Economy http://www.theweek.in/thewallet/economy.rss en Tue Jul 31 17:33:08 IST 2018 https://www.theweek.in/privacy-an-settlement.html evolving-luxury <a href="http://www.theweek.in/thewallet/economy/2019/08/09/evolving-luxury.html"><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="http://img.theweek.in/content/dam/week/magazine/thewallet/economy/images/2019/8/9/32-Evolving-luxury.jpg" /> <p>In today’s world, luxury isn’t a mere symbol, but a reflection of our ethos. As our consciousness has evolved towards sustainable practices, so have our choices when it comes to living spaces. Today, more people than ever are investing in their own homes, given a surge in their wealth. In fact, according to a global wealth report, since 2000, wealth in India has grown 9.2 per cent per annum, faster than the global average of 6 per cent.</p> <p>&nbsp;</p> <p>There has been a simultaneous evolution of the luxury real estate industry as well. A decade or so ago, luxury used to be synonymous with sprawling bungalows, complete with private gardens. The paucity of space has created an opportunity for vertically built luxury homes, that is luxury apartments. Some call them ‘villaments’ (villa+apartment), and some luxury residences. These luxury apartments are spacious, replete with smart technology and fittings fit for kings.</p> <p>&nbsp;</p> <p>But there is more to them…</p> <p>&nbsp;</p> <p>Technology has entered the veins of design sensibilities, creating a ‘smart home’ revolution. With AI and robots making major inroads into the real estate sector, facilities like voice-activated locks, smart air-purification systems, climate and temperature control, IoT devices, and more, will grow in popularity. This will also enhance the comfort and convenience of home owners while incorporating entertainment, mobility and security.</p> <p>&nbsp;</p> <p>However, along with technological revolution, we also see a seamless blend of sustainable design practices to promote holistic living. It creates a sustainable and socially cohesive neighbourhood that enjoys common energy generation, and water management and allows for naturally lit spaces that enhance human engagement with nature. This is achieved by integrating energy efficiency with the design process, essential to aid livability and the overall well-being of the residents.</p> <p>&nbsp;</p> <p>Upcycling is another focus area while creating harmonised living spaces. The use of natural and upcycled materials is remarkably sustainable, even as it creates beautiful structures. These materials contribute to the embodied energy consumption of homes. Use of organic materials like wood, marble and copper can uplift the ambience.</p> <p>&nbsp;</p> <p>Eco-friendly practices like rainwater harvesting, waste management and adaptive reuse create a sustainable edifice for the homes, strengthening their core. Architects are increasingly following the principle of wabi-sabi, which allows the building to age gracefully as time casts its shadow on it. They also blend the indoor and outdoor areas seamlessly, thus expanding the usable area and facilitating a dynamic flow of movement.</p> <p>&nbsp;</p> <p>Even the facades used are intelligent. Structures increasingly have dynamic facade which improve the aesthetic quality while augmenting functional excellence. Dynamically tinted electrochromic glass, a new-age product, gives the end user the benefit of using a glazed façade without using blinds that obstruct the exterior view and daylight ingress. It maximises natural light and cuts glare, enabling better thermal and visual comfort. Moreover, during the monsoons, the façade system drains water away from the walls.</p> <p>&nbsp;</p> <p>Technology has completely transformed bathroom spaces. A contemporary touch is now pervasive in the design philosophy, while keeping bathrooms clean and clutter free. Monochrome colour schemes are vastly preferred while bold curves and angular designs give them the required edge. Apart from being elegant, they are thoroughly planned spaces which are highly ergonomic. Minimalism is the foundation on which these ‘intelligent bathrooms’ are built. They are controlled through IoT connectivity, giving you smart showers, faucets and adjustable water temperature, among other things.</p> <p>&nbsp;</p> <p>Even the lighting has shifted its focus from space illumination to mood creation.</p> <p>&nbsp;</p> <p>Increasingly, luxury is becoming synonymous with authentic creation. Giving owners a sense of symbiosis with nature and creating a community of people who have similar living aspirations is the new luxury being provided by real estate developers.</p> <p>&nbsp;</p> <p><b>Kolte is project director, 24K, Kolte Patil Developers Limited.</b></p> http://www.theweek.in/thewallet/economy/2019/08/09/evolving-luxury.html http://www.theweek.in/thewallet/economy/2019/08/09/evolving-luxury.html Sat Aug 10 11:40:01 IST 2019 under-construction <a href="http://www.theweek.in/thewallet/economy/2019/08/09/under-construction.html"><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="http://img.theweek.in/content/dam/week/magazine/thewallet/economy/images/2019/8/9/8-Under-construction.jpg" /> <p>About five years ago, Rajesh Kumar, a 40-year-old IT professional, bought an apartment in an affordable housing project in Bengaluru. It was from a reputed builder and he got it for Rs35 lakh. However, as time passed, he realised that it was too far from the city centre, about 35km. At the time of possession, the builder had promised a lot of infrastructure development in the area, but alas. The area lacked proper public transport and there were no shopping malls, good schools or colleges nearby. As a result, Kumar thought of renting out the apartment and moving back to the city. But, despite trying hard, he could not find a tenant; no one wanted to live that far from the city. Kumar then thought of selling it, but found no buyer, again for the same reason.</p> <p>&nbsp;</p> <p>He is not alone. Though there has been a lot of talk about the boom in the affordable housing segment, there are many challenges that hinder its growth. Anuj Puri, chairman of ANAROCK Property Consultants, said the main issue with such projects in metros was the location of the project—most of them were on the outskirts of the city, where the livability index was fairly low. “Many areas across cities lack basic infrastructure facilities and are least accessible from prime areas,” he said. “This puts off buyers to a large extent. Secondly, unlike earlier, builders today are keen to venture into the affordable segment—despite profit margins being lower than the luxury segment—mainly because it has the maximum demand. However, it is unfortunate that the high property prices within the municipal limits of major cities are preventing builders from launching affordable housing projects there.”</p> <p>&nbsp;</p> <p>Other experts, too, agree. “Often, connectivity is a big challenge,” said Samantak Das, chief economist and head of research and REIS, JLL India. “It is true that many continue to wait for supporting infrastructure. It has been the main request of home buyers who want to have an easy commute and also have all necessary amenities in the neighbourhood.”</p> <p>&nbsp;</p> <p>As per ANAROCK research, in Q2 2019, of the total 6.65 lakh unsold units in the top seven cities, more than 2.45 lakh were in the affordable bracket (priced below Rs45 lakh). During the same period for the previous year, more than 2.37 lakh units in the affordable category were unsold. “Though there has been an increase in the total unsold stock of affordable housing by 1 per cent in a year, this was also because maximum new supply came up in this segment across the top seven cities. Hence, the stock was bound to increase,” said Puri.</p> <p>&nbsp;</p> <p>After demonetisation pushed up the unsold inventory, builders were cautious about launching new projects. This restraint helped sales gain momentum in 2018, and builders concurrently reduced the size of the offering in the affordable segment. And, with the recently announced decrease in interest rates and a spate of government incentives such as lower GST rates, the reduction of unsold affordable stock will continue in the immediate future.</p> <p>&nbsp;</p> <p>“Economic growth can be accelerated through the linkage of affordable housing with other sectors of the economy,” said José Braganza, joint managing director, B&amp;F Ventures Limited. “The demand for affordable housing is driven by the availability of low-cost credit, and policies such as the Real Estate (Regulation and Development) Act has infused new buyers’ interest in the realty sector. Providers and seekers of affordable homes face multiple challenges in their efforts to develop, finance or secure quality housing at a reasonable price. With restored trust and tax reforms, home buyers' prime concerns are the cost involved along with the quality and delivery of the project rather than location.”</p> <p>&nbsp;</p> <p>There are others factors, too. “Even though the demand for affordable housing is humongous, there are multiple headwinds such as accessibility to finance at cheaper interest rates (a major roadblock for developers to enter affordable housing), and absence of public-private partnerships to bridge the gap between demand and supply, which have restricted the growth of this segment,” Surendra Hiranandani, chairman and managing director, House of Hiranandani, told THE WEEK. “Along with ramping up infrastructure, which is taking place at a stupendous rate, [there needs to be a] speedy approval process, and subsidies in buying land in urban areas and raw materials.”</p> <p>&nbsp;</p> <p>To achieve the objectives of the Pradhan Mantri Awas Yojana, he added, the government needed to incentivise the key stakeholders through direct and indirect tax measures and increase the price limit of apartments that qualify for tax deductions. This would encourage home buyers from urban areas such as Mumbai, where real estate prices continue to remain high. “There is an urgent need to address challenges in the affordable housing space as urbanisation will escalate exponentially in the years to come,” he said.</p> <p>&nbsp;</p> <p>Experts point out that the government must seriously reconsider revising the pricing of homes in the affordable segment as per the real estate prices in that city. “While size of units as per its definition (60 square metres carpet area) is fairly appropriate, prices of units are definitely not viable across most cities,” said Puri. “For instance, for a city like Mumbai, a budget of less than Rs45 lakh is far too low and hence it needs to be increased. Similarly, in Delhi and NCR, buyers have to go out to the peripheries to buy affordable homes, which are unfortunately not accessible via public transport or are fairly low on the livability index. With this price revision, more homes will fall within the affordable price tag and hence more buyers can avail of multiple benefits such as lower GST rates at 1 per cent without input tax credit, government subsidies and the most recent tax deduction of total Rs3.5 lakh on interest repayment of home loans. This will attract more buyers to take the plunge.”</p> <p>&nbsp;</p> <p>Many also said that the issue of scarcity of land, the main ingredient for building homes, must be looked into seriously. “Some portions of land across cities falling under the department of heavy industries, Indian Railways, port trusts, etc, can be released by the respective government bodies,” said Puri. “By unlocking this land, there will be availability of low-cost land, which will also curtail property prices to a large extent.”</p> <p>&nbsp;</p> <p>Interestingly, stakeholders are now focusing on delivering the existing ongoing projects instead of new launches and this is likely to reduce the gap between demand and supply. “The country needs price rationalisation and more affordable housing projects,” said Das. “With the government’s key agenda being ‘Housing for all by 2022’, the future of affordable housing is strong. Reforms such as tax exemptions for project developers and GST rationalisation will help the segment and, in a way, help the home buyers. As a result of these reforms, the affordable housing supply will definitely increase in future.”</p> <p>&nbsp;</p> <p>Market experts emphasised that the prices for the segment should be revised on a priority basis. “Firstly, prices should be revised,” said Rachit Chawla, founder and CEO, Finway Capital. “An amount that the middle class can easily afford, with proper quality of infrastructure, should come into the picture. Secondly, one needs to boost the housing funds. Current reforms by the government with reference to real estate and initiatives being taken to provide housing to all, irrespective of caste, purchasing power or religion will provide a push to the housing sector at large.”</p> <p>&nbsp;</p> <p>Despite the challenges, experts said the future of affordable housing was bright in India, especially with a stable government and the recent developer-friendly budget. The affordable price segment will continue to dominate the residential supply in the next few years. The catchphrase ‘affordable housing’ has also been drawing more and more fanfare and is being used rather freely by developers who, in previous years, did not want to be associated with it at all. “The budgets leaning towards the affordable housing segment will give further hope to those who were dreaming to own homes,” said Braganza.</p> <p>&nbsp;</p> <p>Despite initial challenges on the quality front, some experts said the affordable segment seemed to be on track. “In the past three to four years, with participation of more grade A and corporate developers in this segment, quality issues have been addressed and the benchmark has been set,” said Shantanu Mazumder, senior branch director, Bengaluru, Knight Frank India. “Now, with RERA in place in most of the states, the developer also needs to fall in line with the guidelines that also talk about warranties and guaranties in construction. Affordable housing will soon see version 2.0, as the segment is gearing up to cater to the lower end of the segment, which is sub Rs10 lakh. But, for the same to happen, the government will have to release land to the private sector in some form so that affordability is achieved in its true sense across all segments and the prime minister's vision of 'housing for all by 2022' becomes possible.”</p> http://www.theweek.in/thewallet/economy/2019/08/09/under-construction.html http://www.theweek.in/thewallet/economy/2019/08/09/under-construction.html Sat Aug 10 11:37:39 IST 2019 loud-and-clear <a href="http://www.theweek.in/thewallet/economy/2019/08/09/loud-and-clear.html"><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="http://img.theweek.in/content/dam/week/magazine/thewallet/economy/images/2019/8/9/4-Loud-and-clear.jpg" /> <p>In the April-June quarter, Chinese smartphone maker OnePlus had a shipment share of 43 per cent in the premium segment in India, according to Counterpoint Research. The popularity of the flagship OnePlus 7 series helped the company beat Samsung, which had a 22 per cent share. In the ultra-premium segment, OnePlus 7 Pro had a 26 per cent share. Overall smartphone shipments in the premium segment grew 33 per cent annually in India.</p> <p>&nbsp;</p> <p><b>BIG BLUES</b></p> <p>IBM is facing several lawsuits accusing it of firing older workers, including a class-action case and individual civil suits. According to a deposition from a former vice president, the company has fired a lakh employees in the past few years in an effort to boost its appeal to millennials and appear to be as “trendy” as Amazon and Google.</p> <p>&nbsp;</p> <p>Once the world's largest tech company, IBM of late has been struggling with shrinking revenue owing to its late entry into cloud-computing and mobile-tech. It has fired thousands in the US and Canada in an effort to cut costs and realign workforce. IBM has 3,50,600 workers at the end of 2018, 19 per cent less than 2013.</p> <p>&nbsp;</p> <p><b>BIG CONTRIBUTION</b></p> <p>Indian IT companies contributed $57.2 billion to the GDP of the US in 2017, according to Harsh Vardhan Shringla, India's ambassador to the US. India-based global IT services companies employ more than 1,75,000 workers in the US, accounting for 8.4 per cent of employment in the segment.</p> <p>&nbsp;</p> <p><b>DRIVE SAFE</b></p> <p>The amendments to the Motor Vehicles Act will give the Centre power to regulate taxi hailing services such as Uber and Ola. The new rules are expected to make them more compliant in safety, passenger comfort and fair pricing. The government has recognised and defined taxi aggregators as digital intermediaries or marketplaces that can be used by passengers to connect with a driver for transportation. The earlier law, Motor Vehicles Act, 1988, did not recognise cab aggregators as separate entities | AP</p> <p>&nbsp;</p> <p><b>SAFETY NET</b></p> <p>Around 15 crore workers will be enrolled by the Union government into its flagship pension scheme Pradhan Mantri Shram Yogi Maan-dhan in the next three years. Labour secretary Hiralal Samariya said a sizeable portion of beneficiaries will be construction workers, and even agriculture workers and self-employed retailers could be a part of the scheme.</p> <p>&nbsp;</p> <p><b>BACK TO MOON</b></p> <p>Nasa will partner with 13 companies, including Jeff Bezos's Blue Origin and Elon Musk's SpaceX, to land humans on the moon by 2024. These companies will provide free expertise, facilities, hardware and software to Nasa. The project will cost $30 billion, around the same as the Apollo 11 after factoring in inflation.</p> <p>&nbsp;</p> <p><b>NEW EPISODE</b></p> <p>Subhash Chandra’s Essel Group has reached an agreement to sell a 11 per cent stake in its flagship media company, Zee Entertainment Enterprises Ltd, to the US-based Invesco-Oppenheimer Developing Markets Fund. Zee is valued up to Rs4,224 crore. Essel will use the money to pay off a part of its loans worth Rs13,000 crore so that it can avert a looming default of Rs7,000 crore of payments to mutual fund investors in September. A statement said “The group had initiated the process of divesting its key assets, with an aim to repay all the lenders by September 2019.”</p> http://www.theweek.in/thewallet/economy/2019/08/09/loud-and-clear.html http://www.theweek.in/thewallet/economy/2019/08/09/loud-and-clear.html Fri Aug 09 14:43:31 IST 2019 struggles-of-the-second-sex <a href="http://www.theweek.in/thewallet/economy/2019/06/07/struggles-of-the-second-sex.html"><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="http://img.theweek.in/content/dam/week/magazine/thewallet/economy/images/2019/6/7/32-Struggles-of-the-second-sex-1.jpg" /> <p>With the movement for women empowerment firmly taking over social spaces, the number of women in professional spaces and positions of power have increased substantially. As the landscape has changed, I have observed a trend of women with education, ambition and passion taking every industry by storm. They have taken responsibilities and stepped up into positions of authority.</p> <p>&nbsp;</p> <p>Though things have been changing for the better, the process is not always smooth sailing. Women still face a number of challenges in whatever job they do. Despite the comparatively positive numbers from past years, men still outnumber women in most industries. Additionally, the number of women starts decreasing as you look higher up the hierarchy. The disparity in the quality of positions is still evident. The glass ceiling metaphor, which has been applied to women in corporate spaces all around the world, is just as relevant in our country as well. Furthermore, with society teaching us to be more accommodating and compromising from a young age, breaking this glass ceiling becomes an even more difficult task to accomplish. The expectation for women to have families and be the primary care-taker in the household also hinders their professional progress.</p> <p>&nbsp;</p> <p>Women at workplace often have to deal with the additional pressure that comes with their gender. The failure of an individual woman is often taken as an example for the gross generalisation that women are somehow incapable of producing the same quality and quantity of work as men. Though these challenges make it a daunting task for women to climb up the corporate ladder, so many of us carry forward and blaze new trails in these spaces every day.</p> <p>&nbsp;</p> <p>There are certain advantages that women bring to the table that can stand them in good stead when dealing with colleagues, especially subordinates. Women in leadership roles tend to do well for a number of reasons. Primarily, women tend to be more proficient when it comes to soft skills. Society trains us to be empathetic and caring from a young age, and that translates very well when leading a team and communicating with subordinates. Leadership has a lot to do with making sure that everyone in your team is productive and content, and the easiest way to achieve this is through open and thorough communication. Secondly, because the female experience is so vividly different to the male experience, women can offer fresh perspective and insight in a number of fields. I have noticed that creative fields like design, marketing and advertising always benefit from having more women on the team, as they can provide an alternative viewpoint.</p> <p>&nbsp;</p> <p>Lastly, I believe that most women learn to multitask because of the various roles they are expected to fill in society. This makes a difference in management positions as juggling the needs of your subordinates, answering to your superiors and managing your own work is of paramount importance to any manager. Women also tend to nurture talent in their teams with more patience and care than men. In my experience, these advantages do make for valuable qualities in any leader.</p> <p>&nbsp;</p> <p>In the time that I have spent dealing with various companies and various industries, there have been a few moments that stood out for me. I was not as confident and efficient as I am today when I came into this space. I did have the benefit of having some fantastic mentors, though. The faith they showed in me has helped me. The abilities required to lead teams and tackle projects always existed within me, as they do within every woman and man, for that matter.</p> <p>&nbsp;</p> <p>I have been blessed that my ambition, passion and talent have been nurtured without any particular attention paid to my gender and I firmly believe this has brought out the best in me. Furthermore, I believe that a lot more women can become invaluable assets to companies if they are given the confidence they require to let their talent shine. This is something I always aim to nurture in any teams I lead.</p> <p>&nbsp;</p> <p>In conclusion, I can safely say that the number of women in the corporate world and the quality of positions they hold has been steadily increasing. This is promising for women all over the world, but there is still a lot of work to be done if men and women are to be equal at the workplace. If we just let our talent, tenacity and maturity shine through, us women can be incredible assets to any company or industry in the world.</p> <p>&nbsp;</p> <p><b>Kolte is the founder of Imagination Inc.</b></p> http://www.theweek.in/thewallet/economy/2019/06/07/struggles-of-the-second-sex.html http://www.theweek.in/thewallet/economy/2019/06/07/struggles-of-the-second-sex.html Sat Jun 08 15:49:00 IST 2019 big-slice-low-risk <a href="http://www.theweek.in/thewallet/economy/2019/04/05/big-slice-low-risk.html"><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="http://img.theweek.in/content/dam/week/magazine/thewallet/economy/images/2019/4/5/12-Big-slice-low-risk-1.jpg" /> <p>Indians had traditionally been big investors in real estate. However, in the last few years, the trend shifted towards financial instruments like mutual funds and stocks. Various reasons could be attributed to that—house prices in top cities fell or had stagnated, government’s demonetisation move hit cash transactions and the uncertainties around the rollout of the Goods and Services Tax and the Real Estate (Regulation and Development) Act also had an impact.</p> <p>&nbsp;</p> <p>A few developers going bankrupt and money stuck in unfinished apartment blocks also dampened sentiments. Now, people looking to invest in real estate have a safer option to do so, with the launch of real estate investment trusts (REIT).</p> <p>&nbsp;</p> <p><b>WHAT ARE REITS?</b></p> <p>REITs are essentially companies that own a diverse portfolio of income-generating real estate assets. They specialise in specific sectors, for instance, office REITs, which own commercial real estate assets like IT parks and business centres. There could also be REITs investing in retail assets like malls and shopping and entertainment centres. An investor can invest in these REITs, just as one would invest in a mutual fund. In a mutual fund, your money is basically being invested in shares of companies. In a REIT, you are buying units, and the money is invested in the underlying real estate assets it holds. A REIT earns income via rentals earned by leasing out the properties or capital gains or both, and that, in turn, is channelled to investors via dividends.</p> <p>&nbsp;</p> <p><b>WHAT ARE THE ADVANTAGES FOR INVESTORS?</b></p> <p>Investing in a REIT has several advantages for individual investors. REIT assets are generally finished properties and are already generating income or rent. Furthermore, the investments are channelled across diverse realty assets and not in just one building or IT park. They are also regulated by financial market regulators, like the Securities and Exchange Board of India. An investor can make small investments and get a slice of large real estate assets, without taking huge risks.</p> <p>&nbsp;</p> <p>"A unit shall be as small as Rs2 lakh, enabling the retail investors to participate in the realty market indirectly without the need of high capital to own a real estate asset," said Parth Mehta, managing director, Paradigm Realty.</p> <p>&nbsp;</p> <p>"At least 80 per cent of the value of the REIT assets shall be in completed and revenue-generating properties whereas the balance 20 per cent may go in under-construction projects which can lead to generation of alpha (future income opportunities) in terms of potential returns for investors. With this configuration of deployment largely in completed projects, the capital protection of investors money is guaranteed,” added Mehta.</p> <p>&nbsp;</p> <p>Therefore, an investor will not have to go through the hassle of searching for quality properties to invest in and also not have to worry about the rents. Publicly- traded REITs also offer liquidity as they are listed on stock exchanges and allow investors to buy and sell.</p> <p>&nbsp;</p> <p>“REIT provides investors with a great investment avenue and brings portfolio diversification. Globally, REIT is recognised to offer better returns with minimal risks and a stable cash flow,” said Rohit Poddar, joint secretary, NAREDCO (National Real Estate Development Council) West.</p> <p>&nbsp;</p> <p><b>MARKET SIZE OF REITS</b></p> <p>REITs were established by the US Congress in 1960. Since then, there are now at least 12 established markets for REITs, and a further 25-odd markets are in the nascent or emerging stage.</p> <p>&nbsp;</p> <p>In Australia, the first REIT was listed in 1971. Hong Kong, which is also a major market for REITs got its first REIT IPO in 2004. In the UK, they were introduced in 2007 and Singapore got its first REIT listing in 2012.</p> <p>&nbsp;</p> <p>According to consulting firm Ernst &amp; Young, the total market capitalisation of global REITs was $1.7 trillion last year. The market cap of REITs in the US alone was close to $1.15 trillion.</p> <p>&nbsp;</p> <p><b>REITS IN INDIA</b></p> <p>India is still at a nascent stage as far as REITs are concerned. Market regulator SEBI came up with REIT regulations in 2014, but they failed to take off back then. In order to attract interest, various efforts like exemption from dividend distribution tax were made. SEBI has recently proposed a reduction in the minimum allotment and trading lot for public issues of REITs. Despite the efforts of the regulator as well as the government, it took five years for the first REIT to hit the market.</p> <p>&nbsp;</p> <p>So far, only equity REITs have been permitted in India. But globally, there are also other types of REITs, like mortgage REITs, where money is lent to real estate owners through loans and the income generated basically is the net interest margin (the difference between the cost of funds and interest they get on the loans). Hybrid REITs is another type.</p> <p>&nbsp;</p> <p>Last month, Embassy Office Parks came out with its REIT IPO, the first such in India, to raise 04,750 crore. Embassy Office Parks is backed by Bengaluru-based real estate developer Embassy Property Developments and private equity investor Blackstone Group.</p> <p>&nbsp;</p> <p>Embassy’s REIT portfolio comprises 33 million square feet of leased office space across seven infrastructure projects like office parks and four prime centre offices. The assets include the iconic Express Towers in Mumbai, First International Finance Centre in Mumbai’s Bandra Kurla Complex and Bengaluru’s Manyata Embassy Business Park.</p> <p>&nbsp;</p> <p>The issue priced between Rs299 and Rs300 got anchor investments from global investors like Fidelity Funds, American Funds Insurance Series, TT Emerging Markets Equity Fund, DB International Asia, Citigroup Global Markets and Schroder. It is safe to say that the Embassy Office Parks REIT IPO got a thumbs up from investors—it was oversubscribed 2.57 times.</p> <p>&nbsp;</p> <p>In India, the grade A office stock is close to 500 million square feet, according to industry experts. With high demand for quality office properties and vacancies dropping, rental yields in India are expected to remain strong.</p> <p>&nbsp;</p> <p>“Rentals have been a rising trend, and with vacancies being sub-10 per cent in prime markets like Bengaluru, there is a possibility of continued rental growth in near future,” said Arvind Nandan, executive director, research, Knight Frank India.</p> <p>&nbsp;</p> <p>Shobhit Agarwal, MD and CEO, Anarock Capital, estimates that around 50 per cent of India’s total office stock is REITable and if REITs are successful, it could further percolate down to other asset classes like retail and logistics.</p> <p>&nbsp;</p> <p>“In Canada, the average return for REIT investors was around 10 per cent in 2017, while in the UK, it hovered between 8 and 10 per cent. This average return is on all REITable assets, including commercial and residential projects together. In India, the projected five-year returns on commercial assets is an optimistic 14 per cent, largely because grade A commercial real estate has been on a protracted winning streak since 2017,” he said.</p> <p>&nbsp;</p> <p>Even on a conservative basis, yields on commercial real estate are likely to be around 8 to 9 per cent, which should drive fresh investments in the sector, say industry executives.</p> <p>&nbsp;</p> <p>Surendra Hiranandani, founder and director of House of Hiranandani, says REITs will bring transparency, depth and liquidity for the commercial real estate marketplace. It will contribute to the long-term growth of real estate ecosystem and stimulate overall demand in India, he feels.</p> <p>&nbsp;</p> <p>“REITs are likely to propel a new wave of market activity with greater availability of funds and investments in the country’s real estate sector,” he said.</p> <p>&nbsp;</p> <p>Though Embassy Office Parks is currently the only REIT issue to hit the market, the expectation is that the success of this first issue in India will pave the way for more REIT IPOs from other developers.</p> <p>&nbsp;</p> <p>In June last year, financial services firm IIFL Holdings had registered a REIT with SEBI. Several global investors like Japan’s NikkoAM-Straits Trading Asia and US-based North Carolina Fund, too, have received regulatory approval to invest in India under REITs.</p> <p>&nbsp;</p> <p>“Indian commercial real estate is populated with several such high-quality assets, which can be rolled into REITs very soon. For the developers, this would be a good avenue for raising finance to repay debts or to raise capital for operations and maintenance of assets held by the REIT,” said Knight Frank’s Nandan.</p> <p>&nbsp;</p> <p>As per rules, REITs need to ensure 90 per cent of the net distributable cash is channelled as dividends. Therefore, investors will closely watch the performance of India’s first REITs to gauge returns. Ultimately, the success of REITs in the country will depend on the stability of the dividends and the valuations of subsequent issues.</p> http://www.theweek.in/thewallet/economy/2019/04/05/big-slice-low-risk.html http://www.theweek.in/thewallet/economy/2019/04/05/big-slice-low-risk.html Sat Apr 06 11:22:50 IST 2019 cutting-corners <a href="http://www.theweek.in/thewallet/economy/2019/04/05/cutting-corners.html"><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="http://img.theweek.in/content/dam/week/magazine/thewallet/economy/images/2019/4/5/6-Cutting-corners-1.jpg" /> <p>The real estate sector has been hurt by changes in government policies in the last three years, such as, the introduction of the Goods and Services Tax and the Real Estate (Regulation and Development) Act, 2016. These measures resulted in a huge pile-up of unsold properties (around 6.75 lakh units) in this period. Now, even with the government seeking to ease the pain by announcing a 7 per cent cut on GST on under construction houses, the situation may not improve drastically.</p> <p>&nbsp;</p> <p>The rates were slashed in the last GST Council meeting on February 24. For affordable housing, it was reduced to 1 per cent (8 per cent earlier) and for other under construction houses, it was reduced to 5 per cent (earlier 12 per cent). Immediately after the announcement, realty stocks moved up in bourses. The expectation was that the reduced GST rates would encourage home buyers and would help reduce unsold inventories. However, the rate cut panacea did not provide comfort to developers and home buyers, who have been at the receiving end of the government's frequently changing policy stance.</p> <p>&nbsp;</p> <p>Soon after GST was introduced on July 1, 2017, developers witnessed a huge dip in buyers' interest for new homes. While for all other goods and services, taxes like VAT (value added tax) were subsumed by GST, for home purchase, the government imposed GST while keeping alive the stamp duties to be paid to state governments.</p> <p>&nbsp;</p> <p>“Given this anomaly on prices of new homes, under construction units stopped selling,” said Anuj Puri, chairman of real estate consultancy Anarock. “The consumer interest instead moved to purchase of ready-to-occupy or completed properties, on which no GST were to be levied.” According to data compiled by Anarock, of the unsold properties stockpiled with developers across the country, around 6.21 lakh are under construction flats. The rest are completed. “This shows a clear preference for buying completed properties,” said Puri. “While big developers could still cope with this situation over time, for small developers it is a real bane.”</p> <p>&nbsp;</p> <p>According to experts, the 7 per cent reduction in GST rates may not make home buying cheaper by a similar extent. The reason cited for this is the GST Council's decision to end tax credits available to developers on paying GST for their inputs. (Earlier, developers could pay taxes towards their inputs, such as purchase of building materials, and claim credit to reduce their tax liability at the time of sale.) "This could trigger builders to increase their base prices by as much as 5 per cent to 6 per cent," concluded CRISIL in a brokerage report on the impact of the GST rate cut.</p> <p>&nbsp;</p> <p>“Reducing the rate of GST from 12 per cent with input tax credits to 5 per cent without input tax credits, on non-affordable houses, and revising it to 1 per cent down from 8 per cent on affordable housing segment is only a buyer-centric move by the government,” said Rahul Prithiani, director, CRISIL Research. “However, developers will be burdened with GST payments to vendors, suppliers, agencies and contractors. This will increase cost further, amid the already shrinking margin in business due to dynamic policies implemented by the government.” Another brokerage firm SBICAP estimated that the unavailability of input tax credit would increase home prices by up to 7 per cent. “This would make the housing sector further out of reach for the common man,” its report said.</p> <p>&nbsp;</p> <p>With the input tax credit regime ending on April 1 this year, a new fear factor about the move stalling formalisation in the real estate sector has started to emerge. “The denial of input tax credits to builders also means that introducing traceability of purchases by the sector, which would have led to the rapid formalisation, would now take a backseat,” said M.S. Mani, partner, Deloitte India. According to Mani, this could also result in the continued use of black money in the sector. “In the absence of any input tax credit, major inputs and input services in real estate, including cement, steel and labour are taxable at 18 per cent to 28 per cent,” he said. “Developers need to get clarity over where these costs will be adjusted, or they will be passed on to the home buyers.”</p> <p>&nbsp;</p> <p>Currently, GST is levied on all services and goods used by the developer. A builder pays 5 per cent GST on inputs like sand and bricks, a tax of 18 per cent is levied on the builder for iron and steel used in construction and on electrical cables. The tax rate is even higher at 28 per cent for basic construction inputs like cement, ready mix concrete and sanitary fittings. Labour and other services availed from third parties attract a 18 per cent GST to be paid by the developer.</p> <p>&nbsp;</p> <p>Developers have been demanding a reduction of GST rates on at least cement to a much more benign 5 per cent rate. However, the GST Council is yet to take a view on this. “A ministerial panel was formed by the Council to look into this issue and see if any further relief could be provided,” said Subhash Chandra Garg, finance and economic affairs secretary. “A final view may be taken in the Council’s next meeting on March 20. Some rules about the reduced tax rate on housing would also be finalised.”</p> <p>&nbsp;</p> <p>The government had last month constituted a seven-member group of ministers to look into GST-related issues of the real estate sector. Its agenda was to analyse the tax rate of GST on the under construction residential properties to boost the realty segment. Members of the GoM comprise finance ministers of five states—Sudhir Mungantiwar of Maharashtra, Krishna Byre Gowda of Karnataka, T.M. Thomas Isaac of Kerala, Manpreet Singh Badal of Punjab and Rajesh Agarwal of Uttar Pradesh. Goa's Panchayat Minister Mauvin Godinho is also a member.</p> <p>&nbsp;</p> <p>Meanwhile, many established builders like the Lodha Group, K Raheja Corp and DLF have already indicated that the end of input tax credit would shrink their margins and the impact of higher cost would be passed on to their consumers. “The availability of input tax credit helped developers to reduce the cost to some extent,” said Prashant Bindal, chief sales officer, Lodha Group. “But now, in the absence of input tax credits, developers across the sector will face an increase in the cost of construction. The cost of properties is now likely to rise by 5 per cent to 6 per cent.”</p> <p>&nbsp;</p> <p>Like Bindal, most builders believe that the tax cuts would help only a handful of builders to liquidate their unsold units. Experts believe tax cuts have to also benefit the developer if it has to reach the buyer. “The reduction of GST rates on home purchase is some what superficial,” said B.K. Goenka, president, ASSOCHAM (Associated Chambers of Commerce and Industry of India). “GST on cement, for instance, is too high and you cannot build a project without cement.” ASSOCHAM and several developer's associations have therefore demanded that the GST rate in cement be reduced to 18 per cent.</p> <p>&nbsp;</p> <p>Some builders are of the opinion that a slightly higher GST rate and the retention of the input tax credit would have lowered actual home prices even more. "It would have been better if the Council would have recommended slightly higher rates, say 3 per cent and 7 per cent, for under construction affordable and non-affordable housing, respectively, with the facility to avail input tax credit. This lower slab with restriction on input tax credit would lead to higher credit cost for builders as well as home buyers,” said Sanjay Dutt, CEO, Tata Realty.</p> <p>&nbsp;</p> <p>Dutt suggested that the government should have bestowed some more benefits on beleaguered builders. “A lower cost for developers would have prompted the fence-sitters who had delayed their home purchase in last two years, to actively buy homes. It could have been a win-win for all,” he said. Instead, he said, home buyers would still prefer to wait and watch if builders can still manage to pass on more benefits to them.</p> <p>&nbsp;</p> <p>Already a number of real estate sector trade bodies have represented to the indirect tax regulator seeking more relief. “We have represented to the GST Council that it is disappointing it has chosen to disallow developers from claiming input tax credit,” said Rajeev Talwar, CEO, DLF and chairman of National Real Estate Development Council (NAREDCO), the largest real estate industry body in the country, during a press meet earlier this month. “The real estate sector is currently in a very poor shape and needs significant help from the government to finish projects and grow at the rate that is needed for the economy as a whole.”</p> <p>&nbsp;</p> <p>In a representation made to the GST Council and to Union Finance Minister Arun Jaitley, NAREDCO members have said: “It is imperative that the government remove the stamp duty and reduce the GST rate applicable, especially keeping in mind the housing for all target of 2022.” The government, so, far believes that the GST rate cut in home purchase would not affect tax collections. Ministers in the Council have independently admitted that it is still a long way off from improving sentiments of home buyers and boosting the sector which was registering stellar financial performance before demonetisation and GST were announced.</p> <p>&nbsp;</p> <p>An assessment by the revenue secretary Ajay Bhushan Pandey on the revenue impact of the decision on the real estate sector is likely to be discussed during the next GST Council meeting. Indications from finance ministry officials are that the government had registered the issues that have risen after last month's decision.</p> <p>&nbsp;</p> <p>“There are scope for some further rationalisation of tax rates of individual items used by housing developers,” said Pandey. “We are exploring some options in that direction.” While developers and home buyers hope that the GST Council abolishes stamp duty on new properties, the idea had faced objections from a number of states and may not be taken up for discussion any time soon.</p> http://www.theweek.in/thewallet/economy/2019/04/05/cutting-corners.html http://www.theweek.in/thewallet/economy/2019/04/05/cutting-corners.html Sat Apr 06 11:21:56 IST 2019 fundamental-fillips <a href="http://www.theweek.in/thewallet/economy/2019/02/08/fundamental-fillips.html"><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="http://img.theweek.in/content/dam/week/magazine/thewallet/economy/images/2019/2/8/28-Fundamental-fillips-1.jpg" /> <p>Non-banking financial companies (NBFCs) have been in the news for all the wrong reasons recently. The sector took a beating in the stock market with defaults and liquidity challenges, specifically related to one large NBFC—Infrastructure Leasing and Financial Services (IL&amp;FS). The IL&amp;FS group defaulted on commercial papers (CPs)—promissory notes with a validity of one year. Several corporates, mutual funds, and insurance companies had their funds locked in IL&amp;FS debt instruments such as CPs and non-convertible debentures. The situation created a liquidity shortage of close to Rs1lakh crore in the system.</p> <p>&nbsp;</p> <p>The NBFC lending model is also under pressure as a result of increased internal and external forces such as stiff competition and the entry of fintech players leveraging technology-based operating models. Additionally, dynamic regulations are increasing the cost to comply and restricting the ability to freely impose pricing. Experts say that economic volatility, shrinking credit performance and pricing pressure (because of eroding margins and other disruptive forces) necessitate a relook at the building blocks of a robust, sustainable and profitable NBFC business model.</p> <p>&nbsp;</p> <p>Although the problem seems isolated, it has caused concern among regulators because of the risk of contagion. Given that the NBFC sector is now large enough to impact the whole economy, this entails some remedial measures, including new compliance measures, lending slowdown and potential consolidation by larger players. Regulatory changes and government initiatives have altered the operating mechanism and necessitated changes in the risk management framework for NBFCs. In the first half of 2018, the RBI pro-actively cancelled licences of 368 NBFCs, deeming them economically unviable for failing to meet the requirement of Rs2 crore of net owned fund. This was more than double the number of cancellations in 2017.</p> <p>&nbsp;</p> <p>“The health and success of the NBFC sector has far-reaching implications on the inclusive development of the economy, financial inclusion of diverse population segments, capital formation and eventually the growth in GDP,” says Rajendra Kumar Sinha, chairperson, Centre of Excellence in Banking, IFIM Business School, Bengaluru. “NBFCs have played a critical role as a key contributor to the economy by providing a fillip to infrastructure, employment generation, wealth creation and access to financial services for the rural and weaker sections of society. The sector continues to remain at the forefront in driving new credit disbursals for the country’s under-served market.”</p> <p>&nbsp;</p> <p>Over the last five years, the NBFC lending book has grown at nearly 18 per cent, driven by a deep understanding of target customer segments, use of technology advances, lean cost structures and differentiated business models to reach credit-starved segments. It is estimated that the NBFCs may capture 20 per cent of credit market by 2020. However, the NBFC market has been dominated by large players, and many small players have struggled to scale up operations profitably.</p> <p>&nbsp;</p> <p>Experts feel that in the wake of the IL&amp;FS crisis, RBI may embark on another clean-up of the sector, and resort to cancellation of NBFC licences and making it difficult for new entities to obtain NBFC licences. “With the timely intervention of the government in resolving the crisis in the concerned NBFC, followed by the much needed clarifications and awareness messages given by the representative body— Finance Industry Development Council—and the leading players in the industry, the sudden panic seems to have died down,” says Sinha. “The sector has withstood such turbulent times even in the past, and has always come out stronger.”</p> <p>&nbsp;</p> <p>Many experts from fintech companies believe that the NBFC sector will recover soon. “A recent report by the World Economic Forum and Bain &amp; Company shows that consumer spending in India will increase from $1.5 trillion [now] to $6 trillion [by 2030],” says Sameer Aggarwal, founder and CEO of instant lending startup RevFin. “With this growth will come a demand for credit, especially through digital channels. Most of the growth will be in digital lending.” He adds that challenges of the macro economy will continue in India and globally. “Also, as new customer segments start demanding loans, it will become difficult to assess them based on existing criteria,” says Aggarwal. “Therefore, to survive in the future and to grow, NBFCs will need to make investments in digital technology, analytics, and development of alternate data sources to outperform their competitors. This can happen through partnerships with fintech companies, or better still through building in-house teams.”</p> <p>&nbsp;</p> <p>Aggarwal also feels that investor confidence in the NBFC sector is low at the moment. “Being an election year, there is also general uncertainty in the market,” he says. “These are only short-term trends as the underlying credit demand and performance remains strong. The sector will bounce back in the next few months.” Besides this, says Aggarwal, liquidity is the biggest challenge for the sector. “When liquidity is low, growth gets restricted,” he says. “In such a scenario, delinquency ratios also increase because of the shrinking book size. When delinquency ratios increase, it leads to further reduction in investor confidence. Cost and time for loan processing also remain very high.” He says that Aadhaar-enabled KYC was instrumental in solving this problem. “Post the Supreme Court verdict, that has also stopped,” says Aggarwal. “While the government is mulling a new regulation for this, it is doubtful whether this can happen so close to the elections. Another challenge will be data security. This is a global challenge and governments everywhere are working on strengthening regulation. Compliance with new regulations will be time consuming and expensive.”</p> <p>&nbsp;</p> <p>Analysts also say that with the recent liquidity crisis, there is a cloud of confusion, and all NBFCs, irrespective of their balance sheet strength and businesses, are being painted with the same brush. “What started because of default on debt obligations by a single entity is now being given the unfair perception of an 'industry-wide' problem, pushing up markets-based borrowing costs and affecting liquidity strength for everyone in the system,” says Piyush Khaitan, founder and MD, NeoGrowth Credit Private Limited. “The government and the RBI are taking swift measures to ease liquidity crunch fears. Securitising the assets should be the first step. Sufficient system liquidity comes second. Thirdly, the market needs to feel comfortable that the financial sector is well-regulated.”</p> <p>&nbsp;</p> <p>Market experts are also of the opinion that banks are following a conservative approach by reducing their exposure to the NBFC sector. This is proving to be a challenge for smaller NBFCs to raise funds as most of the banks have decided not to fund NBFCs below a certain rating. Personal finance experts also feel that though the short term outlook for the sector looks tough, things will improve in the long term. Since early September 2018, when IL&amp;FS defaulted, this market for short-term capital has completely dried up for many entities resulting in these institutions needing to cover their own funding gap with longer-term bond issuances, asset sales, and equity raises. This situation has eased slightly as the government has made some capital available through banks and has relaxed a few rules to enable funds to flow more freely. That said, investor confidence is still weak and the fundamental problem of duration mismatch—NBFCs borrowing in short terms and lending in long terms—is being scrutinised more closely by investors now.</p> <p>&nbsp;</p> <p>“Over the longer term, India still has a large population of non-banked and under-banked individuals and businesses, so there is plenty of demand-side opportunities that NBFCs are best placed to fulfil,” says Lucas Bianchi, cofounder, Namaste Credit, a Bengaluru fintech firm. “Over the past few years, NBFCs have come out with new underwriting and operating models that have resulted in their rapid growth. For instance, NBFCs like NeoGrowth has a product ‘Merchant Cash Advance’ where a certain line of credit is extended to businesses in exchange for a percentage of your daily credit card and debit card sales. Undoubtedly, some of these new products and processes will survive the current challenging environment and thrive as the liquidity crisis eases.”</p> <p>&nbsp;</p> <p>Bianchi feels that the liquidity problem can be improved by increasing equity capital among NBFCs in order to reduce leverage ratios and improve confidence among commercial paper investors that their funds are secure. “The situation can also be addressed through a range of government initiatives, including an improved regulatory framework that gives more flexibility to capital providers and some sort of guarantee that provides a backstop for high-quality assets,” says Bianchi. “There are many ways of doing this. In the US, for instance, the government extended its financial support to money market mutual funds during the last financial crisis to ensure that the net asset value of mutual funds was maintained above $1.”</p> <p>&nbsp;</p> <p>The NBFC crisis has already affected the kind of business they do with borrowers, fintechs and each other. In particular, interest rates have increased significantly across many loan types and underwriting standards have been tightened. For those fintechs that relied on NBFCs to provide funding to their clients, the decreased liquidity resulted in much less capital being available. The overall decline in loan volumes has had a dampening effect across the industry.</p> <p>&nbsp;</p> <p>Experts feel that different measures can be taken to help ease the liquidity crisis in the NBFC sector. “The focus should be on increasing the money available to the sector,” says Satyam Kumar, co-founder and CEO, LoanTap. “One way can be by increasing the sectoral caps of LIC and pension funds for the money which moves into NBFCs. Also, banks under the RBI's prompt corrective action can lend to healthy PSUs, which, in turn, can lend to NBFCs.” Kumar says the NBFCs which are using technology to reach out and serve the customers have been affected by the Supreme Court's Aadhaar judgment. “The time and money saved by processes like e-KYC and e-agreement have been impacted,” he says. “One immediate action should be to get all the banks on the National Payments Corporation of India’s platform for net-banking based 'E-Mandates'. Our country still has lot of untapped credit requirement. All the NBFCs which can save on operating expenses and which provide innovative solutions to the customers, would do well.” The corrective actions taken by RBI and government’s positive approach to the sector, says Kumar, has built confidence and will definitely help bring stability to the NBFC sector. “More and more Indians are becoming tech savvy,” he says. “Smart phones have reached even the hinterlands. The NBFCs which do not reinvent themselves in line with technological changes will lose out.”</p> <p>&nbsp;</p> <p>Banking experts such as Sinha also feel that in order to sustain the market, NBFCs should reinvent themselves and formulate a segmentation strategy, defining target customer segments, product proposition, distribution channels and geographical locations for operations. “The enterprise strategy must play on the NBFC lender’s strengths and focus on right market opportunities that will enable differentiation and are likely to generate success,” says Sinha. “At the same time, NBFCs must offer customers personalised, seamless, round-the-clock sales and service interaction, with well-entrenched engagement programmes to attract and retain customers, while maximising lifetime value.” He adds that lenders should also be willing to overhaul processes and transform operations instead of resorting to short-term mechanisms. “NBFCs must leverage technology-based tools to transform underwriting and decision making, thereby, helping drive competitive advantage and robust risk management,” says Sinha. “Overdue collections must adopt a customer focused, data-driven, relationship-based approach to maximise recovery and minimise write-offs. NBFC players should also have efficient risk detection, management and mitigation mechanisms to survive regulatory dynamics and market uncertainties and ensure that lenders are well capitalised to operate.”</p> <p>&nbsp;</p> <p>Given the crisis and despite concerns surrounding the sector, NBFCs with robust business models, strong liquidity mechanisms, governance and risk management standards are well positioned to take advantage of the market opportunity. Hence, it is even more critical for new-to-market NBFCs to define and implement a balanced strategy that meets requirements across essential, core capabilities and differentiates across value-adding capabilities.</p> http://www.theweek.in/thewallet/economy/2019/02/08/fundamental-fillips.html http://www.theweek.in/thewallet/economy/2019/02/08/fundamental-fillips.html Sat Feb 09 12:29:47 IST 2019 security-check <a href="http://www.theweek.in/thewallet/economy/2019/02/08/security-check.html"><img border="0" hspace="10" align="left" style="margin-top:3px;margin-right:5px;" src="http://img.theweek.in/content/dam/week/magazine/thewallet/economy/images/2019/2/8/4-Security-check.jpg" /> <p><b>THE JANUARY</b> announcement allowing tokenisation of debit, credit and prepaid card transactions to enhance the safety of the digital payments ecosystem in the country is a welcome move. It will be highly beneficial to address the safety concerns of payment channels, especially when card information is stored and saved for future transactions. With strong industry backing, clear guidelines and well-devised reference implementations, tokenisation is a positive move.</p> <p>&nbsp;</p> <p>India has been undergoing a number of changes and developments in the form of reforms in the last few years. The reforms have led to higher growth rates, stable economy and improvement in macroeconomic stability and global integration. Further, there is an improvement in the business environment with the implementation of stable governance standards. The financial landscape, both in India and globally, has changed significantly over the last decade. Key forces driving this change include increased customer expectations, emergence of new disruptive technologies, new-age technology competitors and evolving regulatory requirements.</p> <p>&nbsp;</p> <p>All this is making us redesign our strategy and allocate investments around technology. The payment ecosystem in the country has witnessed a series of innovations that has helped the industry grow. This holds true for payment data security as well, wherein there have been significant initiatives over the last few years. Leading the charge is a technology that has become a game changer for the industry: tokenisation.</p> <p>&nbsp;</p> <p>Tokenisation is a highly-secure method of protecting payment and customer identification credentials. It is the process in which sensitive information is replaced with a randomly generated unique token or symbol. These tokens would ensure that data is not transmitted or stored in an insecure format. However, for the use of tokenisation to be efficient in the payments industry, a universal standard must be created to ensure that merchants can support the technology across multiple providers, and without negatively impacting customer experience. Moreover it protects the cardholder data at many points in the transaction lifecycle, especially during post-authorisation, and for recurring transactions once a card has been presented.</p> <p>&nbsp;</p> <p>Essentially, tokenisation shields bank account numbers and credit card numbers in a secure, virtual vault that can be transmitted across wireless networks without adding unnecessary risk. To work, a payment gateway is needed to store sensitive data, which allows the random token to be generated. When customers swipe their credit or debit cards at the checkout counter, their personal account numbers (PANs) are not stored in the merchant's payment system. Instead, these 16-digit PANs get replaced with randomly generated token Ids.</p> <p>&nbsp;</p> <p>Tokenisation offers a higher level of security as long as the system is logically isolated and segmented from data processing systems and applications that process or store the sensitive data replaced by tokens. Once the transaction goes through, the payment processor sends a confirmation back to the merchant with the randomly generated token ID which is stored in place of the PAN data in their system. At no point does the credit card data ever get stored within the retailer's environment. Furthermore, tokenisation can be the answer to securing not just payments, but other aspects of commerce as well, including the transmission and storage of electronic health records and age verification identity checks.</p> <p>&nbsp;</p> <p>Over the course of time, it can be integrated with other technologies. However, to make the best of this technology, its elements cannot be adopted in a silo, and instead, they have to be deliberately ingrained into the core enterprise architectural fabric, which, in turn, must be driven by a lean, agile and dynamic operating model. In a majority of the cases, new-age channels and offerings have been layered onto an ageing core infrastructure, severely limiting their ability to integrate seamlessly and respond to the changing business demands.</p> <p>&nbsp;</p> <p>For this, like in any payment initiative, the existing applications and infrastructure need to be updated and built to acclimatise the change. Also, the interoperability aspect that makes digital wallets far more convenient needs to be applied to tokenisation as well. This will h elp the technology be accepted at all point-of-sale terminals.</p> <p>&nbsp;</p> <p><b>Mehta is a partner, Deloitte India.</b></p> http://www.theweek.in/thewallet/economy/2019/02/08/security-check.html http://www.theweek.in/thewallet/economy/2019/02/08/security-check.html Sat Feb 09 11:39:52 IST 2019