In this edition, we talk about the turn around in the fortunes of India’s banks and the bonanza that Flipkart employees will get. We also talk about Chanda Kochhar and Subroto Roy Sahara, and about what’s going on at Jet Airways.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
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The Times They Are a-Changin.
When Bob Dylan penned these iconic lines, the last thing he’d have had on his mind would have been Indian banks. But nearly six decades on, these lines do aptly describe the turnaround the country’s lenders have witnessed.
After cutting through their mountain of bad debts, Indian banks seem to be on the growth path again just as we enter a new year. According to the annual report of the Reserve Bank of India (RBI), the health of Indian banks improved in 2021-22 with their balance sheet growing at double digits after a gap of seven years. Overall, credit growth of all banks was at a 10-year high at the end September.
Banks’ asset quality and capital position improved, too, with gross non-performing assets (GNPAs) as a percentage of gross advances falling to 5% in September 2022, compared with 5.8% in March 2022.
The RBI also said that growth in the balance sheet of public sector banks ensured they still account for 62% of the deposits of all scheduled commercial banks and 58% of total loans.
Having said that, the banking regulator has flagged the issue of slippages from restructured accounts. It said banks must ensure due diligence and robust credit appraisal to limit credit risk. “If downside risks materialize, asset quality could be affected. Hence, slippages in restructured assets need to be monitored closely,” it said.
Of public debt and forex reserves
The good news around India’s banking industry comes even as the country’s public debt has risen 1% to Rs 147.19 trillion at September-end from Rs 145.72 trillion at the end of June, government data showed.
To put it in context, this is important because public debt accounted for 89.1% of total gross liabilities at September- end, up from 88.3% as on June 30, with nearly 29.6 % of the outstanding dated securities having a residual maturity of less than five years.
While India’s public debt has gone up, the country’s forex reserves have depleted. The latest data shows that the reserves stood at $532.66 billion as on September 30, down from $638.64 billion on September 24, 2021.
But is this all bad news? Not really. Debt, by itself, is not bad as governments don’t necessarily have to save money for the future. As long as a government remains fiscally prudent, and has a handle on its public spending, it should be able to keep its public debt from getting out of hand.
The same goes for forex reserves, as long as they are being used to pay for much-needed imports or to keep the Indian rupee from depreciating too much and too suddenly.
Flipkart bonanza
Talking of dollars, employees at e-commerce website Flipkart are set to get lots of them—$700 million to be precise.
News reports say Flipkart will make a one-time cash payment to as many as 25,000 employees, past and present. The scale of the payout will make it one of the biggest wealth reaction instances in the Indian startup ecosystem.
The money will be paid by investors of Flipkart, including Walmart. Apart from Flipkart itself, past and present employees of its subsidiaries Myntra and PhonePe will also benefit from the payout. To be sure though, this cash payout is different from a typical equity or ESOP buyback as here, employees are not selling any options but getting money as a part of the company’s move to separate PhonePe from itself.
The largesse comes as Flipkart has completed the separation of PhonePe, which it acquired in 2015. PhonePe has recently moved its registered office from Singapore to India and is looking to launch an IPO in the country.
The bottom line is this: If you are or have been a Flipkart, Myntra or PhonePe employee, you are set to get very, very rich!
So, if you are one of the lucky ones, what do you plan to do with this windfall? Take our advice, and don’t blow your money up. Instead, invest wisely!
More turbulence for Jet
While Flipkart employees are laughing away to the bank, employees of another, once-iconic company, are literally walking out even before it has come back in its new avatar.
The future of Jet Airways taking to the skies again looks dicey after a few executives at the carrier resigned due to the uncertainties surrounding the launch of Jet 2.0, according to reports.
Reports say Nakul Tuteja, who joined Jet Airways 10 months ago as vice president, human resources and administration, resigned recently. Earlier, H.R. Jagannath, vice president, engineering, too had moved on after his six-month contract ended with the company in November. Besides, six cabin crew and one pilot have left the airline, leaving Jet with four pilots and 16 cabin members, according to Mint newspaper.
So, will Jet take to the skies again or not? We certainly hope it does move in the right direction, as more competition is only good for consumers.
Old mistakes, new problems
While Jet Airways sorts its mess out, it looks like former ICICI Bank chief Chanda Kochhar, her businessman husband Deepak Kochhar and Videocon’s Venugopal Dhoot are likely to face a tough time ahead.
Days after all three were arrested by the Central Bureau of Investigation (CBI), the probe agency has reportedly told a court that the Kochhars and Dhoot are not cooperating with the agency probing their role in the Rs 3,250-crore Videocon loan scam. The Kochhars were arrested on December 24 in connection with the scam. The CBI later arrested Dhoot, the Videocon group promoter, as part of the probe.
The CBI alleges cheating and irregularities in loans sanctioned by the lender to Videocon group between 2009 and 2011 when Chanda Kochhar was heading the bank. It also alleges that Dhoot invested crores of rupees in Deepak Kochhar’s company Nupower months after the Videocon Group got Rs 3,250 crore as loan from ICICI Bank in 2012. These loans later turned sour, resulting in wrongful loss to the bank and wrongful gain to the borrowers.
To recap the matter, ICICI Bank had initiated an inquiry against Kochhar in May 2018. The former CEO went on leave thereafter and later applied for early retirement, which was accepted. Subsequently, the bank terminated Kochhar as CEO and denied her retirement benefits.
Meanwhile, the ghosts of the past may also be catching up with businessman Subroto Roy Sahara. The Securities and Exchange Board of India (SEBI) has ordered the attachment of bank and demat accounts of a Sahara Group firm and Subrata Roy to recover Rs 6.42 crore for violating regulations in the issuance of optionally fully convertible debentures.
SEBI has ordered recovery proceedings against Sahara India Real Estate Corporation (now known as Sahara Commodity Services Corporation), Subrata Roy, Ashok Roy Choudhary, Ravi Shanker Dubey and Vandana Bharrgava. The regulator has also asked banks, depositories and mutual funds not to allow any debit from accounts of the Sahara group company, Roy and the three other people.
We certainly hope the muck all over the place is cleared out and investor confidence is restored in some of India’s most important financial institutions.
Market Wrap
The year ended well for India’s markets as both the benchmark indices—the 30-share Sensex and the 50-share Nifty—gained about 1.6% each this week. This takes their overall gain in 2022 to around 4.3%-4.4%.
The gains in the year’s last week come even as rollovers hint at a bullish start to 2023. Traders carried forward bullish derivative bets into the new year on expiry of the December contracts on Thursday. In fact, stock exchange data show about 79.2% of Nifty futures contracts were rolled over to January as traders anticipate markets to remain strong in January and expect foreign funds to lift their exposure to India amid worries of a COVID surge in China.
Among the Nifty stocks that gained the most this week were Tata Steel, Hindalco, State Bank of India, Indusind Bank, JSW Steel and Titan. Other counters that were in the green included ONGC, Indiabulls Housing, Vedanta and Adani
Enterprises.
The counters that left their investors poorer this week were Apollo Hospitals, Cipla, Nestle India, Hindustan Unilever, and Dr. Reddy’s Labs. Other top losers included Britannia, Sun Pharma, Tata Consumer and Bharti Airtel.
Other headlines
- SEBI fines DSP Mutual Fund for undercutting scheme expenses to attract investors
- Indian economy resilient amid global shocks, says RBI Governor Shaktikanta Das
- Private equity firm Samara Capital leads race for Aditya Birla Group’s insurance business
- Tata Consumer’s UK arm acquires a 23.3% stake in Joekels Tea Packers for Rs 43.65 crore
- Mamaearth parent files for IPO; Snapdeal co-founders, VC firms to trim stake
- India’s current account deficit widens to $36.4 billion, or 4.4% of GDP, in Q2, show RBI data
- Reliance Retail arm acquires a 51% stake in Lotus Chocolate for Rs 74 crore
- Elin Electronics shares fall on stock exchange debut
Until next week, happy investing and a Happy New Year!
Interested in how we think about the markets? Read more: Zen And The Art Of Investing
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