RBI’s master circulars, frequent notifications unsettling NBFCs
Just when companies have started to settle down with the revised framework, the master circular issued by RBI on 1 July 2015 has confused them again
For several years now, RBI has been issuing master circulars covering non-banking finance companies (NBFCs) on 1st July every year, consolidating all the regulatory amendments for ease of reference. The master circular comes with a sunset clause and is being issued every year. Usually, the process of issuing the master circulars is that they are a mere consolidation of all RBI notifications and circulars issued since the last master circular. Users do not have to hence go searching for various circulars that may have come during the year.
However, this year, the master circulars for NBFCs bring about some key changes. Either it is due to the major overhaul in the regulatory framework that happened via the regulatory pronouncements on 27 March 2015 or something else, master circulars have come out twice or thrice, affecting NBFCs badly. 
First of all, breaking from its tradition, the RBI issued master circulars for NBFCs on 11 June 2015 or before 1st July. Then the master circulars were issued as usual on 1 July 2015. However, on 6 July 2015, some “corrected” versions of master circulars were released.
The most significant change introduced by way of master circular is with regard to aggregation of assets of all NBFCs in the group to determine whether they are systematically important or not. The provisions with regard to multiple NBFCs and aggregation of assets were introduced in the circular introducing revised regulatory framework  issued on 10 November 2014 (November Framework). This was, however given a miss in the final framework introduced on 27 March 2015 (March Framework). 
The general understanding of the NBFCs was since the provisions on multiple NBFCs did not feature in the March Framework, it has been dropped by RBI. However, this now features in the master circular on Miscellaneous Instructions to all NBFCs issued on 1 July 2015. 
Before we get into decoding the implication of the changes that have been coyly or inadvertently introduced in the master circulars, it is pertinent to set the context on how the regulations have unfolded over the period. 

Transition to Revised Regulatory Framework 

The revised regulatory framework was a by-product of the recommendations of Usha Thorat Committee Report and the Nachiket More Committee Report. The revised framework was first circulated by way of the November Framework, which mentioned that the notifications detailing the November Framework will follow. 
The industry waited for good four months for the final notifications to be issued by RBI, to get clarity on what was to come by. The non-issuance of the final notification kept industry and practitioners guessing whether the November Framework was the regulation to be complied with. Or, was RBI to issue some notifications which will then have to be followed?
On 27 March 2015, RBI issued prudential norms for systematically important NBFCs and non-systematically important NBFCs apart from others. The notifications mentioned that they were applicable to the NBFCs with immediate effect, that is, from the date of issuance. This obviously meant that the companies had four days in hand to comply with the regulations. 
The initial view that came from the regulators and the market was that the circular (November Framework) was the notification itself. In fact, seemingly, the view was that there was no need for a notification to be issued at all, as the circular itself was the law!
Section 45L of the Reserve Bank of India Act, 1934 empowers the central bank to issue directions. Pursuant to this power, two set of directions were issued – one on 27 March 2015 and another on 10 April 2015. If such is the case, then in what way can we say that the circular dated 10th November was a direction? In any case, the last para of the November Framework stated –“The Notifications in this regard shall follow”.
Even if we were to disregard the dichotomy on the understanding of sanctity of the circular and the notification, the notification of March 2015 itself raised more questions. The first reaction on March 2015 notifications was also split. Whether the March Framework was to be read in line with the November Framework or was it to be read, as sacrosanct, ignoring the items that did not feature in the March 2015 notification or are the two to be read together. 
There is one more noteworthy thing that we found in the notification - the last line of the notification read as “It may be emphasised that the changes made vide above notifications/ amending notifications are only that corresponding to the circular”. 
To be on the safer side of the law, NBFCs decided to take heed of the November Framework notification as well, which most importantly meant compliance with corporate governance norms on adoption of fit and proper policy, signing of deed of covenants between the Directors and the company, obtaining disclosures from the Directors in the manner provided in the circular and the making quarterly disclosures with respect to the change in the composition of the Board of Directors of the Company.
Thereafter, the notification with regard to Corporate Governance was issued on 10 April 2015. 
Just around time, when companies had started to settle with the revised framework, the master circular issued by RBI on 1 July 2015 is quite unsettling.
Change is the only thing that should be permanent rest everything else is ephemeral. However, this philosophy does not go down well, especially when we talk about the regulatory regime governing the financial markets in the country. 

Multiple NBFCs issue


Para 29 of the master circular on miscellaneous instructions states that all NBFCs that are a part of corporate group and floated by a common set of promoters will not be viewed on standalone basis. The total assets of all the NBFCs in the group including deposit taking NBFCs will be aggregated to determine whether the NBFCs are systematically important or otherwise. The aggregate asset size will determine the regulations applicable on all NBFCs in the group.
For aggregation purposes, all NBFCs in the group are to be considered. The term ‘group’ is the same as provided for the in accounting standards. Para 5.4 of the Accounting Standard 21 on Consolidation provides for the definition of group as – 
5.4 A group is a parent and all its subsidiaries
Another master circular on miscellaneous instructions to Systemically Important non-deposit taking NBFC (NBFC-ND-SI) issued on 1 July 2015 has a para on Determination of NBFC-ND-SI states that – 
(i) Determination of NBFC – ND – SI
All NBFCs – ND with an asset size of Rs500 crore and more as per the last audited balance sheet will be considered as a systemically important NBFC – ND (NBFC-ND-SI).
There is no reference being made to multiple NBFCs in the master circular here. 
Further the definition of Systematically Important non-deposit taking non-banking financial companies as defined in the master circular on “Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015” is as below:
‘Systemically important non-deposit taking non-banking financial company', means a non-banking financial company not accepting / holding public deposits and having total assets of Rs500 crore and above as shown in the last audited balance sheet’
Here again the definition of NBFC-ND-SI does not include multiple NBFCs or aggregation of assets for determining whether it is systematically important or not. 
It is difficult to decipher whether the provisions with regard to multiple NBFCs got erroneously consolidated in the miscellaneous instructions or the intent was to actually include the provisions.

Reporting requirements


Along with above change, the Master Circular on Returns to be submitted by NBFCs issued on 1 July 2015, also laid some addition quarterly filing requirement for all NBFCs-ND having an asset size between Rs50 to Rs100 crore and above Rs100 crore. The details to be provided in such return include the following:
a. Source and application of funds;
b. Profit and loss account;
c. Sectoral deployment of funds. 
The same is to be filed within 15 days of the month preceding the relevant quarter.  However, it is to be noted in this regard that the NBFC-ND having asset size of Rs100 crore or more are already required to file the above mentioned details on a monthly basis. 
Thus, NBFC-ND, having asset size of Rs100 crores or more are required to file the above mentioned details both quarterly and monthly. As evident there seems no logic for reporting details on a quarterly basis when the same is already subjected to monthly reporting, the same may be an error, which should be rectified/ clarified in near future. However, this will create enough confusion amongst the companies.
(Nidhi Bothra is executive vice president at Vinod Kothari Consultants Pvt Ltd).




2 years ago

In today’s larger context and broad national spectrum, if mindfully considered and delved into, in one’s individual well-founded altruistic perspective, no such proactive measures, such as in the form of ‘master circulars’ could be expected to work ; not to speak of wonders, and bring about any marked improvement. RBI as the semi regulatory authority has been obliged to come out with ‘frequent notifications’, certainly no more or less frequent than a parallel authority such as, SEBI has been doing lately, day-in-day-out. It is undeniable that is so, even granting but not conceding that despite all odds and lately developing/developed forces motivated and working against, the authority is still left with a few teeth, not barring the most important wisdom tooth, strong enough to bite into. Without going into the pros and cons of its consequences, intended or otherwise, the fait accompli is, and goes to bear on its sleeves, the reality that every one or all previous notifications have failed to pass muster, if not tragically failed, to change the world/ mindset of the section of the humanity determined to see to it that any improvement, howsoever devoutly aspired for, is negated and continue to remain a pipe dream, to the unfathomable end of the horizon.
Not without contextual relevance, tempted to invite attention to the following oft repeated words of wisdom, of a towering legal legend, in the person of no less stature than the fondly known ‘nani’ (Palkhivala), which sound valid any day in life history of humanity:
In the words of a great jurist, it is not permissible to enact a law (or a rule or regulation)which, in effect, spreads an all inclusive net for the feat of everybody upon the chance that, while the innocent will surely be entangled in its meshes, some wrong doers-doers also may be caught.
The moment of truth has arrived. The era of chicanery and dis-ingenuousness, of obfuscation and slogan-mongering, is over. Reality has at last overtaken us-shattering our illusions, exposing our outdated ideologies and leaving us with no option but to tread the path of pragmatism, in retreat from populism.
Time and again the Government has to make those hard decisions which are essential for the maintenance of order. The making of such decisions cannot be avoided by shifting the responsibility to the judiciary.
The hydra-headed bureaucracy of India contains some exceptionally able individuals, but they too get swallowed up by the system. Lord Curzon referred t the Indian administrative service as the strongest bureaucratic machine in the free world-so strong that even powerful viceroys found it difficult to correct or control it. The bureaucracy is impervious to all suggestions which come from outside sources. Their utter self-complacency resembles that of Mussolini who said, ‘Often I would like to be wrong, but so far it has not happened’.

US Senator Urges FTC to Step Up Made in USA Policing
Letter to agency follows complaint to FTC regarding USA misrepresentation on
On the heels of a complaint to the FTC regarding false and deceptive made in the USA representations on, a U.S. senator is calling on the agency to step up its policing of misleading made in America claims. 
“I thank you for your past diligence in investigating mislabeled country of origin claims, but more must be done to prevent fraudulent origin labeling practices by retailers and manufacturers alike,” U.S. Sen. Chris Murphy (D-Conn.) wrote Tuesday to FTC Chairwoman Edith Ramirez.
“With fraudulent ‘Made in the USA’ labels, manufacturers and retailers are taking advantage of Americans’ willingness to pay more for the quality that is associated with an American-made product while harming manufacturers in my state and elsewhere.”
The letter comes exactly two weeks after alerted the FTC to a host of misrepresentations on the website of the world’s largest retailer. had alerted Walmart to the issue, but the company then missed a self-imposed deadline to rid the site of the USA labeling errors. then took the issue to the FTC requesting that the agency compel changes. In May, also filed a complaint with the FTC regarding made in the USA representations by the “Almay Simply American” marketing campaign.
Murphy’s letter expresses “particular concern” over false made in the USA labels and asks what additional resources Congress can provide to help in the enforcement effort. reached out to Murphy’s office for comment but did not receive an immediate response.
For more on’s investigations of made in the USA claims, click here


Road Hazard: How the ‘Embarrassing’ Gas Tax Impasse Explains Washington
The main federal fund for roads and bridges runs at a deep deficit. If even red states can raise the gas tax, why can’t Congress?
This story was co-published with Politico.
In 1993, the Dow Jones industrial average was still well under 4,000, the best-selling car in the country was the Ford Taurus, and the average cost of a Major League Baseball ticket was under $10
That was also the year that Congress last raised the federal tax on gasoline.
The gas tax pays most of the tab for America’s federal highway program; it’s what we rely on for new highways and for the bridge repairs that keep us safe. Those costs go up every year, but the tax remains stuck at 18.4 cents per gallon. In fact, it’s effectively going down: since it was last raised, those 18.4 cents have lost more than a third of their value to inflation, and at the same time drivers with fuel-efficient vehicles have been buying less gasoline, further reducing the federal take. 
As a result, the main U.S. spending account for infrastructure has fallen deep in the red, and the gap gets worse every year. The government, through a series of funding tricks, keeps the Highway Trust Fund on life support with short-term emergency patches. The latest infusion expires at the end of the month, and the argument about how to fix it is coming to a head this week.
The uncertainty has frozen major projects around the country, from the widening of Route 1 in Delaware to the Kalispell bypass in Montana, while maintenance and repairs are long overdue on thousands of roads and bridges dangerously near the end of their expected life spans.
That Congress can’t fulfill such a basic purpose of government stands out as a signal example of Washington dysfunction. Unlike some other stalemates, though, this one can’t be blamed on special interests at loggerheads. Nearly all the lobbies that take an interest are in favor of simply increasing the tax — big business, the road builders, the unions, even the truckers. Lobbies that might oppose an increase, notably the oil industry, have invested relatively little in the debate.
Instead, it’s an example of those big decisions that get trapped in a kind of ideological crevasse. Because it’s a tax, raising it has been decreed out of bounds by a combination of anti-tax orthodoxy among conservative Republicans and a fear of political backlash that spans both parties.
Still, there may be a way out of the trap. A slew of states around the country — including some led by conservative Republicans — have managed to raise their state gas taxes to address the transportation burden without triggering the fury of taxpayers. The contrast is an unflattering one, says former Pennsylvania governor Ed Rendell, a Democrat and a leading proselytizer for infrastructure spending. 
“If the gas tax could be voted up or down on a secret ballot, it would get 285 yes votes in the House and 85 or 90 in the Senate,” says Rendell. “Everyone knows we need new revenue, everyone knows we can’t let the trust fund go broke …
Everyone knows this is one of the most embarrassing chapters in the history of the U.S. Congress.”
What’s gone so wrong?
Courtesy: ProPublica


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