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Amid fears over safety of bank deposits due to FRDI Bill, reports of corporate loan write offs

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Amid fears over safety of bank deposits due to FRDI Bill, reports of corporate loan write offs

If big corporate houses do not repay loans, will banks take over your money? It may seem ridiculous or outlandish, but there are fears that it may become a distinct possibility.

Amid fears over Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 – expected to come up for passage in forthcoming winter session of Parliament – authorising take over of account holders’ control over their deposits in failing banks, came a report that banks have written off over a lakh of crores of loans.

The public sector banks, that account for 63 per cent of investments made by people, have written off Rs 55,356 crore worth of loans in the first six months of fiscal 2017-18, said a repport in The Indian Express, quoting data compiled by credit rating agency ICRA.

This, said the report, was done under banks’ attempt to clean up their balance sheets after a string of defaults by firms and promoters in the wake of the economic slowdown.

The write-off in the last six months was 54 per cent higher than the Rs 35,985 crore written off in the same period last year. Banks are reportedly struggling to resolve many cases of repayment of loans and recover money stuck with corporate defaulters through insolvency proceedings.

Figures obtained by The Indian Express from the RBI through the Right to Information (RTI) Act for the last decade show that banks had written off  Rs 2,28,253 crore in nine years — from fiscal 2007-08 to 2015-16.

While the RBI did not provide data for the subsequent period, the ICRA, responding to a questionnaire, said that write-offs amounted to Rs 1,32,659 crore in 2016-17 and the first six months of 2017-18, said the IE report.

This means the total write-off in the last ten years is now over Rs 3,60,000 crore, the report said.

Banks were engaged in a massive write-off of loans over the years and the figure hit a high of Rs 77,123 crore during the year ended March 2017, against Rs 57,585 crore in fiscal 2015-16. Ten years ago, in 2007-08, loans written off by banks were just Rs 8,019 crore, the RBI said in its reply to an RTI query.

Gross non-performing assets (GNPA) are likely to peak at Rs 8,80,000-Rs 9,00,000 crore (10.0-10.2 per cent) by the end of FY2018 as against NPAs of 9.5 per cent (Rs 765,000 crore) as on March 31, 2017, said the IE report quoting ICRA group head Karthik Srinivasan.

“A substantial portion of this write-off is, however, technical in nature. It is primarily intended at cleansing the balance sheet and achieving taxation efficiency. In ‘Technically Written Off’ accounts, loans are written off from the books at the Head Office, without foregoing the right to recovery. Further, write-offs are generally carried out against accumulated provisions made for such loans. Once recovered, the provisions made for those loans flow back into the profit and loss account of banks,” the RBI had said in an explanatory note.

M Narendra, former chairman and MD of Indian Overseas Bank, said, “The write-off is just a technical book entry. Banks are not losing anything. It doesn’t mean banks are giving up those assets. They will continue with various recovery methods.”

However, a former RBI official quoted in the IE report said, “Technical write-off creates non-transparency, destroys the credit risk management system and brings all types of wrongdoings into the system.”

“I have nothing against a write-off but it has to be done scarcely and within a policy, with all efforts taken to recover the money. Any asset which is backed up by tangible asset is never written off. Secondly, you must be subject to scrutiny for these write-offs. There must be a policy. You ask any bankers. They have written off Vijay Mallya’s loan. Then how are they going to recover that money? Use it very sparingly and do it where it’s essential. If there’s asset, why are you writing it off?” the official said.

Significantly, the write-offs come amid government’s efforts to enable a clean-up of balance sheets of banks.

It is in this context that a bill was approved by the government in June 2017 for helping resolve problems of failing banks. Details of the bill, Financial Resolution and Deposit Insurance (FRDI) Bill, 2017, that came out in the media have given rise to deep fears among bank depositors. The Bill, at present before a Select Committee of the Parliament, was opposed by Bank unions who issued a joint statement last month saying that the proposed law will open up public sector banks for liquidation or amalgamation, which could put the deposits of customers under severe risk.

The bill also provides for a bail-in option, which means depositors could lose control of their money which could be converted into securities such as shares in the bank in case the bank’s financial situation deteriorates.

The “bail-in” powers would be exercised by a body called Resolution Corporation, proposed to be set up in Bill, for saving a bank which is on the verge of collapse.

The ‘bail-in’ is method used for rescuing a financial institution on the brink of failure by making its creditors and depositors take a loss on their share holdings or deposits. A bail-in is the opposite of a ‘bail-out’, which involves the rescue of a financial institution by external parties, typically governments using taxpayers’ money.

Governments usually resort to bail-outs rather than bail-ins, “but in recent years after massive bail-outs some governments now require the investors and depositors in the bank to take a loss before taxpayers,” according to a report.

Section 52 of the FRDI Bill gives the Resolution Corporation powers to cancel a liability of a bank. ‘Liability’ of a bank is the money in a savings or fixed deposit account that the bank owes to its customer. This means that the RC can declare the bank doesn’t owe you any money. It can also modify or change the form of liability, meaning if you have deposited money for using it for something after 5 years, the bank may instead convert it into a deposit with a lock-in of 15 years without your consent. The Bill also has a provision that allows the RC to exempt the failing bank for fulfilling its obligations under a contract or an agreement.

Seeking to allay fears, Finance and Corporate Affairs Minister Arun Jaitley has said the legislation is still at the drafting stage and could see several ‘corrections’ before its passage,

“The Bill still has to go through the overall drafting process. The Parliamentary committee can offer drafting suggestions. Thereafter it will go back to the Cabinet,” Jaitley said.

“The Cabinet will place the recommendations in the public domain and ask for feedback. So I think a lot of corrections will take place,” the Minister said.

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Google reduces 10% of managerial staff to enhance efficiency and ‘Googleyness’

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Google has pruned its managerial workforce, reducing it by 10% in a move aimed at streamlining operations and redefining its corporate culture in a year-long push. This pruning, part of a broader efficiency drive, includes a 10% cut at manager, director, and vice president levels.

Reports indicate that during an all-hands meeting, CEO Sundar Pichai outlined the rationale behind the decision, emphasizing the need for efficiency and redefining the company’s core values, often referred to as “Googleyness.”

A Google spokesperson revealed that some affected employees would transition to individual contributor roles, while others faced role eliminations. These adjustments come amidst growing challenges in the tech industry, particularly with rapid developments in artificial intelligence (AI) and fierce competition from rivals like OpenAI.

The AI race and Google’s response

The tech giant has recently intensified its focus on AI innovations, unveiling Gemini 2.0, its most advanced AI model yet. Sundar Pichai described the new model as heralding a “new agentic era” in which AI systems are designed to comprehend and make decisions about the world.

This announcement boosted Google’s stock, which surged by over 4% following the news, a day after a 3.5% increase attributed to breakthroughs in its quantum chip technology.

Previous layoffs in 2024

The latest layoffs mark Google’s fourth round of job cuts in 2024. Earlier in January, Google eliminated several hundred positions in its global advertisements team. In June, its cloud unit also saw workforce reductions. By January of this year, Google had already cut 12,000 roles, equivalent to 6.4% of its global workforce.

In a letter addressed to employees during the earlier layoffs, Pichai took responsibility for the decisions, stating that the company had experienced dramatic growth that required adjustments to sustain operations. Despite efforts, he acknowledged the process could have been managed better.

Redefining ‘Googleyness’

At the same meeting, Pichai stressed the need to revisit and reshape the concept of “Googleyness.” This term, often used to define the company’s unique culture and hiring philosophy, will now play a pivotal role in transforming corporate dynamics to adapt to new challenges.

The adjustments highlight Google’s commitment to staying competitive while reshaping its operational framework to remain aligned with its long-term vision.

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Zomato introduces Food Rescue feature

“We don’t encourage order cancellation at Zomato, because it leads to a tremendous amount of food wastage,” he said.

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Zomato has introduced a new feature called Food Rescue to minimise food wastage, announced the food delivery platform CEO Deepinder Goyal on Sunday.

Announcing the new feature on X, Goyal said the decision, to introduce the new feature, was taken to prevent the tremendous amount of food wastage due to order cancellation on the platform.

Committed to minimising food wastage, the Zomato boss said: “We don’t encourage order cancellation at Zomato, because it leads to a tremendous amount of food wastage.”

Goyal said despite having stringent policies, and a no-refund policy for cancellations, more than 4 lakh perfectly good orders get cancelled, for various reasons by customers.

He said the top concern for the online food delivery platform, the restaurant industry, and even the customers who cancel these orders, is to somehow save the food from going to waste.

With the launch of the new feature, Food Rescue, cancelled orders will now pop up for nearby customers, who can grab them at an unbeatable price, in their original untampered packaging, and receive them in just minutes.

According to Zomato, the cancelled order will pop up on the app for customers within a 3 km radius of the delivery partner carrying the order. To ensure freshness, the option to claim will only be available for a few minutes.

The online food delivery platform will not keep any proceeds except the required government taxes and the amount paid by the new customer will be shared with the original customer (if they made payment online) and with the restaurant partner.

Orders containing items sensitive to distances or temperature such as ice creams, shakes, smoothies, and certain perishable items, will not be eligible for Food Rescue.

Restaurant partners will continue to receive compensation for the original cancelled order, plus a portion of the amount paid by the new customer if the order is claimed, the company said. “Most restaurants have opted in for this feature, and can opt of it easily whenever they want, directly from their control panels,” it added.

The delivery partners will be compensated fully for the entire trip, from the initial pickup to the final drop-off at the new customer’s location, it said.

Food Rescue will show up on the customers’ home page automatically if there’s a cancelled order available for them to grab. The Customers have to refresh the home page to check for any newly available orders which need to be rescued.

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Adani, Torrent compete to purchase Gujarat Titans from CVC Capital

The probable sale of the Gujarat Titans, with the lock-in period coming to a close, will therefore be a defining moment in the changing face of IPL investments.

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The Adani Group and Torrent Group are currently negotiating a deal with private equity firm CVC Capital Partners to offload a controlling stake in the Indian Premier League franchise Gujarat Titans. According to sources, close to the development, reports say CVC Capital Partners will be looking to sell a majority interest while retaining a minority share in the franchise.

This becomes important because it is aligned with the end of the lock-in period by the Board of Control for Cricket in India (BCCI), which restricts any new teams from selling stakes until February 2025. The three-year-old franchise Gujarat Titans is reportedly worth $1 billion to $1.5 billion. CVC Capital Partners had paid ₹5,625 crore for the franchise in 2021.

A source close to the development pointed out that IPL franchises have attracted many investors’ interest since the league has proved an asset with a good reputation for money-making capabilities and cash flows. This growing interest of investors embodies the financial value and stability that come with the IPL franchises.

Gautam Adani, who owns teams in the Women’s Premier League and UAE-based International League T20, is understood to be one of the serious buyers. In 2023, Adani’s group won the Ahmedabad franchise in the WPL with a bid of Rs1,289 crore, the highest offer. His interests in this potential deal signal his commitment to expanding his footprint in the cricketing world.

Arvinder Singh, COO of Gujarat Titans, exuded confidence in the financial future of the franchise. He said the team was confident of turning profitable in the next media rights cycle, referring to even the original ten IPL franchises that took four to five years to turn profitable. He added confidently that the Gujarat Titans would not only turn profitable but significantly enhance in brand value.
 
This surging interest of investors in it is evidence of the growing financial attractiveness of IPL franchises, driven by healthy revenue streams and an increasing global footprint. The probable sale of the Gujarat Titans, with the lock-in period coming to a close, will therefore be a defining moment in the changing face of IPL investments.

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