Articles and Updates

• Sawant Singh -

New rules in the European Union are forcing European banks in India to reconsider their clearing operations based out of India. In response to the financial crisis, the EU adopted the European Market Infrastructure Regulation (EMIR) in August 2012 to increase transparency in the “over-thecounter” (OTC) derivatives market and to mitigate systemic risk by reducing operational as well as counterparty credit risk. Once fully implemented, the EMIR will require certain classes of derivatives to be centrally cleare

• Sawant Singh -

By rest ructur ing distressed accounts instead of classifying them as non-performing assets (NPAs), banks skirt around the requirement to provide for NPAs by setting aside a specific portion of their capital to make up for losses that could arise from a potential default. However, the rules of the game changed significantly with the issuance by the Reserve Bank of India (RBI) of a circular dated 30 May, which introduced several changes to the prudential guidelines on restructuring of advances by banks and other

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Banks tend to restructure some distressed loan accounts instead of classifying them as non-performing assets (N PAs) so as to avoid provisioning (i.e., setting aside a specific portion of their revenue to make up for the loss that could arise from potential default) for such loans. In the financial year 2012-13, restructuring of distressed loans was at an all-time high of 764.7 billion.

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India’s regulatory framework has been uncharitably, if accurately, described as an accumulation of responses to crises, replete with instances of turf squabbles and blind spots, rather than a comprehensive system of diverse parts with a unified purpose.

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The Law Ministry is reported to have approved a proposal by the Securities and Exchange Board of India (SEBI) to permit the use of put and call options for corporate restructuring and non-speculative purposes. This development should finally bring some clarity over the use of these tools, favoured by those active in the spheres of private equity, and mergers and acquisitions.