Risk-based Internal Audit for NBFCs – Applicability & Implementation
– Subhojit Shome, Assistant Manager | subhojit@vinodkothari.com
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Workshop on Co-Lending and Loan Sourcing Arrangements
| Register here: https://forms.gle/LBNKATZ8rxL3KvPz6 |
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Read our articles on the subject: https://vinodkothari.com/?s=co-lending
Consultation paper on the proposed IFSCA (Payment Services) Regulations, 20XX: An Analysis
By Anirudh Grover, Executive, finserv@vinodkothari.com
The International Financial Services Centre Authority in an attempt to restructure the regulatory overview of the Payment Services segment in GIFT IFSC has issued a Consultation Paper dated June 13, 2023 (‘CP’), along with the draft regulations that will be applicable to the payment services market in GIFT IFSC. The aim of this write-up is to critically analyze the same with comparisons with the current RBI framework and similar guidelines practiced by regulators globally.
Read more →SEBI’s standard approach, standardising valuation for AIFs
Dayita Kanodia | Executive, finserv@vinodkothari.com
So far, valuation of securities in terms of an Alternative Investment Fund (‘AIF’) was carried out in accordance with Regulation 23 of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (‘AIF Regulations’).
Regulation 23 provided AIFs with flexibility in adoption of valuation techniques or methodology for valuation of investment portfolios and the AIF managers were required to merely provide a description of the valuation procedure and of the methodology for valuing assets.. Also, the modalities relating to valuation of investment portfolio of the AIFs were not disclosed in the PPMs at the time of submission to SEBI and also were not reported to SEBI subsequently.
On January 06, 2023, SEBI issued a consultation paper on ‘Standardised approach to valuation of investment portfolio of Alternative Investment Funds’ (‘Consultation Paper on Valuation by AIFs’) which discussed the need for a standardised approach to valuation methodology along with other issues. SEBI had also conducted a survey of 150 managers of different categories of AIFs to understand, inter alia, the present valuation practices being followed.
Subsequently, vide an amendment dated June 21, 2023 SEBI has provided for a standardised approach with respect to the valuation of investment portfolio of AIFs. This standardised approach not only provides for the manner of valuation of AIF investments but also states the responsibility of the manager of an AIF with regard to this valuation in line with the Consultation Paper on Valuation by AIFs.
This article discusses the recent amendment in detail, including the provisions which have been put in place in the event of any material change in the methodology and approach for valuation of investments of schemes of AIFs.
Read more →Rise, Fall & Subsequent Legitimisation of Default Loss Guarantees
Anita Baid & Subhojit Shome | finserv@vinodkothari.com
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Inter-operable regulatory sandbox: A playground for fintechs ?
– Dayita Kanodia, Executive | finserv@vinodkothari.com
A regulatory sandbox allows live testing of innovative products/services under regulatory supervision and with regulatory relaxations. This in turn allows regulators to design evidence-based and innovation-friendly regulations.
An Inter-Operable Regulatory Sandbox or IoRS as defined by both RBI and SEBI is therefore a mechanism to facilitate testing of innovative hybrid financial products / services falling within the regulatory ambit of more than one financial sector regulator.
Read more →YouTube live: RBI Guidelines on Default Loss Guarantee
Anita Baid in conversation with Vinod Kothari
Live on YouTube – 20th June, 2023 | 5:00 P.M. – https://www.youtube.com/@vinodkotharicompany3966/videos
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A comprehensive framework for compromise settlement and technical write offs
Dayita Kanodia | Executive finserv@vinodkothari.com
The first bad bank loan was, no doubt, made around the time as the opening of the first bank.
James Grant[1]
Background
RBI released the Framework for Compromise Settlements and Technical Write-offs[2] (Framework) on June 8 2023. This framework, issued exactly four years after the release of the Prudential Framework for Resolution of Stressed Assets[3] (PFRSA), aims to rationalize and harmonize the instructions earlier issued. Additionally, while PFRSA was applicable only to banks and systemically important NBFCs (among others), the present Framework is applicable across all REs, including base layer NBFCs.
Subsequently, to clear the ambiguities that may have arisen after the issuance of the Framework, the RBI also released a set of Frequently Asked Questions[4] on the topic: of these, these FAQs were largely intended to respond to certain questions of intent that were being thrown at the regulator in releasing the Framework.
This article discusses the Framework along with its applicability, as also it intends to help REs to make a calculated decision on choosing between compromise settlements, writedowns, restructuring, or doing nothing at all. For either of the options, the article also discusses the other requirements which need to be ensured while pursuing the option.
Read more →Embracing a Wider Scope for TReDS
Transfer of Factoring Units to come under the purview of TLE in lieu of the regulator’s move to enhance TReDs Platform
– Anita Baid, Vice President | finserv@vinodkothari.com
The concept of Trade Receivables Discounting System (TReDS) was introduced by RBI to enable discounting of invoices of MSME sellers against large corporates, including government departments and public sector undertakings, through an auction mechanism to ensure prompt realisation of trade receivables at competitive market rates.
| TReDS transactions fall under the umbrella of “factoring business.” Factoring is a financial practice where a company sells its trade receivables, or outstanding invoices, to a third party at a discount in exchange for immediate cash. TReDS platforms provide a digital infrastructure for facilitating such transactions, enabling efficient invoice discounting and promoting liquidity for MSMEs.(Our FAQs on TReDS and the India Factoring Report 2023 can be read here and here) |
In a move to further strengthen the TReDS and promote smoother financial transactions, the RBI has announced significant enhancements to the TReDS guidelines. These enhancements are in line with the announcement made by RBI in the Statement on Developmental and Regulatory Policies dated February 8, 2023, to address certain challenges faced by financiers while bidding for low-rated buyers’ payables on TReDS platforms. (Our article on the same can be read here)
This article intends to discuss the RBI notification dated June 7, 2023 on Expanding the Scope of Trade Receivables Discounting System, introducing the said enhancements.
Read more →FAQs on Default Loss Guarantee in Digital Lending
An understanding of the Guidelines issued by RBI
(Updated as on April 29, 2024)
Team Finserv | finserv@vinodkothari.com
On September 02, 2022, the RBI issued the “Guidelines on Digital Lending” (“DL Guidelines”), which had essentially put a bar on “Loss sharing/ structured default guarantee arrangements” such as First Loss Default Guarantees, likening their nature to that of “synthetic securitisation” as defined under the Master Direction – Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021 (“SSA Directions”). This caused a disruption in the digital lending industry as most of the arrangements ran on some form of loss-sharing arrangement. (Refer to our FAQs on the Digital Lending Guidelines here)
In its Statement on Developmental and Regulatory Policies dated June 8, 2023, the RBI announced its intention to issue a regulatory framework for permitting Default Loss Guarantee arrangements in Digital Lending[1]. The same day, the Guidelines on Default Loss Guarantee (DLG) in Digital Lending have been issued by the regulator (‘DLG Guidelines’).
We have developed a set of FAQs on the DLG Guidelines, where we intend to answer some of the critical questions relating to the default guarantee arrangements. The FAQs were updated based the RBI FAQs on DLG Guidelines (‘RBI FAQs) issued on Apr 26, 2024.
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