IT Framework for the HFCs

By Vineet Ojha (finserv@vinodkothari.com)

Over the years, the Housing Finance Company (HFC) sector has grown in size and complexity. As the HFC industry matures and achieves scale, its Information Technology /Information Security (IT/IS) framework, Business Continuity Planning (BCP), Disaster Recovery (DR) Management, IT audit, etc. must also be benchmarked to best practices. To enhance the safety, security, efficiency in processes leading to benefits for HFCs and their customers, the National Housing Bank (NHB) has come up with Information Technology Framework for HFCs (“Guidelines”) vide its notification no. NHB/ND/DRS/ Policy Circular No. 90/2017-18 dated June 15, 2018. Guidelines on IT Framework for the HFC sector that are expected to enhance safety, security, efficiency in processes leading to benefits for HFCs and their customers are enclosed.

Applicability

The Guidelines have been categorized into two parts:

  1. Guidelines applicable to all public deposit taking HFCs and HFCs not accepting public deposit with asset size of Rs 100 crore and above, as per the last audited balance sheet are provided in Section-A and
  2. Guidelines applicable to all HFCs not accepting public deposits with asset size below Rs 100 crore are provided in Section-B.

Timelines for Compliance

  • All HFCs may place these Guidelines before their Board, together with a gap analysis vis-a-vis the Guidelines and the proposed action latest by September 30, 2018
  • HFCs falling in Section- A shall be required to comply with the Guidelines by June 30, 2019 and other HFCs by September 30, 2019

Framework for HFCs in Section A

The focus of the proposed IT framework is on IT Governance, IT Policy, Information & Cyber Security, IT Operations, IS Audit, Business Continuity Planning and IT Services Outsourcing.

IT Governance

IT Governance is an integral part of corporate governance. It involves leadership support, organizational structure and processes to ensure that the HFCs IT sustains and extends business strategies and objectives. Effective IT Governance is the responsibility of the Board of Directors and Executive Management.

Who shall be responsible for the implementation of an effective IT Governance Board of Directors and Executive Management Well-defined roles and responsibilities to enable effective project control
Who are the IT Governance Stakeholders? 1.       Board of Directors,

2.       IT Strategy Committees,

3.       CEOs,

4.       Business Executives,

5.       Chief Information Officers (CIOs),

6.       Chief Technology Officers (CTOs),

7.       IT Steering Committees (operating at an executive level and focusing on priority setting, resource allocation and project tracking),

8.       Chief Risk Officer and Risk Committees

Action Points Formation of an IT Strategy Committee Chairman of the Committee:

An independent director

 

Other Members:

CIO & CTO

 

Frequency of Meeting:

An appropriate frequency with maximum gap of 6 months between two meetings

 

Role of the Committee:

1.       Providing input to other Board committees and Senior Management

2.       Carrying out review and amending the IT strategies in line with the corporate strategies, Board Policy reviews, cyber security arrangements and any other matter related to IT Governance

  1. Approving IT strategy and policy documents and ensuring that the management has put an effective strategic planning process in place;
  2. Ascertaining that management has implemented processes and practices that ensure that the IT delivers value to the business;
  3. Ensuring IT investments represent a balance of risks and benefits and that budgets are acceptable;
  4. Monitoring the method that management uses to determine the IT resources needed to achieve strategic goals and provide high-level direction for sourcing and use of IT resources;
  5. Ensuring proper balance of IT investments for sustaining HFC’s growth and becoming aware about exposure towards IT risks and controls.

IT Policy

Action Points Formulating a Board approved IT policy The policy shall be in line with the organizational objectives

 

Develop an IT organizational structure The structure shall be commensurate with the size, scale and nature of business activities carried out by the HFC

 

Designate a senior executive as the Chief Information Officer (CIO) or in-Charge of IT operations The responsibility of such officer shall be to ensure implementation of IT Policy to the operational level involving IT strategy, value delivery, risk management and IT resource management.

 

Formulate periodic assessment of the IT training requirements To ensure technical competence at senior/middle level management and to ensure that sufficient, competent and capable human resources are available.

 

Migrate to the IPv6 platform as per National Telecom Policy issued by the Government of India in 2012


Information and Cyber Security

Action Points Formulating a board approved IS Policy The IS Policy shall be based on the following principles:

  1. Confidentiality – Ensuring access to sensitive data to authorized users only.
  2. Integrity – Ensuring accuracy and reliability of information by ensuring that there is no modification without authorization.
  3. Availability – Ensuring that uninterrupted data is available to users when it is needed.
  4. Authenticity – For IS it is necessary to ensure that the data, transactions, communications or documents (electronic or physical) are genuine.

 

IS framework must be provided in the IS Policy The IS framework shall be based on the following principles:

 

  1. Identification and Classification of Information Assets.
  2. Segregation of functions and responsibilities relating to system administration, database administration and transaction processing.
  3. Role based Access Control by clear delegation of authority for right to upgrade/change user profiles and permissions and also key business parameters (eg. interest rates) which should be documented.
  4. Personnel with privileged access like system administrator, cyber security personnel, etc should be subject to rigorous background check and screening.
  5. Physical Security by creating a secured environment for physical security of IS Assets such as secure location of critical data, restricted access to sensitive areas like data center etc.
  6. For each transaction, there must be at least two individuals (Maker-checker is one of the important principles of authorization in the information systems of financial entities) necessary for its completion as this will reduce the risk of error and will ensure reliability of information.
  7. Incident Management – The IS Policy should define what constitutes an incident. HFCs shall develop and implement processes for preventing, detecting, analysing and responding to information security incidents.
  8. Trails- HFCs shall ensure that audit trails exist for IT assets satisfying its business requirements. If an employee, for instance, attempts to access an unauthorized section, this improper activity should be recorded in the audit trail.
  9. Public Key Infrastructure (PKI) – HFCs may increase the usage of PKI to ensure confidentiality of data, access control, data integrity, authentication and nonrepudiation.

 

Formulating a board approved cyber-security policy The policy shall elucidate the strategy containing an appropriate approach to combat cyber threats given the level of complexity of business and acceptable levels of risk

 

Vulnerability Management Devise a strategy for managing and eliminating vulnerabilities and such strategy may clearly be communicated in the Cyber Security policy

 

Cyber security preparedness indicators a.       Development of indicators to assess the level of risk/preparedness

b.      Spreading awareness among the stakeholders including employees

 

Cyber Crisis Management Plan (CCMP)should be immediately evolved and should be a part of the overall Board approved strategy The CCMP shall be addressing the following four aspects:

(i) Detection

(ii) Response

(iii) Recovery and

(iv) Containment

Take effective measures to be well prepared to:

1.  prevent cyber-attacks

2. promptly detect any cyber-intrusions

3. face emerging cyber-threats such as ‘zero-day’ attacks, remote access threats, and targeted attacks

 

Take necessary preventive and corrective measures in addressing various types of cyber threats including, but not limited to, denial of service, distributed denial of services (DDoS), ransom-ware / crypto ware, destructive malware, business email frauds including spam, email phishing, spear phishing, whaling, vishing frauds, drive-by downloads, browser gateway fraud, ghost administrator exploits, identity frauds, memory update frauds, password related frauds, etc
Sharing of information on cyber-security incidents with RBI HFCs shall put in place a suitable mechanism to report all types of unusual security

incidents to its IT Steering Committee and the Risk Management Committee.

Incidents involving compromise of the IT systems of the HFC such as data breach, data destruction etc. severely affecting the operations of the company shall be reported to the NHB along with the action take thereon by the HFC, within two working days.

Cyber-security awareness among stakeholders / Top Management / Board Top Management and Board should also have a fair degree of awareness of the fine nuances of the threats and appropriate familiarisation may be organized.

 

Promote, among the customers, vendors, service providers and other relevant stakeholders an understanding of the cyber resilience objectives, and require and ensure appropriate action to support the synchronised implementation and testing.

 

Digital Signatures Consider use of Digital signatures to protect the authenticity and integrity of important electronic documents and also for high value fund transfer.

 

IT Risk Assessment Undertake a comprehensive risk assessment of IT systems at least on a yearly basis and bring to the notice of the Chief Risk Officer (CRO), CIO and the Board and serve as an input for Information Security auditors

 

Finding out the risks present and determining the appropriate level of controls necessary for appropriate mitigation of risks

 

Mobile Financial Services Technology used for mobile services should ensure confidentiality, integrity, authenticity and must provide for end-to end encryption

 

Social Media Risks As Social Media is vulnerable to account takeovers and malware distribution, proper controls, such as encryption and secure connections, should be prevalent to mitigate such risks.

 

Training Conduct an initial and ongoing training and information security awareness programme. HFCs need to maintain an updated status on user training and awareness relating to information security.


IT Operations

Action Points Establish and monitor policies for risk management The Board or Senior Management should take into consideration the risk associated with existing and planned IT operations and the risk tolerance
Identify system deficiencies and defectsat the system design, development and testing phases To ensure that while implementing IT projects there are no systems failure because of poor system design and implementation, as well as inadequate testing
Establish a steering committee The committee shall be consisting of business owners, the development team and other stakeholders to provide oversight and monitoring of the progress of the project, including deliverables to be realized at each phase of the project and milestones to be reached according to the project timetable
Develop a Board approved Change Management Policy and senior management to ensure that the policy is being followed on an ongoing basis The Policy must encompass the following:

  1. prioritizing and responding to change proposals from business,
  2. cost benefit analysis of the changes proposed,
  3. assessing risks associated with the changes proposed,
  4. change implementation, monitoring and reporting.

 

Put in place a good MIS The MIS shall take care of information at all levels in the business including top management and assists the Top Management as well as the business heads in decision making and also to maintain an oversight over operations of various business verticals.
  With robust IT systems in place HFCs may have the following as part

of an effective system generated MIS (indicative list)

a) A dashboard for the Top Management summarising financial position vis-a-vis

targets. It may include information on trend on returns on assets across categories,

major growth business segments, movement of net-worth etc.

b) System enabled identification and classification of NPA as well as generation of

MIS reports in this regard.

c) The MIS should facilitate pricing of products, especially large ticket loans.

d) The MIS should capture regulatory requirements and their compliance.

e) Financial Reports including operating and non-operating revenues and expenses,

cost benefit analysis of segments/verticals, cost of funds, etc. (also regulatory

compliance at transaction level)

f) Reports relating to treasury operations.

g) Fraud analysis- Suspicious transaction analysis, embezzlement, theft or suspected

money laundering, misappropriation of assets, manipulation of financial records

etc. The regulatory requirement of reporting frauds, if any, should be system

driven.

h) Capacity and performance analysis of IT security systems

i) Incident reporting, their impact and steps taken for non -recurrence of such events

in the future.

System driven regulatory/ supervisory returns All regulatory/supervisory returns should be system driven vis-à-vis reporting under ORMIS / regulatory reporting. Further, it is essential that “Read Only” access be provided to NHB Inspectors or persons authorized by it


IS Audit

Action Points Formulate a Policy for Information System Audit (IS Audit) IS Audit shall identify risks and methods to mitigate risk arising out of IT infrastructure such as server architecture, local and wide area networks, physical and information security, telecommunications etc.
Adopt an IS Audit framework duly approved by the Board The framework shall lay down the following:

a.       Responsibilities for compliance/sustenance of compliance, reporting lines, timelines for submission of compliance, authority for accepting compliance should be clearly delineated in the framework.

b.      The framework may provide for an audit-mode access for auditors/ inspecting/ regulatory authorities.

c.       The framework should clearly prescribe the reporting framework

 

Guidance issued by Professional bodies like ISACA, IIA, ICAI in this regard shall be referred. For instance, ICAI has published “Standard on Internal Audit (SIA) 14: Internal Audit in an Information Technology Environment”.

 

Composition of Audit Committee IS Audit may be conducted by an internal team of the HFC. In case of inadequate internal skills, HFCs may appoint an outside agency provided that the outside auditor/agency is empanelled with CERT-In.

 

Coverage of IS Audit Due importance shall be given to compliance of all the applicable legal and statutory requirements

 

Periodicity The periodicity of IS audit should ideally be based on the size and operations of the HFC but may be conducted at least once in two years and be undertaken preferably prior to the statutory audit

 

Reporting As provided in the IS framework, either to the Board or a Committee of the Board viz. Audit Committee of the Board

 

  Rotation of IS Auditors Rotation of IS auditors must be adhered in such a way that an auditor shall not carry out such audit for more than two successive terms if conducted

once in two years or for three successive terms if conducted once a year.

Compliance HFCs’ management is responsible for deciding the appropriate action to be taken in response to reported observations and recommendations during IS Audit

 

Computer-Assisted Audit Techniques (CAATs) To adopt a proper mix of manual techniques and CAATs for conducting IS Audit


Business Continuity Planning

BCP forms a significant part of an organisation’s overall Business Continuity Management plan, which includes policies, standards and procedures to ensure continuity, resumption and recovery of critical business processes.

Action Points Formulate and adopt a Board approved BCP Policy To minimise the operational, financial, legal, reputational and other material consequences arising from a disaster
Salient features of the BCP Business Impact Analysis- HFCs shall first identify critical business verticals, locations and shared resources to come up with the detailed Business Impact Analysis. The process will envisage the impact of any unforeseen natural or man-made disasters on the HFC’s business. The entity shall clearly list the business impact areas in order of priority.

 

Recovery strategy/ Contingency Plan- HFCs shall try to fully understand the vulnerabilities associated with interrelationships between various systems, departments and business processes. The BCP should come up with the probabilities of various failure scenarios. Evaluation of various options should be done for recovery and the most cost-effective, practical strategy should be selected to minimize losses in case of a disaster.

 

Review of BCP Either annually or when significant IT or business changes take place to determine if the entity could be recovered to an acceptable level of business within the timeframe stated in the contingency plan
Put in place necessary backup sites for critical business systems and Data centers


IT Service Outsourcing

Outsourcing of IT related business process can provide an HFC the opportunity to realise valuable strategic and economic benefits.

Action Points Outsourcing of IT related business The terms and conditions governing the contract between the HFC and the Outsourcing service provider should be carefully defined in written agreements and vetted by HFC’s legal counsel on the legal effect and enforceability
To be Noted Provisions of contractual agreement a) Monitoring and Oversight: Provide for continuous monitoring and assessment by the HFCs of the service provider so that any necessary corrective measure can be taken immediately. Outsourcing service provider should have adequate systems and procedures in place to ensure protection of data/application outsourced.

 

b) Access to books and records / Audit and Inspection: This would include:

  1. Ensure that the HFC has the ability to access all books, records and information relevant to the outsourced activity available with the service provider. For technology outsourcing, requisite audit trails and logs for administrative activities should be retained and accessible to the HFC based on approved requests.
  2. Provide the HFC with the right to conduct audits on the service provider whether by its internal or external auditors, or by external specialists appointed to act on its behalf and to obtain copies of any audit or review reports and findings made on the service provider in conjunction with the services performed for the HFC.
  3. The contractual agreement may include clauses to allow the National Housing Bank or persons authorized by it to access the HFC’s documents, records of transactions, and other necessary information given to, stored or processed by the service provider within a reasonable time. This includes information maintained in paper and electronic formats.

 

Responsibility for outsourcing Board and senior management are ultimately responsible for ‘outsourcing operations’ and for managing risks inherent in such outsourcing relationships.
Role of IT Strategy committee in respect of outsourced operations
  1. Instituting an appropriate governance mechanism for outsourced processes, comprising of risk based policies and procedures, to effectively identify, measure, monitor and control risks associated with outsourcing in an end to end manner;
  2. Defining approval authorities for outsourcing depending on nature of risks and materiality of outsourcing;
  3. Developing sound and responsive outsourcing risk management policies and procedures commensurate with the nature, scope, and complexity of outsourcing arrangements;
  4. Undertaking a periodic review of outsourcing strategies and all existing material outsourcing arrangements;
  5. Evaluating the risks and materiality of all prospective outsourcing based on the framework developed by the Board;
  6. Periodically reviewing the effectiveness of policies and procedures;
  7. Communicating significant risks in outsourcing to the HFC’s Board on a periodic basis;
  8. Ensuring an independent review and audit in accordance with approved policies and procedures;
  9. Ensuring that contingency plans have been developed and tested adequately;
  10. HFC should ensure that the business continuity preparedness is not adversely compromised on account of outsourcing. HFCs are expected to adopt sound business continuity management practices as issued by NHB and seek proactive assurance that the outsourced service provider maintains readiness and preparedness for business continuity on an ongoing basis.

Framework for HFCs in Section B

HFCs not accepting public deposit with asset size below 100 crore shall have a Board approved Information Technology policy/ Information system policy. This policy may be designed considering the undermentioned basic standards and the same shall be put in place by September 30, 2019.The IT systems shall have:

 

  1. Basic security aspects such as physical/ logical access controls and well defined password policy;
  2. A well-defined user role;
  3. A Maker-checker concept to reduce the risk of error and misuse and to ensure reliability of data/ information;
  4. Information Security and Cyber Security;
  5. Requirements as regards Digital Signature Certificates, Mobile Financial Services and
  6. Social Media indicated in para 3.8, 3.10 & 3.11 in the document;
  7. System generated reports for Top Management summarising financial position including operating and non-operating revenues and expenses, cost benefit analysis of segments/verticals, cost of funds, etc.;
  8. Adequacy to file regubtory returns to NHB (ORMIS);
  9. A BCP policy duly approved by the Board ensuring regular oversight of the Board by way of periodic reports (at least once every year);
  10. Arrangement for backup of data with periodic testing.

IT Systems should be progressively scaled up as the size and complexity of HFC’s operations increases.

Actionable for HFCs

RBI had come up with directions on IT framework for NBFCs in 2017 and the same has been replicated and released for HFCs by NHB in 2018. Consequently, the Board of the HFC has to take up the task of preparing the gap analysis before the end of third quarter, accordingly the background work for the same has to be initiated at the earliest.

For applicable HFCs in Section A, the following agenda items may be taken up by the Board in its upcoming meeting:

  1. Prepare a gap analysis between the current status of the IT framework and the guidelines laid down in the Guidelines
  2. Formation of Committees:
    1. IT Strategy Committees and
    2. IT Steering Committees
  3. Policies to the framed and implemented by the Board:
    1. Information Technology Policy
    2. Information Security Policy
    3. Cyber Security Policy
    4. Change Management Policy
    5. Policy for Information System Audit (IS Audit)
    6. Business Continuity Planning Policy
  4. Reporting requirement with NHB to be complied with
  5. Conduct of IS Audit to form an integral part of the Internal Audit system

Conclusion

The need for regulating the financial institutions is essential in the era when majority of the operations are dependent on technology. National Housing Bank’s intention to impose mandatory provisions on the larger NBFCs is to enable their IT systems to be in consonance with their size of operations. HFCs applicable to Sec B are ‘recommended’ to comply with the Guidelines whereas HFCs applicable to Sec A are ‘required’ to comply. Hence, the intentions of NHB for smaller HFCs is not very clear.

The amount of HFCs granted Certificate of Registration (COR) with permission to accept public deposits is 18 as compared to 59 HFCs granted Certificate of Registration (COR) not valid for acceptance of public deposits. The Guidelines require compulsory compliance to a small fraction of HFCs whereas the majority are recommended to comply.

 

RBI relaxes thresholds for affordable housing finance

Financial Services Division – finserv@vinodkothari.com

 

The Reserve Bank of India came out with a notification on 19th June, 2018[1] amending the provisions of priority sector lending targets and classification[2], in relation to affordable housing finance. To give a background, financing affordable housing units qualifies to be a priority sector lending. The term “affordable housing unit” us a defined term and this time RBI has brought amendments to it.

The revised thresholds stand as follows:

  Before the notification After the notification
Units in metropolitan centres Loans upto Rs. 28 lakhs and the value of the property not exceeding Rs. 35 lakhs Loans upto Rs. 35 lakhs and the value of the property not exceeding Rs. 45 lakhs
Units in other centres Loans upto Rs. 20 lakhs and the value of the property not exceeding Rs. 25 lakhs Loans upto Rs. 25 lakhs and the value of the property not exceeding Rs. 30 lakhs

 

The intention of this change is to bring the PSL guidelines in line with the Affordable Housing scheme launched by the Government of India.

Further, the other change that has been brought in by the notification is change in the income limits of the EWS and LIG. Earlier, those families with annual household income of upto Rs. 2 lakhs qualified as EWS families and those with annual household income of upto Rs. 3 lakhs qualified as LIG families. The income levels have now been increased to Rs. 3 lakhs and Rs. 6 lakhs for EWS and LIG families respectively.

With this change the provisions of Master Directions on PSL requirements have been synchronised with the Pradhan Mantri Awas Yojana.


[1] https://rbi.org.in/Scripts/NotificationUser.aspx?Id=11308&Mode=0

[2] https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10497

FDI in financial services sector: restrictions brought back but for unregulated entities

COMPARATIVE ANALYSIS OF AMENDMENTS TO INVIT’S AND REIT’S REGULATIONS, 2017

By Saloni Mathur & Kirti Sharma , (finserv@vinodkothari.com)

The SEBI in its Board Meeting on 18th September, 2017[1] approved several changes to the regulations issued for REITs.

The recent amendments by way of Securities and Exchange board of India (Infrastructure Investment Trusts) (Amendment) Regulations, 2017[2] and the Securities and Exchange board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2017[3] has brought about several changes in the existing regulations, which are the necessary incorporations to the changes that were proposed in the board meeting held on September 18th, 2017. SEBI in its Board Meeting made certain amendments to the SEBI (infrastructure Investment Trusts) Regulations, 2014 and SEBI (Real Estate Investment Trusts) Regulations, 2014 (referred to as ‘REIT Regulations’).

 “In order to facilitate growth of Infrastructure Investment Trusts (InvITs) and Real Estate investment Trust (REITs), SEBI Board, has approved certain changes in the captioned regulations, which, inter alia, include the following:

  1. Allowing REITs and InvITs to raise debt capital by issuing debt securities
  2. Introducing the concept of Strategic Investor for REITs on similar lines of InvITs
  3. Allowing single asset REIT on similar lines of InvIT
  4. Allowing REITs to lend to underlying Holdco/SPV
  5. Amending the definition of valuer for both REITs and InvITs

The Board, after deliberations, decided to have further consultation with the stakeholders on a proposal of allowing REITs to invest at least 50% of the equity share capital or interest in the underlying Holdco/SPVs, and similarly allowing Holdco to invest with at least 50% of the equity share capital or interest in the underlying SPVs.”

Following is a comparative analysis of the key changes that have been amended in the Regulations.

Infrastructure Investment Trusts

REGULATION EXISTING REGULATION AMENDED REGULATION IMPLICATIONS
Reg 2 sub-reg 1 clause (zza)

 

Definition of Strategic Investor

 

‘strategic investor’ means, –

a. an infrastructure finance company registered with Reserve Bank of India as a Non-Banking Financial Company;

b. a Scheduled Commercial Bank;

c.an international multilateral financial institution;

d. a systemically important Non-Banking Financial Companies registered with Reserve Bank of India;

e. a foreign portfolio investor,

who together invest not less than five per cent. of the total offer size of the InvIT or such amount as may be specified by the Board from time to time;

 

‘strategic investor’ means, –

a. an infrastructure finance company registered with Reserve Bank of India as a Non-Banking Financial Company;

b. a Scheduled Commercial Bank;

c. an international multilateral financial institution;

d. a systemically important Non-Banking Financial Companies registered with Reserve Bank of India;

e. a foreign portfolio investors,

who invest either jointly or severally not less than five per cent. of the total offer size of the InvIT or such amount as may be specified by the Board from time to time subject  to  the  compliance  with  the applicable  provisions, if any, of the Foreign Exchange Management Act, 1999 and the  rules or regulations or guidelines made thereunder.

 

Also, the circular dated 18th January, 2018[4]has prescribed certain guidelines for participation of strategic investor(s) in the public issue shall,

 

1. The strategic investors shall either jointly or severally, invest not less than 5% and not more than 25% of the total offer size.

 

2. In order to protect the interest of the investors, a pricing cap has been introduced. As per the circular, the price at which units are offered to the strategic investors must not be less than the price determined in the public issue.

3. The units subscribed by strategic investors, pursuant to the unit subscription agreement, will be locked-in for a period of 180 days from the date of listing in the public issue.

 

 

 

 

 

 

 

 

Here, the term together invest have been substituted with the words ‘jointly and severally’.

 

Here, they have straightened the language and given more clarity to the definition.

Not less than 5% means atleast 5% has to be invested by the FPI either jointly and severally.

 

Since, the units are offered to strategic investors, before they are issued to the public, on board in or more than one strategic investors would give the investors lot of confidence.

 

The principal regulations earlier provided for only the minimum holding requirements but this circular has gone one step ahead and prescribed the upper limit as well. The idea is to encourage retail investments in the infrastructure sector.

Therefore, the situation with respect to holding of units stands as:

 

a.       Holding by strategic investors – Minimum 5%, maximum 25%.

b.      Holding by public, other than strategic investors and sponsors – Minimum 25%

c.       Holding by sponsor – Minimum 5%, maximum 70%

 

If there is a situation where the price at which the units are subscribed turns out to be lower than the price discovered in the public issue, the investor shall have to chip in further funds within 2 working days from the date of public issue. However, if the price determined in the public issue turns out to be lower than the price at which the units are offered to the investors, the investors shall not be able to claim back the excess amount paid.

Further, this circular provides that it must be ensured that the subscription amount is kept in the separate account until the public issue is opened.

 

The intention to prescribe the lock in period is to avoid early exit from investment by the strategic investors, which can turnout be prejudicial to the interest of the public unit-holders.

 

 

 

 

 

Reg 2 sub reg 1 clause (zzf)

 

Definition of Valuer

“valuer” means any person[(s)] who is a “registered valuer” under section 247 of the Companies Act, 2013[or as defined hereunder] and who has[/have] been appointed by the investment manager to undertake[both financial and technical] valuation of the InvIT assets:

 

 “valuer” means any person who is a “registered valuer” under section 247 of the Companies Act, 2013 or as specified by the Board from time to time.”

 

The appointment by the investment manager for both financial and the technical valuation of the InvIT assets have been done away with pursuant to Section 247 of Companies Act, 2013 and corresponding rules getting notified.
Reg 4 sub reg 2 clause (l )and (m)

 

Eligibility criteria

(2) Without prejudice to the generality of the foregoing provisions, the Board shall consider the following, mandatory requirements namely

 

**

 

(l) whether any previous application for grant of certificate made by the applicant or any related party has been rejected by the Board;

 

(m) whether any disciplinary action has been taken by the Board or any other regulatory authority against the applicant or any related party under any Act or the regulations or circulars or guidelines made thereunder.

 

(2) Without prejudice to the generality of the foregoing provisions, the Board shall consider the following, mandatory requirements namely

 

**

 

(l) whether any previous application for grant of certificate made by the InvIT or the parties to the InvIT or their directors/members of governing board has been rejected by the Board;

 

(m) whether any disciplinary action has been taken by the Board or any other regulatory authority against the InvIT or the parties to the InvIT or their directors/members of governing board under any Act or the regulations or circulars or guidelines made thereunder.

 

Earlier, the law required disclosure of list of disciplinary proceedings initiated by SEBI against the applicant and all its related parties, at the time of application. Since the term “related party” as per the Regulations includes related parties as per the Companies Act, 2013 and the Accounting Standard, the scope of this clause became very wide.

 

The intention of this clause is to check the whether there are any pending issues against the applicant or those in control of the applicant, thus, through these amendments, the Regulations have been amended to narrow down the scope of this clause, as now, the applicant will have to give a list of disciplinary measures initiated by the SEBI against the applicant or the members of its board/ governing body.

Reg 14 sub reg 2 clause(c)

 

Issue of units and allotment

 

 

(2) If the InvIT [raises funds by way of private placement-

 

(a) [it shall do it] through a placement memorandum;

 

(b) from qualified institutional buyers and body corporate only, whether Indian or foreign:

Provided that in case of foreign investors, such investment shall be subject to guidelines as may be specified by Reserve Bank of India and the government from time to time;

 

(c) with minimum investment from any investor of rupees one crore;

 

[Notwithstanding the above, if such an privately placed InvIT invests or proposes to invest not less than eighty per cent of the value of the InvIT assets,  the minimum investment from an

investor shall be rupees twenty five crore;]

 

(d) from not less than five and not more than one thousand investors. 101[

 

(e) shall file a placement memorandum with the Board alongwith the fee as specified in Schedule II, atleast 5 days prior to opening of the issue:

 

Provided that such opening of the issue shall not be at a date later than 3 months from the receipt of in-principle approval for listing, from exchange(s).]

 (a) [it shall do it] through a placement memorandum;

 

(b) from qualified institutional buyers and body corporate only, whether Indian or foreign:

Provided that in case of foreign investors, such investment shall be subject to guidelines as may be specified by Reserve Bank of India and the government from time to time;

 

(c) with minimum investment from any investor of rupees one crore;

 

[Notwithstanding the above, if such an privately placed InvIT invests or proposes to invest not less than eighty per cent of the value of the InvIT assets in completed and revenue generating assets the minimum investment from an investor shall be rupees twenty five crore;

 

(d) from not less than five and not more than one thousand investors. 101[

 

(e) shall file a placement memorandum with the Board alongwith the fee as specified in Schedule II, atleast 5 days prior to opening of the issue:

 

Provided that such opening of the issue shall not be at a date later than 3 months from the receipt of in-principle approval for listing, from exchange(s).]

 

 

The new amendment has brought about specificity while defining assets. Assets under completed and the revenue generating assets have been considered for the purpose of investment.

 

If the investment is directed in the completed and revenue generating assets than the investors would be benefitted because of the fixed returns from these investments which only the revenue generating assets can do.

 

For example malls are commercial complexes which are revenue generating in nature. Such complexes can provide better returns to the investors indirectly.

 

 

Reg 14 sub reg 4

 

Issue of units and allotment

 

4. If the InvIT raises funds by public issue InvITs

 

4. If the InvIT raises funds by public issue InvITs

 

The word Invit was merely a repetition
Reg 14 sub reg 4 clause v sub clause (i)

 

Issue of units and allotment

 

(4) If the InvIT raises funds by public issue

 

**

 

(v) Units may be offered for sale to public,–

 

i. if such units have been held by the sellers for a period of at least one year prior to the filing of draft offer document with the Board:

 

Provided that the holding period for the equity shares or partnership interest in the [holdco or] SPV against which such units have been received shall be considered

for the purpose of calculation of one year period referred in this sub-regulation;

 

ii. subject to other guidelines as may be specified by the Board in this regard;

(4) If the InvIT raises funds by public issue

 

**

 

(v) Units may be offered for sale to public,–

 

i. If such units have been held by the sellers for a period of at least one year prior to the filing of draft offer document with the Board:

Provided that the holding period for the equity shares, compulsorily convertible securities (from  the  date  such  securities  are  fully  paid-up)” or partnership interest in the [holdco or] SPV against which such units have been received shall be considered for the purpose of calculation of one year period referred in this sub-regulation;

 

“Provided further that the compulsorily convertible securities,  whose  holding  period  has  been  included  for  the  purpose  of calculation  for  offer  for  sale,  shall  be  converted  to  equity  shares of the holdco or SPV, prior to filing of offer document.”

 

ii. subject to other guidelines as may be specified by the Board in this regard;

 

These regulations are amended in lieu of the issuance of the debt securities that was proposed and has now been incorporated.

 

Earlier, the regulation only provided holding period in case of equity shares. Compulsorily convertible securities are nothing but deferred equity, therefore, the same has now been treated at par with equity shares and accordingly the holding period of said securities must be converted to equity shares before filing of the offer document.

Here the compulsory convertible securities have been referred to as the “deferred equity.”

Reg 16 sub reg 8

 

Listing and trading of units

 

(8) With respect to listing of privately placed units, –

 

(a) its units shall be mandatorily listed on the designated stock exchange(s) within thirty working days from the date of [allotment];

 

(b) trading lot for the purpose of trading of units on the designated stock exchange shall be rupees one crore.

 

[Notwithstanding the above, if an InvIT invests not less than eighty per cent of the value of the InvIT assets, the trading lot for the purpose of trading of units on the designated stock exchange of such InvIT shall be rupees two crore;]

 

 (8) With respect to listing of privately placed units, –

 

(a) its units shall be mandatorily listed on the designated stock exchange(s) within thirty working days from the date of [allotment];

 

(b) trading lot for the purpose of trading of units on the designated stock exchange shall be rupees one crore.

 

[Notwithstanding the above, if an InvIT invests not less than eighty per cent of the value of the InvIT assets in completed and revenue generated assets the trading lot for the purpose of trading of units on the designated stock exchange of such InvIT shall be rupees two crore;]

 

The new amendment has brought about specificity while defining assets. Assets under completed and the revenue generating assets have been considered for purpose of investment.

 

If the investment is directed in the completed and revenue generating assets than the investors would be benefitted because of the fixed returns from these investments which only the revenue generating assets can do.

Reg 20

 

Borrowings and deferred payments

(1) An InvIT, whose units are listed on a recognized stock exchange, may issue debt securities in the manner specified by the Board:

Provided that such debt securities shall be listed on recognized stock

exchange(s)

The other clauses would be numbered accordingly.

 

(2) The aggregate consolidated borrowings and deferred payments of the InvIT191[, holdco and the SPV(s),] net of cash and cash equivalents shall never exceed forty nine per cent. of the value of the InvIT assets.

 

(3) If the aggregate consolidated borrowings and deferred payments of the InvIT192[, holdco and the SPV(s),] net of cash and cash equivalents exceed twenty five per cent. of the value of the InvIT assets, for any further borrowing,– (a) credit rating shall be obtained from a credit rating agency registered with the Board; and (b) approval of unit holders shall be obtained in the manner as specified in regulation 22.

 

(4) If the conditions specified in sub-regulations (1) and (2) are breached on account of market movements of the price of the underlying assets or securities, the investment manager shall inform the same to the trustee and ensure that the conditions are satisfied within six months of such breach.

 

InvITs have now been allowed to borrow funds through issuance of bonds as well.

 

Reg 21 sub reg 10

 

Valuation of assets

 

(10) Any valuation undertaken by any valuer shall be in compliance with by international valuation standards and valuation standards as may be specified by Institute of Chartered Accountants of India for valuation of infrastructure assets or such other valuation standards as may be specified by the Board:

 

 

Any valuation undertaken by any valuer shall be in compliance with by international valuation standards and valuation standards as may be specified by Institute of Chartered Accountants of India for valuation of infrastructure assets or such other valuation standards as may be specified by the Board:

 

Earlier, the regulations specifically stated that the valuation of the assets had to be done in accordance with internationally accepted valuation techniques. However, this has now been done away with.
Schedule I clause 6 sub clause (f)

 

Application for Grant of Certificate of Registration as Infrastructure Investment trust

 

Details of project manager

 

**

(f) Identity proof and address proof of the Investment Manager, its directors or partners

 

Details of project manager

 

**

(f) Identity proof and address proof of the Investment Manager, its directors or partners.This has been substituted with the project manager.

 

It was a technical default in the earlier regulations.
Schedule II clause 4

 

Fees

4. With respect to privately placed InvIT, the InvIT shall pay non-refundable filing fees of 0.1% of the total issue size including green shoe option, if any, at the time of filing of draft placement memorandum with the Board; 4. With respect to privately placed InvIT, the InvIT shall pay non-refundable filing fees of 0.1% of the total issue size including green shoe option, if any, at the time of filing of draft placement memorandum with the Board; The word draft has been deleted. The placement memorandum shall be a finalised document placed before the board.
Schedule IV clause 14

 

Mandatory disclosures in the annual report

 

 

 

14. Details of all related party transactions during the year, value of which exceeds five per cent. of value of the InvIT[assets]

 

14. (1) Details of all related party transactions during the year, value of which exceeds five per cent. of value of the InvIT[assets]

 

(2) Details regarding the monies lent by the InvIT

to the holding company or the special purpose vehicle in which it has investment in.”

 

This additional disclosure in the annual report is under clause 14 would specifically state the amount of investment InVIT’s in the holding company or the special purpose vehicle would bring the required disclosures in the report.

 

This increases accountability of the InvITs to ensure that the funds raised are not siphoned off to group entities.

Real estate Investment trusts

REGULATION EXISTING REGULATION AMENDED REGULATION IMPLICATIONS
Reg 2 sub reg (1) clause  (ztb)

 

Definition of strategic investor

‘strategic investor’ means, –

a. an infrastructure finance company registered with Reserve Bank of India as a Non-Banking Financial Company;

b. a Scheduled Commercial Bank;

c. an international multilateral financial institution;

d. a systemically important Non-Banking Financial Companies registered with Reserve Bank of India;

e. a foreign portfolio investors,

who invest either jointly or severally not less than five per cent. of the total offer size of the InvIT or such amount as may be specified by the Board from time to time subject  to  the  compliance  with  the applicable  provisions, if any, of the Foreign Exchange Management Act, 1999 and the  rules or regulations or guidelines made thereunder.

 

Also, the circular dated 18th January, 2018[5]has prescribed certain guidelines for participation of strategic investor(s) in the public issue shall,

 

1. The strategic investors shall either jointly or severally, invest not less than 5% and not more than 25% of the total offer size.

 

2. In order to protect the interest of the investors, a pricing cap has been introduced. As per the circular, the price at which units are offered to the strategic investors must not be less than the price determined in the public issue.

3. The units subscribed by strategic investors, pursuant to the unit subscription agreement, will be locked-in for a period of 180 days from the date of listing in the public issue.

 

 

 

 

 

 

 

Here, the term together invest have been substituted with the words ‘jointly and severally’.

 

Here, they have straightened the language and given more clarity to the definition.

Not less than 5% means atleast 5% has to be invested by the FPI either jointly and severally.

 

Since, the units are offered to strategic investors, before they are issued to the public, on board in or more than one strategic investors would give the investors lot of confidence.

 

The principal regulations earlier provided for only the minimum holding requirements but this circular has gone one step ahead and prescribed the upper limit as well. The idea is to encourage retail investments in the infrastructure sector.

Therefore, the situation with respect to holding of units stands as:

 

d.      Holding by strategic investors – Minimum 5%, maximum 25%.

e.      Holding by public, other than strategic investors and sponsors – Minimum 25%

f.        Holding by sponsor – Minimum 5%, maximum 70%

 

If there is a situation where the price at which the units are subscribed turns out to be lower than the price discovered in the public issue, the investor shall have to chip in further funds within 2 working days from the date of public issue. However, if the price determined in the public issue turns out to be lower than the price at which the units are offered to the investors, the investors shall not be able to claim back the excess amount paid.

Further, this circular provides that it must be ensured that the subscription amount is kept in the separate account until the public issue is opened.

 

The intention to prescribe the lock in period is to avoid early exit from investment by the strategic investors, which can turnout be prejudicial to the interest of the public unit-holders.

 

 

 

 

Reg 2 sub reg (1) clause  (zz)

 

Definition of valuer

“valuer” means any person who is a “registered valuer” under section 247 of the Companies Act, 2013 [or as defined hereunder] and who has [/have] been appointed by the manager to undertake [both financial and technical] valuation of the REIT assets: “valuer” means any person who is a “registered valuer” under section 247 of the Companies Act, 2013 or as specified by the Board from time to time.” The appointment by the manager for both financial and the technical valuation of the REIT assets have been done away with pursuant to Section 247 of Companies Act, 2013 and corresponding rules getting notified.
Reg 4 sub reg 2 clauses (k) and (l)

 

Eligibility Criteria

(k) whether any previous application for grant of certificate by the applicant or any related party has been rejected by the Board;

 

 

(l) whether any disciplinary action has been taken by the Board or any other regulatory authority against the applicant or any related party under any Act or the regulations or circulars or guidelines made thereunder.

(k) whether any previous application for grant of certificate by the REIT or the parties to the REIT or their directors/members of governing board has been rejected by the Board

 

(l) whether any disciplinary action has been taken by the Board or any other regulatory authority against the REIT or the parties to the REIT or their directors/members of governing board under any Act or the regulations or circulars or guidelines made thereunder.

Earlier, the law required disclosure of list of disciplinary proceedings initiated by SEBI against the applicant and all its related parties, at the time of application. Since the term “related party” as per the Regulations includes related parties as per the Companies Act, 2013 and the Accounting Standard, the scope of this clause became very wide.

 

The intention of this clause is to check the whether there are any pending issues against the applicant or those in control of the applicant, thus, through these amendments, the Regulations have been amended to narrow down the scope of this clause, as now, the applicant will have to give a list of disciplinary measures initiated by the SEBI against the applicant or the members of its board/ governing body.

Reg 11 sub reg 4 clause (b)

 

Rights and responsibilities of sponsor(s) (and sponsor group(s))

 

(4) If the sponsor(s) [and sponsor group(s)] propose(s) to sell its units below the limit specified in clauses (b) or (c) of sub-regulation (3) of this regulation

 

**

 

(b) prior to sale of such units, the sponsor(s) [and sponsor group(s)] shall

arrange for another person(s) or entity(ies) to act as the re-designated

sponsor(s) where the re-designated sponsor shall satisfy the eligibility norms for the sponsor as specified under regulation 3:

 

Provided that such units may also be sold to an existing sponsor;

 

**

(4) If the sponsor(s) [and sponsor group(s)] propose(s) to sell its units below the limit specified in clauses (b) or (c) of sub-regulation (3) of this regulation

 

**

(b) prior to sale of such units, the sponsor(s) [and sponsor group(s)] shall

arrange for another person(s) or entity(ies) to act as the re-designated

sponsor(s) where the re-designated sponsor shall satisfy the eligibility norms for the sponsor as specified under regulation 4:

 

Provided that such units may also be sold to an existing sponsor;

 

**

Typographical error has now been rectified
Reg 14 sub reg 22 clause (a)

 

Issue and allotment of units

(22) Units may be offered for sale to public

 

(a) if such units have been held by the existing unitholders for a period of at least one

year prior to the filing of draft offer document with the Board:

 

Provided that the holding period for the equity shares or partnership interest in the[hold co and/or] SPV against which such units have been received shall be

considered for the purpose of calculation of one year period referred in this sub regulation;

(22) Units may be offered for sale to public

 

(a) if such units have been held by the existing unitholders for a period of at least one

year prior to the filing of draft offer document with the Board:

 

Provided that the holding period for the equity shares, compulsorily convertible securities (from the date such securities are fully paid-up) or partnership interest in the[hold co and/or] SPV against which such units have been received shall be considered for the purpose of calculation of one year period referred in this sub regulation;

 

Provided  further  that the

compulsorily convertible securities, whose holding period has been included for the purpose of calculation for offer for sale, shall be converted to equity shares of the hold co or SPV, prior to filing of offer document.

These regulations are amended in lieu of the issuance of the debt securities that was proposed and has now been incorporated.

 

Earlier, the regulation only provided holding period in case of equity shares. Compulsorily convertible securities are nothing but deferred equity, therefore, the same has now been treated at par with equity shares and accordingly the holding period of said securities must be converted to equity shares before filing of the offer document.

Here the compulsory convertible securities have been referred to as the “deferred equity.”.

Reg 18 sub reg 4  clause (b)

 

Investment conditions and distribution policy

(4) Not less than eighty per cent of value of the REIT assets shall be invested [***] in completed and rent generating properties subject to the following,-

 

(a) if the investment has been made through a [holdco and/or] SPV, whether by way of equity or debt or equity linked instruments or partnership interest, only

the portion of direct investments in properties by such [ holdco and/or] SPVs shall be considered under this sub-regulation and the remaining portion shall be included under sub-regulation (5);

 

(b) if any project is implemented in stages, the part of the project which is completed and rent-generating shall be considered under this sub-regulation and the remaining portion including any contiguous land as specified under proviso to sub-regulation (2) shall be included under clause (a) of sub-regulation (5).

(4) Not less than eighty per cent of value of the REIT assets shall be invested [***] in completed and rent and/or income generating properties subject to the following,-

 

(a) if the investment has been made through a [holdco and/or] SPV, whether by way of equity or debt or equity linked instruments or partnership interest, only

the portion of direct investments in properties by such [ holdco and/or] SPVs shall be considered under this sub-regulation and the remaining portion shall be included under sub-regulation (5);

 

(b) if any project is implemented in stages, the part of the project which is completed and rent and /or income generating shall be considered under this sub-regulation and the remaining portion including any contiguous land as specified under proviso to sub-regulation (2) shall be included under clause (a) of sub-regulation (5).

Here, the amendment in the regulation gives due importance to word income as well which may be in the form of license fee, etc
Reg 18 sub reg 8

 

Investment conditions and distribution policy

(8)  A REIT shall hold at least two projects, directly or through [holdco and/or] SPV, with not more than sixty per cent. of the value of the assets, proportionately on a consolidated basis, in one project. This clause has been omitted The proposal of permitting a single asset should enable owners of large value assets to explore REITs.
Reg 18 sub-reg 13

 

Investment conditions and distribution policy

(13) A REIT shall not undertake lending to any person:

 

Provided that investment in debt securities shall not be considered as lending

(13) A REIT shall not undertake lending to any person other than the holding  company/special purpose  vehicle(s)  in which the REIT has invested in, subject to disclosures specified in Schedule IV:

 

Provided that investment in debt securities shall not be considered as lending

Lending has been restricted to holding company and SPVs only.
Reg 19 sub reg 4 clause (a)

 

Related Party Transactions

(4) In case of any related party transactions entered into prior to making the initial offer,-

 

a) adequate disclosures to that effect shall be made in the initial offer document including a consolidated full valuation report of all such assets in accordance

with clause (a) of sub-regulation (3), as may be applicable;

 

**

(4) In case of any related party transactions entered into prior to making the initial offer,-

 

a) adequate disclosures to that effect shall be made in the initial offer document including a consolidated full valuation report of all such assets in accordance

with clause (a) of sub-regulation (3), as may be applicable;

 

**

Earlier the requirement to obtain two valuation reports from two different valuers, independent of each other has now been removed
Reg 20

 

Borrowings and deferred payments

(1) The aggregate consolidated borrowings and deferred payments of the REIT [, holdco and/or the SPV(s),] net of cash and cash equivalents shall never exceed forty nine per cent. of the value of the REIT assets:

Provided that such borrowings and deferred payments shall not include any refundable security deposits to tenants.

 

(2) If the aggregate consolidated borrowings and deferred payments of the REIT [, hold co and/or the SPV(s),] net of cash and cash equivalents exceed twenty five per cent. of the value of the REIT assets, for any further borrowing,- (a) credit rating shall be obtained from a credit rating agency registered with the Board; and (b) approval of unit holders shall be obtained in the manner as specified in regulation 22.

 

(3) If the conditions specified in sub-regulations (1) and (2) are breached on account of market movements of the price of the underlying assets or securities, the manager shall inform the same to the trustee and ensure that the conditions as specified in this regulation are satisfied within six months of such breach.

(1) A REIT, whose units are listed on a recognized stock exchange, may issue debt securities in the manner specified by the Board:

 

Provided that such debt securities shall be listed on recognized stock exchange(s).

 

(2) The aggregate consolidated borrowings and deferred payments of the REIT [, holdco and/or the SPV(s),] net of cash and cash equivalents shall never exceed forty nine per cent. of the value of the REIT assets:

Provided that such borrowings and deferred payments shall not include any refundable security deposits to tenants.

 

(3) If the aggregate consolidated borrowings and deferred payments of the REIT [, hold co and/or the SPV(s),] net of cash and cash equivalents exceed twenty five per cent. of the value of the REIT assets, for any further borrowing,- (a) credit rating shall be obtained from a credit rating agency registered with the Board; and (b) approval of unit holders shall be obtained in the manner as specified in regulation 22.

 

(4) If the conditions specified in sub-regulations (1) and (2) are breached on account of market movements of the price of the underlying assets or securities, the manager shall inform the same to the trustee and ensure that the conditions as specified in this regulation are satisfied within six months of such breach.

REITs have now been allowed to borrow funds through issuance of bonds as well.
Reg 21 sub reg 10

 

Valuation of assets

(10) Any valuation undertaken by any valuer shall abide by international valuation standards and valuation standards as may be specified by Institute of Chartered Accountants of India (ICAI) for valuation of real estate assets: Provided that in case of any conflict, standards specified by ICAI shall prevail. This clause has been omitted Earlier, the regulations specifically stated that the valuation of the assets had to be done in accordance with internationally accepted valuation techniques. However, this has now been done away with.
Reg 33A clause (e)

 

Power to relax strict enforcement of Regulation

The Board may, in the interest of investors or for the development of the securities

market, relax the strict enforcement of any requirement of these regulations, if the Board is

satisfied that

 

**

 

(e) such relaxation will be in the interest of securities market any provision of Act(s), Rule(s), regulation(s) under which the listed entity is established or is governed by, is required to be given precedence to]

The Board may, in the interest of investors or for the development of the securities

market, relax the strict enforcement of any requirement of these regulations, if the Board is

satisfied that

 

**

 

e) such relaxation will be in the interest of securities market ; or

f) any provision of Act(s), Rule(s), regulation(s) under which the listed entity is established or is governed by, is required to be given precedence to]

No significant change
Schedule III clause 4

 

Mandatory disclosure in initial offer document/follow on offer documents

 

Terms of the Issue

a. Terms of the offer including number of units, price, issue opening date, issue closing date, terms and conditions and any other information as may be required for the investor to make an informed decision

 

b. Policy of distribution including method of calculation and the frequency for distribution

 

c. Listing of units

i. Names of the Designated Stock Exchanges where units are proposed to be listed ii. Timelines for listing

iii. Declaration that prior in-principle approval has been obtained from the Designated Stock Exchanges

Terms of the Issue

a. Terms of the offer including number of units, price, issue opening date, issue closing date, terms and conditions and any other information as may be required for the investor to make an informed decision

 

b. Policy of distribution including method of calculation and the frequency for distribution

 

c. Listing of units

i. Names of the Designated Stock Exchanges where units are proposed to be listed

ii. Timelines for listing

iii. Declaration that prior in-principle approval has been obtained from the Designated Stock Exchanges

 

d. Commitment received from strategic investors, if any.

REITs can also offer securities to strategic investors prior to the subscription by public. Presence of strategic investors will give comfort to the other investors.

 

The regulatory framework for infrastructure investment trusts allows institutional investors also known as strategic investors to subscribe to the securities of the applicable issue prior to it being supplied by the public. This provides surety and gives a degree of security from under-subscription.

Schedule  IV clause 12

 

Mandatory disclosures in Annual Report

Details of all related party transactions during the year191[, value of which exceeds five

per cent of value of the REIT assets]

(1) Details of all related party transactions during the year191[, value of which exceeds five per cent of value of the REIT assets]

 

(2) Details regarding the monies lent by REIT to the holding company or the special purpose vehicle in which it has investment in.

This additional disclosure in the annual report is under clause 14 would specifically state the amount of investment REITs in the holding company or the special purpose vehicle would bring the required disclosures in the report.

 

This increases accountability of the REITs to ensure that the funds raised are not siphoned off to group entities.

 


[1] https://www.sebi.gov.in/media/press-releases/sep-2017/sebi-board-meeting_35969.html

[2] https://www.sebi.gov.in/legal/regulations/dec-2017/securities-and-exchange-board-of-india-infrastructure-investment-trusts-amendment-regulations-2017_37118.html

[3] https://www.sebi.gov.in/legal/regulations/dec-2017/securities-and-exchange-board-of-india-real-estate-investment-trusts-amendment-regulations-2017_37117.html

[4] https://www.sebi.gov.in/legal/circulars/jan-2018/participation-by-strategic-investor-s-in-invits-and-reits_37454.html

[5] https://www.sebi.gov.in/legal/circulars/jan-2018/participation-by-strategic-investor-s-in-invits-and-reits_37454.html

Standard Procedure for Valuation to be followed by HFCs.

By Shreya Routh, (finserv@vinodkothari.com)

 

Housing Finance Company (HFC) is a type of non-banking financial institution which is primarily engaged in the business of providing home loans and other related products. Unlike other Non-Banking Financial Companies which are governed under the regulatory framework of RBI, HFCs are regulated by the National Housing Banks (NHB). Collateral securities are accepted against loans advanced by HFCs which include the property for which loan has been granted and some other collaterals as well. Since properties serve as the underlying asset on which financing is given, the amount of loan advanced depends upon the value of the collateral offered. Read more

NHB softens provisioning norms for HFCs

By Anita Baid, (legal@vinodkothari.com)

The National Housing Bank (NHB) vide its notification no. NHB.HFC.DIR.18/MD&CEO/2017[1] dated 02nd August, 2017 has made certain amendments to the Housing Finance Companies (NHB) Directions, 2010 (‘Directions’). The provisions of the Directions is applicable to every housing finance company (HFC) registered under section 29A of the National Housing Bank Act, 1987. A brief summary of the amendments and the possible impact thereon is provided herein below.

Read more