Financial services

Discontinuation of Non-Resident Guarantee Declaration for Domestic Financing – Financial Services

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As part of its ongoing efforts to reduce the compliance burden of regulated entities by, among others, removing redundant and repetitive filings and instructions, the Reserve Bank of India (RBI) notified on 9 June 2022 that Licensed Category I Banks (AD Banks) will not be required to file returns for collateral used and relied upon by non-resident entities, with effect from the quarter ending June 2022. Accordingly, the Master Direction – External Commercial Borrowings, Trade Credits and Structured Obligations (ECB Directions) and Master Direction – Reporting under Foreign Exchange Management Act, 1999 (FEMA Reporting Directions) were updated on June 9, 2022 to reflect this change.

Background

The RBI had established the Regulatory Review Authority initially in April 1999 to review existing regulations and reporting and notification mechanisms based on feedback received from stakeholders, the public, banks and other financial institutions . In light of the effectiveness of the recommendations of the initial Regulatory Review Authority, the RBI has set up another Regulatory Review Authority under the leadership of Mr. Ranjeshwar Rao, the Deputy Governor (RRA 2.0 ) for a period of one year from May 1, 2021. The main objective of RRA 2.0 was to streamline regulatory instructions, reduce the compliance burden on regulated entities by simplifying procedures and reducing reporting requirements, as far as possible. RRA 2.0 has set up an advisory group under the chairmanship of Swaminathan J., Managing Director, State Bank of India.

Based on extensive discussions between RRA 2.0, the Advisory Group, internal and external stakeholders, RRA 2.0, as part of its first set of recommendations, recommended the retirement of 150 circulars in November 2021, followed by a second series of recommendations in February 2022, i.e. the withdrawal of 100 circulars. To implement some of the above RRA 2.0 recommendations, on the same day, RBI proposed to remove the statement titled “Details of Guarantee Used and Invoked by Non-Resident Entities” (Overseas Guarantee Return) which addressed the statement by Non-Resident Guarantee Concession Banks for Funds-Based and Non-Funds-Based Facilities (such as Letters of Credit/Guarantees/Letter of Commitment/Letter of Comfort) entered into between two persons residing in India.

In relation to the above, RBI has finally discontinued overseas collateral return from the quarter ending June 2022 and amended ECB instructions and FEMA reporting instructions accordingly.

Changes to ECB instructions

Part III (Structured Notes) of the ECB Instructions has been amended to end the quarterly reporting requirements of AD banks regarding details of collateral used/invoked by all its branches. These collateral details were to be provided to the RBI in the format specified by the RBI as part of FEMA’s reporting instructions.

Changes to reporting instructions

The contents of Part X (Warranties) and Appendix I to Part X of the FEMA Reporting Instructions which provided the format for overseas warranty return have been removed/discontinued.

Comment

To date, stakeholders are required to make hundreds of filings/reports to various RBI departments, which becomes a cumbersome exercise for stakeholders. Due to the changing regulatory landscape over the past two decades, there has been a lot of overlap/redundancy in these regulatory filings and reports. Simplifying and streamlining the various regulatory filings and eliminating redundant and repetitive procedures was the need of the hour. In this context, the initiatives undertaken by RRA 2.0 are welcome. Additionally, the gradual move towards online filings instead of paper/email filings is also in the interest of ease of doing business and ensuring timely regulatory compliance.

We expect more such changes to be introduced in the future, with a government portal solely dedicated to compliance and reporting.

The contents of this document do not necessarily reflect the views/positions of Khaitan & Co but remain solely those of the authors. For any other questions or follow-up, please contact Khaitan & Co at legalalerts@khaitanco.com

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