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In-depth analysis of RBI Circulars for May 2026
RBI Circulars May 2025
This lesson covers the key regulatory updates and circulars issued by the Reserve Bank of India in May 2025.
Master Direction on Penal Provisions in reporting of transactions / balances at Currency Chests
This Master Direction sets the strict rules for banks operating Currency Chests (CCs).
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Operational Rules (The Basics) • What is a Currency Chest? It is a secure location in a bank where surplus cash is stored on behalf of the RBI. • Transaction Limits: o Minimum Amount: Any deposit or withdrawal from the chest must be at least ₹1,00,000. o Multiples: Beyond the minimum, amounts must be in multiples of ₹50,000. • Reporting Deadline (Memorize This): o All transactions must be reported on the CyM-CC Portal (Currency Management - Currency Chest Portal). o Deadline: Same Day by 7:00 PM.
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The Penalty Framework (Crucial for Exams) The RBI distinguishes between "Operational Mistakes" and "Financial Delays" when applying penalties. A. The Flat Penalty (₹50,000) You pay a flat fine of ₹50,000 for the following specific mistakes:
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RBI Circulars May 2025
This lesson covers the key regulatory updates and circulars issued by the Reserve Bank of India in May 2025.
Master Direction on Penal Provisions in reporting of transactions / balances at Currency Chests
This Master Direction sets the strict rules for banks operating Currency Chests (CCs).
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Operational Rules (The Basics) • What is a Currency Chest? It is a secure location in a bank where surplus cash is stored on behalf of the RBI. • Transaction Limits: o Minimum Amount: Any deposit or withdrawal from the chest must be at least ₹1,00,000. o Multiples: Beyond the minimum, amounts must be in multiples of ₹50,000. • Reporting Deadline (Memorize This): o All transactions must be reported on the CyM-CC Portal (Currency Management - Currency Chest Portal). o Deadline: Same Day by 7:00 PM.
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The Penalty Framework (Crucial for Exams) The RBI distinguishes between "Operational Mistakes" and "Financial Delays" when applying penalties. A. The Flat Penalty (₹50,000) You pay a flat fine of ₹50,000 for the following specific mistakes:
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Wrong Reporting of Soiled Notes: If you send soiled notes to RBI but wrongly report it as a "Withdrawal" in the system.
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Wrong Reporting of Diversions: If you shift cash between chests (Diversion) but wrongly report it as a Deposit/Withdrawal instead of using the "Diversion Module".
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Delayed Reporting of "Net Deposit": o Context: If the chest has a Net Deposit (Bank put money into the chest), the RBI technically owes the bank interest. If the bank is late in reporting this, RBI doesn't lose money, so they don't charge penal interest. They just charge this flat ₹50,000 fine for the delay. B. The Penal Interest (Bank Rate + 2%) This applies when the RBI actually loses money due to the bank's delay. • Scenario: Delayed reporting of "Net Withdrawal" (Bank took money out of the chest). • Why? When a bank withdraws money, it owes RBI funds. If they delay reporting, they are holding RBI's money for free. • The Penalty Rate: Prevailing Bank Rate + 2%. • Applicability: Also applies to wrong reporting or inclusion of ineligible amounts in chest balances.
Summary Cheat Sheet for Revision Feature Rule / Limit Min Transaction Amount ₹1 Lakh (Multiples of ₹50k) Reporting Deadline 7:00 PM (Same Day) Portal Name CyM-CC Flat Penalty Amount ₹50,000 Penal Interest Rate Bank Rate + 2% Condition for Penal Interest Net Withdrawal / Wrong Reporting Condition for Flat Penalty Net Deposit Delay / Soiled Note Error
Practice Question Q. As per the RBI Master Direction on Currency Chests, what is the rate of penal interest levied on a bank for the delayed reporting of a "Net Withdrawal" transaction? A) Bank Rate + 1% B) Bank Rate + 2% C) Repo Rate + 2% D) Flat ₹50,000 only E) Call Money Rate + 2% Answer: B) Bank Rate + 2% (Note: If the question asked about "Net Deposit" delay, the answer would be D - Flat ₹50,000).
Limits for investment in debt and sale of Credit Default Swaps by Foreign Portfolio Investors (FPIs) This update covers Investment Limits for Foreign Investors and an operational update on Lead Banks in Rajasthan.
Topic 1: FPI Investment Limits in Debt (FY 2025-26) The RBI reviews how much debt (bonds) Foreign Portfolio Investors (FPIs) can buy in India every year.
- The Percentage Limits (Unchanged) For the financial year 2025-26, the percentage limits remain the same as before: • Government Securities (G-Secs): 6% of outstanding stock. • State Government Securities (SGSs): 2% of outstanding stock. • Corporate Bonds: 15% of outstanding stock.
- Credit Default Swaps (CDS) Limit • What is it? FPIs can sell "insurance" against bond defaults (CDS). • Limit: The total notional amount of CDS sold by FPIs cannot exceed 5% of the outstanding stock of corporate bonds.
- The "Additional" Amount • Even though the percentages are the same, the total debt market has grown. • Therefore, an additional limit of ₹2,93,612 Crore has been opened up for FPIs for the year 2025-26.
Summary Cheat Sheet for Exams Category Limit (% of Outstanding Stock) Central G-Secs 6% State Govt Securities 2% Corporate Bonds 15% CDS Sales by FPIs 5% (of Corp Bonds)
Practice Question Q. For the financial year 2025-26, the limit for Foreign Portfolio Investor (FPI) investment in Corporate Bonds has been retained at what percentage of the outstanding stock of securities? A) 2% B) 5% C) 6% D) 10% E) 15% Answer: E) 15%
Lead Bank Responsibility (Rajasthan) The News: • Event: The Government of Rajasthan reorganized its districts, merging 9 districts into 12 existing ones. • Banking Impact: Since those 9 districts no longer exist as separate entities, the Lead Bank responsibility assigned to them has been revoked (cancelled). o Example: If District A merged into District B, the Lead Bank of District A stops functioning as such, and District B's Lead Bank takes over.
Opening of and operation in deposit accounts of minors This circular is a "Customer Service" and "Financial Inclusion" update. It clarifies the rules for kids (minors) opening bank accounts.
- Who Can Open an Account? • Any Minor: A minor of any age can open a Savings or Term Deposit account. • Guardian Operation: These accounts are operated by the Natural or Legal Guardian. • Mother as Guardian: The RBI explicitly states that accounts can be opened with the Mother as the guardian. (This is important because historically, fathers were often the default).
- Independent Operation (The "10-Year" Rule) • Age Limit: Minors above 10 years of age can be allowed to open and operate their accounts Independently (without a guardian). • Bank's Discretion: The bank decides the exact age limit, but it cannot be less than 10 years. • Why? To encourage financial literacy among children.
- Implementation Deadline • Banks must update their internal policies to align with these rules by July 01, 2025.
Summary Cheat Sheet for Exams Feature Rule Minimum Age for Independent Account 10 Years Account Types Allowed Savings & Term Deposits Guardian Operation Allowed for Any Age Mother as Guardian Permitted Policy Update Deadline July 01, 2025
Practice Question Q. As per the RBI guidelines, minors above the age of __ years may be allowed to open and operate savings or term deposit accounts independently. A) 12 years B) 10 years C) 14 years D) 16 years E) 18 years Answer: B) 10 years
Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR) – Review of haircuts on High Quality Liquid Assets (HQLA) and review of composition and run-off rates on certain categories of deposits This circular introduces crucial amendments to the Liquidity Coverage Ratio (LCR) framework under Basel III norms.
- What is LCR? (The Concept) • Liquidity Coverage Ratio (LCR): A rule that ensures banks have enough liquid assets (Cash, Govt Bonds) to survive a 30-day "run on the bank" (stress scenario). • Run-off Rate: This is the assumed percentage of deposits that panicked customers will withdraw in 30 days. o Higher Run-off Rate = More risky (Bank needs to hold more liquid assets). o Lower Run-off Rate = Less risky (Bank needs less liquid assets).
- The New "Digital Run-off" Rule (Internet/Mobile Banking) The RBI recognizes that with Mobile Banking (IMB), customers can withdraw money instantly during a crisis. So, deposits linked to IMB are riskier. The Change: Banks must add an extra 2.5% run-off factor to retail deposits enabled with Internet/Mobile Banking (IMB). Revised Rates (Memorize These): Deposit Type (with IMB) Old Run-off Rate New Run-off Rate (2026) Stable Retail Deposits 5% 7.5% (5% + 2.5%) Less Stable Retail Deposits 10% 12.5% (10% + 2.5%)
- Valuation of HQLA (Government Securities) • Level 1 HQLA: Government securities held as liquid assets must be valued at their Current Market Value. • Haircut: While valuing them, banks must apply a "Haircut" (discount) consistent with the margin requirements under RBI's LAF (Liquidity Adjustment Facility) and MSF (Marginal Standing Facility).
- Treatment of Non-Callable Deposits • Context: "Non-callable" FDs (deposits that cannot be withdrawn prematurely) are usually excluded from LCR calculations because the money is locked. • The Loophole: Sometimes a customer pledges this FD to take a loan. If they default, the bank liquidates the FD. • The Fix: If a non-callable deposit is pledged as collateral for a loan, it must be treated as "Callable" for LCR purposes (meaning it counts as potential outflow).
- Reclassification of "Small Business" Deposits (The 100% to 40% Drop) This is a huge relief for banks. Old Rule: Deposits from Trusts, Partnerships, HUFs, and Associations of Persons (AoPs) were treated as "Other Legal Entities (OLEs)" and had a massive 100% Run-off Rate (assumed all money leaves in 30 days). New Rule: • OLE Category Redefined: Now, "OLE" (100% risk) only includes funding from Banks, Insurance Companies, and Financial Institutions. • Non-Financial Entities: Funding from Trusts, Partnerships, Proprietorships, LLPs, etc., is now categorized as "Non-Financial Corporates". • New Run-off Rate: These will now attract a run-off rate of only 40% (instead of 100%).
- Effective Date • These amendments come into force on April 01, 2026.
Summary Cheat Sheet for Exams Feature Old Rule New Rule (2026) Stable Retail (IMB enabled) 5% 7.5% Less Stable Retail (IMB enabled) 10% 12.5% Trust/Partnership Deposits 100% Run-off 40% Run-off Pledged Non-Callable FDs Excluded Treated as Callable HQLA Valuation - Market Value - LAF/MSF Haircut
Practice Question Q. As per the revised LCR framework effective from April 2026, retail deposits enabled with internet and mobile banking (IMB) facilities shall be assigned an additional run-off factor of: A) 1.0% B) 2.5% C) 5.0% D) 7.5% E) 10.0% Answer: B) 2.5%
Circular - Migration to '.bank.in' domain This circular is a critical "IT & Cybersecurity" update. The RBI is mandating a uniform web address structure for all banks to enhance trust and security.
- The Mandate (The ".bank.in" Rule) • The Change: All banks must migrate their existing website domains (like .com, .in, .co.in) to the new, secure .bank.in domain. • Why? Having a restricted .bank.in domain helps customers easily identify "Real Bank Websites" and avoid Phishing/Fake websites.
- The Deadline (Memorize This!) • Completion Date: Banks must complete this migration process not later than October 31, 2025.
- Applicability (Who must follow this?) The circular applies to almost the entire banking sector:
- All Commercial Banks (Public, Private, Foreign, SFBs, etc.).
- All Primary (Urban) Co-operative Banks (UCBs).
- All State Co-operative Banks (StCBs) and District Central Co-operative Banks (DCCBs).
Summary Cheat Sheet for Exams Feature Details New Domain Suffix .bank.in Deadline for Migration October 31, 2025 Applicability Entire banking sector
Practice Question Q. As per the recent RBI circular, all commercial and co-operative banks are advised to migrate their existing internet domains to the specific domain suffix "_" by October 31, 2025. A) .bank.org B) .rbi.in C) .bank.in D) .fin.in E) .secure.in Answer: C) .bank.in
Exports through warehouses in 'Bharat Mart' in UAE – relaxations This circular is a major boost for Indian exporters targeting the Middle East and global markets through the new "Bharat Mart" initiative.
- What is "Bharat Mart"? (Static GK) • Concept: It is a multimodal logistics-based marketplace. • Purpose: To give Indian traders, exporters, and manufacturers a direct platform to sell their goods in the UAE and re-export to the rest of the world. • Location: Jebel Ali Free Zone (JAFZA), UAE. • Managed By: DP World.
- The Regulatory Relaxations (The News) To encourage exporters to use this new facility, the RBI has relaxed certain FEMA rules: A. Repatriation Timeline (Exam Fodder) • Normal Rule: Usually, export proceeds must be brought back to India within 9 months from the date of export. • New Relaxation for Bharat Mart: Exporters can realize and repatriate the full export value within 9 Months from the Date of Sale of the goods from the warehouse. o Benefit: Exporters can ship goods to Bharat Mart, store them, and the 9-month clock only starts ticking after they actually sell the goods from there. B. Ease of Operations (No Pre-conditions) Banks (AD Category-I) can now allow the following transactions without strict pre-conditions (just by verifying reasonableness):
- Opening/Hiring Warehouses: Indian exporters can easily hire/open warehouses in Bharat Mart.
- Remittances: Exporters can easily send money from India for Initial Setup expenses and Recurring business expenses for their offices in Bharat Mart.
Summary Cheat Sheet for Exams Feature Details Facility Name Bharat Mart Location JAFZA, UAE Repatriation Deadline 9 Months from Date of Sale (from warehouse) Operational Benefit Easy remittances for warehouse setup/expenses.
Practice Question Q. As per the RBI relaxations for exports through 'Bharat Mart' in the UAE, exporters are permitted to repatriate the full export value within nine months from: A) The date of shipment from India B) The date of arrival in UAE C) The date of sale of goods from the warehouse D) The date of the invoice E) The end of the financial year Answer: C) The date of sale of goods from the warehouse
Master Directions - Compounding of Contraventions under FEMA, 1999 This Master Direction explains how individuals or companies who have accidentally broken FEMA (Foreign Exchange) rules can "settle" the case by paying a fee, instead of facing legal action. This process is called Compounding.
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What is Compounding? • Definition: It is a voluntary process where a person admits to a contravention (violation) of FEMA rules and seeks to settle it by paying a monetary penalty. • The Benefit: Once compounded, no further legal proceedings are initiated for that specific offence. • Authority: The Reserve Bank of India (RBI) has the power to compound contraventions under Section 15 of FEMA, 1999. • Exception: Contraventions under Section 3(a) (Dealing in foreign exchange without authorization / Hawala) cannot be compounded by RBI.
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Penalties & Fines (Crucial for Exams) A. General Penalty under FEMA (Section 13) If a person is found guilty (Adjudicated): • Quantifiable Amount: Penalty up to 300% (3 times) the sum involved. • Not Quantifiable: Penalty up to ₹2 Lakhs. • Continuing Offence: Further penalty up to ₹5,000 per day. B. Application Fee • To apply for compounding, you must pay a fee of ₹10,000 (plus 18% GST). C. Maximum Compounding Amount • The compounding fee decided by RBI cannot exceed 300% of the sum involved in the contravention. • Relief for Small Cases (< ₹1 Lakh): o If the sum involved is less than ₹1 Lakh, the penalty is capped at Simple Interest @ 5% p.a. (for reporting delays) or 10% p.a. (for other violations).
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The Process & Timelines • How to Apply: Physically or online through the PRAVAAH Portal of RBI. • Disposal Time: The RBI must pass the compounding order within 180 days from the receipt of the application. • Payment Time: Once the order is passed, the applicant must pay the compounding amount within 15 days.
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Who is NOT Eligible? (Ineligibility Criteria) You cannot use the compounding facility if:
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Repeat Offence: You committed a similar contravention within the last 3 years. (After 3 years, it is treated as a "first contravention" again).
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Serious Crimes: Cases involving Money Laundering, Terror Financing, or affecting the Sovereignty of India.
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Adjudicated Cases: If an order imposing a penalty has already been passed by an Adjudicating Authority.
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Section 3(a): Unauthorized dealing in forex.
Summary Cheat Sheet for Exams Feature Rule / Limit Section for Compounding Section 15 of FEMA, 1999 Max Penalty (Adjudication) 300% of sum involved Continuing Penalty ₹5,000 per day Application Fee ₹10,000 (+ GST) RBI Decision Time 180 Days Payment Deadline 15 Days from order Repeat Offence Cooling Period 3 Years
Practice Question Q. As per the RBI Master Direction on Compounding of Contraventions under FEMA, 1999, the Reserve Bank must pass a compounding order within how many days from the date of receipt of the completed application? A) 30 days B) 60 days C) 90 days D) 180 days E) 1 year Answer: D) 180 days
Note Sorting Machines: Standards issued by the Bureau of Indian Standards-Revised Timeline for Implementation Based on the RBI circular dated April 24, 2025, here is the summary of the revised instructions regarding Note Sorting Machines (NSM): Revised Timeline for Implementation The Reserve Bank of India (RBI) has extended the deadline for banks to comply with the new standards for Note Sorting Machines. • New Deadline: November 01, 2025. • Previous Deadline: May 01, 2025. • Reason for Extension: This extension was granted after various banks represented to the RBI that they were facing challenges in implementing the new standards within the original timeline.
Key Mandates for Banks Effective from the new deadline (Nov 01, 2025), banks must ensure the following: • Deploy Compliant Machines Only: Banks are prohibited from deploying any Note Sorting Machines that do not meet the specified standards. • BIS Certification: All machines deployed must be duly certified by the Bureau of Indian Standards (BIS). • Specific Standard: The machines must conform to the Indian Standard IS 18663:2024, which covers parameters for sorting, authenticity detection, and fitness sorting. Banks have been advised to endeavor to comply with these instructions at the earliest, even before the final deadline. All other provisions from the original circular (dated October 30, 2024) remain unchanged.
Master Direction on Framework of incentives for Currency Distribution & Exchange Scheme for bank branches including currency chests This scheme encourages banks to help the RBI maintain a Clean Note Policy by offering them financial incentives for handling coins and bad notes.
- The Incentives Structure (Memorize These Rates!) The RBI pays banks specifically for these four activities: Activity Incentive / Service Charge
- Opening Currency Chests (CCs) (In Northeast, J&K, Ladakh, or Inaccessible areas) • Capital Cost: 100% reimbursement (Max ₹50 Lakh). • Revenue Cost: 50% reimbursement for the first 5 years.
- Exchange of Soiled Notes (For notes of ₹50 & below) ₹2 per packet.
- Adjudication of Mutilated Notes ₹2 per piece.
- Distribution of Coins • Standard: ₹65 per bag. • Rural/Semi-urban Bonus: Additional ₹10 per bag (Total ₹75).
- Cash Deposit by Non-Chest Branches (Linkage Scheme) • Large Modern CCs: ₹8 per 100 pieces. • Other CCs: ₹5 per 100 pieces.
Exam Tip: Focus on the Coin Distribution rate (₹65) and the Mutilated Note rate (₹2/piece). These are common objective questions.
What is "Adjudication"? "Adjudication" basically means "Judging" or "Deciding". When you take a badly damaged note to the bank, the teller cannot just exchange it instantly like a normal soiled note. They have to follow a strict technical procedure to decide its value: • They measure the area of the remaining note. • They check if the essential features (like the promise clause, watermark, or serial numbers) are present. • Based on RBI rules (Note Refund Rules), they decide if the customer gets Full Value, Half Value, or Zero Value. This process of examining and deciding the value is called Adjudication.
- Important Conditions • Rural/Semi-urban Coin Bonus: To get the extra ₹10/bag, the bank must submit a Concurrent Auditor (CA) certificate proving the distribution actually happened in those areas. • Soiled Notes: The incentive of ₹2/packet applies only to lower denomination notes (₹50 and below), as these get dirty faster and are harder to sort.
Summary Cheat Sheet for Exams Feature Rate / Limit Coin Distribution Incentive ₹65 / bag Additional Rural Coin Bonus ₹10 / bag Mutilated Note Adjudication ₹2 / piece Soiled Note Exchange ₹2 / packet (≤ ₹50 notes) Max Capital Support for Remote CCs ₹50 Lakh
Practice Question Q. As per the RBI Framework for Currency Distribution & Exchange Scheme (CDES), what is the incentive paid to banks for the distribution of coins in rural and semi-urban areas (inclusive of the additional incentive)? A) ₹25 per bag B) ₹50 per bag C) ₹65 per bag D) ₹75 per bag E) ₹100 per bag Answer: D) ₹75 per bag (₹65 Basic + ₹10 Additional). Dispensation of 100 and 200 denomination banknotes through ATMs This move aims to resolve the common issue of ATMs only dispensing high-value notes (like ₹500), which makes it difficult for customers to get change for smaller transactions.
- The Mandate • Who must follow this? All Banks and White Label ATM Operators (WLAOs). • The Rule: ATMs must dispense ₹100 and ₹200 denomination banknotes on a regular basis. • Operational Requirement: At least one cassette (the tray inside the ATM that holds cash) must be configured to dispense either ₹100 or ₹200 notes.
- The Implementation Deadlines (Milestones) Banks cannot change all ATMs overnight, so the RBI has given a phased timeline: Deadline Target (% of ATMs) September 30, 2025 75% of all ATMs March 31, 2026 90% of all ATMs
Summary Cheat Sheet for Exams Feature Requirement Target Denominations ₹100 and ₹200 Cassette Requirement At least One Cassette per ATM Phase 1 Deadline (75%) Sept 30, 2025 Phase 2 Deadline (90%) March 31, 2026
Practice Question Q. As per the RBI directive on ATM reconfiguration, banks and White Label ATM Operators must ensure that 90% of their ATMs dispense ₹100 or ₹200 banknotes from at least one cassette by: A) March 31, 2025 B) September 30, 2025 C) December 31, 2025 D) March 31, 2026 E) April 01, 2027 Answer: D) March 31, 2026
Processing of Regulatory Authorisations/ Licenses/ Approvals through PRAVAAH
- The Core Mandate (The "Digital Only" Rule) • The Change: Historically, banks and other Regulated Entities (REs) submitted physical or email applications to get licenses or approvals from RBI. • The New Rule: Effective from May 01, 2025, all REs must use the PRAVAAH portal to submit these applications. • Scope: This applies to regulatory authorizations, licenses, and approvals for which forms are available on the portal.
- Static GK: About PRAVAAH (Memorize This!) This is a favorite topic for "Abbreviations" and "Launch Date" questions. • Full Form: Platform for Regulatory Application, Validation, And AutHorization. • Launch Date: May 28, 2024. • Purpose: It is a centralized, secure, and web-based portal to make the application process transparent and paperless. • Who uses it? Not just banks—Individuals, Companies, and all Financial Entities can use it to seek RBI permissions.
Summary Cheat Sheet for Exams Feature Details Portal Name PRAVAAH Full Form Platform for Regulatory Application, Validation, And AutHorization Mandatory Usage Date May 01, 2025 Original Launch Date May 28, 2024 Purpose Seeking Regulatory Approvals / Licenses
Practice Question Q. Effective from May 01, 2025, the RBI has mandated Regulated Entities to submit all applications for regulatory authorizations and licenses through which centralized online platform? A) DAKSH B) CIMS C) PRAVAAH D) e-Kuber E) MANI Answer: C) PRAVAAH
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