RBI Regulatory Updates & Developments
Notifications
  • Review of Margin Requirement Under the Liquidity Adjustment Facility and Marginal Standing Facility

RBI has decided to assign margin requirement on the basis of residual maturity of the collateral, i.e., the Treasury Bills, Central Government dated securities (including Oil Bonds) and State Development Loans (SDLs). Further, it has also been decided that the margin requirement for rated SDLs shall be 1% lower than that of unrated SDLs for the same maturity bucket. The revised margin requirements for Central Government Securities and SDLs being offered as collateral would be as given in the circular.

The revised margin requirements would come into force with effect from 1st August 2018.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11291 

  • Liquidity Adjustment Facility – Repo and Reverse Repo Rates

The Monetary Policy Committee (MPC) has decided to increase the policy Repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 6.0% to 6.25% with effect from 6th June 2018. Consequent to the change in the Repo rate, the Reverse Repo rate under the LAF stands adjusted to 6.00% with effect from 6th June 2018.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11286 

  • Marginal Standing Facility

The MPC has decided to increase the policy Repo rate under the LAF by 25 basis points from 6.0% to 6.25% with effect from 6th June 2018. Consequent to the change in the Repo rate, the Marginal Standing Facility (MSF) rate stands adjusted to 6.50% with effect from 6th June 2018.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11287 

  • Banking Regulation Act, 1949 – Section 26A Depositor Education and Awareness Fund Scheme, 2014 – Operational Guidelines - Payment of Interest

RBI had specified that the rate of interest payable by banks to the depositors/claimants on the unclaimed interest bearing deposit amount transferred to the Depositor Education and Awareness (DEA) Fund shall be 4% simple interest per annum until further notice.

The rate of interest has since been reviewed and it has been decided that the rate of interest payable by banks to the depositors/claimants on the unclaimed interest bearing deposit amount transferred to the Fund shall be 3.5% simple interest per annum with effect from 1st July 2018. The settlement of all claims received by the banks on or after 1st July 2018 will be at this rate, until further notice.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11294 

  • Basel III Framework on Liquidity Standards - (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards

Presently, the assets allowed as the Level 1 High Quality Liquid Assets (HQLAs) for the purpose of computing the Liquidity Coverage Ratio (LCR) of banks include:

Government securities in excess of the minimum Statutory Liquidity Ratio (SLR) requirement within the mandatory SLR requirement:

    • Government securities to the extent allowed by RBI under Marginal Standing Facility (MSF) [presently 2% of the bank's Net Demand and Time Liabilities (NDTL)]
    • under Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) [presently 9% of the bank's NDTL].

RBI has decided to permit banks, with effect from 15th June 2018, to reckon government securities held by them up to another 2% of their NDTL, under FALLCR within the mandatory SLR requirement, as Level 1 HQLA for the purpose of computing their LCR. Hence, the carve-out from SLR, under FALLCR will now be 11%, taking the total carve out from SLR available to banks to 13% of their NDTL.

For the purpose of LCR, banks shall continue to value such government securities reckoned as HQLA at an amount not greater than their current market value (irrespective of the category under which the security is held, i.e., Held To Maturity (HTM), Available For Sale (AFS) or Held For Trading (HFT).

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11305

  • Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks – Spreading of MTM Losses and Creation of IFR

In view of the continuing rise in the yields on Government Securities in addition to the inadequacy of time to build Investment Fluctuation Reserve (IFR) for many banks, RBI has decided to grant banks the option to spread provisioning for their Mark To Market (MTM) losses on all investments held in AFS and HFT for the quarter ending 30th June 2018 as well. The provisioning required may be spread equally over up to four quarters, commencing with the quarter ending 30th June 2018.

Banks that utilise the above option shall make suitable disclosures in their notes to accounts/ quarterly results providing details of:

  • the provisions made for depreciation of the investment portfolio for the quarter ending June 2018
  • the balance required to be made in the remaining quarters.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11304 

  • Priority Sector Lending – Targets and Classification

RBI has revised the housing loan limits for eligibility under priority sector lending to INR 35 lakh in metropolitan centres (with population of ten lakh and above), and INR 25 lakh in other centres, provided the overall cost of the dwelling unit in the metropolitan centre and at other centres does not exceed INR 45 lakh and INR 30 lakh, respectively.

Furthermore, the existing family income limit of INR 2 lakh per annum, for loans to housing projects exclusively for the purpose of construction of houses for Economically Weaker Sections (EWS) and Low Income Groups (LIG), is revised to INR 3 lakh per annum for EWS and INR 6 lakh per annum for LIG, in alignment with the income criteria specified under the Pradhan Mantri Awas Yojana.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11308 

  • Control Measures for ATMs – Timeline for Compliance

RBI has advised banks to initiate immediate action in respect of control measures for ATMs and to implement the measures as per the prescribed timelines indicated in its circular of 21st June 2018.

Banks have been advised to submit a copy of said circular to their Board of Directors, along with the proposed action plan for the implementation of these measures, and to then send a copy of the Board-approved compliance action plan to RBI latest by 31st July 2018. Banks need to closely monitor the progress made in implementation of these measures to ensure meeting the prescribed timelines.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11311

  • ECBs – Monthly Reporting through ECB 2 Return

RBI has decided to acquire the details of the hedges for External Commercial Borrowings (ECBs) through a simplified format of ECB 2 Return.

Revised monthly reporting format of ECB 2 Return would be applicable from month-end June 2018. Any lapse at the time of reporting through this return and / or failure to adhere to the time line of its submission and / or any lapse at the time of reporting through Form 83 would be treated as a contravention of the provision of Foreign Exchange Management Act, 1999 (42 of 1999).

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11296 

  • LRS – Harmonisation of Data and Definitions

RBI has decided that furnishing of Permanent Account Number (PAN), while putting through permissible current account transactions of up to USD 25,000, shall now be mandatory for all remittances under the Liberalised Remittance Scheme (LRS).

Further, in the context of remittances allowed under LRS for maintenance of close relatives the definition of ‘relative’ will now be aligned with the definition given in Companies Act, 2013 instead of Companies Act, 1956.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11309

  • Change in Bank Rate

As announced in the Second Bi-Monthly Monetary Policy Statement 2018-19 dated 6th June 2018, the Bank Rate stands adjusted by 25 basis points from 6.25% to 6.50% with effect from 6th June 2018.

All penal interest rates on shortfall in reserve requirements, which are specifically linked to the Bank Rate, also stand revised as indicated in the Annex.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11288

  • Encouraging Formalisation of MSME Sector

RBI has decided to temporarily allow banks and NBFCs to classify their exposure, as per the 180 days past due criterion, to all Micro, Small & Medium Enterprises (MSMEs), including those not registered under Goods and Service Tax (GST), as a ‘standard’ asset, as long as:

  • the aggregate exposure - including non-fund based facilities - of banks and NBFCs to the borrower does not exceed INR 250 million as on 31st May 2018.
  • the borrower’s account was standard as on 31st August 2017.
  • the payments due from the borrower as on 1st September 2017 and falling due thereafter up to 31st December 2018 are paid not later than 180 days from their original due date.
  • In respect of dues payable by GST-registered MSMEs from 1st January 2019 onwards, the 180 days past due criterion shall be aligned to the extant Income Recognition and Asset Classification (IRAC) norms in a phased manner, as given in the Annex. However, for MSMEs that are not registered under GST as on 31st December 2018, the asset classification in respect of dues payable from 1st January 2019 onwards shall immediately revert to the extant IRAC norms.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11289

  • Investment in the Units of an InvIT by Sponsor CIC-NDSI

In order to enable Systemically Important Core Investment Companies (CIC-NDSI) to act as a sponsor of Infrastructure Investment Trust (InvITs), RBI has decided to permit CIC-NDSIs to hold InvIT units only as a sponsor. Exposure of such CICs towards InvITs shall be limited to their holdings as sponsors and shall not, at any point in time, exceed the minimum holding of units and tenor prescribed in this regard by SEBI (Infrastructure Investment Trusts) Regulations, 2014.

The above holdings of InvIT units shall be reckoned as investments in equity shares in group companies, for the purpose of compliance with the norms prescribed at paragraphs 2(1) (i) & (ii) of the Master Direction - Core Investment Companies (Reserve Bank) Directions, 2016 as updated from time to time.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11292

  • Interest Rate Options in India

RBI has decided to permit Interest Rate Swaptions in Rupees so as to enable better timing flexibility for the market participants seeking to hedge their interest rate risk.

Accordingly RBI has issued a Notification No.FMRD.DIRD.8/2018 dated 14th June 2018 enabling the introduction of swaptions. A copy of the Interest Rate Options (Reserve Bank) Directions, 2018 is enclosed to the circular. This will supersede the Interest Rate Options (Reserve Bank) Directions, 2016 dated 28th December 2016.

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11302

  • Investment by FPI in Debt - Review

RBI has decided to provide some operational flexibility as well as a transition path for Foreign Portfolio Investment (FPIs) and custodians to adapt to the regulations.   See Para 2.1.4 of the SEBI Regulatory Update for further details:

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11303

Press Releases

Eleven NBFCs have surrendered the Certificates of Registration granted to them by RBI, which has consequently cancelled them.  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.

Following RBI’s cancellation of registration certificates of seventeen NBFCs, these companies cannot now undertake 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.

SEBI Regulatory Updates & Developments
Circulars

SEBI has put in place a detailed guideline for preferential issue by InvITs through its circular (see circular dated 5th June 2018). The guideline’s highlights are:

  • Preferential issues need to be completed within 12 months from the date of passing of the resolution by InvIT's unit holders.
  • The gap between two preferential issues of units by InvITs should be six months and allotment needs to be completed within 12 days.
  • The units to be issued in a preferential issue would be of the same class or kind as the units issued in the initial offer by the InvIT.
  • Further, such units should be listed on a recognised stock exchange, having nationwide trading terminals for a period of at least six months prior to the date of issuance of notice to its unit holders for convening the meeting to approve the preferential issue.
  • The units in a preferential issue would be offered and allotted to a minimum of two investors and a maximum of 1,000 investors in a financial year.
  • The InvIT will have to appoint one or more registered intermediaries to carry out the obligations relating to the issue.
  • The investment trust will have to file a placement document with stock exchanges disclosing financial details of InvITs, objects of the issue, related party transactions, valuation report of the asset to be financed through the proceeds of the issue, unit holding pattern, review of credit rating, and grievance redressal mechanism.
  • The preferential issue would need to be made at a price not less than the average of the weekly high and low of the closing prices of the units quoted on the stock exchange during the two weeks preceding the relevant date.
  • Allotment would not be made, either directly or indirectly, to any party to the InvIT or their related parties except to the sponsor.
  • The units allotted under preferential issue would not be permitted to be sold by the allottee for a period of one year, except on a recognised stock exchange.

In order to bring cost effectiveness in disclosing and providing information to unitholders and as a green initiative measure, SEBI has directed Mutual Funds, Asset Management Companies (AMCs), Trustee Companies and Boards of Trustees of Mutual Funds to adhere to the following through its circular (see circular dated 5th June 2018):

  • Disclosure of Net Asset Value (NAV) and sale / repurchase prices:
    • AMCs need to prominently disclose the net asset value (NAVs) of all schemes under a separate header on both their respective website and on the website of the Association of Mutual Funds in India (AMFI).  Further, fund houses have been asked to extend the facility of sending the latest available NAVs to unitholders through SMS, upon receiving a specific request in this regard.
    • Mutual Funds/ AMCs would explain the methodology with the help of a simple numerical example at all relevant places, such as on their respective website, AMFI website and Scheme Information Documents, etc.
  • Providing Annual Report or Abridged Summary:
    • The scheme-wise annual report shall be hosted on the website of the mutual funds/AMCs and on the website of AMFI. 
    • Mutual funds/AMCs shall display the link prominently on their websites and make the physical copies available to the unitholders at their registered offices at all times.
    • Unitholders who have registered their email addresses with the Mutual Funds and/or AMCs will receive the scheme’s annual reports or abridged   summary   thereof by email.
    • An advertisement may be published in all India edition two daily newspapers, in English and Hindi every year by Mutual Funds/ AMCs, disclosing the hosting of the scheme wise annual report on their respective website and on the website of AMFI.
  • Portfolio Disclosures:
    • Mutual Funds will have to disclose the portfolio (along with International Securities Identification Number (ISIN)) as on the last day of the month or half-year for all their schemes on their respective websites and on the website of AMFI within 10 days from the close of each month or half-year respectively in a user-friendly manner.

Pursuant to amendment of the Mutual Fund Regulations, SEBI has advised Mutual Funds, AMCs, Trustee Companies, Boards of Trustees of Mutual Funds to implement and comply with the revised provisions, which are as below:

  • Charging of additional expenses: Additional expenses, incurred towards different heads should not exceed 0.05% of daily net assets of the scheme or as specified by SEBI.
  • Total Expense Ratio (TER) – Change and Disclosure:
    • AMCs have been directed to prominently disclose on a daily basis, the TER (scheme-wise, date-wise) of all schemes under a separate head – Total Expense Ratio of Mutual Fund Schemes on their website and on the website of AMFI in downloadable spreadsheet format.
    • Also, it been clarified that any change in the base Total Expense Ratio (TER) (excluding additional expenses) and GST on investment and advisory fees in comparison to previous base TER charged to any scheme will have to be communicated to investors through notice via email or SMS at least three working days prior to effecting such change.
    • The notice of change in base TER would be updated in the aforesaid section of website at least three working days prior to effecting such change.
    • Any decrease in TER in a mutual fund scheme, due to various regulatory requirements, would not require issuance of any prior notice to the investors.

During 2015, SEBI stipulated the minimum residual maturity restriction of three years for investment by Foreign Portfolio Investor (FPI) in Government Securities (G-secs), State Development Loans (SDLs) and Corporate Debts.

Subsequent to the issue of RBI circular in this regard, SEBI advised carrying out the required changes to be done to the operational aspects of investments by FPIs made in debt, as below:

  • The minimum residual maturity restriction of three years for investment by FPIs in G-Secs and SDLs has been withdrawn. Further, the auction process being carried out by BSE and NSE has been discontinued from 15th June 2018.
  • The overall monitoring of G-Secs and SDLs would be done by the Clearing Corporation of India Ltd (CCIL).
  • Any circular previously issued by SEBI for monitoring of G-Secs and SDLs stands withdrawn and hence, would not be applicable to FPIs for investments in G-Secs and SDLs from 1st June 2018.
  • The requirements of FPIs investments in corporate debt have been revised:
    • FPIs would be permitted to invest in corporate debt securities with a minimum residual maturity of above one year, provided that short-term investments shall not exceed 20% of total investment by an FPI in of that FPI in corporate bonds.
    • The investments in corporate debt would also be subject to concentration limit, which would be 15% of the prevailing investment limit for long-term FPIs and 10% for other class of FPIs.
    • Investment by any FPI, including investments by investor groups, should not exceed 50% of any issue of a corporate bond. In case an FPI, including investments by investor groups, has invested in more than 50% of any single issue, then it shall not make further investments in that issue until this stipulation is met.
    • No FPI would have an exposure of over 20% of its corporate bond portfolio to a single corporate. This stipulation would not be applicable to investments by FPIs which are multilateral financial institutions in which GoI is a member and investment by FPIs in security receipts issued by Asset Reconstruction Companies (ARCs)
  • FPIs would not be permitted to invest in partly paid debt instruments.
  • The primary responsibility of complying with monitoring the corporate debt investment limits is with the FPIs on whose behalf depositories would monitor the investment limits. 
  • Depositories would be required to identify the FPIs that are breaching the limits and inform the same to their respective custodians.  For the monitoring of G-Secs and SDLs utilisation limits by CCIL, depositories would share the investor group data with the RBI and CCIL on a monthly basis.
Regulations

SEBI has introduced certain amendments to its regulations on Mutual Funds, as below: 

  • With regard to Computation of Net Asset Value, the Net Asset Value of the scheme would be calculated on a daily basis and disclosed in the manner specified by SEBI.
  • The price at which the units may be subscribed or sold and the price at which such units may at any time be repurchased by the mutual fund shall be made available to the investors in the manner specified by SEBI and such mutual funds shall provide the methodology of calculating the sale and repurchase price of units in the manner specified by SEBI.
  • As per the amendment, additional expenses incurred towards different heads should not exceed 0.05 per cent of daily net assets of the scheme or as specified by SEBI and such additional expenses shall not be charged to the schemes where the exit load is not levied or applicable.
  • The scheme wise Annual Report of a mutual fund or an abridged summary thereof shall be provided to all unit holders as soon as possible but not later than four months from the date of closure of the relevant accounts year in the manner specified by SEBI.
  • The Annual Report and abridged summary thereof should include details that are necessary for the purpose of providing a true and fair view of the operations of the mutual fund and should be in the format prescribed by SEBI in this regard.
  • A complete statement of the Mutual Fund’s scheme portfolio should be sent to all unit holders before the expiry of ten days from close of each half year (i.e., 31st March and 30th September), in the manner specified by SEBI.

SEBI amended its regulations on Bankers to an Issue, wherein provisions with respect to maintenance of books of accounts, records and the documents have been modified. The minimum period for which a Banker to an issue is required to preserve records and documents has been extended from three years to eight years.

SEBI has introduced certain amendments to its Registrars to an Issue and Share Transfer Agents Regulations, 1993. In terms of the amendments, the minimum period for which every Registrar to an Issue and Share Transfer Agent, being a body corporate, would have to keep and maintain books of accounts and documents has been extended from three years to eight years.

SEBI has notified amendments to its Credit Rating Agencies (CRA) Regulations, 1999. The key amendments are as below:

  • In addition to the other eligible entities as per the regulations, a foreign credit agency incorporated in a Financial Action Task Force (FATF) member jurisdiction and recognised under their law, having a minimum of five years’ experience in rating securities, would be eligible to apply for a CRA registration.
  • The minimum net worth requirement has been revised from Rupees five crore to Rupees twenty five crore. CRAs, who are already registered with SEBI, with a net worth of less than Rupees twenty five crore, have been instructed to increase their net worth to the specified amount within a period of three years from 30th May 2018.
  • The promoter of the CRA should have a minimum shareholding of 26% in the CRA.
  • The promoter of the CRA would have to maintain the minimum shareholding of 26% in the CRA for a minimum period of three years from the date of grant of registration by SEBI. However, this condition is not applicable to those CRAs which are already registered with SEBI at the commencement of the SEBI (CRA) (Amendment) Regulations, 2018.
  • CRAs have been restricted from carrying out any activity other than the rating of securities offered by way of public or rights issue. If a credit rating agency is carrying out activities other than the activity required by a financial sector regulator, such activity would be segregated to a separate entity within a period of two years from 30th May 2018.
  • During the lifetime of securities rated, every CRA shall continuously monitor the rating of such securities, unless the rating is withdrawn.  A CRA shall not withdraw a rating so long as the obligations under the rated security are outstanding, except where the Company whose security is rated is wound up, merged, or amalgamated with another company or as may be specified by SEBI from time to time.
  • CRAs would carry out the review on the basis of the best available information or in the manner as specified by SEBI from time to time in case the client does not co-operate with the CRA to comply with its obligations. However if, owing to such lack of co-operation, a rating has been based on the best available information, the CRA would disclose to the investors the fact that the rating is so based.
  • A CRA should not directly or indirectly, hold 10% or more shareholding and/ or voting rights in any other CRA, or have representation on the Board of any other CRA.
  • With the prior approval of SEBI, a CRA can acquire shares and/ or voting rights exceeding 10% in any other CRA only if such acquisition results in change in control in the CRA whose shares are being acquired.
  • A shareholder holding 10% or more shares or voting rights in a CRA shall not hold 10% or more shares or voting rights, directly or indirectly, in any other CRA. This restriction would not apply to holdings by Pension Funds, Insurance Schemes and Mutual Fund Schemes.

In order to smooth and streamline the Insolvency process, SEBI has amended various regulations pursuant to the introduction of the Insolvency and Bankruptcy Code, 2016 (IBC) Key amendments are as below:  

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015:

  • The provisions with respect to Board of Directors, audit committee, nomination and remuneration committee, stakeholders’ relationship committee and risk management committee would not be applicable during the insolvency resolution process period in respect of a listed entity which is undergoing corporate insolvency resolution process under the IBC 2016.
  • In accordance with the IBC, the role and responsibilities of the board of directors would be fulfilled by the interim resolution professional or resolution professional.
  • Material related party transactions:
    • Material related party transactions require the approval of shareholders. A proviso has been added to the effect that the approval of shareholders shall not be required for listed companies whose resolution plan has been approved under the IBC, subject to disclosure to recognised stock exchange.
  • Disposal of shares of a material subsidiary:
    • The following transactions require approval of shareholders through special resolution at a general meeting, unless such transactions are done under a Scheme of Arrangement duly approved by the court or Tribunal:
      • Disposal of shares in a material subsidiary resulting in reduction of the listed company’s shareholding (either on its own or together with other subsidiaries) to less than 50% or cessation of the exercise of control over the subsidiary;
      • Selling, disposing and leasing of assets amounting to more than 20% of the assets of the material subsidiary on an aggregate basis during a financial year.

If the aforesaid transactions are done under a resolution plan under the IBC and such an event is disclosed to the recognised stock exchange within one day of the resolution plan being approved, the approval of shareholders would not be required.

  • Reclassification of Promoters:
    • Previously, reclassification was allowed subject to fulfilment of certain conditions, such as a new promoter replacing the previous promoter, an entity becoming professionally managed and not having any identifiable promoter, and reclassification of promoters as public shareholders. In terms of the amendment, if reclassification is done as per the resolution plan approved under the IBC, compliance with the specified conditions is not required if such promoter and promoter group do not remain in control of the listed entity and such reclassification along with the underlying rationale is disclosed to the stock exchanges within one day of the resolution plan being approved.
  • Scheme of Arrangement:
    • Every listed entity desirous of undertaking a scheme of arrangement or involved in a scheme of arrangement is required to obtain an observation letter or no-objection letter from SEBI and stock exchanges. A sub-regulation has been inserted to the effect that a listed entity under the IBC is not required to obtain prior approval of SEBI and stock exchanges.
  • Corporate Insolvency Resolution Process (CIRP)
    • Part A to Schedule III of the SEBI (Listing Obligations and Disclosure Requirements) Regulations provides for events that are required to be disclosed. SEBI has listed out the disclosures to be made in relation to CIRP in the said Schedule.

SEBI (Substantial Acquisition of Shares and Takeovers) (SAST) (Amendment) Regulations, 2018:

Regulation 3 of the SEBI (SAST) Regulations does not permit acquisitions that would breach the maximum permissible non-public shareholding of 75%. An amendment has been introduced, which enables the successful acquirer under the IBC to hold more than 75% in a listed entity.

SEBI (ICDR) (Second Amendment) Regulations, 2018:

SEBI has notified an amendment to its Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2009. As per the amendment, the provisions relating to Preferential Issue, except the lock-in provisions, would not be applicable in cases where the preferential issue of specified securities is made in terms of the rehabilitation scheme approved by the Board of Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985 or the resolution plan approved under IBC, 2016.

SEBI (Delisting of Equity Shares) (Amendment) Regulations, 2018:

SEBI has amended its regulations on Delisting of Equity Shares. The amended regulation exempts listed entities, whose resolution plan has been approved under the IBC, from complying with procedures as prescribed in the regulations, if the resolution plan:

  • lays down any specific procedure to complete the delisting of such shares
  • provides an exit option to existing public shareholders at a price specified therein.

It further provides that exit to shareholders of such listed entities would be at a price not less than the liquidation value, as determined under the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, after paying off dues in the order of priority, as defined under the IBC.

An application for listing of delisted equity shares can be made in respect of a company which has undergone corporate insolvency resolution process under the IBC 2016.

SEBI has modified its Alternative Investment Funds (AIFs) Regulations, 2012. The significant aspects of the modified regulations are as below:

  • Family trusts set up for the benefit of relatives as defined under Companies Act, 2013, ESOP Trusts set up under SEBI (Share Based Employee Benefits) Regulations, 2014 or as permitted under Companies Act, 2013 and holding companies as defined under the Companies Act, 2019 would not be considered as AIFs.
  • An angel fund shall have a corpus of at least five crore rupees and would accept, up to a maximum period of five years, an investment of not less than twenty five lakh rupees from an angel investor.
  • As per the regulation, social ventures would also include companies with charitable objects as specified under Companies Act, 2013.
  • No scheme of the AIF would have more than one thousand investors if the AIF is formed as a company.
  • An angel fund formed as a company can raise funds through private placement by issue of information memorandum or placement memorandum. Provisions of the Companies Act, 2013 would apply to the Angel Fund.
  • The angel fund may launch schemes subject to filing of a term sheet with SEBI, containing material information regarding the scheme, in the format and time period as may be specified by SEBI.
  • No scheme of the angel fund shall have more than two hundred angel investors if it is formed as a company.
  • Investment by an angel fund in any venture capital undertaking shall not be less than twenty five lakh rupees and shall not exceed ten crores rupees.
  • If an angel fund is set up as a company then it would be wound up in accordance with the provisions of the Companies Act, 2013.
Press Release

SEBI held its board meeting in Mumbai on 21st June 2018. The key highlights of the Board Meeting are as below:

  • Review of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011:  SEBI Board has approved certain amendments to the aforesaid regulations. The Board has decided to grant additional time for upward revision of open offer price till one working day before the commencement of the tendering period. The amendments are mainly aimed at simplifying the language, removing redundant provisions and inconsistencies and updating the references to the Companies Act, 2013 and other new SEBI Regulations.
  • Replacing SEBI (Buy-back of Securities) Regulations, 1998: SEBI Board has approved a new set of SEBI (Buy-back of Securities) Regulations, 2018 in place of the extant Buyback Regulations, 1998.

Under the new Regulations, the buy-back period has been defined as the period between board of directors’ resolution / date of declaration of results for special resolution  authorising  the  buyback  of  shares  and  the  date  on  which  payment consideration is made to the shareholders. The review was carried out with an objective of simplifying the language, removing redundant provisions and inconsistencies and updating the references to the Companies Act, 2013 and other new SEBI Regulations.

  • Review of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009: SEBI Board has approved the proposed amendments to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, after considering the recommendations of the Primary Market Advisory Committee (PMAC) and the public comments on the Consultation Paper. Some of the key proposals approved by the Board are:
    • The requirement of announcing the price band five working days before opening of the issue would be reduced to two working days before opening of the issue.
    • Financial disclosures to be made for 3 years rather than the present duration of 5 years.
    • Restated and audited financial disclosures in the offer document to be made on a consolidated basis only.
    • Incorporation   of   the   principles   governing   disclosures   of   Indian Accounting Standards (IndAS) on Indian GAAP (IGAAP) Financials.
    • Threshold for submission of draft letter of offer to SEBI in case of rights’ issues to be increased to INR 10 Crores as against the earlier prescribed INR. 50 Lakhs.
    • Shortfall of up to 10% in minimum promoters’ contribution permitted to be met by institutional   investors   such   as   by   foreign   venture   capital   investors, scheduled commercial banks, etc.
  • Decision on review of regulation and relevant circulars pertaining to Stock Exchanges, Clearing Corporations and Depositories (‘Market Infrastructure Institutions’): SEBI has approved the proposal for review of regulations and relevant circulars pertaining to MIIs (Market Infrastructure Institutions) and the proposals thereon based on the recommendations of the Gandhi Committee constituted by SEBI. Some of the key proposals are:
    • The shareholding limits, which can be held by both eligible domestic and foreign entities, in a n MII have been harmonised across MIIs.
    • Special role has been assigned to the Public Interest Directors (PIDs) and Managing Director (MD) in the governance of an MII. Norms relating to their tenure and directorships at MIIs have been modified.
    • The composition of the Governing Board and regulatory committees of MIIs has been modified with an aim to balance between the number of PIDs, who serve the interest of public at large and the number of shareholder directors.
  • Role of Sub-broker vis-a-vis Authorised Person: SEBI Board has considered and approved the proposal to discontinue the category of Sub-Brokers as Market Intermediaries. No new registration would be granted as Sub-Brokers. 

Registered Sub-Brokers would have to migrate to Authorised Persons or Trading Members as the case  may  be  and Sub-Brokers,  who  do  not  choose  to migrate,  shall  be  deemed  to  have  surrendered  their  registration  as  Sub-Broker. Suitable time shall be permitted to facilitate this transition.

  • Establishment of National Centre for Financial Education (NCFE) as Section 8 Company - subscription to its Share Capital: SEBI Board has approved the establishment of a National Centre for Financial Education (NCFE) as a Company with Charitable object as per Section 8 of the Companies  Act,  2013  limited  by shares.
India Market Updates

On 19th June 2018, RBI imposed a monetary penalty of INR 60 million on Tamilnad Mercantile Bank Limited. This penalty has been imposed as the bank contravened the provisions of RBI Master Directions on Issue and Pricing of Shares dated 21st April 2016 while issuing bonus shares to certain non-resident entities.

RBI, in an announcement, said it would punish statutory auditors for lapses in conducting banks’ statutory audits and may even bar them from taking fresh audit assignments depending on the magnitude of the failings. The level of punishment will depend on the degree of divergence from the prescribed norms and the auditors would be provided sufficient hearing before action is taken.

RBI conveyed that it will introduce a graded enforcement framework of appropriate action for lapses by auditors. Further, RBI may also not approve auditors, who have been debarred by other regulators.

RBI has asked Airtel’s Payments Bank to stop registrations of new customers, after an investigation into the company’s affairs has been initiated with regard to signing up subscribers without their consent. RBI has observed that the Bank has contravened the operating guidelines for payments banks and directions issued by RBI on Know Your Customer (KYC) norms. Besides imposing a fine on the Bank, RBI has barred Airtel Payments Bank from using e-KYC (e-verification) by Aadhaar body UIDAI for surreptitiously on-boarding customers to its bank, whilst carrying out Aadhaar verification.

SEBI plans to put in place revised norms for recovering investors' money in cases of illegal collective investment schemes, wherein a registered insolvency professional will be appointed as administrator to undertake sale of assets. In case an entity is not traceable or is not complying with SEBI directions, the recovery officer can appoint an administrator for the purpose of selling the properties attached.

Only an entity registered with the Insolvency and Bankruptcy Board of India (IBBI) as an insolvency resolution professional would be considered eligible for appointment as an administrator.

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