CORPORATE UPDATES 06.02.2019

BANKS YET TO TAG RS 3.5 LAKH CRORE STRESSED CORPORATE LOANS AS NPAS: REPORT

Around Rs 3.5 lakh crore or 3.9 percent of the stressed corporate loans continue to remain unrecognised on the books of banks and nearly 40 percent of them may become dud assets by September 2020, warns a report. These accounts are part of the total stressed corporate exposure (interest coverage ratio of 1.5x) of 19.3 percent or Rs 13.5-14 lakh crore as of September 2018. Around 3.9 percent of the stressed corporate exposure of 19.3 percent total stressed corporate accounts are still unrecognised and are standard in banks' books, while around Rs 1.5-2 lakh crore of them may slip into NPAs by H2 of FY20, Jindal Haria, told. Of the Rs 13.5-14 lakh crore stressed corporate loans, banks have recognised only Rs 10 lakh crore as of September 2018, he added. Jindal said banks may need an additional f Rs 40,000 crore in provisions for these Rs 1.5-2 lakh crore loans, which may slip into NPAs. Meanwhile, the agency has maintained a stable outlook on large private sector banks and just two of the 19--State Bank of India and Bank of Baroda-and has retained a negative outlook for the remaining state-run banks till FY20. In FY20, all banks on which we have a stable outlook might see moderate write-backs of provisions on corporate assets, depending on the pace of resolutions, it said. The top 40 assets under the NCLT resolution regime are worth Rs 4.50 lakh crore for which banks have made provisions for 70-75 percent, the agency said in a report. Over FY19 and FY20, credit cost from stressed corporate assets will depend on ageing/resolution/ liquidation, if any, the report said, adding the cap on credit cost shall be established by ageing and will be around 4.4 percent, spread over FY19 and FY20. The agency estimates the quantum of government capital infusion (Rs 1.94 lakh crore) in FY18 and FY19 to be around 33 percent of the state-run banks' equity base as of the first half of FY19. This would largely cover the provisioning cost, especially on stressed corporate loans and meet the minimum Basel III requirements by March 2020, it said. The agency expects state-run banks would require incremental capital of about Rs 66,000 crore from the fourth quarter of FY19 through FY20, which is needed for a credit expansion of 10-11 percent in FY19 and FY20 each. This capital infusion, however, is not adequate to cover the impact of Ind-AS which could be substantial, the agency said in the report. As per the report, in the absence of Ind-AS, the credit cost of some state-run banks can be lower than their pre-provisioning operating profit due to ageing and fresh slippages, and these banks can report profit in FY20. In FY20, competition for deposits will intensify, as borrowings remains high, while system deposit growth remains muted at 6 percent. In a separate report, the agency said it expects NBFCs to witness margin pressures in FY20. The sector will register a tepid growth in FY20 due to slower traction in segments such as auto and real estate. The performance of collateral-backed MSME loans would continue to deteriorate, leading to the outlook for the segment being revised to negative from stable-to-negative. Lenders' over-reliance on collateral comfort rather than business cash flows of prospective borrowers, which had been stretched during demonetization and formalisation of income post-GST rollout, has led to the current spate of continuing defaults, it said. For tractor loans, the agency does not anticipate any further improvement in delinquencies in the near term, as the borrowers continue to grapple with less-than-normal monsoons and falling farm goods prices, as evident from lower food inflation.

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'REVISED PLAN IS CONTINUATION OF ORIGINAL RESOLUTION PLAN', NCLAT REJECTS TATA STEEL' S APPEAL IN BHUSHAN POWER CIRP

Upholding the right of resolution applicants to submit revised plans and that of the Committee of Creditors(CoC) to update, amend, modify or annul resolution plans, the National Company Law Appellate Tribunal (NCLAT) rejected the appeal filed by Tata Steels against consideration of revised resolution plans in the insolvency process of Bhushan Power and Steels granting more opportunity to all the eligible 'Resolution Applicants' to revise its 'financial offers', even by giving more opportunity, is permissible in the Law. However, all such process should complete within the time frame the order said. The tribunal termed the appeal premature and uncalled for as the Resolution Professional(RP) was yet to submit the approved resolution plan before the Adjudicating Authority, the NCLT. Admittedly, the Adjudicating Authority has not taken any decision on any of the 'Resolution Plan'. Therefore, we hold that there is no cause of action for the Appellant - 'Tata Steel' to prefer the appeal, observed the Tribunal bench headed by Justice S J Mukhopadhyay. Tata Steel's objection was initially against the consideration of belated resolution plan submitted by Liberty House. Later, it objected to the consideration of revised resolution plans submitted by JSW Steel. Tata claimed to have submitted the highest bid as on the original deadline of February 8, 2018. However, the CoC proceeded to consider the improved financial bids subsequently submitted by JSW Steel. According to Tata, the 'Resolution Applicants' have no right to revise their bids endlessly and the 'Committee of Creditors' are not authorized to entertain fresh or revised bids without exhausting available bids. It insisted that after submission of the original 'Resolution Plan', no 'revised financial offer' can be submitted It had earlier approached the NCLAT against the CoC considering the revised plans by bidders. But the Tribunal declined interference, and granted liberty to Tata Steels to revise its plans in an order passed in August 2018. Accordingly, it also submitted revised plans. Therefore, the NCLAT noted that it was not open to Tata Steels to contend that revised plans cannot be accepted. Also, referring to its judgment in Binani Cements Case, it said that improved financial offer(s) submitted by a 'Resolution Applicant is a continuation of its Resolution Plan already. Submission of revised offer is in continuation of the 'Resolution Plan' already submitted and accepted by the 'Resolution Professional', the Tribunal had held in Binani Cements. The bench also observed that resolution applicant had no vested right or fundamental right to have its 'Resolution Plan' considered or approved, quoting the SC decision in Arcelor Mittal case. Referring to the clauses in the process document, the NCLAT observed that the 'Committee of Creditors' have absolute discretion but without being under any obligation to do so, update, amend or supplement the information, assessment or assumptions and right to change, update, amend, supplement, modify, add to, delay or otherwise annul or cease the 'Resolution Process' at any point. The Resolution Plan can be modified as per dates or other terms and conditions set out in the 'Process Document'.The CoC have right to negotiate better terms with the Resolution Applicant to ensure value maximisation. Opening the sealed cover submitted by the Committee of Creditors, the Tribunal found that the plan submitted by JSW Steel was approved by CoC with 97.12 % votes. Recording this, the matter was remitted to the NCLT for passing appropriate order under Section 31. The RP was directed to submit the approved plan before the NCLT.

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IBC CODE: NCLT HAS NO JURISDICTION TO ENQUIRE INTO JUSTNESS OF REJECTION OF THE RESOLUTION PLAN: SC

The Supreme Court has observed that National Company Law Tribunal has no jurisdiction and authority to analyse or evaluate the commercial decision of the Committee of Creditors (CoC) to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors. The bench comprising Justice AM Khanwilkar and Justice Ajay Rastogi observed that upon receipt of a "rejected" resolution plan the adjudicating authority (NCLT) is obligated to initiate liquidation process under Section 33(1) of the Insolvency and Bankruptcy Code. The bench was considering appeals (K. Sashidhar vs. Indian Overseas Bank) against an NCLAT Rulings which held that the requirement of approval of resolution plan by vote of not less than 75% of voting share of financial creditors is mandatory. Rejecting the appeal filed by Resolution applicants, the bench observed that the action of liquidation process is avoidable, only if approval of the resolution plan is by a vote of not less than 75% (as in October, 2017) of voting share of the financial creditors. It said: "Neither the adjudicating authority (NCLT) nor the appellate authority (NCLAT) has been endowed with the jurisdiction to reverse the commercial wisdom of the dissenting financial creditors and that too on the specious ground that it is only an opinion of the minority financial creditors. The fact that substantial or majority percent of financial creditors have accorded approval to the resolution plan would be of no avail, unless the approval is by a vote of not less than 75% (after amendment of 2018 w.e.f. 06.06.2018, 66%) of voting share of the financial creditors. To put it differently, the action of liquidation process postulated in Chapter-III of the I&B Code, is avoidable, only if approval of the resolution plan is by a vote of not less than 75% (as in October, 2017) of voting share of the financial creditors. Conversely, the legislative intent is to uphold the opinion or hypothesis of the minority dissenting financial creditors That must prevail, if it is not less than the specified percent (25% in October, 2017; and now after the amendment w.e.f. 06.06.2018, 44%). The inevitable outcome of voting by not less than requisite percent of voting share of financial creditors to disapprove the proposed resolution plan, de jure, entails in its deemed rejection" The court also observed the scope of enquiry and the grounds on which the decision of "approval" of the resolution plan by the CoC can be interfered with by the adjudicating authority (NCLT), has been set out in Section 31(1) read with Section 30(2) and by the appellate tribunal (NCLAT) under Section 32 read with Section 61(3) of the I&B Code. But there is no corresponding provision which empowers the resolution professional, the adjudicating authorities (NCLT & NCLAT), to reverse the "commercial decision" of the CoC. The bench also rejected the contention that the stipulation in Section 30(4) as applicable at the relevant time in October 2017 is only directory and not mandatory. The argument was based on the expression "may" occurring in Section 30(4) of the Code. The bench said: "This argument does not commend to us. In that, the word "may" is ascribable to the discretion of the CoC to approve the resolution plan or not to approve the same. What is significant is the second part of the said provision, which stipulates the requisite threshold of "not less than seventy five percent of voting share of the financial creditors" to treat the resolution plan as duly approved by the CoC. That stipulation is the quintessence and made mandatory for approval of the resolution plan. Any other interpretation would result in rewriting of the provision and doing violence to the legislative intent." Commercial Decisions OF Financial Creditors Non Justiciable On the amendment brought into force from November 2017, which inserted these words "after considering its feasibility and viability, and such other requirements as may be specified by the Board", in Section 30 of the Code, the bench said: "Suffice it to observe that the amended provision merely restates as to what the financial creditors are expected to bear in mind whilst expressing their choice during consideration of the proposal for approval of a resolution plan. No more and no less. Indubitably, the legislature has consciously not provided for a ground to challenge the justness of the "commercial decision" expressed by the financial creditors – be it to approve or reject the resolution plan. The opinion so expressed by voting is non-justiciable. Further, in the present cases, there is nothing to indicate as to which other requirements specified by the Board at the relevant time have not been fulfilled by the dissenting financial creditors. As noted earlier, the Board established under Section 188 of the I&B Code can perform powers and functions specified in Section 196 of the I&B Code. That does not empower the Board to specify requirements for exercising commercial decisions by the financial creditors in the matters of approval of the resolution plan or liquidation process." Placing reliance on the July 2018 amendment which substituted the threshold requirement of 75% to 66%, it was contended that, since the same was brought into force when appeals were pending, the NCLAT was obliged to consider its effect on the present cases. Rejecting the said contention, the bench said: "The amendment under consideration pertaining to Section 30(4), is to modify the voting share threshold for decisions of the CoC and cannot be treated as clarificatory in nature. It changes the qualifying standards for reckoning the decision of the CoC concerning the process of approval of a resolution plan. The rights/obligations crystallized between the parties and, in particular, the dissenting financial creditors in October 2017, in terms of the governing provisions can be divested or undone only by a law made in that behalf by the legislature. There is no indication either in the report of the Committee or in the Amendment Act of 2018 that the legislature intended to undo the decisions of the CoC already taken prior to 6th day of June, 2018. It is not possible to fathom how the provisions of the amendment Act 2018, reducing the threshold percent of voting share can be perceived as declaratory or clarificatory in nature. In such a situation, the NCLAT could not have examined the case on the basis of the amended provision For the same reason, the NCLT could not have adopted a different approach in these matters. Hence, no fault can be found with the impugned decision of the NCLAT. Non-recording of any reason for taking such commercial decision will be of no avail. The bench also observed that non-recording of reasons for approving or rejecting the resolution plan by the concerned financial creditor during the voting in the meeting of CoC, would not render the final collective decision of CoC nullity per se. Non-recording of reasons for approving or rejecting the resolution plan by the concerned financial creditor during the voting in the meeting of CoC, would not render the final collective decision of CoC nullity per se. Concededly, if the objection to the resolution plan is on account of infraction of ground(s) specified in Sections 30(2) and 61(3), that must be specifically and expressly raised at the relevant time. For, the approval of the resolution plan by the CoC can be challenged on those grounds. However, if the opposition to the proposed resolution plan is purely a commercial or business decision, the same, being non-justiciable, is not open to challenge before the Adjudicating Authority (NCLT) or for that matter the Appellate Authority (NCLAT). If so, non-recording of any reason for taking such commercial decision will be of no avail. In the present case, admittedly, the dissenting financial creditors have rejected the resolution plan in exercise of business/commercial decision and not because of noncompliance of the grounds specified in Section 30(2) or Section 61(3), as such. Resultantly, the amended regulation pressed into service, will be of no avail." Dismissing the appeals the bench said: "We hold that the NCLAT has justly concluded in the impugned decision that the resolution plan of the concerned corporate debtor(s) has not been approved by requisite percent of voting share of the financial creditors; and in absence of any alternative resolution plan presented within the statutory period of 270 days, the inevitable sequel is to initiate liquidation process under Section 33 of the Code. That view is unexceptional.

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BANKS MAY SEE FRESH NPAS OF UP TO ₹2 TRILLION OVER NEXT ONE YEAR

Banks could see an addition of fresh bad loans worth ₹1.5-2 trillion over the next one year, credit rating agency India Ratings said. While the stress in the corporate loan book has peaked, there is a stock of ₹3.5 trillion of bad loans which is not recognized and remains standard on the books of banks, according to India Ratings’ banking sector outlook report. The agency expects nearly 40% of this to turn into non-performing assets over the next two years. Currently, the total stock of stressed corporate loans with interest coverage ratio of less than 1.5 times constitutes 19.3% of the total loan book. The report, however, added that the provisioning impact of these loans will be minimal as these are smaller accounts of less than ₹2,000 crore each. The rating agency expects infrastructure and power to contribute to higher provisioning over the next two years. “We estimate the eventual credit costs over FY19 and FY20 could be between 1.9% and 4.4% of net advances depending on pace of resolutions of corporate NPAs. Fresh slippages in 2HFY19 to 1HFY21 in worst case could be about 40-50% of the ₹3.5 trillion unrecognized corporate stressed assets with interest coverage ratio < 1.5x. These would mostly be accounts with borrowings of INR 20 billion and could attract provisions of about 25% (included in the aforementioned credit cost estimates) over the same period," said Jindal Haria in the report. The report also warned there are early signs of stress building up in the retail loan portfolio. The growth in retail credit over the past three years is not supported by a commensurate growth in wages and employment. For instance, retail credit grew at 17.8% over fiscal year 2015 to 2018, compared with average employment growth of 6% and wage growth of 2.1%. However, according to Reserve Bank of India’s latest financial stability report, gross NPA ratio of banks is expected to decline from 10.8% in September 2018 to 10.3% in March 2019 and 10.2% in September 2019. The India Ratings report also said competition for deposits will intensify in fiscal year 2020 as borrowings for banks remain high despite weak credit growth. According to the rating agency, private sector banks are more likely to raise deposits even at higher rates as advances growth outpaces deposit growth. The system credit growth is expected to pick up to about 13% year on year in FY20 with private sector banks driving the growth. The rating agency expects few NBFCs to overhaul their balance sheet by replacing short-term borrowing with long term funds, following the recent liquidity crisis. It also expects tight liquidity condition to prevail for NBFCs throughout FY20 and sees consolidation among some of these players.

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REID & TAYLOR TO BE LIQUIDATED: NCLT

The National Company Law Tribunal (NCLT) Mumbai on Tuesday ordered the liquidation of textile and fashion major Reid & Taylor after all attempts to revive it failed. The NCLT Mumbai bench comprising B.M. Mohan and V. Nallasenapathy ruled that the investors have failed to satisfy their networth before the NCLT and hence there are no options left but to order the liquidation of the company preferably as a going concern. The ruling came after several investors proposed by the Employees Association and other bidders in the past few months failed to satisfy the basic criteria to take over the company. We call upon the registrar and Resolution Professional (RP) to put in their best efforts to ensure that the company is sold as a going concern, the NCLT Mumbai Bench said in their oral order.

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BPCL SEEKS LIQUIDATION OF ESSAR STEEL

Bharat Petroleum Corp Ltd (BPCL) sought the liquidation of the assets of Essar Steel India Ltd at a bankruptcy court. The public sector oil company objected to ArcelorMittal’s resolution plan, which, it said, sidestepped dues to operational creditors like BPCL. The financial creditors had voted in favour of the resolution plan of ArcelorMittal on 25 October. ArcelorMittal’s resolution plan envisages an upfront payment of ₹42,000 crore to lenders and an additional ₹8,000 crore towards capital expenditure. A clutch of operational creditors have challenged the committee of creditors and the resolution professional’ decision to accept ArcelorMittal’s resolution plan. Standard Chartered Plc has also approached the NCLT as a dissenting financial creditor so that it can be heard before the tribunal decides on ArcelorMittal’s bid.

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TREAT US LIKE OTHER MEMBERS OF ESSAR STEEL COC: STANDARD CHARTERED TO NCLT

Reiterating its earlier claims, Standard Chartered Bank (SCB) on Tuesday sought to be treated equally with other members of the insolvent Essar Steel Ltd's (ESL's) committee of creditors (CoC) during repayment of dues under ArcelorMittal's takeover bid. Alleging that while rest of the 26-odd CoC members were being paid 92 per cent of their dues, SCB told the National Company Law Tribunal's (NCLT's) Ahmedabad Bench that it was being discriminated under the bid with only 1.7 per cent of its total claims set to be repaid by the LN Mittal-led company. SCB's legal counsel on Tuesday told the two-member Bench, comprising adjudicating authorities Harihar Prakash Chaturvedi and Manorama Kumari, that in the Rs 42,000-crore bid made by ArcelorMittal, CoC members led by State Bank of India (SBI) were being paid the full in principal amount and 40 per cent of interest accrued totaling roughly Rs 41,900 crore. As against this, SCB, which was being excluded from the CoC and not counted as a secured financial creditor, was getting a paltry Rs 60.71 crore against its total claims worth roughly Rs 3,500 crore, including interest. Members of the CoC had objected to SCB being declared as a secured financial creditor on the grounds that Essar Steel was neither a direct corporate debtor of SCB nor did it offer any collateral. Essar Steel had defaulted on its guarantee for SCB's loan to its Mauritius-based subsidiary Essar Steel Offshore Ltd. SCB's counsel also alleged that while the CoC meeting on October 22, 2018, was held to discuss the resolution plan submitted by ArcelorMittal, the final plan, including commercial aspects, was only presented on October 23, 2018, minutes before the voting on the plan began. The CoC also appointed a four-member sub-committee to renegotiate the plan with ArcelorMittal, while keeping SCB in the dark, the latter told NCLT. SCB alleged that as part of the negotiations, the upfront cash component under ArcelorMittal's bid was brought down to Rs 39,500 crore, with the remaining Rs 2,500 crore being included as working capital claims to be paid later. Negotiations between creditors and resolution applicant should be to pay more not less. Instead of increasing the amount, SCB told NCLT while adding that Rs 2,500 crore was adjusted by bringing down upfront cash payment from Rs 42,000 crore to Rs 39,500 crore. On the other hand, the remaining Rs 2,500 crore as working capital claims were to be paid to creditors by ArcelorMittal. The end result is ArcelorMittal benefits by Rs 2,500 crore, which it would otherwise have had to pay over and above the Rs 42,000 crore. The CoC members benefit by getting principal, plus 40 per cent interest, while we get only 1.7 per cent of our principal, SCB told NCLT. Further, the allocation of repayment of dues to various creditors under the bid was done by the CoC and not ArcelorMittal, contrary to the Insolvency and Bankruptcy Code (IBC), as well as conditions mentioned in the request for proposal (RFP) invited, SCB told NCLT. Resolution plan doesn't give a break up of creditors. Rather, the resolution applicant agreed that CoC will decide who gets what. AM washes his hands, leaving it on CoC, contrary to law (RFP and regulation) which states that resolution applicant has to decide, not CoC, SCB alleged. Meanwhile, when asked by the Bench whether this would now result in the plan eventually being quashed and Essar Steel forced into liquidation, SCB told NCLT that there was a possibility of the CoC and ArcelorMittal being asked to rework the bid.

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DISCLOSE UNLISTED FIRMS’ FINANCIAL DETAILS, IMPROVE CORPORATE GOVERNANCE IN PROMOTER GROUPS: KOTAK SECURITIES

Even as we continue to see stocks of various companies with high-pledge shareholding tumble, Kotak Institutional Equities has called stronger corporate governance standards in Indian promoter group companies. We see a need for stronger corporate governance standards in view of

(1) the recent spate of allegations of impropriety in and

(2) revelations of ‘large’ debt of majority shareholders/promoters of a few large, listed Indian companies, Kotak Institutional Equities said in the report.

Notably, in the recent times, investors have started selling shares of firms with high-pledge shareholding after the promoter of the Essel Group had failed to bring in fresh shares as collateral to make up for the crash in stock prices. According to the research firm, additional disclosures on financials and the debt position of all unlisted entities of promoters with a majority or significant ownership (more than 26%), that hold shares of a listed entity would help minority investors better assess the true health of Indian promoter groups. Current disclosures on pledged shares of promoters and related-party transactions of listed entities are helpful but fall short of providing a complete picture to minority shareholders, noted the report. Kotak Institutional Equities said that the Indian regulators could consider restoring circuit limits for all stocks; currently F&O stocks do not have any limits for upward or downward movements and exercising their extant powers to suspend trading in a stock in case of an extraordinary event. We understand that there is a fine line between maintaining the sanctity of the market and over-enthusiastic regulation but we believe wild allegations and equally wild market responses serve little purpose and probably dent the confidence of small investors in the market, noted the report. The report noted that promoters alone can be held responsible for financial impropriety when an independent board of directors oversee the conduct of the firm’s management. Hence, the regulators may be compelled to implement stricter standards for directors of companies. The threat of regulatory action (including complete ban from all directorships) will either spur directors to exercise their fiduciary responsibility better or quit boards of companies that appear to violate the spirit of corporate governance, said the report.

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INDIA'S SHADOW BANKS DREAD BUILDER BANKRUPTCIES

Just a year ago, India’s third-largest mortgage lender was bragging about how it had shrunk its financing costs by replacing bank loans with market borrowings. Now, Dewan Housing Finance Corp. is confronting the fallout of that seemingly clever strategy, one that many of its peers face as well: a dangerously high exposure to India’s struggling developers. At the end of March 2018, Dewan had brought its cost of funds down to 8.4 percent a reduction of almost 2 percentage points in three years. Like other Indian shadow banks, Dewan had ratcheted up sales of bonds and commercial paper to yield-hungry mutual funds, taking the share of debt-market financing to 40 percent from 28 percent. With their market shares slipping, banks, too, had no choice but to offer better terms. After all, this was an established, highly rated borrower expanding its liabilities by a compounded annual rate of 24 percent when there was very little demand for credit to put up new factories. Then, after sudden defaults by infrastructure operator-financier IL&FS Group last September, Dewan’s share price went into a tailspin While the lender had no direct links with IL&FS, all shadow banks that were relying on short-term money-market financing to finance long-term assets – either bridges or homes – came under scrutiny. Dewan has since cut its liabilities by $2.5 billion, aggressively securitized and sold assets to investors such as Oaktree Capital Management, hit the brakes on torrid growth and tried to stabilize its portfolio at a little under $18 billion. Meanwhile, Cobrapost, an investigative journalism website, ran an expose alleging that the family of Dewan Chairman Kapil Wadhawan had siphoned off more than 310 billion rupees ($4.3 billion) of public money for private gains. The lender denied the allegations as a “mischievous misadventure” to sully its reputation. Nevertheless, with the stock falling further, Care Ratings and Brickwork Ratings downgraded the lender’s triple-A issuer credit ratings by a notch. Scrambling, Dewan and its parent, Wadhawan Global Capital, recently sold a specialist lender for low-income earners to Blackstone LP. To further regain investors’ trust, the Mumbai-based firm is looking for a strategic partner to infuse fresh equity. It’s a race against time. Ever since the IL&FS crisis made the funding markets nervous, analysts have started looking more closely at what companies like Dewan actually do. Yes, they lend a lot to individual borrowers looking to buy homes, which has been a great business of late because the government of Prime Minister Narendra Modi offers subsidies on affordable housing so lenders can offer attractive rates. (By the end of last year, such subsidies added up to more than $250 million for Dewan). The risky part of the business, though, is lending to builders. Leaving aside the relatively safe avenue of lease-rental discounting, India has about 3.4 trillion rupees ($47 billion) of outstanding developer loans according to Jefferies analysts Bhaskar Basu and others. Blinded by falling funding costs, shadow banks raised their exposure to property firms by 46 percent over three years even as bank loans to builders grew by a far more cautious 4 percent. Stock markets saw the financiers’ high returns on equity and ignored the risks. In December, Jefferies analysts estimated 81 percent of the loan book of Piramal Enterprises Ltd.’s housing-finance subsidiary to be made up of advances to 134 construction accounts. For Dewan, which is more of a retail operation than Piramal, the lumpy developer loan book was still significant at 20 percent of the total in September, according to Care Ratings, which says the lender will lower that vulnerability to 10 percent by March. Trouble is, what’s good for one may be disastrous for all. Between them, the top seven Indian cities have 673,000 unsold homes. About 85,000 are ready to move in, according to ANAROCK Property Consultants. Buyers are spoiled for choice. To quickly finish and clear the remaining inventory, builders will need more money at a time when Dewan and other financiers are shunning them. If that retrenchment forces developers into bankruptcy, lenders’ profits will take a further hit and capital may erode. Instead of improving their access to funding markets, deleveraging might just end up making matters worse. India recently announced tax breaks on second-home purchases to encourage buying. Developers, too, will get an extra 12 months’ reprieve on the tax they need to pay on the notional rent from unsold homes. The property industry’s funding crunch may ease somewhat, though it’s hard to predict if the improvement will be adequate and adequately helpful across micro markets. Dewan and its peers can’t relax yet.

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RCOM SEEKS RELIEF FROM RBI DIKTAT TO SPEED UP RELIANCE JIO DEAL

Reliance Communications (RCom) on Tuesday said it was referring the proposal under which Reliance Jio agreed to buy its telecom assets to the National Company Law Tribunal (NCLT), making a plea for relaxing the provisions of the Reserve Bank of India (RBI) circular of February 2008. Under the circular, 100 per cent of the members of the committee of creditors have to accept the offer of debt resolution. RCom has pointed out its 37 lenders were unable to come to a consensus despite 12 months of discussion and more than 45 meetings on clearing the sale unanimously as required under the RBI rule, which has been challenged in the Supreme Court. A top executive of RCom said: “We have referred the proposal of the sale of our telecom assets to Reliance Jio to the NCLT. We are neither under the Insolvency and Bankruptcy Code (IBC) nor (under) the insolvency process. All we want is relief from the 100 per cent rule. Under the IBC a minimum of 66 per cent of the members endorsing a proposal is enough to give the resolution proposal a clearance. As 95-97 per cent of the creditors voted for the sale of the RCom telecom assets, we are making a plea for relaxing the 100 per cent rule.” The executive said while there was a consensus on the sale of the telecom assets, so that it could repay a substantial part of the Rs 38,000 crore of debt there was no consensus on how the cash would be distributed between banks with varying exposures. The RCom executive said its plea would not be followed by any bidding process for the assets and floating an expression of interest as in an insolvency case. “The resolution process has been undergone where the committee of creditors appointed an independent evaluation committee and expressions of interest were called from prospective buyers. It was through this process that Reliance Jio won the bid.” The board of RCom is of the opinion that this would be the best course of action, ensuring a comprehensive debt resolution in a time-bound manner within the prescribed 270 days.

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SBI CHIEF FACES ERICSSON CONTEMPT PLEA

Ericsson has filed a contempt of court petition against the State Bank of India (SBI) chairman in the Supreme Court for not fulfilling its assurance of settling Reliance Communications’ dues to the telecom equipment maker as the lead banker. The Swedish firm has also filed its third contempt petition against RCom chairman Anil Ambani, urging the top court to freeze his personal assets and not allow him to leave the country “for breaching the top court’s orders multiple times,” a person aware of the development said. “As lead banker, SBI is also responsible for ensuring the court’s orders of payment are followed.” The petition has also sought to add RCom units Reliance Telecom and Reliance Infratel as parties, the person said. SBI was lead banker in RCom’s asset monetisation plan which aimed to bring down Rs 42,000-crore debt by at least Rs 18,000 crore through a wireless assets sale to Reliance Jio Infocomm and land parcel sale to Canadian firm Brookfield.

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LENDERS BANK ON BOTS TO IMPROVE CUSTOMER SERVICE

Banks are finding ways of harnessing technology to transform customer service by automating customer queries, minimising human intervention and extending services to accomplish financial tasks over chat or voice conversation. Prominent lenders like HDFC Bank, IndusInd Bank, Kotak Mahindra Bank and Yes Bank are adopting chat bots and voice bots for customer care. The shift started over the last 12 to 15 months, but with improvements in natural language processing and advancements in artificial intelligence, bankers say they are on the cusp of an automated future. “We started the journey on ‘bots’ about 1.5 years back, and have handled close to eight-million queries since the launch. We have achieved close to 90% accuracy on the service,” said Nitin Chugh. “Beyond being a simple banking assistant, we have brought in bill payments, movie-ticket bookings and other capabilities into Eva, our chat bot.” Eva appears on the net-banking portal of the bank. Banks need to keep teaching these bots all the queries that come in through multiple channels and how to handle them. This makes their responses more accurate with time. Since bots do not judge customers and there is no fatigue, they can keep serving them with equal ease, said bankers. Kotak Mahindra Bank is also pushing its bot to expand its scope of operations In its first phase, the bank has taken the entire Interactive Voice Recording tree on to the bot, which has increased the efficiency of its operations. “For every customer interaction through the bot, we have managed to reduce the number of steps by three to four and overall it has helped reduce customer journey by 45 to 50 seconds,” said Puneet Kapoor. Having started in February 2018, the chat bot has already handled 1.6-million queries and clocked 91% accuracy. “Our IVR conclusions in the first phase itself got pushed to 9% with the bot from around 3% in the normal procedure; with phase two, we are already seeing it getting pushed to 14%,” said Kapoor. In phase two, these applications will slowly develop capabilities to lock in complaints and solve them as well. Banks are slowly integrating these services with their core banking systems to let them accomplish tasks.

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MUTUAL FUNDS ASK SEBI FOR TIME TO SAVE ESSEL’S WORLD

Mutual funds have approached the Securities and Exchange Board of India to allow them to alter the terms of Essel Group debenture trust deeds to give the promoters time to bring in a strategic investor instead of having to offload pledged shares as there is a drop in the security cover, said people aware of the matter. The capital market regulator will seek to determine whether the mutual funds are acting in the best interests of the investors while deciding on the matter, they said. The Subhash Chandra-led group had reached a formal pact with lenders, including MFs and non-banking finance companies (NBFCs), to this effect after shares of Zee Entertainment and Dish TV plunged 26% and 33%, respectively, in a single day on January 25. Essel Group had sought time until September end. That had sparked panic about forced selling by lenders as promoters were unable to provide fresh shares to cover the shortfall in collateral. The cover ranges from 1.5 to two times the debt and had fallen below the threshold after stock prices fell. Fund houses have already sought legal opinion on whether the arrangement with the Essel Group is in line with mutual fund regulations. “There is a provision that the majority of debenture holders can come together and change the debenture trust deed. We have informally approached Sebi proposing to change the terms and conditions on extending time when there is a drop in security cover. We will also be taking trustee approval for the same,” said a senior executive at a large fund house. “It is the prerogative of the fund manager to take the best call on investment. In the larger interest of investors, mutual funds feel this arrangement is appropriate for the current situation.”

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SEBI ASKS EXCHANGES TO STEP UP INTRA-DAY SURVEILLANCE; STOCKS WITH NEGATIVE NEWS FLOW UNDER SCANNER

Capital markets regulator Sebi has asked exchanges to step up their surveillance of intra-day trading in the wake of significant volatility in a few stocks, sources said. The stocks already under the scanner of the leading exchanges BSE and NSE include those of a troubled airline, a media conglomerate facing liquidity crunch, a finance company under lens for alleged payment defaults, a pharma major being probed for insider trading and other violations as also a mining-to-infrastructure major. Recently, these stocks have seen increased volatility amid adverse news flow regarding their promoters, top management and other issues. And the exchanges have sought explanation from these companies about volatility as well as media reports. They said that in view of the recent volatility in the market, they have stepped up their surveillance. The bourses said the trading members also have the responsibility of monitoring the trading activity of their clients "Accordingly, trading members are advised to step-up monitoring of the trading activity of their clients including intra-day activity and proactively report to the exchange observations/findings, if any," the BSE said in its circular. A similar circular was issued by the NSE to its own trading members.

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SEBI COMES OUT WITH A STRICT FRAMEWORK FOR PUBLIC INTEREST DIRECTORS

Markets regulator Sebi Tuesday came out with a strict framework for public interest directors serving at stock exchanges, clearing corporations and depositories. Under the framework, public interest directors (PIDs) will be nominated for three years extendable by another term of three years. However, this will be subject to a performance review, the Securities and Exchange Board of India (Sebi) said in a circular. Following the expiry of tenure, such director may be nominated for a further term of three years in another market infrastructure institution (MII) only after a cooling-off period of one year. The tenure of PIDs can be a maximum of three terms of three years each, subject to 75 years of age. With regard to the term of existing PIDs serving in an MII for more than three years, Sebi said the term can be extended, subject to the performance review and a maximum tenure of six years in that particular MII. However, the term of existing PIDs who have already served for six years or more in a single MII will not be eligible for further extension in that entity. According to Sebi, the nomination and remuneration committee (NRC) of the MIIs -- stock exchanges, clearing corporations and depositories -- will be responsible for framing the performance review policy for PIDs. Such policy will include criteria for performance evaluation, methodology adopted for such evaluation and analysing the results, amongst others. Also, it will include scope for both internal as well as external evaluation. Further, as performance review is not a static process and requires periodical review NRC shall also be responsible for reviewing such performance review policy, at least once in 3 years. Such performance review policy and changes made therein, shall be approved by the governing board of MII, Sebi said. With regard to evaluation mechanism, the regulator said that PIDs will be subject to internal and external evaluation, carrying equal weightage. Under the internal evaluation, all the governing board members will evaluate the performance of each PID on an annual basis at the end of every financial year. PIDs will be subject to external evaluation during their last year of the term in an MII by a management or a human resources consulting firm. The consultant shall take into consideration the performance of the PID for the entire tenure served in a given MII, at least up to 4 months before expiry of his/her term. In order to avoid any bias or conflict of interest, external consultant should not be a related party or associated with the MII, the concerned PID or any other governing board members, Sebi noted. In case of any conflict of interest of any PIDs, then the same should be disclosed to Sebi by the governing board with their comments. In addition to the other requirements prescribed in performance review policy of the MIIs, NRCs need to consider that the concerned PID has not remained absent for three consecutive meetings of the governing board and has attended 75 per cent of the total meetings of the governing board in each calendar year, failing which PID will be liable to vacate office. Besides, PIDs in the governing boards of MIIs should be selected from diverse fields of work in terms of their qualification and experience. The application for extension of term of a PID needs to be accompanied with the attendance details in the meetings of various mandatory committees as well as the governing board of the MII along with specific reasons for seeking the extension. Such specific reasons shall include facts such as whether the concerned PID, during the term served, had identified any important issues concerning any matter which may involve conflict of interest, or have significant impact on functioning of MII, or may not be in the interest of securities market as a whole, and whether the PID had reported the same to Sebi, the regulator added. The regulator has clarified that a minimum of two names shall be submitted by MIIs at the time of making request for appointment of PID and extension of the term of existing PID, including appointment for the purpose of broad basing the governing board, against each such vacancy. After taking into account the performance of a PID in the concerned MII, on the basis of internal evaluation and external evaluation, NRC will consider and recommend extension of the tenure to the MII's governing board. The governing board of the MII will in turn consider and recommend to Sebi if the tenure of the PID is desired to be extended by another term of three years.

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ZEE, DHFL, IL&FS CRISES EXEMPLIFY POOR CORP GOVERNANCE: FRANKLIN

Franklin Templeton Investments India, which is the largest foreign fund house operating in the country, Tuesday said recent corporate events exposing the follies in governance are a big worry for investors. The comments come amid difficulties being faced by the Subhash Chandra-led Essel group or the Wadhawans' DHFL and the ILF&FS crisis, which have been facing liquidity issues leading to investor concerns. It is a big worry for us in terms of the strength of governance, Franklin Templeton Investments India chief investment officer Anand Radhakrishnan told reporters. He said while the country has been very quick to adopt governance practices events like these will test the quality of the adoption of such governance framework. As a practice, the fund house with 35 funds, actively votes on every proposal of an investment company, he said, stressing on better governance at invested companies. Radhakrishnan claimed it is the fund house with maximum number of voting decisions against managements It can be noted that the past few months have seen massive erosion in stock prices of many companies following events at companies or sectors. While it was liquidity concerns followed by allegations which pulled down DHFL in two episodes since September, it was the promoters' alleged mismanagement that has proved to be a drag on Chandra-led Zee group. Each of these instances has seen massive corrections upwards of 40 percent in a few trading sessions on the counters. It is a big risk for investors, he said, adding the fund house has also faced challenges. It believes in pushing a company hard or finds other companies to invest in when faced with a trouble, he said. Radhakrishnan said his fund house does not have any equity exposure to either Zee or DHFL, but may have some exposure to their debt. The equity market will be volatile till the outcome of the general elections in the summer and a clear directional move for the market will happen only after that, he said. The only negative for the markets will be if wobbly coalition forms the next government, he said, adding there is an 80-85 per cent possibility of the ruling BJP or a Congress-led government being formed.

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IDBI BANK MAY BE RENAMED LIC BANK, BUT IRDAI FIRM ON BRINGING DOWN INSURER'S STAKE TO 15%

IDBI Bank could be renamed either LIC IDBI Bank or LIC Bank after the Life Insurance Corporation of India (LIC) bought a majority stake in it. But what remains to be understood is whether the new name will hold even after LIC eventually brings down its stake to 15 percent as per regulatory norms. Insurance Regulatory and Development Authority of India (IRDAI) had in June 2018 made an exception when it allowed LIC to hold 51 percent in IDBI Bank. Insurance regulations state an insurer can hold only 15 percent equity stake in an entity to ensure there is no concentration of risks. LIC had in In January 2019 completed the deal with IDBI bank. IDBI Bank board had on February 4 approved a proposal to change its name subject to a ‘no objection’ from Reserve Bank of India, shareholders as well as name availability by Ministry of Corporate Affairs. While IRDAI has not specified by when LIC will have to bring down its stake in IDBI Bank, it is understood it will take at least four to five years. Whether it will be brought down gradually or at once is to be seen.

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RETAIL EQUITY SIP INFLOWS NEGATE MASSIVE FPI PULLOUT, HELP MARKETS STAY AFLOAT IN JANUARY

Small domestic investors have taken charge of equity investments and powered the stock markets amid a massive FPI blackout. Backed by continued investments through systematic investment plan (SIP) by retail investors, Asset Management Companies (AMCs) or the mutual fund houses have made investment of over Rs 7,000 crore in domestic equities in January, negating the adverse impact of a huge pull out of Rs 5,200 crore by foreign investors Grabbing the opportunity created by the sell-off by foreign portfolio investors (FPIs) amounting to Rs 5,264 crore from the Indian equity markets, mutual fund managers bought shares worth Rs 7,160 crore on a net basis last month, as per the data available with Sebi and depositories, fund managers bought shares worth Rs 7,160 crore on a net basis last month. The AMCs believe that the uptrend may continue in the coming months too as large amount of flow is expected through the SIP route that allows investors to invest in small amount periodically, instead of a lump sum payment. The frequency of investment is usually weekly, monthly or quarterly. It is similar to a recurring deposit where investors deposit a small or fixed amount every month. FPIs are taking cautious or ‘wait and watch’ stance towards India, which they have been maintaining for a long time, said Himanshu Srivastava.

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OVER 60% CASES AT STATE WOMEN’S PANEL ON SOCIAL MEDIA HARASSMENT

Over 60% of complaints lodged at the Karnataka State Women’s Commission are about harassment of women via social media, according to the commission’s chairperson Nagalakshmi Bai. This trend may not be confined to Karnataka, she said. Bai made the statement while speaking to textile workers at a factory in Mysuru recently. She said the commission had to rely on the cybercrime division of the police to investigate the complaints, and the resolution of the cases took a long time. Hence, Bai urged DGP Neelamani Raju to set up a separate cybercrime cell within the commission to deal with such cases. According to the monthly crime statistics compiled by the Karnataka state police, in December 2018, 26 cases of cybercrimes against women were reported at cybercrime police stations in the state and 96 in the entire year. Rekha Sharma said the National Commission, too, received a lot of complaints of such nature, and they were increasing by the day as more and more people had started using social media platforms. “We usually forward such complaints to the police. Sometimes, if needed, we contact the social media organisation concerned and ask them to take down objectionable pictures the perpetrator would have uploaded on the platform,” she said. Sharma said more such cases were likely to be received from cities with a higher population of cyber-literate people. “So the Karnataka chairperson is probably right as Bengaluru is the IT hub of the country. Cities like Hyderabad and Gurugram are also expected to record many such cases,” she said. She said commonly reported case included those on stalking, uploading objectionable pictures on social media and hacking into accounts. “A very common situation is of a woman’s former boyfriend uploading private pictures of the woman,” she said. Eight complaints of social media harassment and cyberstalking have been lodged in 23 days in January. In 2018, 24 cases of social media harassment were lodged.

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TELECOM DEPARTMENT SEEKS MHA NOD FOR WI-FI DEPLOYMENTS BY TELCOS

The department of telecom (DoT) has submitted the architecture adopted by private telecom service providers that have deployed 3.4 lakh Wi-Fi hotspots to the ministry of home affairs (MHA) for a security clearance. We have submitted their (telcos) architecture to the ministry of home affairs for clearance. Once a nod is received from the ministry, it will become interoperable, telecom secretary Aruna Sundararajan said. The official said that private players have deployed as many as 3.4 lakh public hotspots till now, with an architecture slightly varying from that recommended by the regulator. The Telecom Commission, the highest decision-making body of the department, has Tuesday referred the matter to allocate 10 Mhz in the 700Mhz spectrum frequency to the Indian Railways for public safety to the regulator. Indian Railways has sought airwaves in the premium 700 Mhz band for an advanced signaling system which according to the department couldn't be done as it was already earmarked for mobile services. The department, however, is not considering any fresh respite for telcos, after increasing the deferred spectrum payouts to 16 years in addition to other ease of doing initiatives, but has already asked the finance ministry for GST relief and bringing down import duties. Sundararajan added that the department has already asked the industry to come back to it in a cohesive voice for relief if any.

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TELANGANA RERA EXTENDS REGISTRATION DEADLINE

Telangana’s Real Estate Regulatory Authority (RERA) has decided to give one more chance to developers to register their properties by paying a penalty of ₹2 lakh and has extended the last date to February 15. The Authority has decided that it may not be appropriate to reject the applications outright Therefore, the Authority has decided to give one more opportunity by charging ₹2 lakh as penalty, provided registration is done before February 15. As per the RERA Act, it is mandatory for a promoter to apply for registration of ongoing projects within a period of three months from the date of commencement of the Act. As per the Telangana State Real Estate (Regulation and Development) Rules, 2017, the projects approved on or after January 1, 2017 by the competent authorities are to be registered with the Authority.

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ZERO PRODUCTION, SALE OF TATA NANO IN JANUARY

Amid speculation over the future of Tata Motors' Nano, the company in January did not produce nor sell even a single unit of the small car which was once dubbed as the 'people's car'. Recently, company officials had hinted that production and sales of the Nano would stop from April 2020 as Tata Motors has no plans to invest further on Ratan Tata's dream car to meet strict emission norm under BS-VI and other upcoming safety regulations. According to a regulatory filing, Tata Motors said zero unit of Nano was produced in January this year as against 83 units in the same month last year. Similarly, there were no sales of Nano in the domestic market last month as compared to 62 units in January 2018. Tata Motors spokesperson said, As mentioned before, the Nano in its current form will not meet the new safety and emission norms and may need infusion of fresh investments. No decision has been made yet in this regard. We continue to produce Nano catering to customer demands. The spokesperson further said decisions on product life cycle are a holistic view taken after considering the market developments, regulations and emerging competitive landscape and decisions are announced as and when they are taken.

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AFTER MOODY’S DOWNGRADE, BHARTI AIRTEL SAYS BUSINESSES CONTINUE TO REMAIN STRONG

After Moody’s on Tuesday downgraded credit rating, Bharti Airtel said the growth in data volumes and imminent recovery in voice tariffs will help business Bharti Airtel and its businesses continue to be diversified and strong. While Africa and non-mobile businesses in India exhibit healthy momentum, the continuing trend of robust growth in data volumes in India and also the imminent recovery in voice tariffs will further help overall business going forward, the telco said in a regulatory filing. The telecom major also said that the capital structure has already benefitted from the recent equity infusions through investors in its Africa business as also infusion in India’s DTH business. With the Africa debt (including the acquisition debt) already reduced to $3.5 bn due to the above initiatives (and prior to planned IPO), as also the fact that $6 Bn of debt in India is under 16 year deferred spectrum payments, it added.

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ANIL AMBANI'S BANKRUPTCY FILING MAY HAVE A CLEAR WINNER, HIS ELDER BROTHER

In a twist to the tale of two rival billionaire brothers in India, a bankruptcy filing by Anil Ambani’s wireless carrier could have one clear winner -- his elder sibling’s disruptive mobile phone unit. The process initiated Friday in Mumbai, once admitted by the court, would leave Ambani’s Reliance Communications Ltd., or RCom, 270 days to repay debt or liquidate The company voluntarily took the step after a planned sale of tower, spectrum and fiber assets to older sibling Mukesh Ambani’s Reliance Jio Infocomm Ltd. stalled. The Rs 173-billion ($2.4 billion) deal had prompted objections and lawsuits from creditors seeking payment ahead of the sale. Now, the elder Ambani could have even more leverage in bidding for the assets of a company whose demise he helped hasten by pushing his way into the mobile phone market in 2016 with free services. Mukesh Ambani can only vie for RCom’s wireless carrier assets because a top court in January relaxed rules that had prevented family members of controlling shareholders from bidding for companies going through insolvency. The value of RCom if it goes into liquidation will be destroyed and with this sword hanging, the bidders may negotiate harder in the insolvency process with creditors and bring down prices, said Apurva Jayant. RCom’s equity holders are already shorn. Mukesh Ambani is now Asia’s richest person as the value of his Reliance Industries Ltd. flagship’s shares gained, buoyed by the wireless carrier he founded only two years ago. Still, a sale of RCom assets to Mukesh Ambani isn’t inevitable. While one court in January cleared the way for the elder brother to buy RCom assets, another on Monday may have taken it away. The National Company Law Appellate Tribunal on Feb. 4 restricted RCom from selling assets without the top court’s permission as the ailing company fights creditors on several fronts. The banks chose not to take RCom to bankruptcy court because that would have eroded the value of the company more than a settlement negotiated outside bankruptcy, K.P. Nair told.

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FLIPKART CEO REFUTES MORGAN STANLEY REPORT, SAYS WALMART IS HERE TO STAY

Flipkart on Tuesday vehemently refuted the claim of a Morgan Stanley report which said Walmart may exit its investment in Flipkart and the Indian market due to the negative impact of new rules for the e-commerce that came into force on February 1. “The report couldn’t be further than the truth. Walmart remains extremely confident about the potential of the Indian market and in Flipkart’s ability to lead the e-commerce space,” Flipkart chief executive officer Kalyan Krishnamurthy said in an internal communication to its employees. Morgan Stanley had said Walmart may consider walking away from India, similar to what Amazon did in China in 2017, as the new rules have increased the costs of business and added to long-term uncertainty. “An exit is likely not completely out of the question with the India e-commerce market becoming more complicated,” the report said, adding that Flipkart's losses may rise 20%-25%, which may potentially have a bearing on Walmart's results in the upcoming quarters. Several policy changes in the sector show Indian government’s intent that e-commerce platform should operate as pure-play marketplaces, giving equal opportunity to small vendors. Last month, the government tightened the noose through hard-hitting changes to policy. It said that vendors that have ownership by the e-commerce marketplace cannot sell on the platform; platforms cannot sell private label products and put limitations to sales by their business-to-business (B2B) units.

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MAY MAKE SENSE FOR WALMART TO WALK AWAY FROM INDIA MARKET: MORGAN STANLEY

Financial services firm Morgan Stanley has said that it may make sense for Walmart to potentially walk away from the India market if the US retail giant can't see a long-term path for profits like Amazon did in China. It said, new e-commerce regulations in India increase the cost of doing business and add to the uncertainty over Flipkart losses. An exit is likely not completely out of the question with the India e-commerce market becoming more complicated, said Morgan Stanley. There is a precedent for an exit as Amazon retreated from China in late 2017 after seeing that the model no longer worked for them. In May last year, US retail giant Walmart agreed to pay $16 billion for about 77 per cent stake in Flipkart, a transaction that valued the homegrown e-commerce company for over $20 billion. The deal has also pitched Walmart, the world’s largest retailer, in direct competition with its US rival Amazon.com in a battle for dominance in India’s online retail market. Given this, we do not think Walmart will step away from India. We think Walmart will conform to the new regulations and try to determine a strategy to reach profitability over time, said Morgan Stanley. Morgan Stanley said the proposed regulation could meaningfully disrupt the business models of both Flipkart and Amazon. The new rules are intended to foster a more level playing field between small and large vendors on e-commerce marketplaces. They would negatively affect both Flipkart and Amazon given that the vast majority of their sales (reportedly 70-80 per cent) are said to be coming from preferred sellers which are companies that Flipkart and Amazon have equity stakes in or do a significant amount of B2B transactions with, and this practice would be disallowed under the new rules. Flipkart and Amazon also offer a significant amount of exclusive deals, particularly in smartphones, which will be disallowed under the new rules which came into effect on February 1, 2019.

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GOVT REVISES ORDER ON IIT, IIM ALLOWANCE; ALL EMPLOYEES TO GET ARREARS

A notification that had practically denied thousands of teachers and other staff at the IITs, IIMs and central universities revised allowances for the past 19 months has been amended by the government. The government has come up with a corrigendum a day after it issued the order last week. Friday’s amended order means that with effect from July 1, 2017, employees of these institutions would get revised allowances, including house rent allowances. In its notification issued on Thursday last week, the government had employees of the IITs and IIMs that they would get the revised rates with immediate effect The government had issued a similar notification to central universities on January 28. Officials in the human resource development ministry had said the date of the notifications would be the date of implementation. This meant that these employees would lose out on 19 months of revised pay from July 2017.

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CS Meetesh Shiroya