KNOWLEDGE - INCENTIVE CAUSED BIAS

Symptoms - It is said that one should not ask the barber the need for a haircut. People with a vested interest will tend to direct you or make you eliminate every other route and guide you in the direction of their interest.

An example - In a paper "Misled and mis-sold: Financial misbehaviour in retail banks?" by Monika Halan and Renuka Sane presented on 5th Aug 2016, auditors approach banks for advice on tax saving instruments. The private sector banks with high sales incentives, recommended high commission products while the public sector banks with high deposit mobilization targeted fixed deposits. A recent example would be the recommendation of balanced funds as better than fixed income products for regular monthly income and capital appreciation as well.

Steps to correcting the bias - When someone, in general, tells you to do "x" and not "y", before agreeing to the suggestion one should find answers to questions such as:

1. Did they tell you this because it is for your best interest?
2. Is it truly for your good?
3. What is in it for them?
4. Is their benefit dependant on my benefit or is it independent and before any benefit to me?

DEALING WITH DEBT REPAYMENTS

Debt is one of the most under-talked topics in any discussion and as such, when it comes to creating a debt repayment strategy many actually struggle to create one. More often than not, there could be multiple debts in the form of credit card debt, personal loan, study loan that requires repayments but one does not know which one to tackle first and finish.

Apart from ensuring that there is a positive gap between the monthly income earned and the monthly expenses and trying to increase that gap to the extent possible, there are two widely accepted methods which can be adapted to make faster debt payments and become debt free.

1. The Debt Snowball Method - List all the debts, pay the minimum on each of the debt outstanding, use the remaining surplus to reduce the debt with the least outstanding. Keep paying that debt till it is completely over and then selects the next which is the lowest. Continue reducing the debt. He argues that wiping out your smallest debt quickly gives you an immediate morale boost, encouraging you to keep hacking away at the bigger debts. Because you can actually see your debts disappearing, you're more likely to stay motivated and stick to your debt payment plan.
2. The Debt Avalanche Approach - List all the debts, pay the minimum on each of the debt outstanding, use the remaining surplus to reduce the debt with the highest interest cost. Once the debt with the highest interest cost is paid, then the debt with the next highest interest cost is taken and the surplus every month is used to pay that debt. With the Avalanche Method, the total amount of interest paid is lesser than the Snowball Method because of tackling the debt with the highest interest cost first.

A team of Kellogg School researchers has found that people with large credit card balances are more likely to pay down their entire debt if they focus first on paying off the cards with the smallest balances - even if that approach doesn't make the best economic sense.

INSOLVENCY AND BANKRUPTCY CODE

Not too long ago, bankrupt corporates and defaulters could continue to splurge more bank credit, keep getting loans restructured, delay repayments, keep postponing the recovery process by invoking litigations. According to World Bank data, Indian creditors typically had to write off ~75% of the debt in Indian insolvency cases, which on average took more than four years to resolve compared with a year or less in the best-performing nations. According to Care Ratings, India ranks fifth out of 39 major world economies plagued by bad loans. As per Economic Survey 2017, stressed assets, i.e. bad loans and restructured loans, totalled 20% of the total loans in the system. There were multiple law points that a promoter could use to avoid any enforcement of a penalty, fine or punishment. The banks had very little enforcement capability and by the time winding up came it could have been 10 or 15 years in some cases.

Since the IBC coming in to effect from May 2016, there is a new fear among defaulting promoters that the Indian Banking System cannot be taken for granted and any repayment delay could mean promoters losing their business cash cows. As per bankers, promoters are now ready to do a one-time settlement (OTS) of their accounts without even being cautioned by banks. Under the new law, even a small creditor who is owed to by a large firm, an amount not less than Rs.1 Lakh can file an insolvency petition against the firm. If this is accepted by a court, the management must be removed immediately, and the company liquidated within nine months if no buyer can be found. Initially, lenders were slow to make use of the new system, so India's RBI decided to enforce the IBC rules and framework. By July 2017, the RBI ordered banks to launch insolvency proceedings against 12 of the biggest corporate defaulters. Initially, the IBC had a loophole where the promoter could participate in the bidding process and can actually buy back the company by paying very little to the creditors. An ordinance in the form of Section 29 A was introduced in the IBC to not only bar wilful defaulters but defaulting promoters and related parties too from the bidding process in the IBC law. While there has been delay in the loan recovery process and previous decisions on restructuring are still going to be heard by the the National Company Law Tribunal, it is claimed that banks will recover Rs.1.8 lakh Crore of bad loans in 2018-19 compared to Rs.74k Crores in 2017-18 making IBC a far bigger reform than GST in the immediate short term.

FINANCIAL NEWS

SEBI has now mandated that after 5 December 2018, no transaction for transfer of securities of a listed company, at a stock exchange or as an off market transaction between buyers and sellers, can happen in physical certificate form. Exceptions have been made for transmission (transfer of shares after the death of the original shareholder) and transposition (change in the order of joint holders of securities). This renders all paper shares held after 5 December 2018 illiquid.

The National Consumer Disputes Redressal Commission (NCDRC) has asked Unitech Limited to refund over Rs. 18 Crore for failing to hand over the possession of apartments. The NCDRC has asked the company to refund within six weeks the amount of Rs. 18,84,19,025 deposited by the members of the Unihome-3 Buyers Union along with 10% interest from the date of deposit till the money is returned. The association comprised of 33 individuals who had purchased their flats from Unitech in the project called Unihomes 3 in Noida, Uttar Pradesh. The housing project was launched in 2010 with an assurance to hand over apartments within 30 to 36 months from the date of signing of the agreement. The association members had individually applied for different flats in the projects and deposited 90 to 95% of the total consideration amount.

As per a recent government notification, IPO's, follow-on public offers, bonus, rights issues and ESOP's will be eligible for concessional rate of 10% LTCG Tax, even if STT has not been paid earlier.

Pension fund regulator PFRDA said NPS subscribers will now have the option to partially withdraw funds from their accounts for pursuing higher education or setting up new business. The board also decided to increase the cap on equity investment in 'active choice' category to 75% from current 50% for private sector subscribers of NPS. However, the option of increasing investment in equity will be available to subscribers till the age of 50 years. NPS offers subscribers to design their own portfolio based on two investment options - 'Auto Choice' and 'Active Choice'. Subscribers opting for 'active choice' option, can invest in 'Alternate Investment Fund' up to 5%, besides the three regular instruments - equity, G-Secs and corporate bonds. A proposal on adoption of Common Stewardship Code, as a measure of good corporate governance, was also approved.

DOMESTIC ECONOMY

The Consumer Price Inflation (CPI) for Oct-18 stood at a 13 month low of 3.31% vis-à-vis 3.77% observed in the previous month aided by a strong favourable base and continued moderation in food inflation. However, Core CPI (without energy&food) inched higher to 6.18% from 5.81% in Sep 18.

October Wholesale Price Index (WPI) came in at 5.28% as against 5.13% in Sep mainly due to inflationary pressures from food and fuel items. At the same time, August WPI print was revised upwards to 4.62% from 4.53% previously. Core WPI also inched up to 5.15%, as compared to 4.88% in Sep 18.

The IMD has said that the rainfall recorded in the country as a whole has been 9% short of the normal mark compared to a deficit of 3% in FY17. The top rainfall deficient states this year are - Manipur (-59%), Meghalaya (-41%), Arunachal Pradesh (-32%), Gujarat and Jharkhand (-28%), Bihar (-25%), Tripura (-21%) and West Bengal (-20%). Only two states had excess rainfall, viz., Kerala (+24%) and Sikkim (+20%). However, the levels in the 91 reservoirs in the country with FRL (Full Reservoir Level) of 162BCM (billion cubic metres) stood at 122.5 BCM, 75.6% of its full capacity, higher than last year's level of 72%.

Maharashtra became only the second state after Bihar, to allow farmers to trade their products in the open market outside the ambit of the APMC after passing an ordinance on Oct. 25 amending The Maharashtra Agriculture Produce Marketing (Development and Regulation) Act, 1963. Now, the traders or processors could directly deal with the farmers and vice versa and neither of the two is required to visit mandis to purchase or sell post-harvest produce. A deal can be struck between the two parties at the farm gate. The point of the first sale doesn't have to be an APMC-regulated mandi, the amendment said.

In a first, the Inland Waterways Authority of India (IWAI) will transport container cargo belonging to the food and beverage giant PepsiCo (India) from Kolkata to Varanasi on river Ganga (National Waterway-1). The food&beverage giant will be moving 16 containers from Kolkata to Varanasi in what is India's first container movement on inland vessel post-independence. The first container vessel set sail from Kolkata for Varanasi on October 30, carrying cargo belonging to PepsiCo (India) on the Ganga river. According to a ministry official, as reported, the cost of transportation by waterways is 30-50 paisa per tonne per km (PTPK) only, compared to Rs 1 PTPK for rail, and Rs 1.5 PTPK for roads. That's an attractive offering for state governments as well as private businesses. The multi-modal terminals are being built as part of the central government's Jal Marg Vikas Project (JMVP) that aims to develop the stretch of the river Ganga between Varanasi and Haldia for navigation of large vessels weighing up to 1,500-2,000 tonnes. At present, India's freight movement through inland waterways is only 0.5%. The total logistics costs of the country stand at 18% of India's current GDP

SECTOR & COMPANY NEWS

The Essar Steel's Committee of Creditors accepted the joint offer made by ArcelorMittal and Japan's Nippon Steel. ArcelorMittal said its resolution plan for Essar Steel includes "an upfront payment of Rs 42,000 crore" to settle the debt and "a further Rs 8,000 crore of capital injection into the company to support operational improvement, increase production levels and deliver enhanced levels of profitability". The development comes a day after promoters of Essar Steel offered to pay lenders Rs 54,389 crore, including Rs 47,507 crore upfront cash payment to clear all dues of lenders and pull out the firm from insolvency proceedings. If the NCLT approves the resolution policy of Arcelor Mittal then the operational creditors will get only 196 Crores. Both Indian Oil Corporation and Bharat Petroleum Corporation, which have been classified as operational creditors in the Essar Steel case, have an exposure of Rs.3,763 crore and Rs.262 crore respectively. About 30 unsecured creditors of Essar Steel, having dues of Rs.600 crore, moved the Ahmedabad Bench of the NCLT this week against the Committee of Creditors' (CoC) decision to vote in favour of ArcelorMittal, despite having a better offer from Essar Steel promoters. The case is likely to come up for hearing on November 26.

Reliance Industrial Investments and Holdings Ltd, a wholly owned subsidiary of RIL has acquired a 12.7% stake in US-based SkyTran Inc. SkyTran is a venture-funded technology company developing modern transport modes, including a personal rapid transit system.

Electric vehicle (EV) sales in India may soon get a boost as the government is proposing to amend building laws to make them EV friendly. The government plans to make it mandatory to set up electric vehicle charging stations in residential and commercial buildings and parking lots. The proposals include offering round-the-clock charging infrastructure facility to all-electric vehicles in residential buildings, setting up charging bays at 20% capacity of all vehicles, on-spot metering and payment services in both commercial and residential buildings. The proposal also includes increasing electricity load for all buildings. India plans to shift one-third of its vehicle base to the electric fleet by 2030.

As per the global airlines' body the International Air Transport Association's (IATA) air passenger forecast, India will likely displace the UK to become the third largest aviation market in the world by around 2024. It also said that the present trends in air transport suggest passenger numbers could double to 8.2 billion in 2037. According to the IATA, China will become the largest aviation market, displacing the United States in the mid-2020s. It also said that India will take 3rd place after the US, surpassing the UK around 2024

INTERNATIONAL NEWS

China's economy grew at its slowest pace in nine years in the third quarter, as a campaign to tackle mounting debt and trade frictions with the US had an effect. The world's second-largest economy expanded by 6.5% in the July-to-September period year-on-year, according to official GDP figures released Friday by China's National Bureau of Statistics. The rate is down from 6.8% and 6.7% in the first and second quarters, respectively.

Italy's budget was rejected by the European Commission the executive arm of the European Union saying that Italy's budget contains excessive spending for a country where Government Debt is 130% of GDP. The EC has told Italy to draw up a new budget within three weeks. Italy replied it would stand by its budget and refused to cut spending, undeterred by its debt reaching 130% of GDP.

The European Central Bank will end its negative interest-rate policy in January 2020 and start paying for deposits eight months after that, according to a Bloomberg survey of economists. Liftoff is predicted for September next year, and the deposit rate is seen climbing to 0.25%, from minus 0.4% currently, by the end of 2020.

US secretary of state Mike Pompeo announced on Monday that Washington had exempted India and seven other countries from the sanctions on importing oil from Iran. There had been concerns in New Delhi following the fresh US sanctions on Iran, which came into effect on November 5, as Tehran is a major supplier of crude to India. India, Iran's second-biggest oil consumer may be allowed to import about 300000 bpd compared with normal volumes of 550000 bpd.