The mysterious case of the rising retail credit
Ravichandran K
The retail credit market is on the way to becoming a text book case of how market forces can be subverted by small to mid-sized businessmen who would rather pluck the goose silly than exert any effort in fattening the calf for tomorrow’s profit. In one of the weirdest ironies of today’s current economic mess, retail consumers are finding that their purses have gained very little from the sharp jump in the competition which has seen an enormous flow of new products flooding the market. There has been very little difference in the rates paying customers like you and me pay for the CD player, the latest flat screen colour TV or the latest model of two/four-wheeler that has caught our fancy. And this despite the Reserve Bank of India (RBI) recently pumping in more than Rs. 8000 crores into an already funds-flush system, which, say the pundits has forced interest rates even further down. They cite the case of corporates being able to access domestic credit at around 6-8 per cent as against the 14 per cent mean of last year. The overall situation is crazy, to say the least. After all the finance firms, especially the hire purchase outfits, have been greatly restricted by an increasingly strict regulatory regime. Furthermore, they have not been enjoying too much of the truck and lorry business, their preferred segment, and have been willy-nilly forced to exist on retail business for the past 24-36 months. One would have thought that the sharp jump in competition would have forced rates down and in the end benefited the customer. But the only satisfaction retail consumers are apparently receiving seems to be of the psychological persuasion. Every day there seems to be a new advertisement blaring the latest ‘zero’ interest scheme, and with a fantastic range of alleged freebies thrown in as well. But when you finally decide to buy the product of your choice you find that your monthly bills have hardly changed. No wonder since the finance outfits have retained their Internal Rates of Return (IRRs) at the 24-26 per cent level, a level they have been steadily holding for over three years now. There are also a host of add on costs as well as a number of penalties that you could be liable for. For instance, if you decide to settle your debts earlier than planned you will be slapped with a pre-payment penalty, not so different from the case if you were to delay your payments. Also with most of the bigger brands opting to offer finance through large scale outfits like Countrywide, Citibank, etc., retail consumers have totally lost the flexibility of asking their finance firm to hold back their monthly installment cheques for a day or two. Worse yet while accessing credit today, consumers no longer have the same choice as they had in the not-so-distant past. Even about 18 months ago consumers could decide on their budgetary constraints and work out a credit package accordingly with consumer appliance marts like Viveks, VGP or Vasanth & Co. But with the big outfits dominating this end of the credit spectrum, consumers have little say in the credit package and have to take what is offered. But even if you were to opt for a smaller firm, say a proprietorship or small partnership outfit, you will find yourself paying imaginary annual insurance premiums especially in the case of vehicle loans. And all this in an era where banks are crying themselves hoarse of their aim to concentrate on retail credit. But, retail credit from the public sector banks continues to remain elusive with only the banks’ employees being able to access it easily.While these may sound like a whingeing story at the micro level, nobody in babudom appears to have grasped the fact that such developments have been hampering economic recovery. Consumption by consumers is the final link in a nation’s asset creation and legitimate and unimpeded credit flow is axiomatic for this. With little or no effort to change the existing system and no alternative in sight, the long-term recovery of India Inc. remains a moot question.

Satyam Infoway unfazed over Indiaworld storm
Despite the charges of trademark infringements made by the US-based owners of indiaworld.com, Satyam Infoway Ltd., has asserted that it was going ahead with its proposed acquisition of a 24.5% share in the Indian firm IndiaWorld Communications Private Ltd. Satyam, it may be remembered, has been reported to have paid out Rs. 499 crores for a controlling interest in the latter which runs a clutch of Web sites like khoj.com, khel.com.The US site The Indian siteTwo websites, but one logoA spokesperson for Satyam told Chennai Online, "We were fully informed of the details" and added that the deal was in no way jeopardized. Officials also stated that Satyam had no dispute regarding the Internet address www.indiaworld.co.in or the sites therein. There is a dispute only regarding the service mark "indiaworld", they said and added that Satyam Infoway has been assured by the current owners of IndiaWorld Communications that no infringement has taken place till now. From Satyam’s perspective the critical aspects are the Internet address and the related substantive content of the sites, they said.The US-based IndiaWorld has however strongly objected to the proceedings. Mr. Yacoub Ghassan, Chairman and CEO of ASAP Solutions was quoted in ‘The Financial Express’, as saying: "At this time, all I can tell you is that there is a serious US Federal trademark infringement case that will be unraveling next week. Satyam has bought sites that infringe on our trademark by using our name and logo." "Satyam's USA legal counsel was informed about the serious infringements by our legal counsel," the report added. The IndiaWorld site has also come out with a strong feature against the deal with its Managing Director Mr. Victor George saying: "IndiaWorld has not been acquired by the Indian ISP-Satyam Info. IndiaWorld and its logo are protected by the United States Federal Trademark as a portal Web site catering to India.""IndiaWorld is unaware of any recent acquisition claims made by Satyam Info," the India World site quoted its Managing Director. "However," it went on, "IndiaWorld has been fully aware of the trademark infringements in the USA by all of the sites run by the duplicate Indian IndiaWorld and now surprisingly by the NASDAQ listed Satyam Info". Mr. Rajesh Jain, Managing Director of the Indian outfit IndiaWorld Communications, was quoted in the report as contending that there were no claims made about selling Indiaworld.com. With regards to ownership of the trademark and logos, Mr. Jain was reported to have said, "We own it and there is no dispute on that." The deal has raised quite a few questions that need to be urgently addressed in the interests of peace in the Cyber world. For instance, the logos of both sites are identical even though each has been put up and operated by distinctly separate firms. The logo problem is not restricted to India, as was shown by the recent imbroglio concerning the Disney-operated Go.com, which drew harsh comments from a US judge in a related case. The hugely popular portal Yahoo has also filed for damages from an Indian site called Yahoo India. While the Satyam shareholders, especially the new ones who rushed to pick up the stock after the Rs. 499 crore deal are concerned as to how their investments will be affected, the deal has once again shown that regulations in the Cyber world are exactly nil and monitoring even less. For the World Wide Web to function more effectively both are needed, and urgently at that! Prabhu Ram & Ravichandran.K(Prabhu Ram was the site’s then marketing executive)

http://www.financialexpress.com/fe/daily/19970511/13155073.html
NBFCs feel jittery as shakeout looms large
Ravichandran K
CHENNAI, May 10: Non-banking finance companies (NBFCs) are nervously awaiting a shake-out in this segment. While costs of funds have generally come down, this sector has been hit hard by the slowdown in industrial growth, which in turn has led to a large reduction in sales of commercial and passenger vehicles.
To add to their woes, NBFCs have also been forced to slash the interest rates on the loans they extend. Industry leaders feel that in the coming months NBFCs will be in the same condition that troubled the banking industry last year. Banks were then hard put to cope with the drastic fall in credit offtake.
The industry fears that the impact is going to be quite hard even on companies which have been rated. And, it should be noted that of the over 40,000 NBFCs, the Reserve Bank of India (RBI) has certified only around 85. Credit ratings and prudential norms are necessary for RBI certification. Apart from hopes of NBFCs rushing in for RBI certification being belied, the significance of a rating will no longer the same. ``I am afraid a rating signifying adequate safety will no longer have the same meaning,'' said the chairman of a financial services company.
The impact has already begun to make itself felt on even the creamy layer of NBFCs, those with a triple A rating (indicating highest safety in payment of principle and interest).
The more conservative of companies have refused to look beyond their regular business areas. Leaders like Sundaram Finance, ALF, etc, have firmly stated that they would not move away from truck financing, which forms their bread and butter business.
The shortage of lendable propositions had induced Sundaram Finance to increase its focus on car financing during the year ended March 1997. But it is precisely this conservative attitude that is attracting more and more investors, despite these companies slashing their interest rates on FDs. With the capital market continuing to remain sluggish, most of the household savings are pouring into various FD programmes. ITI is reporting a daily net accretion of around Rs 15 lakh. ALF had reported that during last month the company witnessed an inflow of over Rs 1 crore into its FD schemes. One of the main reasons for this state of affairs is the dramatic turnaround in the demand/supply position. Growth in M3 (broad money) has been well over 15 per cent while cash reserve requirements have gone down substantially. This has led to abundant liquidity in the system.
Another major factor is the mindset of investors in Tamil Nadu. It is a well-established fact that investors in FD programmes here change companies for as little as a half percentage point differential.
Thus NBFCs have gained much in accessing funds. But they have been forced to acknowledge that their business is going down. Leasing has never really taken off, the housing industry is in the doldrums and vehicle sales are down. Even where vehicles are bought through hire purchase, the interest earned has taken a beating. The alarming drop in the number of sound business propositions has only been matched by a diametrically opposing increase in funds inflow.
While ALF derives enormous benefits from its association with Ashok Leyland, other companies do not have such luxuries of choice.
``We have no such aids and are thus forced to increase our exposure to areas like inter-corporate lending, bills discounting, working capital margins, etc, where there is no collateral,'' said the managing director of a double `A' rated company. And herein lies the problem. When NBFCs are forced to lend without the security of a collateral, they are jeopardising their funds. Bereft of any real choice in this issue, they are thus forced to make the best of a worst situation and hope for the best.
``Our salvation lies in the finance minister's calculations paying off,'' said industry leaders.
``If the economy takes off as planned or even if industrial growth touches double digits we will be able to not only survive but thrive,'' he said. However, the more likely end to this conundrum is a blood bath. With these companies standing to lose, both investors and depsoitors are likely to get hurt badly.
Copyright © 1997 Indian Express Newspapers (Bombay) Ltd
http://www.financialexpress.com/fe/daily/19970619/17055223.html
Thursday, June 19, 1997
Well-known names emerge unscathed
Ravichandran K
CHENNAI, June 18: Some 31 finance firms have shut shop in Tamil Nadu between August 1996 and March this year. The first to go bust was Snehaam Finance and its group companies.
Though official estimates of the amount mopped up by these firms is put at around Rs 200 crore, sources say the figure could be higher. This is because the deposits include unaccounted money in many instances. Among those who have sunk in unaccounted money include former state ministers Madhusoodhanan, Selvaganapathy and Kannappan. The ministers are said to have a `hand' in such companies as the Eswari group, Maxima, GNS Nidhi, Ramesh Cars and Multiple Finance. Sasikala, Jayalalitha's close aide, is rumoured to have strong connections with the Eswari group.
Between August and October last year, there were daily reports of investors being turned away from finance companies by armed thugs and of interest warrants bouncing. The police made some promoters cough up money to the tune of about Rs 2 crore. The state government is helpless as all these firms are unincorporated bodies.
The amendment to Section 45 (S) has somewhat cramped the mobilising efforts of the fly-by-night operators. The section leaves out firms collecting deposits for manufacturing purposes. A close look at the list of defaulting firms shows that there are many jewellery manufacturing firms.
The CRB Capital Markets collapse has by itself not had much of an impact on deposit collection in the state. In fact, Sundaram Finance exceeded its year's target within 10 months and closed its fixed deposits counter earlier this year. Ashok Leyland Finance and the Investment Trust of India (ITI) have also seen a surge in deposits.
The list of default companies includes: Snehaam Finance and group companies; Abirami Finance; Devi Gold House and GNS Nidhi (associate firms); Eswari group of companies; Maxima group of companies; Bharathi Gems and Jewellery; Better Gains; Amudha Gold Palace; Car Centre Finance; Dakshina Finance and Investments; Enfield Business Finance; Green Heaven Finance; Lakshmi Gold House; Maduvanthi Finance; Malathi Finance; Multiple Finance and Investments; New India Finance; Nagalakshmi Finance; Omega group of companies; Ramesh Cars; Madras Motor Finance; Riches and Cliffs; Spartan Finance; Srinivasulu Chetty Jewellers; Surya Estates; SKS Gold House; Swiss Finance; Saravana Credit and Finance; Thirumagal group; Venchura Finance and Imperial Finance.
Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.
Indian Bank – Management vs Unions (Broke this story)
http://www.expressindia.com/fe/daily/19970814/22655153.html
Thursday, August 14, 1997:
Indian Bank cold shoulders union
Ravichandran K
CHENNAI, Aug 13: Battle lines between the Indian Bank and its minority union have become sharper over the signing of the management-drafted 29-point memorandum (MoU). Sources said the bank plans to go ahead with the pact, despite the Indian Bank Employees' Federation's (IBEF) refusal to sign it. IBEF is an affiliate of the Bank Employees' Federation of India (Befi).
The finance ministry has, reportedly, insisted that the bank personnel, organised and unorganised, sign the MoU as a prelude to the planned capital infusion. The management, however, claims the government has been apprised of its decision.
Uco Bank had, recently, signed a similar memorandum drafted and accepted by employees after which it received a massive dose of capital.
"The majority unions, officers and staff, have agreed to sign the MoU," the bank management said. "Since the unions and associations represent nearly 80 per cent of the personnel, we will have to think of the larger interests of the bank."
"All attempts were made to carry all employees, irrespective of their affliations. It is still hoped that evrybody will accept the MoU," it said. Efforts to bring IBEF and Befi to the signing table were on, it said.
Given that IBEF controls around 20 per cent of all personnel, the management's decision to go ahead with the MoU is bound to trigger unpleasantness. Unfazed, the bank feels it will still be able to carry the day.
IBEF and its parent union, Befi, have refused to sign the MoU. "The underlying causes for the financial crisis the bank faced last year are not being addressed," it said. All other unions including the majority organisations, Indian Bank Employees' Union (IBEU) and Indian Bank Officers' Association (IBOA) have agreed.
The management also said the MoU and the vital recapitalisation issues were irrevocably linked, a stand which has proved to be one of the major bones of contention with IBEF and Befi.
A Rengarajan, General Secretary of the Tamil Nadu chapter of Befi said, "We question the very validity of linking the two issues and want them delinked."The management's stand is summed up this way, "The memorandum of understanding is a commitment on the part of the government as the main shareholder and employees as the bank's main resource."
Befi has listed other issues to be addressed by the management. These include a probe by a central government agency into gross violations of systems and procedures that resulted in the accumulation of non-performing assets (NPAs) worth Rs 2,988 crore. Other demands include publishing the list of major defaulters and the removal of directors who presided over the violations.
Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.
World Bank to aid Indian Overseas Bank's networking programm
Ravichandran K
CHENNAI, Dec 15: The city-based Indian Overseas Bank (IOB) has finalised details of the second phase of its networking programme. This RBI-sponsored programme is estimated to cost Rs 15-20 crore and will receive World Bank assistance, senior officials, involved in drawing up the programme, told The Financial Express.
The second phase, to be completed by March 1998, envisages 30 centres being linked through Very Small Aperture Terminals (V-SATs), putting in place a Management Information System (MIS), setting up of a database at headquarters and improving customer service, IOB sources said. The bank could then offer products like Telebanking, they added. The present phase also aims at intra-centre linking, like connecting the entire Mumbai, Chennai and Delhi clusters. ``We have worked out the security considerations and have requested for tenders, to supply the hardware, on December 10,'' senior bank officials said. The requisite software had been worked in-house they added. The entire networking project would be completed by 2000 and there would be at least another three stages, the sources said.
Of its over 1360 branches, IOB has presently around 350 automated centres, with only 40 being completely computerised. The partially automated branches were those with relatively less business and only had stand alone computers.
These systems would also get upgraded to Local Area Network (LAN) based computers, though the VSATs would only go to centres which are currently completely computerised, sources said. The VSAT network would grow into a 350 branch strong system, they added. The second phase will also involve setting up Automatic Teller and Branch Teller Systems (ATMs and BTMs) at nine centres in addition to the two ATMs the bank has now in Mumbai. Both present ATMs are on the Share Payment Network System (SPNS) the sources said. Of the ATMs to be added two would come up in Chennai. ATMs and BTMs would also be in place by March 1998. Staff selection has been completed through aptitude tests. Their training or re-training, in some cases were going on, sources said.
"With the banking sector undergoing vast changes the computerisation and inter-connectivity would help IOB in many ways such as in handling the variety of fund inflows each at different costs and in handling the large volumes of requests for drafts, etc," a senior official said.
It would also help in filling the gap between public sector banks and those in the private sector, especially the new generation and foreign banks.
Unlike in their cases the public sector banks had to treat each branch as a cost centre, he argued. It was also not as easy as in their instances to become totally technology oriented as the large number of branches and accounts could create problems, basically with security considerations, if computerisation was rushed, he pointed out.
For the year ending March 1997 deposits stood at Rs 14,909 crore and advances at Rs 6,600 crore. IOB hopes to end 1997-98 with a deposit base of Rs 17,600 crore and advances of Rs 7,800 crore. ``First-half figures are quite encouraging at around seven per cent,'' a senior official said and added that ``the year end target will be reached.''
Copyright © 1997 Indian Express Newspapers (Bombay) Ltd
ITI Pioneer:
http://www.expressindia.com/fe/daily/19970508/12855783.html
* List of articles in ChennaiOnline:
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Links for the complete list of articles on Finance & Banking:
http://www.chennaionline.com/business/financebanking/index.asp
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http://www.chennaionline.com/business/financebanking/retailcredit.asp
Pre Budget story (2000-01 Budget)
http://www.chennaionline.com/business/Budget2000/itsector.asp
What's in store for the IT sectors?
With the services and the IT sectors literally booming the Finance Minister Yashwant Sinha is bound to have a "special" look into these areas. While the IT. industry has been warning of killing the golden goose, there are sound arguments for at least some levies on the software side.
But overall the Budget is bound to be an IT. sector friendly one, and we can definitely expect more incentives, as Sinha may bet on this sector to help give an added thrust to the economy's growth.
The limit for overseas acquisitions by Indian software companies, without receiving government approval, could be raised from $ 100 million to at least $1 billion. With E-commerce the next big thing, Sinha may introduce very low tax rates on such businesses.Apart from more tax breaks for venture capital funds, the government is looking at setting up a regulatory authority to govern such funds.
On the other side, the government is all set to tax part of profits earned through software exports, currently exempt. This could take the form of something like the MAT introduced a couple of years back. While industry representatives have been crying hoarse against this, the government's lack of resources and high size of software export revenues and profitability of most companies in this area are bound to see the imposition of some kind of a minimum tax for software companies.The government is also likely to address the issue of double taxation on employee stock options. Under current taxation rules, employees have to pay income tax when the options are awarded and capital gains tax when they sell their shares.
Tax incentives can also be expected for Internet service providers (ISPs), like those now being given to firms in infrastructure sectors. Such firms do not pay tax in the first five years of operation and are taxed at low rates in the next five years.There could also be a reduction of customs duties on the equipment ISPs import and on hardware and peripherals. Thus PCs, printers and other hardware may become cheaper with the budget expected to announce fiscal incentives for this sector.
Most of the debate regarding the hardware import policy of the Government relates to the issue of component imports. While the Government feels that it is imperative to cut import tariffs on components to bring down the price of PCs and drive the growth of the software industry, the component manufacturers feel that such moves can hurt their competitiveness (and the profitability) and discourage domestic manufacture of components.
http://www.chennaionline.com/business/features/ashley.asp
http://www.chennaionline.com/business/features/media.asp
Media - The next fad in the IPO market
The next part of the TMT bomb is all set to go off. Now that that the tech stocks have crossed the primary stage and are doing well in the secondary markets, the fuse has been lit for the media and telecom groups, with the former all set to blow in the very near future. The boom in the telecom stock IPOs is bound to follow next.
With the market regulator and RBI considerably easing the path to the primary market for an IT or Net start-ups, there had been a mad scramble for SEBI cards. This had led to more than 100 companies planning to hit the market with their IPOs, in all for something like Rs 5000 crores, over the next three months.
But, the NASDAQ's volatility and the continuing losses by IT, especially Net-related, firms in the USA and Europe have gone a long way in cooling such IPO plans in India. And so the media sector has fortuitously stepped up to fill the void. For the government had just begun to insist that the film and television software industry should corporatise itself. Now we find that a large number of groups has either gone in for foreign investment or is going in for public offerings.
The Sri Adhikari Brothers (SAB) is a prime example. One of the larger software production houses in the country, Sri Adhikari Brothers had gone public in 1995. And just three months back, in January, the company raised $26 million, including 16 per cent through foreign investment. Already well into its expansion plans, the company launched its SABe TV (TV for all) earlier this week, SABe Chief Executive Officer Rakesh N. Sapru has claimed that the channel might break even in 30-36 months and expects to be in 21 million homes in ten months.
Although Sri Adhikari Brothers has been in the field of production for 14 years, only 25 per cent of the programmes are made in-house with the maximum being made by outside producers.
The SABe will also take recourse to 2,500 hours of software in its library. SABe began beaming as a digital free-to-air channel on AsiaSat 3. In fact, many of the film production companies are making a beeline to the capital market since the media and the film shares are enjoying hefty premium in the bourses. For example, a TV18 scrip which was priced less than Rs 200 apiece had opened over Rs 1900 before setting in the range of Rs 1000.
Jumping Jack Jeetendra's daughter Ekta Kapoor will soon be raising about Rs 60 crore through an initial public offering for her Balaji Telefilms. Although the pricing is yet to be fixed, sources close to the merchant bankers that the issue could be priced in the range of Rs 280 to Rs 300 per share of Rs 10 each. The software house is earning a net profit of Rs five crore over a business exceeding Rs 250 million from producing software for different TV channels. Showman Subhash Ghai's Mukta Arts, which was the first-ever company to insure a film under production with 'Taal', is planning a mega initial public offer (IPO) of about Rs 400 crores.
Film stars like Ajay Devgan and Kajol have already announced their intentions to raise money through IPOs. Action star Sunil Shetty is also planning to kick his way into the infotech world by floating an entertainment and media dotcom venture. Besides, he is also planning to launch an initial public offering for his chain of departmental stores called Mischief.
Creative Eye Managing Director Dheeraj Kumar, who plans to raise about Rs one billion from the domestic market, recently confirmed he had approached the Securities and Exchange Board of India for permission. Creative Eye had sought foreign participation for setting up modern post-production studio and production of mega TV serials for Indian as well as international market. This proposal has just received the go-ahead from the Foreign Investment Promotion Board (FIPB).
Last year, a Mauritius-based foreign investor, a combination of TCW and ICICI, had decided to pick up 28.41 per cent equity stake in Creative Eye. According to that proposal, Creative Eye will allot 4,81,700 equity shares on preferential basis of Rs 10 each at a premium of Rs 65 per share to TCW and ICICI India Pvt equity fund of Mauritius. Creative will also issue 2,04,000 shares of Rs 10 each at a premium of Rs 65 per share to TCW and ICICI India Pvt Amp Fund of Mauritius.
SEBI had earlier this month brought media and entertainment companies at par with infrastructure and IT firms by reducing the minimum limit of initial public offering to ten per cent from the existing 25 per cent of the post-issue capital.
As some entertainment companies are planning to go for overseas listing, the Board has decided to relax the minimum limit of IPOs for these companies so that Indian market does not lose good shares. But media companies have to meet the other norm that the IPO should comprise at least two million securities. The size of the net offer to the public should not be less than Rs 50 crore. Companies in which at least 75 per cent of revenue and profit emanates from media will be considered as media firms.
http://www.chennaionline.com/business/financebanking/badnews.asp
Bad news for Nidhis/Chit funds to continue
Ravichandran K
Investors in Tamil Nadu have been forced to run for cover with deposit default scares from a few Non-Banking Financial Companies (NBFCs). The position of those investing in the Fixed Deposits (FDs) of finance firms is all the more poignant since the past 12 months or so had given the hope that this entire sector was on the mend. And that the rash of closures that occurred during 1996 and 1997 was well and truly a thing of the past.
Those two years saw over 54 unincorporated finance bodies declare bankruptcy and default on repayment obligations and this in Tamil Nadu alone, traditionally the country's biggest fixed deposit (FD) market. The FD default of those days has been variously estimated at anything from Rs. 800 crores to Rs. 2000 crores.
With only a state level body, the Registrar of Nidhis, vested with monitoring authority, depositors are naturally demanding that responsibility be clearly fixed, whether be it with the RBI, DCA or the CLB. But whatever the final outcome, depositors are set for harder times. The authorities, with the 20/20 vision that so often accompanies hindsight, are about to come down hard upon this sector, which in turn will restrict business and earnings and finally investment returns. Investors can expect a rash of regulatory strictures in areas such as monitoring and surveillance, prudential norms, capital limits and even advertisements.
Thus it makes quite a bit of sense for investors to exit – wherever possible – nidhis and chit funds and refrain from getting sucked into new schemes. The harsh times ahead are a near-natural outcome of the events in September ‘99, which was particularly noxious to investors and the sector's players. First came scares of deposit defaults by two high profile nidhis, RBF Nidhi and the Alwarpet Benefit Fund, and then the conservative outfit Investment Trust of India Ltd. (ITI) changed hands. In fact, ITI's status is quite indicative of the entire NBFC sector, which has been literally emasculated after the silly season of the early 90s. Neither the sector's leaders nor depositors have little doubts as to whom to blame.
In their eyes the present problems can be traced back to the former Finance Minister Mr. P Chidambaram's ill-judged desire to 'corporatise' the NBFC sector, a move which he accomplished by rushing through amendments to the Reserve Bank of India Act, especially the newly introduced section 45(S). This section severely limited small and mid-sized finance firms from raising funds through public deposits or loans (for lending on purposes). Simultaneously it established a minimum capital level for carrying out financial services business, including hire purchase and leasing. The financial sector too cannot be held blameless, having literally gone ‘crazy’ in the early 90s. Absence of regulatory bodies and wide loopholes saw conmen of every shade emerge and lure the investors away from solid asset building, something that the economy needed desperately then.
Investors in nidhis and chit funds have also begun to realise that they have a very low level of security if the outfit were to default. Considered part owners they come last in the list of repayment obligations if and when a court-appointed auditor takes over. With no legal or administrative mechanism to render remedy, investors can only form associations to discuss remedies and take legal action. While depositors must perforce therefore take preventive steps, it is not certain whether the companies will allow them to do so. If they are to protect their investment, depositors must insist on board representation, regular reports on loan/asset portfolios and if possible a Depositor Protection Fund
But with their record of running the nidhis as their personal fiefdom, it is quite difficult to see how the present lot of promoters will allow depositors such free access. But after all nidhis have been created on the mutual-benefit principle and the promoters must take depositors into confidence and treat them as part owners that they are.
http://www.chennaionline.com/business/features/badla.asp
Badla yet to enthuse MSE brokers
The Madras Stock Exchange (MSE) reintroduced badla (or the modified carry forward system) on November 4, but only 15 of the 182 registered brokers have signed up for participation. Another 12 are "in the pipeline" says an MSE official, explaining that the usual conservative attitude of the Madras brokers was the biggest factor impeding a roaring take-off by the new system.
By strictly following SEBI guidelines on ‘badla’, MSE also has become the only exchange in the country to do so, though traders do not necessarily see any laxity in rules as a facilitating factor.
"If you want to participate in this system, a broker has to open a Depository Participant account and a vyaj badla account," explains an authorised assistant for a broking house. These are all "expensive" propositions for Madras brokers who have been without much business since the early 90s boom petered out, he added.
The MSE has also brought in the SEBI suggested shorter rolling settlement system, at about T+3 or T+4, which will definitely allow for an enhancement in liquidity. Investors, or brokers, can realise their monies on the fourth day, feels MSE, thus hoping for a sharp rise in daily business volumes.
With only 100 or so of the 182 brokers, "really active" business and trade volumes had dropped steadily for the past two years and the much talked about boom on the BSE and NSE is yet to be replicated here.
Though there has been a rise in daily volumes, from an average of about Rs 1 crore to about Rs 3 crore, this rise cannot be attributed to the badla factor. There has been a general rise in business and the amount of funds flowing into the markets and this is why MSE is enjoying better days, feel many brokers and traders.
But badla, or allowing brokers to carry forward their positions, could bring about a marked change in trading trends. MSE has also made it easier for brokers by adopting the SEBI guideline on setting carry forward limits for brokers.
Unlike BSE, where brokers are allowed to carry forward a certain percentage of their daily turnovers, Madras brokers have been allowed to carry forward upto 20 times their base minimum capital of Rs. 5 lakhs.
Considering the volumes here, the BSE system restricts a broker’s position as regards to the number of scrips he can take forward positions, explains a trader here.
But the biggest factor that is going to decide future trends is the availability of those willing to offer badla financing. As of now, explains an MSE official, the only ones offering funds to back carry forward positions are Bombay based financiers where cheap funds are available now.
But MSE has a long history of bucking such expected trends. The financial services sector here is extremely well developed and the funds are definitely there as are those willing to take risks by backing bulls.
It is then just a matter of time, if MSE players are to be believed, before the MSE begins enjoying a bull run as sustained as the one that is shaking BSE and NSE.
Ravichandran K
http://www.chennaionline.com/business/financebanking/madura.asp
Bank of Madura to strike one more JV
Ravichandran K
The next few years will form the most crucial period for Indian banks, both public and private sector outfits, which today stand at a crossroad in their path to prosperity. And they will have to guess right, or the road they choose could very well end up the one leading to a flame out. And all this because the situation in the banking sector has changed dramatically. Commitments made to the WTO first forced India to open up its banking borders and later liberalise regulations further.
Quite naturally the staid Indian public sector banks (PSBs) have come under such pressure that they are still desperately working out strategies to regain the lost ground. Competition from homegrown giants too has increased tremendously especially with the blurring of lines between banks and developmental financial institutions (DFIs) like ICICI Ltd. and IDBI Ltd. Both corporates, which began as DFIs, were given a specific charter to aid the country's industrial development and to not compete with banks, a scenario that has totally changed now. ICICI, for instance, has gone on an M&A spree while the other financial giant, The State Bank of India (SBI) has finally begun to capitalise on its size and reach to overwhelm the retail credit segment.
With such a backdrop, it is no wonder that the city-based Bank of Madura (BoM), one of the old generation private sector banks, decided upon an aggressive strategy to ensure growth and to overcome the exigencies of competition brought into the sector by mega-sized overseas ventures. "Yes, we are focusing on non lending activities to compete with the so-called mega-banks," Mr. V Nachiappan, General Manager at BoM told Chennai Online. The bank has decided to considerably increase its non-interest income, as deposits are no longer looked upon as growth, the executive pointed out. We have no problem with "reach" and can open more branches if need arises, but if deposits grow unchecked the opportunities to deploy could become limited, Mr. Nachiappan argued.
Thus while the bank feels a 50 per cent contribution from non interest income segment to be the ideal mark, "We will be happy to reach the 30-35 per cent level in the next two to three years, he said. It is with such objectives in mind that BoM has begun to add to its already innovative product portfolio and focusing on more service oriented activities ranging from merchant banking to cash management, forex trading to distribution of Mutual Funds. Simultaneously BoM has begun to strike up a series of tie-ups and joint ventures, in areas where it lacks competencies now. "We have many relationships now, which we will like to capitalise upon," said Mr. Nachiappan.
For instance, BoM has signed pacts with Satyam Computers and TCS whereby 50:50 joint ventures have been formed. The BoM-TCS venture will focus "on anything connected with the financial services industry" said Mr. Nachiappan adding that the venture will be by nature a deemed public limited company. The next JV in the pipeline will be one for treasury and forex management "and discussions are already on with a few people." The emphasis will be on risk management than on just money changing, he hastened to add. But the bank is not ready to roll over and die just because the MNC banks are trying to swamp the retail credit segment. Entry of MNC outfits like Credit Suisse and aggressive promotional strategies of existing banks like ANZ Grindlays, Citibank, BankAm, HSBC, etc., has changed the entire corporate and retail credit structures.
With access to much cheaper credit, global rates are less than a third of those prevailing in India, these banks began to aggressively woo the retail segment with a host of products that India had never heard of till then. For instance, credit without collateral and only on the strength of a salary slip? 'Personal' loans? 15-20 year housing loans? Loans to a doctor to buy scanners? To a student for buying PCs? Apart from freeing the credit clearing process, almost all its retail lending is cleared at the branch manager level, BoM has been seeing about 90 per cent of its branches' credit come from product based lending. Also, as early as the mid-90s BoM had drawn up products specifically aimed at the professional segment and worked out credit packages for doctors, architects, etc.
The next such product on the design table is a sort of securitisation package on the micro level. It's a rent assignment product, said Mr. Nachiappan. That is, if you have rented or leased out a property you can credit based on future cash flows. While BoM is game for tie-ups and JVs mergers are a totally different dish. "We don't see any synergies in mergers with other old generation private sector banks, the official admitted and of course a merger with a PSB like say Bank of India will end up as an acquisition by the latter. Thus with its focus areas clearly marked out, BoM should have no trouble in reaching its targets for FY 2000: in advances around Rs. 2100 crores (last year Rs. 1600 crores), deposits Rs. 3600-3800 crores (Rs.3009 crores) and a net profit of around Rs. 30 crores.
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Indian Bank plans huge revamp
Indian Bank has come up with an operating profit of Rs 23.86 crores for 1999-2000 accounting year, though accumulated loss still stands at Rs 3609 crores.
The bank's operating profit comes after a string of loss making years. Last year it posted an operating loss of Rs 163.24 crores and its net loss stood at Rs 426.97 crores as of March 31, 2000, down from March 1999 figure of Rs 778.49 crores.
The bank was hoping to double its operating profit in the current fiscal, Ms Ranjana Kumar, the newly appointed Chairman and Managing Director, told reporters here.
"However the next two years will be tough for us. By March 2002 the bank is expecting to make a net profit", she added.
The bank is embarking on a three-year restructuring plan which includes hiving off its three subsidiaries- Indbank Housing Ltd. Indbank Merchant Banking Services Ltd and Indbank Mutual Funds Ltd.
Kumar said that a restructuring plan has been submitted to the Union Government and was likely to be approved soon.
The plan envisaged organisational restructuring, branch rationalisation, rationalisation of manpower, strengthening of foreign operations and technological upgradation.
A voluntary retirement scheme would be put in place soon, Kumar said adding tough decisions would be taken to nurse the bank back to health.
"We all should be prepared to make sacrifices", she said but added that there would be no wage freeze. The revised pay scales were being implemented from July.
The four-tier management structure would give way to a three-tier structure and certain branches would be merged, she said. The subsidiaries were being hived off as they were a drain on the bank's resources, she added.
The Union Government had sanctioned a recapitalisation assistance of Rs 1,750 crores for the bank this year, Kumar said pointing out that gross domestic non-performing assets had come down by Rs 285 crores - to Rs 2,835 crores from Rs 3,120 crores the previous year.
NPA recovery would continue to be a thrust area for the bank, she said and added that the bank had requested the Centre to set up an Additional Debt Recovery Tribunal in Chennai to give a fillip to the bank's recovery efforts.
Its global deposits increased by Rs 2016 crores - from Rs 17,098 crores to Rs 19,114 crores. Domestic deposits have increased by Rs 2,050 crores from Rs 15,901 crores to Rs 17,951 crores, registering a growth of 12.9 per cent as against an increase of Rs 1781 crores and growth of 12.6 per cent in the previous year.
The bank also proposed to put in place a comprehensive risk management/monitoring system to prevent slippages in asset quality, she said.
The bank is planning a series of new schemes to cater to the growing demands of various segments of borrowers. Indian Bank consumer credit loan and the Indian Bank vehicle loan schemes had been launched on July 14. Also a new scheme 'Kisan Bike scheme' would be introduced shortly for the benefit of the farmers.
The bank's educational loan scheme, housing loan scheme and trade finance scheme were being modified to make them more customer-friendly, she said.
The bank was poised to introduce Internet Banking in the near future. The bank would also strengthen its treasury operations, she added.
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Subdued trend in interest rates to continue
Ravichandran K
Investors with a ‘safety first’ attitude definitely have some bad news to contend with while on the other hand those willing to risk their savings, or parts thereof, probably have never had it so good in the past couple of years.
What are we talking about? Well interest rates are set to go down, yes down from the already low levels they are currently hanging about. A five per cent return on a 15-45 day bank deposit is hardly decent nor is an 11 per cent or lower on a three-year FD.
With the RBI releasing a further Rs 8000-odd crores into the system, fund flush banks are hardly going to beat down your doors in search for your savings.
"I expect the interest rates to remain low or even fall further," says Mr. T P Raman, Managing Director of the Sundaram Newton Mutual Fund. He, like other fund managers, is quite happy and it’s not difficult to see why.
Sundaram Newton, which had a fund base of around Rs. 35-40 crores last year this time, now enjoys a fund base of over Rs. 200 crores. Excited about the prospects, the fund has announced three new schemes. Other funds, be they Chennai based like First AMC or upcountry outfits like Templeton also report similar swelling of their coffers.
No wonder First AMC’s Chairman Mr. Farouk Irani confidently says: "The mutual fund The combined effect of the tax sops in the budget, cyclical recovery of the economy and now the stable government has improved confidence in the Mutual Fund industry. Recovery, reflected in the fund inflows, has exceeded expectations."
While mutual funds are enjoying the benefits of the tax benefits and banks are literally seeing money flow in the non banking financial companies (NBFCs) are "very low key," says Mr. P S Balasubramainam, Chief Executive with the city based Investment Trust of India, a leading NBFC that focusses on asset backed lending.
The city’s bankers too vehemently oppose any idea that bank deposits are falling. Senior executives with Bank of Madura and Indian Overseas bank both claimed that contrary to the general perception, they had both seen healthy growth in deposit levels.
But as fund managers point out, banks together have over Rs 700,000 crores in deposits and they are hardly going to miss a few hundreds. Maybe not but the point investors have to bear in mind is that banks are no longer desirable especially if one’s investment time frame is 12 months or so.
Tamil Nadu, with its huge FD market, has been a particularly rich hunting ground for funds, especially with the two well-publicised flameouts of Nidhis in September. And the four Chennai based funds, Sundaram Newton, Kothari Pioneer, Cholamandalam and First, have each reaped a rich harvest. Most of the money flowing into funds is definitely coming from the NBFC and corporate deposits and investors seem to be reassured by the ad campaigns by funds detailing Sensex beating growth rates.
And that’s quite a lot. The Indian markets have returned about 34 per cent in whatever little good times we had recently and about 17 per cent in the worst of times – with a mean of 22-24 per cent.
But even those like Mr. Balasubramainam, who optimistically predicts interest rates stabilising, do not see any upward movement in the near future. In fact, if banks are so fund flush as they would have us imagine then the next logical step for them would be is to cut back on the costlier deposits by lowering interest rates.
And with mutual funds literally enjoying a second lease of life, most of the household savings would most likely end up in the stock markets. In such an event watch out for fireworks in the early parts of the next decade. And let us hope that, unlike the early 90s, this time around maybe the monies would actually end up fueling the country’s asset building run and not just end up in a few speculators’ pockets.
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