Chronology of Major Policy Measures : April 1998 - July 1999 (Part 2 of 2)

Date of An-

nouncement

POLICY MEASURES

IV. CAPITAL MARKET

(i)

Securities and Exchange Board of India (SEBI)

1998

April

7

• In accordance with the recommendations of the C.B. Bhave Committee on continuing disclosure standards by the corporates, SEBI advised all the stock exchanges that all the listed companies are required to publish unaudited financial results on a quarterly basis and are also required to inform immediately to the stock exchanges of all events which would have a bearing on the performance/operations of the company as well as price sensitive information.

24

• SEBI allowed dematerialised securities to be treated as good as delivery in the physical segment at both BSE and NSE. The list of compulsory dematerialisation was expanded to include 22 scrips with effect from June 1, 1998.

May

11

• SEBI approved the report of the Committee on Derivatives (Chairman: Shri L.C. Gupta) and its suggestive bye-laws for regulation and control of derivative contracts.

June

15

• In a move to ensure investor protection, SEBI advised investors to exercise a great deal of caution while investing in plantation companies. At the same time, plantation companies and other collective investment schemes were directed to ensure credit rating by some accredited credit rating agencies prior to issuing of advertisement.

June

23

• SEBI amended SEBI FII Regulations, 1995, permitting FIIs to invest in unlisted companies through the 100 per cent debt route and to tender their securities directly in response to an open offer made in terms of the SEBI (Substantial Acquisition of Shares and Take-overs) Regulations, 1997.

• SEBI simplified the process of approval of sub-accounts of registered FIIs.

• SEBI permitted FIIs to buy and sell derivative contracts which are traded on a stock exchange. FIIs were also permitted to trade in derivatives without requiring them to take or give delivery.

July

2

• In order to curb excessive volatility in the stock prices, SEBI introduced a system of volatility margin on scrips replacing the system of weekly price band.

Aug.

1

• SEBI changed its guidelines relating to tradable lot in order to encourage small investors to participate in highly priced public issues/offers for sale. The new guidelines allow the issuer to fix the size of the minimum marketable lot depending on its price. The maximum lot should not consist of more than 100 shares.

20

• SEBI granted certificate of registration to Central Depository Services (I) Ltd. (CDSL), the second depository in the country. CDSL is sponsored by BSE and Bank of India.

Sept.

7

• SEBI exempted infrastructure firms from certain norms while floating a public issue. In particular, the requirements such as, making a minimum public offer of 25 per cent of its security, five shareholders per Rs.1 lakh of offer and minimum subscription of 90 per cent would not be mandatory for infrastructure companies.

Oct.

20

• SEBI created an Overseas Investors' Cell to facilitate investments by overseas investors and to enhance their confidence in India's regulatory and redressal mechanism.

Nov.

3

• SEBI permitted the stock exchanges to expand their trading terminals to those cities where no stock exchange is located.

10

• Following the promulgation of the Companies (Amendment) Ordinance, SEBI issued regulations for the buy-back of shares by Indian companies. The buy-back covers only listed securities of a company and has been permitted through the tender offer mode, from the existing shareholders on a proportionate basis and from odd lot holders. For open market transactions, the book building mode and purchases through stock exchanges have been permitted. Buy-back through negotiated deals, spot transactions or private arrangements has not been permitted.

19

• SEBI granted recognition to Inter-Connected Stock Exchange of India Ltd., Mumbai (ICSI) for setting up an inter-connected market system. All regional exchanges participating in ICSI will have a uniform trading and settlement cycle. ICSI will also have a settlement guarantee fund.

Dec.

31

• A SEBI committee (Chairman: Dr. S.A. Dave) prepared draft regulations for collective investment schemes (CIS), which stipulated minimum net worth requirements for the scheme. All schemes would have to be registered with SEBI. Further, only the public companies under Companies Act, 1956 can become promoter of a CIS and schemes shall be constituted only in the form of a trust with the trustees approved by SEBI. Schemes also have to conform to SEBI guidelines in respect of credit rating, advertising, returns, etc.

1999

Jan.

13

• In a bid to improve the market microstructure, SEBI prohibited stock exchanges from allowing the 'All or None' or 'Minimum Fill' order facility in their trading system.

25

• Effective May 31, 1999, SEBI decided to make delivery of shares in dematerialised form compulsory for another 40 companies taking the total number of shares in the list of compulsory demat trading for all investors to 104.

Feb.

19

• Consequent upon buy-back of shares by Indian companies, investment by FIIs in such companies, in case they do not participate in buy-back, may exceed the permissible limit. In this context, SEBI clarified that investment in such companies by FIIs would be frozen, but FIIs would not be required to dilute their holding from the pre-buy-back level.

March

19

• In respect of the entry norms for an initial public offer (IPO) by an unlisted company, SEBI decided to replace the existing requirement of actual dividend payment in three out of preceding 5 years by the company's 'ability to pay dividend'. Certain minimum pre-issue net worth requirements for the company were also laid down.

• SEBI withdrew the existing requirement to issue shares with a par value of Rs.10 and Rs.100 and gave companies freedom to determine a fixed value per share. The companies will have to ensure that shares are not issued in decimal of a rupee. This facility will be available for companies which have dematerialised their shares. The companies, which have already issued shares at Rs.10 or Rs.100 par value, are also eligible for splitting and consolidating the share values.

• SEBI (Mutual Fund) Regulations were amended to permit mutual funds to trade in derivatives for the purpose of hedging and portfolio balancing.

• SEBI approved the regulations for credit rating agencies (CRAs), which specify minimum net worth requirement of Rs.5 crore for the entities permitted to promote a CRA. The regulations prohibit CRAs from rating instruments of their promoters.

(ii)

Government of India

1998

June

1

• The Union Budget for 1998-99 proposed to (i) divest its equity in non-strategic PSUs to 26 per cent and raise Rs.5,000 crore by way of disinvestment in PSUs; (ii) bring forward necessary amendments to the Securities Contracts (Regulation) Act to enable trading of derivative instruments; (iii) abolish capital gains tax on stock lendings; (iv) increase the limits of purchase of shares in Indian companies in the secondary market by the NRIs and OCBs to 5 per cent and 10 per cent, respectively, from 1 per cent and 5 per cent, respectively, of the company's equity capital; and (v) allow provident funds to invest 10 per cent of their new accretion in private sector securities which have an investment grade rating from at least two credit rating agencies.

Oct.

31

• The Central Government promulgated the Companies (Amendment) Ordinance permitting Indian companies to buy-back their own shares for the purpose of capital restructuring. Restrictions on inter- corporate loans and investments were also relaxed substantially.

Nov.

18

• Mobilisation of funds by instruments, such as agro-bonds, plantation bonds etc., treated as 'Collective Investment Schemes' and the entities which floated them were brought under the regulatory purview of SEBI.

1999

Feb.

27

• The Union Budget for 1999-2000 proposed several measures to revive the capital market:

(a)

Opening of trading terminals abroad for facilitating the participation of NRIs in the secondary market;

(b)

Exemption from dividend tax for 3 years for US-64 Scheme and all open-ended equity oriented schemes (with more than 50 per cent investment in equity) of UTI and other mutual funds;

(c)

Exemption from income tax for all income received in the hands of investors from UTI and other mutual funds;

(d)

Reduction of long-term capital gains tax from 20 per cent to 10 per cent for resident Indians on transfer of shares and securities; and

(e)

Abolition of stamp duty on transfer of debt instruments within the depository mode.

V. EXTERNAL SECTOR

(i)

Trade Policy

1998

April

13

• The Union Government announced the following major modifications in the Export Import (EXIM) Policy 1997-2002: (a) shifting of about 340 items from Restricted List to Open General Licence List for imports, (b) extension of the scope of Duty Exemption Pass Book (DEPB) Scheme, (c) providing special incentives for export of various items including agricultural and allied products, gems and jewellery, project goods etc., (d) reduction of threshold limits for availing facilities under certain schemes including Export Promotion Capital Goods (EPCG) Scheme and schemes for recognition under export houses and various types of trading houses, (e) simplification of EXIM norms and (f) steps to improve infrastructure facilities.

15

• The Directorate General of Foreign Trade (DGFT) notified the revised credit rates under DEPB Scheme for specified items.

29

• The Central Government made 105 items (according to EXIM code) freely importable into India if imported in new/prime condition from other SAARC countries.

May

8

• The DGFT extended the time limit for completing export obligation/release of gold/silver/platinum taken from designated authorities.

June

22

• The DGFT amended/corrected the input-output norms with respect to chemicals and allied products, electronics, engineering goods, plastic and miscellaneous goods.

24

• The DGFT amended the input-output norms for fish and fish products.

Aug.

27

• Subject to undertaking of export obligations and the fulfilment of certain conditions, units other than small-scale units were permitted to expand and open new capacity in respect of items reserved for small-scale sector.

Sept.

16

• Subject to certain conditions, period for fulfilment of obligations under Advance Licence was extended by the DGFT up to March 31, 1999.

• The DGFT amended the Handbook of Procedures (Volume 1) to extend option of availing of Special Advance Licence Scheme to the eligible exporters of electronic products.

1999

March

31

• Following major modifications to the EXIM Policy 1997-2002 were announced: (a) discontinuation of the convention of publishing Negative Lists for exports and imports, shifting of 894 new items to the list of freely importable items and allowing import of 414 additional items under the Special Import Licence (SIL), (b) introduction of new schemes to boost services exports, (c) initiation of pilot schemes for electronically filling-up of forms in respect of certain types of trade activities, (d) provision of special status to manufacturing and merchant exporters with proven track records under "Green Card" and "Golden Status" Schemes, respectively, (e) introduction of special facilities for manufacturing companies and industrial houses, (f) withdrawal of incentives for import of second-hand capital goods, (g) provision of special benefits to direct export by small scale, tiny and cottage industries, and (h) extension of additional incentives to the export of products from sectors such as bio-technology, textiles, engineering and chemical.

April

6

• The DGFT laid down the guidelines for extension in export obligation period in respect of Advance Licences and Export Promotion Capital Goods (EPCG) Scheme. Subject to certain conditions, the maximum extension can be up to 18 months for Advance Licence and up to March 31, 2001 under the EPCG Scheme.

9

• The DGFT set up fast track counter to cater to the requirements of Status Holders (i.e., export houses and various trading houses) in the context of Advance Licence and DEPB Scheme. Applications for these facilities can be filled up either electronically or manually.

(ii)

Foreign Exchange Market

1998

May

5

• ADs were permitted to allow delayed remittances towards cost of imports up to a maximum period of 60 days beyond the period of six months provided no interest payment was involved subject to certain conditions.

June

6

• With a view to relaxing the exchange control policy, the Reserve Bank allowed branches of foreign companies operating in India to remit profits to their head offices through ADs without Reserve Bank's prior approval.

11

• ADs were permitted to provide forward cover facility to FIIs in respect of their fresh investments in India in equity, effective June 12, 1998. ADs were also allowed to extend forward cover facility to FIIs to cover the appreciation in market value of their existing investments in India. The amount eligible for cover would be the (i) difference between the market value of their investments as at the close of business on June 11, 1998 converted at the Reserve Bank reference rate of Rs.42.38 per US $ and the market value of investments at the time of providing the cover, converted at the current rate; or (ii) fresh inflows (including reinvestments of cash balances lying in the accounts of the FIIs at the close of business on June 11, 1998) since June 11, 1998, whichever is higher. The ADs were given the option of extending the cover fund-wise or FII-wise according to their operational feasibility. The same facility was extended to the NRIs/OCBs for their portfolio investments, effective June 16, 1998.

15

• Transactions among FIIs with respect to Indian stocks would no longer require the post-facto confirmation from the Reserve Bank.

• The trigger point limit for investments in Indian companies by FIIs/NRIs/OCBs under the portfolio scheme was raised by 2 percentage points.

Aug.

7

• Indian software companies were allowed to offer ADR/GDR linked Stock Option Schemes to their non- resident/resident permanent employees (including Indian and overseas working directors). On exercising the option each resident employee would be permitted to remit up to US $ 50,000 in a block of 5 years to acquire the ADRs/GDRs.

Aug.

7

• ADs were permitted to approve proposals for overseas investment under the EEFC Fast Track Window even in cases where the balances in the EEFC Accounts were not sufficient to fully cover the proposed investment at the time of approval, subject to certain conditions.

• ADs were allowed to reimburse International Credit Cards (ICCs) issuing organisations up to US $ 15,000 per transaction towards advance for import of software through internet even before the downloading of the software.

• ADs were delegated powers to allow use of ICCs for remittances to ICC issuing organisations towards (i) fees for scientific/technical training or education by their customers through internet and (ii) payment for registration of internet domain name, hosting charges for web-sites, etc.

14

• Limits for investments by FIIs/NRIs/OCBs in Indian companies were enhanced: (a) the ceiling of 24 per cent on FII investment in primary and secondary markets in the paid-up equity capital was raised to 30 per cent subject to the approval by the Board of Directors of the company; (b) the ceiling on holding of a single FII or the concerned FII group in any Indian company was raised from 5 per cent to 10 per cent of total paid-up capital; (c) the aggregate ceiling for FII investment i.e., 24 per cent or 30 per cent, as the case may be, would be exclusive of investments made by NRIs/OCBs under the portfolio investment scheme.

• Ceiling applicable to individual NRIs/OCBs in respect of their portfolio investment in shares/debentures of any Indian company was raised from 1 per cent to 5 per cent of the paid-up equity capital of the company concerned. The existing overall ceiling of (a) 5 per cent of the total paid-up equity capital of the company concerned and (b) 5 per cent of the total paid-up value of each series of convertible debentures issued by the company to all NRIs/OCBs taken together both on repatriation and non- repatriation basis was raised to 10 per cent which could be further raised to 24 per cent by the company concerned by passing a Board/General Body resolution. This would be exclusive of investment ceilings applicable to FIIs.

20

• ADs were allowed to offer forward cover facilities to FIIs to the extent of 15 per cent of market value of investment in equity as on June 11, 1998, converted into US $ terms at the rate of US $ 1= Rs.42.38 in addition to available facilities.

• The facility of rebooking cancelled contracts (with rupee as one of the currencies) for imports was withdrawn.

• The facility for splitting forward and spot legs for a commitment was withdrawn.

• Extension of time limit for repatriation of export proceeds was allowed only in exceptional circumstances.

• ADs were advised to report their peak intra-day positions.

• With a view to simplifying procedure for investments by NRIs/OCBs in 'priority' industries under the 100 per cent scheme, the Reserve Bank granted general permission to the Indian companies for the issue and export of equity shares.

25

• External commercial borrowing (ECB) guidelines were modified: (a) ECBs were permitted for project related rupee expenditure in all sectors (except stock markets and real estate), (b) the average minimum maturity was relaxed and fixed at 5 years for all ECBs above US $ 20 million, (c) the average maturity requirement under long-term maturity window outside the ECB cap was reduced to 8 and 16 years for ECBs up to US $ 100 million and US $ 200 million, respectively, (d) ECB eligibility for exporters was raised to three times of their average export performance, subject to a maximum of US $ 100 million (raised to US $ 200 million, effective May 5, 1999), (e) to enable corporates to hedge exchange rate risks, domestic rupee denominated structured obligations were permitted to be credit-enhanced by international banks/international financial institutions/ joint venture partners.

Sept.

5

• ADs were permitted to grant any type of fund-based and/or non-fund based facilities to residents against the collateral of fixed deposits in NRE accounts subject to certain conditions.

28

• As per the recommendation of the "Committee on Hedging through International Commodity Exchanges" (Chairman: Shri R.V. Gupta), the Indian entities having genuine underlying exposure were allowed to access International Commodity Exchanges for exchange traded future contracts/options (purchases only) for hedging commodity price exposures. The facility of hedging would, however, not be available for oil and petroleum products.

30

• In order to simplify the procedure for sale/transfer of underlying shares by GDR/ADR holders, the Reserve Bank granted exemption from the provision under Section 19(5) of the FERA, 1973 for sale/ transfer of shares from non-residents to residents subject to certain conditions.

• It was decided to treat the payment received by exporters from their overseas buyers through ICC as an approved method for receipt of export proceeds.

Oct.

9

• It was decided to permit use of funds held in EEFC accounts by account holders for their business- related payments in India in foreign exchange including payments for air fare and hotel expenditure.

Oct.

10

• The ECB limit of US $ 3 million or its equivalent at a minimum simple maturity of three years was raised to US $ 5 million or its equivalent.

• Foreign banks operating in India were permitted to remit proportionate expenditure on electronic database cost incurred by their Head Offices.

16

• Persons resident in India were allowed to hold international credit card, which could be used either in India or abroad subject to exchange control regulations.

27

• In order to simplify the procedure for NRI/OCB Investment Schemes, the Reserve Bank granted general permission for issue and export of shares/convertible debentures by Indian companies under the 24 per cent/ 40 per cent Schemes applicable to NRIs/OCBs and for acquisition of shares by NRIs/OCBs.

Dec.

2

• The Reserve Bank decided to consider applications for remittance towards acquisition of shares of the overseas joint ventures/wholly owned subsidiaries in the software field by the employees of the Indian promoter company concerned, provided, among other conditions, (a) the remittance did not exceed US $ 10,000 or its equivalent per employee in a block of 5 years, and (b) the shares so allotted to Indian employees did not exceed 5 per cent of the paid-up capital of the overseas concern.

4

• The ceiling for clearance of proposals for Indian investment in Overseas Joint Ventures/Wholly Owned Subsidiaries under the Fast Track Route of the Reserve Bank was uniformly raised from US $ 4 million to US $ 15 million for all countries. The ceiling for Indian Rupee investment under this route in Nepal was raised from Rs.25 crore to Rs.60 crore, which would also be applicable to investment in Bhutan.

• The Reserve Bank decided to grant blanket approval for investment abroad in the field of computer software by Indian software companies up to 50 per cent of their foreign exchange earnings in a block of three consecutive financial years subject to a maximum of US $ 25 million provided the cumulative export/foreign exchange earnings of such companies was not less than US $ 25 million in previous three years.

14

• The limit of Rs.50,000 per transaction in respect of remittances through exchange houses for financing trade transactions was raised to Rs.2,00,000 per transaction.

21

• The Reserve Bank introduced a new scheme for investment by NRIs/OCBs up to 51 per cent of the new issues floated by Indian companies which are not listed on stock exchanges and also granted general permission for issue and export of shares/securities by Indian companies to NRIs/OCBs to acquire such shares/securities. With the introduction of this scheme, the earlier 40 per cent scheme was withdrawn.

29

• With the introduction of Euro, ADs were permitted to accept deposits denominated in Euro under FCNR(B) scheme with effect from 1st January 1999 and also to continue to accept FCNR(B) deposits in Deutsche Marks up to December 31, 2001.

• ADs were permitted to allow remittances related to registration or renewal of registration of Patents and Trade Marks with overseas Government/Regulatory Authorities/ International Organisations without any monetary ceiling on the basis of documentary evidence in support of payment of such fees.

1999

Feb.

2

• On account of introduction of Electronic Data Interchange System for processing shipping bills, etc., by the customs authorities at certain customs offices, it was decided that in respect of electronically processed shipping bills for exports, the existing export declaration form, viz., GR form be replaced by a declaration in form Statutory Declaration Form (SDF).

March

17

• The Reserve Bank was empowered by Central Government to consider proposals for raising ECBs up to US$ 10 million or its equivalent with a minimum average maturity of three years for utilising the proceeds thereof for business related expenses including expenditure to be incurred in Indian rupees under various windows i.e., Exporters'/Foreign Exchange Earners' Scheme, Infrastructure Project Scheme, and Long-term Borrowers' Scheme. This is in addition to the scheme under which Reserve Bank considers applications from corporates etc., for raising ECBs up to US$ 5 million.

26

• In order to simplify the procedures applicable to operation of bank accounts and financial transactions in India by non-resident individuals of Indian nationality/persons of Indian origin, the Reserve Bank introduced, with effect from 15th April 1999, a new type of account viz., Non-Resident Special Rupee (NRSR) Account for such persons who would voluntarily undertake not to seek repatriation of funds held in such accounts and interest/income accrued thereon. These accounts would have the same facilities as well as restrictions as are applicable to domestic resident accounts of individuals in respect of repatriation of funds held in these accounts, with the exception that investment of funds held in these accounts in shares/securities and immovable property would be governed by the extant exchange control regulations.

30

• In order to simplify the procedures applicable to non-residents of Indian Nationality (NRIs)/Persons of Indian Origin (PIOs)/Overseas Corporate Bodies (OCBs) for undertaking financial investment transactions, the Reserve Bank has by issue of notifications under FERA, 1973 granted general permission as under subject to certain conditions.

i)

General permission to domestic mutual funds for seeking investment from NRIs/PIOs/OCBs on repatriation/non-repatriation basis.

ii)

General permission to Indian companies to accept deposits from NRIs/PIOs/OCBs on repatriation basis and to Indian proprietorship concerns/firms and companies for accepting deposits from NRIs/PIOs on non-repatriation basis.

iii)

General permission for investment by NRIs/PIOs/OCBs in Air Taxi operations.

iv)

General permission for sale of shares acquired by NRIs/PIOs/OCBs under direct investment scheme on stock exchanges.

v)

General permission for transfer by way of gift of rupee securities, shares, bonds, debentures held by NRIs/PIOs to registered charitable trusts/organisations.

vi)

General permission to resident individuals/proprietorship concerns/firms for raising rupee loans from non-residents of Indian nationality/persons of Indian origin on non-repatriation basis.

vii)

General permission for transfer by way of gift of immovable property held in India by PIOs to registered Charitable Trusts/ Organisations in India.

April

7

• ADs and/or their subsidiaries were permitted to issue rupee credit cards valid in India, Nepal and Bhutan to NRIs/PIOs and allow settlement of bills in rupee arising out of use of such cards by debit to their NRSR/NRO/NRE account.

24

• Cut-off date for providing forward exchange cover to FIIs in respect of their equity investment was changed from June 11, 1998 to March 31,1999 and ADs were permitted to provide forward exchange cover to FIIs to the extent of 15 per cent of their outstanding equity investment as at the close of business on March 31, 1999 converted into US $ terms at the rate of US $ 1 = Rs.42.43, as well as for the entire amount of any additional investment made after March 31, 1999. Existing forward contracts booked in accordance with earlier instructions are allowed to continue even if the amount thereof exceeded 15 per cent of the value of investment as on March 31, 1999. The Reserve Bank would also consider requests from FIIs for additional limits on case by case basis after the eligible limits have been fully utilised.

• The Reserve Bank decided to consider requests from Export Houses/Trading Houses/Star Trading Houses/Super Star Trading Houses for availing of fund-based/non-fund based facilities from overseas banks for their trading offices abroad on merits, subject to reasonableness of terms and conditions of such facilities.

• ADs were permitted to allow the EEFC account holders the facility of making payments from such accounts for eligible purposes by issue of cheques to beneficiaries of the payments subject to certain conditions.

May

10

• The Reserve Bank decided to consider requests for hedging commodity price exposure from Indian corporates to i) use Over the Counter (OTC) futures contracts, based on average prices; ii) cancel an option contract by entering into an opposite transaction with the same broker; iii) use products involving simultaneous purchase and sale of options provided there is no net receipt of premium either direct or implied; and iv) hedge exposures to bullion prices from export commitments in the London Bullion Market (through London Bullion Market Association approved brokers) besides recognised international exchanges.

19

• ADs were empowered to renew the general permission granted by the Reserve Bank to OCBs under the Portfolio Investment Scheme for a further period of five years, at a time.

• Foreign embassies/missions/diplomats were permitted to open foreign currency accounts with any AD in India without the approval of the Reserve Bank subject to certain conditions. Earlier such accounts were allowed to be opened only at select branches of State Bank of India.

• The Reserve Bank granted (a) exemption from the operation of provisions of Section 29(1)(b) of FERA, 1973 to non-resident holders of ADRs/GDRs to acquire the underlying shares released by the Indian custodian upon surrender of the ADRs/GDRs, and (b) general permission to company/depository concerned for entering an address outside India in its register of books in respect of such shares.

June

2

• ADs were permitted to grant credit facilities, fund based as well as non-fund based, according to their commercial judgement against the security of balances held in EEFC account.

29

• The Reserve Bank granted general permission to foreign airline companies, which did not have a branch office or a place of business in India, to carry on their normal commercial activity in India through their local agents. ADs were also permitted to allow local agents of such foreign airline companies to remit net surplus passage fare/freight collection subject to certain conditions.