India’s tariffs “unacceptable”, Trump tweets. Car sales fall for 12th straight month. SEBI announces slew of reforms to address credit-related crises. Government demands EPFO cut its PF interest rates. WhatsApp set to launch digital payments service. Government might develop its own messaging app for official communications. HDFC Bank plans IPO of its NBFC arm. Coca-Cola in talks to buy stake in Cafe Coffee Day. Apple buys struggling self-driving start-up Drive.ai days before it was planning to shut down. Global watchdog warns G20 leaders that cryptocurrencies like Facebook’s Libra need “close scrutiny”.
India’s tariffs “unacceptable”, Trump tweets. Car sales fall for 12th straight month.
Trump, Trade, Twitter: Ahead of the G20 summit in Osaka, Japan where he is scheduled to meet PM Modi, US President Donald Trump tweeted his displeasure over India’s tariffs on American goods that were placed after Washington revoked New Delhi’s preferential trade status under GSP.
Trump said he looked forward to speaking with Modi about how India “for years having put very high tariffs against the US, just recently increased the tariffs even further”.
The stakes are high before the two world leaders meet. Averting a full-blown trade war is crucial - not just for economic stability but also to ensure that there is no spillover of the dispute to other areas of India-US cooperation.
Pick Up the Pace: Car sales fell in June, making it the 12th straight month marking a climb down in car sales (the first time this has ever happened). Sales have dropped despite dealers offering between 2-10% discounts to encourage purchases.
Sales began falling in July 2018 because of the Kerala floods. Since then, a hike in insurance premiums and the uncertainty that NBFCs faced after the IL&FS default meant more caution over taking and giving loans, both by non-bank lenders and by banks (and 80% of car purchases are made via loans).
Difficult Days Ahead: The future looks ambiguous for car manufacturers and retailers. While some hope that with the RBI easing interest rates, banks could pass the benefits to customers, others worry that continuing NBFC reservations and increasing vehicular prices over new emission norms will lead to continued fall in car sales.
Extra: Companies are increasing their exposure to annuity portfolios and there is traction in large property deals. But does this mean a recovery of the sector when mid-sized developers continue to have unsold inventory amid a liquidity crisis? Read more here.
SEBI announces slew of reforms to address credit-related crises. Government demands EPFO cut its PF interest rates.
Damage Control: After a series of credit-related crises, SEBI has announced a slew of reforms over credit rating firms, liquid mutual funds, promoters’ shares and royalty payments to improve enforcement on all fronts.
Reforms Ahoy!: Mutual funds will now be allowed to invest only in listed securities and liquid mutual fund schemes will have to hold at least 20% of funds in assets like cash and government securities.
When it comes to promoters, SEBI said standstill agreements between promoters and mutual funds will not be recognised and promoters will be decreed to disclose reason for encumbrance when pledged shares cross 20% of total capital.
The market regulator’s announcements also include mandating shareholders’ approval if royalty payments cross 5% of annual turnover, new regulations for credit rating agencies, and approving a framework for differential voting rights (DVR), which the organisation’s Chairman said would be the first time DVR in shares would be attempted in India.
Cut the Rate: The Finance Ministry has reportedly asked the Employees’ Provident Fund Organisation (EPFO) to cut the 8.65% annual return it was planning to offer 85 million member workers.
The reasons are likely the EPFO’s performance in the past and the fact that high yields would entice more savings thereby reducing banks’ ability to lend at attractive rates.
EPFO, of which a fifth of India’s workforce are members, was told that its proposed rate of return (up from 8.55% last year) was “not in line” with its rules, which say it can’t set an interest rate that is not in tandem with its overall returns.
WhatsApp set to launch digital payments service. Government might develop its own messaging app for official communications.
PayApp: WhatsApp is reportedly set to launch its digital payments feature commercially, a year after the feature began to be tested through a pilot project.
The Facebook-owned messaging service is expected to roll out its UPI-based service in partnership with ICICI Bank, followed by other top banks of the country.
WhatsApp has apparently completed the process to store users’ information locally, within India, a data security measure that the RBI mandates.
The app’s UPI service will now compete in the digital payments market with other well-established players like Paytm, Google Pay and PhonePe.
Messaging for Ministers: The government might launch its own alternative to WhatsApp for official communications, a move that is based on eagerness to cut reliance on foreign messaging platforms and security concerns.
New Delhi was reportedly rattled over the US government’s sanctions against Huawei and the allegations of spying faced by the Chinese tech giant. WhatsApp is the most popular messaging app in India, and is used by ministers, bureaucrats and common citizens alike. But it is a platform owned by Facebook, a foreign company.
If the plan comes to fruition, India would not be the only country with a messaging app designed for government communications. France recently launched a similar app, Tchap, to cut its reliance on Telegram. China and North Korea, meanwhile, use customised versions of operating systems for government security.
HDFC Bank plans IPO of its NBFC arm. Coca-Cola in talks to buy stake in Cafe Coffee Day.
Alternate Capital: HDFC is planning an IPO of its non-banking lending unit, HDB Financial Services. The offering will likely raise the company more than $1bn.
HDFC owns almost 96% stake in HDB Financial Services and the IPO would make the NBFC the fifth HDFC Group company to be listed on stock exchanges
This news comes at a time when NBFCs across the country are facing a liquidity crisis due to the IL&FS default in September last year. This had either forced non-bank lenders to search for alternative sources of capital or led them to default on payments.
Only yesterday, Dewan Housing Finance defaulted on a payment for the second time in a month.
Cafe Coffee Cola: In line with its global strategy to diversify into non-carbonated drinks, Coca-Cola is in talks to buy a “substantial stake” in Cafe Coffee Day.
Only ten months ago, Coca-Cola had acquired UK-based Costa Coffee in a $5.1bn deal.
The talks, which are “speculative” in nature according to Coca-Cola India, would see the soft drinks giant making inroads into the INR2,500cr domestic coffee retail market. If a deal materialises, it would also help the Bengaluru-based coffee chain’s parent company pay off its debt, which is currently 2.5 times its net worth.
Apple buys struggling self-driving start-up Drive.ai days before it was planning to shut down. Global watchdog warns G20 leaders that cryptocurrencies like Facebook’s Libra need “close scrutiny”.
Automatic Deliverance: Drive.ai, a self-driving start-up that made headlines for engineering driverless car tests without human safety drivers and was once valued at $200m, was on the verge of laying off its 90 employees and shutting down permanently. Then, Apple came to its rescue.
The Cupertino-based tech giant will acquire Drive.ai’s fleet of self-driving cars, among other assets. It is not clear if the start-up’s engineers will be employed by Apple or not. If they are re-hired, they’ll likely join Project Titan, Apple’s own self-driving tech project.
Drive.ai was one of the most promising start-ups in the self-driving tech scene only a year ago. But an environment of consolidation and lowered expectations from investors over the immediate potential of self-driving vehicles led to decreasing profits and capital.
Crypto Warnings: The Financial Stability Board, a Basel-based international financial monitor, has warned leaders at the ongoing G20 summit in Osaka that cryptocurrencies would need “close scrutiny” by regulators.
While the organisation’s statement did not mention Facebook’s new digital currency Libra by name, the implication was crystal clear. The statement said “a wider use of new types of crypto-assets for retail payment purposes” would warrant scrutiny and regulation.
The organisation did add, however, that cryptocurrencies “do not currently pose a risk” to global financial stability and that technological innovation could make finance more “effective and inclusive”.
You can read more about Facebook’s Libra project here.