Newspaper Summary 250226

Claude shock: IBM rout sinks Nifty IT

Sanjana B Bengaluru

Shares of IBM tumbled over 13 per cent on Monday, wiping out more than $30 billion in market capitalisation and dragging Indian IT stocks lower, after a blog post by Anthropic stoked investor concerns that AI-led tools like Claude Code could accelerate COBOL modernisation.

The decline weighed heavily on Indian IT stocks, with the Nifty IT index dropping nearly 5 per cent on Tuesday. Individual stock performances saw LTIMindtree fall 6.43 per cent, Tech Mahindra decline 6.17 per cent, and HCLTech slip 5.83 per cent, while industry giants Infosys and TCS both ended down 3.56 per cent.

ANTHROPIC EFFECT

Analysts attributed the aggressive sell-off to an Anthropic blog post highlighting the fragility of legacy COBOL (Common Business-Oriented Language) systems. Anthropic noted that hundreds of billions of lines of this decades-old, poorly documented code still power critical infrastructure, even as the pool of qualified engineers shrinks.

Traditionally, modernising these systems required massive costs, large consulting teams, and multi-year timelines. Anthropic argued that AI tools like Claude Code can compress these cycles from years to just quarters.

Responding to a businessline e-mail, IBM stated: “IBM has been investing in code modernisation for years... Translating COBOL is the easy part. The real work is data architecture redesign, runtime replacement, transaction processing integrity and hardware-accelerated performance built over decades of tight software and hardware coupling". IBM emphasized that AI is the most powerful tool they have ever had to solve these fundamental engineering challenges.

Pareekh Jain, Founder and CEO of EIIR Trend, suggested that while the market sell-off may be an overreaction, the underlying risk is real. He noted that the prospect of AI completing work in as little as two weeks threatens traditional effort-based billing models used by the IT services industry.

Banks up scrutiny of large-value branch transactions post IDFC First Bank scam

Piyush Shukla Mumbai

Lenders have stepped up the scrutiny of high-value, cheque-based transactions generated by branches, after IDFC First Bank reported a material ₹590 crore fraud from its Chandigarh branch last week, senior bankers say.

“We plan to put in an explicit system for high-value transactions. For branch-based transactions exceeding a threshold, we will require explicit confirmation via a verified digital channel or app. We will also use AI. Currently, a branch manager physically clears cheques, but we will implement a system where AI performs initial checking, followed by human confirmation, to better handle exceptions. This was a physical, manual cheque fraud — the most traditional type. We will improvise and put new controls in place,” said V Vaidyanathan, MD and CEO, IDFC First Bank.

A senior private sector banker said that following the IDFC First Bank disclosure, all banks are reviewing their internal controls, especially for high-value transactions.

“At the branch level, we are reviewing and upgrading maker-checker system, scrutinising repeat transactions extensively and adding various layers of authentication, apart from a confirmation call to ensure authenticity of transaction,” the banker said.

INDUSTRY IMPACT

Sources said the Reserve Bank of India (RBI) is understood to be satisfied with the IDFC First Bank management’s prompt disclosures and corrective actions post the occurrence of the fraud, and the central bank is unlikely to bring in any policy change for branch-led operation.

The regulator, however, may engage with the bank bilaterally to identify gaps and the persons behind the fraud.

Another senior banker noted that mid-sized and small lenders may see a short-term impact in terms of government entities parking their money with State-owned lenders, but this may not last long, as public sector banks, too, have faced material frauds in the past and are relatively less agile than private banks on technology infrastructure.

“The IDFC First Bank fraud, it appears, occurred due to connivance between bank employees, third-party broker and possibly Haryana State government department officials. Banks can build all the processes, but when employees act in connivance with third-party individuals, it becomes tough to spot frauds,” they said.

The banker observed that most frauds in the banking industry were on the advances side in the past, but, over the last five years, frauds have increased on the deposit side. These include mule accounts, digital frauds, micro-deposit schemes fraud, cheque fraud, and account takeover fraud, among others.

“A customer used to trust her banker as much as her doctor. But over the last 10-15 years bankers have lost that trust. Some engage in quick money-making schemes, and often lose money by trading in risky instruments like F&O. Under severe debt stress, they engage in fraudulent practices. Sometimes they may act in connivance with private individuals, as was seen in IDFC’s case, and sometimes they may move money from dormant accounts,” the banker said.

How the ₹590-crore fraud unfolded at IDFC First Bank

Our Bureau Mumbai

Over the past four days, IDFC First Bank has faced a series of setbacks. Its shares hit the lower circuit, the government of Haryana has de-empanelled the bank from handling State government business, and the lender has appointed KPMG to carry out a forensic audit. These developments follow the ₹590 crore fraud uncovered at one of the bank’s branches in Chandigarh. businessline explains how the bank faced a material fraud:

What was the modus operandi of the fraud?

According to public statements made by the bank’s management, this was a cheque-based fraud, perhaps the oldest kind in the banking industry.

While an investigation is awaited to unearth the details, forged physical cheques may have been used by an external party, who was allegedly acting on behalf of the government department, and manipulated entries may have been made by bank employees to siphon off or transfer funds out of the government department’s bank accounts.

The bank’s controls (like maker-checker approvals and SMS alerts) apparently failed to catch these until the discrepancies were noticed. The bank management suspects that the external party, supposedly representing the government department, acted in connivance with bank employees, who cleared the cheques without extensive vetting.

How was the fraud identified?

The scale of the fraud was identified when a certain department of the Haryana government sought closure of its deposit account at IDFC First Bank and transfer the remaining funds to another bank. IDFC First Bank then observed certain discrepancies in the amount claimed by the department against the actual balance in the account.

From February 18, 2026, certain other Haryana government entities engaged with the bank with regard to their respective accounts. During this process, differences were observed between the balances in the account and the balances mentioned by the Haryana government entities holding accounts with the bank.

Post review, the bank said the scope of the fraud did not extend to other customers of the Chandigarh branch. It has still not clarified the period during which the amount was transferred to other accounts.

What action has the bank taken?

The bank has placed four branch officials under suspension pending investigation. Additionally, Haryana Chief Minister Nayab Saini said the government will form a high-level committee to identify and punish the perpetrators of this fraud, be they bank officials, third-party brokers or any government department official.

Agentic AI is projected to significantly compress white-collar labor in India, particularly within the information technology (IT) and services sectors, by shifting the focus from human productivity to task replacement.

The following factors detail how this compression is expected to unfold:

Stagnant Headcount Growth

Industry experts and reports from Nasscom indicate a decisive shift toward non-linear growth, where revenue can increase without a corresponding rise in headcount.

• Net additions for FY26 are projected at a growth rate of only 2.3%, translating to just one lakh (100,000) new jobs across the entire sector.
• Nasscom anticipates that job additions will remain stagnant for the next fiscal year and beyond.

Shift to Task Replacement

The evolution from generative AI to agentic AI marks a transition from simple task automation to systems that can enable decision-making and execute "next-best actions".

• Markets are increasingly viewing these advanced models as task-replacement engines rather than just productivity enhancers.
• AI agents are being formally integrated into teams to act on behalf of users, accessing files and executing workflows that previously required human intervention.
• If a task is digital and does not require physical labor, AI is now increasingly capable of handling "micro-jobs" that once took a human an hour to complete.

Vulnerability of the "Middle Layer"

Experts are divided on which segment of the workforce will be most affected, but many point to the middle layer of the talent pool as the most vulnerable.

• While younger generations may adapt quickly, the middle tier must transition and upskill at an accelerated pace to remain relevant.
• Displaced middle-layer workers may increase competition for lower-end roles, potentially freezing wage growth and widening income inequality.

Disruption of Traditional Business Models

The IT services industry’s traditional effort-based billing models (based on man-hours) are under direct threat.

• AI tools like Claude Code can compress modernization cycles for legacy systems—which traditionally required large teams and multi-year timelines—down to just quarters or even weeks.
• As AI handles up to 90% of code generation, software becomes significantly cheaper to produce, leading to "massive perturbations" for legacy players.
• Analysts warn of deflationary risks to sector revenues, as clients may demand a share of these efficiency gains, leading to lower realizations per man-hour.

** Gradual vs. Sudden Transition**

Despite these pressures, some leaders, such as HCLTech CEO C. Vijayakumar, argue that the transition will be gradual rather than dramatic due to the "big lag" between technological capability and actual enterprise deployment. They suggest that meaningful gains may take years to materialize as firms must first modernize legacy technology stacks to support AI.

Banks grapple with changing savings behaviour

K Srinivasa Rao

Banks need to deal with structural liquidity mismatches created by money moving into alternative investments from bank deposits.

The deepening of financial markets, along with increased financial literacy and quick access to bank savings through digital channels, has fuelled a gradual shift of bank deposits into alternative investments, including mutual funds, equities, bonds, small savings, G-secs, gold, silver, real estate, and derivatives.

The customer profile of banks is shifting toward young, tech-savvy customers having a higher risk appetite for exploring non-bank investment options. The increased flow of bank deposits moving back and forth between alternative investments in financial markets and the banking system in a different form is creating risks. The business model may need to be recalibrated to align with the evolving transformation in asset and liability composition, tenor, and pricing.

THE DEPOSIT CHURN

A common argument is that deposits that move to other institutions should eventually return to the banking system after the round trip, as the receiving institutions will use banks to route them. If a bank customer moves funds from a savings account to alternative financial instruments, the system’s liquidity might eventually recover, but the ALM structure and interest rates will change drastically. The flight of deposits from banks to financial markets and their return to banks will be subject to certain “liquidity leaks” and a major “pricing trap”.

While most money remains in the banking “pipes”, a significant portion leaves the system temporarily or permanently. Even when that money returns to the bank via a Mutual Fund Institution’s bank account, it is placed in high-cost bulk deposits or CDs (Certificates of Deposit), where the bank might have to pay 7.5 per cent or more.

Thus, banks might be losing low-cost retail deposits and replacing them with “expensive” wholesale funding, which narrows their net interest margin (NIM). This is why many banks introduce differentiated deposit schemes with attractive interest rates to prevent deposit outflows and protect their NIM.

LEAK OF LIQUIDITY

Not all deposits that leave the bank may return to the banking system, as some may go as taxes that get parked with the RBI, effectively withdrawing that money from the commercial banking system until the government spends it. As of early 2026, government cash balances have hovered between ₹1.5 lakh crore and ₹4 lakh crore, creating a temporary liquidity shortfall.

Physical cash withdrawals have surged, with currency withdrawals amounting to ₹4.4 trillion in the 14 months leading to January 2026—three times higher than the previous year’s trend. Every rupee held in a physical wallet cannot be multiplied as a bank deposit. Additionally, the RBI often sells dollars to stabilise the rupee, which permanently removes liquidity from the banking system.

The “churn” of money moving between banks and alternative investments creates constant friction, often choking banks’ lendable resources and slowing the velocity of money. Deposits don't simply “revolve” into alternative investment instruments; they create structural liquidity mismatches, higher funding costs, and systemic risks—despite total household savings remaining stable in the long run.

The RBI’s support through liquidity adjustment facility (LAF) can be only temporary. Ultimately, banks will need to recalibrate their business models to manage their operations while protecting their NIM. Through non-core banking services, banks should galvanise institutional accounts of wealth management entities and serve them with a priority tag.

Similarly, non-funded products should be used to serve corporate accounts actively raising funds through bonds and the ECB route, with specially trained employees to improve retention of funds. SLBC forums and lead bank relationships should be explored for government accounts. Banks will have to gear up for higher liquidity and pricing competition as deposits flee to other investment channels and lose much of their sheen on their return journey back to banks.

The writer is Adjunct Professor, Institute of Insurance and Risk Management. Views expressed are personal.

‘Per capita income acceleration faster than GDP growth rate’

Our Bureau Mumbai

The acceleration in India’s per capita income growth has been faster than its GDP growth, driven significantly by a decline in population growth, according to RBI Deputy Governor Poonam Gupta.

Speaking at the 14th Foundation Day Lecture of the Centre for Development Studies in Thiruvananthapuram on February 20, Gupta explained that while India’s population growth was traditionally much higher than the global average, it has declined rapidly over the years. Since 2014, India’s population growth has been on par with the world average.

DEMOGRAPHIC SHIFT

Gupta attributed the slowing population growth to a rapid decline in fertility rates since the 1980s, which has outpaced the decline in death rates. She noted that these trends reflect the impact of increasing prosperity and education levels on demography and are expected to continue, further aiding the rapid increase in per capita incomes.

INCOME MILESTONES

India’s per capita income has seen a dramatic rise over the last few decades:

• 1981: $274
• 1991: $306
• 2024: $2,700 (a nearly 10-fold increase from 1981 levels)

The pace of this growth has accelerated significantly. While it took 23 years to double the per capita income starting from 1981, it increased almost five-fold in the subsequent 22 years.

FUTURE PROJECTIONS

Citing the IMF’s October 2025 World Economic Outlook, Gupta stated that per capita income is projected to continue its upward trajectory:

• 2025: $2,818
• 2026: $3,051
• 2030: $4,346

GLOBAL FOOTPRINT

Since the early 1990s, the Indian economy has consistently outpaced global growth. Consequently, India’s share of the global economy has tripled, rising from 1.1 per cent in 1991 to 3.5 per cent in 2024.

Furthermore, India’s per capita GDP as a percentage of world per capita GDP has increased from 7 per cent in 1991 to nearly 20 per cent in 2024 in current US dollar terms. Gupta emphasized that in purchasing power parity (PPP) terms, India’s per capita GDP relative to the world average is even larger.

Tiruppur targets $10 billion exports to Europe

Our Bureau Chennai

India’s knitwear hub Tiruppur is positioning itself for its next growth leap as free trade agreements (FTAs) with the UK and the European Union near fruition, industry leaders said at a summit in Chennai on Tuesday.

“We have set an ambitious target of $10 billion in apparel exports by 2030,” said N Thirukkumaran, Chairman, Esstee Exports India Ltd, Tiruppur, and Secretary of the Tiruppur Exporters Association.

Currently, India’s total apparel exports stand at about $16 billion, with Tiruppur alone contributing nearly $5.2 billion—roughly a third of the country’s shipments. With the Prime Minister setting a national target of $40 billion in apparel exports by 2030, Tiruppur is expected to play a pivotal role.

GAME CHANGER

Exporters believe Europe will be a “game changer”. While India has already signed trade agreements with the UAE and other GCC countries, duty-free access to the UK and the EU could significantly improve Tiruppur’s competitiveness against rival sourcing hubs. Industry representatives noted that FTAs with a few European countries often open doors across the wider European market, multiplying export opportunities.

SUSTAINABILITY EDGE

A key differentiator for Tiruppur is its cluster-level sustainability framework. Unlike other global apparel hubs where compliance is limited to individual firms, Tiruppur operates common effluent treatment plants and shared ESG infrastructure, making it one of the few clusters globally aligned with emerging environmental and social disclosure norms. As sustainability becomes a baseline requirement for doing business, this advantage is expected to gain prominence.

STRATEGIC SHIFT

The Tiruppur cluster is also reorienting its growth strategy towards man-made fibre garments, athleisure, and value-added products, reflecting global consumption trends. Industry leaders expressed confidence that new investments in fibres such as lyocell in Tamil Nadu would strengthen competitiveness. Sunil Jhunjhunwala, Co-Founder of Techno Sportwear Pvt Ltd, added that the free and fair availability of raw materials and the mobility of the labour workforce will be critical for the industry's success.

59% winter rain deficit hits east & central parts badly

Vinson Kurian Thiruvananthapuram

Winter precipitation between January 1 and February 23 is 59 per cent below normal for the country, with only the South Peninsula (-24 per cent) seeing marginal benefit among the four regions, according to the India Meteorological Department (IMD).

East and North-East India recorded the steepest deficit at -92 per cent, followed by Central India at -81 per cent. The shortfall is attributed to fewer western disturbances carrying adequate moisture along the international border across Gujarat, south-west Rajasthan and Punjab.

BELOW-NORMAL VIEW

North-West India fared relatively better at -48 per cent, though the systems failed to penetrate eastward. Moisture supply from the Bay of Bengal remained weak, unlike the north-east Arabian Sea, which partly aided North-West India.

In its short-term outlook for February 26-March 4, the IMD said one or two feeble western disturbances may bring light to moderate rain/snow at isolated to scattered places over the hills of North-West India on a few days, but these would be insufficient to alter the overall situation.

Light precipitation may extend eastward to isolated areas of Sikkim and Arunachal Pradesh, but rainfall is likely to remain below normal across most parts of the country. Isolated rain/snow is expected over Jammu and Kashmir, Himachal Pradesh and Uttarakhand on Friday and Saturday.

BETTER PROSPECTS

Long-range guidance from the Climate Forecast System and the European Centre for Medium-Range Weather Forecasts indicate improving conditions from mid-March.

Western disturbance activity is expected to strengthen between mid-March and early April, peaking around March 25-April 3. Likely beneficiaries include Gujarat, west Madhya Pradesh, Rajasthan and west Uttar Pradesh.

Rainfall may be heavier over the hills of North-West India, parts of East and North-East India, and in the South over coastal Karnataka, Kerala and the adjoining Western Ghats, including south-west and south Tamil Nadu.

Kerala to be renamed Keralam soon

Shishir Sinha New Delhi

The Union Cabinet has approved the renaming, pending further legislative action and Presidential nod.

The Union Cabinet on Tuesday held its first meeting at ‘Seva Teerth’, the new office of the Prime Minister. It approved a proposal to rename Kerala as Keralam, among other decisions related to the Railways, power and agriculture.

“After the approval of the Union Cabinet, the President of India will refer a Bill, namely the Kerala (Alteration of Name) Bill, 2026, to the State Legislative Assembly of Kerala for expressing its views under the proviso to Article 3 of the Constitution,” Information & Broadcasting Minister Ashwini Vaishnaw told the media after the meeting.

According to an official release, after the receipt of the views of the Kerala Assembly, the Government of India will obtain the recommendation of the president for the introduction of the Kerala (Alteration of Name) Bill, 2026, in Parliament. The State Assembly had on June 24, 2024, adopted a resolution to change the name of the State to ‘Keralam’.

“The name of our State is ‘Keralam’ in the Malayalam language. States were formed on the basis of language on the 1st day of November 1956. The Kerala Piravi Day is also on the 1st day of November,” the Kerala Assembly resolution read.

“Since the time of the national independence struggle, there has been a strong demand for the formation of United Kerala for the people speaking the Malayalam language. But in the First Schedule to the Constitution, the name of our State is recorded as ‘Kerala’. This Assembly unanimously appeals to the Central government to take urgent steps as per Article 3 of the Constitution for modifying the name to Keralam,” the resolution added.

Thereafter, the Kerala government requested the Central government to take the necessary steps to amend the First Schedule to the Constitution by altering the name of ‘Kerala’ to ‘Keralam’, according to Article 3 of the Constitution.

PIQUANT PROBLEM

Meanwhile, ahead of the official announcement, Lok Sabha member from Thiruvananthapuram and senior Congress leader Shashi Tharoor wrote in a social media post: “All to the good, no doubt, but a small linguistic question for the Anglophones among us: What happens now to the terms “Keralite” and “Keralan” for the denizens of the new “Keralam”? “Keralamite” sounds like a microbe and “Keralamian” like a rare earth mineral…! @CMOKerala might want to launch a competition for new terms resulting from this electoral zeal".