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)
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
2
MCC Chamber of Commerce & Industry
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)
3
MCC Chamber of Commerce & Industry
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
4
MCC Chamber of Commerce & Industry
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
5
MCC Chamber of Commerce & Industry
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.
6
MCC Chamber of Commerce & Industry
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.
7
MCC Chamber of Commerce & Industry
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;
8
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)
9
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
10
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
11
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
3
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