CURRENT AFFAIRS, Economy And Policy

How opportunistic behavior can worsen India’s $200 bn-plus bad loan crisis

A capital-constrained economy like India can’t afford a jungle raj in finance.

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Snatch-and-grab is the new hallmark of Indian finance. As a banker friend in Mumbai put it to me only half-jokingly, a unit of “grabbed” cash collateral in hand is worth more than two units of hypothetical receivables.

Yet this is no laughing matter. Not only is opportunistic behavior going to worsen India’s $200 billion-plus bad loan crisis, but now that everyone from the government’s sleuths to the courts are joining the melee, the ensuing chaos will limit the recovery for lenders and threaten depositors.

Rajnish Kumar, chairman of State Bank of India, sat down for a chat with me at the Bloomberg Equality Summit in Mumbai this week. He had highlighted the problem last month by blaming what he called the selfishness of one bank for a default by Altico Capital India Ltd., a nonbank lender to property builders. When asked why his HDFC Bank Ltd. had choked Altico by helping itself to the money the shadow financier had raised elsewhere and parked with him, Aditya Puri, the managing director of India’s most valuable lender, replied: “What is out-of- turn? It is my security and I will exercise it.”

Now the regulator, the Reserve Bank of India, will decide whether Kumar’s unhappiness is a case of sour grapes or if Puri did indeed cross a line. For State Bank of India, Altico is just one of the several instances where the taxpayer-funded bank has been at the receiving end.

SBI didn’t drag tycoon Anil Ambani’s Reliance Communications Ltd. to an in-court bankruptcy process, hoping instead that Ambani would be able to sell assets to his brother Mukesh, India’s richest man, out of court. Ericsson AB, an operational creditor, pursued the opposite strategy and got itself a very decent court-enforced settlement by invoking the younger Ambani’s personal guarantee.

More recently, SBI’s Kumar received a fresh blow when India’s enforcement directorate, tasked to fight economic crime, attached the assets of insolvent Bhushan Power & Steel Ltd. on suspicion of money laundering by its previous management. Both the new owner, who won control of Bhushan during bankruptcy, and Kumar, who’s waiting for his check, are impatient. Yet, thanks to the enforcement directorate, the $2.8 billion sale has now been put on hold by an adjudicating authority.

Business Standard

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Comapnies, CURRENT AFFAIRS

Air passenger traffic falls amid slowing economy and lean travel season

Scheduled carriers ferried 11.53 million passengers in September, compared to 11.79 million in August, showed data issued by the Directorate General of Civil Aviation (DGCA) on Thursday.

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Business Standard : Domestic air passenger traffic declined for the fourth consecutive month in September, amid a slowing economy and lean travel season.

Scheduled carriers ferried 11.53 million passengers in September, compared to 11.79 million in August, showed data issued by the Directorate General of Civil Aviation (DGCA) on Thursday. They had carried 11.90 million passengers in July.

The numbers are disappointing. They have pulled down our projection and now we peg (yearly growth for 2019 at 4-6 per cent). The good news is that we have managed to withstand the exit of Jet Airways and maintained positive growth despite three months of negative or flat growth,” said a DGCA official.

IndiGo continued its dominance in Indian skies, carrying nearly one in every two passengers. In doing so, it more than made up for lost ground in August. Its market share rose to

48.2 per cent from 47 per cent in August. It was 47.8 per cent in July. On the back of reasonable growth in the first five months of the calendar year, traffic for domestic airlines from January-September was still higher by 3 per cent, rising to 105.89 million, against 102.79 million in the same period last year, according to DGCA.

The loss in fleet, on account of Jet Airways, has largely been recovered and we expect an all-time high fleet of above 616 aircraft in a month’s time. With more aircraft joining by December 31, we expect a return to double-digit growth early next year,” the official added.

The Delhi-based airline carried 5.56 million passengers in September, while SpiceJet flew close to 1.7 million passengers, notching up 14.7 per cent market share.

The Ajay Singh-owned airline’s market share fell from 15.5 per cent last month. Air India improved its share by 20 basis points to 13 per cent, flying nearly 1.5 million passengers during the period.

However, an executive of a private airline said even though volume picked up, it will be difficult for airlines to make money as fares have remained low even during festive season.

“Even during the peak Durga Puja period, fares have not gone higher than Rs 5,000. Therefore, it will be quite difficult time for airlines,” he said.

CURRENT AFFAIRS

Indian traders selling old season sugar to Iran after subsidy: Report

Exports from the world’s biggest sugar producer could put pressure on global prices but will help India reduce its inventories that have driven down domestic prices.

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Indian mills are aggressively selling old season sugar to Iran after New Delhi announced a subsidy to help cash-strapped mills export a surplus, five traders said, asTehran strives to secure food supplies under US sanctions.

Exports from the world’s biggest sugar producer could put pressure on global prices but will help India reduce its inventories that have driven down domestic prices.

Trading houses have contracted to export to Iran about 350,000 tonnes of sugar for shipments landing in October to December at about Rs 21,600 ($302) a tonne on a free-on-board basis, the trade sources said this week.

They have contracted another 150,000 tonnes for destinations like Sri Lanka, Afghanistan and African countries at around $315 per tonne for shipments in the last quarter of 2019, they said.

On international markets, December white sugar settled at $347.60 a tonne on Wednesday.

“Sugar millers in Uttar Pradesh are quite active this year. They are selling sugar to Iran in rupee terms,” said Rahil Shaikh, managing director of MEIR Commodities India.

Under US sanctions, Iran is blocked from the global financial system, including using US dollars to transact its oil sales. Iran agreed to sell oil to India in exchange for rupees but it can only use those rupees to buy Indian goods, mainly items it cannot produce enough of domestically.

Sugar mills in the landlocked northern state of Uttar Pradesh, the biggest sugar producer in the country, traditionally export less quantity as they need to spend more to bring it to ports on the western coast.

But this year they are actively exporting due to simplified export procedures and because of the huge inventory mills have been carrying from the last year’s record harvest, said a Mumbai-based dealer with a global trading firm.

Business Standard

CURRENT AFFAIRS

India International Exchange plans to waive fee to lure rupee trade home

Rupee trading onshore has been shrinking at the expense of offshore market, with volumes in London topping those in India’s financial capital Mumbai.

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As India works to bring some of the burgeoning offshore rupee trading back home, the exchange that will likely spearhead the move says it’s prepared to cut trading fees to zero to take on overseas rivals.

The India International Exchange (IFSC) Ltd., also known as India INX, plans to waive commissions initially, a strategy it used to bolster liquidity in its equity and gold derivatives contracts.

We will compete with lowest-cost access,” V. Balasubramaniam, chief executive at the bourse based in the tax-incentive zone in the GIFT City, said in an interview. “For us, the cost of running a market is much lower as manpower and infrastructure costs at the IFSC are small.”

Trading charges at the Dubai Gold & Commodities Exchange range from $0.03 to $0.1 per contract, per side on various rupee-related contracts, according to its website. The Singapore Stock Exchange charges 0.0075% of traded value as fees that exclude clearing costs.

Rupee trading onshore has been shrinking at the expense of offshore market, with volumes in London topping those in India’s financial capital Mumbai. In a bid to boost local volumes, the Reserve Bank of India this month allowed trading in rupee on venues like the IFSC and permitted banks to freely share forex rates with non-residents. Further regulatory approvals are awaited before trading starts.

The GIFT City, located in the western state of Gujarat — the home state of Prime Minister Narendra Modi — has been conceived as a financial hub to rival centers like Singapore and Dubai. Investors based there are exempted from levies on buying and selling of securities and capital gains tax for non-residents.

INX India, a unit of the BSE Ltd., is currently the biggest exchange in GIFT City. The National Stock Exchange of India Ltd., the nation’s top equities bourse, also has a unit in the zone.

Business Standard

CURRENT AFFAIRS

PMC Bank case: Praful Patel used Wadhawans’ aircraft eight times, says ED

So far, the ED has attached and identified assets worth Rs 3,830 crore in the PMC money laundering case.

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Trouble is mounting for former Union minister Praful Patel, with the Enforcement Directorate (ED) finding his name on the passenger manifest of an aircraft that belongs to the Wadhawans, HDIL promoters.

The documents examined by the ED, which is probing the Rs 4,355-crore Punjab & Maharashtra Co-operative (PMC) Bank loan case, show that Patel used the aircraft multiple times in 2012 when he was civil aviation minister.

The probe agency, in this case, has seized two aircraft — Bombardier Challenger-300 VT and Falcon 2000 VT, owned by Privilege Airways. Rakesh Wadhawan and son Sarang Wadhawan of Housing Development & Infrastructure (HDIL) are directors of Privilege Airways

According to ED sources, Patel had used the aircraft at least eight times in 2012 between February and May. The documents showed that the Nationalist Congress Party (NCP) leader was accompanied by some other party leaders during these trips. The destinations were mostly Mumbai to Nagpur, Delhi, and Gondia.

So far, the ED has attached and identified assets worth Rs 3,830 crore in the PMC money laundering case. These assets belong to its directors, promoters, PMC Bank officials, and others. The assets, both immovable and movable, will be attached under provisions of the Prevention of Money Laundering Act (PMLA) after valuation, it said.

During the search in the case, ED has reportedly found incriminating documents revealing instances of siphoning of the funds and their misuse.

Certain transactions are showing a clear diversion, such as a Rs 98-crore loan from PMC Bank was diverted to M Estate Developers, a proprietorship concern of a close business associate of Rakesh Wadhawan. The Mumbai Police EOW has already arrested the Wadhawans in connection with the case, besides former MD of PMC Bank Joy Thomas.

Business Standard

CURRENT AFFAIRS

Indians are entrepreneurs at heart: Tata Sons Chairman Emeritus Ratan Tata

“… a highly successful entrepreneur will find opportunities are greater in markets outside of India, so that is a judgment call the entrepreneur makes,” Tata said.

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Business Standard : In a fireside chat at an annual event organised by venture capital firm Chiratae Ventures, Tata Sons Chairman Emeritus Ratan Tata talked about the importance of start-ups in India, their positive rub on bigger companies, and the levers that he looks for when investing in start-ups.

Referring to the growth of the ecosystem of smaller companies, Tata — in a conversation led by Sudhir Sethi, founder of Chiratae Ventures – said: “We are looking at the India of tomorrow and the day after, and the start-up industry is entering the global field in a manner where competition is open.” Himself an investor in a clutch of mostly early online ventures that include Ola, Paytm, Lenskart, and Urban Ladder, Tata began actively investing after he stepped down from Tata Group in December 2012.

So, what made him pursue that route and what did he specifically look for in the companies and the entrepreneurs that he bet on? “It was partly by accident and partly by happenstance but always in my years at Tata Group, I had looked at the sector with excitement. But there was also conflict with the group (businesses) and so when I was free, I made token investments with my own money in what I considered exciting,” Tata said, adding that “contrary to popular belief my pockets aren’t that deep”.

He went on to add that the exercise became a learning process for a few years because of the highly dynamic nature of the sector. “I found in my case that company selection was more by intuition rather than numbers, and by judging on the intent of founders and their seriousness more than any other factor to make (my) decisions, good or bad as the case may have been.”

Does Tata have a formula for what makes the best entrepreneurs? “I would say what drives entrepreneurs is a fire in the belly to do business better than has ever been done before, and an opportunity to make a difference to benefit society, with the tenacity and courage to see it through,” Tata said.

When asked if start-ups that were burning cash over extended periods were sustainable, Tata declined to comment but said the right time to go global for any start-up was ultimately not defined by anything but by the founder. “… a highly successful entrepreneur will find opportunities are greater in markets outside of India, so that is a judgment call the entrepreneur makes,” he said.

Equally, most entrepreneurs end up failing. So does Tata, who was privy to an arena of new contestants, have a checklist of indicators of failure for new companies? “It’s an insight on the founders and I don’t think there is a single answer, but the issue is of the clarity of the founder, the seriousness committed to building an enterprise with someone else’s money and the reality that not every enterprise will have glory all the way through.”

CURRENT AFFAIRS

India cannot sacrifice economic strength to comply with US sanctions: FM 

Sitharaman said the Indian government has expressed its view to the United States.

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India wants to comply with global sanctions, including US sanctions on Venezuela and Russia, but also needs to maintain its own strength and strategic interests, Finance Minister Nirmala Sitharaman said in an interview on Tuesday.

The United States in January imposed the toughest sanctions yet on Venezuela’s oil industry. The move has scared away some global customers, but with few alternative suppliers of heavy oil, Indian refiner Reliance Industries Ltd has been buying Venezuelan crude from Russian major Rosneft. The company is set to resume direct oil loadings in the South American nation after a four-month pause.

Sitharaman said the Indian government has expressed its view to the United States.

“In specific issues which are critical for India’s strategic interests, we have explained to the United States that India is a strategic partner for the United States of America and you want a strategic partner to be strong and not weakened,” she said.

“We value the strong partnership with the USA, but we should equally be allowed to be a strong economy.”

The International Monetary Fund earlier on Tuesday lowered its outlook for Indian growth in 2019, citing weaker-than-expected domestic demand. The US-China trade war will cut 2019 global growth to its slowest pace since the 2008/09 financial crisis, the IMF said.

India’s gross domestic product grew at its weakest pace since 2013 between April and June, stoking expectations of further stimulus.

ALSO READ: FM Nirmala Sitharaman defends govt’s policies after husband’s remarks

“Global headwinds … are getting stronger by the day,” Sitharaman said. Asked about further fiscal stimulus, she said: “I have not closed the door” on that.

New Delhi has been trying to boost domestic growth through an infrastructure package and a new loan programme organised with the banking sector that has doled out loans worth over 80,000 crore (8.7 billion pounds), she said.

The finance minister defended the government’s controversial actions in Jammu and Kashmir in August. India stripped the Muslim-majority portion of the state, which is claimed by both India and Pakistan, of autonomy on Aug. 5. Since then the government has shut off phone networks, imposed curfew-like restrictions in some areas, and arrested thousands, including hundreds of local politicians.