Under the erstwhile UPA dispensation, particularly during its second term, 2009-2014, public sector banks [PSBs] gave loans recklessly to corporate houses without assessing the viability of projects and conducting due diligence. Tens of thousands of crores were pumped into power, steel, telecommunications, textiles and infrastructure. In many cases, the ability of the projects or businesses to generate cash to service the loans was in doubt from day one. There was an element of ‘inevitability’ in such loans becoming non-performing assets (NPA). Indeed, these did become NPAs but were not recognised in the balance sheet as such. In 2015, the Reserve Bank of India, under its former governor Raghuram Rajan, ordered an asset quality review (AQR) of all banks to identify...
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Category: Growth & employment
Demonetization – could banks have failed Modi?
Dwelling on the success of demonetization [announced on November 8, 2016], Prime Minister Modi informed the nation from the ramparts of historic Red Fort on August 15, 2017 that the government had cancelled the registration of over 200,000 shell companies [nick name for entities which are engaged in laundering black money]. He reiterated this on October 5, 2017 in his speech at the annual function of the Institute of Company Secretaries of India [ICSI] alluding to the axe falling on another about 100,000 such companies. The government has followed it up by freezing all their bank accounts [use of the accounts is permitted only for discharge of their liabilities] and initiating action against their directors by disqualifying them from being...
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RBI obsession with inflation – refuses to go!
In its 4th bi-monthly monetary policy review for current year [announced on October 4, 2017], the Reserve Bank of India [RBI] has kept the policy rate [rate at which apex bank lends money to commercial banks] unchanged at 6.0%. This has come as a rude shock to industries and businesses especially the small and medium enterprises [SMEs] which were anxiously looking forward to a cut for giving much needed fillip to growth. The SMEs are at the core of Prime Minister, Modi’s agenda for promoting growth, creating jobs and increasing income. Under MUDRA [Micro Units Development Refinance Agency] Yojna, the banks have so far disbursed loans worth Rs 320,000 crores to about 75 million persons. Lower interest rate could have...
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Excise duty bonanza – government may keep it for now
Modi – government has shown enormous fiscal rectitude by meticulously managing both its receipts and expenditure thereby sticking to the fiscal consolidation road-map during its tenure. Its efforts are all the more praiseworthy when one recognizes that it has achieved these results without compromising on much needed boost to capital expenditure and funding social welfare schemes. However, hidden behind this is the oil bonanza made available since mid – 2014 [a wonderful coincidence as Modi took charge around this time i.e. on May 26, 2014] which it has leveraged to its full advantage. India imports about 80% of its oil requirements and therefore, the international price of crude hugely impacts the pricing and resource mobilization from oil products. The price...
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India’s growth story is intact, under Modi
The deceleration in economic growth from an already low of 6.1% during the last quarter of financial year 2016-17 to 5.7% during the first quarter of current year 2017-18 has prompted critics [this time, including Yashwant Sinha, former union finance minister in erstwhile NDA government under Vajpayee] to say Modi’s economic policies are responsible for what they allege ‘as loss of 2% in the GDP [gross domestic product] growth. The growth during January-March 2017 at 6.1% was 1.8% lower than during January-March 2016 at 7.9%. Likewise, the growth during April-June, 2017 at 5.7% was 1.4% lower than during April-June 2016 at 7.1%. Thus, even on quarterly basis, the decline is lower than 2% mentioned by critics. Even so, to formulate...
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Telecomm – incumbent operators assaulted yet again
Ever since Reliance Jio entered the fray about an year ago, telecommunication industry has plunged into a state of turbulence that shows no sign of receding. The turmoil has been aggravated by a recent decision of the Telecom Regulatory Authority of India [TRAI] to reduce interconnect usage charges [IUC] – termination charge paid to the network operator on whose network calls terminate by the network from which the call originates – from the current 14 paise per minute to 6 paise per minute. From January 2020, the IUC will be zero. Even as the decision is in sync with the demand of Reliance Jio [RJ] for bill and keep [BAK] model – a jargon for zero IUC – this has...
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SILENCING CRITICS OF DEMONETISATION
Perhaps critics of the Modi Government are taking a very myopic view of demonetisation. The fact remains that note ban was an extraordinary step that was never attempted before anywhere in the world and has had far reaching socio-economic ramifications The suspense is finally over with the Reserve Bank of India’s (RBI) annual report giving exact details on total value of high-denomination currency circulating in the system. It has given a clear picture about the notes that came back to the banking system and those which did not. As against Rs 1,544,000 crore embodied in these notes as on November 8, 2016, Rs 1,528,000 crore came back, leaving a meager Rs 16,000 crore in the hands of the public. This is just about...
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Tata Sons – oppression of minority shareholders continues
Tata Sons – the primary holding company of over US$ 100 billion conglomerate – is planning to convert itself from existing ‘public limited company’ status to a ‘private limited company’. It has also sought change in the name of company from Tata Sons Limited [TSL] to Tata Sons Private Limited [TSPL]. For this purpose, it proposes to amend its Memorandum of Association [MoA] and Articles of Association [AoA] and has convened its AGM on September 21, 2017. Tata Sons is a closely held entity controlled by family owned trusts. Tata family owned trusts alone hold 66% shares. The family of Cyrus Mistry holds 18.4 per cent stake [through Cyrus Investments and Sterling Investments], while the remaining shares are held mostly...
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FDI in food retail: To draw in investors, do away with restrictions
Every year, farmers are forced to sell their produce, especially perishable items such as fruits and vegetables, at throwaway prices, causing loss of income and even suicides. A major bottleneck that forces them to do so is the lack of infrastructure for handling and storage of these items, which results in the loss of output worth Rs 1 lakh crore annually, a fact that Prime Minister Narendra Modi alluded to while addressing a conclave of young CEOs]. The problem has been festering for decades despite both the Union government and states recognising the dire need for setting up the infrastructure and umpteen committees making recommendations in this regard. Even domestic private companies have hardly taken any initiative despite being allowed...
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NPAs – is the axe falling on common man?
Under the erstwhile UPA – dispensation particularly during its second consecutive tenure 2009-2014 [this is the time when ‘crony capitalism’ had reached its nadir], public sector banks [PSBs] recklessly gave loans to corporate houses/businesses without assessing the viability of the projects and conducting due diligence. Ten of thousands of crores were pumped into power, steel, telecommunications, textiles and infrastructure. The ability of the concerned projects/businesses to generate required cash to service the loans was in doubt from the day one. There was an element of ‘inevitability’ in such loans becoming non-performing assets [NPAs] [if an installment is not paid within 90 days from due date, the account is treated as NPA]. Indeed, these did become NPAs but were not recognized...
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