SEBI and Corporate Laws – July 15, 2019

36 SEBI & CORPORATE LAWS - MAGAZINE[Vol. 154

u Control

• Where
  one
  of
  the
  counterparties
  has
  direct
  or
  indirect
  control
  over^
  the
  other,
  ‘Control
  may
  be
  determined
  considering
  the
  following:

l

holding

50 %

or

more

of

total

voting

rights

l

having

significant

influence

in

appointment

of

managers,

supervisors,

etc.^

l

significant

influence

on

senior

management

l

where

both

the

counterparties

are

controlled

by

a

third

party

l

Qualitative

guidance

on

determining

control

as

provided

in

account

ing -

standards

l

Common

owners,

shareholders,

management,

etc.

u Economic interdependence

• If
  one
  of
  the
  counterparties
  is
  facing
  prob
  lems -
  in
  funding
  or
  repayment,
  the
  other
  party
  is
  likely
  to
  face
  similar
  difficulties.^
  Following
  criteria
  have
  to
  be
  considered
  for
  determining
  economic^
  interdependence
  between
  entities:

l

Where

50 %

or

more

of

gross

receipts

or

expenditures

is

derived

from^

the

counterparty

l

Where

one

counterparty

has

guaranteed

exposure

of

the

other

either^

fully

or

partly

l

Significant

part

of

one

counterparty’s

output

is

purchased

by

the

other^

l

When

the

counterparties

share

the

source

of

funds

to

repay

their

loans^

l

When

the

counterparties

rely

on

same

source

of

funding

Look through approach

In

case

of

investing

vehicles

such

as

collective

investment

vehicles,

secu

ritisation -

SPVs

and

other

cases

such

as

mutual

funds,

venture

capital

funds,

alternative^

investment

funds,

investment

in

security

receipts,

real

estate

in

vestment -

trusts,

infrastructure

investment

trusts,

etc.,

the

recognition

of

expo

sures -

will

be

done

on

a

see-through

or

look-through

approach.

The

meaning

of^

look-through

approach

is

that

the

underlying

exposures

will

be

recognised

in^

constituents

of

the

pool

or

the

fund,

rather

than

the

fund.

When

banks

invest

in

structures

which

themselves

have

exposures

to

underly

ing -

assets,

the

bank

shall

determine

if

it

is

able

to

look-through

the

structure.

If^

the

bank

is

able

to

look-through

and

the

exposure

of

bank

in

each

of

the

underlying^

asset

of

the

structure

is

equal

to

or

above

0. 25 %

of

its

eligible

cap

ital -

base,

the

bank

must

identify

specific

counterparties

corresponding

to

the

underlying^

asset.

The

exposure

of

bank

in

each

of

such

underlying

assets

shall

be^

added

to

the

bank’s

overall

exposure

in

the

corresponding

counterparty.