Reprieve for banks and NBFCs

One-time restructuring of stressed MSME accounts

By Simran Jalan (finserv@vinodkothari.com)

Introduction

The Non-Performing Asset (NPA) rates in the Micro, Small and Medium Enterprises (MSMEs) segment have remained stable and range bound. In the Micro segment the NPA rate has moved from 8.9%[1] in March, 2017 to 8.8% in March, 2018. In SME segment, the NPA rate hovered between 11.4% in march, 2017 to 11.2% in March, 2018. Recognised NPA exposure for MSMEs is Rs. 81,000 crores as on March, 2018. While the growth in the NPA rate has moderated, it is too early to conclude that the NPA problem is close to bottoming out.

The RBI, in its board meeting held on November 19, 2018[2], was advised by the Board to consider a scheme of restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs. 25 crores, subject to such conditions as are necessary for ensuring financial stability.

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Accounting for Direct Assignment under Indian Accounting Standards (Ind AS)

By 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.

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SEBI extends disclosure related exemption to eligible NBFCs & HFCs

-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.

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Anticipated boost in liquidity position of NBFCs and HFCs

By Vineet Ojha (vineet@vinodkothari.com)

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Gist of amended Schedule III of Companies Act, 2013