DHFL imbroglio

| Updated on July 16, 2019 Published on July 16, 2019

With reference to the editorial and other reports on DHFL’s financial results (July 16), while the Audit Committee Board (ACB) of DHFL is to be appreciated for directing the management to make disclosures under LCDR regulations of SEBI, the notes to accounts do not convey that ACB has played its ‘watchdog’ role for all the stakeholders.

The company has ‘fair-valued’ its entire wholesale loan portfolio of ₹34,818 crore (including ₹16,487 crore of loans, where cheques given for repayment were not en-cashed) and arrived at an impairment loss of ₹3,190 crore, on the plea of having adopted to Indian Accounting Standards (IndAS) with effect from April 1, 2018. Whenever there is a change in accounting standards/practice, it is prudent to disclose what would have been the impact on provisions and gross NPAs, had the earlier method been followed. This is all the more called for, as the portfolio is huge and fair value is arrived at based on “internal valuations involving management judgment and assumptions”. Since September 18, DHFL has sold more than 10 per cent of AUM (₹14,000 crore), as per ICRA ratings, for meeting its repayment obligations. As the sale was under duress, the resultant net reduction in earnings (that would have accrued had the portfolio been carried on) should have been highlighted in the notes to accounts.

Again, the company is on record saying that in view of the company’s inability to raise funds, there is a significant doubt to continue as a ‘going concern’. Still, the company is allowed to reckon substantial amount as deferred tax assets (allowed only when there is a chance to make profits in the near future) so as to show a reduced net loss.

Finally, the CRAR, which was 15.29 as per audited financials as on March 31, 2018, was reduced to 10.24 during the regulator's inspection. The notes to accounts is silent on the quantitative impact to its net worth or the risk-weighted assets.

V Viswanathan


Water crisis

The Indian Railways sending water wagons to Chennai residents is commendable. The government should now extensively involve citizens in the effort to conserve water. Meticulous planning, including initiating steps for rainwater harvesting, will help satisfy every citizen’s need for water. Efforts to conserve water at the micro level and public awareness programmes should increase manifold. Chennai’s acute water crisis is a wake-up call to all citizens to use water judiciously.

The government could also involve multiple agencies to bring efficiency and innovation in water conservation. An effort should be made to reach out to international water agencies to understand and adopt smarter ways to conserve water and help citizens consume water in a judicious manner.

Varun Dambal


Fertiliser subsidy

The move to provide fertiliser subsidy through direct benefit transfer (DBT) is helpful only if the clearly definable disadvantaged segment is given the benefit directly. In the case of fertiliser, all farmers, big and small, are subsidised to maximise domestic production. Moreover, the benefit is available only if they buy fertiliser. As there is no compulsion to use fertiliser, poor farmers may use the cash benefit for more pressing needs.

And rich farmers may tend to neglect the land and retain the cash received from the government. The present system is best left as it is.

NS Parthasarathy


Project financing

This refers to ‘The tortuous pattern of corporate finance in India’ (July 16). After 1999, universal banking came into being with the conversion of development financial institutions (DFIs) into banks. The already burdened banks entered into project financing, which resulted in the accumulation of bad debts due to time and cost overruns. The restructuring of loan books of banks through the IBC and NCLAT mechanisms have not resolved the problem completely. To bring the banks out of the mess, there is a need to recreate DFIs for project funding.

Sanjay Tiwari


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Published on July 16, 2019
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