RBI's COVID-19 Regulatory Package

A day after Finance Minister Nirmala Sitharaman unveiled a Rs 1.7 lakh crore economic welfare package for the poor in the backdrop of the coronavius pandemic, the Reserve Bank of India (RBI) Governor Shaktikanta Das has announced a press conference at 10 am on March 27.
Beginning March 25, for a period of three weeks, India is under a complete lock-down to curb the spread of the COVID-19. This will have an impact across key economic segments including manufacturing, services, construction and tourism. On March 26, the government announced a mix of measures including direct cash transfers and distribution of free food grains for a period of three months to help the economically weaker sections of the society tide over the crisis phase. Now, it is RBI’s turn.
Reserve Bank of India (RBI) on March 27, 2020 announced a Regulatory Package on COVID-19 to tackle the impact of deadly Corona virus on Indian Economy. From Repo Rate & CRR Cuts to 3-months moratorium on term loans, RBI Governor Shaktikanta Das announced several measures while addressing the media after the release of Seventh Bi-monthly Monetary Policy Statement 2019-20.
RBI's Regulatory Package is addressed to all the commercial banks, co-operative banks, financial institutions and Non-Banking Finance Companies (NBFCs) in the wake of COVID-19 outbreak. The financial package aims to mitigate the impact of Coronavirus on debt markets, infuse liquidity and ensure the functioning of possible businesses.

Let's have a look at the measures announced by the RBI:                            
3-Months Moratorium on Term Loans
All the lending institutions including commercial banks, RRBs, co-operative banks, NBFCs and Financial Institutions have been asked to grant 3-months moratorium on the payment of installments under all term loans outstanding as on March 1, 2020.

What does it imply? - Now, the installments of term loans which were due on March 1, 2020 can be paid until May 31, 2020. The extension of payment is valid on installment as well as interest. The Interest will continue to add on the outstanding amount during the moratorium period.

Type of Payments covered under Moratorium: Principal , Interest, EMIs and Credit Card dues
Which loans are included under Term Loans?- Retail Loans, Agricultural Term And Crop Loans

Note: Retail Loans cover home loans, auto loans, personal loans, education loans and EMIs on purchase of mobiles, fridge, TV and gadgets, etc.

Deferment of interest payments for Business loans
The central bank has deferred the payment of interest for all business loans or working capital loans outstanding as on March 1, 2020 up to May 31, 2020. Businesses will be required to pay off the entire accumulated interest after the expiry of moratorium or deferment period.
Working Capital facilities: Loans granted in the form of cash credit or overdraft

Easing of Working Capital funding through recalculation of Drawing Power

Borrowers facing stress on repayment of working capital loans granted in the form of cash credit and overdraft due to Coronavirus outbreak will now be allowed to recalculate their drawing power. The drawing power can be reassessed by reducing the profit margins or working capital cycle. This relief will be granted until May 31, 2020.
Businesses which will be granted relief under this package will be placed under supervisory review to ensure that the economic fallout is due to the COVID-19 pandemic.

Moratorium & Recalculation of Drawing Power will not result in Asset Classification downgrade

As the central bank is granting the moratorium or deferment or recalculation of drawing power facility due to economic slowdown cased by COVID-19 pandemic, this would not lead to reclassification of asset or asset classification downgrade. As this relief will not be considered as a concession or change in terms of loan agreements.

Asset Classification as NPA & SMA
The asset classification as Non-Performing Asset (NPA) and Special Mention Account (SMA) of term loans granted moratorium will be done on the basis of revised payment schedule of installments. On the other hand, the asset classification of working capital loans will be carried out on the basis of total accumulated interest.

Reschedule of loan repayment to not impact credit score

The revised schedule of payment of installments and interest will not be considered as a default. This will not adversely impact the credit score or history  of the borrowers.

Banks & Lending Institutions to frame policies for COVID-19 Package

All the lending institutions including commercial banks and NBFCs need to frame policies, approved by the Board, to provide relief under the COVID-19 Regulatory Package to eligible borrowers.

Banks to prepare MIS Report if loan amount is over Rs 5 Crore

If the pending loan amount is over Rs 5 crore as on March 1, 2020, the banks and lending institutions will have to prepare an MIS Report containing the details of relief granted and borrower-wise details.

Other Measures announced in Bi-monthly Monetary Policy statement

- The repo rate cut by 75 basis points to 4.4 percent.

- The reverse repo rate reduced to 4 percent.

- Cash Reserve Ratio (CRR) reduced by 100 basis points to 3 percent to inject liquidity.

- Liquidity of Rs 3.74 lakh crore injected

Now, Have a look at these questions and answers to clarify your doubts related to the relief granted under the package:

Q1, When will RBI's COVID-19 regulatory package come into effect?

Answer: RBI'S rescue package to contain the economic slowdown caused by COVID-19 comes into effect from March 27, 2020 itself.

Q2. Who all will be able to enjoy moratorium under the RBI's regulatory package?

Answer: Home loan borrowers, car loan borrowers, personal loan borrowers, education loan borrowers, agricultural loan borrowers, crop loan borrowers

Q3. Does Moratorium apply to EMIs and Credit Card dues?

Answer: Yes, the 3-month moratorium applies to Equated Monthly Installments (EMIs) and Credit Card dues.

Q4. Is the RBI's regulatory package applicable to all private and public sector banks?

Answer: Yes, the package applies to all the commercial banks including the private and public sector banks. However, each bank has to frame its own policy in regard with the package.

Q5. What is Drawing Power?

Answer: The Drawing power is the limit of amount that can be withdrawn by a business from the sanctioned working capital limit. This amount is calculated on the basis of firm's primary security less profit margin.

Q6. What is Working Capital?

Answer: Working Capital is the amount required by businesses to carry out their day-to-day operations. The Working Capital is calculated as Current Assets less Current 

DISCLAIMER- This write-up is based on the understanding and interpretation of the author and the same is not intended to be professional advice. 

Regards, 

Shubham Katyal 

(ACS, B.COM) 

Legal & Secretarial Consultant 

5 Topics to Avoid Discussing at Work

Some conversations don't belong in the workplace, or at least they should not take place between coworkers who aren't also close personal friends. Certain topics could make things awkward and even unpleasant for you and your coworkers. 

You should always, for example, stay away from discussions that may become fodder for the office grapevine with you as the primary focus. You should also avoid revealing personal information that might negatively influence your colleagues' perceptions about your ability to do your job effectively. Discussing controversial subjects can also get you into trouble with your coworkers. 

Here are five topics you should seriously consider crossing off your list of things to discuss with your coworkers. 

Religion

While religion seems to be discussed everywhere, from the campaign trail to the sports field to the awards ceremony stage, it is a topic that does not belong in the workplace. Do not discuss your own religious beliefs and avoid sharing your opinions about others' beliefs or lack thereof. You should definitely never try to persuade anyone to convert.

Faith is a very personal thing about which people are often sensitive. This doesn't mean you should hide your religion or shouldn't be proud of it, but realize not everyone worships the same way you do. Your coworkers likely don't want to hear that you disagree with them about this or that you believe your religion is the right one for everyone.

Problems With Your Spouse, Your Children, or Your Parents

If you need to discuss your problems with someone, talk to a trusted friend, or better yet, a therapist. When you discuss issues you are having at home, your coworkers and your boss may question whether they will distract you from doing your job. If you are a supervisor or manager, discussing your problems may also reveal your weaknesses to your subordinates. This can undermine your authority.

Also, enumerating problems you are having with your family will feed the rumor mill, making you the subject of workplace gossip. Do everything you can to avoid becoming the talk of the office.

Politics

People can also be very touchy about their political affiliation. Avoid getting into lengthy conversations about this topic at work. While you may feel very strongly about your party or the candidate for whom you plan to vote, or you may have a negative opinion of the opposition, do not try to win your coworkers over to your side. You aren't likely to succeed, and your efforts will just cause hard feelings between you and them.

Your Health Problems

If you have a chronic illness or any medical issue, don't dwell on it too much at work. Doing so will give your coworkers and boss a reason to wonder if your condition will keep you from doing your job well. If you need to take sick leave from work, you will have to discuss it with your employer, but you are not required to provide details.

Your Career Aspirations

You may consider your current job a stepping stone to bigger and better things. That's a great aspiration, but talking about your ambitions will certainly, for good reason, make your boss and coworkers question your loyalty.

If you are interested in moving up within your current organization, you should do your job exceptionally well, and of course, let your boss know you want to move up through the organization's ranks. Your actions will speak for you. Just don't make it the topic of workplace conversations with anyone who will listen. If your plans for the future include leaving your current job in order to advance, don't announce that until you are ready to make your move.

DISCLAIMER- This write up is based on the understanding and interpretation of author and the same is not intended to be a professional advice.

by Shubham Katyal

cs.shubhamkatyal2k16@gmail.com

5 Things You Must Give Up If You Want To Be Successful

You want to be successful, right? People say one should develop more skills and abilities to be successful. As good as it sounds, this strategy can have you stay up at late nights trying to learn something new, which may not be that easy. But what if you already have some great skills but the success is still beyond reach? Well, my answer may be surprising to you.

Why keep on adding new things when we can give up the bad ones that keep us behind the others? The success can be reached by eliminating the things that stand on our way to it!

The good news is that you can begin right away and get rid of some of them even today! Let me walk you through this issue. I have prepared an awesome list of things you should give up as soon as you can. See whether some of these apply to you.

1. Give up the dependency on social media

How many times have you seen people choosing to browse Facebook and Twitter when they were supposed to do other, more productive things? I see this every day and I have to tell you that this dependency does not bring you anything but a waste of time.

A recent survey of 1000 Americans that I found on Business Insider beautifully illustrates my point. 48 percent of the sample check or update Facebook even during the night and as soon as they wake up! Talk about a real addiction, right? These people forget about other things and worry about likes and updates and some of them even become depressed when they start comparing themselves to others.

Come on, guys. The world does not stop turning because of social media.

If impulsive Facebook browsing sounds similar to you, then we might have a problem here. Your dependence is a distraction from your life and your goals, so minimizing it can truly enrich your experience.

2. Give up Multitasking

Having the ability to perform multiple tasks at one time sounds great but there is a big problem: it does not work. People cannot be effective doing several things because the brain needs to focus, neuroscience says.

Successful people stay away from multitasking because it kills their productivity. You can always tell when someone you are having a conversation with on the phone is distracted by other things, right?

Give up multitasking if you want to be successful because it is rather a distraction than a great skill. Focus on something and get it done without unnecessary stress and lower productivity.

3. Give up on playing small

You may have been playing small your entire life without even realizing its impact on your success. Think about it: how many times have you turned down a big opportunity because you were afraid of change or thought it was too overwhelming?

Even though you may have done it many times, you still have dreams about being more influential and decisive, right? Then why not take a big opportunity and let those dreams come true?

Playing small is not a good thing, believe me. If you are afraid to fail and unleash your true potential, you will never be decisive and impactful. And the world will never notice your presence.

4. Give up the short-term mindset

It’s amazing how short-term mindset is different from the long-term one. I used to think in immediate terms as well but I quickly realized that I would never reach the desired outcome because I could not foresee my future.

By switching to a long-term mindset, I was able to change my life and you should do the same! To make sure that my long-term goals are in progress, I had to be strong and motivated even at the most difficult times. As the result, I learned how to develop short-term habits that contributed to achieving the long-term goals.

Let me illustrate what I mean with a simple example: there is a world of difference between working out for a show-off and working out because that’s who I am. Got it?

5. Give up excuses

Excuses are a popular way to get rid of a responsibility. “Oh, I really don’t have that much expertise in marketing, you really shouldn’t use my help for this.” Does that sound familiar? What a lame excuse like this does is preventing you from taking the responsibility for your life.

Believe me, successful people take on responsibilities even if they need to go outside their comfort zone and recognize their past failures. As the result, they engage in both exciting and frightening business that adds experience and skill.

When you do the same, you will realize that excuses are a major obstacle that was holding you back all this time. It will be a new milestone in your personal development.

Concluding thoughts:

Learning everything does not guarantee success but a total control over your time. As the result, the chase for new things may actually hinder your success by preventing you from unleashing your potential. My list in this article showed that they can keep you within serious limits, so you can’t let them win!

If you want to be successful in life, you need to give up as many of them as you possibly can, so if you saw something familiar on this list, feel free to change your life today!

It would be cool to know about your progress and success, so leave your comments below and share the wisdom!

DISCLAIMER- This write up is based on the understanding and interpretation of author and the same is not intended to be a professional advice.

by Shubham Katyal

cs.shubhamkatyal2k16@gmail.com

https://www.facebook.com/shubham.katyal.3

https://www.linkedin.com/in/shubham-katyal-5334a8b0?t

Employee Stock Options for Startups

Employee Stock Options for Startups

What is Startup India?                                                                                            

Startup India, initiated by the Government of India is a flagship initiative launched in January 2016. This initiative is taken by the government of India to boost the ecosystem for supporting innovation and startups in India. Through this scheme, the government is looking forward to driving sustainable economic development and enhance employment opportunities in India. The government of India recently announced Startup India action plan to meet the requirements of this initiative.

Registration of a startup with DIPP         

Most of the startups are focused on gaining revenues and maximizing their profits by using various methods which is a good thing. At the initial stage, most of the startups are bootstrapping their organizations out of their hard-earned money. One of the ways to enhance your earnings is to reduce the cost. Government retains 30% of our income in form of tax which leads to increased cost. We can save this cost for three years by simply registering our startup with the Startup India initiative.  

The emergence of Startups has also heralded the new age of employee compensation structures. Startups are innovative ‘by-default’ and their creativity also extends to the sphere of how their employees are compensated. There isn’t a problem that our Startups cannot solve - which includes, overcoming cash constraints while hiring the best talent the market (Indian or Global) has to offer. How do Startups manage to hire & retain top talent despite the lack of cash resources? The answer is ESOPs or Employee Stock Option Plan.

None of you are strangers to this term; ESOPs are actively deployed by Startups to achieve twin objectives (a) hiring the best, and (b) retaining the best for long periods of time. Of course, ESOPs also make the employee part-owner of the Startup. Thus, the emotional connection to the Startup is much higher vis-a-vis full cash compensation. ESOPs represent the collective faith of the Startup’s talent pool, in the business that they are co-creating. The benefits of ESOPs are immense - thus, it is important for any Startup to know its finer details.

Allotment of ESOPs

ESOP can be formulated by companies. Most Startups are Private Limited Companies and are governed by the Companies Act 2013. The Act permits the allotment of shares to employees of the Startup (or its holding or subsidiary company), under an approved ESOP, at a future date but, at a pre-determined value. The ESOP should be approved by at least 75% majority of shareholders of the Startup. The pre-determined value could be the face value of the shares. For example a share, whose market value is Rs. 1,000 could be made available to the employee at Rs. 10. The benefit to the employee, of course, is the difference, which in my example is Rs. 990 per share. This could be of sizeable value if the employee owns a few %s of the Startup’s capital. It is this difference that compensates the employee for the faith invested in the idea in the Startup’s initial days.

                                                

Whether shares under ESOP can be given for free:

There are two opinions - one, that the benefit of discounted value is reserved for ‘sweat equity’ shares - a concept that’s legally different from ESOPs; and two - that pre-determined price could mean discounted value as well. The former would be a conservative stand & the Startup should take an expert’s advice before deciding the price.

Are ESOPs taxed?

Here’s the golden rule - so long as one has a pulse, one pays tax! Stock options will definitely be taxed. The next question is what is taxed? The benefit accruing to the employee is taxed. In the example table, Rs. 990 would be subject to tax. The trigger is the date of exercise - we shall look at this in a while. Income Tax Act 1961 states that the difference between the market value of shares (determined by a Merchant Banker no less!) on the date of exercise and the pre-determined price the employee pays to acquire it would be taxed as ‘perquisite’.

The tax shall be paid on slab rates. Further, on the date of the sale of shares acquired under ESOP, capital gains tax is payable on the difference between the selling price and the market value adopted for perquisite tax calculation.

My advice to employees would be to defer exercising the option to buy shares to a date when the shares can be converted to cash. Else, there could be large tax outflows. Shares of private limited companies are not traded on a stock exchange or in the stock markets. Thus, they cannot be easily liquidated. If the option is exercised, the employee could very well end up paying tax on a non-cash (& in some cases, a non-existent!) benefit. Further, it is the responsibility of the Startup to deduct tax on salary paid & benefits made available to employees; the Startup could encounter a situation where the cash component of the salary is not sufficient to pay taxes on non-cash perquisites. Thus, it is very important to structure the ESOP correctly.

The Mechanics of ESOP

Stock Option, as the name suggests, is an ‘option’ to buy the underlying asset, which is a share of the Startup. There is no obligation on the employee to buy the shares; it is only an option that the employee may or may not exercise. Every ESOP will have the following components;

Grant Date	The date on which the option is granted by the Startup to the employee. Grant is a formal action taken by the Startup and the employee is informed of the entitlement by way of a Grant Letter
Vesting Period	The minimum period that the employee has to serve to be entitled to the stock option. The average vesting period ranges between 3 - 5 years. Most Startups tranche out the total entitlement.
	For example, if the employee is entitled to 100 options and the vesting period is 5 years, the following two scenarios are possible: · Equal vesting, i.e. 20 options for completing every year of service or, · Milestone based, e.g. 12.5% at the end of 1st & 2nd year, 25% each at the end of the 3rd, 4th and 5th year
Exercise Period	The period post vesting, during which the employee can exercise the option to buy the shares. ESOPs can also be structured to address the eventuality of the employee leaving the company during the exercise period
Exercise Date	The date on which the employee exercises the option to buy the shares
Exercise Price	As seen above, the pre-determined price at which the employee will buy the shares

Every ESOP is a play of these words and thus, a thorough understanding is crucial to the Startup and the employee

           

What else should a Startup take care of?

Finally, in addition to drafting an ESOP that is compliant with the law and is tax-efficient,

The Startup should;

1.    Create a viable & easy to govern stock options structure, which could include establishing an Employee Stock Option Trust, funded by the Startup

2.    Ensure compliance with Foreign Exchange Management Laws when the ESOP is of the foreign parent company but can be accessed by Indian employees,

3.    Ensure booking all costs on the profit statement each year, in accordance with Indian

4.    GAAP, e.g. the Guidance Note on Employee Share-Based Payments which will in most cases apply to Startups

5.    Educate the employee on the stock option plan & guide them, where necessary. Remember, that ESOPs are benefits extended to employees and their interest is paramount

Conclusion

Indian government id providing enough help to the startups to cope up with the economy. Moreover, many startups have registered themselves under this startup India regime so as to get maximum benefits from the government. As the result of this scheme more and more entrepreneurs are getting motivation and they are starting up their companies and contributing towards making society more efficient and comfortable. Generating more and more jobs for the country is the reward we are getting from the startup India scheme. Startup India is one of its kind schemes.

DISCLAIMER- This write-up is based on the understanding and interpretation of author and the same is not intended to be a professional advice.

Regards,

Shubham Katyal

Legal & Secretarial Consultant