MCA unlikely to heed calls for mandatory CSR in Cos Bill

Some members of the parliamentary standing committee that scanned the Companies Bill, 2011, have been seeking mandatory CSR activities under the Bill but the ministry of corporate affairs is unlikely to yield to pressure to make 2% CSR spending mandatory for corporates under the new Bill

New Delhi: The ministry of corporate affairs (MCA) is unlikely to yield to pressure from some political parties to make 2% corporate social responsibility (CSR) spending mandatory for corporates under the new Companies Bill, which is currently being scrutinised by a parliamentary committee, reports PTI.

The MCA is expected to communicate its stand to the Parliamentary Standing Committee on Finance in a meeting next week, sources said.

Official sources told PTI that the MCA will also retain some key clauses related to issues like disclosures for private placement of shares and a fixed five-year term for statutory auditors.

According to sources, some members of the parliamentary standing committee that scanned the Companies Bill, 2011, have been seeking mandatory CSR activities under the Bill.

At present, the clause suggests that large companies would have to earmark 2% of their three-year average profit on CSR activities. Although failure to comply by the norm would not attract penal provisions, companies will have to mention in their annual reports the reason behind the non-compliance.

This, the standing committee had earlier said, was “check enough on compliance”, but now some MPs have been pressing for CSR to be made completely mandatory and for penal actions in case of non-compliance, a source said.

Another clause that has attracted the ire of the committee was that of disclosures to be made in case of private placement of shares. This particular clause was added after the committee had already given its report.

Under the clause, the time limit for completing private placement of shares was fixed at 60 days. It also mandated a company to disclose the names and details of people if shares were allotted to more than 49 persons.

In a crucial meeting held on 24th January, the standing committee also asked the MCA to explain why rotation of statutory auditors has been fixed at five years instead of maintaining the existing provision under which companies renew contracts with their external auditors every year.

“We feel that auditors may come under pressure of getting their contracts renewed and so compromise with the company management. Our intention is purely to avoid occurrence of a fraud,” another source said.

The Companies Bill was sent back to the MCA by opposition parties led by the BJP as about two dozen changes were made to the Bill after it was last scanned by the Committee.

The new Companies Bill, which would replace the existing half-a-century-old Act, seeks tighter corporate governance norms and greater disclosure by companies.

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Insurance policies may soon be available in demat

Insurance companies and insurance repositories are working on issues connected to the proposal. Several aspects related to making insurance policies available in demat form have been discussed, Life Insurance Council secretary general SB Mathur said

New Delhi: After shares and mutual funds, it is now the turn of insurance policies to be digitised, with the Insurance Regulatory and Development Authority (IRDA) expected to give the nod for making policies available in demat form.

Insurance companies and insurance repositories are working on issues connected to the proposal. Several aspects related to making insurance policies available in demat form have been discussed, Life Insurance Council secretary general SB Mathur said.

An insurance repository is a company maintaining data on insurance policies in electronic form on behalf of insurers, including the history of transactions during the term of the policy.

“Finally, it has to be vetted and approved by the IRDA,” he said.

According to a senior official of a private sector life insurance company, there are certain issues with respect to life policies being available in demat form. These include pricing and the cost of demat and who would bear the cost.

If the proposal becomes a reality, new life insurance policies and over 35 crore life insurance policies issued by 24 life insurance companies that are currently in force will have the option of being held in electronic form.

Shares and mutual funds were ‘dematerialised’ many years back and it is no longer possible or necessary to have a physical instrument to prove or acquire ownership of these assets as they are kept and traded in electronic form, making them safer and easier to manage.

In fact, life insurance policies are the only major retail financial product that are still issued and maintained entirely in physical, paper form.

India would probably be the first country in the world to undertake such a huge exercise to transform physical insurance policy certificates into electronic form.

According to sources, IRDA is expected to give the green signal for some of the insurance repositories to start operations, paving the way for opening of e-insurance accounts and issuance of e-policies soon.

IRDA has already shortlisted five entities—CAMS, Karvy, NSDL, CDSL and STCI—to set up and operate insurance repositories.

While eventually all policies of an individual—life, health and general—can be held in electronic form, IRDA is likely to start with life insurance policies in the first phase.

In term of benefits, electronic policies are safe, convenient and easy to manage. Most of the traditional life insurance policies are long-term contracts and safe-keeping and ease of access for dependents in their hour of need can be quite challenging for holders of these policies. E-policies will take that burden off the shoulders of policy holders.

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RBI calls for dedicated SME verticals at banks

Banks, which have long-term association with such SMEs as lending partners, can further this relationship by providing consultancy on finance, cash-flow management, taxation and other related things for a fee, RBI deputy governor KC Chakrabarty said

Mumbai: The Reserve Bank of India (RBI) has asked banks to set up dedicated verticals to help small and medium enterprises (SMEs) to deal with financial matters, reports PTI.

“An SME-promoter knows the product, but he doesn’t know finance,” RBI deputy governor KC Chakrabarty said, speaking at an industry seminar organised by the SME Chamber of India here over the weekend.

Banks, which have long-term association with such SMEs as lending partners, can further this relationship by providing consultancy on finance, cash-flow management, taxation and other related things for a fee, he said.

“I think this is a product innovation, which needs to be done by banks and it needs to be done across the globe,” Mr Chakrabarty, whose responsibilities include customer services, said.

A desk should be available centrally that will help SMEs and can handle multiple SMEs, he said.

SMEs will have to pay for such service, he said. “I am not saying anything is free, you charge them for that.” 

However, banks should eye volumes in the business and ensure that the costs are low, Mr Chakrabarty added.

He also came down hard on the high interest rates charged by banks in lending to SMEs, asking if they can be compared with rates charged to corporates.

As a matter of proper governance, Mr Chakrabarty said, “I will be happy if banks disclose this in the balance sheet.”

In a related development, State Bank of India (SBI) has decided to waive guarantees and annual service fees on loans given to small and medium businesses, guaranteed under the Credit Guarantee Fund Trust scheme.

To improve credit flow to the SME sector, the government-appointed Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) acts as a guarantor for loans up to Rs1 crore. CGTMSE charges the above-mentioned twin fees to borrowers.

“The fees are basically a kind of insurance premium. To help clients, we have now decided to pay up to the trust from our books,” SBI managing director (national banking) A Krishna Kumar said. The decision was taken two weeks ago.

The trust, which came into being four years ago, charges a guarantee fee ranging from 1% to 1.5% of the loan amount while the annual service fee ranges from 0.50%-0.75%.

Mr Kumar parried a question on the financial implication of the move on the bank’s balance sheet, but said this is a long- term arrangement, not a short-term move to lure customers.

Explaining the rationale, Mr Kumar said the presence of such a commission clause dissuades ‘good borrowers’, who feel it is unnecessary to take the extra burden in loan servicing.

Additionally, paying up the fees from the bank’s own books will act as a ‘psychological deterrent’ to the bank’s staff, who can become complacent as the trust stands guarantor to such loans, Mr Kumar said.

If a loan turns bad, CGTMSE pays back 75% for the principal to the lending bank and an additional up to 15% depending on the case, he added.

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