Housing Finance Companies - Proposed changes by RBI

The Central Government had, with effect from August 09, 2019, transferred regulatory powers of the Housing Finance Companies (“HFCs”) from the National Housing Bank (“NHB”) to the Reserve Bank of India (“RBI”). It is further stated that the RBI will review the extant of regulatory framework applicable to HFCs and issue the same in due course.  Until such time, HFCs were required to comply with the directions and instructions issued by NHB.[1]

Pursuant to the above and in order to increase the efficiency of HFCs, the RBI has now placed a draft of the changes proposed in the regulations applicable to HFCs for public comments till July 15, 2020, which we have briefly summarised below:
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On June 08, 2020, the Reserve Bank of India (RBI) released two draft frameworks — one for securitisation of standard assets (Draft Securitisation Framework) and the other on sale of loan exposures (Draft Sale Framework). In our previous article (available here), we had dealt with key revisions introduced by the RBI under the Draft Securitisation Framework. This article contains a brief summary of the Draft Sale Framework.

The Draft Sale Framework is addressed to the same constituents as the Draft Securitisation Framework and is expected to operate as an umbrella framework, which will govern all loan transfers (standard and stressed assets).

The Draft Sale Framework is broadly divided into three parts viz., (i) general conditions applicable to all loan transfers; (ii) provisions dealing with sale and purchase of standard assets; and (iii) provisions dealing with sale and transfer of stressed assets (including purchase by ARCs).


Continue Reading RBI’s move to revamp loan transfers in India

The Reserve Bank of India (RBI) issued guidelines on February 01, 2006, in relation to securitisation of standard assets by banks, All India Term-Lending and Refinancing Institutions and non-banking financial companies (NBFCs). Securitisation was defined as the process by which assets are sold to bankruptcy remote special purpose vehicle (SPV) in return for immediate cash flow, wherein the cash flows from the underlying pool of assets are used to service the securities issued by the SPV[1]. The criteria for ‘true sale’ as well as the policy on provision of credit enhancement facilities, liquidity facilities and accounting treatment of such transactions was also set out. The guidelines did not separately deal with direct assignment of assets.


Continue Reading A new regime for Securitisation

Battling Covid -19 and Liquidity– The twin crisis of NBFC sector

While the health crisis has brought the country to its knees, the fatal blow seems to be coming our way from the economic effects of the Covid-19 pandemic. The exposure of the severely-stressed para banking industry to risky segments in these times has made it even more vulnerable to an economic slowdown.[1] With its asset quality deteriorating at an increasing rate, the liquidity in para banking industry has been squeezed off to its last drops.

The impact of the liquidity crisis across various classes of non-banking financial companies (“NBFCs”) may be analysed vis-à-vis the exposure it has towards the borrower segments whose economic activities have been severely impacted.  With the economic and consumption activities a bust in sectors such as real estate and micro-finance, the NBFCs with loan exposures in the said sectors will be hit the worst in the wave of this global pandemic. The increasing loan losses and inaccessibility to new capital is likely to exacerbate the liquidity stress.
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Asset Classification - Be-hold

With the outbreak of the COVID-19 pandemic and the consequential countrywide lockdown, economic activities of almost all corporates, except those falling under essential services, have witnessed an unprecedented slowdown. As a result, cashflows and debt servicing capabilities of most borrowers have been seriously impacted, necessitating the Reserve Bank of India (“RBI”) to intervene and introduce a regulatory framework, enabling lenders to provide much needed relief to their borrowers.

This blog analyses the relaxation of the asset classification norms to be followed by a bank, with respect to a term loan[1] on account of the measures introduced by the RBI on March 27 and April 17, 2020 and related judicial pronouncements.
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Cryptocurrency in India

On March 4, 2020, the Supreme Court of India (“Court”) in Internet and Mobile Association of India v. Reserve Bank of India[1] (“Judgement”) set aside the circular issued by the Reserve Bank of India (“RBI”) on April 6, 2018 (“Circular”)[2]. This Judgment marks the second occasion, in recent times, when the Supreme Court has reversed a policy decision of the RBI [3]. The Circular had restricted all entities regulated by the RBI, including nationalised banks, scheduled commercial banks, NBFCs, cooperative banks, payment system operators and other intermediaries (“Regulated Entities”) from dealing in or providing services for facilitating ‘any person or entity dealing with, or settling’ virtual currencies.

Thus, while the Circular did not expressly proscribe peer-to-peer trading in virtual currencies, it severely restricted the conversion of virtual currency into fiat currencies and impaired the ability of businesses which dealt with virtual currencies to access financial services in India.
Continue Reading Virtual Currencies in India: A New Dawn

mplications of the Finance Bill, 2020, on INVITs, REITs and its Unitholders

The Finance Minister, Nirmala Sitharaman, presented the Union Budget 2020-2021 on February 1, 2020 and consequently, introduced the Finance Bill, 2020 (“Bill”) in the Lok Sabha. The Bill comprises the financial proposals, including taxation related proposals, to amend the provisions of the Income-tax Act, 1961 (“Income-tax Act”) for the financial year 2021.

The Income-tax Act comprised provisions in relation to the taxability of, and exemptions available to, infrastructure investment trusts (“InvITs”) and real estate investment trusts (“REITs”, together with “InvITs”, referred to as “business trusts”) registered with the Securities and Exchange Board of India under the Securities Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 (“InvIT Regulations”) or the Securities Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 (“REIT Regulations”), respectively.
Continue Reading Implications of the Finance Bill, 2020 on INVITs, REITs and its Unitholders

Amendments to the ECB Policy - A Big Boost for Cross-Border Financings

Given prevailing market conditions, Indian corporates have increasingly been facing issues in accessing credit from onshore loan and debt capital markets. Recent Securities and Exchange Board of India (SEBI) regulations aimed at growing the debt capital market in India and reducing dependence of corporate India on loans from the Indian banking sector require that certain Indian companies must necessarily fund a specified percentage of their debt requirements by issuing bonds.

The forthcoming implementation of new norms on single and group exposures for the Indian banking system is also resulting in some of the larger corporates having to look at other options beyond their preferred relationship banks onshore for meeting their debt funding requirements. Both the non-banking sector and the mutual fund industry in India – significant sources for onshore debt markets – are also currently grappling with their own set of challenges. In this environment, these amendments to the External Commercial Borrowing (ECB) framework are most welcome as they will allow Indian companies to look at tapping the offshore loan and bond markets for raising debt capital.
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RBI Circular - Insolvency and Bankruptcy Blog

The Supreme Court’s judgment in Dharani Sugars and Chemicals Limited vs. Union of India is examined herein.

The Supreme Court in Dharani Sugars and Chemicals Limited vs. Union of India & Others (Dharani Sugars) has struck down the circular dated February 12, 2018, containing the revised framework for resolution of stressed assets (RBI Circular) issued by the Reserve Bank of India (RBI) on the ground of it being ultra vires Section 35AA of the Banking Regulation Act, 1949 (Banking Regulation Act).

Section 35AA was introduced by Parliament in 2017 to confer power on Central Government to authorise the RBI to give directions to any bank or banks to initiate an insolvency resolution process under the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) in respect of ‘a default’. The RBI Circular was challenged, inter alia, on the basis that Section 35AA does not empower the RBI to issue directions for reference to the IBC of all cases without considering specific defaults.


Continue Reading Dharani Sugars v. Union of India: RBI’s Regulatory Powers Re-affirmed by the Supreme Court

Summary of Delhi HC Judgement of 13 3A SARFARESI

Can a secured creditor respond to a representation by a borrower, in response to a notice issued to him under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), beyond the mandatory period of 15 days (as stipulated under Section 13 (3A) of SARFAESI Act)?
Continue Reading Is the Period of 15 Days Stipulated under Section 13 (3A) of SARFAESI Act to Respond to a Representation by a Borrower Mandatory?