Real Estate is one of the major sectors which has been deeply impacted by the COVID-19 pandemic and the consequent lockdown to contain it. The sector which was already seeing a lull period got hit by a ‘perfect storm’ of Coronavirus. If your company is seeing liquidity issues and cash flow mismatches and you are looking for an able advisor to help your company navigate through these stormy waters through a one-time restructuring, your search ends at InCorp.

Impact of COVID-19 on Businesses

The economic impact of the COVID-19 pandemic has created significant stress on the liquidity and overall financial position of businesses, especially those which have a borrowing from banks, NBFCs and other financial institutions. The cashflow mismatches created to the subdued business activity over the last six months and the possibility of the same not recovering in the immediate future would lead to increasing rate of defaults by even otherwise viable and sustainable businesses. 

The moratorium provided over the last six months, viz the period covering the lockdown phase in the country comes to an end in the current month and there was a need for addressing the issue of cashflow mismatch by a more sustainable and long term solution.

Need for a one-time restructuring scheme

There was a long-standing demand from the industry for RBI to announce a One-Time Restructuring of the loans to give much needed relief, clarity and long-term sustainable support to the businesses. The RBI announced a framework to permit restructuring of the stressed accounts of ‘eligible borrowers’ without the account being classified as a Non-Performing Asset (NPA)

This blog post highlights everything you need to know about a restructuring of loans; the eligibility criteria, the provisions involved and much more.

Who is an eligible borrower for one-time restructuring under this framework?

The following eligibility criteria must be satisfied to be an eligible borrower for loan restructuring under this framework:

• The borrower is under stress on account of COVID-19
• The borrower account is classified as ‘Standard’, but not in default for more than 30 days with any lending institution as on 1^st March 2020. Further, the accounts should continue to remain standard till the date of invocation
• Further,

1. 1. In case of a single lender:

• • • The borrower and lending institution have agreed to proceed with a resolution plan under this framework not later than December 31, 2020

1. 1. In case of multiple lenders having exposure to the borrower:

• • • Lending institutions representing 75% by value of the total outstanding credit facilities (fund based as well non-fund based), and not less than 60% by number agree to invoke the resolution under this framework
    • Resolution under this framework may be invoked on or before 31^st December 2020 and must be implemented within 180 days from the date of invocation
    • The resolution process is implemented when an ICA is signed by all lending institutions within 30 days from the date of invocation
    • In case lending institutions representing not less than 75% by value of the total outstanding credit facilities (fund based as well non-fund based) and not less than 60% by number, do not sign the ICA within 30 days from the invocation, the invocation will be treated as lapsed. In respect of such borrowers, the resolution process cannot be invoked again under this framework

Who are specifically excluded (not eligible borrowers) from this framework?

The RBI Curricular states that the following borrowers / loans are specifically excluded from the one-time restructuring framework:

• MSME borrowers whose aggregate exposure to lending institutions cumulatively does not exceed Rs. 25 Crore as on 1^st March 2020
• Farm Loans
• Loans to NBFCs, HFCs, Insurers and other financial service providers
• Loans to Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and Large-sized Adivasi Multi-Purpose Societies (LAMPS) for on-lending to agriculture
• Loans to Central and State Governments; Local Government bodies
• Exposures of Housing Finance Companies

What about stressed MSME accounts having borrowings up to Rs. 25 Crore?

These MSMEs (whose cumulative exposure to banks & NBFCs including fund base and Non-Fund Based does not exceed Rs. 25 Crore as on 31st March 2020) were already covered under an earlier announced scheme under restructuring of loans vide circular dated 11th February 2020.

In view of the continued need to support the viable MSME entities on account of the fallout of Covid19, the RBI has decided to extend the scheme under the aforementioned circular whereby restructuring of the borrower account may now have to be implemented by 31st March 2021. However, the following conditions should be met:

• The MSME should have been classified as ‘standard asset’ as on 1^st March 2020 and
• It should have obtained GST registration, unless it is exempt from obtaining the GST registration
• All other conditions under circular dated 11^th February 2020 would be applicable

Are there any other requirements / compliances / approvals required for one-time loan restructuring?

In addition to the conditions set out to be an eligible borrower the following additional conditions are to be met in case of exposures above specific thresholds:

• In respect of accounts where the aggregate exposure at the time of invocation of the resolution process is Rs. 100 Crore and above, an independent credit evaluation (ICE) by any one credit rating agency (CRA) authorized by the Reserve Bank needs to be obtained
• In respect of loan accounts where the aggregate exposure of the lending institutions at the time of invocation of the resolution process is Rs. 1,500 Crore and above, an Expert Committee shall vet the resolution plans to be implemented under this window
• Further each lending institution shall frame its own Board approved policies pertaining to implementation of viable resolution plans for eligible borrowers under this framework

Will the account be treated as NPA due to the one-time restructuring?

The account will continue to be classified as standard and will not be downgraded to NPA so long as the conditions and repayments as outlined in the resolution plan approved under the framework are complied with. Hence there is no classification of NPA just because of the restructuring. This is a key relief provided under this framework.

How does the one-time restructuring impact the Financial Institutions?

The loan restructuring impacts the loans impacts the profitability, & thereby the capital adequacy ratios leading to reducing capacity to raise further funds, of the Financial Institutions since they are required to create a provision for the restructured loans. The provision required as follows:

• In case of personal loans – 10% of the residual loan or provisions held as per the extant IRAC norms immediately before implementation, whichever is higher
• For other loans where the lending institution has signed ICA within 30 days of invocation – 10% of the total debt or provisions held as per the extant IRAC norms immediately before implementation, whichever is higher
• For other loans where the lending institution has not signed ICA within 30 days of invocation – 20% of the debt on their books as on this date (carrying debt), or the provisions required as per extant IRAC norms, whichever is higher

When can this provision be reversed?

The financial institution may reverse the provisions as follows:

For the Institutions who have signed the ICA within 30 days of invocation:

• • One half of the provision upon the borrower paying at least 20% of the residual debt without slipping into NPA post implementation of the plan
  • Balance upon the borrower paying another 10% of the residual debt without slipping into NPA subsequently

For the Institutions who did not sign the ICA within 30 days of invocation:

• • One half of the provision upon the borrower paying at least 20% of the carrying debt
  • Balance upon the borrower paying another 10% of the carrying debt

What happens if the borrower defaults even after one-time restructuring?

All loans, other than the personal loans which are restructured under this framework, shall be subject to a monitoring period viz the period starting from the date of implementation of the resolution plan. This monitoring shall continue till the borrower pays 10% of the residual debt, subject to a minimum of one year from the commencement of the first payment of interest or principal (whichever is later) on the credit facility with the longest period of moratorium.

During the continuance of the monitoring period, if there is any default by the borrower with any of the signatories to the ICA, a review period of 30 days will be triggered. The borrower cannot default with any of the signatories to the ICA at the end of the Review Period.

If the borrower defaults, then the asset classification of the borrower with all lending institutions, including those who did not sign the ICA, shall be downgraded to NPA from the date of implementation of the resolution plan or the date from which the borrower had been classified as NPA before implementation of the plan, whichever is earlier.

How can InCorp help you?

Our team of experienced Investment Bankers & Resolution Professionals acting together as a single unit, provide a complete perspective to the lenders and stakeholders. We have raised over Rs. 2,200. Crs in the past 5 years and have also been involved in successful resolution of a real estate company having a loan of over Rs. 2,500 Crs. We are also currently assisting a few other real estate companies to resolve the liquidity issues faced by them.

We can help you in understanding the key nuances of debt restructuring and understanding of the one-time loan restructuring scheme. They can help you in exploring different options available to resolve the financial position of your business, evaluating the best course of action for your debt and also planning the execution of the entire restructuring process end-to-end.

Bombay Stock Exchange Limited (herein referred to as “BSE”) has set up the BSE Start-up Platform as per rules and regulations laid down by the Securities and Exchange Board of India (herein referred to as “SEBI”). BSE Start-up Platform offers an entrepreneur, an Investor friendly environment, which enables the listing of Small and Medium Enterprises (herein referred to as “SMEs”) from the unorganized sector scattered throughout India into a regulated and organized sector. As on date, the market statistics are as under:

Source: www.startupsbse.com

Sectoral Analysis:

Salient Features of ‘BSE Start-up Platform’ listing:

Applicability:

Financial Criteria:

• The net worth should be positive.
• Preferably, there should be investment by QIB Investors [as defined under SEBI ICDR Regulations, 2009]/Angel Investors/Accredited Investors for a minimum period of 2 years at the time of filing of a draft prospectus with BSE.
• In case company is not registered as a start-up with MSME / DIPP, the company’s paid-up capital should be minimum INR 1 crore.
• The post-issue paid-up capital of the company [face value] shall not be more than INR 25 crores.

Other Requirements:

• It is mandatory for a company to have a website.
• It is mandatory for the company to facilitate trading in Demat securities and enter into an agreement with both the depositories.
• There should not be any change in the promoters of the company in preceding one year from the date of filing the application with BSE for listing under the Start-up segment.

Disclosures:

A certificate from the Applicant company I Promoting companies stating the following:

• The company has not been referred to National company Law Tribunal [NCLT] under Insolvency and Bankruptcy Code,
• There is no winding-up petition against the company that has been accepted by the National company Law Tribunal [NCLT].
• None of the Promoters / Directors of the company has been debarred by any regulatory agency/ies.

Compliance on BSE Start-up Platform:

Preparation for IPO:

IPO is one of the means of financing and an important method to raise funds for any corporate aspiring for sustained growth. It is thus important that every company is aware of the requirements and the kind of preparation required before entering the capital market.

An overview of the process of IPO and activities are listed below:

Migration from BSE Start-up Platform to the Mainboard:

• companies seeking migration to Main Board of BSE should satisfy the eligibility criteria.
• It is mandatory for the company to be listed and traded on the BSE Start-ups Platform for a  minimum period of two years and then they can migrate to the Main Board as per the guidelines specified by SEBI vide their circular dated l5th May 2010 and as per the procedures laid down in the ICDR guidelines Chapter X.

Key Comparison between BSE Start-up IPO listing and BSE SME IPO listing:

Other Income tax concessions to Start-ups:

How can Incorp India help you?

At InCorp India, we are committed to delivering quality in assurance, tax, and advisory services. We have curated an MSME suite to provide various benefits for MSMEs. Our combined dedicated team of Corporate Advisory, Valuation, Investment Banking, and Taxation experts can help you plan and prepare for IPO, conceptualizing the process, pre and post-issue compliance, and provide the ease for filing the required compliances. We can assist you not only in terms of compliance but also to evaluate the eligibility of listing, valuation principle specific to business by evaluating cost-benefit analysis. If you are interested in knowing the benefits available to MSMEs and Startups and related assistance, you can write to us on ‘info@incorpadvisory.in’.

The impact of COVID-19 has hit the entire world including the major economies like the European Union and the US. The fallout of this will surely have a major impact on the Indian economy. During this crucial COVID-19 phase, it is evident that many business activities have come to a halt in accordance with the added precautionary measures. While this has greatly impacted many industries and our daily lives, we would like to assure you that this pandemic will be tackled better and we will emerge stronger.

While taking care of our family’s health and safety is important to all of us, it is just as important to us at InCorp to take care of your company’s financial health and business interests. We are dedicated to help you to reassess your business operations with a view to not just survive through these trying times but to seize the opportunity to flourish and also tap into the remedies available as the government unveils more soon.

What can one expect on the restart of businesses post lockdown?

COVID-19 (Coronavirus) is having an unprecedented and devastating impact on businesses. Travel restrictions, disrupted supply chains, subdued demand and labor issues have unsettled the businesses.

It will lead to the following-

• Lesser Demand and Supply
• Employee lay-offs
• Default and/or renegotiation of contracts
• Liquidity issues thereby severely impacting cash flows
• Delays in servicing of Debt
• Working capital finance being blocked and new finance being difficult 

What are the impacts of this on businesses?

Most businesses (particularly MSMEs) are vulnerable whenever normal economic activity ceases, despite governmental interventions to limit economic upset.

Several business entities would be grappling with –

• Declining profitability
• Poor/negative cash position
• Delays in receivable liquidation
• Falling DP position and blocking of working capital limit
• Difficulty in meeting term debt EMI obligation
• Increased scrutiny by lenders

How should one tackle this situation?

A proper financial plan is a prerequisite in this time of crisis. As we navigate these complexities together we can assist you in preparing and executing a robust plan which will take care of your cash flows freeing your mind to concentrate on your business. We have formed a specific team of expert advisors who would devise a custom plan for your business after studying the specific challenges facing your business.

What if one was already having an overdue EMI prior to the lockdown?

An interesting scenario arises in case of the already stressed accounts which were overdue prior to the lockdown. The otherwise available 90 day period before being classified as NPA by the financial institution has shrunk as the lockdown has prevented the economic activity and thereby the generation of funds to honor the repayment obligations. The RBI has clarified that the lockdown period would be excluded in the calculation of 90 days period for the calculation of the NPA.

How can Incorp help you?

We have started a series of emails whereby regular updated information/announcements and analysis thereof along with financial implications of the lockdown & COVID-19 on the business and strategies for the mitigation of these challenges are being shared.

Further Incorp can assist you in debt management as follows-

Financial Distress Assessment:

• Health check-up of the business by reviewing the financial position and the key financial indicators as at 31^st March 2020
• Scrutinize the current working capital limits utilized
• Assess the current drawing power available, if any, based on the current guidelines of the banks
• Advise on the strategy for the way ahead

Planning, Forecasting and Budgeting the Cash Flow:

• Identifying key forecast assumptions and preparation of robust cash flows for the next 2 quarters
• Understand the actual business position and its cash inflows, assess the available headroom and budget the peak deficit cash flow
• Advice on the strategy to raise funds to meet the deficit in the cash flow
• Syndication of temporary/ad-hoc working capital limits from the existing bankers
• Assisting in regular cash flow tracking and reporting the deviations and advice on a further course of action due to the deviation

Debt Restructuring:

• Identify flexibility with existing lenders.
• Assist in the re-negotiation with the lenders for restructuring the debt using up to date knowledge of relief announced by RBI.
• Explore additional financial options to refinance the existing debt using our expertise on Bank loan syndications.

Recovery and Future Preparedness:

• Strategy and advice on various modes available under law for the collection of funds stuck up in receivables
• Analyze the key risks of the business and possible steps to mitigate the risk factors going forward.

The Legal Entity Identifier (LEI) code has been conceived as a key measure to improve the quality and accuracy of financial data systems for better risk management post the Global Financial Crisis. 

The LEI code or LEI number is a 20-character unique identity code assigned to entities who indulge in financial transactions. In respect of the applicability of LEI, the Reserve Bank of India (RBI) has issued various notifications from time to time to cover entities that will have to comply with the LEI registration requirement.

Since most of you will have questions regarding the applicability and procedure for registration for LEI code, we thought it would be appropriate to put them down in FAQ format.

FAQs Surrounding Legal Entity Identifier(LEI) Code

1. What is LEI Code/Number?

LEI Code or Legal Entity Identifier is a 20-character unique identity code assigned to entities who are parties to financial transactions. Globally, it helps in labeling an entity with an Identity number that has entered into financing transactions and is registered with multiple agencies having varied registration numbers.

2. How does LEI code work?

LEI code is designed to enable the identification and linking of parties to financial transactions in order to manage counterparty risk. The goal is to improve the measuring and monitoring of systemic risk and support more cost-effective compliance with regulatory reporting requirements.

3. Which financial transactions fall under LEI Applicability?

Currently, all applicants transacting in Over-the-Counter (OTC) Derivative Markets, Large Corporate Borrowers and participants of Non-Derivative Markets, who fulfill the eligibility criteria are covered under the applicability of LEI code.

4. Which borrowers, under the Large Corporate Borrowers notification issued by RBI, have a LEI number requirement?

All entities having total fund-based and non-fund based exposure of Rs. 5 crore and above are termed as Large Corporate Borrowers. However, currently, LEI code is applicable only for entities having total exposure above Rs. 50 crores.

5. Which all transactions are covered under Non-Derivative Market notification issued by RBI for LEI code applicability?

All participants, other than individuals (including non-resident entities), undertaking transactions in markets regulated by RBI viz,

• Government Securities markets or
• Money markets (markets for the issue of any instrument with a maturity of one year or less) or
• Non-derivative forex markets (transactions that settle on or before the spot date) i.e. cash, tom and spot transactions.

are covered under RBI’s notification for LEI code applicability for non-derivative market participants.

6. Who should apply for LEI code?

Following companies cannot apply for the Scheme:
Any entity registered in India needs to apply for Legal Entity Identifier (LEI) code from time to time. The list of entities eligible to apply for LEI codes are Sole Proprietorships, Limited Liability Partnerships, Partnership Firms, Trusts, Private Limited Companies, Public Limited Companies, Government Companies, One Person Company, Insurance Companies, Housing Finance Companies, Non-Banking Finance Companies, Non-Profit making Companies, Special Purpose Vehicles – Trusts, Special Purpose Vehicles – Companies, SPV – Partnership Firms, SPV – Co-operative Societies or Multistate Co-operative Societies Mutual Fund, Mutual Funds-Sub Scheme, Alternative Investment Fund (AIF), AIF- Sub Scheme, Nationalised Banks, Scheduled Urban Cooperative Bank, Banking Companies – Others, Stand Alone Primary Dealers, Public Financial Institutions, Unlimited Companies, Cooperative Societies or Multistate Cooperative Societies, Government Organizations, Companies Limited by Guarantee, etc. Individuals acting in their natural capacity are currently outside the scope of applicability of LEI Code.

7. What is the deadline to apply for the LEI Code?

The last date for application by entities dealing in the OTC market, large corporate borrowers and participants dealing in non-derivative markets having net worth above Rs. 2,000 million has already lapsed. Thus, all the above participants will have to compulsorily apply for LEI code to have all future transactions. The deadline for application of LEI code by participants dealing in non-derivative markets having net worth below Rs. 2,000 million was 31st March 2020 which is now extended to 30th September 2020 vide RBI notification dated 27th March 2020.

8. What are the consequences for non-application?

Entities dealing in OTC derivative markets will not be eligible to transact without a valid Legal Entity Identifier or LEI number. Borrowers who do not obtain LEI code will not be granted renewal/enhancement of credit facilities. 

Entities dealing in non-derivative markets transaction will not be able to undertake transactions in financial markets after the due date, either as an issuer or as an investor or as a seller/buyer. Transactions undertaken through the recognized stock exchanges are outside the purview of the LEI requirement.

9. Do all non-derivative forex transactions require Legal Entity Identifier (LEI) code?

In the case of non-derivative forex transactions, all inter-bank transactions will require LEI code. Non-derivative forex client transactions will require LEI code only for transactions involving an amount equivalent to or exceeding USD 10,00,000/- or other equivalent currencies.

10. Do Non-resident entities fall under LEI code applicability as well?

Non-resident entities undertaking financial transactions in the relevant markets will also require LEI code. Entities that are not legal entities in their country of incorporation (e.g., funds operated by a non-resident parent/management company that are each registered as an FPI) can use the LEI code of their parent/management company.

11. What is the validity of the Legal Entity Identifier (LEI) code?

The validity of Legal Entity Identifier (LEI) Code is for a period of one year from the date of issuance or last renewal.

12. What is Legal Entity Identifier India Limited (LEIL)?

Legal Entity Identifier India Limited (CIN- U74900MH2015PLC268921) is a Wholly Owned Subsidiary of The Clearing Corporation of India Ltd. and it acts as a Local Operating Unit (LOU) for issuing globally compatible Legal Entity Identifiers (LEIs) in India.

13. What is the basic registration process for application for LEI code?

An entity can fulfil LEI registration requirement by complying with the following:

• Creating an account on www.ccilindia-lei.co.in website
• Submission of basic details.
• Getting an email confirmation for validation of the account created.
• Submission of documents, information, and payment of application fees.
• Verification of documents by Legal Entity Identifier India Limited team.
• Allotment of LEI Code / Rejection of application in case of inappropriate application.

14. What are the documents required for Legal Entity Identifier(LEI) code application?

List of documents required to be submitted can be searched on www.ccilindia-lei.co.in website under Download – Legal Doc Download tab. List of documents required are:

• Certificate of Incorporation/Registration Certificate
• PAN Card
• Undertaking-cum-Indemnity as per the format specified by LEIL
• Audited Financial Statements
• Board Resolution as per the format specified by LEIL or a certified true copy of the general board resolution or general power of attorney will be accepted if the legal entity commits to submit a fresh board resolution in the format as prescribed by LEIL when the next Board Meeting is held subsequently.
• Power of Attorney as per the format specified by LEIL in case of any further delegation by officials mentioned in Board Resolution.
• Audited financials of Immediate Parent and Ultimate Parent Entity or Auditor’s Certificate as per the format specified by LEIL in case of an immediate parent and ultimate parent entity.

It is to be noted that, there is no need to submit the documents physically if all the documents are submitted online and payment is made successfully online.

15. What are the registration charges for acquiring a LEI number?

A basic charge of Rs. 5,900/- (inclusive of GST) is required to be paid at the time of application of LEI code which can be paid via Internet Banking/Credit Card/Debit Card/ Demand Draft payable at Mumbai.

16. How Long Does it Take to Get the LEI Code issued after submitting the application?

After submission of all the documents online or receipt of all physical documents at LEIL office (in case if all documents are not submitted online) and payment of application fees, LEIL generally issues LEI code within 3 to 5 working days.

17. How can InCorp Advisory assist you?

We at InCorp have studied in detail the procedure for obtaining LEI code and built a team of experts. So, we can assist you in obtaining Legal Entity Identifier (LEI) code by taking care of all your LEI registration requirements. Get in touch with our team for any further queries.