On Episode 982 of The Core Report, financial journalist Govindraj Ethiraj talks to Anuj Kapoor, Managing Director and CEO, Private Wealth at JM Financial in an excerpt from our Special Edition as well as Ratan Kumar Kesh, Executive Director & COO at Bandhan Bank.

SHOW NOTES

(00:00) Stories of the Day

(00:50) India Puts Its Foot Down On Potential US Tariff Threat On Russian Oil Purchases

(04:00) Markets Flat As They Digest Falling Oil Prices

(05:27) The Tata Group’s Squabbles Have Blown Into A Full-Blown Public Spat

(08:47) Managing Wealth Through Transition, A Wealth Manager’s View

How The Banking System Lifts Marginalised Businesses To Grow, New Insights

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NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on feedback@thecore.in.

Good morning, it's Friday the 18th of September and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.

The top themes and stories…

Markets flat as they digest falling oil prices

India puts its foot down on potential US tariff threat on Russian oil purchases

The Tata Group squabbles have blown into a full-fledged public spat

Managing wealth through transition, a wealth manager's perspective

And how the banking system lifts marginalised businesses to grow some stories.

Markets, Tariffs, The Fed and Rice

India on Thursday said it will take all necessary steps to protect its economic interests and ensure energy security after the US House of Representatives cleared a bill that could allow its President Donald Trump to impose punitive tariffs of up to 100% on countries like India and China for buying Russian crude oil. India's Ministry of External Affairs hit back on Thursday saying, as stated on several earlier occasions, India remains firmly committed to ensuring energy security for its 1.4 billion people and will continue to do so through diversified sourcing and on the basis of evolving market dynamics. India sources crude oil from more than 40 countries.

The Ministry of External Affairs said the issue had been discussed at high levels in recent months with various US interlocutors and its potential implications for not just the bilateral relationship, but also the international energy markets have been very clearly articulated by the Indian side. It said the bilateral relationship leading to a potential bilateral treaty, of course, has not happened despite many months having passed. The government also said it will work closely with Indian trade and industry bodies to deal with the implications of these developments.

So the question now is whether Trump will actually impose those tariffs on countries, including China and India, the most affected. Remember, last week at the BRIC Summit in New Delhi, Russian President Vladimir Putin and leaders from the Global South, which includes India and China, condemned the unilateral economic sanctions and secondary sanctions. They, of course, did not name the US.

Ronak Desai, visiting fellow at Hoover Institution, Stanford University, told CNBC that President Trump will sign this law and hold its tariff authority in reserve as an instrument of leverage. According to him, nearly a dozen House Republicans had privately urged the leadership to strip the tariff provisions for fear of rising prices on the eve of the midterm elections in the United States. The other globally more significant action point, at least for financial markets, from the US again, was, of course, interest rates.

Significantly, the Federal Reserve raised its benchmark interest rate by 25 basis points to a target range of 3.75 to 4%. On Wednesday, the first increase since July 2023, the markets had widely expected the central bank to approve a hike following a series of high inflation data and pressure on the bond markets. But on the other hand, President Trump had been putting pressure publicly on the Federal Reserve not to increase rates, on the other hand, to decrease them.

The Fed chairman, Kevin Walsh, who has been appointed by Trump, said during a press conference on Wednesday that inflation has been too high for too long. And they also signalled that another rate hike is likely this year. He also said, that's the Federal Reserve chairman, that there is no hiding from hotspots around the world.

The press conference also marked a change in tone from July when Walsh said little about what would prompt the Fed to raise rates and long-term treasury yields rose as he spoke, the Wall Street Journal reported. This time, he also walked through the data and listed what had changed since the last meeting, sounding more like previous Federal Reserve chairman. And finally, oil prices eased on Thursday to a one-week low following reports of additional Saudi crude cargoes through Oman, though prices are still above $100, a battle at 101.98, or just under $102, a battle on Thursday morning.

This is in contrast, of course, closer to $108 on Wednesday. With all this in the backdrop, the Sensex fell about 21 points to 74,314, and the Nifty 50 was up 53 points to 23,270. The markets were positive for some part of the day, but then turned around.

In the broader markets, the Nifty mid-cap and small-cap were up 0.9 and 0.7% respectively. The rupee ended flat on Thursday, and that was credited mostly to Reserve Bank of India intervention and inflows linked to an equity index rebalancing that also helped cushion the impact of a U.S. interest rate hike. So when interest rates go up in the United States, usually capital tends to flow back, though not necessarily in large numbers, but does tend to either stay on or flow back.

The rupee closed at Rs.95.93, which was similar to Wednesday's close of Rs.95.95, as per Reuters. Elsewhere, India's rice production is set to fall this year for the first time in a decade, and by the most, nearly 20 years, thanks to below-normal rainfall during the crop's maturation period, which threatens to cut yields, according to industry officials who spoke to Reuters. However, massive inventories from record harvests in past years will help maintain exports at record levels despite the lower output.

The president of the Rice Exporters Association told Reuters that yields will be lower due to reduced rainfall, and that the estimated production could decline by around 10 million metric tonnes, which would be a 6.5% drop from last year's record 154 million tonnes.

The Tata Group’s Dirty Laundry

No leadership transition in the Tata Group at the top appears to be without controversy or public dirty washing of linen. While there is much that transpired on Thursday, there is much more to come, and to that extent, the story is perhaps just beginning.

To start with, Tata Sons reappointed N. Chandrasekharan as chairman on Thursday and said it would consider a public listing, which went against the wishes, so to speak, of the Noel Tata-controlled Tata Trusts, which holds 66% of Tata Sons' shares. Tata Sons is the holding company for most major Tata Group companies, including the listed ones. So the next step in the sequence of things is a annual general meeting for Tata Sons, where N. Chandrasekharan's future could be decided, again, so to speak.

But before that, on Thursday morning, Tata Sons, the board, cleared the listing of the company and a five-year term for N. Chandrasekharan as its chairman. Tata Trust chairman, Noel Tata, was outvoted by others in the board, and the board meeting lasted about three hours on Thursday. Subsequently, later in the evening, Tata Trust chairman, Noel Tata, put out a statement opposing the reappointment of N. Chandrasekharan at Tata Sons, saying the move runs counter to Chandrasekharan's own decision to step down and the Trust's acceptance of it.

They pointed out that in a statement made at the Tata Sons board meeting, Noel Tata said that Chandrasekharan had written to the board on the 12th of August that he would not seek another term as chairman after his current tenure ends on the 20th of February, 2027. Noel Tata said that that was his own decision. It was freely taken and clearly expressed, and added that the decision was not sought by the board and was not the result of a board review.

And just to recap on the listing part, in September 2022, the Reserve Bank had classified Tata Sons as an upper-layer non-bank financial company, or NBFC, requiring it to list within three years. Tata Sons subsequently repaid its debt and sought to surrender what is known as its core investment company registration to remain privately held. But the Reserve Bank of India last week rejected that application and asked it to proceed and list.

Now, the listing question has, of course, been an important one within the Tata Group. The Tata Trusts, which own 66% of Tata Sons, as we said, had opposed the initial public offering, while the Shapurji Palanji Group, which has about 18.4%, had pushed for a listing to unlock value and improve liquidity, particularly for them. So some of the friction within the Tata Sons board links to the listing issue, but also apparently over Noel Tata raising concerns over businesses like Air India and Tata Digital, which have obviously lost money.

In a statement put out by Noel Tata in the evening on Thursday, he said that there is a logically prior question which remains unresolved, which is that the chairmanship of this company is an office held by the director of this company, and that the chairman's own position as a director is presently uncertain. The general meeting at which that question falls to be determined not having been able to proceed for want of quorum until that question is resolved. A resolution upon the chairmanship rests upon a foundation which has not yet been laid.

So he says we cannot put the cart before the horse. There was more to that statement, essentially challenging whether Chandrasekharan had the directorship to be appointed as a chairman. But the markets were happy.

Many stocks jumped on Thursday. That's Tata Group stocks gaining up to 14% after Tata Sons approved that extension. Tata Chemicals, which holds a 2.5% stake in Tata Sons, saw its share price jump 14%.

Tata Investment Corporation, which also holds a stake in Tata Sons, saw its share price rise 6%.

Managing wealth through transition

Managing transitions in family-owned businesses is not an easy one as we're seeing. The Tata's today lie somewhere between a family-owned business and a professional one.

But recent and past events have demonstrated that it can be messy all the same, which, of course, is an advanced signal of sorts for family-owned businesses in general or businesses where succession parameters and processes are not so clearly defined or have the potential to lead to controversy. Earlier I spoke with Anuj Kapoor, Managing Director and CEO of Private Wealth at JM Financial, and I asked him how he was seeing family businesses, particularly those he advised, in their transition efforts and also, of course, how and where they were putting their wealth to work.

INTERVIEW TRANSCRIPT

Govindraj Ethiraj: Let's talk a little bit about the people that you work with, your clients. So what are the trends that you're seeing there? I know you said you work with family offices and I'm sure within family offices there's a lot of change that's happening.

There's succession, there is generational wealth transfer. So what are the trends that you're seeing there which are of interest to you from your vantage point once again?

Anuj Kapoor: So I think the family offices in general, there are more family offices getting developed in India. They are behaving like institutions, their frameworks are getting developed like institutions. The way they are investing and the kind of liquidity we see in this pool is evolving very very fast and getting very serious.

There is formalisation of structures in these family offices. The quality of decision making is again becoming much much more nuanced and decisions are getting taken not just based like or as well on wins and fancies. Today they are much more data driven, they're much more technology enabled as well.

I'm surprised to see how professional the environment is in some of these family offices. They're virtually like institutions. Also I think in terms of intergenerational wealth transfer, people are increasingly now thinking about doing, thinking about it way ahead of when the switch happens in the generation.

What is it that they need to do about preserving wealth first of all? What should be the governance structure within the operating companies and then their family office? And when their control gets passed on from one generation to the other in the operating company as well as in the family setup, what structures and governance and inputs that need to be provided to make sure that that happens in a seamless fashion.

No longer do you wait for an event to happen and that switch to happen. People are thinking way ahead of those times and they're open to ideas around that as well.

Govindraj Ethiraj: Conversely, what are the mistakes people are making here? I mean because when you say that people are anticipating the transition and acting accordingly, that suggests that people are learning from what they're seeing elsewhere and correcting. And I'm sure you're part of some of these conversations because there is wealth involved.

So what's some of the issues that people should be gearing up for before it hits them?

Anuj Kapoor: I think it should be something to think about for everybody, not just necessarily for a family office but even for professionals like you and me, for entrepreneurs, for founders, first generation people. Everyone needs to be thinking about these things, about the what if, because when it would happen is not something that's known and you can't predict it. So to ease the pain around the unpredictability of these events, the sooner you think about these things, the better it is.

The sooner you ask some of the difficult questions. For instance, if there's a family with three children, who is equipped to perform what role in the family setup and in the business? It does not today necessarily need to be one-third, one-third, one-third.

It's today being thought through about capability and somebody may be good at handling the business, whereas somebody may be good at looking at the family affairs and so on and so forth. What is the right structures to be put in place as well and how do you equip the women in the house also, very importantly, to make sure that there is safeguarding of everyone's interest. So the sooner you think about these questions, the better it is.

Govindraj Ethiraj: And it's interesting that you bring up gender and you're saying that because some business houses are more equal in distribution and some, I'm assuming, are not and maybe then they face problems after that. Is that why you're bringing it up?

Anuj Kapoor: No, I think, in fact, it's to the converse that more and more people are thinking about it in an equitable fashion, unlike 10-20 years back, potentially, you know, I'm assuming in India, it was not thought through universally in an equitable fashion. But I think increasingly so and rightfully so, people are thinking about it in the right manner today. And also we are seeing some situations where, frankly, and why not, I mean, irrespective of the gender, the best person, you know, suited for a particular role should back that role.

And I think that is the situation that's emerging today.

Govindraj Ethiraj: So gender is an interesting theme. Like I said, I mean, there are many business houses or families have handled it differently. But let's park that aside for a moment.

So when people call you, and I'm sure one is, of course, they call you to find out what's happening with their portfolios and how you are thinking about managing them. What are some of the unusual requests that you've got or advice that you've been asked for?

Anuj Kapoor: We are usually privy to not just the wealth of the family or the individual. With that comes a lot of trust, which is embedded into this, you know, symbiotic relationship. And hence, sometimes business decisions around who should be the heir to the business.

What do you think about the capabilities of my children? Business owners have consulted us on those aspects. How should I carry the legacy forward?

Is this a business I should stay invested in? And for how long? Or what is the best way to cut my cords and potentially divest this business?

So I think when there is trust embedded, which thankfully we do have with our clients, and that's built over decades of legacy of the institution, I think the lines between family and business get pretty much toned down, as a result of which we are consulted or we do get involved in a lot of family matters to sort out family structures and legacy planning as well. And that's something which we excel at. That's our bread and butter job.

Govindraj Ethiraj: When you talk to businesses, and you said, you know, people want to know, should I stick in this business, which has been there for two generations, but competitive landscape has changed? Should I sell out, divest, or something else? What are you seeing people do more of right now?

Anuj Kapoor: Can't generalise here. Having said that, today, selling your business is not a As it was 20 years back, it was like you were selling the crown jewel of your family. People or founders think about it very pragmatically.

And if they don't have a succession plan, or if they feel their capital or their time is better spent in an alternative or a family office, I think there's more openness. Also, what's happening is a lot of kids of the next generation, they're going overseas to study, they have a global perspective. And they may not necessarily be very kicked about the idea of coming back and running the family business.

And hence, you know, this openness to think about where else can they invest. And sometimes it's perhaps just for better capital allocation, and the need to satiate a more diversified portfolio, which the next generation can plan and actually manage better. You may not necessarily continue with a family business or divest some stake, but run a portfolio of 10 other companies where you can divide your time and nurture newer businesses and take them to growth.

Govindraj Ethiraj: Right. And I'm sure you're also facilitating those investments in such companies. So as JM, and as you said, you've obviously been around for decades.

So what is it that you bring to the table that's different from others apart from obviously relationships and trust?

Anuj Kapoor: That's actually irreplaceable. The only way you can replicate a 50 plus year old legacy is by existing around for 50 years. That's the biggest moat.

And so longer as you're consistently delivering, that's how client trust is built. Even if you compromise on that trust once, I mean, everybody knows relationship takes years and they can break off in a second. So I think that's our biggest moat.

Having said that, we just don't want to be another wealth manager. We're very clear. We want to play to our strengths, which is this trust and carry this legacy forward.

But also our approach is very, very comprehensive, one platform approach to our clients. We are a solutions provider. We will not just think about your wealth.

We will also get into your operating companies and think about when your companies need to go IPO, when they need to raise private capital, carry you forward in this journey post IPO as well and manage your wealth and think about your legacy planning. And if you need financing, we have a lending business as well. So we try and provide a comprehensive solution to clients and can manage this through life cycles and generations, which I think is very, very unique and not a lot of firms in the market can do.

And the last aspect I would say is that we are very clear in terms of our strategy that we want to be open architecture. What this means is that I am a product producer as well. I will manufacture products, but I'm not going to mindlessly distribute my products and push down those products down clients' throats.

I will only do my product if I believe I am the best and it's best suited for the client's portfolio and his objectives. And it's a thin line between manufacturing and distribution, but we want to be open architecture and we want to make sure that we bring the best quality product, which could be third party manufacturer as far as our distribution business is concerned. So playing this overall in a very conscientious fashion and not just pushing product, being absolutely objective in our advice, very, very high quality advice is what our objective is.

Govindraj Ethiraj: Right. And assuming, let's say, returns are a given amongst many people in the wealth space, what's the one or two intangibles? I'm guessing it's to do with trust in relationships, but what are the other intangibles that you've seen which have sort of held you in greater stead than maybe even the returns that you deliver?

Anuj Kapoor: The trust in the relationship aspect, of course, returns is paramount, but I think the consistency of delivery matters a lot. You may not always get it right. You may invest in 10 stocks, for instance, and eight may work or seven may work, but three may not or six may not.

But so long as the grounds up analysis, the diligence is robust and you've really stuck to your tasks or the mandate that you set out for and how consistently you followed that, I think clients are smart enough to see through all of that. So that is an important element. I think how consistently you're applying your policies, your procedures, your diligence in terms of delivery to the client.

Quality of advice really matters a lot in terms of how long lasting the relationships can be. The other point I'd make is what also is attractive for clients is differentiated products sometimes. And there again, the point that I made around, you know, the integration of the platform.

By virtue of having a market leading investment bank, we can bring great, you know, we do more IPOs than potentially anybody else in India. So if we can bring some of those pre-IPOs to our clients, either through a fund structure, like we have in our pre-IPO fund, or some of the credit deals that we do in our NBFC, again, as direct investments through our credit fund or as co-investments, I think those kind of unique ideas in private markets get appreciated by clients, the differentiation in products.

How The Banking System Lifts Marginalised Businesses To Grow

Speaking about transitions, on a somewhat brighter note, it is worth documenting stories of growth and success for small Indian businesses. And this one comes from Bandhan Bank, set up as a microfinance institution in the 1990s by Chandrasekhar Ghosh as a way to help Calcutta's small-time traders grow their businesses who are otherwise forced to take high-interest loans from traditional moneylenders. In June 2015, Bandhan got a licence to operate as a regular bank from the Reserve Bank of India and has expanded its business and portfolio.

At the Global FinTech Festival last week, I caught up with Ratan Kesh, Executive Director and Chief Operating Officer of Bandhan Bank, and I asked him to bring us up to speed on Bandhan's current growth and expansion, particularly in eastern India, and some of the trends that he was seeing or has seen amongst the borrowing community.

INTERVIEW TRANSCRIPT

Ratan Kumar Kesh: First of all, we are fairly strong in our semi-urban and rural geography. As you know, we are born out of a microfinance institution, and these microfinance customers are extremely enterprising, but that has been a significant part of our business. We have moved ahead over the last few years to become a truly universal bank.

So that remains, microfinance remains one of the large components of our business, but now that's one third of our business. The remaining one third is retail and housing, another one third is wholesale and corporate banking. So that's one thing that is happening.

To do that, we needed to transform our technology stack. So one third is microfinance, one third is retail and mortgage, and another one third is SME and corporate and wholesale. So now to do that, we needed to bring in a lot many more products, which means complete technology stack has to be transformed.

Bring AI, digitisation, all of these, and bring a lot more new products for all of these segments of customers. So that is one thing that we have done. And also, these customers who are at the microfinance customer, who are at the bottom of the pyramid, they have grown in life.

They can buy many more products. So how do you really make them part of the larger banking ambit and bring more products to these customers as well? And along with that, create awareness about some of the fraud, financial empowerment, financial inclusion, literacy and all, including digital fraud.

So we have come up with a EEB Lite, as we call it, Emerging Enterprise Business Lite App. M Manthan Lite App is for that segment of the society. It is in multilingual.

It is intuitive AI driven app, wherein they can talk in their own language and get services from the bank. So that's what we are trying to do to educate them on banking products as also financial empowerment, financial literacy.

Govindraj Ethiraj: But you're saying fundamentally that you see many of your microfinance customers having graduated to become MSMEs, at least in the last few years, and therefore the demand for, let's say, more advanced banking products. So what's the one product that's, let's say, has been success or a relative success with this cohort?

Ratan Kumar Kesh: So generally saying, group loan, as we call it, the microfinance segment is an unsecured loan, which is given through a bit of an informal group assessment. Then some of them who have grown in life, they move into becoming individual customers. They run their own business.

There are no collateral, but that is something which is very popular. And then some of them who then graduate, then they become more working capital customers. And we call it small enterprise loan.

So they have got slightly higher ticket size, some secured and some unsecured products. So these are the products which are becoming far more popular.

Govindraj Ethiraj: And this journey, as you've seen it, how long has it taken for some of the best cases?

Ratan Kumar Kesh: So as a bank, we've been like 11 years old, but some of the journey has been far longer. So we have got customers who in a 10-year period has moved from an 8,000 rupee loan to a 3.5 lakh rupee loan. And their business would have gone up by 20 to 30 times.

And there are some fascinating stories about how a small sum of 8,000 rupees can transform a society. And they have got a pucca house, children well-educated, being graduates, etc. There are some fascinating stories.

Not one, we have got more than one crore such customers.