Export Factoring in India
/2 Comments/in Financial Services /by Vinod Kothari Consultants– Paving the way to provide easy finance to exporters
By Simran Jalan (simran@vinodkothari.com)
Introduction
Export factoring bundles together credit protection, export working capital financing, foreign accounts receivables bookkeeping and collection services- all in one product. It is the sale of foreign accounts receivable by a seller (exporter) to a factoring company at a discount, where the financier (factor) assumes the risk of default of the foreign buyer and handles collection on the receivables. The factor will purchase the accounts receivables or invoices, which are raised once the exporter ships the goods to the buyer (importer). Export financing is usually without recourse wherein the financier takes the payment risk of the importer.
Accounting for Direct Assignment under Indian Accounting Standards (Ind AS)
/1 Comment/in Accounting and Taxation, Financial Services, Indian Accounting Standards (Ind AS), NBFCs, News on Securitization, Securitisation /by Vinod Kothari ConsultantsBy Team IFRS & Valuation Services (ifrs@vinodkothari.com) (finserv@vinodkothari.com)
Introduction
Direct assignment (DA) is a very popular way of achieving liquidity needs of an entity. With the motives of achieving off- balance sheet treatment accompanied by low cost of raising funds, financial sector entities enter into securitisation and direct assignment transactions involving sale of their loan portfolios. DA in the context of Indian securitisation practices involves sale of loan portfolios without the involvement of a special purpose vehicle, unlike securitisation, where setting up of an SPV is an imperative.
The term DA is unique to India, that is, only in Indian context we use the term DA for assignment of loan or lease portfolios to another entity like bank. Whereas, on a global level, a similar arrangements are known by various other names like loan sale, whole-loan sales or loan portfolio sale.
In India, the regulatory framework governing Das and securitisation transactions are laid down by the Reserve Bank of India (RBI). The guidelines for governing securitisation structures, often referred to as pass-through certificates route (PTCs) were issued for the first time in 2006, where the focus of the Guidelines was restricted to securitisation transactions only and direct assignments were nowhere in the picture. The RBI Guidelines were revised in 2012 to include provisions relating to direct assignment transactions.
SEBI extends disclosure related exemption to eligible NBFCs & HFCs
/0 Comments/in Housing finance, NBFCs /by Vinod Kothari Consultants-Amends Reg. 29 (4) of SAST Regulations, 2011 dealing with disclosures relating to pledge
By Simran Jalan (simran@vinodkothari.com)
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations) provides requirement in relation to manner of acquisition, takeover, disclosure requirements, acquisitions triggering open offer etc. It is a common phenomenon to pledge the shares of a listed entity as a security for availing of loan from Banks, financial institutions.
In line with the approval granted by SEBI in its Board meeting held on December 12, 2018[1] SEBI issued SEBI (Substantial Acquisition of Shares and Takeovers) (Third Amendment) Regulations, 2018[2] on December 28, 2018 (‘Amendment Regulations’) exempting certain class of NBFCs and HFCs from the requirement of disclosing acquisition (resulting from encumbrance) and disposal (resulting from release of encumbrance). This article discusses the impact of the said amendment.
The Amendment Regulations are effective from December 31, 2018.
Taxing Liaison Offices under GST regime
/0 Comments/in FEMA, Financial Services, Taxation /by Vinod Kothari ConsultantsBy Simran Jalan (simran@vinodkothari.com)
Introduction
A company resident outside India may initiate business in India by setting up a subsidiary or branch office or liaison office or project office or any other place of business by whatever name called after taking prior approval of the Reserve Bank of India (RBI). Setting up any of the aforementioned place of business has different tax implications. The present discussion focuses on the tax implication on Liaison office under the Goods and Services Tax (GST) regime.
RBI temporarily relaxes the Guidelines on Securitisation for NBFCs
/0 Comments/in Financial Services, News on Securitization, Securitisation /by Vinod Kothari ConsultantsBy Financial Services Division, finserv@vinodkothari.com
In the wake of the recent hues and cries of the entire country in anticipation of a liquidity crisis in the NBFC sector, the Reserve Bank of India, on 29th November, 2018, issued a notification[1] to modify the Securitisation Guidelines.The amendment aims to relax the minimum holding period requirements of the guidelines, subject to conditions, temporarily. Therefore, the changes vide this notification come with an expiry date. The key takeaways of the notification have been discussed below:
a. Relaxation in the MHP requirements: As per the notification, NBFCs will now be allowed to securitise/ assign loans originated by them, with original maturity of more than 5 years, after showing record of recovery of repayments of six monthly instalments or two quarterly instalments (as applicable). Currently, for loans with original maturity more than 5 years, the MHP requirements are repayment of at least twelve monthly instalments or four quarterly instalments (as applicable).
b. Change in MRR requirements for the loans securitised under this notification: The benefit mentioned above will be available only if the NBFC retains at least 20% of the assets securitised/ assigned. Currently, the MRR requirements ranges between 5%-10% depending on the tenure of the loans.
c. Timeline for availing this benefit: As already stated above, this is a temporary measure adopted by the RBI to ease out the tension relating to liquidity issues of the NBFCs; therefore, this comes with an expiry date, which in the present case is six months from the date of issuance of the notification. Therefore, this benefit will be available for only those loans which are securitised/ assigned during a period of six months from the date of issuance of this notification.
The requirements under the guidelines remains intact.
Further, the RBI has extended the relaxation till December 31, 2019 vide its notification dated May 29, 2019.
To summarise, the MHP requirements and the MRR requirements on securitisation/ assignment of loans looks as such –
| Loans assigned between 29th November, 2018 – 30th December, 2019 | Loans assigned after 31st December, 2019 | |
| MHP requirements for loans with original maturity less than 5 years | Loans upto 2 years maturity – 3 months
Loans between 2 – 5 years – 6 months |
Loans upto 2 years maturity – 3 months
Loans between 2 – 5 years – 6 months |
| MHP requirements for loans with original maturity less than 5 years | If revised MRR requirements fulfilled – 6 months
If revised MRR requirements not fulfilled – 12 months |
Loans upto 2 years maturity – 3 months
Loans between 2 – 5 years – 6 months |
| MRR requirements for loans with original maturity of less than 5 years | Loans with original maturity upto 2 years – 5%
Loans with original maturity more than 2 years – 10% |
Loans with original maturity upto 2 years – 5%
Loans with original maturity more than 2 years – 10% |
| MRR requirements for loans with original maturity of more than 5 years | If benefit of MHP requirements availed – 20%
If benefit of MHP requirements not availed – 10% |
Loans with original maturity upto 2 years – 5%
Loans with original maturity more than 2 years – 10% |
Vinod Kothari comments:
- Loans with original maturity of more than 5 years are essentially home loans and LAP loans. Home loans are housed mostly with HFCs. These guidelines ought to have come from NHB rather than RBI, but given the tradition that RBI guidelines are followed in case of HFCs as well, this “relaxation” will be more applicable to HFCs rather than NBFCs.
- In case of LAP loans, given the current credit scenario prevailing in the country, taking exposure on LAP loans itself is subject to question. Issue is – will the relaxation prompt NBFCs to write LAP loans, or will it simply allow them to package and sell existing pools of lap loans sitting on their books waiting for the MHP of 12 months to get over? It is more likely to be latter than the former.
- However, the so-called relaxation comes with a give-and-take – the MRR is 20%. The NBFC has, therefore, 2 options – wait for 12 months to be over and just do a transaction with 10% MRR, or avail the so-called relaxation and put in on-balance funding of 20%. Therefore, it is only for those who are desperate for refinancing that the so-called relaxation will seem appealing.
- Our interaction with leading NBFCs reveals that there are immediate liquidity concerns . Banks are not willing to take on-balance sheet exposure on NBFCs; rather they are willing to take exposure on pools. Therefore, for more than 6 months and less than 12 months seasoned LAP pools, this might provide a temporary packaging opportunity.
- This is indeed the best time to think of covered bonds. The proposition has been lying unresolved for last few years. If banks are willing to take exposure on pools, why not dual recourse by way of covered bonds? That indeed provides ideal solution, with ring fenced pools providing double layers of protection.
[1] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11422&Mode=0
For more articles on Securitisation and Covered Bonds, refer our page here.
Also refer our article: The name is Bond. Covered Bonds.
Comprehending Other Comprehensive Income (OCI) from NBFC’s Perspective
/2 Comments/in Accounting and Taxation, Corporate Laws, Indian Accounting Standards (Ind AS), NBFCs /by Vinod Kothari ConsultantsLiberalisation of ECB norms for Infra Companies
/0 Comments/in FEMA, Financial Services, NBFCs /by Vinod Kothari ConsultantsBy Simran Jalan (simran@vinodkothari.com)
Big step for small industry finances
/0 Comments/in Financial Services, NBFCs /by Vinod Kothari ConsultantsAnticipated boost in liquidity position of NBFCs and HFCs
/0 Comments/in Banking Regulations, Capital Markets, Financial Services, Housing finance, NBFCs /by Vinod Kothari ConsultantsBy Vineet Ojha (vineet@vinodkothari.com)