Sunday, March 18, 2018

Rejuvenated Congress and Debilitated BJP

"A week is a long time in politics" said Harold Wilson who was prime minister of U.K. twice. Four years is a substantially long period. It is now almost four years since India rejected UPA and particularly the Congress as unfit to govern the country.

In 2014, corruption as an issue was occupying centre-stage. BJP whipped up the issue with characteristic adroitness and the voters rewarded it handsomely. After a long time, we vested a party with majority in the Lok Sabha so that it could focus on governance without being handicapped by what Manmohan Singh spuriously called as 'coalition dharma'.

Political scenario has undergone a drastic change in the recent past. Opposition parties excluding the Congress and communists have become more upbeat in the aftermath of shock defeats of BJP candidates in Lok Sabha by-elections in U.P. and Bihar. It is true that Narendra Modi did not canvass in these by-elections. But if the overwhelming and enthusiastic support of voters as it existed in 2014 for Narendra Modi had not dissipated, these shock defeats would not have occurred.

Congress has nothing to gloat over its continuing dismal performance in elections. When disenchantment with BJP and Narendra Modi is gaining impetus, a national party like Congress should start making hay. (Some sceptics may argue that Congress is no longer a national party. This argument is a bit premature. Congress is even now salvageable.)

It is a no-brainer that Congress cannot muster majority on its own in the Lok Sabha in the near future. At best, it can be one of the parties forming a possible coalition in the centre post-2019. For this to happen, two crucial requirements must be met.

It is very likely that BJP will continue to be the largest single party in the lower house of parliament. Since BJP is an assertive party causing constant discomfort to its adversaries, opposition to BJP is virulent. Virulent splintered parties are not a threat to BJP. But a combined opposition would be, like what was seen in the recent by-elections. So the first condition is continued unity among opposition parties.

Congress continues to be treated as a liability by other parties. If Congress wants to become acceptable to other parties and more importantly to voters, it has to get rid of proven corrupt leaders forthwith. In addition, the Gandhi family must cease to dominate. Dumping corrupt leaders and non-glorification of a particular family are the second requirement.

Tuesday, March 13, 2018

Banking drama

Banking scene in India is becoming curiouser and more pathetic day by day. PNB keeps increasing the size of its LOU scam periodically. As of March 13 (morning 11 a.m ), it was pegged at Rs.13,578 crore. Let us not be surprised if it snowballs further. Such is the state of managerial efficiency in one of the largest banks in India.

RBI has tried to mask its inability for effective supervision by banning LOUs and Letters of Comfort. It does not seem to realise that the problem is lack of operational risk management and not the concept of LOU.

RBI is making two mistakes. One, it is locking the stable after the horses have bolted. Second, it is using the wrong lock.

Gaps in operational risk management can manifest as losses in different areas and not in LOUs alone. Now the fraudsters know that they have milked the LOUs sufficiently. They are not fools to target the same area again. They are fleet-footed and sharp-minded enough to pick holes and reap illegitimate fruits elsewhere.

RBI needs to ensure that proper systems, checks and control are in place in the banking system. Despite best regulatory efforts, frauds can and do happen. This is no excuse for laxity.' 

Sunday, March 11, 2018

Why is RBI ineffective?

RBI is reputed to be one of the best central bankers in the world. Unfortunately, it has lost its sheen in the recent past.

There are mainly two reasons for this. 1) It is fighting the previous battle. After a fraud has occurred, RBI asks the banks to tighten their control systems so that similar frauds do not happen again. It does not realise that different kinds of frauds are waiting to happen.
2) In banking industry, the service providers ( the commercial banks) are smarter than the regulator (RBI). It may be true in other industries also. The customers (mainly borrowers) are smarter than service-providers. This smartness-asymmetry is the main reason for scams.

Tuesday, February 27, 2018

Punjab National Bank, Abhiramapuram, Chennai

Last Friday I visited Punjab National Bank and had Stephen Leacockian experience. As eacock would say, I got rattled the moment I entered the premises. The ground floor was bereft of people, staff or customers. After getting over the shock of 'the missing branch', I gained some courage to look hither and thither. A hefty man looking more like a bouncer beckoned me from the far end. "What do you want?", he shouted

Monday, February 19, 2018

Indian Banks: Broken Windows and Musical Chairs

It is easier to summarise what is right with Indian banks than to detail what is wrong . Tragically, nothing seems to be right. SBI, BOB, PNB, Allahabad Bank, IOB, etc., all of them seem to be neck-deep in mismanagement and consequent ill-effects.

SBI has started reporting quarterly loss. BOB has closed its branch in South Africa. PNB has been forced to go to town regarding its incapacity to comply with basic banking requirements. Allahabad Bank is a participant in all big bad loans. IOB is in perennial penury. Banks not named here are perhaps waiting for an opportune time to disclose their distress.

When the entire system is rotten, neither RBI nor the Finance Ministry can escape their responsibility. We do not have a responsible and reasonable opposition party that can pin  down the government for its lapses and facilitate remedial steps. In essence, the entire banking system is broken.

According to the theory of Broken Windows, if even a single window is broken in a house, over time,  vandalism can be expected. If all windows are broken?

Frauds are committed over a long period of time as in the case of Nirav Modi. Instead of rounding up all perpetrators, we catch only those who are at the wheel when the fraud becomes public. In this game of musical chairs, the borrowers are able to fly the coop because they are informed in advance as to when the music will stop.

It has become the norm for every bank whose mismanagement is exposed,  just to brazen it out till another bank gets into limelight for its recklessness. It is a never-ending saga of managerial delinquency and competitive chicanery.

Thursday, February 15, 2018

Ponzi scheme in loan frauds

Normally, Ponzi schemes happen in mobilisation of deposits. Sometimes, banks evergreen their loan accounts by sanctioning higher amounts to defaulting borrowers. PNB has now raced far ahead of other banks in running a Ponzi in fraudulent loan accounts.

The Ponzi is supposed to have started in the year 2011 and the balloon burst in 2018. For seven long years, unauthorised SWIFT messages emanated from the Brady House, Mumbai Fort branch of PNB. Each message guaranteed higher amount of buyer's credit than the previous message. This bank was the topper among all Indian banks in reporting total quantum of frauds in 2017. But, in the number of frauds, it is not even in the first five. The bank and its employees really think big!

PNB is the only bank in India where the Chairman and Managing Director have the same name, Sunil Mehta. This coincidence, of course, means nothing. But these days, the bank's SWIFT messages also mean nothing. They are unauthorised.

PNB has spawned a few innovations. Loan applicants have the option to ask for loans via CBS or CBS-sidestepped loans. In grand old days, banks used to boast that they had secret Reserves and therefore, their financial position was stronger than what was suggested by their Balance Sheet. Now, PNB has come up with secret loans!

P.Chidambaram keeps saying that credit offtake is poor indicating that GDP is stagnant. He is wrong. He has not taken into account secret loans.

Yesterday I was getting introduced to a stranger. When I told him that I had worked in PNB, he withdrew hastily.

Sunday, February 11, 2018

Economic Survey

Economic Survey for 2017-18 was presented in the parliament  in the last week of January. The Budget was presented later on Feb 1st. Economic Survey is prepared by the Chief Economic Adviser to the government whereas the Budget is prepared by the Finance Minister.

Economic Survey is an academic paper that reveals the state of the economy. The Budget is an unashamedly political document. Normally copies of both are made available in all major cities within a couple of days of presentation.

Though the copies of the Budget were made available this year within 2 days, copies of Economic Survey are yet to find their way in major cities. Is there more to this than what meets the eye?