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Nov 28, 2012, 10.49 AM IST | Source: CNBC-TV18

Clarity on call and put options soon: FinMin sources

After the DIPP withdrew its circular treating call and put as debt, finance ministry sources indicate that the ministry is likely to provide clarity on call and put options soon. CNBC-TV18’s Aakansha Sethi reports.

After the Department of Industrial Policy and Promotion (DIPP) withdrew its circular treating call and put as debt, finance ministry sources indicate that the ministry is likely to provide clarity on call and put options soon. CNBC-TV18's Aakansha Sethi reports.

The finance ministry has been holding consultations with the Reserve Bank of India (RBI) and SEBI for some time now to clear the uncertainty on call and put options. There are two key issues: 1) as per the SCRA Act 1956, call and put options are not legally valid., something that SEBI had also observed in the Cairn-Vedanta and Vulcan Engineers deal.

CNBC-TV18 learns from sources that an amendment is likely to be moved shortly in order to make call and put options legal. 2) The question of whether options will be treated as debt or equity.

Remember, last year DIPP has come out with the circular saying that options would be treated as debt and would have to comply with external commercial borrowings (ECB) guidelines. This circular was subsequently withdrawn. However, RBI has not been approving deals based on this since they believe that there is a lot of debt masquerading as equity.

Sources say that post these consultations RBI has proposed a one year lock-in period above, which options will be treated as equity. This will come as good news to foreign investors and also for the government that has been concerned about the widening current account deficit (CAD) and is keen to boost foreign direct investment (FDI) inflows.

Now, RBI has proposed this as a solution. It remains to be seen when the finance minister and RBI actually go ahead and announce this in order to bring about more clarity on the matter.

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