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Vatsa Education standalone Jan '15 sales at Rs 0.00 crore
Written By Unknown on Senin, 06 April 2015 | 23.07
Essar Group of companies was controlling Loop: CBI to court
Advancing final arguments in the case in which promoters of Essar Group and Loop Telecom are facing trial along with others, Special public prosecutor Anand Grover referred to the documents and statements of prosecution witnesses to buttress the agency's claim.
CBI today told a special court that documents recovered during the investigation and statements of various prosecution witnesses examined during trial in a 2G spectrum scam case, showed that Essar Group of companies was controlling Loop Telecom.
Advancing final arguments in the case in which promoters of Essar Group and Loop Telecom are facing trial along with others, Special public prosecutor Anand Grover referred to the documents and statements of prosecution witnesses to buttress the agency's claim. Grover told Special CBI Judge OP Saini that the materials collected by the agency during its probe corroborated that the Essar Group of companies had provided the funds for the entire transactions relating to the case.
"Essar Group of companies was fully controlling Loop," Grover told the court and gave details of the money flow which allegedly took place in the entire case. He also read out statements given by some of the witnesses during their testimonies before the court during the trial. CBI arguments today remained inconclusive and would continue tomorrow.
The CBI had earlier told the court that accused firm Loop Telecom Ltd (LTL) was "used" by Essar Group of companies to acquire 2G licences by "circumventing" the procedures. Essar Group promoters Ravi Ruia and Anshuman Ruia, Loop Telecom promoters, Kiran Khaitan, her husband I P Khaitan and Essar Group Director (Strategy and Planning) Vikash Saraf are facing trial in the case, along with three telecom firms - LTL, Loop Mobile India Ltd and Essar Tele Holding Ltd (ETHL). The five individual accused, who are out on bail, have all denied the charges levelled by CBI.
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Shareholder Activism: Is India Inc. Prepared?
Published on Mon, Apr 06,2015 | 19:21, Updated at Mon, Apr 06 at 19:21Source : Moneycontrol.com
By: Amrit Singh Deo, Sr Director - Strategic Communications Practice, FTI Consulting
Till recently, only Indian companies wanting to raise capital outside the country took a hard look at their corporate governance practices in expectation of heavy external scrutiny. Increasing international institutional investments in India's high growth companies created a similar demand for greater transparency and disclosure standards among India-listed companies. If early indications are anything to go by, this trend is seeing further strengthening - with US-style shareholder activism gaining favor with international institutional investors in emerging markets across Asia, including India.
There are three inter-connected developments or factors that indicate increasing instances of shareholder activism and hopefully, a subsequent rising of the bar for corporate governance and disclosure standards in India:
The first key factor is INSTITUTIONAL MONEY BACKING ACTIVISM. FTI Consulting polled 100 international institutional investors, who collectively manage US$1.7 trillion of investments across the Americas, Europe and Asia, to gauge their view about shareholder activism. Unsurprisingly, an over-whelming majority favoured US-style activism, with over 80% saying shareholder activism adds value to companies targeted by them – as they act as checks to corporate actions and are seen as catalysts for change. Research of previous years too demonstrates a rising trend of institutional investors' consistent backing to shareholder activism in fast-growth economies with relatively weak capital market controls, as compared to the traditional developed markets where they have focused in the past.
The second factor is FRESH REGULATIONS SUPPORTING ACTIVISM. A favourable investor sentiment towards shareholder activism is matched by a catch-up of the regulatory eco-system. In India, the New Companies Act paves the way for class action suits in the future. Capital market regulator SEBI's (Securities Exchange Board of India) mandate to make e-voting facility compulsory for listed entities and its directive to mutual funds (domestic institutional investors) to disclose voting decisions along with supporting rationale have caused a fundamental shift in capital market agent behavior. Amendments to Clauses 36 and 49 of the listing agreement, by SEBI, have laid down specific standards for timely, quality disclosure; attempted to reform board composition by restoring the 'independence' of the independent director, made maintenance of high disclosure standards a board-level responsibility, mandated whistle-blower protection and clearly identified related-parties so that conflicts of interests are clearly resolved. Insider Trading regulations have been further strengthened to ensure that material, price-sensitive information are uniformly available to all shareholders and prevent market abuse. Changes in Clause 49 in particular, clearly require corporate boards to develop communications capacity to explain corporate actions, better articulate business strategy, defend their positions and proactively engage with multiple stakeholders. Deviations against clearly mandated behavior will trigger activist responses, from minority shareholders.
The third factor is SHAREHOLDER VOTING AGAINST MANAGEMENT RESOLUTIONS. According to India-specific data with www.nseinfobase.com which tracks instances of institutional shareholders in India banding to vote against management resolutions, there were 32 such instances in 2013, when at least 50% of institutional investors banded together to vote against board-sponsored resolutions. In 2014, within one year, this figure had risen to a staggering 448 instances - attributable largely to e-voting being made mandatory. This is a telling statistic. Shareholder activism is clearly present and in potent form here.
It may be argued that the legal and business environment in India is not yet conducive for activist – led campaigns as we have seen in the US, but the three factors mentioned above indicate that one must expect increasing activist action by minority shareholder groups on Corporate India. A landmark case - hedge fund TCI's (The Children's Investment Fund) campaign against Coal India – is usually held up as an example by skeptics, pointing to the peculiarities of the Indian environment as a natural 'safeguard' against activist campaigns . In this specific case, the promoter of Coal India, i.e., the Government of India, was able to stonewall efforts to review coal pricing strategies, even though they ran counter to minority shareholder interests. TCI did finally withdraw the threat of litigation against the company and its directors but the episode brought the issue of shareholder conflict to the fore. I believe it encouraged domestic institutional investors to act in concert, ably supported by local proxy advisory firms, to target relatively smaller game – as it happened when they voted against Maruti Suzuki's plan to buy cars built at a plant in Gujarat that was owned by parent company Suzuki; or when they voted against director-remuneration resolutions in Ambuja Cements, GAIL and Seamec, to name a few such instances.
In India, all three factors mentioned earlier – Institutional Money Backing Activism, Fresh Regulations supporting Activism and Increasing Instances of Institutional Shareholders Voting against Management Resolutions – raise the spectre of shareholder activism and associated litigation risk for Indian corporations. A shareholder activism campaign is likely to trigger weakened share price, valuations and corporate reputations/goodwill of the company – and is a significant source of enterprise risk. Unless boards and corporate teams recognize the interplay of these three factors and make adequate preparations, they will be continuously pushed to the back foot, 'playing defense' to activist actions. Voluntary, continuous, integrated disclosure – like fresh air – is the recommended alternative but the majority of Corporate India is yet to publicly acknowledge its link with corporate health and longevity.
Even for an optimist like me, the tell-tale signs are hard to ignore. India's first Class Action Suit may well be under preparation and being filed as you are reading this.
VOLUNTARY DISCLOSURE: The author does not advise nor is it engaged in any sort of business prospecting with Indian corporations mentioned in this report.
Attached here is FTI's Report: 2015 Shareholder Activist Landscape - An Institutional Investor Perspective
Disclaimer: The information/opinions expressed in this report/newsletter are those of the author. This website has not verified the accuracy of the claims made in the report/newsletter, nor does it agree or disagree with, or endorse any information/opinions contained therein;
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Have patience, govt 'running' for reforms: Naidu to Ind
Asking Indian industry to show "patience" over reforms and development, Union Minister M Venkaiah Naidu today said the government is "running", not walking, under Prime Minister Narendra Modi.
The comments assume significance as they follow criticism by eminent banker Deepak Parekh that impatience has begun creeping in among businessmen as nothing has changed on ground in the first nine months of the Modi-led government. "Today when I am trying to push certain reforms, I have to go carefully.
Take the people along with me and others also...and then only I can move forward. This is the system, this is the constitution," said the Parliamentary and Urban Development Minister, while addressing the members in industry body CII here. "So please understand.
Have some patience, this government is only nine months old," he added. "In nine months, normally, one starts walking but this government is running. Prime Minister Modi is practically running.
He wants actions, reforms and development," he said. Some people were happy while some were critical of the government, Naidu said indicating to Parekh's recent remarks. "One of the leading bankers also recently said that the pace is slow.
Sir, try to understand the system. Without that you can not move, (otherwise) you will be called a dictator and you can not be a dictator. You are not in emergency (rule) and we do not want to have an emergency.
We want urgency, not emergency," he stressed. Naidu, who is also Parliamentary Affairs Minister, said the government wants to do things at a faster pace and is moving in that direction taking along people, parliament, political parties and media with it as it is a democracy. "I have to go to Lok Sabha, then to Rajya Sabha, otherwise it (reform) will go to parlok sabha", he said in a lighter vein.
He said the NDA government has inherited an economy of several deficits including fiscal, trade, CAD, governance as well as trust deficit. "Now the trust is coming back. The leadership is coming back, the economy is back on rails.
But I know some of you (industry) are impatient. Things are not happening? You should have moved faster? But you should understand that we are a democracy," he said.
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IND-AS: Income Computation Disclosure Standards
Published on Mon, Apr 06,2015 | 19:21, Updated at Mon, Apr 06 at 19:21Source : Moneycontrol.com
By: Dolphy D'Souza, Partner, India member firm of EY Global
Background
The Indian Accounting Standards (Ind AS), the Indian version of International Financial Reporting Standards, will have significant impact on financial statements for many entities. Ind AS's are meant to primarily serve the needs of investors and hence are not suitable for the purposes of tax computation. A clear need was felt for tax accounting standards that would guide the computation of taxable income.
The Central Government (CG) constituted a Committee in December 2010, to draft Income Computation and Disclosure Standards (ICDS). Section 145 of the Indian Income tax Act bestows the power to the CG to notify ICDS to be followed by specified class of taxpayers or in respect of specified class of income.
In August 2012, the Committee provided drafts of 14 standards which were released for public comments by the CG. After revisions, the CG has now notified 10 ICDS effective from the current tax year itself (viz. tax year 2015-16) for compliance by all taxpayers following mercantile system of accounting for the purposes of computation of income chargeable to income tax under the head "Profits and gains of business or profession" or "Income from other sources".
Earlier, the CG had notified two standards in 1996 viz., (a.) Accounting Standard I, relating to disclosure of accounting policies. (b.) Accounting Standard II, relating to disclosure of prior period and extraordinary items and changes in accounting policies. They now stand superseded. These standards were largely comparable to the current AS corresponding to AS 1 & AS 5.
ICDS are meant for the normal tax computation. Thus, as things stand now, ICDS has no impact on minimum alternate tax (MAT) for corporate taxpayers which will continue to be based on "book profit" determined under current AS or Ind AS, as the case may be.
ICDS shall apply to all taxpayers whether corporate or otherwise. Further, there is no income or turnover criterion for applicability of ICDS. An entity need not maintain books of accounts to compute income under ICDS. However, if the differences between ICDS and Ind AS/current AS as the case may be are several, an entity may need to evolve a more sophisticated system of tracking them as against doing it manually on an excel spread sheet. It is possible that the current tax audit requirements will be enhanced to require auditors to report on the correctness of tax computation under ICDS. Noncompliance of ICDS gives power to the Tax Authority to assess income on "best judgement" basis and also levy penalty on additions to returned income.
List of ICDS
Following is the list of 10 ICDS notified w.e.f. 1 April 2015:
1. ICDS I relating to accounting policies
2. ICDS II relating to valuation of inventories
3. ICDS III relating to construction contracts
4. ICDS IV relating to revenue recognition
5. ICDS V relating to tangible fixed assets
6. ICDS VI relating to the effects of changes in foreign exchange rates
7. ICDS VII relating to government grants
8. ICDS VIII relating to securities
9. ICDS IX relating to borrowing costs
10. ICDS X relating to provisions, contingent liabilities and contingent assets
Key differences between ICDS and current AS
A few key differences between ICDS and current AS are given below:
• ICDS I prohibits recognition of expected losses or mark-to-market losses unless permitted by any other ICDS.
• During the early stages of a contract, where the outcome of the construction contract cannot be estimated reliably contract revenue is recognised only to the extent of costs incurred. This requirement is contained both in AS 7 and ICDS III. However, unlike AS 7, ICDS III states that the early stage of a contract shall not extend beyond 25 % of the stage of completion.
• AS 7 requires a provision to be made for the expected losses on onerous construction contract immediately on signing the contract. Under ICDS III, losses incurred on a contract shall be allowed only in proportion to the stage of completion. Future or anticipated losses shall not be allowed, unless such losses are actually incurred.
• Under AS 9 revenue from service transactions is recognized by following "percentage completion method" or "completed contract method". Under ICDS IV only percentage of completion method is permitted.
• Under AS 11, all mark-to-market gains or losses on forward exchange or similar contracts entered into for trading or speculation contracts shall be recognized in P&L. In contrast, ICDS VI requires gains or losses to be recognized in income computation only on settlement.
• Under AS 11, exchange differences on a non-integral foreign operation are not recognized in the P&L, but accumulated in a foreign currency translation reserve. Such a foreign currency translation reserve is recycled to the P&L when the non-integral operation is disposed. Under ICDS VI, exchange differences on non-integral foreign operations shall also be included in the computation of income.
• Under AS 12, government grants in the nature of promoter's contribution are equated to capital and hence are included in capital reserves in the balance sheet. Under ICDS VII government grants should either be treated as revenue receipt or should be reduced from the cost of fixed assets based on the purpose for which such grant or subsidy is given.
• Under AS 12 recognition of government grants shall be postponed even beyond the actual date of receipt when it is probable that conditions attached to the grant may not be fulfilled and the grant may have to be refunded to the government. Under ICDS VII, recognition of Government grants shall not be postponed beyond the date of actual receipt.
• Under AS 16 in the case of borrowings in foreign currency, borrowing costs include exchange differences to the extent they are treated as an adjustment to the interest cost. Under ICDS IX borrowing cost will not include exchange differences arising from foreign currency borrowings.
• AS 16 requires the fulfillment of the criterion "substantial period of time" for treating an asset as qualifying asset for the purposes of capitalization of borrowing costs. ICDS IX retains substantial period condition (i.e. 12 months) only for qualifying assets in the nature of inventory but not for fixed assets and intangible assets. Therefore, ICDS requires capitalisation of borrowing costs for tangible and intangible assets even when they are completed in a short period.
• Under ICDS IX, capitalisation of specific borrowing cost shall commence from date of borrowing. Under AS 16, borrowing cost is capitalized from the date of borrowing provided the construction of the asset has started.
• Unlike AS 16, income on temporary investments of borrowed funds cannot be reduced from borrowing costs eligible for capitalization in ICDS IX.
• Unlike AS 16, requirement to suspend capitalization of borrowing costs during interruption of active construction of asset is removed in ICDS IX.
• Under ICDS X a contingent asset is recognized when the realization of related income is "reasonably certain". Under AS 29 the criterion is "virtual certainty".
Impact of ICDS
The notification of ICDS was imperative to ensure smooth implementation of Ind AS, and therefore should have maintained a tax neutral position. Unfortunately ICDS are not tax neutral vis-à-vis the current Indian GAAP and tax practices currently followed and may give rise to litigation. For example, based on AS 7 Construction Contracts, the current practice is to recognise any expected loss on a construction contract as expense immediately. In contrast, ICDS will require expected losses to be provided for using the percentage of completion method.
ICDS I lays out the "accrual concept" as a fundamental accounting assumption. The prohibition on recognizing expected or mark-to-market losses appears to be inconsistent with the accrual concept. Though mark-to-market losses are not allowed to be recognized, there is no express prohibition on recognizing mark-to-market gains. The ICDS therefore appear to be one sided, determined to maximize tax collection, rather than routed in sound accounting principles. Matters such as these are likely to create litigious situations despite the Supreme Court decision in the Woodword Governor case where the status of ICDS is upheld.
The preamble of the ICDS states that where there is conflict between the provisions of the Income-tax Act, 1961 and ICDS, the provisions of the Act shall prevail to that extent. Consider that a company has claimed mark-to-market losses on derivatives as deductible expenditure under section 37(1) of the Income-tax Act. Can the company argue that this is a deductible expenditure under the Income-tax Act (though the matter may be sub judice) and hence should prevail over ICDS which prohibits mark-to-market losses to be considered as deductible expenditure?
Consider that a company receives a government subsidy for non-depreciable asset. Hitherto, it was accepted that it is a capital receipt not falling within the definition of 'income' and did not impact business income computation. Can the company argue that such receipt cannot be taxed in absence of amendment to definition of 'income' and hence should prevail over ICDS which requires such receipt to be recognized as income over the period of meeting related obligations? These are untested areas, and could be litigated.
All ICDS (except ICDS VIII relating to Securities) contain transitional provisions. These transitional provisions are designed to avoid double jeopardy. For example, if foreseeable loss on a contract is already recognized on a contract at 31 March 2015, those losses will not be allowed as a deduction again on a go forward basis using the percentage of completion method. On the other hand, if only a portion of the loss was recognized, the remaining foreseeable loss can be recognized using the percentage of completion method. The detail mechanism of how this will work is not clear from the ICDS.
The transitional provisions are not always absolutely clear. In the case of non-integral foreign operations, e.g., non-integral foreign branches, ICDS requires recognition of gains and losses in the P&L (tax computation), rather than accumulating them in a foreign currency translation reserve. It is not absolutely clear from the transitional provision whether the opening accumulated foreign currency translation reserve, which could be a gain or loss, will be ignored or recognised in the first transition year 2015-16. Since the amounts involved will be huge, particularly for many banks, the interpretation of this transitional provision will have a huge impact for those who have not already considered the same in their tax computation in past years.
Some of the transitional provisions are also expected to have a material unanticipated effect. For example, the ICDS requires contingent assets to be recognized based on reasonable certainty as compared to the existing norm of virtual certainty. Consider a company has filed several claims, where there is reasonable certainty that it would be awarded compensation. However, it has never recognized such claims as income, since it did not meet the virtual certainty test under AS 29. Under the transitional provision it will recognize all such claims in the first transition year 2015-16. If the amounts involved are material, the tax outflow will be material in the year 2015-16. This could negatively impact companies that have these claims. The interpretation of "reasonable certainty" and "virtual certainty" would also come under huge stress and debate. This may well be another potential area of uncertainty and litigation.
Overall, the CG through CBDT will have to play a highly pro-active role to provide clarity and minimize the potential areas of litigation.
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REC stake sale on Wednesday; govt to get about Rs 1,600 cr
The government is likely to fix the floor price for the OFS at a discount to the current market price. The 5 per cent share sale would fetch about Rs 1,600 crore to the exchequer.
Government will sell 5 percent stake in Rural Electrification Corporation on April 8 to mop up close to Rs 1,600 crore, marking the first disinvestment of the current fiscal. Taking the offer for sale (OFS) route, government will sell over 4.93 crore REC shares. "The offer shall take place during trading hours on a separate window of the stock exchanges and shall commence on April 8," REC said in a filing to the BSE.
Shares of REC closed at Rs 335.60, down 0.52 percent over previous close on the BSE. The government is likely to fix the floor price for the OFS at a discount to the current market price. The 5 percent share sale would fetch about Rs 1,600 crore to the exchequer.
As much as 20 percent of the offer size would be reserved for retail investors, who can bid for shares worth Rs 2 lakh. They would be offered shares at 5 percent discount to issue price. Besides, 25 percent of the offer would be alloted to mutual funds and insurance companies.
REC would be the first PSU to hit the market in the current fiscal. The government has budgeted to raise Rs 41,000 crore through minority stake sale in 2015-16. The disinvestment department has a pipeline of companies to sell minority stake to avoid bunching up of disinvestment towards the end of end of the fiscal.
"It is not very healthy to bunch stocks towards the end of fiscal because then you cannot watch the market and there is limited depth in market. So one may not get the full worth also. We will not bunching them together," Disinvestment Secretary Aradhana Johri had said earlier.
J M Financial, Morgan Stanley and IL&FS Broking Services are acting as merchant bankers to the issue. In 2014-15, government had raised about Rs 24,500 crore through disinvestment.
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Dena Bank, LIC sign MoU to provide life cover under PMJBY
Under the Memorandum of Understanding, LIC will give a life cover of Rs 2 lakh in case of death of the insured person at a nominal premium of Rs 330 per annum. Account holders in the age group of 18 to 50 years can avail of the product.
State-run lender Dena Bank today signed agreement with LIC to provide insurance cover to its savings account holders under the Prime Minister's Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJBY) scheme.
Under the Memorandum of Understanding, LIC will give a life cover of Rs 2 lakh in case of death of the insured person at a nominal premium of Rs 330 per annum. Account holders in the age group of 18 to 50 years can avail of the product.
People who join the scheme before completing 50 years can continue to have the risk of life cover up to the age of 55 years subject to payment of premium. The scheme will come into effect from June 1, 2015. The bank customers can join the scheme between June 1, 2015 to May 31, 2016.
"It is a very important step towards meeting the government financial inclusion plan. This will increase the insurance penetration," Dena Bank Chairman and Managing Director Ashwani Kumar told reporters after signing the MoU. LIC Chairman SK Roy said, "This represents version two of financial inclusion of India.
This will help in expanding the life insurance coverage through banking channel." "We have already signed agreements with two banks for this product. We are in discussion with our other partner banks and will complete (the process) in 10 days," he said. Dena bank will have separate branches for claim settlement.
The bank currently has 1.2 crore savings accounts and is targeting to extend the life cover benefit to all the customers.
Dena Bank stock price
On April 06, 2015, Dena Bank closed at Rs 51.65, up Rs 0.30, or 0.58 percent. The 52-week high of the share was Rs 94.40 and the 52-week low was Rs 46.75.
The company's trailing 12-month (TTM) EPS was at Rs 7.38 per share as per the quarter ended December 2014. The stock's price-to-earnings (P/E) ratio was 7. The latest book value of the company is Rs 132.81 per share. At current value, the price-to-book value of the company is 0.39.
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PSU stake sale: Sebi seeks public comments on trading halts
Pressed by the government to take steps to ensure greater success of PSU divestments, Sebi today sought public comments on halting secondary market trading in such stocks during Offer For Sales and for holding such share sales on Saturdays.
Other suggestions, which Sebi said, have been received from "various stakeholders", include reducing the mandatory notice period for OFSes to one day, from two days currently, and to restrict trading in the concerned stocks within a price band on the day prior to the share sale.
The move follows apprehensions raised by the government in the past, during some divestments through OFS route, that the secondary market price could dip below the proposed OFS price and thus hamper the share sale process.
OFS is the easiest and fastest route for sale of shares in an already-listed company and the government has also used this route for sale of its minority stakes in case of 13 PSUs so far.
The government had, however, requested Sebi to further ease the norms for OFS by way of halting secondary market trading and other steps to boost its divestment programme, under which it aims to raise Rs 41,000 crore from sale of minority shares in the current fiscal.
The public comments have been sought till April 18 on a host of suggestions, which also include providing the retail investors an option to bid at cut-off price in all OFS.
The OFS mechanism presently provides that seller may give option to retail investors to place price bid or place bid at cut-off price.
"Recent experience with OFS has shown that some retail investors bid at high prices, on the assumption that they would get allotment at cut-off price. Therefore, it is suggested to make it mandatory for sellers to provide option
to retail investors to place price bid or place bid at cut off price for better retail participation," Sebi said in its discussion paper.
Sebi has presented both 'for' and 'against' views on all the suggestions, while inviting public comments.
On suggestion for trading halt, Sebi said that "opponents argue that halts are unnecessary barriers to price discovery and do not actually reduce volatility in trading following the lifting of the halt.
"For example, if fundamental information arrives at the time of the trading halt, the price adjustment process is delayed. This may in turn increase price uncertainty because no information is transmitted through trading when there is a halt.
"In addition, by preventing investors from trading during a halt, investors may not be able to liquidate their position, if so required by them for sale of shares using OFS through stock exchange mechanism."
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Corporate credit quality to take longer to improve: Crisil
Domestic ratings agency Crisil today said credit quality improvement will continue to be gradual in FY 2016 as well, but underlined that large companies are a cause of worry.
The large companies need to deleverage balance-sheets stretched by loans for an improvement in the overall NPA situation of banks, which is around 12 percent of the system now, it added. "We expect that the credit ratios will improve gradually in FY 2016," agency's chief analytical officer Pawan Agrawal told reporters on a conference call here.
He said the credit ratio, which is the ratio of upgrades to downgrades, for the 13,000 companies it rates, had a slow recovery in FY 2015, helped largely by the mid-sized enterprises with Rs 100-500 crore revenues. These 13,000 companies represent around 40 per cent of the bank credit to corporates. There were 816 upgrades in the final six months of the past fiscal compared to 466 downgrades, resulting in an overall credit ratio of 1.75 for the period.
However, the large corporates having revenues of over Rs 500 crore continue to show tepidness in their credit quality, Agarwal said. Going by the quantum of credit, companies having an exposure of Rs 2 trillion got downgraded in FY15 as against Rs 1.4 trillion of credit which got upgraded. But for large companies, the credit ratio was only 0.45 in H2 of FY15 versus 2.26 for mid-sized firms 1.55 for the small-sized firms.
"The heavy burden of debt will continue to constrain the ability of large firms to improve their credit profiles," he said in the outlook for FY16 and specifically pointed out that a chunk of this debt has been taken for stuck projects. Agrawal said factors like movement in commodity prices, domestic investment climate which depends on the movement on the reforms front and the domestic consumption will be the key factors which will have a bearing on the credit profiles of the companies. Other factors like the movement in the lending rates will also be a key monitorable, he said, stressing that banks need to pass on the RBI's rate cuts to borrowers.
On the high non-performing assets situation, Crisil said an improvement is possible only if the companies are able to deleverage their balance sheets stretched by high loans. In FY 2015, two-thirds of the rating upgrades were driven by business-related factors, while 28 per cent were driven by liquidity improvements. However, for the rating downgrades, 60 percent were due to liquidity problems.
From the sectoral basis, mid-sized companies from the textile, trading companies, agri and auto parts scetors showed improvement, while infrastructure and steel companies (which are among the highest borrowers) saw the most downgrades, Agrawal said.
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What does India Inc expect from tomorrow's credit policy?
Industry bigwigs such as Rahul Bajaj and Adit Godrej hope for a rate cut. Though Bajaj believes a rate cut tomorrow is highly unlikely. Godrej on the other hand is also hoping for some action on the CRR and SLR front.
All eyes are on the first Reserve Bank credit policy due tomorrow. Industry bigwigs such as Rahul Bajaj and Adi Godrej hope for a repo rate cut. Though Bajaj believes a rate cut tomorrow is highly unlikely. Godrej on the other hand is also hoping for some action on the CRR and SLR front.
Economists and bankers too are divided on their opinion.
Rahul Bajaj: I also am in favour of low rates of interest but I don't think that is likely tomorrow. I don't think that is likely, I would welcome it even by 25 basis points if he reduces and everybody will be jumping through the roof if he reduces by 50 basis points but that is highly unlikely. 25 also unlikely but he might adjust the CRR.
Adi Godrej: I hope there is a rate cut, 25 basis points would be appropriate because the inflation has come down quite a lot and it will help growth and I hope there is an statutory liquidity ratio (SLR) and cash reserve ratio (CRR) cut also.
Arundhati Bhattacharya, Chairman, State Bank of India : I think you will see some rate action going forward. Of course everybody is going to wait for the monetary policy I suppose because that does give some indicators about the thinking of the regulators as to how they see the trajectory of various economic indicators.
The slack season is here, we need to get credit growth to pickup. Given those realities I think some kind of rate action will follow.
Samiran Chakraborty, MD and head – South Asia Macro Research, Standard Chartered Bank: Timing of the rate cut call is becoming increasingly difficult with two consecutive inter-meeting rate cuts. We still expect another 25-50 basis points of rate cuts to happen if our overall inflation trajectory view on that remains correct. We are looking for 5.4 percent average inflation for fiscal year 2016 and about 150 basis points of real policy rate should give RBI scope for a little bit more rate cuts.
Sonal Verma, Chief Economist-India, Nomura: Our base case is for no more cut. I think the language used in the March surprise inter-meeting statement was that RBI has pre-empted the rate cut given weakness in the economy. So, our sense is that RBI has frontloaded the interest rate cuts in order to give more time to banks to respond going forward. I guess the focus in this policy should be much more on transmission rather than RBI action per se. So, unchanged at the April policy is our expectation.
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