What changed
Previously, users of cost reduction structures had to be listed or unlisted companies with a minimum net worth of Rs. 100 crore, complying with AS 30/32. Now, listed companies and their subsidiaries/joint ventures/associates with common treasury and consolidated balance sheet are eligible without a net worth threshold. Unlisted companies now require a minimum net worth of Rs. 200 crore, and all users must fair value products, follow notified accounting standards, make prescribed disclosures, and have a risk management policy.
What it means for you
This change expands access to cost reduction structures for larger corporate groups, especially listed companies and their affiliates, by removing the net worth floor for them. For unlisted companies, the higher net worth requirement (Rs. 200 crore) may restrict smaller firms. Banks must ensure clients meet the new eligibility criteria, including fair valuation and disclosure norms, before offering these products.
What you must do
- Update internal eligibility checklists for cost reduction structures to reflect the amended criteria.
- Verify that listed company clients and their subsidiaries/joint ventures/associates have common treasury and consolidated balance sheet.
- Ensure unlisted company clients have a minimum net worth of Rs. 200 crore and comply with fair valuation, accounting standards, and disclosure requirements.
- Advise clients to maintain a risk management policy with a specific clause allowing the use of cost reduction structures.
- Communicate the circular's contents to all relevant constituents and customers.
Who it affects
AD Category-I banks, Listed companies and their subsidiaries/joint ventures/associates, Unlisted companies with minimum net worth of Rs. 200 crore, Users of OTC foreign exchange derivatives and overseas commodity hedging strategies
What is the minimum net worth requirement for unlisted companies under the amended eligibility?
Unlisted companies must have a minimum net worth of Rs. 200 crore to be eligible as users of cost reduction structures.
Are listed companies' subsidiaries exempt from the net worth requirement?
Yes, listed companies and their subsidiaries, joint ventures, or associates with common treasury and consolidated balance sheet are exempt from the minimum net worth criteria.
What accounting standards must users follow under the amended provisions?
Users must follow Accounting Standards notified under section 211 of the Companies Act, 1956, and applicable ICAI guidance, including fair valuation and disclosure as per ICAI press release dated December 2, 2005.