Securities and Exchange Board of India (SEBI) board approved the new corporate governance norms in a meeting held in New Delhi on 13 February 2014. The new corporate governance norms would become applicable for all listed companies with effect from 1 October 2014.
The new corporate governance norms issued are in line with the global practices and in accordance with the Companies Act, 2013.
The board also approved a long-term policy for mutual funds to tax breaks on investments up to 2 lakh rupees.
The SEBI board also approved new Know Your Client Registration Agency (KRA) Regulations which will make easier for the investors to comply with Know Your Client (KYC) requirements across various segments of the capital markets.
Guidelines of new corporate governance
• Exclusion of nominee Director from the definition of Independent Director
• Performance evaluation of Independent Directors and the Board of Directors
• Prohibition of stock options to Independent Directors
• Separate meeting of Independent Directors
• It has been decided that the maximum number of Boards an independent director can serve on listed companies be restricted to 7 and 3 in case the person is serving as a whole time director in a listed company
• To restrict the total tenure of an Independent Director to 2 terms of 5 years. However, if a person who has already served as an Independent Director for 5 years or more in a listed company as on the date on which the amendment to Listing Agreement becomes effective, he shall be eligible for appointment for one more term of 5 years only.
• Compulsory whistle blower mechanism
• At least one woman director on the Board of the company
• Constitution of Stakeholders Relationship Committee
• Enhanced disclosure of remuneration policies
• Mandatory constitution of Nomination and Remuneration Committee. Chairman of the said committees shall be independent.
• Expanded role of Audit Committee
• Prior approval of Audit Committee for all material Related Party Transactions (RPTs)
• Approval of all material RPTs by shareholders through special resolution with related parties abstaining from voting
• The scope of the definition of RPT has been widened to include elements of Companies Act and Accounting Standards.
Mutual Funds in India
• SEBI Board has approved a Long Term Policy for Mutual Funds in India. The long term policy includes all aspects - including enhancing the reach and promoting financial inclusion, tax treatment, obligation of various stakeholders, etc.
• The objective of Long-Term Policy for Mutual Funds is to deal with the public policy objectives of achieving sustainable growth of the mutual fund industry and mobilisation of household savings for the growth of the economy.
• To weed out non-serious players, SEBI increased the minimum net worth requirement for mutual funds from 10 crore Rupees to 50 crore Rupees. Also they have been asked to contribute their own funds in the form of seed capital, amounting to 1 per cent of the amount raised from investors for their schemes.
• Government should allow the Employees’ Provident Fund Organisation (EPFO) to invest up to 15 per cent of their corpus in equities and mutual funds.
• All Central public sector enterprises (CPSEs) be permitted to invest their surplus funds in mutual fund schemes.
• Government shall provide a similar tax treatment to all long-term investment instruments, including pension, insurance or long-term mutual fund schemes.
• The proposed tax benefits include creation of a long-term investment product, Mutual Fund Linked Retirement Plan, with tax incentive of 50000 rupees under the existing Income Tax Act.
• Government shall enhance the limit under Section 80C of the Income Tax Act from 1 lakh rupees to 2 lakh rupees to help make various mutual fund schemes eligible for such tax benefits.
SEBI also made the KYC (Know Your Client) compliance easier for investors by allowing various kinds of intermediaries such as brokers and mutual funds to access the investor KYC details from the centralised KYC Registry Agency (KRA), rather than carrying out a fresh KYC process.