Minimum Capitalisation Norms for NBFCs

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Chandan Kini (Querist)
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29 September 2008 Dear All,

As per Press Note 7 of 2008 issued by the DIPP (available on the DIPP website) the minimum capitalisation of foreign holding requirements for NBFC's are as follows:

1. US$ 0.5 million in case the shareholding percentage is below 51%
2. US$ 5 million in case the shareholding percentage is between 51% & 75% &
3. US$ 20 million in case the shareholding percentage is between 75% & 100%

I want to know whether such minimum capitalisation requirement will also include the premium at which the shares are issued? Or whether 0.5, 5 & 20 millions should make up the total nominal amount of the face value of shares only.

Also please inform as to any Act, Rule, circular or notification or any other document where the definition of minimum capitalisation is given..

Need not necessarily be FDI norms... even SEBI etc may be applicable.

Would really appreciate an answer at the earliest.

Thanks in advance, Regards,

Chandan

CA V. Mohanakrishnan

CA V. Mohanakrishnan (Expert)
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30 September 2008 please the said press note in the last point on the conditions states

"The capital for the purpose of minimum capitalization norms shall consist of ordinary shares only"

The same shall not include premium.This is as per the respondent in DIPP in one such similar case

Chandan Kini

Chandan Kini (Querist)
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30 September 2008 Dear Mr. Mohankrishnan,

Thanks a lot for your quick reply. However, if you have noticed, in the Master Circular issued by the RBI, the clause (g) has been deleted from the table.

We have asked the DIPP and the RBI in this matter and both have taken the stand as stated by you above. However, from various consultants that we have spoekn to, we have got the reply that premium will also be included while calculating minimum capitalisation and their contention is the deletion of clause (g) in the RBI Master Circular.

Also, I would be highly grateful if you could give me some notification / circular / regulations which gives us a clear picture of the expression.

Thanks again and Best Regards,

Chandan

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CA V. Mohanakrishnan

CA V. Mohanakrishnan (Expert)
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01 October 2008 Dear mr.Chandan Kini

this is linked to the percentage of holding, which cannot be including premium as many infusions of capital can happen at different premium levels. hence only the holding percentage based on the face value can be considered.

however, drawing a parallel to the requirement of capital adequacy in various organisation which includes the networth, it can be contented the same to be included.

however, the concurrence of the monitoring authority would be more relevant in these cases to avoid later issues. it would be better the matter is taken up and the stand of DIPP and RBI be modified to the effect as stated by the consultants.

otherwise it is debatable

CA V. Mohanakrishnan

CA V. Mohanakrishnan (Expert)
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01 October 2008