IS THIS LENDING DIGITAL OR PHYSICAL?
Anita Baid in conversation with Vinod Kothari
Live on YouTube – 20th April | 05:00 p.m. – https://www.youtube.com/live/89PtYjU5S3Y?feature=share
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Open in new tab Classification of fraud and reporting
Should borrower be given an opportunity of being heard?
-Rhea Shah, Executive | rhea@vinodkothari.com
Background
A recent ruling of the Supreme Court placed emphasis on the classification of an account as fraudulent and the consequences thereof. The ruling is in favour of incorporating the principles of natural justice during the process of declaring an account as fraudulent.
Fraud classification by banks and NBFCs is essentially guided by Master Directions on Frauds – Classification and Reporting by commercial banks and select FIs[1] and the Master Direction – Monitoring of Frauds in NBFCs (Reserve Bank) Directions, 2016[2], respectively (‘Fraud Directions’). However, there has been a certain extent of ambiguity as to the procedural aspects of the classification. While the basic purpose of such classification remains to ensure the early detection and reporting of a fraudulent transaction, it also entails significance in implementing a procedure that is fast and robust for the RBI to disseminate information regarding fraudulent borrowers and related parties.
Read more →Full-day Workshop on Securitisation, Transfer of Loans and Co-lending
| Register here: https://forms.gle/6x1GrZzRQoFzSVRm8 |
We are also organising the 11th edition of the Securitisation Summit, an annual coming together of stakeholders in structured finance industry in India to be held on 19th May, 2023 i.e. the day after this workshop. You are requested to register for both – the workshop and the 11th Securitisation Summit for a refresher on the securitisation market in India. Read more: https://vinodkothari.com/secsummit/
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Securitisation: Indian market grows amidst global volume contraction
Timothy Lopes, Manager
Global Securitisation Volumes, 2022
The global securitisation market in 2022[1] saw a decline in volumes as compared to record issuance volumes seen in the year 2021. The decline was mainly driven by 24% year-on-year decline in volumes in the United States, obviously because of inflation, general economic conditions and low level of business confidence, coupled with supply chain disruptions and uncertainty caused by the Russia-Ukraine conflict[2].
Read more →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.
Read more →RBI Framework for Green Deposits
– Team Finserv | finserv@vinodkothari.com
Climate change is clearly one of the most pertinent regulatory themes in recent times, as the move to sustainable business practices and energy efficient technologies need massive funding. The availability of finance for move to sustainability has an important role to play in mitigating climate change. To this effect, RBI also conducted a survey in January 2022 to assess the status of climate risk and sustainable finance in leading scheduled commercial banks, and observed a need for concerted effort and further action in this regard. Following the same, RBI conducted a discussion, and released a press release indicating its intention to release a framework for acceptance of green deposits in India. On 11th April, 2023, RBI released the Framework for Acceptance of Green Deposits (“Framework”) for banks and deposit-taking NBFCs/HFCs, to be applicable from 1st June, 2023.
| Our video lecture on the topic is available here: https://youtu.be/7rRhVYR-zT0 |
As the green deposits formally mark its presence in the Indian financial markets, one may be inquisitive on various aspects related to it. We have tried to analyze and put our views on the same in this write-up.
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A Critical Analysis on Corporate Guarantees under Service Tax and GST
Dayita Kanodia, Executive | finserv@vinodkothari.com
“The Supreme Court’s only armour is the cloak of public trust; its sole ammunition, the collective hopes of our society.” – Irving R. Kaufman
Background
The Supreme Court has ruled that service tax will not be levied on corporate guarantees by a parent company to its subsidiaries where there is no consideration involved.
This article discusses the impact of this ruling on companies which issue corporate guarantees without consideration.
Read more →Regulating ESG Rating Providers in India
– SEBI approves regulations for ERPs through amendments to CRA Regulations
– Payal Agarwal, Deputy Manager (payal@vinodkothari.com)
As ESG and climate change concerns assume global priority, there is a growing interest among businesses to claim their offerings, products or structures to be green. This growing interest of a variety of stakeholders has led to the emergence of ESG Rating Providers (“ERPs”) for ranking an entity’s ESG profile, providing “green” or other coloured labels, or giving other affirmations as sustainability or sustainable-linkage. Unlike credit ratings, ESG ratings are currently not within the direct domain of securities regulators; however, to the extent ESG ratings relate to securities offerings or financial products, the securities regulators claim to have jurisdiction., he International Organization of Securities Commissions (“IOSCO”) has been working towards evolving recommendatory standards. IOSCO published its final report on Environmental, Social and Governance (ESG) Ratings and Data Products Providers (“IOSCO Consultation Report”) in November, 2021.
Following the same, SEBI released a consultation paper on Environmental, Social and Governance (ESG) Rating Providers for Securities Markets (“ERPs Consultation Paper”) on 24th January, 2022, and on the basis of the public consultation as well as global regulatory developments, had proposed a draft regulatory framework for ERPs (“Draft ERP Framework”) on 22nd February, 2023. Recently, on 29th March, 2023, SEBI has approved to bring a regulatory framework for ERPs in India, by inserting a new chapter to the existing SEBI (Credit Rating Agencies) Regulations, 1999 (“CRA Regulations”).
Read more →Corporate succession events: Treatment of unspent or overspent CSR obligations
CS Aisha Begum Ansari, Manager & Payal Agarwal, Deputy Manager | corplaw@vinodkothari.com
Background
The identity of a corporate entity may undergo various restructurings, either in the form of merger, demerger, sale of one or more divisions or undertakings. conversion of a company into LLP etc. Let us, for the sake of convenience, call them a “corporate succession” event, implying a situation where a corporate entity is succeeded by another entity, or its business, operations or undertaking shifts to another entity. In some cases, say, amalgamation, the erstwhile corporate entity gets dissolved. In case of a demerger, the transferor entity continues. In case of conversion into LLP or vice versa, a company gets transformed into an LLP or other way round.
Usually, in corporate succession events, the assets and liabilities forming part of an undertaking are shifted to another undertaking, say, the successor entity. The assets and liabilities that are comprised in an undertaking are mostly defined to include all liabilities existing on pertaining to a certain date, let us call it “appointed date”.
One of the perplexing aspects of this process of transfer of assets and liabilities may be the treatment of the unspent CSR obligations, or excess spending, by the corporate entity which is undergoing a change in its identity. The question becomes increasingly significant in the present day regulatory environment due to the shift in CSR from COPEX (Comply or Explain) to COPP (Comply or Pay Penalty).
In the present write-up, we discuss the treatment of CSR obligations as a result of the following actions resulting into a change in the identity of a corporate –
- Merger
- Demerger
- Sale of a division/ undertaking (“Slump sale”)
- Conversion of a company into LLP
A sigh of relief for the HVDLEs, not shy from compliance
Extension of “comply or explain” period in respect of corporate governance norms
– Nitu Poddar | corplaw@vinodkothari.com
SEBI in its board meeting dated March 29, 2023 decided to extend the timeline for “comply or explain” period for the High Value Debt Listed Entity (HVDLE) for compliance of corporate governance norms (i.e. regulation 16 to 27 of LODR Regulations) till March 31, 2024. A HVDLE is a company having listed debt and an outstanding value of such listed debt of Rupees 500 crore and above. It is to be noted that the HVDLEs were given a timeline of two financial years[1] (FY 21-22 and 22-23) to comply with the corporate governance norms or explain the reason for non-compliance in the quarterly corporate governance report to be filed with the stock exchange(s). Given this extension of mandatory compliance of the said norms – can the HVDLEs just sit back and relax till March 31, 2024? No, they will still have to endeavor to comply. Any short compliance requires reporting to the exchanges on a quarterly basis.
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