India Inc gets a governance push from Kotak panel

The Securities and Exchange Board of India’s (Sebi’s) high-profile committee on corporate governance on Thursday recommended several measures to enhance corporate governance standards at India Inc.

The 25-member panel, headed by Uday Kotak, vice-chairman and managing director, Kotak Mahindra Bank, recommended that there should be at least six directors on the board of a listed company, the appointment of at least one woman independent director, a higher frequency of board meetings, and the separation of the roles of chairman and managing director. The committee also suggested a formal framework for sharing sensitive information between the board and the entities that were not part of the board.

Sebi has invited public comments on the report till November 4. Based on the market feedback, the regulator will take a final call on framing a new governance code.

 

Batting for greater transparency, the panel said sound corporate governance helped companies generate “significantly greater returns” compared to those that exhibited poor corporate governance standards. It further said well-governed companies could command a premium between 10 and 40 per cent over the not-so-well-governed ones.

It also called for a host of changes for transparency in appointing independent directors and to ensure their active role in company managements. The panel suggested changing the board composition with at least 50 per cent independent directors. Currently, a board needs to have at least a third of its directors as independent. The committee also called for a better compensation for independent directors in order to balance the “risk-reward” and make it attractive for “competent people” to become independent directors. It also called for exclusive meetings of independent directors.

ALSO READ: Sebi panel for more curbs on royalty payouts, information sharing

The committee suggested increasing the minimum number of board members from three to six and the frequency of board meetings to a minimum of five from four a year. It called for the presence of at least one independent director at every board meeting.

graph Further, it suggested separation of the roles of the chairperson and the CEO and managing director for listed entities, with public shareholding over more than 40 per cent by April 2020 and extend it to all companies by April 2022. The move could impact companies like Reliance Industries, where Mukesh Ambani holds the post of both chairman and MD.

It also proposed a special resolution in case where single executive salary exceeds Rs 5 crore or 2.5 per cent of net profits, whichever is higher.

The Kotak panel made several proposals for effective functioning of board committees, which include audit, remuneration and stakeholder relationship committee. It also advised setting up of information technology committee to focus on will focus on digital and technological developments.

ALSO READ: Governance committee bats for more autonomy at PSUs

In a bid to improve transparency among group entities, the panel suggested revising the definition of a “material subsidiary”. It said an entity will be termed as a material subsidiary if its income or net worth exceeds 10 per cent, up from the current 20 per cent, of the consolidated income or networth respectively of the listed entity. This will also apply to unlisted foreign subsidiaries.

The committee recommended adoption of a transparent framework for exchange of unpublished price sensitive information (UPSI) with promoters or any significant entity not part of the board. It called for creation of special agreements enabling the management to share any UPSI with designated persons. Under the current framework, such information can be shared with members only if they are part of the decision-making process. This issue had assumed significance during the tussle at Tata Sons between their erstwhile chairmen Rata Tata and Cyrus Mistry.

“These measures would bring clarity and create a pathway where promoters can access sensitive information, subject to certain restrictions,” said panel member Keki Mistry, vice chairman and chief executive officer, HDFC.

Addressing the issue of high royalty payments by domestically listed multi-national companies (MNCs) to their parents, the committee recommended payments amounting to over five per cent of the revenues would require approval of the public shareholders. It also recommended high and frequent disclosures of related party transactions (RPTs), often a bone of contention between public shareholders and promoters. The committee also suggested that the government assess an “independent holding structure” for public sector undertakings (PSUs). “The government should consider consolidating its ownership and monitoring of PSUs into independent holding entity structures by April 1, 2020,” the panel said in the 178-page report submitted to Sebi on Thursday.

The move would help in removing conflicts between the government and the regulator. An autonomous environment would enhance the shareholder value and act in the best interest of all stakeholders, the panel said, noting several PSUs are trading at a sharp discount to their private peers. “The proposals cover a diverse set of areas. They should push corporates towards improving board effectiveness, enhance oversight over group entities and RPTs and provide for timely disclosures. The proposals are grounded in market realities with best global practices as benchmarks,” said another panel member Amit Tandon, managing director, IiAS, a proxy governance firm.

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India Inc gets a governance push from Kotak panel

GST Council meets today: Relief for exporters, SMEs on the cards

The Goods and Services Tax (GST) Council, in its upcoming meeting on Friday, is likely to give a major relief to exporters as well as small and medium enterprises (SMEs).

These segments have been affected the most by the new indirect tax regime, which has depressed the economic growth numbers in the first quarter of the current financial year because of destocking on account of uncertainties before the GST was introduced on July 1.

The meeting comes after three most powerful persons in the current political dispensation — Prime Minister Narendra Modi, Bharatiya Janata Party (BJP) President Amit Shah, and Finance Minister Arun Jaitley — huddled together to discuss economic and political issues. Shah cut short his visit to Kerala to attend the meeting. Jaitley also skipped a World Economic Forum event in Delhi to attend the meeting.

 

Growth declined to 5.7 per cent, the lowest in any quarter since the BJP came to power three years ago.

The GST Council is likely to make filing returns for SMEs easier. Those with an annual turnover of up to Rs 1.5 crore will be allowed to file quarterly returns.

Also, the composition scheme, which allows a flat rate and easy compliance, may be relaxed to rope in those with an annual turnover of up to Rs 1 crore against the current Rs 75 lakh. About 540,000 taxpayers opted for the scheme under the new window of about a fortnight till September 30, compared to one million as of August 16 (the earlier deadline). The number of taxpayers under the composition scheme, at 1.5 million, is about a sixth of the 8.9 million assessees under the GST.

Under the scheme, a trader pays the GST at one per cent, a manufacturer at two per cent and a restaurant owner at 5 per cent, but they are not allowed input tax credit. They are permitted to file quarterly returns. The meeting is likely to discuss a report of a committee, headed by Revenue Secretary Hasmukh Adhia, to address the problems of exporters.

graph
graph Based on that the Council is likely to recommend some relaxation for them so that their working capital, locked up in refunds, is released, according to officials. Also, the Central Board of Excise and Customs will inform the Council that it is ready to release integrated goods and services tax (IGST) refunds to exporters from October 10.

The government has allowed exporters to furnish letters of undertaking (LUT) instead of bonds, which will ease the compliance burden and stop the locking up of capital.

Exporters say more than Rs 65,000 crore of capital is stuck because they have to first pay the IGST and then file for reimbursement paid on imports that are accounted for in exports. This was not the case in the earlier tax regime. Two months after the roll-out of the GST regime, the order books of exporters are said to have taken a hit, with estimates pegging the impact at up to 15 per cent across industries and product categories.

According to an assessment by the Federation of Indian Export Organisations (FIEO), the large drop was for export orders that were meant to be delivered until October. Beyond October, this may rise to 20 per cent, as exports during Christmas and New Year may be affected.

The share of exports in GDP declined to 18.2 per cent in the first quarter of the current financial year from 19.3 per cent a year ago. After growing in single digits in the previous three months, exports in August rose by 10.29 per cent, up from 3.94 per cent in July. But exporters and economists are sure that the coming months would prove to be the real challenge for merchandise exports.

Besides, the Centre is likely to release Rs 8,500 crore to states as compensation for losses incurred by them in the first two months of the GST roll-out. This will come up for discussion during the meeting. The cess to be distributed by the Centre to states would be about more than half of the Rs 15,021 crore collected as compensation cess during July and August, Rs 7,198 crore and Rs 7,823 crore, respectively.

“The compensation demand by states is lower than the cess collected. This indicates that the scale of revenue loss feared by states is much lower. However, these are early days. In a few months, the actual picture will emerge,” said a government official.

The government’s overall GST collection stood at close to Rs 95,000 crore in July, and Rs 90,669 crore in August.

Neither BJP sources nor officials were willing to comment on the details of the meeting (attended by Modi, Jaitley, and Shah). However, sources said they discussed GST hassles for exporters and SMEs, besides political issues. Modi is scheduled to be in poll-bound Gujarat on October 7 and 8. Meanwhile, traders in Surat met Adhia on Wednesday.

GST Council meets today: Relief for exporters, SMEs on the cards

Kishore Biyani to buy HyperCity for Rs 911 crore

Eyeing its fifth acquisition over the last five years, Kishore Biyani-led Future Retail said it would buy Shoppers Stop-owned HyperCity for Rs 911 crore. HyperCity racked up sales worth Rs 1,191 crore for the last financial year (FY17).

The takeover value of Rs 911 crore includes Rs 655 crore of stock and cash, remaining being debt.

The deal will be funded through share and cash as part of which the seller will get about two per cent stake (9.31 million shares) in Future Retail. The Future Retail stock ended at Rs 527.65 on Thursday, 0.81 per cent higher than Wednesday’s close.

 

“The acquisition would result in further consolidation in the business of Future Retail and increase its foothold in the hypermarket business,” Future Retail said in its communication to exchanges. The company runs 200-odd Big Bazaars, which fall in the hypermarket segment. It has also come out with a premium version of Big Bazaars called Big Bazaar Gen Next.

HyperCity racked up losses worth Rs 84.73 crore in FY17 on sales of Rs 1,191 crore. HyperCity operates 19 stores over an area of 1.24 million square feet. Future Retail said the deal would be completed in three to five months.

Abneesh Roy, senior vice-president at Edelweiss Securities, said the move augurs well for Future Retail as the deal price is not very expensive and the consolidation will drive its profitability.

“They have been buying chains in the last couple of years and they have done well for them. HyperCity’s 19-20 stores in big cities will help them strengthen their foothold,” Roy said.

graph Roy added that since not many new malls are coming up, acquisition is a good way to add stores and run stores from day one.

After he sold his fashion chain Pantaloons in 2012 to pare debt, Biyani bought Big Apple chain of stores in north India, Nilgiris in South, merged Bharti Retail with his flagship Future Retail and bought the retail business of Heritage Foods, owned by Andhra Pradesh chief minister N Chandrababu Naidu.

Biyani has been focusing on key segments such as food and grocery, and fashion and home to drive growth. He has set a target of achieving Rs 1 lakh crore by 2021 through small stores, data analytics and other initiatives.

For Shoppers Stop, the divestment of loss-making HyperCity will be a boost. Also, recently Amazon bought five per cent in Shoppers Stop, providing online synergy.

The Shoppers Stop stock went up 2.54 per cent on Thursday.

Kishore Biyani to buy HyperCity for Rs 911 crore

Sensex snaps 4-day gaining streak, Nifty ends below 9,900 amid lack of cues

The benchmark indices ended lower on Thursday after four straight sessions of gains, as investors booked profits in oil refiners amid a lack of fresh triggers after the Reserve Bank of India (RBI) kept interest rates unchanged in a move that was widely expected.

The central bank held its policy rate steady near seven-year lows on Wednesday after inflation surged, but looked to prop up the cooling economy by spurring banks into lending more.

The lack of monetary stimulus will leave it to the government to try to boost an economy that unexpectedly expanded at its slowest pace in more than three years in the April-June quarter, sparking talk that the government is considering increasing spending and widening its fiscal deficit target.

 

Overseas, European markets were trading lower as investors took a cautious approach ahead of key data releases.

Sensex snaps 4-day gaining streak, Nifty ends below 9,900 amid lack of cues

Arundhati Bhattacharya made SBI more relevant in just 4 years. Here’s how

State Bank of India (SBI) Chairman Arundhati Bhattacharya’s four-year term, which will end on October 6, has been eventful. Her tenure also coincided with rising bad loans of the banking sector, and the subsequent fire-fighting that is going on the resolution front. Besides that, she prepared the ground for the merger of its associate banks with itself which was completed earlier this year.
Arundhati Bhattacharya was also focused on making the banking behemoth more relevant to the changing business environment, customer needs or employee expectations – making the bank digitally savvy, cordial relations with the regulator and making the organisation employee-friendly, especially for women. Her operational skills were also tested during the demonetisation period, as all banks, including SBI, had to manage the exchange and deposits of scrapped notes. However, the bank’s margins and asset quality came under pressure as the demand for loans reduced significantly along with rising provisions for bad loans.

The question foremost on the minds of bankers, customers and experts is whether she is leaving the bank in a stronger and better position today. Here are the key highlights of Bhattacharya’s tenure in the corner office at the bank’s headquarters in South Mumbai.

The merger

Though already the largest bank in the country, the merger of five associate banks and Bharatiya Mahila Bank with consolidated asset base of over Rs 33 lakh crore, has given the SBI more firepower and scale to compete on global arena. The bank’s merger with six other entities has taken it into the league of top 50 banks globally in terms of assets.

For Bhattacharya, who got a one-year extension last October, the merger was the key task during the past year, which she delivered, said a senior public sector banker.

The bank had done a lot of groundwork prior to the merger, especially in 2016-17 in terms of cleaning up the corporate loan book of associates, integration of information technology systems, and bringing senior management on the same page to ensure smooth transition.

The merger has resulted in strain on the bank’s financials with a rise in slippages in the retail loan book and slow growth in home loans. But, these are one-off events, said an analyst with a domestic brokerage firm.

Relations with regulator and government

A former top SBI executive said the relationship of the head of the largest bank with the regulator Reserve Bank of India (RBI) is crucial. Unlike her two predecessors, who had run-ins especially with the regulator, Bhattacharya developed good working relationship both with the RBI and the finance ministry. The central bank takes her opinion and insights seriously, said an executive at the Indian Banks’ Association.

Capital position

In June, the SBI raised equity capital of Rs 15,000 crore through a qualified institutional placement route, the first such fund-raising after the merger, at Rs 287.25 per share. As a result, its capital adequacy ratio stood at 13.3 per cent at end of June 2017 for combined entity, compared with 13.1 per cent for the standalone bank in the March 2017 quarter.

Asset quality

Bhattacharya in her first two years brought down gross non-performing assets (NPAs) as a percentage of total advances from 5.6 per cent in September 2013 quarter to 4.2 per cent in the September 2015 quarter. However, after the central bank’s asset quality review, applicable from December 2015 quarter, gross NPAs have gone up. The June 2017 quarter showed the impact of poor asset quality in associate banks as gross NPAs touched 10 per cent.

While working to stabilise the asset quality of the bank, Bhattacharya was vocal about taking action against recalcitrant managements and promoters of defaulting companies. But, banks were hamstrung without legal recourse to kick existing managements out. The SBI was no exception to it.

With the Insolvency and Bankruptcy Code giving creditors more rights, Bhattacharya has been instrumental in driving hard bargains in many NPA cases.

In an otherwise steady journey of improvement in asset quality, a merger induced bump up in gross bad loans has queered the pitch.

She was equally vocal about pointing to adverse effect of farm debt waivers on credit discipline. She did find strong support on her view on farm loan waivers from former RBI governor Raghuram Rajan when he was the central bank governor.

Financials

The bank’s financials improved in Bhattacharya’s two years with the net profit rising from Rs 2,375 crore in the September 2013 quarter to Rs 3.879 crore in the September 2015 quarter. However, after the RBI’s asset quality review from the December 2015 quarter, the SBI’s financials began deteriorating. The SBI’s net interest margins, which were in the range of 3-3.2 per cent fell to 2.8 per cent between June 2016 and March 2017, and fell further to 2.4 per cent in the June 2017 quarter after the merger with associate banks.

Digital banking

The leader in physical banking was lagging behind private sector banks in the digital space when Bhattacharya took over as chairman. The bank’s digital offerings both increased and improved as it quickly launched products from e-wallet SBI Buddy to digital branches, and mobile website and apps for all types of customers. As a step to support the fintech ecosystem, the bank created a Rs 200-crore fund to invest in fintech start-ups. Many solutions and services are expected to emerge from this fund to give an edge to the bank for the future.

People focus

Bhattacharya’s people skills are something even her competitors admire. For the merger, she had to bring employees on board, and convinced them patiently to accept it. She let senior colleagues – managing directors – work independently, which is seen a major plus. She has also been sensitive to employees’ concerns and has addressed them effectively. She allowed women employees to work from home if they were caregivers to an ailing parent or if a child had an important exam to take.

Arundhati Bhattacharya made SBI more relevant in just 4 years. Here’s how

Forbes India rich list: Ambani richest with $38 bn net worth, Premji 2nd

Even as the country is facing economic hiccups and the government facing criticisms from various quarters over its handling of the economy, the wealthiest people in India do not seem to be affected. In spite of businesses facing difficulties in the aftermath of the government’s demonetisation of high-value currency last November and its rollout of the goods and services tax (GST) regime in July this year, India’s 100 wealthiest tycoons have seen their combined net worth zooming to a whopping $479 billion, up 26 per cent from $374 billion in 2016.

According to the Forbes’ annual list of India’s 100 richest tycoons, Reliance Industries Chairman Mukesh Ambani remains the country’s richest, with a net worth of $38 billion, Wipro Chairman Azim Premji is a distant second on the list with exactly half the wealth. His net worth stands at $19 billion.

Forbes India rich list: Ambani richest with $38 bn net worth, Premji 2nd

Wind power tariff fall to historic low of Rs 2.64/unit

The wind power sector witnessed a new record at midnight during the second round of bidding for 1000 MW of power projects by the Centre. Tariff fell by 23 per cent in just six months to a new low of Rs 2.64 per unit in an auction held on Wednesday by Solar Energy Corporation of India (SECI).

ReNew Power and Orange Sirong quoted the lowest tariff to win 250 MW and 200 MW, respectively. INOX Wind and Green Infra Wind Energy followed suit and won 250 MW each at Rs 2.65 per unit. These are fixed tariffs for 25 years. Adani Green Energy got 50 MW at Rs 2.65 per unit.

ReNew Power founded by Sumant Sinha is backed by Goldman Sachs in India. Orange Sironj is financially promoted by AT Capital Group, a capital investment firm in Singapore. Inox Wind is a subsidiary of Gujarat Fluorochemicals, operating in the wind energy space since 2008. Leading global energy company Sembcorp Industries Limited bid through Green Infra that it recently acquired in India.

 

ReNew and INOX may set up their projects in Gujarat while Green Infra and Orange have mentioned Tamil Nadu as their project location.

SECI, a public sector undertaking under the renewable energy ministry, conducted the auction. It is the designated agency for implementation of this wind power scheme. Power Trading Corporation will buy the power after entering into power purchase agreements with the successful bidders. The responsibility for the inter-state transmission system connectivity and long- term access lies with the wind project developer.

In the first wind tender issued by SECI in February this year, the tariff discovered was Rs 3.46 per unit, much lower than the prevailing feed-in tariff of Rs 5 per unit in the wind sector. It was followed by bidding held by Tamil Nadu for 500 MW of wind power projects in the state wherein the tariff was Rs 3.42 per unit, in August.

The current government has retired the feed-in-tariff regime in the wind sector to introduce more competition and bring down prices. Aiming at an ambitious target, the ministry of new and renewable energy plans to auction wind power projects every month. However, it will strictly monitor the bid prices to keep them affordable.

Wind power tariff fall to historic low of Rs 2.64/unit