Payment of agency commission –
Certification of claims by external auditors RBI/2014-15/ 394 DGBA.GAD. No. H-2995/ 31.12.010/2014-15 dated January 7, 2015.
As per our circular DGBA.GAD.No.2528/31.12.010 (C)/2012-13 dated October 31, 2012 prescribing the format for certification of agency commission claims by external auditors (Chartered Accountants). The certificate to be furnished by the auditors has since been slightly amended and should be henceforth be accompanied by a certificate as per the revised format as prescribed.
External Commercial Borrowings (ECB)
Security for External Commercial Borrowings dated Jan. 1, 2015 [S. 10(4) & 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999)] RBI/2014-15/377 A.P. (DIR Series) Circular No. 55].
The circular is in relating to creation of charge over securities for External Commercial Borrowings (ECB) of Authorised Dealers Category–I (AD Category-I). AD Category-I banks may allow creation of charge on immovable assets, movable assets, financial securities and issue of corporate and/or personal guarantees in favour of overseas lender/security trustee, to secure the ECB to be raised/raised by the borrower, subject to:
The underlying ECB is in compliance with the extant ECB guidelines,
There exists a security clause in the Loan Agreement requiring the ECB borrower to create charge, in favour of overseas lender/security trustee, on immovable assets/movable assets/financial securities/ issuance of corporate and / or personal guarantee, and (iii) No objection certificate, wherever necessary, from the existing lenders in India has been obtained. After satisfying the aforesaid stipulations are met, the AD Category-I bank permit creation of charge on immovable assets, movable assets, financial securities and issue of corporate and/or personal guarantees, during the currency of the ECB with security co-terminating with underlying ECB.
Foreign Accounts Tax Compliance Act (FATCA)
Inter-Governmental Agreement (IGA) with United States of America (US) under Foreign Accounts Tax Compliance Act (FATCA) – Registration for Non-Bank Financial Companies Circular RBI/2014-15/397DNBR.CC.PD.No.010/03.10.01/2014-15 dated January 9, 2015.
In refer to circulars DNBS (PD).CC.No 401/03.10.42/2014-15 dated July 25, 2014 and DBR.AML.No. 9644/14.07.018/2014-15 dated December 30, 2014 the Government of India, has now advised to avoid withholding tax, Foreign Financial Institutions (FFIs) in Model 1 jurisdictions, such as India, need to register with IRS and obtain a Global Intermediary Identification Number (GIIN) before January 1, 2015. The FFIs who have registered but have not obtained a GIIN should indicate to the withholding agents that the GIIN is applied for, which may be verified by the withholding agents in 90 days.
Inter-Governmental Agreement (IGA) with United States of America (US) under Foreign Accounts Tax Compliance Act (FATCA) – Registration for SCB/RRBs/ Local Area Bank/ All Financial Banks dtd. December 30, 2014. Circular No. RBI/2014-15/372DBR. AML. No. 9644/14.07.018/2014-1
In reference to the earlier circular DBOD. AML. No. 20472 /14.07.018/2013-14 dated June 27, 2014, the Government of India, has now advised to avoid withholding tax, Foreign Financial Institutions (FFIs) in Model 1 jurisdictions, such as India, need to register with IRS and obtain a Global Intermediary Identification Number (GIIN) before January 1, 2015. The FFIs who have registered but have not obtained a GIIN should indicate to the withholding agents that the GIIN is applied for, which may be verified by the withholding agents in 90 days.
Large Value Frauds
Monitoring of Large Value Frauds by the Board of Directors RBI/2014-15/393 DCBR.BPD PCB Cir. No. 10/12.05.001/2014-15 dtd. January 7, 2015.
As per circular UBD. No. Plan. (PCB) 9/09.06.00-94/95 dated July 25,1994 advising all UCBs to constitute an apex level Audit Committee of Board (ACB) may consist of the Chairman and three/four directors, one or more such directors being Chartered Accountants or having experience in management, finance, accounting and audit systems etc. The ACB is required to oversee the internal inspection, statutory audit, inter branch/inter-bank accounts, balancing of books, major areas of house-keeping, etc. The Committee is also required to focus attention on preventive aspects as well as follow up action on frauds like detection, reporting to regulatory and enforcement agencies and action against the perpetrators of the frauds. The Boards of banks should constitute a Special Committee for monitoring and following up cases of frauds involving amounts of Rs. 1 crore and above exclusively, while ACB may continue to monitor all the cases of frauds in general.
Money Laundering: Client due Diligence
Obligation of NBFCs under Prevention of Money Laundering Act, 2002 – Client Due Diligence measures dtd. Jan. 2, 2015 Circular No. RBI/2014-15/383DNBR(PD).CC.No. 009/03.10.42/2014-15
In reference to Master Circular DNBS(PD) CC.No.387/03.10.42/ 2014-15 dated July 1, 2014, NBFCs are required to undertake ‘Client Due Diligence’ and apply measures to existing clients based on risk categorisation. A fresh KYC documents need to be submitted at the regular intervals. The periodicity of such updation should not be less than once in five years in the case of low risk category customers and not less than once in two years in case of high and medium risk categories. Full KYC exercise will be required to be done at least every two years for high risk individuals and entities and at least every ten years for low risk and at least every eight years for medium risk individuals and entities. If an existing KYC compliant customer of NBFC desires to open another account in the same NBFC, there should be no need for submission of fresh proof of identity and/or proof of address for the purpose.
Source: Reserve Bank of India http://rbi.org.in/scripts/NotificationUser.aspx
Non-Cooperative Borrowers dated December 22, 2014 Circular No. RBI/2014-15/362DBR. No. CID.BC.54/20.16.064/2014-15
As per circular DBOD.BP.BC. No. 97/21.04.132/2013-14 dated February 26, 2014 on ‘Framework for Revitalising Distressed Assets in the Economy – Guidelines on Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP)’ which inter alia, provides for specific prudential measures and reporting requirements in respect of Non-Co-operative Borrowers. The definition of a Non-Co-operative Borrower as contained therein is hereby modified to read as under:
A non-co-operative borrower is one who does not engage constructively with his lender by defaulting in timely repayment of dues while having ability to pay, thwarting lenders’ efforts for recovery of their dues by not providing necessary information sought, denying access to assets financed/collateral securities, obstructing sale of securities, etc. In effect, a non-co-operative borrower is a defaulter who deliberately stone walls legitimate efforts of the lenders to recover their dues.
Further the banks/FIs should take the measures in classifying/declassifying a borrower as non-co-operative borrower and reporting information on such borrowers to Central Repository of Information on Large Credits (CRILC).
Non-Resident Guarantee for Non-Fund Facilities
Non-resident guarantee for non-fund based facilities entered between two resident entities S. 10(4) & S. 11(1) of FEMA Act, 1999 (42 of 1999) RBI/2014-15/387A.P. (DIR Series) Circular No. 56 dated. January 6, 2015
A non-resident guarantee for non-funded facilities such as Letters of Credit/guarantees/Letters of Undertaking (LoU) /Letter of Comfort (LoC) entered between two persons resident in India is allowed under the general permission route. Further, the residents that are subsidiaries of multinational companies can also hedge their foreign currency exposure through permissible derivative contracts executed with an AD Category–I bank in India on the strength of guarantee of its non-resident group entity, which should be complied as per A. P. (DIR Series) Circular No. 20 dated August 29, 2012.
Representative of Foreign Banks
Revised format of reporting –Representative Offices of Foreign Banks in India dated December 31, 2014 RBI/2014-15/374 DBR.IBD.No. 9745/23.13.001/2014-15
Representative Offices of foreign banks in India are currently required to submit /documents on an annual basis to Reserve Bank of India as under:
A certificate from the auditor to the effect that during the year no income was earned by/accrued to the office in India,
Certified copy of the audited final accounts of the office in India,
Details of remittances received from abroad duly supported by bank certificates and
An annual report of the work done by the office in India.
Master Circular on Wilful Defaulter RBI/2014-15/73DBR.No.CID.BC.57 /20.16.003/2014-15 (dated July 1, 2014 updated January 7, 2015)
RBI examined and modified Master Circular on Wilful defaulters guidelines are definitional and clarificatory in nature, certain substantive changes have been made to bring in greater transparency and accountability in the due process required to be adopted for identification of Wilful Defaulters. Further, in view of the limited role of non-promoter/non-whole time directors (Nominee and Independent directors) in the management of a company’s debt contracts, their names shall now be excluded from the list of Wilful Defaulters, except in the rarest circumstances which also have been specified. The copy of the updated circular can be found in the link below:
Sujeet Karkala, Advocate