September 2024 - S&R Associates

Fraud Risk Management Obligations of NBFCs: Recent Changes Introduced by the RBI

Insights | September 25, 2024 | Practice Area: Anti-corruption; Fraud and Investigations, Banking and Finance, Regulatory

With the aim of introducing a comprehensive and clear set of rules for fraud risk management in Non-Banking Finance Companies, the Reserve Bank of India has introduced the Master Directions on Fraud Risk Management in Non-Banking Finance Companies. These Directions have revamped the landscape of fraud risk management for NBFCs, through the introduction of enhanced compliance requirements. While the 2016 Master Directions obligated NBFCs to timely report frauds detected in their operations, the new Directions require NBFCs to also take proactive steps to prevent and detect fraudulent activities. The effect of these Directions is that NBFCs need to thoroughly review their existing policies and frameworks and to introduce significant changes to become compliant with the RBI’s mandate.

Landscape for Green Hydrogen in India

Insights | September 20, 2024 | Practice Area: Clean Energy, Corporate Governance and ESG, Investment funds, Private Client Practice, Projects; Infrastructure and Energy

Hydrogen is the most abundant element in the universe and has the potential to store tremendous amounts of energy. Under the right circumstances, it can be a viable alternative to fossil fuels and can significantly contribute to decarbonization. Accordingly, in India’s quest to decarbonize and achieve net zero emissions by 2070, it seeks to manufacture and deploy Green Hydrogen (“GH2”), and its derivates such as Green Ammonia. Policy initiatives including the National Green Hydrogen Mission (“NGHM”), and the Green Hydrogen Certification Scheme (“GHCI”) create a framework, while incentivizing investments in the sector by providing financial incentives and creating robust and transparent monitoring systems. Other key consideration for investors would be the ease of financing and longevity of business operations, dependent in part on the regulatory framework. The availability of low cost renewable energy and skilled workforce also show good promise to transform the country’s energy infrastructure and position it as an export hub for international trade. In this backdrop, investors are keenly looking at the landscape for GH2 in India to meet both financial and ESG goals.

Regulatory Spotlight on Mutual Funds

Insights | September 19, 2024 | Practice Area: Anti-corruption; Fraud and Investigations, Capital Markets, Regulatory

The Indian mutual fund industry has experienced significant growth in recent years, with data released by Association of Mutual Funds in India indicating that assets under management increased from INR 25.48 trillion (USD 303 billion approximately) as on August 31, 2019 to INR 66.70 trillion (USD 795 billion approximately) as on August 31, 2024. The Indian securities market regulator, the Securities and Exchange Board of India (“SEBI”), has increased its scrutiny over the mutual funds industry and brought in certain amendments to regulations related to mutual funds. This note discusses SEBI enforcement actions against mutual funds and highlights the recent regulatory changes brought in to deter potential market abuse and increase investor confidence.

Cross-Border Share Swaps: Amendments to Regulatory Framework

Insights | September 12, 2024 | Practice Area: Mergers and Acquisitions, Regulatory, Tax

In order to simplify cross-border share swaps and address certain challenges under the existing regulatory framework, the Government of India has recently amended the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. The amendment became effective on August 16, 2024. Previously, permissible share swaps were restricted to issue of equity instruments by an Indian entity to foreign residents in exchange for equity instruments of another Indian company. The amendment now allows secondary share swaps and exchanges of equity instruments for equity capital of foreign companies. However, certain ambiguities persist, such as limitations on swaps involving Indian resident individuals and lack of guidance on downstream investments by Foreign Owned Controlled Companies (“FOCCs”) using share swaps. Further, Indian tax laws do not grant tax neutrality to swap structures unless conducted via merger or demerger, making such transactions taxable unless covered by a tax treaty benefit.