Bonds, Currencies & Commodities
Despite fall in output, overall pulses prices to remain stable

“As per government estimates, total production for last year was 18.2 million tonnes. This year we expect a marginal decline and estimate total output of around 17 million tonnes,” says Bimal Kothari, vice-president of the India Pulses and Grain Association

Despite fall in the production of pulses, prices are expected to remain stable. However, the price of chana (gram), particularly, is likely to climb up by around 7% in April on the event of lower output due to erratic weather conditions.

“The current market is stable. Prices have been in the reach of common man. As per government estimates, total production for last year was 18.2 million tonnes. This year we expect a marginal decline and estimate total output of around 17 million tonnes— including Kharif and Rabi. Though there is no need to panic and worry,” says Bimal Kothari, vice-president of the India Pulses and Grain Association (IPGA).  

According to IPGA, currently the price of tur (whole) is at Rs32, urad at Rs30, yellow peas is priced at Rs21. The price of chana is expected to go up by around 7% in April due to lower output. “Output of chana (gram) will be lower this year by about 10% as the crop was affected by adverse weather conditions in the main producing states of Andhra Pradesh, Karnataka and Maharashtra. The sowing of chana will soon begin in Madhya Pradesh and Rajasthan,” Mr Kothari said.

He adds, “Around 1 lakh tonnes of chana have been already imported from Australia.”  India is the largest producer of pulses. Despite this it is also the biggest importer of pulses, from countries like Australia, Canada and Myanmar, consuming about 15% of the world pulses trade.

According to Mr Kothari, out of the total import basket, 50% is yellow peas, which is imported from Canada, Ukraine, Russia and France.

The IPGA expects annual imports to remain on the same level as last year despite the dip in the production. “Last year we imported 3 lakh million tonne. We expect the same this year, annually. In March imports generally rise by 5%-7%. This year it will be the same,” said Mr Kothari.

In fact, the IPGA is endorsing for exports of certain pulses depending on the output. “The government should allow export with certain directives and riders. For instance last year tur was in huge production, this time it is urad. So government can ascertain the production of various pulses and then allow exports,” explains Mr Kothari.


Gold loans at last draw RBI’s attention

RBI’s order to prohibit Manappuram from accepting/renewing deposits comes 14 months after Moneylife discovered flaws in the business model of gold-loan companies

The Reserve Bank of India (RBI) has prohibited Manappuram Finance (Manappuram), a Thrissur-based non-banking finance company (NBFC), from accepting/renewing deposits but has this action come a little too late? The RBI has advised that “Manappuram Finance, Thrissur, Kerala, is not permitted under the Reserve Bank of India Act, 1934, to accept/renew deposits from the public,” the central bank said in a statement. In the light of this event, the company has decided to convene a board meeting to discuss RBI’s statement today (10th February), as well as improve corporate governance practices.

The order comes after RBI is reportedly worried about the pace at which gold has grown over the years and feels that the business model of Manappuram might not be sound, after all. Moneylife had argued more than a year ago that that the business model of gold loan companies have several holes. We ran an exclusive series on gold-loan companies on our website.

The first part of the series (click here) talked about the facilities, or lack thereof, in some the branches of Manappuram and Muthoot (there are two groups and several companies under each with the same name, Muthoot). The second part of our series (click here) had highlighted the shakiness that is the business model of Manappuram—at that time the only gold-loan listed entity—by delving deeply into its numbers. We questioned the sources of finance, since it cannot accept ‘deposits’. It is quite obvious that the company had to rely on non-convertible deposits (NCDs), which is basically public money and fundamentally no different from “public deposits”. The only difference is in its technicality. However, the RBI had found out that Manappuram Agro Farms (MAGRO), a sole-proprietorship of VP Nandakumar, the chairman of Manappuram, had been accepting public deposits, and has Rs134 crore worth of it as of 8 February 2012. Therefore, it is safe to assume that Manappuram has been dipping into the funds of MAGRO for running its business. It clearly violated 45S of the RBI Act, 1934, which states NBFCs cannot take ‘deposits’ and the same is punishable.

The fact that it took RBI so long to detect this after our article pointed out the shaky model of gold loan companies is lamentable. According to BSE website, the company has issued a rejoinder stating that it does not accept “public deposits”. This is sort of a misleading statement because, technically speaking, Manappuram doesn’t accept deposits, but had used MAGRO as a front for the same.

What is most pertinent is that ratings agency ICRA has rated Manappuram’s credit as ‘A+’ and is yet to re-classify it, in the light of the above event. According to ICRA’s grading scale, ‘A+’ means “instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk.” It is another way of saying that the company is in good standing. The fact that ICRA cannot decide whether the business model of the firm is solid is shaky is not a surprise. Rating agencies in India and all over the world have a business model that makes them hard to act in the best interest of the investors and consumers.

Last year when we wrote the gold loan series, the chairman of Manappuram told us via an email that “we believe that unlike the common man, banks are fully capable of appreciating these risks and that this is a question best left to the banks and their qualified risk analysts who have made it their business to assess these kinds of risks.” One must not forget that risks analysts, similar to ones from ICRA, deliberately misread the sub-prime crisis in the United States and the rest of the developed world which led to drastic circumstances. What happens if ICRA misreads this one?

According to its 2011 annual report, Manappuram states that “Cash credit, overdrafts and working capital loan accounts have been availed from various banks and are secured by Gold Loan receivables.” In other words, borrowings are pledged against the very gold possession you pawn off. Manappuram’s chairman told us that the company securitises your gold loan by engaging in something known as Bilateral Agreements, in which “the bank advances money by taking over a specific portion of the loan book and control over the security related to the loans is also passed on to the bank by way of a bi-partite agreement. Thus, for every instance of assignment, there will be a different set of receivables (and related security) governed by independent agreements.” While securitisation is certainly an innovative way of doing business and diversifying risks, is it stable as it claims to be, by diversifying risks across different individual parties? What happens if ICRA actually downgrades its credit, for some reason? What happens to all these agreements when the price of gold falls?

This brings us to the third part of the series we had covered (click here and here). We had explained in detail the various scenarios possible and that the company’s survival depends on gold prices rising upwards (and possibly good credit standing of the company). Anything besides that would spell trouble for not only the company but also all the depositors. Since much of the loan is collaterised against your possessions, a sharp drop in gold prices is likely to set off a chain of events that may wreck havoc on the financial structure of gold loan companies.

A bank might ask the company to put up extra assets/cash, possibly more of your gold, for collateral, when prices fall steeply. The clauses in the bipartite agreements usually come into force when such an event takes place. If and when there is a run on the gold-loan company, there might not be enough physical gold to repay the customers. Securitising customers’ gold possessions is like pawning off a friend’s watch you had accepted as a collateral to give him cash because he needed money even though it doesn’t ‘belong’ to you. It might be legal, but not exactly a stable way of doing business. While this possibly hasn’t happened yet, we cannot rule it out.

To make the business of gold-loans more lucrative, the company needs woo more gold owners. This way, they would securitise it further and sanction more loans, or use the money for other means, such as investments and branch expansion. For this purpose, Manappuram had roped in five high-profile brand ambassadors—Akshay Kumar, Vikram, Mohanlal, Venkatesh, and Puneet Rajkumar—to endorse its products. Having high-profile stars like Akshay Kumar, whose endorsement has been widely viewed on television, makes depositors more likely to pawn off their gold, without doing any serious homework. It shows how easy it is to trap consumers and investors alike, right under RBI’s nose. The Securities and Exchange Board of India (SEBI) does not allow companies and mutual funds to use models when they raise money but the banking regulator has no issues with this.

Following the three-part article, Moneylife had written to Dr KC Chakrabarty, deputy governor, RBI, questioning the business model of gold-loan companies and the need for tighter regulations. We did not get a reply. Some 14 months late, the RBI has "cautioned members of public that those who deposit money with Manappuram Finance or MAGRO, do so at their own risk". The warning should have come much earlier. The fate of MAGRO is unknown as is the fate of its customers. Manappuram will now have to fight for its name and regain trust of the shareholders and more importantly, its customers—the gold owners.

What does this lesson hold for all of us? The same as before: Regulators and ratings agencies are often late to act the investor/depositor will have to do all the homework herself.




5 years ago

Your entire coverage on the sector is ill informed and ill researched. You should get your facts rights before publishing any article.



In Reply to Pankaj 5 years ago

Manappuram cuts off from group firms after RBI notice

Manappuram Finance has adopted a resolution to ring-fence its operations from other promoter-driven entities. The company, which was censured by the Reserve Bank of India (RBI) recently for unlawfully accepting public deposits, will form a committee headed by a former RBI deputy governor to review all aspects of operations of the company, including corporate governance norms. Last Monday, RBI issued a notice stating that the gold loans company was not authorised to accept public deposits as it was a non-deposit taking NBFC. The charge was that Manappuram Finance was accepting deposits from public, through another promoter-owned entity Manappuram Agro Farms. “Acceptance of deposits either by Manappuram Finance or by Manappuram Agro Farms is punishable with imprisonment,” RBI said. Officials at the company said it was an ‘error of judgment’ and the public deposits were accepted on behalf of Manappuram Agro Farms ‘on customers’ own volition’. They said Manappuram Finance was a deposit-taking NBFC till March 2011, and it was only having residual deposits.

The board of the company met on Friday to discuss the fallout of the RBI directive and to adopt measures to strengthen corporate governance practices.

“The company will take immediate steps to completely ring-fence its operations from those of other entities owned or controlled by VP Nandakumar (executive chairman of the company) and his family to ensure that there is no overlapping of assets, branches or personnel between companies,” a press release issued by the company said on Sunday. To further enhance governance, the board will constitute an independent committee, under the chairmanship of Jagdish Capoor, former deputy governor of RBI and former chairman of HDFC Bank, the press release said.

The company has also decided to appoint law firm Amarchand Mangaldas and accounting firm KPMG to assist the committee in the review exercise.The company’s executive chairman VP Nandakumar told the board that he had issued public notices in local dailies undertaking to honour all obligations to the depositors of his proprietary concern, Manappuram Agro Farms, without causing any inconvenience to them, the release said.

Raghu G

In Reply to Pankaj 5 years ago

In India, about 90% of the gold loan are under unorganised sector and out of this major portfolio falls in south India, its only two to three years that North India started to experience gold loan, so any entity which conduct any research on gold loan will not be complete as they are carrying out the research on the basis of data submitted by listed gold loan nbfc, whereas in the unorganised sector the interest rate is even 60% to 100%, and even on daily business, if you need the data I can suggest a few places - Tamilnadu - Madurai, sivaganga, Karur, erode, where the lendors charge these exoritant interest to tackle this, a rule also prevail in tamilnadu - prohibition of charging exorbitant interest by any person passed on novemeber 2003, I don't know whether your research team has gone through these path, apart from these what about the MICRO Finance companies, they are also charging the same, if you compare the interest of unorganised sector with organised sector it will be very low, and also whenever the rate is taken in percentage it will find as high, if take it in value it will be very low

Rs.10/day ( daily interest) for rs 100 levied to fisherman, percentage wise it will be 3650% is it not exorbitant interest , amount wise it is only Rs.10/- . so Research should be in broader sense than narrow


5 years ago

As per 45S of RBI act you can raise funds but should not use for lending purpose, but can use for own purpose, here even manappuram agro farms has raised funds but not used for lending purpose so how it can be violation of RBI act, above all since incorporation of the company in 1992 even manappuram finance or manappuram agro farms have not made any default in the repayment of either the deposit or interest, moreover manappuram agro farms is not a unregistered entity, it has registration under shops and establishment act, and has duly filed the return and taxes till date perfectly
whenever any entity is making a general statement, you should have a through knowledge with regard to the same, with regard to your earlier series the only points which I like to highligt are
1) why these banks are not able to cope up with gold loan NBFCs in pusing gold loan?

in banks it will take hours to process gold loan and also their loan to value is very less and they require minimum rs.50000 as ticket size they will not entertain small ticket size, in case doubt send a team to a few banks for pledge then you will understand

whereas, gold loan is loan which have nature of emergency that is hospital case, remitting fee, bridging the monthly deficit of the family etc, here the time is very important and these nbfc understand the need the customer and are serving better

If RBI is the last lendor of resort for commercial banks, it is gold loan NBFCs (Manappuram) are the last lendor of resort for general public


5 years ago

You are seeing this issue only through one angle. Suppose situation without these type firms.Difficult to get money from Banks or less amount sanctioned .Such a situation will lead common people to individual money lenders who are charging more than 100 %. I also don't think the business model is wrong.If gold is risky what will be the future of Countries who are shifting their dollars to Gold.


Sachin Purohit

In Reply to Raju 5 years ago

You have a point there in case of countries shifting their dollars to gold. But, then they are just diversifying the risk by doing so. So RBI would be holding a basket of currencies in its reserves. At some point of time, it may have been more focused in dollars and shifting some of dollars to gold is just to hedge its risk. This is different than a company that has a business model that is tied to a single risky asset - gold.


5 years ago

Pleas do a favour to your readers by publishing in full the company's reply to your earlier series of articles on gold loans. You have quoted selectively from their reply, which is not good enough if you have any interest in credible journalism.

Moreover, kindly check your facts and figures before making allegations. Even if NCDs amount to public deposits, the company's latest quarterly results show that they hold Rs.640 crores of such deposits. In contrast, their gold loans amount to Rs.12,000 crores. Deposits held by Manappuram Agro Farms amount to Rs.134 crores. How, then, are they running their business on public money even if we take your allegations as true?

Apollo Tyres’ Q3 net falls 18.6%

Apollo Tyres’ consolidated net sales during the third quarter increased 36.29% to Rs3,228.24 crore.

Apollo Tyres has reported an 18.58% decline in its consolidated net profit for the quarter ended 31 December 2011, at Rs98.04 crore due to impact of high input costs.

The company had posted a net profit of Rs120.42 crore in the corresponding period last financial year, Apollo Tyres said in a statement.

Consolidated net sales during the third quarter, however, increased 36.29% to Rs3,228.24 crore from Rs 2,368.58 crore in the year-ago period.

Commenting on the results, Apollo Tyres, chairman, Onkar S Kanwar, said: “The raw material prices have stabilised to some extent, but they continue to remain on the higher side and put our margins under pressure.”

The revenue growth was led by Indian operations with 46% increase over the same period last fiscal, followed by South Africa with 28% and Europe with 26% growth.

In the early afternoon, Apollo Tyres was trading at around Rs75.50 per share on the Bombay Stock Exchange, unchanged from its previous close.


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