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January 2011

ARTICLE

Need for Mandatory Whistleblowers Policy for companies – by Iswarya Balakrishnan & Geetanjali Sharma
The article aims at analysing the growing need for a mandatory whistle blowers policy in India for all companies, private
or public, to check serious corporate frauds. The need of the hour is a stringent legislation to check violation of the
privacy of whistle blowers, making it a crime. The current Public Interest Disclosure and Protection of Persons Making
Disclosure Bill, 2010 does not cover the corporate sector, thereby ignoring the global experiences in framing such a
policy. Thus, the authors here have delved to frame appropriate measures to redress the current situation.

R E G U L ATO RY N E W S

Initiated by SEBI

Entities seeking listing of their securities post-IPO shall have to submit their shareholding pattern one day prior to
Þ
the date of listing
Initiated by RBI
In its mid quarter Monetary Policy review released on Dec 16th, 2010 RBI has reduced the statutory liquidity ratio
Þ
(SLR) of scheduled commercial banks (SCBs) from 25% of their NDTL to 24% with effect from December 18, 2010.
The regulatory guidelines on OTC foreign exchange derivatives have been revised by RBI.
Þ
Raising of capital through an issuance of NCDs in multiple tranches need not require multiple credit ratings.
Þ
In order to prevent excessive leveraging, banks have been asked to restrict Loan to Value ratio upto 80% in respect
Þ
of housing loans of over and above ` 20 lacs.

N S E N E W S

Close Out Facility is being provided to clearing members in the Currency Derivatives Segment to close out open
Þ
positions of their trading members whose trading facility is withdrawn for any reason.

Equities
·

Equity Derivatives
·

Equity based ETFs


·

Mutual Funds
· New beginnings
New hopes
Gold ETF
·
New dreams
Currency Derivatives
·

Interest Rate Derivatives


·

Book Building for Public issues (IPOs)


· Wishing you a Happy New Year, 2011.
Securities Lending & Borrowing (SLBS)
·
January 2011

MARKET REVIEW
Nifty Movements vis-a-vis other International Indices Performance of select sectors vis-a-vis Nifty
(Rebased to 100 for March 31, 2010) (Rebased to 100 for March 31, 2010)
125 150
140

130
100 120
110
100
75 90
Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10
CNX IT CNX FMCG INDEX S&P CNX Finance
Nifty Dow Jones NIKKIE Hang seng Nasdaq S&P CNX Petrohemicals S&P CNX Pharmaceuticals CNX Bank Nifty
CNX Infrastructure S&P CNX Nifty

Capital Market Segment F&O Segment


30000
5000 300
Avg. Daily Trading Value

Avg. Daily Trading Value


1400
250 24000 1200
Trading Value

Trading Value
4000
200 18000 1000
3000 800
150 12000
600
2000 6000
100 400
1000 50 0 200
Jan-10

Feb-10
Mar-10
Apr-10

May-10

Jun-10

Jul-10
Aug-10

Sep-10

Oct-10
Nov-10
Dec-10

Jan-10

Feb-10
Mar-10
Apr-10

May-10

Jun-10

Jul-10
Aug-10

Sep-10

Oct-10
Nov-10
Dec-10
Currency F&O WDM Segment

4000 210 800 40


Avg. Daily Trading Value

Avg. Daily Trading Value


180 700 35
Trading Value

Trading Value

3000 150 600 30


500 25
120
2000 400 20
90
300 15
1000 60
200 10
30 100 5
0 0 0 0
Jan-10

Feb-10
Mar-10
Apr-10

May-10

Jun-10

Jul-10
Aug-10

Sep-10

Oct-10
Nov-10
Dec-10

Jan-10

Feb-10
Mar-10
Apr-10

May-10

Jun-10

Jul-10
Aug-10

Sep-10

Oct-10
Nov-10
Dec-10

Trading Value ( ` ‘00 cr) Avg. Daily Trading Value ( ` '00 cr)

NSE MARKET STATISTICS NSE's GLOBAL RANKINGS


Segments Percentage Average daily Market Parameters Rank
Turnover ( ` crore) change over turnover Capitalisation Single Stock Futures 3
rd

Nov 2010 Dec 2010 Nov 2010 ( ` crore) ( ` crore) nd


Stock Index Options 2
CM 363,993 295,685 (18.77) 13,440 7,139,310 Stock Index Futures 3
rd

WDM 32,444 33,962 4.68 1,544 3,534,761 th


Market Capitalisation 9
F&O 2,965,846 2,357,109 (20.52) 107,141
CDS(Currency 266,332 237,564 (10.80) 10,798 Source : WFE (Rankings done for the period Jan- June 2010). Rankings
F&O) for single stock futures, stock index options and stock index futures is
TOTAL 3,628,615 2,924,321 (19.41) 10,674,071 based on number of contracts traded.

Prepared by SBU-EDUCATION, National Stock Exchange of India Ltd.


Exchange Plaza, Bandra Kurla Complex, Bandra (E) Mumbai - 400051. Tel No: 022-26598163
For detailed NSE Newsletter or for e-subscription, log on to www.nseindia.com>Press Room>NSE Newsletter.
Disclaimer- The views expressed in the published articles are those of respective authors and do not necessarily reflect views of NSE.
NSE does not guarantee accuracy of data used in Newsletter and accepts no responsibility whatsoever for any consumption of their
use.
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January 2011 1
N S E N E W S L E T T E R
ARTICLE

Need for mandatory whistleblowers policy for companies - By Iswarya Balakrishnan & Geetanjali Sharma

The aftermath of the unexpected Satyam scam awakened India to new set of norms and policies. The Ministry of Cor-
porate affairs realised this and began to undertake measures to patch up the loopholes to prevent future corporate
frauds.1 It has now drafted the Companies Bill, 2009 and the proposed Bill is predicted to be sufficient to counter big
financial scams like the Satyam.2 The bill is at its preliminary stage and before it gets passed, it is advisable that cer-
tain amendments are made to the provisions in Clause 49 of the bill to include a liability clause for violation of basic
Corporate Governance norms.

Corporate governance is the acceptance of the inalienable rights of shareholders as the true owners of the corporation
and of the role of the management is perceived as that of trustees on behalf of the shareholders. It encompasses com-
mitment to values, ethical business conduct and strikes a fine distinction between personal and corporate funds in the
management of a company.3 It defines the parameters of accountability, scrutinizes the reports and disclosures with
the objective of fulfilling the purpose of the corporate’s existence in this era of globalization with the aim directed
towards the welfare of shareholders.4 Hence, corporate governance goes beyond the letter of law enlisted in the Stat-
utes and tries to further the interests of the shareholders and the general public in an ethical and transparent manner
in order to make the organization a responsible corporate citizen.5

Whistle Blowing has been defined as "the disclosure by organization members (former or current) of illegal, immoral or
illegitimate practices under the control of their employers, to persons or organizations that may be able to effect ac-
tion."6 In the context of a corporation, whistle blowers are those who expose malpractices, unethical and corrupt prac-
tices of their co-workers and seniors, for the benefit of the company, stakeholders and society at large. In India, cor-
ruption needs no elucidation when it comes to companies as the statistics for white collar crimes keep shooting every
year.7 There is rampant personal use of company funds, misappropriation and recurrent frauds at different levels. This
is clearly reflected by the Satyam scam and the stamp paper scams in the past. In India, the whistle blower policy is
restricted to the public servants or in works connected with the Central Government8 and there exists no provision for
corporate whistle blowers, except in clause 49 of the Listing Agreement. Before analysing the need for a stringent
whistle blower policy in companies in India, an overview of the global legislations and conventions is vital.

Whistleblowers’ protection under United Nations Convention against Corruption (UNCAC): Enforced in December, 2005
the Convention has 140 signatories and amongst them 93 states have ratified the provisions. Article 8, 13 and 33 of the
Convention enumerate the duties of public officials to report matters in case of non-performance of functions by other
officials. It further lays protection regime for honest reporters and ensures the maintenance of their anonymity.

Whistleblowers’ protection under OECD Convention on Bribery of Foreign Public Officials in International Business
Transactions (OECD Convention): Ratified by 37 nations, the Convention aims “to address the supply side of bribery by
covering a group of countries accounting for the majority of global exports and foreign investment.” Whistleblower
regulations are a core part of the Convention where countries are mandated to establish complaint procedures, and to
protect whistleblowers in the public and private sector.9 It is to be noted that India has not ratified this Convention.

Position in U.K. , New Zealand & Australia: In UK, The Public Interest Disclosure Act, 1998, protects whistle blowers
from victimization and dismissal. The Protected Disclosure Act, 2000 of New Zealand covers employees who report se-
rious wrongdoings including bribery which violate the general public interest. The Public Interest Disclosure Act, 1994
of Australia also aims at preserving the anonymity of the whistleblower and safeguarding him/her against unfair treat-
ment within the organization.

Position in U.S.A.:In the U.S.A, the SOX Act, 2002 provides for the protection of whistle blowers10 and is applicable
even to employees in the public listed companies. It prohibits publicly traded corporations from taking any adverse
employment action against an employee that has blown the whistle.11
1
January 2011 2
N S E N E W S L E T T E R
ARTICLE ( c o n t d . . )

Companies with a class of securities under Section 12 of the Securities Exchange Act of 1934 are specifically subject
to SOX's whistle-blowing provisions. For the Act to apply, the Courts have applied the test of “objective reasonable-
ness” under which the employee must attribute the business practice to a fraud.12 The extent of the Act is such that
even foreign citizen working abroad for a United States subsidiary of a foreign company which is listed on the New
York Stock Exchange gains protection by the whistle-blowing provisions of SOX.13 The SOX Act also criminalises retalia-
tion against whistle blowing14 and title VIII consists of seven sections, referred to as the “Corporate and Criminal
Fraud Act of 2002”.

The Corporate and Criminal Accountability Act and the White Collar Crime Penalty Enhancement Act also aim at iden-
tification and investigation against perpetrators of White collar crimes and ensure their prosecution, in the wake of
the collapse of corporate giants like Enron, Quest, WorldCom and Tyco. It is pertinent to note that the reasons for the
fall of these Corporations have been accounting manipulations, auditing failure and dereliction of the Board of Direc-
tors.15 The Racketeer Influenced and Corrupt Organisations Act also aims at protection of whistle blowers against the
misdeeds of the executive.

The whistle blowing system ensures anonymity and in high-profile cases or exposure to grave danger, the person is
even shifted to far-off places with a different identity at the cost of the State. Recently the Dodd-Frank Act, contain-
ing the whistleblower provisions were amended to include incentives to whistleblowers for enforcing litigation cases
against public companies for alleged violations of securities and commodities laws and the Foreign Corrupt Practices
Act (FCPA), 1977.16 Anyone who gives a tip to the SEC, leading the financial watchdog to bring a successful case would
get entitled to up to 30% of sanctions imposed above $1m.17 These new rewards for whistleblowers at US financial
firms are expected to bring a surge in tip-offs.

Position in Canada: Legislation was enacted to create a new employment-related intimidation offence, protecting
employees who report unlawful conduct within their company. But there is no legislation dealing with the private sec-
tor employees to speak out when their employer pays foreign bribes. Hence people like Allan Cutler ho exposed scams
in federal contracts were never protected under legal regimes.

Position in France & Germany: Even with exposure of Executive Life Scam in the year 2004 in France, no specific law
governs in France. Similarly, two bills are pending before Bundestag in Germany regarding the civil servants approach-
ing the prosecution directly, instead of their management. But the protection with regard to private sector is still un-
der consideration.

Position in Japan & Korea: The Unfair Competition Prevention Law enacted in 2004 which came into effect in 2006, in
Japan, protects whistleblowers who file complaints about foreign bribery. In Korea, Anti-Corruption Act protects whis-
tleblowers in state-owned companies, but no law encourages whistle blowing or protects them against reprisals for
exposing corruption in the private sector. Thus, the reporting of bribery in private sector remain abysmally low.

Position in India: The listed companies, are governed by Clause 49 of the Listing agreement, where whistle blowers
policy is non-mandatory in nature. It reads that listed companies may establish a mechanism to enable disclosure of
unethical behaviour, actual or suspected fraud or violation of company’s code of conduct or ethics policy. In fact,
Satyam had a whistle blower scheme since 2005,18 which speaks a lot about India’s enforcement mechanism. Even the
RBI now has a whistle blower policy to strengthen financial stability and enhance public confidence in financial sec-
tor. The Limited Liability Partnership Act, 2008 has also incorporated provisions to protect the interests of whistle-
blowers19 and ensure that they are not subjected to harassment, termination of employment or any such treat, to en-
hance transparency and promote an anti-corruption tendency within the company. The Narayana Murthy Report also
suggested the incorporation of whistle blowers policy within the companies to enable the employees to approach the
audit committee when they observe unethical or improper practice with informing their superiors and also protect
them from unfair termination and other prejudicial practices.

2
January 2011 3
N S E N E W S L E T T E R
ARTICLE ( c o n t d . . )

Based on the 179th report of The Law Commission and recommendations of the Second Administrative Reforms Com-
mittee (SARC), the Protection of whistle blowers and the Public Interest Disclosure and Protection of Persons Making
Disclosure Bill, 2010 (Whistleblower bill), has been drafted to protect the interest of whistleblowers and ensures pun-
ishment for whistle blowing with a mala fide. The bill, accepting the recommendations state that anonymity of the
whistle blower is a must and this will be an important determinant in improving the instances of whistle blowing by
honest men. However a proviso to this sub-section permits the Central Vigilance Commission (CVC) and similar compe-
tent authorities to reveal the identity of the whistleblower to the Head of the Department while seeking comments or
explanations in the course of an inquiry. The Head of the Department is further barred from disclosing the identity of
the whistleblower to anybody else. However this provision alone defeats the very purpose of the law. The central phi-
losophy of whistleblower legislation is to protect the identity of the person making the public interest disclosure so
that he/she may not be targeted by the Head of the Department or any colleague or any person who has a vested in-
terest in keeping the lid on wrongdoing shut tight. The proviso to Section 4(5) negates the very purpose of the law
and is inadequate to protect the rights of a whistleblower and any intimidation made to his family in the course of the
process. Hence it virtually appears to be a tailor-made death sentence for sincere and honest bureaucrats.

Moreover the SARC’s recommendation to cover the corporate sector under the draft, is not reflected in the Bill intro-
duced in the Lok Sabha. The impact of the Bill will thus remain only elective for public listed companies, governed by
Clause 49.

Further the scope is limited as protection can be sought only after a complaint to the CVC or State vigilance commis-
sion is made. This is not conducive for RTI activists who are threatened just by virtue of filing an RTI application, as
their protection will not be sought till a complaint is registered by them. Terms like “Maladministration’ or ‘gross
negligence’ which were proposed in the 2002 draft, do not find a place in the proposed bill.

The competence of CVC as the sole competent authority to determine cases, is also doubted as it lacks independence
and right to investigate at the first place. The process of investigation as mandated to be within 6 months to maxi-
mum 2 years by the previous draft, does not find a place in the current bill. Hence there are all possibilities that in
the absence of a time bound investigating procedure; delay can be used as a potential tactic to avoid convictions.
Investigation is not time-bound and thus there is potential to use delay as tactic.

The provisions of imprisonment and fines for those who file frivolous complaints can also be misused and manipulated
to deter honest whistleblowers in the absence of strict accountability of the Competent Authority.

Some Suggested Recommendations:

Firstly, Whistle Blowing policy should be mandatory Corporate Governance tool for all private companies as well as
public companies. This alone will ensure the mantra of transparency in all companies. A mere amendment to clause
49 will not suffice. On the question of what kind of provisions should be added, apart from rectifying the flaws under
the Whistleblower bill, in order to punish violators or those who expose whistle blowers, it is pertinent to award
criminal punishment. Only then, can publicly known murders of people like Satyendra Dubey and Manjunath Shan-
mugam. Strict criminal prosecution should be initiated against those preventing whistleblowers from acting against a
corporation. We should model our laws along the SOX, Act, 2002 which has been effectively able to protect whistle
blowers.

Secondly, Provisions should be designed to enhance the protection of RTI activists. Even though an RTI activist cannot
protect his identity as a whistleblower, safeguards should be made in case he perceives a threat to his life or intimi-
dation to his family members. In the face of any such complaint filed by the activist, it should be an incumbent duty
of the policemen to ensure that he/she is not attacked. Such a duty of ‘due diligence’ and ‘duty to act’ on security
forces will create greater deterrence and prevent attacks on activists. Any shortcomings in the performance of the
police should be made accountable to Lokayukta or Collector. In case of any unnatural death of such whistleblower
activists, expeditious investigations should begin self-automated and should be probed by competent authorities.
3
J aAnuug au rs yt 22001110 4
N S E N E W S L E T T E R
ARTICLE ( c o n t d . . )

Thirdly, The Competent Authority designated under the Act, should be monitored continuously as it is subjected to
continuous political pressure. An apolitical transparent committee should oversee its activities and it should be in-
cumbent on the Authority to file compliance reports to the Income Tax departments. With regards to the cases filed
with the body, a database should be maintained which contains the records of number of complaints filed over a pe-
riod (both genuine and vexatious), the investigation process against the department and outcome of the same, details
of whistleblower etc.

Fourthly, the time bound procedure as was suggested in the original draft should be retained and a provision for in-
centives to the whistle blower should be incorporated on the lines of Dodd- Frank Act, in U.S.A. Monetary incentives
would go a long way in increasing the instances of whistle blowers. Similarly, to keep a check on unethical practices
of misusing one’s right as a whistleblower, a regime of imposing double penalty in the form of fines and other mone-
tary liability should be imposed.

Lastly, it is suggested that the seat of the SFIO (Serious Fraud Investigation Officer) set up in the year 2003 under the
aegis of the Ministry of Corporate Affairs should be given more teeth to bite. As this multi-disciplinary organization is
already addressing several cases of corporate scams including the Satyam case, its power and functions should be ex-
panded to investigate in the cases reported by the whisle blowers. This organization should be made responsible for
disclosures of scams by the whistleblowers and hence the anomalies of disclosure to a CVC officer will get redressed
as SFIO comprises of experts in the field of accountancy, forensic auditing, law, information technology, investiga-
tion, company law, capital market and taxation.

The enhancement in the functions of SFIO is already being contemplated in the form of amendments in the Companies
Bill and the Apex Court has also strengthened its authority Common Cause (A Regd. Society) v. Union of India, to in-
vestigate bank frauds. The authority of such an officer is broadly interpreted in other nations like USA and India
should adopt similar role to facilitate better investigation and prosecution in cases of corporate malpractices.

Endnotes:-
1
Govt re-introduces Companies Bill, SEBI & Corporate Laws, The Corporate Laws Weekly, Vol .94, Part 1, August 17th 2009, p. Vi
2
Ibid
3
Preamble, Narayana Murthy Report of the SEBI Committee on Corporate Governance, 2003
4
Chandratre K.R, Role of Board of Directors in emerging dimensions of Corporate Governance and impending changes in Company
Law, The Chartered Secretary, The Institute of Chartered Secretary of India, New Delhi, May 97, p.505
5
Atul Mehrotara , Corporate Governance, SEBI & Corporate Laws, The Corporate Laws Weekly, Vol 90, Part 4,March 16th 2009, p.
157
6
Near, J.P. & Miceli, M.P, Organizational dissidence: The case of whistle-blowing, Journal of Business Ethics, 4:4, (1985)
7
104 White Collar Criminals Caught in 3 Months, The Times of India (Chennai), 17th September, 2009
8
Section 8 , Central Vigilance Commission Act, 2003
9
http://www.transparency.org/news_room/in_focus/2007/whistleblowers>, (Last accessed on 24th October, 2010)
10
Section 806, SOX Act, 2002
11
18 U.S.C. § 1514A(a)
12
Livingston v. Wyeth Inc., 520 F.3d 344 (4th Cir. 2008), Day v. Staples Inc., 2009 WL 294804 (1st Cir.)
13
O'Mahony v. Accenture Ltd., 537 F. Supp.2d 506 (S.D.N.Y. 2008)
14
Section 1107, SOX Act, 2002
15
Naresh Kumar, Whistle Blowers of Unethical Business Practices, [2009] 89 CLA (Mag.) 29, p. 198
16
Arpinder Singh & Vinay Garodiya, Whisleblowers can earn a bounty, The Economic Times, 5th Sep, 2010
17
US incentives 'to boost financial whistleblowing', BBC News, http://www.bbc.co.uk/news/business-10911313/ (Last accessed on 25th
October, 2010)
18
Vikas Dhoot, Satyam had a whistle-blower policy since 2005, The Financial Express, New Delhi, Mar. 29, 2008. Available at <http://
www.financialexpress.com/news/satyam-had-a-whistleblower-policy-since-2005/440221/2>, (Last accessed on 10th September, 2010)
19
Section 31, Limited Liability Act, 2009 4

Narayana Murthy Report of the SEBI Committee on Corporate Governance,2003, p.24, para 3.1.
J aAnuug au rs yt 22001110 5
N S E N E W S L E T T E R
R E G U L A T O R Y C H A N G E S

Initiated by SEBI
1. Entities seeking listing of their securities post-IPO shall have to submit their shareholding pattern one day
prior to the date of listing.
In order to improve the quality of disclosures made by listed entitties, SEBI has decided to alter the following amend-
ments of the Equity Listing Agreement (LA).

• Entities which seek listing of their securities post-IPO shall mandatorily submit their shareholding pattern as per
Clause 35 of the LA one day prior to the date of listing, in order to ensure public dissemination of updated share-
holding pattern. The stock exchanges shall upload the same on their websites before commencement of
trading in the said securities.

• With a view to ensure public dissemination of the shareholding pattern pursuant to capital restructuring in
listed entities, it has been decided that in all cases wherein the change in capital structure due to such restruc-
turing exceeds +/- 2% of the paid up share capital of the entities, the listed entities shall file a revised
shareholding pattern with the stock exchanges within 10 days from the date of allotment of shares pursuant to
such change in the capital structure, as per the format specified in clause 35 of the LA alongwith a
footnote on what necessitated the filing of the revised shareholding pattern. The stock exchanges shall up-
load the same on their websites immediately.

• In the case of listed entities which have issued Depository Receipts (DRs) overseas, in order to ensure a holistic
and true picture of the promoter/promoter group holding in such entities, it has been decided that details of
‘shares held by custodians and against which DRs have been issued’ which are presently required to be disclosed
in Table (I) (a) of Clause 35 shall be further segregated as those pertaining to the ‘promoter/promoter
group’ and to the ‘public’.

• In order to enable investors to manage their cash/securities flows efficiently and to enhance process transpar-
ency, it has been decided to mandate companies to have a pre-announced fixed pay date for payment of
dividends and for credit of bonus shares.

• In order to ensure public dissemination of details of agreements entered into by corporates with media
companies, it has been decided that the listed entities shall disclose details of such agreements on their
websites and also notify the stock exchange of the same for public dissemination.

• In order to ensure/enhance public dissemination of all basic information about the listed entity, it has been
decided to mandate that the listed entities maintain a functional website that contains certain basic infor-
mation about them, duly updated for all statutory filings, including agreements entered into with media compa-
nies, if any.

Initiated by RBI
1. In its mid quarter Monetary Policy review released on Dec 16th, 2010 RBI has decided to:

• Retain the repo rate at 6.25 per cent and the reverse repo rate at 5.25 per cent under the Reserve Bank’s liquid-
ity adjustment facility (LAF);

• Retain the cash reserve ratio (CRR) at 6.0 per cent of net demand and time liabilities (NDTL) of scheduled banks.

• Reduce the statutory liquidity ratio (SLR) of scheduled commercial banks (SCBs) from 25 per cent of their NDTL to
24 per cent with effect from December 18, 2010;

• Conduct open market operation (OMO) auctions for purchase of government securities for an aggregate amount of
` 48,000 crore in the next one month.

5
J aAnuug au rs yt 22001110 6
N S E N E W S L E T T E R
R E G U L A T O R Y C H A N G E S ( c o n t d . . )

The above two measures are expected to inject liquidity on an enduring basis of the order of ` 48,000 crore. Given
the permanent reduction in the SLR by one per cent of NDTL, the additional liquidity support under the LAF an-
nounced by the Reserve Bank on November 29, 2010 will now be available up to the extent of 1.0 per cent (instead of
2.0 per cent) of the NDTL of SCBs from December 18, 2010 to January 28, 2011.

There have been significant global and domestic macroeconomic developments since the announcement of the Second
Quarter Review of Monetary Policy on November 2, 2010. A slow recovery and persistent unemployment motivated
another round of quantitative easing in the US. However, recent data show some signs of improvement, especially in
respect of real GDP and consumer confidence, even though the unemployment rate has increased. Although economic
recovery has been progressing in Europe, financial stability concerns have resurfaced as the sovereign debt problem
spread further. Major emerging market economies (EMEs) continue to experience robust growth.

Significantly, despite the slow recovery and slack capacity in advanced economies, international commodity prices
such as oil, food, industrial inputs and metals have risen noticeably in recent weeks. Reflecting the strength of de-
mand and higher commodity prices, inflation has started creeping up in most EMEs.

GDP growth of 8.9 per cent clocked by economy in Q2 of 2010-11 suggests that domestic momentum remains strong.
Agricultural growth has recovered on the back of a good monsoon. After flagging during August-September, the index
of industrial production (IIP) grew by over 10 per cent in October 2010. Various indicators of industrial activity, in-
cluding the Purchasing Managers’ Index (PMI) also suggest a strong underlying momentum. Lead indicators of services
sector activity have continued to increase at a robust pace. These developments reinforce the Reserve Bank’s projec-
tion of 8.5 per cent for real GDP growth for 2010-11 which will be reviewed in the Third Quarter Review scheduled on
January 25, 2011.

After remaining in double digits for five successive months, year-on-year headline WPI inflation declined to 8.8 per
cent in August 2010 and further to 7.5 per cent in November 2010. Consumer price (CPI) inflation for industrial work-
ers and rural/agricultural labourers softened to single digit rates from August 2010, after remaining in double-digits
for over a year. The overall reduction in inflation reflects moderation of food price inflation following a favourable
monsoon. Food price inflation moderated from an average of 15.7 per cent in Q1 of 2010-11 to 12.3 per cent in Q2, to
10.0 per cent in October 2010 and further to 6.1 per cent in November 2010. Amongst food items, the moderation in
inflation for cereals and pulses has been larger than that in inflation of protein related food items such as egg, fish,
meat and milk reflecting the structural nature of food inflation. In addition, inflation for nonfood primary articles
such as raw cotton, raw rubber and minerals rose sharply. Reversing the declining trend in the last six months, non-
food manufactured products inflation edged up to 5.4 per cent in November 2010.

Though inflation has moderated, inflationary pressures persist both from domestic demand and higher global com-
modity prices. The pace of decline in food price inflation has been slower than expected due largely to structural fac-
tors. There is a risk that rising international commodity prices will spill over into domestic inflation. Going forward,
rising domestic input costs for the manufacturing sector combined with aggregate demand pressures could weigh on
domestic inflation. The risk to the Reserve Bank’s projection of 5.5 per cent inflation by March 2011 is on the upside.

While the overall liquidity in the system has remained in deficit consistent with the policy stance, the extent of tight-
ness has been beyond the comfort level of the Reserve Bank. This has been mainly due to persistence of large govern-
ment cash balances which have averaged ` 84,000 crore since the Second Quarter Review of November, mirroring in
the average net LAF repo amount of ` 1,01,000 crore. In addition, the liquidity deficit has been accentuated by struc-
tural factors such as significantly above-trend currency expansion and relatively sluggish growth in bank deposits even
as the credit growth accelerated in 2010-11. While the liquidity deficit improved transmission of monetary policy sig-
nals with several banks raising deposit and lending interest rates, excessive deficits induce unpredictability in both
availability and cost of funds, making it difficult for the banking system to sustain credit delivery.

6
J aAnuug au rs yt 22001110 7
N S E N E W S L E T T E R
R E G U L A T O R Y C H A N G E S ( c o n t d . . )

In view of the persistent liquidity pressures in November 2010, the Reserve Bank implemented some measures such as
additional liquidity support to SCBs under the LAF up to 2.0 per cent of their NDTL, continuation of second LAF, and
OMO purchase of government securities. While these measures have helped stabilise overnight interest rates, the ex-
tent of deficit could constrain banks’ ability to expand their balance sheets commensurate with the productive needs
of the economy. The additional liquidity measures initiated by the Reserve Bank respond to these concerns.
As the economy expands, it needs primary liquidity, which will have to be provided in a manner consistent with the
monetary policy stance. Such provision of liquidity should not be construed as a change in the monetary policy stance
since inflation continues to remain a major concern. The measures taken in this review need to be appreciated in that
context.
To sum up, the underlying growth momentum of the Indian economy remains strong. Even as inflation has moderated,
it remains significantly above the comfort level of the Reserve Bank. Moreover, risks to inflation remain on the up-
side, both from domestic demand and higher global commodity prices. There is, therefore, a need for continued vigi-
lance on the inflation front against the build-up of demand side pressures. A major challenge for the Reserve Bank in
the recent period has been liquidity management. It is the Reserve Bank’s endeavour to alleviate the liquidity pres-
sure in a manner consistent with the monetary policy stance of containing inflation and anchoring inflationary expec-
tations.

The policy actions in this Review are expected to:

• release sizable primary liquidity into the system;

• bring down the liquidity deficit in the system close to the comfort zone of the Reserve Bank; and

• stabilise interest rates in the overnight inter-bank market closer to the operative policy rate of the Reserve Bank.

2. The regulatory guidelines on OTC foreign exchange derivatives, commodity price and freight risks have been
revised by RBI.

Reserve Bank of India, vide their circular DBOD.No.BP.BC.86/21.04.157/2006-07 dated April 20, 2007 which, among
others, covers the broad principles to be followed for undertaking derivative transactions, appropriateness of the
user, suitability of the product and risk management practices to be followed.

In the light of developments in the domestic and international financial markets, the extant guidelines on OTC foreign
exchange derivatives, commodity price and freight risks have been revised in consultation with the banks, corporates
and other stake holders. The Comprehensive Guidelines on Foreign Exchange Derivatives and Overseas Hedging of
Commodity Price and Freight Risks would be effective from February 01, 2011.

The important aspects of the revised guidelines are:

• Providing lead time for submission of original documents.

• Submission of quarterly statutory auditor certificates in respect of bookings made both, under the contracted ex-
posure and past performance routes.

• Allowing embedded cross currency option in case of foreign currency-Rupee swaps.

• Permitting the use of cost reduction structures, both, under the contracted exposures and past performance
routes, subject to certain safeguards like minimum net worth, compliance with AS 30/32, risk management capa-
bilities of the corporate, turnover, tenor, etc.

7
J aAnuug au rs yt 22001110 8
N S E N E W S L E T T E R
R E G U L A T O R Y C H A N G E S ( c o n t d . . )

Given below is the description of the categories of persons who are permitted to access the OTC foreign exchange
market in India for managing exchange rate and interest rate risks as also the menu of permitted products that can be
used for hedging different categories of foreign exchange rate exposures. Additionally, the facilities for residents to
hedge commodity price and freight risks overseas have been described under sections E and F below.

Persons resident in India (other than AD Category I banks)

1) Contracted Exposures – The following products are permitted to be used:

i) Forward Foreign Exchange Contracts

ii) Cross Currency Options (not involving the Rupee)

iii) Foreign Currency-INR Options

iv) Foreign Currency-INR Swaps

v) Cost Reduction Structures


vi) Cross currency swap, Interest Rate Swap, Coupon Swap, Interest Rate Cap or dollar(purchases), Forward
Rate Agreement

2) Probable Exposures based on Past Performance - The following products are permitted to be used:

i) Forward Foreign Exchange Contracts

ii) Cross Currency Options (not involving the Rupee)

iii) Foreign Currency-INR Options

iv) Cost Reduction Structures

3. Special Dispensation – The following categories are permitted under special dispensation:

i) Small and Medium Enterprises (SMEs)1 - Permitted to book forward foreign exchange contracts without
production of underlying documents for hedging their direct /indirect exposure to foreign exchange risk.

• Product : Forward Foreign Exchange Contracts

ii) Resident Individuals - To hedge their foreign exchange exposures arising out of actual or anticipated re
mittances, both inward and outward, without production of underlying documents, up to a limit of $
100,000, based on self declaration.

•Product : Forward Foreign Exchange Contracts

III) Persons resident outside India – The following categories are permitted to hedge their contracted foreign
exchange exposures:

Foreign Institutional Investors (FIIs)

Persons having Foreign Direct Investment (FDI) in India

Non-resident Indians (NRIs)

For these categories, subject to terms and conditions enumerated later, the following products are permit
ted:

a) Forward Foreign Exchange Contracts

b) Foreign Currency-INR Options 8


J aAnuug au rs yt 22001110 9
N S E N E W S L E T T E R
R E G U L A T O R Y C H A N G E S ( c o n t d . . )

IV.) Authorised Dealers Category I (AD Category I) - Hedging can be undertaken for the following purposes:

a) Management of Assets and Liabilities

b) Hedging of Gold Price Risk

c) Hedging of currency risk on Capital

3. Raising of capital through an issuance of NCDs in multiple tranches need not require multiple credit ratings.

In reference to RBI circular IDMD.PCD.24/14.03.03/ 2010-11 covering the regulation of NCDs of maturity up to one
year RBI has clarified that, in case of Issuer having banking facilities with multiple banks/FIs, the issuer may, obtain
a certificate from any one of its banks on the quality of the asset and also give an undertaking that its accounts
maintained with the other banks/FIs are classified as Standard Assets by the banks/FIs. Raising funds through issu-
ance of NCDs in multiple tranches based on a single valid rating for the consolidated amount, each tranche need not
be separately certified by the auditor. However, where the issuer obtains a separate/fresh rating for an issuance,
such issuance must be backed by an auditor’s certificate confirming the issuer’s compliance with the eligibility cri-
teria for issuance.

4. In order to prevent excessive leveraging, Banks have been asked to restrict Loan to Value ratio upto 80% in
respect of housing loans of over and above ` 20 lacs.
RBI has proposed certain measures in regard to housing loans by commercial banks in its Second quarter Review of
Monetary Policy 2010-11. At present, there is no regulatory ceiling on the LTV ratio in respect of banks’ housing
loan exposures. In order to prevent excessive leveraging, the LTV ratio in respect of housing loans hereafter should
not exceed 80 per cent. However, for small value housing loans, i.e. housing loans up to ` 20 lakh (which get cate-
gorised as priority sector advances), it has been decided that the LTV ratio should not exceed 90 per cent.
The risk weights on residential housing loans with LTV ratio up to 75 per cent are 50 per cent for loans up to ` 30
lakh and 75 per cent for loans above that amount. In case the LTV ratio is more than 75 per cent, the risk weight of
all housing loans, irrespective of the amount of loan, is 100 per cent. Henceforth, the risk weight for residential
housing loans of ` 75 lakh and above, irrespective of the LTV ratio, will be 125 per cent to prevent excessive specu-
lation in the high value housing segment.
It has been observed that some banks are following the practice of sanctioning housing loans at teaser rates i.e. at
comparatively lower rates of interest in the first few years, after which rates are reset at higher rates. This prac-
tice raises concern as some borrowers may find it difficult to service the loans once the normal interest rate, which
is higher than the rate applicable in the initial years, becomes effective. It has been also observed that many banks
at the time of initial loan appraisal, do not take into account the repaying capacity of the borrower at normal lend-
ing rates. Therefore, in view of the higher risk associated with such loans, the standard asset provisioning on the
outstanding amount has been increased from 0.40 per cent to 2.00 per cent with immediate effect. The provisioning
on these assets would revert to 0.40 per cent after 1 year from the date on which the rates are reset at higher rates
if the accounts remain ‘standard’.

9
J aAnuug au rs yt 22001110 10
N S E N E W S L E T T E R
N S E N E W S

Close Out Facility is being provided to clearing members in the Currency Derivatives Segment to close out open
positions of their trading members whose trading facility is withdrawn for any reason.

With effect from December 22, 2010 an online facility is being provided to clearing members in the Currency Deriva-
tives Segment to close out open positions of their trading members whose trading facility is withdrawn for any reason.
Such a facility will be provided, subject to conditions specified here in below and that as may be specified from time
to time.

• Clearing members shall be required to send a written intimation (fax) to the Clearing Corporation containing a list
of trading members for which they would like to close-out positions in the format provided.

• On disablement of a trading member, the clearing member shall be allowed to place close-out orders through this
facility only if the concerned trading member has been made eligible for closeout by the clearing member and
requested for such facility as per point 1 above.

• Only orders which result in reduction of existing open positions at a client level of the trading member shall be
accepted through the close-out facility.

• Clearing members shall not be allowed to create any fresh position for their trading member in the close-out
mode.

• Clearing members shall not be allowed to place close out orders with custodial participant code.

10
J a n2u0a1r 0y 2 0 1 1 11
N S E N E W S L E T T E R
MANAGERIAL PERSONNEL NSE

NAME DESIGNATION DEPARTMENT TEL. NO. EXTN.


Dr. Vijay L Kelkar Chairman 26598202 7053
Mr. Ravi Narain Managing Director and CEO 26598122 7050
Ms. Chitra Ramkrishna Jt. Managing Director 26598123 7051
Mr. J Ravichandran Director Finance & Accounts, Legal & Secre- 26598203 5005
tarial
Mr. Ravi Apte Chief Technology Officer 26598316 5004
Mr. R Nanda Kumar Sr. Vice President National Commodity Clearing Lim- 26598223 3000
ited, NOW, New Projects & Interna-
tional Business
Mr. R Sundararaman Sr. Vice President National Securities Clearing Corpo- 26598212 4006
ration Ltd.
Mr. Ravi Varanasi Sr. Vice President Investigation, Surveillance, Data 26598225 5003
Analytics, RO Ahmedabad, Inspec-
tion & Compliance
Mr. Yatrik R Vin Sr. Vice President Finance & Accounts 26598213 3008
Mr. Chandrashekar Muk- Vice President Human Resource 26598437 3010
herjee
Mr. Hari K Vice President Listing & Membership 26598452 5058
Ms. Kamala Vice President Inspection, Compliance & Investor 26598220 3006
Service Cell

Mr. Nirmal Mohanty Head SBU - Education 26598372 3007


Mr. Suprabhat Lala Vice President Trade - (Capital Market, F&O, Cur- 26598154 6026
rency Derivatives & WDM), CRM &
Marketing
Mr. Suresh Narayan Vice President India Index Services & Products Ltd. 26598221 2004
& DotEx International Limited
Mr. T Venkat Rao Vice President & Head – Regional Office - Delhi (011) 23344335 127
Northern Region
Mr. Vidhu Shekhar Vice President New Products & Six Sigma Initiatives 26598209 4007

Mr. Arup Mukherjee Asst. Vice President SBU - Education 26598217 3002
Mr. C. N. Upadhyay Asst. Vice President Inspection & Compliance 26598210 5002
Mr. Mahesh Haldipur Asst. Vice President Premises 26598211 4003
Asst. Vice President NOW, Dotex International Ltd. & 26598312 3102
Mr. Mayur Sindhwad WEB Team
Mr. Nilesh Tinaikar Asst. Vice President Development 26598445 5090
Ms. Nisha Subhash Asst. Vice President Investigation 26537601 5088
Mr. R Jayakumar Asst. Vice President Secretarial 26598222 5023
Ms. Rana Usman Asst. Vice President NSCCL - Securities, Corporate Bonds, 26598267 4048
F&O and SLB

Mr. Ravi Tyagi Officer on Special Duty SME Project 26598435 4002
Asst. Vice President Legal 26598197 5047
Mr Ravindra Mohan Bathula
Asst. Vice President Development, NSCCL 26598455 1207
Mr. S R V S Nagendra
Kumar 11

Mr. Sandip Mehta Asst. Vice President CTCL 26598150 6059


Mr. Vitthal More Asst. Vice President New Projects 26598378 5537
J aAnuug au rs yt 22001110 12
N S E N E W S L E T T E R
MANAGERIAL PERSONNEL NSE ( c o n t d . . )

NAME DESIGNATION DEPARTMENT TEL. NO. EXTN.


Chief Manager & Head - East- Regional Office - Kolkata (033)40400444 444
Mr. Achal Jaiswal
Mr. Ajith Kumar V Chief Manager Administration & Development 26598146 4094
Mr. Amit Bhobe Chief Manager New Projects & NCCL - 3319
Mr. Amol Mahajan Chief Manager Finance & Accounts 26598139/40 3081
Mr. Arvind Goyal Chief Manager NSCCL - Currency Derivatives 26598310 4130
Mr. Avinash Kharkar Chief Manager Investigation 26598366 5150
Mr. Bireshwar Chatter- Chief Manager Data Analytics 26598366 5146
jee
Mr. Gaurav Kapoor Chief Manager CRM 26598208 1227
Ms. Himabindu Vak- Chief Manager Development 26598453 5155
kalanka
Mr. Huzefa Mahuvawala Chief Manager NSCCL -Risk Management 26598168 4040

Mr. Janardhan Gujaran Chief Manager F&O - Trade 26598152 6029


Ms. Jayna Gandhi Chief Manager Finance & Accounts 26598141 3066
Mr. Johnson Joseph Chief Manager Listing 26598452 5057
Chiriyath
Mr. Kiran Sawant Chief Manager NSCCL - Collaterals 26598265 4088
Mr. Kiran Dusane Chief Manager Premises 26598454 4112
Mr. Prashanto Banerjee Chief Manager Marketing 26598350 1228

Ms. Rehana D'Souza Chief Manager Membership 26598295 4116


Chief Manager India Index Services & Products Ltd. 26598386 2027
Mr. Sammit Joshi
Chief Manager NOW, Dotex International Ltd. 26598313 3089
Mr. Sandeep Manoharan
Ms. Seema Nayak Chief Manager Surveillance 26598166 6062
Mr. Shekhar Rao Chief Manager Finance & Accounts 26598143 3051
Ms. Sonali Karnik Chief Manager Currency Derivatives - Trade 26598131 6028
Mr. Sunil Gawde Chief Manager Capital Market - Trade 26598448 6033
Ms. Sunitha Anand Chief Manager & Head – Regional Office - Chennai & Hydera- (044) 28332512 2100
Southern Region bad
Ms. Sushama Bhagchan- Chief Manager Finance & Accounts 26598144 3041
dani
Mr. Tojo Banerjee Chief Manager Regional Office - Delhi (011)23344505 128
Mr. Vinayak Shenoy Chief Manager Finance & Accounts 26598139 3076
Manager & In-charge - Ah- Regional Office - Ahmedabad
medabad
Ms. Bhawika Wanchoo (079) 26584578 -

12
J aAnuug au rs yt 22001110 13
N S E N E W S L E T T E R
MANAGERIAL PERSONNEL NSE INFOTECH SERVICES LTD.

Name Designation Projects Tel. No. Ext


Mr. N Muralidaran CEO 26598205 2001
Mr. G. M. Shenoy Senior Vice President Projects 26598207 2000
Mr. M. R. Krishnan Vice President Infrastructure 26598132 2003
Ms. Hema Iyer Vice President Risk Management 26598254 2002
Mr. Mahesh Soparkar Associate Vice President Projects, DBA/SysAdmin 26598136 2005
Ms. Mamatha Rangaprasd Associate Vice President Trade 26598351 1168
Mr. P. R. Visvas Assistant Vice President Quality, DWH 26598352 1189
Mr. Mahesh Basrur Assistant Vice President FOCASS, NCSS 26598100 2072
Mr. Deviprasad Singh Assistant Vice President Telecom 26598262 2122
Mr. Amit Hatalkar Assistant Vice President Web, SBU-Education 26598291 1119
Ms. Smrati Kaushik Senior Manager Trade 26598271 6082
Mr. Viral Mody Senior Manager Retooling 26598100 2078
Mr. Hitesh Shah Senior Manager DBA /SysAdmin/SysOperations 26598270 2102
Mr. Sujoy Das Senior Manager Index 26598275 2032
Mr. Sudhir Sawant Senior Manager Project Management Office 26598100 2112
Mr. Pranav Gupta Senior Manager Risk Management 26598349 1165
Mr. Rajanish Nagwekar Senior Manager Net Market 26598270 2130
Mr. Nipun Dave Senior Manager Neatplus, TAP 26598258 2024
Mr. Bineet Jha Senior Manager HWARE SUPPORT 26598100 2129
Mr. Mathew Joseph K Senior Manager NCSS 26598100 2055
Mr. Benny Sebastian Senior Manager Membership, Inspection, Listing 26598100 1142
Mr. Umesh Agroya Senior Manager Telecom 26598277 2105
Mr. Swaminathan Narayan Senior Manager APPSG 26598100 2019
Mr. Manoj Joshi Manager NOW 26598231 1565
Ms. Anuja Joshi Manager BCP 26598100 1124
Mr. Suresh Chandani Manager Trade 26598100 6083
Mr. Shibu Tomy Manager NCSS 26598100 1154
Ms. Pranali Taskar Manager Telecom 26598277 2096
Mr. Joy John Manager BCP - Chennai 044-28473702 141
Mr. Narayan Neelakanthan Manager Telecom 26598229 2113
Ms. Bernadine Swamy Manager HRD 26598100 2135
Mr. Anoop Kumar Rawat Consultant DBA 26598100 2094
Mr. Nitin Gupte Manager Telecom 26598100 2087
Mr. Sandeep Kumar Gupta Manager APPSG 26598100 2085
Mr. Prasad Addagatla Manager SysAdmin/SysOperations 26598320 6089
Mr. Suraj P Bangera Manager Web 26598100 1110

13
J aAnuug au rs yt 22001110 14
N S E N E W S L E T T E R
MANAGERIAL PERSONNEL NSE INFOTECH SERVICES LTD. ( c o n t d . . )

Name Designation Projects Tel. No. Ext


Mr. Manoj Kumar Singh Manager TECH - Delhi (011) 23346978 109
Mr. Sagar Joshi Manager Project Management Office 26598100 2111
Mr. Shreekantha Velankar Manager DWH 26598100 5594
Mr. Balakrishnan M Manager APPSG 26598100 2019
Mr. Aditya Agarwal Manager Architecture 26598258 2141
Ms. Meena Hajare Manager Quality 26598407 1123
Mr. Nishant Jha Manager OPMS 26598100 1166
Ms. Veena Khilnani Manager DBA 26598270 2104
Mr. Vinit Naik Manager PRISM 26598100 1131
Ms. Vishakha Shenoy Manager Survellience 26598100 1160
Ms. Kavita Shanbhag Manager Listing, NFA/FAMS, WDM 26598100 2058
Ms. Swarashree Joglekar Manager C2N 26598100 1188
Mr. Shailendra Aggarwal Manager HWARE SUPPORT 26598100 1570
Mr. Sarang Dhoble Manager Trade 26598100 6083

14

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