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RBI governor Shaktikanta Das sees positives for India economy

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Reserve Bank of India Governor Shaktikanta Das gave his first interview with media since taking office in December. Here’s an edited transcript of the topics he covered in the more than 50 minute interview.

On the economic slowdown and the RBI’s response:

‘The accommodative stance will depend on incoming data. How inflation numbers look how the growth numbers look. Primarily how inflation looks. With regard to the slowdown, I would not give a particular timeline and it’s not possible. But overall if you see the trend, I think the fourth quarter of last year was partly a base effect and partly due to investment slowdown and demand contraction, which I had articulated in the monetary policy committee minutes. For that, so far as monetary authority is concerned, the law gives us a certain role and mandate and we have tried our best to play that role. We have reduced the policy rates by 75 basis points and we have shifted to accommodative. And shifting of the stance to accommodative itself means a rate cut of 25 basis points at least. So therefore effectively, the rate cuts has been 100 basis points if you take into account the change in stance.’

On providing liquidity:

‘Parallel to that we have also ensured surplus liquidity in the system. Liquidity was in deficit but at the moment for the past 1 1/2 months, the system is in liquidity surplus by more than 1 trillion rupees.

“We will ensure the banks are provided adequate funds. While the system is in surplus mode, it is possible that one or two banks may have liquidity issues. Given the role the RBI is assigned, inflation is primary target, and given due weightage to the fact that growth momentum has slowed down. For the revival, various stakeholders have to play the role.’

On investment slowdown:

‘There have been sectoral problems, like in the auto sector. Our survey shows that additional insurance requirements has had an impact. So every sector has had its problem. But when the world is changing you also have to change. Then there was the credit squeeze; now availability is there. The banks were unable to lend significantly, burdened with NPAs and the focus of the banks was on recovery and consolidation and not on credit. The banks are now in a better position to lend. While banks were not lending, NBFC entered their space. But for a year or so, credit flow has been affected. Another thing I would like to address the crowding out effect. It’s a good thing that the fiscal deficit has been brought down and recapitalization has been announced. Every stakeholder, the government, the private sector and the RBI are playing their role and I think things are moving in the right direction. And things should improve now.’

On liquidity and NBFC problems:

‘We have to constantly monitor and remain alert as the regulator and as a monetary authority. We have to analyse and review the situation. Here at the RBI, we have broad medium and long-term goals. If some issue becomes critical, not a day passes without some internal high-level review. On NBFC, not a day passed in the last several months where we don’t have a discussion or a review internally. Either on the sector or individual NBFCs. And we are monitoring the top 50 NBFCs which we have identified in terms of balance sheet size, volume of operation and in terms of governance practices and credit behavior. Our supervision teams are closely monitoring them. We are in constant interaction with the banks and it’s our endeavor to ensure a collapse of another NBFC, especially a large one, doesn’t happen. Having said that, if NBFCs have undertaken certain governance practice and certain ways of function and they have to a price for it, they will have to pay a price for it.’

On banks being proactive:

‘We are in constant engagement with banks. After the June 7 circular, the banks are more enabled to resolve the crisis and stress in the individual NBFCs. Now inter-credit agreement is mandatory. Earlier it wasn’t. We have also given 30 days for review and another six months for restructuring and we are having constant engagement with the banks. So the banks, under the June 7 circular, have to play a proactive role. We are constantly in touch with large lenders to such NBFCs, including some housing finance, where we see some signs of fragility.’

Consolidation in NBFCs:

‘If somebody has diverted or there has been sort of ever-greening, there has been gold plating, if there has not been so diligent lending, so obviously they have to pay the price. Our effort is to segregate the way there have been lapses. Our focus is the overall system maintains stability. When I say system, it obviously includes all the major players. Therefore, our effort is to see that there is no repeat instances of systemically important large NBFC collapsing. And in the process some promoters have to make certain sacrifices, promoters have to accept haircut, the banks will have to deal with it appropriately within the parameters. One or two cases, the banks have signed inter-creditor agreements and they are resolving this crisis. The way I look at it, the responsibility is on the NBFCs themselves, to find market instruments to resolve their problems. Market instruments and the promoter has to bring in additional capital, he has to do a stake sale, he has to securitize his assets and mobilize liquidity, he has to meet debt obligations. And then the role of the lenders. We are in discussion with the lenders who have to protect their money also. They also have a parallel role to try and resolve this issue. That will also mean sacrifice on the part of the promoter also. The RBI will ensure adequate liquidity to banks.’

On refinancing:

‘This Refinance window or a liquidity window is a misnomer. We cannot lend money directly to one NBFC. Under the law, RBI is the lender of last resort, but we haven’t reached that situation where we invoke that particular legal provision. So RBI in today’s time cannot and would not be lending directly to NBFCs. We cannot give them clean money. It is up to the bank and depending on the collateral. We are backing up the banks. There is nothing called a liquidity window. Money is fungible, and when money is fungible having these windows, I think, is not relevant.’

When will the crisis be over?

‘Difficult to say when it finishes. It’s our effort to ensure there is no contagion. It is our endeavor to ensure there is no collapse of another systematically important NBFC.’

On cases of adventurism:

‘There have been instances where it has happened. Some of the NBFCs have diverted. It hasn’t happened in a large scale. That is not the case. In some cases, we have noticed this has happened. A large number have encountered business failures, encountered external factors, which has impacted business models. We are coming up with a new regulatory framework. We are a work in progress. Risk management guidelines are also there for NBFCs. Now HFCs are coming under RBI, we are constantly reviewing it internally. The RBI’s endeavor is a well functioning NBFC sector and a robust regulatory framework which prevent the kind of situation we have encountered in the past year.’

On the U.S.-China trade war and what it means for India:

‘India is not part of the global value chain. So, U.S.-China trade tension does not impact India as much as several other economies which are part of the global value chain. Second thing is about trade tensions, it has a lowering of global growth and contraction of demand and that would in a way have a role on oil prices. Oil prices should remain low. These are the positives. In the long run, we cannot ignore lingering and prolonged tensions. It will definitely affect countries all over the world and definitely India, which is the sixth-largest economy. In the medium term also it will affect India. If it lingers, a contraction of global demand will have impact on our exports sector. We have large exports to Europe.’

On RBI policy options:

“We have to only see our domestic demand continues to be robust and ensure that there is a domestic demand revival and that remains strong. We have to ensure that these opportunities arising out of the trade war, relocation of investment, India should utilize it. Irrespective of the trade war, India should become competitive both in the services and the manufacturing sector.’

On the risk of dollar depreciation:

‘If they depreciate their currencies, it means greater inflows. When the reversal happens we have to manage spillover effect. If excess inflow comes in, it becomes a problem to absorb excess liquidity. It’s an evolving challenge. We will continue to deal with it. We have to keep in mind, in several advanced economies, bonds yields are negative, inflation is zero. In fact in my interaction with other central bankers, they are concerned about zero or low inflation. They would like to have a slightly higher inflation. Zero interest rates prevailing for far too long, it becomes unsustainable and undermines investor sentiment. In the overall context, India is much better than most other economies.’

On structural reforms:

‘I don’t think the fiscal space is really the answer. If you have fiscal space any government can use. Long-term growth can be sustained by structural reforms, enhancing competitiveness, and focusing on an enabling business environment. So therefore, GST, IBC and the Niti Aayog’s committee on agriculture reforms, which will allow private investment in the farm sector and which will ensure better price to farmers for their produce, are crucial. The supply chain in the agricultural sector has to be addressed. The focus will have to be on structural reforms and improving competitiveness. Focus will have to be on continued ease of business and availability of credit at a reasonable price.’

On improving growth prospects:

The RBI’s ‘essential role is to maintain price stability, which is defined in terms of inflation. Along with the objective of growth. Price stability is prime. It will depend on inflation, on incoming GDP. This year we have projected 7%. There was a lot of uncertainty, but now the monsoon is catching up in Tamil Nadu and Kerala. The western part had good rains and the monsoon outlook has improved compared to what it looked about three weeks ago and oil prices are remaining in the $65 range, but then you have extraneous factors like the trade tensions, sanctions on Iran, and then you have Brexit which creates uncertain sentiments and India has a lot presence in Britain in terms of investment and exports. I would not like to specify how long it (economic slowdown) will last. India is today in a far better place than most of the major economies and India has certain inherent resilience and the signs are looking good.’

On core inflation:

‘Core inflation coming down, at one level, can be seen as a positive development but at another level it is reflective of a slowdown in the demand, so therefore I don’t want to make a qualitative judgement on good or bad. Based on hard numbers, we will have to take a call.’

On global bond issuance:

‘RBI is the debt manager. There is a process of consulting between RBI and the government.’

On recapitalization funds:

‘The 700 billion rupees is adequate for capital requirement but also for growth. The true test of efficiency of a public sector bank is whether they are able to access capital markets to raise additional capital. Otherwise just continuous and prolonged dependence on government capital infusion — it can breed inefficiency. Banks need to access capital markets. There has to be competition in the banking sector. How many competitors are there in the field that the market will decide.’

On interest-rate transmission:

‘There is a case for banks to show better monetary policy transmission. We have to keep in mind that banks have gone through a period of crisis and they are just recovering, they are just about recovering, so that aspect has also to be kept in mind. So if you drive and ask them to fix interest rates administratively, we cannot lose sight of the fact that banks will also have to recover and comeback to a level where they are out of the woods. If we see the PCA banks have fulfilled the conditions to come, they will come.’

On payments banks:

‘Some are doing well. It’s a new model. It’s about two years. We are studying. We should wait a little longer how they play out.’

On financial stability:

‘I would like to say our primary focus — apart from price stability and keeping the objective of growth — it is also to ensure the stability of the financial sector, which includes banks and NBFC. And in the long run, if India has to grow and show improved growth rates, it will need a well-functioning financial sector.’

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Oyo buys Las Vegas Hooters Hotel in its first US purchase

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In what is its first property purchase in U.S., Soft Bank-backed Oyo Hotels and Homes, has bought the Hooters Casino Hotel Las Vegas.

While, Oyo did not divulge the financial terms of the transaction, a person close to the development said Oyo and Highgate, an American real estate investment and hospitality management company, are together putting in $135 million for the asset.

Hooters Casino Hotel will now be rebranded and designed as Oyo Hotel & Casino Las Vegas, the company said in a statement. It provides 657 rooms across 19 floors and a 35,000 square-foot casino.

Highgate will assume management of the hotel, and Paragon Gaming will continue to operate the casino, Oyo said.

“We believe Las Vegas is an exciting city in which to invest as the market continues to evolve with projects such as the new Las Vegas Raiders NFL stadium and the $1 billion expansion of the Las Vegas Convention Center. As we continue to focus on bringing to life our popular concept of ‘comfort design’ and delivering chic hospitality experiences, we are increasingly exploring new ways to connect with our customers, from millennials, to young executives and families, in every city we enter,” said Abhinav Sinha, chief operating officer and OYO Hotels and Homes USA.

Earlier in June, Oyo had announced its plan to invest $300 million in the U.S. Currently, there it has over 112 Oyo Hotels in more than 60 cities and 21 states in the U.S.

“With our newest hotel in Las Vegas, we are excited to cater to a completely different audience segment,” said Ritesh Agarwal, founder and chief executive, OYO Hotels and Homes.

Founded in 2013, OYO Hotels & Homes is the world’s third-largest chain of hotels, homes, managed living and workspaces. The portfolio combines fully operated real estate comprising of more than 23,000 hotels and 125,000 vacation homes. Over the years, it has attracted an array of investors including the likes of Airbnb, SoftBank Vision Fund, Lightspeed Venture Partners, Greenoaks Capital, Sequoia Capital India, and Hero Enterprise.

Oyo has been on an acquisition spree. In July, it confirmed its acquisition of Innov8, a co-working spaces provider, highlighting the company’s increasing focus on the fast-growing segment. While Oyo did not disclose financial details of the Innov8 acquisition, it is pegged to be around $30 million, according to a TechCrunch report.

In May, Oyo said it has agreed to acquire Amsterdam-based @Leisure Group, from Axel Springer, a media and technology company, for an undisclosed amount. @Leisure is a vacation rental company in Europe, which manages holiday homes, holiday parks, and holiday apartments. The transaction was pegged around $416 million, according to several media reports.

Last year, it acquired Mumbai-based Weddingz.in, an online marketplace for wedding venues, and AblePlus Solutions Pvt. Ltd, an Internet of Things (IoT) technology company.

It claims to have a balance sheet of about $1.5 billion. OYO has raised nearly $1.7 billion in funding over 12 rounds.

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Donald Trump does not want to do business with China’s Huawei

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U.S. President Donald Trump on Sunday said he did not want the United States to do business with China’s Huawei even as the administration weighs whether to extend a grace period for the company.

Reuters and other media outlets reported on Friday that the U.S. Commerce Department is expected to extend a reprieve given to Huawei Technologies Co Ltd that permits the Chinese firm to buy supplies from U.S. companies so that it can service existing customers.

The “temporary general license” will be extended for Huawei for 90 days, Reuters reported, citing two sources familiar with the situation.

On Sunday, Trump told reporters before boarding Air Force One in New Jersey that he did not want to do business with Huawei for national security reasons.

“At this moment it looks much more like we’re not going to do business,” Trump said. “I don’t want to do business at all because it is a national security threat and I really believe that the media has covered it a little bit differently than that.”

He said there were small parts of Huawei’s business that could be exempted from a broader ban, but that it would be “very complicated.” He did not say whether his administration would extend the “temporary general license.”

Speaking earlier on Sunday, National Economic Council director Larry Kudlow said the Commerce department would extend the Huawei licensing process for three months as a gesture of “good faith” amid broader trade negotiations with China.

“We’re giving a break to our own companies for three months,” Kudlow said on NBC’s “Meet the Press”. 

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Asia’s richest man Mukesh Ambani grooms the heirs to his $50 billion fortune

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Among Mumbai’s glitziest society events over the past year were two weddings in the family of Mukesh Ambani, the Indian tycoon who in 2018 became Asia’s richest person.

In December, his 27-year-old daughter Isha got married in a Bollywood-style extravaganza attended by global power brokers and titans of finance. Beyonce sang at the festivities, Hillary Clinton flew in and KKR & Co.’s Henry Kravis made an appearance. In March, her twin brother Akash wed in a ceremony attended by the likes of Google Chief Executive Officer Sundar Pichai.

The lavish events put Ambani’s eldest children in a very public spotlight at a time when they are playing more visible roles at his Reliance Industries Ltd.’s retail and telecommunications businesses.

Ambani, 62, has big ambitions in new areas like e-commerce and is enlisting his children to help drive the modernization of his empire. The rise of the twins offers early signs of the efforts the titan is making to groom his heirs. The billionaire on Aug. 12 announced that the world’s biggest crude producer, Saudi Aramco, will buy a 20% stake in the oil and chemicals business of Reliance Industries, allowing the Indian conglomerate to reduce the debt that increased during its expansion spree of recent years.

Over the coming decades, billions of dollars in wealth will be handed over to yet another generation in family-controlled businesses across Asia. Such dynastic transfers can come with pitfalls, as Mukesh and his younger brother, Anil, well know. More than a decade ago, the brothers were embroiled in a feud over the family business after their father, Dhirubhai, died without leaving a will.The twins are having a very different beginning to their careers from the patriarch, Dhirubhai. The late industrialist—who started out as a gas-station attendant in Yemen—built up Reliance Industries into a petrochemicals giant at a time when India’s economy was heavily controlled by the government.

“They have to show their mettle in entrepreneurship and strategy like their father and grandfather,” said Kavil Ramachandran, a professor and executive director at the Thomas Schmidheiny Centre for Family Enterprise at the Hyderabad-based Indian School of Business.

Representatives for the senior Ambani brothers declined to comment, and Isha and Akash were not available for interviews.

Appointed in 2014 to the boards of Reliance Jio Infocomm Ltd., the mobile carrier unit, and Reliance Retail Ventures Ltd., the twins have raised their profiles in subsequent years, addressing investors at annual shareholder meetings and introducing new products. The duo also helped bring an open-office culture for top executives at the group’s corporate park in Mumbai’s outskirts.

At Reliance Industries’ annual meeting on Aug. 12, they demonstrated a range of applications such as virtual reality and conference calls that come with a new high-speed data network the company is rolling out.

Isha, a Yale University graduate and a former McKinsey & Co. consultant, kicked off Reliance’s e-commerce foray into fashion retail in 2016 by starting online shopping portal Ajio. Her husband is Anand Piramal, the son of Indian billionaire Ajay Piramal, whose interests range from pharmaceuticals to real estate.

Akash, a Brown University alumnus, has studied economics. He married his childhood sweetheart, Shloka Mehta, the daughter of a Mumbai-based diamond trader and jeweler. The twins have a younger brother, Anant, 24.

“Going forward, you will see Anant also taking some key responsibilities,” said Arun Kejriwal, founder at KRIS, an investment advisory firm.

The younger generation is getting involved at a time when Reliance is pivoting toward consumer offerings, which Ambani has said will contribute almost as much as the group’s core energy businesses by the end of 2028. Global retailers such as Amazon.com Inc. and Walmart Inc. are also expanding in India, bringing in new competition that the Ambani family must contend with in the coming years.

Ambani’s group is attempting to use its mobile carrier and retail units to tap India’s online shopping market, which by Morgan Stanley’s estimates will surge sixfold to $200 billion in about a decade. At the same time, Reliance’s Jio, since its debut in 2016, has shaken up India’s telecommunications industry with free calls and cheap data, forcing a consolidation that whittled down carriers to three from about a dozen four years ago.

The senior Ambani has credited his children with helping to nudge him into the internet business.

In 2011, while in India on a break from college at Yale, Isha complained about the poor quality of the internet at the family home, which made it more difficult for her to submit her coursework, Ambani has said. Meanwhile, Akash kept reminding his father that digital communications, rather than just phones, were now driving the world.

After Dhirubhai’s death in 2002, the brothers’ fight for control went on until their mother intervened in 2005 and brokered a settlement under which they carved up the vast empire. The older one kept the oil refining and petrochemicals businesses, while the younger one got the newer ventures in finance, infrastructure, power and telecom.

While the paths of the brothers diverged, so have their fortunes. Mukesh’s worth is about $50 billion, according to the Bloomberg Billionaires Index. He lives a lifestyle to match, with a 27-story, 400,000-square-foot home in Mumbai named Antilia, after a mythical island, that boasts nine elevators, a spa, a 50-seat theater and a helipad.

The value of Anil’s holdings in companies, calculated net of pledged shares, is about $75 million, according to data compiled by Bloomberg. That compares with a net worth of at least $31 billion in 2008.  Stock prices of Anil’s various businesses have slumped as the units struggle to pay about $13 billion of debt—not counting his phone venture, which this year slipped into bankruptcy.

Bloomberg News is currently defending litigation brought by Anil Ambani and his Reliance Communications in connection with previous Bloomberg reporting.

Earlier this year, Mukesh stepped in to pay about $78 million of vendor dues owed by one of Anil’s businesses, helping his younger brother avoid a stint in jail.

Meanwhile, Mukesh isn’t the only one preparing his offspring for the future.Now working to reduce his debt load by selling the equivalent of more than $3 billion in assets, Anil also has an eye to the future. His son, Jai Anmol, 27, Anil’s son, was appointed executive director at Reliance Capital Ltd. in 2016.

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