How a potential $5 bn DHFL write-off can worsen the shadow bank crisis

The potential write-off would place an additional burden on Indian banks already struggling with $130 billion of bad loans, one of the highest levels in the world

India’s surprise seizure of a troubled shadow bank won’t end the woes of its lenders, faced with the risk of heavy write-offs if Dewan Housing Finance Corp. is declared a fraudulent account.

That’s because the Reserve Bank of India requires banks to provision fully for their entire exposure over four quarters if they decide a loan account involves fraud. The decision on Dewan will be based on a final report by the international accountancy firm KPMG on the firm’s lending practices, which is due to be submitted soon, according to bankers with knowledge of the matter, who asked not to be identified further.

An interim KPMG study of Dewan’s books earlier this year cited anomalies including 165 billion rupees of loans to entities connected to the company’s founders, equivalent to just under half of the banks’ total exposure of 380 billion rupees ($5.3 billion) to the shadow lender.

“If Dewan is tagged as a fraud account that will create significant additional provisioning requirement and will further dent the profits of banks,” said Mitul Budhbhatti, the head of financial institutions at CARE Ratings Ltd. A total write-off would counter some of the optimism about efforts to contain the shadow banking crisis sparked by the Reserve Bank of India’s Wednesday move to remove Dewan’s management and initiate bankruptcy procedures. It would place an additional burden on Indian banks already struggling with $130 billion of bad loans, one of the highest levels in the world….

From KPMG to Cathay, China warns global CEOs to fall in line on Hong Kong

Cathay, Hong Kong’s flagship airline, has become a symbol of what happens when a company is judged to have crossed China’s red lines

As anti-government protests in Hong Kong intensified this month, KPMG issued a directive to its employees in the city: Don’t speak on behalf of the company in public. It went on to say that the firm supports China’s policy for governing Hong Kong. PwC, another Big Four accounting giant, sent a similar message to staff telling them to avoid disclosing anything about the company on social media platforms, according to emails seen by Bloomberg.

This is the new reality for multinational businesses that have long grappled with a thorny question on China: What’s the price of access to Asia’s biggest economy? Beijing’s response to the hong kong protests, most notably its clampdown on Cathay Pacific Airways Ltd this month, has provided one answer: compliance with the Communist Party’s worldview, from senior management on down.

“The Chinese government doesn’t see business as being separate from the state and it has made it clear that if you want to do business in China, you’d better toe the line,” said Steve Vickers, chief executive officer of political and corporate risk consultancy Steve Vickers & Associates, and the former head of the Royal Hong Kong Police Criminal Intelligence Bureau….