This presentation covers the procedural requirements for restructuring of bonds/debentures during COVID-19 crisis.
Please click below for the presentation:
Part-1:
Please click here for the PPT used in the presentation.
Ambika Mehrotra & Ankit Vashishth
In line with various other relaxations introduced by the Securities and Exchange Board of India (‘SEBI’), amid the global pandemic, it has now come up with a Circular dated 21st April, 2020 [1]granting temporary relief under certain provisions of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (‘ICDR regulations’) in respect of Rights Issue. The rights issues opening on or before March 31, 2021 will get benefited from the said Circular.
It goes without saying that during the period of this of economical breakdown, the industrial undertakings are in need of funds for various purposes. In this hour of crisis, SEBI’s move seems to ease out the stringent requirements in the statues which hamper the facility of raising funds by companies especially through rights issue.
The amended provisions broadly serve the intent of having a relatively flexible eligibility criteria for a fast track rights issue and lesser chances of refund of the amount in case of non- receipt of subscription amount.
A snapshot of the relaxations and their impact is enlisted below: –
| Relevant Regulation
|
Pre- amendment | Post-amendment | Impact Analysis |
| 99(a) | the equity shares of the issuer have been listed on any stock exchange for a period of at least three years immediately preceding the reference date
|
the equity shares of the issuer have been listed on any stock exchange for a period of at least eighteen months immediately preceding the reference date
|
Relaxation in the pre-condition with respect to listing of equity shares from 3 years to 18 months. |
| 99(c ) | the average market capitalisation of public shareholding of the issuer is at least two hundred and fifty crore rupees
|
the average market capitalisation of public shareholding of the issuer is at least one hundred crores
|
Companies with smaller market size i.e. more Rs. 100 crore and above also permitted to enter into Fast Track Issue. |
| 99(f) and its proviso | the issuer has been in compliance with the equity listing agreement or the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as applicable, for a period of at least three years immediately preceding the reference date:
Provided that if the issuer has not complied with the provisions of the listing agrîment or the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as applicable, relating to composition of board of directors, for any quarter during the last three years immediately preceding the reference date, but is compliant with such provisions at the time of filing of letter of offer, and adequate disclosures are made in the letter of offer about such non-compliances during the three years immediately preceding the reference date, it shall be deemed as compliance with the condition; |
the issuer has been in compliance with the equity listing agreement or the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as applicable, for a period of at least eighteen months immediately preceding the reference date:
Provided that if the issuer has not complied with the provisions of the listing agreement or the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as applicable, relating to composition of board of directors, for any quarter during the last eighteen months immediately preceding the reference date, but is compliant with such provisions at the time of filing of letter of offer, and adequate disclosures are made in the letter of offer about such non-compliances during the three years immediately preceding the reference date, it shall be deemed as compliance with the condition;
|
The timeline for being in compliance with listing regulations has been reduced from 3 years to 18 months.
This is in line with the requirement under Regulation 99(a) wrt listing of equity shares for a period of atleast 18 months instead of 3 years. |
| 99(h) | No show-cause notices have been issued or prosecution proceedings have been initiated by the SEBI and pending against the issuer or its promoters or whole-time directors as on the reference date. | No show-cause notices, excluding under adjudication proceedings, have been issued by the SEBI and pending against the issuer or its promoters or whole-time directors as on the reference date.
In cases where against the issuer or its promoters/ directors/ group companies,
i. a show cause notice(s) has been issued by the Board in an adjudication proceeding or
ii. prosecution proceedings have been initiated by the Board; necessary disclosures in respect of such action (s) along-with its potential adverse impact on the issuer shall be made in the letter of offer. |
Regulation 99(h) restricts the company to make fast track rights issue in case there had been any show-cause notices or prosecution proceedings issued/initiated against the company/ its promoters/ WTDs.
The temporary relaxation however allows the company to be eligible for rights issue to the extent where adjudication proceedings or prosecution proceedings in respect of the above as well as the group companies are concerned, on making the required disclosures in this regard and its adverse impact, in the letter of offer |
| 99(i) | the issuer or promoter or promoter group or director of the issuer has not settled any alleged violation of securities laws through the consent or settlement mechanism with the Board during three years immediately preceding the reference date;
|
The issuer or promoter or promoter group or director of the issuer has fulfilled the settlement terms or adhered to directions of the settlement order(s) in cases where it has settled any alleged violation of securities laws through the consent or settlement mechanism with the Board. | Prior to the relaxation, any violation in the securities laws by the issuer/ promoter/ promoter group/ director made the issuer ineligible. This however has now been relaxed to permit the issue in case the above violators, having violated the securities laws at anytime during the past have fulfilled the settlement terms or followed the directions under the settlement order(s) |
| 99(j) | The equity shares of the issuer have not been suspended from trading as a disciplinary measure during last 3 years immediately preceding the reference date. | The equity shares of the issuer have not been suspended from trading as a disciplinary measure during last 18 months immediately preceding the reference date. | In line with Regulation 99(a) and (f) |
| 99(m) | There are no audit qualifications on the audited accounts of the issuer in respect of those financial years for which such accounts are disclosed in the letter of offer | For audit qualifications, if any, in respect of any of the financial years for which accounts are disclosed in the letter of offer, the issuer shall provide the restated financial statements adjusting for the impact of the audit qualifications.
Further, that for the qualifications wherein impact on the financials cannot be ascertained the same shall be disclosed appropriately in the letter of offer. |
Prior to the Circular, any qualification in the audit report led to ineligibility. This condition has now been re-framed to make the companies eligible on providing the restated financial statements adjusting for the impact of the audit qualifications or providing clarifications in case such impact cannot be ascertained |
| Relevant Regulation
|
Pre- amendment | Post-amendment | Remarks |
| 86(1) | The minimum subscription to be received in the issue shall be at least ninety per cent. of the offer through the offer document. | The minimum subscription to be received in the issue shall be at least seventy five percent of the offer through the offer document.
Provided that if the issue is subscribed between 75% to 90%, issue will be considered successful subject to the condition that out of the funds raised atleast 75% of the issue size shall be utilized for the objects of the issue other than general corporate purpose. |
The minimum subscription amount has been reduced from 90% to 75%.
However, the Circular seems to put another restriction on the utilization of atleast 75% of the funds for the objects of the issue other than general corporate purpose if the actual subscription goes beyond 75% but within 90% of the offer. |
| Relevant Regulation
|
Pre- amendment | Post-amendment | Remarks |
| Applicability of the Regulations:
3(b) |
rights issue by a listed issuer; where the aggregate value of the issue is ten crore rupees or more;
|
rights issue by a listed issuer; where the aggregate value of the issue is twenty-five crores or more;
|
The conditions prescribed in Chapter III of ICDR Regulations shall not apply in case of Rights Issue carrying an issue size of less than Rs. 25 crores. |
|
Proviso to Reg. 3 |
Provided that in case of rights issue of size less than ten crore rupees, the issuer shall prepare the letter of offer in accordance with requirements as specified in these regulations and file the same with the Board for information and dissemination on the Board’s website. | Provided that in case of rights issue of size less than twenty-five crore rupees, the issuer shall prepare the letter of offer in accordance with requirements as specified in these regulations and file the same with the Board for information and dissemination on the Board’s website. | The change is made considering the revised limit of applicability of the Regulations for a rights issue. |
|
60 |
Unless otherwise provided in this Chapter, an issuer offering specified securities of aggregate value of ten crore rupees or more, through a rights issue shall satisfy the conditions of this Chapter | Unless otherwise provided in this Chapter, an issuer offering specified securities of aggregate value twenty-five crore rupees or more, through a rights issue shall satisfy the conditions of this Chapter. | The change is made considering the revised limit of applicability of the Regulations for a rights issue. |
In addition to the above Circular, SEBI has also issued another circular on the same date i.e. April 21, 2019[2] for granting one-time relaxation on the basis of the representations received from various stakeholders with respect to the opening of issue period within 12 months from the date of issuance of the observations by SEBI, for an Initial Public Offer (IPO), Further Public Offer (FPO) or Rights Issue as per Regulation 44, 140 and 85 respectively of the ICDR Regulations, expiring during this period of lockdown i.e. between March 1, 2020 and September 30, 2020 to be extended by 6 months, from the date of expiry of the above-mentioned observations received from SEBI.
However, the extension to this issue opening period shall be granted on obtaining an undertaking from lead manager of the issue confirming compliance with Schedule XVI of the ICDR Regulations with respect to the nature of changes in the offer document which require filing of updated offer document, while submitting the updated offer document to SEBI.
These temporary relaxations will surely bring in a sigh of relief for the stakeholders including the companies intending to raise funds through rights issue, during this interim period of disruption due the outbreak of COVID-19, considering the stagnancy of operations in the country.
Read our related articles below –
SEBI ICDR Regulations, 2018– Snapshot on changes in rights, bonus, QIP and preferential issue;
SEBI (ICDR) Regulations, 2018-Key Amendments;
Covid-19 – Incorporated Responses | Regulatory measures in view of COVID-19.
[1] https://www.sebi.gov.in/legal/circulars/apr-2020/relaxations-from-certain-provisions-of-the-sebi-issue-of-capital-and-disclosure-requirements-regulations-2018-in-respect-of-rights-issue_46537.html
[2] https://www.sebi.gov.in/legal/circulars/apr-2020/one-time-relaxation-with-respect-to-validity-of-sebi-observations_46536.html
-Megha Mittal
The past few years have witnessed an array of technological developments and innovations, especially in Fintech; and while the world focused on Bitcoins and other cryptos, a new entrant ‘Stablecoin’ slowly crept its way into the limelight. With the primary motive of shielding its users from the high volatility associated with cryptos, and promises of boosting cross-border payments and remittance, ‘Stablecoins’ emerged in 2018, and now have become the focal point of discussion of several international bodies including the Financial Standards Board (FSB), G20, Financial Action Task Force (FATF) and International Organization of Securities Commission (IOSCO).
Additionally, the widespread notion that the desperate need of cross-border payments and remittances during the ongoing COVID-crisis may prove to be a defining moment for stablecoins, has drawn all the more attention towards the need of establishing regulations and legal framework pertaining to Stablecoins.
In this article, we shall have an insight as to what Stablecoins, (Global Stable Coinss) are, its modality, its current status of acceptance by the international bodies, and how the ongoing COVID crisis, may act as a catalyst for its rise.
– by Megha Saraf
Updated as on 24th April, 2020
While currently the world is suffering due to the pandemic COVID-19, our regulatory authorities have been continuously providing reliefs/ relaxations to all corporate houses from making various compliances required under the statutory laws. While some of the major relaxations such as conducting extraordinary general meeting of shareholders through VC, making contribution to PM-CARES Fund as a notified CSR expenditure or making compliances under Listing Regulations have already been notified, MCA has come up with yet another Circular[1] granting relaxation from holding AGMs to such companies that follows calendar year as their financial year.
Section 2(41) of the Companies Act, 2013 (“Act, 2013”) lays down the definition of “financial year” as, “in relation to any company or body corporate, means the period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up:
Provided that where a company or body corporate, which is a holding company or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Central Government may, on an application made by that company or body corporate in such form and manner as may be prescribed, allow any period as its financial year, whether or not that period is a year:”
XX
There are corporate groups where the structure of shareholding is such, that the holding company is situated outside India and is having Indian subsidiaries. The provisions of law provide that where the relationship between the group is such, that it requires the Indian company to follow a different financial year for the purpose of consolidation of its accounts with the accounts of the company situated outside India, such Indian company can have a different financial year. However, such company needs to apply to the Tribunal for the same.
Section 96 of the Act, 2013 provides that a company is required to hold an AGM within 6 months from the date of closing of the financial year. However, a newly incorporated company can have its first AGM within 9 months of the closure of the financial year.
Source[2]: Business Standard: 226 firms to march to a new accounting year
Yes. As per the above graph, there are nearly 226 companies in India that follow a different financial year. Out of the 226 companies, 74 are such companies whose calendar year is the financial year i.e. January- December.
Currently, only companies that follows calendar year as financial year have been granted a 3-months relaxation from holding their AGMs i.e. such companies are allowed to hold their AGMs till 30th September, 2020 instead of June, 2020. Further, the due dates of all other related compliances such as filing of annual returns or financial statements which are required to be done within 60 days/ 30 days as applicable shall be construed accordingly.
Regulation 44(5) of the SEBI (LODR) Regulations, 2015 provides that where the listed entity is within top 100 listed entities based on market capitalization, they have to hold their AGM within 5 months from the closure of the financial year i.e. by August 31, 2020. However, considering the present situation and the need for social distancing, conducting AGMs within such time was becoming a challenge for large corporates. Keeping this in mind, SEBI has granted relief to such entities by extending the requirement by 1 month i.e. till September 30, 2020. However, there was no clarity on what if such entity is a listed entity and follows calendar year as their financial year and is among the top 100 listed entities.
SEBI has now also clarified the same vide its Circular[3] dated 23rd April, 2020 and the present timeline may be summarized as follows:
| Sl. No. | Type of company | Time line under the Companies Act, 2013 | Time line under the SEBI (LODR) Regulations, 2015 | Extended timeline |
| 1 | Listed company following Apr- Mar as F.Y. | Within 6 months from end of FY i.e. 30th September, 2020 | Does not provide | No extension |
| 2 | Listed company following Jan-Dec as F.Y. | Within 6 months from end of FY i.e. till 30th June, 2020 | Does not provide | Extended by 3 months i.e. till 30th September, 2020 |
| 3 | Listed company following Apr- Mar as F.Y. and amongst top 100 listed entities | General provision- Within 6 months from end of FY i.e. 30th September, 2020 | Within 5 months from end of FY i.e. till 31st August, 2020 | Extended by 1 month i.e. till 30th September, 2020 |
| 4 | Listed company following Jan- Dec as F.Y. and amongst top 100 listed entities | General provision- Within 6 months from end of FY i.e. 30th September, 2020 | Within 5 months from end of FY i.e. till 31st May, 2020 | Extended till 30th September, 2020 under both laws |
Therefore, all types of companies can conduct their AGMs till 30th September, 2020.
Our other articles on related subject may be found here.
[1] http://www.mca.gov.in/Ministry/pdf/Circular18_21042020.pdf
[2] https://www.business-standard.com/article/companies/226-firms-to-march-to-a-new-accounting-year-113100300666_1.html
[3] https://www.sebi.gov.in/legal/circulars/apr-2020/relaxation-in-relation-to-regulation-44-5-of-the-sebi-listing-obligations-and-disclosure-requirements-regulations-2015-lodr-on-holding-of-annual-general-meeting-agm-by-top-100-listed-entitie-_46552.html
– A $15 billion stimulus package for securitisation transactions
Timothy Lopes, Executive, Vinod Kothari Consultants
COVID-19 has pushed the global economy into recession. Many countries have made several policy reforms to address and mitigate the impact of the pandemic. Several countries have provided ‘moratorium’, ‘loan modification’ or ‘forbearance’ on scheduled loan obligations of borrowers.
There is no doubt that this deferment of payment by borrowers of principal and interest cause by moratorium in several countries, will have an impact on the cash flows in securitisation transactions.
Australia is one of the major economies that has provided relief to borrowers in the form of a six month moratorium for small business. Due to the relief provided, the country has also recognized the need for providing support to securitisation transactions which will be affected by the moratorium and has enacted a new legislation, thereby constituting a fund for structured finance.
In this write up we discuss the details of this seemingly new and innovative support mechanism for securitisation transactions.
The Australian Banking Association (ABA)[1] has provided a moratorium package which extends to all small business loans as well as mortgages. There will be deferment of principal as well as interest for a period of six months. Interest will continue to be accrued, it can then be paid off over the life of the loan once repayments begin again, or the length of the loan can be extended.
In order to be eligible for the same, one must have less than $10 million total debt to all credit providers and needs to be current, and not in arrears as of 1 January 2020.
On 24th March, 2020, Australia enacted a new law called the Structured Finance Support (Coronavirus Economic Response Package) Act 2020[2] (‘Act’). The Act was supported with the Structured Finance Support (Coronavirus Economic Response Package) Rules 2020[3] (‘Rules’) as well as the Structured Finance Support (Coronavirus Economic Response Package) (Delegation) Direction 2020[4] (‘Delegation’).
The move was part of an announcement made by the Australian Government in this regard to provide continued access to funding markets for small and medium enterprises (SMEs) impacted by the economic effects of the Coronavirus, and to mitigate impacts on competition in consumer and business lending markets.
Pursuant to the Act, a Structured Finance Support Fund has been established with an initial corpus of A$15 billion. The said fund is managed by the Australian Office of Financial Management (AOFM)[5].
The fund is set up with the purpose of making investment in RMBS, ABS and warehousing facilities to compensate for cashflows deferred as a result of COVID-19 hardship payment holidays being granted to borrowers.
The idea is to invest in securities issued by SPVs who wish to be compensated for the missed interest component of scheduled payments not received from the borrower as a result of the payment holiday granted due to the impact of COVID-19.
This will provide a source of liquidity to securitisation transactions to mitigate the impact of non-payment of interest on account of the moratorium.
Eligible lenders who can access the fund are the following –
Authorised Debt Securities –
As per the Act, the fund is permitted to invest in only in ‘authorised debt securities’. As per Section 12 of the Act, –
An authorised debt security is a debt security that:
The Rules go on to prescribe that for the purpose of Section 12, an authorised debt security must not be a first loss security.
Thus, we are looking at investments made by the fund in the senior most securities issued by an SPV or other securities, which must not be a first loss security.
Investment priority/ decision making –
The Delegation issued, sets out the investment strategies/policies, decision-making criteria and appetite for risk and return for the SFSF. These are designed to assist the fund to prioritise between investments.
As per the Delegation, priority must be given to investments which provide support to smaller lenders.
Setting up a “Forbearance” SPV
The Australian Securitisation Forum (ASF) and AOFM are developing a structure that will enable the SFSF to invest in new senior ranking debt securities issued by a newly constituted “Forbearance” SPV.
That SPV will then advance funds to securitisation trusts and warehouses who wish to draw liquidity advances to compensate for the missed interest component of scheduled payments not received as a result of the borrower being granted a payment holiday or moratorium due to the impact of COVID-19.
The plan of the ASF is to appoint legal counsel to develop a detailed term sheet to describe how an industry wide “Forbearance” SPV can operate subject to the terms of the SFSF legislation and the operational guidelines of the SFSF. Once established eligible issuers and lenders can be registered to access the “Forbearance” SPV. It is expected that eligible participants will need to subscribe for junior notes in the “Forbearance” SPV in proportion to their participation and these notes will not cross collateralise the obligations of the other participants.
The ASF expects that the “Forbearance” SPV will appoint an independent party to verify the transfer of eligible COVID-19 receivables to the SPV and reconcile drawdowns and repayments under the liquidity facility, amongst other things.
This is an innovative structure which would identify lenders in need, particularly small lenders and provide the required liquidity by advancing funds to compensate for the impact of the moratorium.
The structured finance industry world over is seen to impacted by payment holidays provided. While in most cases, there would have to be modification in the pay-outs of the securitisation transaction, Australia has recognised the need to support securitisation structures by setting up a Fund with a seemingly large corpus to deal with the issue of moratorium.
So far, the SFSF has announced two investments to date, the first in Firstmac’s 2019-1 RMBS and the second in a Judo Bank warehouse facility. This move along with several other policy measures taken by the Reserve Bank of Australia can only help mitigate the impact of COVID-19 on securitisation structures.
[1] https://www.ausbanking.org.au/covid-19/the-business-relief-package/
[2] https://www.legislation.gov.au/Details/C2020A00027
[3] https://www.legislation.gov.au/Details/F2020L00309
List of reliefs summarized
Shaifali Sharma
While ensuring that companies remain compliant during the current battle with COVID-19, several temporary measures are being provided by various regulators every other day since lockdown. The measures announced would support companies and other industrial bodies to function and meet the timelines in the period of lockdown.
The Capital Market Regulator SEBI has also lined up a slew of relaxations for the listed entities amid COVID-19 crises. The list of all the relevant circulars in this regard, recapitulating the requirement of law, original timelines and the relaxations granted by the SEBI are summarized in this article, pertaining to the following Regulations:
| Sr.
No. |
Regulation /Circular | Particulars | Requirement/Frequency of filing | Original Due Date | Extended Date | Relaxation period | |
| Relaxations on holding AGM by top 100 listed entities vide circular dated April 23, 2020 | |||||||
| 1 | 44(5) | Holding AGM within a period of five months | Top 100 listed entities by market capitalization, (determined as on 31st March of every FY), shall hold their AGMs within a period of 5 months from the date of closing of the FY | For companies whose FY ends on March 31, 2020 – 31-Aug-20 | 30-Sep-20 | 1 month | |
| For companies whose FY ends on December 31, 2020 – 31-May-20 | 30-Sep-20 | 4 months | |||||
| Relaxations/Clarification vide circular dated April 17, 2020 | |||||||
| 2 | 29(2) | Prior Intimations | Prior intimation about meetings of the board (excluding the date of the intimation and date of the meeting): a. at least 5 days before the meeting if financial results are to be considered; b. 2 working days in other cases |
– | – | Prior intimation of 5 days / 2 working days reduced to 2 days, for board meetings held till July 31, 2020 | |
| 3 | 39(3) | Intimation to Stock Exchanges regarding loss of share certificates and issue of the duplicate certificates | Within 2 days of its getting information | Any delay beyond the stipulated time will not attract penal provisions laid down vide SEBI circular dated May 03, 2018 wrt Non-Compliance with provisions of SEBI LODR | Relaxation is for intimations to be made between March 1, 2020 to May 31, 2020 | ||
| 4 | 52(8) | Newspaper publication of financial results | Within 2 calendar days of the conclusion of the meeting of the board of directors | – | – | No advertisement publication in newspaper required for events taking place up to May 15, 2020 | |
| 5 | – | Clarification regarding the use of digital signatures | – | Authentication /certification of any filing /submission made to stock exchanges under LODR may be done using digital signature certifications until June 30, 2020 | |||
| Relaxations vide SEBI circular dated March 26, 2020 | |||||||
| 6 | 40(9) | Certificate from Practicing Company Secretary on timely issue of share certificates. | Half Yearly(1 month of the end of each half of the financial year) | 30-Apr-20 | 31-May-20 | 1 month | |
| 7 | 44(5) | Holding of AGM by top 100 listed entities by market capitalization for FY 19-20. | Annual (Within a period of 5 months from the date of closing of the financial year) | 31-Aug-20 | 30-Sep-20 | 1 month | |
| 8 | 19(3A) | The Nomination and Remuneration Committee shall meet at least once in a year. | Yearly | 31-Mar-20 | 30-Jun-20 | 3 months | |
| 9 | 20(3A) | The Stakeholders’ Relationship Committee shall meet at least once in a year. | |||||
| 10 | 21(3A) | The Risk Management Committee shall meet at least once in a year. | |||||
| 11 | SEBI circular dated January 22, 2020 | Relaxation of the operation of the SEBI circular on Standard Operating Procedure dated January 22, 2020 | – | For compliance periods ending on or after March 31, 2020. | For compliance periods ending on or after June 30, 2020. | 3 months | |
| 12 | 47 | Publication of advertisements in the newspaper.
Exemption from publication of advertisements in newspapers as required under regulation 47 for all events scheduled till May 15, 2020. |
As provided under Regulation 47 | – | – | No advertisement publication in newspaper required for events taking place up to May 15, 2020 | |
| Relaxations vide SEBI circular dated March 23, 2020 | |||||||
| 13 | SEBI circular dated October 29, 2013, October 22, 2019 and December 24, 2019 | Public issue of debt securities/ preference shares or listing of commercial papers | Companies proposing public issue of debt securities/ preference shares or listing of commercial papers are required to submit audited financial statements which are not older than 6 months.
Relaxation -Companies can issue debt securities or preference shares/ list commercial papers based on the financials as on September 30, 2019 up to the extended date. |
31-Mar-20 | 31-May-20 | 60 days | |
| 14 | SEBI circular dated 26.11.2018 | Disclosure of Large Corporate entities
a. Initial disclosure |
Initial Disclosure – within 30 days from the beginning of financial year | 30-Apr-20 | 30-Jun-20 | 45 days | |
| b. Annual disclosure | Annual Disclosure – within 45 days from the end of financial year | 15-May-20 | 30-Jun-20 | 60 days | |||
| 15 | 52 (1) & (2)
– |
Financial results
Submission of financial results in case of listed commercial papers. |
Half yearly – 45 days from the end of half year | 15-May-20 | 30-Jun-20 | 45 days | |
| Annual – 60 days from the end of financial year for annual financial statements | 30-May-20 | 30-Jun-20 | 30 days | ||||
| Relaxation from compliance with certain provisions of SEBI (LODR) Regulations, 2015 | |||||||
| 16 | 7(3) | Compliance certificate on share transfer facility | Half yearly (one month of end of each half of the financial year) | 30-Apr-20 | 31-May-20 | 1 month | |
| 17 | 13(3) | Statement of investor complaints | Quarterly (21 days from the end of each quarter) | 21-Apr-20 | 15-May-20 | 3 weeks (approx) | |
| 18 | 24A read with circular dated February 8, 2019 | Annual Secretarial Compliance Report | Yearly (60 days from the end of financial year) | 30-May-20 | 30-Jun-20 | 1 month | |
| 19 | 27(2) | Corporate Governance Report | Quarterly (15 days from the end of the quarter) | 15-Apr-20 | 15-May-20 | 1 month | |
| 20 | 31 | Shareholding pattern | Quarterly (21 days from the end of the quarter) | 21-Apr-20 | 15-May-20 | 3 weeks (approx) | |
| 21 | 33 | Financial results | 45 days from the end of the quarter for quarterly results | 15-May-20 | 30-Jun-20 | 45 days | |
| 60 days from the end of Financial Year for Annual Financial Results | 30-May-20 | 30-Jun-20 | 1 month | ||||
| 22 | 17(2) & 18(2)(a) | Meeting of Board of Directors and Audit Committee | Board of Directors and Audit Committee shall meet at least 4 times in a year and not more than 120 days shall elapse between two meetings. | The board of directors and Audit Committee of the listed entity are exempted from observing the maximum stipulated time gap between two meetings for the meetings held or proposed to be held between the period December 1, 2019 and June 30, 2020 | |||
| Sr. No. | Regulation | Particulars | Requirement/Frequency of filing | Original Due Date | Extended Date | Relaxation period |
| Relaxation from compliance with certain provisions of SEBI (SAST) Regulations, 2011 vide circular dated March 27, 2020 | ||||||
| 1 | 30(1) & 30(2) | Continual Disclosures | Every person, who together with persons acting in concert with him, holds shares /voting rights entitling him to exercise 25% or more of the voting rights in a target company, shall disclose their aggregate shareholding and voting rights as of the 31st March, in such target company in such form as may be specified. | Within 7 working days from the end of the financial year March 31, 2020. | 1-Jun-20 | 3 months (approx) |
| 2 | 31(4) | Disclosure of encumbered shares | Promoter of every target company shall together with persons acting in concert with him, disclose their aggregate shareholding and voting rights as of the 31st March, in such target company in such form as may be specified | |||
| Sr.
No. |
Regulation | Particulars | Requirement/Frequency of filing | Original Due Date | Extended Date | Relaxation period |
| Relaxation in time period for certain activities carried out by depository participants, RTAs / issuers, KRAs, stock brokers vide circular dated April 16, 2020 | ||||||
| 1 | 74(5) of SEBI (Depositories and Participants) Regulation, 2018 | Processing of the demat request form by Issuer/ RTA | Submission of certificate with Depository and stock exchange where securities are listed for following:
a. Confirming that the certificate of security received from the DP in the course of processing a dematerialization request of a beneficial owner have been listed on the stock exchange where the earlier issued securities are listed; and b. To the effect that the Company has, after due verification immediately mutilated and canceled the certificate of security and substituted in its record the name of the Depository as the registered owner. |
Within 15 days of receipt of information from participant | Period beginning from March 23, 2020 till May 17, 2020 shall be excluded for computing the existing timelines
Further, 15 day time period after May 17, 2020 is allowed to the SEBI registered intermediary, to clear the back log. |
|
| 2 | 74(5) of SEBI (Depositories and Participants) Regulation, 2018 | Processing of the demat request form by the Participants. | The participant shall furnish to the issuer details specified in sub-regulation (2) of Regulation 74 along with the certificate of security | Within 7 days of the receipt of certificate of security | ||
| 3 | SEBI circular no. MIRSD/Cir-26/2011 dated December 23, 2011 | Uploading KYC application form and supporting documents on KRA system | KYC application form and supporting documents of the clients to be uploaded on system of KRA within 10 working days | Within 10 working days | ||
| Relaxation in adherence to prescribed timelines relating to SEBI (Depositories and Participants) Regulation, 2018 vide circular dated April 13, 2020 | ||||||
| 4 | 74(5) of SEBI (Depositories and Participants) Regulation, 2018 | Submission of certificate with Depository and stock exchange | Submission of certificate with Depository and stock exchange where securities are listed for following:
a. Confirming that the certificate of security received from the DP in the course of processing a dematerialization request of a beneficial owner have been listed on the stock exchange where the earlier issued securities are listed; and b. To the effect that the Company has, after due verification immediately mutilated and canceled the certificate of security and substituted in its record the name of the Depository as the registered owner. |
Within 15 days of receipt of information from participant | Within 15+21+19 days of receipt of information from participant i.e. within 55 days | 40 days |
| 5 | 76(1) of SEBI (Depositories and Participants) Regulation, 2018 | Submission of audit report to stock exchange | Submission of audit report to stock exchange for the purpose of reconciliation of total issued capital, listed capital and capital held by depositories in demat form within 30 days of the end of each quarter | 30-Apr-20 | 10-Jun-20 | 40 days (21+19 days) |
| 6 | 76(3) of SEBI (Depositories and Participants) Regulation, 2018 | Intimation of any difference observed in its issued, listed, and the capital held in demat | The company to bring to the notice of the Depositories and the Stock Exchanges, any difference observed in its issued, listed, and the capital held by the depositories in dematerialised form. | Immediately | within 21 + 19 days i.e. within 40 days | 40 days |
| BSE circular dated April 14, 2020 for extension of Submission Date of Share Capital Audit Report for the quarter ended March 31, 2020 | ||||||
| 7 | 76(1) of SEBI (Depositories and Participants) Regulation, 2018 | Submission of audit report to stock exchange | Submission of audit report to stock exchange for the purpose of reconciliation of total issued capital, listed capital and capital held by depositories in demat form within 30 days of the end of each quarter | 30-Apr-20 | 31-May-20 | 31 days |
| Sr. No. | ICDR Regulation | Particulars | Requirement/Frequency of filing | Relaxation granted | Relaxation period | |
| One-time relaxation with respect to validity of SEBI observations vide circular dated April 21, 2020 | ||||||
| 1 | 44(1) | Opening of issue in case of IPO | Within 12 months from the date of issuance of the observations by the Board
|
Where the SEBI observations have expired/will expire between March 1, 2020 and September 30, 2020, its validty is extended by 6 months, from the date of expiry of such observation, subject to an undertaking from lead manager of the issue confirming compliance with Schedule XVI of the ICDR Regulations | 6 months | |
| 2 | 85 | Opening of issue in case of Right Issue | Within 12 months from the date of issuance of the observations
In case of a fast track issue, within 12 months from the record date. |
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| 3 | 140 | Opening of issue in case of FPO | Within 12 months from the date of issuance of the observations by the Board
In case of a fast track issue, within the period stipulated under the Companies Act, 2013. In case of shelf prospectus, within 3 months of issuance of observations |
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| 4 | Schedule XVI | Filing fresh offer document for increase/decrease in fresh issue size | In case of fresh issue any increase/decrease in estimated issue size by more than 20% of the estimated issue size requires fresh filing of offer document | For IPO/ Rights Issues/ FPO opening before 31.12.2020, issuer shall be permitted to increase/decrease the fresh issue size up to 50% of the estimated issue size without requiring to file fresh draft offer document subject to following conditions:
· there has been no change in the objects of the issue · the lead manager undertakes that the draft offer document is in compliance with provisions of Reg 7(1)(e) · the lead manager shall ensure that all appropriate changes are made to the relevant section of DRHP and an addendum, in this regard, shall be made public. |
||
| Relaxation from certain provisions of ICDR in respect of right issue vide circular dated April 21, 2020 | ||||||
| Applicable for Right Issues open on or before 31.03.2021 (not applicable for issuance of warrants) | ||||||
| 5 | 99(1)(a) | Eligibility conditions related to Fast Track Rights Issue | Equity shares of the issuer have been listed on any stock exchange for a period of at least 3 years immediately preceding the reference date | Period relaxed from ‘3 years’ to ‘18 months’ | ||
| 6 | 99(1)(c) | Average market capitalisation of public shareholding of the issuer is at least Rs. 250 crores | Limit reduced from ‘Rs. 250 crores’ to ‘Rs. 100 crores’ | |||
| 7 | 99(1)(f) | Issuer has been in compliance with the equity listing agreement or LODR Regulations for a period of at least 3 years immediately preceding the reference date
|
Period relaxed from ‘3 years’ to ‘18 months’ | |||
| 8 | 99(1)(h) | No show-cause notices issued or prosecution proceedings initiated and pending against the issuer/ its promoters/ whole-time directors as on the reference date | Issuer is eligible even if any adjudication proceedings initiated/pending against the issuer/ its promoters/ whole-time directors. However, in case a SCN issued or prosecution proceeding initiated against issuer or its promoters/ directors/group companies, necessary disclosures in respect of such action(s) along-with its potential adverse impact on the issuer shall be made in the letter of offer.
|
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| 9 | 99(1)(i) | Issuer or promoter or promoter group or director of the issuer has not settled any alleged violation of securities laws through the consent or settlement mechanism with the Board during 3 years immediately preceding the reference date
|
In case settled any alleged violation of securities laws, issuer is eligible if issuer/promoter/promoter group/ director of the issuer fulfill the settlement terms or adhered to directions of the settlement order(s)
|
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| 10 | 99(1)(j) | Equity shares of the issuer have not been suspended from trading as a disciplinary measure during last 3 years immediately preceding the reference date
|
Period relaxed from ‘3 years’ to ‘18 months’ | |||
| 11 | 99(1)(m) | There are no audit qualifications on the audited accounts of the issuer w.r.t financial years for which such accounts are disclosed in the letter of offer
|
If there are any audit qualifications, issuer is eligible if:
· Issuer provide the restated financial statements adjusting for the impact of the audit qualifications · or the qualifications wherein impact on the financials cannot be ascertained the same shall be disclosed appropriately in the letter of offer
|
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| 12 | 86 | Minimum Subscription for Right Issue | Minimum subscription to be received shall be at least 90% of the offer through the offer document | Minimum subscription percentage reduced from 90% to 75% and if the issue is subscribed between 75% to 90%, issue will be considered successful subject to the condition that out of the funds raised atleast 75% of the issue size shall be utilized for the objects of the issue other than general corporate purpose
|
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| 13 | 3(b), proviso to Reg 3, Reg 60(1) | Minimum threshold required for not filing draft letter of offer with SEBI
|
ICDR Regulations shall apply to right issue by listed issuer where the aggregate value of the issue is Rs. 10 crore or more
|
ICDR Regulations will become applicable where the aggregate value of the issue is Rs. 25 crore or more instead of Rs. 10 crores. | ||
| Sr. No. | Regulation | Particulars | Requirement/Frequency of filing | Relaxation granted | Relaxation period |
| Relaxation in the SEBI (Buy-back of Securities) Regulations, 2018 vide circular dated April 23, 2020 | |||||
| 1 | 24(i)(f) | Obligation of the company for buy-back procedure | The company shall not raise further capital for a period of 1 year from the expiry of buyback period, except in discharge of its subsisting obligations
|
Period of restriction relaxed by reducing term of ‘1 year’ to ‘6 months’.
Relaxation applicable till 31.12.2020 |
6 months |
[1] https://www.sebi.gov.in/legal/regulations/jan-2020/securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-regulations-2015-last-amended-on-january-10-2020-_37269.html
[2] https://www.sebi.gov.in/legal/regulations/apr-2019/securities-and-exchange-board-of-india-substantial-acquisition-of-shares-and-takeovers-regulations-2011-last-amended-on-july-29-2019-_40714.html
[3] https://www.sebi.gov.in/legal/regulations/feb-2020/securities-and-exchange-board-of-india-depositories-and-participants-regulations-2018-last-amended-on-february-21-2020-_40622.html
[4] https://www.sebi.gov.in/legal/regulations/jun-2018/securities-and-exchange-board-of-india-issue-of-capital-and-disclosure-requirements-regulations-2009-last-amended-on-february-12-2018-_39242.html
[5] https://www.sebi.gov.in/legal/regulations/jul-2019/securities-and-exchange-board-of-india-buy-back-of-securities-regulations-2018-last-amended-on-july-29-2019-_40327.html
Team Financial Services, Vinod Kothari Consultants P Ltd.
[Published on April 17, 2020 and updated as on May 6, 2020]
The nationwide lockdown was imposed by the Government of India from March 25, 2020. Since then, the RBI has taken a number of steps to ensure normal business functioning by the entire banking sector. The first address by the RBI governor on March 27, 2020[1] introduced several measures to deal with the disruption including, grant of a three months moratorium on term loans and the infusion of liquidity by way of TLTRO scheme.
The RBI Governor’s address on April 17, 2020[2] is intended to introduce further measures to maintain adequate liquidity in the financial system, facilitate and incentivise bank credit flows and ease financial stress. Subsequently, the RBI has issued a Notification on the issue.
Below is an analysis of the second round of regulatory relief granted by the RBI. As for the moratorium on loan payments provided by the March 27 notification, we have covered the same at length- see write-up here–
For the ease of reading we have divided the FAQs into broad categories. We shall keep on updating the FAQs based on the detailed guidelines and clarifications issued by RBI in this regard, from time to time.
1. What is TLTRO?
Targeted Long Term Repo Operations or TLTRO, is a variation of LTRO, launched by the RBI in order to manage the liquidity in the financial sector. The TLTRO is a much refined version of LTRO, through which the RBI attempts to extend liquidity in targeted segments, in this case, the NBFCs. TLTRO was introduced first time on February 27, 2020[3] by the RBI, where it had promised repo auctions worth Rs. 1 lakh crore. Until this press release, RBI has already conducted three repo auctions injecting a total Rs. 75,041 crores worth to ease liquidity constraints in the banking system and de-stress financial markets.
Our detailed write up on the subject can be read here.
2a. What are the avenues in which the funds availed by banks under TLTRO 2.0 can be invested?
As stated above, the main intention behind TLTRO is to inject liquidity in the financial system. As per the notification[4] issued by the RBI for TLTRO 2.0 the funds raised through TLTRO have to be invested in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs. Further, the funds raised through these auctions have to be deployed within a maximum period of 1 month.
2b. What is the prescribed timeline for deployment of funds under the scheme?
Based on the feedback received from banks and taking into account the disruptions caused by COVID-19, the time available for deployment of funds under the TLTRO 2.0 scheme has been extended from 30 working days to 45 working days from the date of the operation.
2c. What happens if a bank fails to deploy the funds availed under the TLTRO 2.0 scheme in specified securities within the stipulated timeframe?
Funds that are not deployed within this extended time frame will be charged interest at the prevailing policy repo rate plus 200 bps for the number of days such funds remain un-deployed. The incremental interest liability will have to be paid along with regular interest at the time of maturity.
3a. Is there a minimum investment limit for small and medium NBFCs?
At least 50 per cent of the total amount availed must be invested in small and mid-sized NBFCs and MFIs.
3b. Will the specified eligible instruments have to be acquired up to fifty per cent from primary market issuances and the remaining fifty per cent from the secondary market?
There is no such condition applicable for funds availed under TLTRO 2.0.
4. What is the criteria to be classified as a small or medium sized NBFC?
Small NBFCs: NBFCs having an asset size of Rs. 500 crore or below
Medium sized NBFCs: NBFCs having asset size between Rs. 500 crores and Rs. 5,000 crores.
5. For the purpose of determining the aforesaid asset based criteria, the asset size shall be considered as on which date?
The asset size shall be determined as per the latest audited balance sheet of the investee institution/company.
6. How will the 50% be appropriated among small NBFCs, medium NBFCs and NBFC MFIs?
The 50% shall be apportioned as given below:
7. How will the asset size be determined for the purpose of the aforesaid limits?
The asset size shall be determined as per the latest audited balance sheet of the NBFC.
8. When will the first auction under TLTRO 2.0 be conducted?
The first auction under TLTRO 2.0 will be conducted on April 23, 2020. The auction window will open for a period of one hour from 10:30 am to 11:30 am.
9a. How will the Investments made by the banks, under this scheme be classified?
Investments made under this facility will be classified as held to maturity (HTM) even in excess of 25 percent of total investment permitted to be included in the HTM portfolio. Exposures under this facility will not be reckoned under the Large Exposure Framework (LEF).
9b. Will the specified securities acquired from TLTRO funds and kept in HTM category be included in computation of Adjusted Net Bank Credit (ANBC) for the purpose of determining priority sector targets/sub-targets?
In order to incentivise banks’ investment in the specified securities of these entities, it has been decided that a bank can exclude the face value of such securities kept in the HTM category from computation of adjusted non-food bank credit (ANBC) for the purpose of determining priority sector targets/sub-targets. This exemption is only applicable to the funds availed under TLTRO 2.0.
10. What is the maturity restriction on the securities to be acquired under the scheme?
As per the FAQs released by the RBI for TLTROs[5], there is no maturity restriction on the securities. However, the outstanding amount of securities purchased using the funds availed under TLTRO should not fall below the amount availed under TLTRO scheme. This implies that the securities purchased should be maintained in the bank’s HTM portfolio at all times till maturity of TLTR.
11. How can an NBFC apply to avail the benefit under the scheme?
The funds injected through these auctions are ultimately meant for the NBFCs. NBFCs intending to utilise the benefits of this scheme will have to apply to banks, participating in these auctions, with their proposal to subscribe to the permitted instruments issued by them.
12. From where can an NBFC avail the refinancing facility?
RBI has provided special refinance facilities for an amount of Rs. 15,000 crore to SIDBI for on-lending/refinancing.
13. Is there anything earmarked for HFCs?
Yes, the RBI has announced a special refinancing facility of Rs. 10000 crores for the National Housing Bank which will be used only to refinance the housing finance companies.
14a. What will be the lending rate for such a refinance facility?
Advances under this facility will be charged at the RBI’s policy repo rate at the time of availment.
14b. Can all NBFCs avail the finance under the Special Liquidity Support Scheme?
The Scheme has three segments, out of which, two segments are for NBFCs and one for SCBs and SFBs.
The first part of the Scheme is for NBFC-ICCs and the second part of the Scheme is for NBFC-MFIs. The eligibility criteria for these two categories of NBFCs have been discussed below:
14c. For what purpose, the finance availed from such scheme can be used?
The funds availed can be used for on-lending to MSMEs by the NBFCs and microfinance borrowers by NBFC-MFIs.
14d. What will be the tenor of such facility?
The tenor for such facility shall be 90 days,with a bullet repaymentat the end. Usually, the loans to MSMEs are more than 90 days tenor, therefore, the question is – if the tenor of the loans extended by the NBFCs are more than 90 days, how will the funds obtained under this Scheme be refunded timely. The logical answer to this question is that the NBFCs will have to arrange for alternative financing sources during these 90 days and use the funds to repay the facility under this Scheme. Therefore, it seems that the intent is to provide a bridge funding facility to the NBFCs for the time being.
Further, SIDBI has vide circular dated April 24, 2020, extended the repayment period of loans to NBFCs and MFIs, to one year from the 90-day period.
14e. Whether such facility will be secured?
The nature of the loans shall be based on the existing norms of SIDBI.
14f. Is there any cap on processing fee?
The processing fee shall be 0.10 % of the sanctioned loan amount subject to a maximum of Rs. 5 lakhs (including GST).
14g. How can NBFCs apply to avail benefit of such scheme?
There is no prescribed procedure for making application to SIDBI for availing funds under such scheme. Eligible NBFCs may apply to SIDBI to avail funds from the scheme.
15. What is meant by asset classification standstill?
Asset classification standstill means there will be no movement, deterioration or upgradation, in the asset classification during a given period of time. In the given context, the ageing of the loan default, that is, the days past due (DPD) status, will remain on a standstill mode, as if the time clock has stopped running during the period of the moratorium.
Our detailed write up on the issue can be read here.
Our analysis of the Delhi HC and Bombay HC ruling in this regard may also be read here.
16. How to determine the qualifying loan accounts for relaxation under this circular?
All loan accounts for which lending institutions decide to grant moratorium or deferment, and which were standard as on March 1, 2020.
17. The loan moratorium notification came on 27th March. For many companies, the payment for March was, say, due on 5th March. Therefore, the moratorium was effectively granted only for the payments due on 5th April and 5th May. Does such NBFC still have the right to keep the NPA clock on hold for accounts which were in default on 1st March, 2020?
In our view, the moratorium period uniformly began for all financial institutions on 1st March and continues upto 31st May. The moratorium is the result of an external event – hence, it is not something which is based on entity-level payment schedules. That the borrowers have paid the instalments due on 5th March does not impact the moratorium – moratorium simply implies the customer has the option of not paying, but he has chosen to pay, that is his discretion.
Therefore, in this case in point, the NPA clock will still be on hold from 1st March to 31st May.
18. How will the asset classification be carried out?
As per the guidelines[6] provided by the RBI, the asset classification relaxation is provided only if the account was to move from standard to sub-standard category during the moratorium period from March 1, 2020 to May 31, 2020. However, if the account was within the NPA category already, the benefit of the relaxation will not be available.
Effectively the circular stalls the dip in the asset classification by 3 months.
19. To what installment dues does the relaxation apply?
The relaxation applies to:
20. Does a standard loan account as on March 1, 2020 include SMA classified accounts?
In case of assets showing signs of distress as on March 1, 2020, such as SMA1 and SMA2, the relaxation will still be available since they are classified as standard assets.
21. Will the standstill be applicable in case of extension of the EMI dates for installments falling due after May 31, 2020?
The standstill will be applicable for all accounts for which lending institutions decide to grant moratorium or deferment, and which were standard as on March 1, 2020.
Considering the disruption caused across the globe, the Company may consider extension of the EMI dates for installments falling due after May 31, 2020.
The reason for granting such relaxation is not related to any specific borrower’s financial difficulty because of any economic or legal reasons. The reason for such relaxation would be the disruption caused across an entire class of borrowers and not any individual borrower. Hence, this would not be considered as “restructuring” and will not require any asset classification downgrade merely because of restructuring. However, if the borrower does not pay the “restructured debt” as well, then asset classification norms will apply.
22. An NBFC has the following borrower accounts with DPDs marked, how will the NPA classification be impacted in case of non-payment
| DPD as on March 01, 2020 | NPA declaration (in case moratorium has been granted) | NPA declaration (in case moratorium has not been granted) |
| 0 | 31st August, 2020 | 31st May, 2020 |
| 30 | 31st July, 2020 | 30th April, 2020 |
| 60 | 30th June, 2020 | 31st March, 2020 |
| 90 | 1st March, 2020 | 1st March, 2020 |
| 120 | Already NPA | Already NPA |
23. Will the delayed instalments accrue in the books of accounts?
The accounting entries with regard to accrual of the instalments will depend on the grant of moratorium, that is, accrual will happen as per the modified contractual terms. However, as regards income recognition, NBFCs that have moved to IndAS recognise income based on the “effective interest rate” method. As long as the effective interest rate has been maintained after restructuring, income recognition will continue at that rate, even during the moratorium period.
24. Can a lender take enforcement action on account of non-payments during the breather period?
In case there was a default, and there were remedies available to the lender as on 1st March already, the same will not be affected.
As regards the period of moratorium, since the contractual obligation of the borrower has been modified, there is no default unless the borrower defaults on the restructured obligations.
As regards the use of powers under SARFAESI, the same depends on “NPA classification” in books of account. Since the loan will not be classified as NPA, there will be a bar on SARFAESI action as well.
25. Para 5 of the RBI Notification talks about a provisioning requirement. This, on first reading, seems to suggest that the provisioning requirement will be applicable to all the loans which have been given the benefit of moratorium. Is this understanding correct?
No, this understanding is not correct. Note the words “In respect of accounts in default but standard where provisions of paragraphs (2) and (3) above are applicable, and asset classification benefit is extended, lending institutions shall make general provisions of not less than 10 per cent of the total outstanding of such accounts.. [Emphasis supplied].
The meaning of this is not to include every loan which was >0 DPD on 1st March. The intent of this is only such loans, which, but for the standstill of the asset classification, would have turned into NPA.
In case of March 31, 2020 quarter, only loans which were at least 60 DPD on 1st March would have become NPA. Therefore, 5% general provisioning will be required only for such loans as were >59 DPD on 1st March, 2020.
26. There are some who have argued that the 10% general provision (spread over two quarters) will be applicable to both SMA1 as well as SMA2. Do you agree with this view?
Respectfully, we do not agree with this view. This view will be counter-intuitive. There is no provisioning required until the asset reaches substandard status. An account which was SMA1 (>30 days on 1st March) would not have become NPA on 31st March. Hence, the question of any degradation to NPA would not have arisen. Nor would there have been any provisioning requirement (except for the 0.40% required for all assets). The moratorium has not made the SMA1 loans worse in any manner. Therefore, there is no question of the RBI obliging banks to make a provision, which was not required before the 17th April Notification.
The 5% provision (for Q4 of 2020) may only be applicable where, but for the 17th April notification, the account would have become NPA. That would be the case in case of those accounts which were SMA2 on 1st March, 2020.
Note: A substantial confusion was prevailing on this issue. We had given a precise reasoning for our view above. As per a Report, the RBI also eventually seems to have agreed to our view above. That is, the general provisioning requirement is applicable, as on 31st March, 2020, only to those accounts which were SMA2 on 1st March, 2020.
27. What about the quarter of 30th June, 2020?
The quarter of June 30 may be a tough one. The general provisioning requirement is to be spread over 2 quarters. Hence, the situation may be illustrated in the Table below:
Position as on 31st March, 2020
| DPD as on March 01, 2020 | DPD on 31st March, 2020 | Whether 5% general loss provision in the Q4, 2020 required? |
| 0 | 31 | No question |
| 30 | 61 | No, because there would have been no slippage of asset classification, even in absence of the Notification |
| 60 | 91 | Yes, 5% general loss provision required |
| 90 | 121 | Account was an NPA; 10% provision required |
Position as on 30th June, 2020
| DPD as on March 01, 2020 | DPD on 30th June, 2020 | Explanation | Whether 5% general loss provision in the Q4, 2020 required? |
| 0 | 91 | During the moratorium, from 1st March to 31st May, customer paid nothing. In June, customer pays one months’ payment | There was no payment obligation during the moratorium since there was a loan modification. There was no default on 1st March. The customer has cleared his obligations of June. Hence, the account is completely in order – the 90 DPD is actually the obligations during moratorium, which has been deferred. No provisioning at all |
| 30 | 121 | The customer did not clear his default of 30 days which was past due on 1st March. When the moratorium is over, he pays one single instalment of loan. | Based on FIFO principle, the obligation that was past due on 1st March has been cleared on 30th June. Nothing became due during March, April and May. Hence, this loan has not taken the benefit of standstill. Hence, no general provision required. |
| 60 | 151 | The customer has paid only one instalment in June, whereas, on 1st March, he has obligation to pay for 2 months. Therefore, obligation as on 1st March achieves a vintage of at least 120 days on 30th June. | There was a provision of 5% already made in Q4, 2020. An additional 5% general loss provision will be required in Q1, 2021. |
| 90 | 181 | The account was already an NPA | Not covered by general loss provisions. |
28. What is the meaning of general loss provision? How is it different from a provision for NPAs?
General loss provision is a general prudential provision. It does not cause the value of gross assets to be reduced. It does not require the asset to be classified as an NPA. The general loss provision will be treated as a part of Tier 2 capital.
29. Is it proper to say that the general provisioning requirement of the 17th April notification creates a pressure on the regulatory capital of banks?
The general loss requirement certainly hits the revenues of the banks, but it is treated as a part of Tier 2. Hence, essentially, what is happening is, the provision eats into Tier 1 capital, but fills the same in Tier 2. If the bank had inadequate or potentially weak Tier 1, the general loss provision will create an issue.
30. Will there be any impact on the provision for accounts already classified as NPA as on February 29, 2020?
The provisions for accounts already classified as NPA as on February 29, 2020 as well as subsequent ageing in these accounts, shall continue to be made in the usual manner.
31. Will the reporting to CICs also come to a standstill due to the standstill of asset classification?
There will be no reporting to CICs since the SMA status, where applicable, as on March 1, 2020 will remain unchanged till May 31, 2020.
32. What are the disclosure requirements to be ensured by the lender?
The lending institutions shall suitably disclose the following in the ‘Notes to Accounts’ while preparing their financial statements for the half year ending September 30, 2020 as well as for FY 2019-20 and 2020-2021:
(i) Respective amounts in SMA/overdue categories, where the moratorium/deferment was extended;
(ii) Respective amount where asset classification benefits is extended;
(iii) Provisions made during the Q4FY2020 and Q1FY2021;
(iv) Provisions adjusted during the respective accounting periods against slippages and the residual provisions.
33. What is the relevance of para 17 of the Governor’s statement as regards NBFCs? Is it giving discretion to NBFCs regarding how much moratorium can they offer?
Para 17 of the Governor’s statement (relevant part) reads:
“NBFCs, which are required to comply with Indian Accounting Standards (IndAS), may be guided by the guidelines duly approved by their boards and as per advisories of the Institute of Chartered Accountants of India (ICAI) in recognition of impairments. In other words, NBFCs have flexibility under the prescribed accounting standards to consider such relief to their borrowers.”
In our view, this has nothing to do with the grant of the moratorium or the standstill on asset classification.This para deals with the recognition of impairment losses, that is, ECL provisions, in the books of those NBFCs which have adopted IndAS 109.
So, to summarise:
34. What are the guidelines for recognition of impairments/ECL?
IFRS Foundation has given the following guidance on computation of ECL due to impact of the coronavirus:
“Entities should not continue to apply their existing ECL methodology mechanically. For example, the extension of payment holidays to all borrowers in particular classes of financial instruments should not automatically result in all those instruments being considered to have suffered an SICR”[7] (SICR stands for significant increase in credit risk).”
There have been similar statements from the Basel Committee of Banking Supervision[8] (BCBS) where they have stated the following:
“Banks should use the flexibility inherent in these frameworks to take account of the mitigating effect of the extraordinary support measures related to Covid-19.”
“Regarding the SICR assessment, relief measures to respond to the adverse economic impact of COVID-19 such as public guarantees or payment moratoriums, granted either by public authorities, or by banks on a voluntary basis, should not automatically result in exposures moving from a 12-month ECL to a lifetime ECL measurement.”
As regards ICAI, ICAI has given a common guidance on impact of the pandemic on IFRS[9]. This states: “As a guidance from Appendix A of Ind AS 109: Borrower specific concession(s) given by lenders, on account of economic or contractual reasons relating to the borrower’s financial difficulty, which the lenders would not have otherwise considered. Such a condition to be considered as evidence that a financial asset is credit-impaired.”
The restructuring as permitted by the regulators is not a case of borrower-specific concession. It is given to all borrowers across.
Hence, this by itself cannot be a reason for any movement in the DPD bucket.
35. What are the existing timelines for resolution of stressed assets?
As per the prudential framework for resolution of stressed assets[10], once an account defaults, a Review Period[11] of 30 days becomes operational. The resolution plan is to be implemented within 180 days after the Review Period. In case of failure to implement the resolution plan within the said 180 days, an additional provision of 20% of the amount outstanding in the account has to be maintained by the lender.
36. Will there be any impact on the Review Period?
The notification[12] issued by the RBI providing extension of 90 days for implementation of resolution plan also provides for a stay on the Review Period. Accordingly, if an account was under review period on March 1, 2020, the Review Period of 30 days shall freeze until May 31, 2020. The calculation of residual Review period shall start from June 01, 2020.
Further, through another notification on May 23, 2020 the RBI extended the period of stay to August 31, 2020. Accordingly, the review period shall resume from September 01, 2020.
37. What will happen to the accounts whose Review Period has expired but the resolution plan has not been implemented?
For accounts whose Review Period has expired, but the timeline of 180 days for implementing the resolution plan has not expired as on March 1, 2020, the timeline shall be further extended by 90 days.
38. What will be the implication of extending the period for the resolution plan by 90 days?
Given the current circumstances, delay in implementation of the resolution plan may be due to factors beyond control of the lender. Hence, due to the extension of the said timeline by 90 days, the requirement of maintaining additional provision of 20% gets delayed.
39. Will the deferment of creation of this provision aid the liquidity position of the lenders?
Since, the requirement of maintaining additional provision of 20% gets delayed, the lenders will have relatively more liquidity in hand at this time when liquidity is needed the most.
40. Will the lender be required to hold an additional provision of 20 per cent if a resolution plan has not been implemented within 210 days from the date of such default?
No, the lender would not be required to hold additional provision of 20% if the resolution plan is not implemented within 210 days.
However, if the resolution plan is not implemented within 210+90= 300 days, an additional provision of 20% would have to be maintained.
41. Are there any disclosure requirements in this regard?
The notification requires the NBFCs to make relevant disclosures in respect of accounts where the resolution period was extended, in the ‘Notes to Accounts’ while preparing their financial statements for the half year ending September 30, 2020 as well as for FY2020 and FY2021.
42.Which loans are defined as loans to Commercial Real Estate Projects?
The definition of loans to Commercial Real Estate has been aligned to Basel II norms, which is based on the source of loan repayment. As per the definition, if the repayment primarily depends on other factors such as operating profit from business operations, quality of goods and services, tourist arrivals etc., the exposure would not be counted as Commercial Real Estate (CRE).
Thus, whether a loan can be defined as a loan to CRE is a subjective matter and would require understanding of the business of the borrower, use of the loan proceeds etc.
43. What are the existing parameters for considering a loan to the commercial real estate sector as restructured?
As per the existing norms, the Date of Commencement of Commercial Operations (DCCO) shall be clearly spelt out at the time of financial closure of the project and the same shall be formally documented. In case the DCCO is extended beyond a period of one year from the predetermined DCCO or the terms of the loan are revised with a motive to provide the borrower with some relief during times of stress, the account is said to be restructured.
Upon restructuring, an account classified as standard would immediately become sub-standard i.e. the asset classification of the account has to be downgraded on restructuring.
44.What do the revised guidelines propose?
In line with the guidelines for banks, the NBFCs are now allowed to extend the DCCO for reasons beyond the control of promoters by an additional one year, over and above the one-year extension permitted in normal course, provided the revised repayment schedule is not extended more than the extension in DCCO .
45. What would be the impact of such an extension?
Considering the current situation, many of the commercial real estate projects may fail to initiate operations for a while. Due to this, the DCCO is likely to extend. As per the existing guidelines, if the DCCO extends for a period above 1 year, the account would become restructured and thus the asset classification would degrade. This would result in accumulation of lower grade assets into the books of NBFCs.
Allowing a time period of 2 years from the predetermined DCCO would provide the borrower with enough time to get back into operations and at the same time the asset classification would not be downgraded in the books of the NBFC.
[1] https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=3847
[2] https://rbidocs.rbi.org.in/rdocs/Content/PDFs/GOVERNORSTATEMENTF22E618703AE48A4B2F6EC4A8003F88D.PDF
[3] https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=49360
[4] https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR2237379D65C898244520B79D8889EE42888E.PDF
[5] https://www.rbi.org.in/Scripts/FAQView.aspx?Id=134
[6] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11872&Mode=0
[7] https://cdn.ifrs.org/-/media/feature/supporting-implementation/ifrs-9/ifrs-9-ecl-and-coronavirus.pdf?la=en
[8] https://www.bis.org/press/p200403.htm
[9] https://resource.cdn.icai.org/58829icai47941.pdf
[10] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11580&Mode=0
[11] During this Review Period of thirty days, lenders may decide on the resolution strategy, including the nature of the RP, the approach for implementation of the RP, etc.
[12] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11871&Mode=0
– RBI Governor’s Statement settles an unwarranted confusion
Timothy Lopes, Executive, Vinod Kothari Consultants
In the wake of the disruption caused by the global pandemic, now pitted against the Great Depression of 1930s and hence called The Great Lockdown[1], several countries have taken measures to try and provide stimulus packages to mitigate the impact of COVID-19[2]. Several countries, including India, provided or permitted financial institutions to grant ‘moratorium’, ‘loan modification’ or ‘forbearance’ on scheduled payments of their loan obligations being impacted by the financial hardship caused by the pandemic.
The RBI had announced the COVID-19 Regulatory Package[3] on 27th March, 2020. This package permitted banks and other financial institutions to grant moratorium up to 3 months beginning from 1st March, 2020. We have covered this elaborately in form of FAQs.[4]
However, there was ambiguity on the ageing provisions during the period of moratorium. That is to say, if an account had a default on 29th February, 2020, whether the said account would continue to age in terms of days past due (DPD) as being in default even during the period of moratorium. Our view was strongly that a moratorium on current payment obligation, while at the same time expecting the borrower to continue to service past obligations, was completely illogical. Such a view also came from a judicial proceeding in the case of Anant Raj Limited Vs. Yes Bank Limited dated April 6, 2020[5]
However, the RBI seems to have had a view, stated in a mail addressed to the IBA, that the moratorium did not affect past obligations of the customer. Hence, if the account was in default as on 1st March, the DPD will continue to increase if the payments are not cleared during the moratorium period.
Below is a brief snippet of the relaxations provided by SEBI in the wake of the COVID-19 outbreak.
Click here for the Circular dated 13th April, 2020.
