Latest news with #Ind-AS
Mint
5 days ago
- Business
- Mint
Fintechs in talks with RBI for easier provisioning for default loss guarantee-backed loans
Mumbai: Fintech companies and digital lenders are seeking easier provisioning norms for loan pools backed by their guarantees, even as the central bank has flagged inadequate provisioning for these loans, according to five industry experts. Fintechs believe the provisioning variance is due to the differentiated interpretation of Ind-AS accounting standards, which allow for a 'risk mitigant' like Default Loss Guarantee to be considered while calculating the expected credit loss (ECL) provisions. Unified Fintech Forum and self-regulatory organisation Fintech Association for Consumer Empowerment (FACE), in their representiations to the Reserve Bank of India (RBI), have said that making full provisions against such loans will lead to 'double provisioning', with both the lending service providers (LSPs) like fintechs and regulated entities such as banks and non-bank lenders setting aside buffers for the same loan pool. Read more: RBI poised to cut rates as India eyes a steady takeoff Both the LSP and the regulated entities are provisioning for the same loan pool, thus impacting capital deployment efficiency, said Jatin Handoo, chief executive officer of UFF, formerly Digital Lenders' Association of India. It might also lead to a 'crowding out' effect where lenders will have less amount of money for lending because they have to take out the extra amount and provide for it separately, he said. 'RBI is open to listening to us and has asked us to come up with data-based use cases, and customer-level and market insights." Full provisioning by NBFCs Fintechs offer borrowers loans from multiple banks. These intermediaries usually provide a 'default loss guarantee' (DLG) to cover these loans for encouraging lenders to partner with them. However, in April, the central bank wrote to at least four non-bank lenders with high delinquencies in their DLG-backed loans. The regulator asked them to provide for all loan pools sourced through third-party digital platforms under the expected credit loss (ECL) accounting norms, regardless of whether these are backed by DLG arrangements. A senior industry official explained that if the loss on the loan pool was 7% and 5% was covered under a DLG arrangement, some NBFCs usually had a provision cover of 2-4%, depending on their internal modelling and calculations. Audits by RBI in January-February revealed this provision accounting, following which RBI reinforced that the entire provisioning has to be taken by the NBFC and any recoveries under DLG at the end of the loan tenure may be used to write-back the provisions. 'This is not a policy change, but a call-out for those NBFCs that were not doing enough provisioning. It's a prompt for NBFCs to appropriately provision against credit losses, and treat DLGs and recoveries separately," said Kunal Varma, chief executive officer and founder of digital non-banking finance company Freo. However, he said, this may lead to some NBFCs re-evaluating their First Loss Default Guarantee or FLDG-linked relationships in the short term. RBI's concerns stem from elevated delinquencies in some loan pools sourced by fintechs, leading to higher DLG payouts by them and a hit on the asset quality of a few partner NBFCs. Moreover, there have also been concerns around NBFCs using FLDG arrangements as an alternative to securitisation transactions, bypassing the guidelines of securitisation of loan pools. RBI's perspective seems to be that DLG arrangements were allowed to give capital comfort from a regulatory perspective and encourage 'skin in the game' for fintechs, but not dilute the accountability of underwriting by regulated entities. Point of contention Typically, each fintech—such as Paytm, PhonePe, MobiKwik—ties up with multiple regulated banks or NBFCs to offer multiple loan options to their customers. In turn, lenders can accept DLG arrangements in the form of cash deposits, fixed deposits with a lien marked in their favour, and bank guarantees. DLG arrangements for pools of small-ticket unsecured loans are generally used for consumption and lifestyle lending, emergency healthcare expenses, education finance for skill development or vocational degrees and diplomas, sustainable energy such as installing a solar roof and lending to small businesses and new-to-credit borrowers. Read more: How RBI is shaping the future of lending from Bengaluru's HSR Layout FLDG has been a point of contention since the first digital lending guidelines were issued in August 2022. Worried that these DLG loss absorptions were leading to inaccurate reflection of the credit quality of these borrowers, RBI in June 2023 issued the default loss guarantee framework, capping the value of such arrangements at 5% of the loan pool. It had then specified that regulated entities will be responsible for recognising non-performing assets of individual loans in the portfolio and the consequent provisioning as per current norms, regardless of any DLG cover at the portfolio level. Even then industry representatives had approached RBI seeking clarity on certain aspects of the guidelines such as treatment of NPAs given the differences with the ECL framework, and on the kind of different cohorts and structures that can be explored under the DLG framework. This had prompted RBI to issue an FAQ in November 2023 clarifying some of these aspects. However, these circulars were repealed when the consolidated Digital Lending Guidelines were issued on 8 May 2025, leading to some confusion on how provisioning for these loans may be interpreted. Fintech lenders believe that DLG is a form of credit guarantee or enhancement—the entire purpose of which is to provide capital comfort to the lender and help free up the lender's capital for additional on-lending. 'As per Ind-AS, NBFCs were considering the credit enhancement provided by an FLDG for purposes of computing the ECL on a loan portfolio (given that an FLDG qualifies as a credit enhancement intrinsic to the contractual terms of the arrangement, which is the requirement under Ind-AS 109)," said Shilpa Mankar Ahluwalia, partner, head-fintech, Shardul Amarchand Mangaldas & Co. RBI's 8 May directions, however, suggest that the amount of the DLG cover cannot be adjusted to reduce ECL computation, which could alter the cost-benefit to NBFCs given the zero-provisioning benefit of DLGs, according to experts who believe it could also send 'mixed signals" to market participants, investors and new entrants in the LSP space and may lead to the opinion that fintechs are not to be trusted. Read more: Lenders concerned about education loans as US tightens curbs on student visas Already, DLG rules only allow lien-marked deposits or bank guarantees, which practically removes any performance risk on such guarantees, said Ahluwalia. 'The industry also claims that capping the DLG at 5% had already prompted NBFCs to implement strong credit underwriting and risk tools, and removing the provisioning benefit of DLG cover may increase costs of digital loans and reduce credit access."
Hindustan Times
5 days ago
- Business
- Hindustan Times
UPPCL denies favouritism, calls allegations ‘baseless'
The Uttar Pradesh Power Corporation Ltd (UPPCL) and its employees' union are locked in a fresh face-off over the selection of Grant Thornton as a consultant for power sector reforms, with the management dismissing allegations of irregularities as 'misleading and baseless'. While the UPPCL said no decision had yet been taken on a separate September 2024 tender aimed at improving financial accounting standards at the division level, the Vidyut Karmachari Sanyukt Sangharsh Samiti alleged that the process was deliberately delayed to favour Grant Thornton. It was alleged that despite no final decision, the firm had advertised accountant positions in December 2024, mentioning work locations across multiple U.P. discoms. The committee alleged a 'major scam' in the name of privatisation and demanded the sacking of UPPCL director (finance) SK Narang, accusing him of colluding with private firms. It also questioned why the September 2024 tender, in which Grant Thornton reportedly emerged L1 in technical bidding, was kept on hold for months. Responding to the charges, Narang, in a written statement, said the tender in question was unrelated to the reforms consultancy and aimed purely at improving accounting quality under Ind-AS norms. 'Both tenders serve distinct purposes and no decision has been taken yet. All actions are in line with due process,' he said.
Time of India
29-04-2025
- Business
- Time of India
Dailyhunt parent VerSe's internal controls inadequate, says Deloitte audit
VerSe Innovation 's auditor, Deloitte , has flagged issues in the internal controls of the parent of Dailyhunt and Josh for the financial year ended March 31, 2024, stating that these "material weaknesses" could potentially lead to misstatement in accounting aspects including operating expenses, trade payables and expense account balances. Deloitte's findings are part of the unlisted company's financial statement for fiscal 2024. In the filing made with the Registrar of Companies, the audit firm said VerSe did not have appropriate internal controls over the selection and evaluation of suppliers, approval of purchase orders and invoices, as well as payments. The Bengaluru-based VerSe Innovation, which has raised over $2 billion in funds since being founded, is backed by the likes of Canada Pension Plan Investment Board (CPPIB), Ontario Teachers' Pension Fund, Uday Shankar and James Murdoch's private investment firm Lupa Systems, Z47 (formerly Matrix Partners) . It last raised $805 million in a funding round led by CPPIB in 2022, valuing it at nearly $5 billion. VerSe lacked appropriate internal controls to review the completeness of expense provisions at each reporting date, the auditor said. In response to the auditor's remarks, VerSe said the company was strengthening its processes by conducting a 'detailed workshop on the best practices and checklists' that would be followed by all the relevant personnel. The company said it would create an 'end-to-end order to cash process via a well-documented framework encapsulating supplier selection, approval process, invoicing and payments as per the DOA (delegation of authority)'. In its audit report, Deloitte has also said that these material weaknesses do not impact their opinion on the consolidated financials. In a statement, VerSe said, "Deloitte, VerSe Innovation's long-term auditor, has issued a true and fair view of our FY24 consolidated financial statements , providing a clean audit opinion on our financials. While Deloitte identified certain internal control weaknesses, their report has clearly confirmed that these do not impact their opinion on the consolidated financial statements which is true and fair". It added that it was committed to strengthening internal controls and plans to achieve break-even in the second half of ongoing fiscal. The auditor also stated that while it was issuing an adverse opinion on VerSe's internal controls, its opinion on the financial statements was unqualified. Deloitte highlighted changes in the figures reported for the year ended March 31, 2023, and flagged an unsubstantiated claim of Rs 35 crore connected to unexplained invoices from a supplier which the company has not recognised as a trade payable. According to the company, the restatement in revenues for FY23 was because of adjustments on account of Indian Accounting Standards (Ind-AS). The company's chief financial officer Sandip Basu had stepped down recently because of health issues, Mint had reported on April 23. Financials for fiscal 2024 Operating revenue for FY24 was fell to Rs 1,029 crore from Rs 1,104 crore in FY23, according to the latest filing. It had earlier reported Rs 1,457 crore in operating revenue for FY23, but has now restated the number. Net loss at Rs 889 crore in FY24 fell 54% from the previous year. Total expenses fell to Rs 2,148 crore from Rs 3,263 crore. The company spent Rs 1,154 crore on cost of materials consumed, Rs 502 crore on employee benefits and incurring other expenses of Rs 418 crore. Deloitte said it did not audit the financial statements of eight subsidiaries, whose financial statements reflect total revenue of Rs 793 crore in FY24. 'These financial statements have been audited by other auditors whose reports have been furnished to us by the management,' it said. Last year the company acquired digital marketing solutions firm Valueleaf Group in a cash-and-stock transaction. It has acquired several companies, including New York-based digital magazine store Magzter, to enhance its portfolio with premium English language content. Verse was founded by Virendra Gupta with former Facebook India managing director Umang Bedi joining in as president in 2018. Bedi was designated as a cofounder subsequently. It competes with online news aggregator InShorts, which posted a net loss of Rs 228 crore in the year ended March 2025, 26% lower than the year before, while its operating revenue stood nearly unchanged at Rs 181 crore.
