Business standard news updates 18-7-2013

RBI opens windowfor MFs

JOYDEEP GHOSH & SAMIE MODAK Mumbai, 17 July Mutual funds faced ₹ 50,000- crore redemption orders from banks and companies on Tuesday, prompting the Reserve Bank of India ( RBI) to provide them a threeday repo borrowing window at a 10.25 per cent interest rate. The central bank had previously provided such access to special funding in 2008 when fund houses had faced redemption pressure of ₹ 80,000 crore to ₹ 1,00,000 crore over three- four days — about 20 per cent of the sector’s total assets of around ₹ 5 lakh crore at that time. That was in the wake of a global financial crisis. Tuesday’s redemption, on the other hand, was a little over six per cent of fund houses’ total assets of ₹ 8.11 lakh crore ( as of June 2013). The special window had a sobering effect on Wednesday, though fund houses remained edgy. The actual figures of redemption were not available but fund houses said there were some inflows, too, unlike Tuesday, when only heavy selling was seen. Sentiments improved after short- term interest rates cooled a little on Wednesday after surging the previous day. The rates of one- month certificates of deposit, which had jumped 150 basis points on Tuesday, came down to 10.4 per cent. Tuesday’s surge in redemptions follows RBI’s liquidity- tightening measures, as banks and corporate entities usually park their shortterm money with fund houses for better returns. Industry sources said the Securities and Exchange Board of India (Sebi) and the Association of Mutual funds in India ( Amfi), held a meeting on Tuesday and RBI was approached for opening the special window. Reliance Mutual Fund CEO Sundeep Sikka said RBI’s special window was a welcome step, though the industry had been able to manage the redemptions so far. “ We may or may not require this window,” he said. Some industry players, however, admitted fund managers were on back- to- back conference calls during the day to convince clients not to withdraw. RBI calmed nerves further by allowing banks availing of the additional liquidity support through the repo window to seek waiver of penal interest for shortfall in maintenance of statutory liquidity ratio ( up to 0.5 per cent of their net demand and time liability). Also, the waiver would be available to banks in addition to the two per cent waiver allowed under marginal standing facility. Turn to Page 20 > Special ₹ 25,000- crore three- day repo facility after ₹ 50,000- crore redemption on Tuesday THE SMART INVESTOR P15 > >YOUR MONEY: Debt investors don’t need to panic TACKLING THE LIQUIDITY CRUNCH FALLING YIELD Category Avg return (%)* >Gilt ( medium & long- term) - 2.59 >Income - 2.03 >Short- term - 1.39 >FMPs - 0.92 >Others - 0.77 >Gilt ( short- term) - 0.71 >Ultra short term - 0.47 >Liquid - 0.18 >Overall - 1.02 *Loss of schemes on July 16, compared with July 15 Source: Value Research Monday | RBI issues guidelines to cap LAFat₹ 75,000 cr from July17 Tuesday | MFs face ₹ 50,000- crore redemption pressure |Sebi and Amfi meet, request RBI to open special window |Amfi issues circular directing fund houses to MTM debt securities below60 days Wednesday | RBI opens special repo windowof₹ 25,000 crore for three days at10.25% Redemptions were in ultra, ultra- short- term, short- term, and liquid funds, as they faced mark- to- market losses India’s MF universe Assets in ₹ ’ 000 cr; in June 2013 1.6 Other ETFs 8.5 Gilt funds 9.6Gold ETFs 16 Balanced funds 1.9 Fund of funds (investing overseas) 22.5 ELSS ( equity) 441 Income funds 148 Equity funds Total 811.1 162 Liquid/ money market funds

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RBI opens window... Market players said there were redemptions in ultra- short- term, ultra, shortterm and liquid funds, as they faced mark- to- market losses — a rare event. Over 70 per cent of the money of mutual funds is in debt schemes. As of Juneend, liquid and money market funds held as much as Rs 1.62 lakh crore and income funds had assets of Rs 4.41 lakh crore. The total assets of the industry in June were Rs 8.11 lakh crore. “After RBI decided to squeeze liquidity in the system by capping the liquidity adjustment facility at Rs 75,000 crore from Wednesday, companies feared they would be stuck for their liquidity requirement and rushed to withdraw from debt funds,” said an industry player. According to industry experts, Rs 1- 1.5 lakh crore are at stake from both corporate and banks in these schemes. And, if such withdrawals happen, these schemes will end up in losses, leading to more redemption pressure. Net asset value ( NAV) of most debt schemes declined more than two per cent — translating into an annualised negative return of over 500 per cent. “ It was a rude shock for a lot of investors who thought liquid schemes never made losses,” said a fund manager. However, a lot of mutual funds didn’t sell securities in the market and borrowed from the overnight market to meet the mismatch. Also, Amfi issued a late- evening circular, asking all fund houses to value their debt securities — even those below 60 days — at market prices. At present, only the debt securities with maturity above 60 days have to be valued at market price. Those below 60 days follow the amortisation method. Sources said Amfi asked fund houses to align the prices of their debt securities below 60 days to the CRISIL Bond Matrix, which is a gauge for weighted average prices. On Tuesday, prices of the ten- year government securities had crashed by up to Rs 3.50 and yields on the 10- year benchmark had surged 54 basis points — the highest since January 2009. On Wednesday, the 10- year bond price rose 0.11 per cent and the yield fell 1.60 basis points. “The situation is not as bad as in 2008, as investors have become more mature. But there have been a lot of queries,” said R Sivakumar, head of fixed income, Axis Mutual fund, admitting that he was on calls since 8.30 am on Tuesday morning. According to him, the situation is different now, because Sebi has brought in tough guidelines. “ In 2008, fund managers were allowed to invest in one- year papers in their short- term schemes. Now, they can invest only in papers of up to 91 days. Also, amortisation is allowed up to 60 days. So, the freedom with fund managers is much less,” he added. >FROM PAGE 1 Ordinance to empower Sebi cleared

Regulator to keep an eye on certain unregistered NBFCs, can directly go for search & seizure, ask for call records of those being probed BS REPORTER New Delhi, 17 July The government will promulgate an ordinance to empower the Securities and Exchange Board of India ( Sebi), the capital markets regulator, to directly go for search and seizure operations on errant listed companies. It will also get the task of regulating those non- banking financial companies ( NBFCs) collecting at least ₹ 200 crore, which hitherto do not fall under any watchdog, a senior finance ministry official explained. The ordinance will also empower Sebi to seek information such as records of telephone calls from any entities or persons in respect to any share transaction being investigated by it. An ordinance to this effect was cleared by the Cabinet on Wednesday. The move is aimed at tightening the checks on chit fund companies floated under other garb to get around the rules, in the aftermath of the scandal concerning the Bengal- based Saradha Group which left scores of investors high and dry. Currently, the Prize Chits and Money Circulation Schemes ( Banning) Act, 1978, is acentral one, enforced by states. Since it bans prize chit fund companies, the question of regulating these do not arise. Many chit fund schemes are being launched under other garb, officials said. NBFCs have to get a licence from the Reserve Bank of India to start operations, but there are many fraudulent schemes being operated under various names to avoid regulatory control. Sebi already regulates collective investment

Multi- brand retail FDI policy riders might be eased

NAYANIMA BASU New Delhi, 17 July Under pressure from international retailers, the government might soon amend the foreign direct investment ( FDI) policy on multi- brand retail trading (MBRT) by easing some conditions which had drawn sharp criticism from global investors. However, there is no proposal to hike the FDI limit in the sector from 51 per cent. The department of industrial policy and promotion (DIPP), nodal agency for FDI policy under the ministry of commerce and industry, seems to have prepared a note for the Cabinet Committee of Economic Affairs ( CCEA) to consider. It would mean changes in the FDI policy approved in September. The government will seek to change three main conditions that have invited the most criticism by retail conglomerates such as Walmart, Tesco and Carrefour. This pertains to the riders concerning back- end infrastructure, mandatory sourcing and establishment of retail stores only in cities having more than amillion population. The move comes at a time when the economic scenario is gloomy, with the rupee at an all- time low and investment sentiment depressed. It was only last month that DIPP had issued a set of clarifications on these issues but this failed to soothe retailers’ nerves. On back- end infrastructure, the government is planning to highlight the condition of creating “ additional” infrastructure. A senior official, told Business Standard, the main reason why government opened the sector to FDI was “only” to create additional and state- of- art back- end infrastructure such as cold chains and storage facilities. For, the “present back- end facilities are not enough and the existing players will get an easy exit route if foreign retailers buy them out, leading to a real estate business of sorts.” According to extant policy, “At least 50 per cent of total FDI brought in shall be invested in back- end infrastructure within three years of the first tranche of FDI.” It does not specify whether such an investment will be in existing infrastructure or new ones. The clarifications issued later said even front- end investment must go in creating new facilities. It seems the policy on 30 per cent mandatory procurement from MSMEs is also set to change. It says this much procurement of processed products should be from domestic small industries with investment of not more than $ 1 million in plant and machinery (P& M). The government might relax this to say once the 30 per cent threshold is met, the retailer can source from the same supplier, even if the investment in P& M exceeds $ 1 mn, keeping in mind quality consistency. The government is also set to change the rider that retailers can set up their outlets in only cities with more than one million population. For full reports, visit www. business- standard. com Note by DIPP in final stages; likely to recommend easing of all three main conditions specified in September last year |FDI policy in multibrand retail likely to change |No change in FDI limit on cards; cap to remain 51 per cent |DIPP to soon move CCEA on this; note being finalised |Government to ease the stiff conditions |For back- end infra, the new policy might now clearly specify that investments have to be made in creating new facilities, as existing infra is not sufficient, leading to wastage |New policy might also relax sourcing conditions |Retailers might be allowed to open stores in cities with a population of less than one million population

Pollution costs India $80 bn a year: World Bank BS REPORTER New Delhi, 17 July Environmental degradation costs India about ₹ 8 crore, equivalent to 5.7 per cent of the country’s gross domestic product ( GDP), on an annual basis according to a World Bank report released on Wednesday. The report, Diagnostic Assessment of Select Environmental Challenges in India, focuses on particle pollution from the burning of fossil fuels, which has serious health consequences amounting to about three per cent of India’s GDP, along with losses due to lack of access to clean water supply, sanitation and hygiene and natural resources depletion. Of this, the impacts of outdoor air pollution account for the highest share at 1.7 per cent, followed by cost of indoor air pollution at 1.3 per cent. The higher costs for outdoor/ indoor air pollution are primarily driven by an elevated exposure of the young and productive urban population to particulate matter pollution that results in a substantial cardiopulmonary and chronic obstructive pulmonary disease mortality load among adults. According to the World Bank report, India can make green growth a reality, by putting in place strategies to reduce environmental degradation at the minimal cost of 0.02 per cent to 0.04 per cent of average annual GDP growth rate. New banks might queer the pitch for state - owned ones VRISHTI BENIWAL New Delhi, 17 July As the Reserve Bank of India (RBI) prepares to dole out licences to corporate houses and others for launching new banks, India’s 26 public sector banks ( PSBs) are watching the situation carefully. For it could prove a shot in the arm for Finance Minister PChidambaram, who wants some of them to merge with their bigger peers. With new private banks in the play, the going could become more difficult for the old- school state- run banks, already losing business and market position, forcing them to think hard towards consolidating and forming larger entities to garner big- ticket deals. An executive with a small state- run bank said, “ PSBs are already staring at shrinking margins and rising bad loans due to economic downturn and they fear worse when a new breed of private sector banks mushrooms. Small state- run lenders are worried that new bank licences may make their survival difficult, forcing them to fulfil the government’s wish of consolidating with bigger banks.” On July 1, RBI had received 26 applications for new bank licences. While the government is saying no cap has been prescribed, RBI has made it clear all eligible applicants may not get a licence, the first of which might be given by March 2014. Since the eligibility criteria are stringent, not more than half a dozen might be able to meet them. This might be a breather for the PSBs, as just a couple of new banks might not be able to deal amajor blow to the state- run banks, which have 70 per cent of market share. The entry of YES Bank and Kotak Mahindra Bank about a decade ago did not have much impact on PSBs. However, this could be temporary relief because the expansion of new banks would come at the cost of PSBs. “New banks will take good clients of PSBs, as existing private sector lenders would not let them poach their clients. New banks will be superior in terms of quality of official, who did While old private sector banks fear consolidation the most, small and include Punjab and Sind Bank, Dena Bank, United Bank of India, Bank of Maharashtra, Andhra Bank, Vijaya Bank, Corporation Bank, UCO Bank, Oriental Bank of Commerce and Syndicate Bank. The official, however, added consolidation would still not be a cakewalk for the government unless it agrees to reach out to bank employee unions, which are resisting the move. When it takes State Bank of India at least two years to complete amalgamation of a subsidiary, other banks would take even longer, due to the differences in their culture and geography, he added. According to RBI guidelines, it is mandatory for new banks to open 25 per cent of branches in rural areas but in metros, most of their growth is likely to come from unsatisfied customers switching over from PSBs. Some loyal customers might, however, prefer to stick to public sector banks. These customers consider their money safe with a government institution. “The aim for new bank licences is financial inclusion. But how would that be met? When PSBs are not ready to go to remote areas because viability is not there, why would a private bank invest there? So, new banks might not be viable in the initial years of their operation. However, government spending on programmes like food security will generate demand in rural areas and that may provide an opportunity to these banks,” said a former executive of a large government bank. Current account and savings account deposits of PSBs are coming under pressure and many are expected to report a dip in their business income at the end of the quarter ended June, compared with the one ended March. Consolidation can help PSBs achieve economies of scale. The banking system saw about a dozen mergers between 1990 and 2000, and 15 amalgamations in the last decade. While mergers of banks with weak financials dominated the first decade, the second saw mergers between healthy banks, driven by commercial reasons. In December 2009, the finance ministry had called chiefs of five leading public sector banks — Punjab National Bank, Canara Bank, Union Bank of India, Bank of Baroda and Bank of India — to take their views on consolidation. Owing to stiff opposition from employee unions, the idea was dropped. This is the first of a three- part series on how new bank licences would impact public sector lenders TRANSACTION BOOK Merger targets Last year, the finance ministry divided banks into seven pools. The large bank in each group handholds small banks to improve their functioning. Any amalgamation might happen within these groups Punjab National Bank: Dena Bank, Vijaya Bank BankofBaroda: IDBI Bank, UCO Bank Bankof India: Oriental Bankof Commerce, Andhra Bank Union Bankof India: United Bankof India, Punjab & Sind Bank Central Bankof India: Indian Bank, Allahabad Bank, BankofMaharashtra Canara Bank: Indian Overseas Bank, Syndicate Bank, Corporation Bank State Bankof India: State BankofHyderabad, State Bankof Mysore, State BankofBikaner & Jaipur, State BankofPatiala, State Bankof Travancore Key numbers of public sector banks ( 2012- 13) Deposits 57,45,697 Investments 17,59,106 Advances 44,72,773 Total assets 69,61,966 Net NPA* ratio 2.01% Capital adequacy ratio 13.13% *Non- performing assets; figures in ₹ crore Source: IBA Sebi offers hand of friendship to PEs NSUNDARESHA SUBRAMANIAN New Delhi, 17 July The Securities and Exchange Board of India ( Sebi) has offered to address the concerns of the private equity ( PE) and venture capital sector working closely to remove several tax and regulatory anomalies that arise from the new Alternative Investment Fund ( AIF) regulations. The industry, hitherto unregulated, came within the fold of Sebi with the notification of these regulations in May last year. Sebi Chairman U K Sinha assured that the regulator will reconsider the cap on investments that can be made by the employees of an alternative investment fund ( AIF) in it. According to the Sebi AIF regulations, ₹ 25 lakh is the investment threshold for employees or directors of the AIF. “ We have received representations asking why there is aceiling of ₹ 25 lakh for employees. We are open to reconsidering this provision,” Sinha told the fund managers. According to the regulations, an AIF should have a minimum corpus of ₹ 20 crore and should not have more than 1,000 investors. In the first formal public interaction with the regulator at a conference of the Indian Private Equity and Venture Capital Association — IVCA Conclave 2013 — on Tuesday, the PE industry sought more encouragement for raising rupee funds, extension of tax pass through status for category Iand category II funds and flexibility in capital structure for fund managers. At present, domestic institutions such as insurance companies, pensions and banks are not allowed to invest in AIFs. Also, although the government this year allowed the tax passthrough status for entities registered under the Sebi venture capital funds ( VCF) regulations, this move fell in a grey area as the VCF regulations got replaced by the AIF regulations. Sinha added that he was in favour of pass- through tax status for all categories of alternative funds. He offered to recommend the same to the government. “ There is scope for all of us to approach the government,” he said. Another problem faced by the fund managers was the apparent lack of co- ordination among the multiplicity of financial sector regulators. Both the finance minister and the Sebi chairman assured that the Financial Stability and Development Council, headed by the finance minister, would address such issues and meet once in three months. PEs were told they could bring to the minister’s notice if there were any conflicting positions made by the regulators, which could, then, be taken up for discussion in the council. Sinha also readily agreed to aproposal to bring out a joint study sponsored by the IVCA and the regulator to put forth the various aspects of the PE segment, which could help mitigate the great degree of pessimism in the government and regulatory circles. Sebi also assured the segment it would not push for safety net in initial public offers and was open for suggestions to changes in the de- listing guidelines. “We need to interact and understand each other’s concerns. We need to talk and move forward,” said Sinha. Says it wants the sector to develop, assures changes in the framework UK Sinha, Chairman, Sebi ALTERNATIVES NEEDED |Tax pass through status not available for majority of funds |Restrictions on investments in AIFs by insurance firms, banks, MFs etc |Lock- in provisions in initial public offerings |Stringent provisions in delisting regulations |Cap on investment by employees and directors at ₹ 2.5 million ‘Neyveli share- sale plan defies public holding intent’ SAMIE MODAK Mumbai, 17 July The Securities and Exchange Board of India ( Sebi)’ s decision to allow the Tamil Nadu government to buy the Centre’s stake in Neyveli Lignite Corporation ( NLC) to meet minimum public shareholding norms has faced criticism from advocates of sound corporate governance practices. Though the move would help cut the Centre’s stake in NLC below 90 per cent in letter, the sale of shares from the Centre to a state defeated the objective of diverse ownership and better free- float, said a former Sebi official, as well as officials at corporate governance advisory firms. Currently, government holding in NLC stands at 93.56 per cent. To meet Sebi’s minimum public shareholding norms, it has to be cut to less than 90 per cent before August 9. The government’s decision to divest shares in NLC had met stiff opposition from Tamil Nadu- based political parties; about 30,000 workers of the company had gone on strike. After discussions, Sebi allowed four Tamil Naduowned entities that would qualify as qualified institutional bidders to acquire stake from the government. “The spirit ( of minimum public shareholding, or MPS) is to ensure wider holdings and increase the depth of trading of securities. By allowing state PSUs ( public sector undertakings), whose business isn’t securities trading, Sebi hasn’t applied this first principle and the logic of MPS gets flawed,” said Shriram Subramanian, founder and managing director, InGovern Research Services. In 2010, the government had amended the Securities Contract ( Regulation) Rules, making it mandatory for private companies to have at least 25 per cent public holding ( 10 per cent for PSUs). The objective behind the move was to ensure disperse ownership to curb manipulation by having more liquidity. Amit Tandon, managing director, IIAS, believes the manner in which a company complies with the norms is critical. “ If it is achieved through a process that gives any investor a chance to participate at a market clearing price, the minimum public shareholding criterion should be considered being fulfilled,” he said. Turn to TSI, Page 15 > EGoM clears 3.56% stake sale in Neyveli via IPP A panel of ministers, headed by Finance Minister P Chidambaram, on Wednesday cleared disinvestment of 3.56 per cent stake in Neyveli Lignite through an institutional placement programme ( IPP). The Department of Disinvestment has originally planned to divest five per cent of its stake in the Tamil Nadubased mining company. The Cabinet had last month approved the same. Since the IPP mode is allowed only to meet the pubic holding norm minimum 10 per cent, the department would now sell only 3.56 per cent or over 55.8 million shares. “ The DoD has written to Sebi, seeking preference to Tamil Nadu state PSUs,” Disinvestment Secretary Ravi Mathur told reporters after ameeting of the empowered group of ministers, adding the department would now file the offer document with Sebi and after that, the issue would hit the market. Sources, however, said the issue was likely only in the first week of August. PTI SC orders transfer of all Sahara appeals in OFCD case BS REPORTER New Delhi, 17 July The Supreme Court on Wednesday directed the transfer to itself of matters pending before the Securities and Appellate Tribunal ( SAT) and the Allahabad High Court arising out of the applications filed by the Sahara group. The court expressed displeasure over interference by other forums in a matter decided by the apex court. “We are annoyed by the SAT order. How can they interfere?” judge K S Radhakrishnan said. The directors of Sahara India Real Estate and Sahara Housing Invest had moved SAT, while Sahara India Parivar, the partnership firm that offered infrastructure facilities to the two companies collecting money, had moved the Lucknow bench of the Allahabad High Court, following an order by the Securities and Exchange Board of India ( Sebi) to attach the properties of the group in February. The attachment order came during the course of the execution of a Supreme Court order on August 31, 2012, which directed the two companies to refund ₹ 24,029 crore collected from about three million investors, along with interest of 15 per cent. Sahara had raised this sum by issuing optionally fully convertible debentures ( OFCDs). Sebi had ordered the attachment after the companies failed to deposit the full amount, according to a Supreme Court- directed timeline. So far, the companies have deposited ₹ 5,120 crore, less than a quarter of the original sum. They claim the rest has been refunded to the OFCD holders directly. Before adjourning the matters of contempt proceedings to July 24, the bench of judges Radhakrishnan and J S Khehar wondered why the companies didn’t comply with the court’s clear orders for the past several months. At one point, they said they would hear any further defence by Sahara in the matter only after the group deposited the amount. “ If you don’t comply, we would order personal appearance,” Radhakrishnan said. Sebi counsel Arvind Datar pressed for the appearance of Sahara group chief Subrata Roy, saying he was the promoter of the two errant companies and controlled the entities. He added according to a petition filed before the Lucknow bench of the Allahabad High Court, Roy was named the person in charge of Sahara India Parivar, holding 67 per cent stake, according to the firm’s partnership deed. Roy’s counsel Aryama Sundaram argued Roy wasn’t party to the Supreme Court order and didn’t have direct interest in the two companies. “Any decision on the contempt proceedings should not be made without hearing me,” Sundaram said. As time ran out, the court decided to defer the matter to next week. Earlier, Sebi had submitted its seventh status report in the matter. It said of the 1,000 responses from Sahara OFCD holders, only 12 were genuine. It noted several discrepancies. Datar said, “ In 146 cases, the names and details of the bond holders could not be found in the DVDs ( submitted by the group).” In another 130 cases, while bondholders asked for refunds, the DVDs showed they had already been refunded. Turn to TSI, Page 15 > SC adjourns matter to next week after hinting at “ personal appearance” by group officials

Source Times of India

Companies can get tax breaks on employee stock option plans

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The author has posted comments on this articleLUBNA KABLY, TNN | Jul 18, 2013, 01.04AM IST

MUMBAI: A special bench set up by the Bangalore Income-tax appellate tribunal (ITAT) has ruled that discounts under the employee stock option plans (ESOP) are an employee cost and should be allowed as a deduction, over the vesting period, in the hands of the issuing company.

The special bench held that when a company undertakes to issue ESOPs at a discounted price, the primary objective is not to raise share capital but to retain its key employees. It brushed off the contention of the tax authorities that such discount was a capital expenditure or that it was a contingent liability.

The special bench of the ITAT was set up to determine the deductibility of ESOP discount, as a clutch of companies including Biocon had filed appeals on this issue. The ITAT also had to determine when and how much should be allowed as a deduction.

The special bench held that when a company undertakes to issue ESOPs at a discounted price, the primary objective is not to raise share capital but to retain its key employees. "The objective is securing the consistent and concentrated efforts of its dedicated employees during the vesting period. The discount is construed, both by the employees and the company, as a part of the remuneration package. Such discounted premium on shares is a substitute to giving direct incentive in cash for availing of the services of the employees," stated the special bench in its order. It brushed off the contention of the tax authorities that such discount was a capital expenditure or that it was a contingent liability.

Punit Shah, co-head (tax), KPMG, says, "This decision offers substantial clarity. Going forward, more companies will be inclined to claim a deduction for the ESOP discount." Industry players feel it will result in a substantial decline in litigation.

The special bench of the ITAT was set up to determine the deductibility of ESOP discount, as a clutch of companies, including Biocon, had filed appeals on this issue. The ITAT also had to determine when and how much should be allowed as a deduction.

In a 50-page order relating to Biocon's case, the special bench looked into various stages of an ESOP scheme such as granting, vesting and exercise. At the grant stage, the company merely offers to make available shares at a discount price.

The second stage is vesting and the vesting period varies from company to company. During this period, the company incurs the obligation to issue discounted shares. The shares are allotted at the end of the vesting period, post which the employee can exercise his right to purchase the shares under the ESOP scheme at the discounted price.