Investors come up with alternative funding plans for crisis-hit realtors

With developers hit by weak sales, investors offer innovative options to replace plain equity and debt lending

Private equity funds and non-banking financial companies are offering various modes of lending and repayment to real estate developers struggling with weak sales for the third consecutive year.

Innovative forms of investments are replacing plain equity and debt lending, with investors lining up special situation funds, uniquely-themed funds and construction finance.

ASK Property Investment Advisors, which made high risk-high return equity investments in the last seven years, is preparing to raise a special situation fund this year, which will invest equity-type (but not pure equity) money in residential projects for completion of development, or to replace existing high-cost debt and stay invested for 3-5 years.

Along with Rs.1,500 crore of pure equity dry powder, ASK believes there is need for a separate pool of capital for projects at an advanced stage.

“Real estate is passing through a difficult time, with project delays and repayment pressures. The need of the hour is to have different kinds of capital and funds are tweaking their offerings to fill in those funding gaps for developers,” said Sunil Rohokale, chief executive and managing director of ASK Group.

From the pure equity funds of 2005-06, structured debt and mezzanine debt instruments took over in the last few years, with PE funds and NBFCs demanding higher collateral and fixed repayments on a quarterly basis.

However, this put pressure on developers to service debt, as cash flows continued to remain tepid—it was not sustainable. Following this, PE funds and NBFCs started tweaking lending norms, offering more refinancing and repayment flexibility.

With a lot of liquidity chasing a few good projects, this also led to intense competition. PE funds moved towards debt-like structures.

According to Rajeev Bairathi, executive director and head of capital markets at Knight Frank India, NBFCs have evolved too. “From lending based on existing cash flows of a project, NBFCs are now offering acquisition financing to buy land parcels, construction finance as well funding for commercial office projects, different from simple lending to residential projects,” Bairathi said.

Altico Capital India Pvt. Ltd, an NBFC from Asia-focused investor Clearwater Capital Partners LLC, plans to offer construction finance and lend to commercial office projects.

Banks offer construction finance at 11-12%, while NBFCs charge a bit more, but the latter offer more flexible capital and an extended repayment periods.

“NBFCs are now well-capitalized and can compete with banks, by giving construction finance. We are also looking to offer construction finance but with established developers and also lend to office projects because there is a lot of potential in the office sector. We will do early-stage financing in residential and office projects to buy land and in pre-leasing stage respectively, and lend to projects in an advanced stage by facilitating transactions, in which we collect the last payments from customers,” said Altico Capital’s chief executive Sanjay Grewal.

Piramal Fund Management Pvt. Ltd, which introduced innovative financial products such as an apartment buying fund, Mumbai Redevelopment Fund and began construction financing early on, plans to focus on equity investments once again.

This year, it will execute a new strategy for equity investments in land opportunities for investors, to generate superior returns by investing in plotted land development. The firm is in the last leg of signing a $300 million offshore platform with a large Canadian pension fund and will also raise a second redevelopment fund. It also started deploying Rs.5,000 crore to fund commercial office projects this year, and introduced a Rs.15,000 crore line of credit to some of the top developers.

“When we started lending at 18-20% a few years back, it was opportunistic but not sustainable. We realized that developers need to be given time to repay, till the market revives. It is also important to have multiple pools of capital to service different kinds of financing needs but equity remains the need of the hour in the current scenario,” said Khushru Jijina, managing director, Piramal Fund Management, which has Rs.32,000 crore of assets under management, including equity investments and commitments made but not yet disbursed.

Customization is key while structuring transactions and each transaction is adapted to the needs of developers.

“Both equity and debt are offered through different customized products, but we think we will see more equity products coming in. With RERA (Real Estate Regulation & Development Bill) being implemented, investors will have more confidence in developers because there will be delivery timelines for projects, repayments,” said Chintan Patel, partner, deal advisory, real estate and hospitality, KPMG India.

Century Real Estate Holdings Pvt. Ltd, which raised Rs.720 crore from Piramal and Altico last year and an additional Rs.520 crore from Piramal in 2016, got an opportunity to refinance high-cost debt, use some of it as construction finance and to make land payments as well.

“These transactions offered much more flexibility in the usage of capital, which banks don’t offer even if it is cheaper. Because there are different kinds of capital involved, the blended cost of funding automatically comes down,” said Century managing director Ravindra Pai.

“They are under a little pressure in terms of margins, but if they want more margins, they have to take more risks,” he said.

Not only different capital structures, but repayment structures are also customized based on the risk-return perspective.

Repayment issues have cropped up, but funds and NBFCs have either refinanced their own loans to projects or given developers more time to service debt.

Balaji Raghavan, chief investment officer, real estate, IIFL AMC Ltd, said repayment structures are also being customized for each transactions, and instead of fixed repayment schedules, they are being matched with cash flows anticipated from a project.

“We are optimistic about investments in real estate over the next 24 months and are looking at substantial growth in India across investment platforms we have built and capitalized over the last 11 years,” said Rohan Sikri, senior partner, Xander Group Inc.

In the last two years or so, Xander has invested about $250 million mostly in residential assets through the preferred equity route. Separately, Xander Finance, which does senior secured debt transactions, has executed almost 50 transactions adding up to Rs.1,800 crore.

The question is, if the health of the sector doesn’t improve anytime soon, how long will the cycle of financing and refinancing help developers sail through this crisis?

S. Sriniwasan, chief executive of Kotak Realty Fund, is cautious and “hasn’t deployed any money in the last 18 months or so and is in wait-and-watch mode”.

Kotak Realty Fund raised $250 million from offshore institutional investors this year, to make equity investments in residential projects, at a time fund managers wary of equity risks extend only debt finance.

Valuation disconnect, delay in approvals stall road deals

Road deals are rising but despite an easing of norms for such sales, many deals are taking longer to conclude

Three years ago when IVRCL Ltd announced the sale of three highways it built at a cost of Rs.2,200 crore in Tamil Nadu, shares of the debt-laden infrastructure company leapt 13%.

Cut to the present and its deal with Tata Realty and Infrastructure Ltd (TRIL) has still not concluded, and IVRCL shares are languishing at a fraction of their 2013 highs. Despite several assertions from both parties that the deal is still on, it is still to close, since some preconditions have not been achieved.

Hyderabad-based IVRCL’s predicament will be familiar to the promoters of more than 60 road builders in India who want to sell projects, raise money, reduce debt and pick up new projects that are coming up. The situation also threatens to undermine the government’s grand plans to more than double the number of road project awards in the current fiscal year.

IVRCL chairman Sudhir Reddy did not respond to phone calls and messages and TRIL did not respond to an email.

Road sector deals are rising but despite a relaxation in norms for such sales last year, many deals are taking longer to conclude as buyers and sellers bicker over valuations, lenders refuse to accept losses, and due to delays in getting approvals from the National Highways Authority of India (NHAI).

“The reason for deals not going through in the roads and highways sector is the valuation disconnect between the buyer and seller due to the difference in estimates of WPI (Wholesale Price Index) and traffic growth. Also, in certain stressed cases, it seems buyers want bankers to take a haircut as well, which is still not happening,” said Rohit Singhania, vice-president and fund manager, DSP BlackRock Investment Managers Pvt. Ltd.

India has set a target to award 25,000km of road projects in 2016-17, compared with 10,000 km achieved in 2015-16.

Struggling infrastructure firm Supreme Infrastructure India Ltd has also been looking to sell its operational road assets to raise money for its delayed or under-construction projects amid cost overruns and high interest costs. “It’s a buyers’ market and there are many assets available to choose from,” said Vikram Sharma, managing director, Supreme Infrastructure. “All the developers have got into stress and every quarter, there is a feeling that there is a better situation for a distress sale. So, buyers wait.”

Similarly, IL&FS Transportation Networks Ltd (ITNL), the company with the largest build, operate and transfer (BOT) roads portfolio, has been in discussions with potential buyers, including private equity firm I Squared Capital, for the sale of its certain annuity road assets, Mint reported in April. But a deal is still not in sight. A year ago, the company had said it has a target of monetizing a few road assets in two quarters’ time. ITNL did not respond to an email seeking comment.

Larsen and Toubro Ltd (L&T), India’s largest engineering and construction company, has also said several times in the past few years that it is looking to monetize its operational road assets—either by a sale or through an infrastructure investment trust (InvIT). L&T is now working on a deal with Canadian pension fund CPPIB for these assets, Mint reported on 13 July.

“M&A in roads have picked up only in the last three years, and increasingly, it’s taking longer for deals to complete. The life cycle of a deal, from the time of term sheet signing to closure, has increased to four-to-six months, which is very high,” said Ashish Agarwal, director, infrastructure at investment bank Equirus Capital Pvt. Ltd.

“Delays are due to external reasons, including need for NOCs (no objection certificates) from NHAI, other lenders and also from stakeholders at the project or the holding company level. And within this time frame, if key project variables undergo a change, it can lead to renegotiations,” he said.

Some of the deals announced in 2015 could be concluded this year, Equirus’s Agarwal said.

It took seven months of hard bargaining for Gammon Infrastructure Projects Ltd to sew up a deal to sell a portfolio of nine projects—six roads and three power plants—to Canada’s Brookfield Asset Management last year, and several more months before money changed hands.

On the other side, Piramal Enterprises Ltd, controlled by billionaire Ajay Piramal, which said in 2014 that it was looking to buy a number of road assets, is yet to announce a deal.

Eight mergers and acquisitions and PE deals worth $315 million have been announced so far in 2016, compared with six deals worth $125 million during the same period in 2015, according to data from Grant Thornton Advisory Pvt. Ltd.

The infrastructure fund of multi-asset manager IDFC Alternatives has been one of the most active buyers of operational road assets in India, ahead of peer investors including US-based I Squared Capital and Canada’s Brookfield Asset Management.

“A lot of deal flow is starting to happen but a lot of investors are not aware of the long-drawn process and the patience these acquisitions entail... Our experience is that there are transactions that have gone down very smoothly and in a timely manner; but at the same time, there are a couple of transactions which have taken more time than we had expected,” said Aditya Aggarwal, partner at IDFC Alternatives.

In several instances, due diligence of assets itself throws up negative surprises leading to the collapse of talks, Aggarwal said.

While traffic growth and investor sentiment has revived, several companies continue to be stressed from previous years’ aggressive expansion. Highway developers that are labouring under debt, and dealing with lower-than-expected cash flows on completed projects and issues related to land acquisition on some incomplete ones will need refinancing to the tune of Rs.8,450 crore, India Ratings and Research Pvt. Ltd said in a June report.

About Rs.25,500 crore worth of project-level debt across 37 BOT projects, some under construction and others complete, could be under stress, the ratings agency said.

Stepping up debt recovery

Amendments in debt recovery laws bring the rules in line with the recently introduced Insolvency and Bankruptcy Code, though it will take some time before changes are seen on the ground

Passage of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016 in the Rajya Sabha last week has finally given the banking sector something to cheer about.

India’s stressed assets situation reached record highs of $ 133 billion in 2015, a five- fold increase since 2011, giving banks plenty to worry about. The Supreme Court’s concerns over the Kingfisher- Mallya story have further highlighted the extreme need to remedy the nation’s debt recovery structure.

The Bill seeks to incorporate certain important provisions into four laws — the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ( Sarfaesi Act); the Recovery of Debts due to Banks and Financial Institutions Act, 1993; the Indian Stamp Act, 1988; and the Indian Depositories Act, 1996, to modernise the process of asset securitisation.

The Bill also seeks to bring the current debt recovery framework in line with the Insolvency and Bankruptcy Code of 2015, aiming to create a more functional environment for asset reconstruction companies (ARCs).

“Having a well- defined law is the first step. With these amendments, we can now hope to see a framework that will create a competitive, transparent and efficient market for distressed assets. As with most new legislative change, the proof will be in the taste of the pudding,” said Reshmi Khurana, managing director and head for South Asia at Kroll, the multinational corporate investigations and risk consultancy.

Under the new regime, non- institutional process of transferring stressed assets between banks and ARC’s exempt from stamp duties. This makes the asset reconstruction process more feasible and gives the banks a real opportunity to get their books in order.

Alongside the liberalisation of foreign investment norms and expected evolution of the ARC market, the Bill also extends the powers of the Reserve Bank of India (RBI) to regulate these entities. The central bank is authorised to audit, of ARC boards for illegality or non- competitive behaviour.

The Bill also creates a central registry to replace the previously decentralised system of registration, at both the central and state levels. This will make the process of undertaking due- diligence exercises simpler and more convenient. The changes make the process of registration with this central registry mandatory, to enforce securitisation of assets.

“The mandatory registration of requirements in a timely manner. This will help in establishing clarity on priority of claims and minimise competition which arise due to information asymmetry,” said Divyanshu Pandey, partner, J Sagar Associates.

The Bill further mandates a maximum of 30 days ( 60 days after extension) for a District Magistrate to clear an application for possession made by a secured creditor under Sarfaesi. It also clarifies the jurisdiction of Debt Recovery Tribunals ( DRT’s), backbone of the recovery structure. The amendments propose an online mechanism for these tribunals, including filing of applications and documents in online form.

Under the new system, debtors challenging DRT orders will first have to deposit half the adjudicated sum before approaching the appellate tribunal.

The Bill also brings hire purchase and financial leases under the Sarfaesi ambit. The changes also allow new classes of creditors, such as bondholders who subscribe to secured nonconvertible debentures, to seek remedies under debt recovery laws. This is expected to strengthen the bond market in the coming days.

Other amendments to Sarfaesi allow secured creditors the opportunity to take control of an indebted company ( if the amount of debt is equal to or greater than 51 per cent of the net worth of the concern) and restore its business to recover the necessary dues.

With liquidity issues still existent, the situation of non- performing assets might still be a worry even after the introduction of the new amendments but the changes are bound to improve the scenario for the banking sector.

“The impact of these legislative changes will only be visible on the ground over the next 12 to 18 months,” said Vaidyanathan.

Coming soon: a market for packaged air

Mumbai, March 21:  

There are many who believe, that a day will come when we pay for even the air we breathe. Probably that day has already dawned upon us. Today, consumer goods major RB announced the launch of Dettol Air Protect mask. The brand been exclusively launched on Amazon for Rs.699 and will soon be available in other e-commerce sites, according to a company statement.

The timing of the product launch could not be better, as a large part of the country gears up for Holi bonfires that are expected to send air pollution levels soaring high. Arjun Purkayastha, Marketing Director, Dettol, developing markets at RB, said: “The risk from air pollution is very real and getting worse by the day. While we all work towards a longer term goal of reducing pollution, it is also important to protect ourselves from its adverse impact on a daily basis.”

In Mumbai and Delhi, the severe air pollution in recent months is still fresh in public memory.

The Air Quality Index in Mumbai was still in a poor shape, according to data by SAFAR-MoES-IITM-IMD on Monday. Particulate matter (or small airborne particles) is among the most detrimental of these pollutants. Studies link it with increased rates of chronic bronchitis, lung cancer and heart disease.

Air pollution can potentially cause some dangerous allergies as well, including coughing, rhinitis and asthma. Citing a WHO report the company statement says, 13 of the 20 most polluted cities in the world are in India.

Growing demand

Saurabh Srivastava, Director Category Management - FMCG, Amazon India, said: “Customers today are very health conscious and we are witnessing an increase in demand for such products on our Health & Personal Care store." The e-tailing giant already sells a variety of air-filters and anti-pollution masks.

One such offering from innovation giant 3M retails for Rs. 125 on Amazon against the marked price of Rs.300. The Dettol Air Mask claims to protect from PM 2.5, bacteria, dust and even pollen. It is mean for daily use when there is haze, dust or pollution. The product comes with two replaceable filters for added protection.

Marketing consultants, however, told BusinessLine that the price tag might relegate the product to a niche. Another issue that could play a spoiler is the consumer behaviour in India where a majority of the population still believes in washing and re-using things. In this case, the product filters may not be as effective, if they are washed.

SUN CAPITAL

Godrej Properties raises $275 m for new fund

Teams up with Dutch pension manager APG for its GRIP II capital pool

Mumbai, March 21:  

Real estate developer Godrej Properties has raised Rs. 1,900 crore (about $275 million) with Dutch pension fund asset manager APG Asset Management NV as lead investor for its Godrej Residential Investment Programme II (GRIP II).

The Mumbai-based developer, an arm of the Godrej group, has created a dedicated real estate fund management business in India and Singapore –– Godrej Fund Management (GFM) — which will advise investors in the new fund.

Godrej Properties will hold a 20 per cent stake in GRIP II, according to a press release.

GRIP II will help attract long-term equity investors for real estate development across the country, Pirojsha Godrej, Managing Director & CEO, Godrej Properties, was quoted as saying. The new pool of capital will be invested in residential projects. GRIP II is a follow-on to the $200-million residential development platform that GPL had set up with an APG-led investor consortium in 2012.

Karan Bolaria has been appointed GFM’s head and will be responsible for both residential investment programmes as well as other strategic moves that the subsidiary might make.

APG and GPL pioneered the joint venture approach in the Indian private real estate market in 2012 with GRIP I, a structure that has since been followed by other foreign institutional investors and Indian developers.  

Sachin Doshi, Managing Director and Head of Private Real Estate Investments, Asia Pacific at APG, said, “Our strategy of partnering with only the best local operators has allowed us to succeed in a complex market like residential development in India. In spite of a general slowdown in the asset class in the country over the last three years, our partnership projects have sold well, which is a testament to our partner’s execution capability and brand strength.”

Sun Capital

Wilful default: 5,600 owe banks Rs 60,000 crore

SBI, the country’s largest lender, is owed Rs 12,091 crore, followed by another state-run lender PNB which has receivables of Rs 9,445 crore lent to 698 borrowers.

More than 5,600 borrowers, who owe banks close to Rs 60,000 crore, have been declared wilful defaulters by lenders as on December 31, data from credit information bureau CIBIL shows. 

More than 5,600 borrowers, who owe banks close to Rs 60,000 crore, have been declared wilful defaulters by lenders as on December 31, data from credit information bureau CIBIL shows. These instances of wilful default are those where banks have filed suits.

Not surprisingly, the country’s largest lender State Bank of India (SBI) is owed Rs 12,091 crore, followed by another state-run lender Punjab National Bank (PNB) which has receivables of Rs 9,445 crore lent to 698 borrowers. If the non-suit filed accounts are also considered, then close to a third of PNB’s gross non-performing assets (NPAs) of Rs 34,338 crore have resulted from wilful defaults. Of this amount of Rs 10,869 crore, the top 10 wilful defaulters together owe the New Delhi-headquartered bank Rs 3,554 crore.

Kotak Mahindra Bank has the highest amount of loans stuck with wilful defaulters among private sector banks at Rs 5,442 crore. Wilful defaults for private sector banks stood at Rs 10,250 crore and at Rs 463 crore for foreign banks.

According to RBI guidelines, a borrower is termed a wilful defaulter if he has defaulted in meeting the repayment obligations to the lender even when it has the capacity to repay, or has not utilised the money from the lender for the specific purposes for which finance was availed and has diverted the funds for other purposes.

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

Indiabulls Group to invest Rs 25,000 crore in Haryana over seven years

MUMBAI: Mortgage lender Indiabulls Housing Finance and its group company, Indiabulls Real Estate will invest Rs 25,000 crore in Haryana over the next seven years. The group has entered into a Memorandum of Understanding with the government of Haryana for the same, the company said in a statement.


Indiabulls Group, whose founder, Sameer Gehlaut has origins in Haryana, is headquartered in Gurgaon, and has pan India operations with offices in 200 locations across the country.

The pact was inked during the "Happening Haryana Global Investors Summit" wherein Indiabulls Groups has made an in-principle commitment to invest Rs 25,000 crore during the said period.

The investment will be made through direct lending for home loans as well as indirect lending to the developers of various projects, particularly in the affordable housing segment.

The group already has exposure in NCR, both as a lender as well as a developer and is aiming to scale it up by tapping into the growing demand for affordable housing in the backdrop of "Housing for all by 2022".

Sun Capital

Banks will have to lower lending rates in April

Mumbai Irrespective of whether the Reserve Bank of India (RBI) cuts its policy rate on or before the April 5 policy review, banks will have to cut their lending rates by at least 25-30 basis points (bps) in April, to catch up with the lag in transmission.

The central bank has, so far, cut its repo rate by 125 bps and banks have passed on between 60-70 bps of the cut. If the central bank cuts some more, as is expected by the market, banks' lending rate cuts should be steeper, too. One basis point is 0.01 per cent.

But, the lending rate cuts might not happen immediately in March, as banks would ideally want to shore up their treasury profits by taking advantage of the recent dip in bond yields, and also enjoy an improvement in spreads in the last month of the financial year, when credit demand generally picks up.

The resultant profit will also mend their bottom line to some extent, as they have been severely hit by RBI's asset quality review programme, which will continue to exert pressure in the March quarter as well. "Transmission will happen, irrespective of the rate cut quantum (by RBI)," said Soumya Kanti Ghosh, chief economist, State Bank of India.

However, that will likely not be in March, said A Prasanna, chief economist at ICICI Securities Primary Dealership Ltd.

"There is pressure on bank balance sheets now. Transmission will improve with liquidity in April," Prasanna said.

From April 1, RBI's marginal cost-based lending rate (MCLR) would kick in, which will prod banks to use their incremental cost of funds, rather than average cost of deposits to arrive at the lending rate. Since money market rates move faster than deposit rates and banks tap into these money markets, the incremental cost will add dynamism in lending rate calculations. And, 10-year bond yields have fallen 15-20 bps since the Budget. If this trend continues till March-end, banks would have to factor in this drop.

Finally, with RBI infusing longer-term liquidity in the system through secondary bond market purchases, banks should have less reason to complain that system liquidity tightness is not letting them pass on rate cuts. Under the new liquidity framework, RBI ensures call money rates are anchored at around the repo rate, no matter how much liquidity infusion is needed. However, bankers have complained that the liquidity infused is short-term, and more permanent liquidity needs to be infused through secondary market bond purchase. The central bank does so through its open market operations, or OMO. Including a scheduled Rs 15,000-crore OMO purchase on Thursday, RBI's liquidity infusion is close to Rs 50,000 crore in recent months.

The OMOs, and with government spending picking up, have ensured that from an acute shortage of Rs 1.6 lakh crore at the end of January, banking system liquidity has improved to less than Rs 1 lakh crore now.

But there would be stress on the liquidity front again, starting March 15, when advanced tax outflow starts, pointed out Gaurav Kapur, India economist at Royal Bank of Scotland.

The tight liquidity condition would be needed to be evened out first before banks can move with rate cuts and that would be by the next financial year, Kapur said.

However, whether the rate cut would be of any meaning to revive growth is a different question altogether, articulated IDFC Bank's Chief Economist Indranil Pan.

"With MCLR pricing the incremental cost, pass-through of the cumulative 125-basis point rate cut is expected to be at 25-30 bps. So, even after a transmission of 85-90 bps if credit growth doesn't take place, one needs to ask if the problem lies with the RBI rate cuts and transmission mechanism or the credit channel itself," Pan said.

Investment Banking 

India says will ensure that banks are well-capitalised

India has "good control" over stressed loans at state-owned banks and will ensure lenders are well-capitalised, junior finance minister Jayant Sinha said on Friday.

Speaking as senior officials from the banks, the Reserve Bank of India and the finance ministry held an annual meeting, Sinha said the government would allocate capital based on the banks' capital-adequacy ratios, performance and credit growth.

"We will provide more as necessary to ensure that our banks are well-capitalised," he told reporters.

"As far as the set of stressed assets is concerned, as far as the NPA (non-performing assets) situation is concerned, that we think we now have very good control over and of course (we are) working very closely with the RBI."

Some critics accused the government of skimping on a bailout for the ailing state banks after Finance Minister Arun Jaitley did not announce additional funding in his Feb. 29 budget.

He stuck to plans to provide state banks with 250 billion rupees ($3.7 billion) of new capital in the next financial year towards a sector-wide bailout that the government estimates will cost $26 billion over four years.

Stressed loans -- those that have already turned bad and those seen at risk of doing so -- amount to 8 trillion Indian rupees ($119 billion), or 11.25 percent of total loans, Sinha said on Friday.

A recent surge in bad loans at state-run lenders after their regulator ordered a clean-up has led rating agencies to suggest banks will need more capital support from the government to cover losses and meet Basel III global banking rules.

More than two-dozen state-run lenders account for over two-thirds of India's banking assets and some 85 percent of troubled loans in the financial sector.

($1 = 67.0630 rupees)

Sun Capital

The World’s Top 8 Investment Banks

The easiest way to rank investment banks is through figures such as revenue numbers and employee headcount.

1. Founded in 1869, Goldman Sachs’ services include investment banking, institutional client services and lending. It reported net revenues of $34.2 billion in 2013 -- $6 billion from the investment banking division.

2. JP Morgan Chase reports net revenues of $2.2 billion, including $1.7 billion from investment banking. It operates in 60 countries and employs 260,000 while offering a diverse set of services.

3. Barclays reported a total income of £28.4 billion, with £10.7 billion from investment banking. Founded in 1896, the London-based bank has a strong presence in retail and commercial banking, as well as the card-processing business.

4. Bank of America Merrill Lynch operates in 40 countries, and in 2013 had global revenue of $6 billion. $1.3 billion came from investment banking. The company was formed when Bank of America took over Merrill Lynch after the 2008 financial crisis.

5. Morgan Stanley reported net revenues of $5.4 billion, with $1.2 billion from investment banking. It offers prime brokerage, custodian, settlement and clearing services in addition to the usual banking functions.

6. Germany’s Deutsche Bank reported net revenues of €31.9 billion. It’s one of Europe’s largest financial services firms, and it specializes in cross-border payments and international trade financing.

7. Citigroup traces its roots back to Citibank in 1812. It employs 251,000 people, operates in 160 countries, and had investment banking revenues of $1.4 billion in 2013.

8. Credit Suisse had a net income of 2.1 billion Swiss francs in 2013. It dates back to 1856 and now employs 46,000 people over 50 countries.

Sun Capital

Large-value accounts responsible for rising NPAs: CBI chief

A group of "large-value" corporate accounts has pushed up non-performing assets (NPAs) and associated financial frauds in the country since 2008, CBI chief Anil Sinha said this week, at a time when dozens of Indian banks are swamped with bad loans.

The crisis runs deep, Sinha said at a financial conference in Mumbai on Wednesday, weeks after the Supreme Court asked the Reserve Bank of India (RBI) to provide details of companies that have each defaulted on loans of more than Rs500 crore.

However, the Central Bureau of Investigation (CBI) director did not give details of the accounts that are being examined by the agency.

India's banking sector, dominated by about two-dozen state-run lenders, has been bruised by its highest bad-loan ratio in years as lagging economic growth hit companies' abilities to service debt.

In August 2013, then CBI director Ranjit Sinha told a gathering of government officials that the "bulk of the NPAs is from the top 30 accounts, which is learnt to be running into thousands of crores."

A loan is recognised as a non-performing asset when the repayment is delayed beyond 90 days. This forces the bank to make provisions by setting aside funds, further restricting its lending capacity.

At the Mumbai meet, Anil Sinha said defaulters are not getting deterred because of "weak and diffused" accountability mechanisms in banks and financial institutions.

"Added to this is the unduly slow and long process by which such loans and advances are red-flagged, declared NPAs, then wilful defaulters and finally fraudulent," he said. It "allows large borrowers ample time to walk with the funds.to tax havens."

According to government figures, gross NPAs of 39 listed banks stood at Rs 4.43 lakh crore in December 2015, nearly ten times the 2009 level.

"The CBI has recently registered a case of cheating and fraud against Kingfisher and its erstwhile management involving allegations of defrauding banks to the tune of Rs 7,000 crore," Sinha said.

"This case was registered in July 2015, but the loans or advances were taken during 2004-2012. However, despite our repeated requests, the banks did not file a complaint with the CBI. We had to register the case on our own initiative."

RBI governor Raghuram Rajan has set banks a March 2017 deadline to clean up their balance sheets and treat some troubled loan accounts as bad and make provisions for them by the end of this March.

Sinha also underscored the need for pre-emptive action to thwart deposit scams that thrive in India's vast informal financial sector.

"The second case relates to PACL -Pearls Agrotech Corporation Ltd-which has reportedly collected over Rs 51,000 crore of illegal deposits from nearly 5.5 crore investors," he said, referring to the scandal that illustrated the risks faced by millions of low-income Indians who live outside the banking system.

"It needed the Supreme Court to step in to order investigations. Should not the regulator have suo moto (on its own) stepped in?"

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10 Tips for the Successful Long-Term Investor

While it may be true that in the stock market there is no rule without an exception, there are some principles that are tough to dispute. Let's review 10 general principles to help investors get a better grasp of how to approach the market from a long-term view. Every point embodies some fundamental concept every investor should know.

1. Sell the Losers and Let the Winners Ride!

Time and time again, investors take profits by selling their appreciated investments, but they hold onto stocks that have declined in the hope of a rebound. If an investor doesn't know when it's time to let go of hopeless stocks, he or she can, in the worst-case scenario, see the stock sink to the point where it is almost worthless. Of course, the idea of holding onto high-quality investments while selling the poor ones is great in theory, but hard to put into practice. The following information might help:

• Riding a Winner - Peter Lynch was famous for talking about "tenbaggers", or investments that increased tenfold in value. The theory is that much of his overall success was due to a small number of stocks in his portfolio that returned big. If you have a personal policy to sell after a stock has increased by a certain multiple - say three, for instance - you may never fully ride out a winner. No one in the history of investing with a "sell-after-I-have-tripled-my-money" mentality has ever had a tenbagger. Don't underestimate a stock that is performing well by sticking to some rigid personal rule - if you don't have a good understanding of the potential of your investments, your personal rules may end up being arbitrary and too limiting.
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• Selling a Loser - There is no guarantee that a stock will bounce back after a protracted decline. While it's important not to underestimate good stocks, it's equally important to be realistic about investments that are performing badly. Recognizing your losers is hard because it's also an acknowledgment of your mistake. But it's important to be honest when you realize that a stock is not performing as well as you expected it to. Don't be afraid to swallow your pride and move on before your losses become even greater.

In both cases, the point is to judge companies on their merits according to your research. In each situation, you still have to decide whether a price justifies future potential. Just remember not to let your fears limit your returns or inflate your losses.

2. Don't Chase a "Hot Tip."

Whether the tip comes from your brother, your cousin, your neighbor or even your broker, you shouldn't accept it as law. When you make an investment, it's important you know the reasons for doing so; do your own research and analysis of any company before you even consider investing your hard-earned money. Relying on a tidbit of information from someone else is not only an attempt at taking the easy way out, it's also a type of gambling. Sure, with some luck, tips sometimes pan out. But they will never make you an informed investor, which is what you need to be to be successful in the long run.

3. Don't Sweat the Small Stuff.
As a long-term investor, you shouldn't panic when your investments experience short-term movements. When tracking the activities of your investments, you should look at the big picture. Remember to be confident in the quality of your investments rather than nervous about the inevitable volatility of the short term. Also, don't overemphasize the few cents difference you might save from using a limit versus market order.

Granted, active traders will use these day-to-day and even minute-to-minute fluctuations as a way to make gains. But the gains of a long-term investor come from a completely different market movement - the one that occurs over many years - so keep your focus on developing your overall investment philosophy by educating yourself.

4. Don't Overemphasize the P/E Ratio.

Investors often place too much importance on the price-earnings ratio (P/E ratio). Because it is one key tool among many, using only this ratio to make buy or sell decisions is dangerous and ill-advised. The P/E ratio must be interpreted within a context, and it should be used in conjunction with other analytical processes. So, a low P/E ratio doesn't necessarily mean a security is undervalued, nor does a high P/E ratio necessarily mean a company is overvalued.

5. Resist the Lure of Penny Stocks.

A common misconception is that there is less to lose in buying a low-priced stock. But whether you buy a $5 stock that plunges to $0 or a $75 stock that does the same, either way you've lost 100% of your initial investment. A lousy $5 company has just as much downside risk as a lousy $75 company. In fact, a penny stock is probably riskier than a company with a higher share price, which would have more regulations placed on it.

6. Pick a Strategy and Stick With It.

Different people use different methods to pick stocks and fulfill investing goals. There are many ways to be successful and no one strategy is inherently better than any other. However, once you find your style, stick with it. An investor who flounders between different stock-picking strategies will probably experience the worst, rather than the best, of each. Constantly switching strategies effectively makes you a market timer, and this is definitely territory most investors should avoid. Take Warren Buffett's actions during the dotcom boom of the late '90s as an example. Buffett's value-oriented strategy had worked for him for decades, and - despite criticism from the media - it prevented him from getting sucked into tech startups that had no earnings and eventually crashed.

7. Focus on the Future.

The tough part about investing is that we are trying to make informed decisions based on things that have yet to happen. It's important to keep in mind that even though we use past data as an indication of things to come, it's what happens in the future that matters most.

A quote from Peter Lynch's book "One Up on Wall Street" (1990) about his experience with Subaru demonstrates this: "If I'd bothered to ask myself, 'How can this stock go any higher?' I would have never bought Subaru after it already went up twenty-fold. But I checked the fundamentals, realized that Subaru was still cheap, bought the stock, and made seven-fold after that." The point is to base a decision on future potential rather than on what has already happened in the past.

8. Adopt a Long-Term Perspective.

Large short-term profits can often entice those who are new to the market. But adopting a long-term horizon and dismissing the "get in, get out and make a killing" mentality is a must for any investor. This doesn't mean that it's impossible to make money by actively trading in the short term. But, as we already mentioned, investing and trading are very different ways of making gains from the market. Trading involves very different risks that buy-and-hold investors don't experience. As such, active trading requires certain specialized skills.

Neither investing style is necessarily better than the other - both have their pros and cons. But active trading can be wrong for someone without the appropriate time, financial resources, education and desire.

9. Be Open-Minded.

Many great companies are household names, but many good investments are not household names. Thousands of smaller companies have the potential to turn into the large blue chips of tomorrow. In fact, historically, small-caps have had greater returns than large-caps; over the decades from 1926-2001, small-cap stocks in the U.S. returned an average of 12.27% while the Standard & Poor's 500 Index (S&P 500) returned 10.53%.

This is not to suggest that you should devote your entire portfolio to small-cap stocks. Rather, understand that there are many great companies beyond those in the Dow Jones Industrial Average (DJIA), and that by neglecting all these lesser-known companies, you could also be neglecting some of the biggest gains.

10. Be Concerned About Taxes, but Don't Worry.

Putting taxes above all else is a dangerous strategy, as it can often cause investors to make poor, misguided decisions. Yes, tax implications are important, but they are a secondary concern. The primary goals in investing are to grow and secure your money. You should always attempt to minimize the amount of tax you pay and maximize your after-tax return, but the situations are rare where you'll want to put tax considerations above all else when making an investment decision.

The Bottom Line

There are exceptions to every rule, but we hope that these solid tips for long-term investors and the common-sense principles we've discussed benefit you overall and provide some insight into how you should think about investing. If you are looking for more information about long term investing, Investopedia's Ask an Advisor tackles the topic by answering one of our user questions.

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