The Reserve Bank of India (RBI) has issued a final set of guidelines for licensing of new banks in the private sector. These guidelines will becomes operational with effect from July 1, 2013 and applications under them for establishing new banks must be submitted to the RBI before that date. These guidelines are based on the draft issued by the RBI in August 2011. Since then, the RBI has received...
Foreign Investment in Corporate Debt
[Vinita Sithapathy, who is a lawyer and a company secretary, has contributed the following post. Vinita graduated from Government Law College, Mumbai in 2008. She has advised clients on banking and finance and corporate M&A transactions since 2008. She can be contacted at [email protected]] Last month, the Reserve Bank of India (RBI) introduced some amendments to its existing regime...
Draft Guidelines on Debt Restructuring
The Reserve Bank of India (RBI) has issued draft guidelines on “Review of Prudential Guidelines on Restructuring of Advances by Banks and Financial Institutions” that follows from the recommendations of the working group on the subject under the chairmanship of Mr. B. Mahapatra. The draft guidelines contain several technical details regarding prudential norms on income recognition, asset...
Willful Defaulters and Derivatives Transactions
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...
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