5 June, 2019
Net worth requirements for clearing corporations in International Financial Services Centre (IFSC)
On April 26, 2019, SEBI issued a circular on the net worth requirements for clearing corporations in International Financial Services Centre (“IFSC”).
– Subsequent to the notification
Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018,whereinitis prescribed, inter alia, that every recognized Clearing Corporationshallmaintain, atall times, aminimumnet worth of one hundred crore rupees or capital as determined the aforementioned regulations, whichever is higher, SEBI issued a circular captioned 'Risk-based capital and net worth requirements for Clearing Corporations under Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 on April 10,2019.
The aforementioned circular lays down the methodology for determining theminimumcapital/net worth requirements for clearing corporations. In view of the above, Clause 5(2) of SEBI (IFSC) Guidelines, 2015 is being amended and shall now read as under:
a) Every applicant seeking recognition as a clearing corporation shall have, in the form of liquid assets, a minimum net worth equivalent of fifty crore rupees.
b) Every recognized clearing corporation, on commencement of operations, shall have at all times, in the form of liquid assets, a minimum net worth equivalent offifty crore rupees or capital as determined in accordance with the aforementioned SEBI circular datedApril10,2019 as amended from time totime.
c) Further, every recognized clearing corporation shall enhance, over a period of three years from commencement of operations, its net worth, to be maintained in the form of liquid assets, to a minimum equivalent of one hundred crore rupees or capital as determined in accordance with aforementioned SEBI circular dated April 10, 2019 as amended from time to time.”
The Clearing Corporations shall regularly review their net worth requirement andensurethatthenetworth does not fall below the prescribed threshold. A certificate to this effect, as signed by the Managing Director of the Clearing Corporation, shall be submitted to SEBI within 15 days from the end of every quarter. The first such submission shall be made applicable for the April – June, 2019 quarter.
In exceptional cases where the net worth of Clearing Corporation falls below the prescribed threshold, it shall forthwith inform SEBI inter alia mentioning the reason(s) behind the same and the measure(s) it intends to adopt in order to re-attain the prescribed net worth.
Investment by Foreign Portfolio Investors (FPI) in Debt
On April 26, 2019, the RBI issued a circular, permitting Foreign Portfolio Investors (FPI) to invest in municipal bonds. Further, FPI investment in municipal bonds shall be reckoned within the limits set for FPI investment in State Development Loans (SDLs). All other existing conditions for investment by FPIs in the debt market remain unchanged.
Guidelines for determination of allotment and trading lot size for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs)
On April 23, 2019, SEBI issued the guidelines for determination of allotment and trading lot size for Real Estate Investment Trusts (“REITs”) and Infrastructure Investment Trusts (“InvITs”). SEBI (Infrastructure Investment Trusts) Regulations, 2014 (“InvIT Regulations”) and SEBI (Real Estate Investment Trusts) Regulations, 2014 (“REIT Regulations”) were amended vide notifications dated April 22, 2019. The said amendments have, inter-alia, for publicly offered InvITs and REITs, reduced the minimum subscription requirement and has defined the trading lot in terms of number of units. Further, limits for aggregate consolidated borrowings and deferred payments, net of cash and cash equivalents, have been increased to 70 per cent of the value of the InvIT assets.
For determining theallotmentin an initial offer, by a publicly offered InvITs/REITs, following guidelines shall be applicable:
(a) The value of each allotment lot shall not be less than INR 1,00,000 for InvITs and INR 50,000 for REITs, where such lot shall consist of 100 units.
(b) Allotment to any investor shall be made in the multiples of a lot.
Forfollow-on offer, by a publicly offered InvITs/REITs, following guidelines shall beapplicable:
(a) Minimum allotment shall be of such number of lots, whose value is not less than INR 1,00,000 for InvITs and INR 50,000 for REITs, where each lot shall consist of such number of units as in its trading lot.
(b) Allotment to any investor shall be made in the multiples of a lot.
Further,InvITs, which in terms of Regulation 20(3)(b) of the InvIT Regulations, have their aggregate consolidated borrowings and deferred payments above 49 per cent, shall, in addition to financial disclosures as specified vide circular no. CIR/IMD/DF/127/2016 dated November 29, 2016, disclose following additional line items:
(a) asset cover available;
(b) debt-equity ratio;
(c) debt service coverage ratio;
(d) interest service coverage ratio; and
(e) net worth.
Ombudsman Scheme for Non-Banking Financial Companies, 2018
On April 26, 2019, the RBI issued a circular directing that the Non-banking Financial Companies (NBFCs), as defined in Section 45-I(f) of the Reserve Bank of India Act, 1934 and registered with the RBI under Section 45-IA of the Reserve Bank of India Act, 1934 which
(a) are authorised to accept deposits,
(b) are Non-Deposit Taking Non-Banking Financial Companies having customer interface, with assets size of Rupees 100 crore or above, as on the date of the audited balance sheet of the previous financial year, or of any such asset size as the RBI may prescribe, will come within the ambit, and shall comply with the provisions of the Ombudsman Scheme for Non-Banking Financial Companies, 2018. The Non-Banking Financial Company – Infrastructure Finance Company (NBFC-IFC), Core Investment Company (CIC), Infrastructure Debt Fund – Non-Banking Financial Company (IDF-NBFC) and an NBFC under liquidation are excluded from the ambit of the Ombudsman Scheme.
Streamlining the process of public issue of equity shares and convertibles
On April 3, 2019, SEBI issued a circular streamlining the process of public issue of equity shares and convertibles. SEBIhadearlierintroducedthe use of Unified Payments Interface (UPI) as a payment mechanism with Application Supported by Block Amount (ASBA) for applications in public issues by retail individual investors through intermediaries (Syndicate members, Registered Stock Brokers, Registrar andTransfer agent and Depository Participants),effective from January 1, 2019. Implementation of the same was to be carried out in a phased manner to ensure gradual transition to UPI with ASBA.
Based on the representations received from the various market intermediaries like Self Certified Syndicate Banks (SCSBs), National Payments Corporation of India (NPCI) and the Association of Investment Bankers ofIndia(AIBI),toextendthetimeline forimplementation ofPhase I of the aforesaid Circularandin order to ensure that the transition to UPI in ASBA is smooth for all the stakeholders, it has been decided to extend the timeline for implementation of Phase I of the aforesaid Circular by 3 months i.e. till June 30, 2019. The implementation of Phase II and III shall continue unchanged as per the aforesaid Circular from the date of completion of Phase I as above.
Disclosure in the "Notes to Accounts" to the Financial Statements – Divergence in the asset classification and provisioning
On April 1, 2019, the Reserve Bank of India (“RBI”) observed that some banks, on account of low or negative net profit after tax, are required to disclose divergences even where the additional provisioning assessed by RBI is small, which is contrary to the regulatory intent that only material divergences should be disclosed. Therefore, it has been decided that henceforth, banks should disclose divergences, if either or both of the following conditions are satisfied:
(a) the additional provisioning for NPAs assessed by RBI exceeds 10 per cent of the reported profit before provisions and contingencies for the reference period, and
(b) the additional gross NPAs identified by RBI exceed 15 per cent of the published incremental gross NPAs for the reference period.
For further information, please contact:
Vineet Aneja, Partner, Clasis Law
vineet.aneja@clasislaw.com
