SEBI Current Affairs - 2019

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SEBI new rule to impact foreign funds

The Securities and Exchange Board of India (SEBI) notified that only FPIs – Foreign Portfolio Investors located in FATF countries or managed by an enterprise based under FATF jurisdiction can deal in Participatory Notes.

Participatory Notes are financial instruments required by investors to invest in Indian stock markets without being registered with SEBI.

Effects of notification

The step will majorly affect funds from Mauritius and Cayman Islands. They are not FATF members and a major portion, 15 to 20% of FPI comes from these countries. Now these entities can neither issue nor subscribe to Participatory Notes.

In simple terms, SEBI says that to be registered under category – I FPI, the entity should be from a FATF member country. The category – II FPIs are not barred from accessing PNs. The category I funds include pension, sovereign wealth funds, endowment funds and funds from FATF member countries. Funds from non – FATF countries come under category II.

HR Khan Committee

The new rule is based on the HR Khan Committee’s recommendation. HR Khan Committee was formed by SEBI under chairmanship of former deputy governor of RBI to streamline FPI. The reforms initiated by SEBI based on the committee’s recommendation

  • It eased eligibility terms of FPIs and KYC norms.
  • NRIs, resident Indians are now allowed to be constituents of FPI if they own a share less than 25% of holding

Necessity of the step

The global economic scenario happening in different parts had great effect over Indian economy. It included

  • Since 2016, rupee value has depreciated over 16%. This implies that there is a risk of increased inflation
  • The small and mid – caps were tumbling. In October 2018, the small – cap index fell to 13,800 which was a 31% decrease. The mid cap index fell by 23%.
  • Fear of US sanctions over India importing oil from Iran.
  • Trade war between US and China
  • Rising crude oil prices

About FATF

FATF is Financial Action Task Force that monitors money laundering and terrorism funding all over the world. It also develops policies to curb money laundering and terror financing. It was established in 1989 G7 summit that was held in Paris.

Wilful Defaulters in Nationalised Banks up by 60% in 5 years: Govt

As per a written reply given by Union Finance Minister Smt. Nirmala Sitharaman in Lok Sabha, the number of wilful defaulters in nationalised banks has increased by more than 60% to 8,582 in five years to March 2019.

Key Highlights

The Finance Minister provided the written reply in Lok Sabha to a question asked that whether the cases of willful defaulters of banks have increased during the past five years.

Wilful Defaulter is an entity or a person that has not paid the loan taken back to the bank despite having the ability to repay it. Wilful defaulters are acted against comprehensively.

Data Provided by Government:

By end of fiscal year 2014-15, the figure of wilful defaulters in nationalised banks stood at 5,349, and since then the number of such borrowers has been consistently rising- with being 6,575 (2015-16), 7,079 (2016-17), 7,535 (2017-18) and now increased to 8,582 in 2018-2019 fiscal.

During the last 5 financial years about ₹7,654 crore has been recovered from wilful defaulters’ accounts.

Steps Taken By Government

As per data reported by 17 nationalised banks in India, till 31 March 2019, suits for recovery have been filed in 8,121 cases out of 8,582.

SARFAESI Act: In cases involving secured assets, action under provisions of SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002) has been initiated in 6,251 cases.

RBI Instructions: As per the instructions provided by Reserve Bank of India (RBI), wilful defaulters are not sanctioned any additional facilities by banks/financial institutions, their unit is debarred from floating new ventures for 5 year and even criminal proceedings are initiated wherever necessary. In accordance with this FIRs have been registered in 2,915 cases.

SEBI Regulations: Besides, vide Securities and Exchange Board of India (SEBI) regulations, wilful defaulters and companies who has with wilful defaulters as either promoters or directors have been debarred from accessing capital markets to raise funds.

IBC 2016: The Insolvency and Bankruptcy Code (IBC), 2016 has debarred wilful defaulters from participating in insolvency resolution process.

FEO Act 2018: The government has enacted Fugitive Economic Offenders Act, 2018 for effective action against wilful defaulters who flee Indian jurisdiction. It provides for attachment and confiscation of property of fugitive offenders and to disentitle them from defending any civil claim.

PSBs: Government has also advised all Public Sector Banks (PSB) to decide on publishing photographs of all concerned wilful defaulters and to obtain certified copy of passport of promoters/directors and other authorised signatories of companies availing loans of over ₹50 crore. The heads of PSBs have also been empowered to request for issuance of look out circulars (LoC) against wilful defaulters.