Start a company, get ousted, try buying it for $0

Better Markets Digest #7. In this edition, we look at:?

- Bank can’t be a bank

- Co-working space still hot

- Fear-o-meter

- Recycling isn’t enough

Ban(k) on new customers

See: the whole point of being a bank is that people come, keep their money with you and if they don’t have money, they borrow from you. Now imagine if, as a bank, you are not allowed to do any of this.?

What are you, then??

This is the situation Kotak Mahindra Bank finds itself in. RBI has been on a rampage of late, cutting everyone to size. First, the fintech industry was cut to size, then Paytm Payments Bank, and now it’s Kotak Mahindra Bank’s turn. RBI told the bank on Wednesday that it can neither add any new customers online nor issue any credit cards.

Why?

These actions are necessitated based on significant concerns arising out of Reserve Bank’s IT Examination of the bank for the years 2022 and 2023 and the continued failure on part of the bank to address these concerns in a comprehensive and timely manner. Serious deficiencies and non-compliances were observed in the areas of IT inventory management, patch and change management, user access management, vendor risk management, data security and data leak prevention strategy, business continuity and disaster recovery rigour and drill, etc. For two consecutive years, the bank was assessed to be deficient in its IT Risk and Information Security Governance, contrary to requirements under Regulatory guidelines. During the subsequent assessments, the bank was found to be significantly non-compliant with the Corrective Action Plans issued by the Reserve Bank for the years 2022 and 2023, as the compliances submitted by the bank were found to be either inadequate, incorrect or not sustained.

Ouch!

BTW, Kotak is the 4th largest bank in India. 72% of its new savings accounts were opened online. A ban on that has to hurt them massively.

Tijori

Although, the effect on the credit card business might not be as big. Credit cards are ~3% of their entire loan book.?

HDFC Bank and Bank of Baroda (BOB) were plagued by similar issues in the past too, but the RBI restrictions were not this severe.?

In 2020, HDFC Bank was asked to stop issuing new credit cards or launching any new digital business products. Meanwhile, BOB was asked not to onboard customers on their mobile app, and they haven’t been able to resume doing so.

We doesn’t work?

Get rich quick scheme alert. Be a visionary, like Elizabeth Holmes, but 100x. Start a company, sell the vision to one of the world’s biggest VCs, and get a modest valuation of $47 billion. Then, muck up the company and still become rich. When the company goes bust, offer it to buy for 0$.

Baller move!?

I'm, of course, talking about the great Adam Neuman and WeWork. However bad WeWork’s global business is, though, their Indian business seems to be doing well. This might be because the parent company doesn’t manage it.?

Back in 2017, WeWork and the Embassy Group formed a joint venture in India. But only in 2020 did WeWork Inc. invest and take a 27.5% stake.

Now, WeWork Inc. is selling its entire stake in WeWork India to get whatever it can, after filing for bankruptcy in the US. The Embassy Group is also selling 13% of its 73% stake in We Work India, and there are new buyers.

Entrackr

What’s this?

What do you look at to see how the markets are doing?

Nifty? Sensex? It is most likely one of them. But there’s another index - one that tells you how volatile the markets are—India VIX.

This is how India VIX was doing during the COVID situation. It shot up??

Here’s the Varsity definition of VIX:

Volatility Index is different from a market index like NIFTY. NIFTY measures the direction of the market and is computed using the price movement of the underlying stocks whereas India VIX measures the expected volatility and is computed using the order book of the underlying NIFTY options. While Nifty is a number, India VIX is denoted as an annualized percentage

VIX is also called the fear index. In a loose sense, it spikes up when there’s uncertainty and trends down when there’s calm in the markets. But if you look closely, VIX is at all-time lows despite Iran and Israel playing counter-strike in real life, the prolonged Russia-Ukraine conflict and the mother of all reality shows—the Indian elections.?

Why? What does the VIX know that we don't???

Well, you could argue that all the geopolitical issues are priced in. However, some argue that the VIX itself is broken because most options-trading activity in India is now in weekly options, while the VIX is calculated using monthly options. As always, reality is complex.

One interesting chart