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Workshop on RBI Circular on Regulatory Measures on Consumer Credit by Banks & NBFCs

– Vinod Kothari | vinod@vinodkothari.com

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Our Resources on the topic:-

  1. RBI raises red flag on increasing personal loan
  2. FAQs on Regulatory measures towards consumer credit and bank credit to NBFCs
  3. Workshop on RBI Circular on Regulatory Measures in Consumer Credit by Banks & NBFCs (YouTube live)

Workshop on RBI Circular on Regulatory Measures in Consumer Credit by Banks & NBFCs

Click here to register: https://forms.gle/5MkAYcULqUK3unxu9

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Read our article here: RBI raises red flag on increasing personal loans

IT Governance, Risk, Controls and Assurance Practices Direction, 2023

Analysis of Impact on Financial Sector Entities

Kaushal Shah & Subhojit Shome | finserv@vinodkothari.com

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Read our other resources

  1. RBI regulates outsourcing of IT Services by financial entities
  2. Draft Master Direction on IT Governance, Risk, Controls and Assurance Practices
  3. Erstwhile Directions on IT Framework for the NBFC Sector – RBI keen on implementing several operational requirements

Access our resource centre on SBR Framework :

Defaulters at will, and defaulters of size: RBI proposes new Directions: Middle and Upper Layer NBFCs also part of the system

Team Finserv, Vinod Kothari Consultants 

finserv@vinodkothari.com

Introduction

The Reserve Bank of India on September 21, 2023 has issued the Draft Master Directions on Treatment of Wilful Defaulters and Large Defaulters (‘Proposed Directions’). The Directions, when finalised, will replace the existing Master circulars (referred below). The draft Directions are largely consolidating in nature, with some significant differences. Importantly, NBFCs of middle and upper layer have been brought into the framework, and additionally, as was clear from the recent circular on compromise/settlements, the tag of willful defaulter may be removed if the borrower does a compromise settlement with the lender. However, a mere sale of the loan will not cause removal of the tag, as the tag will pass on to the buyer. The draft Directions also assimilate the provisions about large defaulters, which was earlier a CIC filing requirement, and make it a part of these Directions.

While a default itself is bad for a bank, where the default is backed by ability, but unwillingness to pay, it assumes a different level of seriousness. Such a borrower, and the entities that such borrower promoters or fosters, should remain deprived of further assistance from the financial system.

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Unlocking Working Capital: An Overview of Supply Chain Finance

-Dayita Kanodia, Executive | finserv@vinodkothari.com

The best way to reduce your supply chain inventory is to sell it.” Dilbert.

Background

A supply chain is a complex network of organizations, people, activities, information, and resources involved in the creation and distribution of a product or service from its initial sourcing of raw materials to the delivery of the final product to the end customer. The supply chain of a business can vary significantly depending on the industry, size of the company, and the specific products or services it offers.

Financing the supply chain is a critical aspect of supply chain management and is essential for ensuring the smooth flow of goods and services. 

This article discusses the model of supply chain finance and how it helps in improving the health of the supply chain.

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Taxability of Corporate Guarantees under GST

– Dayita Kanodia, Executive | finserv@vinodkothari.com

A person who can’t pay gets another person who can’t pay, to guarantee that he can pay.

Charles Dickens

Background

It is a common practice for companies to issue guarantees for loans taken by their group companies. When transactions happen between related parties, there is always a likelihood of them being not at arm’s length. 

Accordingly, this has led to questions that whether such corporate guarantees given without any consideration shall be liable to GST. A Supreme Court ruling issued earlier this year has clarified that corporate guarantees issued without any consideration shall not be liable to service tax. 

Therefore while the situation in case of levy of service tax has been clarified by the ruling, the same has led to a lot of ambiguities and questions for the levy of GST on such guarantees. This article aims to clarify the same.   

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RBI regulates outsourcing of IT Services by financial entities

-Anirudh Grover, Executive | finserv@vinodkothari.com

1. Introduction

With the penetration of the internet in India, newer and more efficient technologies are being built and these dynamic technologies are being leveraged by various sectors of the economy, and the financial sector is one of them. Financial institutions have extensively been outsourcing their IT services requirements to third parties in order to get easier access to newer technologies. In this process of availing the services of a third party, financial institutions expose themselves to significant financial, operational, and reputational risk as the Reserve Bank of India has pointed out.

Accordingly, the RBI in the year 2022 had in its Statement on Developmental and Regulatory Policies proposed to issue draft directions on outsourcing of IT services since the existing Directions on Managing Risks and Code in Outsourcing of Financial Services (‘Guidelines on Outsourcing of Financial Services’) as provided for in the Master Direction- Non Banking Financial Company- Systemically Important Non Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 (Updated as on December 29, 2022) (‘SI Directions’)  specifically excluded IT services from its ambit. Following which on June 23, 2022 the RBI issued Draft Master Direction on Outsourcing of IT Services (‘Draft IT Outsourcing Directions’) for public comments. We had briefly in our previous write up discussed the introduction of the Draft IT Outsourcing Directions. 

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Liquidity stress testing for NBFCs

– Vinod Kothari

finserv@vinodkothari.com

Stress testing is a part of risk management process. Stress testing envisages those plausible, however, low frequency events, which may occur and disrupt the operations. In the context of a financial intermediary – stress may be seen either in the solvency (that is, capital is not sufficient to absorb the risks or losses), or liquidity (that is, the bank is perfectly solvent, and yet, does not have enough liquidity to discharge immediate liability).

The need for stress testing comes from para 15A (para 15 for non-systemically important NBFCs) read with Annex II of the Master Directions for NBFCs[1] which provide as follows:

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The Dos and Don’ts of Penal Charges

RBI to release guidelines on penal charges 

– Tejasvi Thakkar, Executive | finserv@vinodkothari.com

Introduction 

The Reserve Bank of India (‘RBI’) announced various policy measures in its Statement on Developmental and Regulatory Policies dated February 08, 2023, which includes introduction of guidelines for regulating the penal charges levied by financial institutions in case of delay or default in repayment of loans or where there is a non-compliance of ‘material’ terms and conditions. RBI observed that some of the financial institutions were levying unreasonable penal charges. It has time and again been RBI’s concern that financial institutions levy excessive charges under the garb of different names such as penal charges, penal interests, legal charges, notice charges, levy charges etc. A large number of customer grievances with respect to excessive penal charges and divergent practices have influenced the regulator to think on these lines.  

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National financial information repository: One more or one for all?

– Lovish Jain, Executive | lovish@vinodkothari.com

Some days ago, Mr. Vinod Kothari had commented on a LinkedIn post :

“Do we realise how many places does a lender (NBFC, Bank) register information about a loan? There are 4 credit information companies (such as CIBIL) where the credit data, including performance history, is uploaded. If the exposure is Rs 5 crores or above, in the aggregate over the banking system, information goes on CRILC too.

RBI has recently written to NBFCs reminding them of the obligation to register details with NeSL, an information utility under IBC, irrespective of whether the provisions of Code apply (for example in case of individuals), or whether the lender in question is at all contemplating resorting to IBC as a remedy (for example, consumer loans).

If the loan is a secured loan, the details need to be filed with CERSAI. If the secured loan borrower is a company, details need to be filed with RoC too. If the security interest is on immovable property, one needs to file particulars with land registry. If the security interest is on motor vehicles, the hypothecation is registered with Vahan portal too.

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