Monday, September 10, 2012

Follow the Sun Tzu way

Lakshmi Vilas Bank is planning to grow purely on secured lending. That kind of risk aversion is not only rare but is quite strange given the industry in which the bank operates. But does such a strategy really work? B&E runs through the bank’s top management to understand the answers.

83years, 58,000 shareholders and 1.64 million customers, yet the predominantly south-based Lakshmi Vilas Bank (LVB), which wants to spread its footprints across the nation and become a strong name in the retail lending space, is not ready to take the risk of unsecured lending including credit cards and personal loans. When we heard this rare and stringently risk averse premise of doing business in the banking industry, our first assumption was that it was a joke. Obviously, it wasn’t; but be that as it may, we did realise that there was a well endowed case study in the making, and grabbed the opportunity to go through the bank’s operations and top management’s strategic intent to understand the nature of the beast.

Amazingly so, the bank’s (over) conservative approach has resulted in an unexpected 52.71% growth in operating profit in the last fiscal. This is one of the best amongst various South Indian banks. LVB’s financial results can fox even the most discerning critic. Not only did LVB’s interest income jump by 38.28% to Rs.9.09 billion in the financial year 2009-10 from Rs.6.57 billion in the year ago, its total income too grew by a strong 32.47% to Rs.10.12 billion in the last fiscal.

And then comes the paradox. If a bank is so risk averse, its NPAs should be at historic lows, right? Wrong! LVB has some of the highest and most worrying NPA levels in the banking industry. For starters, LVB has managed to reduce both its gross and net NPA levels to 4.27% and 3.31% respectively from 5.12% gross NPA and 4.11% as of March 31, 2010. But, going by industry norms, the figures are still very high. For that matter, other South Indian banks like Karur Vyasa and Catholic Syrian Bank – two which B&E covered in its previous issues – are operating at a net NPA to net advance ratio of less than 1.5%. In fact, the NPA ratio was one of the biggest reasons for a sharp 38.82% drop in LVB’s net profit last year despite the earlier mentioned income growth.

The bank, which kept aside Rs.585 million as provisions and contingencies in FY’09, had to increase the same by a mammoth 131% to Rs.1.35 billion in FY’10. However, the bank, which is now investing on process changes and credit monitoring to improve credit quality of its asset portfolio, is seemingly confident that they will be able to bring down the NPA level to below 1% within the next 18 months. P. R. Somasundaram, MD & CEO, LVB, accepted to B&E, “The bank’s credit monitoring and recovery efforts have been very reactive in the past. Now we are keen on making it highly pro-active.” But then, as Vaibhav Agarwal, VP – Research, Angel Broking points out, “Despite the negative effect on the NPA front, smaller banks like LVB still need to lend to riskier segments as this is the way they can improve their overall earnings and deposit base, leading to an overall reduction in the bank’s deposit cost.”


Source : IIPM Editorial, 2012.
For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face
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Saturday, September 08, 2012

Michael Douglas is back!

Gordon Gekko made a rasping comeback in the Wall Street sequel, Money Never Sleeps, but what was an even more emphatic comeback was that of Michael Douglas against cancer. Diagnosed with a stage four tumour in his throat a couple of months back, Michael recently wrapped up his last chemo session and is now set for six weeks of rest and recovery. For life, greed is good.


Source : IIPM Editorial, 2012.
For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face
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Tuesday, September 04, 2012

IT IS TIME THAT OUR GOVERNMENT AT THE CENTRE LOOKS AT SOCIAL DEVELOPMENT AS ITS KEY BUSINESS!

Since the last two terms, the UPA government has come out with several development schemes – which on hindsight look very impressive. Welfare schemes under NREGA, NRHM, midday meal, universal education scheme, JNNURM and many others, not only have aimed at uplifting the underprivileged but also have had an objective of bringing about some uniformity within the existing regional and social imbalances. But then, what is being experienced is something that defies these aims and objectives. There is no doubt that these schemes have done small wonders, but these wonders are confined to select pockets of the society. For instance, if NREGA saw success in a few south Indian states, then it also saw rampant corruption in most of the other states, especially in north India. Same has been the case with most other development schemes. Great initiatives, but equally great failures!

It doesn’t take rocket science to gauge the gaps. And it is also nothing new! The nation’s development schemes would have delivered to their promise across the length and the breath of the country if and only if the state governments had not been suffering from inadequacies in their delivery mechanisms. Most of the times – rather, almost every time – it is the local (state level) bureaucracy and administration that fails to effectively execute and implement most of the national schemes. Not just that, the state governments are invariably found to be careless about preventive and precautionary communication emanating from the Centre. Recently, all the major cities of India experienced a massive outbreak of malaria and dengue. Now, in spite of regular and pre-emptive alarms from the central government, most of the state governments failed to act. So much so that a few states even found their hospitals and medical centers incapable of handling the rush. The hospitals were not only full to the brim but also lacked necessary manpower and facilities to tackle the outbreak. A similar situation is being experienced with respect to food security. There is much talk that has gone on and on about the distribution of food grains to people below the poverty line; but it seems there is still a state of complete crisis over the same. The state delivery mechanisms are so weak and porous that huge amounts of these grains find their way to the black market – or at best are found rotting in warehouses. To top it up, in spite of having grain stocks that are enough for food security, the states mostly waste time deciding whether to sell the same in the open market or through Public Distribution System (PDS), knowing very well that PDS does not have a great track record. A March 2010, CVC (Central Vigilance Cell) report concludes that corruption is pervasive in the entire chain and grains are distributed for 2-3 months only, in spite of the Centre allocating around `30,000 crores for the same!

Year after year, our annual budget allocates and disburses hundreds of crores of rupees to states for developmental programs viz. universal education, health and sanitation, agriculture reforms – to name a few. But half of the time, either the funds are returned unused or find their way to bureaucrats’ and government coffers. Recently, it was reported that the states have managed to use just 20% of the funds allocated by the Centre for the backward regions. What is worse is the fact that the biggest offenders are the states which have the maximum regional imbalances. It was also reported recently that the state of UP has indicated its failure to allocate funds for implementing the Right to Education Act, even after the Centre has agreed to bear 75% of the budgetary responsibility. The cases are endless. The Public Accounts Committee 2008-09 tabled in the House of the Manipur Assembly this July, reveals the grim fact that the state failed to achieve the target mentioned for road connectivity to rural habitations under the Pradhan Mantri Gram Sadak Yojana (PMGSY) project. Even the Comptroller and Auditor General (CAG) found out that Meghalaya’s Education Department was very inefficient with the implementation of the Sarva Shiksha Abhiyan scheme. The list of such gaps and subsequent failures goes on and on. It is incredible that most state governments most of the times still shamelessly bargain for budgets in the name of development.

The failure in implementation is just one part, the bigger worry is to know about it and still continue with it. Recently, the Economist magazine reported how the Obama and the Cameron governments in their respective nations have embarked upon a new mission to reach out to masses with their developmental schemes. They have entrusted the job of carrying out the developmental initiatives to large NGOs and social entrepreneurs with sparkling track records. Although the project is at an initial stage, it holds a huge promise. It is time that our Central government starts thinking on the same or similar lines.


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Monday, September 03, 2012

“AT THIS POINT, GEC BUSINESS IS GOING TO COME DOWN”

UTV’s Global Broadcasting division posted a remarkable turnaround in the last year. CEO M. K. Anand speaks to B&E on the favouring factors and future expansion

M. K. Anand, CEO, UTV Global Broadcasting, remarkably left another media behemoth, nee paper tiger, the Times group, to join the UTV group. B&E gets into conversation with the man who has taken UTV’s Broadcasting arm to the market with popular channels like UTV Bindass, UTV Action, UTV Movies Bloomberg UTV and UTV World Movies and finds out how he is set to take them further:

B&E: UTV Global Broadcasting is on an upward trajectory and growing faster than ever. What is the synergy driving the division?
M. K. Anand (MK): The only synergy from the corporation point of view is the brand name ‘UTV’. With the experience that Ronnie brings to the table coupled with his understanding of the Indian entertainment consumer, the trajectory has generally been up for the last 5 years in the B2C space. From a macro economic point of view, the market has taken a dip and again rebounded. What worked for us were the investment decisions that Ronnie took when other companies were cutting down. So this company decided that recession was over 6 months before the rest of the companies of our country did. That’s how we got a head-start. The growth in GRP (Gross Rating Points), which happened over the existing period was far earlier than when the recession actually got over because investment into content and distribution happened when other people were cutting down.



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Saturday, September 01, 2012

ON THE WORLD STAGE

Pawan Goenka, Ppresident, Automotive & Farm Equipment, M&M , Talks about the Group’s M&A Strategy, Future M&A plans and endeavours for a Global Presence, particularly in neighbouring China in this Exclusive interaction with B&E’s Pawan Chabra

The day Pawan Goenka, President – Automotive & Farm Equipment Sector, Mahindra & Mahindra, joined the home-grown conglomerate as General Manager (R&D) in 1993 with a solid 14 year experience of working with the Detroit giant General Motors, was the harbinger of a major transformation for M&M. Goenka not only made M&M one of the most competitive players in the SUV segment with his R&D expertise and market oriented focus, but has also been successfully leading the core automotive division for Mahindra since 2005. The UV major has been on a relentless acquisition spree over the past few years. Goenka explains the strategic propositions behind the acquisitions and the way forward to B&E.

B&E: After the failed attempt to acquire JLR from Ford Motor Company, the company has been on an acquisition spree. Be it Kinetic, Reva or Ssangyong, M&M has been able to get into major segments where it wasn’t present so far. What is the broad rationale?
Pawan Goenka(PG): The three acquisitions that you mentioned were done with three different goals in mind; the Kinetic deal was done with a view to give Mahindra a head-start in the two-wheeler business. We have used that to ramp up very quickly. The Reva acquisition was done to get an acceleration as far as the electric play is concerned. The Ssangyong acquisition is done to expand our global presence. If you notice, the product portfolio of Ssangyong complements the portfolio of Mahindra. Our primary objective is to become a global SUV maker. Also, we have always promoted green and clean electric technology and that’s where the Reva deal comes into play.

B&E: With the acquisition of Reva and the expected launch of NXR, the company will have its presence even in the small car segment. How different will be your strategy for the same?
PG: With the acquisition of Reva, Mahindra is aiming to gain presence in the electric car segment and not small car segment. Having said that, the first product i.e. NXR that we are planning to launch by the end of next year happens to be a small car, which was showcased by Reva at the Frankfurt Motor show.


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