Research Committee

Crux
The news compendium of
SIBM-B

Crux is a Research Committee endeavor which aims to provide the

students of the institute with weekly updates on the most
important news worldwide. Each news update in the newsletter
has been analyzed by the members of the Research Committee to
bring you the most relevant points related to particular news.
Along with the news updates, it also covers articles on important
topics which have been in news during the week.

With our newsletter series this time, along with the news we are
also providing useful links to allow you to delve into the topic
further.

You call it news. We call it a step towards awareness.

 ISRO to launch Chandrayaan-2 on 22 July
• The launch of Chandrayaan-2, India’s second lunar mission, scheduled for 2.51 am on 15 July, was
postponed when scientists at the Indian Space Research Organization (ISRO) detected a technical snag
in the launch vehicle system minutes before lift-off.
• ISRO now says Chandrayaan-2 is scheduled to launch from the SatishDhawan Space Centre in
Sriharikota at 2.43 pm on 22 July
• ISRO has not yet officially disclosed the nature of the glitch, though some news reports have indicated
that the main cryogenic engine failed to build pressure due to helium gas leakage, possibly due to a
malfunction of the nipple-joint valve in the plumbing.

Soon to be launched Chandrayaan 2 with its launch vehicle GSLV MK III

• If the Geosynchronous Satellite Launch Vehicle Mark III (GSLV Mk III) carrying Chandrayaan-2 had
taken off as scheduled, the mission payload would have been injected into an Earth parking orbit soon
after the launch. A series of orbital manoeuvres would have been carried out to raise its orbit and put
Chandrayaan-2 on a lunar transfer trajectory.
• Once it entered the moon’s sphere of influence—where the celestial body’s gravitational influence
comes into play—the on-board thrusters would have slowed the spacecraft for a “lunar capture".
• The Vikram Lander would have detached from the orbiter on landing day and it would have soft-landed
near the lunar south pole in September.
• With the now missed 15 July launch, Isro had aimed to touch down on the moon’s south polar region
when the lunar day begins on 6 September.

Reference:https://www.livemint.com/mint-lounge/features/aiming-for-the-moon-measuring-india-s-
leap-chandrayaan-2-blueprint-1563528013987.html
 Bimal Jalan Panel- Transfer of Reserves to Government

• The Bimal Jalan panel that was set up to review the economic capital framework of RBI has decided to
recommend transfer of surplus reserve to government in tranches of 3-5 years.
• This decision was made by taking into account the currency and gold revaluation reserves of RBI which
have tripled to Rs 6.92 trillion in 2017-18 from Rs 1.99 trillion in 2008-09 and the contingency fund
which has grown by 50%.
• The finance ministry has contended that buffer of 28% of gross assets maintained by central bank is
above the global norm of around 14% and transfer of funds will help government to meet its fiscal target
on time.

• The matter of ideal level of RBI’s reserves was examined by three committees previously-V
Subrahmanyam in 1997, Usha Thorat in 2004 and YH Malegam in 2013.
• The committee was also entrusted with the task of reviewing the best practices followed by central
banks worldwide in making assessment and provision of risk
• The key members of committee included- former deputy governor of RBI-Rakesh Mohan, finance
secretary- Subhash Garg, RBI deputy governors- NS Vishwanathan and two RBI central board
members- Bharat Doshi and Sudhir Mankad.
• The differences within the panel can be seen in the statement of Subhash Garg’s statement who favoured
a one time transfer of surplus of RBI reserves.

Reference:https://economictimes.indiatimes.com/news/economy/policy/jalan-panel-finalises-report-on-
rbi-capital-recommends-surplus-transfer-to-govt-in-3-5-years/articleshow/70258737.cms
 US- Iran Oil Crisis: War in the Strait of Hormuz
• Recently, Iranian forces have claimed the seizure of a small tanker accused of illicitly carrying oil
through the Persian Gulf in the Strait of Hormuz, the latest incident in a series of tense developments in
the region.
• This is another incident in the recent series of attacks on merchant ships in the Persian Gulf. These
involved controlled explosive devices being placed on the vessels' hulls to hole them above the water
line. Pentagon claimed Iranian forces were actually behind attacks on commercial vessels.
• Facing mounting U.S. sanctions and military threats, Iran has consistently vowed to defend itself and
secure the waters of the Persian Gulf.
• The U.S.-Iran relationship has approached a crisis point reminiscent of the tanker wars of the 1980s
since President Donald Trump's decision last year to pull out of a 2015 nuclear deal that promised
Tehran sanctions relief in exchange for agreeing to curb its nuclear activities.
• The growing tensions between the US and Iran are threatening to disrupt the global shipping transport
sector which is heavily dependent on the Strait of Hormuz.
• The Strait of Hormuz is a narrow shipping artery between Iran and Oman. Approximately one-third of
the world's seaborne crude oil exports pass through the strait. Ships from Saudi Arabia, Kuwait and
UAE pass through this strait carrying oil for US.

• The geography of the Strait of Hormuz compels shipping to pass close to Iranian territorial waters and
gives Iran ample opportunity to disrupt it. This enables its special forces and fleet of fast patrol boats to
engage maritime traffic very quickly.
• The US is becoming increasingly self-sufficient in oil supplies. But a major disruption to the global
shipping industry would likely still cause global oil and, as a result, American petrol prices to rise.

Reference:https://www.theneweuropean.co.uk/top-stories/strait-of-hormuz-donald-trump-war-with-iran-
1-6171358
https://www.newsweek.com/iran-us-oil-crisis-1450034
 US hedge fund Steadview to step up investments in Indian startups

• American hedge fund Steadview Capital plans to invest $500 million in growth-stage companies in India
over the next two years.
• The hedge fund went slow on India investments between 2015 and 2018, and exited Flipkart in 2018 in
the latter’s sale to Walmart Inc. Since then, Steadview has made six new investments totalling about
$200 million, besides investing $74 million more in Ola Cabs.
• Steadview first invested in India in July 2014, joining a $21 million round in online furniture retailer
Urban Ladder. Since then until November 2015, it participated in 12 rounds in half a dozen firms,
including Flipkart, Ola, online insurance marketplace Policybazaar, music streaming platform Saavn and
online classifieds marketplace Quikr, among others, according to data from Tracxn Technologies.

• Steadview has earmarked a significant amount of capital for Indian startups. Its investments here are
currently overseen by Ravi Mehta, Steadview India’s Hong Kong-based managing director since 2009.
• Steadview is also planning to increase its headcount and is looking to hire more in India. Growth-stage
investments in Indian startups set a record by breaching the billion-dollar mark in the first half of this
year.

Reference : https://www.livemint.com/companies/start-ups/us-hedge-fund-steadview-to-step-up-
investments-in-indian-startups-1563297363866.html
 US turns to Indian products as a replacement for Chinese imports

• The trade tension between US and China which started on July 6, 2018, the American importers of
sports goods, toys, stationery, cables and electronics parts have reached to Indian sellers of these goods
as Chinese products have become expensive because of the trade war going on between US and China.
• India has the opportunity to double its exports to the US in the given condition, while the exports can be
increased by USD 40-50 Billion by adding new capacity, the Federation of Indian Export
Organizations ( FIEO) president ,Sharad Kumar Saraf stated.
• The US is looking to replace Chinese exports with Indian products in at least seven product lines
including vulcanized rubber, footwear and kitchen accessories. India exported these items worth $1.5
billion in FY19 to the US, and the industry is keen to ramp up capacity to meet the potential demand.

• India exported these items worth $1.5 billion in FY19 to the US, and the industry is keen to ramp up
capacity to meet the potential demand.
• Exports to China fell by a sharp 14.1% as the country struggled with the impact of the trade war with the
US—its GDP growth slowed to a 27-year low of 6.2% in the June quarter.
• One more reason why US has turned towards India for imports the good is because of the increased
manufacturing cost in China .

Reference:https://www.financialexpress.com/economy/us-china-trade-war-an-opportunity-to-help-
double-indias-exports/1646972/
IL&FS Fiasco: NCLT allows Government to prosecute Statutory Auditors
• The NCLT has on July 19, 2019 allowed the government to prosecute Deloitte and BSR Associates
(KPMG) for their failure to detect and report the scams that took place in the company, when they were
the auditors of IL&FS Financial Services.
• Government's plea to implead Udayan Sen, Partner Deloitte, and BSR Associates Partners Kalpesh
Mehta and Sampath Ganesh have also been approved.
• The tribunal additionally allowed prosecution of C Sivasankaran and his group, as the probe has
revealed that management of IFIN abused their position by giving loans to the Siva group as some group
companies failed to repay the earlier loans granted to them by IFIN.
• Investigation also revealed Sivasankaran had personal relationship with Ravi Parthsarthy and Hari
Sankran, the former chairman and the former vice-chairman of IL&FS Group.
• In case of independent directors of IFIN Subhalakshmi Panse and Surinder Singh Kohli, the
investigations revealed they were aware of the NPAs of the company and also knew that loans were
being granted to group companies of existing defaulting borrowers in order to prevent them being
classified as NPA and not provide for the bad debt.

• The Corporate Affairs Ministry will now implead Kohli and Panse who were part of the audit
committee. Moreover, SFIO report said, auditors failed to verify the end-use of bank loans and money
raised via Non-convertible debentures (NCDs) despite it being a regulatory mandate for verifying such
things.
• The SFIO report has found that the audit committee members colluded with the management and
overlooked many impairment indicators in contravention of the accounting standards and principles of
prudence.
• The new board of IL&FS, which was appointed by the government after massive defaults by the group
to the tune of over Rs 90,000 crores and suspected wrong-doings by the former top management, had
mandated Grant Thornton to carry out a forensic audit.

Findings of the Grant Thornton Forensic Report

• In the interim forensic audit report on role of credit rating agencies engaged by the erstwhile
management, Grant Thornton has flagged a number of cases amounting to potential favors and gifts
given to senior officials of the agencies and even their family members.
• The audit evaluated the role of the credit rating agencies in rating various debt instruments and
facilitating excessive borrowings from money markets across group companies that eventually led to
defaults. The mandate was to audit the role of the credit rating agencies and ascertain whether there were
any possible wrong-doings in rating IL&FS group companies during 2008-2018.
• CARE, ICRA, India Ratings and Brickwork were the main rating agencies for group companies IL&FS
Transportation Networks (ITNL), IL&FS Financial Services IFIN and IL&FS during the period. From
2016, Brickwork was also introduced for IFIN and ITNL.
• Several e-mails between the erstwhile management and the representatives of credit rating agencies
during the specified period have been analyzed in the audit. The interim report also indicated that
IL&FS personnel were aware of the specific interests of the key officials of credit rating agencies.
• From tickets for a Real Madrid football match and hefty discounts on a luxurious villa to a Fit bit watch
and shirts, a probe into the high-profile IL&FS scam has found numerous cases of favors and gifts
extended by the erstwhile top management to senior officials of rating agencies and their family
members.

• It appears that Ramesh Bawa, former CEO of IFIN, facilitated purchase of a villa for the wife of
Ambreesh Srivastava (Head of Financial Institutions South and Southeast Asia, Fitch Ratings) and also
helped them obtain a discount. The audit has flagged that potentials favors were obtained by Srivastava
from Bawa, thus raising question over his independence in the rating obtained from Fitch as well as
India Ratings.
• Further, Bawa requested Ajay Chandra (MD of Unitech Limited) to personally get involved and resolve
the issue that Srivastava's wife was facing with regards to interest charged on delayed payments for the
villa.
• Another email trail from April 2015 showed D Ravishankar (Founder and Director, Brickwork Ratings)
thanking Arun Saha (who was Joint Director of IFIN at that time) for arranging tickets for a football
match of Real Madrid in Madrid, Spain, in the IL&FS corporate box along with his son.

References:https://www.businesstoday.in/current/corporate/ilfs-case-nclt-allows-govt-to-prosecute-
deloitte-bsr/story/365728.html
https://economictimes.indiatimes.com/industry/banking/finance/banking/everything-about-the-ilfs-
crisis-that-has-india-in-panic-mode/articleshow/66026024.cms?from=mdr
https://www.businesstoday.in/current/economy-politics/ilfs-scam-company-gifts-real-madrid-match-
tickets-fitbit-watches-discounts-villas-favourable-ratings/story/366076.html
 DHFL Crisis: Another IL&FS in the making?
• An NBFC, Dewan Housing Finance Corporation Limited (DHFL) was established to enable access to
affordable housing finance to the lower- and middle-income groups in semi-urban and rural parts of
India.
• DHFL is the second housing finance company to be established in the country.
• It relied on short-term borrowing to finance long-term lending not only from commercial banks but also
from mutual funds industry which emerged as largest investor in corporate debt instruments and bonds
of DHFL.
• Today it holds a debt of about 1 Trillion Rupees out of which about 38,000 crore rupees belong to PSUs,
5000 crores by mutual funds and 3300 crores by provident fund trusts including NPS.

Timeline of Crisis:
• DHFL has been facing liquidity problems since September last year when defaults by the IL&FS Group
triggered a credit crisis.
• Shares of Dewan Housing Finance crashed 42% in September 2018 on concerns that it could default on
outstanding bond re-payments, with many in the equity markets holding the belief that exposure to
troubled financier IL&FS could further stretch the finances at the mortgage lender

Plumeting DHFL share prices from September 2018 to July 2019

• Jan 29: Investigative media outlet Cobrapost alleges financial misappropriation by DHFL's
controlling shareholders, saying publicly available data showed funds, including a large amount
the firm secured from Indian state banks, were diverted to shell companies in India and abroad to
buy assets. This further damaged the company’s reputation and credibility.
• This was followed by as series of defaults on various financial instruments issued by the company
leading to downgrading the ratings of company’s financial instruments.
• Feb 27: ICRA cuts rating on the housing finance company's commercial papers.
• Feb 28: CRISIL downgrades company’s commercial paper program and short-term deposit.
• Dewan Housing Finance Limited reported Rs 2,223 crore net loss for the fourth quarter ended March 31,
2019 against profit net profit of Rs 134 crore in the same period a year ago
• It owed about Rs. 850 crores to unsecured commercial papers holders in June 2019 which it eventually
defaulted upon.
• This lead two major credit ratings agencies - CRISIL (Standard & Poor's local unit) and ICRA (an
affiliate of Moody's Investors Service) to cut the rating on the non-bank lender’s Rs 850 crore
commercial paper programme to ‘Default’.
• Rating agencies CRISIL Ltd, CARE Ratings and Brickwork Ratings cut ratings on certain non-
convertible debentures (NCDs) and debt instruments of DHFL.
• June 4 :Care Ratings has downgraded all outstanding borrowings of Dewan Housing Finance Ltd. to
‘Default’ grade after the non-bank lender missed interest payments on non-convertible debentures
• The company has so far relied on securitization of retail loan assets and bank lines of credit to meet its
liquidity needs. This has become more difficult now due to the debt downgrades.

Major financial intruments of DHFL stand downgraded as 'D'(Default) as on 20/7/2019

• RBI has gone on record to say that the collapse of a major NBFC may have the same impact on
economy as the collapse of a major bank.
 Increased Bloomberg Default Probability of DHFL from Sep 2018 to July 19

• DHFL's slump at share market has also dragged down other NBFC stocks such as Bajaj Housing
Finance, Reliance Home Finance, Reliance Capital, PNB Housing Finance etc.
• If DHFL goes bust then mutual funds, PSUs and Insurance companies are also going to be affected as
they are one of the major holders of DHFL financial instruments.

Plan for resolution:

• June 7: RBI came out with a circular on Prudential Framework for Resolution of Stressed Assets. Under
the framework, lenders can initiate the process of implementing a resolution plan (RP) even before a
default has occurred.
• Banks proposed to come out with the inter-creditor agreement (ICA) to lay down the terms of
restructuring the loans to DHLF, banks wanted other financial creditors like insurance companies and
MFs to back the deal.
• July 12: Lenders/ Non-Convertible Debenture (NCD) holders granted the housing finance company
seven days to come up with a resolution plan (RP) for over Rs 1-lakh crore of loans under stress at a
meeting with about 300 lenders.
• July 16: Mutual funds with substantial exposure to (DHFL) on Tuesday sought Securities and
Exchanges Board of India’s (Sebi’s) clearance as pre-conditions to joining an inter-creditor agreement
(ICA) proposed by banks to restructure the mortgage lender’s debts.
• July 18: Insurance companies — exposed to DHFL debt papers — have approached the Insurance
Regulatory and Development Authority of India (IRDAI) to get a go-head from the regulator for
participating in the inter-creditor agreement (ICA) for DHFL.

Reference:https://www.livemint.com/companies/news/housing-lender-dhfl-warns-it-may-not-survive-as-a-
going-concern-1563075832103.html
https://www.bloombergquint.com/economy-finance/dhfl-rating-downgrade
https://www.business-standard.com/article/companies/dhfl-crisis-insurers-seek-irdai-nod-to-be-part-of-inter-
creditor-agreement-119071801785_1.html
 News from around the world

• After Iran seizes oil tanker, UK warns ships to avoid Hormuz Strait.

https://www.ndtv.com/world-news/after-iran-seizes-oil-tanker-uk-warns-ships-to-avoid-hormuz-strait-2072554

• Luxury goods join Hong Kong retail slumps as protest bite.

https://www.bbc.com/news/business-49041282

• SpaceX Starship could go to the moon by 2021.

https://www.digitaltrends.com/cool-tech/spacex-elon-musk-says-starship-can-land-on-the-moon-by-2021/

• Google may be fined Rs 136cr for abuse of Android dominance in India

https://theprint.in/tech/in-fresh-antitrust-case-google-india-stares-at-bigger-fine-than-rs-136-crore-in-2018/262876/

• South Koreans boycott Japanese brands amid diplomatic tensions

https://www.japantimes.co.jp/news/2019/07/09/business/boycott-japan-south-koreans-take-social-media-reaction-
trade-spat/
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