NCR Realty sector woes: How buying a flat became a nightmare in NCR

India’s biggest property market by volume has numerous projects stuck for years. What has led to this dismal situation?

On a blazing hot Saturday afternoon in June, a group of people assembled in a small room in an under-construction building at Today Ridge Residency, Sector-135, Noida, a part of the National Capital Region (NCR) centred around Delhi.

The motley group, with people ranging from senior citizens to software engineers, had one thing in common. Each one of them has parted with a huge chunk of their savings to buy a home, which had not been delivered to them.

Most of them booked an apartment in the project owned by Today Homes and Infrastructure Pvt. Ltd in 2010.

The buyers were assured of delivery in about two-and-a-half years; it has been six years now and most are yet to get possession.

At some other projects by builders such as Unitech Ltd, Amrapali Group, The 3C Company, Gardenia Group and Jaypee Group, the wait for possession has lasted more than eight years.

Rajiv Kumar Goel, who works for a private firm, said he commutes every Saturday for five hours to and from Faridabad to join the group.

“I have to take leave every Saturday to come here and my company cuts that amount from my salary,” he said.

Today Homes, The 3C company, Gardenia Group, Amrapali Group and Jaypee Group did not respond to a Mintquestionnaire sent a day earlier.

The NCR, India’s biggest property market in terms of volume, has numerous projects such as Today Ridge Residency that have been stuck for years, with just concrete structures and minimal work on the ground.

A combination of lack of funds, rising debt, unsold inventory, a trust deficit among customers and incessant litigation have brought the sector to a standstill, with no takers for the flats under construction.

A Knight Frank India report released on 4 July said that new launches in the NCR have been in a decline since 2010 and have dropped by more than half over the last six years.

Property consultant Liases Foras said NCR has witnessed a rise in unsold inventory by almost 14% to hit a high of 267,000 units by the end of March 2016 and it will take around six years to sell them.

The rot began to set in during the early part of the decade. The residential property market touched a high in early 2010 with firms raising loans to enter real estate in pursuit of what looked like an unstoppable boom.

“In the last 4-5 years we saw everyone from every industry come to real estate. Shoemakers and milk packagers, Godrej, Tata and the who’s who of the world entered the business. But many of them are stuck now,” Omaxe Ltd chief executive Mohit Goel said in an interview.

The sector went from boom to bust in the face of a spate of farm protests and resulting litigation.

Puneet Parashar is a buyer in Amrapali Group’s Heartbeat City project in Sector 107, Noida, which has been stuck in litigation after farmers challenged the land acquisition by New Okhla Industrial Development Authority. The Supreme Court, in an August 2013 order, quashed the acquisition of about 547 acres of land, which included two other projects by the 3C Company and Great Value Projects India Ltd, encompassing a total of about 5,000 flats.

While the apex court passed its order in August 2013, the New Okhla Industrial Development Authority, builders and the lenders didn’t inform the buyers, who kept paying their dues for a whole year without knowing that projects had actually been declared illegal.

Great Value Projects India Ltd and New Okhla Industrial Development Authority didn’t respond to a questionnaire sent to them.

“With the project stuck and the weight of rent already weighing me down, I wasn’t able to shell out EMIs (equated monthly instalments) to my bank. Taking the situation into account, I asked my bank for a restructuring of my loan, but they instead sent me a notice. I had to finally sell my property to pay the loan amount,” said Parashar of the loan taken from Axis Bank.

Axis Bank didn’t respond to a questionnaire sent by Mint.

Low investor interest and lack of cash flow have resulted in ballooning debt at all the major real estate companies, with Jaiprakash Associates Ltd (Jaypee) having a consolidated debt of Rs.58,250 crore as of 31 March. DLF Ltd is saddled with a debt of Rs.22,202 crore and Unitech weighed down byRs.7,165.7 crore.

“The customer cell here clearly says that they don’t have money to finish the project,” said Ashish Srivastava, who booked a flat in Noida’s Jaypee Kassia project in May 2011 and is still waiting for possession.

Jaiprakash Associates did not respond to a Mintquestionnaire.

Many buyers have also accused banks of lack of monitoring while disbursing loans to the builders even when they didn’t have clearances and of looking other way when those funds were diverted.

“Unitech has taken Rs.180-200 crore from buyers. Later, they told us that they spent only Rs.20 crore on the project, which was shocking,” said a buyer who didn’t want to be identified.

The buyers filed a first information report (FIR) against Unitech for fraud and also named ICICI Bank Ltd in the FIR for lack of monitoring and colluding with the builder in cheating the buyers.

“As per the agreement for the housing loan between ICICI Bank and the customer, the bank has in no way any control over the delivery of the property by the developer. Consequently, the bank cannot be held responsible for any delays. However, the bank is engaging with the builder to explore options to resolve the current situation,” an ICICI Bank spokesperson told Mint.

Unitech did not respond to a Mint questionnaire sent on 5 July.

Reserve Bank of India guidelines stipulate that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project and upfront disbursal should not be made in cases of incomplete, under-construction or new housing projects.

The delay in executing the project has also resulted in large volume of litigation with buyers organizing themselves into associations and approaching the National Consumer Disputes Redressal Commission for better compensation or refund of their money.

“In the last three years, the filings at national commissions have risen three times. People are becoming aware of their rights, they are also exerting their rights,” said Sudhir Mahajan, a property lawyer.

The buyers have also staged protests against builders.

“We asked Jaypee to meet us on 11 June but they refused to address the group and insisted on meeting individuals only. When 1,000 buyers gathered together on the set day to demand action, they blocked us from the office and even welded the gates. We blocked the expressway for 40 minutes and finally they agreed to talk,” said Nrip Kumar Mehta, one of the organizers of the protest.

The gates of the Jaypee office in Sector 128 today resemble a military outpost, protected by barriers, large gates, barbed wires and a posse of guards to prevent protests on the premises.

“What these builders have been doing is a matter of fraud. They have been raising money on one project and then siphoning it off to another project. Everything is getting stacked up and now it has resulted in this domino effect,” said Vivek Chib, a lawyer who has filed several cases against Unitech on behalf of buyers.

While questions about the conduct of banks remain, they have already started the process of recovering their dues from the defaulters. ICICI Bank and Axis Bank have taken over several properties from Jaypee to recover their dues.

The Gardenia project in Sector 46, which is being operated by Gardenia Aims Developers Pvt. Ltd, is an example of the domino effect on the real estate industry.

According to documents seen by Mint, the developer took a loan of about Rs.134 crore from a consortium of three banks— Bank of India, Oriental Bank of Commerce and Corporation Bank—but couldn’t pay back as the project got stuck due to regulatory issues.

The developer still owes about Rs.86 crore to the bank consortium and about Rs.250 crore to the New Okhla Industrial Development Authority in land dues.

Gardenia did not respond to a Mint questionnaire.

With loan repayment elusive, Oriental Bank of Commerce, on behalf of the consortium, issued a public notice against the Gardenia project, declaring its intent to take over the asset to recover dues.

The consortium of banks didn’t respond to a Mintquestionnaire.

This has led to a plunge in the project’s value with the existing buyers panicking and attempting to cancel their bookings.

“Clearly the project appraisal mechanism could have been better,” said Rajeev Bairathi, head of capital markets, Knight Frank India, adding that around the time banks started to lend, the projects seemed to be doing well.

Some buyers, by staging protests and through constant persuasion, have been able to get the developers to give them possession of their flats, but they have only encountered new problems.

“Jaypee has used very low quality material and has done cost cutting wherever possible. We paid more than a lakh for the club, but nothing is ready and still they are charging us for common area utilization. They have not given us occupancy certificate as well,” said Sanjeev Kumar Aggarwal, a software engineer who finally got possession of his flat in Jaypee Klassic, Noida, after a three-year delay.

There are no signs of recovery in the near term. According to the 4 July report by Knight Frank India, residential unit prices in NCR fell 4% in the first half of 2016 and are expected to keep falling for the rest of the year.

This will further increase the financial strain on developers struggling with a cash crunch.

Some buyers, however, want to take matters into their own hands and finish projects by pooling money.

“Banks should let us build ourselves because Unitech doesn’t have either the willingness or the capability to complete the project. We are ready to help ourselves if administration allows us to do that,” said Vibha Bhatra, a buyer of a flat in Unitech E-space, Gurgaon, which has been under construction since 2011.

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.

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.

Chennai Angels to invest Rs 2.5 crores in Agile Parking Solutions

The Chennai Angels today announced an investment of Rs 2.5 crores in smart parking technology startup Agile Parking Solutions (Get My Parking). 

The New Delhi based StartUp founded by Chirag Jain and Rasik Pansare aims to solve the rising parking problems and has created cloud based mobile parking technology making real time parking information accessible for both supply and demand side. 

"Automotive customers now seek real-time solutions and a triangulation of location, service aggregation, payments and community shared feedback to delight their personal journeys with. The GMP team is driving towards a platform to delight its customers," said Sudhir Rao of IndusAge Partners who led the investment. "Within eight months of commercial operations, they are at the cusp of servicing over a million transactions a month in the NCR region alone", he pointed out. 

The mobile app allows users to search, book and navigate to parking saving them the trouble of driving around in search of space. The user gets a bird's eye view of all the legal parking lots with map of locations, availability, pricing and other details and gets assured parking with cashless payment and navigation. 

"The exponential rise in demand for parking space is crippling the urban infrastructure and causing needless congestion. We believe only technology and data driven solutions can solve this chronic problem with efficient use of existing parking space," said Chirag Jain, cofounder of the company. 

With a 25 member team the startup follows a data-centric approach that could help in giving better insights into urban traffic landscape. By saving time, fuel and energy, the technology is believed to help reduce urban traffic congestion and consequent pollution by up to 30%.

Sun Capital 

Analyzing ConocoPhillips’ Return on Equity (COP, XOM)

ConocoPhillips (NYSE: COP) reported return on equity (ROE) of -2.04% for the 12-month period ending in September 2015. This represents a sharp drop from its 2014 ROE of 13.21% and an even bigger drop from its 2013 figure of 18.3%. The company has a trailing 12-month net loss of $1 billion, down sharply from a net income of $6.9 billion in 2014. Its shareholders' equity, which stood at $44.2 billion as of September 2015, has declined more modestly. It was $51.9 billion at year-end 2014.

ROE Analysis

ConcoPhillips' precipitous drop in ROE from 13.21% in 2014 to -2.04% for the 12-month period ending in September 2015 came as a result of a commensurately sharp decline in net income. Like all large-cap oil and gas companies, ConocoPhillips has struggled amid a crash in oil prices throughout 2015. Oil, which traded as high as $147 per barrel for a time in 2008, fell below $30 per barrel in 2015, its lowest price since the 1990s. The company's main competitors, Exxon Mobil Corporation (NYSE: XOM) and BP PLC (NYSE: BP), also saw their net incomes and ROE fall considerably from 2014 to 2015 -- though Exxon Mobil managed to keep both figures positive.

DuPont Analysis

A typical ROE analysis looks at net income and shareholders' equity separately and evaluates the effect that each has had on changes in ROE. The DuPont analysis, by contrast, breaks ROE into its constituent components of net margin, asset turnover ratio and equity multiplier and seeks to determine the influence each has on ROE.

ConocoPhillips' net margin for the 12-month period ending in September 2015 was -2.82%, down from 12.37% in 2014. A February 2016 press release from the company acknowledges that low commodity prices have squeezed its margins and, as a result, it is taking active steps to bring expenditures in line with its reduced revenue. It cut its quarterly dividend from 74 cents per share to 25 cents per share, lowered capital expenditures by $1.3 billion and reduced operating costs by $700 million.

Its competitors suffered falling margins as well, with Exxon Mobil's dropping from 7.89 to 6.73% and BP's declining from 1.05 to -3.06%. ConocoPhillips had the largest drop of the three, making it reassuring that the company has acknowledged the root of the problem and taken quick and decisive steps to address it.

ConocoPhillips' trailing 12-month asset turnover ratio is 0.32. This figure, which measures how efficiently a company generates revenue from its assets, has fallen steadily from 1.62 in 2011. Its influence on ROE appears moderate, though not as pronounced as that of net margin. Exxon Mobil and BP, both with asset turnover ratios of 0.85, have seen their asset turnovers slow down as well in the wake of the oil price collapse.

ConocoPhillips' equity multiplier for the 12-month period ending in September 2015 is 2.4. This figure has remained steady for a decade. While the company's equity position has fallen slightly, the company has also reduced its debt load, keeping the ratio between the two consistent. A silver lining for ConocoPhillips amid the oil collapse is, at least, the company is not overleveraged. Its equity multiplier sits squarely between those of Exxon Mobil (2.0) and BP (2.7).

Conclusions

ConocoPhillips' steep drop in ROE resulted from severe declines in net income and net margin, both symptoms of broader oil market malaise. On the bright side, the company has come forward with the steps it is taking to counter its declining revenue resulting from low oil prices, which involve slashing expenditures in several areas, such as dividends, capital expenditures and operating expenses. Every large-cap oil and gas company has suffered in the wake of the oil crash. Investors in ConocoPhillips should at least be comforted that the company is being proactive in responding to it.

Andhra Pradesh presents a tax-free budget

Plans expenditure of Rs. 1,35,689 cr; State sees revenue deficit to be around Rs. 4,568 crore.

Balancing development with social welfare, Andhra Pradesh Finance Minister Yanamala Ramakrishnudu today presented a tax-free budget which has planned an expenditure of Rs. 1,35,689 crore during 2016-17.

While the non-Plan expenditure is pegged at Rs. 86,554 crore, up 10 per cent, the Plan is projected at Rs. 49,134 crore, an increase of about 43 per cent over the revised estimates this fiscal. The Budget for 2016-17 entails an outlay of over 20 per cent over the budget estimates of 2015-16.

Fiscal deficit

The State has projected a revenue deficit to be around Rs. 4,568 crore, at 2.99 per cent of the Gross State Domestic Product (GSDP), the fiscal deficit is expected to be Rs. 20,457 crore, 0.71 per cent of GSDP, according to the Finance Minister.

In his 120-minute speech, the third Budget presented after the bifurcation of the State, Ramakrishnudu said, “The Budget will contribute to the growth momentum and ensure a sustained double-digit growth for many years to come. Apart from opening new vistas, it will fuel construction boom, especially housing for the economically and socially weaker sections, infrastructure development and launch of Amaravati capital city.”

Looking to Centre

He said the State was banking on the Centre to extend necessary financial support to develop the Polavaram irrigation project and the new capital city of Amaravati.

The State registered a growth of 10.9 per cent in spite of adversities and the hardship caused due to bifurcation. The Minister hoped the State would strive to ensure a double digit growth on a sustained basis. However, it continues to carry the revenue deficit of Rs. 13,897 crore inherited in 2014-15, as a consequence of “irrational bifurcation.”

Under the debt redemption scheme, the State has disbursed Rs. 7,433 crore to 54.06 lakh accounts benefiting 35.15 lakh farmer families. It is proposed to disburse another Rs. 550 crore for horticulture crops. A provision of Rs. 3,512 crore has been made for further debt redemption.

The services sector constitutes 46.6 per cent of the GDSP and the focus is to expand its contribution to the economy.

The development of the infrastructure, including industrial corridors of Vizag-Chennai, Chennai-Bengaluru and Kurnool-Bengaluru, Peninsular Regional Corridor of Donakonda, Mega Industrial Hub, rail freight corridors, ports and waterways, he hoped would accelerate the growth of the economy.

The setting up of National Investment Manufacturing Zone in Prakasham, on 14,231 acres, is expected to attract Rs. 43,700 crore, and another one proposed at Chittoor is likely to attract Rs. 30,000 crore, he said.

Seed equity for Amaravati

Andhra Pradesh has provided Rs. 1,500 crore for development of the Greenfield capital city of Amaravati towards seed equity of the State government.

This equity contribution would enable the Capital Region Development Authority to mobilise additional resources required for the construction of the capital from the infrastructure financing institutions and the markets. This would be in addition to the assistance from the Centre for capital city works.


The Finance Minister hoped the Centre would provide Rs. 3,500 crore for the construction of Polavaram and Rs. 1,000 crore for Amaravati.

Sun Capital

RBI proposes cutting of merchant discount rate

Mumbai The Reserve Bank of India (RBI) has proposed to rationalise the merchant discount rate (MDR), or the fee a merchant has to pay a bank to access its payment infrastructure.

While the central bank did not provide any solution, it has asked public opinion in a concept paper on card acceptance infrastructure.

In the concept paper, RBI noted that MDR "often acts as a disincentive," as the cap prescribed by the regulators were treated as a floor and the benefit of lower MDR "not really accruing to smaller merchants."

Larger merchants, with economies of scale, can absorb MDR relatively easily.

In September 2012, RBI capped MDR for debit card transaction at 0.75 per cent for transaction values up to Rs 2,000 and at 1 per cent for transaction values above Rs 2,000.

The concept paper also raised questions whether MDR for credit cards should also be rationalised as the cap prescribed was only for debit cards but can be extended to credit cards as well. However, if MDR was lowered, the merchant acquisition would be unattractive for banks, thereby defeating the purpose of promoting card payment.

The concept paper proposed a few options that can be explored to make MDR viable and at the same time cheap.

The proposals included ad-valorem MDR across all merchant categories and locations, differentiated MDR across various tiers of cities and merchant sizes, and also fixing the MDR at a flat fee rate beyond certain value.

Banks are also going slow on acquiring merchants, the paper noted.

Between October 2013 and October 2015, ATMs increased by around 43 per cent while POS machines increased by around 28 per cent. As of end-December 2015, the number of ATMs has increased to 193,580 while POS machines had increased to 1,245,447 in the country.

"The issuance gap in POS terminals is glaringly high. For more than 25 million retail outlets currently, we have about 1.2 million POS terminals in India. Going forward, the POS gap will only increase leading to major acceptance problems," said Kumar Karpe, CEO of TechProcess Payment Services Ltd.


"India needs to leapfrog the gap by leveraging the existing infrastructure of more than 200 million smart phones and work towards a virtual mPOS solution that converts a merchant's smartphone into a virtual point-of-sale device."

Sun Capital

Deutsche Bank chief scotches India unit sale speculation

MUMBAI: Deutsche Bank quelled speculation about its future in India as well as Asia and said it aims to build on one of the most profitable franchises amid global reorganisation that is leading to some businesses shrinking for it to remain profitable.

"Deutsche Bank India sale was never ever on the table,''Gunit Chadha, chief executive officer of Deutsche Bank in Asia Pacific, told ET in an interview. "We have significant businesses in Japan, China, India, Australia, Hong Kong,ASEAN & Singapore.

Deutsche Bank

The global banking industry must reinvent its business models. We ourselves have some challenges which we are proactively addressing, but our commitment to Asia Pacific is strong and stays fully intact."

The German bank which was cleared by the regulators in a rate rigging probe is reorganising itself by cutting staff and exiting markets which are unviable.In this context, some speculated that Deutsche may sell its India unit as the region itself could become a non-core area. In fact, the bank had to face some toughmarket conditions recently after analysts questioned its ability to pay interest on some bonds. But the bank has since reassured investors with a bond buyback plan. Its CEO John Cryan said that bank is 'absolutely rock solid.'

"Asia Pacific is our strong growth region," said Chadha. "This is no surprise as Deutsche Bank Asia Pacific PBT has doubled between 2012 to 2015 with very attractive financial metrics and the region now has five of the top 10 countries for Deutsche Bank globally." About 12% of its revenues (4 billion) came from the Asia-Pacific region. It mostly does corporate and investment banking in the region with India alone having a retail business. Deutsche Bank has 17 branches in India currently with around.`5,000 crore mortgage book and.`15,000 crore in wealth management.

Last year it sold its mutual fund business to Pramerica Mutual Fund.

In October 2015, the bank announced that it will shut operations in 10 countries globally, cutting 15,000 full and part time jobs as part of the bank's 'Strategy 2020' which aims to reduce costs, lower risks and improve Deutsche Bank's capital position after being weighed down by fines linked to the LIBOR fixing scandal.

Chadha said the bank recently sold its mutual fund business in India because it was "sub scale and largely domestic". It was less than 2-3% of the DB India profits. While being consistently profitable and well managed, it needed to scale up.

But the same need not be true of its retail business in India even though it does not contribute significantly to overall profits.

"I don't believe that our Indian retail business will be shrunk to glory," said Chadha. "Either you are in the retail business or not. If one is in the business it needs to scale up. Deutsche Bank's retail business is not about becoming leaner. It's a well-managed profitable business for us. Yet as India is the only market in Asia where we have a retail business , the strategic forward naturally comes up."

Investment Banking

Crompton Greaves to sell overseas power unit to First Reserve for $126M

Crompton Greaves sells global power biz 

Parent Avantha Group has been selling non-core assets to cut debt. 

Crompton Greaves has inked a deal with US private equity fund First Reserve International to sell its global power business for an enterprise value of €115 million (about Rs. 846 crore). The sale will enable the company to reduce debt and focus on its faster-growing Indian businesses.

The company’s consolidated debt stood at Rs. 2,744 crore in FY15. Earlier, Crompton Greaves had announced the de-merger of its consumer products business into a wholly owned subsidiary Crompton Greaves Consumer Electricals.

Paring debt

In October 2015, the company sold its Canadian Power Transformer business to PTI Holdings Corp. These deals will help Crompton Greaves bring down its debt and expand its consumer products business.

On Wednesday, the Avantha Group company’s shares rose 8.81 per cent to Rs. 151.85 on a steady BSE, which closed 0.55 per cent higher.

On May 28, 2015, the company informed the stock exchanges that it had got non-binding proposals from “interested parties” from across Europe, North America and Indonesia. Later, on February 4, it said that discussions with a potential buyer were on.

Sun Capital

Paragon Partners launches $200-m India-focused mid-market PE fund

PE firm Paragon Partners has raised $50 million, marking the close of its $200 million growth fund, PPGF-I to invest in mid-size companies.

PPGF was established in 2015 by Siddharth Parekh and Sumeet Nindrajog. It is an AIF-Category II Private Equity fund, investing in high growth mid-market private companies in India.

The fund will focus on five key sectors — consumer discretionary, financial services, infrastructure services, industrials and healthcare services. The fund has an advanced pipeline of investment opportunities across these sectors.

Paragon Partners advisory board includes Deepak Parekh (Chairman, HDFC Ltd), Harsh Mariwala (Chairman, Marico Ltd & Founder Member), Sunil Mehta (Chairman, SPM Capital Advisors Pvt Ltd) and Jeff Serota (ex Sr. Partner at Ares Private Equity).

Siddharth Parekh, co-founder, Paragon Partners said: “We believe the next decade in India will see a strong resurgence of growth in key sectors such as manufacturing, financial services and infrastructure.”

The company said with its first close, PPGF-I has completed the funding of its first investment in Capacite Infraprojects Ltd, a leading EPC player based in Mumbai. Capacite is engaged in the construction of buildings (including super high rise structures) and factories, for large real estate developers, corporates and institutions.

The company currently has a footprint across Mumbai, NCR and Bengaluru regions and will look to grow this on a selective basis. Capacite is promoted by Rahul Katyal, Rohit Katyal and Subir Malhotra.

PPGF-I has seen significant interest from onshore and offshore institutions, family offices and HNIs. Domestic investors include India Infoline, Edelweiss Group and Infina Finance Private Ltd (an associate of Kotak Mahindra Bank Ltd).

Sun Capital

Banks disburse over Rs 1.15 lakh crore under PM Mudra Yojana

Banks have so far disbursed over Rs 1.15 lakh crore under Pradhan Mantri Mudra Yojana (PMMY), financial services secretary Anjuly Chib Duggal said on Tuesday.

Micro Units Development and Refinance Agency Ltd (Mudra) focuses on 5.75 crore self-employed who use funds totalling Rs 11 lakh crore and provide jobs to 12 crore people.

Under PMMY, loans between Rs 50,000 and Rs 10 lakh are provided to small entrepreneurs.

"We have been working with Mudra. It has been a runaway success ... we are looking at Rs 1.15 lakh crore plus right now," she said at an event organized by MFIN here.

The scheme was launched by Prime Minister Narendra Modi in April last year.

Three products available under the PMMY are Shishu, Kishor and Tarun, to signify the stage of growth and funding needs of the beneficiary micro unit or entrepreneur.

Shishu covers loans of up to Rs 50,000 while Kishor covers those above Rs 50,000 and up to Rs 5 lakh. Tarun category provides loans of above Rs 5 lakh and up to Rs 10 lakh.

With regard to Banks Board Bureau, Duggal said, she would be meeting newly appointed chairman Vinod Rai this week to discuss operationalisation of this specialised body.

Last month Rai, a former CAG, was appointed head of Banks Board Bureau by Prime Minister Narendra Modi.

The bureau will give recommendations on appointment of directors in public sector banks and advise on ways to raise funds and mergers and acquisitions to the lenders.

There are 22 state-owned banks in India including SBI, IDBI Bank and Bhartiya Mahila Bank.

Besides, she said that there would be meeting of heads of the bank on March 22 to discuss about the recently launched crop insurance scheme by Prime Minister.

The crop insurance scheme scheme has already been approved by the Cabinet that would replace the existing ones to ensure that farmers pay less premium and get early claims for the full sum insured.

Investment Banking

Banks with strong networks will find takers

Mumbai The government, which recently stepped up focus on consolidating weaker public sector banks (PSBs), plans to reduce the number from 27 now to six or seven larger banks.While market capitalisation is a reflection of how the Street (investors, analysts, etc) views the bank's core fundamentals, the current state as well as the future prospects, a detailed look at the nine months' data of these banks provides some insight on their financial and business condition.In terms of asset quality, for instance, Indian Overseas Bank (IOB) and UCO Bank are the worst placed as they had the highest gross non-performing assets (NPA) at 12.6 per cent and 11 per cent, respectively, as on December 31, 2015.Dena Bank was the third on this list with gross NPA ratio of 9.9 per cent. 

However, if one adds the restructured assets, it would reflect the real asset quality picture of a bank. While the latest figures of total stressed assets for many banks are not available, the situation is not alarming, say analysts.Many PSBs also have low levels of capital to fund growth as well as any fresh losses that they may witness on account of bad loans. For example, while Dena Bank reported a net loss for the nine months ending December 31, 2015; its Tier-1 capital of 7.1 per cent is the lowest amongst its peers. United Bank's Tier-1 capital ratio, too, stood at 7.1 per cent in this period. Again, not all banks have declared their Tier-1 capital ratios as at the end of the December 2015 quarter.Notably, while PSBs consolidation will be largely driven by regulations, larger banks would not want to buy banks having low capital adequacy as well as poor asset quality, unless they prove to be of strategic importance. A key factor that will aid consolidation will be a bank's branch network. Historically, banks having larger presence in one region have bought smaller banks having stronger presence in another region. This ensures there is minimal overlap and the businesses are complementary in nature. The key hurdle and integration challenge, though, will be the employee unions in some of the PSBs that might resist such mergers and acquisitions. Nevertheless, with the advent of digital banking, the attraction of a branch network might not be enough.Analysts, however, believe most smaller and relatively weaker PSU banks could be potential takeover targets.Vaibhav Agrawal of Angel Broking says, "United Bank, IOB, OBC, Dena Bank, Vijaya Bank, Bank of Maharashtra, Andhra Bank, Indian Bank, Corporation Bank, among others, could be key takeover targets. The prime criteria will be complementary network, capital adequacy, asset quality, unions and actual integration of this merger."

Sun Capital

Apollo Tyres enters two-wheeler segment with Acti series

To invest Rs. 4,000 cr on capacity expansion at Chennai centre.

Apollo Tyres has entered the two-wheeler segment with the launch of the ‘Acti’ series.

One of the leading tyre makers in the country, the company also said that it will invest Rs. 4,000 crore in the next financial year to expand its bus, truck tyres in Chennai.

Designed and developed at the company's global R&D centre in Chennai, the Apollo Acti series for bikes and scooters would cover nearly 85 per cent of the replacement market for two-wheeler tyres in India, the company said on Monday.

“The presence in the two-wheeler segment will help the company cement its leadership position in India. The Apollo Acti series will provide the best value proposition to our customers along with an enjoyable driving experience,” Onkar S Kanwar, Chairman, said here at the launch.

The two-wheeler category, which is growing at a CAGR of 8.5 per cent in India, holds huge potential for tyre manufacturers, the company said.

The company said it is looking at selling 1.20 lakh tyres each month initially, going up to five lakh tyres each month in the next two years. However, the company is sourcing the tyres from one of its vendors in Chennai and will decide on setting up a new plant or investment for two-wheeler tyres in the future.

“It depends on demand and branding of the tyres. We will be outsourcing the tyres for the next two years and we will decide on a greenfield or brownfield when the time comes,” Neeraj Kanwar, Vice-Chairman and Managing Director, told reporters.

To expand its existing tyre plants and capacities, Kanwar said Apollo will invest $600 million (around Rs.4,000 crore) next financial year to enhance capacity at its plants in India (Chennai) and abroad (Hungary).

He added that the company is also in the process of doubling the capacity of its Chennai plant to 12,000 truck and bus radials a day from 6,000 earlier.

The company’s shares closed at Rs. 170.35 on the BSE on Monday, up 2.65 per cent from the previous close.

Fund Raising