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RBI allows restructuring of MSME loans up to ₹25 crore

RBI allows restructuring of MSME loans up to ₹25 crore

RBI has permitted a one-time restructuring of existing loans to MSMEs that are in default but ‘standard’ as on 1 January 2019

Mumbai: The Reserve Bank of India (RBI) on Tuesday allowed lenders to recast loans of stressed micro, small and medium enterprises (MSME), provided the total fund and non-fund based exposure to such a borrower does not exceed ₹ 25 crore. Such a debt restructuring, the central bank said, would not lead to a downgrade in asset classification.

“RBI has decided to permit a one-time restructuring of existing loans to MSMEs that are in default but ‘standard’ as on January 1, 2019, without an asset classification downgrade,” RBI said in a statement.

The government has been pushing RBI to provide relief to the stressed MSME sector. The central bank’s board on 19 November advised RBI to consider a scheme to recast loans of MSMEs, which have been hurt by the disruption caused by demonetisation in late 2016 and the implementation of the goods and services tax (GST) in July the following year.

The MSME loan restructuring, according to the RBI statement, has to be implemented by 31 March 2020 and a provision of 5% of the total outstanding loan, in addition to the money already set aside to cover potential losses, will have to be made for such borrowers. “Each bank or non-banking financial company (NBFC) should formulate a policy for this scheme with board approval which shall, inter alia, include framework for viability assessment of the stressed accounts and regular monitoring of the restructured accounts,” RBI said.

The regulator also said that MSMEs form an important component of the Indian economy and contribute significantly to the country’s gross domestic product (GDP), exports, industrial output and employment generation. “Considering the importance of MSMEs in the Indian economy, it is considered necessary at this juncture to take certain measures for creating an enabling environment for the sector,” it said.

The issue of restructuring of MSME accounts, RBI added, was discussed in the RBI board meeting on 19 November and also during RBI’s recent interactions with banks and other stakeholders.

In March 2016, RBI had notified a mechanism for resolving stressed MSME loans of up to ₹ 25 crore. The guidelines said banks should classify stress in such loans into three categories—special mention account (SMA) 0, SMA 1 and SMA 2—depending on the delay in repayment of loans.

While borrowers delaying repayments by up to 30 days should be classified as SMA 0, those delaying by 31-60 days and 61-90 days will be classified as SMA 1 and SMA 2, respectively. The loans still remain standard even in these categories and turn bad only after a delay in payment of more than 90 days.

According to data from the central bank, for the six months ended March 2017 (the latest available), 137,282 MSME loan accounts were referred for resolution. Of these, banks used rectification in 80,905 cases, recovery in 54,180 cases and only 2,197 loans were recast.

However, the quantum of loans for these categories is not available.

The amount of gross bad loans in the micro and small enterprises sector (no data for medium) has been growing over the last few years and stood at ₹ 82,756 crore in FY17, up from ₹ 70,842 crore in the previous year and ₹ 51,952 crore in FY15.

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Any extension given to a corporate entity by extending the debt instrument’s maturity needs to be considered a ‘default’ for the purpose of valuation, according to the Securities and Exchange Board of India (Sebi). The norm was laid out in a circular issued on Tuesday night, a day before Essel Group announced that lenders had granted it more time to repay its dues.

Earlier, Sebi Chairman Ajay Tyagi had stated that the regulator didn’t acknowledge ‘standstill’ agreements between mutual funds (MFs) and promoters. However, Sebi had not yet formally laid down norms to govern such arrangements.

Sources say the move could impact those fund houses that are giving extensions to the Essel Group promoters and have exposure to debt papers that are maturing in September.

“Valuation agencies will now be required to give pricing in line with these new norms when the maturities of debt instruments are extended,” said a debt fund manager, requesting anonymity.

The current norms require MFs to take a markdown of 75 per cent on secured exposures that are downgraded to default grade or ‘D’.

“The regulator can decide to give an exception to MFs in Essel’s case as fund houses had entered into discussions on another extension with the promoters before the circular was issued by Sebi,” said another executive, also asking to remain unidentified.

“MFs holding papers maturing beyond September 30 are unlikely to get impacted by this move,” the fund manager added.

MF exposures to Essel Group firms are secured against the pledged shares of the promoters as part of the loan-against-share (LAS) structures.

In January, MFs along with other lenders had entered into a ‘standstill’ agreement with Essel promoters where it was agreed that no ‘default’ will be declared on account of a steep fall in the price of Zee shares, which were pledged by the promoters as collateral. Also, the creditors decided to give time to the promoters till September 30 to settle the dues. This also extended the maturity of certain debt instruments till the end of September.

On Wednesday, Essel Group said its lenders had agreed to further extend the timeline beyond September-end, enabling the group to ‘optimise value output from the sale of its assets’.

Earlier this month, the group cleared part of its dues by transferring the proceeds from the promoters’ stake sale in Zee Entertainment. The payment halved the outstanding exposure of most MFs exposed to LAS structures of Essel Group firms.

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Benefits of Udyog Aadhaar are as follows

Benefits of Udyog Aadhaar are as follows:-

  1. Helps to get Current Account in Banks
  2. Protection against delay in payment.
  3. Fast resolution of disputes
  4. Collateral Free loans from bank
  5. Exclusive consideration for participating in international trade fair
  6. Waiver of Stamp duty and Registration fees
  7. Several Exemption under Direct Tax Laws
  8. Barcode registration subsidy
  9. Subsidy on NSIC Performance and Credit ratings
  10. Counter Guarantee from GoI through CGSTI
  11. Reduced rate of interest from banks
  12. 15% subsidy under CLCSS scheme for technology upgradation
  13. Exemptions while applying for Government tenders
  14. Concession in Electricity Bills
  15. Reimbursement of payment made for obtaining ISO certification
  16. 1% exemption in interest on OD
  17. Increasing eligible loan limit for optimal reasons, from the amount of Rs. 25 lakh to Rs. 50 lakh
  18. Raising the extent of guarantee cover from 75 % to 80 %
  19. Reservation of products for exclusive manufacturing by MSME/SSI
  20. Easier registration and approvals to obtain Licenses
  21. Eligible for IPS subsidy
  22. Preference in allocation of Government tenders
  23. Excise Exemption Scheme
  24. Reduced rate of interest from banks
  25. 50% subsidy for patent registration
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The investor having a demat account will make an application to the stock exchanges or depositories to be recognised as an ‘accredited investor (AI)’.

To provide a boost for startups seeking to get listed, capital markets regulator Sebi’s board on Friday approved easing of norms for accreditation of investors willing to invest in such new-age entities.

At a meeting here, the Sebi board approved a framework for the process of accreditation of investors for Innovators Growth Platform, which will be the name of the stock exchange platform where new-age startups would be listed.

Under this framework, the investor having a demat account will make an application to the stock exchanges or depositories to be recognised as an ‘accredited investor (AI)’.

The exchanges and depositories will grant accreditation to these investors for a period of three years, after ascertaining their eligibility.

Earlier in December 2018, the Sebi’s board had approved a number of other measures to make it easier for startups to get listed on the Innovators Growth Platform (IGP).

The relaxation in the norms came after tepid market interest to the existing platform and demands from various stakeholders to make the norms easier and the platform more accessible in the wake of expanding activities in the Indian startup space.

While detailed eligibility and other norms for AIs would be notified by Sebi later, sources said it is being proposed that an individual with total annual gross income of Rs 50 lakh and a minimum liquid net worth of Rs 5 crore will be considered.

In the case of body corporate, the net worth requirement would be Rs 25 crore.

In case, the financial status changes during the eligibility period, the AI will have to inform stock exchanges and depositories about the same.

At the time of application for listing by a company on the IGP, the merchant bankers will have to carry out due diligence regarding the eligibility of AIs.

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Global investment company Blackstone and realty firm Embassy Group will in a few weeks launch the country’s first real estate investment trust (REIT) with an estimated issue size of Rs 5,000 crore, a top company official said

Global investment company Blackstone and realty firm Embassy Group will in a few weeks launch the country’s first real estate investment trust (REIT) with an estimated issue size of Rs 5,000 crore, a top company official said.

Embassy Office Parks, the joint venture firm of Blackstone and Embassy, had in September last year filed the draft red herring prospectus (DRHP) with the market regulator Sebi to launch REIT, touted as the Asia’s largest in terms of portfolio size of 33 million sq ft.

REIT is an investment tool that owns and operates rent-yielding real estate assets. It allows individual investors to make investment in this platform and earn income. Sebi had notified REIT’s regulations in 2014, allowing setting up and listing of such trusts, which are very popular in some advanced markets.

“We will launch our REIT in few weeks,” Embassy Office Parks CEO Mike Holland told PTI.

“We already have a strong book of anchor and strategic investors. The REIT will be successful as in other countries and Embassy Office Parks will set a precedent for the REIT in India,” he said.

Holland expressed confidence that the REIT in India would be successful as it has been in other countries like the US, the UK, Australia and Singapore.

When asked about the size of the issue and expected return to investors on its REIT platform, he declined to comment.

Banking sources had earlier pegged the issue size at over Rs 5,000 crore. The internal rate of return (IRR) for unit holders is expected at around 9 per cent in the first year and about 18 per cent in a five-year horizon.

Embassy Office Parks, a leading player in commercial real estate, has put 33 million sq ft of office and hospitality assets under its proposed REIT comprising of seven business parks and four city-centric buildings spread across Mumbai, Bengaluru, Pune and Noida.

Out of 33 million sq ft, about 24 million sq ft area is operational at 95 per cent occupancy and yielding rental income of over Rs 2,000 crore annually. Another 3 million sq ft area is under construction and 6 million sq ft area in pipeline.

Embassy Office Parks’ rental income is expected to rise by 55 per cent in the next three years as it expects to lease area at a higher rent.

The JV firm has top MNC clients in its commercial projects. More than 50 per cent of the rents come from Fortune 500 companies. Clients such as Microsoft, Google, Wells Fargo, JP Morgan etc have their base in the office parks.

Unlike housing segment, the commercial real estate sector is doing well and attracting huge investments from domestic and global investment firms. The rising demand for co-working space is also fuelling demand for office properties.

Apart from Blackstone-Embassy, realty firm DLF is a major player in commercial real estate with a portfolio of over 30 million sq ft and a rental income of about Rs 3,000 crore. Singapore’s sovereign wealth fund GIC had invested Rs 9,000 crore in December 2017 in DLF’s rental arm.

Brookefield, Canada Pension Plan Investment Board (CPPIB), Ascendas and Qatar Investment Authority are also investing in commercial real estate. Many real estate developers are creating a strong portfolio of office space.

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The move was aimed at reducing ambiguity and curb the misuse of the regulations

The Securities and Exchange Board of India (Sebi) plans to tighten takeover norms applicable to companies undergoing proceedings under the Insolvency and Bankruptcy Code (IBC).

Sources said the capital markets regulator would do away with the provision that allowed a ‘competent authority’ to exempt an acquirer from the requirement of an open offer. Only a court or a tribunal would be allowed to provide such exemptions, they added.

Experts said the move was aimed at reducing ambiguity and curbing the misuse of the regulations.

While at present the rules allow a “competent authority” to provide an open offer exemption, the regulations have not defined who can act as a “competent authority”, leaving it open for interpretation. Typically, a competent authority can be a sector regulator or ministry.

“To ensure the exemption provided for the IBC is not misused, Sebi is planning to sharpen the language of its regulations,” said a source. Also, the market regulator will change the wordings to ensure the exemptions are given only to lenders, and not any other entity.

Last year, Sebi allowed open offer exemptions for acquisitions made through IBC resolutions. The move was to help banks better tackle the bad loan problem.

Under normal circumstances, a 26 per cent open offer is mandatory whenever, among other things, there is a change in control at a listed company.

However, during corporate debt restructuring, the open offer requirements put extra burden on the acquirer, often lenders, who are already staring at a haircut.

Sources said the changes would be announced at Sebi’s board meeting on Friday. The Sebi board is also likely to approve a new valuation methodology for valuation of money market and debt securities of mutual funds. The move comes at a time when the Rs 24-trillion MF industry is under pressure due to their exposure to companies with high debt.

Sebi will also announce changes to the newly introduced innovators growth platform (IGP), aimed at start-up listings. Further, Sebi will ease the real estate investment trusts (REIT) and infrastructure investment trusts (InVIT) regulations. It will also take steps to boost institutional investor participation in the commodity derivatives market.

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Baning of unregistered deposit -what is prohibited is unregulated deposite scheme which is defined as below:-

Baning of unregistered deposit -what is prohibited is unregulated deposite scheme which is defined as below:-

  1. UDS means a scheme or an arrangement under which deposits are accepted or solicited by any deposit taken by way of business and which is not a regulated deposit scheme.
  2. The important point is here that where there is a business of individual of taking loan only then this will apply like micro finance,chit fund companies etc.
  3. It means that if loan is taken for Business purpose where Business is not of taking loan then this act will not apply.
  4. Further in case of corporates as per schedule 1 Chapter V deposits of Cos act are treated as regulated deposits only. In other words corporates are also not covered.
  5. Even statement of objects and reasons of the bill provide clearly that it is applicable only to unregulated deposits .
    * As per *clause 4 of Section 2* of the Ordinance, definition of deposit as under:

Deposit means an amount of money received by way of an advance or loan or in any other form, by any deposit taker with a promise to return whether after a specified period or otherwise, either in cash or in kind or in the form of a specified service, with or without any benefit in the form of interest, bonus, profit or in any other form, but does not include

(l) an amount received in the course of, or for the purpose of, business and bearing a genuine connection to such business including—

Provided that if the amounts received under items (i) to (iv) become refundable, such amounts shall be deemed to be deposits on the expiry of fifteen days from the ** date on which they become due for refund**

Provided further that where the said amounts become refundable, due to the deposit taker not obtaining necessary permission or approval under the law for the time being in force wherever required, to deal in the goods or properties or services for which money is taken, such amounts shall be deemed to be deposits. *My view contact must be seen for it *the term “payable on demand Vs due for refund* almost always is associated with promissory notes. As the words imply, the term means a debt must be paid when the payee asks for it. … Any note without a specified time of payment is considered payable on view must be *payable on demand *is date of due for refund**

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There are two new directives, first for the fast reaction mechanism aimed towards preventing VAT fraud. Second one is for the optional and temporary application of the reverse charge mechanism in relation to supplies of certain goods and services. Quick Reaction mechanism provides the legal basis to the countries that are members of the EU to integrate an emergency measure in they are in position to serious case of sudden and massive VAT fraud.

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Financial statements may be used by different stakeholders for a multitude of purposes. Owners and managers require financial statements to make important business decisions affecting its continued operations. Financial analysis is then performed on these statements, providing management with a more detailed understanding of the figures.

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Financial statements are prepared according to agreed upon guidelines. In order to understand these guidelines, it helps to understand the objectives of financial reporting. The objectives of financial reporting, as discussed in the Financial Accounting standards Board (FASB) Statement of Financial Accounting Concepts No. 1, are to provide information that

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