Category: Banking & Finance

Credit rating agencies may hitherto not find it easy to get information about a company or its management from the statutory auditor of the entity concerned. This is because the CA Institute has clarified that its members are not permitted under the Chartered Accountants Act and the Code of Ethics to share client information with credit rating agencies.

The latest ICAI clarification to the queries from its members is expected to put corporates in a spot and force them do tightrope walking as they will have to balance their relationship with the statutory auditor and the credit rating agency, said corporate observers.

However, the statutory auditor can give feedback to a credit rating agency if explicitly permitted to do so by the client concerned, the Institute of Chartered Accountants of India has said. Any failure to comply with this clarification will be treated as “professional misconduct” and can, therefore, invite disciplinary proceedings, the audit regulator has cautioned.

Code of ethics

Speaking to BusinessLine, ICAI president Atul Kumar Gupta said that chartered accountants under their code of ethics are not allowed to share data of their clients unless the client permits it or when two exceptions come to play. Even where the client does not expressly approve sharing of information, the two exceptions are that the auditors can share if the law of the land requires them to do so or any regulator directly asks the auditor for information.

Feedback mechanism

Gupta said that SEBI had recently issued an advisory and asked credit rating agencies to get a feedback from the statutory auditors. “We are now saying that this feedback mechanism is not falling under the two exceptions that are there in the Code of Ethics. So, either SEBI should say that this is under a law or if SEBI itself asks, our members can directly give the data or feedback to the regulator. But not to a third party like a credit rating agency,” Gupta said.

Gupta said the ICAI will in the next few days reach out to SEBI to discuss the issue and see how the matter can be sorted out.

‘Not duty bound’

Commenting on the latest ICAI clarification, Amarjit Chopra, former ICAI president, said: “Statutory auditors are not duty bound under law to share information with credit rating agencies. They are duty bound to submit information to regulators like NFRA or courts or the CBI as they (the agencies) have power under law. But credit raters are private agencies. It should also be allowed only when the client permits.”

Sanctity of audit

Ashok Haldia, a former Secretary of CA Institute, said that auditors during the course of an audit have unrestricted access to documents and information of the clients. “Allowing the auditor to share information with other agencies these or their assessment, on one pretext or other , without the consent of the auditee, would put at risk the sanctity of audit. The exceptions are, however, when under any law the auditor is required to share information or his findings. Even otherwise rating agencies have access to clients for information. It is desirable that they undertake an independent exercise and based on that make their own assessment on rating,” he said.

The nominal value of bonds under the ‘Sovereign Gold Bond (SGB) Scheme 2020-21 – Series X’ works out to ₹5,104 per gram of gold against ₹5,000 in the preceding series, according to the Reserve Bank of India (RBI).

SGB Scheme 2020-21 – Series X will be open for subscription for the period from January 11, 2021, to January 15, 2021, the central bank said in a statement.

The Government of India, in consultation with the RBI, has decided to offer a discount of ₹50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode.

For such investors, the issue price of Gold Bond will be ₹5,054 per gram of gold, the RBI said.

Continuing the war of letters over Dewan Housing Finance Corporation Ltd, Ajay Piramal, Chairman, Piramal Enterprises Ltd, has written to the Reserve Bank of India Governor Shaktikanta Das, contending that certain provisions of the resolution plan submitted by Oaktree Capital are not in compliance with law and that it should be disqualified from the voting process.

In the letter sent earlier this week, Piramal is understood to have also said that Oaktree’s bid will not help DHFL comply with capital adequacy requirements post implementation of the resolution plan.

“We sincerely request you to take the above on record and take necessary actions to direct the Administrator and the Committee of Creditors to forthwith reject the Other Resolution Plan and disqualify it from the voting process under the CIRP,” said Piramal in the letter.

Piramal has pointed out that Oaktree intends to infuse only ₹1,000 crore in DHFL through either equity, non-convertible debentures (NCDs) or subordinated debt, and that, too, over a 12-month period after the approval of the National Company Law Tribunal. “…it is evident that the Other Bidder (Oaktree) is undertaking only a balance sheet restructuring and there is no other concrete Tier I capital infusion on day one to enhance ‘real’ capital adequacy for the business to meet true minimum capital adequacy requirements for the business,” said Piramal in his letter, adding that the proposed infusion of ₹1,000 crore seems to be only from a scoring perspective as provided in the evaluation matrix prescribed under the CIRP.

“Failure to meet the capital adequacy provisioning requirements will result in the business of DHFL being in contravention of applicable laws in this regard,” he has further said, adding that Oaktree’s resolution plan is non-complaint with the requirements of Sections 30(2)(e) of the IBC and cannot be presented to the CoC for its approval under Section 30(3) of the IBC.

Point-by-point rejoinder

Meanwhile, in a media statement on Friday, Piramal gave a point-by-point rejoinder of Oaktree’s contentions, and said: “The Piramal bid for DHFL offers the lenders the highest upfront cash recovery, has the highest score on the COC evaluation matrix, is fully compliant with all regulatory norms, and is fully and immediately implementable.”

“Oaktree is bringing in minimal equity into DHFL. The initial equity being brought in is a mere ₹1 lakh,” it further said.

Oaktree had also written a similar letter addressed to DHFL’s Administrator and lenders urging that its additional offer should be considered.

The Reserve Bank of India (RBI), on Friday, said it will conduct a Variable Rate Reverse Repo auction of 14-day tenor, aggregating ₹2-lakh crore, on January 15, as part of its decision to restore normal liquidity management operations in a phased manner.

Through this auction, the RBI is seeking to suck out excess liquidity in the banking system, which, as on January 7, 2021, stood at ₹7,09,041 crore, going by the funds parked in the one-day reverse repo auction.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “The RBI is gradually sucking out liquidity. Short-term yields of money market papers, which are below reverse repo rate, will correct.”

The Variable Rate Reverse Repo auction is being conducted under the revised Liquidity Management Framework issued on February 6, 2020.

This framework was temporarily suspended in the backdrop of the outbreak of Covid-19, the rapidly evolving financial conditions, and taking into account the impact of disruptions due to the lockdown and social distancing.

However, the window for Fixed Rate Reverse Repo and Marginal Standing Facility (MSF) operations were made available throughout the day. This was intended to provide eligible market participants with greater flexibility in their liquidity management.

“On a review of evolving liquidity and financial conditions, it has been decided to restore normal liquidity management operations in a phased manner.

“…The Fixed Rate Reverse Repo and Marginal Standing Facility (MSF) operations will continue to be available throughout the day,” the central bank said.

The RBI reiterated that it will ensure availability of ample liquidity in the system.

Sipadan Investments (Mauritius) Ltd has sold its remaining 5.46 per cent stake in IDFC Ltd in the open market. As per IDFC’s notice to the exchanges, the sale of shares by Sipadan happened during the January 6, 2021 to January 7 2021 period. IDFC operates a ‘NBFC – Investment Company’, mainly holding investments in IDFC Financial Holding Company Ltd (IDFC FHCL), which is a non-operative financial holding company. IDFC FHCL, in turn, holds investments in IDFC FIRST Bank and IDFC Asset Management Company.

Bank of India (BoI), on Friday, said the remaining impact of provisions under divergence as per the Reserve Bank of India’s (RBI) Risk Assessment Report (RAR) for the year 2019-20 is ₹358 crore.

Referring to the report of divergence in the asset classification and provisioning for non-performing assets (NPAs) as per the RBI’s RAR for the year 2019-20, the public sector bank said out of the ₹930-crore provisions under divergence, it has already made provision of ₹572 crore during the current financial year.

In its comments, BoI observed that total provisions under divergence is ₹930 crore, which includes divergence in provision for NPA of ₹394 crore, provision for investments of ₹23 crore, and shortfall in standard asset provisioning of ₹513 crore.

The divergence in gross NPA and net NPA as reported by the bank and as assessed by the RBI for FY20 was ₹63 crore each.

The divergence in provisions for NPA as reported by the Bank and as assessed by RBI for FY20 was ₹394 crore, the bank said in its regulatory filing.

After taking into account the divergence in provisioning, the bank’s net loss increased to ₹3,886.89 crore against ₹2956.89 crore reported in FY20, as per the filing.