Why we are obsessed with money

What a way to exist!

For most of us, practically the whole day all we are thinking is about money and more specifically how to have more money!

As if money was the only thing in life. Unfortunately for most of us, circumstances just do not permit any other thought!

We are running behind money most of the time which is almost akin to have become obsessed with money. Everything that we are doing in life is centred around money.

Unfortunately, this is because we need money for anything and everything that we do. There’s nothing wrong and what are you doing, however the problem is that over time, it becomes a compulsive habit to keep earning more.

That’s where the danger is. The problem is that there is a point where from we chase money as an addiction, we chase money because we like to do so. If we did not chase money we would not know what to chase now because we get out identity from money and the amount of money we have.

Another thing is that right from childhood we are always taught and our minds are conditioned that everything that we are doing is going to be for the sake of earning money.

There is no one who told you that money is just a means, and then there is something greater in life to achieve. Some examples are legacy; building something, charity; to giving something / helping someone, passion; pursuing something and living; simply to enjoy life and your money

We have got addicted to this and how!

There are three reasons for this:

First, we are what we do. It is the human behaviour. I know I should exercise and I don’t. I know I should eat healthy and I don’t. I know I should spend time with my kids and I don’t. I know that, yes, money isn’t going to make me happy and I still keep trying to make money.

We live by the laws of inertia, in a pattern which is hard to break. But we have to break it. For ourselves and for the sake of people and reasons for which we are chasing money.

Secondly, we need signals of progress. Money is a measure of how far you have progressed in life. The more the money you have the more you can make sure your progress. It’s simply the logic of evolution. People need validation of their success. Bigger house, bigger car, branded goods and list goes on.

Thirdly, it’s the easy way out. It’s only human to avoid difficult things. Important things are very difficult to measure.  Have I been a good father or husband? Have I groomed my child well?  Such things take years to measure and we still don’t have answers.

So, should we not be focused on creating money for ourselves?

I’m not saying that. Definitely create. Take care of yourself for sure!! Use it to the maximum to make yourself happy!!! You need a certain amount and beyond that is extra.

The definition of their certain amount is naturally different from one person to another. If that extra is going to happen easily, without stress and without your involvement, then its fine. Basically don’t kill yourself for that extra. Be Smart.

Kartik Jhaveri is an expert at planning money, life and aspirations. He is a certified financial planner, wealth manager and financial freedom coach.

How the RBI actually helps you

Most of us in Mumbai, see this huge structure called the Reserve Bank of India and wonder what it really does. It’s also a tourist attraction!! It has so many other offices and again one wonders why they need to have so many offices. I’m going to try and highlight a very interesting part of RBI’s work and how it helps us directly on a day-to-day basis.

The RBI does a review of the monetary policy of the country at frequent intervals during the year. So how does the monetary policy help us investors to take smart decisions?

Monetary policy is a tool by which the RBI decides to raise interest rates or reduce interest rates or keep them steady.

In our country, as we’re an oil importing nation, this decision is very closely linked to Oil. Oil to a large extent contributes to inflation. We all know what happens when inflation keeps rising. We in India unfortunately do not see too much of inflation falling and things becoming cheaper.

Oil is Not Well

So when oil prices rise i.e. we see a rise in crude oil prices almost instantly we can expect rising food prices. This is because there is going to be a rising cost pressure for manufacturing & services. This rise obviously gets passed onto the retail consumers.

When this happens RBI adopts a hawkish stance, tries to pull money out of the system by raising interest rates. Now when interest rates rise no one seems to be interested in borrowing. This immediately puts a brakes on money circulation.  Less money chasing goods decreases the demand for money. This way it controls inflation.

There is yet another tool that the RBI has and that is known as the CRR or the cash reserve ratio.  This ratio in simple words means the amount of cash that the bank must maintain with the RBI as the percentage of the total assets. So when this increases banks are forced to park more with the RBI and this is also a way to control inflation.

On the other hand when things look dull, when there is a recession of sorts, the RBI comes to the rescue and gets into action to kickstart growth in the country. It does this by lowering the interest rates. This we all will understand quite easily because we see a direct benefit of this happening. We see a fall of interest outgo in our EMI’s for the home loan that we are carrying. New loans become cheaper.

Individuals are motivated to go out and make purchases, whether it is for a washing machine or a piece of real estate. Businesses are motivated to go out and borrow to buy more machinery, to expand capacity, to hire more staff and manpower and basically do everything that will add to the growth of business.

Economic growth results as a result of all this. It is also during this time that stock market rises, we see a rally in stock prices and mutual fund NAV’s jumping higher and higher each day. There is prosperity all around.

Critical Role

As you can see that the central bank of the country has a very very important role to play.  If it makes a mistake, things can go really wrong.  Imagine like the USA or Japan if our interest rates were very low; everyone would run to borrow, they would borrow more than they require because it would be cheap and easy to borrow. And that is very individuals would run into what is known as the debt trap, because someday you’ll have to pay back.

Each day the central bank attempts to make sure that everything in our country remains stable and financially there’s nothing that goes wrong dramatically.

Kartik Jhaveri is an expert at planning money, life and aspirations. He is a Certified Financial Planner, Wealth Manager & Financial Freedom Coach.

The year of the bond, once again!

We are not talking of James Bond, we are talking of investment bonds.

We are in a situation where the fixed deposit rates are at a general low and there is a lot of discontent among depositors of fixed deposits.

Whenever we see a situation like this, one way or the other, the bond markets come to the rescue. It comes to the rescue of smart depositors, who are agile to move their money from fixed deposits to bond funds.

Let’s understand what is happening and why.

What Exactly is Happening in the Bond Markets?

It is likely that in this year, investors of bond funds will make handsome gains. Bond prices may rise and there may be capital gains. Investors of bond funds not only earn the rate of interest, but also earn capital gains. So that way, they make more than the return they would make on fixed deposits. The returns could be a high single digit or sometimes as high as double digits.

Over three years, this will become practically tax free or the tax would be a very small amount. So, basically, I am thinking that a rally will happen in the bond market. There are three main reasons for this — reduction in government borrowing (which is favourable), recovery of trading losses (which is favourable) and no change in monetary policy (which is neutral).

A word of caution, however, that such bond market investments are also subject to bond-market volatility and should be considered ideally with the help of a financial expert.

Before proceeding further, let us, therefore, quickly explain a bond, bond fund and bond market. We need to do this because few people understand the bond markets and even fewer invest in the bond markets.

Bond is nothing, but a commercial transaction where the borrower is issuing a bond to the lender and the lender will earn a certain rate of interest. When interest rates fall, everyone becomes interested in owning that bond.

As a result, the demand for the bond increases, the price of the bond increases and the bondholder makes capital gains.

A bond fund is a fund where ordinary investors pool in their money and a fund manager buys them a portfolio of bonds.

Moving onto the Reasons For a Rally in Bond Funds…

Now, the fundamental reason for a rally is reduction in interest rates as it stimulates economy and growth.

Firstly, the government is a massive borrower of funds. So a reduction in government borrowing reduces the demand for money in the economy. As a result, prices of bonds rise and this contributes to capital gains for bond holders.

Secondly, the Reserve Bank of India (RBI) recently announced that the commercial banks and RBI, which are the largest lenders to the government, will have another year to offset losses they have incurred on account of buying government bonds in the past. This action will lead to a rise in the price of bonds and this contributes to capital gains for bond holders.

Lastly, on one side due to the rise in oil prices, there is more inflation and thus more money is needed for circulation in the economy. On the other side, many government bonds are maturing, which will provide money supply. So, it is likely that we see a neutralising effect and thus RBI will take no action. This inaction here will support capital gains as explained above. Hence, this year might be a year of good gains for the bond investors.

Kartik Jhaveri is an expert at planning money, life and aspirations. He is a Certified Financial Planner, Wealth Manager & Financial Freedom Coach.

Five new financial goals for you this summer

I am going to try and explain to you why the summer holidays of April and May are great months to get a lot of things started, financially speaking.

This time period in a way resets the financial clock. You also have the option to hit the reset button on everything you have done so far; financially speaking of course and hope to do better things better than you did last year.

Let’s look at some of the new and unusual things to do in April.

  • Make a learning budget

Learn something about money or anything you like. The best way to make money is to learn something about money. Just like if you wanted to learn cooking you will get into the cooking class. If you wanted to learn swimming you would enrol in the swimming class. If you find learning about money is too daunting task than learn something which is close at to your heart or related to your work. If you learn something new, there’s a possibility that you will use your new ideas to generate new income and in turn that will generate new wealth for you.  So make a budget, enrol somewhere and spend that budget. How about a % of your annual income? Spend it for sure!

  • Plan a unique holiday 

When you’re by yourself and without your mobile phone you will have the opportunity to think! When you have time to think, suddenly good ideas will come to your mind.  You may think this is silly but you can be sure that you will be amazed if your drivers experiment just once. So it might be a good idea to go for a holiday just by yourself. If you find that too intimidating, join a group of strangers. You can combine that with the adventures experience if you like.  Be extra careful if you’re going with your special buddies. Do this only if they are going to be in a position to help you discuss your idea and make it bigger. They must play the role of complimenting your thoughts. So make a schedule to do this holiday and obviously make a budget to make it happen. Think & create new ways of making wealth.

  • Make a prediction and make it happen

Be brave. Let’s aim to grow and multiply net worth by 50% by the time you come to the end of this financial year. This is not a joke and it is easier than you can imagine.  I’m speaking about NETWORTH and I’m not talking about return on investment. If your networth is Rs. 100 today, all I’m saying is that let’s aim to make this a 150 by the end of this year. This networth comprises of all your savings till date. This can be achieved by simply saving aggressively every month for the next twelve months. Just put this into a recurring deposit or liquid fund so you don’t spend it.  We just have to prove to ourselves that this is possible. Where and how we will invest this money will think about that later.

  • Eliminate a negative belief 

I want to give you an exercise here. Write down all your negative beliefs you have about money and wealth. Most people are not able to achieve the desired level of wealth because they think about wealth negatively. So even if you are earning a good amount of income you will never see yourself becoming wealthy. Examples are money causes problems, money causes a fight, managing money is complicated etc. Then for each negative thought, you have written down the positives i.e. the opposite for a few months. Soon negatively biased feelings will evaporate.

  • Make a new investment; something you have not done before

Again here you do not have to be a financial expert. The idea is to learn something new. There are hundreds of investment options. Our objective here is to learn something new. Talk to your advisor and seek his or her guidance. Just a word of caution here; don’t do anything which is speculative or is something that you just can’t understand. Do what do find easy you understand and do that then.

Kartik Jhaveri is an expert at planning money, life and aspirations. He is a Certified Financial Planner, Wealth Manager & Financial Freedom Coach.

Seeking financial freedom? The time is NOW!

John Lewis famously remarked, “If not now, then when? If not us, then who?” This is so appropriate in the current financial world that we live in.

That statement will leave to rest every other argument that is conservative and against the idea of wealth creation. We are often faced with the situation where there is no option but to create wealth. Read on to know why!

Interest rates are painfully low. For all those diehard fans of guaranteed investment returns, there’s hardly any place to go to. Thinking of fixed deposits? Feeling happy with 7%? And fully taxable? That period is over. Period.

That doctrine of investing into pure fixed deposits and similar instruments is unfortunately standing challenged. There is no option but to sprinkle it with a combination of a little something that will add to the returns earned from fixed income type of securities. In fact this category of investors are in a way, best placed in terms of the current tax laws.

They can earn about 9-10% with minimal or near zero tax over about five years and more. Starting to generate rate of return above the inflation level of 7% is starting to create wealth. So there it is; there is no option but to move in the direction of creating wealth.

For more evolved investors, who invest in equities and who and still sitting on the sidelines tend to run out of patience every now and then. They are sometimes waiting for the right time, sometimes waiting for correction, sometimes waiting for valuation and sometimes waiting for just nothing. Sometimes, just too busy to take action!

I totally understand not wanting to lose hard-earned money. But if the money does not move it will stagnate. That’s the problem with money.

Hit the Ground Running

Inaction and inactivity kills it. Makes it costly to hold. Makes us lose opportunities, sometimes small and sometimes significant. I know of many people including my dad, who just kept investing into equities and holding forever. No doubt they were hugely (big HUGELY) better off then the people in the same time zone. I think they could have done far better with some smart lessons on asset allocation. This is because if they compare the growth rate of their holding over a period of 20 or maybe 30 years the compounded rate of return earned is often not impressive.

It is just marginally better or a few percentage points above the fixed deposit rate. Hence the need for asset allocation, which simply put is not to have all eggs in one basket at any given point in time. These sections of investors anyways create wealth, and, asset allocation is the tool that ensures that the process of wealth creation continues uninterrupted. So again there it is; even for this section there is not option but to start enhancing their wealth creation activities, else returns will continue to remain forever mediocre.

Then there are skeptics and there is nothing much for skeptics of everything, except that they need a serious dose of financial education. Perhaps what if needed is a proof of concept and for that, which better country to live in other than India where financial transparency in investments is so high that I sometimes feel, it comes from another planet.

 Your Money Needs Action

Today, there is a whole lot of variety to choose from and we have never been more spoilt for choice. But the most important thing in all this is to understand that your money needs action. It needs activity and for that the time is now!

And furthermore, if you asked me this question 10 years ago; I would have said that, the Time is NOW. If you ask this question 10 years hence, I will still say the Time is NOW. Any time is the right time to start the process of creating wealth. All that is important is that you take your first step; then continue it all the way with zeal and determination… till you have the level of wealth that you desire. And if you accumulate more than you need, still do it and share it with the world.

If you want your financial freedom; then the Time is NOW!

Kartik Jhaveri is an expert at planning money, life and aspirations. He is a Certified Financial Planner, Wealth Manager and Financial Freedom Coach.

Young Turks: Here’s the success story of venture fund Aspada

Venture fund Aspada was co-founded by Kartik Srivatsa and Thomas Hyland in 2012 and has made 17 investments so far across Fin-tech, agriculture, health and edu-tech startups.

Young Turks takes a look at their investment thesis, their differentiated VC model and meet three of their portfolio companies – Capital Float that underwrites unsecured loans to startups and SMEs; Dunzo, a hyper local concierge and delivery player that is also Google’s first direct startup investment in India; WayCool, a Chennai-based agriculture-tech startup.

Warren Buffett says prospects poor for ‘elephant-sized acquisition’

Warren Buffett is hunting for “an elephant-sized acquisition,” but he is not optimistic about getting it done.

The billionaire investor wrote in an annual letter to shareholders on Saturday that the prospects of landing a mega-deal for his Berkshire Hathaway Inc conglomerate are “not good,” because “prices are sky-high for businesses possessing decent long-term prospects.”

It is a problem for the Berkshire chairman and chief executive, whose company is sitting on $112 billion in cash and other low-returning assets that it has been struggling to invest for years.

“In the years ahead, we hope to move much of our excess liquidity into businesses that Berkshire will permanently own. The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects,” Buffett wrote. “That disappointing reality means that 2019 will likely see us again expanding our holdings of marketable equities. We continue, nevertheless, to hope for an elephant-sized acquisition.”

The prospect of such a deal, “causes my heart … to beat faster,” the 88-year-old investor said.


But Buffet said he would not get caught short of cash that he could use should market conditions deteriorate. Some of Buffett’s transactions over the last decade or so have included complex deals with distressed companies, including in the aftermath of the global financial crisis.

Buffett’s insurance business, meanwhile, collects premiums from businesses and individuals, cash that Buffett and his deputies use to make other investments.

But the US stock market has been on a stride since the financial crisis a decade ago, leaving little room for the bargain-hunting value investor to make his mark, much as had been the case for Buffett during the run-up in technology stocks in the 1990s.

Buffett often invests in stocks, such as Apple Inc , when he cannot find whole companies to buy. On Saturday, he said his inability to find a company to buy meant more stock buying is likely in 2019.

The Omaha, Nebraska, investor has also been snapping up more shares of his own stock. Berkshire bought back about $1.3 billion of its common stock in 2018, the company said.

But Buffett slammed corporate bosses who buy stock back when prices are lofty. Stock buybacks “should be price-sensitive,” and “blindly buying an overpriced stock is value-destructive, a fact lost on many promotional or ever-optimistic CEOs,” Buffett said in the closely watched letter.

Several US lawmakers have proposed restricting share buybacks, saying companies are incurring debt or wasting money to prop up their stock prices, while not making investments in their business or properly paying employees. Companies often argue they are just returning cash they cannot use to shareholders who can put the money to work.

Threat to hijack Air India plane, security tightened at airports

Security in and around India’s busiest airport – the Chhatrapati Shivaji Maharaj International Airport (CSMIA) – as well others around the country has been tightened following a threat to hijack an Air India aircraft, official sources said here on Saturday.

The threat came in a telephone call to the AI Operation Control Centre at Mumbai Airport late on Friday night, warning that an Indian Airlines (part of Air India) flight would be hijacked to Pakistan.

“It has been classified as a ‘non-specific threat’, but we have taken it seriously, in view of the current situation. Since it has not given details of any particular flight that may be targeted, we presume it can apply to any Air India flight anywhere in the country,” a top official, speaking on condition of anonymity, told IANS.

Early on Saturday morning, all agencies concerned held a meeting and later the Director General, Bureau of Civil Aviation Security (BCAS) directed the Central Industrial Security Force (CISF), which guards airports around the country, and all airlines to implement enhanced security measures with immediate effect.

The BCAS directive, issued through its Deputy Director Operations 2, New Delhi, said that all aircraft operators shall adopt eight specific measures, intended to ensure the security of flights and passengers.

The directive has asked the CISF’s Airport Security Unit and Aviation Security Group and other agencies to maintain strict access control to regulate entry to terminal buildings, all operational areas and other aviation facilities.

There is to be enhanced screening of passengers, staff and visitors including extra random screening at the main gate, of hold baggage, cargo, cargo terminal, catering, mails, etc, and ramping up of surveillance – both through CCTVs and manual – in and around the terminal building and operational areas, besides strengthening of Quick Reaction Team and perimeter patrolling.

They have been asked to undertake intensive checking of vehicles entering the car parking area to preclude the possibility of car bomb attacks.

The directive also sought to strengthen the manning of all cargo gates and vehicle entry gates with strong-armed support and any other security measures based on local intelligence inputs.

CISF Additional Inspector General of Police Hemendra Singh told IANS that the paramilitary force was already been on high alert in wake of the Pulwama attack and after this alert, it had further increased its vigil.

Kejriwal plans fast from March 1 for full statehood

Delhi Chief Minister Arvind Kejriwal said here on Saturday he will launch an indefinite fast from March 1, demanding full statehood for Delhi.

“I will be on an indefinite hunger strike from March 1,” he said.

Speaking on full statehood during a discussion in the Assembly, the Chief Minister said he will start a movement from March 1 and organise people undertake the fast.

“By giving us 67 of the 70 seats in Delhi, the city has done so much for us. From nowhere, it has made us ministers and MLAs. In return, even if we lose our lives, it will be less,” he said.

“From March 1, the movement for full statehood will be started. It will not end until the city is declared a full state,” the Aam Aadmi Party (AAP) chief said.

Soon after announcing the indefinite fast, Kejriwal has called a meeting of party MLAs at his residence. “The Chief Minister will meet all party MLAs at his residence at 10 p.m. to decide the strategy of the movement starting on March 1,” a senior AAP leader told IANS.

Tomorrow (Sunday), there will be a meeting with all party office-bearers at 11 a.m. at the Chief Minister’s house, the leader said.


Our fight is against terrorists, not Kashmiris, says Modi

Prime Minister Narendra Modi Saturday said India’s fight is against terrorism and not against the Kashmiris even as he vowed again to settle the score with Pakistan over the Pulwama attack.

Have faith in the Army and in the Modi government, he said here at a rally where he also seemed to refer to the reported harassment of Kashmiris after the car bomb attack that killed 40 CRPF jawans.

Modi accused Imran Khan of not living up to the assertions he made soon after becoming Pakistan’s prime minister, and also indirectly charged the Congress-led government in 2008 of not acting against that country after the Mumbai terror attack.

He referred to the mood of ‘veer ras’ (bravery and heroism) in the country after the Pulwama attack, particularly mentioning social media.
“But our fight is against terrorism, against the enemies of humanity. Our fight is for Kashmir, not against Kashmir, not against the Kashmiris,” he added.

He said the Kashmiri youths are also troubled by terrorism and are ready to fight against them. “We need to keep them with us.” He said the Kashmiri people take care of Amarnath pilgrims. “A year back, there was firing on Amarnath pilgrims and Kashmiri Muslim people had lined up for donating blood and to protect lives,” he said.

“If we want to win the fight, we should not make mistakes. A terrorist is a terrorist and the Kashmiri people are also facing trouble due to terrorism,” he said, accusing the previous governments of not fulfilling their aspirations.

The prime minister reiterated that the security forces have been given complete freedom (to retaliate). “Have faith in our soldiers deployed on the border, in the Modi government and on Maa Bhawani’s blessings,” he said.
“The scores will be settled this time, settled for good (Iss baar hisaab hoga, hisaab poora hoga),” he said.

In an apparent reference to Pakistan, Modi said peace in the world is not possible if the terror factory continues like this. “There is consensus in the entire world against terrorism. We are moving ahead with the strength to punish the perpetrators of terrorism,” he said.

“Stern action against those who live in India and encourage separatism has been taken and will be taken. This is a changed India, this pain will not be tolerated,” he said. “We will not sit quiet after suffering this pain. We know how to crush terrorism,” he said.

Modi recalled his conversation with Imran Khan during a congratulatory call after the cricketer-turned-politician became Pakistan’s premier.
The prime minister said he told Imran Khan that there had been enough battles between the two countries, in which Pakistan got nothing while India won each time.

“I told him let us fight against poverty and illiteracy,” Modi said, suggesting that Khan gave his word as a Pathan but went back on it. Modi said he feels sad about “a handful of people who live in India and speak the language of Pakistan”.

He said incidents like the Pulwama attack give strength to those who chant ‘Bharat tere tukde honge’, referring to slogans calling for the breakup of the country.He said these are the people who go to Pakistan, saying do anything but remove Modi.

“They are those who failed to show courage against the perpetrators of the Mumbai terror attack,” he said, without naming anyone. Attacking the Congress, he claimed that it had failed to fulfil its promise of waiving farm loans after coming to power in Rajasthan.

Listing the achievements of his government, the prime minister gave a new slogan, suggesting everything is possible under his government – Modi hai to mumkin hai.

He said that the previous dispensation would only discuss work, but his government completed it. The prime minister said the one rank, one pension scheme for retired soldiers remained on the backburner for 40 years, but his government implemented it. Shedding tears on the deaths of soldiers doesn’t befit those who could not implement the scheme, he added.

Market moved to NBFC because banks anyway cannot refinance, says Bank of America’s Jayesh Mehta on pledged shares

“Market moved to NBFC because banks anyway cannot refinance,” said Jayesh Mehta, Managing Director & Country Treasurer at Bank of America while discussing who will refinance pledged shares. Mehta made the statement while discussing the pledged shares. Somasekhar Vemuri, Senior Director at CRISIL Ratings and Ananth Narayan, Professor at SPJIMR were also part of the event. Here’s the full transcript of the interview:

Q: Before I come to the valuation of pledges not invoked, do you think there is a systemic problem here? Nilesh Shah of Kotak Mahindra AMC yesterday went on to say that even in these promoter instruments, at a higher haircut there are buyers. HNIs are buying their products, ARCs are buying their products and therefore there is no risk to the investor even in a credit risk fund. Are you sufficiently reassured?

Vemuri: Let me start by adding a caveat that CRISIL has not rated any of these debts which are backed by a pledge of shares. That said, our estimate of the debenture which is backed by pledge of shares is about Rs 40,000 crore. If you look at even the NBFC space which gives loan against shares, put all of that together, maybe it is about Rs 1 lakh crore which is outstanding in the market. So from a systemic perspective and the size of the market, it is just about Rs 1 lakh crore which is not very large and is not concentrated in one or two names. So that is a point I would like to highlight.

That said, when you are looking at the credit risk of these instruments, essentially these instruments are usually rolled over and refinanced; they are never actually repaid.

The ability to refinance clearly depends on what is the extent of cushion which is there in the market value of the instruments that are held at the holding company level vis-à-vis the debt which is there in the holding company level. There needs to be a sufficient amount of buffer that these covers will need to offer to withstand any volatilities in the equity share market.

Also, one point needs to be noted is, unlike retail loan against shares where there are very small holdings and the market will have the liquidity to absorb it even if the covenant breach has happened and not honoured, here you are really talking about very large stakes of companies which are pledged and potentially could result in change of control, etc. So when the market in the Indian context have enough liquidity and depth to absorb that, in case these triggers are breached and in case they need to be sold, I think that is a question which remains.

Q: Just one clarification, did you say promoter pledges are normally repaid or refinanced, what is the trend normally?

Vemuri: The trend is usually they are rolled over.

Q: This Rs 1 lakh crore, if it has to be refinanced, who will refinance? Banks clearly have been scared away, they have rules as well, now NBFCs and mutual funds have kind of burnt their fingers, so if it is not repaid who will refinance them? So there is a default down the year?

Mehta: I think very clearly this market moved to NBFC because banks anyway cannot refinance because banks have a regulatory sealing on loan against shares which falls as a part of that capital market exposure. So they have like 40 percent of your net worth, more than that you cannot go into capital market exposure which includes direct exposure in equity which cannot be more than 20 percent.

So in reality, both, real estate and loan against share market actually moved to NBFC because banks really cannot do that. So that is the basic genesis. So basically construction finance banks can do it, but they cannot do real estate land acquisition finance which NBFCs were doing and then of course loan against shares.

As Somasekhar Vemuri said, mostly pledge of shares by promoter generally gets rolled over. I think we were the pioneers to start both this construction finance and loan against shares way back in 2004-2005. I think the norm in the last few years, people have kind of diluted a lot. So when you do promoter financing, you actually try to restrict what is the percentage of pledge he is doing, not only with you, but with the market because you might do 20 percent, somebody else might do 20 percent, somebody else might do 20 percent, there is no liquidity left. So technically if you restrict that as a lender, and if you have a covenant where they need to take approvals from you, then even if the price falls generally you are prepared, even if price falls dramatically, you have enough pledge of shares coming in.

Q: So you mean standards had fallen in pledge governance you are saying?

Mehta: Yes. The standards have fallen. If you look at the boom in the last five years or so, particularly on the NBFC side, I think that is where the aggression started and then you had the credit funds. I heard your argument on credit fund, I am not defending Nilesh, but all I am trying to say, I think when people invest in credit fund, it is the same as equity. So, people that Rs 100 equity becomes Rs 10, nobody is bothered about, but if on debt fund and credit fund if your credit is impaired and it becomes Rs 60 then everybody makes a hue and cry. That is what the thing is. Real NAV if you pass on, then there is no problem.

Q: Do you think the problem is much bigger than what it seems and do you expect this to become a systemic risk?

Narayan: There is a problem, except it is probably being made out to be a lot more than it is. We are a growing economy, no economy is perfect, no market is perfect and we will stumble our way through and go ahead. But absolutely there are issues and I can list four of them.

First is there is a question mark rightly or wrongly about this entire trustworthiness of the credit rating agencies and what they come out with especially after the IL&FS event earlier.

Second bigger issue is on suitability and appropriateness. Look this particular instrument of lending against shares, look at the payoff to the investor, if things are going well, they get a debt return and if things suddenly turn sour, they start to face the same risk as an equity holder. So effectively it is an instrument which you can argue gives you a debt type of a return for an equity type of a risk on the downside. Now, do you really have investors being made aware of the nature of the risk that they are taking on right or wrong?

The third is an issue of governance. A lot of these bonds have been structured such that the fact that effectively the equity is pledged is not disclosed. They are just put up as a part of the covenant somewhere that there will be a top-up of the shares if necessary and effectively the fact that the promoter doesn’t have control on those shares is not disclosed to the overall larger community which is a problem as well.

Fourth on valuations and valuations not just for these particular bonds but for the entire set of corporate bonds. December end we had Rs 6 lakh crore worth of corporate bonds on the books of mutual funds. The monthly volumes in December, the whole of the month, was only 1.8 lakh crore. Most of these Rs 6 lakh crore, as Nilesh says, are good bonds, they are not bad bonds, but the secondary market liquidity simply isn’t enough to handle these kinds of volumes and we are producing NAVs every day. So, the problem is our market has probably grown too quickly too fast and the infrastructure to support this market doesn’t exist which means we have a problem at our hand.

Though these problems look egregious, I think they are manageable, we will get through with them. We will stumble our way through. I don’t think it is the end of the world, but yes there are some hard decisions to be taken here.

Q: The point on NAV, if you can come in there, we asked many of the credit rating agencies into this discussion, several of them didn’t come I think because they do the valuation and you have agreed because you are not in this pledge shares rating. But tell me, is the rating being done properly. When the collateral has diminished so much in value, are the rating agencies adequately reflecting it in downgrades? If they are not, even otherwise as Ananth pointed out when credit risk instruments themselves are full of bonds that are not traded is there a risk that the NAVs are being overstated?

Vemuri: Let me come to the first question since we have no rating in this space it will be difficult for me to comment on whether somebody else is doing an appropriate job or not. I can clarify what our approach is and how the current market operates. The current market is operating at cover levels of 1.3-1.7 times. Which means that for a debt of about Rs 100, you will have a pledge equivalent to Rs 130-170; different transactions have different covenants.

Whereas when we look at the rating of any of these structures, we would look at covers which are upwards of 6-8 times for us to be anywhere in the A category or so which typically is where the market has an acceptance.

So, I think there is a very big difference in terms of what our standards, in terms of the buffer that we would look for which will cover not only for the safety of rating but also cover for market volatility and give a cushion in terms of absorbent shocks. So clearly I think there is a need for having appropriate standards for rating such products. As I said these are usually rolled over or refinanced not repaid and hence the capability to refinance or rollover depends very clear on what is the kind of cushion that is available in terms of the overall market value of the holdings that the holding company has vis-à-vis the debt which is there sitting in variety of holding companies, and also the quality of the underlying operating companies.

Q: I will tell you actual evidence. Immediately after the IL&FS issue and this is I think documented in an IDFC paper, I am not very sure, in October-November AA paper yields had risen by 130 basis points, but A paper yields were shown as risen only by 30 basis points because they are not traded, they are this polling by rating agencies. So clearly that valuation by rating agencies needs to change, isn’t it? It doesn’t seem to be working.

Vemuri: That is something which I do not look at. There is a different team in ratings in CRISIL which would be in a better position to answer that question. So I would not be able to comment on that.

Q: You did bring up an issue of disclosures. Sebi, as we know, is the regulator for mutual funds and RBI is a regulator for NBFCs. So what needs to be done by both these regulators now? On NBFCs how should the RBI make sure or rather discourage these lenders especially NBFCs from entering into such agreements with companies and on Sebi, what are the disclosures that need to be done in order to secure investors?

Narayan: It is fine for this kind of lending to happen as long as there is appropriate disclosure and there is awareness of what people are getting into. If NBFC want to lend against shares and it is allowed to do so as long the promoter discloses and makes it abundantly clear to all the stakeholders that his shares are pledged – that should be fine. If it is done in a form which is effective a pledge but not shown as a pledge that’s a problem and that is where the governance issue comes in. I think the broader issue which Sebi and RBI have to address is this whole question of secondary market liquidity. Everybody want capital markets to grow. Sebi is saying every company over Rs 100 crore has to borrow 25 percent of its borrowing from the capital markets. RBI is saying large exposures perforce have to approach capital markets and borrow money from there. Everybody is pushing flows into capital markets. Therefore, to find fault with mutual funds for growing AUM to the size they have is wrong. The problem is that we do not have secondary market liquidity to sustain that kind of infrastructure and there are plenty of reports, since the time I had a lot more hair on my head we have been writing reports saying what needs to be done to improve capital market liquidity in this country, starting with RBI for instance; RBI Act being amended so that they can start to accept AAA paper at least as part of their liquidity adjustment facility.

Growing repo markets, having trading volumes grow with people like you and me starting to trade in bond markets just as we trade in equities.

There are the whole host of things that need to do; stamp duty for instance – that part is not being addressed and I think that has to be the starting point because the problem is all these issues about lending against shares etc. is the small portion of the overall, we have 28 lakh crore of corporate bonds outstanding. This is a very small portion out of that. The problem is the larger section which is good quality paper doesn’t have the infrastructure to stand on its own legs which is why when we have a panic situation or a near panic situation in September the whole system starts to shake which is wrong and that starting point of getting secondary liquidity is the area that we all have to concentrate on.

Q: I am worried about two issues. The first one that worried me is that in this credit risk fund 65 percent are in below AA paper. If there is an outflow you cannot sell that A and below paper because there is no market. You would have already exhausted the AAA that you have. So will there be a problem for those funds. The answer that mutual fund guys gave me is that even for that A they can sell it to HNIs. It’s not as if there is no market. Only the appropriate haircut will have to be shown because these guys will normally demand 13-14 percent even 18 percent in yield. Is there no systemic risk but only a fall in NAV that we should worry about in credit risk funds?

Mehta: Two things are required. One is as you said distributors explaining whether the credit risk – credit risk fund is between debt and equity and when you have defaults it actually becomes equity. So that is a need to make understand to the people not to hide away like we had, for a loan against shares, we had corporate default in one of the mutual funds 2-3 years back and everybody made hue and cry. Yes, if it is a credit fund default is going to happen otherwise that will pay government security yield. Second, in terms of liquid that is where we have to analyze looking at the volume like you have equity market NAV also happening at the previous day’s closing price but does it really mean that you can actually sell at that closing price outside Nifty-Fifty stocks, you cannot. So the repayment will come on that day’s closing. So NAV is a reflection. So when you redeem next day and a lot of the credit fund have time and when they actually sell then that is what you get is NAV. So that transmission should happen fast then there is no problem. Yes, there is a risk because you are getting higher return whether that higher return is priced well, but most importantly what has happened right now and that is why some of the investors are actually saying that I do not want NBFC paper to the mutual fund. If that goes on rising then the rollovers stop. It’s more like a mini-run and if that blows up then that becomes a problem. So it’s not blaming the industry; the run can happen on a bank, the run can happen on anything. We saw that in 2008.

Wondering what happened to your currency after demonetisation: Here’s the answer

Do you know what happened to the currency notes after demonetisation?

Shruti Malhotra met professor at National Institute of Design (NID), Pravinsinh Solanki who took it upon himself to ensure the shredded banned currency is recycled creatively.

RBI sent over 200 kilograms of the shredded notes to the institute and Solanki decided to hold a contest asking his students to come up with ideas and products in an attempt to recycle this waste and put it to work.

The contest got a stupendous response from Solanki’s design students. From bricks, wallets to bags, stools and even pencils. The scrapped notes got a new lease of life.

The Oberoi Udaivilas stands as a true heritage testament of the city of Udaipur

The state of Rajasthan dotted with magnificent palaces, colours and hidden experiences at every corner.

The crown jewel of the state is the city of Udaipur also known as the Venice of the east. It preserves the ethos of Rajasthan.

From the huge palaces to narrow winding streets to boutique jewellery stores to bustle markets, Udaipur is one of the world’s greatest destinations.

Sohila Bajaj embarked on a royal odyssey in the heart of Udaipur and the grand destination on her luxury trail is the Oberoi Udaivilas. Representing the continuity of royal Mewar traditions this hotel stands as a true testament of the heritage of the city of Udaipur.

Daimler, BMW to invest 1 billion euros in venture to rival Uber

German carmakers Daimler and BMW unveiled a joint ride-hailing, parking and electric car charging business on Friday to compete with mobility services provided by Uber and other tech firms.

The luxury car firms said they would invest more than 1 billion euros ($1.13 billion) to expand the joint venture, shifting beyond manufacturing and car sales towards pay-per-minute or pay-per-mile systems.

Consultancy PwC has said carmakers face marginalisation by cash-rich technology firms unless they develop services based on vehicle usage.

Established ride-hailing firms have been expanding. China’s Didi Chuxing aims to build its business in Latin America and Uber is gaining a stranglehold on its U.S. market.

“Further cooperation with other providers, including stakes in startups and established players, is also a possible option,” Daimler‘s Chief Executive Dieter Zetsche said.

Daimler‘s Car2Go car-sharing brand will be combined with BMW‘s DriveNow, ParkNow and ChargeNow businesses, with both carmakers holding 50 percent stake in the venture.

The venture has five strands: REACH NOW, a smartphone-based route management and booking service, CHARGE NOW for electric car charging, FREE NOW for taxi ride-hailing, PARK NOW for parking services and SHARE NOW for car-sharing.

“These five services will merge ever more closely to form a single mobility service portfolio with an all-electric, self-driving fleet of vehicles that charge and park autonomously,” said BMW Chief Executive Harald Krueger.

BMW and Daimler are working to develop autonomous cars, vehicles which could enable them to up-end the market for taxi and ride-hailing services.

Take a look at Red Bull FMX Jam 2019

Six years ago Red Bull India offered X-Fighters Jam at the India Gate in New Delhi. However, that was not a competitive event but it acquainted Indians with the idea of freestyle motorcycle stunting and now 6 years later Red Bull brought the FMX Jam at the Gateway of India in Mumbai.

Red Bull is a brand known to host some jaw dropping events across the globe and we were lucky enough to experience one of the stunning events in Mumbai earlier this month.

Government seeks to protect Indian consumer data, promote exports through new e-commerce policy

The Department for Promotion of Industry and Internal Trade released a draft of the national e-commerce policy on Saturday, which seeks to promote e-commerce exports, curtail e-commerce imports through the gifting route and strengthen data protection of Indian users by foreign companies. It also reiterates the recent FDI policy and calls for compliance under it in both letters as well as spirit.

The policy looks to allow foreign investment in the ‘marketplace’ model alone, and not for the inventory model, as had been proposed in an earlier draft last year for marketplaces with domestic control.

It also proposes the removal of the application fee for claiming export benefits, while calling for an integrated system that connects Customs, RBI and India Post to better track imports.

The policy also calls for all e-Commerce websites and applications available for download in India to have a registered business entity in India as the importer on record or the entity through which all sales in India are transacted. It also seeks to bar payments from Indian banks and payment gateways to unauthorized and unregistered sites and apps.

This is likely to hit popular Chinese e-commerce apps such as ClubFactory and Shein.

The policy keeps in line with the government’s stance on data sovereignty and seeks to bar sharing of data of Indian users stored abroad to other business entities outside India, even with the customer consent. It also states that all such data stored abroad shall not be made available to a foreign government, without the prior permission of Indian authorities, and also mandates e-commerce companies to comply with the request from Indian authorities to have access to all such data stored abroad.

In a cheer to small traders in the country, the e-commerce policy aims to promote e-commerce exports.  It proposes to increase the existing limit of Rs 25,000 to make Indian e-commerce exports attractive even for high-value shipments through courier mode.

As shipments in e-commerce exports are of low value, the preferred mode of shipment is via courier services. The extant Courier Imports and Exports (Clearance) Regulations, 1998 indicates that on the export side, these regulations shall not apply when the value of consignment is above Rs. 25,000 and involves foreign exchange transaction.

Another boon for smaller firms and start-ups attempting to enter the digital sector is that they can be given ‘infant-industry’ status. The draft cites that benefits of an ‘infant industry’ status could be accorded to such firms and start-ups and access to data could be at the centre of this approach.

The policy is also set to fight the issue of counterfeit products being sold on e-commerce platforms. It mandates that seller details should be made available on the marketplace website for all products. The platforms will also be required to seek authorization from trademark owners before listing high-value goods, cosmetics or goods having an impact on public health on their websites.

The Confederation of All India Traders welcomed the draft policy, especially for its focus on retail exports, but states that instead of the Standing Group of Secretaries on e-Commerce (SGoS) being the main channel to tackle inter-departmental issues, it should be done through a committee of stakeholders. The CAIT also said that its demand for getting domestic e-commerce players under the FDI rules is also not met.

The government has called for public feedback on the draft policy up till March 9.