Vedanta books Rs 20,000-cr impairment charge on oil business

The Anil Agarwal-led Vedanta Ltd (earlier known as Sesa Sterlite Ltd) today announced corporate India's largest ever Rs 20,000-crore goodwill impairment charge for loss of value of Cairn India, its

oil & gas business subsidiary, triggered by an unprecedented fall in oil prices.

“Our decision of goodwill impairment was a result of declining pattern in crude oil prices along with the trend seen among global oil & gas companies which closed their accounts for the calendar year with asset impairment,” Tom Albanese, chief executive officer of Vedanta Ltd said at the earnings conference call. Sesa Sterlite closed lower by 2 per cent at Rs 207 a share. The results were announced after the stock exchanges closed.

With this impairment charge, Vedanta tops the list of Indian and multinational companies which took goodwill and impairment charge on their Indian assets as business tide turned against them. The list include Vodafone, BP and Tata Steel (see chart).

Vedanta said crude oil prices, which have dropped nearly 50 per cent in the last few months also compelled Cairn India to exit its Sri Lanka operations adding another Rs 505 crore to the total impairment charges.

Until recently, Cairn India was a major cash cow for Vedanta Ltd to the extent that Chairman Anil Agarwal was also mulling the option to merge the entity into the flagship group company, thus paving a way to create a global natural resources mining giant to rival  Rio Tinto and BHP Billiton.

“We regularly test our asset value half-yearly and since oil prices had significantly fallen in the last few months, we realised that the oil and gas asset needed to be valued lower from value it carried. This is a one-time goodwill impairment that we have taken and will not be able to uplift asset value even if oil prices move up,” said D D Jalan, chief financial officer.

Going ahead, Vedanta does not see much change in crude oil prices and expects it to remain in the range of $55-$65 per barrel. “Unless OPEC plans to cut its production or if there is some geopolitical shock globally, we do not really see much change in crude oil prices in coming months,” said Albanese.

Top impairments: Not so lucky
			Rs Crore
Date	Company name	Asset	Impairment charge
Apr-15	Sesa Sterlie	Oil & gas	20,000
May-13	Tata Steel	Corus	8,000
Feb-09	Hindalco	Novelis	7,780
MNC impairments on Indian assets*
Jan-09	Daiichi	Ranbaxy	17,508
May-10	Vodafone	India operations	15,157
Feb-15	BP	D6- fields	5,255
*Rupee dollar rate as per date of impairments
Source:company filling
Compiled by BS Research Bureau

“Impairment happens when in accounting you realise that the asset will not be able to bring in the cash flow to the extent expected. In such a scenario you lower the asset value. In case of Sesa Sterlite, this was a prudent thing to do as per the accounting literature,” Shyamak Tata, managing partner audit, Deloitte India told Business Standard.

In the quarter ended March, Cairn India reported its first quarterly loss in over seven years at Rs 241 crore as against a net profit of Rs 1,350 crore, in previous quarter. Sharp rise in exploration costs, softening of crude oil prices and one-off charges were the reasons that pushed Cairn India's bottomline in the red zone. Till last year however, Cairn was optimistic about its Mannar basin block in Sri Lanka and was planning to begin gas production from the block by 2017-18. In 2013, the company completed appraisal and commercial studies to determine the next steps for the gas discoveries made on the block.

Globally, oil majors like BP and Royal Dutch Shell have also taken write-offs in the last  couple of years.

The Reserve Bank of India has imposed monetary penalty on Bank of Maharashtra, Dena Bank, and Oriental Bank of Commerce, of Rs. 15 crore each, for violation of Reserve Bank of India instructions, inter alia, on Know Your Customer (KYC)/ Anti Money Laundering (AML).

Eight other banks, namely, Central Bank of India, Bank of India, Punjab and Sind Bank, Punjab National Bank, State Bank of Bikaner & Jaipur, UCO Bank, Union Bank of India and Vijaya Bank have been cautioned to put in place appropriate measures and review them from time to time to ensure strict compliance of KYC requirements in future.

The penalties have been imposed in exercise of powers vested in the Reserve Bank under the provisions of Section 47(A) (1) (c) read with Section 46(4)(i) of the Banking Regulation Act, 1949, taking into account the violations of the instructions/directions/guidelines issued by the Reserve Bank from time to time. This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank and its customers.

On the basis of a complaint received by the Reserve Bank from a private organisation, a scrutiny of fixed accounts opened in its name in Mumbai based branches of certain public sector banks was undertaken in July 2014. With more complaints and involvement of other banks coming to light, a wider thematic review was conducted and in all 12 branches of 11 Public Sector Banks were covered. The scrutiny/thematic review looked into the modus operandi of the alleged frauds involving accounts of certain organisations in these banks, deficiencies / irregularities while opening Fixed Deposits (FD) and extending Overdraft (OD) facility there against. Besides the effectiveness of systems and processes in place pertaining to implementation of KYC norms / AML standards in respect of these accounts was also looked into.
The findings revealed violation of certain regulatory guidelines issued by the Reserve Bank as also other disquieting actions on the part of the banks, as under:

• non-adherence to certain aspects of KYC norms of the Reserve Bank like customer identification and acceptance procedure
• non-adherence to the Reserve Bank’s instructions on monitoring of transactions in customer accounts
• non-adherence to the Reserve Bank’s instructions regarding funds received through Real Time Gross Settlement System (RTGS)
• opening of fixed deposit accounts and granting overdrafts there against without due diligence or process
• weaknesses in the internal control systems, management oversight, use of internal accounts for parking customer funds, etc.
• involvement of middlemen/intermediaries in opening of the accounts as also subsequent operations in those accounts

Based on the findings, the Reserve Bank issued a show cause notice to 11 banks, in response to which the individual banks submitted written replies. After considering the facts of each case and individual bank’s reply, as also, personal submissions, information submitted and documents furnished, the Reserve Bank came to the conclusion that some of the violations of serious nature were substantiated and warranted imposition of monetary penalty on three banks, namely, Bank of Maharashtra, Dena Bank and Oriental Bank of Commerce.  Failure on the part of these banks to take timely remedial measures had aggravated the seriousness of the contraventions and its impact.

In respect of eight other banks, namely, Central Bank of India, Bank of India, Punjab and Sind Bank, Punjab National Bank, State Bank of Bikaner & Jaipur, UCO Bank, Union Bank of India and Vijaya Bank, based on written and oral submissions, it was decided not to impose any monetary penalty as the banks’ explanations were judged to be reasonable. However, these banks have been cautioned to put in place appropriate measures and review the same from time to time to ensure strict compliance of KYC requirements in future. - See more at: http://www.indiainfoline.com/article/news-top-story/rbi-imposes-penalties-on-three-banks-accuses-them-of-kyc-breach-115042900791_1.html#sthash.gUaQjUcL.dpuf

The Reserve Bank of India has imposed monetary penalty on Bank of Maharashtra, Dena Bank, and Oriental Bank of Commerce, of Rs. 15 crore each, for violation of Reserve Bank of India instructions, inter alia, on Know Your Customer (KYC)/ Anti Money Laundering (AML).

Eight other banks, namely, Central Bank of India, Bank of India, Punjab and Sind Bank, Punjab National Bank, State Bank of Bikaner & Jaipur, UCO Bank, Union Bank of India and Vijaya Bank have been cautioned to put in place appropriate measures and review them from time to time to ensure strict compliance of KYC requirements in future.

The penalties have been imposed in exercise of powers vested in the Reserve Bank under the provisions of Section 47(A) (1) (c) read with Section 46(4)(i) of the Banking Regulation Act, 1949, taking into account the violations of the instructions/directions/guidelines issued by the Reserve Bank from time to time. This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank and its customers.

On the basis of a complaint received by the Reserve Bank from a private organisation, a scrutiny of fixed accounts opened in its name in Mumbai based branches of certain public sector banks was undertaken in July 2014. With more complaints and involvement of other banks coming to light, a wider thematic review was conducted and in all 12 branches of 11 Public Sector Banks were covered. The scrutiny/thematic review looked into the modus operandi of the alleged frauds involving accounts of certain organisations in these banks, deficiencies / irregularities while opening Fixed Deposits (FD) and extending Overdraft (OD) facility there against. Besides the effectiveness of systems and processes in place pertaining to implementation of KYC norms / AML standards in respect of these accounts was also looked into.
The findings revealed violation of certain regulatory guidelines issued by the Reserve Bank as also other disquieting actions on the part of the banks, as under:

• non-adherence to certain aspects of KYC norms of the Reserve Bank like customer identification and acceptance procedure
• non-adherence to the Reserve Bank’s instructions on monitoring of transactions in customer accounts
• non-adherence to the Reserve Bank’s instructions regarding funds received through Real Time Gross Settlement System (RTGS)
• opening of fixed deposit accounts and granting overdrafts there against without due diligence or process
• weaknesses in the internal control systems, management oversight, use of internal accounts for parking customer funds, etc.
• involvement of middlemen/intermediaries in opening of the accounts as also subsequent operations in those accounts

Based on the findings, the Reserve Bank issued a show cause notice to 11 banks, in response to which the individual banks submitted written replies. After considering the facts of each case and individual bank’s reply, as also, personal submissions, information submitted and documents furnished, the Reserve Bank came to the conclusion that some of the violations of serious nature were substantiated and warranted imposition of monetary penalty on three banks, namely, Bank of Maharashtra, Dena Bank and Oriental Bank of Commerce.  Failure on the part of these banks to take timely remedial measures had aggravated the seriousness of the contraventions and its impact.

In respect of eight other banks, namely, Central Bank of India, Bank of India, Punjab and Sind Bank, Punjab National Bank, State Bank of Bikaner & Jaipur, UCO Bank, Union Bank of India and Vijaya Bank, based on written and oral submissions, it was decided not to impose any monetary penalty as the banks’ explanations were judged to be reasonable. However, these banks have been cautioned to put in place appropriate measures and review the same from time to time to ensure strict compliance of KYC requirements in future. - See more at: http://www.indiainfoline.com/article/news-top-story/rbi-imposes-penalties-on-three-banks-accuses-them-of-kyc-breach-115042900791_1.html#sthash.gUaQjUcL.dpuf

The Reserve Bank of India has imposed monetary penalty on Bank of Maharashtra, Dena Bank, and Oriental Bank of Commerce, of Rs. 15 crore each, for violation of Reserve Bank of India instructions, inter alia, on Know Your Customer (KYC)/ Anti Money Laundering (AML).

Eight other banks, namely, Central Bank of India, Bank of India, Punjab and Sind Bank, Punjab National Bank, State Bank of Bikaner & Jaipur, UCO Bank, Union Bank of India and Vijaya Bank have been cautioned to put in place appropriate measures and review them from time to time to ensure strict compliance of KYC requirements in future.

The penalties have been imposed in exercise of powers vested in the Reserve Bank under the provisions of Section 47(A) (1) (c) read with Section 46(4)(i) of the Banking Regulation Act, 1949, taking into account the violations of the instructions/directions/guidelines issued by the Reserve Bank from time to time. This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank and its customers.

On the basis of a complaint received by the Reserve Bank from a private organisation, a scrutiny of fixed accounts opened in its name in Mumbai based branches of certain public sector banks was undertaken in July 2014. With more complaints and involvement of other banks coming to light, a wider thematic review was conducted and in all 12 branches of 11 Public Sector Banks were covered. The scrutiny/thematic review looked into the modus operandi of the alleged frauds involving accounts of certain organisations in these banks, deficiencies / irregularities while opening Fixed Deposits (FD) and extending Overdraft (OD) facility there against. Besides the effectiveness of systems and processes in place pertaining to implementation of KYC norms / AML standards in respect of these accounts was also looked into.
The findings revealed violation of certain regulatory guidelines issued by the Reserve Bank as also other disquieting actions on the part of the banks, as under:

• non-adherence to certain aspects of KYC norms of the Reserve Bank like customer identification and acceptance procedure
• non-adherence to the Reserve Bank’s instructions on monitoring of transactions in customer accounts
• non-adherence to the Reserve Bank’s instructions regarding funds received through Real Time Gross Settlement System (RTGS)
• opening of fixed deposit accounts and granting overdrafts there against without due diligence or process
• weaknesses in the internal control systems, management oversight, use of internal accounts for parking customer funds, etc.
• involvement of middlemen/intermediaries in opening of the accounts as also subsequent operations in those accounts

Based on the findings, the Reserve Bank issued a show cause notice to 11 banks, in response to which the individual banks submitted written replies. After considering the facts of each case and individual bank’s reply, as also, personal submissions, information submitted and documents furnished, the Reserve Bank came to the conclusion that some of the violations of serious nature were substantiated and warranted imposition of monetary penalty on three banks, namely, Bank of Maharashtra, Dena Bank and Oriental Bank of Commerce.  Failure on the part of these banks to take timely remedial measures had aggravated the seriousness of the contraventions and its impact.

In respect of eight other banks, namely, Central Bank of India, Bank of India, Punjab and Sind Bank, Punjab National Bank, State Bank of Bikaner & Jaipur, UCO Bank, Union Bank of India and Vijaya Bank, based on written and oral submissions, it was decided not to impose any monetary penalty as the banks’ explanations were judged to be reasonable. However, these banks have been cautioned to put in place appropriate measures and review the same from time to time to ensure strict compliance of KYC requirements in future. - See more at: http://www.indiainfoline.com/article/news-top-story/rbi-imposes-penalties-on-three-banks-accuses-them-of-kyc-breach-115042900791_1.html#sthash.gUaQjUcL.dpuf