A few months ago, we had discussed a change of policy stance by the Government of India in allowing options (such as puts and calls) on shares of Indian companies to foreign investors. While the Government initially specified that the existence of such options would turn the foreign investment into an external commercial borrowing, it was quick to withdraw this stipulation due to the immediate...
QFI Investments in Indian Stock Markets
With a view to creating further depth in the Indian capital markets and attracting greater foreign investment, the Government has provided another avenue for foreign investors to participate in the stock markets. Until now, the portfolio investment route (i.e. buying and selling on the stock exchange) was available only to two types of foreign investors, i.e. foreign institutional investors...
Bank Investments in Non-Financial Services Companies
The Reserve Bank of India (RBI) has tightened the control over investment by banks in other companies that do not operate in the financial services sector. The rationale has been set forth in a new set of guidelines issued yesterday: Banks’ investments in companies which are not subsidiaries are governed by Section 19(2) of the Banking Regulation Act, 1949 (B.R. Act). There is no requirement, at...
FDI – Transfer of Shares
The Reserve Bank of India (RBI), through a circular issued last week, curtailed its own approval powers involving transfers of shares of Indian companies between residents and non-residents. Previously, certain specific transactions required the prior approval of the RBI, and these included (i) transfers not compliant with RBI’s pricing norms, (ii) those that required prior approval of the...
Revised Draft Guidelines on Securitisation
The Reserve Bank of India has issued a revised draft of its guidelines on securitisation transactions. This takes into account reform efforts internationally to deal with distorted incentives of originators in downselling financial assets soon after their creation. The preamble to the revised draft sets forth the rationale: 1.1 Securitisation involves the pooling of assets and the subsequent sale...
Further Liberalisation of ECB Policy
In the last few days, the Reserve Bank of India (RBI) has issued a string of circulars to liberalise the policy on external commercial borrowings (ECB). The include the following: – utilisation of 25 per cent of the fresh ECB raised by a company in the infrastructure sector towards refinancing of the Rupee loan/s availed by it from the domestic banking system, under the approval route;...
RBI Report on NBFC Norms
Last week, a committee formed by the Reserve Bank of India (RBI) issued its report recommending changes to the manner in which non-banking finance companies (NBFCs) are regulated in India. A number of changes have been suggested to the operational norms governing NBFCs. These include capital adequacy requirements, liquidity ratio, asset classification and provisioning and the like, which are...
RBI’s Draft Guidelines for Private Sector Banks
Following the Finance Minister’s announcement in his budget speech for 2010-11 and a discussion paper published by the Reserve Bank of India (RBI) in August 2010, the RBI has now released draft guidelines for licensing new banks in the private sector. The draft guidelines lay down the conditions on which corporate groups will be permitted to set up banks in India. While the RBI seems keen to tap...
Miscellaneous
1. Put Options & Foreign Exchange Regulations We have in the past discussed the questions regarding the enforceability of put and call options under securities laws and regulations, primarily the Securities Contracts (Regulation) Act, 1956. In addition, if put options are entered into by foreign investors, the Foreign Exchange Management Act, 1999 and regulations issued by the Reserve Bank of...
The New Microfinance Institutions Bill
Over the last year or so, there has been a serious debate about the nature of regulation governing the microfinance sector. In view of the debacle in Andhra Pradesh, the Reserve Bank of India (RBI) had appointed a committee under the chairmanship of Mr. Malegam to review issues pertaining to the sector. The committee submitted its report in January this year. In view of these events, the...
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