anshul gupta Profile picture
Jan 26 7 tweets 2 min read
PMC Bank merged into Unity Small Finance bank.

From Wednesday all PMC branches will become Unity branches and the 39 years old PMC will come to an end.
According to the amalgamation scheme, all eligible depositors(essentially retail depositors) will get Rs 5 lakh under the deposit insurance credit guarantee scheme (DICGC). Any amount left over will be staggered over a period of 10 years.
No interest on any of the deposits will accrue after March 31, 2021 for a period of 5 years. Post that, a simple interest at the rate of 2.75 % per annum will be paid at the end of each year for the amounts outstanding which shall be payable 5 years from the appointed date.
For institutional depositors -

As per the scheme, 80% of the institutional deposits outstanding will be converted into Perpetual Non-Cumulative Preference Shares of Unity with annual dividend of 1 percent.
At the end of the 10th year from the appointed date, Unity Small Finance Bank will use any cash recovered from assets of Housing Development and Infrastructure Limited (HDIL) Group in excess of the advances made to HDIL Group outstanding as on March 31, 2021 to buyback Perps
The uncertainty of PMC Bank depositors has ended on whether they will get their money back after 2 long years. There is a clear assurance (at least to retail investors) now that their money will be returned. But they have a long wait ahead.
And many of the deposits will lose their value due to the long delay in payments which might be worse for senior citizen depositors.

Institution investors may have to take a big hit - the conditions for buyback of Perps are fairly stringent and dividend yield miniscule.

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More from @anshgupta64

Jan 29
Pakistan recently raised USD 1Billion through Islamic bonds at 7.95% to maintain its forex reserves.

As per Sharia (Islamic law) lending with interest payments is prohibited, which is considered exploitative in nature. Thus, bonds are forbidden in Islamic finance.
So how can institutions raise Sharia compliant money? They issue Sukuk.

Sukuk is an Islamic financial certificate that represents a portion of ownership in a portfolio of eligible existing or future assets.
When investors buy Sukuk, they become entitled to receive periodic profit payments from underlying assets. Upon maturity Sukuk holders get back the principal amount. The periodic payment may be in the form of rent from the asset or the profit made by the asset in the market.
Read 8 tweets
Jan 28
May actually turn out well for Zomato if executed well.

1) Zomato has access to cashflow data, restaurant ratings, ordering data, customer profile which is what every lender craves for.
2) Zomato also has control over the partial cashflows of the restaurants since portion of revenue would be flowing via Zomato's online delivery platform.
Escrowing cashflows is every lender's dream and this will reduce risks for Zomato's NBFC
3)Its not like Zomato has no experience in lending. It has existing partnerships with lot of lenders wherein it acts as sourcing agent for institutions and refers leads to them for lending.

It would have rich data on these loans performance which it can feed into underwriting.
Read 7 tweets
Jan 27
Seeing Dosa trend on twitter, got reminded of "Dosanomics" by Raghuram Rajan 😀

In 2016, RBI cut the repo rate to then 5 year low of 6.5%.
Following this, banks also started lowering the interest rate on FDs from 10% to 8%
Many people used FDs as investment vehicles and FD interest was a significant part of a senior citizen’s income. This move was heavily criticised.

Raghuran Rajan explained the reason for the fall in rates using "Dosanomics".
Take example of a senior citizen who earns income only through interest on FDs. In a situation where interest rate offered by banks is at 10% and the inflation rate is at 10%. If the senior citizen invests Rs. 10,000 in FDs he would receive a return of Rs. 1,000 at end of year.
Read 8 tweets
Jan 27
10-year benchmark treasury yield of India jumped to 6.75%. US Dollar has also strengthened against major currencies.
Both have happened due to hawkish Fed signals which hinted that 1) Rate hikes should start from March & 2) Asset purchases would also come to halt
The US FED has two main goals: controlling inflation and maximizing employment.

If the FED wants to control inflation, it will reduce printing of money + hike rates (become hawkish) and if it wants to create employment, it will print more money + reduce rates (become dovish).
(Money printing increases the supply of currency making each dollar less valuable. It also leads to increased demand, employment and inflation. If printing stops, existing currency will gain value)
Read 5 tweets
Nov 20, 2021
Cobra Effect.

During British rule, government got concerned about large number of deadly Cobra snakes in and around Delhi. So they decided to give a reward to every person who brought a dead cobra.
As expected, large number of Cobras were killed for the reward. However, an unintended consequence was that lot of people started actively breeding Cobras for earning these rewards.
On seeing this, the government decided to scrap the reward system. But by then lot of breeders had come up. When the policy was scrapped, these breeders set their now-worthless snakes free.
This caused the population of cobras to significantly increase!
Read 10 tweets
Nov 18, 2021
Survivorship bias.

During WWII, armed forces started observing survived planes. They identified the areas where bullets hit the plane the most so as to add more armour there. Thinking was that this would make planes more resistant to attacks (Shown on left hand side of image) Image
But they only had data on the planes that survived. No one thought about the planes that didn't survive except a wise man named Abraham Wald.
He told the team to armour the areas where there weren't any bullets!!
(Shown on right hand side of above image).
His logic was that if the surviving planes are coming back with bullets in few areas, that means that those areas are adequately armoured. The areas that needed more protection were those places where there weren't any red marks(bullets).
Read 5 tweets

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