In this week's newsletter, we talk about the rise of Indian single malt whiskies, what’s holding MUDRA loans back, logos and more.

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Quote of the day  📜:

"Wealth is not about having a lot of money; it's about having a lot of options." — Chris Rock

How Indian single malt whisky is taking over the world

Pernod Ricard, the French alcoholic beverages giant, is on a big mission. It wants to catapult Indian whisky onto the global stage, right alongside the Scotch, Irish and Japanese heavyweights. And why not?

Indian whiskies have been quietly building a reputation for themselves, not just domestically but internationally. For instance, last year the Indri Diwali Collector’s Edition 2023 scooped up the prestigious “Best in Show, Double Gold” award. This year, the Amrut Triparva grabbed the “Best in Class World Malt Whisky” title at the Whiskies of the World awards, and Indri Founder’s Reserve 11-Year-Old Wine Cask broke into the Top 15 Whiskies of the Year at the International Whisky Competition — the only Indian whisky to do so.

And that’s exactly why Pernod Ricard is making a ₹1,800-crore bet by setting up its largest Asian distillery in Nagpur. Its goal? To churn out world-class malt whisky that competes with the best globally.

But hey, just about two decades ago, Indian whisky had a very different image. It was seen as cheap, harsh and hardly worth savouring. So what changed, you ask?

Well, one answer ― single malt whisky. Unlike blended whisky, which combines malt and grain whiskies from different distilleries, single malts are crafted at one distillery using malted barley. They’re pure, bold and aged for years — at least three to eight — to develop their rich flavours.

Single malt whisky has long been Scotland’s pride and joy, tracing its origins back to the 15th century. But here’s the thing. It wasn’t sold directly to consumers up until the 1960s. Instead, it served as a crucial ingredient in blended Scotch whisky, with distilleries combining malts to meet soaring global demand.

Then came a rollercoaster of events from the Great Depression to the World War II, that nearly wiped out the Scotch whisky industry. By the 1960s, a few distilleries managed to bounce back, but the focus was still firmly on blended whiskies.

But that changed in 1963, when Glenfiddich, owned by William Grant & Sons, took a daring step to bottle and market single malts independently. The move turned heads and kick-started a global fascination with single malts. And soon, distilleries in places like Ireland and Japan hopped on the single malt bandwagon. But India was nowhere in sight. At least, not yet.

But come the 1980s, and thanks to Bengaluru’s Amrut Distillery, India stepped into the single malt arena. And let’s be honest, they didn’t start as whisky wizards. In fact, their journey into single malts was less about choice and more about necessity.

See, Amrut was already producing malt whisky, but it was used primarily in blended whiskies that were praised for their high malt content. Over time, the industry began favouring lighter, cheaper blends that used less malt. Amrut had to follow suit, but this shift left them with warehouses full of ageing malt whisky.

And that’s when they decided to gamble on the single malt. The distillery took its first steps into uncharted territory, targeting whisky aficionados in Scotland and the UK. It was a gutsy move, considering India wasn’t even on the radar in the global whisky scene. And yes, they faced skepticism. Critics even mocked them, questioning whether their whisky was made from the Ganges or clean water. But once they tasted Amrut’s single malt, they were singing a different tune. They were blown away. Word spread. People brought their friends to try it, screaming, “This is amazing!”

The breakthrough moment came in 2010, when Jim Murray, the renowned whisky critic and author of the Whisky Bible, named Amrut Fusion the third-best whisky in the world. Made out of a blend of Scottish and Indian barley, it was a masterpiece. And this recognition put Indian single malts on the global map, even catching the attention of other whisky makers back at home.

And here’s an interesting twist. India’s hot climate turned out to be a secret weapon for single malt distilleries. Higher temperatures mean that whisky ages faster here, developing unique tropical flavours. So, what takes 40 years in Scotland can be achieved in just 10 years in India. This revelation gave Indian single malts a distinctive edge and boosted their global appeal.

Soon, Amrut’s success inspired others too. In 2008, John Distilleries set up its single malt plant and launched its first offerings a few years later. Today, their products are sold in 44 countries. Radico Khaitan, a veteran in Indian-made foreign liquor (IMFL), joined the race in 2015 by launching Rampur Single Malt, which earned global accolades within just a year.

So yeah, Indian single malts were no longer just a niche experiment now. They were becoming a global phenomenon. And the numbers speak for themselves.

In 2022, domestic sales of Indian malts skyrocketed by 240%, dwarfing Scottish single malt’s 35% growth. And in 2023, Indian single malts accounted for a historic 53% of the 6.8 lakh cases sold in the country, outpacing international giants for the first time.

If you’re wondering how the demand spiked, it’s partly because Indian single malts are more affordable (as they don’t need decades of ageing). Plus, the unique use of six-row Indian barley, known for its higher protein content and robust flavours, gives these whiskies a distinctive edge.

Another reason why Indian whiskies are flavourful is India’s high “angel’s share”. If you’re wondering what that is, it’s simply the portion of whisky that evaporates during ageing. The higher the rate, the smoother your whiskey turns out. In India, the angel’s share is a whopping 10% annually, compared to 2-3% in Scotland. So even without enough ageing, the whiskies still turn out smooth and flavourful.

That’s also why consumers are switching from Scotch whisky to Indian single malts, bumping up the demand even further.

Right now, India’s got about 20 distilleries that produce single malt whisky and export it to over 60 countries. But the future looks bright too.

India already holds the crown as the largest whisky consumer. And its alcoholic beverage consumption is expected to cross a staggering 6 billion litres this year! Besides, spirits brought in over $33 billion in revenue last year, making India the fourth largest market globally, just behind Japan, the US and China. Consumption of Indian single malts is also projected to grow by 13% annually for the next three years.

With numbers like these, the momentum is only set to skyrocket.

Of course, competition is heating up. Companies like Pernod Ricard are investing heavily, and the race to dominate the Indian single malt market is on. The question is ― can Indian distilleries stay ahead of their foreign counterparts?

We’ll get to know that as the single malt ages, eh?

Until then subscribe to Finshots to stay up to date with the latest happenings in business, finance and economy.

Are MUDRA loans failing banks and the government?

We last talked about MUDRA loans a while ago, but let’s get everyone on the same page with a quick refresher.

The Micro Units Development and Refinance Agency (MUDRA) scheme was launched in 2015 with much fanfare. It was meant to be a panacea for India’s small entrepreneurs, the mom-and-pop stores, the small-time traders and the street vendors. The scheme’s goal was simple ― provide collateral-free loans to the underserved. Loans that would help tiny businesses flourish and boost the economy from the grassroots level.

And it seemed like a good plan. It aligned well with the government’s goal of fostering financial inclusion, entrepreneurship and generating employment.

These loans were categorized into three types – Shishu (loans up to ₹50,000), Kishore (₹50,000 to ₹5 lakhs) and Tarun (₹5 lakhs to ₹10 lakhs), each offering different levels of financial assistance.

What has changed since then?

Well, a few things but nothing much, really.

MUDRA loans are definitely getting traction. Disbursements have risen from ₹3.3 lakh crores in FY22 to about ₹4.5 lakh crores in FY23. The number of accounts receiving these loans has also increased by 15%, reaching 6.2 crore. So yeah, people are getting the funds they need.

But these loans are causing headaches for banks, especially public sector banks (PSBs) and regional rural banks, who have been disbursing a large chunk of these loans. By October 2024, most PSBs had disbursed only 42% of their MUDRA loan targets for FY25. That’s a huge shortfall considering the government’s ₹2.3 lakh crore disbursement goal.

And that begs the question – what’s wrong here?

First, there’s the classification issue. Most MUDRA loans fall under the microfinance category, which is in quite a pickle. Non-Performing Assets (NPAs) are on the rise, and profits are declining. For context, in the first half of FY24, gross NPAs rose by 32%, compared to a 32% fall the year before. That’s a lot of loans not being repaid on time.

And it might be scaring the banks simply because the microfinance model works on trust, and MUDRA loans don’t have collateral backing them up. As that trust begins to wobble, the consequences can be dire, with rising NPAs leaving banks holding the bag.

Another issue is the government’s recent move to increase the upper limit for MUDRA loans from ₹10 lakhs to ₹20 lakhs in the Tarun (now TarunPlus) category. While this is great for small entrepreneurs needing more capital, it’s a different story for banks, who take on more risk. And given their past challenges with defaults, banks are understandably hesitant.

Fraud is another big problem. The easy, collateral-free money has attracted dishonest individuals. There have been cases of loans taken for ghost businesses or misused for personal gains. The RBI has even stepped in, debarring some microfinance companies, and cracking down on “evergreening”, where new loans are used to pay off old ones, giving the illusion that everything’s fine even when it’s not.

So, banks are in a tricky position. On one hand, they have government-set targets to meet. On the other, they have shareholders to answer to and balance sheets to keep healthy.

At this point, you’re probably wondering ― why do these concerning situations occur in microfinancing in the first place?

Look, the microfinance model relies on group lending, where members share responsibility for each other’s loans to promote financial inclusion, especially in rural areas. But when the community faces challenges, like a poor harvest or economic downturn, defaults are inevitable. And since these loans are unsecured, lenders have no collateral to recover.

This causes a ripple effect. Microfinance companies struggle, banks take a hit and genuine borrowers find it harder to access credit.

Maybe that explains why the MSME sector pointed out to the RBI that around 300 loan cases, including MUDRA loans, are pending at banks, preventing entrepreneurs from accessing much-needed funds.

So, what’s the way out for MUDRA loans, you ask?

Well, banks are taking notice of these backlogs. And their first suggestion is to reduce the targets set by the government for MUDRA loans. After all, with lower targets, comes lower disbursements, and consequently fewer defaults, yes?

Sure. But here’s the thing. The TarunPlus scheme is moving in the opposite direction. The increasing loan limits could mean bigger loans to be disbursed and eventually higher targets for lenders. So, pushing banks to meet disbursement goals without considering the challenges they face might prove counterproductive. It leads to poor lending practices and ultimately, higher NPAs.

Another suggestion that comes from Finance Minister, Nirmala Sitharaman is looking for better credit risk assessment models. One such model is cash-flow-based lending, which essentially means rolling out loans based on the borrower’s income cash flows.

A somewhat similar suggestion came from a senior official from the largest PSU lender SBI as well — banks need to connect with borrowers at the grassroots level. This means improving financial literacy among borrowers, helping them understand how bank loans, interest and repayments work.

These are solid suggestions, but they don’t hold up great when targets for loans are high and the processing is too easy. In fact, as an article from The Wire puts it:

The finance minister has been giving targets to the government-owned banks which are also forced to lend to non-banking finance companies for on-lending and co-lending. In many places, the ruling party cadres tell the borrowers that this is a gift and not to be repaid. So, NPAs are increasing and banks are writing off 25% and claiming 75% from the Credit Guarantee Fund. But the borrower’s CIBIL score gets affected. Most of them are wilful defaulters. Now they can pay a little, clear the CIBIL score, and borrow again.

This essentially means that the government sets loan targets for banks, pushing them to lend quickly, sometimes without enough checks. Banks also end up lending to non-banking finance companies (NBFCs) to indirectly reach more borrowers. Some borrowers are even told by political leaders that they don’t need to repay, leading to confusion and more unpaid loans (NPAs). When these loans default, banks use a system called the Credit Guarantee Fund to recover their money, writing off 25% of the loan and claiming 75% from the fund. However, the borrower’s credit score (CIBIL score) still gets affected. Many borrowers who intentionally don’t repay (willful defaulters) can game the system. They pay off just enough to clear their credit score, then take out new loans, continuing the cycle of defaults.

And that’s how the banks and the loans end up in the same soup again.

Nevertheless, the cat is out of the bag, and both governments as well as banks know what’s going on with these loans. After all, they’ve disbursed over 49 crore loans worth ₹29,700 crores since the scheme’s inception in 2015.

And there’s improvement on the NPA front too, which has declined from 4.7% in FY21 to 3.4% in FY23 for MUDRA loans.

So yeah, banks have been on a learning curve. They’re tightening processes and trying to improve their performance. The government and the RBI are stepping in to provide guidance and oversight too. And who knows, with some promising tweaks and improvements, we might just get MUDRA loans back on track. What do you think?

Infographic ✏️: Brand Logos (Then vs Now)

Today’s Discussion 💡: How Fevicol stuck with India

Have you ever gone to a shop and asked for ‘adhesive’? Probably not, right?

No matter what glue we end up purchasing, the ask is always for Fevicol. But how did this Indian company achieve such phenomenal success?

Let’s discuss–

1/ The Sticky Start: In the 1950s, carpenters faced a clumsy problem—they used fat-based glue that smelled awful, required long heating hours and didn't last long. Enter Balwant Kalan Parikh, who presented a synthetic alternative with Fevicol.

2/ Doing things differently: While 60% of the adhesive market targeted industries, Fevicol took a unique route by introducing smaller 30gm packs for retail. Surprisingly, this segment brings in around 80% of their revenue today.

3/ Knowing your audience: You see, Fevicol didn’t just sell, it built connections. They reached out to carpenters, offering training, resources, and a sense of community with the “Fevicol Champions Club.”

4/ Ad legacy: Fevicol’s logo—two elephants tugging a log became an icon of strength. Now, even without celebrity endorsements, Fevicol’s humorous, relatable ads have become iconic. Taglines like “Fevicol ka Jod”, became a part of everyday lingo and references.

And that’s how Fevicol mastered the art of staying memorable.

Quiz of the day 🤔: Winner

Quick shoutout to Roshni Sandilya for winning last week's quiz! Well done 👏 Please email us your contact information to tripti.joshi@joinditto.in. We’d love to send you a little something!

And for the rest of you, stay tuned for more Finshots quizzes in the coming weeks. Cheers :)

Answer of the day: Katharine Graham was the first female CEO of a Fortune 500 company, taking over The Washington Post in 1972.

And that's all for today folks!

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