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19 May, 2015 C. No. 25 / Capital Market 2 / 2015-16 To: All Members Dear Sir, Re: MCCI Capital Market Newsletter for April 2015. Please find attached the MCCI Capital Market Newsletter for April 2015. It has been produced by Shri Ashok Pareek, Chairman, Standing Committee on Capital Market, MCCI. If you have any suggestions, please let us know. Thanking you, Encl: Attached below Yours faithfully, Rajiv Mukerji (Deputy Secretary)
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19 May, 2015

C. No. 25 / Capital Market 2 / 2015-16

To: All Members

Dear Sir,

Re: MCCI Capital Market Newsletter for April 2015.

Please find attached the MCCI Capital Market Newsletter for April 2015. It has been produced by Shri Ashok Pareek, Chairman, Standing Committee on Capital Market, MCCI. If you have any suggestions, please let us know.

Thanking you,

Encl: Attached below

Yours faithfully,

Rajiv Mukerji (Deputy Secretary)

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MCCI

CAPITAL MARKET

NEWSLETTER

VOLUME: IV APRIL 2015

TABLE OF CONTENT

SL TOPIC PAGE

1 Securities and Exchange Market of India (SEBI) 1 – 8

2 Reserve Bank of India (RBI) 8 – 11

3 Press Releases 11 – 12

PRESIDENTS MESSAGE

15 May 2015

Dear Sir / Madam,

I am happy to release the April 2015 issue of MCCI Capital Market

Newsletter. Like the previous issues, this issue also focuses on

relevant and germane topics pertaining to the capital markets.

I would like to express my thanks to Shri Ashok Pareek, Chairman,

Standing Committee on Capital Market, MCCI for bringing out this

newsletter. I am sure that you will find it to be useful.

Warm regards,

Arun Kumar Saraf

India's taxmen sent a raft of notices to FPIs on minimum alternate

tax (MAT) supposedly owed in the recent past. MAT can't be levied

from this financial year on FPIs.

The broader argument that MAT must not be levied on entities

that don't have a balance sheet in India hasn't cut ice with taxmen,

who have cited a verdict by the Authority of Advance Rulings (AAR)

to support their tax claims. Tax experts and FPIs say even AAR is

not a sufficient justification. Their argument is a nutshell: AAR

rulings on MAT and FPIs are not uniform and taxmen have cherry

picked rulings that allow them slap retrospective notices.

A 2012 AAR verdict on Castleton Investment Ltd (CIL) held that

MAT is applicable to foreign companies even if they do not have a

permanent establishment in the country.

But FPIs say there are AAR verdicts that contradict this finding.

They point to, among other verdicts, an AAR 2010 ruling in the

Bank of Tokyo-Mitsubishi UFJ case in 2010. That ruling held MAT

can only be levied on domestic companies and not on foreign

companies with no balance sheet in India.

These contradictory AAR verdicts are the source of trouble FPIs and

tax experts say, adding that taxmen often resort to issuing

competitive tax demands to look good to their bosses. AAR rulings

are company specific, FPIs say. So, if taxmen are taking the

Castleton ruling as a basis for wide-ranging retrospective tax

demands, the question is why the Bank of Tokyo ruling is not taken

as the basic ruling.

WHY FPIs ARE ANGRY

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DISCUSSION PAPER ON ISSUES PERTAINING TO OFFER

FOR SALE OF SHARES (OFS) THROUGH STOCK

EXCHANGE MECHANISM

Securities and Exchange Board of India (SEBI) had

released a discussion paper on 6th April, 2015 to solicit

the comments/ views from market participants on

suggestions pertaining to sale of shares using Offer for

Sale through stock exchange mechanism.

In order to provide additional method of achieving

minimum level of public shareholding and to ensure

transparency, wider participation and quicker

settlement, SEBI Board had approved sale of shares

through secondary market i.e. Offer for Sale through

Stock Exchange mechanism as an additional method of

achieving minimum level of public shareholding in listed

companies on January 3, 2012. Till date 117 companies

have utilized OFS mechanism to offload promoter’s

shares in the market.

Suggestions have been received by SEBI from market

participants on following issues:

Reduce OFS notice from T-2 days to T-1 day

Impose price bands on T-1 day along with OFS notice

on stocks going for OFS

Trading halt or suspension of trading of OFS stocks in

the secondary market on the date of OFS

Keeping OFS on Saturday

Option to bid at cut-off price by retail investors

In order to take into consideration views of various

stakeholders in the OFS process, Public comments had

been sought on the following issues till April 18, 2015:

1. Appropriate notice period for OFS keeping in mind

interest of investors as well as sellers.

2. Need for imposing price band on stock on the day

prior to OFS day.

3. Need for halt / suspension of trading in concerned

stocks on the date of OFS.

4. Whether OFS should be held on Saturday.

5. Need for providing option to retail investors to bid

at cut-off price in all OFS.

FINE STRUCTURE FOR NON-COMPLIANCE WITH THE

REQUIREMENT OF CLAUSE 49(II)(A)(1) OF LISTING

AGREEMENT

SEBI had vide Circular dated April 17, 2014, amended

the provisions of Clause 49 of Listing Agreement relating

to Corporate Governance, mandating, inter-alia, that

the Board of Directors of listed entities shall have an

optimum combination of executive and non-executive

directors with at least one woman director. Further,

vide Circular dated September 15, 2014; the timeline to

comply with the aforesaid requirement was extended to

March 31, 2015.

SEBI had also, vide Circular dated September 30, 2013,

prescribed the uniform fine structure for non-

compliance with certain provisions of Listing Agreement

including Clause 49. In continuation to the circular dated

September 30, 2013, the Stock Exchanges have been

advised vide this circular ref no. CIR/CFD/CMD/1/2015

dated April 08, 2015 to impose the fine as stated in the

said circular on listed entities for non- compliance with

the requirement of Clause 49(II)(A)(1) of Listing

Agreement.

The circular issued on April 08, 2015 mandates that all

listed entities which have not yet complied with the

norm but manage to do so by June 30, 2015 will be

levied a fine of Rs. 50,000, listed entities complying

between July 1 2015 and September 30 2015, will be

levied a fine of Rs. 50,000 and an additional fine of Rs.

1,000 per day till the date of compliance and listed

entities complying with the norms after October 1, 2015

will be levied a fine of Rs. 1,42,000/- and an additional

fine of Rs. 5000/- per day from till the date of

compliance

Moreover for any non-compliance with the requirement

of Clause 49(II)(A)(1) of Listing Agreement by listed

entities beyond September 30, 2015, in addition to the

fine stated above, SEBI may take any other action,

against the non-compliant entities, their promoters

and/or directors or issue such directions in accordance

with law, as may be deemed appropriate.

SECURITIES AND EXCHANGE BOARD OF INDIA (PUBLIC

OFFER AND LISTING OF SECURITISED DEBT

INSTRUMENTS) (AMENDMENT) REGULATIONS, 2015

SEBI has on 9th April, 2015 amended the Regulations

pertaining to public offer and listing of securitised debt

instruments vide Securities Exchange Board of India

(Public Offer and Listing of Securitised Debt

Instruments) (Amendment) Regulations, 2015

(“Amendment Regulations”).

SECTION I: SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

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In order to further develop the securitisation market,

the SEBI Board had in its meeting held on January 22,

2015 approved amendments in the Securities and

Exchange Board of India (Public offer and Listing of

Securitised Debt Instruments) Regulations, 2008. The

Amendment Regulations rationalize and clarify the role

and responsibilities of trustee and prescribe for

registration of trustees with certain exemptions and

their code of conduct, allows banks and public financial

institutions to act as trustee without obtaining

registration, terms of appointment and capital

requirement for trustee, and provides for summary

term sheet. The term sheet inter-alia includes

disclosures on originators, Issuer, trustee, transaction

structure, etc., key pool features, credit enhancement,

etc. to enhance disclosure requirements for Securitised

Debt Instruments. The above measures are expected to

enhance the confidence of investors in securitisation

transactions.

The summary changes introduced vide the Amendment

Regulation are as below:

a) A scheduled commercial bank other than a regional

rural bank and a public financial Institution as defined

under section 2(72) of the Companies Act, 2013 have

been exempted from obtaining registration to act as

trustees

b) An applicant seeking registration as a trustee shall

require (i) net worth of at least Rs. 2 crores; (ii) have in

its employment minimum of 2 persons who between

them have atleast 5 years of experience in activities

relating to securitisation and atleast one among them

shall have a professional qualification in law from any

university or institution recognised by the Central

Government or any State Government or a foreign

university. The above requirements will not be

applicable on the National Housing Bank established

by the National Housing Bank Act, 1987 and National

Bank for Agriculture and Rural Development

established by the National Bank for Agriculture and

Rural Development Act, 1981

c) The main obligations of trustees would now also

include:

Creation, monitoring, protection and enforcement of

security interests;

Grievance redressal for protection of investors

interests;

Ensure on a continuous basis that the trust property

is available at all times to pay the securitised debt

instruments holders;

Exercise due diligence to ensure compliance by the

originators;

Take appropriate measures for protecting the

interest of the investors including informing SEBI

about any action, legal proceeding, etc., initiated

against it in respect of any material breach or

noncompliance by it, of any law, rules, regulations,

directions of SEBI or of any other regulatory body;

Ensure that the securitised debt instruments have

been repaid or redeemed in accordance with the

provisions and conditions under which they were

offered to the investors;

Monitoring asset cover at all times which includes

calling for periodic reports from originator call for

periodic reports regarding the performance of the

underlying asset pool, atleast on quarterly basis;

Communicate to the investors regarding the

compliance by the servicer and the actions taken

thereof, atleast on quarterly basis;

Maintain the net worth on a continuous basis and in

case of any shortfall in the net worth take necessary

corrective action to restore the net worth within a

period of six months;

Not relinquish responsibility as trustee in respect of

the issue, unless and until another trustee is

appointed in its place;

Have necessary infrastructure to discharge its duties;

Appoint a compliance officer for performing duties

including monitoring the compliance of the acts,

rules and regulations, notifications, guidelines,

instructions, etc., issued by SEBI, Central

Government and State Government(s) and Redressal

of investors’ grievances

d) The Code of Conduct for the Trustees have been

broadened to include :

Fulfilment of its obligations in a prompt, ethical and

professional manner;

Not divulge to anybody either orally or in writing,

directly or indirectly, any confidential information

about its investors which has come to its knowledge,

without taking prior permission of its investors,

except where such disclosures are required to be

made in compliance with any law for the time being

in force;

Shall not either through its account or through

associates or family members, relatives or friends

indulge in any insider trading;

Have internal control procedures and financial and

operational capabilities which can be reasonably

expected to protect its operations, its investors and

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other registered entities from financial loss arising

from theft, fraud, and other dishonest acts,

professional misconduct or omissions;

Ensure that good corporate policies and corporate

governance is in place and shall develop internal

code of conduct for governing its internal operations

and laying down standards of appropriate conduct

for its employees for carrying out their duties;

Not be a party to

i. creation of false market;

ii. Price rigging or manipulation.

e) The Standardised term sheet would inter alia include

the various disclosures on originators, Issuer, trustee,

transaction structure, etc. as highlighted below :

Disclosures on originators, Issuer, trustee,

transaction structure by which investors would get a

brief idea about the peoples or organizations in

which they would be investing their money;

Key pool features;

Credit enhancement, which would help investors to

identify the risk for the default on Securitised debt

instrument including subordination, insurance, letter

of credit, over-collateralisation, undertakings and

guarantees;

MECHANISM FOR ACQUISITION OF SHARES THROUGH

STOCK EXCHANGE PURSUANT TO TENDER-OFFERS

UNDER TAKEOVERS, BUY BACK AND DELISTING

Vide notification dated March 24, 2015, SEBI had

amended the SEBI (Buy Back of Securities) Regulations,

1998 (“Buy Back Regulations”), SEBI (Substantial

Acquisition of Shares and Takeovers) Regulations, 2011

("Takeover Regulations") and SEBI (Delisting of Equity

Shares) Regulations, 200 ("Delisting Regulations")

wherein the acquirer or promoter were to facilitate

tendering of shares by the shareholders and settlement

of the same, through the stock exchange mechanism as

specified by SEBI.

After due deliberations and consultations with the

market participants, the procedure for tendering and

settlement of shares through stock exchange has been

specified vide this Circular No.

CIR/CFD/POLICYCELL/1/2015 dated April 13, 2015.

The aforesaid circular would be applicable to all the

offers for which Public Announcement is made on or

after July 01, 2015 and for impending offers, the

acquirer/ promoter/ company has been given the

option to follow the mechanism specified in the

aforesaid circular or follow the existing one. In case an

acquirer or any person acting in concert with the

acquirer who proposes to acquire shares under the offer

is not eligible to acquire shares through stock exchange

due to operation of any other law, such offers would

follow the existing 'tender offer method'. In case of

competing offers under the Takeover Regulations, in

order to have a level playing field, in the event one of

the acquirers is ineligible to acquire shares through

stock exchange mechanism, then all acquirers shall

follow the existing ‘tender offer method’.

All the Stock Exchanges have also been directed vide

this circular to take necessary steps and put in place

necessary infrastructure and systems for

implementation of the mechanism and to ensure

compliance with requirements of this circular.

SECURITIES AND EXCHANGE BOARD OF INDIA

(EMPLOYEES' SERVICE) (SECOND AMENDMENT)

REGULATIONS, 2015

Vide notification dated April 21, 2015, SEBI has

amended the SEBI (Employees' Service) Regulations,

2001. The said amendments may be called the SEBI

(Employees' Service) (Second Amendment) Regulations,

2015. Vide the said amendment SEBI has directed all its

employee(s) to make a declaration of their assets and

liabilities as per the Lokpal and Lokayuktas Act, 2013.

PUBLIC ISSUES OF NONCONVERTIBLE DEBENTURE

Sebi has released the data for amount raised through

Public Issues of Non-Convertible Debentures from the

year 2008-09 till fiscal year 2014-2015. The top five

issuers and the total amount raised by them in the year

2014-15 are as follows:

Sl. No.

Name Of The Company

Final Issue Size

(Rs. In Crs)

1 Shriram Transport Finance Company Limited

1,974.85

2 IFCI Limited 1,209.19

3 ECL Finance Limited 789.28

4 IFCI Limited (Tranche II Prospectus)

763.07

5 Muthoot Finance Limited 466.19

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CONSULTATIVE PAPER ON GUIDELINES ON OVERSEAS

INVESTMENTS AND OTHER ISSUES/CLARIFICATIONS

FOR AIFs/VCFs

SEBI had notified the SEBI (Alternative Investment

Funds) Regulations, 2012 (“AIF Regulations”) on May 21,

2012 repealing and replacing the erstwhile SEBI

(Venture Capital Funds) Regulations, 1996 (VCF

Regulations). As on March 31, 2015, there are 136

Alternative Investments Funds (AIFs) registered with

SEBI.

Several representations were received from the industry

with respect to certain aspects of AIF Regulations/VCF

Regulations. Based on the representations from

industry, SEBI proposes to issue a circular as outlined in

the consultative paper. In order to take into

consideration views of various stakeholders, public

comments have been solicited by SEBI upto May 7, 2015

on the proposed circular. The highlights of the proposed

circular are as follows:

1. Overseas Investment by Venture Capital Funds

(VCFs) registered under SEBI (Venture Capital

Funds) Regulations, 1996) - VCFs registered under

erstwhile VCF Regulations are permitted to invest in

Offshore Venture Capital Undertakings, which have

an Indian connection, upto 10% of the investible

funds of a VCF. A partial modification is proposed

wherein VCFs would be permitted to invest in

Offshore Venture Capital Undertakings which have

an Indian connection upto 25% of the investible

funds of the VCF.

2. Overseas Investment by Alternative Investment

Funds - Under the AIF Regulations, an Alternative

Investment Fund (“AIF”) may invest in securities of

companies incorporated outside India subject to

such conditions or guidelines that may be stipulated

or issued by the Reserve Bank of India (“RBI”) and

SEBI from time to time. In this regard, RBI has

permitted an Indian AIF registered with SEBI to

invest overseas subject to the provisions of

circular(s) issued by RBI in this regard. In accordance

with the RBI circular, SEBI has in the proposed

circular outlined the terms and conditions for an AIF

to invest overseas

3. Other issues/clarifications - It has been clarified in

the proposed circular that the tenure of any scheme

of the AIF shall be calculated from the date of final

closing of the scheme. Guidelines for disclosure of

disciplinary history of associates in the placement

memorandum and the role and responsibilities of

the managers and the AIF, manager, trustee and

sponsor has also been given.

SEBI BULLETIN

SEBI has released its April Bulletin on April 27, 2015

The monthly SEBI Bulletin inter-alia covers capital

market review, monthly review of global financial

markets press releases and circulars, orders passed by

chairman/members and adjudicating officers and

highlights of developments in international securities

market.

The trends in the market during the month ended

March 31, 2015 are as follows:

Rs. 5,026 crore were mobilised in the primary

market (equity and debt issues) by way of three

issues as compared to Rs. 1,044 crore mobilised

through four issues in February 2015, showing a

decrease of 381 percent from the previous month;

The cumulative amount mobilised for the financial

year 2014-15 stood at Rs. 19,211 crore through 88

issues as against Rs. 55,652 crore through 90 issues

during 2013-14;

During March 2015, there were six QIP issues worth

Rs. 2,171 crore in the market as compared to three

QIP issues worth Rs. 2,255 crore in February 2015;

There were 27 preferential allotments (Rs. 1,252

crore) listed at BSE and NSE during March 2015 as

compared to 18 preferential allotments (Rs. 1,330

crore) in February 2015;

In the corporate debt market, Rs. 46,875 crore were

raised through 278 issues by way of private

placement listed at BSE and NSE during March 2015

compared to Rs. 41,848 crore raised through 216

issues in February 2015;

Mutual Funds saw a net outflow of Rs. 1,09,898

crore (private sector mutual funds witnessed

EXIT ORDER IN RESPECT OF PUNE STOCK

EXCHANGE LIMITED

SEBI, vide its order no. WTM/RKA /MRD/ 28 /2015

dated April 13, 2015, allowed the exit of Pune Stock

Exchange as a stock exchange.

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outflow of Rs. 81,630 crore while public sector

mutual funds saw outflow of Rs. 28,268 crore) as

compared to a net inflow of Rs. 18,365 crore in

February 2015 (private sector mutual funds

witnessed inflow of Rs. 13,212 crore while public

sector mutual funds saw inflow of Rs. 5,154 crore);

S&P BSE Sensex closed at 27,957.5 on March 31,

2015, as against 29,361.5 on February 28, 2015,

registering a decrease of 1,404 points (-4.8 percent).

During March 2015, Sensex recorded an intraday

high of 30,024.7 on March 4, 2015 and an intraday

low of 27,248.45 on March 27, 2015;

CNX Nifty closed at 8,491.0 on March 31, 2015

compared to 8,901.8 on February 28, 2015 indicating

a decrease of 410.9 points (-4.6 percent). During

March 2015, Nifty recorded an intraday high of

9,119.2 on March 4, 2015 and an intraday low of

8,269.2 on March 27, 2015;

The market capitalisation of BSE and NSE decreased

by 3.0 percent and 2.8 percent to Rs. 1,01,49,290

crore and Rs. 99,30,122 crore, respectively, at the

end of March 2015;

The total number of investor accounts was 137.1

lakh at NSDL and 96.1 lakh at CDSL at the end of

March 2015. In March 2015, the number of investor

accounts at NSDL and CDSL decreased by 0.5 percent

and 0.9 percent, respectively, over the previous

month;

The monthly total turnover in equity derivative

market at NSE increased from Rs. 54,32,152 crore in

February 2015 to Rs. 56,91,524 crore in March

2015(an increase of 4.8 percent);

The monthly total turnover in equity derivative

segment of BSE decreased from Rs. 12,98,575 crore

in February 2015 to Rs. 9,65,042 crore in March

2015(a decrease of 25.7 percent);

In the Corporate Debt Market, there were 1,527

trades with a value of Rs. 15,498 crore reported on

BSE as compared to 1,188 trades with a value of Rs.

13,633 crore in February 2015. At NSE, 5,993 trades

were reported in March 2015 with a trading value of

Rs. 71,502 crore as compared to 4,329 trades

reported in February 2015 with a trading value of Rs.

63,588;

Mutual Funds made net investment of Rs. 81,240

crore in the secondary market in March 2015

compared to net investment of Rs. 67,507 crore in

February 2015. Mutual funds invested Rs. 3,940

crore in equity in March 2015 compared Rs. 3,932

crore in February 2015. Further, Mutual Funds

invested Rs. 77,300 crore in debt market in March

2015 as against of Rs. 63,575 crore invested in

February 2015.

With the commencement of Foreign Portfolio

Investor (FPI) Regime from June 1, 2014, the

erstwhile FIIs, Sub Accounts and QFIs are merged

into a new investor class termed as “Foreign

Portfolio Investors (FPIs)”. There was a net inflow of

Rs. 20,723 crore in March 2015 by FPIs compared to

net inflow of Rs. 24,564 crore in February 2015;

Total assets under management (AUM) of Portfolio

Management Services (PMS) industry has increased

by 1.9 percent from Rs. 9,10,109 crore in February

2015 to Rs. 9,27,385 crore in March 2015;

In March 2015, 10 offers were made to shareholders

with a total value of Rs. 667 crore as against six open

offers worth Rs. 243 crore in February 2015.

EXCLUSIVELY LISTED COMPANIES OF DE-

RECOGNIZED/NON OPERATIONAL/EXITED STOCK

EXCHANGES

SEBI had vide circular dated May 30, 2012 issued

guidelines for exit of De-recognized/Non-operational

stock exchanges and had also vide circular dated May

22, 2014, directed the stock exchanges to address issues

faced by companies exclusively listed in non-operational

stock exchanges. As per the above referred circulars,

companies exclusively listed on these stock exchanges

which fail to obtain listing in any other nationwide stock

exchange will cease to be a listed company.

Subsequently, SEBI has been in receipt of

representations from exclusively listed companies

stating that although they are interested and eligible to

migrate to the main boards of nationwide stock

exchanges, they are not in a position to opt for the same

due to paucity of time. In the interest of investors of

such companies, SEBI vide this circular no.

CIR/MRD/DSA/05/2015 dated April 17, 2015 has

allowed a time line of eighteen months, to these

companies within which they have to listing with the

nation-wide stock exchange, subject to the following:-

a) Listing in nationwide stock exchanges would be

permitted only in respect of those class of securities

that were already listed in the non-operational stock

exchanges.

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b) The exclusively listed companies seeking listing on

nationwide exchanges will not undergo any material

changes in their shareholding pattern which suggests

change of control at the time of listing on

nationwide stock exchanges.

c) For the purpose of direct listing, the exclusively

listed companies which were filing returns for the

last two financial years with their respective

Registrar of Companies ("RoC") may be treated as a

compliant company and the requirement of No

Objection Certificate ("NOC") or any other

documents from non-operational/exited stock

exchanges may not be insisted upon by the

nationwide exchange which is providing the listing

platform.

d) All the promoters and directors of such companies,

who have failed to provide the trading platform or

exit to its shareholders, even after the extended

time of eighteen months will have to undergo

stricter scrutiny for their any future association with

securities market.

e) Nationwide Stock exchange shall have a dedicated

cell to process the application of exclusively listed

companies of non-operational/exited stock

exchanges.

PRODUCT LABELING IN MUTUAL FUNDS

SEBI, vide Circular No. CIR/IMD/DF/4/2015 dated April

30, 2015, has reviewed the system of product labelling

in mutual funds changed the depiction of Risk in Mutual

Fund schemes.

The depiction of risk using colour codes would be

replaced by pictorial meter named "Riskometer" and

this meter would appropriately depict the level of risk in

any specific scheme.

The level of risk in mutual fund schemes shall be

increased from three to five as under:

Low - principal at low risk

Moderately Low - principal at moderately low risk

Moderate - principal at moderate risk

Moderately High - principal at moderately high risk

High - principal at high risk

For enumeration, a scheme having moderate risk would

be depicted as under:

Mutual funds may 'product label' their schemes on the

basis of the best practice guidelines issued by

Association of Mutual Funds in India (AMFI) in this

regard.

This circular shall be applicable with effect from July 01,

2015, to all the existing schemes and all schemes to be

launched on or thereafter. However, mutual funds may

choose to adopt the provisions of this circular before

the effective date.

STRESS TESTING OF LIQUID FUND AND MONEY

MARKET MUTUAL FUND SCHEMES

Risk Management framework has been prescribed by

SEBI vide circular dated September 30, 2002. As a part

of risk management framework, Mutual Funds (MFs)

carry out stress testing of their portfolio, particularly for

debt schemes. In order to standardize this practice

across industry, AMFI came out with Best Practice

Guidelines dated September 12, 2014 on stress testing

of Liquid Funds and Money Market Mutual Fund

Schemes (MMMFs).

In order to further strengthen the risk management

practices and to develop a sound framework that would

evaluate potential vulnerabilities on account of

plausible events and provide early warning on the

health of the underlying portfolio of Liquid Fund and

MMMF Schemes, SEBI, vide Circular No.

CIR/IMD/DF/03/2015 dated April 30, 2015 has decided

to stipulate the following guidelines which shall be

applicable with immediate effect:

a) As a part of the extant risk management framework,

AMCs should have stress testing policy in place which

mandates them to conduct stress test on all Liquid

Fund and MMMF Schemes;

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MCC Chamber of Commerce & Industry

b) The stress test should be carried out internally at least

on a monthly basis, and if the market conditions

require so, AMC should conduct more frequent stress

test;

c) The concerned schemes shall be tested on the

following risk parameters, among others deemed

necessary by the AMC:

Interest rate risk;

Credit risk;

Liquidity & Redemption risk;

d) While conducting stress test, it will be required to

evaluate impact of the various risk parameters on the

scheme and its Net Asset Value (NAV). The parameters

used and the methodology adopted for conducting

stress test on such type of scheme, should be detailed

in the stress testing policy, which is required to be

approved by the Board of AMC;

e) Further, in the event of stress test revealing any

vulnerability or early warning signal, it would be

required to bring it to the notice of the Trustees and

take corrective action as deemed necessary, to

reinforce their robustness. Each AMC should also be

required to have documented guidelines, to deal with

the adverse situation effectively;

f) Such stress-testing policy shall be reviewed by the

Board of AMC and Trustees, at least on an annual

basis, in light of the evolving market scenarios and

should cover the following aspects:

Adequacy of the documentation for various

elements of the stress testing framework;

Scope of coverage of the stress testing policy and

the levels of stress applied;

Integration of the stress testing framework in the

day-to-day risk management processes;

Adequacy of the corrective actions and the efficacy

of the systems for their activation;

g) Further, Trustees shall be required to report

compliance with this circular and steps taken to deal

with adverse situations faced, if any, in the Half Yearly

Trustee Report submitted to SEBI.

SCHEME FOR SETTING UP OF IFSC BANKING UNITS

(IBU) BY INDIAN BANKS

The Reserve Bank has issued a notification under FEMA

vide Notification No. FEMA.339/2015-RB dated March

02, 2015 setting out RBI regulations relating to financial

institutions set up in International Financial Services

Centres (IFSC). The regulatory and supervisory

framework governing IBUs set up in IFSCs by Indian

banks is detailed below.

The scheme

Eligibility criteria: Indian banks viz. banks in the public

sector and the private sector authorised to deal in

foreign exchange will be eligible to set up IBUs. Each of

the eligible banks would be permitted to establish only

one IBU in each IFSC.

Licensing: Eligible banks interested in setting up IBUs

will be required to obtain prior permission of the

Reserve Bank for opening an IBU under Section 23 (1)(a)

of the Banking Regulation Act, 1949 (BR Act). For most

regulatory purposes, an IBU will be treated on par with

a foreign branch of an Indian bank.

Capital: With a view to enabling IBUs to start their

operations, the parent bank will be required to provide

a minimum capital of US$ 20 million or equivalent in any

foreign currency to its IBU. The IBU should maintain the

minimum prescribed regulatory capital on an on-going

basis as per regulations amended from time to time.

Reserve requirements: The liabilities of the IBU are

exempt from both CRR and SLR requirements of Reserve

Bank of India.

Resources and deployment: The sources for raising

funds, including borrowing in foreign currency, will be

persons not resident in India and deployment of the

funds can be with both persons resident in India as well

as persons not resident in India. However, the

deployment of funds with persons resident in India shall

be subject to the provisions of FEMA, 1999.

Permissible activities of IBUs: The IBUs will be

permitted to engage in the form of business mentioned

in Section 6(1) of the BR Act as given below, subject to

the conditions, if any, of the licence issued to them.

IBUs can undertake transactions with non-resident

entities other than individual / retail customers / HNIs.

All transactions of IBUs shall be in currency other than

INR.

IBUs can deal with the Wholly Owned Subsidiaries /

Joint Ventures of Indian companies registered abroad.

SECTION II: RESERVE BANK OF INDIA (RBI)

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MCC Chamber of Commerce & Industry

IBUs are allowed to have liabilities including borrowing

in foreign currency only with original maturity period

greater than one year. They can however raise short

term liabilities from banks subject to limits as may be

prescribed by the Reserve Bank.

IBUs are not allowed to open any current or savings

accounts. They cannot issue bearer instruments or

cheques. All payment transactions must be

undertaken via bank transfers.

IBUs are permitted to undertake factoring / forfaiting

of export receivables.

IBUs are permitted to undertake transactions in all

types of derivatives and structured products with the

prior approval of their Board of Directors. IBUs dealing

with such products should have adequate knowledge,

understanding, and risk management capability for

handling such products.

Prudential regulations: All prudential norms applicable

to overseas branches of Indian banks would apply to

IBUs. Specifically, these units would be required to

follow the 90 days’ payment delinquency norm for

income recognition, asset classification and provisioning

as applicable to Indian banks. The bank’s board may set

out appropriate credit risk management policy and

exposure limits for their IBUs consistent with the

regulatory prescriptions of the RBI.

The IBUs would be required to adopt liquidity and

interest rate risk management policies prescribed by the

Reserve Bank in respect of overseas branches of Indian

banks and function within the overall risk management

and ALM framework of the bank subject to monitoring

by the board at prescribed intervals.

Anti-Money Laundering measures: The IBUs will be

required to scrupulously follow "Know Your Customer

(KYC)", Combating of Financing of Terrorism (CFT) and

other anti-money laundering instructions issued by the

Reserve Bank from time to time. IBUs are prohibited

from undertaking cash transactions.

Regulation and Supervision: The IBUs will be regulated

and supervised by the Reserve Bank of India.

Reporting requirements: The IBUs will be required to

furnish information relating to their operations as

prescribed by the Reserve Bank from time to time.

These may take the form of offsite reporting, audited

financial statements for IBUs, etc.

Ring fencing the activities of IFSC Banking Units: The

IBUs would operate and maintain balance sheet only in

foreign currency and will not be allowed to deal in

Indian Rupees except for having a Special Rupee

account out of convertible fund to defray their

administrative and statutory expenses. Such

operations/transactions of these units in INR would be

through the Authorised Dealers (distinct from IBU)

which would be subject to the extant Foreign Exchange

regulations. IBUs are not allowed to participate in the

domestic call, notice, term, forex, money and other

onshore markets and domestic payment systems.

Priority sector lending: The loans and advances of IBUs

would not be reckoned as part of the Net Bank Credit of

the parent bank for computing priority sector lending

obligations.

Deposit insurance: Deposits of IBUs will not be covered

by deposit insurance.

Lender of Last Resort (LOLR): No liquidity support or

LOLR support will be available to IBUs from the Reserve

Bank of India.

SCHEME FOR SETTING UP OF IFSC BANKING UNITS

(IBU) BY FOREIGN BANKS ALREADY HAVING A

PRESENCE IN INDIA

The Reserve Bank has issued a notification under FEMA

vide Notification No. FEMA.339/2015/RB dated March

02, 2015 setting out RBI regulations relating to financial

institutions set up in International Financial Services

Centres (IFSC). The regulatory and supervisory

framework governing the IFSC Banking Units (IBU) set

up by foreign banks is detailed below.

The scheme

Eligibility criteria: Only foreign banks already having

presence in India will be eligible to set up IBUs. This shall

not be treated as a normal branch expansion plan in

India and therefore, specific permission from the home

country regulator for setting up of an IBU will be

required. Each of the eligible banks will be permitted to

establish only one IBU in each IFSC.

Licensing: The banks will be required to obtain prior

permission of the Reserve Bank for opening an IBU

under Section 23 (1) (a) of the Banking Regulation Act,

1949 (BR Act). The applications of foreign banks will be

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MCC Chamber of Commerce & Industry

considered on the basis of extant guidelines for setting

up branches in India subject to the additional

requirement of the home country regulator/s

confirmation in writing of their regulatory comfort for

the bank’s presence in the IFSC, having regard among

other things, to the provisions of paragraphs 2.3 and

2.14 below.

Capital: With a view to enabling IBUs to start their

operations, the parent bank would be required to

provide a minimum capital of US$ 20 million or

equivalent in any currency, other than INR, to the IBU.

The IBUs should maintain the minimum prescribed

regulatory capital on an on-going basis as per

regulations amended from time to time. The parent

bank will be required to provide a Letter of Comfort for

extending financial assistance, as and when required, in

the form of capital / liquidity support to IBU.

Reserve requirements: The liabilities of the IBU are

exempt from both CRR and SLR requirements of Reserve

Bank of India.

Resources and deployment: The sources for raising

funds, including borrowing in foreign currency, will be

persons not resident in India and deployment of the

funds can be with both persons resident in India as well

as persons not resident in India. However, the

deployment of funds with persons resident in India shall

be subject to the provisions of FEMA, 1999.

Permissible activities of IBUs: The IBUs will be

permitted to engage in the form of business mentioned

in Section 6(1) of the BR Act as given below, subject to

the conditions, if any, of the licence issued to them.

IBUs can undertake transactions with non-resident

entities other than individual / retail customers / HNIs.

All transactions of IBUs shall be in currency other than

INR.

IBUs can deal with the Wholly Owned Subsidiaries /

Joint Ventures of Indian companies registered abroad.

IBUs are allowed to have liabilities including borrowing

in foreign currency only with original maturity period

greater than one year. They can however raise short

term liabilities from banks subject to limits as may be

prescribed by the Reserve Bank.

IBUs are not allowed to open any current or savings

accounts. They cannot issue bearer instruments or

cheques. All payment transactions must be

undertaken via bank transfers.

IBUs are permitted to undertake factoring/forfaiting of

export receivables.

IBUs are permitted to undertake transactions in all

types of derivatives and structured products with the

prior approval of their Board of Directors. IBU dealing

with such products should have adequate knowledge,

understanding, and risk management capability for

handling such products.

Prudential regulations: An IBU shall adopt prudential

norms as prescribed by Reserve Bank of India. The

bank’s board may set out appropriate credit risk

management policy and exposure limits for their IBUs

consistent with the regulatory prescriptions of the

Reserve Bank of India.

The IBUs will be required to adopt liquidity and interest

rate risk management policies prescribed by the

Reserve Bank and function within the overall risk

management and ALM framework of the bank subject

to monitoring by the board at prescribed intervals.

Anti-Money Laundering measures: The IBUs will be

required to scrupulously follow "Know Your Customer

(KYC)", Combating of Financing of Terrorism (CFT) and

other anti-money laundering instructions issued by RBI

from time to time, including the reporting thereof, as

prescribed by the Reserve Bank / other agencies in

India. IBUs are prohibited from undertaking cash

transactions.

Regulation and supervision: The IBUs of foreign banks

will be regulated and supervised by the Reserve Bank of

India.

Reporting requirements: The IBUs will be required to

furnish information relating to their operations as

prescribed from time to time by the Reserve Bank.

These may take the form of offsite reporting, audited

financial statements for the IBU, etc.

Ring fencing the activities of IFSC Banking Units: The

IBUs would operate and maintain balance sheet only in

foreign currency and would not be allowed to deal in

Indian Rupees except for having a Special Rupee

account out of convertible fund to defray their

administrative and statutory expenses. Such

operations/transactions of these units in INR would be

through the Authorised Dealers (distinct from IBU)

which would be subject to the extant Foreign Exchange

regulations. IBUs are not allowed to participate in the

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MCC Chamber of Commerce & Industry

domestic call, notice, term, forex, money and other

onshore markets and domestic payment systems.

Priority sector lending: The loans and advances of IBUs

will not be reckoned as part of the Net Bank Credit for

computing priority sector lending obligations of the

foreign bank in India.

Deposit insurance: Deposits of IBUs will not be eligible

for deposit insurance in India.

Lender of Last Resort (LOLR): No liquidity support or

LOLR support will be available to IBUs from the Reserve

Bank of India.

RURAL ELECTRIFICATION CORPORATION (REC) OFS

GETS FULLY SUBSCRIBED

The First CPSE disinvestment for the fiscal year 2015-16

got off to a thumping start on Aril 8, 2015 with the Rural

Electrification Corporation (REC) OFS getting fully

subscribed within one and a half hour of opening. On

offer was 5% paid-up capital of the company comprising

4, 93, 72,950 shares, each of Face Value of Rs. 10. Out of

the shares offered for sale, 20% were reserved for retail

investors i.e., those investors who placed bids for shares

of total value of not more than Rs. 2.00 lakh. In addition,

a 5% discount was also offered to retail investors on

price bid.

With this disinvestment, the Government of India share

in REC will come down to 60.64%. At the end of the day

with total subscription of Rs. 7,621 crore, the issue

stood oversubscribed by 553%, the highest ever for an

OFS. The investor enthusiasm for the issue is borne out

by the fact that the indicative price for retail was Rs.

325.10 and for institutions Rs. 324.73 both above the

previous day (7/4/2015) closing price of Rs. 321.65 and

floor price of Rs. 315. Seldom, if ever, has such an

upward spiral been registered by an OFS.

The highlight of the issue has been the overwhelming

retail investor participation, a record 902%

oversubscription amounting to Rs. 2,887 crore. If we

add retail bids through Mutual Funds then with Rs. 528

crores, the total amount subscribed by retail investors

adds up to Rs. 3,415 Crore. Significantly against a

discount of 5.3% to the last traded price for the previous

REC transaction in the 2010 FPO, the discount this time

was only 2.1%.

The OFS has been equally strongly endorsed by the

institutional investors. At Rs. 4734 crore, it was

oversubscribed by 466%, once again the highest ever for

an OFS. The FIIs participation stood at impressive Rs.

1692 crore or 20.71% of the subscribed amount.

PM & FM SPEAK ON MUDRA BANK

PM: Combination of integrity with Mudra – capital - will

be the key to success for small entrepreneurs

FM: The basic purpose to start the Mudra bank was to

‘fund the unfunded’

The Prime Minister Shri Narendra Modi launched the

Pradhan Mantri Mudra Yojana and its logo at Vigyan

Bhawan on April 8, 2015. According to the PM, the

vision for MUDRA Bank was that while there are a

number of facilities provided for the large industries in

India, there is a need to focus on these 5 crore 75 lakh

self-employed people who use funds of Rs. 11 lakh

crore, with an average per unit debt of merely Rs.

17,000 to employ 12 crore Indians.

The Prime Minister said that MUDRA scheme is aimed at

“funding the unfunded”. The small entrepreneurs of

India are used to exploitation at the hands of money

lenders so far, but MUDRA will instill a new confidence

in them that the country is ready to support them in

their efforts that are contributing so heavily to the task

of nation building. He said that the established financial

systems will soon move to the MUDRA-model of

functioning, i.e. to support entrepreneurs that give

employment to a large number of people using least

amount of funds.

Earlier speaking on the occasion, the Union Finance

Minister Shri Arun Jaitley said that this is a historical

initiative by the Government to help the micro

entrepreneurs to expand their business. He said that

20% of the people are dependent on micro enterprises

and most of them are based on self-employment. Shri

Jaitley said that the basic purpose to start the Mudra

bank was to ‘fund the unfunded’ because these micro

enterprises were not getting the due attention which

they actually deserve. He also said, Pradhan Mantri

Mudra Yojana, micro entrepreneurs will be sanctioned

loans ranging from Rs. 50,000/- to Rs. 10 lakhs.

SECTION III: PRESS RELEASES

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MCC Chamber of Commerce & Industry

The function was attended among others by Dr.

Raghuram Rajan, RBI Governor, Shri Rajiv Mehrishi,

Finance Secretary, Shri Ratan P. Watal, Expenditure

Secretary, Shri Shaktikanta Das, Revenue Secretary, Dr

Hasmukh Aadhia, Secretary, Financial Services, CEOs of

various Public Sector Banks and Financial Institutions

and representatives of the Micro Finance Institutions

from across the country among others.

The roles envisaged for MUDRA would include:

Laying down policy guidelines for micro enterprise

financing business

Registration of MFI entities

Accreditation /rating of MFI entities

Laying down responsible financing practices to ward

off over indebtedness and ensure proper client

protection principles and methods of recovery

Development of standardised set of covenants

governing last mile lending to micro enterprises

Promoting right technology solutions for the last mile

Formulating and running a Credit Guarantee Scheme

for providing guarantees to the loans/portfolios which

are being extended to micro enterprises

Support development and promotional activities in

the sector

Creating a good architecture of Last Mile Credit

Delivery to micro businesses under the scheme of

Pradhan Mantri MUDRA Yojana

MUDRA will build on experiences of some of the existing

players, who have demonstrated ability to cater to the

Non Corporate Small Business segment to build a

financing architecture and right ecosystem for both the

entrepreneurs as well as the last mile financiers to the

segment. Access to finance in conjunction with rational

price is going to be the unique customer value

proposition of MUDRA. The establishment of MUDRA

would not only help in increasing access of finance to

the unbanked but also bring down the cost of finance

from the Last Mile Financiers to the informal

micro/small enterprises sector. The approach goes

beyond credit only approach and offers a credit – plus

solution for these myriad micro enterprises, creating a

complete ecosystem spread across the country.

MSME SECTOR

The revision of definition of the Micro, Small and

Medium Enterprises (MSMEs), including that of service

enterprises, is under consideration of the Government.

In this regard, the Minister of Micro, Small and Medium

Enterprises has already introduced the bill, “The Micro,

Small and Medium Enterprises Development

(Amendment) Bill, 2015”, in Lok Sabha in the current

session of Parliament.

INTRODUCTION OF LONG TERM BOND OF 40 YEARS

MATURITY

The Government has received proposal to launch long

term bond of 40 years maturity. It is proposed to

introduce a long tenor bond of 40 years maturity in 1st

half of 2015-16 in view of the elongation of maturity of

the portfolio which is preferred to limit rollover risk and

is internationally followed in the advanced countries.

Presently, Government of India securities yield curve

spans 30 years and there is reasonable demand for

bonds having maturities above 20 years from insurance

companies and provident funds seeking to hedge long

term liabilities. These investors have evinced interest in

40 year bond. In the backdrop of very flat yield curve as

the cost may not be much higher than the 30 years

security, it is proposed to launch a long term bond of 40

years in current financial year with a small issuance size.

It would also help to gauge the quantum of demand of

these bonds and the size can be increased/ decreased

based on experience.

Published By: MCC Chamber of Commerce & Industry, 15B Hemanta Basu Sarani, Kolkata – 700 001

Tel.: 91 33 2248 1502/6329/3123/2262 5070-74, Fax: 91 33 2248 8657, Email: [email protected], [email protected], Website: mcciorg.com

Compiled by: Ashok Pareek, Chairman, Standing Committee on Capital Market, MCCI; Assisted by: Piyush Khaitan, Khushboo Jain

For Private Circulation only


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