PGC NEWSLETTER18th, April 2014 1
18th, April 2014
THOUGHT OF THE DAY
“when you truly want success, you’ll
never give up on it”
The Supreme Court on Thursday said the Comptroller and Auditor
General can scrutinise books of private Telcos that share revenue with
government for spectrum use.
Clarification on Consolidated policy issued on Foreign Direct
Investment, ban on Foreign Portfolio Investors (FPIs) to hold stake in
manufacturing companies in Defence sector.
The government plans to impose an additional 30% environment
compensation charge on diesel vehicles and is considering tightening
the emission norms by mandating fuels compliant with Euro-IV norms
by next year and Euro-V norms by 2016 while it is targeting Euro-VI
norms by 2021.
CORPORATE LAW UPDATES
Aviva Plc has shortlisted Birla Sun Life Insurance, HDFC Life Insurance
and Max Life Insurance to sell the British group’s 26% stake in its
Indian insurance joint.
The Securities and Exchange Board of India (SEBI) CIR/CFD/POLICY
CELL/2/2014 Amendments to Clauses 35B and 49 of the Equity Listing
The Securities and Exchange Board of India (SEBI) has given its go-
ahead to five initial public offerings (IPOs):Great Eastern Energy
Corporation, Shemaroo Entertainment, NCML Industries, Snowman
Logistics and Jyoti CNC Automation.
Fair trade regulator Competition Commission of India is investigating
alleged cartelisation by 37 signaling cable manufacturers in the recent
tenders floated by North Western Railway.
RBI / TAX LAW UPDATE
RBI: RBI has taken upon itself the task of probing bank frauds after a
series of inquiries by banks themselves in high-profile cases such as
those involving Deccan Chronicle BSE 1.81 % and Kingfisher
Airlines yielded very little.
RBI/2013-14/566A.P. (DIR Series) Circular No. 123 April 16,
2014regarding the eligibility for (FDI) in Limited Liability Partnership
MCX CRUDE OIL
Dow Jones Industrial
PGC NEWSLETTER18th, April 2014 2
NBFCs approach RBI, govt over new companies Act
Non- banking finance companies have approached the Reserve Bank of India and the Ministry of Corporate Affairs to
amend regulations under the new companies Act. These companies fear the stiff reserve requirements and norms on
investment in government bonds will hit them hard.
NBFCs are, however, yet to raise the matter with the ministry in a formal manner.
Rules under the new companies Act make it mandatory for NBFCs to create a corpus ( debenture redemption reserve
account) to meet repayment obligations for debentures maturing within a year. Also, they have to invest 15 per cent of
their resources in government bonds.
While building buffers for repayment is good for financial discipline, the provisioning would eat into the funds to be
deployed into business. And, this will be a huge burden on the already stretched balance sheets of NBFCs, say
executives at such companies.
Under the old companies Act (of 1956), financial companies were exempted from such a corpus.
Mahesh Thakkar, director- general of Finance Industry Development Council, said the new Act could make the
situation acute. The entity will take up the matter with the ministry and RBI, the regulator for financial companies.
Thakkar said the new Act could make fund- raising through debentures unviable.
The effect of the norms on financial companies will vary according to degree of their dependence on debentures —
while those using bank lines to source funds won’t see much impact, companies using mediumterm (two- three- year)
debentures will be under pressure to keep a substantial portion of their funds in the redemption reserve.
Sanjay Agarwal, managing director of Au Financiers, said an exemption was allowed in the old companies Act, adding
perhaps, it was left out in the new Act due to oversight. NBFCs have already urged the government to reintroduce the
exemption. For AU Financers, the share of bonds/ debentures in the total funds raised is about 20 per cent, and this
might deal a 10- basis- point impact on costs.
Vibha Batra, senior vice- president (financial sector rating), Icra, said now, the cost of business would rise.
Fewer funds will be available for deployment and amounts kept in reserves will have a ‘ negative carry’, she said, adding
this would, however, not impact the ratings of the instruments floated by NBFCs. Many well- run companies already
maintained liquidity buffers to meet redemption obligations; these could be in the form of bank credit lines.