India: Corporate & Commercial Monthly Newsletter | June 2022

SEBI | Reduced listing time for REITs and InvITs

Securities and Exchange Board of India (SEBI) vide Circular dated April 28, 2022 has reduced the allotment and listing time after the closure of issue of units of Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (InvIT) to 6 working days from 12 days at present.

This new rule intends to streamline the process of public issue of units of REITs and InvITs and will apply to a public issue of units of REITs and InvITs which opens on or after June 1, 2022.

Stock exchanges and self-certified syndicate banks have been notified to make required changes to implement the same from June 01, 2022.

SEBI | Relaxation in annual report dispatch rules for entities with listed non-convertible securities

SEBI vide Circular dated May 13, 2022 has announced compliance relaxation for entities with listed non-convertible securities from dispatching physical copies of annual report to the debenture holders till December 31, 2022.

Earlier on May 5, 2022 the Ministry of Corporate Affairs (MCA) also extended the relaxations related to sending physical copies of financial statement till December 31, 2022. Together with the MCA relaxation, SEBI's new development provides relaxation from the requirement of the Listing Regulations which states that any entity with listed non-convertible securities, will have to provide the hard copy of annual reports to the shareholders of non-convertible securities who do not have a registered email address with entity or depositories.

Additionally, SEBI has dispensed with the requirement for sending proxy forms in case of general meetings held in electronic mode only.

SEBI | Simplified procedure for transmission of securities

SEBI vide Notification dated April 12, 2022 notified amendments with respect to the norms related to security cover, disclosure of credit ratings and due diligence certificate for unsecured debt securities. SEBI has also revised the rules pertaining to trustee norms, issue and listing of non-convertible securities norms and LODR (Listing Obligations and Disclosure Requirements) Rules.

SEBI has recently revised the existing threshold limit for simplified documents to INR 5 lakh from INR 2 lakh for securities held in physical mode per listed issuer. These revisions have been adopted by the securities regulator to simplify the procedure of transmission of securities. Thus, in this regard SEBI has also increased the threshold for securities held in the dematerialized mode for each beneficiary account to INR 15 lakh from present level of INR 5 lakh.

SEBI has also amended the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2022 highlighting the documentation requirements in case of transmission of securities, as follows:

• Where the securities are held in single name with nomination:
  • Transmission request form by the nominee
  • Original death certificate or copy of death certificate attested by the nominee
  • Copy of Permanent Account Number (PAN) card of the nominee
• Where the securities are held in single name without nomination:
  • Notarized affidavit from all legal heirs made on non-judicial stamp paper of appropriate value, to the effect of identification and claim of legal ownership to the securities
  • In case the legal heirs are named in the succession certificate or Probate of Will, then the Legal Heirship Certificate or its equivalent certificate

SEBI | New format for security cover certificate

SEBI vide Circular dated May 19, 2022 introduced a new format for disclosing security cover to stock exchanges and debenture trustees. SEBI also notified the obligations of the listed entity and debenture trustees with respect to preparation and submission of security cover format.

Key features

• The term 'Asset Cover' has been changed to 'Security Cover' in Debenture Trustee Rules and LODR norms as a part of aligning framework and terminology.
• SEBI has amended the timelines of submission of security cover certificate, valuation report and quarterly compliance report, and regulatory compliance by debenture trustees.
• SEBI notified that a listed entity would have to prepare the security cover certificate on quarterly basis, and the statutory auditor of the listed entity will certify the book values of the assets provided in such certificate.
• According to the Circular, each debenture trustee is required to certify the market value of assets on quarterly basis based on the due diligence carried out by it or its agencies and submit the security cove certificate in a specific format as prescribed by SEBI.
• Every certificate will have a Unique Document Identification Number (UDIN) generated in the manner prescribed by the relevant regulatory authority.
• Debenture trustee will have to ensure that the qualifications/disclaimer does not impair the rights of debenture holders in terms of security provided.
• DT will have to take corrective action in case such qualification/disclaimers curb the rights of the debenture holders.
• To ensure effective monitoring, listed entity will have to produce a compliance status report with respect to the financial covenants of the listed debt securities certified by statutory auditor to debenture trustee; while debenture trustee is required to establish board approved internal policies to monitor breaches.
• To enhance transparency with respect to no-objection certificate issued by debenture trustee and monitoring of listed entity, debenture trustee will have to make certain disclosure to stock exchanges, including any breach of the minimum-security cover within 48 hours of such breach.
• Debenture trustee will be required to submit the security cover certificate to the exchange and make website disclosure of the security cover certificate and quarterly compliance report for the last quarter of the financial year within 90 days from the end of the financial year, and the valuation report and title search report to the exchange once in three years within 75 days from the end of the financial year.
• On independent verification of creation of Recovery Expense Fund (REF) by issuer companies, debenture trustee(s) will be required to take confirmation from designated stock exchange(s) or any other independent source in writing regarding the creation of REF by the listed entity and will not rely solely upon the communication by the listed entity.
• The exchange(s) will be required to disclose the REFs created by the listed entities on half-yearly basis; such disclosure will also include the details of the debenture trustee to the debt issue.
• The framework related to revised format of the security cover and monitoring of covenants are applicable with effect from October 1, 2022.

SEBI | New rules to streamline rights issue process

SEBI vide Circular dated May 19, 2022 has streamlined the process of rights issue with respect to the minimum time period between the closure of trading in Right Entitlements (REs) on the stock exchange platform and closure of such issue.

Key features

• Trading in REs on the secondary market platform of stock exchanges will start with the opening of the issue and will be closed at least 3 days prior to the closure of the rights issue. Previously, this was 4 days.
• SEBI further explains that the minimum gap of 3 working days will consists of:
  • 2 days for settlement
  • 1 additional day for investors to make application in rights issue
• REs are traded on the secondary market platform of stock exchanges, with T+2 (trading plus two) rolling settlement, similar to the equity share.

SEBI | Tightening of promoter norms

Under the Regulator's Issue of Capital and Disclosure Requirements (ICDR), any immediate family member of the promoter, such as spouse, parent, brother, sister, or child, or any relative who holds more than 20% stake in the company, are considered part of the promoter group. In such cases, both the relative and the company must furnish necessary information in the offer document , to SEBI and stock exchanges.

SEBI has recently issued an advisory to investment banks, asking them to furnish either an affidavit from such family member(s), clearly stating they do not want to be classified as part of the promoter group, or a Memorandum of Understanding (MoU) between the promoter and the family member.

Companies who are unable to furnish such documents will be disclosed as a promoter group, along with prescribed disclosures about such promoter group, in the DRHP. Additionally, the exemption based on such documents has to be obtained from SEBI before filing the DRHP.

RBI | Bank credit for NBFCs to on-lend to priority sectors

The Reserve Bank of India (RBI) on May 13, 2022 allowed the banks to lend to Non-Banking Finance Companies (NBFCs) for on-lending to priority sectors, which will ensure synergy and continuation between banks and NBFCs in delivering credit to the specified priority sectors. The same holds true for small finance banks who are on-lending to NBFC-MFIs. This facility was earlier allowed till March 31, 2022.

Key features

• Bank credit to NBFCs, including Housing Finance Companies (HFCs), for on-lending to priority sectors will be allowed up to an overall limit of 5% of an individual banks total priority sector lending.
• Small finance banks for on-lending to NBFC-MFIs and other MFIs, which are RBI recognized, will be allowed up to an overall limit of 10% of an individual bank's total priority sector lending.
• These limits shall be computed by averaging across four quarters of the financial year, to determine adherence to the prescribed cap.
• Small finance banks will be allowed to lend to registered NBFC-MFIs and other MFIs who have a gross loan portfolio of up to INR 500 crore as of March 31 of the previous financial year.
• In case the gross loan portfolio of the NBFC-MFIs/other MFIs exceeds the stipulated limit at a later date, all priority sector loans created prior to exceeding the gross loan portfolio limit will continue to be classified by the small finance banks (SFBs) as priority sector lending till repayment/maturity.

RBI |Master Directions – Credit Cards and Debit Cards – Issuance and Conduct Directions, 2022

On April 21, 2022, the Reserve Bank of India (RBI) published the Master Directions on Credit Card and Debit Card – Issuance and Conduct Directions, 2022 (Directions). These Directions will become effective from July 1, 2022 and cover the general and conduct regulations relating to credit, debit, and co-branded cards.

Any provisions in the Directions in relation to credit cards will apply to every Scheduled Bank (excluding Payments Banks, State Co-operative Banks, and District Central Co-operative Banks) and all Non-Banking Financial Companies (NBFC) operating in India. Any provisions in the Directions in relation to debit cards will apply to every bank operating in India. Excerpts from the Directions have been reproduced below.

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