Regulatory Updates #16: India’s first ever capital goods policy, revision of 47 bilateral treaties and more

Bar & Bench will bring to you the latest regulatory and policy updates from different ministries and regulatory authorities. In this edition of the Bar & Bench Regulatory Updates, we analyse the latest notification by RBI, circular by SEBI, and the national capital goods policy..Master Directions on Financial Services provided by Banks.The Reserve Bank of India (RBI) recently issued the Master Directions on Financial Services provided by scheduled commercial banks (excluding Regional Rural Banks and including overseas branches and subsidiaries). With the issuance of these directions, all prior instructions/ guidelines in the circulars dealing with the same subject matter, shall stand repealed..The first part deals with general guidelines applicable to the banks. Any bank may undertake businesses permitted under Section 6(1) of the Banking Regulation Act, 1949 either departmentally or through a subsidiary. The directions further inter alia provide for the conditions subject to which (i) Section 6(1) activities may be taken departmentally and; (ii) investments may be made by a bank in a subsidiary or in a financial services company not being a subsidiary. An “arm’s length” relation is to be maintained between the parent/sponsor bank with the subsidiary..The second part deals with the conditions under which banks may undertake different types of financial services viz. sponsoring of an Infrastructure Debt Fund, Equipment Leasing and Hire Purchase Business, Factoring Services, Primary Dealership Business, Underwriting Activities, Mutual Fund Business, Insurance Business, Pension Fund Management by Banks, Investment Advisory Services, Portfolio Management Services and Agency Business by Banks..Listed firms to now disclose ‘impact’ of audit qualifications.The Securities Exchange Board of India (SEBI) has amended the SEBI (Listing and Other Disclosure Requirements) Regulations, 2015 by tightening the disclosure requirements for listed entities as they will not have to provide to their investors, information relating to the ‘cumulative impact’ of all audit qualifications in a separate report..An audit qualification is typically a statement written upon the front page of any check done by a professional auditor. The management of the listed entity will have the option to explain its views on the audit qualifications..The impact will be filed with the stock exchange for modified opinions only and where the impact is not quantified by the auditor, an estimate is to be provided by the management failing which reasons are to be provided for not providing an estimate..India’s first ever national policy on capital goods.The Union Cabinet last week approved the first ever national capital goods policy with an aim to fillip the manufacturing sector and reduce reliance on imported goods..The policy, being quite ambitious in nature, seeks to increase production of capital goods from Rs 2.3 lakh crore in 2014-15 to Rs 7.5 lakh crore in 2015 and also raise direct and indirect employment from current 84 lakh to 3 crore..The policy also envisages ramping up exports from 27% to 40% and a resultant increase in the share of domestic production to 80% from 60%. This will make India a net exporter of capital goods as against its current position of a net importer..The policy further advocates adoption of a uniform Goods and Services Tax (GST) regime ensuring effective GST rate across all capital good sub-sectors with a view to ensuring a level-playing field..It has also been reported that the meeting approved Rs 10,736 crore worth of investments by the railways to expand its network..India to revise investment bilateral treaties with 47 countries.The Economic Times has reported that India has written to 47 nations to nullify existing bilateral investment agreements and ink fresh treaties which will make it mandatory for foreign investors to exhaust local judicial remedies before seeking arbitration..The reason behind this move appears to be the constant international arbitration India is dragged into by many foreign investors. The Government has prepared a model draft which will serve as a template for all investment agreements in the future and also for reworking the current ones. Treaties that complete ten years will be allowed to lapse.