March 2016|Page 1 of 9

Dear Colleagues,

We have received tremendous response and congratulatory

messages for the first issue of FOCUS. It has given us

encouragement to fine tune it further and provide valuable

inputs on the issues of interest to the entire group. We as a

group are moving step by step closer to cover majority of

financial market / products. You will all be happy to note that we

have got the regulatory approvals to set up an Infrastructure

Debt Fund (as a NBFC) as a subsidiary and also to set up an

International Banking Unit in the Gift City. These two units will

enable us to increase our reach and depth of operations.

We plan to introduce a note on changes in the international

regulations if any, impacting our group (like FATCA etc.,) to be

covered as a part of this newsletter in the coming issues.

Endeavour of all of us should be to ensure that every supervisor /

regulator has a positive view about our group and there are no

adverse remarks from them. We all therefore need to gear up

ourselves with the latest happenings across the markets which

will enable us to react to a specific situation in individual entity

with an over-all perspective of its possible impact on the group.

Request you to keep giving us suggestions for inclusion /

exclusion of areas of coverage.

Wishing you a happy reading.

T V Sudhakar

Head of Compliance

March 2016

Editorial Contents (Click on the topics)

From Regulators

Reserve Bank of India (RBI)

Securities and Exchange Board of India

(SEBI)

Insurance Regulatory and Development

Authority (IRDA)

Ministry of Corporate Affairs (MCA)

Income Tax Department

SEBI board clears wilful defaulter rules; seeks public opinion on definition of “Control”

Accounting Standards (amendments)

Budget Highlights

Quotes

Article – “Multi-Level Marketing”

Fun Zone

March 2016|Page 2 of 9

I. From Regulators

Reserve Bank of India (RBI) Can be accessed through https://www.rbi.org.in/scripts/BS_CircularIndexDisplay.aspx

1. Discontinuation of Physical Filing for reporting under FDI schemes Circ. No.: A.P. (DIR Series) Circular No.40 dated February 1, 2016

Effective 8th

February 2016, RBI made it mandatory to undertake online filing (and discontinued accepting

physical filing) of the following forms under FDI scheme:

Advance Remittance Form (ARF) which is used by the companies to report the FDI inflows to RBI;

FCGPR Form which a company submits to RBI for reporting the issue of eligible instruments to the

overseas investor against the above mentioned FDI inflow; and

FCTRS Form which is submitted to RBI for transfer of securities between resident and person outside

India.

2. Settlement of Export / Import transactions in currencies not having a direct exchange rate Circ. No.: A.P. (DIR Series) Circular No.42 dated February 4, 2016

RBI vide this circular has further liberalized the procedure and facilitate settlement of export and import

transactions where the invoicing is in a freely convertible currency but the settlement takes place in the

currency of the beneficiary, which though convertible, does not have a direct exchange rate, subject to

following conditions:

Exporter / Importer shall be a customer of the AD Bank and the counterparty is not from a country or

jurisdiction on which FATF has called for counter measures.

Signed contract / invoice is in a freely convertible currency.

The beneficiary is willing to receive the payment in the currency of beneficiary instead of the original

(freely convertible) currency of the invoice/ contract/ Letter of Credit as full and final settlement,

AD bank is satisfied with the bonafides of the transactions, and;

3. Regulatory relaxations for Startups and their overseas subsidiaries – Clarifications relating to acceptance of payments Circ. No.: A.P. (DIR Series) Circular No.51 dated February 11, 2016

RBI vide this circular has given clarifications for startups to facilitate ease of doing business. Based on a

contractual agreement between the startup, its overseas subsidiary and their concerned customers, the

following are permitted:

A startup in India with an overseas subsidiary is permitted to open foreign currency account abroad to

pool the foreign exchange earnings out of the exports/sales made by the concerned startup;

The overseas subsidiary of the startup is also permitted to pool its receivables arising from the

transactions with the residents in India as well as the transactions with the non-residents abroad into

the said foreign currency account opened abroad in the name of the startup;

The balances in the said foreign currency account as due to the Indian startup should be repatriated to

India within a period as applicable to realisation of export proceeds (currently nine months) which may

even be facilitated through Online Payment Gateway Service Providers (OPGSPs) up to such limit as

may be permitted by the Reserve Bank of India from time to time (currently USD 10,000).

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March 2016|Page 3 of 9

4. Regulatory Relaxations for Startups - Clarifications relating to Issue of Shares Circ. No.: A.P. (DIR Series) Circular No.52 dated February 11, 2016

RBI vide this circular has provided clarifications with respect to issues related to issue of shares without

cash payment by the investor through sweat equity or against any legitimate payment owed by the

company remittance of which does not require any permission under FEMA, 1999.

5. Master Direction – Know Your Customer (KYC) Direction, 2016 Master Direction DBR.AML.BC.No.81/14.01.001/2015-16 dated February 25, 2016

RBI vide this Master Direction has provided clear definitions and directions for opening and monitoring of

accounts opened by individuals, partnerships, corporate, trusts, etc. The master direction has also made a

few modifications with regard to KYC / AML guidelines issued from time to time. The direction specifically

calls for:

Independent evaluation, including legal and regulatory requirements, of the Policies and Procedures of

compliance functions of the Bank.

Relaxation in respect of account opening of “Low risk” customers who express inability to complete the

documentation requirements on account of any reason that the Bank may consider to be genuine, then

Banks may complete the verification of identity of the customer within a period of six months from the

date of establishment of the relationship.

“Money mule” accounts – serious view will be taken if such accounts are not identified and reported.

Filing STR by receiving Bank if originator details pertaining to wire transfers are not made available by

remitting Banks and terminating relationship with such Banks not providing such information.

AML software to capture transactions relating to “walk in customers”.

6. Review of Prudential Guidelines Revitalising Stressed Assets in the Economy Circ. No.: DBR.BP.BC.No.82/21.04.132/2015-16 dated February 25, 2016

The Reserve Bank of India has issued various guidelines aimed at revitalising the stressed assets in the

economy. The measures taken by RBI include Strategic Debt Restructuring Mechanism, Framework to

Revitalise the Distressed Assets in the Economy, Revisions to the Guidelines on Restructuring of Advances

by Banks, Flexible structuring of Long Term Project Loans and amendments to guidelines on Sale of

Financial Assets to Securitisation Companies (SC) / Reconstruction Companies (SC). RBI vide this circular

has modified certain provisions and also provided clarification on the guidelines wherever feedback

received from various stake holders. Some of the changes are listed below:

In case of Distressed Assets, Bank should explore possibility of having a panel of management firms /

individuals having expertise in running firms / companies and in no case the current management

should be allowed to continue without the representatives of banks on the Board of the company.

In order to avail the asset classification benefit, the banks may divest a minimum of 26% of the shares

of the company within the stipulated period of 18 months instead of 51% as per the earlier guidelines.

The Joint Lenders’ Forum Empowered Group (JLF-EG) composition has been modified.

Security receipts / pass through certificates which are not redeemed as at the end of the resolution

period (i.e., five or eight years as the case may be) will be treated as loss asset in the books of the

banks.

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March 2016|Page 4 of 9

Securities and Exchange Board of India (SEBI) Can be accessed through http://www.sebi.gov.in/sebiweb/home/list/1/7/0/0/Circulars

1. Circular on Mutual Funds – Unclaimed Redemption / Dividend Circ. No.: SEBI/HO/IMD/DF2/CIR/P/2016/37 dated February 25, 2016

SEBI vide this circular has notified amendments to “Treatment of unclaimed redemption and dividend

amounts”. Accordingly, with effect from 1st April 2016,

The unclaimed redemption and dividend amounts, can be invested in a separate plan of Liquid scheme

/ Money Market Mutual Fund scheme floated by Mutual Funds specifically for deployment of the

unclaimed amounts with no exit load and TER (Total Expense Ratio) of 50 bps.

To trace the rightful owner of unclaimed amounts, SEBI also directed the Mutual Fund entities and

AMFI to provide the list of names and addresses of those investors in whose folios there are unclaimed

amounts along with the process and forms/documents for claiming the unclaimed amount.

Mutal Fund entities / AMFI can bring out adequate security control measures for identifying the

claimant of the unclaimed amounts apart from providing his/her credentials( like PAN, date of birth,

etc.)

If claimed within 3 years from the due date, the Investors shall be paid initial unclaimed amount along

with the income earned on its deployment.

If claimed after 3 years from the due date, the Investors shall be paid initial unclaimed amount along

with the income earned on its deployment till the end of the third year. Any income earned on such

unclaimed amounts after the 3rd year shall be used for the purpose of investor education.

Insurance Regulatory and Development Authority (IRDA) Can be accessed through https://www.irda.gov.in/Defaulthome.aspx?page=H1

1. Guidelines on Product Filing Procedures for General Insurance Products Circ. No.: IRDAI/NL/GDL/F&U/030/02/2016 dated February 18, 2016

IRDA has issued guidelines, which will be effective 1st April 2016, on product filing procedures for general

insurance products based on the actual experience gained on the existing guidelines and circulars on for

general insurance products in force, evolving needs of consumers and flexibility required for general

insurers to respond to changing market conditions.

The existing products need not be filed under the new guidelines unless any change in rates, terms and

conditions of such products, but the products to be classified as “Retail” or “Commercial”. A list of all the

existing products where there is no change the rates, terms and conditions, be filed, certified by CEO and

the Appointed Actuary, within 60 days from the notification of these guidelines.

Ministry of Corporate Affairs Can be accessed through http://www.mca.gov.in/MinistryV2/noticeandcircular.html

1. HUF / Karta as partner in LLP Circ. No.: 2/2016 dated January 15, 2016

MCA vide this circular has provided clarification that a HUF or its Karta cannot become partner or

designated partner in LLP. Accordingly, we may review the UBO details in LLP accounts/investments.

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Ministry of Corporate Affairs

Government of India

March 2016|Page 5 of 9

Income Tax Department Can be accessed through http://incometaxindia.gov.in/Pages/default.aspx

1. Decide if Equity Holding is Business Income or Capital Gain Circ. No.: 6/2016 dated February 29, 2016

CBDT vide this circular has allowed the tax-payer to decide if an equity holding is a business income or

capital gain which all these years was at the discretion of the income tax assessing officer. The tax

department, however, has added a caveat. After choosing how he wants to qualify the equity holding in a

year, the taxpayer will have to continue under the same category - capital gains or business income - in the

subsequent years.

II. SEBI board clears wilful defaulter rules; seeks public opinion

on definition of “Control”

Can be accessed through http://www.sebi.gov.in/cms/sebi_data/pdffiles/33245_t.pdf

India’s market regulator Securities and Exchange Board of India (SEBI) tightened the rules for wilful defaulters by

preventing them from raising funds through public issues. The Board of SEBI, on 12th

March 2016, also suggested

initiation of seeking public opinion on definition of “Control” and also directed the listed companies to provide impact

on audit qualifications.

Given hereunder are the gist of important decisions taken by SEBI and the brief description on them.

Sr. No. SEBI Board’s decision Description of SEBI’s decisions

1. Imposing restrictions on

wilful defaulters

(a) RBI has been issuing master circulars on “wilful defaulters” from time to time

laying down the safeguards to be exercised by banks in order to contain financial

activities of wilful defaulters. Now, SEBI is set to tighten the rules for such wilful

defaulters, preventing them from raising funds from public issues. SEBI has said

that “No issuer shall make a public issue of equity securities/debt securities/non-

convertible redeemable preference shares, if the issuer company or its

promoter/director are categorised as wilful defaulter.

(b) Such wilful defaulters may also not be able to take control over other listed

entity. However, in the case of takeover offer, they may be allowed to make

competing offer for the listed company in accordance with SEBI (SAST)

Regulations, 2011.

2. Review of manner of

dealing with audit

reports containing

qualifications.

The listed entities shall be required to disclose the cumulative impact of all the audit

qualifications on relevant financial items in a separate form called “Statement on

Impact of Audit Qualifications”. This new requirement will be applicable from the

financial year ending on March 31, 2016.

3. Brightline tests for

Acquisition of “Control”

under SEBI (TSAST)

Regulations, 2011.

(a) SEBI will initiate a public consultation process regarding Brightline tests for

acquisition of “Control” under SEBI (SAST) Regulations, 2011. Currently, the

assessment of “Control” as defined under SEBI (SAST) Regulations, requires

consideration of facts and circumstances of each case, giving room for multiple

opinions involving different perspectives, which may lead to ambiguity.

Therefore, SEBI felt the need to identify bright lines for “Control”.

(b) SEBI proposes to issue an illustrative list of protective rights which would not

amount to acquisition of control.

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March 2016|Page 6 of 9

Sr. No. SEBI Board’s decision Description of SEBI’s decisions

(c) The definition of “Control” may be amended so that the control is defined as the

right or entitlement to exercise at least 25% of voting rights of a company

(regardless of whether such holding gives de facto control) and the right to

appoint majority of the non-independent directors of a company.

III. Companies (Accounting Standards) Amendment Rules, 2016

Can be accessed through http://www.mca.gov.in/Ministry/pdf/Notification_30032016.pdf

Following amendments were effected in the “Accounting Standards” and notified by Ministry of Corporate Affairs on

30th

March 2016:

1. “Accounting Standard (AS) 2 - Valuation of Inventories”

Inventories do not include spare parts, servicing equipment and standby equipment which meet the definition of “Property, Plant and Equipment” as per AS 10, to be accounted for in accordance with “Accounting Standard (AS) 10, Property, Plant and Equipment”.

2. “Accounting Standards (AS) 4 - Contingencies and Events Occurring After the Balance Sheet Date”

Earlier, the Dividends declared after the balance sheet date but before the financial statements were approved for issue were “Provided for” in the financial statements of the company. But as per the revision, Dividends will not be recognised as a liability at the balance sheet date because no obligation exists at that time unless a statute requires otherwise. Such dividends are disclosed in the notes.

3. “Accounting Standard (AS) 10 - Property, Plant and Equipment” (New name – earlier known as “Accounting for Fixed assets”

Component accounting has been made mandatory as also required under Schedule II of the Companies Act, 2013.

The cost of the property, plant and equipment will include the initial estimate of the costs of dismantling, removing the item and restoring the site on which it is located, referred to as ‘decommissioning, restoration and similar liabilities’, the obligation for which an enterprise incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period. This cost did form part of fixed assets as per the earlier standard. This cost should be discounted to its present value as required in “Accounting Standard (AS) 29 - Provisions, Contingent Liabilities and Contingent Assets”.

4. “Accounting Standard (AS) 13 - Accounting for Investments”

An investment property is an investment in land or buildings that are not intended to be occupied substantially for use by, or in the operations of, the investing enterprise.

An investment property is accounted for in accordance with cost model as prescribed in Accounting Standard (AS) 10, Property, Plant and Equipment. The cost of any shares in a co-operative society or a company, the holding of which is directly related to the right to hold the investment property, is added to the carrying amount of the investment property.

5. “Accounting Standard (AS) 21 - Consolidated Financial Statements”

Where an enterprise does not have a subsidiary but has an associate and/or a joint venture such an enterprise should also prepare consolidated financial statements in accordance with “Accounting Standard (AS) 23, Accounting for Associates in Consolidated Financial Statements, and Accounting Standard (AS) 27, Financial Reporting of Interests in Joint Ventures” respectively. This will ensure harmony in the requirements of accounting standards and Companies Act, 2013.

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March 2016|Page 7 of 9

IV. Highlights - Budget 2016

Gains / Positives

Mobilisation of additional finances for infrastructure to the extent of Rs.31,300 crore by

NHAI, PFC, REC, IREDA, NABARD and Inland Water Authority by raising Bonds.

Reforms in FDI policy in the areas of Insurance and Pension, Asset Reconstruction Companies, Stock Exchanges.

Amendments in the SARFAESI Act 2002 to enable the sponsor of an ARC to hold up to 100% stake in the ARC and

permit non institutional investors to invest in Securitization Receipts. Complete pass through of income-tax to

securitization trusts including trusts of ARCs. Securitisation trusts required to deduct tax at source.

RBI to facilitate retail participation in Government securities and new derivative products will be developed by SEBI

in the Commodity Derivatives market.

Comprehensive Central Legislation to be bought to deal with the menace of illicit deposit taking schemes.

Allocation of Rs.25,000 crore towards recapitalisation of Public Sector Banks.

General Insurance Companies owned by the Government to be listed in the stock exchanges.

Non-banking financial companies shall be eligible for deduction to the extent of 5% of its income in respect of

provision for bad and doubtful debts.

Withdrawal up to 40% of the corpus at the time of retirement to be tax exempt in the case of National Pension

Scheme (NPS). Annuity fund which goes to legal heir will not be taxable.

Losses / Negatives

Additional tax at the rate of 10% of gross amount of dividend will be payable by the recipients receiving dividend in

excess of Rs.10 lakh per annum.

Tax to be deducted at source at the rate of 1% on purchase of luxury cars exceeding value of Rs.10 lakh and

purchase of goods and services in cash exceeding Rs.2 lakh.

Securities Transaction tax in case of ‘Options’ is proposed to be increased from 0.017% to 0.05%.

Infrastructure cess, of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other

higher engine capacity vehicles and SUVs. No credit of this cess will be available nor credit of any other tax or duty

be utilized for paying this cess.

Equalization levy of 6% of gross amount for payment made to non-residents exceeding Rs.1 lakh a year in case of

B2B transactions.

V. Quotes

"We have plenty of money which we print. Don’t ever send a cheque to the RBI because somebody sent you an email which says RBI has asked for it. But people fall for this all the time.”

RBI governor Dr. Raghuram G Rajan.

“There is a famous instance where a company has claimed that it has refunded more than Rs.20,000 crore in the last 34 months to so called investors, out of which more than 90% has been returned in cash. How credible can this story be?"

SEBI chairman Shri. U.K. Sinha

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March 2016|Page 8 of 9

VI. Article: “How Multi Level Marketing (MLM) schemes with

Pyramid Structure works?”

Extract from the article published in “Jagoinvestor.com”

Background

For years and decades, MLM schemes are active and a lot of people get trapped in these Pyramid schemes and lose

their hard earned money. In this article, we will see the common mechanism they work on and their characteristics.

Before we move ahead, we would like to reiterate that we are talking about those pyramid schemes which have

different levels of people, one on top of other, and where one guy pay money which get passed on as reward to

another.

How Multi Level Marketing schemes work?

Multilevel marketing schemes are generally network based marketing

schemes, in which a person has to add more people under him. The people

obviously pay some money to “join” the business and then they add more

people under them. In almost all the schemes, the person is incentivized for

adding more people under them.

Why most people lose money in fraud Pyramid schemes?

Explaining the functioning of these entities, RBI vide its Press Release of 1st

January

2015 stated that “MLM/Chain Marketing/Pyramid Structure schemes promise easy

or quick money upon enrolment of members. Income under such schemes majorly

comes from enrolling more and more members from whom hefty subscription fees

are taken rather than from the sale of products they offer. It is incumbent upon all

members to enroll more members, as a portion of the subscription amounts so

collected is distributed among the members at the top of the pyramid. Any break in

the chain leads to the collapse of the pyramid, and the members lower down in the

pyramid are the ones that are affected the most”.

In most of the fraud schemes, the person in the top of the tree vanishes with the money collected triggering a total

collapse of the scheme. Further, these schemes are potential Money Laundering machineries.

Other Models of Scam

There are many other multi level marketing scams, which are not in a pyramid model, but ask for money towards some

awesome investment, based on some logic. They really give back awesome returns to handful of investors, who spread

the word about the scheme. When more and more people join the investment scheme and once it becomes very big,

the person who started that scheme vanishes.

What the regulation / regulator say about MLM?

RBI vide its Press Release dated 1st

Jan 2015 has cautioned the public against Multi-level Marketing (MLM) activities so

that investors do not fall prey to unscrupulous entities. RBI has also said that “acceptance of money under Money

Circulation/Multi-level Marketing/Pyramid structures is a cognizable offence under the Prize Chit and Money

Circulation (Banning) Act 1978. Members of public coming across such offers should immediately lodge a complaint

with the State Police”.

Further, under Master Directions on KYC / AML, RBI reiterates that “Banks should closely monitor the transactions in

accounts of marketing firms, especially Multi-level Marketing (MLM) Companies. Banks should analyse data in cases

where a large number of cheque books are sought by the company, there are multiple small deposits (generally in cash)

across the country in one bank account and where a large number of cheques are issued bearing similar

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March 2016|Page 9 of 9

amounts/dates. In such cases, the matter should be immediately reported to Reserve Bank and other appropriate

authorities such as FIU-IND.”

In order to curb illegal money-pooling and further restrict any misuse of existing laws, the Government of India has

drafted a bill, with the consultation of SEBI and Central Bureau of Investigation (CBI). The bill named “Banning of

Unregulated Deposit Scheme and Protection of Depositors’ Interest Bill, 2015,” will bring all types of deposit-taking and

potentially ponzi schemes, including CIS and Chit Funds, under one umbrella Act.

Beware of these Get Quick Rich models.

VII. Fun Zone (Anonymous Quotes)

I saw a bank that said "24 Hour Banking"; but I don't have that much time.

In order to get a Loan easier and faster, you first need to prove that you don't need it.

It's not hard to meet expenses, they are everywhere.

In a country of free speech, why are there phone bills?

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Disclaimer:

Logos and Terminologies used in the document are properties of respective organizations / departments. The material contained in this document aims at providing a summary of various guidelines, notifications, circulars etc. issued by

various regulatory authorities from time to time and is for information purposes only. The same should not be construed as an advice on any matter.

For complete information on the matter provided therein, readers are advised to refer to the detailed guidelines, notifications, circulars etc. available on the websites of the respective regulators or they may consult the respective compliance departments before acting on any matter.

Structured by: Srivatsan S, Compliance