Southern India Regional Council of
The Institute of Chartered Accountants Of India
(Setup by an Act of Parliament)

Professional Updates- September 2017

 

    • Risk Management and Interbank Dealings- Reports to the Reserve Bank:

    • The Reserve Bank of India vide A.P (DIR Series) Circular No: 03 dated August 10, 2017 makes the following amendments to the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000, by inviting the attention of Authorised Dealers (AD) Category-I banks to the amendments made in the Master Director of Risk Management and Inter-Bank dealings dated July 5, 2016.

The Amendments are as follows:
    • In terms of para (viii) under Part-E (Reports to the Reserve Bank) of the above-mentioned Master Direction, the Head/Principal Office of AD Category-I banks are required to submit a statement in form BAL giving details of their holdings of all foreign currencies on fortnightly basis through Online Returns Filing System (ORFS) within seven calendar days from the close of the reporting period to which it relates. It has now been decided that w.e.f. August 16, 2017 (i.e. for the statement of first fortnight of August 2017) this statement may be submitted through the web portal at https://bop.rbi.org.in as per the format given in Annexure I.
    • In terms of para (ii) under Part-E of the above-mentioned Master Direction, Head/Principal Office of AD Category-I banks are required to submit a monthly statement of Nostro/Vostro account balances. It has now been decided to discontinue this report.


For Further details, refer Master Direction and A.P (DIR Series) Circular mentioned above.


Professional Updates- August 2017

Fema

    • I. Amendments to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000
    • Second Amendment: RBI has made amendment to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 vide Notification No. FEMA.385/2017-RB dated 3rd March, 2017
    • In continuation of the Press Note No. 12/2015, dated 24.11.2015, and subsequent Amendments carried in FDI Regulations from time to time, the following amendment has been made in the FDI Regulations:
    • Now LLPs are permitted to receive FDI under automatic route (except from persons being citizens of Pakistan or Bangladesh or an entity incoproated in Pakistan or Bangladesh or RFPI or FIIs or FVCI), subject to the condition that the LLP shall not engage into sectors wherein FDI linked performance conditons are attached.
    • The amendment is effective from date of its publication in the official Gazette. For further details please refer to the related notification.
    • II. Amendment to the Criteria of Recognised Investors in the Issuance of Rupee Denominated Bonds issued Overseas.
    • As per A. P. (DIR Series) Circular No. 60 dated April 13, 2016 on Issuance of Rupee Denominated Bonds overseas, Rupee Denominated Bonds can only be issued in a country and can only be subscribed by a resident of a country:
    • that is a member of Financial Action Task Force (FATF) or a member of a FATF- Style Regional Body; and
    • whose securities market regulator is a signatory to the International Organization of Securities Commission's (IOSCO’s) Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to bilateral Memorandum of Understanding with the Securities and Exchange Board of India (SEBI) for information sharing arrangements; and
    • should not be a country identified in the public statement of the FATF as:
    • (i) A jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or
    • (ii) A jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.

      In order to provide more choices to investors to Indian entities issuing Rupee Denominated Bonds aboard, RBI has decided to also permit Multilateral and Regional Financial Institutions where India is a member country, to invest in these Rupee denominated bonds vide A. P. (DIR Series) Circular No.31 dated 16th February, 2017 w.e.f 16th February, 2017


Professional Updates- July 2017

  • I. Issuance of Rupee denominated bonds overseas(Masala Bonds)
  • RBI vide A.P. (DIR Series) Circular No.47, dated June 07, 2017 amended ECB Regulations, wherein issuance of Rupee denominated bonds overseas (Masala Bonds), in respect of maturity period, all-in-cost ceiling and recognized investors, details of which are given as under:
  • i. Maturity period: Minimum original maturity period for Masala Bonds, raised up to USD 50 million equivalents in INR per financial year, should be 3 years and for bonds raised above USD 50 million equivalents in INR per financial year, should be 5 years.
  • ii.All-in-cost ceiling: The all-in-cost ceiling for such bonds will be 300 basis points over the prevailing yield of the Government of India securities of corresponding maturity.
  • iii. Recognised investors: Entities permitted as investors under the applicable provisions of Master Direction but should not be related party within the meaning as given in Ind-AS 24.

For further details please refer to the notification.


Professional Updates- June 2017

CA Murali Krishna G
Email: gmk@sbsandco.com

  • I. Setting up of IFSC Banking Units (IBUs) – Permissible activities
  • RBI vide Notification RBI/2016-17/273, DBR.IBD.BC.59/23.13.004/2016-17, dated April 10, 2017, has permitted IBUs to operated both in Domestic Activities and IBUs as a single entity. As per para 6 of said notification (reproduced below), IBUs are permitted to provide various facilities to the entities operating in IFSC
  • The following text is added at the end of paragraph 2.11 of Annex I and II of the RBI circular DBR.IBD.BC.14570/23.13.004/2014-15 dated April 01, 2015:
  • “As per FEMA Notification No.339/2015-RB dated March 02, 2015, a financial institution or a branch of a financial institution set up in the IFSC and permitted/recognised as such by the Government of India or a Regulatory Authority shall be treated as a person resident outside India. Further, under FEMA Notification No.5(R)/2016-RB (schedule-4) dated April 01, 2016, any person resident outside India, having business interest in India, may maintain Special Non-Resident Rupee Account(s) (SNRRA) with an Authorised Dealer in the domestic sector for meeting their administrative expenses in INR. Accordingly, any financial institution (as defined under FEMA Notification No.339/2015-RB dated March 02, 2015) or a branch of a financial institution including an IBU operating in an IFSC and permitted/recognised as such by the Government of India or a Regulatory Authority, can maintain SNRRA with a bank (Authorised Dealer) in the domestic sector for meeting its administrative expenses in INR. These accounts must be funded only by foreign currency remittances through a channel appropriate for international remittances which would be subject to the extant FEMA regulations. The financial institution can make payments, permissible under FEMA regulations, from its SNRRA, in its capacity as a customer, by suitably instructing the domestic bank with whom the SNRRA is maintained.”
  • For further details please refer to the aforesaid notification.

  • II. Finances of Foreign Direct Investment Companies, 2015-16
  • RBI vide press release number 2016-2017/2936 dated April 28th, 2017, has released the data relating to finances of Foreign Direct Investment (FDI) Companies for the year 2015-16 along with the data for the comparative years 2014-15 and 2013-14.
  • The analysis is based on audited annual accounts of selected 6,433 non-government non-financial (NGNF) FDI companies. These entities accounted for 40.4% of the total paid-up capital of non-financial FDI companies reported in the Reserve Bank’s Census on foreign liabilities and assets of Indian direct investment companies. The highlights relating to the performance of Non-financial FDI Companies has been given in brief in the above mentioned Press release. An article analysing the performance of NGNF FDI companies at the aggregate and granular levels will be published in the June 2017 issue of the RBI Bulletin.
  • For further details, please refer the above mentioned press release.

  • III. Proposed Regulations under Foreign Exchange Management Act, 1999 for Cross Border Mergers:
  • RBI vide press release number 2016-2017/2909 dated April 26th, 2017, has released the draft guidelines proposed to be issued on cross border merger transactions pursuant to the Rules notified by Ministry of Corporate Affairs (MCA) through Companies (Compromises, Arrangements and Amalgamation) Amendment Rules, 2017.
  • In pursuant with the draft guidelines released by RBI, Section 234 of the Companies Act, 2013 provides for mergers and amalgamations between Indian companies and foreign companies as per the rules notified by MCA on April 13th, 2017.
  • RBI has proposed these Regulations under the Foreign Exchange Management Act, 1999 (FEMA) in order to address the issues that may arise when an Indian company and a foreign company enter into Scheme of merger, demerger, amalgamation, or rearrangement. These Regulations stipulate conditions that should be adhered to by the companies involved in the Scheme. The Regulations shall be named Foreign Exchange Management (Cross Border Merger) Regulations.
  • The draft guideline includes the regulations pertaining to Inbound merger, Outbound merger and valuation of the companies involving in the cross border mergers. Further, press release invites public, stakeholders and the experts to provide their views on the draft guidelines which are proposed to be issued.
  • For further details on draft guidelines, please refer the above press release.


Professional Updates- May 2017

  • I. Risk Management and Inter-bank Dealings: Operational flexibility for Indian subsidiaries of Non-resident Companies
  • 1) RBI vide A.P. (DIR Series) Circular No. 41, dated 21st March 2017 made following amendments Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 3, 2000, as amended from time to time.
  • 2) With a view to providing operational flexibility to multinational entities and their Indian subsidiaries exposed to currency risk arising out of current account transactions emanating in India, the extant hedging guidelines have been amended as per the terms and conditions are provided herein below:
  • a) Non-resident parent of an Indian subsidiary or its centralised treasury or its regional treasury outside India is eligible to avail this scheme
  • b) The eligible products are All FCY-INR derivatives, OTC as well exchange traded that the Indian subsidiary is eligible to undertake as per FEMA, 1999 and Regulations and Directions issued thereunder.
  • c) Operational Guidelines, Terms and Conditions for hedging

i. The transactions under this facility will be covered under a tri-partite agreement involving the Indian subsidiary, its non-resident parent / treasury and the AD bank. This agreement will include the exact relationship of the Indian subsidiary or entity with its overseas related entity, relative roles and responsibilities of the parties and the procedure for the transactions, including settlement. The ISDA agreement between the AD bank and the non-resident entity will be distinct from this agreement.

ii. The non-resident entity should be incorporated in a country that is member of the Financial Action Task Force (FATF) or member of a FATF-Style Regional body.

iii. The AD Bank may obtain KYC/ AML certification on the lines of the format in Annex XVIII of the Master Direction on Risk Management and Inter Bank Dealings, as amended from time to time.

iv. The non-resident entity may approach an AD Cat-I bank directly which handles the foreign exchange transactions of its subsidiary for booking derivative contracts to hedge the currency risk of and on the latter’s behalf.

v. The non-resident entity may contract any product either under the contracted route or on past performance basis, which the Indian subsidiary is eligible to use.

vi. The Indian subsidiary shall be responsible for compliance with the rules, regulations and directions issued under FEMA 1999 and any other laws/rules/regulations applicable to these transactions in India.

vii. The profit/ loss of the hedge transactions shall be settled in the bank account and books of accounts of the Indian subsidiary. The AD bank shall obtain from the Indian subsidiary an annual certificate by its Statutory Auditors to this effect.

viii. The concerned AD Bank shall be responsible for monitoring all hedge transactions (OTC as well as exchange traded) booked by the non-resident entity and ensuring that the Indian subsidiary has the necessary underlying exposure for the hedge transactions.

ix. AD banks shall report hedge contracts booked under this facility by the non-resident related entity to CCIL’s trade repository with a special identification tag.

  • 3) Necessary amendments to FEM (Foreign Exchange Derivatives Contracts) Regulations, 2000 have been made by way of Notification No.FEMA No.384/2017-RB dated March 17, 2017
    The circular is effective from the date of its publication in the official gazette. For more details, please go through the above circular.


Professional Updates- April 2017

Fema

    • I. Amendments to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000
    • Second Amendment: RBI has made amendment to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 vide Notification No. FEMA.385/2017-RB dated 3rd March, 2017
    • In continuation of the Press Note No. 12/2015, dated 24.11.2015, and subsequent Amendments carried in FDI Regulations from time to time, the following amendment has been made in the FDI Regulations:
    • Now LLPs are permitted to receive FDI under automatic route (except from persons being citizens of Pakistan or Bangladesh or an entity incoproated in Pakistan or Bangladesh or RFPI or FIIs or FVCI), subject to the condition that the LLP shall not engage into sectors wherein FDI linked performance conditons are attached.
    • The amendment is effective from date of its publication in the official Gazette. For further details please refer to the related notification.
    • II. Amendment to the Criteria of Recognised Investors in the Issuance of Rupee Denominated Bonds issued Overseas.
    • As per A. P. (DIR Series) Circular No. 60 dated April 13, 2016 on Issuance of Rupee Denominated Bonds overseas, Rupee Denominated Bonds can only be issued in a country and can only be subscribed by a resident of a country:
    • that is a member of Financial Action Task Force (FATF) or a member of a FATF- Style Regional Body; and
    • whose securities market regulator is a signatory to the International Organization of Securities Commission's (IOSCO’s) Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to bilateral Memorandum of Understanding with the Securities and Exchange Board of India (SEBI) for information sharing arrangements; and
    • should not be a country identified in the public statement of the FATF as:
    • (i) A jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or
    • (ii) A jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.

      In order to provide more choices to investors to Indian entities issuing Rupee Denominated Bonds aboard, RBI has decided to also permit Multilateral and Regional Financial Institutions where India is a member country, to invest in these Rupee denominated bonds vide A. P. (DIR Series) Circular No.31 dated 16th February, 2017 w.e.f 16th February, 2017


Professional Updates- March 2017

  • 1. Compounding of Contraventions under FEMA, 1999:

RBI vide A.P. (DIR Series) Circular No. 29 dated February 02, 2017 has invited the attention of AD Category-I, regarding the delegation of powers to the regional offices (Except kochi and Panaji) of the RBI to compound the contraventions of FEMA without any limit on the amount of contravention. Kochi and Panaji Regional offices can compound the above contraventions for amount below Rs.1,00,00,000/- only. The contraventions of Rs.1,00,00,000/ or more will continue to be compounded at Central Office as hitherto.

In addition to the existing powers, the RBI has also delegated the power to RO for compounding the delay in filing of FLA as required under FDI regulations.

The circular is applicable with immediate effect. Please refer the above mentioned circular for further details.

  • 2. Permitting Non Resident Indians (NRIs) access to Exchange Traded Currency Derivatives (ETCD) market:

RBI vide A.P. (DIR Series) Circular No. 30 dated February 02, 2017 has invited the attention of AD Category-I, relating to permission for NRIs. Currently NRIs are permitted to hedge their Rupee currency risk through OTC transactions with AD banks. With a view to enable additional hedging products for NRIs to hedge their investments in India, it has been decided to allow them access to the ETCD market to hedge the currency risk arising out of their investments in India under FEMA, 1999. An announcement to this effect was made in the Monetary Policy Statement on April 5, 2016. NRIs may access the ETCD market as per the terms and conditions given in the circular

Please refer the above mentioned circular for further details.

  • 3. Evidence of Import under Import Data Processing and Monitoring System (IDPMS):

RBI vide A.P. (DIR Series) Circular No. 27 dated January 12, 2017 has invited the attention of AD Category-I, regarding the directions on Obligation of Purchaser of Foreign Exchange and submission of document as Evidence of Import.

Bill of Entry (BoE) data is received in IDPMS from Customs Department for EDI (Electronic data Interchange) ports and from NSDL for SEZ (Special Economic Zones) on daily basis. BoE data for non-EDI ports are entered by AD bank of the importer on receipt of BoE (importer’s copy) and then the bank uploads the data in IDPMS through “Manual BOE reporting” process. In order to enhance ease of doing business and reduce transaction costs, it has been decided to discontinue submission of hardcopy of Evidence of Import documents i.e. BoE, with effect from December 01, 2016, as it is available in IDPMS. The extant instructions and guidelines for Evidence of Import in lieu of Bill of Entry will apply mutatis mutandis. In case of permitted/approved conditions will be created and uploaded by AD bank of the importer in the form of BoE data as per message format “Manual BOE reporting” in IDPMS.

Please refer the above mentioned circular for further details.