By Madan Sabnavis
Bad Money is the story of how Indian banks, or more especially Indian public sector banks, have converted great funds from depositors to undesirable funds by way of a mixture of ineptitude and incorrect undertaking. This emotion has normally been expressed by numerous critics and analysts and Vivek Kaul puts this collectively with panache that tends to make this book engaging. At occasions he could sound a bit also harsh on the PSBs and their functioning, as he has commonly kept private banks out of the principal discourse, although they do seem at the periphery of arguments. One can get in touch with it the writer’s prerogative.
Kaul tells us at the starting that this book would be more like a Quentin Tarantino film with flashbacks and therefore it will not be a chronology of events but movements would be each forward and backward. This strategy tends to make it distinctive as the topic is on NPA of PSBs, and all other elements of these banks are thrown in along with the most recent regulations. The great individuals and undesirable ones are recognized from the start out. Raghuram Rajan and Arvind Subramanian are the great guys these who run the PSBs and their owners are the not so great guys, even though the crony capitalists are the undesirable ones.
Kaul is a pretty great storyteller and therefore his narration on how this mess came about it is told in straightforward words with no jargon so that the layman can comprehend how banks kept lending funds devoid of due diligence at a time when almost everything looked good. Then came the myriad of scams that place projects in jeopardy, as abruptly energy organizations that began off with some plans could not get coal thanks to the court instances. Moreover, the incompetence of PSBs to evaluate term loans speedy-tracked the procedure of NPAs getting developed. The price has been borne by the deposit holders and the policy holders of LIC, which has had to invest in these banks.
PSBs are unquestionably the weak hyperlink right here and the author offers numerous examples to justify his position. He quotes 3 successive SBI chairpersons saying the similar words of the worst getting behind them, only to have the successor utter the similar words immediately after undertaking the clean-up. So when will the clean-up seriously take place? That is the query. Kaul also poses the query of irrespective of whether the RBI need to take a portion of the blame. He does not say so in plain language but does convey the view that the whole procedure of restructuring of debt had been fostered by the RBI and therefore could not be absolved completely. We will need to get out of this organization of forbearance as it assists us to kick the can. Under these Covid occasions, this worry is pretty palpable in the coming years. Here he is all praise for Rajan and Subramanian, the former CEA, and argues that the AQR was the turning point for the program which exposed almost everything that was incorrect.
From the point of view of the novice, Kaul explains in straightforward terms a variety of concerns like the scams or even the dilemma with the DISCOMs which lastly get traced back to the banking program. The flashback to nationalisation is once again pretty readable as he explains the ideology behind this move. Given that we have come a extended way immediately after 1969, the notion of PSBs is dated today. He explains nicely also the ideas of recapitalisation of banks, the IBC, PCA and so on.
There is a lot written on Nirav Modi and Vijay Mallya as nicely as some of the bigger IBC instances. There is intrigue involved in loan sanctions right here as some private bankers kept their distance even though the PSBs went in completely. The lack of ethics in these massive corporates is exposed nicely, in particular when some of them attempt and acquire back their organizations at a discount which was plain absurd. We also get a feeling that some of these substantial names have borrowed devoid of obtaining any intention of repaying the funds and have leveraged every single tool offered to game the program. This was a clear case of crony capitalism. The dirty dozen of IBC was a manifestation of the similar.
While the author does speak of some of the mishaps in the private banks territory, the impression 1 could get offered his inclination for privatisation of PSBs, is that private bankers can be sacked which does not take place to PSB heads. Here 1 could argue otherwise, as PSB chiefs have a larger nightmare of getting hounded by the investigative agencies for life even though private bankers have normally gotten away with resignations and some loss of reputation.
Towards the finish he raises broader concerns of security of deposits with PSBs, which is anything we all take for granted. He warns of the bail in policy getting discussed at the policy level exactly where deposit holders could have to shoulder some losses of loans gone undesirable. This could make readers edgy about placing funds in bank deposits.
Kaul’s remedy is to go in for privatisation and also boost governance requirements. He advocates the UTI Bank or AXIS Bank model exactly where government keeps out and let the private route work with the stake getting placed with SUUTI.
Bad Money is pretty timely and puts collectively almost everything 1 requires to know about NPAs. Written in his common straightforward-to-study style, Kaul tends to make the concerns simple to comprehend. PSB bashers will uncover this a delight and the students educative.
(Madan Sabnavis is chief economist, CARE Ratings)