Banks not reporting interest income on bad loans doesn't absolve defaulters
New Delhi: Banks not recognizing any interest income on bad loans by following RBI's prudential norms does not absolve borrowers from the obligation to show the interest liability on their financial statements, audit regulator National Financial Reporting Authority (NFRA) said in an order.
NFRA said that defaulters do not get free from the obligation to recognise interest liability as banks are required to maintain a record of accrued interest on bad loans and do not release the borrower from the contractual liability to pay interest.
NFRA said in a disciplinary order issued against a Jharkhand-based audit firm and a chartered accountant that the contention of auditors that since no interest was being charged by the bank, there was no obligation on the audited company to recognize interest cost, was not correct.
The auditors are completely wrong in their assumption that the lending bank did not charge interest on the borrowings classified as non-performing assets (NPAs), NFRA said. The banks do discontinue, in their accounts, the recognition of interest income on the assets classified as NPAs based on the prudential norms of the RBI, explained NFRA.
"However, RBI guidelines also require the banks to maintain a memorandum record of accrued interest on the NPAs, clearly reflecting the fact that the bank has not legally released the borrower from their contractual liability to pay interest...," the audit watchdog explained in its order posted on its website.
The outstanding balance of the customer will include the interest charged by the bank on such borrowings along with some penal interest as per the contract between the customer and the bank, NFRA said.
"This accounting treatment by the lending bank cannot be a premise for the borrower to stop accruing the interest liability in their books of accounts. The borrower will continue to be covered by the provisions of Indian Accounting Standard (Ind AS) 109 in relation to discharge of a liability..," the audit regulator said.
The watchdog has been trying to create awareness about auditor independence norms. NFRA wants auditors to exercise professional skepticism and do thorough due diligence of the financial statements they are certifying. NFRA has also made the point that quitting an audit assignment does not absolve the auditor of his responsibility to report any fraud that has come to his notice.
"Statutory audits provide useful information to the stakeholders and public, based on which they make their decisions on their investments or do transactions with the public interest entity. Without a credible audit, investors, creditors and other users of financial statements would be handicapped," the regulator said.
The entire corporate governance system would fail and result in a breakdown in trust and confidence of investors and the public at large if auditors do not perform their job with professional skepticism and due diligence and adhere to the standard, NFRA said.
Source: Live Mint
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White Paper of Congress Govt Blames Previous BJP Regime's 'Fiscal Mismanagement' for Himachal's Debt Distress Published 44 minutes ago
With the Congress government in Himachal Pradesh presenting a white paper on the state's finances, an acrimonious exchange was witnessed between opposition and treasury benches in the assembly after the report indicated a grim fiscal health with the state's financial liabilities mounting to Rs 92,774 crore. The white paper was presented by deputy chief minister Mukesh Agnihotri.
Agnihotri read the report amid a charged atmosphere, while blaming the previous BJP regime for fiscal mismanagement and Himachal being ranked fifth in the country in raising loans. He said Rs 92,774 crore liabilities were left behind by the Jai Ram Thakur government, resulting in every child being born with a debt of Rs 1.02 lakh as compared to Rs 66,000 crore in 2017, till the Congress was in power.
He said Himachal Pradesh's debt when the BJP assumed power in 2017-18 was Rs 47,906 crore and with an increase of 12 per cent (Rs 2,874 crore) it has reached Rs 76,631 crore in 2023-24. “The financial health of the state is so grim that a sum of Rs 9,048 crore would be required to repay the loan (Rs 3,486 crore) and interest component (Rs 5,262 crore) in 2023-24,” he stated.
Agnihotri was confronted with repeated interruptions by leader of opposition Jai Ram Thakur and BJP MLAs who trouped to the well of the house twice, while accusing the government of presenting false and misleading data of only the BJP tenure to get political mileage.
Agnihotri said the BJP regime has made a record of indulging in wasteful expenditure, with no focus on resource generation or fiscal prudence, making a mockery of government spending. “The BJP is harming HP's interest as they have told the Centre to not give us funds as we implemented the old pension scheme,” he alleged. “It is after exhaustive examination of the reports of Reserve Bank of India (RBI), Comptroller and Auditor General (CAG), and the past budgets that we have come to the conclusion that it was because of the fiscal mismanagement by the previous BJP regime that today the total loan liabilities of the state have reached Rs 92,774 crore.”
The loan liability left behind by the BJP regime for 2022-23 was Rs 76,631 crores, he added.
Agnihotri alleged that the previous BJP government had misused a loan amount of Rs 16,261 crore raised in the last election year for holding party functions. “This loan amount was mis-utilised for organising functions like Amrit Mahotsav, Pragatisheel Himachal and Jan Manch for party campaigns with an eye on the assembly polls,” he remarked.
He said even now Rs 8.50 crore bills of the State Transport Corporation were pending as buses were used to ferry people for these functions used for party campaigns.
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HDFC AMC gets RBI nod to acquire up to 9
The Reserve Bank of India (RBI) has approved HDFC AMC to acquire up to 9.5% of Karur Vysya Bank's share capital or voting rights, subject to conditions.
“Pursuant to Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended, we advised that the Reserve Bank of India vide its letter dated September 20, 2023, has accorded its approval to HDFC Asset Management Company Ltd. (HDFC AMC) for acquiring aggregate holding of up to 9.5% of the paid-up share capital or voting rights of The Karur Vysya Bank Ltd," Karur Vysya Bank said in a regulatory filing.
The approval has been granted with reference to the application made by HDFC AMC to RBI.
The aforesaid approval granted by RBI is subject to compliance with the relevant provisions of the Banking Regulation Act, 1949, RBI's Master Direction and Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies dated January 16, 2023 (as amended from time to time), provisions of the Foreign Exchange Management Act, 1999, regulations issued by Securities and Exchange Board of India, and any other guidelines, regulations, and statutes as applicable, it added.
HDFC AMC must ensure that the aggregate holding in the Bank does not exceed 9.5% of the paid-up share capital or voting rights of the Bank at all times. Further if the aggregate holding falls below 5%, prior approval of RBI will be required to increase it to 5% or more of the paid-up share capital or voting rights of the Bank, the bank said in the regulatory filing.
HDFC AMC gets RBI nod to acquire up to 9.5% stake in DCB Bank
In a separate filing, DCB Bank informed the exchanges that RBI has accorded its approval to HDFC AMC to acquire up to 9.5% of the paid-up share capital or voting rights of the Bank.
“We would like to inform you that the Bank has received an intimation from RBI on September 20, 2023, that it has accorded its approval to HDFC Asset Management Company Limited (“AMC") to acquire aggregate holding of up to 9.5% of the paid-up share capital or voting rights of the Bank," DCB Bank informed the exchanges.
The central bank has advised HDFC AMC to acquire a stake in the Bank within 1 year from the approval date.
AMC has been advised by the RBI to acquire the aforesaid major shareholding in the Bank within a period of one year from the date of approval. If AMC fails to acquire major shareholding within the stipulated period, the approval granted by the RBI shall stand cancelled. Further, AMC must ensure that the aggregate holding in the Bank does not exceed 9.5% of the paid-up share capital or voting rights of the Bank at all times, it added.
HDFC Asset Management Company reported a 52% jump in profit for the first quarter of FY24 with average assets under management growing to ₹4.86 lakh crore. The company serves a mutual fund customer base of 71 lakh individuals, with a total of 122 lakh live accounts.
Source: Live Mint
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HDFC Bank’s Jagdishan gets 3-year extension
MUMBAI : The Reserve Bank of India has approved the reappointment of Sashidhar Jagdishan as HDFC Bank managing director and chief executive officer for three more years till 26 October 2026, the bank said in a regulatory filing.
Jagdishan joined the bank in 1996 as a manager in the finance function and became business head of finance in 1999. He was later appointed chief financial officer in 2008. Prior to his appointment as CEO in October 2020, he was the group head of the bank in addition to overseeing the functions of finance, human resources, legal and secretarial, administration, infrastructure, corporate communications and corporate social responsibility.
Jagdishan has an overall experience of over 31 years and has completed his graduation in science with a specialization in physics. He is a chartered accountant by profession and holds a Master's degree in economics of money, banking and finance from the University of Sheffield, UK.
In his message to shareholders earlier this year, Jagdishan flagged funding as a risk. He had also raised concerns that the merger with HDFC Ltd may impact the bank's net interest margins due to the higher proportion of the low-interest-yielding housing loans added.
Jagdishan had said that the same will be visible from the results for the September quarter itself.
Following the merger with HDFC in July, Jagdishan, however, said the country's largest lender aims to double every four years. In a letter to the over 4,000 employees from HDFC who joined the bank's rolls on 1 July, Jagdishan said the future is bright.
“The runway for financial services and mortgage, which are so underserved and underpenetrated, is going to be very large. HDFC Bank - the combined entity - with a large and growing distribution and customer franchise, more than adequate capital, healthy asset quality and profitability, will be best positioned to capture growth. The pace at which we aim to grow - we could be creating a new HDFC Bank every four years," he had said.
Source: Live Mint
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RBI imposes monetary penalty on four co-operative banks
The Reserve Bank has imposed monetary penalties on four co-operative banks for deficiencies in regulatory compliance. These co-operative banks are: Lalbaug Co-operative Bank Ltd, The Co-operative Bank of Mehsana Ltd, The Harij Nagrik Sahakari Bank Ltd and The National Co-operative Bank Ltd.
The Reserve Bank imposed a monetary penalty of ₹5.00 lakh on Lalbaug Co-operative Bank Ltd., Vadodara, Gujarat for non-compliance with the directions issued by RBI on ‘Placement of Deposits with Other Banks by Primary (Urban) Co-operative Banks (UCBs)' and ‘Reserve Bank of India (Co-operative Banks - Interest Rate on Deposits) Directions, 2016'.
The RBI said the bank had not only breached prudential inter-bank (gross) exposure limit, but also breached prudential inter-bank counter-party exposure limit, and failed to pay interest on overdue recurring and term deposits from the date of maturity till the date of repayment at the applicable rate.
A monetary penalty of ₹3.50 lakh was imposed on The Co-operative Bank of Mehsana Ltd., Mehsana, Gujarat for non-compliance with the directions issued by RBI on ‘Loans and Advances to directors, relatives and firms or concerns in which they are Interested' read with ‘Loans and Advances to Directors etc. - Directors as surety or guarantors – Clarification' and ‘Placement of Deposits with Other Banks by Primary (Urban) Co-operative Banks (UCBs)'.
The bank had sanctioned loans where relative of one of the directors of the bank stood as guarantor, and had also breached inter-bank counterparty exposure limit, the banking regulator said.
The apex bank imposed a monetary penalty of ₹3.00 Lakh on The Harij Nagrik Sahakari Bank Ltd., Harij, Gujarat for non-compliance with the directions issued by RBI on ‘Maintenance of Cash Reserve Ratio (CRR)', ‘Placement of Deposits with Other Banks by Primary (Urban) Co-operative Banks (UCBs)', and ‘Interest Rate on Deposits - Directions, 2016'.
The RBI said the bank had failed to maintain minimum Cash Reserve Ratio (CRR) for few days, and breached inter-bank counter-party exposure limit. RBI further said the bank failed to make payment of applicable interest on deposits lying in the current accounts of deceased individual depositors or sole proprietorship concerns.
The RBI imposed a monetary penalty of ₹1.00 lakh on The National Co-operative Bank Ltd., Mumbai, Maharashtra for non-compliance with the directions issued by RBI on ‘Maintenance of Deposit Accounts-Primary (Urban) Co-operative Banks'. The bank had not conducted annual review of inoperative accounts, the RBI added.
The actions of Reserve Bank was based on deficiencies in regulatory compliance and not intended to pronounce upon the validity of any transaction or agreement entered into by the banks with its customers.
Source: Live Mint
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NBFCs relying more on bank loans
Mumbai: Domestic non-banking financial companies (NBFCs), especially those in the upper-layer category, are increasingly relying on bank borrowings as their primary source of funding, according to an analysis in Reserve Bank of India (RBI)’s September bulletin.
RBI regulations classify the NBFCs into four layers based on the size, activity and perceived risks. The upper layer comprises prominent names like Tata Sons, LIC Housing Finance and Shriram Finance, according to a recent RBI notification.
NBFCs primarily finance their operations through a mix of market borrowing and bank loans, constituting around 75% of total borrowings. According to the analysis, the substantial reliance on banks makes them the largest net borrowers, thus intricately linking them to the broader financial system.
The article pertains to the sector's performance during the 2022-23 period, up to Q3.
Although there were 9,443 RBI-registered NBFCs as of 31 March, the analysis is based on a sample of 205 firms that regularly submitted returns for all quarters from December 2020 to December 2022. “During the assessment period, NBFCs' reliance on banks increased steadily due to (the) low interest environment and lag monetary policy transmission," the article said.
The banks' share in aggregate NBFC borrowings rose to 35.1% last December, against 29.7% in December 2020, the data cited showed.
While the article was written by RBI officials, it had the usual disclaimer that the views expressed are those of authors and do not reflect the views of the organization. “A deeper analysis highlights the banks' preference in lending to NBFCs in the upper layer."
Direct bank borrowings by the upper-layer NBFCs grew steadily in recent quarters, accounting for nearly half of the total borrowings at the end of December 2022. Those in the middle layer relied more on debentures, although their bank borrowings also grew in recent times. Besides, upper-layer NBFCs seem to be more successful in raising short-term debt through commercial papers (CP), it said.
According to the analysis, banks are also key subscribers of the debenture and commercial paper issuances by NBFCs. Therefore, the exposure to the NBFC sector is higher than the quantum indicated by direct lending, it said. “Banks' exposure to NBFC-UL (upper layer) in particular has been steadily rising, primarily due to a steep growth in their direct lending to these NBFCs in 2022-23 (up to December 2022). Bank subscription to debenture and CP issuances of NBFC-UL are also growing at a robust pace, and reflect banks' preference for instruments of bigger NBFCs, which in general have strong parentage and are under enhanced regulation."
The debenture issuances of NBFCs are also subscribed by other market participants such as mutual funds, insurers, retail investors and pension funds. “Going forward, NBFCs need to diversify their funding sources, to reduce excessive reliance on bank borrowings," the article said.
“They need to develop strong governance and risk management standards and be more vigilant about cybercrimes, as the growing digital lending space offers huge opportunities, but also presents novel challenges," it added.
A scale-based analysis of the credit allocation by the authors of the article found NBFCs in the upper layer provide a major chunk of their loans to retail borrowers, while those in the middle layer provided a large chunk to the industry. Government NBFCs that fall in the middle layer are large providers of credit to the infrastructure segment of industries, it said.
Source: Live Mint
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Troubled Chinese trust company brings in state help
HONG KONG: China’s Zhongrong International Trust, a shadow-banking giant whose financial troubles have rattled investors, broke its silence late Friday and said it is working with two state-owned institutions to address its problems.
The domestic asset manager last month failed to make payments on high-yielding investment products that it had sold to many companies and wealthy individuals. That sparked concerns that the country's worsening property downturn was developing into a wider financial-sector contagion.
Zhongrong Trust acknowledged late Friday that it had missed payments on some products, and said it would bring in two large state-owned trust companies to help with operations and management.
“Due to multiple internal and external factors, some of the company's trust products could not be paid on schedule," it said. Zhongrong Trust said it has engaged CITIC Trust, owned by state conglomerate CITIC Group, and CCB Trust, owned by China Construction Bank, to work with it for a year.
The asset manager indicated the arrangement isn't a government bailout. It said the two state-backed firms won't be responsible for paying for its trust products, and the arrangement could be terminated early or extended.
Since Zhongrong Trust's troubles bubbled up around the middle of this year, investors have grown concerned that China's $2.9 trillion trust industry could be the next casualty of the country's property crisis.
Trust companies have long been a source of funding for Chinese real-estate developers. A tougher financing environment in recent years meant many privately owned developers were unable to secure loans from big banks to build residential projects. Trust companies filled some of that gap, providing loans at a higher cost to developers.
In 2022, Zhongrong's trust funds had 11% of their assets in the property sector, according to the company's annual report.
Missed payments started to pile up recently. Since August, at least 11 publicly listed companies in mainland China have said in stock-exchange filings that they didn't receive interest or principal payments on products managed by Zhongrong Trust. Those missed payments add up to the equivalent of $82 million.
Some individual investors have also complained on social media that they had not received promised payments from Zhongrong Trust.
The full scope of its financial difficulties isn't known. The privately held company had the equivalent of $108 billion in assets under management at the end of 2022.
Many of its trust funds had promised returns of around 6% to 8% annually, according to public documents for these funds seen by The Wall Street Journal.
Some of these trust products invest in bank deposits, stocks, corporate bonds and other kinds of wealth-management products. One of them, which was purchased by a listed company that supplies maintenance and repair tools, raised money in 2021 for developer Shinsun Property Group to fund the construction of a high-end residential project in the eastern city of Hangzhou, a tech hub south of Shanghai. Shinsun defaulted on its U.S. dollar debt last year after failing to make an interest payment.
Zhongrong Trust was founded in 1987. Its biggest shareholder is a state-owned company called Jingwei Textile Machinery, which last month said it wanted to delist its shares from Shenzhen Stock Exchange. The company cited “significant uncertainties in its operations" due to “market changes," without providing specifics.
Trust funds in China had about $155 billion in exposure to the property sector at the end of the first quarter, according to data from the China Trustee Association. That portion is “under great threat," Nomura analysts said last month. Trust funds also have larger exposures to financial markets, which increases the risk of contagion, they said.
Write to Rebecca Feng at email@example.com
Source: Live Mint
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RBI Issues Revised Norms For Classification
The RBI on Tuesday issued revised norms for classification, valuation, and operation of investment portfolios of commercial banks, aligning them with global standards and best practices.
The revised ‘Reserve Bank of India (Classification, Valuation and Operation of Investment Portfolio of Commercial Banks) Directions, 2023′ will be applicable from April 1, 2024, to all Commercial Banks excluding Regional Rural Banks.
The revised directions include principle-based classification of investment portfolio, tightening of regulations around transfers to/from held to maturity (HTM) category and sales out of HTM, inclusion of non-SLR (statutory liquidity ratio) securities in HTM subject to fulfilment of certain conditions and symmetric recognition of gains and losses.
As per the revised norms, banks will have to classify their entire investment portfolio under three categories — Held to Maturity (HTM), Available for Sale (AFS) and Fair Value through Profit and Loss (FVTPL).
“Held for Trading (HFT) shall be a separate investment subcategory within FVTPL. The category of the investment shall be decided by the bank before or at the time of acquisition and this decision shall be properly documented," the Reserve Bank said.
Banks are currently required to follow regulatory guidelines on classification and valuation of investment portfolio, which are based on framework issued in October 2000 drawing upon the then prevailing global standards and best practices.
In view of the significant development in global financial reporting standards, the linkages with the capital adequacy framework as well as progress in the domestic financial markets, revised regulatory framework for the investment portfolio has been issued, the RBI said.
The directions, it said are expected to enhance the quality of banks' financial reporting, improve disclosures, provide a fillip to the corporate bond market, facilitate the use of derivatives for hedging, and strengthen the overall risk management framework of banks.
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Good news for all the OTT viewers who were keenly waiting to watch Barbie at home with their friends and family. Greta Gerwig's box office blockbuster is available on OTT. The movie can be watched on rent on Prime Video for ₹500. The biggest film of the year stars Margot Robbie and Ryan Gosling as the Mattel dolls, Barbie and Ken.
Despite facing a tough competition from Nolan's Oppenheimer, Barbie earned a massive success at box office. The two movies also created a phenomenon named Barbenheimer.
The news of Barbie's relese on OTT was shared by Pime Video on its social media accounts.
"Did we hear you say hi barbie? Barbie now available on #PrimeVideoStore, rent now," said the caption of Prime VIdeo's post on instagram.
The movie was directed by Greta Gerwig and earned her the title of first solo female director to earn $1 billion from film at global box office. The movie also features actors like America Ferrera, Simu Liu, Dua Lipa, Emerald Fennell, Issa Rae, Kate McKinnon, Michael Cera and Will Ferrell. The movie's story revolves around the lead roles, Barbie and Ken, who were expelled from their world, ‘Barbie Land'. Later, the story focuses on their journey to the real world.
Source: Live Mint
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