form NFRA-1

MCA has vide its notification dated 13th December, 2018 extended the last date for filing of form NFRA-1. The new date is 30 days from the date on which the form is deployed on the website of the ministry.

Form NFRA-1 is a new form for giving particulars of auditors of listed companies as per the new NFRA regulations. NFRA will be regulator of the auditors of the listed companies, for the time being. Later on it might extend to auditors of other unlisted big companies as well.

Ostensibly the form is not ready at the MCA side which is why they have extended the last date. This has happened with other forms also such as BEN-1, BEN-2 and the form for intimating commencement of business. One would have thought that MCA should do all its homework before introducing new regulations or changes in the existing regulations. Shows MCA in poor light in this regard.

http://www.mca.gov.in/Ministry/pdf/NoticeAndCirculars_13122018.pdf

GST annual return

The Ministry of Finance vide its notification dated 11th December, 2018 has extended the last date for filing of the annual return of GST for the period from 1st July, 2017 to 31st March, 2018 to 31st March, 2019. The annual return is required to be filed online, but the system is not yet ready at their end, so the extension.

Every registered person,  a casual taxable person and a non resident taxable person is required to file this annual return electronically.

The form for the annual return is not ready, so one does not know the contours of this return. Already taxpayers are burdened with two returns GSTR3B and GSTR1. The latter could be quarterly for taxpayers who have less than Rs.1.5 crore turnover and they have to opt for quarterly method of filing.

One does not know what is the reason for one more return under the GST regime. It does not help in "ease of doing business" 

Ease of Doing Business

Indian Ports Association (IPA), under the guidance of Ministry of Shipping launched the Port Community System ‘PCS1x’. The url www.indianpcs.gov.in was launched today. 

‘PCS 1x’ is a cloud based new generation technology, with user-friendly interface.  This system seamlessly integrates 8 new stakeholders besides the 19 existing stakeholders from the maritime trade on a single platform.

The platform offers value added services such as notification engine, workflow, mobile application, track and trace, better user interface, better security features, improved inclusion by offering dashboard for those with no IT capability. A unique feature of ‘PCS1x’ is that it can latch on to third party software which provides services to the maritime industry thereby enabling the stakeholders to access wide network of services. The system enables single sign on facility to provide one stop interface to all the functionalities across all stakeholders. Another major feature is the deployment of a world class state of the art payment aggregator solution which removes dependency on bank specific payment eco system.

This system will enable trade to have an improved communication with the customs as they have also embarked on an Application Programming Interface (API) based architecture, thereby enabling real time interaction.

This System offers a database that acts as a single data point to all transactions. It captures and stores data on its first occurrence thereby reducing manual intervention, the need to enter transaction data at various points and thereby reducing errors in the process. It is estimated that this feature alone will reduce one and half to 2 days in a life of transaction. The application will have a cascading effect in reducing dwell time and overall cost of transaction. The platform has the potential to revolutionize maritime trade in India and bring it at par with global best practices and pave the way to improve the Ease of Doing Business world ranking and Logistics Performance Index (LPI) ranks.

A major training and outreach program is under way to educate the stakeholders about the uses and benefits of ‘PCS 1x’.

This system is also an initiative that supports green initiatives by reducing dependency on paper. The web-based platform has been developed indigenously and is a part of the ‘Make in India’ and ‘Digital India’ initiative of the Hon’ble Prime Minister.

The Ministry of Shipping is separately issuing order to make usage of the PCS platform mandatory.

Significant Beneficial Ownership

https://www.sebi.gov.in/legal/circulars/dec-2018/disclosure-of-significant-beneficial-ownership-in-the-shareholding-pattern_41245.html

SEBI has now come out with a circular as per the above link to ask for details of significant beneficial ownership to be provided by companies as part of their quarterly shareholding pattern disclosure under LODR. It will become effective from quarter ended 31st March, 2019.

So this is apart from the BEN1, BEN2 under the Companies Act, 2013 which I believe is not yet notified.

Of course, SEBI regulations will apply to the listed companies only so the listed companies will have to file dual disclosures at the stock exchanges and also with the MCA. So much for "ease of doing business".

Guidelines on Loan system

Gist of RBI notification dated 5th December, 2018 follows:

Interesting from the point of view of bringing some much needed discipline in the credit system in banks and to follow a standard operating procedure so that the discretionary powers are taken away from the individual banks/ bankers. This is going to be effective from 1st April, 2019. More than 40% to be allowed only under cash credit facility which has some form of security for which a charge is created with the Registrar of Companies. 

Guidelines on Loan System for Delivery of Bank Credit

With a view to enhance credit discipline among the larger borrowers enjoying working capital facility from the banking system, delivery of bank credit for such borrowers shall be as under:

1. Minimum level of ‘loan component’ and Effective date

In respect of borrowers having aggregate fund based working capital limit of ₹1500 million and above from the banking system, a minimum level of ‘loan component’ of 40 percent shall be effective from April 1, 2019. Accordingly, for such borrowers, the outstanding ‘loan component’ (Working Capital Loan) must be equal to at least 40 percent of the sanctioned fund based working capital limit, including ad hoc limits and TODs. Hence, for such borrowers, drawings up to 40 percent of the total fund based working capital limits shall only be allowed from the ‘loan component’. Drawings in excess of the minimum ‘loan component’ threshold may be allowed in the form of cash credit facility. Working examples for bifurcation of working capital limit are provided in Appendix I. The bifurcation of the working capital limit into loan and cash credit components shall be effected after excluding the export credit limits (pre-shipment and post-shipment) and bills limit for inland sales from the working capital limit. Investment by the bank in the commercial papers issued by the borrower shall form part of the loan component, provided the investment is sanctioned as part of the working capital limit.

2. Sharing of Working Capital Finance

The ground rules for sharing of cash credit and loan components may be laid down by the consortium, wherever formed, subject to guidelines on bifurcation as stated in paragraph 1 above. All lenders in the consortium shall be individually and jointly responsible to make sure that at the aggregate level, the ‘loan component’ meets the above mentioned requirements. Under Multiple Banking Arrangements (MBAs), each bank shall ensure adherence to these guidelines at individual bank level.

3. Amount and tenor of the loan

The amount and tenor of the loan component may be fixed by banks in consultation with the borrowers, subject to the tenor being not less than seven days. Banks may decide to split the loan component into WCLs with different maturity periods as per the needs of the borrowers.

4. Repayment/Renewal/Rollover of Loan Component

Banks/consortia/syndicates will have the discretion to stipulate repayment of the WCLs in instalments or by way of a "bullet" repayment, subject to IRAC norms. Banks may consider rollover of the WCLs at the request of the borrower, subject to compliance with the extant IRAC norms.

5. Risk weights for undrawn portion of cash credit limits

Effective from April 1, 2019, the undrawn portion of cash credit/ overdraft limits sanctioned to the aforesaid large borrowers, irrespective of whether unconditionally cancellable or not, shall attract a credit conversion factor of 20 percent.

6. The guidelines will be effective from April 1, 2019 covering both existing as well as new relationships. The 40 percent loan component will be revised to 60 percent, with effect from July 1, 2019.

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Appendix I

Working Example for Bifurcation of Working Capital Limits

(After adjustment as at paragraph 1 of the circular)

(₹ in mn)
S. No.	Sanctioned Aggregate Fund based Working Capital Limit	Current Outstanding	40% of column 2 is to be drawn as WCL
(1)	(2)	(3)	(4)
Scenario 1	₹2100	₹780	WCL - ₹780 CC - Nil
Scenario 2	₹2100	₹1700	WCL - ₹840 CC - ₹860
Scenario 3	₹2100	₹1600	WCL - ₹840 CC - ₹760
Scenario 4	₹2100	₹2000	WCL - ₹840 CC - ₹1160
Scenario 5	₹2100	₹2050	WCL - ₹840 CC - ₹1210

Legal Entity Identifier - Non derivative markets

Gist of RBI notification dated 29th November, 2018 follows:

Legal Entity Identifier Code is now mandatory for participants in non derivative market as per schedule given below.

The Legal Entity Identifier (LEI) code has been conceived of as a key measure to improve the quality and accuracy of financial data systems for better risk management post the Global Financial Crisis. The LEI is a 20-character unique identity code assigned to entities who are parties to a financial transaction. Globally, use of LEI has expanded beyond derivative reporting and it is being used in areas relating to banking, securities market, credit rating, market supervision, etc.(https://www.gleif.org/en/about-lei/regulatory-use-of-the-lei). The LEI system has been implemented in a phased manner for participants (other than individuals) in the over-the-counter markets for rupee interest rate derivatives, foreign currency derivatives and credit derivatives in India  and for large corporate borrowers of banks.

2. In the Statement on Developmental and Regulatory Policies, First Bi-monthly Monetary Policy Statement for 2018-19 (Paragraph No. 8), dated April 05, 2018, it was proposed to implement the LEI mechanism for all financial market transactions undertaken by non-individuals in interest rate, currency or credit markets regulated by RBI. Accordingly, draft directions in this regard were issued for public comments on June 20, 2018. Based on comments received during the consultation, the directions on requirement of LEI Code for participation in non-derivative markets have been finalized as below.

3. All participants, other than individuals, undertaking transactions in the markets regulated by RBI viz., Government securities markets, money markets (markets for any instrument with a maturity of one year or less) and non-derivative forex markets (transactions that settle on or before the spot date) shall obtain Legal Entity Identifier (LEI) codes by the due date indicated in the schedule given in Annex. 

Only those entities that obtain an LEI code on or before the due dates applicable to them shall be able to undertake transactions in these financial markets after the due date, either as an issuer or as an investor or as a seller / buyer. Transactions undertaken on recognized stock exchanges are outside the purview of the LEI requirement.

4. In case of non-derivative forex transactions, while all inter-bank transactions shall be subject to LEI requirement, client transactions shall require LEI code for transactions involving an amount equivalent to or exceeding USD one million or equivalent thereof in other currencies.

5. Non-resident entities undertaking financial transactions in the relevant markets shall also require LEI code. Such entities that are not legal entities in their country of incorporation (e.g., funds operated by a non-resident parent/management company that are each registered as an FPI) shall use the LEI code of the parent/management company.

6. Entities responsible for executing transactions, reporting or for depository functions in these markets shall capture the LEI code of the transacting participants in their systems.

7. Entities can obtain LEI from any of the Local Operating Units (LOUs) accredited by the Global Legal Entity Identifier Foundation (GLEIF) (https://www.gleif.org/en). In India LEI code may be obtained from Legal Entity Identifier India Ltd. (LEIL) (https://www.ccilindia-lei.co.in). The rules, procedures and documentation requirements may be ascertained from LEIL 

8. Entities undertaking financial transactions shall ensure that their LEI code is considered current under the rules of the Global LEI System. Lapsed LEI codes shall be deemed invalid for transactions in markets regulated by RBI.

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Annex

Schedule for Implementation of LEI in the Money market, G-sec market and Forex market

Phase	Net Worth of Entities	Proposed deadline
Phase I	above Rs.10000 million	April 30, 2019
Phase II	between Rs.2000 million and Rs 10000 million	August 31, 2019
Phase III	up to Rs.2000 million	March 31, 2020

NBFCs - securitisation transactions

Gist of RBI notification dated 29th November, 2018 on the subject.

Please refer to the Guidelines on Securitisation Transactions vide paragraph 102 of Master Directions on Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions dated September 01, 2016 and paragraph 89 of Non-Banking Financial Company –Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions dated September 01, 2016.

2. In order to encourage NBFCs to securitise/assign their eligible assets, it has been decided to relax the Minimum Holding Period (MHP) requirement for originating NBFCs, in respect of loans of original maturity above 5 years, to receipt of repayment of six monthly instalments or two quarterly instalments (as applicable), subject to the following prudential requirement:

Minimum Retention Requirement (MRR) for such securitisation/assignment transactions shall be 20% of the book value of the loans being securitised/20% of the cash flows from the assets assigned.

3. The above dispensation shall be applicable to securitisation/assignment transactions carried out during a period of six months from the date of issuance of this circular. Other terms and conditions of the above referred Directions remain the same.

Hitherto, the limits were 12 monthly instalments or four quarterly instalments for Minimum Holding Period and the minimum retention requirement earlier was 10%. 

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11422&Mode=0