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Debentures/Bonds by Indian Infrastructure companies to Non Resident Entities following ECB (structured obligations/novated loans)
Posted: 06 Apr 2010 09:44 AM PDT
External Commercial Borrowings (ECB) Policy – Structured Obligations
Borrowing and lending of Indian Rupees between two persons resident in India does not attract the provisions of the Foreign Exchange Management Act, 1999. In case where a Rupee loan is granted against the guarantee provided by a person resident outside India, there is no transaction involving foreign exchange until the guarantee is invoked and the non-resident guarantor is required to meet the liability under the guarantee. The Reserve Bank vide Notification No. FEMA 29/2000-RB dated September 26, 2000 has granted general permission to a person resident in India, being a principal debtor, to make payment to a person resident outside India, who has met the liability under a guarantee.
As per the extant policy, domestic Rupee denominated structured obligations have been permitted to be credit enhanced by non-resident entities under the approval route. In view of the growing needs of funds in the infrastructure sector, the existing norms have been reviewed and it has been decided to put in place a comprehensive policy framework on credit enhancement to domestic debt as indicated below.
It has since been decided that the facility of credit enhancement by eligible non-resident entities may be extended to domestic debt raised through issue of capital market instruments, such as debentures and bonds, by Indian companies engaged exclusively in the development of infrastructure and by the Infrastructure Finance Companies (IFCs), which have been classified as such by the Reserve Bank in terms of the guidelines contained in the circular DNBS.PD. CC No. 168 / 03.02.089 / 2009-10 dated February 12, 2010, subject to the following conditions:
i) credit enhancement will be permitted to be provided by multilateral / regional financial institutions and Government owned development financial institutions; ii) the underlying debt instrument should have a minimum average maturity of 7 years;
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prepayment and call / put options would not be permissible for such capital market instruments up to an average maturity period of 7 years; iv) guarantee fee and other costs in connection with credit enhancement will be restricted to a maximum 2% of the principal amount involved;
v) on invocation of the credit enhancement, if the guarantor meets the liability and if the same is permissible to be repaid in foreign currency to the eligible non-resident entity, the all-in-cost ceilings, as applicable to the relevant maturity period of the Trade Credit / ECBs, would apply to the novated loan. Presently, the all-in-cost ceilings, depending on the average maturity period, are applicable as follows:  vi) In case of default and if the loan is serviced in Indian Rupees, the applicable rate of interest would be the coupon of the bonds or 250 bps over the prevailing secondary market yield of 5 years Government of India security, as on the date of novation, whichever is higher;
vii) IFCs proposing to avail of the credit enhancement facility should comply with the eligibility criteria and prudential norms laid down in the circular DNBS.PD.CC No.168 / 03.02.089 / 2009-10 dated February 12, 2010 and in case the novated loan is designated in foreign currency, the IFC should hedge the entire foreign currency exposure; and
viii) The reporting arrangements as applicable to the ECBs would be applicable to the novated loans. 
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Download RBI Notification & Guidelines on Stripping/Reconstitution of Government Securities, a good read
Posted: 06 Apr 2010 09:21 AM PDT
RBI Guidelines on Stripping/Reconstitution of Government Securities
Please refer to paragraph No.101 of the Annual Policy Statement for the year 2009-10. As indicated therein, it has been decided to introduce Separate Trading of Registered Interest and Principal of Securities (STRIPS) in Government Securities as part of the efforts to develop the Government Securities market.
STRIPS in Government Securities will ensure availability of sovereign zero coupon bonds, which will lead to the development of a market determined zero coupon yield curve (ZCYC).
STRIPS will also provide institutional investors with an additional instrument for their assetliability management. Further, as STRIPS have zero reinvestment risk (discounted instruments with no periodic interest payment thereby obviating the need for reinvestment of intermediate cash flows arising out of the investment), they can be attractive to retail/non-institutional investors.
The terms and conditions governing the stripping/reconstitution of Government of India securities are set out in the RBI Notification IDMD.1762/2009-10 dated October 16, 2009.
Detailed guidelines outlining the process of stripping/reconstitution and other operational procedures regarding transactions in STRIPS are enclosed and shall come into effect from April 01, 2010.
Download RBI Notification & Guidelines on Stripping/Reconstitution of Government Securities
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Date of deposit of cheque & opening PPF account by Minor, RBI clarification
Posted: 06 Apr 2010 09:15 AM PDT
Public Provident Fund Scheme, 1968:
1) Clarification regarding reckoning of the date of deposit
2) Reiteration of instructions on opening of an account for a minor
1. Reckoning the date of deposit in case of cheque payment:
As you are aware, Ministry of Finance letter No. F. 3(9)-PD/72 dated September 4, 1972, has issued notification for Public Provident Fund Scheme, 1968 (PPF). In order to bring uniformity in the reckoning of the date of deposit in the PPF vis-à-vis Post Office Savings Schemes (POSS) and Senior Citizens Savings Scheme, 2004 (SCSS), the Government of India (GoI), vide their letter F. No.7/7/2008/NS-II dated February 10, 2010, have decided that hereafter in modification of Ministry of Finance letter No.F.3(9)-PD/72 dated September 4, 1972 "when a deposit is made in the PPF account by means of a local cheque or demand draft by the subscriber, the date of realization of the
amount will be the date of deposit."
2. Opening of an account for a minor:
In view of complaints being received about non-opening of accounts for minor by some Agency banks, it is reiterated that as per Rule 3 (1) of PPF Scheme, 1968, an individual may, on his own behalf or on behalf of a minor, of whom he is the guardian, subscribe to the Public Provident Fund. Further it is reiterated that as clarified, vide Ministry of Finance letter F.7/34/88/-NS II dated November 17, 1989, either father or mother can open a PPF account on behalf of his/her minor child but not both.
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Again an option to Buyback / Prepayment of FCCB under RBI Approval Route till June 2010
Posted: 06 Apr 2010 09:45 AM PDT
In view of the representations made by the issuers of FCCBs, it has been decided to consider applications, under the approval route, for buyback of FCCBs until June 30, 2010, subject to issuers complying with all the terms and conditions of buyback/prepayment of FCCBs, as mentioned in abovementioned circulars.
Accordingly, applications complying with the conditions may be submitted, together with the supporting documents, through the designated AD Category - I bank to the Chief General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department, External Commercial Borrowings Division, Central Office, 11th Floor, Central Office Building, Shahid Bhagat Singh Road, Mumbai-400 001.
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Practising CS CA CWA to give COP & list of documents for KYC regarding Bank Account for Sole Proprietorship Concerns
Posted: 06 Apr 2010 08:58 AM PDT
For sake of clarity, in case of accounts of proprietorship concerns, it has been decided to lay down criteria for the customer identification procedure for account opening by proprietary concerns. Accordingly, apart from following the extant guidelines on customer identification procedure as applicable to the proprietor, banks / financial institutions should call for and verify the following documents before opening of accounts in the name of a proprietary concern:
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Proof of the name, address and activity of the concern, like registration certificate (in the case of a registered concern), certificate/licence issued by the Municipal authorities under Shop & Establishment Act, sales and income tax returns, CST/VAT certificate, certificate/registration document issued by Sales Tax/Service Tax/Professional Tax authorities, Licence issued by the Registering authority like Certificate of Practice issued by ICAI, ICWAI, ICSI, Indian Medical Council, Food and Drug Control Authorities, etc.
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Any two of the above documents would suffice. These documents should be in the name of the proprietary concern.
These guidelines will apply to all new customers, while in case of accounts of existing customers, the above formalities should be completed in a time bound manner and should be completed before December 31, 2010.
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ASBA for Mutual Funds, NFO 15 days, Corporate Governance norms, No revenue sharing arangement & No dividend from Unit Premium Reserve
Posted: 06 Apr 2010 08:47 AM PDT
To All Mutual Funds (MFs)/Asset Management Companies (AMCs)
1. Brokerage and commission paid to associates
i. Regulation 25 (8) of SEBI (Mutual Funds) Regulations, 1996 mandates that the payment of brokerage or commission, if any, to the sponsor or any of its associates, employees or their relatives, has to be disclosed in the half–yearly annual accounts of the mutual fund. Now, in the bridged scheme wise
annual report and the SAI, these disclosures shall henceforth be made in the format as prescribed in Annexure A.
2. Additional mode of payment through Applications Supported by Blocked Amount (ASBA) in Mutual Funds and Reduction in New Fund offer
(NFO) period
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ASBA is already available for subscription to public issue & rights issue of equity and now it is extended to the investors subscribing to New Fund Offers (NFOs) of mutual fund schemes. It shall co-exist with the current process, wherein cheques/ demand drafts are used as a mode of payment. The banks which are in SEBI’s list shall extend the same facility in case of NFOs of mutual fund schemes to all eligible investors in Mutual Fund units. Mutual Funds shall ensure that adequate arrangements are made by Registrar and Transfer Agents (RTA) for the implementation of ASBA. Mutual
Funds/AMCs shall make all relevant disclosures in this regard in the SAI. Also read [SEBI-ASBA] Lets Learn the Concept.
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Reduction of NFO Periods to 15 days: It has been decided that the present limit of maximum period of 30 days in case of Open ended schemes and 45 days of close ended scheme shall be reduced to 15 days (except ELSS schemes). Mutual Funds/ AMCs shall use the NFO proceeds only on or after
the closure of the NFO period. The mutual fund should allot units/refund of money and dispatch statements of accounts within 5 business days from the closure of the NFO and all the schemes (except ELSS) shall be available for ongoing repurchase/sale/trading within five business days of allotment”.
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Applicability: For all NFOs launched on or after July 01, 2010.
3. Non availability of Unit Premium Reserve for dividend distribution
The IX and XI Schedule of SEBI (Mutual Funds) Regulations provide the accounting policies to be followed for determining distributable surplus and accounting the sale and repurchase of units in the books of the Mutual Fund. The Unit Premium Reserve, which is part of the sales price of units that is not attributable to realized gains, cannot be used to pay dividend. It is therefore reiterated that:
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When units of an open-ended scheme are sold, and sale price is higher than face value of the unit, part of sale proceeds that represents unrealised gains shall be credited to a separate account (Unit Premium Reserve) and shall be treated at par with unit capital and the same shall
not be utilized for the determination of distributable surplus.
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When units of an open-ended scheme are sold, and sale price is less than face value of the unit, the difference between the sale price and face value shall be debited to distributable reserves and the dividend can be declared only when distributable reserves become positive after
adjusting the amount debited to reserves as per XI Schedule of SEBI (Mutual Funds) Regulations.
4. Role of Mutual Funds in Corporate Governance of Public Listed Companies
It has been decided that henceforth, AMCs shall disclose their general policies
and procedures for exercising the voting rights in respect of shares held by them on the website of the respective AMC as well as in the annual report distributed to the unit holders from the financial year 2010-11.
Further, the AMCs are also required to disclose on the website of the respective AMC as well as in the annual report distributed to the unit holders from the financial year 2010-11, the actual exercise of their proxy votes in the AGMs/EGMs of the investee companies in respect of the following matters
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Corporate governance matters, including changes in the state of
incorporation, merger and other corporate restructuring, and anti
takeover provisions.
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Changes to capital structure, including increases and decreases of
capital and preferred stock issuances.
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Stock option plans and other management compensation issues.
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Social and corporate responsibility issues.
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Appointment and Removal of Directors.
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Any other issue that may affect the interest of the shareholders in
general and interest of the unit-holders in particular.
The format for disclosure of voting by mutual funds in general meetings of listed companies is placed in Annexure B. 5. Provision of charging of additional management fees by the AMC’s in case of schemes launched on no load basis
Consequent to SEBI Circular Empowering investors through transparency in payment of commission and load structure” which stipulated that No entry load for all Mutual Fund (MF) scheme,all expenses out of 1% Exit load & disclosure of all commissions to distributors from 1st August 2009, it is clarified that AMC shall not collect any additional management fees referred to in Regulation 52(3) of SEBI Mutual Funds Regulation, 1996. This is applicable to MF schemes which are not launched (including those for which observation letter have been issued). 6. Fund of Funds Scheme
i. It has been observed from the disclosures in the scheme information documents (SID) that Asset Management Companies (AMCs) have been entering into revenue sharing arrangements with offshore funds in respect of investments made on behalf of Fund of Fund schemes. These arrangements create conflict of interest.
ii. It has been decided that henceforth AMCs shall not enter into any revenue sharing arrangement with the underlying funds in any manner and shall not receive any revenue by whatever means/head from the underlying fund. Any commission or brokerage received from the underlying fund shall be credited into concerned scheme’s account.
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New definition of PIO includes Mother & Grandmother for FEMA, RBI notification as per Immovable Property Second Amendment 2009
Posted: 06 Apr 2010 08:12 AM PDT
Purchase of Immovable Property in India by Persons of Indian Origin (PIOs) – Amendment of the definition
Now, PIO means:
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an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan),
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(i) who at any time, held an Indian Passport or
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(ii) who or either of whose father or mother or whose grandfather or grandmother was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955.
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FIU-IND transaction reporting under Money Laundering for Rs.10 lakh or Rs.50,000 as per Amendment Rules, 2009
Posted: 06 Apr 2010 07:59 AM PDT
Accordingly, in view of amendments to the above Rules, banks / financial institutions are required to :
i) Maintain proper record of all transactions involving receipts by non- profit organizations of value more than Rs.10 lakh or its equivalent in foreign currency and to forward a report to FIU-IND of all such transactions in the prescribed format every month by the 15th of the succeeding month.
ii) In case of transactions carried out by a non-account based customer, that is a walk-in customer, where the amount of transaction is equal to or exceeds Rs.50,000/-, whether conducted as a single transaction or several transactions that appear to be connected, the customer's identity and address should be verified. Further, if a bank has reason to believe that a customer is intentionally structuring a transaction into a series of
transactions below the threshold of Rs.50,000/- the bank should verify identity and address of the customer and also consider filing a suspicious transaction report (STR) to FIU-IND.
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Money deposit schemes are illegal, RBI cautions public about Unincorporated bodies
Posted: 05 Apr 2010 09:44 PM PDT
RBI cautions public : Not to deposit money in unincorporated bodies
It has come to the notice of the Reserve Bank of India that some individuals/firms/unincorporated association of individuals (unincorporated bodies) have been collecting deposits from the public by making tall promises of high returns. Some of them are stated to have vanished without repaying deposits. Under Section 45-S(1) of the Reserve Bank of India Act, 1934, unincorporated bodies that are carrying on the business of a financial institution or NBFC or whose principal business is that of receiving deposits are prohibited from accepting deposits from the public. Members of public are hereby cautioned not to deposit money with such unincorporated bodies. Persons depositing money with such unincorporated bodies would be doing so at their own risk.
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Understand listing agreement amendments with new sub-clauses in 41 & 49 (position before & after 5th April 2010)
Posted: 05 Apr 2010 09:23 PM PDT
As part of a review of the extant policies of disclosure requirements for listed entities and also to bring more transparency and efficiency in the governance of listed entities it has been decided to specify certain listing conditions so to amend the Equity Listing Agreement. This post has list of new clauses inserted and ends with a summary table to understand position before and after amendment along with the effective date.
Voluntary adoption of International Financial Reporting Standards (IFRS) by listed entities having subsidiaries - Insertion of Clause 41(I) (g)
Various regulatory authorities are working on arriving at a roadmap for implementation of IFRS in India and on the steps to be taken for convergence of the Indian Accounting Standards with IFRS by April 01, 2011.
Requirement of a valid peer review certificate for statutory auditors- Insertion of Clause 41(1) (h)
It has been decided that in respect of all listed entities, limited review/statutory audit reports submitted to the concerned stock exchanges shall be given only by those auditors who have subjected themselves to the peer review process of ICAI and who hold a valid certificate issued by the ‘Peer Review Board’ of Institute of Chartered Accountants of India.
Interim disclosure of Balance Sheet items by listed entities- Insertion of clause 41(V) (h) and Annexure IX
With a view to have more frequent disclosure of the asset-liability position of entities, it has been decided that listed entities shall disclose within forty-five days from the end of the half-year, as a note to their half-yearly financial results, a statement of assets and liabilities in the specified format.
Approval of appointment of ‘CFO’ by the Audit Committee- Insertion of Clause 49(II)(D)(12A)
GIST OF SEBI CIRCULAR 5TH APRIL 2010 – AMENDMENT OF LISTING AGREEMENT
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Credits to Mr. CS Sriram Sharma for the wonderful presentation in table format:
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SL. NO
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CLAUSES
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AMENDMENT OF CIRCULAR
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1 |
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Clause 24 (i) |
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Company while filing for approval with the Stock Exchange any draft scheme of amalgamation / merger / reconstruction, etc under Clause 24(f) is required to file with the Stock Exchange an Auditors’ Certificate that the accounting treatment contained in the scheme of amalgamation is in compliance with the Accounting Standards specified by ICAI.
Effective Date: 5th April 2010. |
