Why Willful Defaulters are laughing away from Banks ??

New RBI data shows wilful defaulters are laughing all the way away from banks

The saying goes if you owe the bank $100 that is your problem; if you owe the bank $100 million, that's the bank's problem.

Banks put all their might to get the money back from retail borrowers if they default on a car or an auto loan. Delay one instalment and banks come knocking on the door. They even resort to naming and shaming tactics, using third parties. The tactics seem to work in most cases and the borrower pays back.

But it is an entirely different game when it comes to corporate loan default, which is at a much bigger scale. Banks seem to forget their drill when faced with powerful defaulters, who have a battery of lawyers which drag the lenders from court to court for years on end. And in the end, banks have little to show by way of recovery.

The numbers game...Ugly numbers are already popping up. The Reserve Bank of India data, shared with Parliament, on December 19 shows that the country’s top 50 "wilful defaulters" owed Rs 92,570 crore to Indian banks as of March 31, 2022.

Wilful defaulters are those borrowers who have the means to pay back the banks but wouldn't do so. Banks ostracise such defaulters from the financial system. Gitanjali Gems, promoted by fugitive economic offender Mehul Choksi, tops the list with Rs 7,848 crore, followed by Era Infra, an exposure of Rs 5,879 crore and Rei Agro which has defaulted on loans worth Rs 4,803 crore.

Choksi, said to be an Antiguan citizen now, is beyond the reach of Indian law. The government and its several law enforcement agencies have, so far, failed to lay hands on any of the high-profile bank defaulters, which include former liquor baron Vijay Mallya, Winsome Diamonds & Jewellery promoter Jatin Mehta and Choksi’s nephew Nirav Modi, who is fighting his extradition from the UK.

But it’s not just about wilful defaults. Much of the Rs 10 lakh crore loan that banks wrote off in the last five financial years belongs to corporates.

Of the total loan write-off, banks could recover only a fraction—around Rs one lakh crore. The remaining Rs 9 lakh crore is as good as gone, though technically the process of recovery is always on.

It’s our money

Every rupee that a bank writes off has to be provided for—called provisioning in the bankspeak.

Banks' profitability thus takes a hit. Who are the real losers? Common shareholders and depositors. Banks are supposed to be the guardians of public money. They raise deposits from small and big depositors and use these to lend to businesses.

So whenever a loan is not repaid, it’s the shareholder of the banks (value erosion) and the depositors (as the bank turns weaker in terms of capital and profitability) who suffer.

The government has, time and again, reiterated its intent to clamp down on wilful defaulters.

Coordinated action by the government, RBI and other sector regulators is critical to tackling wilful defaulters as seen in the Kingfisher case.

Banks are sitting ducks for cronies and crooks. In most cases, banks haven’t made meaningful progress in the recovery from deep-pocketed and well-connected promoters. At the end of a long legal process, the value of underlying assets deteriorates and banks are left empty-handed.

The government’s intervention to speed up the recovery process is equally critical since each penny it feeds to state-run banks from the exchequer is public money.

A lot of ground needs to be covered and quickly, as the loan write-off and wilful defaulter numbers show. Do the government and the RBI have the will to clamp down on wilful defaulters?

(extracts of newspapers)

CA Yogesh Birla

Director
Birla WP Management Co.
read my blogs : www.YogeshBirlaCA.Blogspot.com

नकद भुगतान एवं आयकर कानून

भारतीय आयकर अधिनियम की धारा 40 ए (3) के तहत प्रत्येक व्यक्ति, एकल स्वामित्व फर्म, पार्टनरशिप फर्म और कम्पनी द्वारा किसी भी व्यावसायिक खर्च या माल खरीद के सम्बन्ध में एक दिन में एक व्यक्ति को 10,000/- दस हज़ार से अधिक नकद या बेयरर चेक से भुगतान करने पर आय की गणना करते समय उक्त खर्च या खरीद की कोई छूट नहीं मिलेगी (कुछ विशिष्ट परिस्थितियों व् कृषि सम्बन्धी मामलों को छोड़कर) और ट्रक भाड़े के सम्बन्ध में दस हज़ार की जगह 35,000/- रुपये तक के नकद भुगतान की छूट है | 

🖋️इस सम्बन्ध में विशेष ध्यान देने योग्य बात ये है कि कुछ करदाताओं द्वारा अपनी आय को कम करने के उद्देश्य से 10,000/- दस हज़ार से ज्यादा नकद भुगतान किये गए खर्चों को प्रतिदिन 10,000/- से कम दिखाकर बुक्स ऑफ़ एकाउंट्स में प्रविष्टि कर दी जाती है जिससे इनकी छूट मिल सके लेकिन उक्त नकद खर्चों को टुकड़ों में दिखाना 01/04/2020 से आपको इससे भी बड़ी परेशानी में डाल सकता है क्योंकि धारा 271 एएडी के तहत बही खातों में गलत प्रविष्टि करने पर 100% की पेनल्टी लग सकती है

कई मामलों में खरीद या खर्चों के बिल जो कि दस हज़ार से ज्यादा के होते हैं और करदाता द्वारा उक्त पूरे बिल का भुगतान नकद में किया जाता है लेकिन बिना किसी सबूत के अर्थात अलग अलग तारिख की प्राप्ति रसीद या अकाउंट कन्फर्मेशन), नकद भुगतान को अलग अलग तारीखों में 10 हज़ार से कम दिखाकर उक्त खर्चों की छूट ले ली जाती है और सामान्यतया ऑडिट के दौरान भी उक्त खर्चों को केवल सेल्फ मेड वाउचर के आधार पर allow कर दिया जाता है|

🖋️इसके अतिरिक्त कुछ करदाता वेतन, किराये व् अन्य मासिक खर्चों का भुगतान प्रतिमाह 10,000 से ज्यादा होने पर माह में एक से अधिक बार भुगतान दिखा देते हैं लेकिन उचित प्रमाण / रसीद के बिना उक्त खर्चों को साबित करना मुश्किल हो सकता है|

🖋️उपरोक्त परिस्थिति में 10 हज़ार से कम भुगतान साबित नहीं होने पर आयकर विभाग द्वारा धारा 40 ए (3) के तहत पूरा खर्चा DISALLOW करने के साथ साथ धारा 271 एएडी के तहत बही खातों में गलत प्रविष्टि करने पर 100% अमाउंट की पेनल्टी भी लग सकती है, अतः बिना उचित दस्तावेजी सबूतों के 10 हज़ार से अधिक के बिलों का बहीखातों में टुकड़ों में प्रविष्टि करने से बचें और 10 हज़ार से ज्यादा के बिलों का भुगतान बैंकिंग चैनल के माध्यम से ही करें  ।

सीए. योगेश बिड़ला

Written by :

CA Yogesh Birla

Director
Birla WP Management
visit us at : www.YogeshBirlaCA.Blogspot.com

Effect on Industrial and House-hold earnings.....after Corona pandemic

These words shall be considered as people’s words, and not as an Economist words..... effect on Industry and house hold income, taking into account some very broad numbers, considering 3 months of India lockdown; (1.5 month complete lockdown, thereafter partial lockdown) and 1 or 2 months more before businesses and supply chains get back to its normal. God knows, what new normal operations will be after Corona, but let's say that it get back to 90% of the earlier capacity; not factoring any second wave of a pandemic in my analysis. If that happens, well the numbers below will be further disastrous.

Estimates to keep Indian GDP in positive % growth; this brings me to a subject of Tax collections :

--Direct Tax collections could he down by 25% (Lower corporate profits and Individual earnings)
--Indirect Tax collections could be down by 15% (complete supply chain disruption)
--State Tax collections eg. stamp duty, liquor levies, mining royalties etc. could be down by 15%

How the government will balance the book is again a big subject for another day, wherein today, I will try to estimate how people’s earnings and household incomes would be affected, will break it down in these categories :-

1. Farmers and farm laborers....could see 10 to 15% negative income and 5 to 10% job losses
2. Blue collar workers....5 to 15% job losses and zero incentives and wage increase. So 10% overall lower income for the year
3. White collar workers….. 5 to 10% job losses and reduction in some salaries and perks and almost no bonuses. So overall 10 to 15% lower earnings for the year.
4. Owners of small and medium businesses….Worst hit sector, most people I am speaking to are wondering If they will survive. Most estimated losses for the year, Some may do ok, but overall a 30 to 40% decline in income could be estimated.
5. Large corporation owners and shareholders….. If industry de-growth is at 15% minimum that may result in 20 to 40% lower profits in many segments, and losses in several other segments.
6. Individual service providers (Electricians, carpenters, 100s of other such providers) could also see a 20% lower income
7. Landlords lower earnings due to Residential rentals could drop by 10 to 20% and vacancy could rise by 10 to 15% due to lower number of people migrating within or outside their countries or home cities.
8. Commercial real estate rentals would decrease by 10% on average and vacancy rates could be higher by 10%. Retail rentals would be worst hit by about 15 to 25% and vacancy rates could be higher by 10 to 15%. Overall rental incomes of all segments point to 15 to 20% lower rental income for lease generating assets.
9. Savers would see lower returns on Fixed income products by about 15% with zero additional savings as a whole in the economy. Equity at best could be a flat year with no overall growth or at worst we could see a decline of 15% to 20% in the portfolios. Debt mutual funds would see increased defaults and hence at best give very poor returns.
10. Behavioral change going to happen in many sectors and People are understanding value of savings. People will save more and understand where those savings are getting deployed – mutual funds, insurance premiums, banks, bonds.

India is biggest hub of consumers and producers; with unique survival and balancing of economy, blessed with abundant natural resources, entrepreneurial skills, education level, talent, risk appetite, average working age of about 42 years and may more positive factors. 

India Emerging economy supported with so many strong fundamentals, still need increased flow of money in spending, to keep growth showing new higher numbers. COVID is pandemic, but after covid may have opportunities to grow faster. Entrepreneurs and people sitting at home in Lockdown, shall use this time to plan their positive contribution towards strong Indian economy, better utilization of available resources and develop best appetite for development risk, in pace with changing technology and consumer behavior. Indian businesses are known to change from worst to best……….. Lets prove it again in year 2020, with high hopes

by :

CA Yogesh Birla

Director
Birla WP Management
visit us at : www.YogeshBirlaCA.blogspot.com

Savior of Retail Investors in Stock Market…. Corona impact

Indian stock markets were following global recession signs and sudden eroding of investors wealth came as Corona pandemic. Every session of stock market became evident of falling shares, equity mutual funds, wealth management schemes and related products; what can be savior strategies:

• Investors shall understand performance of their invested stocks / mutual funds, vis-à-vis NIFTY; and justify over-performance / under-performance of their investments.

• Nifty has corrected by 35% due to Corona virus Impact, from Nifty 12,430 in January 2020 to 8,080 in April 2020; providing long term opportunity for Equity investors. Nifty (at level 12,430) was trading at PE/28 which was considered Over Valued by Historical average. Now at 8,080 Nifty PE/18, seems fairly Valued in terms of emerging Indian economy and long term Investors shall remain prepared to take entry at Current valuation levels.

• In stock market, it’s difficult to predict bottom fishing; hence STP option is recommended. Your money may remain parked in a Liquid fund. From Liquid fund every week/month Money is transferred to Equity funds. This way you get benefit of Rupee Cost Averaging and Equity exposure at every Market level uniformly over a period.

• Incase retail investors need tax savings on investments, then ULIPs are the only safe and steady return providing instruments in stock markets; rather than PMS or Mutual funds, direct entry; which is taxable in India context. After a period of 5 years, investors can earn tax free annual income from ULIPs every year by way of partial withdrawals till policy Term. Premiums paid in ULIP having benefit of income tax sec. 80-C and partial withdrawals are tax free. Maturity fund value is also tax free under income tax sec. 10. 

• Corona pandemic has shown abnormally high volatility index, and taught lessons to remain balanced investor; wherein we shall recommend investing in Balanced Fund (creator fund), composition of 65% Equity & 35% Debt allocation and Asset Allocation Fund which increases exposure to Equities in falling markets & books profits in equities in rising markets, which can secure 10% and above cagr on longer horizon. 

• Investors shall remain in touch with stock market so can switch from Equity to Debt funds, Equity to Liquid funds online. Investors can also avail option of investing 25% of total fund in 4 different fund schemes, instead of 100% in a single fund/ single scheme only. Watch shall also be kept for mutual fund charges and fund expenses, which may remain between 2.2% to 2.95% yearly on entire fund value.

by :

CA Yogesh Birla

Director
Birla WP Management
visit us at : www.YogeshBirlaCA.blogspot.com

Corona and Emerging Indian Econony :

We are entering into recession period globally and the exception is likely to be India and China with ~2% GDP growth in 2020 which is way below  ~5 - 8% in the past several years.

For the benefit of all, I am sharing my perspective on such scenario on few aspects as below:

What will change during the slow down:

1. Spend on luxury will come down drastically

2. Long-term / Capital expenditure such as construction, technology will be almost cut to nil

3. Lifestyle expenditure such as salary, rent, infrastructure, entertainment will be minimised

4. Working capital will be under tremendous pressure. Businesses will go out of business especially those who are riding on borrowed working capital

5. New innovative business models will evolve

What will NOT change during the slow down:

1. People consumption on essentials will continue

2. Rise in Investment on ideas / technology solutions that will improve efficiency

3. Short-term trading businesses with healthy cash flow practices will thrive

4. Rise in investment on spiritual / self-learning practices

5. Value for money products / services will shine

What you should do as an individual:

1. Hold back any luxury / high risk investments where visibility of returns is difficult to predict

2. Minimise expenditure on the routine stuff - keep a watch on your lifestyle spend - ask the question, is it really necessary!

3. Develop yourself on improving competency and developing skills to become more sharper and efficient

4. Share the financial situation with your family members and educate them on the family financial position and the plans to improve

5. Invest - yes invest on the right things. History repeats. Take risks based on thorough research. This is not the time to follow tips.

What you should do as an Entrepreneur:

1. Take care of your employees - communicate more than ever. Be reasonable and transparent with them

2. Use the slow down to improve your processes / people

3. Invest in technology / systems that will accelerate your reach in adding value to your customers

4. Be frugal in working capital decisions and operating expenditure

5. Capital expenditure to be on hold unless there is clear visibility on the associated returns

Let us get smarter by helping ourselves and economy to bounce back stronger. We can discuss / interact / improve upon on any of the aspects.  I would be Happy to receive your thoughts / suggestions / ideas.

by :

CA Yogesh Birla

Director
Birla WP Management
visit us at : www.YogeshBirlaCA.blogspot.com

SME expansion funding thru Venture Capital (VC)

SME expansion funding thru Venture Capital (VC)

The requirement of working funding depends on following factors:

1. Size of Business

2. Length of production cycle

3. Seasonal variations in working capital cycle

4. Business cycle with upside and downside turnings

Factors Considered by VC before investing in a Venture:

1. An innovative project is essential but within realistic and logical area, venture capitalists seek any project which promises immense growth potential and competitive ability to succeed and sustain in the market.

2. Entrepreneurial personality, experience and his management team contribute towards the execution and success of the project, since they utilize the VC’s fund the venture capitalist make sure of their major role with managing, working, guiding, and co-coordinating the team towards the right path.

3. Good team work, the mantra for modern success stories in the market, holds good for venture capital funding too.

Market characteristics covers the marketability for the product and the competition it faces from other competitors. Returns in the short period depend on the market characteristics of the project hence it is criterion in decision making for capital funding.

Decision Matrix for funding:

1. Venture capital has become a part of the popular business in India. Venture capital has also become synonymous with investing in high risk technology businesses, that could be majorly IT and can spread across further domains like healthcare, agriculture etc.

2. The VC’s final decision on a proposed venture is based on many criteria and also it differs from one to other. All seek one common thing the right and proper way of documentation for them to analyse the projects faster and easily.

3. if the project is new, promising and has innovative features then VC’s seek to have more interest and are ready to help with more amounts because of its wide market characteristics and its ability to capture the market.

4. Many SME’s usually lack the right method and technique to approach the suitable VC and thereby they seek consultants to seek funds in the startup stage through financial institution.

5. SME firms in India believe that ownership of the company is compromised with the price paid for VC funds.

6. The preference for investing entire capital is given to start-up stage may be because of innovativeness of the project and a good team. It is found that less preferences is given for expansion and turnaround stage of the venture.

7. due to the formal structure of the VC operation and more stringent evaluation process, complete business plans are compulsory.

Thus it can be concluded that even though obtaining finance from Venture Capital is rigid, but the with kind of experts and resources available with the Venture Capitalist, success of the business in which Venture Capital has invested money is ensured.

by :

CA Yogesh Birla

Director
Birla WP Mgm
visit us at : www.YogeshBirlaCA.blogspot.com

SME in India…..Risk Funding Opportunities & Challenges

SME in India…..Risk Funding Opportunities & Challenges

SME (Small & Medium Enterprises) entrepreneurs and their small enterprises are responsible for almost all the economic growth in India. Managing SME is less hierarchical and in most of the cases, the buck stops at you. It doesn’t let one hide behind the pillars. The 3Ps of a large corporate are Performance, Posturing and Politics; though the mix may differ from one organisaiton to the other.

Wherein the 3Ps of an SME are Performance, Performance and Performance. There is much lesser room for mistakes, but much bigger room for pending governance and compliances. There is much more cohesion within the team as either they all float or all sink. I feel attracting and retaining talent is the biggest challenge that an SME faces. An SME manager finds it tough to attract the risk-averse talent pool. The stock market adage, “fear is always bigger than greed”, also holds true for job market. An SME is like a high beta stock, wehre the investor and the job aspirant think alike- fear the downside more than the promise of the potential upside.

Key risk involved in Funding to SME equity:

SMEs need robust risk management as they may not have where withal to manage and control non-operational risks due to their very size and several limitations. Some of the key risks faced by SMEs are listed below:

1. Commodity Price Risk

2. Receivable Risk

3. Leverage Risk

4. Currency Risk

5. Key Man Risk

6. Cash flow Risk

Having discussed some of the prominent risk factors that contribute to failure of SMEs, many of the failures are preventable. Excessive risks taken by SMEs are usually the outcome of improper planning and it may prima facie appear that by hedging all these risks, the margins in the business reduce substantially. However, these margins are the sustainable margins in the business and hence, all efforts should be made to retain and grow this. All other profits are temporary in nature and can easily translate into losses. Calculated risks are part and parcel of any business. SMEs being more prone to failures should make sure that the risks are consciously taken with complete knowledge and clear understanding. Keeping an open minded approach and giving a close look at the common reason of failure will pave way for more sustainable future for SMEs and in-turn will create value for them.

by :

CA Yogesh Birla

Director
Birla WP Mgm
visit us at : www.YogeshBirlaCA.blogspot.com

Start-up India announced- new tax regime in India

Startup-India announcements

1 Tax exemption for start-ups for three years.

2 Rs. 10,000 crore corpus fund to support start-ups.

3 Capital gains tax to be exempted for venture capital investments.

4 80% reduction in patent registration fee.

5 Govt. to ensure 90-day window for start-ups to close businesses.

6 Self-certification compliance for start-ups across India.

7 No government inspection for three years for newly-formed start-ups.

8 New scheme to provide IPR protection to start-ups and new firms.

9 Innovation programme to start 5 lakh schools to target 10 lakh children.

10 Government is all set to launch an app to create a platform for interaction

Pre-requisites for taking benefits of Startup Scheme:

1. It must be an entity registered/incorporated as a:
    a. Private Limited Company under the Companies Act, 2013; or
    b. Registered Partnership firm under the Indian Partnership Act, 1932; or
    c. Limited Liability Partnership under the Limited Liability Partnership Act, 2008.
2. Five years must not had elapsed from the date of incorporation/registration.
3. Annual turnover (as defined in the Companies Act, 2013) in any preceding financial year must not exceed Rs. 25 crores.
4. Startup must be working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
5. The Startup must aim to develop and commercialise:
    a) a new product or service or process; or
    b) a significantly improved existing product or service or process, 
that will create or add         value for customers or workflow.
6. The Startup must not merely be engaged in:
    a. developing products or services or processes which do not have potential for commercialization; or 

    b. undifferentiated products or services or processes; or 

    c. products or services or processes with no or limited incremental value for customers or workflow
7. The Startup must not be formed by splitting up, or reconstruction, of a business already in existence.
8. The Startup has obtained certification from the Inter-Ministerial Board, setup by DIPP to validate the innovative nature of the business and
    a. be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator established in a post-graduate college in India; or 

    b. be supported by an incubator which is funded (in relation to the project) from GoI as part of any specified scheme to promote innovation; or 

    c. be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator recognized by GoI; or 

    d. be funded by an Incubation Fund/Angel Fund/ Private Equity Fund/ Accelerator/Angel Network duly registered with SEBI* that endorses innovative nature of the business; or 

    e. be funded by GoI as part of any specified scheme to promote innovation; or 

    f. have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted. 

* DIPP may publish a ‘negative’ list of funds which are not eligible for this initiative

by :

CA Yogesh Birla

Director
Birla WP Mgm
visit us at : www.YogeshBirlaCA.blogspot.com

Solar Rooftop Project - Installation and Net-Metering

Solar Rooftop Project - Installation and Net-Metering

Solar Projects can be installed on open rooftop space, wherein generated green electricity can be consumed by the customer and excess electricity can be exported to the government grid. Best win-win proposition for consumer, grid, government and environment.

Main features of the Net Metering Policy for Rooftop Solar PV Plants:

1. “Eligible Consumer” means a consumer of electricity in the area of supply of the Distribution Licensee who uses or intends to use a Solar Photo Voltaic (“PV”) generating System having a capacity less than 1000 KW, installed on a roof-top or any other mounting structure in his premises, to meet all or part of his own electricity requirement, and includes a Consumer catering to a common load such as a Housing Society.

2. The capacity of the Roof-top Solar PV System to be connected at the Eligible Consumer’s premises shall not exceed his Contract Demand (in kVA) or Sanctioned load (in kW).

3. If the quantum of electricity exported exceeds the quantum imported during the Billing Period, the excess quantum shall be carried forward to the next Billing Period as credited Units of electricity. The unadjusted net credited Units of electricity as at the end of each financial year shall be purchased by the Distribution Licensee at its APPC as approved for that year. At the beginning of each Settlement Period, the cumulative quantum of injected electricity carried forward will be re-set to zero.

4. In case the Eligible Consumer is within the ambit of ToD tariff, the electricity consumption in any time block, i.e. peak hours, off-peak hours, etc., shall be first compensated with the quantum of electricity injected in the same time block.

Authored by :

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com

Start-ups in India - Accounting & Legal Compliances

Startup entrepreneurs in India mostly working with business format of Company or Limited Liability Partnership (LLP) needs to be more particular on accounting, taxation and compliance procedures for better valuation. Most startups think that since they have no business transactions or accumulated losses, they do not need to file their tax returns. Every company / LLP in India has to comply with basic compliances irrespective of its business situation or profit / loss status.

1. Book Keeping and Accounting Procedure:

Recording the transactions and preserving bills and invoices to back financial statements is something that most business owners dread. Avoiding this leads to serious repercussions. For example, at the time of incorporation, a company pays the registration fees, name approval fees and stamp duty to RoC. Further, the promoters of the company also hire a professional firm to guide them through the entire incorporation procedure, which again involves cash outflow.

These expenditures, though pre-incorporation in nature, provides tax-saving benefits to the company, to the extent of one-fifth of such expenses every year. Further, invoices carrying break-ups of VAT and service tax is a boon, as far as claiming credit for both is concerned. The company should keep records of all expenses made specifically for business, since these are deductible against business revenues. Even if the company is suffering losses, it is advisable to maintain records in order to raise the losses and set it off with future profits.

In case of non-compliance, persons responsible shall, in respect of each offence, be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5,00,000 or both in case of companies.

2. Income Tax Return & Compliance Filing

Filing of income tax return is the most authentic proof of the income earned as all are required to file it.  But many do not file tax returns as they are unaware of the procedure. Startups should appoint a tax consultant who will help them avail the benefits of filing tax return in time. Some of the benefits include:

· A business having losses can carry it forward and get it set-off with future profits.

· For making an investment, filing income tax return on time is essential.

· Tax refunds can be claimed only when income tax return is filed.

.Timely filing of ITR is necessary for smooth bank / debt funding for project.

The due date for filing Income Tax return is September 30 each year. Various procedures of penalty and interest are applicable for delayed filings.

3. Statutory Audit

It is mandatory to get accounts audited annually for all companies, whereas LLP has certain financial limits for statutory audit compliances. The LLP Act provides that the partners of such LLP if decided not to get audit of the accounts of the LLP then such LLP shall include in the Statement of Account and Solvency a statement by the partners to the effect that the partners acknowledge their responsibilities for complying with the requirements of the Act and the Rules with respect to preparation of books of account and a certificate in the Form 8. However no such relaxation is provided to companies.

4. Registrar of Companies Compliances & LLP Act

Every company (having or not having share capital) and LLP has to file its financial reports with the Ministry of Corporate Affairs annually. It constitutes a component of ‘Annual RoC Filing’ mandated by Companies Act, 2013. As a part of annual filing, Companies incorporated under the Companies Act 2013, are required to file the Balance Sheet, Profit & Loss Account and Annual return in prescribed format thru e-forms with the RoC. The penal provisions of RoC are so stringent that companies have been shut down due to this. The additional fees can be as high as upto 12 times of normal fees. Further, there also provisions where huge penalties are laid per day on officers as well as the companies simultaneously.

As a part of Annual Filing, LLPs are required to file Statement of Account & Solvency and Annual Return of LLP thru e-forms with the RoC.  Surprisingly, there are no slabs for late filing fee for LLPs. In this regard, the straight rule of computation of late filing fee is Rs 100 per day of delay in filing. The number of days of delay in filing is calculated from the due date of filing to the actual filing date.

As mentioned earlier, these compliances have to be adhered to irrespective of your business situation. Non-compliance of these provisions has the capacity to shut down a full-fledged business.

Authored by :

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com

REC trade-ability and future of Solar Projects in India

Entrepreneurs, Investors, Industrialist and Capitive consumers are setting up grid connected Solar Power Generation Projects in India along with inbuilt REC certificate mechanism. Wherein along with every unit of electricity generated, project become liable for REC certificate earnings. Later on monthly interval, REC are traded on Power Exchanges in India with open trade options for buyers and sellers.

As a Project Professional and Financial Advisor for renewable energy projects, I have to reach on conclusion that, which one is bigger risk......... The Tariff or The REC revenue realisation. In my views, REC is proving itself as non-revenue earning certificate credits. As we cross the halfway mark of this financial year, there has not been any change in the pattern that has been observed during almost every trading month since April 2014 – ever increasing number of sell bids, but a very stable and extremely low levels of buy bids. The only difference this time is that the number of RECs available for sale has gone beyond the 1 Crore mark.

The monetary value of these unsold RECs at their floor prices (Rs. 9300) is calculated at Rs. 1816 Crore (including of Rs. 350 Crore for unsold Solar RECs and Rs. 1466 Crores for unsold non-solar RECs). If this does not lead to any action from the regulators and policymakers to protect the investors, nothing else will boost the solar energy development in our great India.

Authored by :

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com

Lessons from the Past…….for betterment of FUTURE Solar Project

Lessons from the Past…….for betterment of FUTURE Solar Projects

Based on the experience of implementation and strategic consultancy for variety of solar projects, ranging from 1mw to 20mw grid connected Solar PV Projects.

Solar PV project implementation is a very complex mix of activities, including :

-Documentation,

-Timely submission and paper work,

-Govt. approvals,

-Planning,

-Designing,

-Land selection,

-Best mix of equipments and vendors,

-Engineering

-Financing etc.

Developers has to remain very alert about updates, since decisions at every stage is very crucial and important to life of the solar project, efficiency for 25 years generation, return on investment, performance ratio, operation & maintenance etc.

Solar Project success depends on raw material (Sun Rays) and accurate calculation of availability of solar radiation is very important. This can be classified under Resource Assessment and selection of optimum suitable location. Then decision regarding equipments, vendor, guarantee, warranty etc. has to be taken in proper decision matrix. After generation of power, it is essential to have proper planning for power evacuation and power transmission. This depends on synchronization between developer’s system and government transmission facilities. Any adverse situation or non-synchronization shall result in direct revenue loss to the developer.

Expertise of developer’s team / consultant (owner’s engineer) shall be into right mix of technology, right mix of equipments, right mix of local situation, right mix of own system and government system. All these factors are more important, rather just opting for a Turnkey Contractor or EPC company on lowest price quotes. Since accurate project planning is going to survive your solar project for the life of 25 years operations and revenue and business interest of Turnkey Contractor or EPC is limited upto the commissioning of your solar project. It is crucial to make prudent investments after incorporating risk control measures.

In the interest of Solar Power business development in India………………

Authored by :

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com

Financing of Solar PV projects in India

Financing Solar PV Projects in India:

Solar Projects installations in India begin in year 2008. Most of the projects are located in the State of Rajasthan and Gujarat. Indian solar market is regulated by Government FIT, Own consumption and REC mechanism.Financing a Solar PV project is a challenging job for any financial consultancy firm. Wherein following options may be availed:

• Corporate Financing
• Lease Financing
• Project Financing

Decision Matrix criterions for Lender institutions……Screening of a Solar PV project:

Following parameters to be simulated for minimum DSCR for different FIT and irradiations.

• Calculation of minimum promoter’s equity required to achieve minimum DSCR
• Calculation of maximum Capex required to achieve minimum DSCR.
• Light business approach with minimum DSCR as key parameter
• Maturity 5-8 years
• Standard down payment 20%-30%
• Mandatory insurance coverage as per banking policy
• Mandatory O&M agreement
• Due diligence by external appraisers
• Performance monitoring agency

How do we structure debt/equity deals for our clients:

• Screening of EPC contracts with various standard and subjective parameters
• Screening of Govt. schemes and FIT regulations
• Payback calculations with FIT, Depreciation benefits, Cost of Debt, Equipment sourcing etc.
• We validate each transaction with a separate financial evaluation team representatives.
• Project financing bankable set of finance contracts with a set of covenants as standarised by Banks and Rating agencies.
• Financial Model goes through several audit checks.

Authored by :

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com

Anti-dumping duty on Solar cells and modules in India

India might impose anti-dumping duty on four major importers of Solar Cells and Solar Modules in the country after listening to the grievances of domestic manufacturers.

Local producers have filed a case last year, alleging that countries such as the USA, China, Malaysia and Taiwan were exporting solar equipment to India at "ridiculously low prices" which was "bleeding the local industry".

Authored by :

CA Yogesh
DirectorBWPM Co.

visit us at : www.Yogesh-CA.blogspot.com

REC Market updates in India :

REC Market updates in India:

At present there is very weak enforcement action by electricity regulators of different states, which has widened the demand supply gap of REC (Renewable Energy Certificates).

As per a news published in the Business Standard, Mr. Tarun Kapoor (Joint Secretary of MNRE) said “ we have realized that few state discoms and private companies are not following regulations of RPO and not complying with minimum RPO targets for the year. To make it mandatory, we have proposed an amendment to the Electricity Act.”

It will be a big push to strengthen the REC market in India, as this will be the strong driving force of RPO, being regulated by this enforcement. At times, state regulators tend to postpone enforcement of RPO obligations. Considering law is being amended, state regulatories would have to strictly enforce it and a penalty could be imposed for non-compliance, which in turn would put pressure on discoms to meet their obligation properly, during the year.

REC mechanism can be installed properly only by Government make it mandatory and enforce binding provisions to meet RPO on timely intervals. If Solar REC certificates are not sold, their incentive for setting up of Solar Power Project declines and make it totally unviable financial project for developers. State discoms are largely benefited by REC, as they are real beneficiaries due to availability of electricity on pooled cost under 25 years PPA with solar project developers. This availability of solar power is going to reduce their dependency on environment harmly pollutive electricity being generated by coal, gas, lignite and other sources.

Authored by :

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com

Intangible Assets...........Depreciation available in Income Tax Law in India

Intangible Assets………Depreciation available in Income Tax Law in India

In the era of Globalisation, business has become more knowledge based; giving more importance to intellectual property rights. Section 32(1)(ii) of the Income Tax Act 1961, was introduced in financial budget of year 1998, providing that depreciation would also be allowed on intangible assets; acquired on or after 1^st April, 1998.

Definition of Intangible Assets includes followings:

--Marketing rights

--Contract Rights

--Brand Name

--Know-how Patents

--Copyrights

--Trademarks

--Licenses

--Franchise

--Non Compete payments

--Tenancy Rights

--Membership Rights

--or any other business or commercial rights of the similar nature.

Goodwill is a bundle of rights which include, inter alia, patents, trade marks, licenses franchises etc. and they assume importance in commercial world as they represent a particular benefit or advantages or reputation built by a person / company / business house over a period of time and customers associate themselves with such assets; hence depreciation would be allowable on the same.

Authored by :

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com