RBI Governor Y.V. Reddy: Keep speculators off realty

The astronomical rise in Mumbai's real estate prices following the sale of textile mill lands caught most people by surprise-including, as it turns out, the central bank. In a move that can be linked to this, the Reserve Bank of India (RBI) has decided to increase the risk weightage to lending to (this applies to residential and commerial) real estate developers, thereby ensuring that speculation isn't fuelled by easy money.

For a while now, real estate consultants have spoken of how the current increase in prices-this touched Rs 15,000 per square foot in August in the case of Kohinoor Mills, compared to the sale of Jupiter Mills property, which fetched Rs 4,000 a square foot in May-is completely unsustainable and that developers will find it very difficult to recover their investments. While Colliers Jardine CEO, Akshaya Kumar, thinks that there is a lot of potential in the overall real estate business, he maintains that the caution from a lending point of view is welcome. "However, what is required is a project-specific approach," he says.

Banks, quite obviously, have been affected by the RBI move and admit that their business will be impacted. "A 25 per cent risk weightage of this kind will definitely impact our business. We are still awaiting details on the directive," says Punjab National Bank's Executive Director, C.P. Swarnkar. In his words, the decision is right and there is nothing unrealistic about it. Most players in the industry admit that the objective behind the decision is to end the high levels of speculation and to bring in more sense into the business.

Those like the ICICI Bank, by virtue of having limited exposure to commercial real estate business, say they will be not be greatly affected. As ICICI Bank Executive Director, Chanda Kochhar, puts it, "Our exposure to commercial real estate business is around 3 per cent of the total loans and advances because of which the impact would not be significant and is expected to be in the range of 7-8 basis points on capital adequacy." Clearly, lesser money to fund the commercial real estate boom would have some impact on the market. But just how it will play out isn't easy to say at this time.

-Krishna Gopalan

UPGRADE
Missing The Qualis?

When Toyota Kirloskar motor pulled the plug on its 20-year-old workhorse, the Qualis, and replaced it with the Innova, many in the auto industry thought that the Japanese giant was making a mistake. Guess what? They were wrong and Toyota was right again (it had been warned against launching Qualis, which eventually sold more than 100,000 units). The multi-utility vehicle (MUV), Innova, has been rolling off the showrooms faster than the Qualis (see Better, All the Way). While the Qualis sold 6,630 units in the first five months of its launch, the Innova did 17,960 in the same period. Now, of course, all eyes will be on the small car that Toyota has promised to launch in India. "We are still deciding which model to bring in, but rest assured, Toyota will have a small car in India soon," the company's India boss, Atsushi Toyoshima told reporters while introducing the Innova's new brand ambassador, Aamir Khan. Rival car companies must already be sweating.

-Kushan Mitra

Building The Chip Ecosystem
Texas Instruments sees promise in chip manufacturing.

TI's Engibous: Betting big on India

In 1985, Texas Instruments (TI) did the unthinkable when it decided to set up a development centre in Bangalore, which was very much a pensioner's paradise back then. Two decades on, the American semiconductor giant is betting on the fact that India could soon become a powerful chip design-to-manufacturing country. "Electronic manufacturing has been very small until now. But that's changing, and today is probably the beginning, evidenced by the commencement of cell phone-manufacturing than anything else," TI's Chairman, Thomas J. Engibous told BT on his recent visit. "What will drive manufacturing is the local consumption of electronics," he said.

There's little doubt that the local electronics market-cell phones at least-is expanding rapidly. According to industry estimates, there are over a hundred million mobile phone users in India and this number is increasing by two million every month. Cheaper handsets and falling usage costs are driving growth in this market. Motorola, for instance, introduced a phone priced below Rs 1,500. Driving this revolution further, Engibous says, TI's single-chip platform for cell phones promises to drive down costs by as much as 30 per cent.

Two manufacturers, Elcoteq in Bangalore and Nokia in Tamil Nadu, have already announced investments of up to $100 million (Rs 440 crore) and Rs 625 crore, respectively, in manufacturing facilities. Another company, Quasar Innovations, has tied up with Nasdaq-listed Primus and is pioneering the ODM (original design maker) concept for cell phone design.

Other pieces of the semiconductor jigsaw also seem to be falling into place, including a 3.5 lakh sq ft, Rs 65-crore Semicon Park, which opened in Bangalore a few weeks ago. "There's no question that the change is already starting. The unique thing about India is that it is not fascinated by manufacturing and focuses on IP. This will build more stable companies over the long haul. That's a huge advantage India has over other the others," says Engibous.

Looks like despite all the odds, India is on its way to becoming a semi-conductor hub.

-Rahul Sachitanand

IN PLAY
Big-ticket Deal

What's cooking? We'll soon find out

Who'll end up buying one of India's best-known brands in the travel business? When BT went to press, there were reports of a number of investors (including private equity giants Blackstone, Carlyle and India's ICICI Venture) wooing Thomas Cook India, which has been put in play by its German parent. At 33 times PE, the Thomas Cook deal does look expensive. It will cost Rs 640-odd crore to buy the German parent's 60 per cent stake and another 20 per cent from the public. By contrast, Thomas Cook India had just Rs 132 crore in revenues, year ended October 31, 2004. But $150 million (Rs 660 crore) isn't beyond buy-out giants Blackstone or Carlyle, both of whom are seriously looking at India.

-Amanpreet Singh

SELF WORTH: ATIQ RAZA
Pakistan's Vinod Dham
Atiq Raza was the man behind AMD's K6 and Athlon chips.

With Atiq gone, they are giving Intel a licence to print money". That's how a West Coast analyst described Atiz Raza's exit from chip-maker AMD in July 1999. And the analyst wasn't exaggerating. Widely seen as the man who brought manufacturing discipline to a money-losing company, Raza was expected to succeed AMD's then CEO Jerry Sanders. Raza was the man who helped the semi-conductor industry's perpetual also-ran challenge Intel's supremacy in the chip business with the AMD Athlon, considered by many as technologically superior to Intel's Pentium III.

But then, the Pakistan-born Raza, who joined AMD after it acquired his NextGen Inc in January 1996, has always been some sort of an iconoclast, and not just in the chip industry. Well before he was forced to leave Pakistan in 1972, Raza, now Chairman & CEO of Raza Microelectronics, saw himself as a misfit at St. Anthony's school and Aitchison College, which were then preserves of the aristocracy. "I just didn't fit into that set-up. Instead, I found myself exploring the bylanes of Lahore on my bicycle, and finding new and interesting places in the old walled city where I lived," recalls Raza.

His random rides and unending hours spent in his grandmother's library were, however, soon replaced by some serious academic pursuits as he fuelled his passion for device physics, by first pursuing a degree in electronics from the University of London and then a Master's in Material Science and Engineering from Stanford. He returned to Pakistan in 1972 and worked in the harsh North West Frontier Province for a few years as an engineer with Telephone Industries of Pakistan, but intense persecution saw him return to the US for good.

The rest, as they say, is history. After 10 years of working in various tech companies, Raza joined a start-up, NextGen Inc., in 1988, and (after quickly rising up the ranks to become its CEO) sold out eight years later to AMD for $860 million (Rs 3,010 crore then). "The challenge is to create newer and more efficient technologies that can potentially shift the balance of power," says the man who was worth over $4 billion (Rs 18,800 crore then) in 2001. Raza may do so one more time with Raza Microelectronics.

-Rahul Sachitanand

RIGMAROLE
Waiting To Take Off

Indian airlines' jinxed fleet expansion plan, first proposed a decade ago and finally approved after a fashion in March 2002, hobbled a step closer to realisation. After some Members of Parliament grounded the plan in May by questioning the Rs 10,237 crore deal price (the national carrier, they alleged, was paying more for the Airbus aircraft than others like Malaysian Airlines), the files have been moved up to the Cabinet Committee for Economic Affairs (CCEA), following a clearance by the Union aviation minister, Praful Patel. "This order will allow us to compete more effectively with the private carriers," says a senior Indian Airlines official. Delay in order placement, however, will mean delays in delivery. "Indian Airlines is a valued customer and we will try and give the best delivery dates possible," says David Velupillai, spokesperson for Airbus, which must still be keeping its fingers crossed.

-Kushan Mitra