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BACKSTAB02
SEASON 7, ISSUE 2
PARTHASARATHI MAJUMDER RISHABH GHELANI KUNAL BAJAJ
CONTENTS
Sl.
No. Particulars Page No.
Financial
Statements
a collection of a
business' financial
information
The balance sheet (as per Schedule III of the Companies Act, 2013) is divided into two
halves:
• Equity and Liabilities, presented first, above the assets or the left side of a page
(in case of balance sheets other than as per Schedule III for non-companies)
• Assets, presented below equity and liabilities or the right side of a page (in case
of non-companies)
• Liabilities: Liabilities are the debts or obligations owed by the company, to its
owners or outsiders, that originate during the course of doing business. Liabilities
help fulfil the immediate cash requirements of the company in case finance is not
available to the business. They are vital to an organization because they are used
to finance operations and pay for large expansions. Liabilities include loans,
debentures, accounts payable, etc.
• Assets: Assets represent what the company owns, and what it expects to own in
the future. They are the items of value that help the organization to earn future
economic benefits. Assets help the organization to operate smoothly and earn
revenue. In a balance sheet, assets are sorted according to their capability of
turning into liquid cash, with the most illiquid assets mentioned first, like buildings,
and the most liquid assets mentioned last, like cash and bank balances.
Balance as at
Sl. Balance as at
No.
Notes 31.03.2017
Particulars 31.03.2016 (Rs.)
(Rs.)
EQUITY & LIABILITIES
1. Shareholder’s funds
a. Share Capital 15,00,000 10,00,000
b. Reserves & Surplus 2,00,000 1,50,000
c. Money received against - -
share warrants
2. Share application money pending - -
allotment
3. Non-current liabilities
a. Long term borrowings 3,00,000 4,50,000
b. Deferred tax liabilities - -
c. Other long-term liabilities 1,00,000 1,00,000
d. Long term provisions 4,00,000 3,00,000
4. Current liabilities
a. Short-term borrowings 10,00,000 8,00,000
b. Trade payables 7,50,000 6,00,000
c. Other current liabilities 70,000 1,00,000
d. Short term provisions 80,000 80,000
Total 44,00,000 35,80,000
𝐴𝑛 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑆ℎ𝑎𝑟𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑔𝑒𝑛𝑒𝑟𝑎𝑙𝑙𝑦 𝑖𝑚𝑝𝑙𝑖𝑒𝑠 𝑡ℎ𝑒 𝑐𝑜𝑚𝑝𝑎𝑛𝑦 ℎ𝑎𝑠 𝑖𝑠𝑠𝑢𝑒𝑑 𝑛𝑒𝑤 𝑠ℎ𝑎𝑟𝑒𝑠
𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑝𝑒𝑟𝑖𝑜𝑑. 𝐼𝑛 𝑡ℎ𝑒 𝑔𝑖𝑣𝑒𝑛 𝐵𝑎𝑙𝑎𝑛𝑐𝑒 𝑆ℎ𝑒𝑒𝑡 𝑜𝑓 𝐷𝑒𝑙𝑒𝑡𝑒 𝐶𝑜𝑛𝑠𝑢𝑙𝑡𝑖𝑛𝑔, 𝑖𝑡 𝑐𝑎𝑛 𝑏𝑒 𝑖𝑛𝑡𝑒𝑟𝑝
− 𝑟𝑒𝑡𝑒𝑑 𝑡ℎ𝑎𝑡 𝑐𝑜𝑚𝑝𝑎𝑛𝑦 ℎ𝑎𝑠 𝑖𝑠𝑠𝑢𝑒𝑑 𝑠ℎ𝑎𝑟𝑒𝑠 𝑤𝑜𝑟𝑡ℎ 𝑅𝑠. 5,00,000 𝑑𝑢𝑟𝑖𝑛𝑔 2016 − 17
✓ Reserves & Surplus: Reserves are usually money earmarked by the company
for specific purposes. Surplus refers to all the profits earned by the
company. Examples of reserves may be:
General Reserve – retained earnings of a company kept aside out of profits
to meet some future obligations; Securities Premium Reserve – the amount
received by the company over the face value of its shares; Capital Reserve –
amount set aside by the company for future capital investment projects.
𝐴𝑛 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑅𝑒𝑠𝑒𝑟𝑣𝑒𝑠 & 𝑆𝑢𝑟𝑝𝑙𝑢𝑠 𝑎𝑐𝑐𝑜𝑢𝑛𝑡 𝑖𝑚𝑝𝑙𝑖𝑒𝑠 𝑡ℎ𝑒 𝑎𝑑𝑑𝑖𝑡𝑖𝑜𝑛 𝑜𝑓 𝑝𝑟𝑜𝑓𝑖𝑡𝑠 𝑡𝑜 𝑡ℎ𝑒
𝑠𝑎𝑚𝑒, 𝑜𝑟 𝑎𝑛 𝑎𝑑𝑑𝑖𝑡𝑖𝑜𝑛 𝑡𝑜 𝑜𝑛𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑅𝑒𝑠𝑒𝑟𝑣𝑒𝑠 𝑎𝑐𝑐𝑜𝑢𝑛𝑡. 𝐼𝑛 𝑡ℎ𝑒 𝑔𝑖𝑣𝑒𝑛 𝑒𝑥𝑎𝑚𝑝𝑙𝑒, 𝑎𝑛 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒
𝑖𝑛 𝑅𝑠. 50,000 𝑚𝑎𝑦 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑒 𝑡ℎ𝑒 𝑎𝑑𝑑𝑖𝑡𝑖𝑜𝑛 𝑜𝑓 𝑝𝑟𝑜𝑓𝑖𝑡𝑠 𝑡𝑜 𝑡ℎ𝑒 𝑎𝑐𝑐𝑜𝑢𝑛𝑡 𝑜𝑟 𝑡ℎ𝑒 𝑎𝑑𝑑𝑖𝑡𝑖𝑜𝑛 𝑡𝑜
𝑜𝑛𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑟𝑒𝑠𝑒𝑟𝑣𝑒𝑠.
Non-current liabilities
These are long term financial obligations of a company that are not due within the
present accounting year.
✓ Long term borrowings: These, as the name implies, are the loans and
advances received by a company that are not to be paid back within the
present accounting year.
𝐴𝑛 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑙𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝑏𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔𝑠 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑒 𝑡ℎ𝑎𝑡 𝑎 𝑙𝑜𝑎𝑛 ℎ𝑎𝑠 𝑏𝑒𝑒𝑛 𝑡𝑎𝑘𝑒𝑛 𝑖𝑛 𝑡ℎ𝑒
𝑙𝑎𝑠𝑡 𝑎𝑐𝑐𝑜𝑢𝑛𝑡𝑖𝑛𝑔 𝑦𝑒𝑎𝑟, 𝑤ℎ𝑒𝑟𝑒𝑎𝑠, 𝑎 𝑑𝑒𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑒 𝑡ℎ𝑒 𝑏𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔 ℎ𝑎𝑠 𝑏𝑒𝑒𝑛 𝑟𝑒𝑝𝑎𝑖𝑑.
𝐼𝑛 𝑡ℎ𝑒 𝑔𝑖𝑣𝑒𝑛 𝑒𝑥𝑎𝑚𝑝𝑙𝑒, 𝑡ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑏𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔𝑠 ℎ𝑎𝑣𝑒 𝑟𝑒𝑑𝑢𝑐𝑒𝑑 𝑏𝑦 𝑅𝑠. 1,50,000. 𝑇ℎ𝑖𝑠
𝑤𝑜𝑢𝑙𝑑 𝑏𝑒 𝑜𝑛 𝑎𝑐𝑐𝑜𝑢𝑛𝑡 𝑜𝑓 𝑟𝑒𝑝𝑎𝑦𝑚𝑒𝑛𝑡 𝑜𝑓 𝑙𝑜𝑎𝑛 𝑢𝑝𝑡𝑜 𝑡ℎ𝑎𝑡 𝑎𝑚𝑜𝑢𝑛𝑡.
✓ Deferred tax liabilities: are tax liabilities a company may postpone paying
until sometime in the future, often to encourage activities for public’s good.
✓ Other long-term liabilities: These may include items such as deferred credits,
customers deposits or some estimated tax liabilities.
✓ Long term provisions: Provisions are amounts set aside by a company to pay
for anticipated future losses. These may be general or specific in nature,
specific when they are set aside for one particular event only.
An increase in provision indicates an increase in the amount set aside,
whereas, a decrease in the same indicates the use of previously created
provisional funds.
Current Liabilities: These are short term financial obligations of a company, that
are to be due within the current financial year.
✓ Short term borrowings: As the name implies, these are borrowings that are
to be repaid within the current financial year.
𝐴𝑛 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑠ℎ𝑜𝑟𝑡 𝑡𝑒𝑟𝑚 𝑏𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔𝑠 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑒𝑠 𝑡ℎ𝑎𝑡 𝑡ℎ𝑒 𝑐𝑜𝑚𝑝𝑎𝑛𝑦 𝑏𝑜𝑟𝑟𝑜𝑤𝑒𝑑 𝑓𝑢𝑛𝑑𝑠
𝑡ℎ𝑎𝑡 𝑎𝑟𝑒 𝑡𝑜 𝑏𝑒 𝑟𝑒𝑝𝑎𝑖𝑑 𝑤𝑖𝑡ℎ𝑖𝑛 12 𝑚𝑜𝑛𝑡ℎ𝑠, 𝑎𝑛𝑑 𝑎 𝑑𝑒𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑒𝑠 𝑟𝑒𝑝𝑎𝑦𝑚𝑒𝑛𝑡.
✓ Trade payables: These are the amounts owed to a supplier for goods or
services, where the amount is not paid immediately, but is billed to be paid
in future.
𝐴𝑛 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑡𝑟𝑎𝑑𝑒 𝑝𝑎𝑦𝑎𝑏𝑙𝑒𝑠 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑒𝑠 𝑚𝑜𝑟𝑒 𝑔𝑜𝑜𝑑𝑠 𝑤𝑒𝑟𝑒 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑑 𝑏𝑦 𝑡ℎ𝑒 𝑐𝑜𝑚𝑝𝑎𝑛𝑦
𝑜𝑛 𝑐𝑟𝑒𝑑𝑖𝑡, 𝑟𝑎𝑡ℎ𝑒𝑟 𝑡ℎ𝑎𝑛 𝑝𝑎𝑖𝑑 𝑓𝑜𝑟 𝑖𝑚𝑚𝑒𝑑𝑖𝑎𝑡𝑒𝑙𝑦. 𝐴 𝑑𝑒𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛𝑑𝑖𝑐𝑖𝑎𝑡𝑒𝑠 𝑟𝑒𝑝𝑎𝑦𝑚𝑒𝑛𝑡 𝑜𝑓
𝑑𝑢𝑒𝑠 𝑡𝑜 𝑡ℎ𝑒 𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑟𝑠.
✓ Short term provisions: These are provisions created to account for current
speculative losses or other purposes.
2. Current assets
a. Current investments 50,000 25,000
b. Inventory 5,50,000 4,75,000
c. Trade receivables 7,00,000 8,00,000
d. Cash and cash equivalent 9,26,000 8,68,000
e. Short term loans and advances 74,000 80,000
Non-current assets
✓ Fixed Assets: Fixed assets are tangible, long-term assets not intended for
sale that are used by an organization in its operations to generate
income.
These include land, building, machinery equipment, furniture, etc.
𝐴𝑛 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑓𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡𝑠 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑒𝑠 𝑎𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 𝑜𝑓 𝑛𝑒𝑤 𝑓𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡𝑠, 𝑤ℎ𝑒𝑟𝑒𝑎𝑠 𝑎
𝑑𝑒𝑐𝑟𝑒𝑎𝑠𝑒 𝑚𝑎𝑦 𝑖𝑚𝑝𝑙𝑦 𝑒𝑖𝑡ℎ𝑒𝑟 𝑠𝑎𝑙𝑒 𝑜𝑓 𝑓𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡𝑠, 𝑜𝑟 𝑗𝑢𝑠𝑡 𝑡ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑒𝑑 𝑜𝑓𝑓
𝑡ℎ𝑒 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑓𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡𝑠. 𝑇ℎ𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑐𝑎𝑛 𝑏𝑒 𝑎𝑠𝑐𝑒𝑟𝑡𝑎𝑖𝑛𝑒𝑑 𝑓𝑟𝑜𝑚
𝑡ℎ𝑒 𝑆𝑡𝑎𝑡𝑒𝑚𝑒𝑛𝑡 𝑜𝑓 𝑜𝑓 𝑃𝑟𝑜𝑓𝑖𝑡 & 𝐿𝑜𝑠𝑠.
✓ Long term loans and advances: These are the money lent by the company
to other companies, or its employees, that won’t be realized in the current
accounting year.
Current assets
✓ Current investments: These are investments held by the company which are
expected to be converted into cash within a year.
✓ Inventory: Inventory includes raw materials, work-in-progress, and finished
goods that are ready or will be ready to sold as part of the company’s
normal business.
✓ Trade receivables: Trade receivables refer to the customers who have not
cleared their dues with the company yet for the goods or services bought
by them.
✓ Cash and cash equivalent: These refer to the assets of a company that are
cash, or can immediately be converted into cash. Example of cash and cash
equivalents include bank accounts, marketable securities, commercial paper,
treasury bills, etc.
✓ Short term loans and advances: These are the amount lent by the company
to the outsiders or its employees that are expected to be realized in the
current year.
✓ Other income includes revenue earned from all other sources such as interest
from loans and advances, dividends from investments, profit from sale of fixed
assets, etc.
✓ Cost of material consumed means the sum of all the cost spent on raw material,
store, and consumed to arrive at a final finished goods. An increase in cost of
material consumed may imply increase in the usage of raw material, or an increase
in the cost of raw material.
✓ Employee benefit expenses are indirect means of compensating workers, over and
above the normal wages or salaries that they receive. These include insurances for
the workers, incentives, retirement benefits, etc.
✓ Finance cost includes costs such as interests and other costs that an entity incurs in
connection with borrowing of funds for building and purchasing of assets. These
are also known as borrowing costs.
✓ Other expenses are all those costs incurred in running the business that cannot be
categorized in any of the above mentioned heads. These are generally the
expenses unrelated to the core business of the entity.
✓ Exceptional items are unusually large and uncommon transactions incurred by the
company that need to be recorded in financial statements as prescribed by GAAP.
Even though they may be a part of ordinary business, they need to be recorded
due to their sheer size and frequency.
✓ Extraordinary items are those gains or losses incurred by the company which are
unusual or infrequent in nature. They occur as a result of unforeseen and atypical
events.
✓ Profit before tax is the difference between the total revenue and all the operating
expenses of a company before accounting for income taxes.
✓ Profit after tax is the final profit earned by a company after accounting for all
the expenses incurred at a business including taxes. This is the actual net profit of
the company.
❖ Cash flow from operating activities includes cash from all the activities that are
conducted by an organization as part of its day to day business operations in a
given period. It typically includes the net income carried forward from the
income statement, adjustments to the same, as well as the changes in working
capital of the organization.
Examples of cash flow from operations include: cash receipts from the sale of
goods and the rendering of services; cash receipts from fees, commission and
other revenue; cash payments to suppliers for goods; cash payments to
employees, and so on.
There are two methods to obtain cash flow from operations:
a. Direct method
b. Indirect method.
The indirect method of calculating changes in cash flow from operating activities
is more popular in practice than the direct method. Under this method, the net
cash from operating activities is determined by the adjustment of profit or loss
from the income statement instead of adjusting individual items appearing in the
profit or loss statement. The net profit is adjusted for the following:
a) Changes during the period in inventories, and operating receivables and
payables;
b) Non-cash items such as depreciation and amortization; and
c) All other items for which the cash effects are either investing or financing cash
flows.
For a company to be healthy, the cash from operating activities should be positive, but
the quality of the cash is just as important.
❖ Cash flow from investing activities are those that are related to the acquisition
and disposal of long term assets, non-operating current assets and investments
which results in outflow of cash. Disposal of assets results in inflow of cash,
whereas acquisition results in outflow of cash.
❖ Cash flow from financing activities are those activities that typically relate to the
changes in the capital structure of a company. These activities include redemption
of shares, repayment of borrowings, borrowings affected by the enterprise.
Issue of shares/debentures result in inflow of cash, redemption of
shares/debentures result in outflow of cash, and so on.
The Reserve Bank of India, which commenced its operations on 1 April, 1935,
is the apex financial institution of India which regulates other commercial banks
in the country along with other important financial services such as foreign
exchange services, control of inflation, and ensuring monetary stability. In
addition to these, the RBI has played an active developmental role particularly
in the agriculture and rural sectors. Over the years, these functions have
evolved in tandem with national and global developments. The Bank today
focuses, among other things, on maintaining price and financial stability;
ensuring credit flow to productive sectors of the economy; managing supply of
good currency notes within the country; and supervising and taking a lead in
development of financial markets and institutions.
▪ Currency management
The RBI is the sole authority to issue currencies in India other than the
one-rupee notes and small coins which are issued by the Government of
India. The bulk of the currency is in the form of paper notes which are
currently issued in the denominations of Rs. 2, 5, 10, 20, 50, 100, 200,
500, 2000. The RBI also follows a minimum reserve system whereby it
keeps a certain percentage of the total money issued as a gold and
foreign exchange reserve.
▪ Monetary policy
Monetary policy consists of the actions of a Central Bank that are aimed
towards maintenance of money supply by way of targeting inflation
rates, interest rates to ensure price stability in the country. The primary
objective of monetary policy is price stability while keeping in mind the
objective of growth. There are several instruments used by the RBI that
are used to implement monetary policy in India. These include:
i. Repo Rate is the rate at which the RBI lends money to the
commercial banks against government securities.
ii. Reverse Repo Rate is the rate at which the RBI borrows money
from the commercial banks on the other hand.
iii. Bank rate is the rate at which the RBI charges interests on the
amount it lends to the commercial banks and other financial
intermediaries.
iv. Open market operations refer to the buying and selling of
government securities in the open market in order to expand or
contract the money supply in the economy.
v. Cash Reserve Ratio
vi. Statutory Liquidity Ratio
The RBI also manages the currency exchange rates which fluctuate on a
daily basis.
Securities and Exchange Board of India (SEBI) was established in the year 1988
and was given statutory powers on 30 January, 1992 through the SEBI Act of
1992. The Preamble of the Securities and Exchange Board of India describes
the basic functions of the Securities and Exchange Board of India as "...to
protect the interests of investors in securities and to promote the development
of, and to regulate the securities market and for matters connected there with
or incidental there to". It plays a vital role in maintaining a stable and efficient
financial market.
The main objects of SEBI include the regulation of stock exchanges and ensure
safe investments, and to prevent fraudulent practices by striking a balance
between business and its statutory regulations.
(i) SEBI has framed rules and regulations and a code of conduct
to regulate the intermediaries such as merchant bankers,
brokers, underwriters, etc.
(b) To keep forward markets under observation and to take such action in
relation to them, as it may consider necessary, in exercise of the powers
assigned to it by or under the Act.
(e) To undertake the inspection of the accounts and other documents of any
recognized association or registered association or any member of such
association whenever it considers it necessary.
The Pension Fund Regulatory and Development Authority was established by the
Government of India on 23rd August, 2003. PFRDA is an organization to promote old
age income security by establishing, developing and regulating pension funds, to protect
the interests of subscribers to schemes of pension funds and for matters connected
therewith or incidental thereto.
The major functions of PFRDA are:
▪ Promote pension scheme in the country by fostering mandatory as well as voluntary
pension schemes in order to serve the old age income needs of retired personnel
▪ National Pension System, both tier 1 and tier 2 are under the purview of PFRDA
and are dictated by the same
▪ PFRDA performs the function of appointing various intermediate agencies like
Pension Fund Managers, Central Record Keeping Agency (CRA) etc.
▪ Educating the general public and stakeholders about the importance of pension.
▪ Training of intermediaries that perform the task of popularizing and educating
people about the importance of pension.
Similarly, in the last quarter of 2017, a SEBI proposal to make listed firms disclose
defaults on their loans within a day of it happening was stuck because RBI had
reservations about the SEBI proposal. RBI's defence for the same was that the banks were
the biggest stakeholders in default data and that such data is not meant for public use.
Another spat had occurred between the SEBI and IRDA in 2003, when the insurance
regulator had raised objection over SEBI’s proposal to allow insurance companies to
become proprietary trading members for debt trading in stock exchanges.
On March 24, 2011, the Government of India set up a body to review and rewrite the
legal-institution architecture of the Indian financial structure. This body was called the
Financial Sector Legislative Reforms Commission (FSLRC). The commission was headed by
a former judge of the Supreme Court of India, Justice BN Srikrishna, along with an eclectic
mix of experts from various fields including economics, finance, law, etc. The panel
proposed a regulatory architecture that would merge FMC, SEBI, IRDA and PFRDA into
a new unified agency. RBI would continue to exist, however.
1.DEFINITION:-
All advances given by banks are termed “assets”, as they generate income
for the bank by way of interest or installments. However, a loan turns bad if
the interest or installment remains unpaid even after the due date — and
turns into a nonperforming asset, or NPA, if it remains unpaid for a period of
more than 90 days.
According to a July 2014 RBI circular, all advances where interest and/or
installment of principal remains due for more than 90 days, would be
classified as a “nonperforming asset”. In case of overdraft or cash credit, if
the outstanding balance remains continuously in excess of the sanctioned
limit/drawing power for more than 90 days, it would be classified as an
NPA.
In fact, if any amount to be received by the bank remained overdue for
more than 90 days, it is classified as an NPA.
2. CLASSIFICATION OF NPAS:-
1.STRINGENT NPA RULES:-The government has over the years enacted and
tweaked stringent rules to recover assets of defaulters.The Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act or
Sarfaesi Act of 2002 was amended in 2016 as it took banks years to
recover the assets.Experts have pointed out that the NPA problem has to be
tackled before the time a company starts defaulting. This needs a risk
assessment by the lenders and red-flagging the early signs of a possible
default.
4. WRITING OFF NPA’S:-In the past few quarters, most of the banks especially
PSU lenders, have reported a sharp fall in profits as they set aside hefty amounts
for losses on account of NPAs, which eroded their profits.Given the gravity of the
problem, the government may ask banks to go for more “hair cut” or write offs
for NPAs.The government and RBI may also come up with a one-time settlement
scheme for top defaulters before initiating stringent steps against them.The
finance ministry and RBI are also considering setting up of a “bad bank” to deal
with the problem of non-performing loans, as it has been suggested by chief
economic adviser Arvind Subramanian in the Economic Survey.Reserve Bank
deputy governor Viral Acharya has also floated the twin concept of Private Asset
Management Company (PAMC) and National Asset Management Company
(NAMC) for resolution of stressed assets.With rule changes and strict regulations,
banks may be asked to restructure about 50 large NPA accounts by December,
2017.
5. SARFESI ACT:-The Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI) empowers Banks /
Financial Institutions to recover their non-performing assets without the intervention
of the Court.The Act provides three alternative methods for recovery of non-
performing assets, namely: -
• Securitisation
• Asset Reconstruction
• Enforcement of Security without the intervention of the Court.
The provisions of this Act are applicable only for NPA loans with outstanding above Rs.
1.00 lac. NPA loan accounts where the amount is less than 20% of the principal and
interest are not eligible to be dealt with under this Act.
Non-performing assets should be backed by securities charged to the Bank by way of
hypothecation or mortgage or assignment. Security Interest by way of Lien, pledge,
hire purchase and lease not liable for attachment under sec.60 of CPC, are not covered
under this Act
(iv.) Any Security Interest created over Agricultural Land cannot be proceeded with.
If on receipt of demand notice, the borrower makes any representation or raises any
objection, authorised officer shall consider such representation or objection carefully
and if he comes to the conclusion that such representation or objection is not acceptable
or tenable, he shall communicate the reasons for non acceptance within one week of
receipt of such representation or objection.
A borrower / guarantor aggrieved by the action of the Bank can file an appeal with
DRT and then with DRAT, but not with any civil court. The borrower / guarantor has to
deposit 50% of the dues before an appeal with DRAT.
If the borrower fails to comply with the notice, the Bank may take recourse to one or
more of the following measures:
(i) Take possession of the security
(ii) Sale or lease or assign the right over the security
(iii) Manage the same or appoint any person to manage the same
As per the RBI directive, banks will now have to agree to a common approach for
restructuring or recovery of each non-performing loan (NPL). The common approach will
be the one adopted by the lead bank, along with a few more banks so as to meet the
thresholds of 60% of lenders by value and 50% by number. The desirability of this
approach assumes that the interests of all banks need to be aligned with or subsumed
within the interest of the lead bank. It is doubtful that the smaller banks would be
happy with this measure for the simple reason that if the same was true, all the
members of the JLF would have anyway agreed with the lead lender and a
prescription by the RBI would not have been required in the first place. Having said
that, this seems to be a fair approach to the extent that the JLF can now move forward
with majority support.
When a troubled asset, like a power project, underlying an NPL, is to be revived or
transacted with an asset reconstruction company (ARC), the fundamental requirement
for an optimal decision process is the data on the costs and benefits involved in the
process. The parties involved would need to have reliable data to put their money on
the table. The required data would include the operational, financial, and regulatory
pay-offs from the power project, post-restructuring or recovery actions. While the data
is more easily available for an operational project, it is not so for an under-construction
project. For example, the projected operational and financial performance for a
thermal project depends on multiple variables like the power purchase agreement
(PPA), fuel supply agreement (FSA), environmental clearance status, timelines for
construction, etc. Each of these variables is prone to uncertainties.
In the absence of reliable data regarding the elements of the pay-off to the banks,
each bank would adopt a stance that is aligned with its risk appetite and preferences.
It is known that the process of the bank getting back its dues through the legal recovery
process is usually slow, uncertain, and value destructive. There is no market clearing
mechanism to serve as a guide for the pricing decisions in the restructuring or recovery
to be done by the banks. This leads to a widening of the bid-ask spreads, reflecting the
uncertainty in the pricing of risk in the transaction. As a result, the transaction either
does not get consummated or if forced to consummate, leads to a sub-optimal situation
for certain stakeholders. Till now the absence of an agreement within the JLF reflected
the former and in the revised circumstances, the forced agreement within the JLF will
reflect the latter.
The Modi government has time and again blamed the previous UPA-regime for the bad
loan mess, saying NPAs are a legacy issue. It is not yet clear whether the government is
seized of the enormity of the problem. Indeed, the government has taken steps to
address the bad loan problem like the NPA ordinance giving the central bank more
power to direct banks to take action against loan defaulters and passage of Insolvency
and Bankruptcy Code (IBC).
While these steps are welcome, these are unlikely to help overcome the bad loan
problem in the immediate future. It will take years before banks can get rid of NPAs
accumulated over the years on account of multiple factors. The following seven charts
give us various aspects of India's bad loan crisis.
The Asset Quality Review (AQR) initiated by RBI under former governor Raghuram
Rajan and implemented from Q3 of FY16 resulted in a massive jump in gross NPAs. The
figure more than doubled to Rs 8.29 lakh crore in June 2017 compared with Rs 3.51
lakh crore in September 2015, an addition of Rs 4.78 lakh crore in just seven quarters.
In the first two quarters of implementation of these guidelines, the sector has seen Rs
2.45 lakh crore jump in gross NPAs. While in December 2015 quarter, gross NPAs
surged by Rs 1 lakh crore, in March 2016 quarter this portion went up by another Rs
1.44 lakh crore. The RBI bad loan clean up process cannot be blamed for the
escalation of NPAs, as it only forced banks to report the actual NPAs that were so far
hidden in their balance sheets. At some point, this process had to be started.
Public sector banks (PSBs), which accounted for 90 percent of the total gross
NPAs of the banking sector, has seen their gross NPAs jumping past Rs 7
lakh crore in June 2017 quarter. In the past seven quarters, it jumped by Rs
4.18 lakh crore or 133 percent to Rs 7.33 lakh crore in June 2017 quarter
from Rs 3.14 lakh crore in September 2015 quarter.
State Bank of India (SBI), India's largest lender by assets, tops the bad loan chart. The
bank has Rs 1.88 lakh crore of gross NPAs as on 30 June 2017. The figures now
includes NPAs of five of its associates after the merger. SBI's combine gross NPAs
surged by 150 percent or Rs 1.13 lakh crore to Rs 1.88 lakh crore in the June
quarter from Rs 75,068 crore in September 2015.
Punjab National Bank (PNB) comes second in the list with Rs 57,721 crore gross NPAs,
followed by Bank of India (Rs 51,019 crore), IDBI Bank (Rs 50,173 crore) and Bank of
Baroda (Rs 46,173 crore).
Among 17 private banks, Jammu & Kashmir Bank tops the bad loan table with gross
NPAs of 10.79 percent of its total advances as of 30 June 2017. ICICI Bank figures
second in the list with 7.99 percent bad loans and Kerala-based Dhanalaxmi Bank
follows next recording 5.62 percent of its loans as bad in the June quarter.
Insolvency & Bankruptcy Code is likely to play an important role in addressing the non-
performing assets (NPA) of the banking sector. The banking sector is facing issues due
to the bad loans on its books, which have created a risk of capital erosion. NPAs have
also constrained the banks' ability to lend. Credit is an important ingredient of economic
growth and the lack of credit could lead to economic contraction. It's not just public
sector banks that are staring a mountain of NPAs - private sector banks are also taking
a hit.
As many as 21 listed PSU banks have a combined gross NPAs of Rs 7.3 lakh crore at
the end of Sep 2017 quarter. They grew by more than 27% as compared to Sep
2016 quarter. SBI has the highest share of bad loans (25.4%), followed by Punjab
National Bank (7.8%) and IDBI Bank (7%). The average Gross NPA ratio - the ratio of
bad loans to total advances - of PSU banks has seen a spike, from 12.04% in Sep
2016 to 14.4% in September 2017.
Although private sector NPAs do not seems to be that huge compared to public sector
banks, in terms of growth they have surpassed public sector banks. As many as 17
listed private sector banks have combined gross NPA of Rs 1.06 lakh crore at the end
of Sep 2017 quarter. That represents a growth in NPAs of more than 40%, compared
to September 2016 quarter. ICICI Bank has the highest share of gross NPAs (41.8%),
followed by Axis Bank (25.8%) & HDFC Bank (7.2%) at the end of Sep 2017 quarter.
The average gross NPA ratio for private sector banks jumped from 3.6% in September
2016 to 4% in September 2017.
The IBC seeks strict time-bound initiation of corrective action even at the stage of the
very first default either to the bank or to the business counter parties. By ensuring
certainty and clarity in all aspects of the process, the code hopes to achieve speedy
resolution, higher recoveries and, in course of time, encourage lenders to go in for
higher levels of debt financing.
The IBC seeks to consolidate scattered and unstructured jurisprudence on insolvency
prevalent in various Acts, like the Presidency Towns Insolvency Act, 1909, Sick Industrial
Companies Act, 1985, Limited Liability Partnership Act, 2008, Companies Act, 2013,
etc. A committee has been formed recently under the chairmanship of the secretary,
Union ministry of corporate affairs, for a comprehensive review of the IBC, including
cross-border insolvency, development and regulation of information utilities and
instances of insolvencies in group companies. There is, anyway, bound to be a whirlwind
of judicial pronouncements on various interpretational issues that should result in the
development of robust IBC jurisprudence in the days to come.
On the positive side, we are witnessing that debtors are now reconciling with the
‘creditor in control’ scenario, with the committee of creditors (CoC) becoming all-
powerful in the resolution process. It is, therefore, incumbent on this CoC to be fair to all
stakeholders in the stressed company. After all, a company is an amalgam of
stakeholders and its corporate governance norms are expected to maximize the value
of its assets and balance the interests of all entities linked to the company. The IBC
supports this by generally preferring resolution over liquidation.
The success of the IBC is dependent on the alacrity with which the government, courts,
tribunals and Insolvency and Bankruptcy Board of India (IBBI) respond to early-stage
issues arising in their domain, post implementation.
Elections in India are considered to be the very backbone of the Indian democracy. Being
a Parliamentary Republic, the citizens of India are trusted with the responsibility to choose
the head of the country as well as of the state. There are both General and State elections
that are held in the country based on the Federal structure of the Indian Republic. The
elections in India often transcend from being a mere political activity to a high publicized
and often sensationalized national event, with clear cultural ramifications. The entire
nation seems to suddenly come to life at the onset of the elections, particularly the
General Elections. Even the assembly elections, which determine the state government,
are events of great significance. All state elections are closely observed throughout the
nation. Often the results of the state elections are considered to be clear indications of
the mood of the nation.
The Election Commission is the apex body that conducts the elections in India. Both the
general and the assembly elections in India are held in accordance with the clear rules
laid down by the Election Commission of India. The Election Commission or the EC
comprises high-ranking government officials and is formed under the guidelines of the
Indian Constitution. The EC is a highly powerful body and is granted with a great degree
of autonomous powers to successfully conduct the elections. Even the judiciary resists from
intervening while the electoral process is on. The work of the Election Commission typically
starts with the announcement of various important dates and deadlines related to the
election, including the dates for voter registration, the filing of nominations, counting and
results. Its activities continue throughout the time-period, when the elections are conducted
in the country. The fact that elections across the country are held in phases and not at the
same time extends the period of its work. The responsibilities of the EC finally concludes
with the submission of the results of the elections.
I.ELECTION PROCESS
A. Formation of Constituencies:
The Constitution lays down that after the completion of each census the allocation of seats
in the Lok Sabha to States shall be readjusted. Similarly, the constituencies for elections
to the legislative assemblies are also readjusted.
However, 42nd Amendment Act (1976) provided that until the figures for the first census
after the year 2000 have been published, it shall not be necessary to readjust the
allocation of seats to the States in the Lok Sabha.
B. Filling of Nominations:
The nomination of candidates is an important part of the election process. The regulations
require that the candidate or the person who proposes his name file the nomination
papers with the Returning Officer. In order to be chosen a member of the Rajya Sabha
or the State Legislative Council, a person must be not less than 30 years of age.
For election to the Lok Sabha or the State Legislative Assembly, a person should have
attained an age of 25 years. A person is disqualified for being chosen as a member of
any House,
if he holds any office of profit under the Government of India or of any State (The
offices of Ministers or Deputy Ministers are not regarded as offices of profit for this
purpose)
if he is of unsound mind and stands so declared by a competent court
if he is an un-discharged insolvent
if he has ceased to be a citizen of India
if he is so disqualified under any law made by Parliament.
The Representation of the People act, as amended from time to time disqualifies a person
from the membership of a Legislature:
if he has been found guilty of certain election offenses or corrupt practices in election
if he has been convicted and sentenced to transportation or to imprisonment for not
less than two years.
if he has been dismissed from government service for corruption or disloyalty to the
State.
In 1988 many other offenses, such as cruelty towards women, were in-cluded among
those which would cause disqualification for standing for election. But none of these
disqualifications operates for a period of more than six years from the date of such
conviction.
C. Scrutiny of Nominations:
The Returning Officer scrutinizes the nomination papers very carefully. When someone is
dissatisfied, he is officially stopped from contesting election for six years. The candidates
can withdraw their nomination papers even after they have been found in order.
Every candidate standing for election to the Lok Sabha or to State Legislative Assembly
has to make a security deposit of Rs. 10,000 arid Rs. 5,000 respectively. In case the
candidate belongs to any of the Scheduled Castes or Tribes, the security deposit is
reduced by half.
The security deposit of such candidates as having obtained less than one-sixth of the total
number of valid votes polled is forfeited.
D. Election Campaign:
Techniques of the election campaign and the tools employed by the parties and the
independent candidates are many:
Nowadays electronic media plays the most effective role in creating people’s
awareness about programs of the political parties. The party leaders give a series of
interviews to newspapers and television agencies. Wide coverage is being given to all
these events at regular intervals.
E. Polling Process:
The election campaign must be stopped 48 hours before the time when poll concludes
on the polling day.
Presiding Officer supervises the whole of the polling process and ensures that all
persons working under him adhere to the electoral norms and practices.
The voter records his vote either by placing the seal-mark against the name of the
candidate he wants to vote for or by pressing the button of the voting machine.
G. Election Disputes:
The Constitution had originally provided for the appointment of Election Tribunals for
deciding disputes arising in connection with elections. The Nineteenth Amendment Act
(1966) abolished this provision and laid down that the election disputes would be
decided by the High Courts. After every election a lot of disputes arises. The issue over
the reliability of the electronic voting machine (EVM), which has been in use in elections
across India since 1999, has been brought up repeatedly.
For a larger part, most parties have maintained that the machines have been rigged to
favour results towards the BJP. Both BJP and the Election Commission have continuously
asserted that the machines cannot be tampered with.
Amidst controversy over the alleged tampering of Electronic Voting Machines (EVMs) in
the Assembly elections this year, the Union Cabinet led by Prime Minister Narendra Modi
had earlier approved a proposal to buy 16,15,000 Voter Verifiable Paper Audit Trail
(VVPAT) units for use in the General Elections 2019. Each VVPAT unit were to cost around
Rs 19,650 and the total cost of procurement would be around Rs 3173.47 crore
(excluding taxes and freight as applicable) over a period of two years.
A Voter-verified paper audit trail (VVPAT) unit provides feedback to voters using EVMs
for voting. The VVPAT functions as an independent verification system for EVMs and
allows voters to verify that their votes are cast as intended. It also serves as an additional
barrier to changing or destroying votes.
Elections form the backbone of democracy wherein people elect their political
representatives and decide the composition of the government. Holding free and fair
elections on a state and national level is integral to upholding the principles of
democratic set up in India. From parliamentary elections to the presidential polls, India
goes through the electoral process at regular intervals.
2.SOURCES OF FUNDING:-
• Self-funding from your savings (if you have it) is always preferred.
Advantages: no time going hat-in-hand to investors and you don't have to
relinquish any control in your company.
• Friends and family. Tap your inner circle before expanding your horizons. As
a rule of thumb, professional investors like to see real skin in the game--your
own, of that of people who trust you.
It has attracted investments from Soft Bank which has its headquarters in Japan and
invested 2 billion dollars into Indian start ups.Google declared to launch a startup,
based on the highest votes in which the top three startups will be allowed to join
the next Google Launchpad Week, and the final winner could win an amount of
US$100,000 in Google cloud credits. Oracle on 12 February 2016 announced to
set up nine incubation centres in Bengaluru, Chennai, Gurgaon, Hyderabad,
Mumbai, Noida, Pune, Trivandrum, Vijaywada
FRESH DESK:-
MYREFERS:-
• CHAAYOS:-
FRESH MENU:-
An interesting startup that delivers standardized and fresh cooked meals from its
cloud kitchen.Also having a competitively priced menu brings tiffin services to its
competition. Its meals have met with great feedback from customers. Freshmenu is
successful because it takes its an innovative tech-enabled kitchen model and
executes it beautifully at the right time where delivery services in India were
soaring. Plainly, it’s food is great, it’s inexpensive, it has its own delivery system
and it has a standardized cloud kitchen in multiple cities. So, it has been able to
drive down costs considerably and provide great quality at a competitive price in
the delivery market. Hence, it is a successful venture aimed at metros in India.