From January 1, 2017 to May 31, 2018, the open offers launched under the SEBI Takeover Regulations for listed non-banking financial companies (NBFCs) constitute approximately 23.7% out of the total open offers during this period. In the calendar year 2018 (to May 31, 2018), the percentage of open offers for NBFCs out of the total open offers launched in this period is 23%, demonstrating significant interest in one particular sector in the listed space as opposed to others. As per our study, the following diagram illustrates the open offer activity from January 1, 2018 to May 31, 2018:

Open Offer Activitiy , Indian Sector Specific


Attractiveness of NBFCs

NBFCs are an important alternative source of financing. Given that banks are prohibited from funding M&A transactions, NBFCs fit in perfectly. In addition to this, that there have been few positive developments in the past couple of years that have increased the attractiveness of NBFCs. In August 2016, the Government extended the applicability[1] of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 to 196 systemically-important NBFCs to enable them to enforce security interest in relation to secured debt of Indian Rupees one crore or more.

Continue Reading Takeover of Listed NBFCs: An Analysis of Current Trends

Most sectors of the economy have been completely liberalised for foreign direct investment (FDI) and the Foreign Investment Promotion Board (FIPB) was abolished in June 2017. Policy watchers in this space were, therefore, taken unawares by a cryptic announcement by the Ministry of Finance on 16 April, 2018, on the “Minimum capital requirements for ‘other financial service’ activities which are unregulated by any financial sector regulator and FDI is allowed under government route”.

Why the Press Release

To put it in perspective, this announcement has its genesis in the RBI’s FEMA Notification No. 375/2016-RB dated September 9, 2016, which was a big ticket change, doing away with the nearly two decades old stipulation of minimum capitalisation in the NBFC sector. The playing field was thus levelled and the financial sector regulations could prevail in an ownership agnostic fashion.

The formal Press Note announcing this change in fact came subsequently (see Press Note 6 of 2016 dated October 25, 2016). FEMA 375 firmly placed all regulated financial services activities in the fold of the respective financial regulators, instead of the latter having to concern themselves with the ownership pattern of the entity.

FEMA 375, however, laid down that activities that are not regulated by any regulator, or where only part of the activity is regulated, or where there is doubt regarding regulatory oversight, approval would need to be obtained from the Government with attendant minimum capitalisation requirements as may be decided by the Government. It is not known , in the public domain, as to how many approvals in the ‘unregulated financial services’ space have actually been accorded post issuance of FEMA 375. This information would have been useful. Be that as it may, what has been set out in the press release of April 16, 2018 is perhaps the way for the future.

Continue Reading FDI and Unregulated Financial Services

Despite several existing schemes and interventions by the Reserve Bank of India (RBI), the problem of bad debt has plagued the Indian banking system. For years, various high value accounts have undergone restructurings that have not resolved stress or the underlying imbalance in the capital structure, or addressed the viability of the business.

The existing RBI stipulated resolution mechanism included corporate debt restructuring (CDR), strategic debt restructuring (SDR), change in ownership outside the strategic debt restructuring (Outside SDR), the scheme for sustainable restructuring of stressed assets (S4A), etc. All of these were implemented under the framework of the Joint Lenders’ Forum (JLF).

On February 12, 2018, the RBI decided to completely revamp the guidelines on the resolution of stressed assets and withdrew all its existing guidelines and schemes. The guidelines/framework for JLF was also discontinued.

The New Framework

The new framework requires that as soon as there is a default in a borrower entity’s account with any lender, the lenders shall formulate a resolution plan. This may involve any action, plan or reorganisation including change in ownership, restructuring or sale of exposure etc. The resolution plan is to be clearly documented by all the lenders even where there is no change in any terms and conditions.

Continue Reading Overhaul of Stressed Assets Resolution