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Changing Regulatory Landscape in India
Newsletter December 2012
www.pwc.com/in
In this Issue
The FIPB meeting 03
Sectoral Regulations 04
Financial Services Special Economic Zones
Corporate Regulations 13
Exchange Control
Perspective 17
Glossary 20
The FIPB meeting
In its meeting held in December, the FIPB approved the acquisition of equity shares of an Indian company from resident individual shareholders. The Indian company is engaged in the business of detective and protective services.
The following cases were rejected by the FIPB:
Proposal seeking approval for issuing equity shares against security deposit for building taken on lease, payment to consultants towards ROC filing fees and professional fees and incorporation expenses to carry out the business of manufacturing of industrial valves
Proposal seeking approval to set up a new JV for production and development of naval defence system and other products
Sectoral
Regulations
Financial services
Banking Laws (Amendment) Bill, 2011 (‘the bill’) passed by the Lok Sabha
Recently, the Lok Sabha passed the Banking Laws (Amendment) Bill, 2011 (‘Bill’). The key highlights are as follows:
The RBI will have the power to supersede the boards of banks, appoint directors and chairman, and inspect books of associate companies of banks.
The RBI to impose such conditions as it deems necessary while granting an approval for acquisition of 5% or more of paid up share capital of a banking company.
Shareholders’ voting rights increased to 26%
from the existing 10% (in case of private sector bank) and to 10% from the existing 1% (in case of public sector banks).
The bill contained a proposal to exempt bank mergers and acquisitions from the purview of CCI. The Finance Minister, however, clarified that the banking sector is not outside the CCI’s purview. Thus, bank mergers and acquisitions will need to be approved by both the RBI and CCI.
The existing regulatory regime requires the RBI approval for all share transfers beyond 5% and up to 10% to continue.
Guidelines for overseas investments by CICs The RBI has issued the final Core Investment Companies - Overseas Investment (Reserve Bank) Directions 2012 ('CIC Outbound
Directions'). The CIC Outbound Directions are in addition to the existing directions prescribed by the Foreign Exchange Department for overseas investment. These directions are applicable to all the core investment companies ('CICs') whether registered with the RBI or not.
Some of the key provisions are as follows:
Financial sector investment
Overseas investment in financial sector permitted only for the RBI registered CICs ('CICs-ND-SI') through prior approval of the RBI. Financial sector defined to mean a sector or service regulated by a financial sector regulator.
Overseas investment in financial sector permitted only in regulated entities abroad.
Non-financial sector investment
CICs-ND-SI permitted to make overseas investment in non-financial sector without approval from the RBI subject to reporting requirements as prescribed.
Exempted CICs permitted to make overseas investment in non-financial sector without any approval from the RBI and without complying with the CIC outbound directions.
Eligibility criteria
CICs making overseas investment need to have an adjusted net worth ratio of at least 30% (in the manner prescribed) before and after making the overseas investment.
The non-performing asset level of CICs not to exceed 1% of net advances.
CICs need to have a three year profitability track record and satisfactory performance during its existence.
Limits on overseas investment
The aggregate overseas investment of a CIC not to exceed 400% of its owned funds and aggregate overseas investment in financial sector not to exceed 200% of its owned funds.
The overseas investment in financial or non- financial sector restricted to the CICs financial commitment (i.e. contribution by way of equity investment, loan and 50% of guarantees issued to or on behalf of overseas JV or WOS).
Opening of branches, JV or WoS abroad CICs are not permitted to set up branches overseas. Existing branches of CICs need to approach the RBI within three months for a review.
Overseas JV and WOS of CICs not to be shell companies (i.e. having no significant assets or operations) and not to be used as vehicle for raising resources for creating assets in India for operations in the country.
The parent entity's liability towards JV or WOS to be disclosed in the balance sheet of JV/WOS including whether it is equity, loan or guarantee with details of nature and the amount.
Opening of representative offices
CICs permitted to set up representative offices abroad with prior approval of the RBI for the liaison work, undertaking market study and research but not for any activity involving outlay of funds.
No line of credit permitted to be extended for representative offices
Other general conditions
Overseas investments by CICs are not permitted in prohibited activities as prescribed under the FEMA.
CICs permitted to issue guarantees or letter of comfort to the overseas subsidiary engaged in a non-financial activity.
CICs need to ensure that investments made abroad do not result in creating complex structures. Maximum two tiers permitted in a structure where a non-operating holding company is required offshore.
Existing CICs, having more than one non- operating holding company, need to report to the RBI for a annual statutory auditor certificate review to be submitted to the latter by 30 April every year certifying compliance with CIC Outbound Directions.
Draft guidelines on NBFC sector based on Usha Thorat Committee
Based on the recommendations made by the Usha Thorat Committee and subsequent feedback, the RBI issued draft guidelines for NBFC and invited feedback and views on it by 10 January 2013. The key provisions proposed are as follows:
Entry point norms
Based on issuance of CoR, NBFCs are to be classified as registered and exempted.
The pre-requisite for NBFC registration is NOF of minimum 2 crore INR plus satisfaction of principal business criteria plus assets of minimum 25 crore INR.
The PBC to qualify as an NBFC to be as follows:
- Financial entities having assets of minimum 1,000 crore INR:
Financial assets to be minimum 50% of the total assets or financial income to be minimum 50% of the total income
- Other companies not accepting deposits: Financial assets of minimum 25 crore INR plus financial assets and financial income of minimum 75%
respectively
The PBC for asset financing companies to be redefined in alignment with that of the revised PBC for NBFCs (existing 60%
replaced with 75%).
Exemption from the RBI registration available for NBFCs (other than for deposit taking NBFCs) for the following:
- Assets below 25 crore INR whether accepting public funds or not - Assets below 500 crore INR and not
accepting public funds, directly or indirectly
Foreign-owned companies to obtain CoR from the RBI before commencing any non- banking financial activity.
Transition mechanism for existing NBFCs Non-deposit taking NBFCs ('NBFCs-ND') with assets below 25 crore INR required to do the following:
- Approach the RBI within three months with a roadmap to achieve assets of minimum 25 crore INR within two years - Obtain fresh CoR within six months
thereafter
All existing NBFCs to achieve financial assets of minimum 25 crore INR within two years with prescribed milestones (March 2014 - 65% and March 2015 - 75%).
Deposit taking NBFCs failing to achieve 75%
threshold by March 2015 will not be permitted to accept or renew fresh deposits and need to repay existing deposits within the timeline as may be decided by the RBI.
Multiple NBFCs in a group (part of a corporate group or floated by common set of promoters)
Total assets to be aggregated for
determining systemically important NBFCs i.e. 100 crore INR and for application of prudential norms (to be applied to each NBFC in a group).
Definition of 'group' widened to include the following:
- Group entities as per the all Indian Accounting Standards, promoter- promotee as per the SEBI listed company guidelines
- Entities with common brand name - Investee companies in which equity
shareholding is minimum 20%
Captive NBFCs (having at least 90% of total assets as financing of parent company's products)
Tier I capital to be minimum 12% for capital adequacy purposes (existing captive NBFCs to achieve within three years).
Government NBFCs
It is required to comply with revised regulatory framework at the earliest if qualifying as NBFCs.
Liquidity requirements
It is mandatory to maintain high quality liquid assets so that there is no liquidity gap in the one-to-30 day bucket. Liquid assets to include cash, bank deposits available within 30 days, money market instruments
maturing in 30 days, investment in actively traded debt securities (valued at 90% and carrying at least an AA or equivalent rating).
Prudential norms
Tier I capital for capital adequacy purposes - Minimum 12% for captive NBFCs and
NBFCs having more than 75% assets towards lending or investment to sensitive sectors namely capital market, commodities and real estate
- Minimum 10% for all other NBFCs - Existing NBFCs to achieve the above
within three years
Risk weights for CME and CRE are as follows:
- For NBFCs in a bank group same as specified for banks
- For other NBFCs (other than captive NBFCs and NBFCs having exposure to sensitive sectors) raised to 150% for CME and 125% for CRE
Asset classification and provisioning norms (including for standard assets) are as follows:
- To be made similar to that for banks and to be implemented in a phased manner as prescribed (one-time adjustment of repayment schedule permitted and not to be considered as restructuring)
- Standard assets provisioning raised from 0.25% to 0.4%
Deposit taking NBFCs (including asset financing companies) as follows:
- To be credit rated without which not permitted to accept deposits (existing unrated NBFCs given a period of one year to get rated)
- Limits for deposit acceptance reduced from four times to 2.5 times NOF (existing asset financing companies to
be provided specific time period for compliance during which renewal or fresh deposit acceptance not permitted) Corporate governance and disclosures
Prior approval of the RBI required for the following change in control or transfer of shareholding (for all NBFCs):
- In case of change in control and/or increase of shareholding of 25% or more of paid up equity capital by individuals or groups, directly or indirectly
- In case of acquisitions or mergers under section 391-394 of the Companies Act, 1956 by or of an NBFC (before
approaching the courts)
- Acquisitions in ordinary course of business by an underwriter, a stock broker and a merchant banker excluded from approval
The following applies for appointing CEO and other related matters:
- For NBFCs with assets of 1,000 crore INR and above:
◦ Prior approval of the RBI for appointment of CEOs
◦ Restriction of maximum 15 directorships for every director in an NBFC (public or private) i.e.
similar to that prescribed under section 275 of the Companies Act 1956
◦ Compliance with clause 49 of SEBI’s listing agreement on corporate governance including induction of independent directors
- NBFCs with assets of 100 crore INR and more (but less than 1,000 crore INR) encouraged to adopt clause 49 principles in their governance practices
Fit and proper criteria for directors
All NBFCs with assets of 100 crore INR and above and deposit taking NBFCs- to have a policy for ascertaining fit and proper criteria for appointment of directors based on guidelines as prescribed and comply with prescribed periodic reporting.
Disclosures in financial statements notes to account
- For all registered NBFCs: Registration with other regulator(s), any credit ratings assigned by rating agencies and penalties, if any levied by any regulator - For NBFCs with assets of 1,000 crore
INR and above (whether listed or not)
◦ Compliance with mandatory disclosures under clause 49 of the SEBI listing agreement
◦ Provision coverage ratio, liquidity ratio, asset liability profile, extent of financing of parent company products, NPAs or movement of NPAs, details of all off-balance sheet exposures, structured products issued as also securitisation or assignment transactions and other disclosures as prescribed
◦ For unlisted NBFCs above
disclosures to be made available on their websites
Remuneration and compensation
- NBFCs with assets of 1,000 crore INR and above to mandatorily constitute a Remuneration Committee to decide on compensation of executives in
accordance with guidelines (to be issued separately).
- NBFCs with assets below. 1,000 crore INR encouraged to adopt such practices.
Foreign investment limit for asset reconstruction companies reviewed
The government vide its press release dated 21 December 2012, enhanced the foreign
investment limit in ARCs from 49% to 74%.
The key changes or conditions are as follows:
Foreign investment limit of 74% in ARC to be a combined limit of FDI and FII. Hence, the prohibition on investment by FII in ARCs has been removed.
No sponsor will hold more than 50% of the shareholding in an ARC either by way of FDI or by routing through an FII.
The total shareholding of an individual FII in an ARC shall not exceed 10% of the total paid-up capital.
The limit of FII investment in SRs to be enhanced from 49% to 74% of each tranche of scheme of SRs.
The individual limit of 10% for investment of a single FII in each tranche of SRs issued by ARCs has been dispensed with.
Investment by FIIs in SR need to be within the FII limit on corporate bonds prescribed from time-to-time and subject to the sectoral caps under the extant of the FDI Regulations.
Foreign investment in ARCs will need to comply with the FDI policy in terms of entry route conditionality and sectoral caps.
Special economic zones
Time frame for submitting processing and examination of proposals to be considered by the BoA
As per rule 3 of the SEZ Rules, 2006, every SEZ proposal to be considered by the BoA has to be routed through the Zonal DC, who thereafter recommends the proposal to the DoC for including the matter in the BoA agenda.
Though a time frame of 15 days has been prescribed within which the Zonal DC is required to forward his recommendation along with the proposal, the rules do not explicitly provide on the time limit within which such recommended proposals will be considered for processing the proposals thus received and preparation of the BoA Agenda by the DoC.
The Secretary, DoC [vide BoA meeting dated 23 November 2012] has laid down the time limits for submissions, processing and examination of the proposals to be considered by the BoA.
Sl no
Subject (proposals to be considered)
Time limit (before BoA meeting) 1 Forwarding
proposals by Zonal DC to DoC
Three weeks
2 Processing of proposals thus received and preparation of agenda by DoC
Two weeks
3 Communication of written comments, if any to agenda by D/o Revenue to DoC
Three days
On account of the above, all SEZ proposals to be considered by the BoA will now have be
submitted to the DC three weeks before the scheduled date of the BoA meeting.
Additional conditions for co-developer (s) A co-developer proposal is considered by the BoA once the SEZ is notified. A co-developer can carry out activities pertaining to
development, operation and maintenance of the SEZ. Generally, for carrying out the
aforementioned activities, a co-developer enters into a co-developer agreement with the SEZ developer. This agreement sets out the terms and conditions of the arrangement. A co- developer proposal to be considered by the BoA is required to comply with the rule 3A of the SEZ Rules.
In addition to the above, the BoA has recently directed that proposals for grant of co-developer status should be accompanied by lease deed or draft lease deed containing financial details, transactions or arrangements between the developer and the proposed co-developer to ensure that the covenants of the agreement do not breach the SEZ laws.
Change of name in case of an SEZ unit In 2009, the DoC issued guidelines vide instruction no 21 on change of name or transfer of approval (in-principle or formal) issued to a developer or co-developer to its subsidiary or SPV. The instruction provides that cases not covered in these guidelines will be decided by the BoA. Recently, in the case of a SEZ unit , a request for change of name of a unit in view of its amalgamation was considered by the BoA.
The BoA approved the change in name with following conditions:
Seamless continuity of SEZ activities with unaltered responsibilities and obligation for the altered developer entity
Fulfillment of all eligibility criteria
applicable to developers (including security clearances, etc)
Compliance with revenue department, company affairs, the SEBI, etc.
Furnishing full financial details relating to transfer of equity to the Central Board of Direct Taxes
Assessing officer to assess the taxability of the amount on transfer of equity
Compliance with state laws in relation to lease of land
Maintaining separate books of accounts for the developer and the unit
It may be noted that fulfilment of the above conditions has been earlier imposed on transfer of shareholding in case of developers.
Contiguity relaxation
Guidelines regarding conditions for relaxation of contiguity criteria with respect to an SEZ have been issued by the DoC vide instruction 27. In a recent proposal for contiguity relaxation, the BoA has approved a matter for relaxation of contiguity subject to an additional condition that the developer should establish contiguity within a period of three years from the date of notification of the SEZ.
Proposal for setting up disaster recovery and business continuity plans
The DoC has proposed draft guidelines for setting up DR and BCP centres for IT and ITES SEZs for the consideration of the BoA members.
Some of the key features of the draft guidelines, in the context of IT and ITES units, are as follows:
The data pertaining to IT and ITES SEZ units is regularly backed up at locations, which are isolated from the main business centres to prevent its loss in the event of a disaster. This would involve movement of data from the SEZ to a DR or BCP location outside the SEZ and movement of storage media back to the SEZ.
Such movement of tapes and data is purely for the purpose of back up and should not constitute a commercial transaction.
However, it is important to maintain records for the movement of the tapes and storage devices at the SEZ.
The movement of data will not be treated as exports and hence will not be counted towards computation of NFE.
The SEZ unit will be required to pay
necessary duty on tapes and storage devices in which data is being moved.
It is permissible to store the data in another SEZ or EOU provided intimation to the DC has been given prior to movement of data.
It is also felt that there is a growing demand for setting up DR or BCP sites for third parties overseas clients in India within the SEZs. In such cases, it is mandatory for the DR or BCP centre to have the necessary infrastructure and the charges received or receivable by the unit would be considered for NFE purposes.
It may be noted that the draft guidelines are under consideration. We shall keep the readers updated on the developments in this regard.
Corporate regulations
Exchange controls
External commercial borrowings A. Allowed for low cost affordable
housing projects under the approval route
Low-cost affordable housing project Definition:
A project in which at least 60% of the permissible FSI would be for units having maximum carpet area up to 60 square meters.
Slum rehabilitation projects will also be eligible under the low cost affordable housing scheme based on the parameters to be set by competent authorities.
Aggregate limit
For the financial year 2012-13, an aggregate limit of 1 billion USD is applicable
ECB proceeds shall not be utilised for acquisition of land.
Eligible borrower will not be eligible to raise foreign currency convertible bonds under this scheme.
AP (DIR Series) circular no 61 dated 17 December 2012
In view of the announcement made in the Union Budget for 2012-13, the RBI has allowed ECB for low cost affordable housing projects as a permissible end-use, under the approval route. Highlights of this scheme are as follows:
Eligible
borrowers End-use Approval mechanism
Developers or builders, satisfying specified criteria
Low cost affordable housing project Eligible developers or builders shall apply to the NHB in the prescribed format.
On being satisfied, NHB will forward the application to the RBI for consideration and advice the borrower to approach the RBI for availing ECB through his authorised dealer.
HFCs, satisfying specified criteria
Financing low cost affordable housing units of individual borrowers subject to the following:
- Cap of 25 lakh INR
- Cost of the individual housing unit not exceeding 30 lakh INR
Application to the RBI
NHB Financing low cost affordable housing units of individual borrowers subject to the following:
- Capital of 25 lakh INR
- Cost of the individual housing unit not exceeding 30 lakh INR On lending to developers or builders being eligible borrower under this scheme
Application to the RBI
B. For 2G spectrum allocation
In view of the large outlay of funds required to be paid by successful bidders in the upcoming 2G spectrum auction directly to the Government within a limited period of time, the ECB policy has been further relaxed as follows:
1. Refinancing of rupee loans–
automatic route
Upfront payment for the award of 2G spectrum initially made out of rupee loans availed of from the domestic lenders can be refinanced with a long-term ECB, under the automatic route. This facility is subject to the following conditions:
The long-term ECB is raised within 18 months from the date of sanction of rupee loans by the domestic lenders.
The designated AD Ccategory I bank shall do the following:
- Obtain evidence that the spectrum fees is paid to the government - Monitor the end-use of funds 2. Relaxation in ECB-liability (debt)-
equity ratio and percentage of shareholding–automatic route ECB can be availed by successful bidders under the automatic route from their ultimate parent company (holding directly or indirectly minimum paid-up equity of 25%) for payment of 2G spectrum fees without any complying with the ECB liability (debt)-equity ratio.
3. Bridge finance facility–automatic route
Short-term foreign currency loan in the nature of bridge finance can be availed under the automatic route for making upfront payment towards 2G spectrum allocation. The borrower can, under the automatic route, replace the short-term loan
with a long-term ECB, which is raised within a period of 18 months from the date of drawdown of bridge finance.
Source: A.P. (DIR Series) circular no 54 dated 26 November 2012
Liasion office (LO) or branch office (BO)- reporting to income tax authorities
Under the extant regulations, LOs or BOs in India are required to furnish copy of the copy of AAC along with audited financial statements to DGIT (international taxation).
The RBI has clarified that these copies of the AACs submitted to the DGIT should also be accompanied by audited financial statements including receipt and payments account.
Further, copy of each renewal of permission granted to LOs by the AD banks should be forwarded by AD banks to the office of the DGIT.
AP (DIR Series) circular no 55 dated 26 November 2012
Trade credits for import into India
Presently, infrastructure sector companies are allowed to avail trade credit up to a maximum period of five years for import of capital goods provided the following conditions are met:
The trade credit must be abinitio contracted for a period not less than 15 months and should not be in the nature of short-term roll overs
AD banks are not permitted to issue letters of credit, guarantees, letter of undertaking or letter of comfort in favour of overseas supplier, bank and financial institution for the extended period beyond three years.
The RBI has now revised the condition of 'abinitio' buyers' credit and reduced the period from 15 months to six months for existing
trade credits. However, the condition regarding 'abinitio' buyers' credit for 15 months shall continue for future trade credit.
AP (DIR Series) circular no 59 dated 14 December 2012
Trade credits for imports into India and ECB-review of all-in-cost ceiling
The RBI has notified that, all in cost ceiling for ECB and trade credit as revised earlier will continue to be applicable until further review. The applicable all in cost ceiling is as follows:
Average maturity period All-in-cost ceilings over six months LIBOR*
External commercial borrowing
Trade credits
Up to one year 350 basis points 350 basis points
More than one year and up to three years
More than three years and up to five years
500 basis points
A.P. (DIR Series) Circular No. 58 and 60 dated December 14, 2012
Perspective
Draft NBFC guidelines: Another step forward by the RBI
In India, while banks have been regarded as the pioneers for mobilising and channelising funds in the financial system, NBFCs or ‘shadow banks’ have been able to penetrate in sectors where banks are otherwise restricted to venture into.
Over the years, due to their dynamism and innovative lending strategies, NBFCs have assumed a greater role in the financial sector and the interdependence between banks and shadow banks has become increasingly evident, necessitating the need for a robust regulatory framework for NBFCs. Further, with the recent financial crisis, the need for focussed and stricter regulation of NBFCs was felt, especially considering the potential risks that could arise from the regulatory arbitrage opportunities and interconnectedness between banks and NBFCs.
NBFCs are lightly regulated as compared to banks, and the central bank has been gradually moving towards the convergence of the
regulations governing banks and NBFCs. The RBI has been continually taking gradual steps to bring NBFCs within the ambit of its regulation.
Another step to further this objective was the constitution of a WG under the chairmanship of Usha Thorat in September 2010 to study the issues and concerns of the NBFC sector and provide recommendations regarding necessary changes in the regulatory framework for NBFCs The WG came out with its recommendations in this regard on 29 August 2011 asking for public comments. Based on the recommendations, the RBI on 12 December 2012 issued the draft NBFC guidelines open for public comments till 13 January 2013.
The draft guidelines issued by the RBI aim at reducing the regulatory arbitrage between banks and NBFCs and have tightened the norms for NBFCs. The guidelines have laid down revised parameters for entry and principal business determination, prudential regulations, liquidity management and corporate governance. The RBI, in these draft guidelines, has accepted the suggestions of the WG and has provided a fair transition period to the existing NBFCs to gradually adopt the revised norms.
Entry point norms
The draft guidelines aim at dividing NBFCs into two categories, exempt NBFCs and those requiring registration based on the size of their assets and deposit taking status. While the RBI aims to continue regulating the deposit taking NBFCs irrespective of size, it proposes to exempt small NBFCs with asset size of less than 25 crore INR even if such NBFCs have accessed public funds.
PBC has been revised, requiring non-deposit accepting NBFCs with 75:75 financial asset or income ratio and asset size of 25 crore INR with net owned funds of 2 crore INR to approach the RBI for registration. Non-deposit accepting NBFCs (NBFC-NDs) with an asset size of 1000 crore INR or above would need registration if 50% of their total assets or income are financial.
Revised PBC have been introduced to bring only those NBFCs under the regulatory scanner which is significantly performing financial activities. Foreign-owned NBFCs have also been mandated to obtain registration before the commencement of operations.
Liquidity and prudential norms The WG has observed that most NBFCs dependent on money market instruments, commercial papers and wholesale funding markets are prone to liquidity risks. To provide a liquidity cushion in the short-term (1-30 days), all NBFC whether deposit taking or otherwise would now be required to maintain high quality liquid assets in cash, bank deposits and money market instruments maturing within a 30-day
period and investment in actively traded debt securities.
Tier I capital requirement has been raised to 10% for all NBFCs. However, captive NBFCs and those lending to sensitive sectors would be required to maintain a ratio of 12%. While the risk weights on exposure to capital markets and real estate for NBFCs in a bank group would be at par with banks, for other NBFCs, these risk weights have been revised to 150% and 125%
respectively. Further, for bringing parity in asset classification between banks and NBFCs, the norms have been tightened to require NBFCs to classify loans into NPA in 120 days from April 2014 and 90 days starting April 2015. In addition, credit rating has been made a mandatory requirement for Deposit taking NBFCs and asset finance companies.
The revised framework requires compliance with the NBFC norms for government NBFCs and all NBFCs in a group where the total assets size of 100 crore INR is met on an aggregate basis for all NBFCs in such group.
Corporate governance and disclosure requirements
The RBI’s nod would now be mandatory for any change in control or increase in shareholding to the extent of 25% and merger or acquisition (before approaching the court) of registered NBFCs. The appointment of a CEO for NBFCs with an asset size of 100 crore INR and above would also need to be approved by the RBI. For promoting good corporate governance, the number of directorships for directors of NBFCs has also been limited based on the provisions of the Companies Act, 1956. In order to bring in greater transparency, disclosure norms have also been revised for NBFCs with an asset size of 1000 crore INR and above.
While the industry is seemingly positive about the overall impact of the draft guidelines on NBFCs, some aspects in the guidelines still demand further clarity and rethinking by the RBI. For instance, too many thresholds have been introduced as part of entry point norms
and prudential norms or corporate governance compliances which may lead to further
complexity within the whole framework. Further clarity is required on parameters for the
inclusion of foreign-owned NBFCs within the ambit of registration. Higher tier I capital and liquidity requirements clubbed with the lower NPA classification threshold may have an impact on the profitability of NBFCs. Further, NBFCs have not been given access to the SARFAESI Act unlike banks which can resort to the Act for speedy recovery. Moreover, NBFCs do not enjoy the RBI's liquidity support
available to banks. This puts additional liquidity burden on NBFCs and no provisions have been
made in this regard. Parity in regulatory framework between banks and NBFCs should equally push the case for similar tax treatment and other operational advantages for the two types of financial entities. However, while such parity in the regulatory and tax framework between banks and NBFCs is expected in due course, a relook at the existing framework is a step forward by the RBI towards greater and more focussed regulation of this segment of financial entities.
- Vandana Sagar (Manager, Regulatory Services)
Glossary
ARCs Asset reconstruction companies AAC Annual activity certificate BCP Business continuity plans BoA Board of Approvals
CMTS Cellular mobile telephone service CCI Competition Commission of India CME Capital market exposures CRE Commercial real estate exposures CoR Certificate of registration
DC Development commissioner
DoC Department or commerce DoT Department of telecom DR Disaster recovery
DGIT Director General of Income Tax ECB External commercial borrowing FDI Foreign direct investment
FEMA Foreign Exchange Management Act FIPB Foreign Investment Promotion Board FII Foreign institutional investor
FY Financial year
INR Indian rupee
IT Information technology
ITeS Information technology enabled services
JV Joint venture
LoA Letter of approval
NBFCs Non-banking financial company
NOF Net owned fund
NPA Net performing assets NHB National housing bank HFCs Housing finance companies RBI Reserve Bank of India R&D Research and development RFC Resident foreign currency PBC Principal business criteria
TRAI Telecom Regulatory Authority of India SEZ Special economic zone
SEBI Securities Exchange Board of India SPVs Special purpose vehicles
SRs Security receipts UAS Unified access services USD United States dollar WOS Wholly-owned subsidiary
WG Working group
Contacts
Ahmedabad
President Plaza, 1st Floor Plot No 36 Opp Muktidham Derasar
Thaltej Cross Road, SG Highway Ahmedabad, Gujarat 380054 Phone +91-79 3091 7000 Bangalore
6th Floor, Millenia Tower 'D' 1 & 2, Murphy Road, Ulsoor, Bangalore 560 008 Phone +91-80 4079 7000 Bhubaneswar
IDCOL House, Sardar Patel Bhawan Block III, Ground Floor, Unit 2 Bhubaneswar 751009
Phone +91-674 253 2279 / 2296 Chennai
8th Floor, Prestige Palladium Bayan 129-140 Greams Road,
Chennai 600 006 Hyderabad
#8-2-293/82/A/113A Road no. 36, Jubilee Hills, Hyderabad 500 034, Andhra Pradesh
Phone +91-40 6624 6600 Kolkata
56 & 57, Block DN.
Ground Floor, A- Wing Sector - V, Salt Lake.
Kolkata - 700 091, West Bengal, India Phone +(91) 033 - 2357 9101 / 4400 1111 Mumbai
PwC House, Plot No. 18A, Guru Nanak Road - (Station Road), Bandra (West), Mumbai - 400 050 Phone +91-22 6689 1000 Gurgaon
Building No. 10, Tower - C 17th & 18th Floor, DLF Cyber City, Gurgaon Haryana -122002
Phone : +91-124 3306 6000 Pune
GF-02, Tower C, Panchshil Tech Park, Don Bosco School Road, Yerwada, Pune - 411 006 Phone +91-20 4100 4444
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