Category: Views

Want to retire early? Think again

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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I want to retire early.

This is something that we tend to hear a lot these days. It is possibly a fallout of the high-pressure corporate life or it is one of those fads which catches on and spreads like Whatsapp messages!

Whatever be the provenance, the urge to retire early is very much apparent these days. But, is that really feasible? Let’s take a look.

When a person retires at 60, they have about 25-30 years of life ahead. That means that they should have a corpus sufficient to see them off in reasonable comfort during this period.

Let us run some numbers. Amey is a 40 year old and his family is spending Rs.60,000 pm today. Assuming an inflation of 7%, that would be Rs.1.55 lakh after 20 years. Normally, expenses do come down after retirement as children’s education would be over and they would most probably be independent, lifestyle expenses would moderate, local commute would come down etc. Due to all these, we can reasonably assume a 25% drop in expenses. Even taking that into account, the monthly expenses would still be Rs.1.15 lakh. Assuming a 25-year survival period, the corpus required would be Rs.2.8 crore. If Amey wants to travel or indulge in anyway or leave a legacy, the corpus would need to be much higher.

Retiring At 50

Now, If Amey retires at 50, he would need to provide for children education goals, most probably. Let us say, the amount needed for that is about Rs.50 lakh. A rough calculation of corpus required @ 50 would roughly be Rs.3.2 Crores ( adding about Rs.50 Lakhs of education goals which most likely would come after retirement ) !  You see, the corpus needed at 50, is bigger and the time available to accumulate that corpus would be 10 years shorter.

This is not that very easy as people breezily assume. Very few can make this fly – I would say just 1 in a 100 can retire at 50, and still be well funded.

The other thing that people have to understand is that the saving potential in the period between one’s age of 50 to 60 is very high. Most people would be finished with their loans, the incomes would be quite high in this period, most of the things are well settled by this time and further new expenses like one incurs when young like for setting oneself up in a home etc. are not there.

Due to all this, a rough calculation indicates that one will be able to save between the years 50 and 60 what one has saved in life all along until that point, maybe more!  Hence, this is an important period in life from a financial standpoint and one should think properly before retiring prematurely.

Let’s say it were possible. Most people have not figured out what they want to do after they retire. When asked, they give fuzzy answers – pursue their passion, teach in schools, travel extensively, start something & work at a leisurely pace etc.

The Numbers Speak

These don’t stand scrutiny. For instance, travelling extensively involves oodles of cash. If they do that for five years, the corpus will start dwindling sharply. Teaching in schools is not a walk in the park – it requires real interest & total dedication and 9 out of 10 would chicken out within the first six months, if that! Most just end up filling up the time watching TV & wondering what to do with those hours weighing on them like lead!

The howler is the one where they want to start something and work at a leisurely pace! When one starts up a consultancy or for that matter, any venture, one needs to put one’s heart and soul into it to get it off ground, work endless hours – keeping the cock company as it announces the day’s arrival and be at it to hear the owls toot in the stillness of the night! If this still looks like a leisurely pace, all the best!

All one can say is that it’s a fad to want to retire early and do one’s own thing! It sounds cool – certainly. But it is something that is difficult to make it fly. If properly examined, it’s not even desirable. If all one wanted is to work, why not continue working where one is currently? Why resign and then struggle at the end of the career, when one can enjoy the fruits of one’s work till that point?

Some say that they are fed up and want to retire to a restful life. But that is precisely what one is going to do after 60 – for decades! Why advance that?

Suresh Sadagopan is a Certified Financial Planner and runs Ladder7 Financial Advisories, a fee-only financial planning firm

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 Here is how rising global oil prices will impact India

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Earlier this week, prime minister Narendra Modi said energy consumption in India is estimated to grow at 4.3% per annum for the next 25 years.

India is the world’s fastest growing consumer of crude oil. But India’s dependence on imports has been increasing, leaving it vulnerable to volatile crude prices.

India now imports 82-84% of its energy needs and it is not producing enough to meet this growing demand. The country produced around 32,642 million tonne of crude oil in 2017-18, the lowest in seven years. In terms of value, it amounted to $80 billion, up by 25% due to the increase in crude prices, according to data from the Petroleum Planning and Analysis Cell.

Three-Year High

Those numbers are set to balloon further as crude oil prices have rocketed to the highest since 2014. The rise in global crude prices will have a big impact on the Indian economy because oil import is expected to grow further.

This sharp uptick is showing. On Thursday, the Indian import crude basket touched a 40-month high at $68.93 a barrel. Petrol prices in India are the highest in four years at Rs 73 per litre while diesel prices (Rs 64.96 per litre in Delhi) soared to record highs in most states.

The spike in crude prices will trigger a chain reaction in the form of higher freight prices, rising inflation rate and an increase in interest rates.

Geopolitical tensions in the Middle East are largely to blame for the surge in global crude prices.

Doesn’t Look Good

The silver lining here is that US shale oil output hit a record high at 10.4 million barrels a day last week and is expected to reach 11.44 million barrels per day in 2018. The second half of 2018 may see higher supplies.

But geopolitics and inclement climate should not spoil the party.

In the near term, crude oil price is expected to hold on to $60s a barrel as Organisation of Petroleum Exporting Countries (OPEC) limits production and the global demand grows at 1.5-1.6 million barrels per day.

It is not a good sign for India, considering the price structure that is operating in the country, where taxes form a major chunk of the fuel price. On top of that, the government has to deal with upcoming state elections.

Manisha Gupta is Editor – Commodities & Currencies

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The next big investments that are tempting rich Indians

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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If you are new to investment in the world of decadence and luxury, you may have asked yourself this question: what do I put my money in? Should I pick up that posh flat in what experts describe as the right address to live in? Or do I spend it on art, watches, wines, classic cars and the many indulgences that define a luxurious lifestyle?

As a journalist writing on luxury, some of these questions have often been thrown at me by young entrepreneurs I meet as part of my job. Here is where, I believe, wealth management reports come in handy. The experts involved keep a keen eye on the happenings in the global luxury world to tell us where exactly we should park our money.

Knight Frank is a pioneer of wealth management reports, which is surprising given that it is a global real estate consultancy. But its extensive network helps it track trends in spending, year after year.

Browsing through the Knight Frank Wealth Report 2018 throws up a few surprises. For instance, it tells me that 38 percent of UNHIs put their money into alternative investments like art, wine and cars. Or that only 47 percent of the rich in India have a succession plan in place, against the world average of 50 percent; around 58 per cent send their children to study abroad, against the Asia average of 49 percent (there are more Indian students in universities abroad than there are Chinese!).

Surprisingly, only about 36 percent Indians invest in luxury real estate against the global average of 43 percent. And only 18 percent of India’s UNHIs want to buy property in other countries besides India.

Shrewd Investors

The report was launched at a la-de-dah event in Mumbai and in attendance was Lord Andrew Hay, Partner, Head of Global Residential, Knight Frank India. “Indians are only interested in three destinations for luxury real estate – Dubai, UK and the US. They make for very shrewd investors. If I were to just take investments in property in the UK, I suspect that at the moment they are thinking of ‘Brexit’!” he tells me on the sidelines of the launch. “But I am sure those numbers will grow. I find Indians are investing incredibly well in investments of passion like wines, cars and art.”

Interestingly, Lord Hay believes that the largely entrepreneurial Indians will focus on investments in commercial space and, interestingly, in agriculture! “There is a growing food shortage, so shrewd people are investing in big blocks of agricultural land to ensure food security.” He predicts 2019 to be the year when more Indians will invest in wines and maybe the classic cars, a market that is still untapped. “When Indians take a look at that segment, the market is going to fly.”

Health is Wealth

Compared with Knight Frank, Kotak Wealth is a relatively new entrant to the world of wealth management predictions. Its seventh edition of the Top of the Pyramid Report claims that Indians are getting wealthier at a younger age; about 60 per cent of UNHIs surveyed, in fact, are below 40 years of age. Many of the younger UNHIs lived in tier II cities such as Ahmedabad, Pune, Hyderabad, Nashik and Ludhiana. The report also tells us that younger Indians spend much lesser money on jewellery, compared to the earlier generations. Instead, they spend on health, with about 76 per cent putting their money on good yoga teachers. It also talks about how three-fourths of this generation believes in philanthropy.

Jaideep Hansraj, CEO of Wealth Management and Priority Banking, Kotak Mahindra Bank is convinced that wealthy households in non-metros have contributed considerably to the growth in the luxury industry. “They are usually the first investors to identify and capitalise on trends and gravitate towards alternate assets. Real estate took a hit after demonetisation and debt wasn’t really throwing up exciting opportunities,” he says. “Against this backdrop, angel investing and private equities have gained tremendous traction. We have also seen increased spends on apparel and accessories, holidays, home décor, jewellery, automobiles and electronic gadgets.”

My one takeaway from the two reports is this: global luxury brands that have been struggling to crack the Indian market will find it easier to reach this younger, aspirational segment through ecommerce and e-tailing. I expect brands like Hermès and Gucci to begin delivering their chic bags and elegant scarves to the very doorsteps of the rich Indians in Tier II cities if they want to survive in India. That’s where their next generation consumers will come from.

Deepali Nandwani is a journalist who who keeps a close watch on the world of luxury.

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Why the RBI’s circular on bad loans is a good one!

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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On Tuesday,  Rajya Sabha standing committee on subordinate legislation met RBI officials and bankers to take stock, among other things of the RBI’s new rules for resolution of stressed loans and NPAs(non performing assets).

Yes, the RBI’s new rules are strict. According to it, if loans over Rs 2,000 crore remain unpaid, banks must resolve the stress in six months or take the borrower to the bankruptcy court to find buyers at some price.

One can understand why members of parliament are worried. Many loans and companies could go under the hammer and hence, summoned bankers and RBI to the table.

Business-Politics nexus ?

But what arouses one’s suspicions is that previous meetings of this committee were attended by a businessman turned politician whose group’s loans are NPAs with most banks. The businessman is a Rajya Sabha member, but not a member of this committee (thank god).

Why is the promoter of a group that owes the banking system over Rs 40,000 crore, being allowed to hobnob with a committee that is later questioning the banking regulator?  It’s a shame there are no laws that bar a defaulter from becoming a parliamentarian. But allowing a defaulting parliamentarian to sit in the meetings of a committee that is supposed to question the country’s loan default rules is the ultimate conflict of interest.

It shows how deep the business-politics nexus runs  and how much this nexus may be responsible for the mess our banks are in.

Which brings one to the RBI’s new NPA rules again. The key elements of these rules are as follows:

1. Under the new rules as soon as a borrower defaults to any bank, all banks must come together to resolve the default – either by recovering dues, ensuring a change in promoter, sell-down of the exposure to or through a restructuring scheme. The new loan must get an investment grade rating from one to two external credit rating agencies.
2. Failure to put in place a plan within six months will result in referral to the National Company Law Tribunal (NCLT) for insolvency proceedings.
3. If restructured, the loan will attract provisioning just like an NPA.
4. Upgrading the account will be allowed only if interest is paid regularly and 20% of the principal is paid back.

The new rules are bound to increase the amount of NPAs, because the moment a loan remains unpaid banks have to either restructure and make provisions or take the borrower to the NCLT. May be there is a case for a few tweaks. The banks can wait for a month after the overdue date before moving against the borrower. May be banks can be empowered to force a resolution even if all lenders don’t agree but a majority do.

But these tweaks apart, it is necessary for the RBI to ensure that the main thrust of its new circular is not diluted.

First, it must not weaken on its resolve to push large loans (over Rs 2000 crore) to  the NCLT, if not resolved. This is morally and legally necessary. Having first pushed 12 of the largest cases to the NCLT, and then the next 30 large loans, it becomes incumbent upon the RBI to give the same treatment to the next set of large loans. Else it can be dragged to the courts for discrimination.

Secondly, these loans have been kicked down long enough and the excuse that banks should focus on restructuring because national wealth is involved doesn’t hold anymore. Enough opportunity and time has already been given.

Two Big Worries

That said there are two big worries, which the government and not the RBI needs to worry about. As more and more cases come to the NCLT, will this system have the bandwidth to handle and dispose cases within the legally allotted time table? The higher judiciary needs to ensure that it doesn’t  grant stays or in any other way delay the NCLT process. The government needs to ensure that the strength of the NCLT benches are sufficiently refurbished as the load increases.

The second worry for the government will be the power projects that will inevitably come to these courts. About 30 large projects totalling loans worth 1.7 lakh crore are almost certain to come to the NCLT. At least two thirds of these projects have no power purchase agreement or no coal agreement  or neither. Which means these plants will not find buyers even in the NCLT and may actually go into liquidation. That would be a national waste. It is incumbent that the government wake up to the formidable size of the problem of stressed power projects.

It will be very tempting for the government to dodge this massive bad loan problem in power sector by forcing the RBI to once again kick the can. That is precisely what we must guard against. Debt problems get immensely bigger with time. Indian banks already have too large a bad loan load. More power to the central bank to resist the  inevitable pressures.

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Power: Is the blackout finally ending?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A dichotomy in the power sector in India is becoming more conspicuous with the early onset of summer. On the one hand, peak spot prices for power have increased to levels of Rs 8 a unit and on the other, up to 51,000 MW of stressed assets lie underutilised in the system.

The latest data from Indian Energy Exchange also bears testimony to the sharp mismatch in supply and demand. The average Market Clearing Price (the price discovered in power trading based on demand and supply) in the day-ahead market in March was Rs. 4.02 per unit, 24% higher than Rs 3.23 per unit in February 2018 and 57% above Rs 2.56 per unit in the same month last year.

#CNBCTV18Explains | India’s power sector could be staring at a bad loan crisis. According to @CRISILLimited, 51,000 MW power capacity in the country could be ‘stressed’. @latha_venkatesh explains the gravity of the problem staring at the industry & economy at large pic.twitter.com/FxXQ147mG3

— CNBC-TV18 News (@CNBCTV18News) April 10, 2018

The Coal Problem

The early onset of summer, shortage of coal supply and under generation from alternate sources have been the key drivers of the spot prices. In the fourth quarter of 2017-18, while the demand for power expanded by 6%, the required coal supply did not grow in tandem. The shortage of coal became more acute as a result.

Supply of coal actually deteriorated significantly in the fourth quarter, with 28 plants facing sub-critical levels of inventory by March 2018 compared with 10 plants that were in the same spot in December 2017.

The key questions here: does this spike in spot price point to a fundamental transition in the sector or is it the result of temporary factors?

The demand for power is definitely on an upswing. During the fourth quarter of 2017-18, consumption of power increased by 5.6% to 299.8 billion units from a year ago.

But the higher demand was more due to an increased offtake by residential users and not because of any meaningful pickup in industrial demand, according to experts. The Central Electricity Authority in its recent National Electricity Plan projected a moderate demand growth of 6% annually from 2018 to 2027 compared with the 6.5% presaged in the draft report.

While there are several triggers like the government’s Saubhagya scheme for a surge in power demand, several state governments aiming to supply power 24/7, closure of old power plants, slower capacity addition; low availability of coal, lack of power purchase agreements (PPAs), under-recovery of charges and transmission gridlocks present serious impediments.

Another Worry: Bad Loans

According to banking experts, power sector loans may be the next ticking bomb in the non-performing assets (NPAs) mess. In a recent assessment note of the crisis in the private power generation segment, research body CRISIL highlighted that Rs 4 lakh crore of debt is likely to become NPAs if the prevailing issues don’t get resolved.

The Association of Power Producers in a recent meeting with the government noted that around 19,723 MW projects are stressed due to lack of PPAs. Only 7,168 MW PPAs have been signed in the past five years compared with a capacity addition of 53,664 MW by the private sector.

The recent increase in the spot prices has brought a silver lining though.  Part of the reason why discoms (distribution companies) were reluctant to sign large PPAs was the availability of cheaper power in the spot market. Now, with increasing demand and higher spot prices, there are signs that states may start signing PPAs again.

In a recent interview to CNBC-TV18, power secretary Ajay Kumar Bhalla confirmed that states are showing interest in signing new PPAs as spot power rates harden.  He said a pilot project for procurement of 2.5 GW under medium-term PPAs from coal-based power projects through an aggregator, PTC India Limited.

While this is a step in the right direction, it offers only a small relief for power generating companies, given that the quantum of thermal capacity without long- term PPAs is estimated to be significantly high at about 20,000 megawatts.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Looking back at Shikha Sharma’s 37 years of banking

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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To those, who in the past few days have written off Shikha Sharma, as she puts in her papers, it is worth reminding that she has a near four-decade innings in the Indian banking sector.

Hand-picked from IIM Ahmedabad in May 1980, by ICICI’s project finance team Sharma went on to work with the bank’s strategic planning unit that took the then young development finance company into merchant banking, credit rating and venture capital. She then set up ICICI Securities. But Shikha’s most enduring contribution to ICICI came after it became a bank. Converting a development finance institution into a universal bank required setting up a retail franchise: starting from scratch putting in branches, ATMs, tellers, recruiting and building the team, setting up distribution channels, putting in the IT infrastructure and product strategy for auto loans, housing loans, consumer loans, personal loans and credit cards. When Shikha left ICICI Bank in 2009, the bank had 58% of its loans to the retail sector, from literally zero in 2000.

Sharma had one more feather in her cap before she left ICICI. Given her experience in retail, she was picked to lead ICICI Prudential Life Insurance, set up after the sector was opened up to private players. Sharma managed those initial years with aplomb, with a mix of term products and ULIP and absolutely no regulatory violations despite feeling her way as the first ever private insurer in the country.

But the distancing from the bank proved costly for Shikha Sharma personally. When in 2009, the time came for choosing K V Kamath’s successor, Sharma lost to Chanda Kochhar, for whom, staying on in the main bank, turned out to be a huge advantage.

Shikha left in a huff, but such was her contribution that despite her joining the competition (UTI Bank, now Axis Bank), the ICICI board passed a resolution thanking her for her services. Sharma’s entry into Axis Bank  was equally stormy. Outgoing chairman P J Nayak, the powerful ex-bureaucrat, had nurtured UTI bank from an ignorable government bank, a minor subsidiary of the Unit Trust of India, into a robust banking giant. Nayak could not stomach his board picking a candidate from rival ICICI and fiercely pushed insiders Hemant Kaul and MM Agarwal. The equally power-packed Axis board pushed back and voted 8:1 in favour of Shikha Sharma. Nayak stormed out of the meeting and the bank, not waiting to complete even his last few weeks in the bank, forget ensuring a smooth hand over to the newly appointed Managing Director.

But Shikha Sharma proved equal to the task. Her first strategy,  one recalls from her initial interviews, was to diversify the loan book. When Shikha took over, Axis’s retail loans accounted for 23% of the total. Today it is 46%. Under her, the retail book grew 12 times to nearly 2 lakh crore. (Over the same period ICICI’s retail book grew only 2.6 times -albeit on a higher base – while HDFC Bank’s retail book grew by 4.8 times.)

Not blessed with robust subsidiaries like ICICI was, Shikha set out to create them. Right in her second year in office she bought Enam Securities, after a long and arduous due diligence by the regulator and some angst from shareholders. In four years, Axis Capital, which had not figured even among the top ten in equity raising, ranked first. Likewise Axis direct, Axis Finance and Axis Mutual Fund also grew to higher and higher ranks. Finally, Axis under Shikha did much better than most banks on digitisation: it popularised QR codes and UPI, purchased freecharge for easy bill payments  and became the third largest issuer of credit cards.

What went wrong?

So what went wrong?  Some loans for sure. Axis’s Gross NPAs (non performing loans) grew by 27 times under Shikha. In the comparable period, ICICI’s bad loans grew by 4.8 times and HDFC Bank’s by 4.5 times. And there were other regulatory run-ins. During demonetisation a couple of Axis’ bankers were allegedly caught trying to illegally change money. For the government and the RBI that was a  cardinal lapse, considering the sensitivity of the issue.

Back to NPAs, the RBI’s calculation of Axis’s NPAs repeatedly turned out to be higher than what Axis recognised as bad.  Central bank officials were miffed by the evergreening of loans by Axis as by most other banks.  And finally, the leak of the results over Whatsapp, drew SEBI’s ire. To be fair all these sins have been perpetrated by a couple of other banks as well.

Also to Shikha’s credit, even in the worst cases of bad loans her personal integrity was never in question. But sources close to the regulator say their feeling was Sharma didn’t have enough control over her flock. Also the hasty manner of her extension in 2017, left a feeling that she probably strong armed her board.

Some believe her exit could have been the result of external circumstances. Was the regulator making an example of her after the fraud in PNB and the storm over the ICICI-Videocon affair?  Is hers the first of more such forced exits in the banking system as the regulator sends out a message that they intend to clean up thoroughly?

The Q4 results are going to be a disaster for Axis, as it will be for many other banks. So, many will shake their heads and approve the regulator’s wisdom in questioning Shikha’s continuation. But to be sure by September 30, the worst of the NPAs will have been belched out by Axis. Shikha Sharma, when she leaves on December 31, will definitely have the satisfaction of leaving Axis Bank on a high. She deserves that high.

Note: The article was originally published on April 10, 2018 and is being resurfaced as Sharma will address her last press conference after the bank’s quarterly earnings on November 2, 2018.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why India needs more airports – urgently!

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The government’s announcement that it will expedite the construction of a greenfield airport at Jewar, near Noida, couldn’t have come at a better time.

As India’s airport infrastructure creaks under the weight of increasing footfalls and squeezed capacities at the airside as well as inside terminal buildings, a steadfast airport capacity buildup is the need of the hour.

Mumbai is already bursting at the seams and the airport at Delhi is already saturated. Building an alternate to the existing airport at Delhi makes eminent sense, though this should have happened much earlier.

London has five major airports, New York has three. Delhi may get a second airport only in some years.

Remember, three out of four flyers in India use one of the 10 busiest airports. The six busiest airports handled over 175 million passengers in 2016-17, which means even among the top 10 airports, these six saw two in three air passengers.

Creaking Airport Infrastructure

At least four airports – at Delhi, Mumbai, Bengaluru and Hyderabad – are already handling passengers in excess of their maximum indicative handling capacity.

India’s air traffic growth still comes from its large metros, with the top 10 airports lying across Delhi, Mumbai, Bangalore, Chennai, Kolkata and so on. This means though there are airports/airstrips aplenty in smaller towns and cities, these do not witness enough footfalls.

The feverish growth in domestic aviation in the country over the last several years has brought into focus the woeful lack of aviation infrastructure across the busiest cities, with little relief in sight. India’s top 10 airports handled nearly double the amount of traffic in calendar 2018 at 232 million compared with just 124 million in 2013.

So airport queues are getting longer, flight movement and on-time performance of airlines is getting worse and generally, India’s domestic flyers are spending more time than ever before in reaching their destinations.

Earlier policy decisions, such as having a condition of 150-km distance between existing and new airports etc have already stymied the growth of airport infrastructure. Unlike the other growing markets, we still do not operate multiple airports around our big cities.

Sample this: one Indian airline reported only 34% flights on time from Mumbai airport this February. That means two out of every three flights of this airline were delayed. In fact, Mumbai’s story epitomizes the severe infrastructure squeeze across our busy airports.

Earlier, flights managed to arrive/depart from Mumbai at about 50% on-time statistic, but the latest DGCA data show the best performance out of this choked airport was 48.9% in February.

This means, at least every second flight landing or departing from Mumbai was delayed, whichever airline you chose to fly. The current Mumbai airport has been strained beyond capacity and plans to build a new one at Navi Mumbai have been horribly delayed.

According to analysts at Kotak Institutional Equities, airports at Hyderabad and Goa (which come in the list of the top 10 airports) have already reached one-and-a-half times their capacity. The one at Mumbai is operating at 121% of its capacity while the country’s busiest airport – at Delhi — has also reached saturation with 101% capacity utilization in 2016-17.

As the government has said in its reply in Lok Sabha, Delhi had the maximum daily aircraft movement at 1143 last fiscal, followed by Mumbai at 870 and Bengaluru at 488.

Where Will Airlines Park Their Planes?

Choked airports may worry flyers, but India’s airlines continue to order aircraft at alarming rates in anticipation of continued traffic growth.

IndiGo, Jet Airways, SpiceJet and GoAir have together placed orders for 835 aircraft, with deliveries staggered till FY2025. This, on an existing base of 558 aircraft.

This rapid fleet addition will require greater aircraft handling capacity at airports, the Kotak analysts say.

“Capacity at some of top ten airports by number of passengers handled has already been exhausted; most of these airports are undergoing capacity expansion which would come through only in the next 2-4 years leading to limited passenger growth at some of these airports.”

The Delhi airport is expected to handle 85 million passengers by 2022 against 64 million now and capacity expansion of Terminals I and III has been envisaged by 2020.

Mumbai, two phases of the yet-to-be-operational Navi Mumbai airport should start functioning by 2022.

By then, Mumbai would need to handle 65 million passengers each year against 40 million now.

Kolkata should see doubling of capacity by 2021. Bangalore, Chennai, Hyderabad, Goa airports should also see some amount of capacity addition.

But these planned capacity enhancements may not prove adequate given our double digit traffic growth projections.

The government is doing its bit by operationalising ghost airports under the regional connectivity scheme UDAN and also planning to upgrade some existing ones but is looking for a major share of the investments to come from the private sector.

Sindhu Bhattacharya is a journalist based in Delhi.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Don’t witch-hunt the RBI

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The questioning on the Nirav Modi issue has now reached a few current and one former Reserve Bank of India (RBI) deputy governor.

At the outset, one needs to distinguish between the Nirav Modi issue and the 80:20 gold scheme.

Nirav Modi, in cahoots with a couple of employees of Punjab National Bank’s (PNB) Brady House branch, took large amounts of loans without margins; loans which, it now appears, he could repay only by taking more loans.

His uncle, Mehul Choksi, appears to have benefited by changing a decimal point in one of his loans, and making off with a much larger loan than was sanctioned.

Nirav Modi is not at all connected to the 80:20 scheme. Mehul Choksi’s Gitanjali Gems was one of the Star Trading Houses (STH) that got a licence to import gold in May 2014, when gold was scarce in the country.

However, it is now well documented that of the 14 STHs, Gitanjali imported the least, and hence probably benefitted the least.

The questioning of the current and former officials of the RBI is hence in connection with the 80:20 scheme.

The question marks over this scheme emanate from both the timing of the relaxation and the Comptroller and Auditor General’s (CAG) remark that the STHs benefitted by Rs 4,500 crore because of the policy.

What the Central Bureau of Investigation (CBI) and other investigating agencies need to note, is that policies intended for general benefit often tend to help some more than others.

A policy to build, say the golden quadrilateral, pushes up prices of land in areas through which the road runs.

But the policy was not intended to benefit those owning the land. It was meant for the entire nation. One ought to see the 80:20 policy in this light.

When the taper talk hit the Indian rupee in July 2013 along with the other four “fragile” currencies, RBI’s and the government’s effort was to control imports and increase the flow of dollars into the country.

The FCNR (B) scheme was designed to attract Non-resident Indians (NRI) into depositing more dollars in Indian banks, with the RBI agreeing to bear the swap cost.

A number of NRIs made money hand-over-fist by leveraging nearly 20 times to benefit from the FCNR scheme. India got over $25 billion due to this scheme.

When the time came for the deposits to mature (in October-November 2016) the dollar had become cheaper, so the RBI didn’t lose any money buying back the dollars and repaying the NRIs.

But that’s beside the point. In the pursuit of more dollar inflows, so that the rupee didn’t look fragile, the government and the RBI started a scheme that enriched some NRIs hugely.

Does this mean RBI and the government were in cahoots with some handpicked individuals? No. The scheme was a policy decision to get more dollars.

The 80:20 scheme needs to be seen in the same light. The government banned gold imports because it was a large import item, and was unimportant enough for the country to do without for some time.

Both the government and the RBI were aware that anything rationed would benefit those who could lay hands on any amount of gold.

Yes, the STHs made money when they were allowed to import from May 2014, but one needs to note that from June 2013 to May 2014, a lot of jewellers made tonnes of money on gold imported by the banks.

This was how the scheme was designed: only four banks and two government trading companies MMTC and STC were allowed to import gold.

Jewellers who had a record of imports and exports until May 2013, were sold this gold at the landed price on promise they would use 20% to export jewellery.

They had the licence to sell the remaining 80% in the domestic market which earned them a massive premium.

If the CAG’s office tries to find out how many jewellers benefitted before the policy was liberalized, they will find that a clutch of jewellers made even more money than the Rs 4,500 crore the STHs did after May 2014. But that’s how rationing works.

In war time, nations ban a bunch of unnecessary imports, or impose price controls.

Black markets flourish and those who have the goods make money, nevertheless during wars, governments continue to impose rationing.

In all these cases, one assumes the larger good that is served by controlling prices or imports is more than the evil of some people making money.

Likewise in 2013, the extra bucks made by some FCNR 9B depositors and some jewellers was considered a price the nation had to pay to control the exchange rate from a free fall.

It may be recalled, at that time the United Progressive Alliance (UPA) government also decided to raise the price of petrol and diesel by 50 paise every month.

This was politically suicidal for the UPA because raising prices on the eve of an election would have hurt the ruling party.

But, the government went ahead and raised prices so that at higher prices, fuel consumption would fall and the country’s trade deficit would correct.

This act of the UPA government of raising fuel prices even on the eve of an election to serve a larger good is an act of statesmanship.

Short point, in the face of a massive current account deficit and a run on the rupee, many actions were taken by the government and the RBI to re-balance the deficit.

Some policies benefitted some persons. But witch hunting RBI officials of all people, is unfair and even dangerous.

Next time the country’s currency is in danger, RBI officials, who so far have been in the forefront of the fire fighting, may simply want to watch their own back sides instead of serving the country.

This column had pleaded in the past, and pleads again; controlling the exchange rate is a delicate task. Questioning RBI’s motives on hindsight can be a costly blunder.

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Why Sebi barred foreign portfolio investors from executing non-disposal undertakings

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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On March 14, 2018, capital markets regulator Securities and Exchange Board of India (Sebi) issued an informal guidance to UBS AG, a Sebi-registered foreign portfolio investor (FPI), clarifying the position on whether non-disposal undertakings (NDUs) constitute an ‘encumbrance’ under the Sebi (Foreign Portfolio Investors) Regulations, 2014, or FPI Regulations.

Regulation 32(2)(d) of the FPI Regulations imposes an obligation on the designated depository participant engaged by an FPI to ensure that equity shares held by an FPI are free from all encumbrances.  Therefore, as FPIs are not permitted to pledge shares, they execute NDUs to avail finance. An NDU is an agreement between a shareholder and a third party, usually executed in relation to any credit facility availed by the shareholder, wherein the shareholder undertakes to not dispose the shares during the existence of the agreement.

Safeguard for Creditors

An NDU assures the creditor that the debtor will not transfer the shares held by it by way of outside arrangements and leave the creditor without access to the assets of the debtor. Pursuant to executing an NDU, the shares are transferred to an escrow demat account but the beneficial interest in over the shares will remain with the debtor. The creditor will not be able to dispose off the shares to clear dues, like in the case of a pledge.

In the present matter, the applicant issued NDUs to avail finance or to enter into certain commercial contracts. However, it was unclear if issuing NDUs will amount to the creation of encumbrances as the FPI Regulations do not define the term encumbrance.

The Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations) lay down an inclusive definition of encumbrance. It is defined as to include a pledge, a lien or any such transaction, by whatever name called.

With respect to NDUs, it is clarified in the FAQs to the SAST Regulations that NDUs executed by promoters will be covered within the scope of encumbrance for the purpose of disclosure obligations. However, the applicant is not a promoter of any listed company.

Finally Some Clarity!

In light of the above, the applicant requested guidance as to whether the term encumbrance in the FPI Regulations would include NDUs executed by FPIs who are merely investors/acquirers and not promoters. The applicant also sought to know if FPIs are restricted from providing a limited undertaking to not transfer, dispose of, or create any encumbrances over the equity shares held by them without creating any rights in favour of the third party.

Sebi took a view that the term encumbrance used in Regulation 32(2)(d) of the FPI Regulations would include NDUs. Therefore, FPIs are restricted from executing NDUs and create an encumbrance over equity shares held by them in listed companies in India.

Currently, the FPIs are circumventing the FPI Regulations by executing NDUs to avail credit facilities as there is uncertainty on whether NDUs create encumbrances. By clarifying the position on NDUs, this informal guidance has provided much-needed clarity to the FPIs and the designated depository participants on the correct position of law.

Sandeep Parekh, is the managing partner of Finsec Law Advisors and Raghu Meka is an associate at Finsec Law. Views are personal.

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Revival in earnings is critical for rich valuations to sustain

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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After rising through most parts of 2017 and up until January 2018, global equity markets have turned jittery. Markets had become exceptionally calm but volatility is now back. A variety of crosscurrents is symptomatic with continued volatility going ahead. While fundamentals continue to support equities, the 2017 goldilocks situation of strong growth, but contained inflation is ebbing.

Growth in key economies is upping their long-term trend. Unemployment is at a multi-year low in developed world. Latest Purchasing Managers Index (PMI) and order inflows suggest continued expansion in business cycle and supports the earnings trajectory. Tax reforms and fiscal stimulus in the US point at further room to run, and consequently draws a line underneath the current equity market tailspin.

But any more good news on growth would imply faster monetary tightening. Concerns lurk over accelerating wage growth implying a tightening labour market, and capacity utilisation coming back. These, in turn, point to a build-up in the inflationary pressures, and possibility of more aggressive rate hikes.

Structurally, rising rates are good for equity market given that it reflects higher growth and restoration of pricing power to the corporates. But in a unique mix of events in last couple of years, global equity rally was also supported by easy liquidity (QE). US equities have benefited from aggressive buy-backs, at times funded by cheaper debt. Tighter monetary policy should lead to higher volatility and act as a headwind for valuations.

While remaining enthusiastic about the synchronised global economic growth, we also caution against the risk-loving behaviour and pressure on resources associated with it. As a result, subsequent economic and financial adjustments can be more aggressive and come sooner than expected.

US has imposed higher import tariffs on solar panels, washing machines, steel and aluminium. It’s not sure yet that it stops here or this is the opening salvo of a broader trade war. Other countries may retaliate. While the reduction in corporate tax is growth positive, the retaliatory import duties from other economies may adversely impact overall trade and growth.

India’s equity markets participated in the global rally, but the economy hasn’t participated fully in the global growth momentum. In line with the weak growth, earnings belied market expectations, yet again. FY18 is likely to see seventh straight year of earnings downgrades.

That said, after hitting the lows on the back of demonetisation and GST-related disruption, there has been a mild recovery in GDP growth. Interestingly, as opposed to the trend of last three years, investment seems to be driving the growth while consumption growth is moderating.

Order inflow for capital goods and infrastructure companies (particularly roads) has shown strong growth. Steel, Cement and auto-ancillaries depict improved capacity utilisation. These sectors can drive growth in private investment. However, low capacity utilisation in sectors with high capital requirement (power, textiles) could limit the pace of recovery. India needs an aggressive infrastructure push from the government. But this will be contingent on the tax-collection buoyancy.

The National Company Law Tribunal (NCLT) portrays serious commitment to resolve the non performing asset (NPA) cases. RBI guidelines are also suggestive of recognising the pains rather than stretching it any further. Along with the recent events, there could be negative repercussions on the corporate credit growth in the near term. A host of PSU banks are on the brink of being put under the RBI’s prompt corrective action (PCA) plan. This may force them to recall the AT-1 bonds and partially negate the impact of recapitalisation efforts. I believe, the recent reform measures and learning from the current NPA cycle will ultimately lead to a structural improvement in corporate lending space.

We would be keenly watching if India is finally able to participate in global growth recovery. Some of the large export sectors such as textiles, Gems & jewelleries, pharmaceuticals and IT services haven’t done as well due to industry specific challenges. From a broader perspective, India hasn’t invested enough in innovations and R&D, which requires considerable attention by the policymakers and industry.

Rising bond yields may have an impact on domestic equity flows while global liquidity tightening could challenge the Foreign institutional investors (FII) investment. To that extent, revival in earnings is critical for such rich valuations to sustain. After the stellar performance in 2018, particularly in the mid and small caps segment, it is very important to keep an eye on valuations. With little scope of valuation re-rating, bulk of the returns are likely to be guided by earnings growth. We continue to focus on bottom up stock picking, which we believe is the best way to generate alpha.

Navneet Munot, Chief Information Officer – SBI Funds Management Private Limited. View are personal.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow