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.
The Reserve Bank of India on Friday announced a surprise 40 basis points repo rate cut in an off-cycle policy review. RBI Governor Shaktikanta Das announced the decision of the Monetary Policy Committee at a press conference. He also said that the GDP growth for FY21 is expected to be in negative territory
The RBI Governor Shaktikanta Das announced a slew of measures aimed at further easing the liquidity conditions and providing relief to borrowers just a few days after the government concluded unveiling its five tranches of Rs 20 lakh crore worth of stimulus.
Staying true to what he had said earlier, RBI Governor came out for the third time with a set of measures to alleviate distress in the economy. The interventions included announcement on policy rates front with the Monetary Policy Committee holding an out of- cycle review meeting and extension of previously announced relief measures for both industrial establishments and individual borrowers.
The RBI was expected to follow up with monetary-side interventions after the government announced fiscal measures to cushion the economy from the Covid impact.
Key Takeaways:
Liquidity support: The RBI Governor Shaktikanta Das announced a 40 basis points repo rate cut. The MPC voted, with five of its six members in favour, for a reduction of repo rate by 40 basis points to 4 per cent from 4.4 per cent. Consequently, the reverse repo rate now stands at 3.35 per cent.
Moratorium extended: A further three-month extension up to August 31, 2020 on the following:
Moratorium on term loan installments
Deferment of interest on working capital
Easing of working capital financing requirements by reducing margins
Exemption from being considered as defaulter in supervisory reporting and reporting to credit information companies
Extension of resolution for stressed assets, asset classification standstill by excluding moratorium period of three months.
Growth Outlook: On economic growth in the current fiscal, the RBI projected negative growth with a pick-up in growth impulses in second half. However, these depend on the trajectory of the pandemic.
Inflation Outlook: Headline inflation may fall below the RBI’s medium term target of 4% in third or fourth quarter of the current fiscal.
Demand & Supply: The governor said that the private consumption, which comprises 60 per cent of the GDP, has taken the biggest hit. Both the demand compression and supply disruption has taken a toll on the economy, the governor observed.
Foreign trade: Line of credit of Rs 15,000 crore for 90-days with roll over of up to one year so as to enable it to avail US dollar swap facility.
SIDBI: The special refinancing facility of Rs 15,000 cr to SIDBI at repo rate for 90 days for lending & refinance operations has been further rolled over for another 90 days at the end of initial 90 days period.
At as much as 10% of GDP, the big stimulus package did not appear to leave any major sphere untouched.
Over five consecutive days of interaction with the country’s financial media, FM Nirmala Sitharaman provided the break-up of PM Modi’s Rs 20 lakh crore COVID-19 stimulus for India.
At as much as 10% of GDP, the package did not appear to leave any major sphere untouched as Prime Minister Modi brought out the fiscal artillery to complement RBI’s monetary measures spread over the past few weeks, putting India firmly in the league of biggies that have gone all out against the virus.
In his speech, Mr. Modi said his package would focus on land, labour, liquidity and laws, and would deal with such sectors as cottage industries, MSMEs, the working class, middle class and industry. He also talked of focusing on empowering the poor, labourers and migrant workers, both in the organised and unorganised sectors.
Dubbed Atmanirbhar Bharat Abhiyaan, this Covid relief package puts bold reforms at the heart of Modi’s stated plan to make India self-reliant so that any other crisis that may emerge in future could be efficiently tackled. Below we collate all the details that emerged in five tranches over the past five days.
FIRST TRANCHE
MSME measures
Collateral free automatic loans- a move that’ll enable 45 lakh units to restart work and save jobs. 4 year tenor with 12 months moratorium. 100% credit guarantee on principal and interest – Rs. 3 Lakh Crores (60k Cr cover)
Subordinate debt provision of Rs 20,000 crores for 2 lakh stressed MSMEs. Besides, there will be Rs 50,000 crore equity infusion via Mother fund-Daughter fund for MSMEs that are viable but need handholding. A fund of funds with corpus of Rs 10,000 crore will be set up to help these units expand capacity and help them list on markets if they choose.
Definition of MSMEs revised — the move will allow MSMEs to aim for expansion without losing benefits. Differentiation between manufacturing and service units to be removed.
Small units – Investments upto 10 Cr + Turnover upto 50 Cr
Medium units – Investments upto 20 Cr + Turnover upto 100 Cr
Government tenders upto 200 Crores will no longer be on global tender basis. Global tenders will be disallowed for upto 200 Crores. This will make MSMEs eligible to participate in Government purchases.
Post Covid, e-market linkage to be provided for all MSMEs. Receivables by MSMEs from the Central Government and all PSUs will be cleared in next 45 days
For non-bank lenders
Rs 30,000 crore special liquidity scheme for investing in investment grade debt paper of NBFCs, HFCs and MFIs. These NBFCs are those that are also funding MSMEs. These will be fully guaranteed by government of India.
Rs 45,000 crore partial credit guarantee scheme 2.0 for NBFCs. The first 20% loss will be borne by the guarantor that is government of India.
For Discoms, a one-time emergency liquidity injection of Rs 90,000 crore against all their receivables. The states will guarantee it.
For employees
Liquidity relief of Rs 2,500 crore EPF support to all EPF establishments. The EPF contribution will be paid by the govt for another 3 months (till August). It will benefit more than 72 lakh employees.
Statutory EPF contribution for all organisations and their employees covered by EPFO to be reduced to 10% from 12% earlier (This doesn’t apply to govt organisations). This will help infuse Rs 6,750 cr of liquidity into these organisations.
For Power distribution companies
Power distribution companies will get Rs 90,000 crore liquidity against receivables from state-owned Power Finance Corp. and Rural Electrification Corp. This will allow these discoms to pay dues to power producers.
For Contractors & others
An extension of up to 6 months (without costs to contractor) to be provided by all Central Government Agencies like Railways, Ministry of Road Transport & Highways, Central Public Works Dept.
On real estate, urban development ministry will issue advisory to states/UTs so that the regulators can invoke force majeure. The regulators can suo moto extend completion/registration dates for six months for projects expiring on or after March 25, 2020.
A reduction of 25% of existing rates of Tax Deducted at Source (TDS) & Tax Collection at Sources (TCS) from tomorrow till March 31, 2021. This will release Rs 50,000 crores.
Due date of all Income Tax Return filings extended from July 31 to November 30. Vivaad se Vishwas scheme extended till December 31,2020, without any extra payments.
All pending refunds to charitable trusts and non-corporate taxpayers (but including LLP) will be issued immediately
Date of assessments getting barred as on Sep 30, 2020 extended to December 31, 2020. Date of assessments getting barred as on March 31, 2021 extended to September 30, 2021.
SECOND TRANCHE
Focus on migrant workers, small farmers and the poor, in the manner shown below:
Free food for migrants
For those migrants who don’t have NFSA cards or state cards, 5 Kgs of wheat or rice per person and one kg channa per family per month for next two months to be provided and it will reach through the state governments. This will entail Rs 3,500 crore and is likely to benefit around 8 crore migrants.
One Nation, One Ration Card
National Portability Ration Cards can be used in any ration shops that will be applicable across the country. By August 2020, 67 cr beneficiaries in 23 states or 83% of all PDS beneficiaries will get covered. By March 2021, 100 per cent will be covered.
Rental accomodation
Under PM Awas Yojaana, scheme for rental housing for migrant workers. Under the scheme incentives will be offered to private manufacturing units and industrial units to develop affordable housing, converting govt funded houses into affordable renting accommodations for migrant workers. Shall be done on PPP on concessionaire basis. State government agencies will also be incentivised to develop affordable housing.
MUDRA Shishu loan
Those who have availed loans up to Rs 50,000, an interest subvention of 2% for next 12 months after the moratorium period extended by RBI ends. Three crore people will get benefit of Rs 1500 crore.
Street Vendor
Special scheme for street vendors to avail Rs 5,000 crore loan facility. Will be given Rs 10,000 of working capital.
Affordable Housing
Credit-linked subsidy scheme for middle income households in the income group Rs 6-18 Lakh extended to March 2021. The CLSS scheme was operationalised from May 2017 and extended up to March, 2020. Now, it has been extended till March 2021. This will lead to investments of Rs 70,000 crore in housing and kick-start sectors like steel, cement and create jobs.
For Tribals
Rs 6,000 crore worth of proposals have come from states under CAMPA funds. Tribal people will get employment in forest management, wildlife protection/management and other forest related activities.
For Small/Marginal Farmers
The government is extending Rs 30,000 crore additional capital emergency funds through NABARD for post-harvest Rabi and Kharif related activities for small and marginal farmers.
Under the PM Kisan Credit Card, Rs 2 lakh crore of concessional credit to boost farming activities and it will benefit 2.5 crore farmers. Those in animal husbandry and fisheries will also be included.
THIRD TRANCHE
For framers, and such sectors as food processing and allied activities.
For Upgrading Infrastructure
One lakh crore fund for strengthening the farm gate infrastructure like cold chains, post harvest storage infrastructures etc.
Rs 10,000 crore fund for micro food scheme will be executed with cluster based approach. Will benefit 2 lakh Micro Food Enterprises. For instance, Bihar can have Makhana cluster, Kashmir can have Kesar cluster, Telangana can have Turmeric cluster, Andhra can have chilli cluster.
Govt will launch Pradhan Mantri Matsya Sampada Yojana for development of marine and inland fisheries. Rs 20,000 crore will be spent to fill the gaps in value chains. This will lead to an additional fish production of 70 lakh tons in next five years and provide employment to 55 lakh people.
Rs 13,343 crore for vaccination of livestock in India to eradicate foot and mouth disease.
Rs 15,000 crore will be spent on ramping up the dairy infrastructure. Also, investments will be made in cattle feed.
Rs 4,000 crore for growing of herbal and medicinal plants. Ten lakh hectares of land will be used for growing medicinal and herbal plants and will provide income of nearly Rs 5,000 crore for farmers.
Rs 500 crore have been allocated for beekeeping. This will help 2 lakh beekeepers.
TOP to TOTAL: Rs 500 crore for Operation Greens that will be extended beyond tomatoes, potatoes and onion and will applicable to all vegetables.
Proposes amendment to Essential Commodities Act to enable better price realisation for farmers. Food stuffs including edible oils, oilseeds, pulses, onions and potato will be deregulated. And stock limits will be imposed only under exceptional circumstances like famine and surge in prices.
Agriculture Marketing Reforms
32. A central law will be formulated to provide (a) Adequate choices to sell produce at attractive price, (b) Barrier free inter-state trade, and (c) Framework for e-trading of agriculture produce.
Agriculture Produce Price and Quality Assurance
33. Facilitative legal framework will be created to enable farmers for engaging with processors, aggregators, large retailers, exporters etc. in a fair and transparent manner. Risk mitigation for farmers, assured returns and quality standardisation shall form integral part of the framework.
FOURTH TRANCHE
For Upgrading Infrastructure
Included structural reforms in 8 critical sectors- Coal, Minerals Defence Production, Airspace management, Social Infrastructure Projects, Power distribution companies, Space sectors and Atomic Energy.
Coal Sector
Government is introducing the commercial mining of coal. India needs to reduce import of substitutable cal and increase self-reliance in coal production.
34. The investment of Rs. 50,000 crores is for the evacuation of enhanced CIL’s (Coal India Limited) target of 1 billion tons of coal production by 2023-24 plus coal production from private blocks.
Minerals
35. Enhancing private investment in mineral sector.
36. FMalso explained the rationalisation of stamp duty payable at the time of award of mining leases.
37. 500 mining blocks would be offered through an open and transparent auction process, a joint auction of Bauxite & Coal mineral blocks will be introduced to enhance Aluminum industry’s competitiveness.
Defence Production
38. Indigenization of imported spares, separate budget provisioning for domestic capital procurement.
39. FDI limit in defence manufacturing under automatic route is being raised from 49% to 74%.
40. Corporatisation of Ordnance factory board was also announced.
Civil Aviation (Airspace Management, World Class Airports Through PPP, MRO HUB)
41. Restrictions on the utilisation of Indian Air Space will be eased so that civilian flying becomes more efficient.
42. Government is working hard to make India a global hub for for aircraft maintenance, repair and overhaul.
43. Airports Authority of India has awarded 3 airports out of 6 bid for operation & maintenance on (PPP) basis. Additional investment by private players in 12 airports in first & second rounds expected around Rs 13,000 crores.
Power Sector Reforms
44. Power Distribution Companies in Union Territories to be privatised in line with the new tariff policies. This will enable to strengthen industries and bring in efficiency in the entire power sector. This will also enable stability in the sector, announced the FM.
Boosting Private Sector investment
45. Boosting private sector investment in Social Infrastructure through revamped Viability Gap Funding Scheme of Rs 8,100 crores.
Space Sector
46. Boosting private participation in space sectors. Government is working on a liberal geo-spatial policy. Private sector to be co-traveller in India’s space sector journey through launches, satellite services, commented the Finance Minister.
Atomic Energy
47. The government intends to link India’s robust start-up ecosystem to the nuclear sector – Technology Development cum Incubation Centres will be set up for fostering synergy between research facilities and tech entrepreneurs. Establishment of research reactor in PPP mode for production of medical isotopes.
Fifth Tranche
48. MGNREGS: Additional funding of Rs 40,000 crore to the scheme over and above the Budgetary Estimate.
49. Health: All districts will have infectious disease hospitals while at the block-level, public health labs will be set up.
50. Education: PM eVidya programme to be launched immediately. Each Classroom from 1 to 12 will have one TV channel. Special e-content for visually & hearing impaired. Top 100 universities will be permitted to start online courses by May 30, 2020.
51. IBC reforms: Covid-related debt to be excluded from definition of default under the IBC. No fresh insolvency for next one year. Minimum threshold to initiate insolvency raised to Rs one crore from Rs one lakh earlier.
52. Decriminalising Companies Act: Violations under most of the Companies Act to be decriminalised. This will ease the burden on courts and tribunals. Seven compoundable offences under Companies Act being dropped, 5 offences to be dealt under alternative framework.
53. Listing norms: Companies can now list securities directly in foreign jurisdictions
54. New Public Sector Policy: Public sector enterprise policy: All sectors are open to the private sector while public sector enterprises will play an important role in defined areas. Govt will notify strategic areas and in them at least one PSE will remain but private sector will be allowed. In other sectors, PSEs will be privatised.
55. Additional resources to States: Centre has decided to increase borrowing limit of states from 3% to 5% for FY21. This will give extra resources of Rs 4.28 lakh crore to states. This despite, states having borrowed only 14% of the limit authorised to them. 86% remains unutilised. The additional borrowing limit has been linked with initiating reforms.
The finance minister also gave a break up of how the Rs 20 lakh crore was allocated among the five tranches and the previous schemes as well as the RBI measures.
The government announced a Rs 1.7 lakh crore relief package aimed at providing a safety net for those hit the hardest by the Covid-19 lockdown, along with insurance cover for frontline medical personnel. About 800 million people will get free cereals and cooking gas apart from cash through direct transfers for three months. The 21-day lockdown began on March 25.
The Pradhan Mantri Garib Kalyan Yojana includes higher wages under the Mahatma Gandhi National Rural Employment Act (MGNREGA), Rs 1,000 ex-gratia payment to nearly 30 million poor senior citizens, widows and disabled as well as insurance coverage of as much as Rs 50 lakh each for about 2 million healthcare workers battling the disease.
States have been asked to use the Building and Construction Workers Welfare Fund to provide relief to construction workers and the first installment of Rs 2,000 under the Pradhan Mantri Kisan Yojana will be frontloaded to reach 87 million farmers in April.
Immediately
“We’ve immediately responded within 36 hours of the lockdown. We’ve first reached out to the poorest of the poor, who need help,” finance minister Nirmala Sitharaman said while announcing the programme on Thursday.
The package will be rolled out immediately.
“We will think about the others… will gradually address if there’s more to attend to,” she said, when asked about a stimulus plan for companies, many of which have had to cease production, cut salaries or lay off employees because of the economic pain.
Industry and experts welcomed the announcements, even as the market responded positively with the Sensex closing at 29,947 points, up nearly 5% from Wednesday’s close.
“It’s a very well-defined package, reinforcing government’s intent that no one should be deprived of basic facilities in today’s stressed times,” said State Bank of India Chairman Rajnish Kumar. “We are hopeful of more calibrated responses in coming weeks as the impact of the pandemic unfolds.”
Under the package, the government will provide 5 kg of wheat or rice and 1 kg of pulses free every month for the next three months. Besides, 204 million women Jan Dhan account holders will get Rs 500 per month for the next three months. MGNREGA wages will rise to Rs 202 a day from Rs 182 to benefit 136.2 million families.
The measures will benefit the most vulnerable sections of society, said ITC chairman Sanjiv Puri.
Such “critical and large-scale interventions” are the need of the hour, he said. “These timely measures… will go a long way in providing support to farmers, daily wage earners, SHG (self-help group) women and poor senior citizens during such an unprecedented situation.”
ORGANISED SECTOR
The government said it will pay the entire provident fund contribution of those who earn less than Rs 15,000 per month in companies having less than 100 workers as they are at risk of losing their jobs. That amounts to 24% of basic pay–12% from the employee and 12% from the employer. This will be paid by the government for three months.
“This would prevent disruption in their employment,” a finance ministry statement said.
In addition, the Employees’ Provident Fund Regulations will be amended to include the coronavirus pandemic as grounds for allowing a non-refundable advance of 75% of the corpus or three months of wages, whichever is lower, from their accounts.
INDUSTRY DEMAND
India Inc sought help for distressed businesses across sectors such as tourism, hospitality, automobiles and aviation, besides micro, small and medium enterprises (MSMEs), where cash flows are down to a trickle amid mandatory adherence to tax and statutory payments.
“We hope that the RBI will soon bring in relief measures for distressed businesses including a moratorium on debt repayments and redefinition of non-performing assets,” said Confederation of Indian Industry director general Chandrajit Banerjee.
He added that the government could be more aggressive in its spending with an overall fiscal stimulus at 2.5-3% of GDP if disruptions continue for the next three months.
“Other segments of society, who are also looking forward to measures such as EMI waivers, as also extension of loan scheme tenures among ot others, economic package shall be on wait and watch mode,” said Niranjan Hiranandani, president of Assocham.
RBI is also likely to question the auditor on whether the SBI proposal would have any ‘material impact’ on the existing accounts of Yes Bank
The Reserve Bank of India will check if troubled lender Yes Bank’s auditor had raised any alarm in the past year. The apex bank has been in touch with the auditor and will look into whether they had specifically issued any warning in the past 12 months.
According to a report in The Economic Times, RBI has been in touch with auditor BSR & Co and wants to know if it had raised any red flag relating to the health of Yes Bank or any other issue. The auditor is part of KPMG India. The central bank is also likely to question the auditor on whether the SBI proposal would have any ‘material impact’ on the existing accounts of Yes Bank.
On Friday, the RBI announced a reconstruction scheme for the bank. It said that SBI that has expressed interest to invest in the troubled bank would do so to the extent of holding 49 per cent shareholding. The apex bank said that SBI’s investment in Yes Bank would not impact the employees and their current terms of employment.
BSR and Co was appointed as Yes Bank’s auditor after RBI banned SR Batliboi & Co for a year. The RBI had stated that the firm that was part of EY was banned due to “lapses identified in a statutory audit assignment carried out by the firm”.
RBI put restrictions on Yes Bank on March 6, allowing its customers to withdraw only Rs 50,000 for a month. The apex bank relaxed the guidelines subsequently. On Tuesday, the bank permitted its credit card customers to pay their credit card dues and loan obligations from other bank accounts. It allowed NEFT payments to clear loan EMIs and make credit card payments. The bank had, before that, allowed customers to withdraw money from ATMs of other banks.
The government had issued new norms for auditors, seeking more disclosures in reports, a move which comes after a series of corporate scams and frauds surfaced over the past few years.
CARO 2020 – Companies (Auditor’s Report) Order, 2020
MCA in place of existing the Companies (Auditor’s Report) Order, 2016, has notified CARO 2020 after consultation with the National Financial Reporting Authority constituted under section 132 of the Companies Act, 2013.
Auditor’s report to contain matters specified in paragraphs 3 and 4. – Every report made by the auditor under section 143 of the Companies Act on the accounts of every company audited by him, to which this Order applies, for the financial years commencing on or after the 1st April, 2019, shall in addition, contain the matters specified in paragraphs 3 and 4, of the CARO 2020.
Provided this Order shall not apply to the auditor’s report on consolidated financial statements except clause (xxi) of paragraph 3.
It shall come into force on the date of its publication in the Official Gazette.
CARO 2020 – Key changes/highlights
Matters to be included in auditor’s report, in CARO 2020 – the reporting clauses are more extensive and detailed than were in CARO2016
Unlike CARO 2016, which required reporting on all fixed assets, new reporting requirements pays attention to Property, Plant, Equipment and intangible assets.
Reporting on revaluation of Property, Plant and Equipments by company
Reporting of proceedings under the Benami Transactions (Prohibition) Act, 1988.
Reporting of compliances if company was sanctioned working capital limits in excess of Rs.5 crores or more from banks or financial institutions.
– whether the quarterly returns or statements filed by the company with such banks or financial institutions are in agreement with the books of account of the Company, if not, to give details;
Reporting of investments in or in providing of any guarantee or security or granting any loans or advances to companies, firms, Limited Liability Partnerships or any other parties.
Reporting of compliances with RBI directives and the provisions the Companies Act with respect to deemed deposits.
Reporting with respect to transactions not recorded in the books of account surrendered or disclosed as income in the income tax proceedings.
Comprehensive reporting requirement for default in the repayment of loans / other borrowings or in the payment of interest
– whether the company is a declared wilful defaulter by any bank or financial institution or other lender;
– whether term loans were applied for the purpose for which the loans were obtained; if not, the amount of loan so diverted and the purpose for which it is used may be reported;
– whether funds raised on short term basis have been utilised for long term purposes, if yes, the nature and amount to be indicated
Reporting on treatment by auditor of whistle-blower complaints received during the year by the company
Reporting on internal audit system
– whether the company has an internal audit system commensurate with the size and nature of its business;
– whether the reports of the Internal Auditors for the period under audit were considered by the statutory auditor;
Reporting on cash losses
Reporting on resignation of the statutory auditors
Reporting on uncertainty of company capable of meeting its liabilities
Reporting transfer of unspent CSR amount to Fund specified in Schedule VII
Reporting on qualifications or adverse remarks by the auditors in the CARO reports of companies included in the consolidated financial statements
It is expected that CARO, 2020 will improve the overall quality of reporting by the auditors and thereby lead to “greater transparency and faith in the financial affairs of the companies.”
SEBI proposed that the board of RTA should have public interest directors when it becomes a QRTA.
A Securities and Exchange Board of India (Sebi) panel on Friday proposed tighter ownership and governance norms for registrar and transfer agents (RTAs).
According to a discussion paper released by Sebi, the panel, headed by former Reserve Bank of India (RBI) deputy governor R. Gandhi, felt that since RTAs manage sensitive investor-related data, there need to be stricter governance rules for them.
RTAs maintain detailed records of all investor transactions in mutual funds and shares. They also help investors complete their transactions and receive a record of their account statements.
This is the second discussion paper by the panel after some market participants suggested it should add credit rating agencies (CRAs), RTAs and debenture trustees (DTs) in the list of market infrastructure institutions (MIIs) and frame stricter norms for them, similar to those followed by MIIs such as exchanges, depositories and clearing corporations.
The panel, however, felt RTAs, CRAs and debenture trustees need not be categorized as MIIs but suggested that RTAs should have tighter norms.
In September 2017, Sebi had defined qualified RTAs (QRTAs) as “RTAs servicing more than 20 million folios”. The Sebi panel felt that once an RTA becomes a QRTA, enhanced ownership norms should be applied to them.
In India, there are only two RTAs (Karvy Computershare Pvt. Ltd. and Computer Age Management Services Pvt. Ltd.) which service 90% of the mutual fund folios. Karvy has around 40% market share in corporate folios.
The Sebi panel said QRTAs should either have a dispersed ownership or be owned by regulated entities or entities in the business of RTA.
While regulated entities can be allowed to hold 100% in RTAs, unregulated entities should not be allowed to hold more than 49% collectively and 15% individually in RTAs, the panel said. If the QRTA is an in-house entity or one that performs the function exclusively for one entity only, such ownership norms may not be required, the paper said. However, when an RTA becomes a QRTA, it may be given five years to achieve the proposed ownership structure, said the Sebi panel.
Sebi proposed that the board of RTA should have public interest directors (PIDs) when it becomes a QRTA.
“If the chairperson is a non-executive director, the QRTA shall have at least one-third of the board of directors as PIDs; and where the QRTA does not have a regular non-executive chairperson, it shall have at least half of the board of directors as PIDs,” according to the Sebi panel.
With regard to CRAs, the panel said since Sebi has already put in place tighter norms for CRAs, they need not be categorized as MIIs and be subjected to further stringency.
However, the panel proposed that the so-called “Appeal Committee” in CRAs should be renamed as ‘Review Committee’, as the word appeal has a legal connotation to it. Further, the review committee of CRAs should have independent members, the Sebi panel said.
On DTs, which act as intermediaries between the issuer of debentures and the holders of debentures, the Sebi panel said there are already quite a few challenges before them in performing their obligations and that the function of DTs is still evolving. “Therefore, the committee is of the view that the review of ownership and governance of DTs is not the immediate priority.”
