Regulatory Updates #18: NITI Aayog on strategy for Electronic Products, RBI on cyber security & more

Bar & Bench will bring to you the latest regulatory and policy updates from different ministries and regulatory authorities. In this edition of the Bar & Bench Regulatory Updates, we analyse the latest notifications by the Reserve Bank of India (RBI) and NITI Aayog’s report on electronic products. NITI Aayog suggests measures to strengthen ‘Make in India’.Government think tank NITI Aayog recently came out with a report ‘Make in India Strategy for Electronic Products’..The report, which aims at attracting large global firms in India, has recommended several measures including a 10-year tax holiday for companies investing over $1 billion in electronics manufacturing activities. The report notes:.“….at less than $65 billion, the domestic market remains small in relation to the world market, which is in excess of $2 trillion“.The report examines the existing regulatory provisions, some which discourage global players from entering the Indian market and goes on to recommend methods to improve/substitute them..It aims at adopting an export-oriented strategy instead of an import-substitution strategy. This way, focus will remain on targeting global and domestic markets instead of just securing domestic market..While the existing approach with respect to free trade agreements (FTA) is defensive, the report says that an export oriented strategy would convert FTAs into an opportunity..Cyber Security Framework in Banks.In view of the rising threat posed by the digital world, the RBI is next in line, after Securities Exchange Board of India (SEBI), to implement a cyber security framework. Last year, SEBI came out with a similar framework for Market Infrastructure Intermediaries, which later on in March 2016 was extended to commodity derivates exchanges also..The framework suggested by the RBI recognises the rapid growth in use of information technology by banks and their constituents, and the resultant increase in cyber attacks..Therefore, the RBI has called for a board approved cyber-security policy which is to be reported to the RBI by September 20, 2016. It has been noted that banks have been reluctant to share the cyber-incidents faced by them and the RBI has sought to ensure that henceforth, it is communicated in a timely manner which will further facilitate the development of best practices for containing cyber-risks..The Cyber Security Policy, among other things, must be separate from the bank’s overall technology and security policy. It must also discuss strategy, acceptable level of risks (identify risks as low, moderate, high and very high or adopt any similar categorisation) and an appropriate approach to combat cyber security threats. Further, it should focus on aspects such as setting up security operation centres for continuous surveillance and management of cyber threats, and protection of sensitive customer information..Refinancing of Project Loans.The RBI has extended the facility of takeout financing of projects to Non-Banking Finance Companies (NBFC), a facility which was so far available only to banks..Takeout financing is a route to refinance wherein new lenders take over project loans of existing lenders and thereby stretch the loan’s repayment over a longer period. This allows existing lenders to clean up their balance sheets, pursue new lending opportunities, and the projects benefit from a longer repayment period..NBFCs can now provide takeout financing subject to certain conditions. In cases where the aggregate exposure of all institutional lenders is minimum Rs. 1,000 crores, NBFCs can take over a minimum 25% of the existing loan through partial take-out financing, otherwise NBFCs will have to take over at least 50% from existing lenders..For refinancing to fall outside the ambit of restructuring, in both the cases, loans must be classified as ‘standard’ in the books of existing lenders, and should not have been restructured in the past. Further, the repayment period that NBFC fixes should take into account the life cycle of the project and the cash flows associated with it.