Money & Banking
Infra, retail & agri continue to drive credit growth of banks in February

Bank credit increased at a slower rate by 14.4% in February on a year-on-year basis against an increase of 15.4% in February 2012. However, Nomura’s Equity Research states, “If we assume the same quantum of loan growth for March 2013 as was achieved during the same month last year, then we are likely to see a non-food credit growth of 13.8% for FY13F.”

Bank credit increased on a slower rate by 14.4% in February on a year-on-year (y-o-y) basis against an increase of 15.4% in February 2012, according to Reserve Bank of India (RBI) data on sectoral deployment of bank credit that was released yesterday.


Credit to industry increased by 14.7% y-o-y in February compared with the increase of 19.1% in February 2012. Credit to the agricultural sector grew by 18.2% y-o-y and retail by16.2% y-o-y. As per the RBI's weekly statistical supplement, non-food credit as of 8 March 2013 was 15.3% y-o-y.


Within retail, mortgages recorded a 17.7% y-o-y growth, credit cards 23.7%, vehicle loans 20.9% and personal loans 19.9% were the key growth areas, Nomura Equity Research in its Quick Note points out. However, consumer durable loans declined 6.7% y-o-y.


In February 2013 and within retail loans, vehicle loans had the highest y-o-y growth at 20.9%, followed closely by non-collateralized loans at 20.4% and mortgages at 17.7%. Mortgage loans have clearly picked up pace in February, the brokerage said.



Nomura Equity Research further adds that key growth drivers within the industry segment have been mining, power, iron & steel, chemicals, engineering, cement and roads. Within the industry sector, y-o-y growth for key sub-sectors was 30% for power, 20% for iron & steel, 17% for engineering, 18% for roads, and 22% for chemicals. Loans to the telecom sector were flat y-o-y.



Loans to SMEs gathered pace in February on a sequential basis, growing at 6.3% y-o-y in February compared with 4.6% in January.


In the services segment, loans to the retail trade had the highest y-o-y growth at 26% followed by loans to NBFCs (non-banking financial companies) at 17%. Bank loans to NBFCs continue to decline. In fact trade loans are the only category within services which has recorded increasing y-o-y growth rates over the last two years.


In conclusion, Nomura’s Equity Research states, “If we assume the same quantum of loan growth for March 2013 as was achieved during the same month last year, then we are likely to see a non-food credit growth of 13.8% for FY13F.”


Coal India: 10% disinvestment via 5% OFS + 5% buyback?

The government’s proposal to disinvest 5% stake via the ‘buyback’ mechanism and only 5% via an OFS is a positive surprise, according to Nomura Equity Research

Global news agency Bloomberg, quoting a draft proposal by the Indian ministry of finance, states that the Government of India plans to raise Rs20,000 crore ($3.7 billion) by disinvesting 10% stake in Coal India (CIL) through a 5% sale to the public (i.e. secondary offering) and a 5% sale to the company (i.e., buyback), given CIL’s $12 billion cash chest.


The ministry of coal has been asked to take CIL’s workers’ unions into confidence and gather support for the share sale. The unions were assured at the time of CIL’s IPO in 2010 that there would be no further disinvestment. Coal secretary SK Srivastava is quoted as saying “We anticipate some labour issues and we will do our best to take them into confidence.”


Nomura Equity Research, in its Quick Note, on the government’s proposal believes that the prospects of a potential 10% disinvestment in CIL through a secondary offering (OFS) has been an overhang on the stock since the Government of India pegged its FY2014 disinvestment target at Rs40,000 crore in the Union Budget (presented on 28th February).


It adds that the overhang has been exaggerated in the backdrop of NTPC’s stock price correction between the government announcing its intent to divest stake in the company (November 2012) up to the actual stake sale (February 2013).


Accordingly, relative to expectations, the government’s proposal to disinvest 5% stake via the ‘buyback’ mechanism and only 5% via an OFS is a positive surprise, according to the brokerage.


Nomura states that CIL’s workers’ unions would need to be on board for any move by the government to lower its stake in the company, particularly via an OFS, to materialize. It further states that if the draft proposal is implemented, a buyback would potentially precede the OFS.


“We believe that when there is an OFS around the corner, it would likely be preceded by a ‘hike in price of notified coal’ in order to boost CIL’s operating margin (which is under pressure) and in turn, securing a better offering price, the report by Nomura Equity Research said.


According to the brokerage, a 5% share buyback by CIL at its CMP (Rs310.65 per share) would entail a cash outgo of Rs10,000 crore ($1.8 billion); with other things remaining constant, FY14F/15F normalized EPS (base case) may rise by 3.6%/2.8%.


On normalized earnings (pre-overburden removal EBITDA and PAT, excluding a potential incidence of 26% mining tax), the stock trades at FY14F 9.6x P/E, 5.2x EV/EBITDA. It maintains a ‘BUY’ on the stock.


Problems of Being an Indian Entrepreneur-III: Corruption rears its ugly head

This is the third part of the four-part series on the difficulties of an entrepreneur doing business in India and how India loses by forcing small businesses to pay for bribes and lose out to multinationals. PS Deodhar talks about how corruption manifests in different forms and how it affects the small and medium entreprenuer and how it affects India


Then in 1982, I was sucked away from APLAB into New Delhi by Rajiv Gandhi, a close friend since 1975.His brother, Sanjay, had died in an air crash in 1980, and gradually, I began spending more time in Delhi than in Mumbai. In 1984, I left the management of APLAB in the able hands of Subhash Joshi, who was well-groomed in the APLAB culture. I was away for over eight years. I did hinder APLAB’s growth by advising Subhash and his sales team not to participate in any government business in which I was even remotely involved. This was how my ethics were stunting the company’s development.

APLAB's growth was greatly hurt, but I had no option. I had decided to work for the government, but had pledged to myself that I would not indulge in any unethical actions. No hospitality from anyone who gained out of my position in the government. I even refused government salary by accepting a token that I had to. It gave me a nice feeling. I was free to call a spade a spade. I don't think Rajiv was ever put in picture about his mistakes as bluntly as I did.

But then, there was another face of Delhi that is now common knowledge; corruption. Let me share my own encounter with corruption.

In 1985, I advised the government to float a tender for the bulk purchase of colour television tubes to save foreign exchange. India was importing these at US$76 a piece. The tender created fierce international competition. The lowest bid was $64 and ET&T, of which I was the Chairman, negotiated down to $63. We saved six million dollars for the country in a stroke and went on doing the same till 1989! Orders went to several companies in Japan, S. Korea and France. Then, after all of this was over, a supplier came to meet me and surreptitiously told me that he had set aside a dollar per tube and wanted to know how and where he should give it. I called ET&T's Financial Director, Mr. Patro, and told him that we were getting another dollar in discount from this supplier and he should see how our company could accept it. That evening the rep called me to apologise. He told me that this had been the prevalent practice.

He was, however, worried. I told him that I am not a policeman and that he should rest assured that  I was pleased to see the government saving another fifty thousand dollars. Such news spreads very fast. After that, no one troubled me again as I had earned a reputation. Mr. R. N. Patro was probably impressed too. When I became the Chairman of the Electronics Commission, he gave up his Directorship in a PSU and joined me as my Personal Secretary! He shielded me from the bureaucrats and would moderate my responses to ensure that I wasn’t victimised. He was indeed my protector and worked for me till he passed away. However, back home at APLAB, Subhash ran into problems since all along the government had been a large customer for APLAB. Such a reputation did not do much for the business.

The nine years in Delhi were a disastrous experience for me. I found almost no one amongst the politicians or top bureaucrats, who was interested in nation building, something that demanded sustained well-planned efforts. We had remarkably brilliant bureaucrats and very sharp, cunning and street-smart politicians. I found that the former were more concerned with their careers than the nation. Those among them heading the ministries barely had a year before they would retire, so the only future thoughts they had were about themselves and not the country. Their immediate concern was about their post retirement plans. The politicians were a cunning lot, but most had no vision for India. Their vision was limited to themselves and their region, their electorate and their caste.

Let me again divert a bit from the subject matter and share my talk with Rajiv. I often told Rajiv that he was the only leader who had a national acceptance as the country's leader just because he was equi-near and equi-distant from all states, linguistic groups and religions. Every other leader in Delhi was a regional leader. Even today, none of our leaders can claim that they are national leaders. Sonia and her children have that advantage -- they too belong to all. One can't say the same about Narendra Modi and other popular Chief Ministers of a few states. Those who became ministers in Rajiv's cabinet also had no domain knowledge relating to their ministry. Add to this the fact that confused Rajiv reshuffled his ministry 27 times! My erstwhile friend Madhavrao Sindia was the only one who led the Railway Ministry for all the five years. No minister had the domain expertise in the ministry he or she was looking after. What else could you expect other than chaos? I feel that the Indian economy weakened so much during his time that the country reached the brink of bankruptcy a year and half after he lost the power.

Corruption is under sharp focus today. It provides good fodder for the news-starved news channels. They offer good entertainment. Right to Information and the thirst for sensational news of television news channels is exposing a growing number of financial scandals arising out of a nexus between greedy businessmen, politicians in power and bureaucrats. It appears that a huge portion of taxes that a few of us pay is going into the private pockets of politicians and bureaucrats. But the corruption in the country is far deep-rooted today and has spread widely to even the lowest rung of our governments in the states and at the centre.

Post 1990 liberalization, we have another change caused by rapid advances in telecommunications and the call for commercial globalisation. This is an overwhelming change since it altered the social behaviour of the people at large. Thanks to the American multi-nationals and our trader class business houses, our society too has now become totally money-centric. Nobility, sacrifice, selfless service and wisdom are no more the measures of a respectable personality -- instead it is the wealth that one sits on. Since we now measure people in terms of money, everyone wants it at any cost and by any means. Corruption is one way our government servants find it easy to make money by using their authority, not only to get gratified by the law-breakers, but also by indulging in extorting it from hapless citizens with threats to frighten them and forcing them to give in. There is a great amount of innovation in swindling. It is now a way of life in our country.    

After fifty long years of managing a technological manufacturing company, I understand that for a spectacular business growth in India, one has to indulge in corruption, bribes and collaboration with tax authorities. The more you grease palms, the more you succeed. However, I experienced that the scale and spread of corruption rose sharply from the early 90s to its current fearsome level.

While corruption is detrimental to business for all types of companies—large and small, multinational and local—it poses particular problems for small and medium firms started enthusiastically by technical entrepreneurs. They suffer the most. They are more vulnerable to corruption. As a result, their profit margins and sometimes, their very survival is at stake when corruption takes hold. Many factors influence the ability of technical entrepreneurs to set up and expand small businesses, such as financial issues, education, training, technology, access to information, property rights, infrastructure, and export possibilities, but corruption has been identified as a major obstacle for the healthy development of the SME sector. Companies like APLAB do create the highest employment, especially for the unskilled and semi-skilled people, but the effects of corruption are most devastating.

Most Indian small and medium scale manufacturing companies state that they have been asked for bribes in order to obtain licences or permits from the local government and need to pay the related officials responsible for the collection of taxes and duties. Then one has to pay bribes to acquire government contracts. The most prevalent and well-known form of corruption affecting the Indian industry is bribery—the offering made to  a public official for any undue advantage so that the official acts or refrains from acting in the exercise of his or her official duties. In this respect, SMEs are frequently faced with requests for additional payments for services they are entitled to anyway. But, one also needs to distinguish between acts of bribery that represent a burden to businesses, and those that are regarded by some companies as advantageous. For instance, a bribe provided with the aim of winning a contract, clearly represents an advantage or benefit to the entity paying it, whereas an undue payment, required in order to get an electricity supply connection, is obviously a burden. This distinction was deemed important because the two types of transaction involve different incentives and disincentives, and different costs and benefits, and therefore have to be dealt with in different ways. Bribery is not the only form of corruption that plays a major role in our industries. Embezzlement or misappropriation of funds by a company owner or employees, fraud by selling substandard products etc. have a significant, direct influence.




In the last part of the series, PS Deodhar talks about how honesty, competency and craftsmanship from small companies are not favoured by the government.


The earlier two parts of this series can be accessed here:


Part I: Problems of Being an Indian Entrepreneur-I: I was never interested in money


Part II: Problems of Being an Indian Entrepreneur-II: How honesty and integrity can affect a company


(PS Deodhar is founder and former chairman of the Aplab Group of companies. He is also the former chairman of the Electronics Commission of the Government of India and was an advisor to late Prime Minister Rajiv Gandhi on electronics. He also was the chairman of the Broadcast Council in 1992-93 that set in motion the privatisation of the electronic media with metro channels.)


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