NPAs: Need For A Holistic Approach To Resolution

The banks have been given time till March 31, 2017 by RBI to clean up their books while the gross non performing assets have reportedly ballooned to over Rs 5.5 lakh crore by end of March 2016

Banking system faces enormous challenges as the spectre of gargantuan non-performing assets (NPAs) is haunting them even as the regulator is coming out with new schemes to address the NPA menace head-on.

The banks have been given time till March 31, 2017 by RBI to clean up their books while the gross non performing assets have reportedly ballooned to over Rs 5.5 lakh crore by end of March 2016. This Herculean task needs to be addressed in a holistic manner, keeping the Indian ecosystem in mind, so as to minimise future slippages in the accounts. To begin with, it would be pertinent to recognise that all borrowers are not ‘chors’ and that all lenders cannot be accused of not having done the due diligence and then try to find a resolution before the problem starts eating into the very growth of economy.

Aggravating Factors
The list of factors that caused a jump of more than 475 per cent in NPAs in a matter of 5 years are many. However, factors like commodity cycle downturn, delays in approval from government be it environmental clearance, land acquisition process, obtaining right of way, forest clearance and lack of dispute redressal mechanism in a business-like manner, besides, policychanges like cancellation of telecom licences, withdrawal of coal and iron ore mines, dumping by some countries which made local products unviable, were other contributory factors which were further compounded by the indecisiveness of the decision makers who simply did not take any timely decisions fearing political backlash.

Just to elaborate this point further, let me draw on the steel sector. According to RBI’s Financial Stability Report, June 2015, five out of the top 10 private steel producing companies are under severe stress on account of delayed implementation of their projects due to land acquisition and environmental clearances among other factors. And then the operational units in the steel sector lost their cost competitiveness. As is well-known, some of the critical factors affecting the competitiveness of this industry, particularly in economic downturn, include government’s support (tax incentives), tariff protection, raw material security at competitive prices and availability of infrastructure and logistics. Who would have seen this coming when the projects were set up.

Five Sectors-Demand Upside Holds The Key
It is interesting to note here that five sectors-iron and steel, infrastructure, EPC, mining and textile account for bulk of the reported NPAs which had their share of external factors responsible for accumulation of NPAs in the last 4-5 years. While wilful defaulters need to be dealt with strictly, it is also a fact that all these sectors play key role in the growth of the economy-both at the domestic level and in international trade. A robust revival of demand would enable the companies in these sectors to generate enough cash flows to not only service the debt but return to growth path in a short time.

RBI’s S4A Scheme-May Not Meet With Enough Success
During the last few years, the corporates have piled on an unmanageable mountain of debt without commensurate increase in the earning capacity. In this backdrop, the caveats attached relating to limiting the lenders from changing any of the terms of repayment and interest rate in respect of the sustainable debt portion as also the high level of equity dilution that could be expected with the implementation of the scheme, may lead to limited success and may not meet with the desired results.

Financial Health-palliative Care
As RBI Governor rightly put it, ‘band aid’ approach would not work over a long term. What is needed is a major surgery. While it is a good sign that banks are finally willing to acknowledge the problem, it does not mean that the issue is resolved. The real task begins only now. It is not DRT or CDR or SDR or S4A or Bankruptcy laws alone which can cure this malady. What we need is a macro view taken on the entire economy and then arrive at a resolution strategy which could unlock fair value from the distressed assets for the benefit of all stakeholders. 

The success of the above will to a great extent depend on pro-active measures taken in a co-ordinated manner by Govt. and the Regulator to quickly respond to the challenges being faced by the industry and ensure long term stability in policies which are critical to their well-being. To address the existing NPA problem and protect the economic value of their loan, it is imperative that banks go for a holistic resolution. It is the right time that pain is acknowledged, loan book is corrected, and assets are rightly priced and nurtured further by infusing new money for revival and operations by inviting a new promoter or special situation fund who can bring in their portion of equity or risk capital.

We all understand that without removing the extra flab of debt, the brides may not find any suitors. Further, the investors willing to take over stressed assets are well informed and fully aware of the inherent risks and challenges associated with reviving a distressed company without the support of the old promoters. The new promoter/investor will not be able to bring in the entire equity since Indian businesses cannot sustain superlative returns as they are not very competitive. Thus, it essentially means that the project/company would need to be supported mostly by the existing lenders who have access to cheaper funds in the form of low cost deposits and can manage risk of recovery in the hands of new management/special situation fund who have proven track record of success with higher credibility. When this happens as also with the bankruptcy laws coming in place, the business of investment in distressed assets will become more mature and there will be good interest among serious investors and business assets will be put back to use.

Unlike in other parts of the world, where business successes and failures are taken with equanimity and promoters do not mind shutting the business and moving on, Indians hate ‘failure’ and see failure as a stigma and leave no corner to project success. This die hard belief in making the venture successful and running might turn out to be a blessing in disguise in turning around the stressed assets and resolving the NPAs.

Bankers to conduct marathon meetings to deal with stressed cases

Bankers also intend to evaluate the feasibility of a new financial structuring scheme introduced by the Reserve Bank of India in June

In March, lenders had held similar meetings over two days, where almost all large stressed cases were taken up and tough measures to counter stress were discussed

Lenders, led by State Bank of India (SBI) and ICICI Bank, will conduct extensive joint lender forum (JLF) meetings with the managements of at least 10 stressed firms this month, two people in the know said. Apart from taking stock of progress of these accounts, bankers also intend to evaluate the feasibility of a new financial structuring scheme introduced by the Reserve Bank of India in June.

According to one of the two persons quoted above, an official at a large state-owned lender, this is a quarterly process where banks talk to large stressed companies to monitor the progress of previously approved resolution plans and to decide on new recovery strategies. The banker spoke on conditions of anonymity as he is not allowed to be quoted in the press.

In March, lenders had held similar meetings over two days, where almost all large stressed cases were taken up and tough measures to counter stress were discussed. The companies that banks had met included Visa Steel Ltd, Uttam Galva Steels Ltd, Adhunik Metaliks Ltd, Aban Offshore Ltd, Bhushan Power & Steel Ltd and Bhushan Steel Ltd.

In many cases, banks had asked managements to implement these measures and show results by June end.

“We have already mandated necessary evaluation tests in almost all large stressed cases. In the meetings, we are only focussing on cases where the evaluation tests have established viability. In the other cases, we may look at some other stricter measures,” said the second person quoted above, also speaking on condition of anonymity.

An evaluation test is needed to establish viability if banks choose to go with the Reserve Bank of India’s (RBI’s) newly introduced scheme, Scheme for Sustainable Structuring of Stressed Assets (S4A). Under S4A, which was introduced last month, banks can convert up to half the loans held by corporate borrowers into equity or equity-like securities.

The user’s guide to early-stage fundraising

The user’s guide to early-stage fundraising

Over the last decade, the early-stage funding environment has dramatically changed. There are now myriad financing options that founders can consider as they look to build their companies. Nearly 70,000 companies received funding through angel networks and 3,000 through venture capital firms annually, according to CB Insights.

On the most recent episode of Ventured, we spoke with Qasar Younis, Chief Operating Officer of Y Combinator (YC), about the early-stage funding landscape and how entrepreneurs can best navigate the waters of raising capital today. Here are some takeaways from our discussion

Benefit from more accessible investors

The startup ecosystem is more sophisticated than ever before because of global availability to startup resources and new types of funding sources. With platforms like AngelList and Indiegogo, access to early capital has dramatically improved. Investors like Y Combinator (YC) and KPCB have continued to increase funding accessibility for founders regardless of location. Programs such as KPCB Fellows or KPCB Edge target entrepreneurs earlier in their careers while the YC Fellows Program and the YC College Tour seek to educate new entrepreneurs on how they can begin their journeys as founders.

Consider all funding options before tapping VCs

There are roughly four ways to get funding for your startup. Understanding your funding options and thinking critically about each path is crucial to your success — and is often overlooked.

Bootstrapping: This is how the majority of companies are funded today. The benefits here are that you retain maximum ownership of your company. However, this may not be sustainable as your capital requirements grow.

Incubators & Accelerators: If you are a first-time entrepreneur, it can oftentimes be helpful to join an incubator or accelerator to get your business going. While there’s a variety of these that exist today, most usually provide mentoring, content and a small amount of capital.

Online Platforms: There are a number of funding platforms available online. As a founder you can utilize these to get a sense of demand for your product, find angel investors from across the globe and get feedback on your company.

Venture Capital: While some founders may jump straight to venture capitalists, most usually reach this step later in the life of their companies. By utilizing the options, or a combination of options outlined above, you can prove more out as a founder prior to meeting investors.

Don’t worry too much about today’s macro environment

While the current economic environment has been fluctuating over concerns of global growth and European solidarity, early-stage founders should not panic. The macro-funding environment does not necessarily constitute a barrier to achieving success. Oftentimes, downturns provide unique opportunities for entrepreneurs to succeed because it’s harder for competitors to raise capital, and talent is usually cheaper to hire. For instance, more than half of the companies on the Fortune 500 list in 2009 were started during recessions or bear markets, as well as almost half of the firms on the Inc. list of America’s fastest-growing companies in 2008. In the most recent economic turmoil of 2009, both WhatsApp and Square were started.

Great companies are founded irrespective of a boom or bust. Startups are a test of will and determination and as a result are often on a seven- to 10-year time horizon, if not longer.

Stay focused on customers and users

While many entrepreneurs don’t realize it, they may be going through the motions and simply doing things that look and feel like work but aren’t actually creating value that will ensure long-term success. Two areas that highlight this gap are customers and product fit, or making stuff that people really want. Not enough entrepreneurs truly understand their customers, especially in the early days, even though that understanding will help dictate product and roadmap decisions. Similarly, founders need to be able to explain why customers actually want the product they are creating, since that insight will help drive almost any business forward.

Know that VCs invest in people, not pitch decks

Although we evaluate certain metrics that help us gain conviction about a particular company, we often invest in the intangibles — the things that are hard to get across on paper. We find ourselves asking questions like how do the founders work with each other, how do they communicate, what do they know that no one else knows and how are they uniquely positioned to solve this unique problem? Having conviction about the team beyond quantifiable growth or user metrics is a major driver for how we decide to invest in companies.

Global Investment Banking Review H1 16 - some big losers

Global Investment Banking Fees Total US$37.1 billion; Slowest First Half for IB Fees since 2009; Americas and Europe Decline 26%

Fees for global Investment Banking services, from M&A advisory to capital markets underwriting, totaled US$37.1 billion during the first half of 2016, a 23% decrease over last year at this time and the slowest first six months for fees since 2012. Fees in the Americas totaled US$19.9 billion, down 26% compared to the first half of 2015 while fees in Europe also decreased 26% and Asia Pacific fees decreased 10%. Fees in Japan decreased 19% compared to a year ago, while fees in Middle East/Africa also decreased 19% compared to first half 2015 levels.

JP Morgan Takes Top Spot for Global Investment Banking Fees; Top 10 Firms Register Combined Wallet Share Loss of 2.2 Points

JP Morgan topped the global investment banking league table during the first half of 2016 with US$2.6 billion in fees, or 7.0% of overall wallet-share. Goldman Sachs booked US$2.4 billion in fees during the first half of 2016 for second place, while Bank of America Merrill Lynch moved into third place from fourth a year ago. The composition of the top ten banks remained unchanged, with seven firms moving rank position compared to a year ago. Within the top 10, Goldman Sachs and Deutsche Bank saw the steepest wallet share declines with losses of 0.7 and 0.6 wallet share points, respectively.

Consumer Staples IB Fees Register 23% Increase; Healthcare and Telecom Fees Post Steepest Declines

Investment banking activity in the financials, energy & power, industrials and technology sectors accounted for 58% of the global fee pool during first half 2016. JP Morgan topped the fee rankings in six sectors during the half, with double-digit wallet-share in the technology and telecom sectors. Fees from deal making in the consumer staples sector increased 23% compared to a year ago with Bank of America Merrill Lynch commanding 9.0% of all fees booked in the sector during the first half. Healthcare and telecom fees registered the steepest percentage declines this half, down 49% and 42%, respectively.

Financial Sponsor-related Fees Down 40%; Carlyle Group, Barclays Tops Financial Sponsor Fee Rankings

Investment banking fees generated by financial sponsors and their portfolio companies reached $3.9 billion during the first half of 2016, a decrease of 40% compared to 2015. Fees generated from leveraged buyouts accounted for 29% of financial sponsor-related fees during the half, while ECM exits accounted for 10% and M&A exits comprised 23% of overall fees. The Carlyle Group and related entities generated $222 million in investment banking fees this year, down 1% compared to the first half of 2015, while Barclays collected an industry-leading 7.0% of financial sponsor-related fees during the first half.

IPOs Pull Equity Capital Markets Fees Down 43%; Debt Capital Markets Fees Down 11%, while M&A Fees Decline 15%

Dragged down by a 57% decrease in fees from IPOs, equity capital markets underwriting fees totaled US$7.3 billion during first half 2016, down 43% from a year ago. Fees from debt capital markets underwriting totaled US$11.4 billion, down 11% compared to last year's tally and accounted for 31% of overall IB fees during the first half of 2016. M&A advisory fees totaled US$11.5 billion during first half 2016, a decline of 15% compared to the same period last year, and accounted for 31% of the global fee pool, while fees from syndicated loans decreased 24% compared to the first half of 2015.

Turn of the screw

Ultra-low interest rates are slowly squeezing Germany’s banks

BANKS the world over are groaning under the burden of low, even negative, interest rates. The gripes from Germany are among the loudest. In March, when the European Central Bank cut its main lending rate to zero and its deposit rate to -0.4%, the head of the savings banks’ association called the policy “dangerous”. At the co-operative banks’ annual conference this month, a Bundesbank official earned loud applause just for not being from the ECB.

Germany’s banking system comprises three “pillars”. In the private-sector column, Deutsche Bank, the country’s biggest, expects no profit this year. That is mainly because of its investment-banking woes, but low interest rates have also weighed it down: it wants to sell Postbank, a retail operation it took over in 2010. Commerzbank, ranked second, specialises in serving the Mittelstand, Germany’s battalion of family-owned firms. It has felt the interest-rate squeeze even more. Analysts at Morgan Stanley place it among the worst-hit of Europe’s listed lenders.

Most Germans, however, entrust their savings to the other two pillars. One includes 409 savings banks (Sparkassen), mostly municipally owned; the other, 1,021 co-operatives. These conservative, mainly small, local banks are the most vocal complainers—even though at first blush they have little to moan about. Savings banks’ combined earnings declined only slightly last year, to €4.6 billion ($5.1 billion) from €4.8 billion in 2014. Deposits and loans grew; mortgages soared by 23.3%. Capital cushions are reassuringly plump: their tier-1 ratio rose from 14.5% in 2014 to 14.8%. Co-ops had a similar story to tell. But trouble is brewing.

The ECB has flattened long-term rates as well as short ones, by buying public-sector bonds and, starting this month, corporate debt. Ten-year German government-bond yields are near zero—and recently dipped below, thanks in part to markets’ fears about this week’s Brexit referendum. For banks, this means ever thinner margins from taking in short-term deposits and making longer-term loans—from which, says McKinsey, a consulting firm, German banks earn 70% of their revenue.

Lenders have been well insulated so far, because most loans on their books were made when interest rates were higher: 80% of loans last longer than five years. Rising bond prices (the corollary of falling rates) have provided further padding as banks’ portfolios gain in value: that effect alone has brought the savings banks €19.4 billion over the past five years. But as old loans mature, they are being replaced by new ones at today’s ultra-low rates. The mortgage boom is thus a mixed blessing: rates are typically fixed for ten years or more.

With no increase in ECB rates in sight, the screw is tightening. Half of the 1,500 banks surveyed by the Bundesbank last year—before the latest rate cuts—expected net interest income to fall by at least 20% by 2019. Although banks would prefer higher rates, too sudden an increase would also be awkward, pressuring them to pay more for deposits while locked into loans at rock-bottom rates.

Banks are seeking ways to alleviate the pain. Commerzbank is charging big companies for deposits, above thresholds negotiated case by case. (It is also reported to be pondering stashing cash in vaults rather than be charged by the ECB.) Bankers warn of an end to free personal current accounts. But with so many banks to choose from, scope for raising fees is limited.

Selling investment products and advice seems more promising; and commission income has risen, as some savers seek out higher returns. Yet low rates have made many Germans, already a cautious lot, even less adventurous. They are stuffing more, not less, into the bank—but into instant-access accounts: with rates so low they may as well keep cash on hand.

Low rates are not banks’ only worry. Both bankers and politicians vehemently oppose a proposed deposit-insurance scheme for the euro zone: the savings banks and co-ops have always looked out for each other, and don’t see why they should insure Greeks and Italians, too. Smaller institutions complain about an increase in regulation since the financial crisis—even though they weathered the storm far better than many larger ones. The savings banks’ association claims that red tape costs its members 10% of earnings—and some as much as 20%.

Another concern is the march of technology. Germans have been slow to take up digital banking, but their banks—reliant on simple deposits and loans, and still carrying the costs of dense branch networks—are vulnerable to digital competition nonetheless. Number26, a Berlin startup, has signed up over 200,000 customers across Europe for its smartphone-based current account within months. The savings banks plan to hit back this year with Yomo, a smartphone app aimed at young adults.

McKinsey reckons that low rates, regulation and digitisation together could cut German banks’ return on equity from an already wretched 4% in 2013 to -2% within a few years if they do nothing in response. The pressure is starting to tell. This month the Sparkasse Köln-Bonn, one of the biggest savings banks, said it would close 22 of its 106 branches. Some rural banks have replaced branches with buses.

All this is likely to thin the crowded ranks of Germany’s lenders. Consolidation has been under way for decades: since 1999 the number of co-ops has fallen by half; on August 1st their two remaining “central” banks, DZ Bank and WGZ Bank, which provide co-ops with wholesale and investment-banking services, are to join forces. The pace of mergers has steadied in recent years. Negative rates may speed it up again.

‘Food business is a sunrise industry with head space for everyone’

VL RAJESH, Divisional Chief Executive, ITC Foods

ITC Foods is perhaps one of the youngest multi-brand food companies in the domestic FMCG space. ITC as a group expects a major chunk of its 1 lakh crore target from its non-tobacco business to come from its foods’ business by 2030. In an interview with BusinessLine, VL Rajesh, Divisional Chief Executive, shares his growth strategy as well as his views on the controversies surrounding the industry and about Patanjali.

Which products in your portfolio will see maximum growth?

Our growth will come from two places: the bulk of the growth will come from the core. We have 13 different product verticals and 10 brands. We have about 200 products which we plan to increase it to 300 by 2020. The rest will come from the new variants, new products which we are launching now. The last 14 months have seen three new launches. We also have region- specific brands which we will nationalise. Last financial year, we crossed $1-billion-mark though we would have liked to grow at a faster clip. Right now, we are growing at low double digit rate which for us is not good, but for most others in the industry it will be quite acceptable.

Will at some point of time, ITC Foods get into milk and bread categories?

Well, you see we are not going to say no to anything but not in the immediate future. We can get into every food product. We have a responsibility towards our stakeholders. We will get into large categories which has the potential to grow at a later stage.

Patanjali has been making quite a splash in the industry. How big a threat is it for players like you?

See, the impact is not much. We are not present in certain categories they are in like toothpaste and they have a range of ayurvedic products. So, their positioning is different. But like ours, it is a home-grown brand and we will be happy if they grow too. The foods space is a sunrise industry for a long time to come. Everything is getting branded. There is enormous head space for everyone.

It is over a year now since the Maggi Noodles controversy broke out. As a competitor, how have you fared since then?

The controversy hit the industry very hard. The industry actually collapsed. As per certain industry reports, a ₹320-crore per month market fell to ₹56 crore per month. But since then, we have come back fast because of the unique campaign we ran which allowed any consumer to ask any questions regarding the issue and we answered each one of them. Our share, which was at about 15 per cent, is now growing at 25 per cent. But the industry is still to recover. It is as per independent industry reports now at ₹240 crore per month.

Looking back what exactly went wrong?

The interpretation changed but the law did not change. But, since then, there has been a great clarity from the regulatory side and lot of work has been done to streamline the process. We kept ourselves completely open to scrutiny. One must understand that MSG (monosodium glutamate) is there even in mother’s milk. This is what makes the child drink milk. Most do not add MSG. When you do lab tests, it cannot differentiate between naturally occurring MSG and what has been added. It is important to verify the tests and you have to do it repeatedly to get the right results.

If you look at the controversies surrounding the foods business, right from noodles to bread, you wonder whether branding has really helped.

In the food business, unlike any other businesses, we can do all the right stuff, but the moment you put it in your mouth, you get to know whether you want to have another helping or not. It is a very harsh business. As far as our quality is concerned, our research centre is perhaps the best kept secret. We have over 80 PhDs working in the centre, which is over 2.5 lakh sq ft. They deliver cutting edge products as well as test our products. So, what we claim is what you get. We must realise that when a consumer buys a food product, there is implicit assumption that it is safe and that should not be violated because of the unregulated industry. If the branded industry grows, it is good for the consumer and for the government as well as more of them to get into the tax net.

Soumya Rajan: ‘I look at family offices as patient capital’

SOUMYA RAJAN, MD & CEO, Waterfield Advisors

Family office capital, unlike a fund, has an investment horizon stretching to 15 years

As the number of high-net-worth and ultra-high-net-worth families grows, many advisors are now involved with setting up family offices to cater to the complex needs of these families. Globally, it is estimated that there are around 4,000-5,000 family offices, of which only 3-5 per cent are housed in Asia-Pacific, suggesting a significant growth potential over the next five to 10 years. Soumya Rajan, MD & CEO, Waterfield Advisors, an India-focused boutique multi-family office, shares her views on how family offices are making a difference to the way UHNIs manage their wealth.

Can you give a brief on how family offices operate?

The family office space is for ultra high net worth family segments. They look at the needs of families in a holistic manner. Unlike banks and other financial institutions that provide only investment guidance, family offices also advice on business succession, investing the liquidity generated by them and on legacy and philanthropy.

Banks do not typically cater to these areas, neither do they look at the sensitivities around company structures, shareholding pattern, differentiating between ownership and management, when it comes to succession.

So, what is the profile of your clients? Are they all from business families?

The profile is mainly family-owned businesses in the ultra high networth space, typically with investible surplus of over $60 million.

They would have operating companies that could be holding a stake in other businesses or could be interested in buying ancillary businesses. We manage around ₹9,000 crore of assets under advisory and this covers roughly 20 families.

We have two lines of business; one is the family-office business and the other is the corporate advisory business. Corporate advisory is also important because for many clients; liquidity is created because of what happens on the corporate side.

Many of them don’t want to go to investment banks right at the outset as the information is sometimes quite sensitive.

So, we hold discussions with the families in terms of the structuring or the restructuring they want to do and the investment bank comes in at a later stage.

Because once the deal enters the investment bank territory, it is information in public domain. The families we deal with are also in the listed space, so sensitive information needs to be dealt with care.

How are the investments managed? Is it on discretionary or non-discretionary terms?

It is completely non-discretionary. We are registered with SEBI as investment advisors because we believe that this is the only way you can avoid a conflict of interest with the client.

Our business model is predicated on the fee that we receive from the client. That’s the way things are expected to move forward too.

Many regulations that have come out from SEBI recently are aiming to make investors adapt to the fee-based advisory model rather than the commission-based one. They have stated that investment advisors will be a separate category.

Then they introduced the concept of two different NAVs for mutual funds; in the direct one, distributors are not involved. Recently SEBI has asked for disclosures on the commissions that are being paid to distributors.

All this is to move towards greater transparency and the advisory model is in tandem with this drive. Ultimately, what it does is to lower the cost of investment for the family; particularly if you are dealing with large corpuses, even 50 basis points can make a large difference to the returns. Ultimately, the distribution cost comes from the returns.

What are the asset classes that you recommend as investments to your clients?

We advise across assets classes that include equity, fixed income, real estate and alternative asset class. We see a growing interest of family offices in the alternative assets space due to the evolving eco-system in the venture capital and private equity side.

Many families are already looking at angel investment, seed investment, and so on, to participate in the start-up ecosystem. Allocation to this asset class has grown from 2-3 per cent to around 15 per cent now.

This is a very long-term and illiquid asset class. I look at family offices as patient capital because unlike a fund that has to exit an investment in five or seven years, family office capital is more long-term oriented, with investment horizon stretching to 15 years or even longer.

Since there is no re-investment risk in this space, family offices are allocating more to start-ups.

They use two routes to invest in this space; one, through fund managers with good track record, or by directly investing in unlisted companies. A group of families could come together to invest in these companies or it could be a single family making the investment.

So, do you help them with valuing an unlisted company?

We do. We help them do the due diligence and value the company. That is covered by our corporate advisory team.

Do you advise the families to churn their portfolios often based on your perception regarding the prospects of various asset classes?

The family office segment generally follows a ‘buy and hold’ strategy. They do not move their portfolios around much. They review their asset allocation strategy once a year, typically in April, taking the macro economic conditions into consideration. This is typically not changed unless there is a significant economic event that warrants a change. They are quite disciplined with their investments and the portfolios are tailored keeping in mind exposure risk and concentration risk as well.

What is the view on real estate investments among UHNIs now, given that price appreciation is hard to come by?

We are seeing a little bit of unwinding of real estate positions of many families. They have made big money over a certain period of time. They are not making any fresh investments in real estate. Most new investments are going into equities or five-year debt. My sense is that once there is a real estate regulator in place, money could flow into real estate again.