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Tatas busy setting house in order

BS City Editor

Shaken by the Tata Finance episode, the Tata group is forging plans to put its house in order. Systems and procedures, as well as the reporting structure and sanctioning powers of group executives are being reviewed.

The Tatas are also looking at group subsidiaries in a new light. A series of mergers, de-mergers and sales of equity stakes to streamline subsidiaries are lying on the group's horizon.

"We are not in favour of setting up new subsidiaries," said a senior Tata executive.

The group has already spun off the former Tata Finance subsidiary Niskalp. Under the group's microscope are Niskalp's two unregistered non-banking finance arms, Inshaallah and India Emerging.

According to the plan, all Tata group companies will now follow a uniform system of reporting to the board. The model to be adopted may be that of Tata Steel, whose management reports to the board every month. The focus is also on the role of internal auditors.

Some of the existing audit firms may be asked to pack up. Incidentally, Niskalp bought Inshaallah in 1999-2000 from Dinesh Bahl, an internal auditor of the company.

The Tatas have also decided to follow the Reserve Bank of India's income recognition norms and provisioning policy.

Tata Finance, as well as its subsidiaries have not been following these norms. Tata Finance even threw prudential norms to the winds and provided false data on its capital adequacy ratio to the RBI.

"We have already pumped in Rs 900 million and the company CAR is way above the stipulated CAR. Tata Finance will now follow stringent income recognition norms and aggressive provisioning norms," said a Tata official.

The Tata group, which received a corporate governance award last year, refuses to accept that there have been chinks in its governance armour.

"The Tata Finance episode is a classic case of a three-way conspiracy where the initiator, the appraiser as well as the auditors were involved," Tata insiders said.

"No system is foolproof in such a three-way collusion occurs," they added.

They admit that the way Tata Finance took Bombay House as well as the regulators for a ride reflects a total failure of the internal audit system. However, Tata executives insist that the new systems and procedures that are being contemplated are not a knee-jerk reaction.

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