Notes on Indian equities, sectors and economy

Archive for the ‘BFSI’ Category

12 year lock-in? Is IRDA really this weird?

Posted by fairval on November 6, 2017

IRDA seems to live in its own world. It seems it is considering putting a 12 year lockin for PE investments in insurance space.

Irda may ask PE companies for 12-year lock-in

Some of the statements in this article (it quotes an unnamed IRDA official) are truly bizarre.
Check this —

  • Private equity is one of the most unstable form of capital looking for appreciation and exit, so a lock-in period is required. I thought it was one of the most stable.
  • This is to ensure that their capital is invested for a longer tenure to support the long-term growth of insurance companies and safeguard policyholders’ interest as these funds are known to look for quick appreciation and exit. And how does one exit: There has to be a buyer, right? If the buyer is willing to pay a certain price, is IRDA saying the next buyer is a fool? IRDA needs to protect the next buyer from getting duped by the PE fund? 

One can understand say a 5 year lockin. 12 year pre-determined lockin – IRDA is living in another world.

The stated reason is of course to protect the ‘policyholder’. Wish they would show more concern about reducing commissions and insidious sales practices.



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Are declared NPAs much less than true picture?

Posted by fairval on February 19, 2014

The Indian banking system had Rs 2.43 trillion of gross NPAs as on Dec’13.


(the data is from a site on NPAs, http://www.npasource.com)

Uday Kotak says the stock of stressed loans rising from Rs 7 trillion to Rs 10 trillion. Not sure where is the Rs 7 trillion coming from, but both are massively bigger than current GNPA situation.

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IPOs in 2013

Posted by fairval on February 13, 2014

There were 1046 IPOs in major exchanges around the world in 2013, it seems. US accounted for 22% of these, London half of that. While BSE it seems did have 33 IPOs, most of these must have the SME IPOs, since NSE has only 7 to show. Ranks 4 to 8 are all Asia Pacific countries. So Mumbai’s dream of becoming an Asian financial hub are far from reality.

There were 96 new foreign IPOs on these exchanges. India is yet to see one.


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CDR amount jumped 50% in FY13

Posted by fairval on June 11, 2013

CDR seems to be a busy outfit. The number of cases and amount of debt in its purview has increased every single year since FY09. In that lot, while FY09 was a tough year when GDP grew only 6.7%, the next 2-3 years werent quite all that bad. GDP grew 8%, 8.5% and 7.2% in FY10, FY11 and FY12. Despite this, industry seems to have steadily slid downwards. This could also be a offshoot of the boom years till FY08. In any boom, too many questionable projects get funded.

The clean-up, as this table shows, isnt easy or quick. The last time around, from FY98 to FY04, for 7 long years, capex came to a halt. This seems to be similar, we are getting close the end, but not in FY14Rising CDR trend

Rising CDR trend


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Actual NPAs at 8-10% of bank assets?

Posted by fairval on July 31, 2012

Akash Prakash writes in today’s Business Standardhttps://fairval.wordpress.com/wp-admin/post-new.php?post_type=post

Many investors feel the true NPA picture (including restructured assets) would be in the region of 10-12 per cent of loan assets.

He further writes — As many former bankers point out, properly calculated, stressed assets for the banking system are already over 8 per cent of loans (a multi-decade high). This is based on the official NPA and restructured loan figures (adjusted for recoveries). Most investors continue to hear murmurs of rampant evergreening of loans, with a lot of anecdotal evidence pointing to asset quality being far worse than the reported numbers. (For example, I am aware of a very large infrastructure company which has not serviced any of its debts for over seven quarters now, yet is still not an NPA in any bank balance sheet.)

With Basel III coming up, and actual networth of banks (mostly PSU) considerably lower than reported, even loan funding will hit a road block. IPOs have been dead for a while, PE money is increasingly circumspect. The first rush of PE investors from 2006-08 period, are stuck with investments where holding periods are over, and exit overdue.

Does not look good for revival of investment demand.



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How government is crowding out private investment

Posted by fairval on March 28, 2012

The government released its borrowing program for fiscal’13. While the targeted borrowing figure is about Rs 479,000 crore ($96 bn), expectations are this will be overshot by 10%.

As we have written earlier, government borrowings have ballooned in UPA govt’s regime since fiscal’09, when the government got the excuse of global slowdown to go on a spending binge. See the chart below.


See how crazily borrowings have shot up after ’08, about 4x in 5 years. This is absolutely criminal, since this is seriously straining the financial system. (state govts may be further adding to this).

The line, with its axis to the right, divides govt borrowings with annual change in banking assets, since they are the main source of govt borrowings (small savings like ppf and insurance sector make up maybe 15-20%). Till even fis’09, this ratio was within the sum of CRR+SLR, which is typically around 30%. Now, this ratio is touching around 45%. This is where pvt sector will get hit.This show there is very little room to cut rates, since govt may end up sucking more than the statutory levels from the banking system. Or what else? A sovereign bond?

Since govt spends never go down, fiscal deficit and govt borrowings arent doing down in a hurry either. The UPA curse will linger on us for a long time indeed..

In light of the above, now read this line from Manas Chakrabarty’s article today in Mint. He says ‘The Bloomberg data show that total market capitalization for the Indian market, in US dollars, has shrunk by 33.5% between the end of 2007 and 27 March 2012′.- This is when the govt’s spending binge started.

Manas also says, ‘That’s in spite of India being relatively unscathed by the crisis and despite the much higher growth in the Indian economy‘. – I think this is what most people are getting wrong. We did not come out unscathed. We have paid a heavy price for the govt’s stupidity. All that spending – what has it achieved? Infra progress is heavily behind schedule. Power sector is a joke. Business confidence is dented. And we are trapped in systemic inflation and structurally high interest rates.

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Cost of Funds for Banks

Posted by fairval on July 2, 2010

Cost of Funds for Indian Banks

Kotak isnt too bad on cost of funds in the pvt banking space. Another table below, which is for Q4 FY10 it seems. This shows BoB and BoI are doing a good job of keeping cost of funds low.  Bank of India has had a rough time in the last 12 months, with NPAs shooting up, it also reported jump in slippages. But potentially better upsides than a BoB, since stock has underperformed as well

Cost of Funds

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ICICI Bank’s NPA ratio for Retail

Posted by fairval on April 26, 2010

In a Feb10 PPT, ICICI Bank says 50% of retail NPAs are from unsecured loans. Retail NPAs at that time were Rs 2778 crore. NPAs from unsecured retail credit should then be about Rs 1400 crore.

Retail loan book at the time was Rs 80,700 crore. Of this, unsecured lending appeared to be 12%  – 7% in personal loans, and 5% in credit cards. This means unsecured book size was about Rs 10,000 crore. NPA ratio here – 14%.

No wonder, ICICI Bank wants to get out of unsecured loans. The figure would have been higher at its peak. All those who entered this market in FY08 with great gusto have met the same fate – Citi Finance, Chola, Indiabulls…

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Moore’s law in financial inclusion?

Posted by fairval on April 16, 2010

Fino's growth rate

The chart shows the time FINO has taken to expand its customer base. Quite a remarkable rate.  The rate may have settled down at about 35-40 days per million customers, since FINO now claims 13mn customers. This data is around Aug09.

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IRDA to fight SEBI

Posted by fairval on April 10, 2010

We should have written this the other way around – SEBI to fight IRDA. But really, IRDA does not really have a chance. It may be able to delay the inevitable, by going to court, but this had to happen. With MFs going no-load, there is no way insurance can charge what it does. Co-incidently, had an intereting chat with the MD of a distribution firm recently, before the SEBI order. This is what he said – “We have a target of Rs 100,000 per month, per distribution agent. He can achieve this by maybe selling insurance to 6 clients, or by selling MF policies to maybe 200 clients. So it is a great challenge to prevent mis-selling (as in, selling wrong insurance policies)”.

So you get the drift – insurnace is too heavily incentivised, creating a lot of scope of mis-selling. So what SEBI is doing is in the right direction.

IRDA’s reaction has been interesting. It has come out vehemently against SEBI. See this para from a press release on its site..

The observance of the above referred SEBI order would cause the stoppage of all renewals of insurance policies already invested by the insuring public, may result in the forced premature surrender of insurance policies causing substantial loss to the policyholder and to the insurers. The effective stoppage of the sale of the said products will cause a complete drying up of the revenue flows to the insurance companies which could disrupt the payment of benefits on maturity, on death and on other admissible claims, putting the policyholder and the general public to irreparable financial loss. The financial position of the insurers will be seriously jeopardized thus destabilizing the market and upsetting financial stability.

IRDA is pretty much admitting that all insurance companies do, is to sell ULIPs.

Posted in BFSI, Markets, Trends | 1 Comment »