Tuesday, October 31, 2017

Sensational non-merger: IDFC and Shriram Group

What was flaunted as a $12 billion merger deal has floundered. Dr.Rajiv B.Lall, Managing Director of IDFC Bank, overtly spearheaded the move to merge IDFC group with Shriram Group though it was perceived by the public that the merger would benefit R.Thyagarajan and Ajay Piramal at the cost of IDFC and its shareholders which included the Government of India.

Rajiv Lall, a multi-linguist intellectual who propelled IDFC to be the largest lender in  infrastructure space, has himself to blame for the public fiasco of the sensational non-merger.

Lall known for his articulation and dynamism tied himself in knots on quite a few occasions through his inexplicable flip-flops. Before IDBI Bank was born, he swore in an AGM of IDFC Ltd., that the group would not enter retail banking. Within a year, IDFC obtained RBI's approval to open a commercial bank. In an AGM of IDBI Bank, Lall proudly announced that the bank's business strategy was unique. It would not rely on branch-banking and would rather concentrate on accessing customers through technology. He pacified the Chennai shareholders (the registered office of IDFC is in Chennai) with the lollipop of a branch in Chennai. Later on, he started evincing keen interest in merger with Shriram group ostensibly to enable the bank to manifest through many branches overnight.

Flip-flops, especially if serial, erode institutional credibility and IDFC is paying the price now. Rajiv Lall has gone on record that the merger deal failed because there was lack of agreement on relative valuation of the two groups. R.Thyagarajan, on the other hand, deceptively philosophises that the deal was "never alive to be dead". In his view, "the swap ratio is not all that important in any value creation exercise involving merger of entities." Isn't this too clever a statement?

Rajiv Lall has warned that IDFC Bank's returns for next 3 years would be weakened by the existing load of  high-interest bonds raised earlier by IFCI. This indicates faulty financial planning by IDFC of which Lall was an important decision-maker. Was Lall very keen about the merger in order to obfuscate the real reason for IDFC Bank's continuing performance malaise?

Lall spoke too much about the proposed merger too early. At one point of time he even indicated that he was orally assured of regulatory approvals. It took a long time for the ire of IDFC Bank's shareholders regarding the speculated swap-ratio to impact Rajiv Lall. But once he realised the enormity of shareholders' concern, he was probably looking for a face-saving modus operandi to call it quits from the merger deal. Did he really get one?

Failure of merger deals during discussions or on implementation is not uncommon. But the orchestration of the process by Rajiv Lall should have been more realistic and more subtle. Was he defeated by his own enthusiasm?

Saturday, October 28, 2017

Justice A.P.Shah

Justice A.P.Shah delivered the Hindu LitFest lecture on October 28th. The theme was Literature and Law. After retirement as Chief Justice of the Delhi High Court, he led the Law Commission. His decision to decriminalise homosexuality and his consistent support for delegitimising capital punishment stand out prominently. Before his retirement from the Delhi HC, it was widely expected that he would be elevated to the Supreme Court. But it was not to be. Had this taken place post-2014, political parties would have blamed the central government and raised a furore.

Shah's judgements are known for their humaneness. He is against 'trial by the media'. At the same time, he stoutly defends freedom of expression.

He did not confine himself to the topic though he did speak elaborately on the linkage between literature and law. His references to American jurisprudence, English literature, Marathi novels, Tiruvalluvar, Silappathikaram and Rabindranath Tagore were as relevant as they could be. He praised Justice V.R.Krishna Iyer's erudite judgements and at the same time complimented the straight-forward simplicity of judgments of Vivian Bose.

Straying from the subject, he aired his grievance about the Jana Gana Mana judgment. He clarified he respects the national anthem but when standing up is legally mandated, he gets upset. This is a trifle unclear for can someone say, "I don't want to harm others. But if law becomes obtrusive and enjoins me not to harm others, I feel bad"?

There ought to be limits to judicial humaneness also. Criminality is addictive and if judges, by wearing humaneness on their sleeves, are liberal with the guilty, are they not letting down the innocent and the society at large? Mahatma Gandhi might have been a good barrister, but he could not have been a good judge. 

Thursday, October 26, 2017

Travesty of Governance in Infosys

So, Nandan Nilekani has concluded that there was nothing wrong in the acquisition of Panaya. Though he did not say in so many words, this meant that Narayana Murthy's theatrics was much ado about nothing. But Nilekani is a diplomat. He has proved his ability to work with effortless ease in both private and public sectors. He knows the importance of humouring Murthy if he has to succeed in Infosys.

Accordingly he has once again acknowledged the leadership role Murthy has played in building Infosys and in corporate governance matters. He looks forward to building a trusting relationship with Murthy.

Narayana Murthy expectedly has expressed his disappointment that Nilekani has given a clean chit to the previous Chairman, Seshasayee and the Board that he led. Et tu, Nilekani ?

Nilekani has offered a face-saver to Murthy by stripping Roopa Kudva of leadership of the Audit Committee. She is replaced by D.Sundaram who continues to retain Murthy's trust (friendship?). The company has unceremoniously deprived her of this position without assigning any reason. If she is now found to be unfit to lead the Audit Committee, she may not be fit to be a director either. She could have resigned from the Board.

Seshasayee has responded with grace. He has expressed the confidence that the company can now focus on business without any distraction. He has proved to be mature enough not to wax proud that Murthy's co-founder could not fault him in the Panaya deal.

It is regrettable that Murthy refuses to bring this sordid drama to a close. His lament that we may never know the truth exposes his distrust in the Board now inclusive of his relative Shri Prahlad and his co-founder Shri Nilekani. Persons like Narayana Murthy have to ask themselves the question, "Are we the only honest persons in the world?"

Mohandas Pai is continuing what he thinks is his role. He keeps provoking Murthy. Hopefully, Murthy will be less obstinate and irascible in future. Founders of the company had earlier expressed their desire to participate in the equity buy-back programme. Murthy will certainly do the company a favour if he also offers his shares to the company. Nilekani can then diplomatically express the company's decision to buy back Murthy's shares (as much as permitted) 'with regret'.

Wednesday, October 18, 2017

'Burnout culture' and sexism

Arianna Huffington, the well-known co-founder of the Huffington Post has courageously articulated an open secret. She has blamed the inappropriately high importance attached to performance excellence as the cause of sexism we find in many organisations.

A member of the Board of Uber, the company recently buffetted by allegations of sexism in the work place, she has undertaken to end the 'cult of the top performer' at Uber. She says that Harvey Weinstein could carry on his sexual misdemeanour uninterruptedly for a long time at Hollywood because of the 'cult of someone who delivers results' that is prevalent also in the Silicon Valley.  She advocates a pause in the practice of worship at the altar of hyper-growth.

She pleads for the need to find bonding activities other than boozing. Very strong statements, indeed. An assault on hedonism that is the hallmark of contemporary companies?

Why Indians disfavour democracy?

India is the largest democracy in the world in terms of population. Elections to representative Houses are held periodically and the collective will of the people is reflected in the constitution of parliament and assemblies.

It is therefore surprising that Pew Research has found an underlying support for autocracy in the country. According to recent surveys, 55% would prefer an autocratic leader. 27% strongly support this preference. Even more surprisingly, 53 % would not mind military rule.

These findings expose popular disgust with the quality and integrity of elected representatives. There are exceptions though. 85% retain trust in central leadership. Apparently, Modi continues to sustain an ethical image that contrasts sharply from the image of an average politician.

Monday, October 09, 2017

Crony capitalism again?

It used to be cynically said that parents are the enemies of children ("makkalukku chathru matha, pita"). It is more appropriate now to say that children are the enemies of parents. Indira Gandhi had Sanjay Gandhi, Morarji Desai had Kantilal Desai, Chidambaram has Karti Chidambaram and Jayalalithaa had Sudhakaran, an adopted son. Is Amit Shah's son, Jay Amitbhai Shah one such? (I should not go overboard on this theme; many politicians do not need their children to bring disrepute to them. They do it themselves.)

The Wire reports that a company and a few partnership firms owned by Jay Shah have recorded some transactions which are worth probing. These transactions include humongous increase in revenues in 2015-16, loan from IREDA, a public sector unit concerned with renewable energy, to a firm which was till then a stock-broking firm , a loan from a co-operative bank (any loan from a co-operative bank to any politician's associates prima-facie attracts adverse attention) and a loan from an NBFC  not reflected in the latter's Balance Sheet.

Would Amit Shah and Jay Shah come clean on this? Otherwise the needle of suspicion cannot be deflected.

Saturday, October 07, 2017

Economics Nobel

Clarivate Analytics has announced a list of six probables for Nobel prize in Economics 2017. CA has become a household name in India because it has included Raghuram Rajan in the list.

The list contains Colin F.Camerer, George F.Louwenstein, Rober E.Hall, Michael C.Jensen and Stewart C.Myers in addition to RR. The first two are neuro / behavioural economists, the third one has researched unemployment, recessions and worker productivity. The other three are known for their brilliant work in corporate finance. In addition, Raghuram Rajan retrospectively mesmerised the world by having predicted the 2007- global economic meltdown / tailspin.

In case RR wins the Nobel which he richly deserves, the opposition in India will be gifted with a massive ammunition which it does not deserve to lambast the government for having spurned RR away from RBI.

Thursday, October 05, 2017

Humour, unlimited

I saw the following news items in The Hindu today on the same page and could not control my laughter:

Mr.Modisaid, "Nov 8, 2016 will be known in history as the first day in the war against corruption and black money."

Mr.RahulGandhi said,"Farmers and youth are the two main issues concerning India and if Modiji cannot address these, he should say so and the Congress will come and do it in six months."

Modiji, are you beginning the battle only now? Were you waiting for an auspicious time?

Rahulji, What did the Congress do when it was in power?

Do these leaders believe their own statements? Do they think all Indians are fools?

Wednesday, October 04, 2017

Nobel prize

We are now halfway in announcement of Nobel prize winners. Winners of prize in Medicine, Physics and Chemistry are now known. Only Literature, Peace and Economics are left.

There are 3 joint winners in each of the subjects so far. Seven out of nine are Americans. All are male. Lawrence Summers of the Harvard University was hauled over the coals for stating that female brain is not as attuned to science as the male brain. Is preponderance of males among Nobel laureates in medicine, physics and chemistry year after year proving him right? Are unpalatable truths banished from public debate?

It is likely that male domination among winners of Nobel prize in remaining three subjects this year may not be 100%  It is worth watching.

Monday, October 02, 2017

Roadside corruption

While taking a walk, I witnessed a traffic constable stopping a car, speaking to the driver briefly and accepting some cash. Evidently, it was the usual bribe we keep seeing on the streets day in and day out.

What made this scene memorable was that my fellow-walker recognised the cop who also spontaneously reciprocated. I learnt that the same policeman had stopped my fellow-walker's car a week earlier and had demanded money which was refused.

When confronted, the cop justified his behaviour: "What else can I do? My normal salary is Rs.30,000 p.m. But it has been cut to Rs.10,000 thanks to scores of complaints against me. I have a family to maintain. Please help me if you can. But do not harm me by making a complaint."

So, by pruning the cop's salary, has the government made him more corrupt?

Sunday, October 01, 2017

Bullet trains in India

Government has decided to have a bullet train between Mumbai and Amdavad with technology and credit from Japan. It is possible to raise many inappropriate questions like a) do we need bullet trains?, b)are we not foreclosing investment on more important projects because of this decision?, c)will there be enough traffic to make the project viable?, etc.

These questions are beside the point because a)attempts to save time are always welcome; there are limits to speed in our existing non-bullet system, b)"either - or" analysis is justified only if funds are a constraint and c)supply creates its own demand (Say's Law) and therefore generation of adequate traffic to ensure viability need not be a constraint.

The project is sought to be justified by some people on the ground that Japanese credit is so cheap that interest burden is almost nil and therefore we are paying only for technology. This is a fallacious argument because such cheap credit ought to be used for many other projects which is not done now. Have the Japanese arm-twisted India by extending only a two-in-one offer namely bundling technology and credit
(take both or neither)? It does not appear to be so. We must go in for more credit from Japan but not necessarily for the bullet train project. Since the domestic demand for credit is rather tepid in Japan, and India's credit-worthiness is creditable despite the hesitation of international credit-rating institutions, Japan would be happy to lend to India and get a higher rate of interest than paid by Japanese entities.