RBI Relaxes Norms for Stressed Assets, Trump Calls Off Plan to Impose Tariffs on Mexico, Uber’s COO and CMO Stepping Down and Other Top Business News of the Day

Professor S

Professor of Financial Economics and Part-time Value Investor, Transfin.

Jun 8, 2019 9:34 AM 5 min read

Professor S

Professor of Financial Economics and Part-time Value Investor, Transfin.

5 min read104 views

Editorial

Explained

RBI relaxes norms for stressed assets, replaces one-day default rule. Deloitte overlooked IFIN’s evergreening of loans for 10 years, reveals SFIO. Main progress on US-China trade to be at Trump-Xi summit. US reaches agreement with Mexico to reduce the flow of migrants to the southwestern border, Trump calls off plan to impose tariffs on Mexico. Uber’s Chief Operating Officer and Chief Marketing Officer stepping down.

Moving on to the top Business news today:

BANKRUPTCY

RBI relaxes norms for stressed assets, replaces one-day default rule.

New Framework: The Reserve Bank of India (RBI) on Friday issued a new prudential framework for the resolution of stressed assets, replacing the February 12, 2018 circular that was recently struck down by the Supreme Court.

Because the Devil is in the Details: Some major changes in the new circular are:

It replaces the one-day default rule, and makes it voluntary for lenders to take defaulters to the bankruptcy court, giving them 30 days to start working on a resolution plan from the day of default
The new framework applies to larger universe of lenders, including small banks and non-banking finance companies (NBFCs)
Introduction of penal provisions for lenders

Here’s a closer look at the new framework.

ILFS

Deloitte overlooked IFIN’s evergreening of loans for 10 years, reveals SFIO.

Evergreening and Window Dressing: The Serious Fraud Investigation Office (SFIO) has come down hard on Deloitte and Haskins and Sells (DHS) for turning a blind eye to the evergreening of loans by IL&FS Financial Services (IFIN) for over 10 years.

Deloitte was the auditor for IFIN, a subsidiary of Infrastructure Leasing & Financial Services (IL&FS) that is involved in INR90,000cr scam.

Everybody Knew: As per SFIO’s probe, the engagement team and engagement partners of DHS were aware of the company's modus operandi of funding the defaulting borrowers for payment of interest and principal in a fraudulent manner by the management again and again to window dress the asset book of the company for several years.

The auditor was thereby complicit in nature with the management.

We Have Proof!: The investigation team found a document in the email server of IL&FS prepared by the DHS Engagement team identifying the funding of borrowers for paying principal and interest.

Details of the email here.

E-mail trails have revealed deep-rooted connivance between former senior IL&FS officials and Siva Group Chairman C Sivasankaran as loans continued to be ever greened and recoveries delayed.

As per officials, repayment of loans pertaining to only four transactions were done among the total 15 transactions.

Fraud with Benefits: Based on e mail data, the probe agency found that Sivasankaran arranged hospitality for at least three executives - Ravi Parthsarathy, Vibhav Kapoor and Hari Sankaran. These included foreign travels, private jets and helicopter rides, booking of resorts and even arranging for interiors of some flats in Brussels (Belgium).

ECONOMY

The RBI was the first of the world’s major central banks to cut interest rates this year, Australia, New Zealand, Malaysia followed suit.

The What: The RBI on Thursday cut repo rate by 25 bps, third time in a row, changes stance to “accommodative”.

The Why: The move, much along expected lines, came as the growth in the gross domestic product (GDP) declined to a 21-quarter low to 5.8% in Q4FY19, and is perhaps suggestive of the more policy easing which might follow.

Leading the Pack: The RBI was the first of the world’s major central banks to cut interest rates this year. Since then Australia, New Zealand, Malaysia and others have followed suit as policy makers seek to shore up their economies against the escalating US-China trade war.

Even the Fed is being pressured to ease, while the European Central Bank President Mario Draghi has said that the policy makers are “determined” to act if needed to support the euro zone’s economy.

Bonus Read: The next big target of the Indian economy is to get to double its size and reach $5 trillion. http://bit.ly/2XzJklq.

TECH

Uber’s Chief Operating Officer and Chief Marketing Officer stepping down.

FANG Lose Together: Last Monday, Facebook, Amazon, Netflix, and Google (FANG) together lost over $137bn in stock market value amid news of antitrust scrutiny by the US Federal Trade Commission into Facebook and the Justice Department into Google. The tech-heavy Nasdaq Composite fell 1.6% on the news.

Amazon, Apple, and the Nasdaq managed to finish the week in positive territory, but Facebook and Alphabet shares declined more than 2%.

Please Don’t Ignore: Nevertheless, Monday’s selloff shouldn’t be ignored. Investors are worried about regulation, and the headlines won’t go away anytime soon.

For investors, the stock price volatility is a chance to step back and analyze each company on its own merits. Would government regulatory action materially affect the economic business models of these core four tech giants?

Here’s a company-by-company breakdown on regulatory risk.

Bye Bye: Uber’s Chief Operating Officer Barney Harford and Chief Marketing Officer Rebecca Messina are stepping down as part of an organizational shakeup put in place merely a month after the ride-hailing company went public.

The departures, which CEO Dara Khosrowshahi explained in an email to employees, were prompted by his decision to more directly control core parts of the business.

Khosrowshahi told employees that he wants to be even more involved in the day-to-day operations of its biggest businesses, the core platform of Rides and Eats, and has decided they should report directly to him.

Main progress on US-China trade to be at Trump-Xi summit. US reaches agreement with Mexico to reduce the flow of migrants to the southwestern border, Trump calls off plan to impose tariffs on Mexico.

Next Big Thing: On the sidelines of the G20 finance leaders meeting in Japan, US Treasury Secretary Steven Mnuchin said on Saturday he would discuss trade issues with People’s Bank of China Governor Yi Gang, but the main progress in the US-China trade dispute would take place later this month at a meeting between President Donald Trump and Chinese President Xi Jinping.

Sigh of Relief: US President Donald Trump backed off his plan to impose tariffs on all Mexican goods and announced via Twitter on Friday night that the United States had reached an agreement with Mexico to reduce the flow of migrants to the southwestern border.

Trump had last week said that the US will impose a 5% tariff on all Mexican imports from June 10, and duties of up to 25% will be added in the coming months if Mexico does not take action to “reduce or eliminate the number of illegal aliens” crossing into the US.

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