IDF-NBFCs shall invest only in PPP and post commercial operations date (COD) infrastructure projects which have completed at least one year of satisfactory commercial operation and are a party to a Tripartite Agreement with the Concessionaire and the Project Authority for ensuring a compulsory buyout with termination payment and has been allowed to undertake investments in non-PPP projects and PPP projects without a Project Authority, in sectors where there is no Project Authority, provided these are post COD infrastructure projects which have completed at least one year of satisfactory commercial operation.

Further for computing capital adequacy, covering PPP and post COD projects in existence over a year of commercial operation shall be assigned a risk weight of 50 per cent and also the same is extended to all NBFCs i.e. all assets, including bonds and loans, covering PPP and post COD infrastructure projects in existence over a year of commercial operation shall be assigned a risk weight of 50 per cent.

The individual projects can take a maximum exposure up to 50 per cent of its total capital funds and for additional exposure up to 10 per cent could be taken at the discretion of the Board of the IDF-NBFC. RBI may grant additional 15 per cent (over 60 per cent) exposure if the financial position of the IDF-NBFC is satisfactory.

Circular No. RBI/2014-15/600 DNBR (PD) CC.No.035/03.10.001/2014-15 dated May 14, 2015

Foreign Exchange Management (Permissible Capital Account Transactions) (Third Amendment) Regulations, 2015 dated May 26 2015 [Section 6 (2) & Section 47(2) of the Foreign Exchange Management Act, 1999]

A resident individual may, draw from an authorised person foreign exchange not exceeding USD 250,000 per financial year

If the drawal of foreign exchange by a resident individual for any capital account transaction specified in Schedule I exceeds USD 250,000 per financial year, the Reserve Bank from time to time as the case may be, the limit specified in the regulations relevant to the transaction shall apply with respect to such drawal.

The foreign exchange of USD 250,000, drawn not be remitted directly or indirectly to countries notified as non-co-operative countries and territories by Financial Action Task Force (FATF).

Notification No. FEMA. 341/2015-RB

Liberalised Remittance Scheme (LRS) for resident individuals- increase in the limit from USD 125,000 to USD 250,000 and rationalisation of current account transactions. [RBI/2014-15/620 A.P. (DIR Series) Circular No. 106 dtd. June 1, 2015]

AD banks allow remittances by a resident individual up to USD 250,000 per financial year for any permitted current or capital account transaction or a combination of both. If an individual has already remitted any amount under the LRS, then the applicable limit for such an individual would be reduced from the present limit of USD 250,000 for the financial year.

The permissible capital account transactions by an individual under LRS are:

i) Opening of foreign currency account abroad with a bank;

ii) Purchase of property abroad;

iii) Making investments abroad;

iv) Setting up wholly owned subsidiaries and Joint Ventures abroad;

v) Extending loans including loans in Indian Rupees to non-resident Indians (NRIs) who are relatives as defined in Companies Act, 2013.

Further for emigration, [expenses in connection with medical treatment abroad and studies abroad individuals may avail of exchange facility for an amount in excess of the overall limit prescribed under the LRS. Gift in Indian Rupees by resident individuals to NRI relatives as defined in the Companies Act, 2013 shall also be subsumed under the LRS limit.

The Scheme cannot be made use for making remittances for any prohibited or illegal activities such as margin trading, lottery, etc.

Also the scheme has prescribe the remittance procedure that need to be complied by the remitter, authorised person and authorised dealers.

[Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1992 (42 of 1999)]

Remittance facilities for persons other than individuals [RBI/2014-15/620 A.P. (DIR Series) Circular No. 106 dtd. June 1, 2015]

The persons other than individuals can make remittances for

i. Donations for educational institutions;

ii. Commissions to agents abroad for sale of residential flats/commercial plots in India;

iii. Remittances for consultancy services and

iv. Remittances for reimbursement of pre-incorporation expenses within the limit and conditions laid down

[Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1992 (42 of 1999)]

Strategic Debt Restructuring Scheme (SDR) RBI/2014-15/627 DBR.BP.BC.No.101/21.04.132 /2014-15 dtd. 8-6-2015

As per circular DBOD.BP.BC.No.97/21.04.132 /2013-14 dated February 26, 2014 which states that the general principle of restructuring should be that the shareholders bear the first loss rather than the debt holders. With this principle in view and also to ensure that the promoters, JLF/Corporate Debt Restructuring Cell (CDR) may consider the following options when a loan is restructured:

• Possibility of transferring equity of the company by promoters to the lenders to compensate for their sacrifices;

• Promoters infusing more equity into their companies;

• Transfer of the promoters’ holdings to a security trustee or an escrow arrangement till turnaround of company. This will enable a change in management control, should lenders favour it.

Also restructuring of accounts, borrower companies are not able to come out of stress due to operational/managerial inefficiencies despite substantial sacrifices made by the lending banks change of ownership will be a preferred option.

Further to ensure promoters in reviving stressed accounts and provide banks with enhanced capabilities to initiate change of ownership in accounts which fail to achieve the projected viability milestones, banks may undertake a ‘Strategic Debt Restructuring (SDR)’ by converting loan dues to equity shares after complying with the conditions.

The conversion of debt into equity under SDR, banks may also convert their debt into equity at the time of restructuring of credit facilities

Acquisition of shares due to such conversion will be exempted from regulatory ceilings/restrictions on Capital Market Exposures, investment in Para-Banking activities and intra-group exposure.

Equity shares acquired and held by banks under the scheme shall be exempt from the requirement of periodic mark-to-market (stipulated vide Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks) for the 18 month period indicated at para 3(xi).

Conversion of debt into equity in an enterprise by a bank may result in the bank holding more than 20% of voting power, which will normally result in an investor-associate relationship under applicable accounting standards. However, as the lender acquires such voting power in the borrower entity in satisfaction of its advances under the SDR, and the rights exercised by the lenders are more protective in nature and not participative, such investment may not be treated as investment in associate in terms.

Sujeet Karkala

Comments are closed.