MUMBAI: India's largest stressed assets buyout firm, Arcil - promoted
by the country's top lenders - has slashed its earnings and restated
its profits for FY11 besides shelving a proposal to pay dividend to
its shareholders, after the Reserve Bank of India raised questions
relating to the company's accounting practices.
Arcil has now restated its net profits for 2010-11 to Rs 3.3 crore,
from Rs 51 crore which was approved by the Arcil board on May 3. This
restatement of accounts comes after the RBI questioned the asset
reconstruction company's accounting policy in its annual inspection
report. The banking regulator took the view that Arcil cannot book
income on an accrued basis. Companies that follow an accrual basis of
accounting, report income which is earned but not received. This
forced the company - the first in India to start the business of
buying out stressed assets - to restate its accounts, marking a rare
instance since banks and financial firms do not normally restate their
profits based on inspection reports of the RBI.
The RBI, which regulates asset reconstruction companies, such as
Arcil, has said that Arcil's accounting policy was "modified very
frequently". According to the regulator's inspection report which was
reviewed by ET, Arcil's accounting practice of recognising income on
accrual basis and its reversal only if such income was not realised
for over two years, is not in conformity with RBI rules. The
regulator's norms state that income which is due for over 180 days and
not realised should be reversed. A large part of Arcil's income is
booked on an accrual basis.
Indeed, frequent changes in its accounting practice led to Arcil
reporting a net profit of Rs 84.48 crore for March 2010, which,
according to RBI's inspection report, was overstated by Rs 190.99
crore. ET had reported this in its edition dated July 18.
Asset reconstruction firms, such as Arcil, buy out bad loans from
banks at a discount by either offering cash or security receipts or
SRs, which are structured on the lines of bonds and payable in five to
seven years. These buy-out firms redeem or retire these security
receipts after recovery of the underlying bad loans.
Arcil has also decided to shelve its earlier proposal to pay a
dividend of 8% to its shareholders which include State Bank of India
and IDBI Bank who hold 19.9% equity each, ICICI Bank which controls
13.2% and Punjab National Bank with 10% share. Other shareholders are
IDFC and Lathe Investments, which is wholly-owned by the investment
arm of the Singapore government - the Government of Singapore
Investment Corporation or GIC.
In response to an ET's questionnaire, an Arcil spokesperson said: "The
relevant background information or disclosures have been included in
the directors' report which has been circulated to shareholders as
part of the annual report for FY 2010-11. Arcil does not have any
further comment." Arcil has bought out bad loans aggregating Rs 48,473
crore since inception till March 2011.
According to the Arcil balance sheet, which was reviewed by ET, the
company's board has suggested that no commission should be paid to the
non- executive directors. The external directors are KM Jayarao of
ICICI Bank, B Ravindranath of IDBI Bank, Vikram Limaye of IDFC, SS
Dabas of PNB besides MG Bhide, Pradip Shah, K Chinnaih and Sanjay
Khemani. However, the board has not told its former MD and CEO, S
Khasnobis, whose term was not renewed after July 2011, to return
commissions he received during the year. In an email response to ET,
Khasnobis said that the board may change or consider prudent at any
point of time to revisit any policy, including accounting policy,
usually prospectively or even retrospectively. "As a result of the
change in policy the profit has to be reversed. The board considered
the fact that the performance bonus was paid to me and all employees
of Arcil and suggested that in case for paucity of profit, the MD and
CEO's performance bonus required approval of government under
Companies Act 1956, the same should be done post facto. Against I
understand the approval of government under Companies Act was not
required to be taken," he said. The Arcil board has now cleared the
appointment of former SBI chief general manager MS Bhasin as MD and
CEO.
by the country's top lenders - has slashed its earnings and restated
its profits for FY11 besides shelving a proposal to pay dividend to
its shareholders, after the Reserve Bank of India raised questions
relating to the company's accounting practices.
Arcil has now restated its net profits for 2010-11 to Rs 3.3 crore,
from Rs 51 crore which was approved by the Arcil board on May 3. This
restatement of accounts comes after the RBI questioned the asset
reconstruction company's accounting policy in its annual inspection
report. The banking regulator took the view that Arcil cannot book
income on an accrued basis. Companies that follow an accrual basis of
accounting, report income which is earned but not received. This
forced the company - the first in India to start the business of
buying out stressed assets - to restate its accounts, marking a rare
instance since banks and financial firms do not normally restate their
profits based on inspection reports of the RBI.
The RBI, which regulates asset reconstruction companies, such as
Arcil, has said that Arcil's accounting policy was "modified very
frequently". According to the regulator's inspection report which was
reviewed by ET, Arcil's accounting practice of recognising income on
accrual basis and its reversal only if such income was not realised
for over two years, is not in conformity with RBI rules. The
regulator's norms state that income which is due for over 180 days and
not realised should be reversed. A large part of Arcil's income is
booked on an accrual basis.
Indeed, frequent changes in its accounting practice led to Arcil
reporting a net profit of Rs 84.48 crore for March 2010, which,
according to RBI's inspection report, was overstated by Rs 190.99
crore. ET had reported this in its edition dated July 18.
Asset reconstruction firms, such as Arcil, buy out bad loans from
banks at a discount by either offering cash or security receipts or
SRs, which are structured on the lines of bonds and payable in five to
seven years. These buy-out firms redeem or retire these security
receipts after recovery of the underlying bad loans.
Arcil has also decided to shelve its earlier proposal to pay a
dividend of 8% to its shareholders which include State Bank of India
and IDBI Bank who hold 19.9% equity each, ICICI Bank which controls
13.2% and Punjab National Bank with 10% share. Other shareholders are
IDFC and Lathe Investments, which is wholly-owned by the investment
arm of the Singapore government - the Government of Singapore
Investment Corporation or GIC.
In response to an ET's questionnaire, an Arcil spokesperson said: "The
relevant background information or disclosures have been included in
the directors' report which has been circulated to shareholders as
part of the annual report for FY 2010-11. Arcil does not have any
further comment." Arcil has bought out bad loans aggregating Rs 48,473
crore since inception till March 2011.
According to the Arcil balance sheet, which was reviewed by ET, the
company's board has suggested that no commission should be paid to the
non- executive directors. The external directors are KM Jayarao of
ICICI Bank, B Ravindranath of IDBI Bank, Vikram Limaye of IDFC, SS
Dabas of PNB besides MG Bhide, Pradip Shah, K Chinnaih and Sanjay
Khemani. However, the board has not told its former MD and CEO, S
Khasnobis, whose term was not renewed after July 2011, to return
commissions he received during the year. In an email response to ET,
Khasnobis said that the board may change or consider prudent at any
point of time to revisit any policy, including accounting policy,
usually prospectively or even retrospectively. "As a result of the
change in policy the profit has to be reversed. The board considered
the fact that the performance bonus was paid to me and all employees
of Arcil and suggested that in case for paucity of profit, the MD and
CEO's performance bonus required approval of government under
Companies Act 1956, the same should be done post facto. Against I
understand the approval of government under Companies Act was not
required to be taken," he said. The Arcil board has now cleared the
appointment of former SBI chief general manager MS Bhasin as MD and
CEO.
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