RBI nod no longer needed for cut in sanctioned ECB limit

As per existing ECB norms, requests for reduction in the amount of ECB, changes in the drawdown schedule and reduction in the all-in-cost of the ECB after obtaining the loan registration number is required to be referred by the bank concerned to the RBI for necessary approval

Mumbai: Simplifying norms for overseas borrowers, the Reserve Bank of India (RBI) on Tuesday said they will no longer require its approval to raise an amount lesser than sanctioned external commercial borrowing (ECB) as the power to authorise the same has been delegated to banks, reports PTI.

As per existing ECB norms, requests for reduction in the amount of ECB, changes in the drawdown schedule and reduction in the all-in-cost of the ECB after obtaining the loan registration number (LRN) is required to be referred by the bank concerned to the RBI for necessary approval.

“As a measure of simplification of existing procedures, it has been decided to delegate powers to the designated AD category-I banks to approve... requests from ECB borrowers for reduction in loan amount in respect of ECBs availed under the automatic route,” the RBI said in a circular.

The step comes at that time when more and more companies are resorting to external borrowings amid high interest rates in the domestic economy,

India Inc raised over $4.46 billion from overseas markets in December 2011, the latest month for which data is available, through ECBs and foreign currency convertible bonds (FCCB) compared to $1.58 billion in November.

The RBI circular said the reduction in loan amount can be sanctioned if the consent of the lender for such a step been obtained. Besides, the average maturity period of the ECB has to be maintained and there has to be no change in the other terms and conditions of the ECB.

The apex bank also said that the drawdown schedule, or the estimate of the gradual transfer of the committed investment funds, can be modified or changed by the banks provided there are there are no changes in the repayment schedule of the ECB and the average maturity period of borrowing is reduced as against the original average maturity period stated at the time of obtaining the LRN.

The bank must also ensure that the reduced average maturity period complies with the stipulated minimum average as ECB guidelines.

“Any elongation/rollover in the repayment, on expiry of the original maturity, of the ECB, would however, continue to require the prior approval of the RBI,” it said.

The circular further said: “The designated AD Category-I bank may approve requests from ECB borrowers for reduction in all-in-cost, in respect of ECBs availed both under the automatic and approval routes.”

The all-in-cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian rupees.

The modifications will come into immediate effect, the RBI said.

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Stock exchanges for abolition of STT in Budget

The finance ministry has been pushing for lowering of STT as it would boost investor sentiments. However, the stock exchanges are seeking removal of the levy as it would reduce transaction cost, promote equity culture and encourage retail participation

New Delhi: Stock exchanges on Tuesday pitched for abolition of the Securities Transaction Tax (STT) on equity trades at their meeting with finance ministry officials here, reports PTI.

The issue of removal of STT was raised by representatives of different stock exchanges, including Bombay Stock Exchange (BSE), National Stock Exchange (NSE), MCX-SX and United Stock Exchange USE). Besides, the officials of the market regulator Securities and Exchange Board of India (SEBI) were also present in the meeting.

“Finance ministry has taken our view on developments in stock markets and STT. We have suggested removal of STT. Based on our view the ministry will take a view,” a representative of a stock exchange said.

“We are expecting some announcement in budget. We also stressed that taxes should not be increased and no new taxes should be introduced,” an official from another stock exchange said.

Earlier in the day SEBI chairman UK Sinha, too, met finance ministry officials.

The government had introduced STT in 2004 on transactions in different types of securities. The rate presently varies from 0.025% to 0.25% depending upon the type of security traded and transaction—whether sale or purchase.

The government collects around Rs7,500 crore per annum from STT and it would be difficult for it to forego the revenue at a time when efforts are needed to raise revenue and bridge the fiscal deficit, which during the current fiscal is likely to exceed the budget target of 4.6% of the gross domestic product (GDP).

The discussions are aimed at providing inputs to the budget for 2012-13 which will be unveiled by finance minister Pranab Mukherjee on 16th March.

The Capital Markets division of the finance ministry has been pushing for lowering of STT as it would boost investor sentiments.

The stock exchanges, however, are seeking removal of the levy as it would reduce transaction cost, promote equity culture and encourage retail participation.

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Cos to reserve 15% for small shareholders in buyback through tender

The buyback through the tender can be completed within 41 days of the board approval. A company would have to publish advertisement in newspapers within two days after securing board approval and after five days it has to file the offer document with SEBI. The offer shall remain open for 10 working days and the company would have to would have to pay the buyback amount to the shareholders within seven days

New Delhi: Market regulator Securities and Exchange Board of India (SEBI) on Tuesday modified norms for share buyback through the tender offer route under which companies will have to reserve 15% of the offer for small shareholders, reports PTI.

“15% of the number of securities which the company proposes to buy back (through tender offer)... shall be reserved for small shareholders,” SEBI (Buyback of Securities) (Amendment) Regulations 2012 said.

Small shareholder refers to a shareholder who holds shares not exceeding Rs2 lakh of a listed company.

The buyback process through the tender offer route can be completed within 41 days of the board approval.

As per the guidelines, a company would have to publish advertisement in newspapers within two days after securing board approval for the buyback and after five days it has to file the offer document with SEBI.

“The offer for buyback shall remain open for 10 working days,” SEBI said, adding that within seven days the company would have to pay the buyback amount to the shareholders.

At present there are two ways by which a company can come out with a buyback—open market and tender offer.

While in open market offer companies can buy back shares from shareholders without knowing the buyer, under tender offer the company has to write to every shareholder saying it is willing to buy back shares in proportion to the issue.

SMC Global head of research Jagannadham Thunuguntla said private companies are unlikely to take the tender offer route to buy back as the process is tedious and time taking.

“The guideline is more theoretical. Companies are likely to execute buyback through the open market route,” he said.

The last company which came out with buyback by way of tender offer was Piramal Healthcare.

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