What changed
Custodian banks now have until December 31, 2010, to incorporate a clause in client agreements granting them an inalienable right over securities to be received as payout, extended from the earlier requirement to comply before November 1, 2010. Additionally, transactions that are pre-funded—where clear INR funds are in the customer's account or, for FX deals, the bank's nostro account is credited before IPC issuance—are exempt from this clause requirement.
What it means for you
Banks issuing IPCs to stock exchanges for mutual funds and FIIs get more time to comply with risk mitigation measures, easing operational pressure. The exemption for pre-funded deals reduces compliance burden for transactions where funds are already secured, allowing smoother settlement processes.
What you must do
- Update client agreements to include the inalienable right clause by December 31, 2010, for non-pre-funded transactions.
- Identify and segregate pre-funded transactions to apply the exemption from the clause requirement.
- Ensure internal systems can verify pre-funding status before issuing IPCs.
- Communicate the revised timeline and exemption criteria to relevant teams and clients.
Who it affects
Custodian banks, Scheduled commercial banks (excluding RRBs)
What is the new deadline for including the inalienable right clause in client agreements?
The deadline has been extended to December 31, 2010, from the original November 1, 2010.
Are there any transactions exempt from this clause requirement?
Yes, pre-funded transactions—where clear INR funds are in the customer's account or, for FX deals, the bank's nostro account is credited before IPC issuance—are exempt.