The generation who are just retired or about to retire is a generation betrayed. Throughout their working life, they were told to work hard and save with various schemes to lower the tax burden via investment in government-owned schemes such as LIC, PPF, etc. They did so.

Negative interest rates

Now, when their regular income has ceased after retirement, and they need to rely on income from their savings, they are faced with continuing lower interest rates. In many parts of the world rates are negative; depositors in UBS for example have to pay interest to the bank. Some $17 trillion of investible funds are invested in negative interest rates.

Interest rates are the fulcrum between the interest of borrowers (whether for investment or for consumption) and the interest of savers. Yet, central banks and commercial banks, all over the world, including India, favour the former over the latter. Last week, for example, SBI lowered interest rates for borrowers by 10 bps, and for depositors by 25 bps. It is little wonder that the household savings rate has fallen drastically, the frequent scams leading to NPA problems at banks does not inspire confidence.

This generation is justified in feeling betrayed.

The lack of confidence in government institutions is exacerbated by the way in which the Centre treats them as a piggy bank. It asks, eg, LIC to bail out IDBI Bank, when, in fact, it ought to be sold. Last week, plans were announced for LIC to inject another ₹4,700 crore into IDBI Bank, and the government ₹4,600 crore. But does LIC money belong to the Centre or to those it insures?

The IBC was expected to resolve corporate bad debt through a time-bound sale process. The resolution was supposed to be completed within 270 days. That would provide relief to banks and funds to kick start the credit cycle.

Yet lawyers have managed to slow the process. Last week, NCLT approved JSW’s $2.7-billion bid for Bhushan Power & Steel. This was referred to IBC in June 2017, so it has taken 24 months, or 720 days instead of 270. This cannot be allowed to continue.

Investors are also treated with disdain. In August 2018, the Chandrababu Naidu government of Andhra Pradesh made a ₹2,000 crore issue of 10-year bonds, guaranteed by the State Government, with a fixed coupon rate of 10.32 per cent. After a five-year moratorium, repayments were to be made over the next five years, equally. In order to provide liquidity in the interregnum, the bonds were listed on the BSE. It seems that no trading has taken place since. And now, it seems that the Chandrababu Naidu government did not notify the city, Amravati, as is required. The new government is unsure of whether it wishes to continue with the project. Will it honour the guarantee to investors?

Bright spot amid gloom

In this scenario, the Embassy REIT has performed very well. Issued at ₹302 a REIT on May 1, 2019, it was quoting at ₹402 on September 11. An attraction is due to inbuilt appreciation of rental income from commercial space. Blackstone and K Raheja Group are now planning a REIT.

The firing of John Bolton by President Trump could, perhaps, be the harbinger of a trade deal with China. Should that happen, global markets would cheer.

The writer is India Head — Finance Asia/Haymarket. The views are personal.

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