Companies & Sectors
App-based cab services push 'kaali-peelis' to the brink
The age-old proverb "old is gold" may not hold true for traditional black-yellow taxis any more, given the people's increasing preference for app-based cab services for intra-city movements.
 
And, why not? After all, who would not opt for a service that comes cheaper and at less waiting time.
 
In an age of technology, when almost every sphere of human activity is touched by high-tech gadgets and gizmos, making things faster at lesser cost, people going for cab aggregation apps does not come as a surprise. Change is the rule of nature, and the change is here, in the form of Ola, Uber and many more lesser known online cab aggregators.
 
Today, Ola has captured over 75 per cent of the taxi market share in the metros. It has nearly 250,000 cars linked to its online app across over 100 cities in the country, leaving little room for the traditional "kaali-peeli" (black and yellow) taxis.
 
In Delhi-NCR alone, there are over 80,000 cabs operating with the app-based taxi companies, while the number of traditional taxis stands at a meagre 7,000, approximately. That says it all.
 
Most of the "kaali-peeli" taxi stands across the city wear a deserted look, with vehicles lined up and awaiting their turn on a call from passengers. Drivers can easily be found dozing off in the adjacent rest rooms for want of taxi-seekers.
 
"I have been in this business since 1989 and have eight vehicles with me. But ever since the emergence of these private cab aggregators, our business has been badly hit," Jaspal Singh, 58, owner of Sant Longwal Taxi Service in east Delhi's Mayur Vihar area, told IANS.
 
Jaspal pointed out that against the government-fixed rate of Rs 12 per kilometre, the cab aggregators ply at Rs 6 per kilometre -- and it is this disparity in rates that has dealt a body blow to their business.
 
He alleged that the government is hand in glove with the cab aggregators. "The government has asked the private cabs to put meters in their vehicles, but that is being violated every day, and it has failed to act against those violating rules with impunity.
 
Dilip, a "kaali-peeli" driver, said that earlier, they would get at least four to five customers every day, but now they have to keep waiting for even a single call.
 
But what is it that made the people switch loyalties so fast?
 
"Well, it is solely because of refusals by the taxi drivers, fleecing by a section of them and security concerns that have gone against the 'kaali-peelis' and for the cab aggregators," said Arindam Choudhury, a Kolkata commuter.
 
Today, not more than 27,000 traditional taxis are left on the roads of the 'City of Joy'.
 
"You call out five taxis and they refuse, the sixth one does agree, but demands Rs 30 to Rs 50 extra. So, the best option is to go for the cab aggregators, especially when you are travelling late at night, as GPS devices fitted to their vehicles give a sense of security," said another commuter, Pratyush Singh, a 30-year old bank employee.
 
Similarly, if for businessman R. Tapadia, app-based services are more professional, entrepreneur T. Ghosh finds their services safer for women.
 
However, following repeated pleas to address their concerns, the West Bengal government has come out with a notification, stating that Kolkata's all-yellow taditional cabs will be GPS enabled and can be booked through mobile phone apps, which will also be connected to the police headquarters. Just like the new-age cabs, these taxis will also have an emergency button, closed-circuit TV cameras and the like.
 
One can expect the new-look services ahead of next month's Durga Puja festival.
 
Mumbai is another major city that has been taxi-dependent since long for last-mile connectivity. While previously the traditional "kaali-peeli" cabs were the sole option, now those are under severe pressure from the cab aggregators.
 
"In barely one-and-a-half years, we have lost 60 per cent of our business to them," bemoaned Bombay Taximen's Union General Secretary A.L. Quadros. "The 'kaali-peelis' have been badly hit, as customers now prefer the app-based or on-call cabs."
 
"In 1997, when the Maharashtra government had frozen fresh permits for the black-yellow cabs, there were 63,000 plying in Mumbai, which had a population of nine million. After 20 years, only 40,000 black-yellow cabs are there though the city's population has touched a whopping 16 million," Quadros pointed out.
 
"In line with the court orders, the authorities must fix a uniform minimum-maximum rate for all cabs, which will help us get back our customers," Quadros said.
 
Similarly, the entry of autorickshaws in large numbers in Chennai several decades back forced the black-yellow taxis out of the city roads by serving the inbound travellers at Chennai airport, and Central and Egmore railway stations. But the entry of radio taxis or 'call taxis', like FastTrack, Ola and others, have virtually sounded a death knell for them, according to G. Kannan, Joint Secretary, Chennai Airport Pre-paid Taxi Owner-Driver Association.
 
On the reasons for the loss of customers, though he did not rule out the cost factor, he also stressed that the customer preference is fast changing now. "Many commuters do not like to be seen in the black-yellow vehicles," Kannan said, adding that perhaps travelling in app-based taxis looks more "hep" these days.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

SRINIVAS SHENOY

5 months ago

The black yellow taxi services were and are indeed poor. When app based airconditioned Ola and Uber cabs are available at the drop of a hat, naturally the customers would always prefer such a service. Add to it the fare is reasonable and the service is pleasant.

SC junks plea for independent body to select judges
The Supreme Court on Tuesday dismissed a plea seeking an independent panel to select judges for the higher judiciary.
 
Dismissing the plea, a bench of Justice Arun Mishra and Justice Uday Umesh Lalit said what is being sought would amount to amending the Constitution, and the Supreme Court could not do this.
 
The petition, moved by the National Lawyers Campaign for Judicial Transparency had sought a fair, open and non-discriminatory selection process for the appointment of judges from a wider pool of candidates.
 
The counsel argued that judges' relatives are being inducted into the higher judiciary.
 
At one stage, as the pitch of the argument of the counsel for the petitioner organisation became too high, the bench asked him if he is addressing the court or the gallery at the back of the court room, where the media persons were seated.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

Prashant Prashant

5 months ago

Right now the only organization in worth its salt is the Supreme Court. Besides that, as the SC said, its written into the constitution as to how the judges are selected.

SRINIVAS SHENOY

5 months ago

I am of the opinion that merit of the candidate during selection of the judges,
should prevail unlike the dynastic political rule of the Gandhis in the Congress party, in India.

ARCs: Will the new entrants fire up the market?
I mentioned in my previous piece that asset overstatement by the borrowers can only compound banks' valuation bias and impede non-performing asset (NPA) sales. 
 
The new guidelines by the Reserve Bank of India (RBI) have introduced "other banks, non-banking financial companies (NBFCs) and financial institutions (FIs) etc." also to bid for NPAs for “better price discovery”. There has been no bar on acquisition of bank debt by other banks and NBFCs, who must hold the securitized loans up to one year and meet minimum retention requirement of up to 10%. It is unclear whether these guidelines would apply to the banks or NBFCs acquiring non-performing assets (NPAs). Irrespective of this, migration to all-cash deals for NPA sale has put the ARCs to disadvantage due to significant regulatory constraints in raising equity and debt from the public, investment of surplus funds, the minimum stipulated security receipts (SRs) holdings, and the prior approvals for management and board changes. 
 
While the ARCs cannot meet non-fund working capital needs of the operating assets, they are unable to meet fund-based requirements due to high cost of funds. Hence, ARCs restructure only the accounts whose working capital requirements are insignificant, and which attain viability with substantially reduced debt, something that is possible only when the NPAs are acquired at reasonable cost. Such accounts are rare, and over 90% of the NPAs acquired by the ARCs are liquidated piecemeal or settled out of court. The new entrants, particularly the private sector banks, will have advantage over ARCs since they will be able to fund full working capital requirement. However, this will apply only to a small percentage, and ARCs will continue to hold edge for assets getting liquidated.  
 
The high level of NPAs and stressed assets of public sector banks’ aggregating 11.6% of gross advances as on March 2016 are not the result of market meltdown, but significant asset overstatement by the promoters and leniency of the banks. Sale of such assets at realistic prices to is a historical opportunity to spawn lean companies, which can be competitive and viable. It is not the dearth of capital, but lack of worthwhile acquisition opportunities that has stunted the market, and unless the regulation driven symptomic treatment gives way to transparent market driven price discovery for sale of NPAs, addition of new participants will not energise the market.
 
Consider the acquisition pricing of Asset reconstruction companies (ARC) under the 15:85 structure and all-cash over a resolution horizon of 1-5 years. They show wide variations (Graph-3). For a modest 20% pre-tax returns to ARCs, the bid price under 15:85 structure, varies from 69% to 93% of estimated recovery for resolution periods of 1-5 years (curve AB). 
 
As all-cash acquisition entails higher risk premium, for a modest 25% return, the figures vary from 47% to 86% (curve EF). If the average recovery of 25.6% as observed by the World Bank is taken, the all-cash acquisition price for 25% returns varies from 12% to 22% of the loan outstanding (curve GH), and is comparable with the actual average NPA acquisition cost of 17.2% to 20.8% of loans outstanding during FY-2010 to FY-2013 (Graph-2). This validates the robustness of the market driven process for price discovery.
 
 
Delays destroying value
It is self-evident that the pricing of NPAs is impacted by the resolution period. Graph-2 shows that ARC’s acquisition price of NPA for the 20% return based two-year resolution period would be 68% higher than that based on five-year period. This happens since over years, the unused and underused asset suffers impairment in value. In other words, an efficient legal system delivers substantial value through speedy disposal. This has been demonstrated in UK also where the liquidation process gets concluded in less than one and  a half years and delivers to the lenders, recovery of about 75% with recovery cost of 15% of the asset value. Speedy adjudication ensures productive use of the asset, apart from acting as disincentive for the defaulters.
 
 
In contrast, the average resolution period in India is five years. At present, there are over about 1.03 lakh cases pending in 33 DRTs under Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI) and SARFAESI Acts involving outstanding debt of about Rs4 lakh crore. The surest way to enhance the bid prices is to ensure that the legal adjudication is hastened. The economic gains will ensure that the payback period for the cost of efficient legal administration is negligible. The government, therefore, needs to match legislative reforms with speedy adjudication on a war-footing. Same approach should be adopted in setting up and operationalizing National Company Law Tribunals (NCLTs) for migration to Insolvency and Bankruptcy Code, lest the history repeats itself to the detriment of the banks.
 
Change or perish
Barring exceptions, ARCs worldwide (called asset management companies -AMCs) are special purpose vehicles, which are wound up after resolving NPAs emerging from economic meltdown. Perpetual ARCs are few, and constitute part of financial conglomerates such as Woori F&I and UAMCO in South Korea. Numerous stand-alone ARCs as in India cannot be sustained perpetually since no country can survive churning out high level of NPAs permanently. Thus, an evolutionary change in India’s ARC landscape was expected in course of time. The new RBI guidelines will hasten the change.
 
The SR structure used by ARCs is a risk-reward sharing structure in which ARC’s risk is 15% and seller bank’s risk is 85% of the value. While the ARC’s reward is entirely financial, the bank’s reward is less financial since it is happy with just SR redemption, and is not concerned with returns thereon as long as it can avoid further provisioning, and this has changed now. With migration to all-cash deals, the banks would be replaced by other investors as risk-reward sharing participants who would seek returns comparable with those of ARCs. This would become possible if the assets are bought at reasonable prices and returns are derived from value addition. Even if the new participants cannot adopt SR structure, they will be able to adopt tax transparent pass-through structures under the existing laws. 
 
It is a matter of time before the NPA acquisition based on market driven pricing assume primacy since the economy cannot afford loss due to delay. ARCs have expertise in NPA management, and to survive and prosper, they will have to focus on restoring NPAs and deriving gains from value addition instead of acting as recovery specialists as hitherto. Efficient implementation of Insolvency and Bankruptcy code will hold key to the qualitative change in the landscape.
 
This is concluding part of a two part series. 
 
 
(Rajendra M Ganatra, PhD is Managing Director & CEO of India SME Asset Reconstruction Co Ltd-ISARC. He had over 26 years of experience in project finance, asset reconstruction and financial restructuring. The views expressed in above article are personal)

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COMMENTS

Ramesh Kubde

5 months ago

Thanks to author for an articulate article on status of ARCs in India and the road map ahead. The Banks normally blame ARCs for not bidding aggressively ,but the average return on net worth of 5% to 6% for ARCs is indicative of their poor performance and also the reason for not so aggressive bidding. It is only the Bank's valuation bias which is impending the NPA sales. He has, therefore, rightfully emphasized on the market driven pricing of assets, which can only drive the sale of NPAs.

Jyoti Sharma

5 months ago

It is a well researched article highlighting the constraints due to which Banks are not able to sell off NPAs to ARCs. Besides, due to funds constraints, ARCs are not able to go for all cash deals. Change in the legal environment and development of secondary market for SRs will help in a long way for NPA management system in the country.

Natarajan V. Subramanian

5 months ago

Well thought out write up. The structure of ARC's are flawed and needs a review. Its role is vital in a country like India and should be strengthened at all cost and not destroyed.
Arlington, Va,22204, USA.

SRINIVAS SHENOY

5 months ago

I feel that there should be stricter vigilance, while granting fresh credit followed up by inspection of the assets and continuous follow up is a must, in any case. Agree that our laws were not in favour of the lenders, but relentless follow up usually personal does get the desired results. Hopefully implementation of Insolvency and Bankruptcy code will hold key to the qualitative change in the landscape as is rightly said if properly and strictly implemented.

Sunil Dhawan

5 months ago

I must thank you for your sharing with so much clarity
banks need to revisit reserve price and respect cash deals by understanding time value for money
Risk Capital is plenty but only at a minimum return of 24%

REPLY

Rajendra Ganatra

In Reply to Sunil Dhawan 5 months ago

That's the crux of the matter. And that means a very competitive acquisition cost. The day it happens, the market will zoom.

Rajesh Gupta

5 months ago

Excellent insight on the development and functioning of ARCs in India

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