CORPORATE UPDATES 11.03.2019

SECOND LIFELINE FOR SICK FIRMS

The Centre has proposed to come out with a fresh set of regulations to prevent sick companies from going bust even if attempts to revive them fail during a resolution process under the Insolvency & Bankruptcy Code of India. The new guidelines will provide a detailed framework to salvage a debt-trapped firm during liquidation by selling it to a potential buyer as a going concern of the company or any of its businesses. The Insolvency & Bankruptcy Board of India will bring in the new amendment in the form of additional regulations, its chairman M. S. Sahoo, said. The objective of the law is resolution. We make all possible efforts to save a viable company. But if there’s a mistake in the earlier stage and the company is actually viable but a wrong decision was taken, let’s have another opportunity to rectify the mistake, Sahoo explained. Current IBC norms also provide both the option: sale of a business as a going concern, or sale of a corporate debtor as a going concern during the liquidation stage. The regulator is keen to strengthen these options by bringing in additional guidelines. We are working to come out with a detailed framework. It will come in the form of addition to the existing provisions. Fresh amendment will be there in the regulation, Sahoo said. During the October-December quarter, 78 companies were sent for liquidation while resolution plans were approved for only 13 firms. In this period, 264 companies were admitted to the corporate insolvency resolution process (CIRP). It is now a little more than two years since the provisions relating to CIRP came into force on December 1, 2016. As on December 31, 2018, nearly 1,500 companies have been admitted into CIRP. Of these, 142 have been closed on appeal or reviewed or settled, 63 have been withdrawn under section 12A, 302 ended in liquidation and 79 ended in the approval of the resolution plan. The Supreme Court has observed in the Swiss Ribbon case the word liquidation does not appear in the preamble to the Code. India, unlike many other countries, does not allow direct liquidation without going through the mandatory process of CIRP. This is despite the World Bank’s observation that the absence of direct liquidation is a hindrance to ease of doing business. Insolvency professionals are divided over the government’s thrust on liquidation as a going concern with at least one calling it as a paradox. A company is going to liquidation because attempts to revive it failed. Why would then anyone buy it as a company/business as a whole? asked a lawyer. Even as resolution professionals, committee of creditors (CoC), operational creditors and adjudicating authorities are all involved in a resolution process, it is the financial creditors through CoC who are mainly responsible to finalise a revival plan. However, banks are often wary of taking hard decisions such as large haircuts on fears of being questioned for being biased by investigative authorities later and let companies go to liquidation. During the liquidation process, financial creditors play no role and it is usually supervised by a National Company Law Tribunal-appointed liquidator. Sahoo, however, said he was confident most of the future cases would be resolved within the 270-day deadline as mandated in IBC because most of the litigating issues which are delaying the process are getting resolved in the Supreme Court. If the issues such as withdrawal of case under section 12A or ineligibility under section 29A is getting resolved, most of the transactions will happen on time, Sahoo added.

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LIBERTY MUST PULL OUT BID FOR AMTEK ARM, NCLAT SAYS

An appellate tribunal has upheld an order by the Chandigarh bench of the National Company Law Tribunal (NCLT), directing Liberty House to withdraw its bid for ARGL, a subsidiary of Amtek Auto. It has, however, mentioned that observations by the NCLT against Liberty House should not be construed as findings that make them ineligible to bid for other stressed assets. The NCLT had called out Liberty House for its casual approach and ordered it to pay Rs 1 lakh to ARGL for its conduct after it refused to submit a bank guarantee on emerging the successful bidder. Liberty House did not oppose the directive to withdraw its resolution plan but appealed against the adverse observations made by the NCLT and the cost imposed on the group. The National Company Law Appellate Tribunal (NCLAT) modified the NCLT order, converting the cost of conduct to cost imposed for litigation, to be paid to ARGL.

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RELIANCE INDUSTRIES GETS NCLT APPROVAL FOR ALOK INDUSTRIES

Decks have been cleared for Mukesh Ambani-controlled Reliance Industries to take over the debt-laden assets of textile player Alok Industries, which owed lenders Rs 29,500 crore. The NCLT’s Ahmedabad bench approved the Rs 5,050-crore resolution plan submitted jointly by RIL and JM Financial, with immediate effect. Alok Industries is one of the 12 big firms identified for early bankruptcy proceedings by the RBI. The plan was accepted by the committee of creditors in June 2018 and was placed before NCLT, Ahmedabad for final approval.

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ERA INFRA LENDERS GET 215-DAY BREATHER FOR INSOLVENCY RESOLUTION

Lenders of Era Infra Engineering have got a 215-day breather from the National Company Law Tribunal (NCLT), which agreed to exclude those days from the stipulated duration of the insolvency process in response to an appeal, which was said to be a ‘last ditch effort’ to prevent the company from going into liquidation. The lenders are said to have received a lone bid from Sun Pharmaceutical Industries director Sudhir Valia’s Suraksha ARC for Era Infra and did not even vote on the offer because no upfront payments were promised. The creditors approached the NCLT on the grounds that the insolvency process faced several stumbling blocks on account of investigations by the income tax authorities, making it difficult for prospective bidders to examine the company’s books of accounts, which were in the custody of the authorities. The construction contractor was among the first dozen accounts selected by the Reserve Bank of India for initiation of insolvency proceedings. Era Infra owes Rs 12,000 crore to a consortium of lenders led by Union Bank of India. The options now being examined include clubbing the insolvency process of some of the company’s subsidiaries with the parent in order to create a more valuable proposition for prospective buyers, according to people aware of the matter. Era Infra’s resolution professional Rajiv Chakraborty is also considering inviting fresh bids for the company, they said.

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NCLAT ALLOWS EMAAR MGF LAND HOME BUYERS TO FILE INTERVENTION APPLICATIONS

The National Company Law Appellate Tribunal (NCLAT) recently allowed home buyers to file interlocutory application through their representatives. It however adjourned the matter saying that let the Supreme Court first decide the issue. The SC on February 26, 2019 had ordered all parties involved to maintain status quo in the case related to the insolvency of Emaar MGF Land. Badri further appealed that since the insolvency resolution professional has not yet formed the committee of creditors and has not issued any public announcement, it should also be disposed off. During the hearing, home buyers through their counsel advocate Aditya Parolia and advocate Piyush Singh produced the SC’s order post which NCLAT adjourned the matter. NCLAT will now hear the case on April 4, 2019.

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NCLT ASKED TO DECIDE ON JSW'S BID FOR BHUSHAN POWER & STEEL BY MARCH 31

The National Company Law Appellate Tribunal (NCLAT) Friday directed the Delhi bench of the NCLT to decide over JSW Steel's bid for the debt-ridden Bhushan Power & Steel by March 31. A two-member NCLAT bench headed by Chairman Justice S J Mukhopadhaya has also directed the National Company Law Tribunal (NCLT) to hear the representatives of operational creditors, promoters along with dissenting banks also. We expect adjudicating authority (NCLT) to decide the case at an early date to ensure that the matter is decided before the end of this financial year, the appellate tribunal said. During the proceedings, Bhushan Power promoter Sanjay Singal through his counsel offered to settle all dues of the lenders On this, the appellate tribunal has directed NCLT to also take a decision over Singal's offer to settle.

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DEADLINE LOOMS: BHARTI AIRTEL, DLF, TOP PSUS AMONG COMPANIES YET TO APPOINT WOMAN DIRECTORS

With less than a month left to comply with one of the key recommendations made by the Kotak Committee on corporate governance, more than 20% of the top 500 listed companies by market capitalisation are still to appoint an independent woman director on their boards. In total, 101 companies are non-compliant on this parameter as on date. The new regulation comes into effect from April 1. Some of the companies yet to appoint an independent woman director include heavyweights such as Indian Oil Corporation, Bharti Airtel, Interglobe Aviation, General Insurance Corporation, Siemens, Procter & Gamble Hygiene and Healthcare, Bank of India, DLF, Godrej Industries, Jindal Steel and Power, and Pfizer, among others, according to PRIME Database data as on March 6, 2019. According to analysts, these companies will have to appoint at least one independent woman director on their boards by April 1, when the Kotak Committee’s recommendations come into effect or else they will be violating the listing agreement with the Securities and Exchange Board of India. Currently, every listed company is required to have only one woman director on its board of directors, irrespective of the nature of directorship. This started with the Companies Act, 2013 which mandated a certain class of companies to have at least one woman director on board.

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OPERATIONAL CREDITORS BENEFIT EQUALLY FROM IBC: IBBI

The Insolvency and bankruptcy Board of India (IBBI) Saturday said both operational and financial creditors have benefitted alike from resolutions under the IBC. IBBI chairman M S Sahoo said that it would be undair to say that resolutions under the Insolvency and Bankruptcy Code (IBC) were tilted towards operational creditors, as is widely perceived. Our data shows that after resolutions, recovery of financial creditors on an average have got 48 per cent of their claims. While, the operational creditors from the same resolution have got back 48.3 per cent, though marginally, they are better treated, Sahoo said. NCLT (National Company Law Tribunal) does not approve a plan unless it balances the interest of all the stakeholders, Sahoo said.

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INSOLVENCY AND BANKRUPTCY CODE TO BRING RS 1 LAKH CRORE BACK TO BANKS

After dragging on for 583 days — against the prescribed 270-day resolution period delineated under the Insolvency and Bankruptcy Code (IBC) — ArcelorMittal finally won the Rs 42,000 crore bid for Essar Steel. While the wait has been a bit longer for Mittal, experts feel that in the next few weeks, they may several similar cases coming to a logical end, facilitating recovery of Rs 1 lakh crore for financial creditors by March-end. Last week, we saw some of the cases finally seeing closure. In the coming few weeks, there will be speedy decision in many such pending cases We expect the banks to recover Rs 1 lakh crore by the end of this month, a senior Corporate Affairs Ministry official told this publication. On Friday, the National Company Law Tribunal (NCLT) asked Essar Steel’s Committee of Creditors (CoC) to reconsider the distribution pattern of dues. It suggested the lenders to give 15 per cent of the total offer to operational creditors. The Essar Steel case is one among the 12 large cases admitted early on under the newly formed insolvency code. Similarly, the National Company Law Appellate Tribunal also directed the Delhi bench of NCLT to decide on JSW Steel Ltd’s bid for the debt-ridden Bhushan Power and Steel Ltd by March 31, 2019, another high-profile case. We expect adjudicating authority (NCLT) to decide the case at an early date to ensure that the matter is decided before the end of this financial year, the appellate tribunal said. Sources in the Ministry of Corporate Affairs said that while the government had kept a distance from the resolution process, a communication was sent to the tribunal to resolve the cases earlier. The IBC is finally settling down Professionals are trying to work on the chinks in the code, which became visible in many long-drawn cases. While the ministry maintains a safe distance, it had, however, communicated (that) quick resolution of some cases, which are dragging for long (must be made). The creation of new benches will enable faster disposal of cases, the MCA official further added.

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RESOLUTIONS OF BOTH BINANI AND ESSAR WERE WITHIN RULES: IBBI

The Insolvency and Bankruptcy Board of India (IBBI) has said that it did not find any contradiction in approvals of resolution for Essar Steel and Binani Cement in the context of value maximisation. The Ahmedabad bench of National Company Law Tribunal (NLCT) has approved the ArcelorMittal's Rs 42,000 crore resolution plan, rejecting the Ruias settlement offer of Rs 54,389 crore. The case debated a lot on value maximisation in a corporate resolution plan. In Binani, the one which was approved was within the rules. The one which was rejected was because it was not balancing the interest of the stakeholders, IBBI chairman M S Sahoo told. Value maximisation is the assets of the debtor and not of the creditor. This is not a recovery by finance institutes but value maximisation is for the corporate debtor, he said. If the CoC has approved within the process, then it is valid for both Binani as well as ArcelorMittal. The Committee of Creditors (CoC) is supreme in commercial matters but that supremacy has to be within the framework of law, he pointed out. We continue to believe that our settlement proposal of Rs 54,389 crore is the most compelling one available to Essar Steel creditors and fulfills the IBCs declared overriding objective of value maximisation, which has been established time and again by courts at all levels, Essar said in their reaction after the NCLT approval.

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CORPORATE FRAUDS, IBC CASES HELP AUDIT FIRM BDO THRIVE IN INDIA

Recurring cases of corporate frauds in India and also a spurt in cases of insolvency resolution in recent times have opened up new opportunities for specialised auditing firms This has also ushered in good times for Binder Dijker Otte or BDO, one of the leading global accounting and tax advisory firms. With mandates like a forensic audit of the fugitive Nirav Modi's firms, Mehul Choksi's Gitanjali Gems and several insolvency cases like IVRCL, the Belgium-based entity's Indian arm has grown 100% every year and has significantly upped its India headcount, Stephen Darley, told. Although smaller than the Big Four, BDO has created a unique place in the mid-market space with leadership in several verticals. That position was strengthened a month back following BDO's merger with Moore Stephens to create UK's fifth largest accounting firm. In India, it's been a confluence of events, all happening at the same time, be it Insolvency and Bankruptcy Code or Goods and Services Tax, and BDO has been in a sweet spot to take on the opportunities. Our Indian arm is the fastest growing office. Against the global growth of about 9-10% annually, in India we have grown by 100% over the past three years, Darley, who operates out of Hong Kong, said. BDO is also witnessing strong growth in US and China and the recent merger with Moore Stephens, one of its competitors in the UK, has given BDO the topline boost in these countries. In India, BDO started six years ago with a small team and has grown since then with the headcount having now risen to 2,800 professionals. We are no longer smaller in size. We are now the biggest after the big four. Despite this, we hope to continue our robust growth rate higher than any of our Indian competitors, says Milind Kothari. BDO has remained the fastest growing accounting firm over the past ten years. We would focus on retaining leadership in the mid-market globally. In India, we are number two in handling insolvency resolution cases and a leading firm when it comes to forensic auditing, he claims.

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HOME BUYERS STEPPING IN TO BAILOUT STRESSED REAL ESTATE DEVELOPERS

Home buyers are increasing resorting to bailing out stuck real estate projects which the developers are unable to deliver for want of funds. The amended Bankruptcy Law which treats homebuyers on par with secured financial creditors is also facilitating this trend. Last month, home buyers at a Mumbai luxury residential project received a go-ahead from the Bombay High Court to develop the project by raising money on their own. The buyers of the Orbit Terraces in Lower Parel managed to take over the project by negotiating a deal with the lending banks that agreed to sell off the project to recover their loans that the Orbit Corporation had defaulted on. If there are cases where the project is nearing competition, then the project can be handed over to the buyers. But on the condition that the excess funds collected are refunded to the buyers, says Chitra Sharma who has moved Supreme Court against Jaypee Group. According to them, for buyers the uncertainty ends and for the developers the much needed financial support is made available. This happens in the stressed projects and in this way not only the project gets completed on time, but also the unsold inventory after completion gets sold, said Deepak Kapoor. The real estate company has four residential projects in Noida. Manoj Gaur, said, As the homebuyers don’t see much progress in the project, they stop giving money and as a result banks also restrict themselves and the project gets stuck. The problem of debt is more prevalent in the large projects, whilethe small ones get completed on time, he added. Kushag Ansal, said, Likelihood of this phenomena becoming a norm is not on the horizon as developing a property entails expertise and requires deft project management skills. In Mumbai, several buyer groups are now approaching Maharashtra RERA to take over stuck residential projects that the builders have been unable to deliver, Gautam Chatterjee, told. As many as 5.61 lakh units worth ₹4.51 lakh crore are stuck in various stages of non-completion across the top 7 cities. These projects have been launched either before/during 2013, as per Anarock Property Consultants. According to homebuyers in Delhi, the situation is starkly different where housing societies have sprawling amenities like swimming pools and gymnasiums. This is not an acceptable precedent that can be applied uniformly across the board. In the case of Jaypee, there are 27 projects that are at various levels of completion. But the builder has collected 85 per cent payment from all buyers, Chitra Sharma, a homebuyer, said. In some cases, the money has been collected from the buyers but no construction has started. In such a condition, it is not prudent to push buyers to shell out more monies and hand them projects that are at varying stages of completion, Sharma said. We are being told that Jaypee Infratech has received occupancy certificates for some 1,200 flats from the Noida Authority on January 30. It is expected that the builder will be handing over these flats meant for residential societies of the Intelligence Bureau, Army arms, IndianOil and ONGC, another flat buyer said. If the flats are handed over to the buyers then the UP government can immediately rake up nearly ₹100 crore, the flat buyer said.

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BACK DOOR ENTRY FOR ERRANT PROMOTERS?

In a bid to keep out errant and wilful defaulters from buying back stressed assets, Section 29A was inserted into the Code (Insolvency and Bankruptcy Code) in November 2017. While this has led to a slew of litigations questioning the eligibility of competing bids (Essar Steel), the powers-that-be maintain that the clause is essential to prevent chronic defaulters and fraudulent promoters from regaining control of their company, at a fraction of what they owed lenders. A sound piece of reasoning. But if one were to go by the recent ruling of the National Company Law Appellate Tribunal (NCLAT) in the SC Sekaran vs Amit Gupta case, such promoters can make a sly back-door entry to reclaim control of their company — at a throwaway price. The case pertains to appeals filed by the management of Hindustan Dorr-Oliver and HDO Technologies against the liquidation order passed by NCLAT in June 2018, following failure of resolution. The NCLAT directed the ‘liquidator’ (insolvency professional) to proceed in accordance with the law — verify claims of all the creditors, take into custody and control of all the assets, property and carry on the business of the ‘corporate debtor’ as prescribed under Section 35 of Code. But before taking steps to sell the assets, the liquidator was directed to consider provisions of Section 230 of Companies Act, 2013 which deals with ‘Power to Compromise or Make Arrangements with Creditors and Members’. Essentially only on failure of revival under Section 230, should the liquidator proceed to sell the company’s assets. Herein lies the chink in the NCLAT’s order. While Section 29A deters errant promoters from participating in the resolution process under IBC, a liquidator introducing a scheme of arrangement under Section 230 of the Companies Act may offer an entry to promoters who are otherwise ineligible to acquire assets under IBC. Let us delve into the various observations of the NCLAT in the SC Sekaran vs Amit Gupta case. The NCLAT ruling in essence preps the pitch for strongly endorsing resolution and revival of the corporate debtor rather than liquidation — citing the Swiss Ribbons and ArcelorMittal case. The very recent Supreme Court ruling in Swiss Ribbons vs. Union of India has become a landmark development for the Code, as it upholds the constitutionality of the provisions of the Code, and has brought the focus back on the intent of the IBC to resolve and revive a corporate debtor. Importantly, the Supreme Court observed ‘what is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark.’ Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern —citing the ArcelorMittal India vs. Satish Kumar Gupta case where the SC had observed that under Regulation 32 of the IBC, the liquidator may also sell the corporate debtor as a going concern. In a nutshell all of this points to the oft repeated intent of the Code — resolution and revival of the corporate debtor rather than liquidation. Liquidation is viewed as the antithesis of resolution and hence the Code allows liquidation only after the process fails to yield resolution. But what if the resolution process fails and the company is put into liquidation mode? Even so, the focus is on reviving rather than dissolving the company. Hence, the NCLAT ruling in SC Sekaran goes on to cite the Meghal Homes vs Shree Niwas Girni K.K. Samiti case, in which the Supreme Court upheld the provisions under Section 391 of the Companies Act, 1956 and Section 230 of the Companies Act, 2013. These provisions give a right to the liquidator (resolution professional under IBC) to propose a compromise or arrangement with creditors and members (shareholders) even in the case of a company which is being wound up. Section 230, in effect deals with ‘Power to Compromise or Make Arrangements with Creditors and Members’, which may include reconstruction or amalgamation/merger/demerger of companies or reduction of share capital or even corporate debt restructuring. What does this imply in the IBC context? Currently, Section 29A deals with keeping out errant and wilful defaulters from buying back stressed assets, under the corporate insolvency resolution process under IBC. This section was streamlined last year when the Insolvency Law Committee removed the unintended exclusions and widened the pool of eligible bidders. But while Section 29A debars errant promoters from bidding in the resolution process, it does not specifically preclude them from participating in the scheme of arrangement under Section 230 of the Companies Act. Only if under liquidation, the asset is sold (in whole or part) does Section 29A apply. With adjudicating authorities likely to take cues from the recent NCLAT and Supreme Court rulings, it is likely that many more liquidation cases will be directed to consider Section 230 and push for ‘liquidation as a going concern’ rather than dissolution. It needs to be seen if this will once again lead to endless litigations concerning the eligibility of the promoters participating in the scheme of arrangement under Section 230. Interestingly, one of the provisions under Section 230 mandates the consent of 75 per cent of secured creditors (by value) and shareholders for corporate debt restructuring plan or any other scheme of arrangement. Under IBC, the approval of resolution plan requires 66 per cent vote (brought down from 75 per cent threshold last year). If one assumes that the resolution plan failed (and the company then goes into liquidation) on account of failure to garner the requisite voting share of 66 per cent, then it is unclear how a corporate debt restructuring plan or any other scheme of arrangement under Section 230 can muster 75 per cent voting share of shareholders and creditors of every class. Possibly the adjudicating authorities will cross that bridge when they come to it. But these ambiguities should be proactively ironed out by the Insolvency and Bankruptcy Board of India, the adjudicating authorities and the Centre, to avoid endless litigations that is now testing the efficacy and sanctity of the Code.

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DUES FROM TS DISCOMS ARE RS. 11,728 CR.: AP GENCO

Andhra Pradesh Power Generation Corporation Ltd (AP-Genco) has termed the claims and remarks made by Chairman and Managing Director of TS-Genco and TS-Transco D. Prabhakar Rao in Hyderabad on Friday as totally false and baseless. In a statement issued by AP Genco, its Financial Advisor and Chief Controller of Accounts said: As per their (Telangana) power utilities books of account, they are liable to pay Rs. 11,728 crore to AP Genco. The books of account of TSSPDCL for 2016-17 clearly exhibit that dues to AP Genco is Rs. 8,274.23 crore and the balance is due from TSNPDCL, as per their own books of account. The statement further said AP Genco has supplied power to TS discoms after bifurcation of the State for which they owe an amount of Rs. 5,732.40 crore towards purchase of power after adjustments. AP Genco has pursued recovery of dues from time to time and it was also raised in the Chief Secretaries' meeting, in which it was agreed to clear the dues in monthly instalments of Rs. 150 crore each along with every month current bill. However, they have not fulfilled the promise, the statement said. As a result, AP-Genco had no other alternative than moving a petition under the Insolvency Act before the National Company Law Tribunal (NCLT) Hyderabad bench.

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‘A.P. OWES TELANGANA ₹2,406 CR. AS POWER DUES’

The managements of Telangana power utilities have attributed motives to the attitude of their Andhra Pradesh counterparts alleging that the latter are running a misinformation campaign over the issue of dues — amount payable on power purchases — besides moving the National Company Law Tribunal (NCLT) in spite of offers made by them for settlement. Apart from moving the NCLT with a plea that power utilities of Telangana owe ₹5,600 crore to them in lieu of power purchases, the A.P. power utilities were running a misinformation campaign on the issue, they claimed. Only A.P.’s utilities owe a net amount of ₹2,406 crore to Telangana even after settlement of dues, Chairman and Managing Director of TS-Transco and TS-Genco D. Prabhakar Rao said. In addition, the power utilities of A.P. also owe about ₹1,100 crore to Telangana’s power utilities for repaying the liabilities of some assets — power generation units — located in their territory. But, the issue has been made a dispute by A.P., Mr. Rao said while speaking to reporters along with CMD of Southern Power Distribution Company of Telangana Ltd G. Raghuma Reddy.

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RBI SLAPS PENALTIES ON 36 MAJOR BANKS FOR NON-COMPLIANCE IN SWIFT OPERATIONS

The Reserve Bank on Friday said it has imposed penalties worth ₹71 crore on 36 public, private and foreign banks for non-compliance with various directions on time-bound implementation and strengthening of SWIFT operations. The penalties, ranging from ₹1 crore to ₹4 crore, were imposed by orders dated 31 January, 2019, and 25 February, 2019, the RBI said in a statement. It, however, added that penalties are based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the banks with their customers. The RBI had carried out an assessment of compliance with its directions on implementation and strengthening of SWIFT-related operational controls of 50 major banks. The assessment, the RBI said, revealed that banks had not complied with one or more of the major direction pertaining to direct creation of payment messages in the SWIFT environment and introduction of an additional layer of approval for all payment messages exceeding a particular threshold, among others. Based on the findings of the assessment and extent of non-compliance, notices (SCNs) were issued to 49 banks advising them to show cause as to why penalty should not be imposed for non-compliance with directions. After considering the replies received from the banks, oral submissions made in the personal hearings where sought by the banks, and examination of additional submissions, if any, RBI decided to impose monetary penalty on aforementioned 36 banks, based on the extent of non-compliance in each bank, the Central Bank said.

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FISME APPEARS BEFORE RBI EXPERT COMMITTEE ON MSMES

The RBI Expert Committee on Micro, Small & Medium Enterprises (MSMEs) met apex industry bodies FICCI and FISME in New Delhi to review the institutional set-up and credit related issues The terms of the committee are kept broad to allow a comprehensive discussion on MSME issues from the point of view of survival, growth and credit support, told U.K. Sinha in his opening remarks and encouraged .In a detailed presentation former FISME President V.K. Agarwal and Secretary General Anil Bhardwaj drew attention of the Committee on the adverse impact of external factors such as infrastructure, finance, administration and trade barriers besides the internal unit level issues. According to V.K. Agarwal, there was a need to acknowledge the heterogeneity of the MSME sector and treat its segments like Micro, Small and Medium differently as they had very different financial needs. Time is the most precious factor in access to credit but is least appreciated by Bankers while dealing with MSMEs, he said. FISME has been of the view that technology should be fully leverage in expediting the decision making process and informing borrowers and delivering financial products in real time. It also strongly advocated reorientation of SIDBI as development bank to facilitate creation of myriad number of institutions needed to address emerging credit needs of the MSMEs. ‘There is no need for SIDBI to get struck with institutions it created like CGTMSE. They should promote, not run institutions themselves and even if they have to drive them initially, they should get out as soon as possible so that they could focus on other unaddressed areas’, said Anil Bhardwaj.

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RBI MAY CHALLENGE NCLAT ORDER ON CLASSIFYING IL&FS DEBT AS NPAS

The Reserve Bank of India (RBI) is likely to challenge the National Company Law Appellate Tribunal’s (NCLAT’s) order stating that the debt of all IL&FS group firms should not be declared as NPAs The move is based on the view that the insolvency court’s decision is tantamount to judicial overreach. In its order dated 25 February, NCLAT had said due to the non-payment of dues by Infrastructure Leasing and Financial Services (IL&FS) or its subsidiaries, no financial institution will declare the accounts as a non-performing asset (NPA) without the prior approval of the appellate tribunal. RBI is likely to file a review application in NCLAT this week. The court’s order encroaches into RBI’s regulatory domain and this could set a precedent if left unchallenged. These issues fall under the ambit of RBI’s power as the regulator of the banking sector, said a senior RBI official. Banks had been seeking relaxation in the classification of IL&FS NPAs, as repayments from IL&FS subsidiaries were not coming forth. This request was, however, turned down by RBI as it believed that such special dispensations will ruin the credit culture. Subsequently, NCLT lifted the moratorium on recoveries from special purpose vehicles, which are ring-fenced from the group, and entities that have cash flows coming in.

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MORE QUEUE UP IN SC TO RECOVER DUES FROM ANIL AMBANI

More than half of the four-week respite given by the Supreme Court has passed. Reliance Communications (RCom) promoter Anil Ambani and his group are making their moves (including sale of group assets) to purge the contempt of court by paying up Rs 453 crore dues to Ericsson. But, to add to their troubles, more people have queued up before the Supreme Court under the contempt jurisdiction to claim their dues from RCom and its directors. Their petition is likely to be heard on Monday. As per the Supreme Court website, the case is tentatively listed for hearing on Monday, before the bench of Rohinton Nariman and Vineet Saran. A group of minority investors of Reliance Infratel led by Mauritius-based HSBC Daisy Investments has moved the apex court against Ambani, other directors of RCom and some companies of the group. The special leave petition is likely to come up before the bench headed by Justice Rohinton Nariman which passed the order in the Ericsson case on February 20. Like the dispute with Ericsson, a vendor of Rcom, the tussle with the minority investors of the tower arm – which include HSBC Daisy Investments, Drawbridge Towers, Galleon Special Opportunities Fund and Quantum – has for long dragged along across different fora including the National Company Law Tribunal, its appellate body and the Supreme Court itself. The investors' claim of about Rs 230 crore has also gone through a couple of attempts to settle out of court, which failed. As per the consent terms of the agreement between Reliance Infratel and HSBC Daisy and others, who together own a little over 4 per cent, recorded by the NCLAT in its order dated June 26, 2018, Reliance Infratel was to pay the amount in next six months. Appellants (Reliance Infratel) agree and undertake that they shall jointly and/or severally pay a sum of Rs 230 crore to the respondents in the proportion as set out in Annexure A hereto within a period of 180 days... , said the consent term recorded by NCLAT in June.

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IDBI BANK PLANS TO SELL RS 100-BILLION BAD LOANS, EXIT PCA BY SEPTEMBER

IDBI Bank Ltd, the lender with India’s worst-bad loan ratio, is seeking to curtail its soured debt by selling Rs 100 billion ($1.4 billion) of stressed assets and stepping up efforts to recover dues from delinquent borrowers. We have set up a war room to focus on recovering the non-performing loans while another team is keeping a check on loans showing early signs of stress, Rakesh Sharma, said. The lender wants to sell stressed loans by June-end to quicken the pace of clean-up exercise. Indian lenders burdened with the world’s worst bad-loan ratio are stepping up effort to recover delinquent debt after the Reserve Bank of India announced tougher rules. The Mumbai-based lender’s turn-around efforts gathered pace after Life Insurance Corp. of India, the nation’s largest insurer, bought a controlling stake in the bank from Prime Minister Narendra Modi’s government. The insurer has infused more than 210 billion rupees into IDBI to bolster its risk buffers and bring it out of the regulator’s emergency program that restricts lending. IDBI Bank will be out of the Reserve Bank’s prompt corrective action framework by September as bad-loan ratio narrows and profits rise, Sharma said. Banks sanctioned by the regulator are restricted from lending and expanding their network while they mend their balance sheets. IDBI’s gross bad loan ratio stood at about 30 percent as of Dec. 31, exchange filing shows. The lender is also planning to raise about 10 billion rupees by selling its holding in National Stock Exchange and National Stock Depository Ltd. over the next month, the chief executive said on Sunday. According to Sharma the bank will also complete its sale of insurance and mutual fund units in 2019.

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SEBI PLAN TO BUILD KYC DATABASE OF BENEFICIAL OWNERS IRKS FPIS

Large overseas fund managers such as Templeton, Fidelity and BlackRock have opposed the Securities and Exchange Board of India (Sebi) proposal to create a central database containing the personal information of all beneficial owners of offshore funds, said two people with direct knowledge of the matter. Such a database held by an external agency in India would violate the law in their home countries, they argue. The issue pertains to disclosure of know-your-customer (KYC) information of beneficial owners (BOs). Sebi had issued a circular on April 10 last year asking foreign portfolio investors (FPIs) to identify the BO of a fund based on not just ownership but control as well. In cases where there is no significant BO based on economic ownership, fund managers and other senior management officials of the funds were to be considered BOs. All publicly pooled funds such as foreign mutual funds have no significant BO since they raise money from thousands of small unit holders. In such cases, the chief investment officers or other senior management officials become the BOs. Stiff opposition from FPIs, especially non-resident Indians (NRIs), on this issue forced Sebi to water down the rule. The regulator restricted the new interpretation of beneficial ownership to KYC purposes. Under this, FPIs will have to submit KYC documents of beneficial owners to custodian banks, which in turn will share them with registrars.

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FPIS PUMP IN RS 2,741 CRORE IN MARCH SO FAR ON POSITIVE MARKET OUTLOOK

Overseas investors have pumped in a net Rs 2,741 crore into the Indian capital markets in the first five trading sessions of March, mainly due to positive market sentiment. As per analysts, the positive change is triggered by domestic as well as global factors and the trend is likely to continue for some time. In February, foreign portfolio investors (FPIs) had invested a net amount of Rs 11,182 crore in the capital markets (both equity and debt). According to depositories data, FPIs put in a net amount of Rs 5,621 crore in equities during March 1-8. However, they pulled out a net sum of Rs 2,880 crore from the debt markets, leading to an overall investment of Rs 2,741 crore in the capital markets.

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FPIS MAY BRING $5 BILLION INTO DEBT SECURITIES VIA VRR

India is bracing for a bout of overseas inflow into debt securities with long-term foreign portfolio investors likely to pump in at least $5 billion this calendar year through the new Voluntary Retention Route (VRR), which comes into effect on Monday. The offshore money expected through VRR, which offers higher operational flexibility against the commitment of a minimum holding period, will mitigate the risk of rupee volatility, a key catalyst for a stable and investor friendly economy. The VRR coming into effect from Monday should significantly bring stability to currency flow into India, said Jayesh Mehta. Many long-term global investors, including insurance pension funds, would be keen to bring in at least $5 billion this calendar year amid falling interest rates. Political stability after elections and calming of geopolitical issues should jointly boost investment sentiment. Investments through the VRR route will be capped at Rs 40,000 for government securities and Rs 35,000 crore for corporate securities per annum. The investment limit shall be released in one or more tranches.

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IF A FIRM GOT A STRESSED POWER ASSET AT DISCOUNT, IT MUST CUT TARIFF: UPERC

Adding a new twist to the ongoing sale of stressed power assets, the Uttar Pradesh Electricity Regulatory Commission (UPERC) has taken a view that if a bidder acquires assets at a discount then it must pass on the benefit to customers by reducing power tariffs. Renascent Power Ventures, an arm of Tata Power-backed Resurgent Power Ventures, which had acquired a 75.01 per cent stake in Prayagraj Power, may have to offer a discount on the power tariff to State Discom Uttar Pradesh Power Corporation Ltd (UPPCL) to pass the benefits of acquiring the asset at a discount to consumers. In its order dated March 7, the Uttar Pradesh Electricity Regulatory Commission (UPERC) has directed State Bank of India, the leading lender to Prayagraj Power, to submit its offer of reduction in fixed charges and also the computation on the basis of which such reduction is offered, within one week. If power sector assets are sold by financial institutions at much less than the book value without corresponding adjustment in tariff, it will create a perverse incentive for buying these assets at the cost of public, the order said adding that this will also create a possibility of undue arbitrage. The Commission said that if no concession in fixed charges is offered, the regulator might decide the terms and conditions for the proposed transfer of shares in Prayagraj Power to the new owner on the basis of information available with it. The next hearing of the matter by the UPERC is scheduled for March 25. In its order, the UPERC said while it has no objections to transfer of shares to the new owner, it saw a reduction in fixed charges as a necessity to save undue enrichment to the new owner as well as to safeguard the consumer’s interest.

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DESPITE RBI PROD, BANKS UNWILLING TO CUT LENDING RATES AS DEPOSITS DWINDLE

Indian lenders haven’t fully passed on the central bank’s latest interest rate cut to borrowers, pressuring the monetary authority to loosen policy even more to support economic growth. A mismatch between deposits and credit growth, and competition from the government for small-savings mean banks face a high cost of capital, limiting their ability to transmit monetary policy easing. Bankers say the Reserve Bank of India’s 25 basis-point reduction in the repurchase rate to 6.25 percent in February was a start, but was probably too little to have any impact on lending rates just yet. Latest data from the central bank shows the main overnight lending rate offered by commercial banks has been sticky in a range of 8.15 percent to 8.55 percent since the beginning of the year. Most banks have trimmed lending rates by a ‘token’ 10 basis points, said Ashutosh Khajuria, adding that the RBI needs to move by a bigger-than-usual 50 basis points to spur lending. If it is a 50 basis points cut, it will be an accelerated transmission, Khajuria said. If inflation behaves the way it has been, rates will certainly go down in the first quarter of the next financial year starting April. Bank deposits are also growing at a slower pace than loans, putting pressure on commercial lenders to offer attractive rates to lure depositors and boost resources to lend, analysts say. While bank lending has been growing at more than 14 percent year-on-year as of February, deposit growth has been a laggard at 10 percent, according to central bank data.

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RBI FACES TROUBLE GETTING BANKS TO CUT RATES

Indian lenders haven’t fully passed on the central bank’s latest interest rate cut to borrowers, pressuring the monetary authority to loosen policy even more to support economic growth A mismatch between deposits and credit growth, and competition from the government for small-savings mean banks face a high cost of capital, limiting their ability to transmit monetary policy easing. Bankers say the Reserve Bank of India’s 25 basis-point reduction in the repurchase rate to 6.25 percent in February was a start, but was probably too little to have any impact on lending rates just yet. Latest data from the central bank shows the main overnight lending rate offered by commercial banks has been sticky in a range of 8.15 percent to 8.55 percent since the beginning of the year. Most banks have trimmed lending rates by a ‘token’ 10 basis points, said Ashutosh Khajuria, adding that the RBI needs to move by a bigger-than-usual 50 basis points to spur lending. If it is a 50 basis points cut, it will be an accelerated transmission, Khajuria said. If inflation behaves the way it has been, rates will certainly go down in the first quarter of the next financial year starting April. Calls for rate cuts have been building, given benign inflation and weak demand. Inflation has been subdued at about 2 percent, much lower than the central bank’s medium-term target of 4 percent. The latest inflation data is due on Tuesday, with economists surveyed by Bloomberg forecasting consumer prices to rise 2.4 percent.

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NBFCS FIND A FRIEND IN HNIS AS STRUCTURED PRODUCTS ISSUANCES RISE

Faced with tough times, non-banking financial companies (NBFCs) are leaving no sources untapped for funds and are even willing to turn creative. Enter structured products, which have a willing investor in high net-worth individuals (HNIs). Market-linked debentures have come back with a bang with issuance volume almost doubling in the current fiscal year. Issuance of such debentures added up to ₹12,910 crore till date, far higher than the ₹7,365 crore issued in FY18. These are structured debt instruments that give investors exposure to equities. There is principal protection and the return is linked to Nifty. The payoff is as high as 70-80% of Nifty gains, said Ajay Manglunia. The Edelweiss Group companies have been regular issuers of such debentures.

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DATA USAGE IN INDIA TO GROW AT 73% CAGR BY 2022: ASSOCHAM-PWC STUDY

India's data consumption is expected to grow at a compounded annual growth rate (CAGR) of about 72.6 per cent to 10,96,58,793 million MB by 2022, according to a study. With lower-than-ever data tariffs and increasing number of smartphone penetration in the country, which is around 40 per cent as of 2017, it is safe to assume that the Video on Demand (VoD) market will be a significant beneficiary of these developments. Internet consumption is clearly on the rise in India, according to the Assocham-PwC study. Data consumption in India will grow from the level of 71,67,103 million MB in 2017 to 10,96,58,793 million MB (megabytes) in 2022, growing at a compound annual growth rate (CAGR) of about 72.6 per cent, it said. While the average Indian used to spend more on voice services than on mobile data services until 2013, the majority of an average mobile bill is now spent on data. The average monthly spend on voice services in 2013 was Rs 214 compared to Rs 173 spent on data. In 2016, the spend on voice fell to Rs 124, while data spend rose to Rs 225, according to the report. Video streaming constitutes roughly 65–75 per cent of the traffic, as per the Nokia Mobile Broadband Index 2018. While internet penetration is increasing in India, with mobile internet penetration set to reach 56.7 per cent in 2022 from a mere 30.2 per cent in 2017, connectivity and consistency in speed issues need to be addressed, said the study titled 'Video on Demand: Entertainment reimagined'. It further said that in a country where approximately 65-70 per cent of the population resides in rural areas, no service meant for the masses can afford to ignore this market.

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JIO ROLLS OUT RED CARPET TO GLOBAL INVESTORS FOR ITS OPTIC FIBRE INVIT

Global pension and sovereign wealth funds and long-only infrastructure-focussed financial investors have been sounded out as Reliance Jio Infocomm’s efforts to monetise its pan-India optic fibre assets to deleverage its balance sheet gather momentum. Three investment banks —Moelis, Citi and ICICI Securities—have been appointed to reach out to potential investors across the Americas, Middle East and Asia, and Australia, according to people with knowledge of the matter. Reliance is in the process of demerging the fibre assets into a separate company which could then be monetised via a sale and leaseback or infrastructure investment trust (InvIT) structure. However, it is keen to continue as the sponsor of the InvIT and even retain a minimum 15% stake in it. In that case, the remaining 85% will be sold to five global investors. Potential investors are said to include Canada Pension Plan Investment Board (CPPIB), Caisse de Dépôt et Placement du Québec (CDPQ), Abu Dhabi Investment Authority, Qatar Investment Authority, Kuwait Investment Authority, Kingdom Holdings, Khazanah, Allianz and Macquarie among others. The valuation of the fibre assets is expected to be $6-8 billion. The talks are still preliminary in nature and management meetings are expected to kick off in the coming weeks. The company is expecting to complete the transaction by the middle of the new financial year. The final deal contours will evolve as negotiations progress. Jio operates 220,000 towers and over 300,000 route kilometres of fibre. The telco, backed by a Rs 3 lakh crore capital investment, said its home broadband and enterprise service —JioGigaFiber—has seen strong customer interest across 1,400 cities. It had notched up 280.1 million subscribers at the end of Q3. Jio is the key tenant of the fibre backbone but in the future it may lease out the pipe to others as well. Incremental capital expenditure related to network infrastructure will also be made by the InvIT, which will lower Jio’s capex intensity. According to their estimates, Jio’s net debt is at Rs 1.12 lakh crore, including Rs 21,100 crore in spectrum liabilities due to the government at December-end. The firm clocked an ebitda (earnings before interest, taxes, depreciation and amortisation) of Rs 4,053 crore in the third quarter, which annualises to over Rs 16,000 crore, putting the new entrant’s leverage ratio at around 7x.

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KOTAK MAHINDRA BANK JOINS ‘PSB LOANS IN 59 MINUTES’

Online PSB Loans Limited and Kotak Mahindra Bank (Kotak) announced that Kotak is the first private sector bank to join the platform - psbloansin59minutes.com. Kotak will offer loans up to Rs 1 cr to micro, small & medium enterprises (MSME) in India through this platform. MSME loan aspirants will now get the option to avail of ‘in-principle’ loan approvals in just 59 minutes from both public sector and private sector banks (presently only Kotak) through this platform. We are delighted to join psbloansin59minutes.com and participate in the Government of India’s initiative to facilitate easier access to credit to micro, small & medium enterprises. Small business owners require quick and hassle-free access to loans to grow or diversify their business. At Kotak, we offer a range of customised financing options with flexible repayment options. We are also seeing a steady rise in customers availing loans through digital channels, Ambuj Chandna, said.

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DEMONETISATION TO KILL BLACK MONEY: RBI DIRECTORS DIDN'T AGREE

On November 8, 2016, the day Prime Minister Narendra Modi announced demonetisation, banning high-currency notes, to hit at black money, a few directors at the Reserve Bank of India differed with the government according to report. There is little in the public domain to throw light on what the RBI thought about demonetisation. However, the minutes of a final meeting reveal how the RBI perceived demonetisation. The government had said demonetisation would help curb black money and steep rise in Rs 500 and Rs 1,000 notes; check the circulation of fake currency; and promote e-payments and financial inclusion. But according to minutes of the RBI board meet at 5.30 pm on November 8, 2016, three hours before the PM announced demonetisation, some directors said, Most of the black money is held not in cash but in the form of real sector assets such as gold or real estate and this move would not have a material impact on the assets Some RBI directors had countered the government’s argument on the growth in high denomination notes being much faster than the pace of economic expansion, arguing that adjusted for inflation, the difference may not be so stark. While any incidence of counterfeiting is a concern, Rs 400 crore as a percentage of the total quantum of currency in circulation is not very significant. However, these directors supported the government move — which had been under discussion with the Centre for six months — in larger public interest, as it provided an opportunity to promote financial inclusion and digital payments. Proposed step presents a big opportunity to take the process of financial inclusion and incentivising the use of electronic modes of payment forward, RBI directors said. Some directors had also cautioned against short-term negative effect on the GDP for 2016-17, although they termed it a commendable measure. Despite these reservations the board approved demonetisation, which was proposed by an RBI deputy governor and supported by a note from the finance ministry, which provided a draft scheme for withdrawal of existing Rs 500 and Rs 1,000 bank notes. The board was reassured by the fact that all the issues raised by the directors were under discussion between the central government and the RBI for six months. The Centre had also assured RBI that it would take measures to contain the use of cash and promote financial inclusion and electronic modes of payment. A few hours after the RBI board gave the go-ahead, PM Modi went on national TV to announce the withdrawal of the old Rs 500 and Rs 1,000 notes. The deliberations in the meeting on November 8 are a revelation as it shows that RBI did not see demonetisation as a solution to black money and counterfeit notes being used for terror financing and anti-national activity.

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BUMPY RIDE FOR M&A ACTIVITIES IN 2019

The year 2018 was a fantastic year for mergers and acquisitions (M&A) activities in India as the year witnessed many deals close to $5 billion such as Walmart-Flipkart, Tata Steel-Bamnipal Steel, UPL- Arysta LifeScience Inc, compared to only one in 2017 which was the Idea- Vodafone mega-merger. Come February 2019, only one deal in the billion-dollar category—valued at $ 1.3 billion—was announced. Further, the Union Budget did not create any favourable policy statements for encouraging deal activities in India. Regulatory delays in approval, unwanted litigations, rising transaction costs, aggressive approach by the tax department and upcoming general elections may result in 2019 being a bumpy ride for M&A activities in India. One of the reasons for rising deal activities in India was the effective resolution under Insolvency and Bankruptcy Code (IBC) which gained momentum in the year 2018. The stressed assets have attracted the interest of global and domestic players and created fierce competition among investors and strategic buyers looking to pick up such stressed assets. The year 2019 too seems promising with definitive legal developments with respect to the evolution of IBC law. However, the time taken for implementation by the regulators including legal loopholes being used by various parties to delay the outcome of such resolutions does have a negative impact on the transactions being consummated followed by delays in the revival of stressed assets as well as further investments by the acquirer. These factors may not completely discourage companies from undertaking M&A activities but have now become an important factor for consideration, especially since the cost of transactions may sometimes become prohibitive. Though India has recorded a jump in ‘ease of doing business’ rankings, it will be interesting to watch whether the definitive outcome of general elections in mid-2019 coupled with improvements in the factors enlisted above, brings in Acche Din for M&A activities in India!

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‘RBI MUST SET UP COMMITTEE TO RELOOK OWNERSHIP NORMS FOR PRIVATE LENDERS’

With Kotak Mahindra Bank approaching the Bombay High Court on the issue of dilution of promoter holding there has been a lot of clamour to seek a review of the RBI’s ownership guidelines in Indian private sector banks. Experts, from the corporate legal fraternity, are of the view that the RBI should set up a committee to relook the ownership norms for private sector banks. There is a need to increase competition in the banking sector, which calls for a review of the ownership guidelines that have been the cause for non-participation to obtain licence. More specifically, around maximum permissible promoter holding, which needs to be hiked beyond 15 per cent to a minimum of 26 per cent, which would be on par with the voting cap. There is a great need to create uniformity in the ownership and control parameters in all sectors, said Pavan Kumar Vijay. He added that this calls for wider discussions by various stakeholders, which the central bank can undertake by setting up a committee on this issue. Certain organisations had recently raised the issue, saying that there is a need for a rethink on the regulatory framework for private bank ownership in the country so that it remains in Indian hands.

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SBI PLANS TO LINK SB DEPOSITS AND CC/OD ACCOUNTS TO RBI REPO RATE

In a significant move, State Bank of India (SBI), on Friday, said it will link savings bank (SB) deposits with balances over ₹1 lakh and all cash credit (CC) accounts and overdrafts (OD) with limits above ₹1 lakh to the repo rate with effect from May 1. This move comes in the backdrop of the RBI directing banks to link all new floating rate personal or retail loans (housing, auto) and floating rate loans to micro and small enterprises to one of the four external benchmarks – policy repo rate/ 91 days treasury bill / 182 days treasury bill/a benchmark market rate produced by Financial Benchmarks India Pvt Ltd – from April 1. India’s largest bank will link SB deposits, with balances above ₹1 lakh to repo rate with current effective rate being 3.50 per cent per annum (2.75 per cent below current repo rate of 6.25 per cent). Repo rate is the interest rate at which the central bank provides liquidity to banks to help them overcome short-term liquidity mismatches. All CC accounts and ODs, with limits above ₹1 lakh, will also to be linked to the repo rate (current repo rate 6.25 per cent plus a spread of 2.25 per cent). The risk premiums over and above this floor rate of 8.50 per cent would be based on the risk profile of the borrower, as is the current practice. In order to address the concern of rigidities in the balance sheet structure and address the issue of quick transmission of changes in RBI’s policy rates, effective from May 1, SBI has taken the lead in linking its key pricing decision for SB deposits and short-term loans to the repo rate of the RBI, SBI said in a statement.

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EQUITY MUTUAL FUND INFLOWS FALL TO 25-MONTH LOW IN FEBRUARY

Net flows into equities, including those linked to savings scheme funds, fell to just ₹5,122 crore in February after hitting a 24-month low of ₹6,158 crore in January, indicating a deepening slowdown in the mutual fund industry Inflows into equity linked savings scheme (ELSS) funds fell around 26% to ₹1,174 crore in February from ₹1,585 crore a year ago. Income Funds, which include most debt fund categories, saw outflows of ₹4,214 crore, with rising concern over defaults and downgrades in India’s debt market. Gilt funds, a debt fund category counted separately, also saw an outflow of ₹149 crore compared to outflows of ₹89 crore in January 2019. In fact, except equity mutual funds, exchange traded funds (ETFs) and fund-of-funds investing overseas, all the mutual fund categories saw high levels of outflows in February. Mutual funds as a whole saw a net outflow of ₹20,083 crore for February, propelled by an outflow of ₹24,509 crore from liquid funds/money market funds. The slowdown is the result of a host of factors, including political uncertainty and liquidity tightness, according to the N.S. Venkatesh.bIn sharp contrast to the equity inflow slowdown, the other ETF category, as distinct from gold ETFs, saw a rise in net inflow from ₹721 crore in January to ₹5,234 crore in February. This was on account of the Bharat 22 ETF, the third tranche of which was launched by the government in February, according to Venkatesh. The issue was massively oversubscribed with subscriptions of around ₹50,000 crore. The government had itself set a target of raising ₹3,500 crore with the option of retaining another ₹9,500 crore. A comparison of the total retained amount of ₹13,000 crore with the net inflow figure of ₹5,234 crore for the other ETF category suggests that even this ETF saw the exit of a large chunk of money. This is largely because of the poor returns over the past year, according to Suresh Sadagopan. We keep saying that investors are maturing but a long downturn pushes investors back to their old ways, he said. According to AMFI data, there was an outflow of ₹1,077 crore in balanced funds in February compared to an outflow of ₹952 crore in January. Net SIP (systematic investment plan) flows for February were marginally higher at ₹8,095 crore compared to ₹8,064 crore in January, according to Venkatesh.

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CS Meetesh Shiroya