CCL Regulatory Update: India Edition - March 2017
India Publications, Written by Meenakshi Iyer
12/04/2017

1.0 RBI REGULATORY UPDATES & DEVELOPMENTS

1.1 NOTIFICATIONS
1.1.1 Notifications to Scheduled Commercial Banks
1.1.2 Notification to AD Banks
1.1.3 Notification to NBFCs
1.1.4 Notification to Authorised Persons

1.2 PRESS RELEASES
1.2.1 RBI Cancels Certificate of Six NBFCs
1.2.2 Thirteen NBFCs Surrender their Certificate of Registration
1.2.3 RBI Signs Memorandum of Understanding (MoU) on “Supervisory Cooperation and Exchange of Supervisory Information” with the Central Bank of Nigeria and Bank of Thailand
1.2.4 RBI Advisory on E-wallets


2.0 SEBI REGULATORY UPDATES & DEVELOPMENTS

2.1 CIRCULARS
2.1.1 Redressal of Complaints against Stock Brokers and Depository Participants through SEBI Complaints Redress System (SCORES)
2.1.2 Schemes of Arrangement by Listed Entities and (ii) Relaxation under Sub-rule (7) of rule 19 of the Securities Contracts (Regulation) Rules, 1957
2.1.3 SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 2011 (‘SAST Regulations’)
2.1.4 Review of Advertisement Guidelines for Mutual Funds
2.1.5 Disclosures relating to regulatory orders and arbitration matters on websites of Clearing Corporations
2.1.6 Submission of Accounts for Debt Securities issued under the SEBI (Issue and Listing of Debt Securities by Municipalities) Regulations, 2015
2.1.7 Schemes of Arrangement by Listed Entities and Relaxation under Sub-rule (7) of Rule 19 of the Securities Contracts (Regulation) Rules, 1957
2.1.8 Exclusively Listed Companies of De-recognized/Non-operational/Exited Stock Exchanges placed on the Dissemination Board
2.1.9 Enhanced Standards for Credit Rating Agencies (CRAs) – Clarifications

1.0 RBI REGULATORY UPDATES & DEVELOPMENTS

1.1 Notifications

1.1.1 Notifications to Scheduled Commercial Banks
• Rationalisation of Merchant Discount Rate (MDR) for Debit Card Transactions – Continuance of Special Measures

RBI had introduced special measures for debit card transactions (including for payments made to Government) for the period 1st January 2017 through 31st March 2017. RBI has advised banks that these special measures will continue till the issuance of final instructions on MDR for debit card transactions.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10901

1.1.2 Notification to AD Banks
• Risk Management and Inter-bank Dealings: Operational flexibility for Indian subsidiaries of Non-resident Companies

With a view to providing operational flexibility to multinational entities and their Indian subsidiaries exposed to currency risk arising out of current account transactions emanating in India, RBI has amended the extant hedging guidelines as per the terms and conditions stated in the Annex I to the circular A.P (Dir Series) Circular No 41 dated 21st March 2017.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10891

1.1.3 Notification to NBFCs
• Infrastructure Financing- Definition of 'Infrastructure Lending'

RBI has advised, from now onwards, for the purpose of definition of ‘Infrastructure Lending’, NBFCs would be guided by the Gazette Notifications issued by the Department of Economic Affairs, Ministry of Finance, Government of India, from time to time.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10871

• Disbursal of loan amount in cash
RBI has advised all NBFCs that henceforth loans against gold, of Rupees Twenty Thousand and above, must be disbursed by cheque as against the earlier limit of Rupees One Lakh and above, in compliance with Section 269SS and 269T of the Income Tax Act, 1961.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10880

1.1.4 Notification to Authorised Persons
• Investment by Foreign Portfolio Investors (FPIs) in Government Securities

The limits for investment by FPIs in Central Government Securities and State Development Loans (SDLs) for the quarter April-June 2017 are proposed to be increased by INR 110 billion and INR 60 billion respectively. The limits for the long term investors remaining unutilized at the end of March 2017 would be released for investment under the general category in April 2017.
All other existing conditions, including the security-wise limits, investment of coupons being permitted outside the limits and investments being restricted to securities with a minimum residual maturity of three years, will continue to apply.
https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10902

1.2 Press Releases

1.2.1 RBI Cancels Certificate of Six NBFCs
RBI has cancelled the certificate of registration of six NBFCs in exercise of the powers conferred on it under Section 45-IA (6) of the Reserve Bank of India Act, 1934. Following the cancellation of registration certificate, these companies cannot transact the business of a Non-Banking Financial Institution, as laid down under clause (a) of Section 45-I of the Reserve Bank of India Act, 1934.

1.2.2 Thirteen NBFCs Surrender their Certificate of Registration
Thirteen NBFCs have surrendered the Certificate of Registration granted to them by RBI. RBI, in turn, has cancelled these Certificates of Registration under the powers conferred on it under Section 45-IA (6) of the Reserve Bank of India Act 1934. These companies cannot transact the business of a Non-Banking Financial Institution, as laid down in clause (a) of Section 45-I of the RBI Act, 1934.

1.2.3 RBI Signs Memorandum of Understanding (MoU) on “Supervisory Cooperation and Exchange of Supervisory Information” with the Central Bank of Nigeria and Bank of Thailand
On 22nd March 2017, RBI signed a Memorandum of Understanding (MoU) on “Supervisory Cooperation and Exchange of Supervisory Information” with the Central Bank of Nigeria and Bank of Thailand. The Reserve Bank has entered into Memorandum of Understanding, Letter for Supervisory Co-operation and Statement of Co-operation with supervisors of a few countries to promote greater co-operation and share supervisory information. With this, RBI has signed 38 such MoUs, one Letter for Supervisory Co-operation and one Statement of Co-operation.

1.2.4 RBI Advisory on E-wallets
On 30th March 2017, RBI has advised the users of Pre-paid Payment Instruments (PPIs), including mobile and electronic wallets, that only non-bank entities authorised by it under the Payment and Settlement Systems Act, 2007 would be permitted to issue PPI wallets for purchase of goods and services from third parties and money transfer within India.
In addition to purchase of goods and services from third parties and money transfer within India, only permitted banks can issue PPI wallets which can also be used for withdrawing cash. An updated list of entities is available on the Reserve Bank’s website (https://rbi.org.in/).


2.0 SEBI REGULATORY UPDATES & DEVELOPMENTS

2.1 Circulars

2.1.1 Redressal of Complaints against Stock Brokers and Depository Participants through SEBI Complaints Redress System (SCORES)
In order to make the complaint redressal mechanism more efficient through SCORES, all stock brokers and depository participants have been directed to redress complaints within a period of 15 days from the date of receipt of the complaint. In case additional information is required from the complainant, the same would be required to be sought within 7 days from the receipt of the complaint. In such cases, the period of 15 days would run from the receipt of additional information.

2.1.2. Schemes of Arrangement by Listed Entities and (ii) Relaxation under Sub-rule (7) of rule 19 of the Securities Contracts (Regulation) Rules, 1957
On 10th March 2017, SEBI has introduced a regulatory framework for schemes of arrangement by listed entities. The highlights of this circular are as below:

  • Documents such as the draft scheme of arrangement, valuation report, report of the audit committee and fairness report by a merchant banker would need to be submitted to the stock exchanges before filing such schemes with the National Company Law Tribunal (NCLT) for sanction.
  • Pre and post amalgamation shareholding pattern of the unlisted entity would need to be submitted along with audited financials of last three years and redressal of complaints report to the exchanges.
  • Stock exchanges would need to forward their objection/no-objection letter on such scheme to SEBI, which can also review the scheme and issue necessary observations, within three working days.
  • Immediately upon filing of the draft scheme of arrangement with stock exchanges, the listed entity will have to disclose such scheme along with all the documents on its website. They will also have to disclose the observation letter of exchanges on their website within twenty four hours of receiving it.
  • Listed entities would have to ensure that the scheme of arrangement, submitted to the NCLT, has included a provision for e-voting by public shareholders after disclosing all material facts in the explanatory statement sent to the shareholders in relation to such resolution.
  • Upon sanction of the scheme by the High Court/ NCLT, the listed entity would have to submit the documents — copy of the High Court/NCLT approved scheme; the result of voting by shareholders for approving the scheme; statement explaining changes, if any, and reasons for such changes carried out in the approved scheme vis-a-vis the draft scheme.

2.1.3 SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 2011 (‘SAST Regulations’)
On 22nd November 2011, SEBI had prescribed the format for submitting the draft letter of offer with SEBI in respect of SAST Regulations, along with certain instructions to be followed by merchant bankers. Since then, Merchant Bankers have been filing the draft letter of offer and certain information about the acquirer, target company, promoter etc. as per the format prescribed by SEBI.
In consultation with market participants, it has been decided to revise the time period for which information is required to be filed with SEBI, in line with the provisions relating to maintenance of records under the Companies Act, 2013. The revised format and instructions have been brought out in the Annexure to the circular issued on 15th March 2017.

2.1.4. Review of Advertisement Guidelines for Mutual Funds
In order to disclose performance related information of Mutual Fund schemes in a more effective and simple manner in advertisements, the following provisions have been introduced.

  • Returns should be advertised in terms of CAGR for the past 1 year, 3 years, 5 years and since inception.
  • Performance advertisement of Mutual Fund schemes should provide information based on period computed from the last day of the month-end preceding the date of advertisement.
  • In order to provide ease of understanding to retail investors, point-to-point returns on a standard investment of INR 10,000 would need to be provided in addition to the CAGR of the scheme.
  • If a Mutual Fund scheme has not been managed by the same fund manager for the full period of the information being published in the advertisement, the same should be disclosed in a footnote.
  • The performance data of all the other schemes managed by the fund manager/s of that particular scheme would need to be disclosed
  • Prior approval of SEBI would be required for issuance of any endorsement which features a celebrity.
  • Mutual funds would need to set aside least 2 basis points on daily net assets for investor education and awareness initiatives.

2.1.5. Disclosures relating to regulatory orders and arbitration matters on websites of Clearing Corporations
With a view to improving transparency in disclosing regulatory orders and arbitration awards issued by clearing corporations, SEBI has stipulated that all regulatory orders, i.e., orders against clearing members and arbitration / appellate awards by arbitrators, need to be made available to investors.

2.1.6. Submission of Accounts for Debt Securities issued under the SEBI (Issue and Listing of Debt Securities by Municipalities) Regulations, 2015
SEBI has stipulated that an issuer making an issue of debt securities under Issue and Listing of Debt Securities by Municipalities Regulations, on a private placement basis, would have to submit its accounts prepared in accordance with National Municipal Accounts Manual or in accordance with similar Municipal Accounts Manual adopted by the respective State Government for at least three immediately preceding financial years. (see circular dated 22nd March 2017)
In order to provide an impetus to the municipal bond market in India, municipalities proposing to issue debt securities on a private placement basis in FY 2017-18 are permitted to submit half yearly financial statements for the preceding year, FY 2016-17, (audited or unaudited) as on September 2016. However, the audited accounts for the said FY 2016-17 would need to be submitted within one year from the end of that FY (i.e. by 31st March 2018) to the recognized stock exchanges, where the debt securities have been listed. Such audited accounts shall be displayed on the website of the recognized stock exchanges and the issuer. The issuers shall also be required to provide, on request, a copy (physical or electronic) of such audited accounts to its investors.

2.1.7 Schemes of Arrangement by Listed Entities and Relaxation under Sub-rule (7) of Rule 19 of the Securities Contracts (Regulation) Rules, 1957
SEBI has implemented stricter norms with respect to deals involving listed and unlisted entities and has brought out more clarity with regard to pricing in such transactions.
SEBI’s Circular of March 23rd 2017 states that the pricing provisions of Chapter VII of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 shall be followed in case of issuance of shares to a select group of shareholders, or shareholders of unlisted companies, pursuant to such schemes. SEBI has now clarified that the ‘relevant date’ for the purpose of computing pricing shall be the date of the Board meeting in which the scheme is approved.

2.1.8 Exclusively Listed Companies of De-recognized/Non-operational/Exited Stock Exchanges placed on the Dissemination Board
Earlier in 2016, SEBI had provided a period of three months to Exclusively Listed Companies (ELCs) on the Dissemination Board (DB) to submit an action plan to list or to provide exit to shareholders to the designated stock exchanges. In January 2017, the time limit was extended till 31st March 2017.
SEBI has decided to extend the time to submit the plan of action till 30th June 2017, in order to protect the interest of the investors of such ELC.

2.1.9 Enhanced Standards for Credit Rating Agencies (CRAs) – Clarifications
SEBI issued a circular in November 2016 introducing measures for enhancing standards for credit rating agencies. Based on representations received from the industry, certain amendments have been made to the same, as given below.
• Considering the nature of instruments, following details would not be required to be provided under the head “Details of Instruments” of Annexure A2
a. Interest rate/ coupon rate for all types of bank loan facilities.
b. Maturity details for working capital facilities (including cash credit facilities).
c. Tranche-wise interest rate and maturity details for money market instruments such as Commercial Papers, Certificate of Deposit and short-term NCDs which are reissued frequently.
• Rating outlooks may not be assigned for short term ratings, ratings in the C and D categories and ratings on watch and credit quality ratings of mutual fund schemes, provided surveillance of the funds’ holdings is carried out by the CRAs on a monthly basis.
• Withdrawal of rating of is permitted in case of open ended mutual fund schemes, as they are perpetual in nature and have no specified maturity. Withdrawal of ratings is also permitted in respect of bank loans.

Meenakshi Iyer

Director, Consultancy
Mumbai