Voluntary Retention Route

RBI circular dated 1st March, 2019 on allowing FPIs to invest in debt through the Voluntary Retention Route.

Voluntary Retention Route’ (VRR) for Foreign Portfolio Investors (FPIs) investment

Introduction

The Reserve Bank, in consultation with the Government of India and Securities and Exchange Board of India (SEBI), introduces a separate channel, called the ‘Voluntary Retention Route’ (VRR), to enable FPIs to invest in debt markets in India. Broadly, investments through the Route will be free of the macro-prudential and other regulatory norms applicable to FPI investments in debt markets, provided FPIs voluntarily commit to retain a required minimum percentage of their investments in India for a period. Participation through this Route will be entirely voluntary. The features of the Route are explained below in detail.

2. Definitions

i. ‘Committed Portfolio Size’ (CPS), for an FPI, shall mean the amount allotted to that FPI.

ii. ‘General Investment Limit’, for any one of the three categories, viz., Central Government Securities, State Development Loans or Corporate Debt Instruments, shall mean FPI investment limits announced for these categories under the Medium Term Framework, in terms of A.P. (DIR Series) Circular No. 22 dated April 6, 2018, as modified from time to time.

iii. ‘Minor violations’ shall mean violations that are, in the considered opinion of the custodians, unintentional, temporary in nature or have occurred on account of reasons beyond the control of FPIs, and in all cases are corrected on detection.

iv. ‘Related FPIs’ shall mean ‘investor group’ as defined in Regulation 23(3) of SEBI (Foreign Portfolio Investors) Regulations, 2014.

v. ‘Repo’ shall have the same meaning as defined in Section 45U (c) of RBI Act, 1934; and for the purpose of this regulation excludes repo conducted under the Liquidity Adjustment Facility and the Marginal Standing Facility.

vi. ‘Retention Period’ shall mean the time period that an FPI voluntarily commits for retaining the CPS in India.

vii. ‘Reverse Repo’ shall have the same meaning as defined in Section 45U (d) of RBI Act, 1934; and for the purpose of this regulation excludes reverse repo conducted under the Liquidity Adjustment Facility and the Marginal Standing Facility.

viii. ‘VRR-Corp’ shall mean Voluntary Retention Route for FPI investment in Corporate Debt Instruments.

ix. ‘VRR-Govt’ shall mean Voluntary Retention Route for FPI investment in Government Securities.

3. Eligible investors

Any FPI registered with SEBI is eligible to participate through this Route. Participation through this Route shall be voluntary.

4. Eligible instruments

1. Under VRR-Govt, FPIs will be eligible to invest in any Government Securities i.e., Central Government dated Securities (G-Secs), Treasury Bills (T-bills) as well as State Development Loans (SDLs). Under VRR-Corp, FPIs may invest in any instrument listed under Schedule 5 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 notified vide Notification No. FEMA.20(R)/2017-RB dated November 07, 2017, other than those specified at 1A(a) and 1A(d) of that Schedule.
2. Repo transactions, and reverse repo transactions.

5. Features

a. Investment through this Route shall be in addition to the General Investment Limit. Investment under this route shall be capped at Rs.40,000 crore for VRR-Govt and Rs.35,000 crore for VRR- Corp per annum, or such higher amount, as may be decided by the Reserve Bank from time to time. The investment limit shall be released in one or more tranches.

b. Allocation of investment amount to FPIs under this Route shall be made on tap or through auctions. Details of the auction mechanism are given in Appendix.

c. The mode of allotment, allocation to VRR-Govt and VRR-Corp categories and the minimum retention period shall be announced by the Reserve Bank ahead of allotment.

d. No FPI (including its related FPIs) shall be allotted an investment limit greater than 50% of the amount offered for each allotment by tap or auction in case there is a demand for more than 100% of amount offered.

e. The minimum retention period shall be three years, or as decided by RBI for each allotment by tap or auction.

f. FPIs shall invest the amount allocated, called the Committed Portfolio Size (CPS) in the relevant debt instruments and remain invested at all times during the voluntary retention period, subject to the following relaxations:

1. The minimum investment of an FPI during the retention period shall be 75% of the CPS (The flexibility for modulating investments between 75%-100% of CPS is intended to enable FPIs to adjust their portfolio size as per their investment philosophy).
2. The required investment amount shall be adhered to on an end-of-day basis. For this purpose, investment shall include cash holdings in the Rupee accounts used for this Route.

g. Amounts of investment shall be reckoned in terms of the face value of securities.

6. Management of portfolio

1. Successful allottees are required to invest 25% of their CPS within one month and the remaining amount within three months from the date of allotment. The retention period will commence from the date of allotment of limit.
2. Prior to the end of the committed retention period, an FPI, if it so desires, may opt to continue investments under this Route for an additional identical retention period. In that case, it shall convey this decision to its custodian.
3. In case an FPI decides not to continue under VRR at the end of the retention period, FPI may liquidate its portfolio and exit, or it may shift its investments to the ‘General Investment Limit’. This shifting would be subject to availability of limit under the ‘General Investment Limit’.
4. FPIs that wish to liquidate their investments under the Route prior to the end of the retention period may do so by selling their investments to another FPI or FPIs. However, the FPI (or FPIs) buying such investment shall abide by all the terms and conditions applicable to the selling FPI under the Route.
5. Any violation by FPIs shall be subjected to regulatory action as determined by SEBI. FPIs are permitted, with the approval of the custodian, to regularize minor violations immediately upon notice, and in any case, within five working days of the violation. Custodians shall report all non-minor violations as well as minor violations that have not been regularised to SEBI.

7. Other relaxations

1. Investments made through the Route shall not be subject to any minimum residual maturity requirement, concentration limit or single/group investor-wise limits applicable to corporate bonds as specified in paragraphs 4(b), (e) and (f) respectively of A.P. (DIR Series) Circular No. 31 dated June 15, 2018.
2. Income from investments through the Route may be reinvested at the discretion of the FPI. Such investments will be permitted even in excess of the CPS.

8. Access to other facilities

1. FPIs investing through the Route will be eligible to participate in repos for their cash management, provided that the amount borrowed or lent under repo shall not exceed 10% of their investment under VRR.
2. FPIs investing under this route shall be eligible to participate in any currency or interest rate derivative instrument, OTC or exchange traded, to manage their interest rate risk or currency risk.

9. Other operational aspects

1. Utilisation of limits and adherence to other requirements of this Route shall be the responsibility of both the FPI and its custodian.
2. Custodians shall not permit any repatriation from the cash accounts of an FPI, if such transaction leads to the FPI’s assets falling below the minimum stipulated level of 75% of CPS during the retention period.
3. Custodians shall have in place appropriate legal documentation with FPIs that enables them (custodians) to ensure that regulations under VRR are adhered to.
4. FPIs shall open one or more separate Special Non-Resident Rupee (SNRR) account for investment through the Route. All fund flows relating to investment through the Route shall reflect in such account(s).
5. FPIs shall also open a separate security account for holding debt securities under this Route.

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Appendix

Auction process for allocation of investment amount under VRR

The auction process for allotment of investment amounts under VRR shall be as under:

a. An FPI shall bid two variables - the amount it proposes to invest and the retention period of that investment, which shall not be less than the minimum retention period applicable for that auction.

b. FPIs are permitted to place multiple bids.

c. The criterion for allocation under each auction shall be the retention period bid in the auction.

d. Bids will be accepted in descending order of retention period, the highest first, until the amounts of accepted bids add up to the auction amount.

e. Allotment at margin (i.e., at the lowest retention period accepted), in case the amount bid at margin is more than the amount available for allotment, shall be as below:

1. The marginal bid shall be allocated partially such that the total acceptance amount matches the auction amount.
2. In case there are more than one marginal bids, allocation shall be made to the bid with the largest amount, and then in descending order of amount bid until the acceptance amount matches the auction amount.
3. In case the amount offered is the same for two or more marginal bids, the amount will be allocated equally.

f. If an FPI has been allotted multiple bids in an auction, the CPS shall be reckoned for each bid separately.

g. FPI which has got CPS allocated under an auction will be eligible to participate in subsequent auction as well.

The RBI circular can be found here

FCRA - easing up

RBI notification dated 27th February, 2019. Now foreign NGOs need not seek dual permission under the FCRA as well as from RBI. Approval from the former would be sufficient.

Establishment of Branch Office (BO) / Liaison Office (LO) / Project Office (PO) or any other place of business in India by foreign entities

Attention of the Authorised Dealer (AD - Category I) banks is invited to the Foreign Exchange Management (Establishment in India of a Branch Office or a Liaison Office or a Project Office or any Other Place of Business) Regulations, 2016, notified by the Reserve Bank vide Notification No FEMA 22(R)/RB-2016 dated March 31, 2016, as amended from time to time.

2. In terms of extant Regulations, applications received from a Non-Government Organisation, Non-Profit Organization, Body/Agency/Department of a foreign Government for opening of a branch office or a liaison office or a project office or any other place of business in India are to be forwarded to the Reserve Bank for prior approval and be considered in consultation with the Government of India. This has since been reviewed and as notified through Notification No FEMA 22(R)(1), it is advised that if such an entity is engaged, partly or wholly, in any of the activities covered under Foreign Contribution (Regulation) Act, 2010 (FCRA), it shall obtain a certificate of registration under the said Act and shall not seek permission under FEMA 22(R).

3. Accordingly, the Form FNC has also been suitably modified and the following phrase added under the heading ‘Declaration’ in Part II clause (ii), at the end of the existing sentence.

“We will not undertake either partly or fully, any activity that is covered under Foreign Contribution Regulation Act, 2010 (FCRA) and we understand that any misrepresentation made or false information furnished by us in this behalf would render the approval granted under the Foreign Exchange Management (Establishment in India of a branch office or liaison office or a project office or any other place of business) Regulations, 2016, automatically as void ab initio and such approval by the Reserve Bank shall stand withdrawn without any further notice”.

4. All other provisions of the LO/BO/PO policy shall remain unchanged. AD Category - I banks may bring the contents of this circular to the notice of their constituents and customers.

5. The Master Direction No. 10 dated January 1, 2016 is being updated simultaneously to reflect the changes.

6. The directions contained in this circular have been issued under Section 10(4) and 11(2) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

Copy of the said notification can be found here

arbitration

PIB press release dated 28th February, 2019

The Union Cabinet, chaired by the Prime Minister Narendra Modi has approved promulgation of an Ordinance for establishing the New Delhi International Arbitration Centre (NDIAC) for the purpose of creating an independent and autonomous regime for institutionalised arbitration.

Benefits

The benefits of institutionalized arbitration will accrue to Government and its agency and to the parties to a dispute.  This shall be to the advantage of the public and the public institutions in terms of quality of expertise and costs incurred and will facilitate India becoming a hub for Institutional Arbitration.

Objective

The NDAIC shall be established with an aim to:-

(a)      to   bring   targeted   reforms   to   develop   itself   as   a   flagship institution for conducting international and domestic arbitration

(b)     provide facilities and administrative assistance for conciliation mediation and arbitral proceedings;

(c)     maintain panels of accredited arbitrators, conciliators and mediators both at national and international level or specialists such as surveyors and investigators;

(d)     facilitate conducting of international and domestic arbitrations and conciliation in the most professional manner;

(e)      provide cost effective and timely services for the conduct of arbitrations and conciliations at Domestic and International level;

(f)    promote studies in the field of alternative dispute resolution and related matters, and to promote reforms in the system of settlement of disputes; and

(g)    co-operate with other societies, institutions and organisations, national or international for promoting alternative dispute resolution.

In order to facilitate the setting up of NDIAC, the Ordinance envisages the transfer and vesting of the undertakings of the ICADR in the Central Government. The Central Government will subsequently vest the undertakings in NDIAC.

Salient Features:

• New Delhi International Arbitration Centre (NDIAC) will be headed by a chairperson who has been a Judge of the Supreme Court or a Judge of a High Court or an eminent person, having special knowledge and experience in the conduct or administration of arbitration law or management, to be appointed by the Central Government in consultation with the Chief Justice of India.
• There will be two Full time or Part time Members from amongst eminent persons having substantial knowledge and experience in institutional arbitration, both domestic and international.
• Also, one representative of a recognised body of commerce and industry shall be chosen on rotational basis as Part time Member.
• Secretary, Department of Legal Affairs, Financial Adviser nominated by the Department of Expenditure and Chief Executive Officer, NDIAC shall be ex-officio Members.

Background:

The New Delhi International Arbitration Centre Bill, 2019, could not be taken up for consideration and passing by the Rajya Sabha in the recently concluded 248^th Session. Further the Parliament has been adjourned sine die on 13th February, 2019. As per the provisions of Article 107(5) of the Constitution of India, a Bill, which has been passed by the Lok Sabha but is still pending in the Rajya Sabha, shall lapse on dissolution of the Lok Sabha, which is likely to take place in near future.

Therefore, the Government in view of the urgency to make India a hub of institutionalised arbitration and promote 'ease of doing business' has decided to promulgate an Ordinance namely "The New Delhi International Arbitration Centre Ordinance, 2019".

national mineral policy

PIB press release dated 28th February, 2019

The Union Cabinet, chaired by the Prime Minister Narendra Modi has approved National Mineral Policy 2019. 

Benefits:

The New National Mineral Policy will ensure more effective regulation.  It will lead to sustainable mining sector development in future while addressing the issues of project affected persons especially those residing in tribal areas

Objective:-

The aim of National Mineral Policy 2019 is to have a more effective, meaningful and implementable policy that brings in further transparency, better regulation and enforcement, balanced social and economic growth as well as sustainable mining practices.

Details:

The National Mineral Policy 2019 includes provisions which will give boost to mining sector such as

• introduction of Right of First Refusal for RP/PL holders,
• encouraging the private sector to take up exploration,
• auctioning in virgin areas for composite RP cum PL cum ML on revenue share basis,
• encouragement of merger and acquisition of mining entities and
• transfer of mining leases and creation of dedicated mineral corridors to boost private sector mining areas.
• The 2019 Policy proposes to grant status of industry to mining activity to boost financing of mining for private sector and for acquisitions of mineral assets in other countries by private sector
• It also mentions that Long term import export policy for mineral will help private sector in better planning and stability in business
• The Policy also mentions rationalize reserved areas given to PSUs which have not been used and to put these areas to auction, which will give more opportunity to private sector for participation
• The Policy also mentions to make efforts to harmonize taxes, levies & royalty with world benchmarks to help private sector

Among the changes introduced in the National Mineral Policy, 2019 include the focus on make in India initiative and Gender sensitivity in terms of the vision.  In so far as the regulation in Minerals is concerned, E-Governance, IT enabled systems, awareness and Information campaigns have been incorporated.  Regarding the role of state in mineral development online public portal with provision for generating triggers at higher level in the event of delay of clearances has been put in place.  NMP 2019 aims to attract private investment through incentives while the efforts would be made to maintain a database of mineral resources and tenements under mining tenement systems.   The new policy focusses on use coastal waterways and inland shipping for evacuation and transportation of minerals and encourages dedicated mineral corridors to facilitate the transportation of minerals.  The utilization of the district mineral fund for equitable development of project affected persons and areas. NMP 2019 proposes a long term export import policy for the mineral sector to provide stability and as an incentive for investing in large scale commercial mining activity.

The 2019 Policy also introduces the concept of Inter-Generational Equity that deals with the well-being not only of the present generation but also of the generations to come and also proposes to constitute an inter-ministerial body to institutionalize the mechanism for ensuring sustainable development in mining.

Background:

National Mineral Policy 2019 replaces the extant National Mineral Policy 2008 ("NMP 2008") which was announced in year 2008. The impetus to review NMP 2008 came about by way of a direction from the Supreme Court vide its judgment dated 02.08.2017 in Writ Petition (Civil) No. 114/2014 entitled Common Cause v/s Union of India & Others.

In compliance of the directions of the apex Court, the Ministry of Mines constituted a committee on 14.08.2017 under the chairmanship of Dr. K Rajeswara Rao, Additional Secretary, Ministry of Mines to review NMP 2008. The Committee had members from Central Ministries/ Departments, State Governments, Industry Associations and Subordinate offices of Ministry of Mines. The Committee also invited concerned NGOs and Institutional Bodies to take part in the deliberation of the Committee meetings. The Comments/suggestions from the stakeholders were also sought. Based on the deliberations held at Committee meetings and stakeholders' comments/ suggestions, Committee Report was prepared and submitted to the Ministry of Mines.

The Ministry of Mines accepted the committee Report and invited the comments/ suggestions of the stakeholders as part of the PLCP process. Based on the received comments/ suggestions received in PLCP process and the comments/ suggestions from the Central Ministries/ Departments the Ministry of Mines finalized the National Mineral Policy 2019.

Aadhar

PIB press release dated 28th February, 2019

The Union Cabinet, chaired by the Prime Minister Narendra Modi has approved the promulgation of an Ordinance to make amendments to the Aadhaar Act 2016, Prevention of Money Laundering Act 2005 & Indian Telegraph Act 1885. The amendments proposed are the same as those contained in the Bill passed by the Lok Sabha on 4^th January 2019.

Impact:-         

The amendments would enable UIDAI to have a more robust mechanism to serve the public interest and restrain the misuse of Aadhaar.  Subsequent to this amendment, no individual shall be compelled to provide proof of possession of Aadhaar number of undergo authentication for the purpose of establishing his identity unless it is so provided by a law made by Parliament.

Salient Features

The salient features of the amendments are as follows—

• Provides for voluntary use of Aadhaar number in physical or electronic form by authentication or offline verification with the consent of Aadhaar number holder;
• Provides for use of twelve-digit Aadhaar number and its alternative virtual identity to conceal the actual Aadhaar number of an individual;
• Gives an option to children who are Aadhaar number holders to cancel their Aadhaar number on attaining the age of eighteen years;
• Permits the entities to perform authentication only when they are compliant with the standards of privacy and security specified by the Authority; and the authentication is permitted under any law made by Parliament or is prescribed to be in the interest of State by the Central Government;
• Allows the use of Aadhaar number for authentication on voluntary basis as acceptable KYC document under the Telegraph Act, 1885 and the Prevention of Money-laundering Act, 2002.
• Proposes deletion of section 57 of the Aadhaar Act relating to use of Aadhaar by private entities;
• Prevents denial of services for refusing to, or being  unable  to,   undergo authentication;
• Provides for establishment of Unique Identification Authority of India Fund;
• Provides for civil penalties, its adjudication, appeal thereof in regard to violations of Aadhaar Act and provisions by entities in the Aadhaar ecosystem.

Background:

The Supreme Court in its judgement dated 26.9.2018 in W.P (civil) No.494 of 2012 and other tagged petitions held Aadhaar to be constitutionally valid. However, it read down/struck down few sections of the Aadhaar Act and Regulations and gave several other directions in the interest of protecting the fundamental rights to privacy.

Consequently it was proposed to amend the Aadhaar Act, Indian Telegraph Act and the Prevention of Money Laundering Act in line with the Supreme Court directives and the report of Justice B.N.Srikrishna (Retd.) committee on data protection, in order to ensure that personal data of Aadhaar holder remains protected against any misuse and Aadhaar scheme remains in conformity with the Constitution. Towards this, the Aadhaar and Other Laws (Amendment) Bill, 2018 was passed by the Lok Sabha in its sitting held on 4^th January, 2019. However, before the same could be considered and passed in the Rajya Sabha, the Rajya Sabha was adjourned sine die.

special economic zones

PIB press release dated 28th February, 2019.

The Union Cabinet, chaired by the Prime Minister Narendra Modi has approved promulgation of an Ordinance to amend the definition of "person", as defined in sub-section (v) of section 2 of the Special Economic Zones Act, 2005 (28 of2005) to include a trust, to enable the setting up of a unit in a Special Economic Zone by a trust, as also to provide flexibility to the Central Government to include in this definition of a person, any entity that the Central Government may notify from time to time.

Impact:

The present provision of the SEZs Act, 2005 do not permit 'trusts' to set up units in SEZs. The amendment will enable a trust to be considered for grant of permission to set up a unit in SEZs. The amendment will also provide flexibility to the Central Government to include in this definition of a person, any entity that the Central Government may notify from time to time. This will facilitate investments in Special Economic Zones.

National Software Policy

PIB press release dated 28th February, 2019.

The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi has approved the National Policy on Software Products - 2019 to develop India as a Software Product Nation.

Major impact

The Software product ecosystem is characterized by innovations, Intellectual Property (IP) creation and large value addition increase in productivity, which has the potential to significantly boost revenues and exports in the sector, create substantive employment and entrepreneurial opportunities in emerging technologies and leverage opportunities available under the Digital India Programme, thus, leading to a boost in inclusive and sustainable growth.

Expenditure involved

Initially, an outlay of Rs.1500 Crore is involved to implement the programmes/ schemes envisaged under this policy over the period of 7 years.   Rs1500 Crore is divided into Software Product Development Fund (SPDF) and Research & Innovation fund.

Implementation strategy and targets

The Policy will lead to the formulation of several schemes, initiatives, projects and measures for the development of Software products sector in the country as per the roadmap envisaged therein.

To achive the vision of NPSP-2019, the Policy has the following five Missions:

1. To promote the creation of a sustainable Indian software product industry, driven by intellectual property (IP), leading to a ten-fold increase in India share of the Global Software product market by 2025.
2. To nurture 10,000 technology startups in software product industry, including 1000 such technology startups in Tier-II and Tier-III towns & cities and generating direct and in-direct employment for 3.5 million people by 2025.
3. To create a talent pool for software product industry through (i) up-skilling of 1,000,000 IT professionals, (ii) motivating 100,000 school and college students and (iii) generating 10,000 specialized professionals that can provide leadership.

• IV. To build a cluster-based innovation driven ecosystem by developing 20 sectoral and strategically located software product development clusters having integrated ICT infrastructure, marketing, incubation, R&D/testbeds and mentoring support.

5. In order to evolve and monitor scheme & programmes for the implementation of this policy, National Software Products Mission will be set up with participation from Government, Academia and Industry.

Background:

The Indian IT Industry has predominantly been a service Industry. However, a need has been felt to move up the value chain through technology oriented products and services. To create a robust software product ecosystem the Government has approved the National Policy on Software Products - 2019, which aims to develop India as the global software product hub, driven by innovation, improved commercialisation, sustainable Intellectual Property (IP), promoting technology start­ups and specialized skill sets. Further, the Policy aims to align with other Government initiatives such as Start-up India, Make in India and Digital India, Skill India etc so as to create Indian Software products Industry of USD ~70-80 billion with direct & indirect employment of ~3.5 million by 2025.