Stocks
Nifty, Sensex headed lower – Tuesday closing report
Nifty has to close above 7,795 for the bulls to end the current decline
 
We had mentioned in Monday’s closing report that Nifty, Sensex might put in a rally and that the bulls might be back, if the US and Asian markets stabilised. But the Asian markets were weak and US futures were sharply down. Hence, the major Indian indices opened higher and then gave up all the gains and closed with losses on Tuesday, in line with Asian markets. The trends of the major indices in the course of Tuesday’s trading are given in the table below:
 
 
Profit booking, along with caution over upcoming quarterly results and negative global cues, dragged the Indian equity markets lower on Tuesday. Initially, the key indices opened on Tuesday on a flat note, taking cues from their Asian peers which traded in the negative territory. Asian markets were subdued after the International Monetary Fund (IMF) warned about the possibility of a slowdown in China and Japan during 2016. However, the Indian equity markets soon rose on the back of short covering, expectations on bankruptcy code being passed through the parliament and a positive US market close. But negative Asian, European markets and caution ahead of Q4 (fourth quarter) results dampened sentiments and the major indices closed with losses over Monday’s close. The BSE market breadth was tilted in favour of the bears -- with 1,484 declines and 1,155 advances.
 
Two- and three-wheeler maker TVS Motor Company Ltd. on Tuesday said it closed the March quarter with a net profit of Rs117.76 crore compared to Rs90.52 crore. The company's total income went up to Rs2,839.60 crore from Rs2,453.42 crore. The company’s shares closed at Rs287.90, down 9.66% on the BSE.
 
The Future Group said Kishore Biyani has been appointed the managing director of Bharti Retail Limited (BRL) after the completion of acquisition of the Bharti Group's retail business. With the scheme of arrangement between Future Retail Limited (FRL) and BRL for acquisition taking shape, another Biyani, Rakesh Biyani, joined the board of BRL as joint managing director. Bharti Enterprises' vice chairman and managing director Rajan Mittal will continue to serve as a member of the board of directors of the company. Kishore Biyani stepped down as managing director of FRL. FRL shares closed at Rs146.95, down 1.74% on the BSE.
 
Housing Development Finance Corp (HDFC) reported a 30.76% rise in consolidated net profit at Rs3,460.46 crore for the fourth quarter ended March, as against Rs2,646.35 crore in the same quarter of 2014-15. In a stock exchange filing, the company said its net profit for the entire last fiscal, was up 16.29% at Rs10,190.26 crore as against Rs8,762.62 crore recorded last year. HDFC also recommended a final dividend of Rs14 per share, in addition to the interim dividend of Rs3. On standalone basis, the company reported a net profit of Rs2,607.05 crore for the fourth quarter, as compared to Rs1,862.43 crore in same period a year ago. For the full fiscal, standalone net profit was Rs7,093.1 crore, as against Rs5,990.14 crore. HDFC shares closed at Rs1,099.50, up 0.62% on the BSE.
 
Coal India Ltd, the world’s biggest miner, cut production and shipments of the fuel for the first time in more than a year as sluggish demand caused stockpiles to swell. Output in April dropped 3.4% from a year ago to 40.09 million metric tonnes, while dispatches during the month fell 2.5% to 42.45 million mt, Kolkata-based Coal India said in a stock exchange filing. Output and shipments were the lowest since September. Coal stockpiles at the company’s mines had risen to almost 58 million tonnes as of 1 April because of lower off take by power utilities. The company’s shares closed at Rs279.85, down 3.07% on the BSE.
 
Aurobindo Pharma announced that it has received US Food & Drug Administration (USFDA) approval for its epilepsy prevention drug Lacosamide. The approved product has an estimated market size of $782 million for the twelve months ending February 2016. In a BSE filing, Aurobindo Pharma said that the approved ANDA is bioequivalent and therapeutically equivalent to the reference listed drug product (RLD) Vimpat Tablets, 50 mg, 100 mg, 150 mg and 200 mg of UCB, Inc.  Its shares closed at Rs801.95, up 4.19% on the BSE.
 
Marico, the maker of Parachute hair oil and Saffola edible oil, has been outperforming its FMCG peers since last three months. The company’s consolidated total income from operations have come in at Rs1,307.03 crore in this quarter as against Rs1,556.42 crore in Q3FY16, a decrease of 16%. The company’s EBITDA has come in at Rs216.6 crore as against Rs293.84 crore, a decrease of 26.3%. The company has witnessed a drop in inventories and cost of raw materials. However, depreciation and purchase cost of traded goods has increased. The company’s net profit stands at Rs138.44 crore in Q4FY16 as compared to Rs197.81 crore in the last quarter i.e. a decrease of 30%. Consolidated EPS has come in at 1.07 as against 1.53 in the last quarter. Marico’s shares closed at Rs256.50, down 3.97%.
 
The US dollar declined against other major peers on Monday as economic data from the country came out weaker than expected. In late New York trading, the euro rose to $1.1523 from $1.1448 in the previous session, while the dollar bought 106.47 Japanese yen, lower than 106.69 yen of the previous session.
 
The top gainers and top losers of the major indices are given in the table below:
 
 
The closing values of the major Asian indices are given in the table below:
 

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P2P lending: Is RBI addressing ambiguity or satisfying its urge to regulate?
RBI’s consultation paper completely misses making a mention on various regulations and laws that a P2P platform should be mindful of, in the normal course of its business
 
Startup culture in India is on a rise. Business models driven by first generation entrepreneurs leveraged on information technology are now transforming lives in various ways. This coupled with the policy focus now is ready to become a revolution attracting attention for industry, government, regulators alike. Peer to peer lending (more popularly called P2P lending) has been in news globally, with China reporting fraud cases, the US taking forth maiden securitisation issuances and Reserve Bank of India (RBI) announcing possibility of regulatory intervention on the business model.
 
RBI has been mulling over bringing out a concept paper on peer-to-peer (P2P) lending business model, which has now become an apple of the eye in the startup space in India. RBI has on 28 April 2016 released the Consultation paper on Peer to Peer Lending and is inviting public comments on the same.
 
However, the concept paper from RBI is not without issues or concerns. The major concern with the proposed framework is the blatant decision of RBI to qualify the platform as non-banking financial company (NBFC). It is most important for RBI to delve on the question whether the platform at all qualifies to be an NBFC without carrying out any business of lending or investment or without being engaged in any financial activity.
 
Further, with the rigorous impetus on promoting entrepreneurship in the country, the P2P platform requires a minimum owned funds of Rs2 crore. It would be bizarre to expect a startup to infuse this kind of money and equating the fund requirement to that of an NBFC. 
 
What is also difficult to understand is barring these intermediaries to route the money of the lenders and the borrowers through the platform. 
 
The consultation paper completely misses making a mention on the various regulations and laws that a P2P platform should be mindful in course of its business. 
 

Consultation Paper in Brief

 
The consultation paper explains briefly the process flow of P2P with a comparative on how the business model is dealt with in various jurisdictions. While in Japan and Israel, P2P is prohibited completely, in other countries the spectrum varies from being completely unregulated as in case of China to under banking regulations in France, Italy to multiple layers of regulations as in case of the United States. 
 
As per the Consultation Paper there are 30 P2P platforms operating in India and are acting as aggregators for the lenders and the borrowers. 
 
P2P process flow
 
The process flow of the business model is explained as below:
 
a. Lenders and borrowers on-board the platform
 
b. There is an initial screening undertaken by the platform 
 
c. The lender then bids for the borrower’s loan process and the borrower has the liberty of accepting or rejecting the same. The documentation for the loan transaction is facilitated through the platform. 
 
d. Some platforms provide credit assessment and recovery functions in addition to acting as a virtual intermediary.
 
e. The money is routed from the lenders account to the borrowers account and other way for the repayment. 
 
Concerns on P2P business model
 
The concerns expressed by RBI in this business process are on a) KYC process and b) on the recovery practices, which the central bank believes could also be coercive at some stage. 
 
The consultation paper deals with the issue of whether the business model should be regulated at all. While the rationale for not regulating a budding sector as P2P is to ensure that the regulations are not too stringent and to allow efficient and accessible avenue for borrowers who either do not have access to formal financial channels or are denied loans by them. On the other hand, the impact of the business model on banks and NBFCs and its ability to disrupt the financial sector attracts the need for regulation. 
 
Therefore, RBI feels that if the sector is left unregulated the risk of unhealthy practices developing which may have deleterious consequences and therefore there should be right kind of regulatory and supervisory mechanism to harness the spirit of the business model. 
 
Highlights of proposed regulations
 
To this end and intent, RBI has proposed to regulate the platforms as NBFCs as defined under the RBI Act. The platform cannot be housed in any entity other than a company. 
 
The proposed regulatory framework is broadly classified under the following heads:
 
a. Permitted activities 
 
i. Permissible business
  1. The platform will be operating for the limited purpose of bring the borrowers and the lenders under a single platform 
  2. The platform can opine on the credit worthiness of the borrowers
  3. The platform will ensure that the money is routed directly from the lenders’ bank account to the borrowers’ bank to ensure there is no threat of money laundering. 
ii. Non-permitted activities 
  1. The platform will ensure that provisions of Section 45S of the RBI Act are not attracted by its activities 
  2.  The platform will not be assuring returns to the lenders either directly or indirectly 
  3. The platform will be prohibited from doing cross-border transactions in view of the FEMA provisions.  
iii. There will be separate regulations on the advertisement about the platform
 
b. Prudential regulations on capital
 
i. The platform will be required to bring minimum capital of Rs2 crore to ensure skin-in-the-game
 
ii. The regulations will also limit the leveraging capabilities of the platform. 
 
c. Governance requirements
 
i. The guidelines for fit and proper person criteria for the promoters, directors and CEOs shall apply
 
ii. Board should have sufficient experience in financial sector 
 
iii. The P2P lender will be required to have a brick and mortar place of business
 
iv. The management and operational personnel of the platform would need to be stationed within the country
 
d. Business continuity plan
 
i. The platform needs to have adequate risk management systems
 
ii. In case the platform fails to continue there should be an alternative arrangement for the continuity of the operations
 
e. Customer Interface 
 
i. The customer data should be secured and should remain confidential
 
ii. Transparency in operations and minimum disclosures under fair practices code will be mandated. 
 
iii. Current regulations as applicable to NBFCs on the recovery guidelines shall apply to P2Ps as well.
 
iv. There should be a grievance redressal mechanism to address the complaints of the borrowers and lenders.
 
f. Regulatory reporting 
 
i. The platform will be required to report financial position, loans arranged each quarter, complaints etc. to the Reserve Bank.  

 

Concerns on the Proposed Framework

 
From the RBI to Financial Stability and Development Council (FSDC)  to the association bodies, several industry stakeholders have been discussing about the ambiguity of regulatory framework in the P2P lending space and the need for clarity on applicable regulations is a common concern for all.
 
While one will have to wait for the draft regulations to be released, the consultation paper does not seem to get into the core essence of the business and seems to be driven with the compulsive need for bringing about regulations. One is forced to think, what is the moot point of the consultation paper – addressing the current ambiguity or an urge to regulate? 
 
(Nidhi Bothra is executive vice president at Vinod Kothari Consultants Pvt Ltd)

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COMMENTS

mariyam khatib

1 year ago

Informative details

Dhanlaxmi Bank: Director K Jayakumar exposes top brass while resigning
In his resignation letter, the former Chief Secretary of Kerala alleged harassment and subsequent removal of dissenting independent directors for not toeing up the line by Dhanlaxmi Bank’s CGM Manikandan and MD & CEO G Sreeram
 
K Jayakumar, a retired Indian Administrative Services (IAS) officer, and former Chief Secretary of Kerala government has resigned from troubled Dhanlaxmi Bank. The IAS officer's hard hitting letter exposes the lack of proper management at the Bank, but also questions the role of banking regulator, Reserve Bank of India (RBI). 
 
The background to this is the anger and unhappiness of employees following the abrupt termination of PV Mohanan,  General Secretary of Dhanlaxmi Bank Officers' Organisation (DBOO) in June 2015, without specific reasons. Sources at the bank insist that the real reason for his removal was the expose of a fixed deposit scam to the tune of Rs240 crore that is being investigated by the Economic Offences Wing (EOW) of the police. The Bank employees struck work for 33 days at that time causing the government to intervene in the matter. But clearly, the mood at the bank as well as its method of managing things are far from conducive, as is evident from Mr Jayakumar's resignation and the contents of his hard hitting exit letter. 
 
Mr Jayakumar says, "In this depressing atmosphere of self-deception coupled with utter lack of sensitivity and grace, and poor appreciation of the values of human resources management and industrial relations, my self-esteem does not permit me to associate any longer with Dhanlaxmi Bank as a Director. Alarmingly enough, the Bank's business is shrinking, its revival plans are wobbling, its employees are alienated and frustrated and its HR policies and practices are amorphous and antiquated. Where an all-out effort to galvanize the Bank by enlisting the total cooperation of the staff to achieve a turnaround would have been a natural instinct, Dhanlaxmi Bank, sadly enough follows a bullish HR policy characterized by insensitivity and intimidation. Will arbitrary transfers, termination, selective rewarding of loyalty and such myopic strategies, which belie all modern human resources (HR) practices, bring glory to a Bank, which has not been able to post a profit in the past several years? As a Director, I feel helpless and sad. For the above reasons, circumstances and facts, I resign from the Board of Directors of Dhanlaxmi Bank". 
 
The former Chief Secretary also highlighted harassment meted out to a dissenting director by the Bank's Chief General Manager Manikandan, in particular and G Sreeram, Managing Director and Chief Executive, to a lesser extent. When Mr Jayakumar raised objections on unceremonious removal of PV Mohanan, who was working as Senior Manager in the Bank's Recovery Department at Thrissur, citing 'loss of confidence', he says, he "began to realize the outdated, if not feudal mind set of the top management, particularly Mr Manikandan, the CGM and to a lesser extent Mr Sreeram, CEO and MD".
 
"They seem to presume that the Directors have to be necessarily 'yes men'.  Any note different from 'his master's voice' is unacceptable. 'Dissent with dignity' seems to be unknown in their lexicon. Once a Director (who is paradoxically called Independent Director!) is suspected to have different views, then he has to be side lined if not humiliated. Then the transport department and other functionaries are instructed not to show elementary courtesies even about firming up travel plans for attending the Board meeting. Then that Director has to be removed from important Committees. Then it becomes a tested ploy to convey, in not so subtle ways, how poorly RBI thinks of him. This style was in evidence when a former Director, Mr K Vijayaraghavan, who used to dissent and often criticize, was shunted out of the Board last year as his re-nomination failed to receive support from the majority of shareholders!," Mr Jayakumar stated in his resignation letter.
 
Earlier in November 2014, while raising the issue of removal of Mr Vijayaraghavan with the RBI, the All India Bank Officers' Confederation (AIBOC) too had alleged misuse of power from the top management. AIBOC, in the letter had stated, "The case of removal of K Vijayaraghavan (former Director) is a classic example. At any time, the Board can oust the Chairman also by similar lobbying and may suggest the name of their own person as Chairman. Instead of the Chairman and the directors determining who should be the MD and CGM, it is happening vice versa- MD and CGM are selecting the Directors and the Chairman of the Bank. By selecting the directors by this mode, there is big erosion in the 'independent director' concept in Dhanlaxmi Bank. This is a dangerous trend because the much needed 'checks and balances' in the Bank's administration will be missing. This is a systemic issue, which has to be addressed and set right."
 
"Though the Bank could increase the capital substantially, the disadvantage is that the top two executives of the Bank, the present MD and CGM could develop a liaison with the investors, as it was they, who were negotiating with the big investors for investment in the Bank through private investments in public equity (PIPE) or qualified institutional placement (QIP). Using this clout the present MD and CGM determine who shall be the Director of the Bank," the Officers' union had alleged. 
 
Although the Officers’ Confederation sent the letter to the RBI in November 2014, nothing much seems to have changed in Dhanlaxmi Bank. Here is the letter sent by AIBOC to the RBI…
 
 
In his resignation letter, Mr Jayakumar further said, "...I have lost faith in the capacity of this management and its ethos that has missed the wood for the trees. I wonder why the initiatives approved by the Board and the several suggestions and admonitions of the RBI have repeatedly failed to yield the desired results. I am shocked by the abysmal lack of grace in dealing with difficult situations that ought to have been handled with sagacity and foresight. I am pained at the short-sightedness that fails to regard the commitment and contentment of the employees as paramount for the survival and success of the Bank in its darkest hour".
 
Commenting specifically on the dismissal of PV Mohanan, the IAS officer mentioned that he always had been a strong critic of the union leader, but never doubted personal integrity of Mr Mohanan. "I am no trade union leader holding a brief for Shri Monahan. But as an officer in the civil service for three and a half decades and having had several opportunities to deal with powerful trade unions and service organizations, I am of the view that the action of the management has been unfair and unjustifiable. The punishment of termination is unequal to the offences committed. What is the offence that has made nothing but dismissal from service the only befitting punishment? What is the public/ organizational purpose this act has achieved? The only message it conveys to the employees is ominous and depressing.  When the Bank is going through critically difficult times, any decision that fails to elicit the willing support and goodwill of the employees is unwise and short sighted.  A decision that does not have a direct or indirect beneficial impact on the institution cannot be morally justified. The insistence that Mr Mohanan should be forced out ignominiously has not served any productive purpose other than alienating the employees. This has been nothing but a thoughtless act that only vindicates the obstinacy of the management and has resulted in hardship and personal injustice for an individual. The decision epitomizes utter disregard to the morale of the employees," Mr Jayakumar had said.  
 
Our emails sent to the Bank's MD & CEO remained unanswered till writing this story. We will incorporate Dhanlaxmi Bank's comment as and when we receive it.

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COMMENTS

Ram Mohan

1 year ago

It is all interesting to note the fall of this private bank. But the writer is one director and we would like to know the views of others in the issue. Otherwise it can only be considered as a tactic to blame someone who was a partner in looting but the partnership became sour later. Government again failed to protect the public funds and am sure some of the ruling party too might be involved in sharing the booty.

PRAKASH D N

1 year ago

Kudos to Moneylife Team for exposing the hallow Corporate Governance in Private Sector Banks. P J Nayak Committee report recommends reduction
in Government control and doing away with dual control of Govt. and RBI in
PSBs for better governanace. Is the Dhanalakshmi type Board Governance is required for PSBs? In spite of the issue had been brought to the notice of RBI (by AIBOC), what the RBI has done? I learn that there are two RBI Directors on the Board of the DB. Were they remain mere spectators? If this is the
fate of Independent Directors in DB, it is high time RBI does a corporate governance audit of all the Banks. The way the Management deals with its human resource is fully reflected in the dismissal of the General Secretary
of officers' union (for whistle blowing) and how it handles a IR crisis. No need to search for the losses Bank is incurring for the past few years? Is there no accountability for the MD and other Board members? Are they not accountable to the share holders and depositors? RBI need to intervene to put the Bank on the right track.

SuchindranathAiyerS

1 year ago

An Edward, an Edward come to confession? But the very fact that this is dripping from the mouth of a Bureaucrat who must have been privy to the millions of crimes, that each Babu must countenance, and which, in their aggregate, make up the Indian Republic points to one simple fact. The Dhanalakshmi Bank, like Mr. Jayakumar himself, is just another fractal of India.

MG Warrier

1 year ago

Perhaps, we need to give more thought to mature views like "...I have lost faith in the capacity of this management and its ethos that has missed the wood for the trees. I wonder why the initiatives approved by the Board and the several suggestions and admonitions of the RBI have repeatedly failed to yield the desired results. I am shocked by the abysmal lack of grace in dealing with difficult situations that ought to have been handled with sagacity and foresight. I am pained at the short-sightedness that fails to regard the commitment and contentment of the employees as paramount for the survival and success of the Bank in its darkest hour" expressed by Jayakumar. Issues can get diverted and the seriousness can get diluted by dragging Subramanian Swamy's comments on Dr Rajan. Swamy has spoken a lot more after he had suggested a replacement for Dr Rajan and Dr Rajan has given many speeches after he had used 'Dosa' prices to explain inflation. Let us also move forward and think about proactive suggestions that can save the system.

Raja Laks

1 year ago

RBI Governor who used to comment about Dosa has not opened his mouth yet about this Bank.

Ultimately Banks come under Arun Jaitley ministry, so no hope. Earlier it was under the biggest thief P Chidambaram.

REPLY

Suketu Shah

In Reply to Raja Laks 1 year ago

Mr Rajan was appointed by PC and hence is obligated to him.No wonder you see this kind of performance(or rather lack of it) from him.Dr Swamy clearly stated 1 yr ago rajan has to go and fast and wait for more such inaction by RBI to come out now that Rajan's term is getting over

Suketu Shah

In Reply to Raja Laks 1 year ago

Perfectly said.What else can you expect of a man like Rajan who one of our topmost honest leaders Dr Swamy had stated 1 yr ago that he had to go and fast.Rajan has only lived up to our expectations.

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