April 2016|Page 1 of 9

April 2016

Contents (Click on the topics)

1. From Regulators

Reserve Bank of India (RBI)

Securities and Exchange Board of India (SEBI)

Insurance Regulatory and Development Authority

(IRDA)

Pension Fund Regulatory and Development

Authority (PFRDA)

Ministry of Commerce & Industry

2. Insolvency and Bankruptcy Code

3. SEBI scans Facebook accounts in insider trading case

4. Quotes

5. Article – “Bitcoin”

6. Fun Zone

April 2016|Page 2 of 9

I. From Regulators

Reserve Bank of India (RBI) Can be accessed through https://www.rbi.org.in/scripts/BS_CircularIndexDisplay.aspx

1. Revision to Master Circular on Basel III Capital Regulations Circ. No.: DBR.No.BP.BC.83/21.06.201/201516 dated March 1, 2016

The treatment of certain balance sheet items, as per the extant regulations on banks' capital, differs from

what is prescribed by the Basel Committee on Banking Supervision (BCBS) which in turn need banks to

raise more capital than what would be required under the Basel rules. Accordingly the Reserve Bank has

reviewed and aligned, to some extent, the current regulations on treatment of the following balance sheet

items, for the purpose of regulatory capital, with the BCBS guidelines:

Treatment of revaluation reserves.

Treatment of foreign currency translation reserve (FCTR).

Treatment of deferred tax assets (DTAs).

2. Master Direction – Interest Rate on Advances Circ. No.: DBR.Dir.No.85/13.03.00/201516 dated March 3, 2016 (updated upto 29th March 2016)

RBI vide this Directions has issued guidelines on charging interest rate on various advances provided by the

Bank which requires advances to be linked to the Marginal Cost of Funds based Lending Rate (MCLR) with

effect from 1st

April 2016. Accordingly, all new loans and advances including those come up for renewal

should be charged interest rate linked to MCLR baring certain exceptions, similar to the Base Rate regime,

including Fixed rate loans of tenor above three years.

Further, RBI made it clear that

the existing loans and credit limits linked to the Base Rate / BPLR shall continue till repayment or

renewal, as the case may be.

the existing borrowers shall have the option to move to MCLR linked loan at mutually acceptable

terms.

the switchover shall not be treated as a foreclosure of existing facility.

3. Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises (MSMEs) Circ. No.: FIDD.MSME&NFS.BC.No.21/06.02.31/201516 dated March 17, 2016

RBI vide this circular has provided the operating instructions on the revised framework of revival and

rehabilitation of MSMEs after consultation with the Government of India, Ministry of MSME to make the

framework compatible with the IRAC norms of RBI. Accordingly,

Rehabilitation of MSMEs having loan limits upto Rs.25 crores will be in terms of the operating

instructions given vide this circular whereas for the MSMEs having loan limits above Rs.25 crores the

extant guidelines under Corporate Debt Restructuring (CDR) / Joint Lenders' Forum (JLF) mechanism

will prevail.

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4. External Commercial Borrowings (ECB) Revised framework Circ. No.: A.P. (DIR Series) Circular No.56 dated March 30, 2016

RBI vide this circular has provided revised guidelines on ECB, particularly taking into account the long term

lending and critical needs of infrastructure sector in the country. Accordingly:

i. Companies in infrastructure sector, Non-Banking Financial Companies - Infrastructure Finance

Companies (NBFC-IFCs), NBFCs-Asset Finance Companies (NBFC-AFCs), Holding Companies and Core

Investment Companies (CICs) will also be eligible to raise ECB under Track I of the framework with

minimum average maturity period of 5 years, subject to 100 per cent hedging.

ii. Companies in infrastructure sector, Holding Companies and CICs will continue to have the facility of

raising ECB under Track II of the ECB framework subject to the conditions prescribed thereof.

iii. For the purpose of ECB, "Exploration, Mining and Refinery" sectors are deemed as infrastructure

sector, and can access ECB as applicable to infrastructure sector under (i) above.

5. Import of Rough, Cut and Polished Diamonds Circ. No.: A.P. (DIR Series) Circular No.57 dated March 31, 2016

RBI vide this circular has delegated powers to the AD Banks for permitting clean credit {i.e. credit given by

a foreign supplier to its Indian customer / buyer, without any Letter of Credit (Suppliers' Credit) / Letter of

Undertaking (Buyers' Credit) / Fixed Deposits from any Indian financial institution for import of Rough, Cut

and Polished Diamonds} for a period exceeding 180 days (being the current limit) from the date of

shipment, subject to certain conditions.

6. Foreign Direct Investment (FDI) in India Review of FDI policy Insurance sector Circ. No.: A.P. (DIR Series) Circular No.58 dated March 31, 2016

RBI vide this circular has notified the enhancement of limit of foreign investment in insurance sector from

26 to 49 per cent under the automatic route subject to certain terms and conditions.

7. Priority Sector Lending Certificates Circ. No.: FIDD.CO.Plan.BC.23/04.09.01/2015-16 dated April 7, 2016

RBI vide this circular issued instructions on trading in Priority Sector Lending Certificates (PSLCs). To

facilitate trading in PSLCs, a trading platform is provided through the CBS portal (e-Kuber).

PSLCs enable banks to achieve the priority sector lending target and sub-targets by purchase of these

instruments in the event of shortfall and at the same time incentivize the surplus banks; thereby enhancing

lending to the categories under priority sector.

Securities and Exchange Board of India (SEBI) Can be accessed through http://www.sebi.gov.in/sebiweb/home/list/1/7/0/0/Circulars

1. Introduction of Exchange Traded Cross Currency Derivatives contracts and Exchange Traded Option contracts on currency pairs other than USD-INR Circ. No.: SEBI/HO/MRD/DP/CIR/P/2016/0000000038 dated March 9, 2016

SEBI vide this circular has introduced Exchange Traded Cross Currency Derivatives contracts on EUR-USD,

GBP-USD and USD-JPY currency pairs and also Exchange Traded Option contracts on EUR-INR, GBP-INR

and JPY-INR currency pairs in line with RBI guidelines on the subject vide their circular dated December 10,

2015.

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April 2016|Page 4 of 9

2. Investments by FPIs in REITs, InvIts, AIFs and Corporate Bonds under Default Circ. No.: SEBI/HO/MRD/DP/CIR/P/2016/0000000038 dated March 9, 2016

SEBI vide this circular has permitted Foreign Portfolio Investors (FPIs) to invest in units of REITs, InvIts and

Category III AIFs in line with FEMA notification 355/2014-15 dated November 26, 2015 of RBI. Similarly,

SEBI also permitted FPIs to acquire NCDs / bonds, which are under default, either fully or partly, in the

repayment of principal on maturity or principal installment in the case of an amortising bond. As per the

guidelines:

A FPI shall not hold more than twenty five percent stake in a Category III AIF.

NCDs / bonds restructured based on negotiations with the issuing Indian company, shall have a

minimum revised maturity period of three years.

3. SEBI (IFSC) Guidelines – Inclusion of Commodity Derivatives Circ. No.: CIR/MRD/DSA/41/2016 dated March 17, 2016

Pursuant to the amendment to Securities Contracts (Regulation) Act, 1956 including “Commodity

Derivatives” as “Securities”, SEBI vide this circular has permitted stock exchanges operating in

International Financial Services Centres (IFSC) to deal in Commodity Derivatives.

4. Circular on Mutual Funds Circ. No.: SEBI/HO/IMD/DF2/CIR/P/2016/42 dated March 18, 2016

To increase transparency and to build investor confidence, SEBI has brought out further amendments vide

this circular. Some of the key features are:

Consolidated Account Statement (CAS) to include total purchase value / cost of investment in each

scheme and half-yearly CAS to include the actual commission paid by the AMCs/MFs to distributors

during the half-year period against the concerned investor’s total investments in each MF scheme.

Enhancing Scheme Related Disclosures by including the tenure for which the fund manager has been

managing the scheme along with the name of scheme's fund manager and also aggregate investment

in scheme by AMC’s Board of Directors, concerned scheme’s Fund Manager(s) and other key

managerial personnel.

Disclosure of Executive Remuneration pertaining to a financial year be disclosed on the MF/AMC

website. This will include that of Chief Executive Officer (CEO), Chief Investment Officer (CIO) and Chief

Operations Officer (COO) or their corresponding equivalent by whatever name called and also all the

employees whose annual remuneration was equal to or above INR 60 lakh for that year.

Internal Credit Risk Assessment by MFs/AMCs before investing in fixed income products.

Deployment of NFO proceeds in CBLO permitted before the closure of NFO period. The appreciation

received from such investment in CBLO shall be passed on to investors.

5. Clarification regarding applicability of Indian Accounting Standards to Disclosures in Offer documents under SEBI (ICDR) Regulations, 2009 Circ. No.: SEBI/HO/CFD/DIL/CIR/P/2016/47 dated March 31, 2016

To align the disclosure requirements for financial information in the offer document as specified under SEBI

(ICDR) Regulations, 2009 with the requirements of Ind AS specified under MCA Roadmap, SEBI vide this

circular has provided timelines for the disclosure of financial information in accordance with Ind AS in the

offer document. Also the circular states that all the information disclosed in the offer document as per Ind

AS shall continue to be audited/reviewed in accordance with requirements of SEBI (ICDR) Regulations,

2009.

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Insurance Regulatory and Development Authority (IRDA) Can be accessed through https://www.irda.gov.in/Defaulthome.aspx?page=H1

1. Implementation of Indian Accounting Standards (Ind AS) in Insurance Sector Circ. No.: IRDA/F&A/CIR/IFRS/038/03/2016 dated March 1, 2016

IRDA vide this circular has notified the implementation of Ind AS in insurance sector similar to the

guidelines issued by RBI and SEBI for the entities falling under their regulatory jurisdiction.

2. Guidelines on Trade Credit Insurance Circ. No.: IRDAI/NL/CIR/CRE/044/03/2016 dated March 10, 2016

IRDA vide this circular has revisited the existing guidelines on Trade Credit Insurance (Circ No.:

IRDA/NL/CIR/Cre/205/12/2010 dated 13/12/2010) and issued fresh guidelines to address the changes in

economy, especially in MSME sector which has enhanced the scope for the credit insurance sector,

manifold.

3. Non-Compliance of Award of Insurance OMBUDSMAN Circ. No.: IRDAI/CAD/CIR/MISC/063/03/2016 dated March 31, 2016

Based on communications from certain Ombudsman and some of the aggrieved Policy Holders on

inordinate delay on the part of the Insurance Companies to implement the orders / awards of Insurance

Ombudsman, IRDA vide this circular has reiterated their earlier guidelines of November 2010 and

November 2015 on the process to be followed by Insurance Companies on the orders of Judicial / Quasi

Judicial bodies.

Further, IRDA has stipulated submission of Monthly statement by Insurance Companies on the status of

Ombudsman cases and compliance of its awards and also the status of court cases by 10th

of the

subsequent month.

Pension Fund Regulatory and Development Authority (PFRDA) Can be accessed through http://www.pfrda.org.in/index.cshtml

1. Clarification on Settlement of Claims relating to Exits, Involving Purchase of Annuities Circ. No.: PFRDA/2016/5/Exits/01 dated March 3, 2016

Since Annuity Service Providers are yet to make available the default annuity schemes as mentioned under

Regulation 3 of the PFRDA (Exits and Withdrawals from National Pension System) Regulations, 2015,

pending claims covering premature exits and claims arising out of the death of the subscriber under NPS

were increasing since there exists a difficulty in settling claims as per the Regulation. Accordingly, PFRDA

vide this circular has provided clarification in handling scenarios for premature exits and also death claims

under NPS.

Ministry of Commerce & Industry – Department of Industrial Policy & Promotion

Can be accessed through http://dipp.nic.in/English/default.aspx

1. Definition of “Startup” Notification No.: 5(91)/2015 dated February 17, 2016

Ministry of Commerce &

Industry Government of India

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The Department of Industrial Policy and Promotion of Ministry of Commerce and Industry has issued

Notification pursuant to which, an entity would be considered as a ‘Startup’:

up to five years from the date of its incorporation/ registration,

if its turnover for any of the financial years has not exceeded Rs.25 crore, and

it is working towards innovation, development, deployment or commercialization of new products,

processes or services driven by technology or intellectual property.

The Notification provides further explanations to the above criteria and process of recognition as ‘Startup’.

II. Insolvency and Bankruptcy Code, 2015 Can be accessed through http://www.finmin.nic.in/reports/DraftInsolvencyBankruptcyBil2015.pdf

During the last week of December 2015, the government introduced a bill in Parliament that will

make it easier for sick companies to either wind up their businesses or engineer a turnaround.

India’s “Insolvency and Bankruptcy Code, 2015” which may soon win parliamentary approval, would significantly strengthen the hand of banks in resolving the bad loan headache.

Some of the highlights of the bankruptcy code are given below:

Unified Bankruptcy Code

The government plans to repeal an ineffectual, century-old insolvency law and amend 11 laws currently dealing with defaulters.

Once fully implemented, the code would seek to speed up debt recoveries and restructurings by setting a deadline of 180 days to decide the fate of a company that defaults.

Application

The code will apply to companies, partnerships, limited liability partnerships, individuals and any other body specified by the government.

Insolvency Resolution

For individuals the process could be initiated either by the debtor or the creditors.

For companies, the resolution process will have to be completed within 180 days, with an extension of up to 90 days if 75 percent of creditors agree.

The process will involve negotiations between the debtor and creditors to draft a resolution plan. If they agree, the plan could be submitted to the authority. If no agreement is reached, the company would automatically go into liquidation.

The process will be managed by a licensed insolvency professional who will also control the assets of the debtor during the process. The code plans to set up information utilities to collect, collate and disseminate information to facilitate insolvency proceedings.

Insolvency regulator

The insolvency regulator would have representatives from government and the central bank, and oversee and regulate insolvency agencies.

Tribunals

The National Company Law Tribunal would under the code address grievances relating to insolvency, bankruptcy and liquidation of companies. Debt Recovery Tribunals would deal with individual cases. Their decisions could be challenged in appellate tribunals and before the Supreme Court.

Penalties

A debtor could be jailed for up to five years for concealing property or defrauding creditors. Promoter of insolvent companies cannot access Bank loans, become director of companies.

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III. Sebi scans Facebook accounts in insider trading case

Can be accessed through http://www.sebi.gov.in/cms/sebi_data/attachdocs/1454682584239.pdf

While SEBI has been examining Twitter and Facebook for quite some time for investigation

purposes, this is the first time the regulator has used Facebook account as evidence for proving

charges against an individual. In a recent instance of insider trading case, SEBI cited ‘mutual

friends on Facebook’ as evidence.

A probe conducted by SEBI in the share price of Palred Technologies between September 2012 to November 2013

revealed that 15 individuals had traded in the shares of the company on the basis of unpublished price-sensitive

information (UPSI). By indulging in such activities, these persons have violated the regulator’s prohibition of Insider

Trading (PIT) norms, it said and also ordered impounding of unlawful gains of over Rs 2 crore from these 15 individuals.

In the order, SEBI mentioned that: “Pirani Amyn Abdul Aziz is also found to be connected to Ameen Khwaja through

mutual friends on Facebook. He was employed with Deloitte Tax Services India Pvt Ltd (a group company of Deloitte

Touche Tohmatsu India Pvt Ltd, which had conducted the due diligence of PTL during the slump sale).”

IV. Quotes

"NPA is generated in the bank book by the borrowers, and the computer never generates the NPA" Former RBI Dy Governor Dr. K C Chakrabarty

“Increased awareness among public about the range of risks being faced by them would result in enhanced appreciation of the role of insurance solutions in ensuring their financial wellbeing " IRDA chairman Shri. T. S. Vijayan

V. Article: “Bitcoin”

Background

Bitcoin is a virtual currency (“VC”) that is created from computer code. Bitcoin is based on a

piece of software written by a person in 2009 under the Japanese sounding name Satoshi

Nakamoto (now claimed by Craig Wright, an Australian tech entrepreneur). Other digital

currencies followed but Bitcoin was by far the most popular.

How it works?

Just like other currencies, Bitcoins can be exchanged for goods and services or for other currencies provided the other

party is willing to accept them.

Transactions happen when heavily encrypted codes are passed across a computer network.

The network as a whole, monitors and verifies the transaction, in a process that is intended

to ensure no single Bitcoin can be spent in more than one place simultaneously. Users can

"mine" Bitcoins bring new ones into being when their computers run these complicated and

increasingly difficult processes. However, it was stated that the model has a limitation and

only 21 million units will ever be created.

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Who Governs it?

Unlike a real-world currency like the US dollar or the Euro, it has no central bank and is not backed by any government.

Instead, its community of users control and regulate it.

Advocates say this makes it an efficient alternative to traditional currencies, because it is not subject to the whims

of a state that may wish to devalue its money to inflate away debt, for example.

Detractors say Bitcoin's use on the underground Silk Road website, where users could buy drugs and guns with it, is

proof that it is a bad thing and also helps in accumulating black money due to non identity.

Where it is available?

Bitcoins are listed on stock exchange. Some of the exchanges were: (i) BTC China; (ii) Mt. Gox in Japan; (iii) BitBox in

U.S.; (iv) Bitstamp in Slovenia; and (v) Bitcurex in Poland. Of this, Mt.Gox in Japan, the world’s largest Bitcoin exchange

collapsed in the end of 2013. Having filed for bankruptcy, Mt Gox has admitted to have lost 7.5 lakh Bitcoins of its

customers and one lakh of its own, which together are estimated to be worth about $ 0.5 billion (over Rs 3,000 crore).

Is it legal to use Bitcoins in India?

Few of the retail outlets and e-commerce sites were accepting Bitcoins as a payment method. Buysellbitco.in, an online

portal dealt in buying and selling of Bitcoins in India, which was raided by the Enforcement Directorate. The preliminary

investigations found it to be in violation of the foreign exchange laws. During this time, Mt.Gox exchange collapsed and

RBI issued a notification on the perils of Virtual Currencies. RBI has also stated that it is examining the issues associated

with the usage, holding and trading of VCs under the extant legal and regulatory framework of the country, including

Foreign Exchange and Payment Systems laws and regulations.

Post the RBI notification, traders and customers have become cautious as to avoid the use of Bitcoins until it is

legalized.

Dangers of Virtual Currencies as listed by RBI:

The creation, trading or usage of VCs including Bitcoins, as a medium for payment

are not authorised by any central bank or monetary authority. No regulatory

approvals, registration or authorisation is stated to have been obtained by the

entities concerned for carrying on such activities. As such, they may pose several

risks to their users, including the following:

VCs being in digital form are stored in digital/electronic media that are called electronic wallets. Therefore, they

are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc.

Since they are not created by or traded through any authorised central registry or agency, the loss of the e-wallet

could result in the permanent loss of the VCs held in them.

Payments by VCs, such as Bitcoins, take place on a peer-to-peer basis without an authorised central agency which

regulates such payments. As such, there is no established framework for recourse to customer problems / disputes

/ charge backs etc.

There is no underlying or backing of any asset for VCs. As such, their value seems to be a matter of speculation.

Huge volatility in the value of VCs has been noticed in the recent past. Thus, the users are exposed to potential

losses on account of such volatility in value.

It is reported that VCs, such as Bitcoins, are being traded on exchange platforms set up in various jurisdictions

whose legal status is also unclear. Hence, the traders of VCs on such platforms are exposed to legal as well as

financial risks.

There have been several media reports of the usage of VCs, including Bitcoins, for illicit and illegal activities in

several jurisdictions. The absence of information of counterparties in such peer-to-peer anonymous/

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April 2016|Page 9 of 9

pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating

the financing of terrorism (AML/CFT) laws.

VI. Fun Zone (Anonymous Quotes)

If we don’t take care of our customers, someone else will.

I couldn't repair your brakes, so I made your horn louder!

If you had to specify, in one word, why the human race has not and will never achieve its full

potential, that word would be “Meetings”.

The road to success is dotted with many tempting parking spaces.

There is no crash course to become a pilot.

Disclaimer:

Logos and Terminologies used in the document are properties of respective organizations / departments. The material contained in this document aims at providing a summary of various guidelines, notifications, circulars etc. issued by

various regulatory authorities from time to time and is for information purposes only. The same should not be construed as an advice on any matter.

For complete information on the matter provided therein, readers are advised to refer to the detailed guidelines, notifications, circulars etc. available on the websites of the respective regulators or they may consult the respective compliance departments before acting on any matter.

Structured by: Srivatsan S, Compliance

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