Foreign Trade Policy FTP 2023 Amendment for CS Executive December 2023 exams @ webinar

Foreign Trade Policy (FTP) used to be published once in 5 years, with amendments on yearly basis or as & when basis. From April 2023, the Director General of Foreign Trade (DGFT) under the Ministry of Commerce & Industry (MCI) using the powers given under the Foreign Trade (Development and Regulation) Act, 1992 (FTDR) has decided to bring FTP 2023, which can be updated as & when required. 

FTP governs what can come into India (imports) and what can go out of India (exports). The recently contemplated laptop import ban will be regulated under FTP. With your study for Company Secretary Executive Program, you will start understanding the laws applicable for every news item you see in the media. 

As this amendment of FTP 2023 came 6 months before December 2023 CS exams, by replacing FTP 2014-2019, as amended, as given in ICSI Study Material, this becomes applicable for the Paper on Economic, Commercial and Intellectual Property Laws (ECIPL) under CS Executive New Syllabus or Economic, Business and Commercial Laws (EBCL) under CS Executive Old Syllabus. 

A concise study material on FTP 2023 (from exam point of view), which will help you to score upto 10 marks in Company Secretary Executive Exams for December 2023, will be provided for free for CS webinar attendees at 7pm on 2/9/23 (Saturday) at https://lalot.in/cs-coaching-institute-webinar-fb/

RBI's Annual Return extends beyond FDI & ODI to Foreign Assets & Liabilities, capturing reverse investments & info based on OFBV valuation

New Annual Return on Foreign Assets & Liabilities

To be filed with RBI on or before 15^th July every year

Replacing the erstwhile requirement of filing Part B of FC-GPR

RBI has replaced Part B of the Form FC-GPR by a separate ‘Annual Return on Foreign Liabilities and Assets’ given as Annex-I. The return should be submitted by July 15 of every year to the Director, Balance of Payment Statistics Division, Department of Statistics and Information Management (DSIM), Reserve Bank of India, C-9, 8th floor, Bandra Kurla Complex, Bandra (E), Mumbai - 400 051. Further, the return should be submitted by all the Indian companies which have received FDI and/or made ODI abroad (i.e. overseas investment) in the previous year(s) including the current year. The Annex –II gives the concepts and definitions useful in filling the Annual Return on Foreign Liabilities and Assets. Remember, Part -A of FC-GPR remains as such.

Circular: A.P. (DIR Series) Circular No. 45 dated 15^th March 2011 and is applicable with immediate effect from July 2011 onwards. & Definitions.

This requirement is to enable International Monetary Fund (IMF) for the purpose of compiling information to be used in the compilation of India’s Balance of Payments (BoP), International Investment Position (IIP), Coordinated Direct Investment and Coordinated Portfolio Investment. Hence, the formats are ensured to collect such COMPREHENSIVE & DETAILED information with proper definitions for various aspects. Interestingly, apart from the Audited Financials which needs to be annexed to the Annual Return, there is only a certification by Authorised official of the company.

It has the following sections:

1. Section I: Identification Particulars

· Block 1A : Total Paid up Capital of Indian Company

· Block 1B : Free Reserves & Surplus and Retained Profit

2. Section II: FOREIGN LIABILITIES

Investments made under Foreign Direct Investment (FDI) scheme in India:

· Block 2A: Foreign Direct Investment in India (10% or more Equity Participation

· Block 2B: Foreign Direct Investment in India (Less than 10% Equity Holding

Portfolio and Other Liabilities to Non-residents (i.e. position with unrelated parties)

· Block 3A: Portfolio Investment

· Block 3C: Other Investments: (like External Commercial Borrowings)This Other investment is a residual category that includes all financial outstanding not considered as direct investment or portfolio investment (outstanding liabilities with Unrelated Parties).

3. Section –III: FOREIGN ASSETS

· Block 4: Direct Investment Abroad under Overseas Direct Investment Scheme

· Block 4A: Direct Investment Abroad (10 % or more Equity holding

· Portfolio and Other Assets Abroad (i.e., position with unrelated parties)

· Block 5A: Portfolio Investment Abroad

· Block 5B: Financial Derivatives (with non-resident entities only)

· Block 5C: Other Investment (Outstanding claims on Unrelated Parties)

· Block 6: Equity Capital, Free Reserves & Surplus of Direct Investment Enterprise Abroad

[Please report here the total equity, the equity held by your company and the total free reserves & surplus of those nonresident enterprises in each of which your company held 10 per cent or more shares on the reporting date].

· Block 7: Contingent Foreign Liabilities

· Block 8: Employee Information of reporting Indian company

NEW CONCEPTS

Reverse Investment is defined and needs to be reported. It is when where the recipient of investment (being an Indian company) also holds LESS THAN 10% shares in the investor (in case of FDI into India). Same way, in case of ODI from India, the reverse investment is when the recipient of investment (being a foreign company) also holds LESS THAN 10% shares in the investor (being an Indian company).

Methodology for valuation of foreign liabilities and foreign assets:

• Debt securities should be valued at market price, while all other types of debt, viz., loan, trade credit, deposits, other accounts payable/ receivable should be valued at nominal value.

• For the valuation of the outstanding investment, use the corresponding endMarch/ end-December market price/exchange rate.

• For listed companies, the share price on the closing date of reporting period should be used for valuation of Equity.

• For unlisted companies, use the concept of "Own Funds at Book Value (OFBV)" for valuation of Equity, to have consistency in valuation. OFBV reflects the value of enterprise recorded in the book of Direct Investment Enterprise. To put in simple terms, OFBV is based on the books of the direct investment enterprise and can be seen on its balance sheet as shareholder‘s equity. The definition of OFBV contains paid-up capital, all types of reserves and net value of non distributed profits and losses (including result for the current year).

Example for OFBV:

Suppose company's paid up capital = Rs 250 lakh, with FDI 50 % (i.e. Rs 125 lakh)

Accumulated reinvested earnings = Rs 75 lakh

Revaluation of land & shares = Rs 159 lakh

Total = Rs 484 lakh

Therefore, Equity investment by foreign direct investor based on OFBV method is Rs 242 lakhs (50 per cent of Rs.484 lakh).

Enjoy filing Annual Return after reading the Definitions.

Investments in shares for holding stake in group companies but NOT for trading or anyother financial activity requires RBI NBFC Registration as Core Investment Company if asset size is Rs. 100 crores

Regulatory Framework for Core Investment Companies (CICs)

The Bank had announced in the Annual Policy 2010-2011 that companies which have their assets predominantly as investments in shares for holding stake in group companies but not for trading, and also do not carry on any other financial activity, i.e., Core Investment Companies, (CICs), justifiably deserve a differential treatment in the regulatory prescription applicable to Non-Banking Financial Companies which are non deposit taking and systemically important.

1. Core Investment Company (CIC) means:

A Non Banking Finance Company (NBFC) carrying on the business of acquisition of shares and securities which satisfies the following conditions:-

• it holds atleast 90% of Total Assets as investment in equity shares, preference shares, debt or loans in group companies;
• its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes atleast 60% of its Total Assets;
• it does not trade in its investments in shares, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;
• it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI Act, 1934 except investment in bank deposits, money market instruments, government securities, loans and investments in debt issuances of group companies or guarantees issued on behalf of group companies.

Note: Registered CIC can hold or accept public deposit.

2. CIC with an asset size of Rs. 100 crores or more, will be regarded as Non Deposit Taking Systemically Important (CICs-ND-SI) and requires registration with RBI.

3. A CIC-ND-SI which fulfills the following conditions , will not be required to meet the requirement for maintaining Net Owned Funds  (NOF) & capital adequacy and exposure norms as required under Non-Banking Financial (Non-Deposit Accepting or holding)  Companies Prudential Norms (Reserve Bank) Directions, 2007

• Maintenance of minimum Capital Ratio where Adjusted Net Worth is atleast 30% of its Aggregate Risk Weighted Assets on Balance Sheet and risk adjusted value off-balance sheet items as on the date of the last audited Balance Sheet  at the end of the financial year.
• Ensuring that it’s outside liabilities at all times is UPTO 2.5 times of the Adjusted Net Worth as on last audited Balance Sheet date.

4. All CICs-ND-SI, whether they are exempted in the past from registration with RBI or not, should apply to the RBI for obtaining Certificate of Registration within a period of 6 months from 12th August 2010 (i.e) within 11th February 2010.

5. Companies which presently have an asset size of less than Rs 100 crores would be required to apply to RBI for Certificate of Registration within 3 months of achieving a Balance Sheet size of Rs. 100 crores.

6. CICs-ND-SI will be required to submit an Annual Certificate from their statutory auditors regarding compliance with the above guidelines within 1 month from the date of finalisation of the Balance-Sheet.

Source:  RBI/2010-11/168 DNBS (PD) CC.No. 197/03.10.001/2010-11 dated 12th August 2o1o

FEMA Contravention clarification, whether technical/minor is what RBI has to decide and not on own motion or on basis of external advice BUT in nature of interest, apply compounding @ earliest opportunity & how to enter into composition

RBI clarifies on compounding of contraventions under Foreign Exchange Management Act (FEMA), 1999

The Reserve Bank of India has clarified that whether contraventions under Foreign Exchange Management Act (FEMA) are to be treated as technical and/ or minor or serious would be decided by the Reserve Bank on the merits of the case. The case would accordingly be disposed of keeping in view the procedure notified in this regard. It has urged that persons who have contravened provisions of FEMA should not take upon themselves, suo moto or on the basis of external advice, to decide whether a particular contravention is of a technical or minor in nature and, hence, no compounding application need be submitted to the Reserve Bank.

 

The Reserve Bank has further clarified that if such applications for compounding are not made, the person concerned shall expose himself/herself to such action under the provisions of FEMA as the authorities may deem appropriate. The persons concerned should, therefore, in their own interest, submit their applications for compounding of contravention under FEMA to the Reserve Bank at the earliest opportunity.

 

It may be recalled that in terms of A.P.(DIR Series) Circular No. 56 dated June 28, 2010, the Reserve Bank had notified the process of compounding which has been further rationalised and streamlined to enhance transparency and effect smooth implementation of the compounding process and understand the same from

Violated Foreign Exchange laws: on becoming aware of the contravention, disclose it to RBI to save huge penalty of 2 lakhs or 3 times the amount involved in transaction [Compounding Master Circular]

Source: RBI Press Release No. 2010-2011/234 dated 13th August 2010

Exchange Traded Currency Options RBI Directions for investment by Person Resident in India and SEBI norms 2010

As you are aware of Exchange Traded Currency Futures (ETCF) in Recognised Stock Exchanges for Person Resident in India (PRII) and What exam for approved users & sales personnel of trading members in currency derivatives segment and trading in interest rate derivatives, register for NISM now

Guidelines on trading of Currency Options on
Recognised Stock / New Exchanges

Attention of Authorised Dealers Category – I (AD Category – I) banks is invited to the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 3, 2000 [Notification No. FEMA/25/RB-2000 dated May 3, 2000], as amended from time to time and A.P. (DIR Series) Circular No. 05 dated August 6, 2008 in terms of which persons resident in India were permitted to participate in the currency futures market in India subject to directions contained in the Currency Futures (Reserve Bank) Directions, 2008.

2. In order to expand the existing menu of exchange traded hedging tools, it was announced in the Monetary Policy Statement 2010-11 (para 62) that recognised stock exchanges would be permitted to introduce plain vanilla currency options on spot US Dollar/ Rupee exchange rate for residents. Accordingly, it has been decided to permit trading of currency options on spot USD-INR rate in the currency derivatives segment of the stock exchanges, recognized by the Securities and Exchange Board of India (SEBI). The currency options market would function subject to the directions, guidelines, instructions, rules, etc issued by the Reserve Bank and the SEBI from time to time.

3. Persons resident in India are permitted to participate in the currency options market, subject to the directions contained in the Exchange Traded Currency Options (Reserve Bank) Directions, 2010, [Notification No.FED.01 / ED (HRK)-2010 dated July 30, 2010] (Directions) issued by the Reserve Bank of India, a copy of which is annexed (Annex-I).

4. Necessary amendments to Foreign Exchange Management (Foreign Exchange Derivatives Contracts) Regulations, 2000 (Notification No. FEMA.25/RB-2000 dated May 3, 2000) (Regulations) have been notified in the Official Gazette vide G.S.R. No. 635(E) dated July 27, 2010, a copy of which is annexed (Annex-II).

Source: A.P. (DIR Series) Circular No. 05 dated 30th July 2010

You can buyback FCCBs now as time limit extended from June 2010 to June 30, 2011

On a review of the policy and in view of the representations received from the issuers of FCCBs, it has been decided to consider applications, under the approval route, for buyback of FCCBs until June 30, 2011, subject to the issuers complying with all the terms and conditions of buyback/ prepayment of FCCBs, as mentioned in Again an option to Buyback / Prepayment of FCCB under RBI Approval Route till June 2010

Source: A.P. (DIR Series) Circular No.07 dated 9th August 2010

Issue of Debt Securities now has Non-Convertible Debentures (Reserve Bank) Directions, 2010 in addition to compliance under Companies Act & SEBI regulation

Reporting of Issuance of Non Convertible Debentures

The Reserve Bank of India has issued the ‘Issuance of Non-Convertible Debentures (Reserve Bank) Directions, 2010’ vide IDMD.DOD.9/11.01.01(A)/2009-10 dated June 23, 2010 (which is made effective from 2nd August 2010) regarding regulation of non-convertible debentures of maturity up to one year (NCDs). In terms of paragraph 12.7 of the said Directions read with paragraphs 12.4, 12.5 and 12.6 ibid, the Debenture Trustees are required to report the details of issuance of the NCDs, the outstanding amount of NCDs and default in repayment of NCDs to the Financial Markets Department, Reserve Bank of India, Central Office, Mumbai 400 001.

It is advised to submit the required information as per format enclosed in

1. Annex 1 (details of issuance of NCDs),
2. Annex 2 (outstanding amount of NCDs), and
3. Annex 3 (particulars of default in repayment of NCDs) to the Chief General Manager, Financial Markets Department, Reserve Bank of India, Central Office, Fort Mumbai 400 001 (Fax: 022-22630981/22634824; e-mail).
4. The required information may be submitted in hard as well as soft copies.
5. While the report on issuance of NCDs may be submitted within 3 days from the date of completion of the issue and
6. the report on default in repayment may be submitted immediately,
7. the report on outstanding amount of NCDs may be submitted on quarterly basis within five working days from the completion of the calendar quarter to which the report pertains.

Issuance of Non-Convertible Debentures (Reserve Bank) Directions, 2010 – An Understanding:

The Reserve Bank of India, having considered it necessary in public interest and to regulate the financial system of the country to its advantage, in exercise of its powers conferred under sections 45K, 45L and  45W of the Reserve Bank of India Act, 1934 and of all the powers enabling it in this behalf, hereby gives to the agencies dealing in securities and money market instruments, the following directions for issuance of Non-Convertible Debentures (NCDs) of original or initial maturity up to one year.

Definition: Non-Convertible Debenture (NCD) means a debt instrument issued by a corporate (including NBFCs) with original or initial maturity up to one year and issued by way of private placement;

“Corporate” means a company as defined in the Companies Act, 1956 (including NBFCs) and a corporation established by an act of any Legislature.

Eligibility to issue NCDs
A corporate shall be eligible to issue NCDs if it fulfills the following criteria, namely,

1. the corporate has a tangible net worth of not less than Rs.4 crore, as per the latest audited balance sheet;
2. the corporate has been sanctioned working capital limit or term loan by bank/s or all-India financial institution/s; and
   
3. the borrowal account of the corporate is classified as a Standard Asset by the financing bank/s or institution/s.

Rating Requirement
An eligible corporate intending to issue NCDs shall obtain credit rating for issuance of the NCDs from one of the rating agencies, viz., the Credit Rating Information Services of India Ltd. (CRISIL) or the Investment Information and Credit Rating Agency of India Ltd. (ICRA) or the Credit Analysis and Research Ltd. (CARE) or the FITCH Ratings India Pvt. Ltd or such other agencies registered with Securities and Exchange Board of India (SEBI) or such other credit rating agencies as may be specified by the Reserve Bank of India from time to time, for the purpose.
The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies.

The Corporate shall ensure at the time of issuance of NCDs that the rating so obtained is current and has not fallen due for review.

Maturity

• NCDs shall be issued for maturities of 90 days or more from the date of issue.
• The exercise date of option (put/call), if any, attached to the NCDs shall fall after the period of 90 days from the date of issue.
• The tenor of the NCDs shall not exceed the validity period of the credit rating of the instrument.

Denomination
NCDs may be issued in denominations with a minimum of Rs.5 lakh (face value) and in multiples of Rs.1 lakh.

Limits and the Amount of Issue of NCDs

1. The aggregate amount of NCDs issued by a corporate shall be within such limit as may be approved by the Board of Directors of the corporate or the quantum indicated by the Credit Rating Agency for the rating granted, whichever is lower.
2. The total amount of NCDs proposed to be issued shall be completed within a period of 2 weeks from the date on which the corporate opens the issue for subscription.

Procedure for Issuance

1. The corporate shall disclose to the prospective investors, its financial position as per the standard market practice.
2. The auditors of the corporate shall certify to the investors that all the eligibility conditions set forth in these directions for the issue of NCDs are met by the corporate.
3. The requirements of all the provisions of the Companies Act, 1956 and the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008, or any other law, that may be applicable, shall be complied with by the corporate and shall also comply with Debt Listing Agreement.
4. The Debenture Certificate shall be issued within the period prescribed in the Companies Act, 1956 or any other law as in force at the time of issuance. 
5. NCDs may be issued at face value carrying a coupon rate or at a discount to face value as zero coupon instruments as determined by the corporate.

Debenture Trustee

• Every corporate issuing NCDs shall appoint a Debenture Trustee (DT) for each issuance of the NCDs.
• Any entity that is registered as a DT with the SEBI under SEBI (Debenture Trustees) Regulations, 1993, shall be eligible to act as DT for issue of the NCDs only subject to compliance with the requirement of these Directions.
• The DT shall submit to the Reserve Bank of India such information as required by it from time to time.

Investment in NCD
NCDs may be issued to and held by individuals, banks, Primary Dealers (PDs), other corporate bodies including insurance companies and mutual funds registered or incorporated in India and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs).

• Investments in NCDs by Banks/PDs shall be subject to the approval of the respective regulators.
• Investments by the FIIs shall be within such limits as may be set forth in this regard from time to time by the SEBI.

Preference for Dematerialisation

While option is available to both issuers and subscribers to issue/hold NCDs in dematerialised or physical form, they are encouraged to issue/ hold NCDs in dematerialised form. However, banks, FIs and PDs are required to make fresh investments in NCDs only in dematerialised form.

Roles and Responsibilities

12.1 The role and responsibilities of corporates, DTs and the credit rating agencies (CRAs) are set out below:

(a) Corporates
12.2 Corporates shall ensure that the guidelines and procedures laid down for issuance of NCD are strictly adhered to.
(b) Debenture Trustees
12.3 The roles, responsibilities, duties and functions of the DTs shall be guided by these regulations, the Securities and Exchange Board of India (Debenture Trustees) Regulations,1993, the trust deed and offer document.
12.4 The DTs shall report, within three days from the date of completion of the issue, the issuance details to the Chief General Manager, Financial Markets Department, Reserve Bank of India, Central Office, Fort, Mumbai-400001.
12.5 DTs should submit to the Reserve Bank of India (on a quarterly basis) a report on the outstanding amount of NCDs of maturity up to year.
12.6 In order to monitor defaults in redemption of NCDs, the DTs are advised to report immediately, on occurrence, full particulars of defaults in repayment of NCDs to the Financial Markets Department, Reserve Bank of India, Central Office, Fort, Mumbai-400001, Fax: 022-22630981/22634824.
12.7 The DTs shall report the information called for under para 12.4, 12.5 and 12.6 of these Directions as per the format notified by the Reserve Bank of India, Financial Markets Department, Central Office, Mumbai from time to time.
(c) Credit Rating Agencies (CRAs)
12.8 Code of Conduct prescribed by the SEBI for the CRAs for undertaking rating of capital market instruments shall be applicable to them (CRAs) for rating the NCDs.
12.9 The CRA shall have the discretion to determine the validity period of the rating depending upon its perception about the strength of the issuer. Accordingly, CRA shall, at the time of rating, clearly indicate the date when the rating is due for review.

12.10 While the CRAs may decide the validity period of credit rating, they shall closely monitor the rating assigned to corporates vis-à-vis their track record at regular intervals and make their revision in the ratings public through their publications and website.

Documentary Procedure

1. Issuers of NCDs of maturity up to one year shall follow the Disclosure Document brought out by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), in consultation with the Reserve Bank of India as amended from time to time.
2. Violation of the directions will attract penalties, which would include debarring of the entity from the NCD market.

Violated Foreign Exchange laws: on becoming aware of the contravention, disclose it to RBI to save huge penalty of 2 lakhs or 3 times the amount involved in transaction [Compounding Master Circular]

It has been decided to put in place an updated procedure for compounding of contravention/s under FEMA on the basis of observations made over the last few years on the compounding process on a continuous basis and the experience gained in dealing with compounding applications. The objective is rationalization and streamlining of the process and the procedure for compounding and to enhance transparency and effect smooth implementation of the compounding process. The directions contained in the compounding of contravention/s issued vide A.P. (DIR Series) Circular No.31 dated February 1, 2005 are superseded by this circular vide A.P. (DIR Series) Circular No. 56 dated 28th June 2010 and as provided in Master Circular on Compounding of Contraventions under FEMA, 1999 read with Foreign Exchange (Compounding Proceedings) Rules, 2000 (the Rules).  Further, Operational checkpoints for submission of a compounding application and the related matters are also given.

 

When an application is made for compounding of a contravention, the RBI would examine the nature of contravention in the following manner:
• whether the contravention is technical and/or minor in nature and needs only an administrative cautionary advice;
• whether the contravention is serious and warrants compounding of the contravention; and
• whether the contravention, prima facie, involves money-laundering, national and security concerns involving serious infringements of the regulatory framework. In such a case, RBI may order necessary investigation.

Investigation by Enforcement Directorate (ED)
If RBI finds that it is necessary for further investigation, it may recommend the matter to the Directorate of Enforcement (DoE) for further investigation. Such action may be initiated under FEMA, 1999 by the Enforcement Directorate or the Anti Money Laundering Authority instituted under the Prevention of Money Laundering Act, 2002 or to any other agencies, as RBI may deem fit.

Time Frame for Disposing of Compounding Application
RBI states that applications for compounding will be disposed of in 180 days. If investigation as aforesaid is necessary, compounding will not take place. The application will be returned to the Applicant.

Factors Considered for determining the compounding fee
• The amount of gain or unfair advantage;
• The amount of loss caused to the exchequer;
• The economic benefits accruing to the contravener due to delayed compliance;
• The repetitive nature of contravention by the contravener;
• The conduct of contravener in disclosure of information; and
• Such other matter in the opinion of RBI will be the factors on the basis of which the application will be examined.

Time Frame for Payment of Compounding Fee
The amount payable by the contravener as per the compounding order should be paid within 15 days from the date of the order. If the contravener fails to pay the said amount then it will be deemed that the contravener has never applied for compounding of offence.

Repeated Offences <= 3years
A similar offence within 3 years of the compounding of the earlier offence shall not be compoundable.  Any second or subsequent contravention committed after the expiry of a period of three years from the date on which the contravention was previously compounded shall be deemed to be a first contravention.

Certificate after Compounding
RBI will issue a certificate to the contravener subject to the conditions of the compounding order after realization of the amount paid as per the compounding order.

Within 12 months of Export of Goods and Software, Realise & Repatriate export Proceeds till 31st March 2011 now with Master Circular

Export of Goods and Software – Realisation and Repatriation of export proceeds – Liberalisation as per A.P. (DIR Series) Circular No.57 dated 29th June 2010

Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to A.P.(DIR Series) Circular No.70 dated June 30, 2009 increasing the period of realisation and repatriation to India of the amount representing the full export value of goods or software exported, from six months to twelve months from the date of export, subject to review after one year.

The issue has since been reviewed and it has been decided, in consultation with the Government of India, to extend the above relaxation up to March 31, 2011.

To understand the updated version in this regard: Master Circular on Export of Goods and Services

Money Laundering Amendment 2010 with insertion of explanation along with updated Master Circular

Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Second Amendment Rules, 2010- Obligation of banks as per DBOD. AML. BC. No. 113 /14 .01.001/2009-10 dated 29th June 2010.

In the Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005:-

An explanation is added to "suspicious transaction" definition: In rule 2 in sub-rule (1), after clause (g), the following Explanation shall be inserted, namely:-
"Explanation:- Transaction involving financing of the activities relating to terrorism includes transaction involving funds suspected to be linked or related to, or to be used for terrorism, terrorist act or by a terrorist.

 

Further, in Rule 9, the existing sub-rules (1A,B,C,D) are replaced and some Explanation in added in Rule 10.

For full details, kindly refer the Updated Master Circular – Know Your Customer (KYC) norms / Anti-Money Laundering (AML) standards/Combating of Financing of Terrorism (CFT)/Obligation of banks under PMLA, 2002

No surrender of the proportionate export incentives under FTP Export Schemes even if proceeds are not realised within 6/12 months

Export of Goods and Services - Unrealised export bills –Write-off - Surrender of export incentives
Attention of Authorised Dealer Category – I (AD Category –I) banks is invited to A.P. (DIR Series) Circular No. 12 dated September 09, 2000, A.P. (DIR Series) Circular No. 30 dated April 04, 2001, A.P. (DIR Series) Circular No. 61 dated December 14, 2002, A.P. (DIR Series) Circular No. 40 dated December 05, 2003 and A.P. (DIR Series) Circular No. 33 dated February 28, 2007, in terms of which the AD Category –I banks have been permitted to accede to the requests for "write-off" made by the exporters, subject to the conditions, inter alia, that the exporter had to surrender proportionate export incentives, if availed of, in respect of the relative shipments.

 

It has since been announced in the Foreign Trade Policy (FTP) 2009-14 and specified in Para. 2.25.4 of Handbook of Procedures – Vol. I (2009-2014) (extracts annexed), issued by the Department of Commerce, Ministry of Commerce and Industry that realisation of export proceeds shall not be insisted upon, under any of the Export Promotion Schemes under the Foreign Trade Policy (FTP), subject to the following conditions:-
i) the write-off on the basis of merits is allowed by the Reserve Bank or by the AD Category – I banks on behalf of the Reserve Bank, as per the extant guidelines;
ii) the exporter produces a certificate from the Foreign Mission of India concerned, about the fact of non-recovery of export proceeds from the buyer; and
iii) this would not be applicable in self-write-off cases.
The above relaxation is applicable for the exports made with effect from August 27, 2009.

It is clarified that since the Drawback scheme is governed by the provisions of the Customs Act, 1962 and the Rules made there under, the provisions contained in para. 2.25.4 of the Handbook of Procedure – Vol. I. of the Foreign Trade Policy (FTP) (2009-2014) would not be applicable to the Duty Drawback scheme. Therefore, the drawback amount has to be recovered even if the claim is settled by the Export Credit Guarantee Corporation of India Limited (ECGC) or the write –off is allowed by the Reserve Bank.

Accordingly, the AD Category –I banks are advised not to insist on the surrender of the proportionate export incentives, other than under the Duty Drawback scheme, if availed of, by the exporter under any of the Export Promotion Schemes under the FTP 2009-14, subject to the fulfilment of conditions as stated above.

 

Source: A.P. (DIR Series) Circular No.03 dated 22nd July 2010

Takeout Financing: refinancing of domestic Rupee loans with ECB under RBI approval route

As per the extant norms, refinancing of domestic Rupee loans with External Commercial Borrowing (ECB) is not permitted. However, keeping in view the special funding needs of the infrastructure sector, it has been decided to review the ECB policy and put in place a scheme of take-out finance. Accordingly, it has been decided to permit take-out financing arrangement through ECB, under the approval route, for refinancing of Rupee loans availed of from the domestic banks by eligible borrowers in the sea port and airport, roads including bridges and power sectors for the development of new projects, subject to the following conditions:

1. The corporate developing the infrastructure project should have a tripartite agreement with domestic banks and overseas recognized lenders for take-out of the loan within three years of the scheduled Commercial Operation Date (COD). The scheduled date of occurrence of the take-out should be clearly mentioned in the agreement.
2. The loan should have a minimum average maturity period of 7 years.
3. The domestic bank financing the infrastructure project should comply with the extant prudential norms relating to take-out financing.
4. The fee payable to the overseas lender until the take-out shall not exceed 100 bps per annum.
5. On take-out, the residual loan agreed to be taken- out by the overseas lender would be considered as ECB and the loan should be designated in a convertible foreign currency and all extant norms relating to ECB should be complied with, including the reporting arrangements.
6. Domestic banks / Financial Institutions will not be permitted to guarantee the take-out finance and further it will not be allowed to carry any obligation on its balance sheet after the occurrence of the take-out event.

Source: A.P.(DIR Series) Circular No.04 dated 22nd July 2010

No Ministry of Commerce approval is required for Royalty/Lumpsum payment above 5%/8% - RBI Current Account Transaction Amendment

In continuation of Press Note 8 issued by DIPP with effect from 16.12. 2009 that No limits for royalty/lumpsum payment in FEMA under Current Account Transaction as per PN 8 – DIPP allowed it under Automatic route (ie) without the approval of RBI

The Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2010 is passed. They shall be deemed to have come into force with effect from the 16th day of December, 2009.

In terms of Rule 4 of the Foreign Exchange Management (Current Account Transactions) Rules 2000, prior approval of the Ministry of Commerce and Industry, Government of India, is required for drawing foreign exchange for remittances under technical collaboration agreements where payment of royalty exceeds 5% on local sales and 8% on exports and lump-sum payment exceeds USD 2 million [item 8 of Schedule II to the Foreign Exchange Management (Current Account Transactions) Rules, 2000]. The Government of India has reviewed the extant policy with regard to liberalization of foreign technology agreement and it was decided to omit item number 8 of Schedule II to the Foreign Exchange Management (Current Account Transaction) Rules, 2000, and the entry relating thereto.

Accordingly, AD Category-I banks may permit drawal of foreign exchange by persons for payment of royalty and lump-sum payment under technical collaboration agreements without the approval of Ministry of Commerce and Industry, Government of India.

The amendment to the Foreign Exchange Management (Current Account Transactions) Rules, 2000, in this regard has been notified by the Government of India vide Notification No.G.S.R.382 (E) dated May 5, 2010.

Source: RBI/2009-10/465 A. P. (DIR Series) Circular No. 52 dated 13th May 2010

USD 3000 foreign visits abroad, USD 5000 to Iran/Iraq, Libya, Russia & Republics of Commonwealth of Independent States - RBI FEMA currency limits

Release of Foreign Exchange for Visits Abroad – Currency Component
Attention of Authorised Persons in foreign exchange is invited to A.P.(DIR Series) Circular No. 19 dated October 30, 2000 and A.P. (DIR Series) Circular No.11 [ A.P. ( F.L. Series ) Circular No.1 ] dated November 13, 2001, in terms of which Authorised Dealers and Full Fledged Money Changers are permitted to sell foreign exchange in the form of foreign currency notes and coins, up to USD 2,000 [increased to USD 3000] or its equivalent, to the travellers proceeding to countries other than Iraq, Libya, Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States, without the prior permission from the Reserve Bank (RBI).

Authorised Dealers and Full Fledged Money Changers may, as hitherto, continue to sell foreign exchange in the form of foreign currency notes and coins up to USD 5,000 or its equivalent to the travellers proceeding to Iraq or Libya, Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States.

Source: RBI/2009-10/446 A.P. (DIR Series) Circular No. 50 May 4, 2010 A.P. (FL Series) Circular No. 7 dated 4th May 2010

NBFC requires RBI NoC for overseas direct investment (ODI) in Joint Ventures or wholly owned subsidiary (JV/WoS) abroad

Instances have been observed where Non Banking Finance Companies (NBFCs) have made overseas investments without regulatory clearance of the Department of Non-Banking Supervision, Reserve Bank of India. Any investments made by NBFCs without regulatory clearance is a violation of FEMA 2004 and attracts penal provisions.

In this regard, it is emphasised that all NBFCs desirous of making any overseas investment must obtain 'No Objection' (NoC) of the Department of Non-Banking Supervision (DNBS) of RBI before making such investment, from the Regional Office in whose jurisdiction the head office of the company is registered.

Applications in this regard shall clearly state the activities intended to be undertaken by the overseas entity. NBFCs may also note that in terms of the Regulations ibid, they are not permitted to make direct investment in a foreign entity engaged in activities not approved under FEMA.

Source: RBI/2009-10/442 DNBS (PD).CC. No.173/03.10.01 /2009-10 dated 3rd May 2010

Total period of realisation is 8 years for Securitisation Company, loss assets, date of acquisition defined, surplus investment in NABARD/SIDBI & more disclosures in Balance sheet - SARFAESI provisions amended

The Securitisation Companies and Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003 – Amendments (under SARFAESI provisions)

RBI clarification on certain issues as regards acquisition of financial assets by trusts floated by Securitisation Companies or Reconstruction Companies, extension in time frame allowed for realization of financial assets, deployment of surplus funds, acquisition of land and buildings by Securitisation Company or Reconstruction Company; asset classification, additional disclosures in the balance sheet etc. as detailed hereunder:-

(Directions here means Securitisation Companies and Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003)

(a) Amendment of paragraph 3(1)(iii) of the Directions - Date of acquisition
Date of acquisition means the date on which the ownership of financial assets is acquired by Securitisation Company or Reconstruction Company either in its own books or directly in the books of the trust.

(b) Amendment of paragraph 7(1) of the Directions - Financial Assets Acquisition Policy
Framing of ‘Financial Assets Acquisition Policy’ by the Securitisation Company or Reconstruction Company shall cover acquisition of financial assets either in its own books or directly in the books of the trust.

(c) Amendment of paragraph 7(6)(ii) of the Directions - Plan of realisation
In terms of clause 7(6)(i) of the Directions, every Securitisation Company or Reconstruction Company is required to formulate a plan for realisation of financial assets acquired by providing for one or more measures listed therein. Further, in terms of clause 7(6)(ii) of the Directions, the plan of realisation shall clearly spell out the steps proposed to reconstruct the assets and realize the same within a specified timeframe of (within) 5 years from the date of acquisition.
On a review, it has been decided that on expiry of 5years from the date of acquisition of financial assets, the Board of Directors of the Securitisation Company or Reconstruction Company may increase the period for realisation of financial assets so that the total period for realisation shall not exceed 8years from the date of acquisition of financial assets concerned. The Board of Directors of the Securitisation Company or Reconstruction Company shall specify the steps that will be taken by the Securitisation Company or Reconstruction Company to realise the financial assets within the time frame as above.
Qualified Institutional Buyers (QIB) shall be entitled to invoke the provisions of Section 7(3) of the SARFAESI Act only at the end of such extended period (post 5 years) as explained above. If the period for realisation is not extended, the Qualified Institutional Buyers shall be entitled to invoke the provisions of Section 7(3) of the Act at the end of period of realisation (within) 5 years from the date of acquisition of the financial asset concerned.

(d) Amendment of paragraph 8(1) of the Directions- Issue of Security Receipts
Paragraph 8(1) of the Directions prescribes that a Securitisation Company or Reconstruction Company shall give effect to the provisions of Sections 7(1) and (2) of the Act through one or more trusts set up exclusively for the purpose. The Securitisation Company or Reconstruction Company is required to transfer the assets to the said trusts at the price at which those assets were acquired from the originator. It is clarified that Securitisation Company or Reconstruction Company can acquire the assets from banks/FIs either in its own books and then transfer the assets to trusts or directly acquire the assets in the books of the trusts. In case such financial assets are first acquired in its own books by the Securitisation Company or Reconstruction Company, such financial assets shall be transferred to trust at the price at which those assets were acquired by Securitisation Company or Reconstruction Company from the originator.

(e) Amendment of paragraph 10(ii) of the Directions - Deployment of surplus funds
A Securitisation Company or Reconstruction Company may deploy any surplus available with it only in Government Securities and deposits with scheduled commercial banks in terms of policy framed in this regard by its Board of Directors.
To provide additional avenues to the Securitisation Company or Reconstruction Company for deployment of surplus funds, Securitisation Company or Reconstruction Company, subject to policy framed by its Board of Directors, may also deploy surplus funds as deposits with Small Industries Development Bank of India (SIDBI), National Bank for Agriculture and Rural Development (NABARD) or such other entity as may be specified by the Reserve Bank of India from time to time.

(f) Amendment of paragraph 10(iii) of the Directions- Acquisition of land and buildings by Securitisation Company or Reconstruction Company.
Presently, no Securitisation Company or Reconstruction Company is allowed to invest out of its owned fund in land and building, provided that this restriction will not apply to funds borrowed as also to owned fund in excess of the minimum prescribed.
On a review, it has been decided that no Securitisation Company or Reconstruction Company shall, invest in land and building;-
provided that this restriction shall not apply to investment in land and/or building by Securitisation Company or Reconstruction Company for its own use upto 10% of its owned fund,
provided further that any land and/or building acquired by Securitisation Company or Reconstruction Company in the ordinary course of its business of reconstruction of assets while enforcing its security interest, shall be disposed of within a period of 5 years from the date of such acquisition or such extended period as may be permitted by the Bank in the interest of realization of the dues of the Securitisation Company or Reconstruction Company.

(g) Amendment of paragraph 12 of the Directions - Asset classification
It is clarified that provisions relating to asset classification are applicable only in respect of assets held in the books of Securitisation Company or Reconstruction Company. Further, the meaning of the term “Loss asset” has been expanded to include the financial assets including Security Receipts continued to be held by the Securitisation Company or Reconstruction Company which has not been realized within the total time frame specified in the plan for realization formulated by the Securitisation Company or Reconstruction Company under Paragraph 7 (6)(ii) or 7(6)(iii).

(h) Amendment of paragraph 15 of the Directions- Disclosures in the Balance Sheet
It has been decided that every Securitisation Company or Reconstruction Company shall make additional disclosures on following issues in the balance sheet:-
(i) Value of financial assets acquired during the financial year either in its own books or in the books of the trust;
(ii) Value of financial assets realized during the financial year;
(iii) Value of financial assets outstanding for realization as at the end of the financial year;
(iv) Value of Security Receipts redeemed partly and the Security Receipts redeemed fully during the financial year;
(v)Value of Security Receipts pending for redemption as at the end of the financial year;
(vi) Value of Security Receipts which could not be redeemed as a result of non-realization of the financial asset as per the policy formulated by the Securitization company or Reconstruction company under Paragraph 7(6)(ii) or 7(6)(iii).
(vii)Value of land and/or building acquired in ordinary course of business of reconstruction of assets (year wise)

Source: Notification No. DNBS.PD(SC/RC). 8 /CGM (ASR) - 2010 dated April 21, 2010 is enclosed vide RBI/2009-2010/413 DNBS (PD) CC. No. 18 / SCRC / 26.03.001/ 2009-2010

Securitisation Company u/ SARFAESI Act shall hold atleast 5% of Security Receipts issued by it on ongoing basis till the redemption of scheme, RBI

RBI amendment in SARFAESI provisions

Securitisation Companies/ Reconstruction Companies(SC/RCs) registered with the Bank are required to invest in the Security Receipts (SRs) issued by the trust set up for the purpose of securitisation, an amount not less than 5% under each scheme.

In Paragraph 5 of the The Securitisation Companies and Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003, after subparagraph (v), the following subparagraph (vi) shall be inserted.
" (vi) the Securitisation Company or Reconstruction Company shall continue to hold a minimum of 5% of the Security Receipts of each class issued by the SC/RC under each scheme on an ongoing basis till the redemption of all the Security Receipts issued under such scheme.

 

Source: RBI/2009-2010/414 DNBS (PD) CC. No. 19 / SCRC / 26.03.001/ 2009-2010 dated 21st April 2010

RBI approval is mandatory for Public (IPO), Preferential issue, QIP by Private bank; Understand what is required for Public issue of securities (SEBI)

Approvals required for various Corporate Actions, Issues by Private Sector Banks

1. Initial Public Offers (lPOs) – Public Issues:
(i) All banks should obtain RBI approval for IPOs. After listing on the stock exchanges, banks are free to price their subsequent issues.
(ii) Issue price should be based on merchant banker's recommendation. There need be no reference to the CCI formula for deciding on the pricing of such issues.
2. Rights issues:
RBI approval would not be required for rights issues by both listed and unlisted banks. However, banks need to comply with the requirements that have been laid down in the circular DBOD.No.PSBD.BC.99/16.13.100/2004-05 dated June 25, 2005 on Rights Issue.
3. Bonus issues:
Private sector banks, both listed and unlisted, need not seek RBI's approval for bonus issues. The issues would, however, be subject to SEBI's requirements on issue of bonus shares, viz. bonus issues (a) should be made from free reserves built out of genuine profits or share premium, (b) should not dilute the value or rights of partly or fully convertible debentures, (c) should not be in lieu of dividend and (d) should not be made unless all partly paid-up shares are fully paid-up. Further, bonus issues may be issued without linkage to rights issues.
4. Preferential issue:
All preferential issues would require prior approval of RBI. Pricing of preferential issues by listed banks may be as per SEBI formula, while for unlisted banks the fair value may be determined by a chartered accountant or a merchant banker.
5. Qualified Institutional Placement (QIP):
Private Sector Banks need to approach RBI for prior 'in principle' approval in case of Qualified Institutional Placements. Banks need to approach RBI along with details of the issue once the bank’s Board approves the proposal of raising capital through this route. Further, allotment to the investors would be subject to compliance with SEBI guidelines on QIPs and RBI guidelines dated February 3, 2004 on acknowledgement of allotment / transfer of shares. Once the allotment process is complete, the banks would also be required to furnish complete details of the issue to RBI in the enclosed format for seeking post facto approval. This would be irrespective of whether any acquisition results in shareholding of 5% or more of the paid up capital of the bank.
6. In case of pricing of issues

• where RBI approval is not required, pricing of issues should be as per SEBI guidelines (ICDR Regulations);
• in cases where prior approval of RBI is required, pricing should take into account both SEBI and RBI guidelines.

Source: Issue and Pricing of Shares by Private Sector Banks vide RBI/2009-10/411 DBOD.No.PSBD.BC.92 /16.13.100/2009-2010 dated 20th April 2010

Debentures/Bonds by Indian Infrastructure companies to Non Resident Entities following ECB (structured obligations/novated loans)

External Commercial Borrowings (ECB) Policy – Structured Obligations
Borrowing and lending of Indian Rupees between two persons resident in India does not attract the provisions of the Foreign Exchange Management Act, 1999. In case where a Rupee loan is granted against the guarantee provided by a person resident outside India, there is no transaction involving foreign exchange until the guarantee is invoked and the non-resident guarantor is required to meet the liability under the guarantee. The Reserve Bank vide Notification No. FEMA 29/2000-RB dated September 26, 2000 has granted general permission to a person resident in India, being a principal debtor, to make payment to a person resident outside India, who has met the liability under a guarantee.

As per the extant policy, domestic Rupee denominated structured obligations have been permitted to be credit enhanced by non-resident entities under the approval route. In view of the growing needs of funds in the infrastructure sector, the existing norms have been reviewed and it has been decided to put in place a comprehensive policy framework on credit enhancement to domestic debt as indicated below.

It has since been decided that the facility of credit enhancement by eligible non-resident entities may be extended to domestic debt raised through issue of capital market instruments, such as debentures and bonds, by Indian companies engaged exclusively in the development of infrastructure and by the Infrastructure Finance Companies (IFCs), which have been classified as such by the Reserve Bank in terms of the guidelines contained in the circular DNBS.PD. CC No. 168 / 03.02.089 / 2009-10 dated February 12, 2010, subject to the following conditions:
i) credit enhancement will be permitted to be provided by multilateral / regional financial institutions and Government owned development financial institutions;
ii) the underlying debt instrument should have a minimum average maturity of 7 years;
iii) prepayment and call / put options would not be permissible for such capital market instruments up to an average maturity period of 7 years;
iv) guarantee fee and other costs in connection with credit enhancement will be restricted to a maximum 2% of the principal amount involved;
v) on invocation of the credit enhancement, if the guarantor meets the liability and if the same is permissible to be repaid in foreign currency to the eligible non-resident entity, the all-in-cost ceilings, as applicable to the relevant maturity period of the Trade Credit / ECBs, would apply to the novated loan. Presently, the all-in-cost ceilings, depending on the average maturity period, are applicable as follows:

vi) In case of default and if the loan is serviced in Indian Rupees, the applicable rate of interest would be the coupon of the bonds or 250 bps over the prevailing secondary market yield of 5 years Government of India security, as on the date of novation, whichever is higher;
vii) IFCs proposing to avail of the credit enhancement facility should comply with the eligibility criteria and prudential norms laid down in the circular DNBS.PD.CC No.168 / 03.02.089 / 2009-10 dated February 12, 2010 and in case the novated loan is designated in foreign currency, the IFC should hedge the entire foreign currency exposure; and
viii) The reporting arrangements as applicable to the ECBs would be applicable to the novated loans.

Source: RBI A.P. (DIR Series) Circular No. 40 dated 2nd March 2010

Download RBI Notification & Guidelines on Stripping/Reconstitution of Government Securities, a good read

RBI Guidelines on Stripping/Reconstitution of Government Securities
Please refer to paragraph No.101 of the Annual Policy Statement for the year 2009-10. As indicated therein, it has been decided to introduce Separate Trading of Registered Interest and Principal of Securities (STRIPS) in Government Securities as part of the efforts to develop the Government Securities market.
STRIPS in Government Securities will ensure availability of sovereign zero coupon bonds, which will lead to the development of a market determined zero coupon yield curve (ZCYC).

STRIPS will also provide institutional investors with an additional instrument for their assetliability management. Further, as STRIPS have zero reinvestment risk (discounted instruments with no periodic interest payment thereby obviating the need for reinvestment of intermediate cash flows arising out of the investment), they can be attractive to retail/non-institutional investors.

The terms and conditions governing the stripping/reconstitution of Government of India securities are set out in the RBI Notification IDMD.1762/2009-10 dated October 16, 2009.

Detailed guidelines outlining the process of stripping/reconstitution and other operational procedures regarding transactions in STRIPS are enclosed and shall come into effect from April 01, 2010.

Download RBI Notification & Guidelines on Stripping/Reconstitution of Government Securities