The Supreme Court was recently confronted with a question as to whether a company that had entered into a derivatives transaction with a bank could be categorized as a “willful defaulter” under the Reserve Bank of India’s Master Circular on Willful Defaulters on account of non-performance of payment obligations. More specifically, the question was whether a bank could be treated as a “lender” in...
Liberalisation of FDI from Pakistan
Hitherto, a person resident in Pakistan or an entity incorporated in that country was not allowed to purchase shares or convertible debentures in an Indian company. This was by virtue of Regulation 5 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000. By way of a circular dated August 22, 2012, the Reserve Bank fo India (RBI)...
A Review and Analysis of the CDR Mechanism
The out-of-court approach for corporate debt restructuring (CDR) was instituted by the Reserve Bank of India (RBI) over a decade ago. While it has been successful in several cases, there have also been significant shortcomings with the CDR mechanism. In a recent speech, a Deputy Governor of the RBI undertakes a review of the CDR mechanism. A number of issues are examined in the speech, including...
RBI: Liberalisation in Capital Account Transactions
The Reserve Bank of India has taken measures to liberalise the process with respect to certain types of current account transactions. The measures announced include the following: – manufacturing and infrastructure companies can avail of external commercial borrowings (ECB) to repay rupee loans towards capital expenditure; this is under the approval route with an overall ceiling of USD 10...
Miscellaneous
1. Further Liberalization of ECB Policy Given the ailments afflicting the civil aviation sector in India, the Reserve Bank of India (RBI) has allowed external commercial borrowings (ECBs) in that sector even where the end-use of funds is for working capital requirements. This is permissible under the approval route, and is subject to several...
Dormant NBFCs under RBI scanner
There are numerous NBFCs who have obtained registration from the RBI, parked their funds in fixed deposits with commercial banks but have not commenced NBFC activities for several years thereafter. In view of the recent difficulty in getting NBFC registrations as well as to get the benefit of lower net owned funds (NOF) requirements (in case the NBFC was registered pre-1999), acquiring such...
Secondary Market Purchases by Foreign Venture Capital Investors
The Reserve Bank of India (RBI) has issued a circular that expands the scope of investments that foreign venture capital investors (FVCIs) can make in Indian companies. Hitherto, FVCI investments were permitted either through initial public offerings or through private placements. Under the new regime, FVCIs may acquire shares in the secondary markets from existing shareholders. The operative...
Outbound FDI and M&A
The Reserve Bank of India has published a paper/address titled “Outward Indian FDI – Recent Trends & Emerging Issues” that examines various regulatory aspects of outbound FDI by Indian companies. It considers various business aspects and comments upon regulatory issues and concerns. The latest issue of The Economist also looks at outbound M&A from India, and analyzes the level of success...
Regulating the Pay of Bankers in the Private Sector
Last week, the Reserve Bank of India (RBI) issued compensation guidelines for implementation by private sector and foreign banks that become operational from the financial year 2012-2013. This approach is consistent with the trend that corporate governance norms in the banking sector tend to be more controlled than in other industry sectors. Apart from the fact that the pay of CEOs and wholetime...
QFI Route Operational
Following the decision of the Government of India to permit qualified foreign investors (QFIs) to invest in the Indian stock markets, SEBI and RBI yesterday issued detailed guidelines (here and here) to operationalise the investment mechanism. SEBI has introduced a number of checks and balances to prevent misuse of this route. For example, significant KYC obligations have been imposed on the...
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