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Monday, October 15, 2012
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In a judgment that has far reaching implications for foreign arbitration awards, the Supreme Court
ruled that Indian courts have no jurisdiction to grant any relief or enforce an international arbitration award arrived at in a foreign country. Putting at rest an important issue, the apex court ruled only the courts of the country in which the seat of arbitration is located have the jurisdiction to entertain any matter relating to such arbitration. And it is only in the absence of choice of seat of arbitration that the country whose law is chosen by the parties has jurisdiction to entertain the matter.
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Accounting Regulator the Institute of Chartered Accountants of India (ICAI) has urged the
government to let the Reserve Bank of India appoint auditors of private banks, citing the
inherent conflict of interest when auditors are chosen by the bank management. The institute
had flagged the issue earlier as well pointing out that auditor independence is particularly relevant
for banks as they raise deposits from public. The trigger for renewed request comes after the
government has decided to select auditors for state run banks.
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The Reserve Bank of India (RBI) has said that the interest subvention scheme for providing short
term loans to farmers at 7 per cent interest per annum will be continued in 2012-13. An additional
subvention of three per cent will be available to prompt paying farmers. In addition, the same
interest subvention on post harvest loans up to six months against negotiable warehouse receipt
will also be available. This will encourage the farmers to keep their produce in warehouses.
Similar to the previous year (2011-12), the benefits of interest subvention will also be available to
small and marginal farmers having Kisan Credit Card (KCC) for a further period of up to six
months post harvest on the same rate as available to crop loan against negotiable warehouse receipt
for keeping their produce in warehouses.
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The Reserve Bank of India (RBI) has clarified that for sale of foreign exchange to a person within
his/her eligibility on single drawal, APs may receive payment only by crossed cheque drawn
on the bank account of the applicant's firm / company sponsoring the visit of the applicant /
Banker's cheque / Pay Order /Demand Draft / debit cards / credit cards / prepaid cards, if the
rupee payment exceeds Rs 50,000/-
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The Reserve bank of India (RBI) has clarified that permission to establish offices, in India by
foreign Non-Government Organisations/ Non- Profit Organisations/ Foreign Government Bodies/
Departments, by whatever name called, are under the Government approval Route as specified in
A. P. (DIR Series) Circular No. 23 dated December 30, 2009. Accordingly, such entities are required to apply to the Reserve Bank for prior permission to establish an office in India, whether Project Office or otherwise.
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The Reserve bank of India (RBI) has decided that n addition to the reporting prescribed to the
Reserve Bank of India (RBI), all the new entities setting up LO/BO/PO shall also:

  • Submit a report containing information as per Annex within five working days of the LO/BO/PO becoming functional to the Director General of Police (DGP).
  • A copy of the report as per the form shall also be filed with the DGP concerned on annual basis
  • A copy of report thus filed as above shall also be filed with AD by LO/BO/PO concerned.
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The Reserve Bank of India (RBI) has decided that in cases, where non-residents (includingNRIs) make investment in an Indian company in compliance with the provisions of the Companies
Act, 1956, by way of subscription to Memorandum of Association, such investments
may be made at face value subject to their eligibility to invest under the FDI scheme.
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Britain's market regulator unveiled proposals for sweeping reforms of the much maligned London
Inter bank Offered Rate (LIBOR) but stopped short of recommending a replacement of the rate or basing it entirely on actual submissions by banks. The financial Services Authority, announced the 1 point reform plan to the rate used as a benchmark for the pricing of assets globally.
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Requirements to be met by originating NBFCs :-

  1. All on-balance sheet standard assets are eligible for securitisation except followings :-
  • Revolving credit facilities (e.g. Credit Card Receivables).
  • Assets purchased from other entities.
  • Securitisation exposures (e.g. Mortgage- backed/asset backed securities).
  • Loans with bullet repayment of both principal & interest.
      2. Total exposure of NBFCs to the loans securitised should not exceed 20% of the total securitised
      instruments issued (If an NBFC exceeds the above limit, the excess amount would be risk
      weighted at 667%).
Securitisation Activities/ Exposure not permitted

  • Re-securitisation of Assets: Re-securitisation means a securitisation exposure in which the risk associated with an underlying pool of exposures is trenched and at least one of the underlying exposures is a securitisation exposure.
  • Synthetic Securitisations: A synthetic securitisation is a structure with at least two different stratified risk positions or tranches that reflect different degrees of credit risk where credit risk of an underlying pool of exposures is transferred, in whole or in part, through the use of funded or unfunded credit derivatives or guarantees that serve to hedge the credit risk of the portfolio.
     3. Securitisation with Revolving Structures: These involve exposures where the borrower is          permitted to vary the drawn amount and repayments within an agreed limit under a line of credit (e.g. credit card receivables and cash credit facilities).
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The Supreme Court has directed resumption of operations by 18 mining companies in Karnataka
on the basis of the recommendations of the Central Empowered Committee (CEC). Last year, the court had banned all mining operations holding that right to life under Article  21 of the Constitution would include a pollution-free environment. It had also ordered a CBI probe into alleged illegal mining activities.
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European Central Bank (ECB) president Mario Draghi has unveiled a long-awaited programme
to buy up sovereign bonds and help bring down the borrowing costs of euro zone's struggling
governments. The plan envisions no set limit on the amount of bonds the ECB could buy, making the programme "a fully effective backstop".
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The Reserve bank of India (RBI) has said in a notification that all the over the counter (OTC)
call / notice / term money deals, currently being reported over negotiated dealing system (NDS)
will be reported over the reporting platform of NDS- Call by the parties who are having NDS-
Call membership from November 1, 2012.
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The Securities and Exchange Board of India (SEBI) has relaxed the Know Your Clients (KYC)
norms for various overseas entities including Foreign Institutional Investors (FIIs) and has
done away with in person verification requirements for non-individual clients. This would be applicable for Sovereign Wealth Fund, foreign governmental agency, international or multilateral organization and Central or State Government pension fund, among others.
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The Reserve Bank of India (RBI) has decided: -

  • To enhance the maximum permissible limit of ECB that can be availed up to 75 per cent of the average foreign exchange earnings realized during the immediate past three financial years or 50 per cent of the highest foreign exchange earnings realized in any of the immediate past three financial years, whichever is higher;
  • In case of Special Purpose Vehicles (SPVs), which have completed at least one year of existence from the date of incorporation and do not have sufficient track record/past performance for three financial years, the maximum permissible ECB that can be availed  of will be limited to 50 per cent of the annual export earnings realized during the past financial year; and
  • The maximum ECB that can be availed by an individual company or group, as a whole, under this scheme will be restricted to USD 3 billion.

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The Reserve bank of India (RBI) has decided to allow companies in the infrastructure sector,
where "infrastructure" is as defined under the extant guidelines on External Commercial
Borrowings (ECB) to avail of trade credit up to a maximum period of five years for import of
capital goods as classified by DGFT subject to the following conditions: -

  • The trade credit must be abinitio contracted for a period not less than fifteen months and should not be in the nature of short-term roll overs; and
  • AD banks are not permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution for the extended period beyond three years.
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The Reserve Bank of India (RBI) has clarified that Suppliers' and Buyers' credit (trade credit)
including the usance period of Letters of Credit opened for import of gold in any form including
jewelry made of gold/ precious metals or/ and studded with diamonds/ semi precious / precious
stones should not exceed 90 days, from the date of shipment.
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The Reserve bank of India (RBI) has said that prepaid payment instruments (PPI) of up to RS 10000, up to Rs 50000 permitted with facility of domestic money transfer from one PPI to another PPI. The non - bank entities issuing prepaid payment instruments are required to maintain the outstanding balance in an escrow account with any scheduled commercial bank.
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The Reserve bank of India (RBI) has said that an NBFC-Factor shall ensure that its financial assets
in the factoring business constitute at least 75 percent of its total assets and its income derived from factoring business is not less than 75 percent of its gross income. Banks can henceforth extend financial assistance to support the factoring business of Factoring Companies.
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In the backdrop of a big shortage of chartered accountants from 2001 on wards, the entry level of CA course was relaxed in 2006. As a result of direct entry after 12th std. examination and Common Proficiency Test (CPT), a large number of bright students joining the profession increased manifold resulting into a significant number of students qualifying CA Final Examination. The increased availability of Chartered Accountants have enabled a larger number of CA firms to employ chartered accountants, whereas arising out of slowdown in the economy, poor state of capital market and
lesser demand from industry, the campus placement from the Institute have not been able to meet the expectations of a large number of young members joining the profession during last about one year.
It is very important for the profession to undertake a macro level study and undertake a fair assessment of chartered accountants needed by the industry, service sector, large businesses and of-course as practicing professionals.

It is our responsibility to ensure that the entry level for chartered accountants at the level of Common Proficiency Test (CA entrance exam) as well as at the level of Integrated Professional Competence Course (CA Intermediate Course) are adequately tough and are of high level.

It is also important for us to ensure that the expectations of the industry and the businesses that the Chartered Accountants have expert level of domain knowledge is met. The skills of applying the domain knowledge is required to be adequately inculcated in all those who qualify CA Final Examination. This will ensure that the chartered accountants are able to get a high level of remuneration and a clear growth path.

The profession can also consider that the practical experience developed by training is periodically assessed by the Institute by written and oral viva process. Also the 30 days GMCS courses (2 slots of 15 days) is also followed by adequate evaluation process so as to ensure development of presentation and applied skills in respect of the profession of at least a high level. The IT training of advanced level ERP i.e. SAP, Oracle, Net-vision as well as advanced MS Excel and data base management skills are also need to be developed within the training period. ICAI has already made advance IT training by ICAI now mandatory for students.

A comprehensive 3 to 4 months residential or day scholar classroom teaching to CA Final students after training and before final examination also need to be mandated to ensure that the professionals of top level are developed by ICAI, which can compete with top MBA Institutes in India and overseas. Efforts are being made for international recognition of Indian CA qualifications for employment as well as for practice in all developed and developing countries. MRAs have been
signed with Australia, Canada, and England and with EU it is being negotiated. It is expected that such recognition in next 3 to 5 years will ensure a very large demand for Indian chartered accountants from various parts of the world. In the long run, CA profession has a very bright future. 
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Statutory audit

The audits of banks have been a significant professional opportunity for a large number of Chartered Accountants Firms. The Government of India has now in principle decided to withdraw the power of bank management to appoint statutory auditors. A committee consisting of nominees from Government of India and CAG, with an approval of Reserve Bank of India will appoint Central Statutory Auditors. The modus operandi and the criteria of selection are being finalized. The appointment of branch auditors is also being expected on the same lines. The proposed system of appointment of statutory auditors of bank shall ensure transparency, fairness and equity.

Concurrent audit

The government of India has recommended that for all concurrent audits Chartered Accountant Firms should be appointed from the RBI Panel as per the gradation based on the size of the branch. The remuneration for concurrent auditors has been recommended to be enhanced adequately based on coverage of audit, quality of audit; skill set required, number of staff etc. It has been noted by the
government that the current fee scale paid for concurrent audit is too low and need rationalization to ensure quality. It is also recommended by Reserve Bank of India that a larger number of branches need to be covered under the concurrent audit.

The profession has to prepare itself to address the needs of these assignments, to deliver its best and to ensure value addition in the process.

Risk Based Internal Audit

Reserve Bank of India as well as Government of India are of the view that risk based internal audit is the need of the hour and should be carried out in all branches uniformly between 9 months to 18 months depending on degree of risk involved. ICAI need to develop a framework and programme for banks and also train our professional CAs to effectively and efficiently undertake this.

Internal inspections

The government has also recommended that the internal inspection, risk management and surveillance department should be strengthened by appointing more and more chartered accountants and other financial professionals. This shall be a good employment opportunity for young CAs who

wants to make banking as their forte.

Expectations from bank auditors

The government as well as RBI are very keen to ensure that the quality of statutory audit and its value addition to the banking sector should increase significantly. It should ensure proper financial discipline as well as risk management. The banks are making significant efforts to streamline centralized banking system (CBS) over a period of next few years so that the audit function can be rationalized meeting the requirements of the banks and ensuring adequate professional audit to
ensure that a strong audit system and an effective internal audit mechanism work as a strong deterrent and preventive mechanism for fraud. The Institute and the profession are fully committed and
geared up to meet new challenges and opportunities and to tackle the changing scenario more effectively.