Topics Indian banking sector | CEOs | Indian companies
Suveen Sinha Last Updated at March 18, 2023 09:44 IST
At the outset, let me tell you this weekend’s Bite is longer. You will soon see why. To give it a positive spin, this Bite is meatier. Tuck in! Story of the Week: Banking’s fault lines to the fore
We just cannot catch a break, can we? Just when the Adani-induced rout seemed to be ebbing, Silicon Valley Bank — had you heard of it before now? — went down. The “home” bank for Silicon Valley’s tech start-ups collapsed on March 10 and the contagion spread to India as this week unfolded.
As start-up funding boomed in the United States during the last three years, SVB raised enormous deposits. But it was not that successful in converting those deposits into loans for others. So, it ended up parking the money in treasury securities, which is debt issued by the US government, and mortgage-backed securities, both of which are susceptible to rising interest rates. As interest rates began to rise, the value of SVB’s assets fell sharply and depositors made a run on it.
It sent start-up founders, venture capitalists, and governments in a huddle globally as well as in India. But it is not just about start-ups. SVB was the 16th-largest lender in the US with $200 billion in assets. It is the biggest bank to fall since the global financial crisis of 2008. Its fall also reveals the fallibility of the US banking system, as seen in Signature Bank’s collapse right after SVB’s.
What’s more, SVB fell 14 days and Signature 11 days after KPMG signed off on their audits.
There is more. Credit Suisse, Switzerland's second-largest bank, admitted to “material weaknesses” in its reporting and control procedures for the last two years and sought to shore up its liquidity and restore investor confidence by borrowing up to $54 billion from Switzerland's central bank.
Hang on! There is another big story of the week, and therein lies the secret to the “meatier Bite”. Story of the Week #2: Fifth CEO in 55 years at TCS
Rajesh Gopinathan, the CEO of TCS, decided to step down to pursue other interests. Gopinathan was only the fourth CEO of TCS in its 55 years of existence. K Krithivasan, who joined TCS in 1989, has been picked to become the fifth.
Gopinathan’s exit was a late-evening announcement on Thursday. Yet, we did what Business Standard does best: going beyond headlines and bringing you the true significance and implications of news. So, Friday morning’s paper showed how TCS became a slow-moving giant under Gopinathan.
As of Friday morning, Gopinathan had not yet figured out what he was going to do next. He is only focused on a smooth transition, after which he would sit back and think. However, it seems the bigger challenge for the CEO-designate is moving from Chennai to Mumbai. Now, other news…
Retail inflation in February fell slightly, but, at 6.44%, stayed above the upper limit of the Reserve Bank’s tolerance range. Core inflation, which excludes food and fuel, which are susceptible to seasonal fluctuations, also remained steadfastly above 6%.
Former RBI deputy governor Viral Acharya said the big five private sector business groups — Reliance, Tata, Aditya Birla, Adani, and Bharti — were charging much higher product prices than their competitors, possibly keeping core inflation high.
High inflation, coupled with the US Fed’s stern stance, could prompt another rate hike by the RBI , said The Morning Show, though Sanjiv Bajaj, the CII president, expressed fervent hope that the central bank would opt for a pause. India’s imports as well as exports declined in February, resulting in a trade deficit of $17.43 billion.
There is a silver lining, though. Services exports are raking in $60 billion a year more in revenues than in the pre-pandemic period, providing much-needed relief on the balance-of-payments front, wrote Pranjul Bhandari and Aayushi Chaudhary. Staying on the topic of trade, the Stockholm International Peace Research Institute, which tracks global arms transfers, reported that India remained the world’s biggest arms importer over the past five years. This could increase military risks, said our Edit. Grounded aeroplanes are hurting Indian airline companies at a time they would like to fly as much as possible to tap into the booming demand. At the last count, there were 102 commercial aircraft grounded in India. Given that a fully functional narrow-body plane can make at least four flights of two hours in duration every day, we are talking more than 400 more flights a day between Delhi and Mumbai that could have been. Tech that: Word from the world of technology and start-ups
PhonePe, one of India's largest fintech platforms, said on Friday it had raised an additional $200 million from Walmart, already its majority investor. This is part of PhonePe's ongoing fundraise of up to $1 billion. However, despite a resurgence of large rounds in the fintech space, many are still struggling to raise capital. Watch it: The best of BS’s hot AV serving, The Morning Show
How many rural households in India have piped water for drinking? How many have exclusive access to a toilet? What are their primary fuels for cooking? A recent report by the NSO has the answers to these critical socio-economic indicators. Watch them all on TMS.
What is Suveen obsessing over these days…
Donald Kendall, Pepsi’s former boss, is a legend for taking Pepsi to the Soviet Union in 1974 and making it the first western consumer brand to be sold — legally — behind the so-called Iron Curtain, which Britannica describes as “the political, military, and ideological barrier erected by the Soviet Union after World War II”.
Kendall is a bigger legend for sparking the Cola Wars by launching an all-out advertising attack on Coke, which was forced to respond in kind. This escalated Pepsi’s advertising expenditure from $18 million in 1975 to $57 million in 1985. Coke, which spent $25 million in 1975 was still ahead in 1985 with an ad spend of $72 million. However, by 1995, Pepsi’s ad spend of $112 million had surged way ahead of Coke’s $82 million (source: The Economist). The Cola Wars have faded from public imagination in recent years with rising health consciousness among the buying public. However, a new battle front appears to be opening up in India.
On March 9, Reliance Industries announced the relaunch of Campa Cola priced at Rs 10 for a 200 ml PET bottle. The two MNCs charge Rs 20 for a 250 ml PET bottle. Is this a Jio moment for fizzy drinks?
Pure Drinks, Coca-Cola’s distributor in India from 1949 onwards, launched its own brand, Campa Cola, in the 1970s. Campa soon became a market leader after George Fernandes, industry minister in the Janata Party government, threw Coca-Cola out of India in 1977.
Brand Campa got diminished as Coke returned in the 1990s and Pepsi came as well. However, Thums Up, the other popular cola brand during Campa’s heyday, remains strong. Coke, which now owns Thums Up, said last year it had become a billion-dollar brand. The latent strength of India’s home-grown cola brands might be playing on the minds of the MNCs, apart from Reliance’s marketing, pricing, and distribution nous, and how it upended telecom services with Jio’s low-price gambit. Last heard, Coke had blinked. Distributors told Business Standard the 200ml glass bottle of Coca-Cola, earlier sold for Rs 15, was being sold for Rs 10.
This is going to be a hot summer. That’s usually good news for companies that sell cold beverages. We will see if the market war turns out to be too hot to handle. Have a fun weekend and a productive week ahead. This is Suveen Sinha, Chief Content Editor, Business Standard, signing off. See you next Saturday. Please send comments, news, or views about anything — from falling banks to cheap beverages — to suveen.sinha@bsmail.in.
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First Published: Sat, March 18 2023. 09:00 IST