths if needed.
    • Comprehensive Representation: SROs represent the sector through comprehensive membership agreements.
    • Independence: They operate independently, free from influence by any single member or group.
    • Dispute Resolution: SROs act as legitimate arbiters in disputes between members.
    • Regulatory Adherence: Encouraging members to follow regulatory priorities is part of their role.
  • Functions:
    • Rule-Making: SROs establish rules and standards through objective and consultative processes.
    • Industry Benchmarks: They set industry benchmarks and baseline technology standards.
    • Surveillance: SROs monitor the sector, detect exceptions, and highlight issues.
    • Conduct Standards: They define standards of conduct and impose penalties for violations.
    • Membership Control: SROs can bar or remove entities as members.
    • Grievance Resolution: Establishing a dispute resolution framework for members is essential. 

IRDAI Releases Master Circular for Health Insurance Products 

• The Insurance and Regulatory Development Authority of India (IRDAI) issued a master circular on health insurance products. 
• This circular supersedes 55 previous circulars and is effective immediately.  
• Key Features of the Master Circular Include:
  • Types of Insurance Products:
    • Insurers must offer a diverse range of products catering to all ages, medical conditions, pre-existing and chronic conditions, various systems of medicine, and different types of hospitals and healthcare providers.
    • These products must comply with relevant laws, including the Mental Healthcare Act, 2017, the Surrogacy (Regulation) Act, 2021, and the HIV and AIDS (Prevention and Control) Act, 2017.
  • Claim Settlement:
    • Insurers should strive for 100% cashless claim settlements within a specified timeframe.
    • Decisions on cashless settlements must occur within one hour of the request.
    • Necessary systems for enabling cashless requests must be in place by July 31, 2024.
    • Final authorization should be granted within three hours of hospital discharge.
    • Any additional charges due to delays must be borne by the insurer from their shareholder’s fund.
  • Customer Information Sheet (CIS):
    • Insurers must provide customers with a CIS, explaining policy features in simple language.
    • The CIS covers details such as insurance type, sum insured, exclusions, deductibles, and sub-limits.
  • Board-Approved Policies:
    • Insurers need board-approved policies for underwriting and empanelment of hospitals and healthcare providers.
    • Well-defined claims handling and settlement procedures are essential.

RBI Invites Comments on Prudential Framework for Project Finance 

• The Reserve Bank of India (RBI) has released draft guidelines on the “Prudential Framework for Income Recognition, Asset Classification, and Provisioning Pertaining to Advances - Projects Under Implementation.” 
• These guidelines aim to strengthen the regulatory framework for project finance and harmonise instructions across all regulated entities, including banks and non-banking financial companies.
• Key Features Include:
  • Conditions for Project Financing:
    • Project finance relies on project revenue for loan repayment, with the project itself as collateral.
    • Lenders must have a board-approved stress resolution policy.
    • Funds should be disbursed proportionally to project completion, certified by an independent architect or engineer.
  • Exposure Limits for Consortium-Financed Projects:Adherence to specified principles: 
    • For projects with up to Rs 1,500 crore aggregate exposure, lenders must have at least 10% exposure.
    • Higher aggregate exposure projects require individual exposure of at least Rs 150 crore or 5% of the total exposure.
  • Stress Resolution: 
    • Lenders monitor project stress and report credit events (e.g., extension of commercial operations date, additional debt needs).
    • A debtor review occurs within 30 days of a credit event, leading to potential resolution plans.
  • Provisioning for Standard Assets:
    • Lenders provision 5% of outstanding funds for projects under construction.
    • Once operational, this provision can reduce to 2.5% and then 1%, subject to specific conditions. These include positive net operating cash flow and debt reduction from project commencement.

Environment

National Dam Safety Authority Releases Regulations on Dam Safety and Surveillance

• The National Dam Safety Authority has issued the “Surveillance, Inspection, and Hydrometeorological Station of Specified Dams Regulation, 2024.” These regulations focus on monitoring dams and water inflow indicators for safety. 
• Key Features Include:

  • Inspection of Dams: 

    • State Dam Safety Organisations (SDSOs) continuously monitor dams under their jurisdiction.
    • Surveillance detects anomalies like cracks, seepage, or equipment issues.
    • Specific inspection instances include pre/post-monsoon, after floods, and following earthquakes.
  • Hydrometeorological Station: 
    • Near each dam, a hydrometeorological station measures rainfall, water level, discharge, temperature, and wind.
    • Daily monitoring ensures safety.
    • Dam owners must also set up an instrumentation network for inflow forecasting and flood warnings .