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ICAI issues guidance note on internal financial controls

NEW DELHI: The apex body of chartered accountants’ ICAI has issued detailed guidelines on audit of internal financial controls over financial reporting as required under the new companies law.

According to the guidance note, the auditor needs to obtain reasonable assurance to state whether an adequate internal financial controls (IFC) system was maintained and whether such internal financial controls system operated effectively in the company in all material respects with respect to financial reporting only.

Under the Companies Act, 2013, auditors are required to separately opine whether the company has adequate internal financial controls system in place and the operating effectiveness of such a framework for the year ending March 31, 2016.

In foreword to the more than 200-page guidance note, the Institute of Chartered Accountants of India (ICAI) has said the requirement under the Act has “cast onerous responsibilities on the statutory auditors”.

This is because reporting on internal financial controls is not covered under the standards on auditing issued by the ICAI and also because of the fact that no framework has been prescribed under the Act and the rules thereunder for the evaluation of internal financial controls, it said.

According to Sumit Seth, Partner at Price Waterhouse & Co, the note explains that for auditor reporting, the term IFC is restricted to internal financial control over financial reporting only (ICFR) as of the balance sheet date.

“It (note) also makes clear that such reporting will be applicable for both listed and unlisted companies, including standalone and consolidated financial statements (to the extent of Indian companies within the group),” Seth noted.

Capital First to raise $50 million from IFC

KOLKATA: Mumbai-based non-banking finance company Capital First is looking to raise $50 million from International Finance Corporation in five-year non-convertible debentures.

The funding will be used for lending to women-owned small and medium enterprises, IFC said in a disclosure.

“This investment is part of IFC’s strategic target to reach 10 million MSMEs during FY17-21,” the World Bank’s lending arm said.

This is the second IFC’s debt investment in the company, which is 61% owned by private equity firm Warburg Pincus through its affiliated funds.following. Last year, IFC had invested $52.5 million.

Promoted by former ICICI Prudential Life Insurance managing director V Vaidyanathan, Capital First has 48 offices covering 222 locations in India.

The company has a highly persified loan book of Rs 18800 crore as of December 31, 2016, of which 91% consists of MSME and consumer financing. It has financed 3.5 million customers so far.

Other shareholders of the company include financial investors such as Goldman Sachs Asset Management, GIC — the Sovereign Wealth Fund of the Government of Singapore, HDFC Standard Life, Government Pension Fund Global (Norges Bank Investment Management), Birla Asset Management, Ashburton, Ashmore and other global and local institutional investors.

IFC invests Rs 290 crore in fund raised by Lighthouse

MUMBAI: World Bank unit International Finance Corporation has invested $45 million (Rs 290 crore) in a $200-million fund, being raised by private equity firm Lighthouse to invest in India’s consumer sector.

While IFC will invest $20 million, its asset management arm will put in another $25 million in Lighthouse India Fund III, the PE firm said in a news release.

Lighthouse is able to raise the fund at a time when most fund managers are finding it tough to attract capital from global investors for repeat Indiafocused funds, as a depreciation in the rupee has hurt their returns from earlier investments.

Lighthouse has already received commitments for two-thirds of the $200 million India Fund III from global marquee institutional investors, the release said. The fund is expected to close by the end of next quarter.

Lighthouse’s first India fund of $92.7 million was raised in 2008. The next fund, raised in 2013, was of $138 million. The firm, founded by Mukund Krishnaswamy, William Sean Sovak and with Sachin Bhartiya, has seen half a dozen repeat investors for the third fund.

“For funds with a good track record, getting investors to repose their trust again is not difficult. A lot of first-time fund managers and those who have failed to generate profitable returns have been struggling to raise capital,” Krishnaswamy told ET over the phone.

HDFC to raise funds from retail investors through Green Deposits to finance sustainable housing

Mortgage lender Housing Development Finance Corporation (HDFC) is planning to raise funds from retail investors to support financing of green and sustainable housing projects including loans to developers and homebuyers.

The financing offered through these ‘Green and Sustainable Deposits’ will aim to safeguard the environment from climate change.

Last month, HDFC and the World Bank Group member IFC entered into an agreement to promote green housing in India through lending for affordable and low-income housing.

IFC, the largest global development institution, has extended a loan worth $250 million to HDFC under this partnership. At least 25% of the financing is earmarked for green affordable housing, which is likely to encourage this market in India.

“We have always had a successful deposits program. Though we do not have a target in mind, even a fraction of what we have been raising by way of our regular retail deposits can translate to a reasonable amount. The larger purpose is to provide another product to environmentally conscious customers who also want to contribute towards a better environment and are looking for a dependable platform that can help contribute to this cause at a very nominal cost and least effort,” Renu Sud Karnad, Managing Director, HDFC, told ET.

At present, HDFC has a total deposit base of Rs 1.54 lakh crore (Rs 1.54 trillion) as on June end and even 1% of this the new fundraising will amount to over Rs 1,500 crores.

“Today, sustainability is no longer about doing less harm, but about doing more good. HDFC anticipates growing demand for green solutions and we are raising funds through Green & Sustainable Deposits offering our customers to grow wealth while contributing to serve the needs of a changing world. HDFC is committed towards supporting India’s efforts for a sustainable and green low-carbon economy,” said Deepak Parekh, Chairman, HDFC.

The country’s largest private mortgage lender has signed an agreement with the Indian Green Building Council (IGBC) to promote green buildings in the country. It has disbursed over Rs 19,665 crores of home loans to 47,819 families in certified green building projects across the country as on March end.

More than half of HDFC’s lease rental discounting (LRD) portfolio is certified as green buildings by the Indian Green Building Council or the Leadership in Energy and Environmental Design.

The funds will be raised through deposits from retail investors including both resident and non-resident Indians (NRIs). The deposits will attract an interest rate of up to 6.55% per year and have tenure of 36 to 120 months. Senior citizens above 60 years will be eligible for an additional 0.25% per annum on deposits up to Rs 2 crore.

A green building, or sustainable design, is the practice of increasing the efficiency with which buildings and their sites use energy, water, and materials, and of reducing impacts on human health and the environment for the entire lifecycle of a building.

The government is also pushing the green building movement in India by offering fast track environmental clearance for green building projects which are pre-certified or provisionally certified by IGBC. In some states, an additional floor space index (FSI) is granted to such projects ranging from 1-10% depending upon the rating of the project. Property Tax rebate is also being given to property owners in a few states based on the rating of the project.

World Bank’s IFC warns of Asia-Pacific ‘financial crisis’

JAKARTA: The Asia-Pacific region risks a damaging financial crisis from a surge of non-performing loans caused by rising insolvencies, a senior official from the World Bank Group’s private sector arm said on Thursday.

In an interview with Reuters, Alfonso Garcia Mora, Vice President for Asia and the Pacific of the International Finance Corp (IFC), said bankruptcies were expected to rise by 30% because of the economic crisis caused by the new coronavirus pandemic.

While many firms have been given moratoriums on their loan repayments, many central banks are not requiring financial institutions to regularly monitor these firms’ solvency. This, said Garcia Mora, was “very dangerous”.

“What can happen is that when the bank opens their books in six months, or in 12 months, they will realise that their non-performing loans ratio is not 2% but 20%,” he said.

“This is why I am very concerned about the sequencing of this crisis. We started with a health care crisis, that’s clear. We went into an economic crisis, and we might end up in a financial crisis.”

About 50% of firms will not have enough income to service their loans in the coming year, Garcia Mora said, citing an analysis by the World Bank and the Bank for International Settlements.

With a few exceptions, Garcia Mora said the region’s judicial systems were unprepared for a leap in insolvency cases. There was also a lack of simplified methods for smaller firms to declare bankruptcy and start again, he said.

“We will have probably many zombie firms around that will not be able to liquidate,” he said. “There are other cases where we will need to liquidate firms that should not be liquidated.”

Dire situation

In its most recent forecasts in June, the World Bank estimated that the Asia-Pacific economy would contract by 0.5% in 2020, its lowest rate since 1967.

Globally, the World Bank has estimated 100 million people to fall into “extreme poverty”, where they earn $1.90 a day or less. About half of the newly poverty-stricken will come from the Asia-Pacific, mostly in South Asia, Garcia Mora said.

“We are facing an extremely dire situation as far as youth unemployment is concerned,” he said, with 10 million to 15 million youth jobs predicted to be lost across the Asia-Pacific.

Governments needed to use their “limited fiscal space” to target the most vulnerable; promote the digital and green economies; and reform sectors dominated by inefficient and heavily-subsidised state-owned enterprises.

“This is the time to open the market, to allow private participants to come, to allow all these new entrepreneurs to start coming into the economy,” he said.

Without these reforms to state-owned enterprises, many of those who lost their jobs could end up in the informal economy, with little protections and low salaries.

The IFC has allocated more than $7 billion to boost the liquidity of businesses in the region for the fiscal year ending June 2021, with a focus on small and medium enterprises.