Sunday, 27 September 2020

My FiL

 

To be honest, it was only my father's  passing five years ago, that made me appreciate the solid presence of the Father in Law (FiL), Dr. T. S. Vasan. Till then he was only the wife's father. But before I go on, a confession is in order. When I got to know   twenty seven years ago, this petite girl who I thought is someone I can spend my life with and to my good fortune, she also demurred, I came to know of an unexpected. That her father is an astrologer. It sounded strange, but more of that later. The kindly and wise visage noticed on meeting in person ( 'in person' would have sounded strange at that time, there being no other way of meeting!!) alleviated the unfamiliarity.


At his passing, I'm  reminded of the Mahatma's well known quip - my life is my message(or something to that effect). I discern several messages, rather lessons, from the life of Dr. Vasan, that ended on 9/11/20 a little after 86 years.

ZEST FOR LIFE
A child-like curiosity that he retained almost till the last few days, made Dr. Vasan, open to anything that life and surroundings threw up. He matched any youngster in upgrading cell phones, upgrading his wardrobe or searching the web for the latest trends in technology. Hailing from pre-digital generation, he easily migrated to the digital-migrant generation like me and was comfortable with the digital-native like his grandson. He retained an open mind to learning of new things, watch movies and serials on Netflix and Amazon Prime. I got to gifting a copy of Yuval Harari's 'Ascent of Sapiens' only for his 86th birthday two months ago, that I don't  think he got to read. It remains a regret that  I couldn't get response from him, who was on authority on Indian astrology, on Yuval's propositions on human history, culture and religion. I was too late.

ARROGANCE OF KNOWING BY HALF
We grew up in an environment where an occupation to provide for a decent life for self and family could be that of a doctor,  a lawyer , an auditor or land a salaried job, ideally in government/PSU/ Bank/ multinational co. or a teacher. Musician? May be,  but does it pay to make ends meet? There were several other odd jobs and occupations that people pursued, apparently not out of choice but out compulsion having missed out on any of these. Astrologer? 'Are you out of your mind?' wouldn't  have been a surprising counter to this suggestion. More so as that generation was imbibed with the vigor of  confidence in rationality that trashed anything that didn’t fit into the framework of rationality.
A person, hailing from an older generation when the freedom to choose an occupation was a luxury to most young people, choosing astrology as a profession, is something, I find extraordinary and extremely courageous. It becomes more remarkable when considering the fact that he was a qualified lawyer who had joined the Bar and had practiced for a while. Thus, it was a deliberate choice he made giving up another more attractive and lucrative profession. This is the courage part. And that is not all. It is but natural that he would have faced and sensed skepticism of his profession from numerous people around him. That he not only overcame such skepticism and was respected by not only his clients and students but also people knowing little about Indian astrology.  His mastery over his craft, his deep insight in this field of human knowledge that made him devise new methods of predictions and most important of all, the confidence he carried while putting across his views to the believers and skeptics, I’m sure, disabused many a skeptic recognize own arrogance of knowing by half, as I did. In this era, when well put 150 character expression can make a person, a celebrity and worse, an authority in any field of study, this arrogance is all pervasive. Never mind how much I know or whether  I appreciate the insights of the subject or not, superficial awareness is adequate for me to go forth and pronounce online a person demented or a field of study, heresy. When challenged professionally, his patience in explaining his craft, its logic and philosophy as also his confidence backed by his deep knowledge, showed up what I call the arrogance of knowing by half. Dr. Vasan showed me the need for me to recognize this myself.


PROFESSIONALISM

It was his desire to take up what his father had inherited and pursued that made him give up his legal career and dig into the documents and records his father, Pandit Sharma, had left behind, to start practicing Indian astrology. The remarkable fact about this is that, both Pandit Sharma and his wife, Rathnamma, passed within a year leaving behind a 17 year old Srinivasan (to become better known as Dr. T.S. Vasan later) and two younger sisters orphaned who were cared for by their aunt. Thus, it was almost fifteen years after his father’s passing that Dr. Vasan went about learning Indian astrology from the documents, books and papers his father had left behind. And indeed he did, to eventually become one of the most respected authorities in the field of Indian astrology. Thus, he inherited a tradition that he nurtured and made a profession of.  Unusual though his profession was, even in those times, in the seventies, eighties & nineties in the last century,  he persevered, dug deep to build up his knowledge and understanding of the subject to, not only become a scholar but to also practice and make a living off it. As I heard several of his students pour out their grief at his passing and express their respect for his scholarship during online condolence meetings , the thought that crossed my mind was – unlike most of them and most of his contemporaries, astrology was not a hobby, but his chosen profession, source of living for Dr. Vasan. His devotion to astrology was near total, everything else was secondary. Not only was he proud of his profession, he practiced every aspect that define a professional – deep knowledge, developed tools that added and facilitated smooth practice, client satisfaction and, punctuality.  He showed that the age-old wisdom from Manusmrti -  धर्मो रक्षति रक्षितः is a truism.

 

GENEROUS TO FAULT
It was probably the poverty (even by the standards of living in the middle of last century when Dr. Vasan was in his teens and twenties) that he survived that made him generous in his later years. He was generous in helping people, known and unknown, and more of people underprivileged – the maid servant, poor students or a relative in financial difficulties that found a ready benefactor in him. Not that he was careless with money, he certainly was not and accounted to himself for every rupee expended. He was clear on what can money be spent on and for what purpose. He is a textbook example to quote to substantiate a popular piece of wisdom that is shared generously – The more one gives, the more one gets. I can’t say if he believed in this, but for sure, he gave generously without expecting to get, but get, he did. It was not only generosity in kind that defined him, it was as much the generosity of heart. His ready smile, the pleasant demeanor, empathy  and patience that made a friend to numerous generations – his own, his children’s and grand children’s. And probably it is this quality that helped him excel professionally.

 

FOCUS

He had this ability that he had developed by practice to shift all the focus on to the project at hand. Be it a seminar he had to preside over, a paper he was publishing, a book he was writing or the next client meeting. All the attention would be diverted to the task at hand and nothing and none could divert him from that. Pleasant though he was almost to a fault, I found him irritated if disturbed at his task. He had a trick to avoid such irritations – he would completely ignore any diversions from anyone. Its fair to say, it is this focus and passion he brought to anything he did, at the ripe age of 86, that gained him respect from the outside world, even if it gained reprobation of his dear wife and children. You don’t expect your 85 year old spouse/ parent  to tick you off when interrupted while he is reading/ writing, do you? A typical 85 year-old should have all the time on the world to, indeed, waiting, to listen to the spouse/ children, isn’t it? Well, Dr. Vasan was different, he was much younger than his chronological 85 years and he certainly had not ‘retired’.

 Dr. Vasan, my FiL will be badly missed. 


Saturday, 26 September 2020

 Covid-19 Loan Resolution Framework

The collateral damage from the Covid-19 pandemic has, arguably, been and will be more devastating or at least as damaging, as the loss of lives and livelihoods the pandemic itself has caused. In the Indian context, one of most strict lock downs was put in place during March – April, 2020, to prevent immediate spread of the infection. One of the collateral damages has been the stress caused to the loan portfolios of Banks whose exposures to  Indian businesses, big and small, in both manufacturing and service sectors, that suffered almost total loss of revenue and liquidity for the period of lock downs and subsequent months when local restrictions and loss of confidence and fear are still preventing resumption of normal business activities.

The moratorium announced by RBI in April, 2020, was an emergency palliative to let borrowers avoid default. But as recognized by everyone involved, moratoria, however elongated, cannot be a cure. On the contrary, longer freeze of debt servicing would only make it worse, as interest for the period of moratoria cannot be wished away, much as people may hope to. In no time will the lenders’ capacity to service their deposits be affected shaking the very foundations of the economy.  Recognising this, government announced substantial relief measures to the MSME sector in June, 2020 through  debt restructuring, additional long term funding support to the lenders  and even equity support to entrepreneurs.

For other businesses, RBI devised a new framework [1]for management of stress in the asset portfolio of Banks. This framework comprises the following salient features.

1.       This framework is applicable to any financial stress caused ONLY due to Covid-19 pandemic and thus for a borrower to avail of the reliefs in this framework, the exposure of lenders to a borrower eligible otherwise, should have not been in default for more than 30 days on 1st March, 2020.

2.       RBI had set the timelines for this framework earlier that the eligible borrowers should be identified latest by 31st December,2020 and the resolution process should be completed within 90 days in case of personal loans and 180 days for non-personal loans,  from initiation. Further, ‘completion’ of the resolution has been defined –

a.       Completion of all the related documentation with the borrower and between lenders,

b.      The restructuring changes actually reflected in the books of the lender and

c.       Under the revised terms, borrower is not in default.

3.       The stress resolution plan can include

a.       moratorium,

b.       rescheduling of the repayment terms like number of installments,

c.       conversion of interest accrued and to be accrued into future installments, based on the assessed income streams of the borrower, extending up to two years.

d.      Conversion into equity any part of the outstanding debt or other marketable debt instruments

4.       In case of borrowers with multiple lenders, the resolution plan should be approved by all the lenders through an Inter Creditor Agreement (ICA) within 30 days from the day the plan is invoked. Further, if at least 60% of the lenders (75% by value) do not join the ICA within these 30 days, the resolution plan fails and there can be no other resolution under this framework, i.e., for Covid-19 caused stress.

5.        The ICA should also have mechanisms for redressing differences and disputes among the lenders and RBI will not interfere or arbitrate.  The resolution process will stop if any of the timelines are breached or any inter-lender disputes remain unresolved.

6.       An independent credit evaluation (ICE) by  a credit rating agency (CRA) is mandatory for approving resolution plans for aggregate exposure of 100 crores or more.

7.       Borrowers not covered in this framework are:

a.       MSME borrowers with aggregate exposure of 25 crores

b.      HFCs  where a restructuring  has already been done)

c.       Agricultural credit  and related intermediaries like Primary Agricultural Co-operatives

d.      Governments – central, state or local and corporate set up by an act of Parliament and undertakings

e.      Financial services providers.

 To quickly rollout the framework that Banks can implement, RBI set up a committee headed by K.V. Kamath,[2] ex- CEO of New Development Bank and ex-Chairman of ICICI Bank Ltd. to suggest sector-specific financial parameters  any other conditions for preparation of the RPs. This committee has also been mandated to validate and monitor implementation of the RP in case of borrowers with aggregate exposure of 1500 crores or more to ensure adherence to the framework without going into the commercial judgement of the lenders.

Highlights of the Kamath Committee are

1.       Looked at the sectors substantially funded by the banking sector and  impacted by the pandemic and classified the sectors into four categories –

a.       11 sectors like construction, auto, NBFC, etc. that had pre-existing stress and were also impacted by the pandemic

b.      19 sectors like retail and wholesale trade, cement, tourism and travel, that did not have any pre-existing stress but were impacted by the pandemic,

c.       2 sectors – telecom and tea that had pre-existing stress but were not impacted by the pandemic

d.      11 sectors like agri and allied products, food products, FMCG, that did not have any pre-existing stress and  were not severely impacted

Sectors were classified based on varying severity of impact - mild, moderate or severe. 

2.       The financial parameters that should be considered for preparing the RPs are

·         Total Outside Liability / Adjusted Tangible Net Worth (TOL / Adjusted TNW)

·         Total Debt / Earnings Before Interest, Depreciation, Tax and Amortisation(EBIDTA)

·         Current Ratio

·         Debt Service Coverage Ratio (DSCR)

·         Average Debt Service Coverage Ratio (ADSCR)

3.       Based on the severity of impact of the pandemic and exposure of the lenders, 26 business sectors have been identified with financial parameters to be considered for RP.

4.       The range for the financial parameters have been defined for these sectors with broad guidelines –

a.       The RP may be prepared based on the pre-Covid-19 operating and financial performance of the borrower and impact of Covid-19 on its operating and financial performance in Q1 and Q2FY21, to assess the cash-flows for FY21 / FY22 and subsequent years.

b.      The threshold TOL/Adjusted TNW and Debt/ EBIDTA ratios should be met by FY23.

c.       The other three threshold ratios, viz., CR, DSCR and ADSCR,  should be met for each year of the projections starting from FY22. The base case financial projections need to be prepared as part of RP.

d.      Lenders may determine their own range for other sectors for which the parameters have not been defined with the baseline parameters of CR and DSCR of 1.00 and ADSCR of 1.20.

5.       For a few sectors, exceptions have been defined based on the industry nature and practices  like

a.       Automobile sector that practices Just In Time (JIT) principle for inventory,

b.      aviation sector that finances its aircraft largely through debt refinancing and work cash & carry model for revenue, carry advances form customers and up to 9 months’ credit from vendors,

c.       Roads sector to which ratios like TOL / ATNW, Debt/EBITDA and Current ratio may not be relevant

d.      Wholesale trade that does not normally raise term debt and hence DSCR and ADSCR are not relevant.

e.      Real estate borrowers’ assessment should be based on individual projects.

With the broad guidelines on preparing the RPs and the specific parameters on which the borrowers may be assessed to prepare the RPs, the framework is ready for the lenders is ready to go.

There have been comments that the requirement of formation of ICA is impractical and would lead to delays. The Kamath committee has also mentioned about the efforts required in identifying eligible borrowers, assessing the impact of the pandemic, structuring the RP and coordinating with their lenders to form working ICA but has probably for lack of mandate, hasn’t suggested any relaxation of the timelines. Thus the lenders’ position is hardly enviable.

Apart from having to bear the heavy additional load of stress in their asset portfolio due to the pandemic in addition to several other challenges they face, they also have been gifted very tight timelines to devise and implement the RPs, the success or failure of which will impact them. And they have two monitors to deal with – RBI, the regulator which has also stated that compliance with these requirements ‘shall be assessed for all lending institutions as part of the supervisory review’ and the Kamath committee to oversee RP implementation in case of large borrowers. One thing is for sure - Indian Banking is a sector that will be under very close scrutiny both within and from outside, in public and private, for the foreseeable future.