20-Jun-2018: MCA invites comments from stakeholders on introductory note and draft on Cross-Border Insolvency
The Ministry of Corporate Affairs (MCA), Government of India, invites comments and views from stakeholders on introductory note and draft on Cross-Border Insolvency. The MCA is keen to introduce a globally accepted and well-recognised cross-border insolvency framework, fine-tuned to suit the needs of aspirational Indian economy. The Government has taken initiative for Cross-Border Insolvency within the Insolvency & Bankruptcy Code, 2016 (the Code) to provide a comprehensive legal framework.
As the size of the Indian economy grows, business and trade have adopted an increasingly international character. Creditors and corporates frequently transact business in more than one jurisdiction. Foreign banks and creditors finance Indian companies and Indian banks have foreign exposure. Moreover, as part of its Ease of Doing Business and Make in India policies, India seeks to attract foreign companies to set up manufacturing facilities in India. Global experience demonstrates that cross-border investment decisions and their outcomes, are considerably affected by the insolvency laws in force in a country. Towards this end, even though the Insolvency and Bankruptcy Code, 2016 has resulted in significant improvement in India's insolvency regime, there is a need to include cross-border insolvency in the Code to provide a comprehensive insolvency framework.
Inclusion of cross-border insolvency framework will further enhance ease of doing business, provide a mechanism of cooperation between India and other countries in the area of insolvency resolution, and protect creditors in the global scenario. Furthermore, it will make India an attractive investment destination for foreign creditors given the increased predictability and certainty of the insolvency framework.
On the global scale, the UNCITRAL (United Nations Commission on International Trade Law) Model Law on Cross-Border Insolvency, 1997 (Model Law) has emerged as the most widely accepted legal framework to deal with cross-border insolvency issues while ensuring the least intrusion into the country's domestic insolvency law. Due to the growing prevalence of multinational insolvencies, the Model Law has been adopted by 44 States till date, including Singapore, UK and US.
23-Feb-2018: The Reserve Bank introduces Ombudsman Scheme for Non-Banking Financial Companies
As announced in the Monetary Policy Statement of February 7, 2018, the Reserve Bank of India (RBI) has launched the Ombudsman Scheme for Non-Banking Financial Companies (NBFC) vide Notification dated February 23, 2018 for redressal of complaints against NBFCs registered with RBI under Section 45-IA of the RBI Act, 1934. The Scheme will provide a cost-free and expeditious complaint redressal mechanism relating to deficiency in the services by NBFCs covered under the Scheme. The offices of the NBFC Ombudsmen will function at four metro centres viz. Chennai, Kolkata, Mumbai and New Delhi and will handle complaints of customers in the respective zones.
To begin with, the Scheme will cover all deposit-taking NBFCs. Based on the experience gained, the RBI would extend the scheme to cover NBFCs having asset size of Rs. One Billion and above with customer interface.
The Scheme provides for an Appellate mechanism under which the complainant/NBFC has the option to appeal against the decision of the Ombudsman before the Appellate Authority.
7-Feb-2018: RBI to link bank's base rate to MCLR
The Reserve Bank will link the base rate for loans given by banks to the MCLR starting April 1, 2018 i.e. from the new financial year. The Marginal Cost of Funds based Lending Rates (MCLR) system was introduced on April 1, 2016 to tackle the problems of the Base Rate regime. With the introduction of the MCLR system, it was expected that the existing Base Rate linked loans and other credit exposures would also migrate to MCLR system. However, this has not happened.
It is observed, however, that a large proportion of bank loans continue to be linked to the Base Rate despite the Reserve Bank highlighting this concern in earlier monetary policy statements. Since MCLR is more sensitive to policy rate signals, it has been decided to harmonize the methodology of determining benchmark rates by linking the Base Rate to the MCLR with effect from April 1, 2018.
Earlier there had been a lot of complaints that whenever RBI reduced interest rates banks took a long time to pass on the benefit to borrowers and often the benefit was passed on only partially i.e. banks did not reduce their lending rates by as much as RBI cut the benchmark rates.
Following these complaints, RBI had introduced the MCLR system. Today's announcement appears to be a step in the same direction.
Under the base rate regime, the banks were either reluctant to cut their lending rates (post RBI repo rate cuts) or did so with a time lag. A new method of bank lending called marginal cost of funds based lending rate (MCLR) was therefore put in place for all loans, including home loans, given after April 1, 2016.
Under the MCLR mode, the banks have to review and declare overnight, one month, three months, six months, one year, two years, three years rates each month. However, when it came to lending, in the MCLR based lending, the interest rate of the home loan gets re-priced on a periodical basis. As per the RBI rules, "the periodicity of reset shall be one year or lower. The exact periodicity of reset shall form part of the terms of the loan contract."
Most borrowers shifted their loans from the base rate to the MCLR mode. The primary reason to switch from base rate to MCLR has to be the sluggishness seen in banks' passing on the benefits of RBI rate cuts to borrowers. The MCLR, on the other hand, takes into account the marginal cost of funds which includes the rate at which the bank raises deposits and other cost of borrowings. This largely helped banks in passing on the benefits to the customers unlike n the base rate era.
The RBI has made it clear that banks should allow base rate borrowers to switch to MCLR. The existing loans can run till maturity or borrowers can switch to MCLR on mutually agreed terms. The base rate borrowers have two options, either switch to MCLR based lending with the same bank or else transfer i.e. get the loan refinanced from another bank on MCLR mode. One may also continue the loan on base rate, especially if the loan term is nearing the end.