RBI Q3 Press Release-2008-09- Part 1

SIMPLIFYING THE Q-3 PRESS RELEASE OF THE RBI

RBI Q3 Press Release-2008-2009/1164

Despite all initial rejection of any theory on the global crisis impacting India any way, we saw the world's a small place- A disease in one place spreads easily to the other places. In this case, the disease was passed onto the emerging markets by the developed nations. Nonetheless, we know now that no Nation- however big or small is insulated from the turmoils that the world is witnessing. If there is anything that is surprising, it is the magnitude of the impact and the uncertainty over how deep will the sword cut through before it is put back into its sheath!

The RBI has, to begin with, acknowledged that since its Mid year review, the world financial markets have come a long way. It says that while there has been a cyclical moderation in growth, there is scope for further downside as a consequence of the events plaguing the global markets. The repo and Reverse repo were unchanged, but the stock markets had already factored this in and hence did not react much to this news at the time.

• An interesting thing that is worth mentioning is the Govt's announcement of setting up a Special Purpose Vehicle[SPV] to bail out the cash strapped Non Banking Finance Corp [NBFCs].

• The SPV would issue govt guaranteed securities to the RBI. Then it would with these funds buy investment grade products and non convertible debentures of NBFCs, thereby providing them with the the much needed liquidity, but at the same time also ensuring these funds are NOT USED FOR EXPANSION. The below diagram i made should help understand the flow of liquidity.

In recessionary times, liquidity of domestic currency is of prime importance and every country's Central Bank ensures the same is taken care of. Our RBI is obviously not an exception.

• To ensure that banks have sufficient funds, RBI has been reducing the CRR over the past quarter. The CRR or Cash Reserve Ratio is the amount of bank's cash parked with the RBI. Reduction of this ratios naturally frees up the funds for lending, creating a liquid base for the rupee.
• The Repo Rate[rate @ which RBI lends money] was brought down from 9% to 5.5% in just one quarter. The Reverse Repo was brought down from 6%to 4%. What this does is induce banks to borrow more from the RBI as rates are lower, lend more consequently improving the liquidity situation.
• RBI is also allowing banks a special refinance facility without any collateral.
• The Statutory Liquidity Ratio [SLR] is reduced by one percentage point

What does the reduction in SLR hold for us? Well, it is the percentage of deposits that banks must invest in govt or govt approved securities. So, reducing SLR frees up more money for credit deployment.

Whew! I am tired, am sure if u have been reading till here, so are you![ unless u follow Latha Venkatesh on CNBC TV18 or are an avid follower [by force or choice] of government and RBI policies.] I touched upon the steps RBI had taken to ease the domestic liquidity situation.

BUT What has RBI done to manage forex liquidity? What about sector specific credit that is now facing the heat with Capital Markets drying up and NBFCs themselves in deep trouble?

On my next post....

Satyam- Part II

A-Satyam- auditors' insights !!

I happened to meet a friend who works at one of the Big Four [i dun wanna term it Big Three so soon].. So here we were at CCD, and sharing a conversation over hot coffee. I personally thought it to be weird for a guy to discuss finance with a woman at a coffee shop!
Nonetheless, we arrived at the point of Satyam, and I got to know what the auditor circle actually thinks of this whole saga. Here's a bit of that auditor gyaan for you [grab a coffee, u may fall asleep]

" PwC as auditors had to verify every FD receipt as per the regulation. "
Something Mr Vadlamani and Co apparently did not seem to find important while handling the onerous task of fudging the already fudged books.
" Now Raju went and got a FD receipt for a paltry Rs.1000 crore. When auditors ask for it, Lo and Behold! " But wait, did miss something, Raju was riding the Tiger worth 7000crore,right?

"Raju and Co went to the bank,told them -'Oh you know what, we lost our receipt, can u issue a duplicate?'-the bank obliges to the request of a prestigious client. Gives them another receipt. "

This my friends was the second Rs1000 cr. Thats how they turned it into Rs7K Cr.

Question, What did PwC do here? "they did not check for TDS that the banks should have cut on interest earned on every Rs1000 Cr deposit."


Hmmm... with some insight, i bumped into another auditor friend [this guy works for a decent auditing firm, though not exactly of Deloitte or E&Y stature] This time, it was over Beer! And when all job related frustrations were puked out, we returned to some sanity and discussed..of many things...u guessed it...Satyam.
His view : Satyam had cash. So there was no artificial cash as told by my friend from the Big 4.

" They siphoned out money to fund projects in many of their group companies- Maytas included"
Ok but what about the missing cash?
"Satyam jacked up its headcount by almost 13000 employees, imagine where all this money must have been going.. and to show that you had cash, they might have done the needful to forge bank documents too"

The rest, most of us already know- The proposed Maytas deal was, as admitted by Raju, an attempt to plug the hole in the Balance Sheet, as real estate valuations are difficult to arrive at.

When Enron Collapsed, Arthur Anderson became a thing of the past too. The Big Five became Big Four. But soon after, we learnt of the Worldcom scandal. Maybe I am one of the sceptics, but I am keeping my fingers crossed- The Satyam PwC saga may unleash bigger names. Rumour has it that Reliance may be in the news for all the wrong reasons pretty soon.

Like David Fleischer at Goldman Sachs asked post Enron bankruptcy, I ask "What's next?"

A-Satyam....Raju's Vanishing Cash ka Jaadu!

The Satyam Saga : Flash Back and Now!!
If I say I am going to give you the complete Satyam saga, give you a blow- by- blow account of what Ramalinga Raju did, you better don't believe me!

The image here is Raju playing Holi @ Satyam, Perhaps, he was preparing for "Hands Up" for a long time before anyone could catch him "red-handed" !

Satyam stock plunges..Andhra Cm says he's not responsible for Raju's Rise..Satyam's 6.55 acre land being handed over to Indian Navy..

This is not what I am going to expound on- This is something that's already in the news. After all, it is the most "googled" thing today, greater than even Obama!
Just to bring forward a few interesting facts i got :

1. Satyam's website has some interesting write up on compliance : "Compliance isn’t just about reporting, or data management, or training, or having the right technologies; it’s all of these together. The overarching intent of all of these compliance programs is to help enterprises address four key areas: information integrity, process integrity, controlled access to information, and secure information retention" Hehe... Information integrity.. secure information retention..hehe, to think of all the institutional investors close to satyam and the top management who sold shares days before Raju's infamous acceptance of fraud. By the way, that image is from Satyam website : it says : SATYAM'S EXECUTION : Ordinary people doing extraordinary Things! ..ahem..well..
2. Five Years back, at the time of US elections, Ramalinga Raju was thought to be the most feared man, greater than Osama! Today, again, Raju is feared to unveil more dirty news of untruth! For the uninitiated, let me give you a gist : Satyam reported a 28% jump in Q2 profit in 2004."It's not that they're doing anything better than competitors like [Montreal-based CGI Group Inc.]," said Forrester Research analyst John McCarthy. "They're just doing it with a different cost structure." For your information, John McCarthy is a VP at Forrester. perhaps, McCarthy was referring to false cost structure and inflated profits! Check this out http://www.indiadaily.com/editorial/11-01k-04.asp
   
3. Today, the same McCarthy states that any investor would be nervous about how much Satyam's books have been fiddled with! Well, the period when Satyam was praised for its cost structure was also included in its "fraudulent era". Did McCarthy not really examine satyam's books thoroughly before lauding its cost structure? Agreed, cooked books that even the auditor PwC "could not" trace are difficult for an analyst to identify. But these very people claim to be the best in business, so whom do we look upto now? Even before the Raju admittance, here came a Forrester research view : http://www.forrester.com/Research/Document/Excerpt/0,7211,48121,00.html
   
4. To think of it, Satyam is the very company that received the pretigious Frost & Sullivan Excellence in Leadership Award for 2008. People appreciated Satyam's Corporate Social Governance at the time. The defamed company's CSR has gone for a toss.

Well.. Let me add my disclaimer, I have no personal stake whatsoever in Satyam or any of its associated companies [read Maytas]. Which is why, perhaps, my tone is a bit mellowed down..
More on Satyam and the IT industry..soon to come!!!

Apple's Cook gets Jobs' Job

Jobs is away from Job @ Apple again..This time for a tad bit longer...and worries loom large over whether his hiatus will mark his return to business at all.
His cancerous tumour has been giving him trouble for quite some time now, only now he thinks it has become more complex. Speculation is rife that this time around, he may not return to his top job as CEO. In the interim, COO Tim Cook, the master of Apple's operational minutiae will step into Jobs shoes. What does this mean for pioneer company?
Sure, Jobs was kicked out of his job early in his career [he was just 30, 10 years after he jointly founded Apple]. But the company survived. Jobs with his famous "Stay Hungry, Stay Foolish" attitude battled this phase, and came to the rescue via the NeXt acquisition to the Apple Inc Board and lead the i Mac, i Pod revolution. as many people put it, if Apple's design is taken care of by Jonathan Ive, the vision that drive Apple and propels it ahead is that of Mr. Jobs.

Check out this link that has one if is famous speeches made at Stanford University
http://news-service.stanford.edu/news/2005/june15/jobs-061505.html

Post Mortem report for the economy : by the G-30

The financial turmoil began with the collapse of Bear Stearns, bolstered by the Lehman Fall and the humbling of AIG and Merrill Lynch. What next? The panel of economic doctors are here to tell the world- how these giants died, what was the cause of the disease, and how do you prevent the next gen from being infected!

Yes, the G-30 team, which includes Paul Volcker, former Fed chairman and economic adviser to the president elect Barrack Obama, Euro Central Bank Chief Jean-Claude Trichet, Larry Summers..and so on. Surprising why all the great names speak up only after a crisis, why not hen they were at the helm of things or when their "opinions" could have really averted disasters.

Nonetheless, let me sum up the G-30 report to fix the financial markets in brief for you.

• Banks to have stricter capital requirements
• Banks to be under Central Bank's glare for proprietary trading activities
• Conditions similar to the Glass Steagall Act that was repealed in 1999
• Hedge Funds may have to reports to a regulator, may be subject to stringent capital and liquidity requirements
• OTC Derivative contracts may be subject to proper regulation

All In all, they have woken up to a new reality. Or may i say they are presenting to the world a probable new reality in the wake of dismal financial performance by many industries. This looks good, and would probably hold good, till the next big fall and another post mortem report holds out that all that was valid till date was grossly inaccurate and always demanded change.

Snip Snap- Companies get a Haircut

p headlines
Its snip- snap time...the companies have got themselves Edward scissor hands- they are all aggressively cutting either jobs, man hours, pay or even businesses.

With the recent financial turmoil putting in a lot of insecurity into every average employed household- especially the BSFI[ Banking Financial and Insurance] sector and Tech sectors. We are not asking if there are appraisals happening- we rather ask each other if the other still has a job.

No wonder then that my friend who didn't contemplate further studies after 6 years of work ex decided to take the CAT this year.

Here are some of the shocking news that reflects the business scenario :

• The best and the craziest of all- Air India(AI) is not cutting jobs, but is offering leave without pay for 3-5 years.Oh! isn't that good? so considerate! Not removing the employees form the pay rolls, just not paying them for 3-5 years, asking them to go on a forced leave. Hats off to you Raghu Menon- CMD,AI.
• Tata Yazaki- manufacturer of wire harnesses for auto industry- says no electricity in its company after 06pm- OOps!.. Dark days ahead fo the employees- I am sure the management would fend this off saying- "its an eco friendly decision" [hmm...]
• The tops execs at ThyssenKrupp and Kirloskar no longer would travel by Business class, in fact, Kirloskars went a step further and shun the practice of using luxury cars like the Mercs for travel- The top brass may have to be content with an Indica!! Perhaps the Three wheelers and bicycles would be the next viable option.
• Citi's Vikram Pandit announced that the company would cut 52000 jobs across the globe to get a leaner look- However, speculation is rife that Pandit himself may not be able to hold on to the job for long.

Even as i write, the Sensex is down 88 points, eroding all of Friday's gains. Readying for darker days ahead..

Opening Bell

Trinng!! My first post.. I probably thought this is the best topic to start blogging with.. For i can brag anything and predict any Goddamned outcome of the market- and brag a bit more if anything..anything at all works out as per my "estimate"- Else, I always have the option of going underground- thats what a lot of my investment banking friends have done- the guys in sales have not seen their clients for quite some time- Some died of an attack, some committed suicide, the rest didnt have the money to call these guys.. [Idea,Airtel..are you listening?]

Well..Why is Sensex NonSensex?? Coz the best brains lose it when it comes the mayhem. I have a friedn who met me the other day- lets call him Rahul- He met up after a very long time, and immediately inquired what about my job at Lehman? [Oh Please! No more condolences!]. The discussion soon shifted to the markets, and he seemed very concerned about the sliding indices.

"Do you have a lot of money into the Futures Bud?" i Aksed, trying to find out how much loss is he sitting on.

He said- "No, i don't play in futures."
Smart guy, I thought, doesn't want to burn his fingers out of greed.

"Oh, what stocks have you locked yourself up in?" I pressed,trying to analyze his quantum of loss which made him feel so woebegone at the red index.

"Oh No...Aisa kuch khaas nahi...Haven't bought any individual stock as such.."

Now, that was weird. Did i miss something- Did he talk about some death or something that i failed to hear- This man has no investment apparently but is dejected to see the index fall.

" Then what kind of investment do you hold?"- I needed to know...
"Well, I have these Tax Saving MFs that hold, don't have the appetite for Cash Market risk and all" he said.

Urrrrgggggh... Here's a man who has nothing to lose or gain, whichever way Sensex or Nifty moves, but he echoes the market concern. No different than how we cheer for MSD or 10dulkar walking away with an award [the latter has become a rarity, i know], and feel as if we ourselves have won it.
This market fever grips almost everyone-Even those holding no investments cry with the brokers when markets crash- Jeez, they even worry about support and resistance!!

More market stuff and crazy people from around the world..soon to come..