Rising NPA…Cost Audit Might Have Helped
Well COST AUDIT and COSTING METHODS have been abolished with the blessing of the lovers of the profession. The banking industry has undergone a sea change after the first phase of economic liberalization in 1991 and hence credit management. Well credit management in India in the recent times has been a key concern. I will not be surprised that within the next decade the biggest collapse of the financial sector and prolonged slowdown would be coming to Indian economy from the failures of the Indian banking system. Well the present and upcoming Chairman of the various banks (specially the PSU) would be annoyed but I am compelled.
Well COSTING and COST ACCOUNTANTS are never being provided the opportunity in the banking space since their report might alert the Indian government by ringing the bell of the NPA game theory developed by the Indian corporate. Each year the Indian government deploys thousand corers of funds (Tax payer money) into the banking liquidity system. NPA of current PSU banks are around are at 4.4 per cent in March 2014 compared with 2.09% in 2008-09, adding, the gross NPA increased by almost four times from Rs 59,972 crore March 2010 to Rs 2,04,249 crore as on March 2014. Overall NPAs or bad loans of the banks, including private sector lenders, increased from 2.36 per cent to 3.90 per cent in March 2014. The state-owned banks, especially the mid-tier banks, are in a particularly difficult position due to their high share of stressed assets and weak capital and earnings position. Moreover Fitch, which downgraded the viability ratings (VRs) of many state-owned banks in 2012 and 2013, does not expect any significant improvement in performance in the immediate future, though incremental downside risk is somewhat contained in the medium term. Now if COST AUDIT and COSTING METHODS were given the opportunity to this segment they would have been able to help in number of ways:
- Developing Risk assessment models
- Line and limit assignment
- Risk assessment and decision process integration
- Risk mitigation techniques and workflows
- Automated centralized risk ratings systems
- Early warning systems based on analytics driven rules and qualitative inputs
- Dynamic collateral management with emphasis on periodic revaluation and prudent cross collateralization logic
- Independent collateral liquidation and covenant enforcement teams
- Effective pricing of bad asset for optimizing debt-sale
In between I would like to draw the attention of the government towards the critical segment which might have been overlooked for the past couple of years but with the increase of cost the same cannot be ignored. The theoretical Relationship between Non-performing Loans and Bank Efficiency from the point of view of management accounting, bank asset quality and operating performance are positively related. If a bank's asset quality is inadequate (e.g. the loan amount becomes the amount to be collected), the bank will have to increase its bad debt losses as well as spend more resources on the collection of non-performing loans. This increase in non-performing loans in the banking industry can be due to external events, such as adverse situation in economic activities. When banks list the loan amount for collection, banks will incur extra operating costs from non-value-added activities to handle and supervise the collection process. These non-value-added activities consist of constantly tracking the debtor's financial status, being cautious of the collateral value, discussing the amortization plan, paying expenses for contract negotiation, calculating the costs to withhold, deposit and dispose of collateral at the time the loans become non-payable.
The costs include winning the trust from management and the public, preserving the banks from being rated poor as a consequence of external affairs, declining deposits because of a loss in credibility, and extra costs to monitor loan quality. Furthermore, higher future costs are generated by the ignorance of the problems from other operations when the loan quality issues grab the attention of the senior management. This escalation in cost, in turn, deteriorates bank efficiency. The banks' management might not thoroughly evaluate their customers' credit application due to their poor evaluation skills. In addition, the problem of asymmetric information between lenders and borrowers further complicates the matter. Besides that, the management might not be efficient in managing loan portfolios. Consequently, this leads to lower credit ratings for the approved loans and high probability of default resulting in higher non-performing loans. Therefore, banks' inefficiencies might lead to higher non-performing loans.
Well the problem does not end with NPA only or injecting liquidity into the system but with the burden of prolonged cost associated with the same. We should be prepared to see more United Bank of India type of cases.
PSU on the capital requirements over the next five years will still be 65-75% of their current capital base. The muted near-term profitability due to higher provisioning cost, higher operating expenses and lower margins, and structurally lower profitability due to a decrease in leverage under Basel-III means that any capital raise would be dilutive for existing shareholders. The Government shedding its direct control of PSU banks could structurally ease the profitability pressure but the governments political will to relinquish control remains questionable. The profitability of PSU banks is unlikely to improve over the next couple of years or more than due to (i) high provisioning cost due to low provisioning coverage , (ii) higher employee expenses due to the 10th bipartite agreement and higher pension expenses, and (iii) pressure on margins due to deposits growing at a slower pace than advances. Moreover with the revival of the Indian equity market banks FD would loose much of its sheen. So even by diluting the stake of the PSU banks below 50% will not be solution in the long terms since NPA would keep on rising and process of recovery and others remains slack.
But I doubt about the dis-investments aspects of the Indian government regarding the Banking space. Prime reason being No dividend payouts going forward as capital and performance both would be under pressure and finally investors don't bet on loosing horses. Basel III requirement, high capital requirements, and no dividend hence ROE and ROA would be under severe pressure making disinvestment less attractive. The only option is that Government and RBI should be vigilant enough to get signals and react accordingly the NPA performance or restructuring of assets. Day after day we are no longer in the position of restricting of assets since banks would not be able to absorb the NPA in their system.
Now government of India has now decided to form National Asset Management Company for improving the performance of DRTs (debt recovery tribunals) to collect loans. I have something more to add to this and reduce the burden of excess cost borne by the Indian Banking system from the pains and struggle of not able to sell the distressed assists. Now this is the place where Cost Records and Cost Accountants and Costing methods can be part of this National Asset Management Company.
- Help this National Asset Management Company to acquire and take up the NPA declared assets from the PSU banks.
- COSTING Methods could develop the price and valuation in parallel to the cost of the banks for that asset minimizing the loss of the bank to the maximum level.
- Feeding the Government with history and track record of the class and type of assets being absorbed by the NPA
- COST METHODS and COST AUDIT could help to identify the macro economic problems which might lead an asset to be declared as NPA. The early signal can save the tax payers money.
Well rest I keep it with myself since everything cannot be developed overnight. Do remember that we COST ACCOUNTANTS save billions of funds through blocking the loopholes of Abnormal loss, so we can also block the loopholes of NPA. In a democratic country it's free to abolish COST AUDIT and COSTING METHODS, but will that save or serves the Indian economy from the future collapse. Do remember that our audit report helped you to develop industries where products of those industries used to be imported. If there was not COST AUDIT or COSTING METHODS how India will define its cost and competitiveness is a matter big of question.
Indraneel Sen Gupta
Global Macro Economic Researcher and Business Strategist
Master of Economics, MBA in International Business Management, ICWAI (Final)/CWM Final/Journalist
Email- neel19414@gmail.com
E-filing of Income Tax Return for F.Y. 2013-14 – Major Changes
Entry 82 of the Union List of Schedule VII of the Constitution of India empowers central government to levy tax on all income other than agricultural income. The government of India imposes an income tax on taxable income of all persons including individuals, Hindu Undivided Families (HUFs), companies, firms, association of persons, body of individuals, local authority and any other artificial judicial person. If gross total income exceeds the exemption limit, Income Tax Return has to be filed. Changes in filing of such ITR for F.Y. 2013-14 are as follows:
Highlights on changes while filing ITR:
1. All taxpayers filing E-Returns will have to compulsorily update correct mobile number and E- Mail ID's. Otherwise there will be login issues before uploading of return on income tax Departments Website.
2. Now onwards Income Tax Refund will be issued directly in the bank account of the taxpayer through ECS only, cheques are discontinued. Therefore at most care should be taken while mentioning Bank Account Number and IFSC Code in the income tax returns.
3. From this year while claiming TDS in Income Tax return facility has been given to carry forward the TDS of previous year and brought forward TDS to next year. Due to this reconciliation of TDS claimed on Income and total available TDS as per Form 26 can be made. Tax payers which follow cash system of accounting will be benefited, like Doctors, Advocates, CAs and other professionals.
4. As per newly inserted Section 87A if annual income of the taxpayer is up to Rs. 5,00,000/- then Tax relief of maximum of Rs. 2,000/- is given. For claiming this relief separate space has been inserted in the return.
5. As per newly inserted Section 80EE if taxpayer has purchased house up to Rs. 40 Lakh and taken housing loan of Rs. 25 Lakh then taxpayer can claim deduction of interest up to Rs. 1 Lakh. For claiming this deduction separate space has been inserted in the return.
6. If income of the taxpayer is more than Rs. 1 crore then surcharge of 10% is applicable. For this separate space has been inserted in the return.
7. All salaries taxpayers will now have to give now separate details of LTA (Leave Travel Allowance) and HRA (House Rent Allowance) and other allowances separately. This will help Govt. to track proper claim of such deductions, recent HRA and LTA fallacious claimed by some MPs and Govt. taxpayers may have forced for such changes.
8. From this year the details of short and long term capital gain will have to be given in three parts viz.
a) sale of plot / flat
b) sale of STT paid shares and mutual funds
c) sale of other assets.
Further in case of sale of land or building Stamp Duty Value will have to be mentioned. Further if taxpayer is availing exemption under capital gains then value of newly purchased asset, date of acquisition of the asset and if invested in capital gain account then its details will have to be mentioned.
9. Corporate or LLP assessee will have to mention Corporate Identification Number or LLP Identification Number. Further Director or Designated Partner Identification Number will have to be mentioned. This will help in cross check of information with other legal departments by income tax dept or visa a versa.
10. If assessee carrying on business is taking deduction of bad debts of more than Rs. 1 Lakh of single person, then his PAN will have to be mentioned.
11. As per newly inserted section 43 CA if, taxpayer have sold other than capital assets below stamp duty value (eg. builders / developers) then the difference between the two will be considered as deemed income of the assessee and tax will have to be paid on it. For this separate space has been inserted in the return.
12. If there is more than one owner of the house then, while mentioning details in the schedule of Income from House Property the percentage of co ownership will have to be given.
13. From this year e-filing of wealth tax return is compulsory and in this return the details of all wealth whether taxable or not, will have to be given in depth.
(Author:Sagar Gupta- Email: casgrgupta@gmail.com)
Income Tax Return and Certain Deductions
Mayank Jain
Now its time to file the IT-Return. So assessee must be aware of which form is to be used and various important deductions of which he/she can take benefit out of it.
For individual/HUF who are not covered under tax audit required to file their return by their 31st July.
Filing online return is quite convenient. Forms are available on the site www.incometaxindiaefiling.gov.in
ITR 1 (SAHAJ): Assessee having Income from Salary, Interest and Rental income from 1 house . It cannot be used if assessee having any foreign asset, lottery or horse race earnings. This form not to be used if the exempt income during the year exceeds Rs. 5000
Note: Exempt income would include allowances for HRA, leave travel allowances, medical allowances, dividend income, proceeds of PPF,etc.
ITR 2: Assessee having income from salary, Interest (incl lottery or horse race earnings), Capital Gains, Rental income from more than 1 property. It cannot be used if having income from business or profession.
ITR 3: Assessee being partners in firms and carrying out business or profession. It is not to be used if the firm is a sole proprietorship.
ITR 4: Assessee having income from a proprietary business or profession.
ITR 4S (SUGAM) : Assessee having income from presumptive business. Business which are not liable to tax audit. It cannot be used if assessee is a self employed professional, or want to report income less than 8% of turnover, or if income is from speculative business or income includes lottery or horse race income.
ITR 5 : For firms, Association of persons, Body Of individuals, Limited liability partnership
ITR 7: Persons and companies required to furnish return u/s 139(4A), 139(4B), 139(4C), 139(4D).
NOTE: ITR V: This is the acknowledgement form. If the return is filed without digital signature then you are required to send by ordinary or speed post (not by couriers) signed ITR V to Bengaluru compulsorily in order to complete the filing of return process. No photocopies of ITR V are allowed, should be signed in original
Before filling form, check your 26AS form giving you the details of Tax deducted at source (TDS). TDS is reflected in 26AS only when it is deposited to government with correct PAN details. If there is any discrepancy between TDS certificate and 26AS then consult your deductor. However TDS certificate is to supersede 26AS in case of variation between two.
Now discussing certain important tax deductions
| 80C | Rs. 100000 or Amt. whichever lowerFor: Indv/HUF | PPF, Life Insurance Premium (individual himself, his/her spouse, any child of individual), ELSS, Home Loan Principal Repayment, National Savings Certificate, 5 Year Fixed Deposit, Senior Citizen Savings Scheme, Children education exp, contribution to PPF, etc |
| 80CCC | Rs. 100000 or Amt. whichever lowerFor: Individual | Deduction in respect of Contribution to Certain Pension FundAllowed for amount paid or deposited in the previous year for receiving pension from the fund set up by LIC/ or any other insurer. |
| 80CCD | 10% of salary/Gross Total Income or Amt. deposited whichever lowerFor: Individual | Deduction in respect of Contribution to Pension Scheme of Central Govt. by Central Govt. or other employerDeduction allowed to assessee who is employed by central govt. or by any other employer or is allowed to any other asseessee being self emloyed. |
| 80CCE | 80C+80CCC+80CCD Less than equal to Rs. 1 lac | Limit on 80C, 80CCC, 80CCD |
| 80CCG | 50% of Amt. Invested or Rs.25000 whichever lowerFor: Resident Individual | RGESS (Rajiv Gandhi Equity Savings Scheme)Conditions: Gross Total Income upto Rs. 12 lacs Investment in specified securities Lock in Period of 3 years Assessee being a new retail investor Note: If assessee allowed deduction u/s 80CCG for any assessment year, then he shall not be allowed any deduction under this section for any subsequent assessment year. |
| 80D | Deduction upto Rs. 20000 for senior citizen and upto Rs.15000 in other caseDeduction for insurance of parents (father or mother or both) upto Rs.20000 if parents are senior citizen and Rs.15000 in other case Deduction of upto Rs. 5000 for preventive health check up is available For: Individual/HUF | Deduction in respect of Medical InsuranceAllowed for the sum paid in Previous year to General insurance company or any other insurer for medical insurance premium. |
| 80E | Deduction available for max 8 years or until interest is fully paid (whichever earlier)For: Individual | : Deduction in respect of Interest on Loan for Higher StudiesInterest on educational loan qualifies for deduction on full time studies for any graduate or post graduate course. However, there is no benefit on principal repayments. |
| 80G | For: All Assessees | Deduction in respect of donations to certain funds, charitable Institutions, etc. Conditions: Donation should be of sum of moneyShould be made only to specified inst.No deduction if more than Rs. 10000 paid in . cashDonations to: PM Relief fund, National Illness Assistance fund, National Foundation for Communal Harmony, National Sports Fund. Deduction is allowed to the extent of 100% of donation in some cases and 50% in some. Donations in kind not qualify for the deduction. |
| 80GGC | Deduction in respect of contributions given by any person to political parties.No deduction allowed for the sum contributed by way of cash. | |
| 80EE | Upto Rs.100000 in A.Y. 2014-15If Interest payable for the P.Y. is less than Rs.100000 then balance amount shall be allowed in the P.Y. 2014-15 For: Individual | Deduction in respect of interest on loan sanctioned during financial year 2013-14 for acquiring Residential house property (w.e.f. Assessment Year :2014-15)Conditions: Loan sanctioned between 1/4/2013 to 31/3/14 Amount of loan upto Rs. 2500000 Value of house upto Rs. 4000000 Assessee not own any other residential house . property on date of loan sanction |
| 80TTA | Upto Rs. 10000For: Individual/HUF | Deduction in respect of interest on deposits in savings accounts |
An assessee must be aware of difference between deduction, exemption and relief in order to avoid confusion while filing return.
Exemption: Income which is not taxable at all. expl: HRA, etc
Deduction: Reduction from the taxable income. expl: 80C, 80D, etc
Relief: Some relaxation on payment of tax or taxability on income. expl: Relief under DTAA.
The deadline to file the tax return is coming near. So its necessary to file the return as early as possible to avoid certain difficulties. Tax filing now has become simpler than the process it used to be few years ago. Its necessary to e-file the return for those who are having income of more than Rs.500000.
(Author may be contacted atjainmayank17@gmail.com)
__._,_.___
No comments:
Post a Comment