RBI sets new conditions for Current Accounts to improve Credit Discipline

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Banks cannot open a current account for a customer, who has already availed himself of credit facilities from the banking system.

The Reserve Bank of India set new conditions for banks to open current accounts for large borrowers in order to strengthen credit discipline. Use of multiple operating accounts by borrowers—both current well as cash/overdraft accounts—has been observed to be prone to vitiating credit discipline, the RBI said its Statement on Developmental and Regulatory Policies on Thursday.

“The checks and balances put in place in the extant framework, for opening of current accounts, are found to be inadequate,” it said, adding that the central bank has revised its guidelines to bring in appropriate safeguards

The revised norms are also expected to bring in the requisite discipline in collective actions by creditors for speedier resolution of stress in the accounts of borrowers, it said.

The purpose of the revised guidelines is to ensure that borrowers route their payments to and from a current account with a bank that has the largest exposure to the borrower, instead of having multiple current accounts across banks.

Here are the revised guidelines:

Opening Current Accounts

For a borrower with an existing CC or OD Facility
The bank cannot open a current account for the borrower and all transactions have to be routed through the cash credit or overdraft account.

For a borrower with No existing CC or OD Facility
Banks can open a current account if the total exposure to the borrower is less than Rs 5 crore. As and when the exposure goes beyond Rs 5 crore, the borrower has to inform the bank and, thereafter, it will be governed differently.

Credit Facilities of Rs 5 Crore to Rs 50 Crore

Any lender can open a current account, while non-lending banks can only open a collection account.

Credit Facilities of more than Rs 50 Crore

Any lender can open a current account, while non-lending banks can only open a collection account. Credit Facilities of more than Rs 50 Crore Banks have been mandated to create an escrow mechanism and only the escrow-managing lender or agent can open the current account for the borrower.

The balances in such accounts cannot be used as a margin for availing any non-fund based credit facilities. While there is no prohibition on the amount or the number of credits in ‘collection accounts’, any debits will be limited to the purpose of remitting the proceeds to the escrow account.

The banks should not route any withdrawal transaction from term loans availed by the borrower through current accounts and, instead, funds from term loans should be remitted directly to the supplier of goods and services.

Expenses incurred by the borrower for day-to-day operations should be routed through the cash credit/overdraft account, if the borrower has one; else, it should be routed through a current account.

Conditions to avail CC Or OD Facility
When a bank’s exposure to a borrower is less than 10% of Aggregate Banking System Exposure

The CC and OD facility can be availed but it can only be used for credits. Any debit transaction can only be to remit funds to the borrower’s CC or OD account held with a bank which has an exposure of 10% or more of the banking system’s total exposure to the borrower.

When a bank’s exposure to a borrower is more than 10% of Aggregate Banking System Exposure

Banks can provide the borrower with a CC/OD facility. If the borrower has availed loans from more than one bank and more than one bank has an exposure of 10%, the bank to which the funds are to be remitted may be decided mutually between the borrower and the banks.

All large borrowers that have a working capital facility bifurcated between a loan component and a cash credit component need to maintain the balances at individual banks in all cases, including consortium lending.

“The RBI has been concerned about diversion of funds. Therefore, the norm that RBI has put in place is that if a bank opens a current account, they receive a no-objection-certificate from the lending bank, so that the lending bank knows another current account is being opened for its loan customer,” said Rajiv Anand, executive director, Axis Bank.

These conditions have been put in place to bring in credit discipline and ensure that the issue if diversion of funds is much better managed than it is today, he said.

According to Ajay Shaw, partner, DSK Legal, the new conditions are aimed at ensuring that large borrowers do not use multiple accounts and route money to and from them.

“The RBI is insisting that all current accounts should be unified and for large borrowers there should be an escrow or trust and retention mechanism, with a waterfall, to ensure that there is a control of cash-flows.”

In an extreme case, if a borrower had an escrow account in a consortium loan and another lender is brought in, the borrower would then route all payments to the new lender and not to others, he said.

The RBI, according to Shaw, is trying to avoid these situations. “Banks will need to review all their current accounts and they have already begun informing their clients to close accounts and to maintain only one,” he said.

Source: Bloomberg Quint

SEBI extends deadline for filing April-June corporate financial results to September 15

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In a major relief to companies, the Securities and Exchange Board of India (SEBI) today extended the deadline for submission of financial results for the quarter, half-year, and financial year ended 30 June 2020 to September 15. The SEBI circular said that it has received representations requesting an extension of time for submission of financial results for the quarter or half year-ended 30 June 2020, due to the shortened time gap between the extended deadline for submission of financial results for the period-ended 31 March 2020 and the quarter or half year-ended June 30, 2020.

Under Regulation 33 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘LODR Regulations’), a listed entity is required to submit its quarterly, half-yearly, or annual financial results within 45 days or 60 days, as applicable, from the end of each quarter, half year, or financial year.

Accordingly, listed entities were required to submit the financial results for the quarter, half-year-ended 30 June 2020 on or before 14 August 2020.

Earlier, the regulatory body had also extended the timeline for submission of financial results by listed entities for the quarter, half-year, or financial year-ended 31 March 2020 to 31 July 2020, due to the impact of the coronavirus pandemic.

SEBI further said that today’s announcement shall come into force with immediate effect and advised all stock exchanges to bring the provisions of this circular to the notice of all listed entities.

It has asked the stock exchanges to bring the provisions of the circular to the notice of all listed entities and also disseminate on their websites.

Meanwhile, SEBI’s move to relax the deadlines is expected to give more time to companies already struggling with operations part amid the pandemic.

In-line with the efforts to provide relief to the sagging businesses, Finance Minister Nirmala Sitharaman earlier announced to decriminalise some offences under the Companies Act.

The SEBI has also introduced new norms to give more fund-raising flexibility to stressed firms.

The amendments can help promoters get financial investors on board without losing control of the company.

The Micro Small and Medium Enterprises (MSMEs) hit by Covid pandemic may have something to cheer at last.

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Insolvency and Bankruptcy Board of India (IBBI) has formulated a Special Resolution Process (SRP) for MSMEs who find their financial position unmanageable due to Covid crisis.


While presenting the ‘Atma Nirbhar Bharat’ package Finance Minister had announced to come out with a Special insolvency resolution framework for MSMEs under section 240A of the Insolvency and Bankruptcy Code.

According to sources close to the development, the scheme would be available to corporate MSMEs, that is, units incorporated as Companies or LLP.

The salient features of the scheme are proposed to be:

  —   If an MSME finds it unable to meet its financial obligations, the insolvency resolution process could be initiated on the occurrence of default of at least Rs.1 lakh

  —   It can be triggered by the MSME promoter/ owner only (not by the Financial or other creditors)

  —   During the process of resolution, the MSME owner remains in control and keeps running the unit but all legal proceedings to take control of assets by creditors are stopped.

  —   It provides first right of offer to promoters of the MSME to submit resolution plans

  —   It proposes a simplified claim verification process and preparation of information memorandum

  —   It expands the scope of interim finance to facilitate rescue financing of the CD during COVID-19 with the approval of 3/4th financial creditors in value.

Federation of Indian Micro and Small & Medium Enterprises (FISME) which facilitated a consultation round of MSME associations with IBBI shared that most participants found the scheme potentially useful.

According to Lucknow based V K Agarwal Managing Director of Shashi Cables Ltd and former FISME President, the scheme seemed to be modelled on insolvency provisions under US chapter-11, was very promising indeed but some way needed to be found to make financial creditors to come on board and cooperate.

The scheme envisages appointment of an Insolvency Professional (IP) as Resolution Professional to conduct the process, with the consent of the unrelated financial creditors having at least 25% of the outstanding financial claims.

The scheme is under final stages of approval and is expected to be announced soon.

Cooperative banks to be brought under RBI supervision

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Government banks, including 1,482 urban cooperative banks and 58 multi-state cooperative banks, are now being brought under the supervisory powers of the RBI.
RBI’s powers will also apply to the cooperative banks as they apply to scheduled banks.

The Union Cabinet on Wednesday decided to bring all co-operative banks under the Reserve Bank of India through an ordinance. This was announced by Union information and broadcasting minister Prakash Javadekar during a virtual press conference.

“Government banks, including 1,482 urban cooperative banks and 58 multi-state cooperative banks, are now being brought under supervisory powers of Reserve Bank of India (RBI),” Javadekar said today. These banks will come under the supervision of RBI with immediate effect from date of President’s approval on the ordinance.

After the Punjab and Maharashtra Cooperative (PMC) Banks fiasco last year, the Union Cabinet in February amended Banking Regulation Act to strengthen the cooperative banks in the country. During Budget 2020, Finance Minister Nirmala Sitharaman also announced that cooperative banks will be brought under the ambit of RBI.

There are more than 8.6 crore depositors in over 1,500 urban and multi-state cooperative banks across the country. “Depositors’ money amounting to ₹4.84 lakh crore in the cooperatives banks will stay safe,” Javadekar said while announcing the decision.

The government also announced to provide 2% interest subvention to borrowers under the ‘Shishu’ category of the flagship Pradhan Mantri MUDRA Yojana (PMMY). Under the Shishu category, collateral free loans of up to ₹50,000 will be given to beneficiaries.

“The Union Cabinet has approved the scheme for interest subvention of 2% to Shishu loan category borrowers under PMMY, outstanding as on March 31, 2020, for a period of 12 months to eligible borrowers,” Javadekar said.

Launched in 2015, the Pradhan Mantri MUDRA Yojana provides loans up to ₹10 lakh to non-corporate, non-farm small/micro enterprises. These loans are classified as MUDRA loans under PMMY. Commercial banks, RRBs, small finance banks, MFIs and NBFCs provide MUDRA loans.

In the wake of coronavirus outbreak, the central government decided to extend the tenure of the OBC Commission by six months, Union minister Prakash Javadekar said. The government also announced ₹15,000-crore infrastructure fund to provide interest subvention of up to 3% to private players for setting up of dairy, poultry and meat processing units.

“A fund worth ₹15,000 crore has been approved by the Cabinet that will be open to all and will help in increasing milk production, boost exports and create 35 lakh jobs in the country,” Javadekar told.

Source: Economic Times

Continued

ICAI enables generation of Bulk UDINs for Certificates

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Institute of Chartered Accountants of India enable generation of UDIN (Unique Document Identification Number) for certification by its members

A provision for generating UDIN in bulk for Certificates has been incorporated in UDIN Portal.

Using this facility now the members will be able to generate UDIN in bulk (uptil 300 UDINs) for various types of Certificates in one go. It can be done through uploading of excel file.

Process for bulk UDIN

Step-wise complete process for generating bulk UDINs is as under:

i) After login, from the Menu bar, click on Bulk UDIN for Certificates. Minimum 3 certificates and Maximum 300 certificates can be generated using this procedure.

ii) Download template file from Download Template button and open in Excel. Please note that the .xlsx file can be opened in Excel 2007 and later versions.

iii) Select Certificate type from drop down.

iv) Input dates in the format as per your system/computer (generally it is in mm/dd/yyyy or as 10 June 2020). Excel will format dates automatically in required format i.e dd-mm-yyyy. Do not use copy paste in this cell.

v) Fill in all the parameters and values.

vi) Save the file.

vii) Click on the upload file on the Certificate Form on UDIN Portal.

viii) Select the file just saved now.

ix) Portal will populate the data in the Form. Verify the data so populated.

x) If correct, Send and Verify OTP and Submit.

xi) Alternatively, the option of filling the details of Type of Certificates, Dates and key fields etc. is available on the form itself.

Read More: ICAI Notification

CBDT replaces Annual Statement of TDS/TCS with new Annual Information Statement

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The amendment, aims at controlling tax evasion, and bring glassiness Form 26AS, which is now being replaced with a new Annual Information Statement (AIS) i.e Form 26AIS.

The Central Board of Direct Taxes (CBDT) on Thursday notified Income Tax (11th Amendment) Rules, 2020.

In exercise of the powers conferred by section 285BB read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

In Income Tax Rules, 1962 Rule 114-I relating to Annual Information shall be inserted which is, “the Principal Director General of Income Tax (System) or the Director-General of Income Tax (Systems) or any person authorized by him shall, under Section 285BB of the Income-Tax Act, 1961, upload in the registered account of the assessee an annual information statement in Form No. 26AS containing the information specified in the column (2) of the table below, which is in his possession within three months from the end of the month in which the information is received by him.”

The notification consists of a table that contains the nature of information which includes information relating to a tax deduction or collected at source; specified financial transaction; payment of taxes; demand and refund; pending proceedings; and completed proceedings:

Sl. No. Nature of information
(i) Information relating to tax deducted or collected at source
(ii) Information relating to specified financial transaction
(iii) Information relating to payment of taxes
(iv) Information relating to demand and refund
(v) Information relating to pending proceedings
(vi) Information relating to completed proceedings
(vii) Any other information in relation to sub-rule (2) of rule 114-I

The amendment, aims at  controlling tax evasion, and bring glassiness Form 26AS, which is now  being replaced with a new Annual Information Statement (AIS) i.e Form 26AIS.

Further sub-clause (2) of Rule 114-I says, “the Board may also authorize the Principal Director General of Income-tax (System) or the Director-General of Income Tax (Systems) or any person authorized by him to upload the information received from any officer, authority or body performing any function under any law or the information received under an agreement referred to in Section 90 or Section 90A of the Income Tax Act, 1961 or the information received from any other person to the extent as it may deem fit in the interest of the revenue in the annual information statement referred to in sub-clause (1).”

Lastly, sub-clause (3) of Rule 114-I says, “the Principal Director General of Income-tax (System) or the Director-General of Income Tax (Systems) shall specify the procedures, formats, and standards for the purpose of uploading of annual information statement referred to in sub-clause (1).”

NCLAT quashes NCLT order to make MCA party in all insolvency cases

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NCLAT quashes NCLT order to make MCA party in all insolvency cases as this will be not only excessive but perhaps counterproductive

The National Company Law Appellate Tribunal (NCLAT) quashed an order of the National Company Law Appellate Tribunal (NCLT) directing that the Ministry of Corporate Affairs (MCA) be made a party to every case under the Insolvency and Bankruptcy Code (IBC) on Monday.

According to the appellate tribunal, the NCLT’s order, was beyond the power of the tribunal as it was tantamount to the imposition of a new rule in a compelling fashion

The impugned order making it applicable throughout the country to all the benches of NCLT is untenable and it suffers from material irregularity and patent illegality in the eye of law, said the judgment of the three-judge bench headed by Justice Venugopal M.

“The NCLAT ruled that the MCA need not be a party to all Section 7,9 and 10 applications, although they may be impleaded in certain cases based on exercise of judicial principles and following principles of natural justice. Although the MCA has been central in the implementation of the IBC, their being a party to every single IBC fillings is not only excessive but perhaps counterproductive,” said Richa Roy, partner at Cyril Amarchand Mangaldas.

In November 2019, the NCLT had directed the MCA, through its secretary, be party to all cases under IBC on the grounds that authentic records would be made available by officers of the MCA.

The Centre challenged the order arguing that such rule making was the exclusive domain of the government. It further said that authentic records could be furnished by the Registrar of Companies and certified copies could be made available for a fee.

The NCLAT order added that such “wholesale, blanket and omnibus directions” cannot be issued in a single stroke” and impleadment of the MCA can only be determined on a case-to-case basis.