Some food for thought
"I adored Mickey Mouse when I was a child. He was the
emblem of happiness and funniness."
—Maurice Sendak (American Artist, 1928-2012)
Word for the day
Nebulated (adj)
Having dim or indistinct markings, as a bird or other animal.
First thought this morning
Driving on Indian highways for a week was a mixed experience.
Over past couple of decades the quality of roads has been consistently
improving. Highways are now much wider and smoother. One can drive long
distances without actually entering into many cities that fall on the way.
But somehow driving is not becoming a pleasant experience. The
traffic on highways is unpredictable. The users and the people living on sides
of highways do not appear fully conscious of the change. High driving speed is
mostly an indulgence, a few braveheart can only afford. Sudden appearance of
objects (e-rickshaw, tractor trolley, bullock cart, bicycle, stray animals) is
common.
I think it is high time that the government must consider
raising a dedicated force for highways (Highways Security and Safety Force)
just like CISF and RPF. The force may be assigned the duty to (a) create
awareness amongst the users and others affected by the highways; (b) discipline
the users; (c) ensure the safety and security of highways users and highway
assets; (d) keep highways free from encroachment; (e) carry out rescue
operations in cases of mishaps and breakdown; and (f) regulate the traffic on
highways. The force, to be set up under a special act of the Parliament, should
be empowered to arrest and penalize the violators. The force should be well
equipped with modern surveillance and rescue apparatus. Besides generating
additional employment, this force can spare the regular police for maintaining
law and order within the cities, towns and villages, and make driving a
pleasant, safe and secure experience.
Chart of the day
Some random thoughts on credit market in India
Some recent events in the credit market have again raised the
specter of a widespread contagion, last seen in October last year.
Despite all promises and assurances the "ring fenced"
IL&FS subsidiaries have not been able to honor their covenants to lenders.
Jet Airways has shuttered its operations and failed to secure
any further credit lines to honor its credit and operational liabilities.
DHFL has delayed the payment on some of its debt instruments
amidst unsubstantiated allegation of siphoning of money through a web of
"related party" entities leading to downgrade of all its papers to
"junk" status.
Essel Group has promised to repay all its due and overdue debt
by 31st July using the money it expects from the sale of promoters' stake in flagship
Zee Entertainment Ltd. So far we have almost no visibility of the stake sale
progressing as promised.
The situation is also not much comfortable with ADAG group and
JP Group.
The investors in debt mutual fund schemes which had debt
instruments issued by these groups have suffered material losses.
Most analysts and commentators had expected the bad assets
accretion of banks, especially public sector banks, to have peaked in 4QFY19
may be reworking their assumptions. May be we shall see another round of write
downs and provisioning.
On its part, RBI seems to be putting its act together fast.
It has issued a pragmatic framework for recognition of bad
assets, after the Supreme Court struck down its kneejerk 12th February circular
that mandated banks to start the bankruptcy resolution process even if there
was one day delay in payments.
The new circular gives lenders 30 days to review a borrower
account before labelling it as a non-performing asset in case of default. The
new framework brings back the focus on the need for the timely resolution of
such assets, and the buildup of loan loss provisioning against those assets.
These norms shall be applied to NBFCs also to bring them at par
with banks in due course. RBI has also hinted that the regulation of NBFCs
shall be tightened materially to avoid any recurrence of the extant crisis,
which is mostly led by (a) Material asset liability mismatch; and (b)
undisclosed and unguarded related party transactions.
However, we are yet to see a substantive move by the government
or regulators to retrieve the present situation, leaving millions of investors,
creditors and home buyers in lurch.
In the interim, while in FY19 the economy has recorded its
slowest pace of growth in 5yrs, and corporate earnings have also betrayed the
expectations, the debt burden of Nifty 50 companies has risen most in past
5yrs.
As per Bloomberg data, About Rs 1.47 lakh crore or 77 percent of
the increase in debt was led by Reliance Industries Ltd., NTPC Ltd., Indian Oil
Corporation Ltd., UPL Ltd. and Bharti Airtel Ltd. Their combined leverage ratio
worsened to 4.1 times from 3.4 times in 2017-18. (see
here) Though, the overall total debt-to-Ebitda remained stable at 2.42
times in the 12 months ended March.
Another worrying trend is the material rise in number of cases
of fraud with banks.
Reportedly, over 6,800 cases of bank fraud involving an
unprecedented Rs 71,500 crore have been reported in FY19. In FY18, a total of
5,916 such cases were reported involving Rs 41,167 crores. Since FY08, a
massive 53,334 cases of fraud have been were reported by banks involving a
massive amount of Rs 2.05 lakh crores.
We are yet to hear a word on the measures initiated to prevent
occurrence of frauds from the regulator and/or the government.
Notwithstanding, I am keeping my overweight stance on top 6-7
PSU banks on undemanding valuations and hope of urgent substantive corrective
measures.
