Over 14,000 LLPs fate
in limbo: MCA bars them from manufacturing & allied services
The
Ministry of Corporate Affairs (MCA) has put a question mark over 14,646 Limited
Liability Partnerships (LLPs) carrying out manufacturing activity through a
recent clarification. The ministry has said that LLPs can’t carry out
manufacturing and allied services. While it allowed LLPs to carry out trade,
profession, services, and occupation under the LLP Act 2008, it has excluded
manufacturing and allied services. The clarification has created confusion
among LLPs. Government, through this, may now look to keep a tab on LLPs as
they are the ones who have to meet fewer compliances in comparison to business
under the companies act, said Raman Gupta. However, the absence of a proper
notification in this regard makes things more uncertain Until the government
issues a proper notification to LLPs doing manufacturing and allied services,
nothing should be assumed. There needs to be a clarification on exclusion until
then it is considered inclusive by businesses, said Gaurav Ahuja. Interestingly,
the government in its monthly report put out data on economic sector-wise
classification of LLPs till December last year. The MCA’s reports for the first
two months of this year did not disclose information on LLPs.
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Limited Liability
Partnership framework revamp in the works
India
is looking at a comprehensive review of the decade-old Limited Liability
Partnership (LLP) framework including steep penalties for nonfiling of returns.
The ministry of corporate affairs will soon set up a committee to review the
structure of LLPs, touted as a low compliance hybrid between companies and
partnerships. The review comes following representations about a Rs 100 per day
penalty for delayed filing and difficulties faced in dissolution. The ministry
is also likely to ask the committee to consider the office memorandum by
Registrar of Companies, Manesar, that said LLPs could not undertake
manufacturing and stopped any one carrying out manufacturing activity to
register as LLP or convert existing corporate structure to LLP. The memorandum
that had sent the industry into a tizzy has since been withdrawn. A committee
would be soon set up to review the LLP framework and look at issues that have
cropped up in the past decade in its implementation, a senior government
official told. Since any dilution of the penalty clause would have required an
amendment to the law, notified on April 1, 2009, itself, it was decided that a
review of the entire framework should be carried out in a comprehensive manner
with the underlying theme of ‘Ease of Doing Business,’ the official added. Besides,
lesser compliance compared to companies, LLPs also offer tax advantages with
exemption from dividend distribution tax (DDT) and minimum alternate tax. Owing
to flexibility in its structure and lesser cost of compliances as well as ease
of formation, it is an ideal form of organisation for small entrepreneurs and
for investment by venture capital.
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Insolvency
Professionals to pay 0.25% of professional fee to IBBI
Regulation
7 (2) (ca) of the Insolvency and Bankruptcy Board of India (Insolvency
Professionals) Regulations, 2016 (IP Regulations) specify the requirement and
manner of payment of fees by an Insolvency Professional (IP) the Insolvency and
Bankruptcy Board of India (Board). It reads as under:
Certificate
of registration
7.
(1) …
(2)
The registration shall be subject to the conditions that the insolvency
professional shall–
_(ca)
pay to the Board, a fee calculated at the rate of 0.25 percent of the
professional fee earned for the services rendered by him as an insolvency
professional in the preceding financial year, on or before the 30th of April
every year, along with a statement in Form E of the Second Schedule;_
Regulations
13 (2) (ca) of the IP Regulations specify the requirement and manner of payment
of fees by an Insolvency Professional Entity (IPE) to the Board. It reads as
under:
Recognition
of Insolvency Professional Entities
13.
(1) …
(2)
The recognition shall be subject to the conditions that the insolvency
professional entity shall-
(ca)
pay to the Board, a fee calculated at the rate of 0.25 percent of the turnover
from the services rendered by it in the preceding financial year, on or before
the 30th of April every year, along with a statement in Form G of the Second
Schedule; The Board has enabled a facility for electronic submission of Form E
or G, as the case may be, and details of login in this regard have already been
shared with IPs and IPEs.
It
is clarified that-
(a)
Form E / Form G for the year 2018-19 shall be submitted electronically by an IP
/ IPE before 30th April, 2019; and
(b)
Form E / Form G shall be submitted by every IP / IPE even if he has not earned
any professional fee or does not have turnover during 2018-19.
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Public Comments are
invited on the Insolvency and Bankruptcy Code, 2016
Ministry
of Corporate Affairs invites comments from stakeholders on the Insolvency
Resolution of Group Companies, Prepackaged Insolvency Resolution and any other
issue relating to the Insolvency and Bankruptcy Code, 2016 (Code) and the
Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016
(AA Rules)
For
Comment use below link..
https://ibbi.gov.in/webfront/public_comment.php
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IBBI WORKING TO PROVIDE
ACCOUNTABLE AND COMPETENT VALUERS: MS SAHOO
MS
Sahoo said that the Insolvency and Bankruptcy Board of India (IBBI) is working
to provide an accountable and competent valuation professionals The ministry of
corporate affairs had last year notified that beginning from February 1, all
valuations under the Companies Act and the Insolvency and Bankruptcy Code (IBC)
would have to be conducted by valuers registered with the IBBI. As on date,
there are 11 registered valuer organisations who are frontline regulators for
registered valuers. There are a total of 1300 valuers registered in three asset
classes, namely, land and building, plant and machinery, and securities or
financial assets. The IBBI runs valuation examinations for all three asset
classes every day from multiple locations in the country said MS Sahoo. The
IBBI is also providing study material for prospective valuers free of cost on
the IBBI website. It (IBBI website) has made available study material for two
asset classes, namely, Land and Building, and Plant and Machinery to facilitate
preparation for these examinations. This material was prepared by the Centre
for Valuation Studies, Research and Training Association (CVSRTA) and is
available on IBBI website for free download. I am extremely grateful to CVSRTA
for their noble support. said Sahoo. The European Group of Valuers’
Associations, which is a European non-profit association of 71 valuers’
associations from 37 countries, has also put out this material for use by their
stakeholders.
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GOVT THROWS A SPANNER
IN CA INSTITUTE’S PLANS OF DEFERRING A KEY AUDITING STANDARD BY TWO YEARS
Users
of financial statements of listed companies may get more out of auditor reports
for 2018-19 onwards. This is because the Corporate Affairs Ministry (MCA) has put
a brake on the CA Institute’s move to delay the applicability of a key auditing
standard by two years. The CA Institute’s Central Council on March 25 decided
to defer the applicability date of auditing standard, SA 701, by two years from
April 1, 2018 to April 1, 2020. The Auditing Standard SA 701, communicating key
audit matters in the independent auditor’s report was seen as significant as it
sought to open the door for an auditor to give users of financial statements of
listed companies more insight and improve transparency. Simply put, it
increased the communicative value of an auditor report. This government move is
widely seen as yet another blow to the CA Institute, which recently lost its
oversight powers on auditors of listed and large companies to the
newly-constituted regulator National Financial Reporting Authority (NFRA). Under
this standard, auditors had to include in the report, descriptions of ‘key
audit matters’ (KAM) they focussed on and the procedures performed. It may be
recalled that the CA Institute had initially issued SA 701 in May 2016 to be
applicable for audit of financial statements for periods beginning on or after
April 1, 2017. Thereafter, the CA Institute had in March 2017 deferred the
applicability of SA 701 by one year and made it applicable from April 1, 2018. Further
deferral to a later date (beyond April 1, 2018) is not allowed as legally, once
the law is enforced, then it cannot be deferred further, MCA said in a letter
to the CA Institute. This MCA letter — said that the decision of ICAI is not
supported on merits by justified and adequate reasoning and that further
deferral of SA 701 to a later date beyond April 1, 2018 cannot be permitted. Therefore,
this auditing standard SA 701 remains applicable for audits of financial
statements for periods beginning on or after April 1, 2018, the MCA letter
said. Naveen ND Gupta, felt the government should not have turned down ICAI’s
decision. Gupta told: ICAI is research-oriented regulator and National
Standards setter and tasked with onerous duty to be important link between
industry and the government. Concerns of industry and citizens as communicated
(including this case) by ICAI, which has nominees from Government, including
MCA, after due deliberation should per se be accepted by MCA and NFRA specifically
relating to matters concerning accounting and auditing standards.
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SHAREHOLDERS CAN FILE
APPLICATION TO APPROVE SETTLEMENT WITH CREDITORS EVEN AFTER APPOINTMENT OF
OFFICIAL LIQUIDATOR : NCLAT
The
National Company Law Appellate Tribunal has held that shareholders/promoters of
a company can file application for approval of settlement with creditors, even
after official liquidator has been appointed. This ruling was made while
allowing an appeal filed against the decision of the National Company Law
Tribunal, Mumbai bench, which had held that the application filed under Section
391 of the Companies Act 1956 (corresponding to Section 230(1), Companies Act
2013) could not have been moved by the shareholders after the appointment of
Official Liquidator. The NCLT reasoned that only the Official Liquidator was
entitled to represent the company under liquidation. Holding this to be erroneous
after referring to judgments of Supreme Court and several High Courts., the
Appellate Tribunal held : Liquidator is only an additional person and not
exclusive person who can move application under Section 391 of the old Act when
the company is in liquidation. Looking to these Judgements, we are unable to
support the view taken by NCLT that the Appellant could not have filed the
Petition under Section 391 of the old Act. In the present matter, the promoter-
director had filed a scheme of compromise in winding up proceedings before the
Hon'ble Bombay High Court where Liquidator was already appointed. But the matter
got transferred to NCLT Mumbai on the basis of notification dated December 7,
2016. Having held that the promoter was entitled to move Section 391
application, the NCLAT had to decide where the proceedings should revive -
whether at NCLT or High Court. The NCLAT held that the proceedings should
continue in High Court, based on the judgment of Bombay High Court in Sunil
Gandhi and Ors. Vs. A.N. Buildwell Private Limited and Ors, which held as
follows : In the proceedings relating to winding up, as in the present case,
applications under the provisions of section 391 of the Companies Act, 1956,
for the revival of the company in provisional liquidation, would constitute an
exception, and would a fortiori fall outside the purview of independent
proceedings which ought to be transferred to the National Company Law Tribunal,
under clause 3 of the subject notification. The NCLAT gave liberty to the
Appellant/ Promoter-Director to approach the Hon'ble Bombay High Court for
appropriate orders.
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SUPREME COURT CLEARS RS
4,000-CRORE RESOLUTION PLAN FOR JYOTI STRUCTURES
The
Rs 4,000-crore resolution plan by Sharad Sanghi and others for Jyoti Structures
Monday got a thumbs-up from the Supreme Court a decision that nullified the
possibility of the debt-laded engineering, procurement and construction firm
getting liquidated. The National Company Law Tribunal (NCLT) had last month had
approved an amended plan for the firm with a heavy debt of Rs 7,011 crore, on a
directive from the appellate tribunal (NCLAT). However, DBS Bank, the sole
first charge holder over certain assets of the firm, subsequently challenged
the plan in the apex court. An SC Bench led by Justice R F Nariman has now
dismissed DBS Bank’s appeal against the NCLT order which accepted the amended
resolution plan for Jyoti Structures. The NCLAT had on March 19 set aside the
July 31, 2018, NCLT-Mumbai order to liquidate Jyoti Structures and remitted the
case back to the tribunal. DBS Bank argued that the amended plan did not
distinguish between the first charge holder and the second charge holder, but
had distinguished between the secured and unsecured creditor, which made a
resolution plan (RP) contradictory in nature. K V Vishwanathan, appearing for
DBS, argued that the liquidation value of the assets charged to DBS is more
than three times of its exposure and the company owes Rs 53.77 crore to it. DBS
also said the appellate tribunal ignored the principles of law of mortgages,
which give sanctity of property rights, more so right of a creditor holding a
first and sole charge. Terming as unfair the voting process adopted by the
committee of creditors (CoC) to approve Sanghi’s RP, DBS also said the RP had
completely ignored the superior security structure vis-Ã -vis other financial
creditors and had treated the bank’s claim on an equal footing with other
financial creditors who do not enjoy the same superior security structure. Senior
counsel Mukul Rohtagi, appearing for Sanghi, opposed DBS’ plea, saying that in
the CoC, SBI had the largest exposure of 25 per cent and it had supported the
RP. Besides, there was only one RP and if the same is rejected, the firm will
go into liquidation and that is not the purpose of the IBC. The sole bidder,
Sharad Sanghi, who heads software firm Netmagic, had submitted a revised bid
pursuant to the NCLAT’s order. As per the fresh bid, Sanghi will pay Rs 3,965
crore in 12 years against the original bid of 15 years. An amount of Rs 50
crore would be paid upfront, followed by Rs 75 crore over the next 12 months
and the remaining in staggered payments over the next 12 years. As per this
first bid, the firm has a liquidation value of just Rs 1,112.52 crore, leaving
the bankers with a 43 per cent haircut. The resolution professional, through
his application in the tribunal, was also seeking to replace the statutory
auditors of Sterling Biotech and wanted to include the cost of such actions as
the resolution professional’s costs, which was to be paid from the debtor’s
accounts. However, the tribunal has categorically denied permission to the
resolution professional to discharge his duties after the 270-day corporate
insolvency resolution process (CIRP). It is pertinent to mention that after
initiation of the CIRP, we have not restrained the resolution professional in
discharging his duties. The CIRP continued till the end of the CIRP period
i.e., March 8, 2019. If no resolution was approved within the statutory period
for completion of the CIRP, then he should have acted as per the provisions of
the code, the NCLT said in its interim order. The tribunal has also barred the
resolution professional from replacing the statutory auditors, as the tribunal
observed that any such decision by the resolution professional should have been
taken within the statutory period. It is also to be made clear that after completion
of the statutory period, in our view the resolution professional has no
authority to replace statutory auditor of the corporate debtor since the same
is not provided for under IBC, 2016, said the NCLT in its order. The CIRP of
Sterling Biotech ended on March 8, 2019, after the 180-day period was extended
by a further 90 days. The tribunal also observed that the application for
withdrawal of insolvency plea against Sterling Biotech by Andhra Bank, one of
its financial creditors, was filed on the last day of the statutory period and
then the resolution professional filed the application for withdrawal after the
statutory period. The first withdrawal of insolvency plea was filed by the
financial creditor but this violates the rules, and the second was filed by the
resolution professional after the completion of the statutory period, hence,
the maintainability of the withdrawal application is questionable, the tribunal
observed.
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FALLING NPAS CAN GIVE A
60-BPS BOOSTER SHOT TO GDP THIS FISCAL
The
rise in banks' profitability, thanks to a steady decline in dud assets, can give
a 0.60- percent boost to GDP in fiscal 2020, says a report. This will be
possible due to the rise in profits on the back of a decline in credit costs,
which is the money that banks set aside to deal with bad loans, will help banks
lend more money to productive purposes, it said. The fall in credit costs
implies a positive supply impact of 1.40 percent to credit growth, which can
boost real investment growth by 2 percent and real GDP growth by 0.60 percent
financial year, a report by American brokerage Goldman Sachs said Monday. The
Reserve Bank earlier this month pegged FY20 GDP print at 7.2 percent, down 20
bps from its February forecast. The brokerage estimates credit costs as a
proportion of the total outstanding loans will nearly halve to 1.20 percent in
FY20 from the peak of 2.30 percent in FY18. In absolute terms, the fall will be
to the tune of Rs 1.9 lakh crore from Rs 3.3 lakh crore. Credit growth has
already been coming in at a multi- year high for the last few fortnights, and
printed at 13.24 per cent for the fortnight to March 29. The brokerage report
said for the past nine years, the banking system has grappled with
non-performing assets where ballooning credit costs impaired their capital,
constrained credit supply, and was associated with a decline in credit and
investment growth. Improvements in credit supply will now more likely stem from
an improvement in banks' profitability on a normalisation of bank credit costs,
it said. This will be achieved on the back of more benign trends in stress
loans and the healthier NPA provisioning ratios that proactive policies have
engendered over the past two years, it said. The report said boost to credit
growth can be higher if credit costs are lower, banks continue to substitute
away from bonds into credit to the real economy, or raise more capital than the
baseline. However, on the flipside, growth can be impacted by up to 0.15
percent if some of the assumptions do not come true, it warned.
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IL&FS FINANCIAL
SERVICES EX-CEO HAD DIRECT ROLE IN DIVERTING RS 17.5K CR
The
Serious Fraud Investigation Office (SFIO) told a Mumbai court that Ramesh Bawa,
played a direct role in diverting as much as Rs 17,500 crore from the company
to make the accounts of certain borrowers and group companies look healthy. A
part of the money was also transferred to his personal account, said the SFIO,
which is probing alleged irregularities at the IL&FS group of companies.
The investigating arm of the Ministry of Corporate Affairs, which arrested Bawa
from Delhi on Friday night, produced him before a holiday court on Sunday and
got his custody till April 18. He was not only instrumental in helping them bag
loans but he used IFIN to routinely top up loans of borrowers to help them
repay pending dues and ensure they did not become non-performing assets, an
official in the know of the investigation told. This was done to keep their
financial statements afloat, and also to ensure that they continue to get good
credit ratings. The intent of the management was postponement or avoidance of
recognition of loans as NPAs and thereby avoiding provisioning as mandated by
the Reserve Bank of India, the official said. Hiten Venegaonkar said Bawa was
at the helm of the affairs at IFIN and fraudulently diverted Rs 17,500 crore. This
is a huge amount considering the current state of the Indian economy, he added.
The agency told the court that like Hari Sankaran, the former vice chairman of
IL&FS who was arrested by the agency earlier this month, Bawa too got
performance-linked pays, salaries and perks. Overstatement of profits enabled
payment of higher remuneration to the management and dividend to IL&FS, its
remand application said. Also, in certain cases, we found that borrowers
favoured by them (former management) offered them various incentives, including
a fully funded foreign trip for the erstwhile board members and their families,
said the official.
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RBI LIKELY TO CUT RATES
BY 25 BPS IN JUNE, SAYS BOFA-ML
A
foreign brokerage on Monday said the Reserve Bank will cut its key policy rates
by another 25 basis points after governor Shaktikanta Das' weekend speech
focusing on ways to revive growth. We now expect the monetary policy committee
to cut rates by 0.25% to 5.75% on June 7, Bank of America Merrill Lynch said in
a note. If done this will be the third straight reduction, taking the quantum
of reduction in six months to a hefty 75 bps. The Wall Street brokerage had
earlier said the next cut may be either in June or in August, and had added the
rate action hinges on the rains. The brokerage said headline inflation will
come in at 2.6% in April as food prices will continue to fall. Core inflation
excluding food and fuel is also expectedly peaking off to 4.8% in April from
5.1% in January, it said.
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BANK OF BARODA EXPECTS
TO COMPLETE INTEGRATION OF DENA BANK, VIJAYA BANK IN TWO YEARS
State-owned
Bank of Baroda (BoB) is likely to complete the process of merger of Dena Bank
and Vijaya Bank with it in two years, said a senior official of BoB. The merger
of Dena Bank and Vijaya Bank with BoB became effective from April 1. Information
technology platform integration alone will take about 12 months and other
processes and systems may take another year or so, the official said. The
process has been designed to ensure that there is minimum disruption of the
customers during the transition period, the official said adding that the
branding of the three entities will be retained in the interim period and will
be transitioned to the new brand in a phased manner to ensure minimum
disruption to existing operations. As far as capital is concerned, the official
said, the government has infused ₹5,042
crore in the bank taking care of additional expenses and maintaining minimum
regulatory capital requirement. There would be pressure on the balance sheet of
the bank during the first quarter when the maximum impact of the merger will
play out and, subsequently, the impact will moderate, the official added. The
maiden three-way amalgamation is the first step in the consolidation of the
public sector banking industry recommended in 1991 by the Narasimham Committee
report. Through this merger, the government has created an institution of
global scale and size, thereby providing significant benefit to all
stakeholders. The consolidated entity started the operation with a business mix
of over ₹15 lakh crore on the
balance sheet, with deposits and advances of ₹8.75
lakh crore and ₹6.25 lakh crore,
respectively. BoB, the second-largest public sector lender after State Bank of
India, now has over 9,500 branches, 13,400 ATMs, and 85,000 employees to serve
12 crore customers.
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CSR REFORMS AS A
NURSERY FOR EMPATHETIC LEARNING AND INNOVATIONS
CSR
reforms for augmenting inclusive innovation movement are overdue. So far, a
very few corporations (foundations apart) have really devoted their Corporate
social responsibility (CSR) investment strategy towards augmenting innovations.
If we exclude, the contributions of public sector corporations towards CSR, the
total contribution for CSR is very low by the rest of the thousands of the
corporations. Why should companies pay attention to CSR not as a social
obligation imposed by the government but for more important strategic reason.
One of the important reasons is that by engaging with socially disadvantaged
regions, the corporations can learn to be empathetic. Without empathy, no good
corporation can ever become great. What are the ways in which the journey from
good to greatness can be mediated by CSR? One way is to learn the systematic
way in which certain social needs remain unmet for a very long time. Second is
the inspirational value. One has to recognize that there are always a few
people at grassroots level who do not adjust and adapt with the problems or
challenges. They try to find solutions, these odd balls can be a great source
of inspiration. The third reason is to learn the heuristics or metaphors or
gestalt of frugality from these grassroots innovators. Which corporation doesn't
want to learn the art of frugality. It is not just low cost, that is important
part of the frugal innovations but also circular economic dimensions which make
many of these more sustainable than the rest. Fourth reason is to realize the
value of forging connections between communities and corporation may be guided
by not just utilitarian business interest but also for a larger value laden
purpose. More and more companies are realising is that purpose and not just
profit drives the great corporations Fifth treason is that social connect
augments social capital of the corporations which many young customers put a
lot of weight on. Sixth reason is very practical. By engaging with furgal
innovators and many entrepreneurs, start-ups, a culture of intra-preneurship
may emerge in the companies. This will be most strategic gain for a
corporations which most corporations have not yet realized. There are many
other reasons which may guide the CSR strategies of the corporation to be a
better corporate citizen of the society. It is hoped that a new empathetic
logic will evolve which will shape the new social contract of the business
entities. After all, the are so many common and public goods which need to be
sustained and rejuvenated for larger viability of the entire socio-ecological
fabric of our society.
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VC INVESTMENTS IN INDIA
ROBUST EVEN AS DEAL VOLUMES TAKE A HIT GLOBALLY
India
bucked the global venture capital (VC) investment trend that took a major hit
in the first quarter of 2019, according to a report by KPMG. While venture
capital investment dropped across major markets in Q1 2019, India saw some
solid VC activity as automotive services companies gained ground. During the
quarter, Indian start-ups raised several ‘$100 million plus’ deals, with
logistics start-up Delhivery raising about $413 million and ride-hailing
platform Ola raising $300 million. According to the report, overall venture
capital (VC) investment dropped from record highs of $71 billion in Q4’18 to
$53 billion in Q1’19, due to a decline in Chinese investment, among other
factors. While US and European investment remained relatively robust quarter
over quarter, Chinese VC fell from $10.1 billion in Q4’18 to $5.8 billion in
Q1’19, as mega-deals took a pause, according to the Q1’19, the report added. Globally,
VC deal volume declined for the fourth consecutive quarter with only 2,657
deals – representing the lowest number in 31 quarters – since Q2 2011. The
continued decline in deal volume was felt in every region, but was particularly
pronounced in Europe that saw deal volume drop from 882 deals in Q4’18 to 487
deals in Q1’19. Meanwhile In India, though the market did not see any $1
billion+ rounds this quarter, the country attracted several $100 million+
deals, even as automobile marketplace platforms continued to receive attention,
a trend expected to continue for the next several quarters.
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RELIANCE JIO APPLIES
FOR IN-FLIGHT CONNECTIVITY LICENCE TO DOT: SOURCES
Reliance
Jio Infocomm has approached the telecom department for in-flight connectivity
licence that allows service providers to offer connectivity and data services
to Indian and foreign airlines, according to sources. Besides Jio, the
Department of Telecommunications (DoT) has also received a clutch of other
applications including those from Ortus Communications, Station Satcom and
Cloud Cast Digital, sources privy to the development told PTI.
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PNB SETS RECOVERY
TARGET OF RS 10K CR FOR Q4: MD
After
returning to black in the last quarter, lending major Punjab National Bank
(PNB) has set a recovery target of Rs 10,000 crore for the concluding Q4, said
the Sunil Mehta. The target for the next fiscal is yet to be fixed, Mehta told.
The state-owned lender has recovered about Rs 16,000 crore in the last three
quarters of the current fiscal. Currently, the bank runs a special one time
settlement (OTS) scheme for NPA-2018 which deals with accounts of up to Rs 25
crore (outstanding as on March 31, 2018). According to Mehta, more focus has
been laid on recoveries through putting securities into e-auction under
SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement
of Securities Interest Act, 2002) on an all-India basis.
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RBI BIDS FOR AIR
INDIA'S ICONIC NARIMAN POINT TOWER IN MUMBAI
Reserve
Bank of India (RBI) has tossed its hat in the ring for the taking over of Air
India's iconic tower at Nariman Point in Mumbai. The central bank is learnt to
have offered 10 years' lease rental as advance payment, a top reliable source
told IANS. The RBI wants to take the whole building and is willing to give
advance lease rentals for 10 years advance payment upfront, he said.
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UIDAI TO LOOK SERIOUSLY
INTO DATA LOCALISATION COMPLIANCE
At
a time when the Reserve Bank of India is bearing down hard on banks and fintech
players on data localisation, UIDAI is facing an uphill task on the same. The
recent case in Hyderabad related to IT Grids India showed that not only did the
latter possess Aadhaar data of over 7.8 crore residents in Telangana and Andhra
Pradesh, but it also stored the data overseas. UIDAI officials are now looking
to tighten scrutiny and ensure all firms are in compliance. UIDAI officials
said they will crack down on firms using servers outside of India like Amazon
Web Services, iPage, HostGator, Wix or Weebly. In an official note, UIDAI said,
We have gathered evidence that the accused (IT Grids India) hosted the Aadhaar
database in Amazon Web Services, the USA, in contravention of Section 44 of
Aadhaar Act 2016. Further, it is suspected that the accused illegally stored
Aadhaar data of not just Telangana and Andhra Pradesh but possibly a few other
states. There is every possibility that sensitive data of Indian citizens could
be accessed and used by countries hostile to India or international crime
syndicates. Bankers said UIDAI's complaint and the FIR copy stating a breach in
the Central Identities Data Repository (CIDR), which manages the Aadhaar
project, is worrying. A bank official, who did not want to be named, said, For
the last three years, we have been sending compliance reports to UIDAI on KYC
collection and verification. These reports are also audited by third-party
professionals. So I find it baffling that this company managed to access data,
given it wasn't an authorised AUA (authentication user agency) or KUA (KYC user
agency). Mostly only large banks and telecom companies have been given access. Also
baffling is that after the SC judgement in September 2018, private entities had
been barred from using the Aadhaar database, so how did IT Grids India manage
to continue collecting data post-verdict. Industry experts point to the
loophole with the QR code system that continues to leave some data accessible
to outsiders. Web aggregators and payment banks do voluntary KYC using Aadhaar.
They do it via a QR code for a loan application or account opening. This query
doesn’t directly hit the Aadhaar database. Offline access is provided, so when
you use the smartphone to scan the QR code, it will generate four data sets –
name, address, gender and date of birth – digitally signed by UIDAI, said the
head of an IT firm that works with UIDAI. Meanwhile, Rajya Sabha MP Subramanian
Swamy’s warnings on Aadhaar data being stored outside of India appeared to have
been vindicated with Sunday’s FIR against IT Grids. His May 25, 2018, tweet, In
California, I learnt that for $50 any software specialist can download anyone’s
Aadhar personal data has gone viral since the FIR against IT Grids.
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CORPORATE EARNINGS
GROWTH TO SHOW RISE IN FOURTH QUARTER OF FY2018-19
Currently,
the market is focused on the general elections. But, while political events have
a short-term impact, the market’s long-term trajectory is dictated by
fundamental factors like corporate earnings. So, amid all the political frenzy,
don’t ignore the fourth quarter numbers. The aggregate earnings growth of the
Sensex and the Nifty, driven by the banking sector, will be the highest
compared to the past several quarters, says Gaurav Dua.
The
leaders
The
financial sector is expected to top the performance charts due the turnaround
in the prospects of corporate-facing banks. The base effect—poor results in the
fourth quarter of 2017-18—will also be key to the sector’s higher growth.
Though quarteron-quarter profit growth of PSU banks will be flat, their
year-on-year (y-o-y) growth will look fantastic because they reported an
aggregate loss of Rs 24,100 crore in the fourth quarter of 2017-18, says a
Motilal Oswal report. The aggregate net profit will go up by Rs 20,000 crore as
earnings have normalised in three large corporate-facing banks—ICICI Bank, Axis
Bank and SBI, says Dua. As financials have high weightage in the Sensex and the
Nifty, the upswing in their earnings will push aggregate corporate earnings.
The other two segments—consumer-facing banks and NBFCs—will perform on expected
lines. While consumer-facing banks will continue to report stable growth, NBFCs
will struggle in the fourth quarter as well, says Saurabh Mukherjea. Though the
threat of a recession has had an impact on the global economy it has not hurt
our export-oriented sectors such as pharma and information technology. IT and
pharma should continue to report good numbers in the fourth quarter too, says
Mukherjea. Among these two sectors, pharma is expected to do better because
issues related to the US Food andDrug Administration have been getting
resolved. IT should report steady numbers: neither sharp growth nor any
negative surprises, says Ajay Bodke. Manufacturers of global commodities will
drag aggregate corporate earnings growth. Due to the global slowdown risk, base
metal prices have fallen globally. This will impact Indian companies as well,
says Mukherjea. However, the fall will be small at the aggregate materials
level—metals and mining combined—due to the relatively stable performance of
the mining sector. Though prices of global commodities fell, crude oil prices
rose due to geopolitical issues. Rise in prices should help upstream oil
companies. Net profit of oil refining and marketing companies will also be
positively impacted due to inventory gains, says Bodke. The effects of the
fourth quarter will spill over in 2019-20 as well.
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CO-LIVING SPACE IN
INDIA IS A $12 BN OPPORTUNITY. START-UPS BETTER CASH IN!
The
co-living space in India is worth $12 billion, according to a RedSeer analysis
based on the size of the population of millennials in the urban workforce. The
report says the industry, which has an addressable market of 10 million
customers, is not winner-takes-all and has plenty of room for many players to
grow and reach a sizeable scale. In India, the undersupply of student
accommodation, coupled with the market size, are a huge draw for developers and
start-ups. Institutional investors and venture capital firms have found their
way to the country, with the likes of Goldman Sachs and Warburg Pincus
investing in the sector. Warburg has set up a joint venture with Lemon Tree and
will invest Rs 3,000 crore to develop full-service accommodation for students
and young working professionals.
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UK FOUND TO BE HOTTEST
INVESTMENT DESTINATION DESPITE BREXIT
Brexit
may be causing all sorts of uncertainty in Britain but it doesn't seem to be
putting off foreign investors. In a survey EY says Britain is the top
investment destination in the world for the first time in the report's 10-year
history — overtaking the United States, which has held the top spot since 2014.
The pound's fall since the June 2016 vote to leave the European Union has made
British assets cheaper, but Steve Krouskos, a global vice chair at EY, notes
Britain also remains an open environment for foreign investors even in the
midst of the Brexit chaos. That culture, he said, is reinforced by the English
language, a skilled workforce, and a strong technology base. Those
long-standing strengths have helped Britain recover as a place to do business
since the shock of the June 2016 referendum, which saw the country narrowly
vote to leave the EU. With so much uncertainty surrounding the future of the
British economy, the country slumped down EY's rankings. In the October 2016
survey, Britain was as low as seventh. There have been a number of high-profile
investments in Britain over the past year, including Comcast's purchase of
satellite broadcaster Sky for around 30 billion pounds (currently $39 billion)
and Coca-Cola's takeover of Costa Coffee for near 4 billion pounds ($5.2
billion). EY found that global interest in mergers and acquisitions is at a
10-year high as managers try to adapt to technological change, with 59% of
companies planning a deal in the next year, up from 52% a year ago.
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AXIATA'S VODA IDEA
RIGHTS ISSUE ENTITLEMENT FULLY SUBSCRIBED
Vodafone
Idea rights issue entitlement worth about Rs 2,000 crore renounced by
Malaysia-based Axiata Group was fully subscribed on Friday on strong demand, a
senior company official said Monday. Axiata renunciation was fully subscribed
on strong demand, Vodafone Idea Chief Financial Officer Akshaya Moondra told. Axiata
held 8.1 per cent stake in Vodafone Idea before the Rs 25,000 crore rights
issue started on April 10. Axiata held 71.2 crore shares, and in the ongoing
rights issue, it was entitled to subscribe 163 crore shares worth about Rs
2,000 crore.
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UPSET OVER PACE OF
WIPRO PROJECT, ODISHA GETS SET TO RECLAIM UNUSED LAND
Miffed
with the tardy progress of IT major Wipro’s Bhubaneswar project, the Odisha
government is bracing up to take back the unused land alloted to the company. Despite
being one of the earliest movers in Odisha's IT growth, software major Wipro
has lagged its peers such as Tata Consultancy Services (TCS) and Infosys in
scaling up. The company's failure to keep to its avowed commitments to expand
its Bhubaneswar centre has drawn the wrath of the state government. The IT firm
has been leased out 26 acres land at Infocity, a sprawling IT park in the city.
We are planning to reclaim the unused land and impress upon the company to
return it. The state government will review the matter and take a final call as
the company has repeatedly failed to honour its promise, said a government
official privy to the development. The state government's planned move to
reclaim land from Wipro sounds expedient in the face of land crunch at Infocity.
Many smaller and mid-tier IT companies are seeking land. We believe the unused
land parcel can be alloted to them, the official added. Official sources said
Wipro has used some 40 per cent of alloted land. Its centre is run by 600
people.
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HUAWEI WARNS DELAY IN
SPECTRUM ALLOTMENT FOR TRIALS COULD HURT INDIA 5G AMBITIONS
Chinese
telecoms gear maker Huawei Technologies has warned that India’s 5G ambitions
could hit an air pocket if adequate compatible spectrum is not made available
swiftly by the government to the telecom industry for conducting trials to
hasten deployment of these much discussed ultra-fast wireless broadband
networks. India with its sizeable young and population, hungry for digital
services, presents attractive opportunities for the 5G services business, but
if spectrum supply constraints of the 4G era continue, then the country’s
growth opportunities on the 5G front would be hindered, Ken Hu, deputy
chairman, Huawei Technologies said Tuesday. 5G, he said, is a strong
technology, but business growth challenges would be imminent if India’s legacy
of fragmented spectrum distribution of the 4G era continues as the country
prepares to go 5G, especially amid heightened competition in the Indian telecom
market. The Huawei deputy chairman’s comments come at a time when the Indian
government is yet to clear the air on whether Huawei will be allowed to
participate in 5G trials in the run-up to the next spectrum sale and rollout of
the ultra fast wireless broadband services. Huawei’s deputy chairman was
interacting with world media at the company’s annual global 2019 analyst meet
in Shenzhen on Tuesday. 5G adoption will happen much more rapidly than 3G or 4G
with an estimated 500 million 5G global users in the next 3 years by 2022, said
Hu.
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UBER NOT ALONE IN
FACING US PROBE FOR INDIA ‘GRAFT’
Companies
based and listed in the US are coming under scrutiny over allegations that
they’ve been paying bribes to officials in India. Cab aggregator Uber disclosed
in its initial public offering (IPO) prospectus last week that that the US
Department of Justice (DoJ) is investigating the company for improper payments
made in India. That follows IT services company Cognizant having to pay $28
million in fines to the US Securities and Exchange Commission (SEC) last month
following accusations that bribes were paid by the company in India to obtain
building permissions. Larsen & Toubro has denied that it was in any way
involved in facilitating the payments. Since 2016, at least a dozen companies
have been pulled up by the SEC for alleged corrupt practices in their Indian
units. The tightening of the FCPA and the creation of a dedicated SEC task
force to monitor violations under the Act have seen a spike in the past three
years against companies for India-related corruption. Between 2000 and 2015,
the regulator had pulled up 10 companies for such violations, with Satyam
Computer Services one of the biggest cases for inflating earnings over several
years. Among the risk factors that Uber cited in its offer document, it said
existing safeguards to discourage corrupt practices by third parties such as
drivers may not prove effective. Uber could be held responsible for such
violations, it said. The investigation is ongoing, and we are cooperating with
the DoJ in this investigation, Uber said without elaborating. We may be subject
to criminal sanctions and other liabilities, which would adversely affect our
business, financial condition, and operating results. It didn’t give any
details about the investigation. Stryker paid $7.8 million in fines for not
having sufficient controls in place to track kickbacks. Stryker’s India
subsidiary failed to maintain complete and accurate books and records, SEC said
in a September 2018 order.
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40-45% OF ONLINE
SMARTPHONE SALES ARE BY RESELLERS: STUDY
Smartphone
purchases have long been considered a driver of online shopping among Indian
end users, but that may not be entirely true. While industry estimates show
that almost 40% of the smartphone sales happen online a new study by tech
consulting firm techARC noted nearly half (40-45%) of this is in the nature of
reseller fraudulent sale. This refers to small and medium-size sellers (or called
resellers in this report) purchasing smartphones in bulk from online portals
and selling them in the offline market, and techARC says this is hurting the
entire smartphones e-commerce segment. With this volume of reseller fraud
prevalent, the pure online sales contribution declines to 21-24% of the total
smartphone sales, the report said. techARC’s finding is based on interaction
with retailers, distributors, logistics companies and others part of the value
chain. Reseller fraud is modernday malpractices adopted by few, making the
entire digital commerce of smartphones appear shoddy and shabby, Faisal
Kawoosa, said. E-commerce portals have technological controls restricting the
number of units a user can buy, but retailers find a way around it using various
techniques, he said.
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SOCIAL FIRMS DON’T WANT
TO DEAL WITH STATE-LEVEL OFFICERS
Internet
and social media companies including Facebook, Google and Twitter have asked
the Election Commission of India for leeway to deal with only the three nodal
officers in Delhi trained to identify potentially unlawful content on their
platforms. At a meeting with the EC on Wednesday, representatives of these
companies said they would prefer to take directions from these officers alone
and not from state-level officials, according to two people aware of the
discussions. They are concerned that too many people may have the power to
censor content on their platforms, if the 36 nodal officials in states also
direct them to take down content, said one of the people cited above. On April
3, the EC directed its state-level bodies to appoint nodal officers as part of
its measures to crack a whip on fake news, hate speech and other problematic
content that violate the election model code of conduct.
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WIPRO INVESTIGATING
POTENTIAL BREACH OF SOME EMPLOYEE ACCOUNTS
Indian
IT services firm Wipro Ltd said on Tuesday some of its employee accounts may
have been hacked due to an advanced phishing campaign and that the company had
launched an investigation to contain any potential impact. The Bengaluru-based
company was responding to a Reuters query after cyber security blog
KrebsOnSecurity said Wipro's systems had been breached and were being used to
launch attacks against some of its clients. KrebsOnSecurity, citing anonymous
sources, said Wipro's systems were being used to target at least a dozen
customer systems. We detected a potentially abnormal activity in a few employee
accounts on our network due to an advanced phishing campaign, Wipro said in an
emailed statement. The company also said it had retained an independent
forensic firm to assist in the investigation. Wipro did not say which clients,
if any, had been compromised. Wipro is scheduled to report fourth-quarter
results later in the day. Larger rivals Tata Consultancy Services Ltd and Infosys
Ltd kicked off the Indian corporate results season on Friday, saying they
expect continued strong growth in the new financial year after posting strong
fourth-quarter numbers.
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EXTERNAL FACTORS ADD TO
INFOSYS' STRUGGLE TO CONTAIN RISING ATTRITION
Even
though Infosys has been pushing hard to contain the rising attrition that
started picking up during the period of leadership transitions at the IT
services major, a host of external factors are now making the task increasingly
tougher. Among company-specific factors, higher (employee) utilisation level,
low increments in the past years and internal turmoil are some of the factors
which contributed to the rise in the number of employees leaving the company in
the past quarters. But now the Bengaluru-headquartered company is also battling
with some of the external factors such as lack of onsite job opportunities, and
competitive salaries being offered by global companies for their captives
centres. In the quarter ended March 2019, Infosys reported a consolidated
attrition rate of 20.4 per cent, up 50 basis points over the preceding quarter.
This is also one of the highest in the industry and is muchmore than that of
its larger peer Tata Consultancy Services (TCS), which had an attrition rate of
just 11.3 per cent in FY19. A big part of the attrition is among people with
three to five years’ experience, and for this set, the earlier value proposition
was onsite (posting) which was a big thing. But given all the mobility
challenges due to restrictive visa regimes, the opportunities are fewer, said U
B Pravin Rao. So that is probably one of the reasons why they (these employees)
look forward to move to other companies, where either they are able to get
higher compensation or different kind of jobs. Industry experts said that while
lack of onsite opportunities could be one of the drivers of high attrition, it
couldn't be the only reason. H1B visa issue has affected the whole industry and
not Infosys alone. Also, hardly one per cent of the total workforce gets onsite
opportunities. The other reasons could be higher utilisation levels, which the
company has seen in recent quarters, said an HR manager at a staffing company.
Even, lower level of hikes at the entry level in past years plays its role,
though the company has started a course correction in this regard, the person
added. While Infosys had re-launched its employee stock option plan (ESOP) for
junior- to middle-level staff in FY17, it also consciously brought down its
utilisation levels (excluding trainees) to 82.3 per cent in the January-March
quarter of last fiscal from around 85 per cent a year earlier. A high level of
employee exits for Infosys doesn't make sense as there isn't enough demand in
the market. Perhaps, employees are now opting for captives run by multinational
corporations for better salary, said Pareekh Jain of Pareekh Consulting.
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AMAZON’S GROWTH IS
SLOWING, CONFIRMS CEO JEFF BEZOS
The
annual Amazon.com Inc. shareholder letters from CEO Jeff Bezos are eagerly
awaited in Silicon Valley for pearls of wisdom from the world’s richest man and
an admired business leader. This year’s edition was extra revealing, although
maybe not in the way Bezos intended. Bezos’s latest letter, released on
Thursday, opens with the first-ever disclosure of Amazon’s total share of sales
from the merchants that use the company’s e-commerce sites as a sales conduit.
The company has long said that those merchants sell about half of the
individual items sold on Amazon, but it has never given their contribution to
the total value of physical merchandise sold on the site. That number — a
common e-commerce metric known as gross merchandise volume — has always been a
secret at Amazon. Not anymore. Based on Bezos’s letter and Amazon’s previous
disclosures, it’s possible to roughly calculate Amazon’s gross merchandise
volume dating back to 2015. It’s a remarkable number — nearly $300 billion
worth of goods sold on Amazon last year. Compare that with the $95 billion in
total merchandise and ticket sales reported by eBay Inc., the distant No. 2
player in U.S. e-commerce. (Walmart Inc. sells more than $500 billion in
merchandise each year, and China’s Alibaba Group Holding Ltd. sells more than
$700 billion in goods.) But there’s a dark cloud in Amazon’s figure. The growth
of Amazon’s total merchandise sales slowed considerably last year, according to
Bloomberg Opinion calculations based on Bezos’s disclosures. This figure is not
the first sign than Amazon’s retail juggernaut may have slipped a bit. In 2018,
Amazon’s nearly $300 billion in GMV was about a 19 percent jump from the prior
year. That was notably slower than the rates of increase of 24 percent and 27
percent, respectively, in 2017 and 2016. It’s hard to explain the slowdown in
Amazon’s merchandise sales growth. If anything, it seems as if Amazon is
grabbing a larger share of e-commerce sales and that the internet is stealing
more sales from physical stores, which have accounted for something like 90
percent of all U.S. retail sales. And yet Amazon’s retail sales growth —
although still impressive — is slowing noticeably. For context, total
e-commerce sales in the U.S. rose about 14 percent in 2018, according to
calculations from figures released by the U.S. Census Bureau. Amazon generates
a large majority of its sales in the U.S., and it’s somewhat surprising that
Amazon’s online sales aren’t growing that much faster than the e-commerce
category. Of course, it’s unfair to expect Amazon to grow like a startup
forever. But it’s not insignificant that this slowdown has come even as Amazon
has attempted to flex more muscle in newer categories. The company has made a
big push into home furnishings, launching private label brands intended to
compete with the likes of Wayfair Inc. and West Elm. It also continues to
expand its selection of owned brand apparel and has been lining up more marquee
names to sell clothes on its site, including J. Crew Group. And with the
expansion of its Prime Now program for items that people want delivered
immediately, the base of consumers that can buy groceries online from Amazon is
growing rapidly. These grocery efforts are particularly important because the
category is among the fastest growing in e-commerce. All of this is to say that
Amazon, in theory, is competing for a greater share of the total retail market
than it was even a few years ago. And the slowdown in growth looks more
concerning against that backdrop. It doesn’t seem like a coincidence that this
comes as its legacy retail competitors finally seem to have awakened and
adapted to the e-commerce era. The two-day Prime shipping that used to
distinguish Amazon from the pack? That’s routine now from the likes of Walmart
Inc., Target Corp. and others. And big retailers are getting good at digital
options that Amazon can’t provide as easily, such as click-and-collect. Lowe’s
Cos., for example, says more than 60 percent of digital orders are picked up in
stores.
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CS Meetesh Shiroya
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