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Mint
9 hours ago
- Business
- Mint
Andy Mukherjee: Digital payments competition may help India reduce bank frauds
Bank frauds in India have tripled in value. But that's only because some of the cases reported previously were re-investigated and appeared in the new data. More worrying than the surge in the amount, however, is the rise in the number of payment scams over the past couple of years. The solution lies in rewarding better security. Most of the stealing from banks occurs the traditional way: via loans obtained with the help of forged documents or bribes. Customers, though, are increasingly at risk of being cheated when they make payments. According to the central bank's latest annual report, more than half of frauds took place in digital or card-based transactions, even though they accounted for only 1.4% of the $4 billion in scams. Also Read: Banking on trust, losing billions: India's bank fraud epidemic needs urgent answers And these are just the situations where the sums involved were ₹1 lakh ($1,160) or more. Thanks to a wildly popular smartphone-based payments network, much smaller values are being exchanged online for person-to-person and person-to-merchant transactions. The so-called Unified Payments Interface (UPI) is instantaneous, available 24/7 and mostly imposes no cost on users. It's logging more than a million cases of hustle and con annually, according to separate government data. And this is just what's getting reported. Unless they are extremely careful, the more affluent depositors don't even come to know that they're being slowly bled. The growth of UPI, which handles more than $3 trillion a year, puts enormous pressure on the system. It was bound to attract criminals. Payment intermediaries have warned customers of the various ways— from simple phishing attacks to sophisticated cloning of SIM cards—in which they may fall prey to swindlers. Yet, the Indian banking system can't shrug off its responsibility with a 'buyer beware.' It needs stronger guard-rails. Anyone can set up a virtual ID to ask customers for money online. That freedom is welcome. But not when it turns out that the bank account linked to 'amazon@pockets' belongs to Ckjxh Fiddbh, which doesn't appear to be a real name. Payment frauds happen everywhere. Brazil's PIX, which ranks alongside India's UPI as among the fastest-growing account-to-account transfer systems worldwide, is notorious for its 'PIX gangs.' Also Read: Vivek Kaul: Fast thinking is the great enabler of digital fraud What makes India's case problematic is that scamsters have learned to coexist alongside a vast digital identity database, a biometrics-based unique number and card through which 1.4 billion people establish who they are. It hasn't stopped identity theft. India's banks are constantly bombarding customers with 'know-your-customer' checks, asking for the same documents again and again. Yet, 'mules' continue to thrive. Accounts of unsuspecting customers are used by, among others, online bookmakers located overseas to provide illegal access to casinos and cricket betting via cryptocurrencies. The Reserve Bank of India's innovation hub has come up with an artificial-intelligence tool called It's now building a prototype for an intelligence platform covering all digital payments. However, it isn't enough to merely identify suspicious transactions. As analysts have pointed out, the local money-laundering laws do not allow banks to take prompt preventive action, or to restore funds to their rightful owners. Also Read: UPI fuels rural women's digital leap—but few own their phones Critical sectors of the economy can't wait for legal changes. The stock market regulator has decided to add a layer of security to investment funds changing hands online. From October, a @valid suffix on virtual payment handles will be mandatory for brokers, investment advisers, research analysts, merchant bankers and mutual funds to collect payments from investors. These are all stopgaps. Ultimately, New Delhi must put the payment industry on a sustainable footing. Five years ago, it decided that UPI transfers to merchants should be free for users to encourage digitization. The goal has been realized. Although the government denied just last week that it has any such plans, it's time to allow banks and apps like Google Pay and PhonePe to recoup their costs. National Payments Corporation of India, the special monopoly that runs the network, should now face competition. Let private operators charge a basic transaction fee to offer institutional-grade security. The government can keep its incentives to promote low-value cashless payments at the bottom of the pyramid. As for other customers, a high-volume, competitive market would keep a lid on fees, while offering them greater peace of mind. Banks will also heave a sigh of relief. Payment is a utility they must offer depositors so they have funds to lend. Frauds are a costly distraction. ©Bloomberg The author is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia.
Mint
7 days ago
- Business
- Mint
The IPO gamble: The odds seem stacked against investors
Of the 275 initial public offers (IPOs) in India since covid, 35% have delivered negative returns on their issue price. Compared to their listing price, which is the price at which shares start trading, almost half have delivered negative returns. Relative to the BSE 500 return too, half or more have underperformed. Overall, only 36% of IPOs over the past five years have been a worthwhile investment. Surprisingly, qualified institutional placements (QIPs) fared only marginally better. Of the 224 QIPs since the pandemic, only 99 have outperformed the BSE 500 index, giving these professional investors a success rate of 44%. Also Read: IPO slump: Stock market indices flashing red shouldn't stop public offers An analysis at this time is important as the IPO market is stirring again after a recent lull. Why the success rate of IPO investments is poor is not hard to figure. The transaction is lopsided; a deeply informed and highly motivated seller meets far less informed buyers. The seller is either the promoter of the company going public or an existing private equity investor who is privy to superior information about the company. The buyers, however, even if they are institutional investors, make their investment decisions on the basis of an hour-long presentation (or interaction) and a few ancillary checks with suppliers, customers or bankers at best. The situation becomes even more lopsided when an army of cheer-leading investment bankers go all out to create a glib slide deck and make the road-show management team cram in all the buzzwords that investors want to hear. Some investors get swayed by rare IPO success stories that begin with: 'Had you invested ₹10,000 in the Infosys IPO…," missing the fact that for every Infosys and Wipro IPO, carcasses of many others lie in their demat accounts. This also misses the fact that hardly any investor stays the course to reap the advertised fruits of capital growth. An additional dynamic in the recent IPO cycle has been that of private equity sellers. Earlier, new money raised was either invested in the company (in case of a primary issuance) or went to promoters selling some of their stake. Now, many IPOs involve a private equity firm making an exit. Of the 275 IPOs mentioned earlier, 101 had a private equity owner selling its stake (PE-IPOs). The success rate of these is worse, at 30%. Also Read: Vivek Kaul: IPOs aren't raising much capital for new ventures Apart from the fact that PE-IPOs seem to be finely priced, note that the money so raised is not invested in the company. In most cases, it is repatriated to the home country of the PE fund. This trend has been evident in India's foreign direct investment (FDI) data. In 2023-24, while gross FDI was $75 billion, net FDI was barely $10 billion. The gap was partly explained by the repatriation of almost $45 billion by foreign entities. The data for 2024-25 shows much weaker net FDI, with repatriation playing a major role. Numbers from a recent Bain & Company report suggest that in 2024, almost $20 billion was sent out by private equity firms that had cashed out in public markets. This does not include multinational firms like Hyundai listing their local units and sending back the share-sale proceeds. This trend of large repatriations has picked up in the last five years. It is likely to continue and even accelerate as PE players are under pressure to sell their investments. Those whose money is deployed seem to be displaying some impatience. A recent article in the Financial Times quoting a Bain & Company report stated that distributions as a proportion of net asset value for private equity had fallen from an average of 29% between 2014 and 2017 to just 11% last year. India is one of the few bright spots in an otherwise limp global IPO market. It is therefore not surprising that PEs want to tap our domestic liquidity to book profits. Also Read: The IPO frenzy isn't a sign of a robust stock market The value of unsold PE stakes in listed companies in India could broadly be in the range of $25-30 billion. The bigger source of equity supply for public markets would be in the form PE-owned unlisted firms that are looking to hit the IPO market. While it is hard to get an exact estimate, the apex body for private equity and alternate assets in India, IVCA, claims to represent $350 billion of assets under management in India. This would include investments in physical assets and credit, but it is fair to assume that a significant amount of it would be in the form of equity. This PE-led supply will likely keep a lid on market prices. There is no single all-encompassing answer to whether public markets should provide PE investments with an exit path. But when considering whether to apply for the next IPO, it would be worthwhile to remember the odds of success. These are the author's personal views. The author is the managing partner at Breakout Capital.
Mint
23-05-2025
- Business
- Mint
The US bond market: Getting ‘yippy' again?
Generally, US government debt auctions are sleepy affairs—except when they're not. And Wednesday's sale by the US Treasury Department of $16 billion in 20-year bonds definitely qualified for the latter category. It's unlikely to be the only one. The offering was the government's first auction of so-called coupon-bearing debt since Moody's Ratings last Friday became the last of the three big credit assessors to strip the US of its top triple-A rating, following S&P Global Ratings in 2011 and Fitch Ratings in 2023. Also Read: Vivek Kaul: The bond market called Trump's bluff but the coast is still hazy The auction was considered subpar on at least two critical measures, the amount of bids received from investors relative to the amount being sold, and the higher interest rate investors demanded relative to where the bonds were trading in the so-called when issued market before the sale. In a vast understatement, the interest-rate strategists at BMO Capital Markets described the auction as 'lacklustre" in a note to clients. That's an understatement because the poor auction sent yields for Treasuries of all maturities flying higher. Those on 10-year Treasuries—the global benchmark that helps determine borrowing costs for the government, businesses and consumers—rose to the highest since February, higher than the levels in early April that forced President Donald Trump to reverse course and soften his draconian tariff plan. Markets 'were jumping a little bit out of line," Trump told reporters at the time when asked why he backed off. 'They were getting a little bit yippy, a little bit afraid." Like then, it's not only the bond market that's 'a little bit yippy." The Standard & Poor's 500 Index fell to its low of the day after the bond auction, tumbling as much as 1.51%. The greenback also took a hit, with the Bloomberg Dollar Spot Index that measures the currency against its major global peers, falling as much as 0.57%. Unlike in April, the latest turmoil isn't about tariffs, but rather the US's deteriorating fiscal position as lawmakers in Congress consider a budget bill [already passed by the House and awaiting a Senate nod] that will keep deficits near historic levels for years to come and add to the country's already heavy debt load. Also Read: Mint Quick Edit | America's credit rating slip: How serious? As my Bloomberg Opinion colleague Justin Fox points out, if the tax and spending bill is enacted more or less as is, the deficit a decade from now will, according to the latest estimates from the Congressional Budget Office, be around 6.8% of gross domestic product. That's remarkable because the federal deficit is already 6.4% of GDP, which Fox notes is unprecedented except in wartime or during other significant crises. In that sense, it's understandable why bond investors are demanding higher rates to lend money to the US government. Lawmakers in the Republican-controlled House and Senate are barely giving lip service to the notion that they want to rein in debt and deficits—a horrifying development for lenders. 'Republican claims to fiscal probity are now lost," TS Lombard Chief US Economist Steven Blitz wrote in a research note dated 21 May. 'The fundamental imbalance of outlays and revenue remains because the US refuses to tax itself enough to pay for what it has promised and/or refuses to break the promises it has made." Indeed, Blitz suggested that if enough buyers step away from the auctions, the Treasury might be forced to tweak its rules to let banks hold more Treasuries and/or the Federal Reserve will have to step in and buy US government debt via another round of quantitative easing. Former Treasury Secretary Steven Mnuchin went further, saying he's more alarmed by the country's growing budget deficit than its trade imbalances. 'I'm very concerned," Mnuchin, who headed the Treasury in Trump's first term, said during a panel discussion. 'The budget deficit is a larger concern to me than the trade deficit. So, I'm on the side of, I hope we do get more spending cuts—something that's very important." Alas, whatever spending cuts come in this bill won't be enough to cover the proposed tax cuts. And that means more debt. As it stands, federal debt held by the public was already forecast to rise from about 100% of GDP this year to 117% by 2034. The House bill would push the ratio to 125%. Also Read: Does the US credit rating cut by Moody's offer India an opportunity? 'Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs," Moody's said in a statement last Friday. 'We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration." What made this bond sale so worrisome is that 20-year Treasury auctions are generally the least consequential. The Treasury began selling that maturity in 2020 for the first time since the 1980s, and they don't trade hands as much as some of the more popular maturities, like two- or 10-year notes. 'I never write on the 20-year auction because it's sort of this low liquidity, lost child Treasury note where not many play around this maturity playground," Peter Boockvar, an independent strategist, wrote in a note to clients in describing the sale. Even so, the poor results put pressure on next week's auctions of more consequential maturities, with the US slated to sell two-, five- and seven-year notes. A similar outcome at those sales would only exacerbate the notion of a global synchronized 'Sell America' trade. Don't expect the yips to go away by then. ©Bloomberg The author is executive editor of Bloomberg Opinion.
