Some food for thought
"There are two freedoms - the false, where a man is free to
do what he likes; the true, where he is free to do what he ought."
—Charles Kingsley (English clergyman, 1819-1875)
Word for the day
Caterpillar (n)
A person who preys on others; extortioner
First thought this morning
By choosing Shri Om Birla, Member of Parliament from Kota-Bundi
in Rajasthan, for the post of Speaker of 17th Lok Sabha, BJP has given many
messages that the Congress Party must learn from. For example—
(a) This is the
second high profile appointment by BJP that has surprised the people
authoritatively claim to know almost everything about Indian politics. Very few
of these studio experts may have imagined elevation of Shri Ram Kovind and Shri
Om Birla to high constitutional posts. Till yesterday there was no mention of
Shri Birla as favored candidate for the post of speaker.
Congress Party totally lacks this element of unpredictability.
(b) BJP leadership
has been consistently giving message to its present and prospective members and
cadre that anyone of them can rise to higher posts. Despite the strong media
campaign about Modi-Shah stranglehold on the Party, the message from the party
had been unambiguous, strong and very effective.
Congress Party has consistently failed in trying to empower the
cadre or even giving this message. Consequently, it has become largely a party
of leaders not connected with people at large.
(c) BJP is
effectively conveying to people that there is no dearth of leaders in the party
and therefore succession should not be an issue, should PM Modi decide to
follow "retire at 75" rule in 2024.
Indecision on Rahul Gandhi's resignation is highlighting that
there is no one willing to take the mantle in Congress Party.
Chart of the day
Get ready for the transformation
On Monday, lenders of the grounded airline company Jet Airways,
led by SBI, have decided to begin insolvency proceedings against the company as
all attempts to revive, what was the largest airline in the country just ten
years ago, failed (see
here). Earlier, last month promoter family of Jet Airways was denied travel
permission by Indian immigration authorities.
Similarly, ICICI Bank has reportedly moved NCLAT to expedite the
insolvency plea against Jaiprakash Associate (JPA), which was amongst the top
five infrastructure builders in the country just a decade ago. (See
here) Earlier, the Supreme Court had sought details of personal assets of
the directors of the group company Jaypee Infra and directed them not to part
with any of the assets till further orders.
In yet another incidence, UCO Bank has declared Yashovardhan
Birla (heir of RD Birla branch of larger Birla clan), chairman of Yash Birla
Group, a willful defaulter in a Rs670million loan default case.
HDFC AMC has been forced to take Rs5bn worth of Essel group debt
from schemes managed by it to its own book.
From the mentioned incidence, the following three things are
quite clear to me:
(a) The government is
mindful of the political risk of allowing any potential defaulter or fraud
accused to travel abroad. It does not want any repeat of Malaya, Modi, Choksi
episode.
(b) Bankers are now
willing to act against large promoters without impunity. This must bring
substantial change in the behavior of promoters, especially the traditional
ones who are used to political and therefore patronage.
(c) IBC process is
getting streamlined fast, despite all attempts by unscrupulous promoters to
derail the process.
Juxtaposing with rising use of technology, increasing
competition as the entry barrier for small banks is removed, and willingness of
the government to allow lateral entry of professionals at the top level in
public sector banks, I see these trend as key structural positive for Indian
economy, businesses and therefore markets.
In my view, in next 5years we shall definitely see inter alia
the following trends emerging in our financial system that will make future
credit cycles different and more predictable.
(1) Breakdown in
notorious banker promoter nexus.
(2) Improvement in
credit discipline of promoters as the tendency to over leverage dissipates.
(3) Lower credit cost
of lenders may allow them to lend money at relatively cheaper rates.
(4) Faster and
efficient IBC process, allowing prompt and better recovery of stressed assets
either through resolution or liquidation.
(5) Evolution a
vibrant retail debt market for high yield paper, as lower rated businesses find
it tough to get money from banks, NBFCs or mutual funds. This market shall
supplement the fixed income mutual funds.
I my view, it is critical that various stakeholders like
bankers, borrowers, auditors, credit rating agencies, investors, investor
advisors etc need to take cognizance of these emerging trends and accordingly
prepare themselves.
Especially, investors and investment advisers need to acquire
necessary skills for investing in high yield bonds. After all this retail debt
market, that has eluded Indian investors for more than two decades, will be
much larger as compared to equity market and offer more opportunities, albeit
with higher associated risk.
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