Thursday, May 11, 2017

TECHNOLOGY AND LACK OF VISION LEADS TO NPA IN BAKING INDUSTRY

Management failures have been always a unique case study for the management itself to identify the loopholes and the mistakes committed through wrong decesions. We are running and raising our voice for Vijaya Mallya and his NPA matter but do you know that corporate management science have failed more bitterly in professional way where business and NPA have been sold at the cost of Tax payer’s money. At the same time  digital disruptions have become a quite well known phenomenon and at the same time the quality of business operation have changed dramatically.  Companies and its management are always on verge of collapse. Technology is replacing many large organizations to lose business. Well Indian IT industry has been one of the biggest examples of having such an affect of disruption where large players lost business to the small ones as they reduced cost and improved margins of their clients which finally lead to lose of business for the big cats of the industry. On the other hand another aspect is getting into short term industry growth projects a company many have any existence buy under the Dream of Diversifications enters into the business and end up with sell off at the cost of Tax payers money.

 There are many companies in India where one will find that key management took the decision of focusing on non core business just to get short term revenue jumps and at the same time reflected down turn in the core business. Managements rather focusing on reviving the core business went for non core business and after taking huge leverage position ended up with huge loses and high  NPA levels.  In order to get relief from the piled up debt levels they sold their stake and again focused on the core business. 

Biggest ever Sale of Indian Corporate Assets in Indian History
Jindal Steels is selling 49% of its Rail business, 5% of its Energy exchange and its 3,500 MW Power plant
Essar is selling a huge stake in its Steel business and 49% of its Oil to a Russian Oil business
GVK sold 33% of its Bangalore Airport stake as well as its controlling stake in Bombay Airport and its complete Road assets
DLF is selling its Saket Mall and 40% of all its Rental Assets and Land Assets
GMR Highway Projects, South African Coal Mine, Istanbul Airport, 70% in a Singapore Power Project, 2 Coal Mines in Indonesia
JP Group sold all its Cement Assets to Ultra Tech Cements
Yamuna Expressway stake, Power to JSW Energy
Tata is selling its Corus Steel in UK.. Dhamra Port, Communications Arm Neotel in South Africa
Land in Bombay Lanco Assets in Power Generation on sale in Andhra and Udupi
Videocon selling Telcom Spectrum in 6 circles. Oil assets in Mozambique
Renuka Sugars is selling its Brazil Power, Sugar and Bio-fuel business
Sahara groups 86 Real Estate Assets are on sale.. 42% stake in Formula 1, Mumbai's Sahara Hotel, Grosvernor House Hotel London, New York Plaza Hotel, The Dream New York Hotel and 4 Airplanes
Reliance Infrastructure is selling 49% in Electricity Generation, Transmission in Mumbai
Cement business to Birla Corp.. Also it's entire Portfolio of Road Projects, 100% of it have been disposed off
The above transactions reveal that how management of these organizations went toward the non core business and how they ended up. Rather focusing on core business, experimental business lead to growth of NPA and poor management image reflecting poor share prices and weak support from investors and markets. They have wasted the wealth tax payers and no one will blame them for their wrong decision. This is the one of the live example of how corporate have exploited the resources  and what price they paid for shifting their focus to non core business models rather strengthening the core business. 
 This is a well known fact as on today that technology is changing the business model and monopoly. The most important part is that due to technological shifts and late arrivals of companies to catch up with them leads to over leveraged positions which lead to an immense pressure on the cash flows. Organizations fails to catch up with technology and takes all other traditional sources to leverage the business and market holding which leads to excessive borrowings.

 These borrowings are disguised under the name of business growth and expansion but they hardly generate ROI/ROA and they end up with a mess on negative net worth. This is the very place where NPA seeds gets planted and grows over the years. The point is NPA growth will happen if one is lending to an organization which under the drowning industry. Bankers needs to be educated enough to understand which industry they are lending and macro factors behind the growth of the industry and how the company is well aligned with the same. 

Technological shifts are changing the landscape of the companies hence their cash flows too. This disruption in cash flow is an indication for that industry or the company which a banker needs to know. This is the key area where NPA will come up and hence the whole economy goes for a toss.  Today’s managers are focused towards short term goals and profit targets and no one knows about the ROI the company has achieved. When the managers of an organization becomes aware of the underline numbers business takes a new shape and growth path. Mere only creating targets and business objectives will not be suffice as business models are getting changed and technological acquisition of business is changing the revenue models. Flush of capital into traditional practices like hiring more high paid executives will not drive business growth.  NPA is not always due to deliberate political driven segment but often happens due to late shifting of business models from traditional profitability to new future profitable avenues.

I have found and I have worked with those people who focused only on short term and thought that if my branch target is achieved I have made a significant contribution. This is where the management falters to indentify that where the next level of growth of Industry will be coming up. They fail to miss the technological growth drivers and go a long way on the traditional path and loose the competitive advantage to some peers group and in order to revive the fallen business share invest huge capital which also goes for a tailspin.

Its being proved that expanding into another venture needs realistic approach and not based on short term triggers. All the above business failures point that either technological disruption or non focus on core business lead to the collapse of the best organization in India. 

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