India: Corporate & Commercial Monthly Newsletter | March 2022

SEBI | Timelines extended for market intermediaries

As per the earlier circulars issued on April 13, 2020 and April 29, 2021, the time frame for compliance with the prescribed timelines for processing of investor requests, disclosures, and compliances concerning 12 items, was extended for 21 days and then till June 31, 2021 respectively. On February 25, 2022, SEBI granted further extension to the intermediaries/market participants to adhere to the prescribed timelines till June 30, 2022, in view of the Covid-19 situation.

As per the earlier circulars issued on April 13, 2020 and April 29, 2021, the time frame for compliance with the prescribed timelines for processing of investor requests, disclosures, and compliances concerning 12 items, was extended for 21 days and then till June 31, 2021 respectively. On February 25, 2022, SEBI granted further extension to the intermediaries/market participants to adhere to the prescribed timelines till June 30, 2022, in view of the Covid-19 situation.

• Processing of remat requests
• Processing of transmission requests
• Processing of request for issue of duplicate share certificates
• Processing of requests for name deletion/name change/ transposition
• Processing of requests for consolidation/split/replacement of share certificates/amalgamation of folios
• Handling investor correspondence/grievances/SCORES complaints
• Processing of the demat requests

The Circular further clarified that the intermediaries/market participants may take an additional 30 days over the prescribed timelines for completion of service requests of the abovementioned items.

SEBI | Terms for usage of market data

SEBI came out with a framework for security market intermediaries regarding terms of usage of data provided by data sources. The regulatory intent behind public dissemination of data in a disclosure based regulatory regime was deliberated in detail by Market Data Advisory Committee. Pursuant to regulatory mandates for reporting and disclosure in public domain, data should be made available free to the users for the following functions:

• For viewing the data
• For downloading in the format as specified by regulatory mandate
• For reporting as well as usage for value addition purposes

With the continuous growth of financial markets, which are traditionally data-rich and data-driven, both the volume and variety of data have also increased manifold over the years. Enhancing the ease of accessibility and usability of data will help in addressing information asymmetry and having adequately informed investors and stakeholders.

SEBI | Guidelines for preparing Ind-AS compliant financial statements

Through a notification dated January 25, 2022, SEBI had mandated all Asset Management Companies (AMCs) to prepare their financial statements and accounts of the Mutual Fund Schemes in accordance with Indian Accounting

Standards (Ind-AS), with effect from April 01, 2023. On February 04, 2022, SEBI issued a circular containing certain guidelines to clarify several points.

Key features of the guidelines

• Mutual Fund Schemes shall be required to prepare the opening balance sheet as on date of transition and the comparatives as per the requirements of Ind-AS.
• Perspective historical per unit statistics (Statistics) mentioned in Clause 6, Eleventh Schedule of the SEBI (Mutual Funds) Regulations 1996 requires disclosure of scheme wise Statistics for the past 3 years. In this regard, it has been clarified in the Guidelines that the mutual fund schemes may not mandatorily be required to restate the previous years' published Statistics as per requirement of Ind-AS for the first 2 year since the first-time adoption of Ind-AS. However, mutual fund schemes are required to mandatorily furnish following additional information in Statistics:
  • Label the previous Generally Accepted Accounting Principles (GAAP) information prominently as not being prepared in accordance with Ind-AS
  • Disclose the nature of the adjustments that would be required in compliance with Ind-AS, where Mutual Fund Schemes need not quantify such adjustments
• Brokerage and transaction cost incurred for execution shall be charged to the schemes, as provided under Regulation 52(6A)(a), up to 12 bps and 5 bps for cash market transactions and derivatives transactions respectively.
• Any payment towards brokerage and transaction costs, over and above 12 bps and 5bps for cash market transactions and derivatives transactions respectively, may be charged to the scheme within the maximum limit of total expense ratio as prescribed under Regulation 52 of the SEBI (Mutual Funds) Regulations, 1996.

SEBI | AMCs to form an audit committee from August 2022

Vide a circular dated February 9, 2022, SEBI directed Asset Management companies (AMCs) to constitute an audit committee from August 01, 2022 on the recommendation of the Mutual Funds Advisory Committee (MFAC).

The audit committee will be mandated to review the financial reporting processes, system of internal controls and audit processes for the mutual fund operations and ensure that any rectifications suggested by internal and external auditors are acted upon.

Key aspects of the audit committee

• The committee will have minimum three directors as members.
• At least two-third members will be independent directors.
• The members will be appointed by the Board of AMCs.
• The chairperson of the audit committee must be an independent director.
• The chairperson should call at least four meetings in a financial year and not more than one hundred and twenty days must elapse between two meetings.

SEBI | Relaxation of compliance needs of FPIs

In a notification dated February 25, 2022, SEBI declared, it can grant exemption to Foreign portfolio Investors (FPIs) from strict enforcement of the regulations in other cases. Regulated by SEBI, the FPI regime is a route for foreign investment in India and now SEBI can apply special powers to relax compliance requirements to give overseas investors leeway in the event of inadvertent lapses while investing in the country.

The FPI regime came as a harmonized route of foreign investment in India, merging the two existing modes of investment, that is, Foreign Institutional Investor and Qualified Foreign Investor. SEBI may now suo motu grant relaxation from the strict enforcement of any of the provisions through an FPI application as well as reasons recorded in writing.

This is subject to such conditions as the SEBI deems fit to impose in the interests of investors and development of the securities market. If the regulator is satisfied that the noncompliance is caused due to factors beyond the control of the entity, or the requirement is procedural or technical in nature, SEBI can relax the compliance needs under such circumstances.

SEBI | Preferential allotment rules relaxed

SEBI recently relaxed pricing norms and lock-in requirements to make it easier for companies to raise funds through preferential allotment of shares. The regulator also allowed pledging of shares allotted to promoter or promoter group under preferential issue during the lock in period:

Key aspects

• The lock-in requirement for allotment up to 20% of the post-issue paid-up capital has been reduced to 18 months from the existing 3 years.
• The lock-in requirement for allotment exceeding 20% of the post-issue paid-up capital has been cut to 6 months from the existing time period of 1 year.
• Any preferential issue resulting in a change in control or allotment of more than a 5% stake will require a valuation report from a registered valuer.
• Any preferential issue allotment resulting in a change in control will be required to provide a reasoned recommendation from a committee of independent directors along with their comments on all aspects of preferential issuance, including pricing.
• Voting pattern of the committee needs to be disclosed to shareholders.
• To determine the floor price for frequently traded security, the floor price for the preferential issue should be higher of 90/10 trading days' Volume-weighted Average Price (VWAP) of the scrip preceding the relevant date.
• For infrequently traded security, a valuation report by a registered independent valuer will be required.

SEBI | Voluntary separation of posts of Chairperson and MD of listed companies

SEBI had earlier amended its listing agreement on April 6, 2021 to specify that from April 01, 2022, the posts of Chairman and Managing Director of listed companies should be separated, and the Chairman should only hold a nonexecutive post. On February 15, 2022, SEBI revised this requirement and made the requirement for separation of the two posts voluntary, based on multiple representations received from industry bodies and constraints posed by the prevailing pandemic situation.

It is also noteworthy that a review of the compliance status showed that the compliance level stood at 50.4% amongst the top 500 listed companies as of September 2019, which progressed to only 54% as on December 31, 2021. Thus, there has been barely a 4% incremental improvement in compliance by the top 500 listed companies over the last two years. SEBI seems to have concluded that expecting the remaining about 46% of the top 500 listed companies to comply with these norms by the target date would be a tall order.

RBI | Monetary Policy Committee meeting highlights

RBI conducted the 6th and the last Monetary Policy Committee (MPC) meeting for 2021-22 between February 8- 10, 2022. RBI MPC, headed by RBI Governor Shaktikanta Das, had taken certain decisions at this meeting which indicated that lending and deposit rates are expected to remain unchanged in the banking system.

Key aspects

• RBI has projected the real GDP growth as per fiscal mentioned below:
  • 2022-23 at 7.8%
  • 2021-22 at 9.2%
• For the current fiscal year, RBI retained its retail inflation projection at 5.3%
• MPC has been given the mandate to maintain annual inflation at 4% until March 31, 2026, with an upper tolerance of 6% and lower tolerance of 2%
• Following Marginal Standing Facility (MSF) rates and bank rates remain unchanged:
  • Policy Repo Rate at 4.00%
  • Reverse Repo Rate at 3.35%
  • Marginal Standing Facility Rate at 4.25%
  • Bank Rate at 4.25%
  • CRR at 4%
  • - SLR at 18%

For RBI, ensuring economic recovery is of paramount importance. Despite higher global crude oil prices, and risks of high generalized inflation, it has opted for an accommodative monetary policy and the implicit belief is that growth will bring jobs and increased incomes, which will help address the remaining concerns.

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