The investors who have exposure to retail assets across the globe and in India believe that in India, a lot can be done to enhance the shopping experience and increase the retail sales by implementing many aspects of data analytics used globally.
Making the non-performing assets (NPAs) perform
The Insolvency and Bankruptcy Code, 2016 (IBC) was introduced to create a single law for insolvency and bankruptcy. Earlier acts such as SARFAESI Act and SICA Act had failed to provide any meaningful exit or reprieve for creditors of failed companies. Hence, a strong law was required to provide a time-bound solution for the failed companies and help creditors get their dues.
The Code proposes two separate tribunals to oversee the process of insolvency resolution, for individuals and companies: (i) the National Company Law Tribunal (NCLT) for companies and Limited Liability Partnership firms; and (ii) the Debt Recovery Tribunal for individuals and partnerships.
Already a large number of failed companies have been referred to NCLT by their creditors. Some of the companies are seeing closure, many companies are getting entangled due to attempts by various parties involved to sabotage the process and few companies are finding new buyers via auctions. The government and the insolvency regulators have been very proactive in bringing out amendments to the law whenever there has been a hiccup. For the first time in India, a continuous and serious effort is being undertaken to end the NPA mess.
Using asset sales to shore up banks’ capital reserves
The Government of India’s capital infusion into the banks has largely been inadequate. The intention of capital infusion was to kick-start the credit growth by building on capital reserves, rather it has gone into write-offs from loses incurred from non-performing assets. The recovery from the NPA cases referred to NCLT has not started as yet, as the bankruptcy code has been in a stage of evolution and the process needs time to reach closure. In many cases, the lenders are not ready to take haircuts; as a result the recovery process is stalled. After several years of weak credit growth and low industry capacity utilisation, the tide has finally turned. As per the latest observation in the monetary policy there are early signs of credit growth and increase in industry capacity utilisation. However, currently many banks in India do not have the adequate capital buffer required for lending to support this growth and industry expansion. The capital position of banks is expected to weaken further in the coming years as the NPA reporting laws have become more stringent, provisioning requirements have increased and NCLT resolution cases may require incurring of haircuts.
Fully compliant assets the need of the hour
There are several deals for office as well as retail assets in which the parties involved had completed negotiations, the acquisition price was agreed upon but was called off at the end in the due diligence stage. Some of these assets were almost fully occupied good quality assets. The main reasons for them were violation of rules and construction norms.
Some of the violations were:
# Blatant misuse of FSI
# Constructing area higher than that approved
# Ignorance of fire safety aspects in design
# Change in tenants use (non-IT tenants occupying buildings inside designated export oriented IT buildings)
# Misuse of SEZs laws
# Blatant violations of environment norms
# Misuse of fire safety areas for other activities instead of being vacant
Green buildings – the next destination
In India, the concept of green buildings has not yet become common despite some developers adopting it few years ago. Except for a few projects, it has not been implemented across the wider spectrum. However, globally such assets have gained prominence and the occupiers prefer to take up space in green buildings. Some organisations have a policy of reducing their carbon footprint and have made it a policy to take up space in green buildings only. Even the global investors have a clear mandate in certain countries to acquire only certified assets.
As environmental problems of climate change, air pollution, energy wastage, etc. become prominent, the demand from occupiers for green buildings would increase. Hence, developers in India should take notice of this change and should re-orient focus on constructing green buildings. In the near future, these buildings are certain to command a premium.
Globally green building assets have gained prominence as the occupiers prefer to take up space in green buildings and the global investors have a clear mandate in certain countries to acquire only certified assets. This trend is likely to catch up in India and in the near future, these buildings are certain to command a premium.
Using technology in retail
Many retailers in India are using data analytics to run their business. However, the investors who have exposure to retail assets across the globe and in India are of the view that in India, the retailers are not implementing many aspects of data analytics used globally. Hence, the gains of using data analytics are being realised partially. They are of the opinion that simple technological hardware to collect the required data has not being installed in retail assets (malls) and the software used by various retailers has not been integrated completely across all the chains.
In India, the use of technology to enhance a customer’s shopping experience has not yet started except for a few retail assets but that too are at a nascent stage. Globally, e-commerce has been the biggest threat to malls and has led to reduction in sales and footfalls in malls. In India, since the per capita mall space availability is low and the options for entertainment are limited, malls that are doing well would continue to perform. However, as the country matures, if malls want to stay relevant in the age of e-commerce and increase their sales, they must embrace these aspects of technology to the fullest and at the earliest. Implementing the aspects of data analytics and technologies used by retailers globally can help in enhancing the shopping experience and thereby contribute to growth in sales.
Source: July 15, 2018, Financial Chronicle