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FORESIGHT

Ashvin Parekh - Managing Partner, APAS

Season’s greetings, We have Rosemary F Beaver – Head of International Regulatory Affairs – Lloyds discussing the emerging trends in the insurance and reinsurance sector. The super abundance of capital that was available to the sector may not continue with low interest rate and difficult market conditions. The sector will embrace risk based capital approaches. Further international regulatory convergence such as in the development of global capital and insurance accounting standards are set to continue. We are thankful to Rosemary for her contribution to the newsletter. On the macroeconomic front, the composite PMI index rose to 53.3 % from 52.9 % in the previous month. India’s core sector growth dropped to 2.4% from 6.7 % in November. IIP rose to +3.8% compared to (-) 4.2% in November. Inflation (CPI) rose to 5% from 4.38 % in December. The RBI issued guidelines on base rates for the banks. Banks Boards will be required to review them quarterly. A revision in method of calculation can be done every 3 years. The new bancassurance guidelines provide flexibility to the banking companies to be corporate agents or brokers. SEBI issued guidelines on IPO norms to fast track divestment by PSUs.

We welcome your inputs and thoughts and encourage you to share

them with us.

Ashvin Parekh

Volume No. 1 January

2015 May, 2014 December 2, 2013

Table of Contents

Guest’s Column Emerging trends in Insurance and

Re-insurance by Rosemary F Beaver –

Head of International Regulatory

Affairs - Lloyds

Economy

GDP Revision

Core sector update - Jan

IIP update – Nov

Inflation update – Dec

Banking Sector

RBI asks banks to review minimum

lending rate every quarter

RBI allowed NBFCs to recast infra

project loans.

RBI eases fair value buyout norm

RBI issued norms for bank leverage

ratio under Basel III

Insurance Sector

RBI permits banks to act as

insurance brokers

Capital Markets

SEBI board clears changes to make

delisting easier

SEBI notifies stringent insider trading norms

SEBI proposes e-IPO norms; fast-track divestment by PSUs

SEBI proposes restrictions on 'willful defaulters'

Capital Market – Snapshot Economic Data Snapshot

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Emerging Trends in Insurance and Reinsurance:

Rosemary F Beaver – Head of International Regulatory Affairs - Lloyds

2015 will hopefully see continued stabilization

and recovery in the global economy, with the

IMF and others predicting modest growth in

developed markets and the prospect of

stronger performance in larger developing

economies such as India and China. As a result,

global premium growth in insurance and

reinsurance is to be expected, although the

continuing superabundance of capital and the

persistence of ultra-low interest rates and

difficult market conditions will continue to pose

challenges for the global insurance and

reinsurance industries.

While insured losses from natural catastrophes

have remained moderate since those

experienced in 2011 – the worst year in history

for natural catastrophe losses – the overall

trend of recent history has seen the prevalence

and cost of such events rising dramatically. A

report published by Lloyd’s in 2014 highlighted

the importance for insurers and reinsurers to

more adequately reflect the potential effects of

climate change in their catastrophe models.

The threats posed by rising sea levels, more

powerful and more frequent storms and other

extreme weather events pose particular

problems to developing economies, with

increased investment in infrastructure projects

to support ongoing economic growth and the

urbanization of populations. The high GDP

growth rates seen in many developing

economies are often in stark contrast to the

comparatively low levels of insurance

penetration which, when a large event occurs,

can lead to a greater burden on the taxpayer to

cover uninsured losses and constrains

sustainable GDP growth. Research from

Lloyd’s has shown that even a small increase in

insurance penetration rates can have an overall

positive effect on GDP, supporting economic

growth following a major event even before

reconstruction has been completed.

As a result, developing economies continue to

seek ways to raise their non-life penetration

rates to diminish the impact of uninsured losses

on their growing economies. Many have

introduced measures to actively encourage

greater take-up of insurance and also to

improve domestic access to the global

insurance and reinsurance markets. Such moves

to open up markets result in greater support for

domestic insurers through the provision of

additional capacity, as well as improved access

to the underwriting experience present in

long-standing international insurers.

While a number of countries have maintained

barriers against international players, the

fundamental nature of insurance and

reinsurance is that these work best free from

constraints and on an international basis, where

risks may be borne by a wider number of

entities, with greater capacity than may be

available in local markets. Furthermore,

spreading risks outside of the borders within

which they are located provides additional

safeguards against risks posed by major events,

which may threaten the ability of domestic

Guest Column

insurers to meet claims if an over-concentration

of risk occurs within the domestic market.

In the international regulatory environment, the

move towards risk-based capital frameworks

continues unabated. More and more countries

are adopting supervisory approaches which

require insurers to maintain enough capital in

reserve commensurate with their risk profile at

any one time. For Europe, this means the

finalization of progress towards the

implementation of Solvency II, which is due to

become effective from January 2016. These

developments in prudential supervision are

mirrored by an increased focus on the conduct

of insurers, to ensure that consumers are

adequately informed about the policies they

purchase and protected against unethical

practices. Further international regulatory

convergence such as in the development of

global capital and insurance accounting

standards are set to continue, requiring greater

mutual recognition by national regulators and

the buy-in of insurers and reinsurers to reflect

the new global reality of these important

industries.

The government has changed the way it

calculates the gross domestic product. The new

methodology is likely to boost GDP growth in

the current fiscal. The new formula takes into

account market prices paid by consumers

instead of prices of products received by

producers. The government has also changed

the base year for estimating

GDP from 2004-05 to 2011-12. Data for the new

GDP series will now be collected from 5 lakh

companies against 2,500 companies considered

earlier. The revision in GDP does not alter the

size of India's economy ($1.8 trillion) nor will it

alter key ratios such as fiscal deficit, CAD etc.

Core Sector Update - Jan

India’s core sector growth dropped to 3-month

low of 2.4% in December 2014 compared to

6.7% growth witnessed in the previous month

of November.

Core sector growth dropped due to lower

production in Crude oil and natural gas output.

During April-December period of current

financial year, the eight sectors grew by 4.4%

compared to 4.1 % growth in the same period

of last year.

The production of crude oil declined by 1.4% -

natural gas by 3.5% and fertilizer by 1.6% and

steel output dropped by 2.4% in December.

Electricity generation also dropped by 3.7% in

the same month. At the same time coal

production grew by 7.5% and refinery products

by 6.1%.

Economy

GDP Revision

Index of Industrial Production (IIP) update – Nov

After contracting 4.2% in October, industrial

production increased at a five-month high of

3.8% in November, even as consumer durables

continued to be hit by low demand.

The Index of Industrial Production (IIP), which

had contracted 1.3% in November 2013, rose

2.2% in the first eight months of this financial

year, against only 0.1% in the corresponding

period of 2013-14.

Though all the broad segments of industry,

mining, manufacturing and electricity rose in

November, output in the consumer durables

segment fell.

The manufacturing segment registered growth

of 3.4% in November, after contracting 7.4% in

October, while the mining sector expanded

3.4%, against 4.9% in October. Electricity

generation increased 10%, compared with

13.3% in October.

In November, 16 of the 22 groups in the

manufacturing segment saw growth, against as

many categories recorded contraction in

October.

After contracting 35.15% in October, output in

the consumer durables segment declined 14.5%

in November, showing high interest rates had

led to customers deciding against buying these

products. In November 2013, this segment had

contracted 21.7%.

The fall in November last year was despite the

fact that car sales increased 9.5% to 156,000

units during the month, on an annual basis.

Production of three-wheelers rose 42.5% during

the month, according to a statement

accompanying the IIP data.

Production of air conditioners rose 53.8%

year-on-year in November, the data showed.

Production of fast-moving consumer goods

increased six per cent in November, against a

fall of 3.3% in October and a rise of 2.2% in

November 2013.

The capital goods segment expanded 6.5 per

cent in November, against a decline of 3.2% in

October and an increase of 0.1% in November

2013. Basic goods production increased seven

per cent in November, against 2.7% in the

year-ago period, while the intermediate goods

category recorded growth of 4.3%, against 3.7%

in November 2013.

Inflation update – Dec

Consumer Price Index (CPI):

Source: APAS Business Research Team

Consumer Price Index (CPI)-based inflation rose

to five per cent in December from 4.38% in the

previous month, primarily due to a rise in food

prices.

In December, inflation for food items stood at

4.78%, against 3.14% in November. In

December 2013, food inflation stood at 12.49%.

At 3.41%, fuel and light inflation was marginally

higher than 3.3% in November. Vegetable price

inflation rose to 0.58% versus negative 10.9% in

November.

Recent data show the rise in wages in rural

areas was slower than the prevailing inflation,

implying negative real growth. Given demand in

rural areas has propped the economy of late,

this could be a worrying sign.

Wholesale Price Index (WPI):

Reversing a six month declining trend, India’s

WPI-based inflation moved up marginally to

0.11 per cent in December mainly due to

increase in prices of food items. Inflation

measured on wholesale price index (WPI) was

at zero in November.

According to the data released, the food

inflation in December moved to a five month

high of 5.2 per cent, as per the government

data released today. Inflation in pulses,

vegetables and fruits was higher in December

over the previous month. On the other hand,

the rate of price rise in wheat, milk and protein

rich items like egg, meat and fish was slower in

the month under review.

The data further showed that the contraction in

WPI inflation for petrol was steeper at 11.96

per cent from 9.96 per cent in November.

Similarly the rate of decline in diesel prices

during December was higher than in the

previous month.

The inflation in the primary articles segment

inched up to 2.17 per cent in December against

a decline of 0.98 per cent in November.

Sources: APAS BRT

*Meanwhile, the government has revised

downwards the October WPI inflation to 1.66

per cent as against the earlier estimate of 1.77

per cent.

RBI asks banks to review minimum lending rate every quarter

The Reserve Bank has asked banks to notify the

base rate, or the minimum lending rate, at least

once in every three months based on cost of

funds, a move seen as a nudge to lenders to

pass on changes in policy rate to borrowers.

The direction come soon after Reserve Bank cut

repo rate by 0.25 per cent, the first reduction in

20 months, to boost credit and economic

growth.

Banks have in the past shown reluctance to pass

on benefits of rate cut but have been proactive

in raising benchmark lending rate soon after

repo rate (the rate at which RBI lends to banks)

is hiked.

At present, the review of the base rate does not

have a fixed schedule.

"As hitherto, banks are required to review the

Base Rate at least once in a quarter with the

approval of the Board or the Asset Liability

Management Committee (ALCO) as per the

bank's practice," said RBI's new guidelines on

'Interest Rates on Advances'.

Banks will, however, not be allowed to change

their methodology during the review cycle, RBI

said.

New guidelines will come into effect from

February 19. "While computing Base Rate,

banks will have the freedom to calculate cost of

funds either on the basis of average cost of

funds or on marginal cost of funds or any other

methodology in vogue, which is reasonable and

transparent provided it is consistent and made

available for supervisory review/scrutiny as and

when required," it said.

Further, RBI said it has been decided to allow

banks to review the Base Rate methodology

after three years from date of its finalization

instead of the current periodicity of five years.

This has been done to provide banks greater

operational flexibility.

"Accordingly, banks may change their Base Rate

methodology after completion of prescribed

period with the approval of their Board of

Directors/ ALCO," it said.

On interest margins, the RBI said an existing

borrower should not be charged extra except

on account of deterioration in the credit risk

profile of the customer or change in the tenor

premium.

"Any such decision regarding change in spread

on account of change in credit risk profile

should be supported by a full-fledged risk

profile review of the customer. The change in

tenor premium should not be borrower specific

or loan class specific. In other words, the

change in tenor premium will be uniform for all

types of loans for a given residual tenor," RBI

added.

It also said banks should have a Board approved

policy delineating the components of spread

charged to a customer. It should be ensured

that any price differentiation is consistent with

bank's credit pricing policy, RBI added.

Bank's internal pricing policy, it said must spell

out the rationale for, and range of, the spread

in the case of a given category of borrower, as

also, the delegation of powers in respect of loan

pricing. The rationale of the policy should be

available for supervisory review.

Banking Sector

RBI allowed NBFCs to recast infra project loans

The Reserve Bank Friday allowed non-banking

financial companies (NBFCs) to restructure

project loans and continue treating them as

standard advances in cases where projects have

not commenced operations due to external

factors. The move comes after the central bank

last month permitted banks to recast infra

project loans. "NBFCs may restructure loans

subject to the extant prudential norms on

restructuring of advances, by way of revision of

DCCO (date of commencement of commercial

operations)...and retain the 'standard' asset

classification," the apex bank said in a

notification this evening. However, the

regulator clarified that the facility can be used

only in select scenarios. These include infra

projects involving court cases, where a loan by

an NBFC can be restructured for up to four

years from the original DCCO. Besides, in infra

projects delayed for reasons beyond the control

of promoters, an NBFC can use the

restructuring route for up to three years from

the original DCCO. For project loans to the

non-infrastructure sector, excluding commercial

real estate, the total extension granted is two

years, the notification said. It can be noted that

restructuring as an activity is slated to end after

April 1. The NBFCs have also been allowed to

fund cost overruns in projects with certain

riders. "In cases where the initial financial

closure does not envisage such financing of cost

overruns, NBFCs have been allowed to fund

cost overruns, which may arise on account of

extension of DCCO within the time limits

quoted in the above, without treating the loans

as 'restructured asset'," it said. NBFCs may fund

additional interest during construction which

may arise on account of delay in completion of

a project, the RBI said. On December 15 last the

RBI amended norms to give more flexibility to

banks to restructure infra loans by changing the

5:25 rules, with a view to revive stalled plans

and help banks tide over mounting bad loans.

The new guideline widened the scope of 5:25

scheme by including existing standard

long-term project loans worth over ₹500 cr. to

be flexibly structured and refinanced. In July,

the RBI had allowed flexibility in structuring

project loans only to new loans to infrastructure

and core industries plans.

RBI eases fair value buyout norm

The Reserve Bank of India (RBI) has relaxed a

longstanding rule that bars local companies

from paying more than the 'fair value' price to

buy out partner’s stake in a joint venture to

attract foreign investment, in what will be

viewed as a positive signal at a time the

government is trying to boost India's allure to

overseas investors. RBI has further

recommended that such a stance should be

taken for all the deals given India's need to

attract foreign funds, they said.

The final call on the issue will be based on the

government's views. The Reserve Bank of India

has written to the department of economic

affairs for its views on the matter and another

official said the finance ministry is holding

inter-departmental consultations and is yet to

crystallize a view on what will ultimately be a

"larger policy call".

Investors’ feels RBI's views nevertheless set the

stage for a radical change in India's foreign

investment rules at a time the government is

keen to pull out all stops to attract foreign

investments and could help to somewhat blunt

criticism that the officialdom was not

lock-in-step with broader government priorities.

Experts said RBI's move would send a positive

signal to foreign investors who want their

investments to be protected.

Last July, RBI had allowed nonresidents to issue

and transfer shares of unlisted companies at a

fair value, in a move to provide more flexibility

to foreign investors, moving away from the

previous regimes which prohibited any exit at

agreed prices.

RBI issued norms for bank leverage ratio under Basel III

The Reserve Bank of India released its revised

guidelines on the leverage ratio framework for

banks will come into effect from April 1, 2015.

The leverage ratio under the Basel III regulatory

framework for banks is defined as their capital

measure divided by their exposure measure,

with this ratio expressed as a percentage.

Capital measure for the leverage ratio is the

Tier-1 capital and exposure measure is the sum

of on-balance sheet exposures; derivative

exposures; securities financing transaction

exposures; and off- balance sheet items.

This ratio is calibrated to act as a credible

supplementary measure to the risk based

capital requirements and is intended to achieve

two objectives. The first objective is to

constrain the build-up of leverage in the

banking sector to avoid destabilizing

deleveraging processes which can damage the

broader financial system and the economy. The

second objective is to reinforce the risk-based

requirements with a simple, non-risk based

“backstop” measure. Currently, the banking

system is operating at a leverage ratio of more

than 4.5 per cent. The final minimum leverage

ratio will be stipulated taking into consideration

the final rules prescribed by the Basel

Committee by end-2017, the RBI said.

In the run-up to December-end 2017, Reserve

Bank will monitor individual banks against an

indicative leverage ratio of 4.5 per cent. Banks

operating in India are required to make

disclosure of the leverage ratio and its

components from April 1, 2015 on a quarterly

basis. The Basel III international regulatory

framework for banks is a comprehensive set of

reform measures, developed by the Basel

Committee on Banking Supervision, to

strengthen the regulation, supervision and risk

management of the banking sector.

RBI permits banks to act as insurance brokers

Seeking to increase insurance penetration in the

country, the Reserve Bank today allowed banks

to act as brokers for insurers, set up their own

subsidiaries and also undertake referral services

for multiple companies.

"Banks may undertake insurance agency or

broking business departmentally and/or

through subsidiary," RBI said in the guidelines

for entry of banks into insurance business.

Insurance Sector

The banks have also been allowed to set up

subsidiaries and joint venture companies for

undertaking insurance business with risk

participation, it said.

They can also act as corporate agents without

seeking prior approval from the RBI. However,

they will have to comply with IRDA guidelines.

Under existing bancassurance guidelines, a bank

can act as a corporate agent and sell policy of

only one life insurer and one non-life insurance

company.

The new guidelines allow banks to act as

brokers permitting them to sell insurance

policies of different insurance companies.

The guidelines follow an announcement made

in 2013-14 Budget.

"Banks will be permitted to act as insurance

brokers so that the entire network of banks'

branches will be utilized to increase the

penetration of insurance," the Budget had said.

There are about 87 commercial banks in the

country with 1.2 lakh branches across the

country.

There are 52 insurance companies operating in

India; of which 24 are in the life insurance

business and 28 are in general insurance

business. In addition, GIC is the sole national

reinsurer.

There has been a long pending demand from

the insurance industry to allow banks to act as

insurance brokers. Regulator IRDA has already

issued guidelines in this respect.

According to the RBI guidelines, banks are not

allowed to undertake insurance business with

risk participation departmentally and may do so

only through a subsidiary/JV set up for the

purpose.

Banks which satisfy the eligibility criteria (as on

March 31 of the previous year) may approach

RBI to set up a subsidiary/joint venture

company for undertaking insurance business

with risk participation, it said.

Elaborating on the condition for setting up

subsidiary/joint venture company, it said, the

net worth of the bank should not be less than

₹1,000 cr. and the CRAR of the bank should not

be less than 10 per cent.

The level of net non-performing assets should

be not more than 3 per cent, it said, adding the

bank have made a net profit for the last three

continuous years.

The track record of the performance of the

subsidiaries, if any, of the concerned bank

should be satisfactory, it said.

"It may be noted that a subsidiary of a bank and

another bank will not normally be allowed to

contribute to the equity of the insurance

company on risk participation basis," it said.

For banks undertaking insurance broking

through a subsidiary or JV without risk

participation, the net worth of the bank should

not be less than ₹500 crore after investing in

the equity of such company.

"RBI approval would also factor in regulatory

and supervisory comfort on various aspects of

the bank's functioning such as corporate

governance, risk management, etc.," it said.

For setting up JV, a comprehensive board

approved policy regarding undertaking

insurance distribution, whether under the

agency or the broking model should be

formulated and services should be offered to

customers in accordance with this policy. The

policy will also encompass issues of customer

appropriateness and suitability as well as

grievance redressal.

"It may be noted that as IRDA Guidelines do not

permit group entities to take up both corporate

agency and broking in the same group even

through separate entities, banks or their group

entities may undertake either insurance broking

or corporate agency business," it said.

"It must be ensured that no incentive (cash or

non-cash) should be paid to the staff engaged in

insurance broking services by the insurance

company," it added. Violation of the above

instructions will be viewed seriously and will

invite deterrent penal action against the banks.

SEBI board clears changes to make delisting easier

The Securities and Exchange Board of India

(SEBI) has eased delisting rules by diluting the

provision that mandated companies to get a

minimum number of public shareholders to

participate for an offer to be successful.

"It was decided to add a provision that if the

acquirer and the merchant banker are able to

demonstrate that they have contacted all the

public shareholders, about the offer in the

manner prescribed, then the condition of

mandatory participation of 25% of the public

shareholders holding shares in dematerialized

mode would not be applicable," SEBI said in a

statement released last month.

In November, while revamping the delisting

guidelines, SEBI had said that companies should

get at least 25% of the total number of public

shareholders to tender their shares in such

offers. The regulator had implemented this

proposal after having wider public discussion

and in order to ensure that companies do not

side step rules. But this requirement had drawn

severe criticism from the market as bankers felt

this rule would make delisting process difficult

for promoters.

In the past, SEBI had noticed that companies

were delisting their shares with just two

shareholders. Under the new rules, companies

wanting to delist their shares from Indian

bourses will have to ensure that the promoter

shareholding touches at least 90%. The SEBI

board also tweaked rules on the issuance of

partly-paid shares and warrants by Indian

companies.

The regulator said that in case of partly-paid

shares issued through public or rights issue, a

minimum 25% of the issue price should be

received upfront. The balance consideration

could continue to be received within 12 months

if the issue size is less than ₹500 cr. If the issue

size exceeds ₹500 cr. and the issuer has

appointed a monitoring agency, then the period

can be decided by the issuer as per the existing

regulatory framework.

While for warrants issued along with public or

rights issue of specified securities, 25% of the

consideration should be received upfront by the

issuer and tenure of such warrants would be 18

months as against 12 months at present. In

order to further develop the securitization

market, SEBI's board also approved

amendments to the Securitized Debt

Instruments regulations to rationalize and

clarify the role of the trustee.

The regulator has allowed banks and public

financial institutions to act as trustee without

obtaining registration, terms of appointment

and capital requirement. Companies exiting

regional exchanges have been given 18 months,

within which they could obtain listing on any

nationwide stock exchange.

Capital Markets

SEBI notifies stringent insider trading norms

Market regulator last month notified a stricter

set of insider trading norms to check illicit

transactions in shares of listed firms by

management personnel and 'connected

persons'.

The new norms, which will revamp nearly

two-decade old regulations on insider trading

and come into effect after four months, would

also ensure that genuine trades are not

impacted.

Besides, greater clarity on concepts and

definitions has been put in place along with a

stronger legal and enforcement framework for

prevention of insider trading under the new set

of norms, to be called the SEBI (Prohibition of

Insider Trading) Regulations, 2015.

The tightening of norms assumes significance in

the wake of Securities and Exchange Board of

India (SEBI) coming across cases of insider

trading at not just small companies, but at big

corporates as well.

SEBI has expanded the definition of 'Insider' to

include persons connected on the basis of being

in any contractual, fiduciary or employment

relationship that allows such people access to

unpublished price sensitive information (UPSI).

SEBI said that a connected person is one who

has a connection with the company that is

expected to put him in possession of UPSI. The

definition will also bring into its ambit persons

who may not seemingly occupy any position in

a company but are in regular touch with the

company and its officers and are involved in the

know of operations.

"It is intended to bring within its ambit those

who would have access to or could access

unpublished price sensitive information about

any company or class of companies by virtue of

any connection that would put them in

possession of unpublished price sensitive

information," SEBI said.

Under the new framework, SEBI has defined a

connected person in the context of insider

trading activities.

A connected person would be someone who is

or has during the past six months prior to the

concerned act has been associated with a

company, directly or indirectly.

Besides, immediate relatives of connected

persons would also come under the same

category unless they prove that they were not

privy to unpublished price sensitive

information.

The onus of establishing that they were not in

possession of UPSI would be with the

connected persons.

The regulator has decided to remove the

requirement for repeated disclosures and ease

compliance burden.

To protect the interest of investors, companies

would be now mandatorily be required to

disclose UPSI at least two days prior to trading

in case of permitted communication of such

information.

Besides, communication of such information is

prohibited except in instances of legitimate

purposes or discharge of legal obligations.

Insider trading refers to dealing in securities

after having access to unpublished price

sensitive information and such practices

provide unfair advantage to the entity who has

privy to such details.

SEBI has come across various instances of

insider trading activities not just at small

companies but also at larger ones.

The definition of UPSI has been strengthened by

"providing a test to identify price sensitive

information, aligning it with listing agreement

and providing platform of disclosure".

SEBI proposes e-IPO norms; fast-track divestment by PSUs

To boost fund raising from markets, the

Securities and Exchange Board of India (SEBI),

last month, proposed e-IPO norms, where

investors can bid for shares through Internet

and eventually on mobiles, while already listed

public sector undertakings (PSUs) will be

provided a ‘fast-track’ route for share sales to

meet the disinvestment targets.

For already listed companies as well, the market

regulator has proposed a fast-track route for

raising of funds through FPOs (follow-on public

offers) or rights offers (where funds can be

raised from existing shareholders).

Under the new norms, SEBI has proposed to

significantly cut the timeline for listing of shares

within 2-3 days of the IPO, as against 12 days

currently.

The fast-track route of raising capital has been

proposed for companies having public

shareholding market valuation of as low as ₹250

cr., as against ₹3000 cr. at present. The public

sector entities can tap the ‘fast-track’ route

even without complying to this minimum

average market value limit, provided they meet

other conditions, SEBI said. Under the

‘fast-track’ route, a listed company would not

be required to file any draft offer document for

its FPO or rights issue and it can proceed with

the fund-raising program without necessarily

getting ‘observations’ from SEBI.

SEBI had invited public comments till January

30, after which it would put in place final norms

for e-IPO as also for fast-track issuances.

Simplifying process

The proposed moves are part of efforts to

simplify the process of IPOs, lowering their

costs and helping companies reach more retail

investors in small towns.

Initially, investors would be able to place bids

through Internet and by using broker terminals

across the country, as against the current

practice of filling long paper forms.

Mobile app for making bids

A framework for use of mobile applications for

making bids in public issues can also be put in

place for implementation in future, SEBI said.

Investors would also get SMS/e-mail alert for

allotment under the IPO, similar to alerts being

sent to investors for secondary market

transactions. Further, on account of reduction

in printing of application forms, the overall cost

of public issues will also come down. SEBI said

that these proposals may be used for debt

issues as well. However, to make this

mechanism applicable, suitable amendments

may be required under the SEBI (Issue and

Listing of Debt Securities) Regulations, 2008.

SEBI proposes restrictions on 'willful defaulters'

SEBI on January 5th, recommended restrictions

on willful defaulters from accessing equity and

debt markets. Willful defaulters include

companies or individuals who deliberately avoid

repayment of dues to lenders despite having

the funds.

The regulator proposed that companies in

which a promoter, director or a group entity is

declared a willful defaulter should not be

allowed to raise money through equity, debt, or

non-convertible redeemable preference share

issuances. But, these willful defaulters can raise

money through a rights issue or a private share

sale to institutional investors. SEBI also

proposed that willful defaulters should not be

allowed to take control of other listed entities

but can make a counter offer in case of a hostile

bid.

"To prevent access to the capital markets by

willful defaulters, a copy of the list of willful

defaulters (non-suit filed accounts and suit filed

accounts) are forwarded to SEBI by RBI and

Credit Information Bureau (CIBIL)," SEBI said in

a discussion paper on the proposed rules for

restrictions on willful defaulters.

SEBI had invited public comments on the

proposals by January 23. The rules will

strengthen the government's and regulators'

fight against willful defaulters as bad loans

weigh down the banking system. The banking

sector regulator, RBI has already moved to

tighten its own rules on such defaulters.

Sources: Nseindia.com, APAS BRT

Sources: Bseindia.com, APAS BRT

January cycle started with a sharp correction as

India’s benchmark indices fell sharply as much

as 3% reversing almost all the gains made since

Christmas. The deep correction was largely

attributed to continuous decline in crude oil

prices and global concerns.

The NYMEX crude oil slipped below $50 a barrel

on concerns of oversupply. This resulted in a

sharp correction in global markets, including

India. The supply glut is also being attributed to

lack of demand as most of the major global

economies are facing a slowdown. A global

economic slowdown may impact Indian exports

to Europe and other countries. Concerns that

Greece may exit Eurozone made global

investors jittery. This has led to a sharp fall in

euro-zone as risk-averse investors were looking

at the US dollar as a haven in times of volatility.

Capital Market Snapshot – Jan-2015 Expiry Cycle

As far as India is concerned the economy has

bottomed out, inflation is under control, and

interest rates reversal has started.

Indian central bank RBI surprised the market by

cutting the interest rate by 25 basis points. The

action was expected on the 3rd Feb which was

scheduled for RBI policy review.

Sources: Nseindia.com, APAS BRT

The Indian volatility index which had increased

sharply during the correction phase during the

start of the month, stabilized post rate cut.

However uncertainty about the outcome of the

central bankers’ meeting also kept the volatility

increasing throughout the month.

Sources: APAS BRT

Yield curve which had started responding to the

expectation of the rate cut on Feb 3rd,

responded sharply to RBI’s decision of cutting

the interest rate earlier than expected date.

Since then the yield curve has been around 7.7.

The Indian rupee was also traded around 61 for

most period of the month.

Sources: APAS BR

Countries GDP CPI Current Account

Balance Budget Balance

Interest Rates

Latest 2014* 2015* Latest 2014* % of GDP, 2014* % of GDP, 2014* (10YGov), Latest

Brazil -0.2 Q3 0.1 0.5 6.4 Dec 6.3 -4.0 -5.5 11.8

Russia 0.7 Q3 0.6 -3.5 11.4 Dec 7.7 2.6 0.4 13.5

India 5.3 Q3 6.0 6.6 5.0 Dec 7.2 -2.0 -4.3 7.71

China 7.3 Q4 7.3 7.1 1.5 Dec 2.1 2.4 -3.0 3.35^

S Africa 1.4 Q3 1.6 2.5 5.3 Dec 6.2 -5.4 -4.3 6.86

USA 2.7 Q3 2.3 3.1 0.8 Dec 1.6 -2.3 -2.8 1.78

Canada 2.6 Q3 2.4 2.4 1.5 Dec 1.9 -2.4 -1.9 1.35

Mexico 2.2 Q3 2.1 3.0 4.1 Dec 3.9 -2.0 -3.6 5.87

Euro Area 0.8 Q3 0.8 1.1 -0.2 Dec 0.4 2.4 -2.5 0.35

Germany 1.2 Q3 1.4 1.2 0.2 Dec 0.8 7.3 0.8 0.35

Britain 2.7 Q3 2.9 2.7 0.5 Dec 1.4 -4.8 -5.5 1.55

Australia 2.7 Q3 2.8 2.8 1.7 Q4 2.5 -3.1 -2.6 2.61

Indonesia 5.0 Q3 5.0 5.5 8.4 Dec 6.4 -2.8 -2.3 Na

Malaysia 5.6 Q3 5.9 5.5 2.7 Dec 3.1 4.2 -3.6 3.86

Singapore 1.5 Q4 2.8 3.1 -0.2 Dec 1.1 21.6 0.5 1.99

S Korea 2.8 Q4 3.6 3.8 0.8 Dec 1.3 5.8 0.6 2.26

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Disclaimer – This informative newsletter has been sent only for reader’s reference. Contents have been

prepared on the basis of publicly available information which has not been independently verified by APAS.

Neither APAS, nor any person associated with it, makes any expressed or implied representation or

warranty with respect to the sufficiency, accuracy, completeness or reasonableness of the information set

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