You may not be able to park deposits in Tata's bank - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

You may not be able to park deposits in Tata's bank 

A  A  A
In this issue:
» Gold, silver has competition in India
» Job search firms are shutting down
» Number of millionaires in China comes down
» Is Mumbai finally becoming a buyer's market?
» ...and more!

When the RBI came out with its long awaited guidelines on the entry of new banks into the banking sector, there was considerable buzz all around. Many of the big corporate houses such as the Tatas, Birlas, Mahindras showed a lot of interest in entering the field of banking. Especially since most of them already had formed separate financial companies to cater to their businesses.

But it was not going to be easy. Globally, banks and financial institutions were the worst hit once the credit crisis in 2008 erupted. But Indian banks emerged relatively unscathed largely on account of the strict norms laid out by the RBI. In an era where increased regulations on banking all over the world seems to be gaining favour, it was imperative for India's central bank to not relax its rules for the entry of new players.

With the bad memories of the global banking crisis still fresh, there was no room for complacency. Hence, the need for stricter regulation. This meant among various other things, it was essential that promoters of the new banks had sound credentials and integrity. Moreover they had to be serious about the banking business from a longer term perspective rather than look for short term opportunities.

When Equitymaster conducted polls on India's Most Trustworthy Corporate Group in the last two years, the Tata Group emerged at the top on successive occasions. That is not all. Readers of the Honest Truth , were asked two questions, (1) Who should get a banking license, and (2) Who I would like to keep my deposit with. For both the questions, the Tata Group edged over the others by a wide margin. So the Tata Group was obviously the most favoured conglomerate depositors would park their money with.

But here is the twist in the tale. The Tata Group today announced its decision to pull out of the race to secure a banking license. The reasons that it cited for this were more or less the same that were pointed out by another entity that had earlier pulled out, Mahindra Group. The Tata Group believes that the regulations and norms outlined by the RBI are too cumbersome. It opines that entering the banking business will impact the successful running of many of its other businesses.

What does this mean? Does the pullout tarnish the reputation of the company? Does it cast a doubt that maybe the Group was not that serious about the banking business? The banking business at the end of the day is about more than just capitalising on profitable opportunities. It is also about protecting the capital of depositors, lending responsibly and aiding economic growth. So if the Tata Group felt that it was not upto the task, it probably makes sense for them to withdraw. And so, all eyes are now on the RBI and the decision that it takes on whom to award licenses among the list of remaining applicants.

Do you think that pulling out of the race to secure a banking license will hurt the reputation of the Tata Group? Let us know your comments or post them on our Facebook page / Google+ page

01:26  Chart of the day
That many countries of the Eurozone are burdened with massive debt is a fact well known. And while excessive money printing by the central bank is piling on the pressure on government finances, there is another factor that the region has to worry about. That of an increasing aged population. Indeed, as reported in the Economist, in most of the Eurozone countries, those aged above 65 depend on the state for their source of income. And for a region which is already so burdened with debt, how it will be able to support the elderly remains a big question mark. Other developed countries such as the US and Japan fare a bit better. Here, many of the people rely on work and private pensions as source of income.

Where do people aged over 65 get their income from?

--------------- The worst prediction for India is here... ---------------

It almost feels like yesterday...

India was comfortably growing at over 9% and hoping to cross 10% very soon. And everybody was just so optimistic about India.

Fast forward to the present, and the latest prediction for India says that the Indian economy will grow at just 3.4% in the current financial year.

This is lower than the 3.7% projection of the International Monetary Fund (IMF)... and in fact, the worst prediction so far!

But it is not without valid reasons. We have discovered, from our own research, that things are indeed really bad and could get a LOT worse in the days to come.

To understand why we are saying this, and the direct impact these things could have on YOUR financial future, please read the letter below...

Believe me, it will be the most important letter you've ever read! Just click here to find out.


Looks like safe haven assets like gold and silver finally have competition in India. And not from some tangible, shiny stuff but a virtual asset that answers to the name of Bitcoin. If LiveMint is to be believed, Bitcoin downloads in 2013 in India are more than double that of the previous four years put together! And how has its price performed? Well, mind bogglingly to say the least. Last September, Bitcoins were selling at Rs 450 or thereabouts. And in a matter of over a year, it has risen astronomically to Rs 57,000 levels. That makes it a cool 127-bagger! Having said that, not many are convinced Bitcoins are here to stay. And the more it becomes popular, the more regulators will attempt to put a leash on it. It's another matter that for a currency that travels seamlessly across most countries of the world and that too in the cyberspace, can actually be effectively regulated.

India's economic problems are no longer restricted to broader macro issues that do not directly affect the common man. We have been battling poor infrastructure, falling industrial growth, corruption, red tape and fiscal profligacy for a while now. But over the past few months, inflation, unemployment and dramatic slowdown in economic growth have severely impacted our standard of living. The economic slowdown has not just hurt job seekers. The extent of the crisis can be understood from the fact that even the search firms are getting out of business.

Once the holy grail of those wanting to land into meaty profiles, the job search firms' client list has now run dry. As per Hindustan Times, nearly 7,000 job search firms have shut down in the past few months. And many more are on the verge of doing so. We believe that it may be a long while before the economic scenario gets any better. And hence it is in the interest of investors to prepare themselves for the worst.

The global economy has been enduring an extended slowdown. How have the fortunes of the super-rich (net assets of US$ 30 m and above) been impacted globally? An article in Financial Times shares the findings of an interesting study conducted by Wealth-X. The countries that saw their super-rich population shrink in 2013 were largely emerging economies. Brazil and China lost the highest number of multimillionaires. Only Russia and India reported a marginal increase in the number of super-rich individuals.

On the contrary, the developed economies saw a rise in their super-rich population. Doesn't that sound counter-intuitive? Especially because these economies have been growing through a severe crisis. Then what is it that has led to an increase in the wealthy population in the United States and Europe? Thank the ultra-easy monetary policies of the central banks. The massive money printing drive triggered a strong recovery in the asset prices of these economies. In other words, there has been a massive redistribution of wealth in the developed world. And this has further widened the income inequality gap. We believe this is unsustainable. Policymakers are doing nothing but brewing a recipe for a big economic disaster in the coming years.

Property prices in some major Indian cities finally seem to be easing. Consider for instance, India's most expensive property market Mumbai. As per Economic Times, in central Mumbai areas such as Parel, Lower Parel and Mahalaxmi, property prices have declined by nearly 10%. In fact, in the premium category, developers are even offering discounts of about 25% for sizeable upfront payments. On the other hand, home prices in Navi Mumbai, Thane and the suburbs of Mumbai have remained steady or reported marginal increases. Is the Mumbai real estate finally becoming a buyer's market? Well, it seems so. Unsold inventory level in the Mumbai Metropolitan Region (MMR) stand at around 45% with 1.3 lakh unsold units. Moreover, about 2.9 lakh residential units are under construction.

Similar is the case with commercial real estate. During the quarter ended September 2013, vacancy rates in Mumbai and New Delhi crossed the 20% mark. What more, out of the 10 office markets with the worst vacancies in Asia, six are from India.

All in all, it seems that the weakness in the overall economy has clearly impacted both residential and commercial real estate markets. Given the high inventory levels, vacancy rates and the fact that India's economy is likely to remain sluggish in the medium term, a revival in the property market seems unlikely in the near future.

The US Fed had thrown open the doors of its money printing exercise around 5 years ago with its quantitative easing (QE) programs. Over these 5 years, several other developed countries decided to adopt the same policy. The result is that the global financial system is flooded with cheap money. And has all this money really helped the printing countries take care of their troubles? Not really. But the critics who thought that this money would only lead to inflation in the issuing countries were proved wrong as well. These countries especially US have not seen consumer inflation go up either.

So where has all this money gone? And what has it really accomplished? Well it has led to inflation but just not where it was expected to. The cheap money has found its way into emerging markets and has led to inflation in asset prices in these countries. In a way the inflation has actually been exported to the emerging markets. At the same time the goals of stimulating economic growth in the developed world have fallen short. Banks are still unwilling to lend in these countries as they prefer to use their funds for earning higher yields in emerging markets or risky asset classes. Consumers and industries are not enticed by the lower interest rates and are not borrowing either. They think the low interest rates would continue into the future as well. Given that the QE programs have fallen short of everyone's expectations, won't it be better to just discontinue them?

Indian markets traded well above the dotted line throughout the day. At the time of writing, the BSE-Sensex was up by about 115 points or 0.6%. Stocks across the board were in favour today with those from the realty, capital goods and power spaces being the top performers. Mid and smallcaps were in demand too, with their respective indices up by 0.9% and 1% respectively. Stock markets in other parts of Asia ended the day on a firm note with China and Japan ending the day higher by about 0.8% and 1.8% respectively.

04:56  Today's investing mantra
"In a difficult business, no sooner is one problem solved than another surfaces - never is there just one cockroach in the kitchen" - Warren Buffett
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22 Responses to "You may not be able to park deposits in Tata's bank"


Dec 3, 2013

No, but it certainly tarnishes the RBI and its bureacratic red tape. Time to get rid of all this BS Mr. Rajan if you truly want India to thrive. Otherwise, we can continue with the old ways pretending everything is hunky dory.


v. raveendra kumar

Nov 30, 2013

Tatas group name is known for its business style. They withdrawn from the banking fray means that they may find no profitability in banking business in respect of their other business in the changing scenario of Indian Economy.


sambhu charan sannyasi

Nov 29, 2013

I respect TATA as an ethics based group of companies. Their reputation is on facts.


Amit Sengupta

Nov 29, 2013

Well, its contra to the TATA group identity in the business world. They should not have applied right in the first place. As a group the Tata-s know how to do business in a regulated environment better than many and yet stick to business ethics and practices. I guess that the Tata-s sensed the fluidity of Indian policy makers and finally decided to follow the "arms length" path.


Ashok Reddy

Nov 29, 2013

TATA group has acted in the best interests of the group by withdrawing from the banking license and they have every right to do so. by this they have demonstrated that they will not bite more than they could chew!



Nov 29, 2013

No. It will not affect the Tata's image. On the contrary, by this prudent decision, the group proved how pragmatic one should be. By entering into an arena like Banking, which might choke its growth through over regulation and close monitoring, TATA has done a wise thing.



Nov 29, 2013

This again proves getting licence from Indian govt is so difficult & running a business in India with straight forward manner is also more difficult by fulfilling umpteen no. of archaic laws.
Once we have came out unscathed doesn't mean we are all having full proof system.



Nov 29, 2013

Never. Tata Gorup is one of the most respected and they have come up without bending any rules or favours from anyone. They have very high reputation. They stand on their own legs and their name is well known from kids to elders across India.



Nov 29, 2013

The Tata management has been honest enough to admit that there would be a clash of interests between their
current operations and banking business--after all,it's common knowledge that in case of dire need, the group companies are expected to support and bail out the distressed company; so in that sense by withdrawing from the banking business,Tata group has put ethics before business interests. Of course there may be other reasons which we are not aware of, but the Tata image has certainly not taken a beating by this action. regds

Like (1)

Dr. Arun Draviam

Nov 28, 2013

The reason cited by the Tatas for pulling out of the race for banking license is a lame excuse. The Central Bank which was in the Tata Group was nationalised by Govt of India, just as they did with the Air India. The Tatas had to sweat their way out to get some two licenses to re-enter that space, after the aviation industry was opened to private parties some 20 years back. There must be some other reason which the Tatas do not wish to share in public.

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