Regulatory Updates #34: RBI overhauls debt restructuring schemes, SEBI tightens norms for CRAs & more

Bar & Bench will bring you the latest regulatory and policy updates from different ministries and regulatory authorities. In the this edition of the Bar & Bench Regulatory Updates, we analyse the latest circulars by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).


Tightens norms for credit rating agencies

In a bid to boost transparency, SEBI has tightened the disclosure norms [pdf] for credit rating agencies (CRA) by inter alia standardising the rating criteria, method of public disclosures, the internal functioning of rating committees and disallowing the suspension of ratings.

In order to avoid ‘rating shopping’ by the issuer, if such issuer, having not co-operated with a CRA in the past, approaches another CRA for a rating, the new CRA shall, in its press release, disclose the aspect of non-co-operation in the past.

Also, in case of noncooperation by the issuer (such as not providing information required for rating, non-payment of fees for conducting surveillance), the CRA will continue to review the instrument on ongoing basis throughout the instrument’s lifetime, on the ‘basis of best available information’, instead of suspending it’s rating.

[Read more at Hindu Business Line]


RBI overhauls debt restructuring schemes

The RBI has eased the rules for various stressed asset resolution schemes and expanded the scope of a loan recast plan previously limited to the infrastructure sector.

RBI also streamlined the process [pdf] for change of ownership of stressed assets outside of the so-called strategic debt restructuring (SDR) process, which allowed creditors to convert debt into equity and take over the management of defaulting companies.

Under the original S4A guidelines, the asset would continue to be classified as it was before the restructuring for at least a year, till the borrower showed an improvement in the repayment track-record. The revised norms [pdf] say in case a non-performing asset (NPA) is restructured under S4A norms, the sustainable part of the debt can be classified as standard if banks set aside provisions equal to at least 50% of the debt classified as unsustainable or 20% of aggregate debt, whichever is higher.

RBI also said the unsustainable part of debt in any S4A—whether the account was NPA or standard at the time of restructuring—could be upgraded to standard, if the sustainable half of the debt performed satisfactorily for one year.

[Read more at LiveMint]

RBI allows banks to raise funds via masala bonds

The RBI, has allowed [pdf] Indian banks to raise funds through issuance of rupee-denominated bonds overseas (also called masala bonds) within the present limit of Rs. 2,44,323 crore set for foreign investment in corporate bonds.

The rupee bond route will open an additional avenue to raise funds for banks and will help develop the market of rupee-denominated bonds abroad, the RBI said.

[Read more at Hindu Business Line]

RBI proposes rules to give multinational companies flexibility for hedging

The RBI came out with the draft guidelines [pdf] for centralised hedging for local subsidiaries of foreign companies – “to provide greater flexibility for hedging the currency risks arising from current account transactions of domestic subsidiaries of multinationals by the parent or any non-resident group entity.

It is proposed that such companies will be able to hedge in all foreign currency-rupee derivatives. But to avail of the facility, the foreign entity will have to be incorporated here, as India is member of the Financial Action Task Force, the draft guidelines said.

[Read more at the Financial express]