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We are back in your inbox with updates on India’s corporate legal landscape for August 2022.
RBI brought in a series of changes to the regulatory regime in the area of overseas investment, borrowings made by Indian persons, and lending facilities extended by regulated entities.
A new regulatory framework for overseas investment has been rolled out by issuing the Foreign Exchange Management (Overseas Investment) Regulations, 2022 (ODI Regulations), the Foreign Exchange Management (Overseas Investment) Directions, 2022, (ODI Directions), and Foreign Exchange Management (Overseas Investment) Rules, 2022. The new ODI Regulations subsume the existing Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2004, and Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2015. We will be sharing a post that will discuss in detail the significant changes brought by these guidelines.
ECB Limits have been temporarily enhanced i.e., until December 31, 2022, under the Master Direction – External Commercial Borrowings (ECB), Trade Credits, and Structured Obligations. The automatic ECB limit stands increased to USD 1.5 billion or equivalent thereto from the existing limit of USD 750 million and the all-in-cost ceiling has been increased by 100 bps. However, the all-in-cost ceiling is only applicable to eligible having investment grade ratings from Indian Credit Rating Agencies (CRAs).
With the intent of safeguarding the consumer’s interest, a new set of norms for digital lending have been released by RBI. The new guidelines categorize digital lenders into three broad groups:
- Entities regulated by the RBI and permitted to carry on lending business;
- Entities not regulated by RBI but authorized to carry on lending as per other statutory/ regulatory provisions;
- Entities lending outside the ambit of any statutory/ regulatory provisions.
The new guidelines apply to RBI-regulated entities, lending service providers (LSP) engaged by them, and digital lending apps (DLA). Highlights of the said guideline are as follows:
Customer Protection and Conduct Issues
- Disbursal of loan and repayment shall be executed only between the banks and borrowers.
- Any payment to LSP shall only be made by a bank, not the borrower.
- Standardized Key Fact Statement (KFS) shall be given to the borrower.
- Disclosure of All-inclusive cost of digital loans in the form of Annual Percentage Rate (APR) shall be disclosed to the borrowers.
- No automatic increase in credit limit without explicit consent of the borrower.
- Exit period to be provided to the borrower without payment of any penalty.
- Appointment of nodal grievance redressal officer to deal with FinTech/ digital lending-related complaints including complaints against the DLA.
- Details of nodal grievance redressal officer to be displayed on the website of the bank and LSP.
- Consumers may file complaints under the Reserve Bank – Integrated Ombudsman Scheme if a complaint is not addressed within 30 days by the bank.
Technology and Data Requirements
- Need-based data to be procured from the borrower with explicit consent.
- Borrower shall have to right to revoke consent anytime.
Regulatory Framework
- Reporting of all lending via DLA to Credit Information Companies (CICs)
- All new digital lending products extended by banks over merchant platforms to be reported to CICs
To address the harsh and illegal actions taken by the recovering agents (Agents) engaged by the Regulated Entities (REs), RBI on August 12, 2022, issued instructions for REs to keep a close watch on the malpractices adopted by their Agents to recover debts from borrowers. The REs have to ensure that the Agents shall not try to invade and encroach upon the privacy and dignity of the borrower. RBI advised that the REs shall strictly ensure and adhere to the instructions issued by them. Any violation of the above-mentioned instructions by REs will make them accountable before the RBI.
RBI has expanded the horizon of eligible Small Finance Bank (SFB) by enabling them to become an Authorised Dealer (AD) Category – I for carrying on foreign exchange business to meet their customer requirements. However, they will have to obtain prior approval from the RBI for commencing such activities.
MCA has announced changes in the rule governing the mode of keeping books of accounts in electronic mode. As per the modified rule, the books of account and other relevant books and papers maintained in electronic form shall remain accessible in India, at all times’ to be usable for subsequent reference. Further, backup of the books of account and other books and papers of the company is maintained in electronic mode, including at a place outside India, shall have to be kept in servers physically located in India on a ‘daily basis. Furthermore, a company now has to submit information about the service provider who maintains the books of accounts and other documents in electric mode in addition to the annual information stated under Rule 3(5) of the Accounts Rules. These changes have been introduced vide the Companies (Accounts) Fourth Amendment Rules, 2022 dated August 05, 2022.
MCA vide a notification dated August 18, 2022, has inserted Rule 25B in the Companies Incorporation Rules 2014 (Rules), which allows the Registrar (RoC) to conduct physical verification of the registered office of a company under Section 12(9) of the Companies Act effectively widening its powers to strike off companies under Section 248(1) of the Act.
The Securities Exchange Board of India (SEBI) has come up with guidelines for foreign investment made by Alternative Investment Funds (AIFs) / Venture Capital Funds (VCFs). Under the new guidelines, investments can also be made in firms that have no Indian connection subject to the condition that such entity shall not have investments in a country identified in the public statement of FATF. Further, AIFs/VCFs can sell an investment in overseas investee companies only to the entities eligible to make overseas investments and shall furnish the details of such disinvestment to SEBI.
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