Archive for the ‘Indian Economy/Financial Markets’ Category

Sweden-based Indian couple, have named their daughter after Korean based Mutual Fund!

September 19, 2019

Talk about globalisation!

A Sweden-based Indian couple, have named their daughter after Mirae mutual fund. The couple was a regular investor in MF and were happy with the reurns:

A Sweden-based Indian couple, have named their daughter ‘Mirae’ drawing inspiration from Mirae Asset Mutual Fund, in a testament to the growing popularity of mutual funds in India. Mirae Asset Mutual Fund has been one of the top performers with two of its funds in particular, Mirae Asset Large Cap Fund and Mirae Asset Emerging Bluechip delivering strong performance relative to their category and benchmark over the past 5-7 years. The couple are resident Indians, currently in Sweden on a project for their employer.

Speaking on behalf of the family, Dr Rohan Chahande, 40, a Nagpur-based financial services professional explained that the family has invested in Mirae Asset Mutual Fund over the past few years and are extremely pleased with the consistent performance it has delivered. ‘Mirae’ means good future in Korean, he added. “It is very humbling and at the same time inspiring to hear this. I would like to wish Baby Mirae good health and a great future,” said Swarup Mohanty, CEO, Mirae Asset Mutual Fund.

The parents, Vishal and Dhanista Kharparde have invested in Mirae Asset Large Cap Fund through SIPs over the past 3 years, a period that has been relatively tough for the mutual fund industry as a whole. However Mirae Asset Large Cap Fund has delivered returns of 9.58% outperforming the 8.16% delivered by the S&P BSE 100. Over longer periods however, the scheme has delivered stellar returns: 15.91% over the past 7 years and 14.57% over the past 10 years. Mirae Asset Large Cap Fund also features in the Mint 50 List.

Perhaps there cannot be a better tribute to any MF than this…

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Let hundred Dwijendra Tripathis (business historians) bloom

September 19, 2019

This post reviews the proceedings of ‘The International Conference on Indian Business and Economic History’ held at IIM Ahmedabad on 29-31 Aug 2019. The conference was held in the memory of Prof Dwijendra Tripathi, who taught business history in IIMA for four decades. Prof Tripathi passed away last year on Teacher’s day!

It was a tragedy that the course was not taught for next 25 years before Chinmay Tumbe started teaching it once again in IIMA. This conference was organised by a team led by Chinmay which wanted to take the legacy of Prof Dwijendra Tripathi forward. No words are enough for the team which put a stellar effort to make this event a reality.

Conference Proceedings:

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Agri finance: Another year, another panel. Will things change?

September 17, 2019

RBI released a report on Agricultural credit over the last weekend. I review the report in moneycontrol.

The net impact of RBI transfer on balance sheet is about Rs 89159 cr

September 13, 2019

The RBI gave record transfer of Rs 1.76 lakh crore to the government. The Rs 1.76 lakh crore in turn comprised Rs 1.23 lakh cr annual dividend and Rs 53,000 cr on account of excess transfers. See my article for more details.

RBI announced this transfer on 26 Aug 2019. RBI releases the weekly balance sheet which gives ideas on how the transfer actually took place. If we see the balance sheet changes from 23 Aug 2019 to 30 Aug 2019, we get some ideas.

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A saga ends in India’s cradle of banking: South Canara

September 13, 2019

Superb piece by M. Raghuram in Mint:

In the new wave of bank mergers announced by finance minister Nirmala Sitharaman on 30 August, Syndicate Bank will now be merged with the anchor Canara Bank. In short, Syndicate Bank will cease to exist.

The Udupi-born Corporation Bank will also lose its name. Founded by Khan Bahadur Haji Abdullah Haji Kasim Saheb Bahadur in 1906, it will be merged with Union Bank of India and Andhra Bank. Last year, another local bank, Vijaya Bank, which was started by the Bunt (landowners) leader A.B. Shetty, was merged with Bank of Baroda.

So, Canara Bank is now the lone public sector bank standing in the region that has been dubbed the “cradle of banking”. Before they were bifurcated in 1997, the Udupi and Dakshina Kannada districts had birthed five banks. Four of them were nationalized commercial banks—Syndicate, Canara, Vijaya and Corporation Bank. All these banks were initiatives of private individuals, highly motivated for community welfare.

The fifth bank, Karnataka Bank, is still in private hands.

This second wave of bank mergers in August has rocked this “cradle of banks” more violently than the bank nationalization did in 1969. The undivided Dakshina Kannada district has always shown great concern about anything to do with its banks. The district raised the loudest protest when nationalization happened. In 2017, when Vijaya Bank, along with Dena Bank, was merged with Bank of Baroda, there were widespread protests. The district also experienced a partial bandh, but it was dubbed as a “panic reaction”.

As things stand, there has been a mixed reaction to the massive changes. While customers are seeking more clarity, there’s muted resentment given that this area has traditionally been supportive of the ruling Bharatiya Janata Party (BJP) government at the Centre. Some opposition political parties are planning protests. And of course, many bankers and their families are upset and even perplexed at the development.

Hmm.. Another piece in The News Minute wrote why some people are upset over the move and some asking to move on.

Dr Thingalaya, the lone scholar who studied history of banking in South Canara district passed away in Jan-2019. He would have been saddened seeing how quickly the legacy of banking in the region has gone in a few strokes.

RBI Committee on the Development of Housing Finance Securitisation Market: Review

September 11, 2019

RBI released a new report on Development of Housing Finance Securitisation Market.

I review the findings of the report in my new article in Moneycontrol.

RBI’s report on developing secondary market for loans

September 9, 2019

RBI recently released a report on the need to develop a secondary market for corporate loans.

In this moneycontrol article, I review the main findings of the report.

Reserve Bank of India’s flip-flops on floating rate benchmarks

September 6, 2019

Superb post from Prof JR Varma of IIMA.

He points how RBI in 2001 had asked banks to use external benchmarks before going to internal benchmarks in 2010. In 2019, we are back to external:

These flip-flops reflect the failure of the central bank on two dimensions:

    • The failure to create a vibrant term money market with liquid benchmark rates creates dissatisfaction with external benchmarks. In 2009, the RBI Working Group justified the shift to internal benchmarks as follows:

Banks are finding it difficult to use external benchmarks for pricing their loan products, as the available external market benchmarks (MIBOR, G-Sec) are mainly driven by liquidity conditions in the market, and do not reflect the cost of funds of the banks. … Besides, the yields on some of the instruments may not suggest any representative pricing yardsticks given that they have limited volumes compared to the overall size of the financial market.

    • The failure to create a sufficiently competitive banking system means that internal benchmarks do not work well because in the absence of strong market discipline, banks do not use fair and transparent pricing of floating rate loans. The RBI Study Group that recommended the shift back to external benchmarks described the problem as follows:

First, the experiences with the PLR, the BPLR, the base rate and the MCLR systems suggest that interest rate setting based on an internal benchmark is not transparent as banks find ways to work around. Second, the interest rate setting based on an internal benchmark such as MCLR is not in sync with the practices followed in the modern banking system.

In the next few years, India needs to work on creating both a better banking system and better financial markets. One of the pre-requisites for this is that regulators should step back from excessive micro-management. For example, the RBI Master Directions require the interest rate under external benchmark to be reset at least once in three months while elementary finance theory tells us that if the floating rate benchmark is a 6-Months Treasury Bill yield, it should reset only once in six months. Either banks will refrain from using the six month benchmark (eroding liquidity in that benchmark) or they will end up with a highly exotic and hard to value floating rate loan resetting every three months to a six month rate. Neither is a good outcome.

Hmm..

The Origins Of The Great Indian Bank Merger

September 5, 2019

In the last 2 years, the number of public sector banks have been brought down from 27 to 12. First SBI merged the 5 State Associate Banks and Mahil Bank. Recently, the 10 banks were merged into 4 banks.

My BQ piece on the history of the 10 banks that were merged recently.

Review of Jalan Committee: A case of both glass half-full and half-empty

August 29, 2019

After much wait and expectation, the Jalan Committee released its report. It was like watching the play Waiting for Godot.

My review of the key messages behind Jalan Committee in this piece on moneycontrol (fixed link).

 

As we know, the RBI gave a total surplus of Rs 1,76,051 crore to the Government of India (Government) comprising of Rs 1,23,414 crore of surplus for the year 2018-19 and Rs 52,637 crore of excess provisions. It is the second portion of Rs 52637  Cr which is due to the recommendations of the Committee. This piece focuses on this excess provision only leaving the analysis of the first part for a future piece when RBI releases its annual report.

I do this piece rather differently starting with a primer on RBI balance sheet seeing how this reserve arises and then taking it forward from there.

The tenures under RTI Act should not have been amended but applied to financial regulators too..

August 23, 2019

My new piece in moneycontrol.

I reflect on the recent amendments in RTI Act which are to do with tenures of the RTI officials. Under the older RTI Act, the information commissioners were given a fixed non-renewable tenure of 5 years and salaries were defined as well. These have been amended and made discretionary at the hands of the government.

This is unfortunate and I argue that instead of amending these aspects of the Act, it should have been applied in tenures of appointments of other key officials such as those in financial regulation.

More in the piece.

Having said that, the amendments to RTI Act have been going on for a while now. This piece by Sevanti Ninan in ‘The India Forum’ argues how it has been defanged one step at a time. The recent amendments are an addition to the earlier steps.

The legislature makes acts and takes decisions, then brings another act which could question them  over their policies and then defangs the very act. So much so for whatever we humans do…

Did India’s business leaders misjudge the current slowdown?

August 23, 2019

India’s business leaders are a puzzling lot. They have been telling us all is well in their recent annual reports and have rated every budget, every policy highly. And suddenly quite a few are shouting that nothing is well and clamoring for immediate stimulus.

Sudeep Khanna of Mint writes this scathing piece on Indian business leaders:

For years, Indian business leaders have been generous in their rating of the domestic economy even while holding out visions of a bright future for their companies.

Well, the future is here and it is not pretty. All the relevant indices of economic growth are blinking an alarming red and the optimism of the past has given way to despair. None of this is news, nor can business leaders protest that they have been caught by surprise. Yet, for some reason, corporate chieftains have been sending signals that negate the reality on the ground.

A 2017 PwC survey, “Inside the minds of CEOs in India”, reported that 71% of India’s CEOs “are very confident of their company’s prospects for revenue growth over the next 12 months as opposed to 64% in the previous year”. As late as June 2018, for KPMG’s fourth annual India CEO Outlook, 91% of the 125 CEOs surveyed said they were confident about their company’s growth prospects, while 81% were confident about the growth of the industry they are a part of.

The contradictory messages that emerge from such surveys are truly baffling. Just a year on from such surveys, many of the same CEOs are decrying the lack of demand in the economy and asking the government for a stimulus. Are we to assume that India Inc.’s denizens speak with a forked tongue or that they don’t have a surer grip on the business environment?

Indeed, the real surprise is why they are shocked at the economic slowdown that is upon us and is now acquiring menacing proportions. After years of insisting that they are okay, barring a slight loss of pace thanks to demonetization and the GST flap, they have set upon the alarm bells with ferocity.

What makes this ostrich-like behaviour truly bizarre is that, like a gathering storm whose fury is visible long before it unloads its havoc, this slowdown has been in the works a long, long time.

This is nothing new though. All across India’s business history we see this repeat. They rarely call “a spade a spade” and praise whoever is in power. Only when things hit the ceiling, suddenly they change ways and cry together….

Significance of 22 Aug: British East India Company purchased Madrasapattinam 380 years ago..

August 23, 2019

Nice video in Hindu which gives you a short history of Madras. It all started 380 years ago when British purchased Madrasapattinam and rest is history.

History of cities is always so fascinating.

Data on demonetisation’s link to economic slowdown may have been suppressed

August 22, 2019

Puja Mehra (who has written the book The Lost Decade 2008-18) writes in this Hindu Business Line article:

Was a task force report that recommended a new law to replace the more than 50-year-old Income Tax Act, 1961 suppressed because it inadvertently provided factual evidence for the debilitating impact of demonetisation on the formal corporate sector?

On September 1-2, 2017, at the Rajaswa Gyan Sangam (an annual conference of senior tax administrators), Prime Minister Narendra Modi had made an observation regarding the need to redraft the Income Tax Act, 1961. The Union Finance Ministry set the ball rolling for making direct taxes (on personal and corporate incomes) simple and in consonance with India’s economic needs. On November 22, 2017, it appointed a six-member ‘Task Force for drafting a New Direct Tax Legislation’.

On September 26, 2018, however, an office memorandum was issued “with the approval of the Finance Minister”, requesting the task force’s convenor “not to submit its report to the Government until and unless the Draft prepared by the Convenor of the Task Force is deliberated clause by clause by all Members of the Task Force and has agreement of all Members or at least majority of Members”.

Read on the piece for more details. There are links to the task force report as well..

Price stability or financial stability? Central Bank’s (and RBI’s) difficult balancing act

August 21, 2019

My new article in moneycontrol where I reflect on the recent speech by the Governor of RBI.

Price Stability and Financial Stability continue to pose challenges for central banks throughout their history…

The Nationalism Gallery: An Interactive Timeline of Hindi Cinema

August 20, 2019

EPW has an interesting timeline of how nationalism and Hindi Cinema have gone hand in hand.

The relationship between film and its audience is not unidirectional. Just as film can shape what the audience thinks, it also reflects popular public discourse. Film is, therefore, a dialogue. 

In India, this dialogue has shaped what nationalism has meant for Indians since before independence. Films have been an important component in the nation-building process. Multiple imaginations of the nation have been projected on the silver screen, from the silent era newsreels, to popular television in the 1980s. 

Often, a number of (sometimes even oppositional) interpretations of nationalism have co-existed at the same time. In the following timeline, based on an article by Amit Ranjan, we have charted nine kinds of nationalism from the beginning of the 20th century to the early 21st century. Each era of film corresponds to the most dominant nationalism of the time. However, the attribution of a certain kind of nationalism to a period does not mean that it was the only nationalism that characterised it. There were several other films that were produced during these eras that contested the statist view of the nation.

Scroll through this timeline to see which ideas of the nation mainstream Indian cinema has privileged at different points in history. 

Hmm..

IIMA conference on Economics and Business History (in memory of Prof Dwijendra Tripathi): Program details

August 20, 2019

IIM Ahmedabad is organising a conference on economics and business history on 29-31 Aug 2019.  The conference is in memory of Prof Dwijendra Tripathi who taught business history at IIMA for four decades and passed away last year.

The conference program is up on the website and looks quite interesting. Please pass on the word to the interested and especially those who can attend.

Network Analysis of NEFT Transactions in India

August 16, 2019

Shashi Kant and Sarat Chandra Dhal of RBI in Aug-2019 Bulletin article do network analysis of NEFT transactions in India:

Since the global crisis in 2008, network models have emerged as a tool for analysis of interbank financial exposures. The recent literature has accordingly emphasised the role of network analysis of interbank payment transactions in complementing the existing framework for financial stability analysis (Caccioli et al., 2018). Where central banks are the operators of payment and settlement infrastructure, as in India, a comparative advantage is that it is relatively easier to acquire clean, structured and accurate data that are crucial for network analysis.

Surprisingly, therefore, there has been little research on the interconnectedness of participating entities in the payment system in India. The motivation for
this study is to bridge this gap as a first attempt in the Indian context. We use the National Electronic Fund Transfer (NEFT) system as a case study. Operated by the Reserve Bank of India (RBI), it is India’s largest payment system by volume and a game changer in the retail payments sphere.

We examine the network topology of the NEFT system and analyse financial interconnectedness using network metrics of centrality. Using bilateral transaction information for each participating institution aggregated for March and April months of 2019, we build a network graph depicting the linkages. We use these data to explore the connections between various groups of banks in order to identify patterns. We also seek prominent players in the payment network in order of their systemic importance using a non-parametric methodology (Jaramillio et al., 2014). 

In summary, our findings show that out of the public sector, private sector and foreign banks that constitute around 83 per cent and 87 per cent of the
total transactions by value on NEFT in the month of March and April respectively, the flow from private sector to public sector banks is very large, with public
sector banks being net receivers in the system. We also present evidence of strong connections between public and public sector, and between private sector
banks, nascent role of co-operative banks and newly established payment banks in NEFT. 

Lots of amazing pictures of networks..

Who regulates public sector banks: Government or RBI?

August 16, 2019

The dual control over public sector banks is one of the biggest problems facing Indian banking.

In this moneycontrol article, I ponder over the recent Finance Bill where government framed regulations over appointment of Directors and recent RBI’s definition ‘fit and proper’ status of these directors.

A short history of Indian economy 1947-2019: Tryst with destiny & other stories

August 15, 2019

Happy independence day to all. Some links on this day:

 


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