Tag: keki mistry

RBI may not relent on ‘game-changing’ joint audit of banks, NBFCs, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India may not relent on its new norms that mandate joint audit of banks and NBFCs above a threshold and auditor rotation despite widespread opposition from banks, NBFCs and auditors.

The central bank sees it as a game-changing move, which will ensure the independence of auditors and increase opportunities for firms, according to a report.

According to RBI, the guidelines are compulsorily applicable to only 300 NBFCs, out of the 9,600 in India, and other NBFCs with asset size below Rs 1,000 crore can continue with the existing system.

The statutory auditors of public sector banks, financial institutions already have a tenure of three years, and RBI has reduced the tenure of private bank auditors from four years to three, according to the report.

The six-year rotation policy of auditors is in place for private and foreign banks which has been extended to NBFCs.

Audit firms at loggerheads

Top multinational auditing firms in the country are at loggerheads with their Indian peers once again, with the former lobbying to make the Reserve Bank of India reconsider its latest auditing regulations that open up new opportunities for smaller Indian firms.

The new guidelines will curtail growth opportunities for multinational firms and create substantial transitional issues, but Indian firms a chance to get more audit business from the lucrative financial sector currently dominated by the Big Four.

Multinational auditors have started reaching out to RBI, industry associations like CII and FDCI, and even larger financial companies to highlight transition problems and risks of joint audits.

Indian firms have launched a counter-offensive by supporting the central bank’s move and taking their case to the regulator and financial companies directly and through industry associations such as Assocham.

The RBI regulations

On April 27, the RBI released new guidelines for statutory auditors of financial entities to enhance the independence of auditors and tackle concentration issues. The guidelines require mandatory rotation of auditors after three years with a six-year cooling-off period, and appointment of joint auditors in entities having asset size of Rs 15,000 crore and above.

The opposition

The regulations ran into opposition from bankers and auditors who wanted it to be deferred citing less time to appoint auditors and crunch. “The new guidelines have come in at the end of April. We have to evaluate how we can sort of look at appointing new auditors so quickly.

Because the RBI guidelines say that existing auditors cannot continue (auditing) if they have done three years. I think in the case of most companies (non-bank lenders), the auditors would have already done more than three years, probably done four years… So, I hope that RBI defers this applicability by year or so because the year has already started, and a lot of them would have to start looking around for new audit firms,” Keki Mistry, MD and Vice Chairman Keki Mistry had told ETCFO.

“Many challenges here if implemented from FY22. Some bank auditors have already finished three years — they will only have weeks to make a new selection. The pool available to choose from will be limited for FY22 and many potential suitors would be conflicted under the new one-year cooling-off period having done such non-audit services in FY21,” Grant Thornton Bharat CEO Vishesh Chandiok had said.



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HDFC Q4 net profit surges 42 per cent

Banking & Finance

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Housing Development Finance Corporation (HDFC) Ltd reported a 42.4 per cent jump in its standalone net profit at ₹3,179.83 crore for the fourth quarter of 2020-21.

Its standalone net profit was ₹2,232.53 crore in the fourth quarter of 2019-20.

For the full fiscal 2020-21, HDFC’s net profit however, declined 32.3 per cent to ₹12,027.3 crore versus ₹17,769.65 crore in 2019-20.

Also read: HDFC Bank unveils organisational changes to power future growth

“The profit numbers for the year ended March 31, 2021 are not comparable with that of the previous year. In the previous year, the corporation had recorded a fair value gain consequent to the merger of GRUH Finance with Bandhan Bank amounting to ₹9,020 crore,” HDFC said in a statement on Friday.

For the quarter ended March 31, 2021, HDFC reported a net interest income of ₹4,065 crore, which was 14 per cent higher compared to ₹3,564 crore in the previous year.

Net interest margin for the year ended March 31, 2021 stood at 3.5 per cent.

As at March 31, 2021, ₹4,479 crore is being restructured under the RBI’s Resolution Framework for Covid-19 related stress, amounting to 0.8 per cent of the assets under management.

Of the loans being restructured, 27 per cent are individual loans and 73 per cent non-individual loans.

Gross non-performing loans as at March 31, 2021 stood at ₹ 9,759 crore or 1.98 per cent of the loan portfolio.

During the quarter ended March 31, 2021, individual loan disbursements grew by 60 per cent over a year ago.

“The month of March 2021 witnessed the highest levels in terms individual receipts, approvals and disbursements. Growth in home loans was seen in both, the affordable housing segment as well as high-end properties,” HDFC said.

The board recommended a dividend of ₹23 per equity share of face value of ₹2 each for the financial year 2020-21.

It also approved the re-appointment of Keki Mistry as the Managing Director (designated as Vice Chairman and Chief Executive Officer) of HDFC for a period of three years with effect from May 7, 2021, subject to approval of the members at the ensuing AGM.

Further, the board approved issuance of Redeemable Non-Convertible Debentures (secured or unsecured) and any other hybrid instruments (not in nature of equity shares) up to ₹1.25 lakh crore during a one year period.

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Three point-agenda for the upcoming Budget

Banking & Finance

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The Union Budget 2021-22 will be one of the most anticipated events in recent history. As the dust is settling after the torrid health catastrophe that affected millions and which has threatened to leave a permanent emotional scar, we are finally seeing the light at the end of the tunnel. India has had a faster than expected economic recovery and a low fatality rate from Covid-19. The distribution of the vaccines has also commenced.

The policies that will be introduced in the upcoming Budget are expected to set the tone for what steps the government takes next, and how quickly India is able to shrug off the crisis. The priority of the government will likely be measures on policies which will lead to sustained growth, boost consumption and encourage private investments. The Budget emphasis will probably lay on healthcare and livelihood creating sectors such as infrastructure and housing.

Job creation

Focus on jobs could be one of the main agendas of the Budget. The pandemic and the resultant job losses in some sectors is expected to have far-reaching implications on the Indian economy. For that reforms in sectors that create large-scale employment, such as housing and real estate, infrastructure, construction and manufacturing, will be required.

According to India’s Economic Survey 2017-18, nearly 90 per cent of the workforce employed in the real estate sector are engaged in the construction of buildings. Further, the sector is expected to require over 66 million people by 2022.

Housing is one of the largest employment generators in the economy with linkages to nearly 300 industries – both in terms of direct jobs and the jobs it creates in ancillary industries such as cement, steel, power etc.

It has been rightly said: “Don’t worry too much about GDP growth, worry about jobs. If we focus on jobs, GDP will take care of itself.”

Focus on housing

The government and the regulators have recognised the critical role housing and real estate plays in the Indian economy. In recent years, affordable housing has been at the forefront. For a rapidly growing country like India with a large young population that needs more homes at affordable price points, the following incentives could be considered:

1) Interest deduction on housing loans could be raised from ₹2 lakh to ₹5 lakh. The deduction could be reviewed on a periodic basis and linked to inflation.

2) The real estate sector has been facing challenges since 2017, and the demand for under-construction properties has slowed down significantly. Whilst SWAMIH (Special Window for Affordable & Mid-Income Housing Fund) is an excellent initiative, it is not practical for a single fund to resolve all the last mile funding issues.

Historically, some part of the funding for a project used to come from sale of under-construction properties. However, due to GST and other factors, the demand for under-construction properties has come down, resulting in projects that are 60-80 per cent complete, unable to receive last-mile funding.

Lenders are reluctant to lend to stressed projects as any fresh funding will be classified as a NPL on day one in the books of the new lender. The regulators may want to consider changing the regulations such that any secured fresh funding should be ring-fenced.

3) An additional option is to allow External Commercial Borrowings (ECBs) for real estate projects. Further, investment by foreign owned/controlled SEBI regulated investment vehicles up to 100 per cent under automatic route should be permitted in entities that acquire completed and under-construction residential projects.

4) The Credit Linked Subsidy Scheme (a component of PMAY) has been a major success. There is a need to extend PMAY benefits to more locations and extend the deadline for the Middle Income Group till March 2022.

5) There is a need to promote the rental market. Currently, the setoff and carry forward of losses from house property is restricted to ₹2 lakh. The earlier law which did not have such restrictions could be restored. Alternately, the limit should be increased to ₹5 lakh.

Personal tax reforms

Personal tax rates need to be further reduced. Surcharge on high taxpayers also needs to be rationalised as these are the people who have the capacity to spend the most and spur demand. Global data show that lower tax rates result in higher tax collections as compliance improves.

In fact, we just witnessed this example in Maharashtra when the State government lowered that stamp duty to 2 per cent for properties registered before December 31. Mumbai recorded historic registrations of house sale deeds in November and December.

As a result, the State government’s treasury collection from registrations increased, inferring that strong home sales have more than compensated for the lower stamp duty.

The Budget could also consider removing the long-term capital gains tax for investments in equity shares or by raising the period from one to two years. Additionally, doing away with taxing dividend income could be considered. Such steps will put more disposable income into the hands of the individual.

Continual reforms have been a priority for the current government. It is often said that India performs best in a crisis. The pandemic may just become a catalyst to bring in further reforms in ease of doing business, development, jobs, growth and a stable tax regime to ensure India’s sustained long term growth.

The writer is VC & CEO at HDFC Ltd

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