Half the world's banks are too weak to survive a downturn: McKinsey

Banks allocate just 35% of their information-technology budgets to innovation, while fintechs spend more than 70%, McKinsey said.

Business Standard : More than half of the world’s banks are too weak to survive a downturn, according to a survey from consultancy McKinsey & Co.

A majority of banks globally may not be economically viable because their returns on equity aren’t keeping pace with costs, McKinsey said in its annual review of the industry released Monday. It urged firms to take steps such as developing technology, farming out operations and bulking up through mergers ahead of a potential economic slowdown.

“We believe we’re in the late economic cycle and banks need to make bold moves now because they are not in great shape,” Kausik Rajgopal, a senior partner at McKinsey, said in an interview. “In the late cycle, nobody can afford to rest on their laurels.”

The decade since the global financial crisis has seen a wave of innovation in financial services, bringing new competitors from fintech startups to giants like Apple Inc. and Alphabet Inc.’s Google. Banks have pondered whether to compete with, partner with or acquire some of these newcomers. Some established firms have sought to rebrand as technology companies, in part to attract hard-to-get talent.

McKinsey, whose clients are some of the biggest corporations in the world, consults on topics ranging from strategy and technology to mergers & acquisitions, outsourcing and stock offerings. In its report, the firm said banks risk “becoming footnotes to history” as new entrants change consumer behavior. Most recent attempts by banks to boost efficiency have been “business-as-usual,” it said.

Banks allocate just 35% of their information-technology budgets to innovation, while fintechs spend more than 70%, McKinsey said. Combined with regulatory factors lowering the barrier to entry -- like open banking and looser requirements for startups -- the environment is increasingly conducive for newer firms to take share from banks.

The report points to Amazon.com Inc. in the U.S. and Ping An in China as examples of technology firms that are capturing financial-services customers. To make matters worse for the old guard, the new players tend to go after the business areas that create the highest returns at banks -- credit cards, for example.

Enforcement Directorate probes real estate deal of DHFL associate company

Essential Hospitality sold the office to a firm controlled by ex-Maharashtra CM's son-in-law.

The Enforcement Directorate (ED) is examining a real estate transaction worth Rs 121 crore between Essential Hospitality (EHPL), a Dewan Housing Finance (DHFL) associate group firm, and Charak Pharma, an entity controlled by Raj Shroff, son-in-law of Sushilkumar Shinde, former Maharashtra chief minister and ex-Union home minister.

The agency learnt of this commercial deal in a search operation on the premises of Dheeraj Realty and DHFL last week. The search was in connection with a loan of Rs 2,186 crore to Sunblink Real Estate; the latter is under the probe agency’s lens for property dealing with the late Iqbal Memon, an underworld figure.

EHPL is a wholly-owned subsidiary of RKW Developers, wherein DHFL's Dheeraj Wadhawan is promoter and whole-time director.

In May, said ED sources, Essential Hospitality sold a seven-storey commercial building to the promoters of Charak Phrama for Rs 121 crore and further registered the same property as Rs 7 crore. The property is on the western express highway, Sahar, Mumbai. The building has since been leased to Big Tree Entertainment (BookMyShow).

“The enforcement agency is examining all the documents seized during the search operation at eight locations. We are scrutinising the deal structure and whether all checks and balances are in place,” said an ED source.

Sources say it seized jewellery worth Rs 22 crore and a hard disc, besides some documents. An e-mail sent by this publication to DHFL was not answered. Raj Shroff did not respond to messages.

ED sources said the loan sanctioned to Sunblink was diverted to Memon for terrorist financing and creating like assets. On Saturday, Kapil Wadhawan, chairman of DHFL, was questioned by the ED, along with others, on the matter. Dheeraj Wadhawan is learnt to be in hospital and the ED is waiting for his recovery to record a statement. Its sources say he might give more information on the rationale for the loan to Sunblink and related matters. The agency is examining the loan agreement and the collateral provided by Sunblink.

Business Standard

Reducing taxes to boost investments is a myth, says Abhijit Banerjee

Countries from China to India to Indonesia are slashing taxes for businesses to spur growth amid a gloomy outlook for global economic expansion.

Business Standard : How do you spur demand in an economy? By raising direct taxes and distributing the money among the poor, says this year’s winner of the Nobel prize for economics.

Reducing taxes to boost investments is a myth spread by businesses, says Abhijit Banerjee, who won the prize along with Esther Duflo of the Massachusetts Institute of Technology and Michael Kremer of Harvard University for their approach to alleviating global poverty. “You are giving incentives to the rich who are already sitting on tons of cash.”

Countries from China to India to Indonesia are slashing taxes for businesses to spur growth amid a gloomy outlook for global economic expansion. The International Monetary Fund this month made a fifth-straight cut to its 2019 global growth forecast, pegging it at 3 per cent.

“You don’t boost growth by cutting taxes, you do that by giving money to people,” Banerjee said in an interview Monday, suggesting that cash in the hands of the poor will drive consumption. “Investment will respond to demand.”

China earlier this year rolled out tax cuts worth $280 billion on personal income and corporate profits, while India surprised with a $20 billion stimulus, taking its corporate tax rate to among the lowest in Asia. Indonesia also plans to lower tax on companies to 20 per cent from 25 per cent.

ALSO READ: Inflation isn't a bad thing; it keeps labour demand up: Abhijit Banerjee

MIT Professor Abhijit Banerjee spoke in New Delhi where he was promoting his book ‘Good Economics for Hard Times.’

Last year, US President Donald Trump unveiled a $1.5 trillion tax package, and has promised “very substantial” tax cuts in 2020 for “middle-income” Americans.

It’s the widening inequality in developed countries such as the US that has angered people and pushing the world into a trade war, Banerjee said. “It is unbelievable that in the name of growth you have allowed inequality to explode to this point.”

Bargain hard but go for RCEP deal: NITI Aayog's Arvind Panagariya

Panagariya said there was a huge scope for India to improve medical treatment.

Former NITI Aayog Vice-Chairman Arvind Panagariya on Monday said India should bargain hard for the proposed Regional Comprehensive Economic Partnership (RCEP), but this should not become an excuse for not clinching the deal.

When an economy opens up, it has to set its house in order to compete, which brings the best out of it, he said.

“We need to be a little more aggressive. Compete with the best in the world. It brings the best out of you,” Panagariya, professor of Indian Political Economy at the Columbia University, said at the US-India Strategic Partnership Forum in New Delhi.

He was responding to an observation by former foreign secretary Kanwal Sibal that India needs to bargain hard in RCEP due to security concerns that go beyond trade. Sibal said China was pressing for accelerating negotiations for RCEP due to its trade war with the US. “China wants to dominate RCEP because it is the biggest economy. It did not play by WTO rules, so will it play by RCEP rules? Will there be a dispute settlement 

mechanism?” he said. Panagariya sought to dispel the myth that import substitution leads to less imports. “If you import less, you export less as well. When India liberalised it imported more, but then it exported more as well,” he said.

AI boost to health sector

At a panel discussion earlier at the same event, Panagariya said there was a huge scope for India to improve medical treatment by taking advantage of technical developments such as AI (artificial intelligence) and data analytics. “With AI, data analytics and all the technology there, treatments can perhaps be done better (in India) as we go forward,” he said.

By taking advantage of the technological changes such as AI and data analytics, India can bring good treatments almost anywhere in the country, he added. On the pricing issue in the medical industry, he said clearly this is being recognised in the trade agreements as well, citing that in some visible cases, prices have been negotiated between the companies (exporting and importing).

Panagariya said the health sector was still evolving and very informal as it was largely dominated by the private sector and the government’s role largely had been into setting up medical colleges.

Business Standard

Xiaomi plans to launch more than 10 5G phones in 2020: CEO Lei Jun

According to Lei, demand for the phone exceeded the company's expectations and led to supply chain issues.

Chinese smartphone maker Xiaomi Corp plans to launch more than 10 5G phones in 2020, Chief Executive Officer Lei Jun (pictured) said on Sunday, speaking at the World Internet conference in the eastern Chinese town of Wuzhen.

Lei’s remarks come as the company faces intense competition in its home market from rival Huawei Technologies.

Last month Xiaomi launched the Xiaomi Mi 9 Pro, the company’s first 5G-enabled phone for the domestic market.

According to Lei, demand for the phone exceeded the company’s expectations and led to supply chain issues. The device’s reception has prompted Xiaomi to launch 5G models for the high, middle, and low-end price tiers next year.

“People in the industry fear that next year 4G models won't sell, this is a step you have no choice but to take” Lei said. “So we hope that operators can speed up their expansion of 5G base stations.”

Xiaomi’s share price has fallen steadily this past year as China’s smartphone market grows more competitive. In September the company announced it would plan a $1.5 billion share buyback.

In the second quarter of 2019, Xiaomi occupied 11.8 per cent of China’s smartphone market, down from 13.9 per cent one year prior according to research firm Canalys.

All other top Chinese brands suffered declining sales volumes as consumers flocked to Huawei, driven in part by patriotism. The Shenzhen-based handset maker became the centre of US-China tensions in May when Washington effectively called for U.S. companies to cease supplying parts to it.

However, Xiaomi has enjoyed success in Europe, where it remains a relatively new player in the continent. The company’s market share in the region during the second quarter of 2019 hit 9.6 per cent, up from 6.5 per cent the year prior, making it one of the fastest growing phone brands in the region.

Business Standard

Huawei's Honor to launch Android smartphone in India by end of this year

Honor has come with its operating system HarmonyOS after the US government announced a ban on supplies of components and software by American companies to Huawei.

Chinese smartphone brand Honor is planning to launch Android-based handset in India by the end of this year, despite a ban on its parent firm Huawei for purchase of software and hardware components from US companies.

Besides, the Huawei sub-brand is focussing on deployment of internet of things (IoT) technology.

"We are going to launch Honor 9X by the end of this year in India. It will be on Android. Any android phone can be mirrored with Honor smart screen.

We have always been thankful to our US partners for their support," Honor India President Charles Peng told PTI in an interview.

Honor has come with its operating system HarmonyOS after the US government announced a ban on supplies of components and software by American companies to Huawei.

It recently unveiled world's first HarmonyOS based product Honor Vision.

It has plans to officially launch and start selling Honor Vision smart television in India from the first quarter of 2020. It can be connected to Android-based Honor smartphones to access content on the television.

The firm is also in talks with leading video entertainment companies to support Honor Vision before it is launched in India.

Business Standard

Huawei's Honor rejigs strategy, to soon launch ecosystem products in India

Known in the country for its smartphones, Honor is now seeking to bring its ecosystem products - smart televisions, speakers, tablets, wearables, glasses and laptops - to India.

Chinese electronics manufacturer Huawei’s smartphone brand Honor has altered its product strategy in India. Known in the country for its smartphones, the company now seeks to bring its ecosystem products to India. These products include smart televisions, speakers, tablets, wearables, glasses, laptops, etc. Most of these, already available in China, will be made available in India starting next year.

“In India, we aim to create an entire product ecosystem that would include smartphones, televisions, tablets, laptops, watches, glasses, etc,” said Honor India President Charles Peng in an interaction with Business Standard.

According to Peng, the new product strategy is called “1+8+N” wherein “1” represents smartphones, “8” represents televisions, speakers, watches, laptops, fitness bands, glasses, etc, and “N” represents partner ecosystem products, including mobile offices, smart homes, sports and health, audio-visual entertainment, and smart travel products.

Smartphones, being at the core of the new product ecosystem, will remain the company’s focus area. By the end of this year, the company will bring to India its recently launched 48-megapixel camera based smartphone the Honor 9x, according to Peng.

Later, in the first quarter of 2020, the company will launch the Honor Vision smart television. This will be Honor's first smart product to run on its proprietary Harmony operating system. According to Peng, the company is in talks with content providers in India to support Honor Vision before it is launched in the country. However, the first batch of the television might be launched without any partnerships.

Peng also said that there was no defined launch timeline for these products, but the company was aiming to gradually bring to India most of its ecosystem products that were already available in its home country. As for India-exclusive devices, Peng confirmed there was no such plan but Honor would weigh its options based on consumer interest.

Business Standard