The B&B Regulatory Updates #6: RBI revises ECB Framework and MCA passes CARO, 2016

Bar & Bench will bring 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 revised ECB Framework and the new MCA Order.

RBI revises ECB Framework 

The Reserve Bank of India issued a notification on 30 March 2016 revising the External Commercial Borrowings (“ECB”) framework allowing infrastructure firms to borrow up to 5 years. Until now, infrastructure companies could raise only long-term external borrowings of more than 10 years. Following are the key highlights:

• Infrastructure firms, non-banking finance companies (“NBFCs”)-infrastructure finance companies, NBFCs- Asset Finance Companies, holding companies and core investment companies will also be eligible to raise ECB for minimum average maturity period of 5 years, subject to 100 per cent hedging;

• Exploration, mining and refinery activities will also be treated as infrastructure for ECB purposes;

• End uses of the raised by different categories of borrowers have been specified;

• ECB framework will not be applicable in respect of investment in non convertible debentures in India by resident foreign portfolio investors;

• Minimum average maturity of foreign convertible bonds/ foreign currency exchangeable bonds will be 5 years irrespective of the amount of borrowing;

• Only those NBFCs, which are coming under the regulatory purview of RBI, will be permitted to raise ECBs.

MCA passed the Companies (Auditor’s Report) Order, 2016

The Ministry of Corporate Affairs (“MCA”) passed an order dated 29 March 2016 putting in place stricter reporting requirements for auditors on matters that have to be included in the audit reports prepared by them. This measure also comes against the backdrop of rising bad loans in the banking system and therefore a great number of provisions relate to the loans granted and raised by companies. In instances where the auditor is not satisfied with matters relating to the company’s affairs, he must attach a statement giving reasons for such unfavourable opinion.

Among other factors, the auditors report will have to state if:

• The loans granted by the company are prejudicial to company’s interest and if reasonable steps have been taken in instances where the amount is overdue. The auditor will also have to disclose in his report if the company has defaulted in repayment of loans of borrowings;

• The company is in compliance with provisions relating to (a) related party transactions and; (b) private placement;

• The company is maintaining proper records showing full particulars, including quantitative details of fixed assets;

• The company regularly deposits the undisputed statutory dues such as provident fund, employee’s state insurance fund and complies with various tax laws;

• The money raised by way of initial public offer and term loans were applied for the purposes for which raised.