Economy

India Inc Mishap Wrap-Up: NSEL Auditors, PMC Bank’s Joy Thomas Arrested

Recent developments show that most of India Inc still has a way to go before it can kickstart an investment cycle

New Delhi: It was a big day for Mumbai with the Reserve Bank of India (RBI) unleashing its fifth rate cut this year and the city’s police making key arrests in the NSEL and PMC Bank scams.

Elsewhere, with the euphoria sparked by finance minister Nirmala Sitharaman’s corporate tax cuts slowly fading, recent developments show that most of India Inc still has a way to go before it can kickstart an investment cycle.

What ailed Corporate India on Friday? The Wire breaks it down

Suspended PMC MD arrested

Former managing director of Punjab and Maharashtra Cooperative Bank Joy Thomas was arrested on Friday by the Economic Offences Wing (EOW) of Mumbai Police in connection with the alleged Rs 4,355 crore scam at the cooperative lender.

The Enforcement Directorate also conducted raids at six locations in and around Mumbai after taking cognisance of the FIR registered by the EOW.

Also read: HDIL’s Sarang Wadhawan, Rakesh Wadhawan Arrested in PMC Bank Case

Seeking to allay fears about the health of the banking system, the RBI, in its post monetary-review press conference, said there was no reason to panic, but it would review the regulatory framework for cooperative banks.

Central bank governor Shaktikanta Das faced a surprising number of questions surrounding the RBI’s supervision of the banking system. Das said they acted quick and that the entire system was sound and stable. However, in the wake of the crisis at PMC Bank, he noted that the RBI is reviewing the regulatory framework for cooperative banks. 

Former E&Y associate auditors arrested

Six years after the payment default took place on the National  Spot Exchange (NSEL), Mumbai police’s EOW on Friday arrested two former partners of SV Ghatalia & Associates (SVGA).

SVGA, was the statutory auditor of NSEL between FY10 and FY12, and is a network firm of global accounting major Ernst and Young (EY).

The EOW produced both partners before the Sessions Court, which sent the duo to police custody till the next hearing scheduled for Monday.

An official statement from SVGA cried foul at the arrest.

“We are surprised and dismayed at the sudden course of action taken by the EOW and will vigorously defend the reputation of our partners and our firm. The action by the department is for a six-year old matter. During this period, we have always extended our full cooperation to the authorities and participated in over 50 meetings with the department,” said an official statement from SVGA.

Also read: Explainer: What’s Sparking Panic at PMC Bank?

The NSEL crisis erupted in 2013 for payment default of Rs 5,600 crore involving its 24 trading members and 13,000 clients. Following this crisis, the government ordered the closure of the exchange.

Since then, government agencies, including EOW, Enforcement Directorate and Serious Fraud Investigation Office, have arrested a number of defaulting members, officials of NSEL and its promoter 63 Moons Technologies (formerly Financial Technologies) and released them on bail.

“We are shocked by the sudden and unwarranted arrest of two professionals associated with EY, as it was the statutory auditor of NSEL, and not that of the exchange platform. EY had nothing to do with verification of these stocks,” said a statement from NSEL.

India’s services sector contracts: PMI

The country’s dominant services sector slipped into contraction in September as new business orders fell for the first time since early 2018, according to a private survey which also found business optimism at its lowest in two-and-a-half years.

The IHS Markit Services Purchasing Managers’ Index fell to a 19-month low of 48.7 in September from 52.4 in August.

It was the second month this year the index had fallen below the 50-mark separating growth from contraction – the last one being in June. A manufacturing survey earlier this week also showed a cooling in activity.

The survey, which was released on Friday, adds to the deepening gloom around businesses and consumers, underlining the broadening cracks in the economy as growth slipped to six-year low in the April-June quarter.

Also read: PMC Bank Restrictions Leave Customers, Employees Feeling Worried

“The bad news of a cooling manufacturing sector was compounded by an outright services downturn in September,” Pollyanna De Lima, principal economist at IHS Markit, said in a release.

The weak manufacturing and dismal services sector activity dragged down the composite PMI to just below the 50-mark for first time since February 2018.

Moreover, the outlook held out little hope for a turnaround anytime soon either, with an index tracking overall demand for services falling to 48.8 in September – a 19-month low.

Will shut plants for 15 days this month, says Ashok Leyland 

Commercial vehicle major Ashok Leyland on Friday said it will suspend manufacturing at its various plants for up to 15 days this month in order to adjust production to market demand.

“To align our production in line with our sales, the company’s plants at various locations will be observing non-working days ranging from 2-15 days during the month of October,” the Hinduja flagship said in a regulatory filing.

Also read: At PMC Bank’s Branches, Angry Customers Protest, Ask Who is Accountable

The company’s move comes in the wake of slowdown in the domestic automobile industry, forcing automobile companies to take production cuts in order to reduce inventory at dealerships.

Last month, the Chennai-based firm had announced 16 non-working days for its facility in Ennore, five days at Hosur (Tamil Nadu) unit, ten days each at the Alwar (Rajasthan) and Bhandara (Maharashtra) units and 18 days in Pantnagar (Uttarakhand) facilities.

Ashok Leyland’s shares on Friday ended 0.74%, up at Rs 68.10 apiece on the BSE.

(With inputs from PTI, Reuters and Business Standard)