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Digit Insurance, which has completed a year in operations, has sold 1 million policies in the Indian market. In an interaction with Moneycontrol, Kamesh Goyal, Chairman, Digit Insurance, talks about the business strategy and expansion plans. Excerpts:

Q: Digit has completed a year of operations. Will you continue with the partnership route?

We are more focussed on the partnership model. Depending on the category of the product, these could be auto dealers, OEM tie-ups, web aggregators, travel aggregators as large travel agents. Another major focus area is a partnership with mobile manufacturers and e-commerce firms.

What is the policy run rate currently?

We sell 10,000 products a day (excluding Sundays) and expect to sell 2.5 lakh policies in October. We have crossed 1 million product sales till now.

The company seems to be aggressive on the mobile insurance front. What is the reason?

The focus is on helping partners with a differentiated offering. Screen damages are the most common among mobile phone users.

In case of traditional mobile insurance products, an application is needed to be downloaded. Further, claim settlement can take three weeks. We were given to understand that insurance for screen damage is the biggest requirement. In case of mobile phones, almost 85 percent of customers get advanced cash payment for us. Further, 93 percent of claims get approved within 24 hours.

We establish whether a screen is damaged or not using a diagnostics application. In case of our partnership with Xiaomi, a customer can take it to their authorised service centres and get it repaired free of cost.

The idea is to expand insurance beyond motor and health. For instance, we have launched a household insurance product wherein a customer can insure their homes (and content) for a period when they are on vacation.

Will retail be the bigger focus?

We are doing a huge amount of retail insurance, but are also active in areas like property insurance. We are involved in direct insurance and reinsurance (after the ITI RE acquisition) from other companies.

By the end of the year, we are expecting 2/3rd of the business to come in from retail and a third from crop and property.

You have been absent from the health insurance space. When will the product be launched and will group health be on the list?

We are in the process of launching health insurance. We had a soft launch in October and for the next two to three months, we will test the ability to service the products. Post this, we will launch full-fledged health insurance products.

We want to do any business that is sustainable. Group health losses are still high, though it is primarily government-owned insurers who continue to write business at a loss.

After the funding round in June, what is the expansion plan for this year?

Currently, we are present in 38 cities and will add 6-7 more cities in the near future. By March 31, we will have the entire product suite in place. With the product suite in place, we are also looking at bancassurance tie-ups.

The focus, however, would continue to be on quick claims settlement. We get about 60 motor claims a day. Of this, 95 percent of claims are assessed through the image-based model. Also, 100 percent of our travel claims are automated.

We also track the first time resolution rate very closely. When a customer calls, 62 percent of customer requests are resolved at the call itself. We will seek to further improve this rate.

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India is Asia's most investment savvy economy and more than two-thirds of the country's affluent class prefer to use various investment products to achieve their financial goals and greater social mobility, says a study.

According to a new Standard Chartered study of 11,000 emerging affluent consumers across Asia, Africa and the Middle East, 68 per cent of Indian people belonging to this segment are using investment products to achieve their financial goals, as compared to an average figure of 57 per cent.

For the purposes of this study ‘investment products' refers to fixed income investments, stocks, equities, mutual funds, unit trusts, investment-linked insurance, self-invested pension funds, real estate investment trusts (REITS) and real estate property funds.

As per the study, the number one financial goal for India's emerging affluents is saving towards their children's education which is also the top savings priority across the markets in the study.

"It is exciting to see that social mobility is booming among the emerging affluents, and that they are outstripping their parents' success in education, careers and home ownership," said Shyamal Saxena, Head - Retail Banking, India, Standard Chartered Bank.

Saxena further noted, "digital financial products are enabling the emerging affluents to achieve their goals, and these tools will be crucial in helping them take their personal financial success to the next level".

The study said, 31 per cent of emerging affluents is selecting mutual funds, a quarter (25 per cent) choosing fixed income investments and 22 per cent equity investments. All figures are higher than the average in the study, which is 16 per cent, 19 per cent and 18 per cent, respectively.

The Emerging Affluent Study 2018– Climbing the Prosperity Ladder– examines the views of emerging affluent consumers – individuals who are earning enough to save and invest – from 11 markets across Asia, Africa and the Middle East.

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The government has hinted at easing of capital requirements by banks reeling under the Reserve Bank of India's (RBI) prompt corrective action (PCA) framework in a bid to "align regulatory norms to international practices".

"There was no easing which was ever required and which should be done. What is being talked about is aligning the PCA framework with best international practices," said Rajiv Kumar, Secretary, Department of Financial Services.

The comments three days after the RBI held its central board meeting on October 23. Economic Affairs Secretary Subhash Chandra Garg and Rajiv Kumar are on the board of RBI to represent the government.

A top finance ministry official had said after the meeting that the government expects "ease in PCA norms" in days to come.

PCA guidelines look at certain parameters to invoke the restrictions. These include capital to risk-weighted asset ratio, net non-performing assets and return on assets.

As per RBI's interpretation of capital requirements, banks are required to maintain a minimum common equity (CET) Tier-I ratio of 5.5 percent of risk-weighted assets. However, as per Basel - III guidelines, banks need to set aside a minimum of 4.5 percent of their assets.

If RBI accepts "aligning" it's regulatory requirements with international practices, banks could see more liquidity at hand.

Banks have strongly pitched for easing the regulatory requirements in order to expand their loan books.

"Bankers have certain expectations. Some of them have said that the PCA guidelines should be revisited because that is indirectly impacting their lending ability," union finance minister, Arun Jaitley had said in September after chairing public sector banks' annual review meeting. Out of 21 PSBs, 11 are under PCA.

Under PCA, banks are prohibited from distributing dividends and remitting profits. They are curtailed from expanding their branch networks while maintaining higher provisions. Management compensation and directors' fees are also capped.

While the government continues to remain optimistic about the ease in the norms, media reports suggest that RBI has rejected the idea.

"The regulator (RBI) has argued that the move has improved the financial health of some of the banks under stress," reports suggested.

Expect policy announcement soon

Kumar, who was speaking on the sidelines of SIDBI National Microfinance Congress 2018, said that the process of recapitalisation of banks is being worked out.

"We are assessing the performance of the banks in second quarter and recapitalisation could happen after this," he said.

The banking secretary also said that the finance ministry could soon make policy announcement to address issues in the financial sector and address the concerns.

"In a week or so, some policy announcement can be expected as things are being worked out," he said.

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Saudi Arabia plans to sign deals worth more than $50 billion in the oil, gas, industries and infrastructure sectors at an investment conference in Riyadh on Tuesday, a source familiar with the matter said.

The deals will be signed with companies including Trafigura, Total, Hyundai, Norinco, Schlumberger, Halliburton and Baker Hughes, the source said.

The deals will include the establishment of a copper, zinc and lead smelter with Trafigura Group; a joint agreement to build an integrated petrochemical complex and downstream park in the second phase of the SATORP refinery, jointly held by Saudi Arabia's Aramco and Total; and investments in retail gas stations also by Aramco and Total.

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Asia's petrol margin fell to more than a two-year low late last week due to ample supplies, and the October average is now expected to be the worst for the month since 2013, based on Thomson Reuters data.

Petrol margins against Brent crude fell 63 percent from the start of the month to $3.04 a barrel on Thursday, the lowest since August 1, 2016, before recovering to $3.55 a barrel on Friday.

However, Friday's bounce was merely a reflection of easing oil prices, rather than a sign of better things to come, trade and industry sources said.

"Weaker demand in Europe and the U.S. have affected the Asian market," said KY Lin, spokesman for Formosa Petrochemical Corp, one of Asia's key exporters of light and middle distillates.

"The commercial operation of Vietnam's new refinery, the resumption of gasoline units in Reliance and Yasref and the announcement of a restart of (UAE's) RFCC (residue fluid catalytic cracker) are also keys to the crash of gasoline margin," Lin added.

Benchmark northwest European gasoline refining margins, for instance, have turned negative and fell to their lowest in seven years last Friday.

Faced with inflated supplies, Europe will ship its gasoline to any market that can absorb the petrol.

At least two ships, the Front Tiger and FPMC P Ideal, carrying a total of 180,000 tonnes of gasoline, are heading for Singapore next month, data from Refinitiv Eikon showed.

But despite the glut, refineries in Asia are unwilling to slash runs this quarter as it is the peak demand season for gasoil and kerosene, the sources said.

"Refiners are unlikely to cut runs as gasoil supplies are tight and demand is good," said a trader who trades middle distillates.

Refinery maintenance, outages and bad weather have disrupted supplies.

Japan's Idemitsu Kosan and Fuji Oil were recently affected by an earthquake and typhoon respectively, while India's Bharat Petroleum Corp Ltd shut a hydrocracker following a fire in August.

"The recent disasters that had hit Japan had given gasoil support due to supply disruptions," said Lin.

With Asia's 10 ppm gasoil cash differential hitting a new high for 2018 on Friday, refiners are expected to look past the high gasoline inventories and instead cash in on the lucrative gasoil premiums at least for now, trade sources said.

"I won't be surprised if we start seeing gasoline being floated on ships next year just like we did in 2016," said a gasoline trader.

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If there is one single theme that dominates the Central Vigilance Commission (CVC) analysis of the top 100 bank frauds in India, it is the lax credit culture at banks, especially state-owned lenders.

Yes, borrowers have resorted to a host of fraudulent activities such as inflating the value of goods, fudging financial statements, diverting money to shell companies and so on, but the CVC analysis shows that most of these threw up enough red flags. That suggests willful ignorance of such red flags either owing to incompetence, laziness or corruption.

These are the same reasons why banks are sitting on almost Rs 10 lakh crore of bad loans. As for frauds, Reserve Bank of India showed that there were 5835 frauds reported in 2017-18 worth Rs 41,000 crore. There was a significant number in both the volume and value of frauds. Public sector banks accounted for 85 percent of frauds, higher than their business share of 65-75 percent.

That frauds and the bad loan crisis owe a lot to mismanagement can be seen from the fact that frauds reported by those banks under RBI’s prompt corrective action (PCA) framework were “well in excess of their relative share in credit,” according to the central bank.

The CVC analysis shows the lacunae in the credit appraisal and monitoring process. In many cases, banks did not do proper due diligence on borrowers. In case of consortium lending, members banks failed to carry out due diligence independently and relied on the lead bank entirely.

The CVC report is scathing about some of these arrangements. In one example, it said that the “exchange of information was more a ceremonial formality rather than to sift the data. The lead bank did not share the areas of concern.”

In yet other cases, banks and their credit officers did not have the necessary competence and skills to appraise the technical aspects of projects and blindly accepted whatever was stated by the borrower.

One example is the case, where banks financed a company based on brand valuation, which was done by a private company. Later this brand value was found to be inflated; whether it is incompetence or corruption is another question altogether.

Forget specialist knowledge, in some cases, basic red flags were ignored. For instance, branches failed to get confirmation from debtors of their customer. In one case, they did not see that working capital exceeded the sales in an account by a large margin and was much higher than that of industry peers. In another case, a company produced a use-of-funds certificate that was signed by an auditor other than the one who audited the company’s balance sheet. Regional and controlling offices failed to notice that their reporting branches discounted cheques beyond their delegated powers on several occasions without obtaining permission/ approval.

The CVC’s suggestions to plug these gaps is just common sense for the most part. It suggested that banks delist third-party experts such as auditors with questionable credentials. It has asked banks to pay more attention to internal control systems and improve oversight, and have proper working capital assessment.

It has asked new members in a consortium lending framework to check with other banks before advancing and enhancing credit limits. In sum, these recommendations say that banks should do proper diligence and monitoring.

Banks would do well to improve the use of information technology in improving oversight too. In the case of Punjab National Bank, the failure to connect its core banking system to the SWIFT messaging system was one key reason why a $2-billion fraud went undetected for several years.

Secondly, as this column has argued earlier, there needs to be better utilisation of human resources, especially in state-owned banks. They need to move to a system where merit is rewarded, and specialist/professional skills are recognised. Banks can improve their credit assessment capabilities by hiring specialists and having flexible compensation policies.

The government and the regulator should seriously consider the CVC report and implement the suggestions to improve governance. Frauds are a big bottleneck to the flow of credit and should be tackled quickly in a country where bank finance is still the dominant source of funding.

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The warehousing industry in the country is expected to grow at 13-15 percent in the medium term, driven by the growth in manufacturing, retail, FMCG and e-commerce sectors, said an October 16 report.

Growth in overall production and consumption, organised retail, logistics outsourcing and regulatory interventions such as WRDA Act and GST have improved prospects of the organised professional warehousing segment, Care Ratings said in its report.

Private investments in logistics and other infrastructure developments such as dedicated freight corridor (DFC) will also aid the segment growth, it added.

"The domestic warehousing industry grew from Rs 56,000 crore in 2013 to Rs 77,000 crore in 2017, and is expected to grow at a rate of 13-15 per cent in the medium term," the report said.

However, it added that the overall growth potential is limited by challenges like limitations in infrastructure connectivity, need for large capital and issues related to land acquisition.

The country's warehousing market is highly fragmented, with most warehouses having an area of less than 10,000 square feet, it said, adding about 90 per cent of the warehousing space is controlled by unorganised players.

The report said nearly 60 per cent of the modern warehousing capacity is concentrated in the country's top six cities namely Ahmedabad, Bangalore, Chennai, Mumbai, NCR and Pune, with Hyderabad and Kolkata being the other big markets.

"Going forward, due to factors like quality of infrastructure and availability of labour, these advantages are likely to remain with these cities," it added.

Care Ratings pointed out that the domestic industrial warehousing segment is expected to grow due to anticipated increase in global demand, growth in organised retail and increasing manufacturing activities, expansion of e-commerce options and growth in international trade.

It is also expected to witness significant activity as the presence of the unorganised segment is expected to reduce and the companies would be rationalising and consolidating their space requirements based on time to serve the market and not taxation, the report said.

The demand for agriculture warehousing is expected to grow moderately, according to the report, on account of high base and expected normal monsoons.

Integrated models, diversification across end-user industries are expected to drive growth of cold chain segment. Significant demand is also seen coming from storage of fruits and vegetables, and pharmaceutical segments, it said.

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The excise duty cut on petrol and diesel is credit negative for India as it will reduce government revenue and increase fiscal deficit by 0.1 per cent to 3.4 per cent of GDP in the year ending March 2019, Moody's Investors Service said on Tuesday.

Also, the earning of public sector oil marketing companies (OMCs) would be "negatively affected" as they also absorbed Rs 1 per litre cut in their pricing, Moody's said.

The government on Friday cut excise duty on petrol and diesel by Rs 1.5 a litre, sacrificing Rs 10,500 crore revenue in the current financial year.

"Overall, excise duty cuts are credit negative because they will reduce government revenue collection and increase India's fiscal deficit," Moody's said in a statement.

The US-based rating agency said these measures create downside risks to the central government's fiscal deficit target of 3.3 per cent of GDP for fiscal 2018.

"Because the government had already met 94.7 per cent of the budgeted annual deficit by August 2018, to achieve its deficit target it will likely need to compress capital expenditure. Consequently, we expect the central government deficit target to slip modestly to 3.4 per cent of GDP, while the combined general government deficit (central and state) should remain at about 6.3 per cent of GDP," Moody's said.

It said that the government revenue from excise duties on petroleum products has more than doubled since fiscal 2014. State governments charge value added tax (VAT) on fuel as a percentage of prices and have therefore benefited from rising oil prices.

The centre had appealed to state governments to cut VAT rates on petrol and diesel by Rs 2.5 per litre, following which several BJP and NDA ruled states like Maharashtra, Gujarat, Uttar Pradesh, Tripura, Assam, Jharkhand, Haryana, Himachal Pradesh and Madhya Pradesh followed suit.

On government asking OMCs to absorb a Rs 1 per litre in their pricing, Moody's said even as the government so far has been committed to market-based pricing, going ahead there are risks to going back on deregulation.

"However, with important state elections at the end of this year and the general election next year, the risk of backsliding on these commitments will increase if oil prices remain elevated," it said.

India deregulated petrol and diesel prices in 2010 and 2014, respectively, and moved to daily revision in fuel prices in June 2017.

Moody's said the fuel excise cut is expected to have a limited effect on GDP growth.

"Although lower excise taxes will help offset some of the negative effect on household consumption from higher oil prices, a depreciating rupee and potential curtailment of government spending will likely mute the benefits. We continue to expect real GDP growth of about 7.3 per cent in fiscal 2018 and 7.5 per cent in fiscal 2019," it said.

However, intensifying external headwinds (tightening global financial conditions, high oil prices and trade tensions) and tightening domestic credit conditions present downside risks to our forecasts, Moody's noted.

Moody's had last year raised India's sovereign rating for the first time in over 13 years to 'Baa2' on growth prospects boosted by continued economic and institutional reforms.

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India will send its first consignment of common grade rice to China on Friday, the government said, following intense lobbying by New Delhi after relations thawed between the two countries.

A consignment of 100 tonnes would be shipped to China National Cereals, Oils and Foodstuffs Corp (COFCO), one of China's state-owned food processing holding companies, India's Ministry of Commerce and Industry said in a statement on Thursday.

China is a leading importer of rice and sugar, while India is the world's biggest exporter of rice.

Prime Minister Narendra Modi finalised an amended agreement in June related to the export of non-basmati varieties of rice from India to China.

New Delhi is concerned about its rising trade deficit with China, and has sought greater access to the world's second-largest economy for agricultural products including rapeseed, soybeans and sugar.

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Lenders and shareholders may consider rescuing Infrastructure Leasing & Financial Services (IL&FS) to avoid a contagion effect on the entire financial market in India. The saving grace may come with a caveat that the infrastructure lender will have to create a tangible plan to monetise its assets.

A rescue package will be discussed in the meeting IL&FS has with the Reserve Bank of India (RBI) and shareholders on September 28, a day ahead of the its board meet.  A banker, part of one of the large shareholders of IL&FS said: "We had plans to sell stake in it as part of our non-core asset sale. So, we will definitely not lend more, but will have to wait and watch what the RBI says on Friday."

The government along with the banking and markets regulator RBI and Securities and Exchange Board of India (SEBI) have assured intervention and “appropriate action, if necessary”.

HDFC (Housing Development and Finance Corporation), one of its largest shareholders with 9.02 percent stake in IL&FS, will not attend the meeting. Earlier, it had refused to extend loans to IL&FS.

The recent defaults by IL&FS on its interest payments to its bondholders have triggered concerns in the debt market about a cash crisis arising out of increase in non-performing assets (NPAs) in non-banking financial companies (NBFCs), especially Dewan Housing Finance Ltd (DHFL) and Indiabulls Housing Finance. This caused ripple effects in equity stock markets, which crashed to nearly 1,500 points on September 22.

The crash followed DSP mutual fund selling its bond holdings of DHFL, which caused fears among investors of further defaults after the IL&FS, where the first signs of trouble emerged in June.

Liquidity infusion

“The only way the situation can be salvaged is if LIC (Life Insurance Corporation of India) and other lenders come in with Rs 4,000 - 5,000 crore worth of liquidity infusion. This will give reassurance to the market that large institutions will come forward to bail them out,” a senior banker said.

“We will look at what assets could fetch money in the shortest time possible, else some lenders are threatening legal action (going to the insolvency courts). Although, we need to look what IL&FS has to offer and what kind of hair-cuts (losses) we will have to take,” another lender said.

Given the large shareholding by government-backed institutions — LIC with 25.34 percent stake, Central Bank of India (7.67 percent) and State Bank of India (SBI, 6.42 percent) — the government could facilitate the sale of its assets to avoid a financial crisis at IL&FS and its consequent impact on other financial institutions.

IL&FS had defaulted on inter-corporate deposits and commercial papers (borrowings) worth about Rs 450 crore. In September, it defaulted on two of its bond maturities. Over the past two to three months, at least three rating agencies downgraded its long-term ratings.

As a result, the infrastructure giant, which is credited for building the longest tunnel in the country (the Chennai-Nashri tunnel), no longer carries an investment grade rating. This has made it difficult for the company to raise money from the market from here on.

Also Read: Debt and defaults: What happened to IL&FS?

“If the investors in debt funds start panicking, there could be a further contagion effect. Some of the NBFCs have very high leverage, the debt-to-equity ratio of some NBFCs is 11 or 12 times. That is a cause of concern particularly if there is an ALM (asset liability management) mismatch,” according to one of the bankers quoted above.

An ALM mismatch happens when you have funded long-term assets with the help of short-term liabilities. This means your repayment is due much before you get the cash from the assets, the banker explained.

A senior analyst said, “Fundamentally, IL&FS is strong but they have temporary pain. They had plans to monetise assets and raise sizeable equity but now that getting delayed, they have some money stuck with the government as well. So, if they manage to get a good price for their assets, they can assure the investors who can bring in money at this moment.”

As per IL&FS, it is due to receive Rs 16,000 crore from concession-granting authorities, which, if cleared, would help solve its liquidity problems. However, the government maintains the dues are much lower.

As on March end 2018, IL&FS’s total outstanding debt was Rs 91,091.31 crore at the group level, with most of the operating assets with its subsidiaries. Around Rs 5,756 crore worth of debt is due for repayment in the next one year.

However, with the resignation of top officials in IL&FS and its subsidiaries, it remains to be seen if the regulators and government can rescue the debt-strapped firm and contain the epidemic of default that could spread to other financial institutions. Or whether they will let IL&FS find its own destiny through the market.