RBI to regulate HFCs instead of National Housing Bank: Sitharaman
Presenting her first Union Budget, Finance Minister Nirmala Sitharaman proposed to transfer the regulatory authority over housing finance sector to the Reserve Bank of India (RBI) from the National Housing Bank (NHB).
 
Sitharaman told the Lok Sabha that the housing sector needs efficient and conducive regulation and that NHB plays a difficult and contracitory role of being both lender and regulator of the housing finance sector. "Efficient and conducive regulation of the housing sector is extremely important in our context. The National Housing Bank (NHB), besides being the refinancer and lender, is also regulator of the housing finance sector. This gives a somewhat conflicting and difficult mandate to NHB," she said.
 
"I am proposing to return the regulation authority over the housing finance sector from NHB to RBI," the minister said. Necessary proposals have been placed in the Finance Bill," she added.
 
This step is one among other steps announced on Friday to strengthen and better regulate the NBFC sector as non-banking financial companies (NBFC) in the country are facing severe liquidity crisis. The crunch situtation came to light after the infrastructure lending major IL&FS last September defaulted on a commercial paper.
 
Among other decisions, Sitharaman said the government will provide one-time six months' partial credit guarantee to public sector banks for first loss of up to 10 per cent. 
 
"Non-Banking Financial Companies (NBFCs) are playing an extremely important role in sustaining consumption demand as well as capital formation in small and medium industrial segment," she said.
 
"NBFCs that are fundamentally sound should continue to get funding from banks and mutual funds without being unduly risk averse. For purchase of high-rated pooled assets of financially sound NBFCs, amounting to a total of Rs one lakh crore during the current financial year, the government will provide one-time six months' partial credit guarantee to public sector banks for first loss of up to 10 per cent," the minister added.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    ramchandran vishwanathan

    5 months ago

    RBI must first regulate Banks properly . Hope it measures up to this additional responsibility

    Confusion Over Need for Shareholders’ Resolution for Every Private Placement of Debt
    The relevance of debt market in India and the need for companies to reduce dependence on bank loans and move to capital markets cannot be overemphasised. There have been enormous policy emphasis on this and, in fact, Securities & Exchange Board of India (SEBI) has mandated large companies to move at least a part of incremental borrowings to bonds.
     
    The penetration of bond issuance to debt is quite low in India compared to what prevails in emerging markets.
     
    In light of all this, it will be unfortunate if interpretation of compliances under Section 42 of the Companies Act, 2013 for debt issues is such as to make it impractical for companies to issue debt.
     
    For financial companies private placement of debt is almost the way of life. Many of them issue bonds on a weekly basis.
     
    The Companies Act 2013 (Act, 2013) contains provisions relating to the issue of debt by companies by way of private placement. The relevant provisions of Section 42 read with Rule 14 of Companies (Prospectus and Allotment of Securities) 2014 (‘PAS Rules’) specify the compliances to be ensured by a company privately placing debentures.
     
     
    Rule 14 of PAS Rules
     
    One of the requirements under Rule 14 of PAS Rules is companies to pass a special resolution prior to making private placement of securities.

    There is a carve out in case of private placement of non-convertible debentures (NCDs) if the proposed amount to be raised does not exceed the limit as specified in Section 180(1)(c) and in such a case the relevant board resolution would be adequate.  

     
    Resulting Interpretation 
     
    The aforesaid provision has resulted in two schools of thoughts.
     
    Interpretation 1: Prior approval of shareholders is not required if the issuance of NCDs is within the limit approved by shareholders under Section 180 (1) (c) of Act, 2013.
     
    Interpretation 2: Prior approval of shareholders is required if the issuance of NCDs is in excess of the sum of paid-up capital, free reserves and securities premium account, being the limit specified in Section 180 (1) (c). This is irrespective of the limit approved by the shareholders under Section 180 (1) (c) of Act, 2013.
     
    Intent of Law
     
    Before analysing the aforesaid interpretations, it is necessary to assess the intent of law behind the current amendment.
     
     
    3.8 At the moment, in case of NCDs, a prior special resolution only once in a year has been prescribed. The Committee recommends that since non-convertible debentures are pure borrowings and do not form part of equity capital, the proviso to Rule 14(2)(a) may be amended to prescribe that the relevant board resolution under Section 179(3)(c) would be adequate in case the offer under Section 42 is for debentures up to the borrowing limits permissible for the board under section 180(1)(c) of the Act. This would also align the requirements with that of section 180(1)(c). It was, however, felt that the said board resolution should clearly mention (in the body of the resolution) that the  offer of debentures being approved by the board is through private placement under Section 42 and certain other minimum details as may be prescribed in the rules be provided in the board resolution. 
     
    Relevant Provisions of Section 180 (1) (c) of Act, 2013
     
    180. (1) The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:— 
     
    (c) to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its  paid-up share capital, free reserves and securities premium, apart from temporary loans obtained from the company’s bankers in the ordinary course of business.
     
    Analysis of Both Interpretations
     
    The intent of the law is to provide for a simple and robust mechanism for the issue of NCDs, as is seen in the report of the Company Law Committee and to amend the erstwhile provisions in order to align these with the requirements of Section 180(1)(c). 
     
    Accordingly, there should be no requirement to approach the shareholders again if the borrowing is within the permissible limit approved by the shareholders.
     
    Typically, a shareholders’ resolution passed under Section 180 (1) (c) provides the following consent:
     
    “…consent of the members of the Company be and is hereby accorded to the board of directors or to such persons or such committee (by whatever name called), as may be authorised by the board in this regard, to borrow at any time or from time to time by obtaining loans, overdraft facility, lines of credit, commercial papers, non-convertible debentures, external commercial borrowings (loans/bonds), INR denominated off shore bonds or in any other forms from banks, financial institutions, insurance companies, mutual funds, or other corporates or other eligible investors, including by way of availing credit limits through non fund based limits i.e.
     
    bank guarantee, letter of credit, etc. or by any other means as deemed fit by it, against the security of term deposits, movables, immovables or such assets as may be required or as unsecured, at any time or from time to time, any sum or sums of money (ies) which together with monies already borrowed by the Company (apart from temporary loans obtained or to be obtained from the Company’s bankers in the ordinary course of business), exceeding the aggregate of paid-up share capital of the Company, its free reserves and securities premium, provided that the total amount so borrowed by the board shall not at any time exceed Rs. ** (Rupees in words)”
     
    If we go with Interpretation no. 2, despite clear approval from shareholders for an overall limit, companies will be required to approach shareholders every year for private placement of NCDs if the proposed amount exceeds the aggregate of paid-up share capital of the Company, its free reserves and securities premium. Certain companies are also taking up approval of shareholders in the ensuing AGM to foolproof the gap in the language. The text of the resolution provides for approval of shareholders for a period of one year to permit the board to privately place NCDs within the overall borrowing limits approved by the members from time to time under section 180(1)(c) of the Act. In certain cases, companies have approached shareholders seeking approval for a specific limit.
     
    The approach not only seems counter-intuitive but also defies the amendments which were specifically made for the purpose of easing compliance by companies and to promote debt issues by them. A company could publicly issue NCDs with the approval under Section 180 (1) (c); however, it will be required to specifically approach shareholders in case of private placement if it exceeds the limit specified in the said Section.
     
    On the contrary, the first interpretation backs the intent provided in the company law committee report that the companies can raise debentures up to borrowing limits permissible to the board under Section 180 (1) (c). As per provisions of the said Section the board is authorised to borrow beyond the aggregate of paid-up share capital of the Company, its free reserves and securities premium up to the limit approved by the shareholders from time to time.
     
    If the proposed issuance of NCDs is within the borrowing limit approved by shareholders under Section 180 (1) (c) from time to time, separate approval of shareholders pursuant to Rule 14 of PAS Rules is not required. The other interpretation frustrates the purpose of the amendment.
     
    (CS Vinita Nair is partner at Vinod Kothari & Company
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    Ratings Agency ICRA Sends its MD & CEO Naresh Takkar on Leave Pending Enquiry
    Ratings Agency ICRA Ltd says it has sent its managing director and group chief executive (CEO) Naresh Takkar on leave following concerns raised in an anonymous representation shared by market regulator Securities and Exchange Board of India (SEBI).
     
    In a regulatory filing, the ratings agency says, "…the board decided…pending the completion of the examination of the concerns raised in the anonymous representation that was forwarded to the Company by the SEBI, to place Naresh Takkar on leave, effective immediately, until further notice." 
     
    ICRA said its board of directors has decided to appoint Vipul Agarwal as interim chief operating office. Mr Agarwal will continue to work as group chief financial officer (CFO) as well, the ratings agency said in a regulatory filing.
     
    Mr Takkar was appointed as CEO in January 2015.
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