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The announcement of merger of three public sector banks — Bank of Baroda, Dena Bank, and Vijaya Bank — took everyone by surprise. While the general talk of consolidation of PSU banks has been going on for a while, no one expected such a specific announcement. Analysts and observers of public sector banks (PSBs) suffering from a general malaise due to the non-performing asset (NPA) situation, have suddenly found something exciting to discuss.

We should welcome this announcement. This is the boldest move that any government has made about PSBs since they came into being. This merger could deliver several very positive benefits not just for these banks but also for the broader banking and finance sector and indirectly for the Indian economy.

First, it reduces the governance challenge for the government, in that it has two fewer banks to find good CEOs for, two fewer boards to appoint, and two fewer entities to audit. In the past few years, we have seen many PSBs with long spells without a CEO and inadequate boards highlighting the challenge government faces in making appointments. Setting up of the Banks Board Bureau appears not to have had much impact on this process. So, having to make fewer appointments will be a relief for the government.

Second, it creates a larger bank. Banking business has sizeable economies of scale and larger banks tend to me more efficient that smaller, sub-scale banks. The Indian banking sector is excessively fragmented where even the largest of the Indian banks are puny by global standards. Among the large economies, India has the third most fragmented banking sector behind the United States and Germany.

Economies of scale will continue to increase with increasing investments in technology. A more consolidated banking sector with fewer and larger banks is also likely to be more resilient. It is interesting to note that in the global financial crisis, two developed economies whose banking sectors were least impacted were Australia and Canada, both of which have consolidated banking sectors with a few dominant, large banks along with a number of much smaller specialist banks.

Third, this merger will help these banks deal with the large-scale retirement of senior management that they are going to face in the next few years. Pooling of the managerial talent in the combined entity would allow more efficient deployment over larger businesses and operations thereby easing the challenge presented by retirements.

Fourth, it will reduce the urgency of capitalisation of financially the weakest of the three banks (Dena). Relatively healthier balance sheets and capital levels of the other two banks would effectively eliminate the immediate need for any capital infusion on part of the government. In a year where government finances are already stretched, even a small relief on this count is welcome.

Fifth, there are potential synergies that can be realised in a merger. There could arise from economies of scale and scope, cross-selling products of one bank to the customers of the other, rationalisation of the branch network, etc. The extent and the sources of synergies will have to be carefully worked out and a programme developed to realise them as the banks are integrated.

While there are clearly benefits in this merger, it is important to also note that the mergers of this kind is not a panacea for all the challenges facing PSBs. The most pressing one, the problem of NPAs, will not be solved by just merging these banks. It will require fixing deeper institutional weaknesses. However, if the number of PSBs reduces from the current 21, then there will be fewer entities to be fixed.

Any merger is challenging, even for privately-owned and managed companies who regularly engage in mergers and acquisitions. All the stakeholders — employees, customers, vendors, shareholders, regulators — have to be carefully managed through the process. Communication is crucial. Synergies that seem obvious on paper are harder to realise in practice. On the other hand, a poorly-managed integration can impose costs and business disruptions. The integration process requires skilled and careful management. This is a merger of three entities, each with a long history, culture, tradition, and a large organisation (together over 85,000 people) which will be even more complicated than more common merger of just two entities.

PSU banks have not had any experience in this area and hence will have to find skills in managing the integration. The process will also require regulatory support — the merging banks may need temporary exemptions from single borrower exposure norms, approvals for consolidating branches within close proximity, etc. PSU banks are governed by the Nationalisation Act, which means that this merger will also requires approval from both houses of the Parliament.

Overall, this is a good move for the banking sector and if executed well can set the path for future mergers among PSU banks which will strengthen the banking sector in India. We should all hope for a conspicuously successful merger.

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By imposing taxes on an additional $200 billion in Chinese goods, President Donald Trump has intensified a battle of wills between the world's two largest economies and the outcome is far from certain.

No one knows how long the tariffs announced Monday might last. No one knows if Beijing will yield as pressure builds or instead stiffen its resolve and keep retaliating. No one knows if a politically divided United States will serve to undercut Trump's aggressive tactics.

But what's clear is that the latest fight in the escalating trade war is likely, one way or another, to affect consumers, companies, markets, the economy and the political landscape.

And how all that plays out could determine whether Trump's negotiating gamble proves a triumph or a failure. Here is a look at 5 potential consequences:

CONSUMERS

Unlike the first two rounds of tariffs totaling $50 billion, the new taxes launched by Trump would more directly hit American consumers. As counterintuitive as it might seem, the president sees this fact as ultimately helping US workers. In the end, he calculates, some short-term pain will lead to new trade policies and accords that will prove more favorable to American companies and individuals.

"As president, it is my duty to protect the interests of working men and women, farmers, ranchers, businesses, and our country itself," Trump said in a statement.

Starting Monday, the United States is to begin charging a 10 percent tax on thousands of Chinese imports - tires, windshield wipers, baseball gloves, bicycles, snakeskin pants, backpacks, trombone cases, refrigerators and wooden furniture, among others. The list runs 194 pages.

Unless the administration reaches a truce with Beijing, Trump's import tax will jump to 25 percent in 2019. What's more, if Beijing retaliates, Trump says he's ready to impose tariffs on an additional $267 billion in Chinese goods.

The result could be higher prices for American consumers, because most companies are expected to pass on the cost to their customers. After Trump announced tariffs on washing machines toward the start of 2018, the price for laundry equipment shot up 16 percent between February and May, according to an analysis by Mark Perry, an economics professor at the Flint campus of the University of Michigan and a scholar at the American Enterprise Institute, a conservative think tank.

The tariffs could put a dent in consumer spending, though many economists think the impact on the overall economy will be minimal.

"The mere talk of tariffs on all remaining Chinese imports is of serious concern to retailers since tariffs of that magnitude would touch every aspect of American life," said Matthew Shay, chief executive of the National Retail Federation, a trade group for retailers.

COMPANIES

Many companies have warned that Trump's tariffs threaten to disrupt their businesses and depress their revenue.

The monthly manufacturing index by the Institute of Supply Management noted that some companies have expressed concern about tariffs despite an otherwise robust US economy. One food and beverage firm in the ISM survey said, "Suppliers appear to be bracing us for cost increases, given increased talk of tariffs and inflation.

" Trump's tariffs, with their uncertain duration, make it difficult for companies to plan for the future. Ted Murphy, a trade lawyer and a partner at Baker McKenzie, said the president is signaling that many companies will need to rethink their operations.

No longer can they ignore tariffs, which were low and mostly headed lower before Trump took office. They now need to rethink the supply chains they've built across countries and calculate where best to deploy workers.

"They're definitely going to move jobs," Murphy said. "What Trump is doing is increasing the cost, and he's introducing uncertainty into trade relations. Businesses can deal with costs. It's the uncertainty they can't deal with."

FINANCIAL MARKETS

So far, at least, the stock market has taken the threats of tariffs in stride. Share prices have dipped, only to then resume their growth, in part because of deep corporate tax cuts that took effect this year and a solid US economy in its 10th straight year of expansion.

But the new round of tariffs risks triggering a more alarming response by investors. The additional taxes suggest that the two countries are struggling to make progress in settling their differences. The issues include Chinese companies' theft of US intellectual property and a widening trade gap as US consumers have become more dependent on comparatively cheap Chinese imports.

"It's definitely a setback for the market that they can't seem to get to the table," said J.J. Kinahan, chief market strategist for TD Ameritrade.

Kinahan said technology companies seem especially vulnerable to retaliation from Beijing, which could include tariffs on components as well as restrictions on access to websites and services.

GLOBAL ECONOMY

A prolonged trade war between the United States, the world's largest economy, and China, the second-largest, would ripple through the rest of the globe, potentially affecting economies from Buenos Aires to Istanbul.

Tariffs could translate into less trade, which could hinder growth in smaller nations. The US dollar has already begun to rise in value as trade tensions have mounted. This has insulated the United States from higher prices.

But the higher-valued dollar has also diminished the value of the Turkish lira and the Argentine peso, among others. This trend has weighed heavily on their economies. In the meantime, the value of the Chinese yuan has dropped relative to the dollar, making it easier for Beijing to withstand US tariffs.

Many emerging economies depend on shipping commodities to China. If the Chinese economy slows under the weight of US import taxes, the global economy might also stumble, according to Stephanie Segal, deputy director of the Center for Strategic and International and Studies, a Washington think tank.

POLITICS

The Republicans' control of the House and the Senate is at stake in the midterm congressional races in November. Trump has portrayed the import taxes as a winning electoral issue because they're forcing other countries to compromise with the United States.

But public opinion suggests that his tariffs could prove a vulnerability. A poll released Aug. 24 by The Associated Press-NORC Center for Public Affairs Research found that 61 percent of Americans disapproved of the president's handling of trade negotiations.

If Democrats win, it would possibly repudiate Trump's approach. But if many Republicans retain their seats, it could vindicate Trump's choice to announce tariffs so close to the elections. Democratic Sen. Heidi Heitkamp clearly regards the new Trump tariffs as potentially helping her in a tough re-election contest in North Dakota. She immediately denounced them Monday night as crushing farmers who ship crops to China.

"Many family farms are afraid they won't be able to pay the bills if this misguided trade war continues," Heitkamp said in a statement. "There are smart ways to deal with China's cheating on trade, but stepping on our farmers is not one of them."

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By imposing taxes on an additional $200 billion in Chinese goods, President Donald Trump has intensified a battle of wills between the world's two largest economies and the outcome is far from certain.

No one knows how long the tariffs announced Monday might last. No one knows if Beijing will yield as pressure builds or instead stiffen its resolve and keep retaliating. No one knows if a politically divided United States will serve to undercut Trump's aggressive tactics.

But what's clear is that the latest fight in the escalating trade war is likely, one way or another, to affect consumers, companies, markets, the economy and the political landscape.

And how all that plays out could determine whether Trump's negotiating gamble proves a triumph or a failure. Here is a look at 5 potential consequences:

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The Union Ministry of Health has finally banned over 300 fixed-dose combinations (FDCs), which are two or more drugs combined in specific ratios. They have been ordered off the market as more than one set of experts — appointed by the government to study them — found that they had no therapeutic rationale to exist and could actually be risky to consume.

While FDCs per se are not bad, this ban is about the ones that lack scientific evidence to prove safety and efficacy. The growth of such 'irrational' FDCs in India is the outcome of a weak regulatory system unable to deal with the ill-effects of business opportunism.

The situation was in the making for years. A decade of multiple attempts by the central office of the Drugs Controller General of India (DCGI) to weed out irrational FDCs were either blocked by industry players in court or ignored by state drug regulators who share oversight of the drug industry with the Centre and approved several of these FDCs. An outmoded law and the central regulator's tardy and inconsistent approach did not help matters. Let me take these one at a time.

First, states liberally approved FDCs with scant evidence. A drug that is to be launched in the country for the first time secures the DCGI approval after providing the required safety and efficacy data. This first drug becomes a "reference" product and subsequent manufacturers of the drug have to demonstrate equivalence to this reference product for the DCGI approval.

However, once a drug has been on the market for four years, a company wanting to make such a product need only secure a manufacturing licence from a state food and drug administration. The states read this to mean that if each of the constituent drugs of an FDC had been approved by the DCGI, their combination was not "new". As a result, a plethora of FDCs, unsupported by sufficient evidence but licensed by states, flooded the Indian market. By the time the DCGI took note, the problem had gotten out of hand. When it tried reining the states in, it was initially rebuffed. Its demand for data found little traction.

Second, the law did not keep pace. Even as the market was seeing more of these launches, a framework to guide the approval of FDCs was absent. For instance, as scientific publication The Lancet reported in 2015, the DCGI had approved 41 combinations of the diabetes drug metformin with other drugs without publishing the justification for these approvals.

Third, pharma companies were known to use FDCs for business reasons. Initially, they were a means to escape price control (adding an ingredient to skirt price control norms) and later, a tool to differentiate in a market overrun with me-too drugs. For instance, by the late nineties it was clear that since India was a signatory to the intellectual property treaty of the World Trade Organization, India's companies could no longer make patented drugs by a different process after 2005.

The homegrown industry went overboard launching every pre-2005 drug it could find in order to beef up for the drought that would eventually come. In such a crowded market, FDCs helped gain doctor interest. The MNCs followed to beat them at their own game. And since there was no robust post-market surveillance/pharmacovigilance system in place, any adverse effects were probably never caught. So high were the stakes that in 2007, the DCGI had to suspend plans to ban hundreds of FDCs as the industry sued and obtained a stay.

This is not to state that companies didn't launch rational FDCs for patient benefit. They did. But even those that were being called into question in the scientific community and by the central regulator continued to be sold in India. Repeated calls for data to let them stay on market fell on deaf ears. Finally, in 2016, when the government ordered a sweeping ban on 344 FDCs after commissioning a study by experts, the industry objected in court on grounds of procedure. But when it came to data, they were unable to convince a different expert panel, this one directed to be set up by the Supreme Court, thus leading to the current ban.

Now, India does have a FDC-specific procedure, though only since 2011. States are being pressured to act. Earlier this year, Uttarakhand banned FDCs not approved by the Centre after joint raids on factories showed the extent of the problem. The industry has also begun phasing out such FDCs though the extent is not known.

No doubt, in the case of the 300-plus FDCs under review, the office of the DCGI has prevailed, but in the most inefficient way possible. It has let the problem get out of hand, then fought the industry in more than one court, constituted two different committees to weigh in on the issue and culminated with a relatively small, but valuable, number of drugs from its 2016 list still awaiting further study. In the interim, it has drawn global criticism for its lax attitude towards safety.

And the problem isn't over. It continues to pressure states to withdraw FDCs that it hasn't approved. The threat of lawsuits still looms; at the time of writing, a pharma company had reportedly petitioned the Delhi High Court against the ban on one of its brands. Given the lack of a rigorous track-and-trace system, it is also going to be challenging to ensure that the ban is enforced.

The lesson, therefore, to be learnt from the FDC fiasco is this: India needs a strengthened, co-ordinated drug regulatory system, a proactive regulator with teeth, an updated and robust law, and an industry that is made to feel the consequences of crossing it.

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There is increasing friction between the government and the Reserve Bank of India. The government is asking the RBI to review its policies in several areas where the central bank should be allowed to operate without interference. This is not an entirely new fight.

Successive RBI governors after Bimal Jalan have had to fight for operational independence with the finance ministry. But the current set of disagreements comes at a bad time.

Emerging markets in general are under pressure. India is still some time away from achieving financial stability by solving the twin balance sheet problem – bad assets at banks and corporates hamstrung from raising credit. Riding roughshod over the central bank could easily lead to heavy capital outflows and delay the rehabilitation of the banking system.

In its latest demand, the government wants RBI to dilute its prompt corrective action (PCA) framework. This set of norms impose sanctions on lenders preventing them from expanding their business if a set of yardsticks aren’t met. RBI tightened these norms last year. Currently, half the state-owned banks, accounting for at least one-fourth of system bad loans and one-fifth of advances, are under this framework.

Watering down PCA is a bad idea. The first-quarter results of public sector banks show that they are not out of the woods yet. The bad loan clean-up that is taking place still has miles to go. The power sector itself has the potential to add a further Rs 1.75 lakh crore of bad loans.

The fact that PSU banks are still struggling is the purported reason why the government has declined RBI’s request to withdraw its nominees from state-owned bank boards. RBI wants greater power to regulate the state-owned banks rather than placing its people on their boards – a situation that in fact places the bank in a position of conflict of interest. Both Urjit Patel and Raghuram Rajan have commented publicly on it.

In other instances, the government wants to have its cake and eat it too. Take RBI’s 12 February circular, which withdrew a bunch of restructuring schemes and set a strict 180-day deadline for banks to deal with loans that are overdue by even a single day. On the one hand, the government is using this to ask RBI to relax the capital adequacy ratios for banks. On the other hand, it wants RBI to relax the new bad loan recognition and resolution framework for the benefit of power producers.

RBI would do well to ignore both these demands. In 2012, while announcing the new framework, the central bank had insisted on higher capital limits to “address any judgmental errors like wrong application of risk weights, misclassification of asset quality, etc.” It pointed out that even under earlier frameworks, RBI norms were more conservative. In any case, despite this India’s banking system has one of the poorest capital to risk-weighted assets ratio of 13.3 percent, according to IMF data.

Higher capital norms are also required because while the stock of bad loans is being addressed, there are no indications that the credit culture in India is improving. If banks continue to ‘extend and pretend’, it is better that they maintain a higher capital buffer. In that context, the 12 February circular is important because it tries to address this very problem of a corrupt credit culture. If RBI caves in to government or Supreme Court diktats and relaxes these norms for the power sector, what’s to prevent a different industry tomorrow from seeking such handouts? That will undermine the sanctity of the debt contract and also the insolvency and bankruptcy code, one of the biggest reforms in recent times.

All these demands smack of adhocism. They are driven by the need to meet the fiscal deficit target. Diluting the capital adequacy norms will free up some Rs 60,000 crore in capital. The government is on the hook for a promised Rs 2.11 lakh crore capital infusion in PSU banks over two years, a large part of which is to be raised from the market. Getting banks out of PCA would help some of them in actually raising these funds from the markets at decent valuations. Similarly, a relaxation for the power sector means that PSU banks won’t have to set aside large provisions which will eat into their capital base. They will be able to show better bad loan numbers too.

That’s on the government spending side. On the revenue side, it expects more dividend from RBI. The government wants RBI to review its dividend policy, perhaps setting aside a fixed portion of its surplus. The government also seems to believe that RBI is being more prudent than necessary by transferring part of the surplus to its contingency reserve and asset development fund over and above what’s needed. However, with RBI being responsible for financial stability, these reserves are an important part of its arsenal to absorb financial shocks. If the government amends the RBI Act to force the central bank to cough up more dividend, it will set a dangerous precedent.

This is not to say that there is no need for debate about the effectiveness of RBI’s regulation over the banking system. RBI should be set to high standards and taken to task if it fails. But the correct way to change policy would be set clear goals and objectives – the flexible inflation targeting framework is a great example – and allow RBI the operational room to do its job. Policy changes that seek to compensate for laxity on the government’s part are retrograde.

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Insolvency and Bankruptcy Code (IBC) has put the debt recovery process on fast track and improved the position of banks, according to a FICCI survey.

Banks which participated in the survey highlighted that IBC has also increased promoters' willingness to come forward for resolution at an early stage of default.

To improve the resolution process, bankers suggested further enhancing of capacity, strengthening of the judiciary and empowerment of local level government officials, the seventh round of the FICCI-IBA survey said.

Participating in the survey, 22 bankers suggested that extension of moratorium beyond 270 days should not be permitted.

"They also suggested increasing the tenor of debt for companies that have viable businesses but are currently suffering from over-leveraged balance sheets, along with a moratorium period," the survey said.

"The IBC has shown success with the resolution of stressed assets even as the law continues to evolve. Banks continue facing challenges in lending even as GDP growth has bounced back while CPI inflation faces upward risks in the form of rising oil prices and increasing government expenditure," it said.

About 67 percent respondents have reported tightening of standards, steeply increasing from 28 percent in the last round of the survey.

In the first half of 2018, RBI hiked the repo rate by 25 basis points in June 2018.

As per the survey, over half of the respondents (55 percent) have increased their MCLR by up to 20 basis points during the period Jan-Jun 2018. Further, 27 percent of respondents increased MCLR by more than 30 basis points. Since then another hike in repo rate by 25 basis points was announced.

In case of term deposits, 41 percent respondents increased their rates by more than 50 bps on term deposits of tenure below one year, while 50 percent did so for term deposits of one year or above.

In view of the inter-departmental group set up to study the feasibility of the introduction of a central bank digital currency (CBDC) formed by the RBI, bankers highlighted the benefits from CBDC.

Introduction of CBDC would increase digitization and greater competition between banks for deposits, benefitting depositors, it said.

"Amongst the key areas of concern, respondents flagged the risk of an increase in illegal transactions, cybersecurity threats, its use for speculative gains and effects to profitability and business model of banks.

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A Bengaluru-based start-up was left clueless when a potential hire never turned up to collect his offer letter. He could not be contacted on his phone or e-mail. This was because he had ‘ghosted’ the company after being retained by his current employer.

Ghosting, a phenomenon where potential employees suddenly cut off all communications during the last stage of negotiation, is now being tackled through manual interventions and use of artificial intelligence (AI).

In India, about 35 percent potential hires drop off the talent acquisition pipeline. This means out of every 10 hires, about 3-4 people ghost the employer. Ghosting occurs either because the candidate has a better offer or has been retained by his employer.

Chennai-based AVTAR Group has launched a consulting firm Bruhat Insights Global that will use AI and big data to tackle ghosting and increase offer acceptance ratios.

Saundarya Rajesh, Chairman, Bruhat Insights Global, said ghosting leads to severe time-lags in the market plans of start-ups and entrepreneurs and results in loss of revenue for both businesses and the recruitment fraternity.

Of dates and uninterested partners

Ghosting as a term originated in the dating world and referred to a situation where a romantic interest suddenly stops all forms of communication with the other person.

The recruitment market in India is estimated at Rs 3,100 crore, according to EY Human Resources Solution Industry study. Rajesh said if the potential revenue loss of about Rs 1,000 crore caused by ghosting is reduced even by 50 percent, the industry stands to gain a whopping Rs 500 crore.

In India, the average cost to hire varies from Rs 25,500-Rs 50,000 per candidate depending on the industry and sector. This includes the cost of the internal talent acquisition team, the cost of subscribing to databases, retainers to search firms, success fees paid to consultants, among others.

Rajesh added that when candidates drop off the radar after engaging with the company in sectors like small and medium enterprises (SME) and start-ups it is a cause for concern. She said the company will use both AI as well as manual interventions to gauge the interest of candidates.

Using AI

The process will begin from the time a candidate’s resume reaches the recruiter. Rajesh said they will create an offer acceptance score for the shortlisted candidates based on the data collected. Softer aspects of the candidate’s life including profession of spouse, permanent residence among others. Past instances of a candidate ghosting companies are also taken into account.

“When we used the AI powered selection mechanism for the positions sourced, we experienced a 300 percent jump in closures,” she said. It is not just start-ups and SMEs where ghosting is an issue, but sectors like IT/IT enabled services as well.

Human resource experts are of the view that a mix of technology-led interventions and regular interactions could be a solution.

Rohit Chennamaneni, co-Founder of HR platform Darwinbox, said during the final stages of recruitment they have manual interventions through calls to candidates. This, he said, ensures that the candidate is still interested in the job role. Any adverse reaction or weakening interest from a potential hire is then immediately communicated to the company.

“Body language as well as how enthusiastic a potential hire is gives an idea of whether they will ghost the company. Timely interventions minimise ghosting incidents and give early indications to the employer. If the candidate is not interested, they can dole out job offers to the other interested individuals,” he added.

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Around 15,000 jobs are up for grabs as e-commerce companies in India look to increase their manpower for last-mile delivery before the festive season begins.

From August to January, when India celebrates a range of festivals, including Raksha Bandhan, Ganesh Chaturthi, Id-e-Milad, Diwali, Christmas and New Year, e-commerce companies sell goods worth around Rs 10,000 crore. The sector currently employs around 1 million people.

Sources said that the large e-commerce firms like Amazon and Flipkart have already begun large-scale hiring to meet the festive demand. A large proportion of the hires could be in the warehousing and delivery segments.

After reassessing the demand again at the end of September, these companies would have a second look at their manpower and hire additional staff, especially delivery executives, if necessary.

For those wanting to apply for delivery executives' posts, basic knowledge of English, knowing the local language and knowing how to ride a motorcycle would largely be the requirements.

Mayur Saraswat, Business Head (North), TeamLease Services, said that there will be a jump of 30-35 percent in manpower during the festive season.

"This is a golden era for e-commerce and the sector will touch $ 200 billion by 2022. A lot of demand from Tier 2,3 as well as rural areas will drive the jobs," Saraswat said.

With the rise in demand of products and the increase in sales during the later months of the year, salaries have also gone up.

Saraswat said that unlike a year and a half ago, when delivery executives were getting paid around Rs 8,000 a month, they are now getting paid around Rs 18,000 a month.

During the festive months, incentives, including bonuses, gift coupons and spot rewards for meeting targets are also provided to delivery executives.

This is also because the rate of attrition in this segment is much higher and touches 40-45 percent during busy months, primarily because companies actively poach from each other.

Local hiring could also be boosted during the festive season, since cash-on-delivery has increased the overall proportion of purchases from rural areas.

Unlike in other sectors, where robotics has taken away jobs, Saraswat said that getting robots to the shop floor in areas like warehousing during sale-heavy festive seasons will lead to better efficiency and positive margins, thereby pushing salaries higher.

Going forward, he said that new partnerships like Flipkart-Walmart would also add to the number of new jobs available in the sector.

The jobs that are currently on offer include both temporary and permanent positions. The temporary staff numbers will be higher, since they work only for 5-6 months.

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When Karnal, a region in Haryana beat even metro centres to collect the highest premiums for Life Insurance Corporation (LIC) in the late 90’s, all the senior management at the insurance behemoth sat up and took notice. Behind this was a senior divisional manager called Vijay Kumar Sharma. More than 20 years later, LIC will buy controlling stake in a large public sector lender. The man behind the deal is the same; this time he happens to be the LIC chairman.

The Cabinet Committee of Economic Affairs (CCEA) on Wednesday approved LIC’s proposal to own controlling stake in state-owned IDBI Bank. The move paves way for LIC to acquire 51 percent in the public sector bank consequently taking the government's stake down from the current 80.96 percent to around 45 percent.

When several questions over the deal and LIC's ability to help the bank clear out its non-performing assets arose, company insiders said Sharma was convinced that it would be a good investment opportunity. In fact, Sharma, who turns 60 this year, was among the first at LIC to dream of a banking licence as early as 2013 as the chief of LIC Housing Finance.

It was Sharma’s conviction that led to the proposal reaching the insurance regulator’s table. After getting a green signal from Insurance Regulatory and Development Authority of India (IRDAI), a go-ahead from the cabinet was the next step. With all the major hurdles cleared, it is only a matter of a few months that IDBI Bank will be a subsidiary of LIC.

Early days at LIC

‘Go-getter’ is a term that peers associate the 59-year-old who has spent 37 years at the insurer. A postgraduate in Botany from Patna University, Sharma joined LIC as a direct recruit in 1981. He moved across the country studying LIC’s different businesses and zonal business strategies, working his way up the ladder in areas spanning pension, group schemes and zonal operations.

In 2007, he was elevated to the rank of executive director. The country was grappling with the lack of social security schemes and the Aam Aadmi Bima Yojana was launched for rural landless households. LIC was given the mandate for managing the project and Sharma led the charge.

Sharma soon took the role of LIC’s zonal manager in-charge of the southern zone, and was able to turnaround the operations and make it the number one zone in terms of business in 2010.

Move to LIC Housing Finance

Sharma took charge of LIC Housing Finance, as Director and Chief Executive in December 2010. He was elevated to the post of Managing Director and CEO in March 2013. Considered an internal favourite, peers said that Sharma was an easy choice for the top post.

This was a time when LIC Housing Finance was facing competition from large financial companies in the home loan segment. When he took over, LIC’s loan book was around Rs 46,400 crore. Under his leadership, this jumped by 80 percent to Rs 83,200 crore by mid-FY14.

Till then, LIC HFL was considered a traditional player. Sharma took on the mandate of re-branding the entity and also improve the technological efficiencies of the entity. Under him, LIC HFL’s net-worth more-than-doubled from Rs 3,390 crore from Q2FY11 to Rs 6,828 crore in Q2FY14 just before he moved back to LIC.

Sharma’s aspirations also grew larger. He wanted LIC HFL to become a bank. They did apply for a licence but were not granted permission to start banking operations.

Back to home turf

Sharma was appointed as LIC’s managing director in November 2013. Looking at the business strategies of the insurance company, he pushed the initiatives of financial inclusion and insurance products for BPL families.

Less than three years since Sharma took up the MD post, a mini-crisis hit LIC. In June 2016, S K Roy resigned from the LIC chairman citing ‘personal concerns’ two years before completing his tenure. Amid a volatile situation, Sharma was made the officiating chairman to assuage investor concerns.

Being one of the largest investors in the equity markets with about Rs 50,000 crore being pumped into the equity markets every year, a ‘headless’ LIC was not seen as a positive cue. Sharma was brought in to cool off the uncertainties that arose from Roy stepping down.

Turnaround of LIC

At the close of FY15, new business premium collections at LIC dropped 14 percent, whereas private life insurers had seen a growth of 18 percent. Questions were raised on the relevance of LIC in the market and whether it was losing steam in the wake of aggressive competition from private peers.

Sharma officially took over as LIC chairman in December 2016 and proved critics and doubting Thomases wrong. The insurance company ended FY17 with a 27 percent growth in premiums, beating the private sector peers. The message was clear: LIC is not losing out soon.

But company executives said that Sharma always regretted the fact that they weren’t granted a banking licence. Around the same time, the Reserve Bank of India (RBI) had said that they were open to considering a process of on-tap licences for interested entities. So all hopes were not lost.

PIL against LIC

Being a large entity, the decisions of LIC to invest in companies like ITC have been questioned. A public interest litigation was filed in the Bombay High Court saying that LIC being a life insurance company should not be investing in tobacco firms.

Sharma defended the move saying this was a purely investment decision and that they have been investing in companies across sectors.

Another area where Sharma has been prodded constantly is the perception that LIC is the bailout agency of the government. Be it large public issues by state-owned entities or any disinvestment in government entities, LIC has been a large player in such instances.

Sharma, however, has consistently maintained that these are independent decisions by LIC based on the merits of the investee company. Meanwhile, outsiders maintain that most of the decisions are still dictated by the government.

LIC has often been considered opaque with respect to investment decisions. While Sharma has made statements on a few occasions about them investing into certain sectors, a more transparent approach would be a welcome change. Until then, questions will loom large on the exact reasons why LIC buys a large chunk in all government-led company investments.

IDBI takes centre-stage

Early in FY19, a proposal had floated about IDBI Bank being put on sale. The government, on one hand, was looking to reduce its stake in the bank. On the other hand, sources said that they wanted to ensure that the bank was in good hands.

As various structures and instruments were being discussed, LIC entered the fray. It was the much needed second chance for LIC to own a banking entity and acquiring a large bank meant that they did not have to start from scratch.

LIC unions, on the other hand, have questioned the move. A senior union member said that this would mean that LIC is indirectly recapitalising an ailing bank. The unions have also maintained that this is detrimental to the policyholders, since the IDBI Bank buy is being made out of the premium money collected.

"Sharma should have first brought all stakeholders on board, especially the unions, before making the proposal official. Without this, there is bound to be tough protests," said a senior company executive.

While Sharma believed that the IDBI Bank deal was a ‘win-win’ proposition for both LIC, the policyholders as well as the government; not everyone is convinced especially since IDBI Bank has issues of large bad loan. Unlike his predecessors who would not be very vocal about their decisions, his peers said that Sharma ensures that he is firm with his decisions, irrespective of whether everyone supports him or not.

Private insurers have also suggested that LIC still gets preferential treatment and has been granted exceptions over and above the 15 percent investment limit. However, Sharma has defended this by saying that they are a large entity.

All the past LIC chairman have talked about the legacy of the institution and how it is distinct from the private sector peers, Sharma for the first time assured the market that they will bring down the stake in all entities to the 15 percent threshold.

While this may not be the perfect solution, it has brought some temporary calm to the private sector.

Will IDBI Bank see a turnaround?

For the IDBI Bank deal, with the cabinet nod coming in, the last few procedural approvals from Securities and Exchange Board of India as well as RBI will be the last leg of the deal. Sharma, who still has three more years as chairman will be the sole responsible person for the bank’s turnaround as well.

IDBI Bank’s net loss for the March quarter of FY18 widened to Rs 5,662.76 crore year-on-year (YoY) on weakening asset quality and rise in provisions. During the quarter under review, IDBI Bank's provisions for non-performing assets rose by 77.9 percent to Rs 10,773.30 crore as against Rs 6,054.39 crore in the year-ago period.

A man who is called ‘crisis manager’ by his LIC colleagues, Sharma will have to do a repeat of his past successes, and bring down the bad loans and get the bank back on track on the profitability front. How soon will he be able to do it? This is an answer that the market is seeking with a baited breath.

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Over-regulation of the e-commerce sector could stifle the growth of entrepreneurship, industry body ASSOCHAM has said and cautioned micro managing of prices by the government could lead to inspector-raj.

E-commerce and the entire online space is a fledgling area of business with a vast scope for expansion, ASSOCHAM Secretary General D S Rawat said.

"While there should be rules of the game for any trade, over-reach and over-regulation should not be resorted to as it could stifle the growth of entrepreneurship," he told PTI.

An initial draft circulated among stakeholders for discussion to frame a national e-commerce policy has suggested to introduce a pre-set timeframe for offering differential pricing or deep discounts by e-commerce players to customers.

The suggestions are part of the strategy to address anti-competitive issues in the e-commerce sector effectively.

"The restriction imposed on e-commerce marketplace, to not directly or indirectly influence the price of goods and services, would be extended to group companies of the e-commerce marketplace.

"A sunset clause, which defines the maximum duration of differential pricing strategies (such as deep discounts) that are implemented by e-commerce platforms to attract consumers, would be introduced," the draft said.

Rawat said: "Deep discount or no discount is a commercial decision; as long as it is not resorted to in sectors like banking, insurance or other highly sensitive sectors, the decision should be purely commercial".

Besides, he said the deep discount and cash burning should be the prime concern of the promoters, venture capitalists and private equity funds betting on online entrepreneurs.

"Eventually, those with sound business models would survive; there would be churning, which has already started," Rawat said.

No micro managing of prices or other business practices should be encouraged; or else it could lead to inspector-raj in the cyber and online world as well, he added.