FINTELLIGENCE - Vivro - Issue 9.pdf · section 80C of the Income Tax Act which encourages ......

FINTELLIGENCE ISSUE 9 | JANUARY - FEBRUARY 2017

FOREWORD

The Capital Markets Regulator of India, SEBI, functions under the primary premise of promoting fair dealing within the capital markets and protecting the interest of investors – small and large. SEBI regulations have evolved with changing business dynamics and evolving transactions. One such regulation which has evolved since it was first introduced by the Ministry of Finance in 1979 has been the SEBI Delisting Regulations which are at present notified under the SEBI (Delisting of Equity Shares) Regulations, 2009, as amended up to 2015. The regulations cover the manner and method of delisting for large companies as well as smaller companies with certain relaxations. While the delisting regulations cover all companies listed on all stock exchanges, SEBI derecognised several regional stock exchanges and has provided a separate mechanism for such companies listed on these regional stock exchanges, including those that were moved to the Dissemination Board. In this issue we have broadly covered the salient features of the Delisting Regulations as well as articulated the exit mechanism of companies exclusively listed on derecognised regional stock exchanges.

Savings have played a significant role in the development of the Indian economy. Traditional avenues of savings and investments have been bank fixed deposits, pension plans and insurance. The government has provided an opportunity for individuals to make certain pre-defined investments up to a sum of Rs. 1.5 lakhs per annum under section 80C of the Income Tax Act which encourages investments through savings in taxes. These investments need not be made only at the end of the year, but can be made in a planned manner throughout the year. However, more often than not, individuals procrastinate and defer making investments at the very last minute. In that rush they may end up making investments that do not suit their goals or their long term savings plans. Market linked investments such as ELSS funds provide the benefit of compounding as well as a mechanism to save little every month through the SIP route which meets the investment objective in a planned manner. In this issue we have written about the various tax saving investments

avenues which may be used to plan your finances and save taxes which may be suited to your risk appetite and aligned to your long term goals.

Credit Rating has gained significant importance. A well-functioning credit rating framework within the country provides important information which is essential in taking the right credit decisions. In order to boost transparency and accountability of Credit Rating Agencies, Securities and Exchange Board of India (SEBI) has tightened the disclosure norms for CRAs vide its circular dated November 1, 2016 (‘the Circular’). Our article on Strengthening Credit Rating and Credit Rating Agencies in India talks about how the circular aims to put forth emphasis on disclosure to be made by rating agencies on rating issued by them, formulation of rating criteria, rating processes, functioning and evaluation of the rating committee and sub-committees. The disclosure requirements as stated in the circular are intended to promote greater communication and reduce rating shopping.

We are happy to release our ninth issue of FINtelligence, for the month of January – February, 2017. We wish you a Happy New Year and hope you enjoy this edition of FINtelligence. Please write back to us on [email protected] with your valuable feedback and comments.

VIVEK VAISHNAV ROSHAN VAISHNAV

SEBI (Delisting of Equity Shares) Regulations, 2009

A Landmark Regulation in Improving Shareholders’ Value 05

Plan your Investments and Save Taxes 10

Strengthening Credit Rating and Credit Rating Agencies In India 15

About Vivro 20

TABLE OF CONTENTS

Delisting of securities is the permanent removal of securities of a listed company from the stock exchange where it is listed. Consequent to such delisting, the securities of that company would no longer be traded on that stock exchange.

Delisting of securities is essentially a business decision that companies take based on commercial considerations. There are several reasons for a company to delist its securities and become private, such as, falling stock prices, bearish markets, lack of trading, reducing compliances and costs associated with remaining listed, reduced disclosures in the open market, greater flexibility in decision making, increase promoters’ shareholding, acquiring full control over the company’s affairs etc.

Amendment in Delisting Regulations 2009 and its Impact In 1979, circular no. F6/9/SE/78 dated June 28, 1979 issued by the Ministry of Finance permitted delisting of companies subject to certain criteria being satisfied by the concerned company till 2015 when SEBI notified the currently applicable delisting regulations under SEBI (Delisting of Equity shares) (Amendment) Regulations 2015, w.e.f. 24-03-2015. The regulation surrounding delisting has undergone numerous changes and amendments based on regulatory factors,

investor protection and ease of conducting such capital market transactions.

In 2015, SEBI further overhauled the regulatory norms for voluntary delisting by amending SEBI (Delisting of Equity Shares) Regulations, 2009 (“Delisting Regulations”). The amendments were notified on March 24, 2015 with immediate effect as SEBI (Delisting of Equity Shares) (Amendment) Regulations 2015. SEBI’s intent behind these changes has been two-folded - to make the delisting process simpler and protect investors’ interests. Further, the amended regulations have provided relaxations in the procedure for delisting smaller companies. This changed the thresholds for a successful offer, provided for voluntary delisting pursuant to an open offer under the Takeover Code, provided for the use of stock exchange platform for delisting offer (in order to bring in tax benefits to investors in the form of lower taxes on capital gains arising from such sale and, thereby, motivate them to participate in the delisting) as well as provide certain relaxations from strict compliances of the Delisting Regulations.

SEBI (DELISTING OF EQUITY SHARES) REGULATIONS, 2009

A LANDMARK REGULATION IN IMPROVING SHAREHOLDERS’ VALUE

05 SEBI (DELISTING OF EQUITY SHARES) REGULATIONS, 2009 - A LANDMARK REGULATION IN IMPROVING SHAREHOLDERS’ VALUE

SEBI (DELISTING OF EQUITY SHARES) REGULATIONS, 2009 - A LANDMARK REGULATION IN IMPROVING SHAREHOLDERS’ VALUE 06

Compulsory Delisting Compulsory Delisting refers to the permanent removal of the securities of a listed company from a stock exchange(s) as a penalizing measure at the behest of the stock exchange(s) for not making submissions or adhering to compliances as required under the Listing Agreement entered by the Companies in terms of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 within the time frames as prescribed in terms of section 21A of the Securities Contracts (Regulation) Act, 1956 (SCR Act) as well as matters such as non-redressal of investor complaints despite reminders, unfair trading practices at the behest of the promoters/management and such other malpractices as are prescribed.

SEBI vide circular no. SEBI/HO/CFD/DCR/CIR/P/2016/81 dated September 7, 2016 imposed restrictions on companies which are delisted compulsorily e.g. its whole-time directors, its promoters and the companies promoted by any

such person, shall not directly or indirectly access the securities markets for a period of ten years from the date of compulsory delisting, they shall not be eligible to become directors of any listed company; the depositories shall not effect transfer by way of sale, pledge, etc. of any of the equity shares and corporate benefits like dividends, rights, bonus shares, split, etc. shall be frozen, for all the equity shares, held by the promoters/ promoter group till the promoters of such company provide an exit option to the public shareholders. Further, these companies would be moved to the Dissemination Board of the Exchange for a period of 5 years as directed by SEBI.

Voluntary Delisting of Securities - Where an Exit Opportunity is RequiredVoluntary Delisting from all the stock exchanges require approvals from the Board of Directors, Shareholders, and concerned Stock Exchange(s). Apart from such

Delisting Methodology – An Overview

* As elaborated hereunder

DELISTING

CompulsaryDelisting

VoluntaryDelisting

Voluntary delisting from all Stock Exchanges on

which securities are listed

Voluntary delisting from few exchanges but remains listed on at least

one Exchange having nationwide trading

terminals

Small Company* (Whether listed at any of

the SE)

Exit Opportunity required

No Exit Opportunity required

No Bidding, but Exit Opportunity required

corporate and stock-exchange approvals, the process involves various other steps such as appointment of a Merchant Banker (who is responsible to manage the delisting offer), determining the Floor price and Final Price, Opening the Escrow and Special Bank Accounts, Making Public Announcements, Issuing the Letter of Offer, Fixing the Bid Opening Date and Closing Date, Acceptance of Exit Price by the Acquirer, on success making Payment to the Shareholders, making the Final Application for Delisting with the concerned stock exchange(s) and keeping the offer open to accept shares from the remaining shareholders up to a period of one year from the date of delisting.

Voluntary Delisting of Securities - Where No Exit Opportunity is RequiredIn a situation where a company chooses to remain listed on at least one exchange having nation-wide trading terminal, it shall not be required to give an exit opportunity to shareholders. The Company shall follow a simpler process of passing the necessary board resolutions, issuing a public notice, making an application for delisting from the exchange from where it seeks to delist and disclosing the same in the first annual report of the Company post such delisting.

Special Provisions for Small Companies The Delisting Regulations, as amended in 2015, contain special provisions for ‘Small Companies’ with a shorter process of delisting and without following the Reverse Book Building process. As per the regulations a Small Company shall be such that:

• Has a Paid Up Capital not exceeding INR 10 Crore and Net Worth not exceeding INR 25 crores as on the last date of preceding financial year;

• The number of equity shares of the Company traded on recognized stock exchange during the twelve calendar months immediately preceding the date of board meeting is less than ten per cent ; and

• The Company has not been suspended by any of the recognized stock exchanges having nation-wide trading terminals for any non-compliance in the preceding one year.

The simplified procedure for small companies requires an approval of the Board of Directors and Shareholders’ Approval by Special Resolution passed through postal ballot, provided that, the Special Resolution shall be acted upon only if the votes cast by public shareholders in favor of the proposal amount to at least 2 times the number of votes cast by public shareholders against it.


Appointment of a Merchant Banker and determining an Exit price

Exit price shall not be less than the Floor price determined through the book building process read with Regulation 8(2) (e)of the SEBI (SAST) Regulations, 2011

Promoter writes individually to all public shareholders about the proposal informing them of his intention to get the equity shares delisted, indicating the Exit price together with the justification thereof and seeks their consent for the proposed delisting

The Promoter makes payment of consideration in cash within 15 days from the date of expiry of 75 working days from obtaining consents

At least 90% of the Public Shareholders to give their ‘positive consent’ in writing to the proposed delisting, either to sell their equity shares at the price offered by the promoter or to remain holders of the equity shares even if they are delisted

The concerned recognized stock exchange may delist such equity shares once it is satisfied that the regulations have been complied with.

Conditions to be Complied by Small Companies

Conditions to be Complied by Small Companies

Companies Listed on Regional Stock Exchange(s) (‘RSE’) and the Dissemination Board (‘DB’) Securities and Exchange Board of India, (“SEBI”), issued a circular MRD/DoP/SE/Cir- 36/2008 dated December 29, 2009 (“1st Exit Circular”), suggesting the guidelines for Exit Option to Regional Stock Exchanges (“RSE”). This guideline was revised/modified vide circular CIR/MRD/DSA/14/2012 dated May 30, 2012 (“2nd Exit Circular”).

As per the above mentioned circulars, Companies that were exclusively listed on an RSE, (“ELC”) were required to list their shares on a stock exchange with nationwide trading terminal and such stock exchanges (with nationwide trading terminal) were also required to facilitate listing of such companies exclusively listed on a RSE. If any ELC company (exclusively listed on a RSE) fails to get itself listed on any other stock exchange (with nationwide trading terminal), it shall cease to be a listed company, and shall be moved to Dissemination Board (DB), set up by stock exchanges with nationwide trading terminals.

Thereafter SEBI, issued circular CIR/MRD/DSA/18/2014 dated May 22, 2014 (“3rd Exit Circular”), giving directions to the Regional Stock Exchanges, on how they need to deal with companies, that were exclusively listed on the RSE. This Circular, gave an option to such exclusively RSE listed companies, to get themselves delisted, by following the procedure laid in SEBI (Delisting of Equity Shares) Regulations, 2009.

Subsequent to the 3rd Exit Circular, RSE’s identified companies as “vanishing companies” and those to be moved to the Dissemination Board (“DB Companies”).

SEBI issued, another circular CIR/MRD/DSA/05/2015 dated April 17, 2015 (“4th Exit Circular”), on companies, that are/were exclusively listed on a RSE, extending the time to such companies by another 18 months from April 17, 2015, and required them to either list their shares on stock exchanges (with nationwide trading terminal) or offer their shareholders an “Exit”.

On October 10, 2016, SEBI came out with the latest circular No. SEBI/HO/MRD/DSA/CIR/P/2016/110 (“5th Exit Circular”) providing a mechanism to RSE ELC Companies to Exit from the DB. The circular requires such companies to exercise one of the two options – either raise capital for listing on nation-wide stock exchanges to meet listing criteria and thereafter list

on recognized stock exchange(s) or provide Exit to the Shareholders.

To facilitate such listing on nation-wide stock exchanges, the ELCs on the DB are permitted to raise capital through the preferential allotment route. The circular has exempted such companies from complying with the SEBI SAST 2011 Regulations.

If the Promoter chooses to give an Exit to shareholders he shall, appoint an ‘Independent Valuer’ to determine the fair value of the equity shares of the Company. In case the fair value determined is positive, the promoter of the company will acquire shares from public shareholders by paying them consideration as per the value determined by the Independent Valuer. The entire process is to be completed with 75 working days. The promoter is required to give a public announcement and send a Letter of Offer to all the public shareholders. He shall also furnish a declaration to obtain the shares from the remaining shareholders up to a period of one year from completion of the offer. In order to discharge the consideration the circular requires Promoters to use an escrow mechanism and deposit the value of consideration in escrow.

Penalties to Companies that remain on the Dissemination Board and fail to list or

provide an Exit Option

If timely actions are not taken by an ELC, it may face consequences from SEBI such as ban on the ELC/ its directors/Promoters from accessing the securities market for a period of 10 years, freezing shares of the Directors/Promoters, placing the list of Directors/Promoters on the website of SEBI as well as sharing information with other concerned agencies, attachment of bank accounts / other assets of Directors/Promoters in order to compensate investors.

SEBI (DELISTING OF EQUITY SHARES) REGULATIONS, 2009 - A LANDMARK REGULATION IN IMPROVING SHAREHOLDERS’ VALUE 08

Conclusion Since the enactment of the 2009 Regulations till the amendment of Delisting Regulations in 2015 India witnessed only 38 delisting offers out of which 29 were successful, 7 offers failed as minimum number of shares were not tendered, and in remaining 2, the offer price was rejected by the acquirer. On the other hand, the number of listed companies has constantly been on a rise.

SEBI and Stock Exchange(s) have thus embarked on a drive to clear out thousands of companies whose shares have been suspended from trading due to non-compliance. The objective of the regulator is that the public shareholders in these companies should be given an exit and be adequately compensated. SEBI has announced that it is planning to show the exit door to nearly 4,200 companies including those listed on Regional Stock Exchanges (RSEs) and those suspended for over seven years at nationwide bourses. BSE in a circular said 194 companies that have remained suspended for more than 13 years would be delisted from the platform of the Exchanges, with effect from Wednesday, August 17, 2016, pursuant to order of the Delisting Committee of the exchange in terms of SEBI (Delisting of Equity shares) Regulations, 2009.

Protection of investor interest holds the most paramount importance for SEBI. Through the recent delisting circulars the regulator has clearly articulated its intention of protecting investor interest. It is a welcome move for companies who were unable to follow all the provisions of the Delisting Regulations in order to provide exits to public shareholders.


Every year, during the months of January to March springs a wakeup call on many of us. Suddenly, we are rushing at breakneck speed, riffling through financial papers, researching investment instruments, frantically calling the accountant—the deadline to make your tax saving investments is once again too close for comfort.

There are many reasons why we put off our investment plans each year — work, family pressure, and even sheer laziness.

We are all wired to procrastinate; blame it on human nature. The point is this: Should we at all be procrastinating about something as crucial as our tax planning?

A head start works wonders in most areas of your life and tax planning is no exception. Last minute

investment planning to save taxes is often a compromise and does little to further your financial goals. Instead, advancing this activity by a few months with some careful planning and execution can help achieve your financial objectives and save tax.

The best time to start investment planning to save tax is at the start of the financial year, April. By starting early, not only will you be able to spread your cash flows over the year but also analyze and opt for the tax-saving options that are best suited to your needs and goals.

An intelligent tax-planning strategy can hence serve dual objectives of meeting long term financial goals and saving tax in the process.

PLAN YOUR INVESTMENTS AND SAVE TAXES

PLAN YOUR INVESTMENTS AND SAVE TAXES 10

Tax Saving Option & Plan

Lock - In Period (Years)

Pre - Tax Returns (%)

Tax Applicable Tax Benefit Under Section

Life Insurance 5 6 to 8 Amount on maturity and periodic payouts are Tax free

Section 80C (Premium) Section 10(D) (Death / Maturity)

Pension Plans 10 to 30 6 to 7 Dividend and maturity amount is Tax free

Section 80CCD

NPS 10 to 30 12 to 14 Annuity Income is Taxed, as per applicable income slab

Section 80CCD

Investment Avenues for Tax Planning

11 PLAN YOUR INVESTMENTS AND SAVE TAXES

Life Insurance plays an important role in the individual’s financial portfolio, offering security to the individual’s family in case of an unforeseen eventuality. This makes it the breadwinner’s primary responsibility to take life insurance at an early age to secure his/her family. Life insurance offers tax benefits to policyholders on the premiums paid. There are various life insurance plans like: Term Plans, Endowment Plans, ULIPs or Unit-Linked Plans and Money Back Plans.

Regardless of its nature, life insurance plans offer tax benefits to policyholders. Premiums paid towards life insurance are covered under Section 80C of the Income Tax Act up to a maximum of Rs 1.5 lakhs. Proceeds on death / maturity are tax-free under Section 10(D). Term Plans do not offer any return on investment and are a pure indemnity contract, however endowment policies, ULIPs and money back policies offer returns in the range of 6% to 8% during the life of the insurance contract. If a policy is surrendered/terminated within five years; deductions claimed are added to income and taxed accordingly.

Pension Plans are another form of life insurance. They serve a different end-objective from other insurance plans like term plans and endowment plans – which are called also referred to as protection plans. While protection plans are geared to financially secure the individual’s family on his death, pension plans aim at providing for the individual and his family for the years he lives. The aggregate limit of deduction under all the sub-sections of Section 80C cannot exceed Rs 1.5

lakhs and deliver an average return of 6% to 7%. On maturity 1/3rd of the accumulated pension amount is tax free with the balance 2/3rd treated as income and taxed at the marginal tax rate. The amount is tax free upon death of beneficiary. In case you surrender the pension plan, the surrender value will be added to your income for the year and taxed at the marginal income tax rate.

Health Insurance or Mediclaim as it is more popularly known, covers expenses incurred from an accident/hospitalization. Mediclaim also covers pre and post hospitalization expenses, subject to the sum assured. Health insurance offers tax benefits under Section 80D. Insurance premium up to Rs 20,000 for senior citizens and Rs 15,000 for others is eligible for tax benefit. If the policyholder pays Rs 15,000 as premium on his own policy and Rs 20,000 for his parent, a senior citizen, he can claim tax benefit of Rs 35,000 (Rs 15,000+20,000). Maturity value is tax free for sum received under critical illness insurance policies.

National Pension Scheme or NPS is regulated by the Pension Funds Regulatory and Development Authority – PFRDA. NPS is a talk of the season after the last year’s budget offering an additional tax deduction of Rs. 50,000. Any citizen of India in the 18 – 60 years age bracket can participate in this instrument. It is extremely cost effective since fund management

Tax Saving Option & Plan

Lock - In Period (Years)

Pre - Tax Returns (%)

Tax Applicable Tax Benefit Under Section

Tax-Saving Mutual Funds(ELSS)

3 14 to 18 Dividend and maturity amount is Tax free, subject to lock-in

Section 80C Section 10(D)

PPF 15 8.1 to 8.8 Interest and maturity amount is completely Tax free

Section 80C

VPF/EPF - 8.1 to 8.8 Interest and total corpus is completely Tax free, if withdrawn after 5 years.

Section 80C

Sukanya Samriddhi Scheme

Locked upto the age of 21

8.6 Interest and maturity amount is Tax free

Section 80C

Bank FD’s and NSC’s 5 to 10 8 to 8.40 Interest is Taxable as per applicable income slab

Section 80C

Senior Citizen Savings Scheme

5 8.6 Interest is Taxable as per applicable income slab

Section 80C

Data as on 15th Dec 2016 Sources: Value Research, Business Line (The Hindu), ETIG

Health Insurance or Mediclaim

National Pension Scheme or NPS

Pension Plans

Life Insurance


charges are low and fund managers are allowed to invest in a larger basket of stocks by no longer mirroring the Index. The fund managers manage the money in three separate accounts having distinct asset profiles viz. Equity (E), Corporate bonds (C) and G Government securities (G). Investors can choose to manage their portfolio actively (active choice) or passively (auto choice) and hence this makes NPS an attractive option for all types of investors (Conservative, Moderate or Aggressive). At age 60, minimum 40% of the accumulated corpus has to be used to purchase an annuity. The subscriber can withdraw up to 40% of the accumulated corpus tax-free. Rest 20% can be withdrawn lump sum and the amount will be considered taxable. Alternatively, the subscriber can withdraw this 20% over a period of 10 years. The intent is to encourage subscribers to defer their withdrawals.

Until recently the age of 60 was fixed as the NPS account termination date. However recently the PFRDA has made changes to NPS whereby subscribers can, if they choose, defer their age for withdrawal from 60 to any time before age 70. This has been done in response to the increasing trend of people continuing to work beyond the age of 60.

The returns vary depending on the option chosen by the Investor and are in the average range of 12% to 14%. Contributions made to the NPS are covered under Section 80CCD of the Income Tax Act.

Tax Saving Mutual Funds Investments in Tax-Saving Mutual Funds, also known as Equity Linked Savings Scheme (ELSS), qualify for tax benefits. ELSS schemes come with a lock-in period of 3 years. Investing in ELSS is the right way to start investing in equities. Investment in this asset class requires a disciplined approach as well as a long-term view, and ELSS takes care of both these considerations and is best suited for investors with medium to high risk appetite. ELSS has the shortest lock-in period as compared to other instruments (PPF- 15 years, NSC- 5 years). This makes ELSS one of the most attractive instruments for investment. A small investor can choose the SIP (Systematic Investment Plan) route, wherein he can invest a fixed amount of money every month, which can be as low as Rs. 500. ELSS is the only tax-saving investment option which has the potential to generate high returns over a longer period of time. ELSS schemes have given an average return of 17.8% in the past 3 years. Investments towards ELSS are covered under Section 80C of the Income Tax Act up to a maximum of Rs 1.5 lakhs. Proceeds on death / maturity are tax-free under Section 10(D).

Public Provident Fund (PPF) Scheme is a tax-free savings avenue that was introduced in India in the year 1968. Interests earned on deposits in the PPF account are Tax free and the minimum deposit amount can range between Rs.500 to Rs.1.5 Lakhs. The PPF interest rate for the financial year 2016 - 2017 is 8.1%. PPF accounts can be opened at any nationalized, authorized bank and authorized branches/post offices. PPF accounts can be opened at specific private banks as well. With a deposit period of 15 years and a lock-in period of 7 years, these accounts serve long-term investment goals.

Voluntary Provident Fund (VPF) scheme is an extension of the Employee Provident Fund (EPF) wherein an Individual can invest above the 12% contribution factor that applies to their traditional EPF accounts. The voluntary PF option applies exclusively to salaried individuals who receive their monthly pay through a designated salary account. Individuals working in the unorganized sectors including non-salaried employees can open a PPF (Public Provident Fund) account at a local bank or post office. Currently, for the fiscal year 2016-2017, the voluntary provident fund interest rate is set at 8.8%.

Sukanya Samriddhi Yojana/Scheme is one of the most popular government schemes launched by the Indian Prime Minister, Shri. Narendra Modi. The scheme is aimed at betterment of girl child in the country. Sukanya Samriddhi Scheme has been launched to offer a means of saving to the girl child in every family. The money saved via this scheme is to provide for higher education of girl and for her wedding expenses. The scheme has been accepted very well by the public since this is a great step towards providing financial security and financial dependence to women. The current rate of interest being offered by the government is 8.6% per annum (FY 2016-2017). Scheme can be availed any time before girl child reaches the age of 10 years. As a grace period, any girl child born between 2nd February 2003 and 1st December 2015 is also eligible to obtain the account. Under this scheme 100% withdrawal of deposit amount is only possible once the girl child attains the age of 21. Partial withdrawal is permissible for up to 50% of the

Public Provident Fund (PPF)

Voluntary Provident Fund (VPF)

Sukanya Samriddhi Yojana/Scheme

13 PLAN YOUR INVESTMENTS AND SAVE TAXES

deposit amount after the girl child has attained the age of 18 year. Tax benefit under section 80C of the Income Tax Act is applicable on deposits made towards Sukanya Samriddhi Scheme. This offers a huge incentive to avail the scheme for your daughters and serve as a tool towards achieving your Goal.

The inception of the National Saving Certificate (NSC) can be traced back to the 1950s when the government issued savings certificates in order to raise money to help fund the development of a new and independent India. They are issued by the post office and can be taken from any branch of the Indian postal service. Once the investment has been made, it earns an interest rate based on the rates associated with the type of certificate bought and the interest earned throughout the tenure of the NSC is tax free. The maturity date for these certificates is set to 5 or 10 years from the date of purchase but the interest is calculated on a yearly basis. This interest will not be paid to the certificate holder till such time as the investment matures. The interest that is earned is also reinvested in the NSC. The NSC interest rate ranges within 8.1% to 8.4% per annum (FY 2016-2017). NSC can be claimed under Section 80C of the IT Act. The limit for the claim is Rs.1.5 lakhs in a single financial year.

Fixed deposits are a great financial instrument for risk-free investment. It is also quite popular with the Indian populace. Fixed deposits are available under various types such as senior citizen FD, tax saving FD, FCNR deposits and so on. Each of the variants offers special benefits to customers and is all available from most banks and large private financial services companies. Fixed deposit schemes double up as both short and long-term investment instruments for customers. Fixed deposit schemes falling under the ambit of the much-popular Section 80C of the Income Tax Act, 1961 are commonly known as tax saving fixed deposits. These accounts are offered by most of the major banks and financial companies. However, there are a few limitations here such as no premature withdrawal and no option to pledge the amount for loans etc. TDS is deducted on income earned through interests from this account.

Senior Citizens Saving Scheme for senior citizens in India are effective, long term saving options and offer unmatched security. Designated for individuals above the age of 60, these schemes are available through certified banks as well as the network post offices spread across India. Senior Citizen Saving Scheme (SCSS) account extends up to 5 years and upon maturity can be subsequently extended for an additional 3 years. The depositor is allowed to make one deposit into this account, an amount that is a multiple of Rs.1,000 and not extend beyond Rs.15 lakhs. SCSS accounts are robust, safe, highly targeted and a long term savings prospect. After spending a lifetime supporting others and running in the mad rat race of life, the senior citizen saving scheme in India offer the aged folk a medium of effective savings for their twilight years. The senior citizen saving schemes interest rate is set at 8.6% per annum (FY 2016-2017).

• If the investment churns out an interest amount in excess of Rs.10,000 per year, the Tax Deducted at Source (TDS) applies. However, interest that amounts to less than this number is free from tax.

• All investments made as per the SCSS account saves tax in accordance with the provisions laid out in Section 80C of the Income Tax Act, 1961.

Hence, aside from being a secure, scalable option with high returns, the senior citizen saving scheme is also a potent tax saver. All the elements are in alignment when it comes to your SCSS account and the prospect of tax savings.

Fixed deposits

Senior Citizens Saving Scheme

National Savings Certificate (NSC)

Conclusion Choosing the correct investment avenue largely hinges on three factors - Time to your Goal, Taxability of Returns and whether the avenue yields Fixed Returns or provides Market-linked Returns. Making the right investments that suit your risk appetite not only help save taxes, but also park capital in avenues that yield value over the long term. For market linked investments it would be prudent to invest through the SIP route as it helps in avoiding a last minute rush and may also lead to a better average cost of investment.

At Vivro Wealth Advisors, tax planning is linked to the process of identifying suitable investment avenues not only to meet your life cycle goals but also to meet the requirement of saving taxes. One must realize that tax saving instruments do much more than only saving taxes. Smart planning with right tax saving instruments adds value to a portfolio. Take a wiser approach and avoid last minute rush for tax saving.


STRENGTHENING CREDIT RATING ANDCREDIT RATING AGENCIES IN INDIA

15 STRENGTHENING CREDIT RATING AND CREDIT RATING AGENCIES IN INDIA

Credit Rating Agencies (CRAs) play an important role in assessing risk, its location and distribution in the financial system while facilitating investment decisions that can help investors in achieving a balance in the risk return profile and at the same time assist firms in accessing capital at low cost. CRAs can thus potentially assist and guide the allocation of capital efficiently across all sectors of the economy by pricing risk appropriately. However, in lieu of the massive unfold of Non-Performing Assets (NPA) and Stressed Assets (SA), Banks’ credit risk assessment; administration and monitoring have increasingly come into focus in past couple of years. The need for a holistic regulatory framework encompassing participation from all stakeholders in the credit rating ecosystem is imperative to improve the efficacy of CRAs and effective credit risk assessment and monitoring in India.

In order to boost transparency and accountability of Credit Rating Agencies, Securities and Exchange Board of India (SEBI) has tightened the disclosure norms for CRAs vide its circular dated November 1, 2016 (‘the Circular’). SEBI has issued these guidelines after some sudden movements in ratings created concerns among investors. The Circular aims to enhance standards followed by the industry and thereby streamlining the process, increase disclosures and facilitate the ease of understanding of ratings issued by CRAs.

Credit Rating AgenciesCredit Rating in India started with the setting up of The Credit Rating Information Services of India (now CRISIL Limited) in 1987. Currently, there are seven CRAs registered with SEBI including CRISIL Limited, India Ratings & Research Pvt. Ltd. (formerly known as Fitch Ratings India Pvt. Ltd.), ICRA Limited, Credit Analysis & Research Ltd., Brickwork Ratings India Pvt. Ltd., SMERA Ratings Limited and Infomerics Valuation and Rating Pvt. Ltd.

In India, CRAs are regulated by SEBI under the SEBI (Credit Rating Agencies) Regulations, 1999 which provide for eligibility criteria for registration of credit rating agencies, monitoring and review of ratings, requirements for a proper rating process, avoidance of conflict of interest and inspection of rating agencies by SEBI, amongst other matters.

The Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999 were designed to ensure that only reliable players enter this business through stringent eligibility criteria. It articulates the need for CRAs to operate in a manner that enables them to issue objective and fair opinions through well-defined processes and obligations and enable widespread access to issued and accepted ratings through a clearly defined rating process. Such general obligations largely included the code of conduct, agreement with the client, monitoring and procedure of review of rating, disclosure of rating definitions and rationale, adoption of internal procedures and such other to ensure the fulfillment of the objective.

Formulation of Rating Criteria & ProcessesThe formulation of the rating criteria, rating process and their disclosure is the integral part of the entire guidelines which not only deliberates on extensive disclosure but also intensifies transparency. SEBI has made it mandatory for all CRAs to frame detailed rating criteria which shall be included in their Operations Manual (OM)/ Internal Governing Document (IGD). Criteria would necessarily include the following criteria:

Default recognition and post-default curing period (Instrument wise definition of default to be followed by all CRAs in the prescribed format)

Financial Ratios (Explaining the basis of analysis of the CRA including adjustments made to the financials and their basis of interpretation in the ratios

Consolidation of Companies

Parent support/group/government support

Manufacturing, trading companies and services sector

Banks and financial institutions

Securitization transactions

Public finance

Infrastructure ratings

STRENGTHENING CREDIT RATING AND CREDIT RATING AGENCIES IN INDIA 16

The new guidelines by SEBI tighten the rules for the CRAs to ensure greater disclosure and transparency in the relationship between a rating agency, the borrower and all the stakeholders affected in this exercise. These guidelines cover the following broad aspects:

Formulation of Rating Criteria and Rating Processes and Public Disclosure of the same

Accountability of Rating Analysts

Standardisation of Press Release for Rating Actions

Functioning and Evaluation of Rating Committee/ Sub-Committees

Disclosure of Ratings in case of Non-Acceptance by an Issuer

Disclosure in case of Delay in Periodic Review of Ratings

Policy in respect of Non-Cooperation by the Issuer

Strengthening and Enhancing the Relevance of Internal Audit of CRAs, viz. appointment and rotation of auditors and scope of the audit

Credit Rating Agencies

Each criterion shall be reviewed on a regular basis, periodicity of which shall be disclosed on the website of the CRA. In case of any revision in any of these criteria, reference to original as well as revised criteria to be made on the website of the CRA in a reader friendly manner.

Delisting Methodology – An Overview

• Basic Minimum Information required• External Entities required to be contacted • Mode of Information sought (Confimation in

writing to be endeavored)• Policy regarding internal approvals &

timelines at each step• Policy for monitoring and review of ratings

• General nature of Compensation Arrangements with rated entites policy for appeal by Issuers against the rating assigned

• Policy for placing ratings on credit watch• Clarity regarding what constitutes Non-

Cooperation • Gift Policy & Confidentiality Policy• Policy on Outsourcing of Activites• Policy on Provisional Rating• Disclosure on Managing Conflicts

Formulate a Rating Process & Disclosure on the Website

Disclosures in the OM/IGD

Formulation of Detailed Guidelines - To be included in the OM & disclosed on Website

Revised Process/Policies to be updated on the website with a reference to the original

OM – Operations Manual, IGD – Internal Governing Document

Standardization of Press ReleasePress Releases are generally released with a motive to familiarize all the concerned stakeholders about the credit rating awarded to a particular instrument(s). The new guidelines have mandated CRAs to issue a Press Release in a standardized prescribed format, which shall include the following:

• Details of Instrument and Rating Action

• Detailed Rationale and List of key rating drivers

• Analytical approach taken

• Hyperlink/ reference to the applicable “Criteria”

• About the Company

• Status of non-cooperation with previous CRA, if any

• Rating History of the last three years

• Note on complexity levels of the rating instrument

• Name and Contact Details of the Rating Analyst

• About the Credit Rating Agency and its Disclaimer

A CRA desirous of including additional information shall be allowed to do so while maintaining the basic format of the Press Release.

Disclosure of Ratings As is the practice, when a rating is issued to the issuer, it is published on the CRA’s website in form of a Press Release post acceptance by the issuer. However, as


per the new guidelines, irrespective of acceptance from the issuer, CRAs shall disclose on its website details of all ratings assigned by them, including the details of issuer, type of instrument, size of the issue, rating assigned and the outlook assigned. This is also applicable for non-public issues.

SEBI has also asked CRAs not to suspend the rating of an instrument abruptly but continue with the rating process till the instrument’s perpetuity on the basis of best available information, even if the issuer is non-cooperating.

In case of any delays in periodic review, reasons for delay will also be reported on the website along with the issuer, name/ type of instrument, size of the issue, date of last review, reasons for delay in periodic review, hyperlink to the last Press Release etc.

Internal Performance ChecksIn the aftermath of the glut of NPAs disclosed across the banking sector, CRAs and accountability of ratings being assigned have come under detailed scrutiny. In order to ensure transparency, improve disclosure, standardize processes and methodology, SEBI has in its circular included guidelines for accountability of analysts, functioning of committees within the CRAs and the need to enhance the internal audit function of CRAs.

Accountability of Rating Analysts

Rating analysts shall be required to abide by the roles and responsibilities laid down in the operations manual and shall also be held accountable for undertaking the rating process including adhering to timelines etc. as may be stated in their operations manual.

Functioning of Rating Committees/ Sub Committees

CRAs shall define the obligations, responsibilities, areas of conflict of interest, etc. of rating committee/ sub-committee members with specific disclosures towards the eligibility, composition, duties, minimum quorum required, system of voting and recording of dissent and ways of managing conflict of interest for committee/sub-committee composition and meetings. It is also clarified that the persons who have business responsibility shall not be part of the Rating Committee, exception being, MD/CEO, who shall be allowed when other members of the committee are independent. Discussions on rating shall be recorded and reviewed on an annual basis to ensure accountability and performance safeguards.

Internal Audit of CRAs

Internal Audits for CRAs have been made compulsory with specific eligibility criteria for the audit firm, rotation period of internal auditors, defined scope of internal audit and action on the final audit report. A robust internal audit function shall ensure adherence to control laid down within the operating framework of the CRAs.

Disclosures and Policy of Non-CooperationAccording to the guidelines CRAs are required to disclose ratings assigned whether or not the issuer chooses to accept the same. The guidelines also prescribe that in case of a delay in periodic review of ratings beyond the timeline specified in the operations manual of a CRA, certain details shall be disclosed which shall include - name of the issuer, name/ type of instrument, size of the issue, date of last review, reasons for delay in periodic review, hyperlink to the last Press Release, etc.

While SEBI aims to reduce rating shopping and seeks to encourage greater communication between issuers and rating agencies to enable the rating agency to ascribe a more informed rating to the issuer, disclosure based on incomplete information could be detrimental to the interest of the issuer.

It is also important to note that in a situation where an issuer does not cooperate with the CRA or choose to dissociate with the CRA by not providing information required for rating or non-payment of fees for conducting surveillance, the CRA shall continue to review the instrument on an ongoing basis on the basis of best available information and the rating symbol shall be accompanied by “Issuer did not co-operate; Based on best available information”. The press release of such rating shall also include a brief write up on the non-cooperation by the Issuer and the follow ups done by the CRA to obtain information.

STRENGTHENING CREDIT RATING AND CREDIT RATING AGENCIES IN INDIA 18

Conclusion Credit Rating has gained significant importance in India in the last few years. In the recent past, sharp decline in ratings of instruments issued by certain companies caused significant loss to investors and created a short term panic in markets. These matters brought the business of rating and the process and methodology of rating to the forefront.

The aim of the regulator with the new guidelines has been to curb practices of rating shopping, insufficient disclosures, non-standard announcements and dissemination of information which would enable lenders and investors take informed decisions. The new guidelines follow the recommendations of a SEBI committee on “strengthening the guidelines and raising industry standards for credit rating agencies”, which included representatives from all existing rating agencies. Positive changes have been brought into the new regulations for governance of CRAs and announcements on ratings. Certain aspects of disclosures on account of non-acceptance of rating or policy on non-cooperation may cause certain difficulties for issuers as there may be certain practical challenges in implementation. Better clarity on practical implications of the new guidelines as well as perception of lenders and investors is essential.


ABOUTVIVRO

About VivroVivro is a Financial Services Group engaged in the business of providing Investment Banking, Corporate Finance, Corporate & Financial Advisory and Wealth Management Services. Vivro Financial Services Private Limited is a Merchant Banker registered with the Securities Exchange Board of India (SEBI).

Our TeamVivro is founded by experienced professionals who have been engaged in Capital Market and Corporate Finance services for the last three decades. Our company is supported by a team of more than 90 enthusiastic and motivated people from different backgrounds with varied educational accomplishments and expertise. The talent pool of our company comprises of Chartered Accountants, Company Secretaries, MBAs, Lawyers as well as Ex-Bankers who have held senior positions at various banks and financial institutions. This mix of people infuses elements of creativity and professionalism in our workplace, which adds tremendous value to the services that we offer. With a strong team in place, Vivro is able to deliver value added solutions, tailor-made to suit the requirements of our clients.

Our Value PropositionVivro has emerged as a knowledgeable and reliable partner for businesses both in India and Abroad. Vivro has catered to several companies over the years and it enjoys tremendous confidence from clients, investors, lenders, brokers and financial institutions. Our advisory services and our ability to access the right capital for the right investment opportunity have resulted in significant stakeholder value creation. Vivro has a disciplined and demonstrated process specifically tailored for each client and transaction to maximize value.

ABOUT VIVRO 20

Capital Market ServicesOur Capital Markets team assists private companies to raise capital from capital markets through Initial Public Offers of Equity & Debt, Placements, while they assist public limited companies in a host of capital market transactions ranging from Rights Issue, Qualified Institutional Placements, Institutional Placement Program, Takeovers and Open Offers, Buybacks, Delistings, etc.

Corporate FinanceVivro syndicates and structures debt finance from banks and financial institutions through several instruments such as:

• Term Loans/ Project Loans

• Working Capital Finance/ Corporate Loans/Letter of Credits/Bank Guarantees/External Commercial Borrowings

• Factoring/Commercial Paper

• Inter Corporate Deposits, Structured Finance, Infrastructure Financing, etc.

Corporate AdvisoryOur corporate advisory services include:

• Private Equity and Venture Capital placement and advisory

• Mergers and Acquisitions: Buy/ Sell advisory as well as Schemes of Arrangement for Corporate Reorganization

• Valuation Services and Fairness Opinions

• ESOP Structuring and Valuation

• Business and Expansion Plans and Strategies

• Corporate Governance Reporting

• Succession Planning

• Entry into India Services

Wealth ManagementVivro Wealth Advisors Private Limited, a wholly owned subsidiary of Vivro Financial Services Private Limited provides Wealth Management solutions to its retail and corporate clients. Our Wealth Advisory journey begins with understanding the needs of our clients, which forms the basis of our investment solutions across asset classes. We deliver solutions which are aligned to our client’s goals, priorities, aspirations and risk tolerance. We follow the maxim – ‘What is right for the client is right for us’ while delivering the Financial Plan. We also offer our Treasury Management solutions to corporates through which we assist in planning and making investments in a variety of financial instruments such as fixed income funds, equity funds, commodity funds etc.

21 ABOUT VIVRO

Mumbai607-608 Marathon Icon, Veer Santaji Lane, Opp. Peninsula Corporate Park, Off Ganpatrao Kadam Marg, Lower Parel, Mumbai- 400013.E: [email protected]: +91 22 6666 8040

Vadodara2, Maruti Flats, 31, Haribhakti Colony,Race Course Circle, Baroda - 390007E: [email protected]: +91 265 235 7339

ChennaiAppaswamy Manor, Old No.9/New No.16, IInd Floor 4th Cross Street, CIT Colony, Mylapore Chennai - 600 004E: [email protected]: +91 44 2498 6774

AhmedabadVivro House 11, Shashi Colony, Opposite Suvidha Shopping Center, Paldi, Ahmedabad – 380007Gujarat, India.E: [email protected]: +91 79 4040 4242

OFFICES

www.vivro.net | [email protected]

CORPORATE OFFICE

The information contained herein is of general nature prepared by Vivro Financial Services Private Limited (‘VFSPL’, ’Vivro) on a particular subject or subjects and is not an exhaustive treatment of such subject(s). It is not intended to address the circumstances of any particular individual or entity. This material contains information sourced from third party sites (external sites). Vivro is not responsible for any loss whatsoever caused due to reliance placed on information sourced from such external sites. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2017 Vivro Financial Services Private Limited

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