Why Finance And Innovation Are Perfect Business Partners

The importance of innovation is oft-discussed – in media, books and, perhaps most importantly, in the boardroom. What’s little discussed, however, is how to execute on that innovation and who to partner with to get it done. At Blue Shield of California (BSC), a symbiotic relationship has formed between the finance and innovation teams, highlighting the benefits of working closely together for business efficiency. This month I spoke with BSC CFO, Sandra Clarke, to learn more about her perspective on innovation, how she works with the chief innovation officer and why finance and innovation ultimately go hand in hand.

Jeffrey Thomson: You recently assumed the role of CFO at Blue Shield of California (BSC), previously serving as CFO at Daiichi Sankyo’s U.S. subsidiary, a global pharmaceutical company. What do you like about working in the healthcare industry? What unique challenges does the finance and accounting function face in this competitive, highly regulated industry?

Sandra Clarke: I really like being able to contribute to the health and well-being of our society and the opportunity to innovate in an industry that touches every person in our country. Our mission at Blue Shield is to provide access to high quality healthcare that is worthy of our family and friends, and that is sustainably affordable. We have a lot of work to do to achieve that goal. But I like a challenge, and I’m energized by what lies ahead.

Being part of a nonprofit healthcare organization also really resonated with me. We are driven by the needs of our members, not the returns for shareholders. We voluntarily cap our net income at two percent of revenue, returning anything above that to our customers and the community. From a finance perspective, this somewhat limits our access to capital for the investments we need to make to change the way care is delivered, but there are also benefits. Because we are focused on the satisfaction of our members and not on the satisfaction of investors, we can make long-term investments that will improve the member experience, healthcare quality and affordability without having to worry as much about their initial impact on quarterly earnings.


Error in reporting inflates AU Small Finance Bank’s wilful defaults

Every co-borrower, director is shown to have the same outstanding loan as the firm, leading to the inflated number, shows data. Photo: Aniruddha Chowdhury/MintAn error in reporting wilful defaulters to credit information company TransUnion Cibil by AU Small Finance Bank (SFB), because of duplication of outstanding loans, has led to a 10-fold rise in the bank’s wilful defaults.

Data from TransUnion Cibil shows that the Jaipur-based small finance bank’s wilful defaults jumped to ₹179 crore in the September quarter of FY19 from ₹18 crore in the June quarter.

However, a look at the geography-wise disaggregated data shows that every director and co-borrower has wrongly been shown to have the same individual outstanding loan as the company, thus leading to the hugely inflated number.

A wilful defaulter is a borrower who has defaulted in repaying loans to lenders even when it has the capacity to do so or if it has not utilized the loan for the specific purposes for which finance was availed of and has instead diverted the funds for other purposes. Other criteria include siphoning-off of funds and disposing of or removing movable fixed assets or immovable property for securing a term loan without the knowledge of the lender.

For instance, in Madhya Pradesh, Gopi Pipe House owes AU SFB ₹4.6 crore, but data shows each of the two other co-borrowers also owe ₹4.6 crore individually. This gives the impression the wilful defaulter’s outstanding loans are ₹13.8 crore, instead of ₹4.6 crore.

In another instance, wilful defaulter Kotecha Industries Ltd owes ₹3 crore, but its directors are shown to owe ₹3 crore each as well, leading to an inflated number of ₹15 crore. In an emailed response, Sunil Parnami, chief of M&A and investor relations at Au SFB, said the bank was only trying to comply with RBI’s directives when it reported borrowers and co-borrowers, along with the entity.

“(The RBI directives) require that once a person is declared a wilful defaulter, many sanctions are imposed on them like no further lending, no directorship, (and commencing) criminal action against them,” said Parnami.

Reporting just their names without the amount would not suffice, which is why the amount gets repeated, he said.

The bank clarified that it has reported two new borrowers of ₹21.74 crore in the September quarter and that the actual wilful defaults stood at ₹39.34 crore, instead of ₹179 crore as shown on TransUnion Cibil’s database.

An email sent to TransUnion Cibil did not elicit a response till press time.

Other lenders, data showed, have not faced this problem as they have clubbed all directors under one column and the total outstanding loan of the company in a separate one.

RBI has mandated banks to submit a list of suit-filed accounts and non-suit filed accounts of wilful defaulters of ₹25 lakh and above on a monthly or more frequent basis to credit information companies. Only a handful of lenders have submitted their wilful defaulter data for the September quarter. According to June quarter data, wilful defaults stood at ₹1.39 trillion, with State Bank of India having the largest share at ₹34,159 crore.

Identifying a wilful default is not easy. The evidence of wilful default is examined by a panel headed by an executive director and two other senior officers of the rank of general manager or deputy general manager of the bank. If the panel concludes that wilful default has occurred, it issues a show-cause notice to the borrower and calls for their submissions. After considering the submissions, it issues an order on wilful default, giving the reasons.

The order of the panel is then reviewed by another committee headed by the chairman or managing director and chief executive officer of the bank and consisting of two independent directors. The order becomes final only after it is confirmed by this review committee.


PDD holds back finance deptt directive waiving off interest of industrial units

PDD holds back finance deptt directive waiving off interest of industrial units

Power development departments circular to hold back waiver on interest, penalty and surcharge on power arrears as announced in the 2018-19 state budget for industrialists, small scale industry unit holders, sick industries and hotels has drawn flak by the business community.

As per a circular of the Power Development Department (CEJ/TS-I/Amnesty/14897-916) “since the administrative department of PDD has not approved the budget announcement, the orders of the finance department to waive off the interest and penalty is advised not to be implemented”. The closing date fixed by then state cabinet for such amnesty has already expired in September which has created anxiety among industry and hotel players.

In June 2018, finance department had approved an amnesty scheme which was announced in state budget 2018 regarding waiver off 100 percent interest and penalty on all the power arrears as on January 31, 2017 owed to the government by industries, hoteliers and tourist resort owner, registered with the industries and tourism departments.

President, Federation Chambers of Industries Kashmir (FCIK), Muhammad Ashraf Mir said redressing the long pending demands of the business community of waiving-off the interest, penalty and surcharge on power dues was committed by the government but not fulfilled. Mir said the waiver has not been granted despite issuance of orders from finance department.

“The industry in the state especially Kashmir has borne the brunt of being under deep stress and for that then finance minister had extended the power amnesty for all the industry. Sick industry and businesses that were most affected by the unpredicted circumstances would have been given a breather with this amnesty. But government has failed to fulfil its commitment,” Mir said.

As per the terms of the amnesty scheme, industry and hospitality set-ups were asked to make the outstanding payment of power dues as on March 31 by or before September 30 in a maximum of three equal instalments. The order stated 100 percent waiver on “interest and penalty on power arrears as on December 31, 2017 owed to the government by the small scale industries registered with the department of industries subject to the condition that the outstanding payment of 31-03-2018 is paid by or before 30-09-2018 in a maximum of three equal instalments”.

Mir said most of the industry based power consumers took benefit of the government order and paid principal announcement which was made mandatory by the order but have been “left in lurch” by not fulfilling the budget announcement, Mir added.

“Now the industry is being denied benefits announced by the SRO. In these circumstances how can the industry trust any of incentives which government promises it,” Mir said.

Kashmir Chamber of Commerce and Industry delegation which recently met Chief Secretary BVR Subramanyam has raised the issue of non-fulfillment last budgetary announcements including the power amnesty.  Sheikh Ashiq, president, KCCI said the  circular issued by the PDD was neither desirable “nor is acceptable at any cost come what may” adding that issue of amnesty has been taken up in chamber meetings with Principal Secretary Industries and Commerce and the Chief Secretary of the state.

Kashmir Hotels and Restaurant Owners Federation (KHAROF), president, Wahid Malik said power amnesty for industrial and hospitality sector would provide relief to the hotel industry operating in distress and fragile conditions in the valley.