Tuesday, November 27, 2018

Yes Bank

Yes Bank is oddly named. No bank can say 'yes' to all requests from customers. There are better ways of communicating one's positive outlook than through an ill-advised name.

What is in a name? There are occasions when everything is in a name. What is the bank saying 'yes' to? Subterfuges and shenanigans? Ever since RBI stalled Rana Kapoor's attempts to continue as the bank's CEO, many reports have emerged disclosing borrowings by shadow banks (NBFCs) belonging to the yes group from mutual funds on the security of shares in Yes Bank. These loans have been ploughed back into some companies of the group as equity.

These transactions are not unlawful. But when under a regulatory scanner, any ethically dubious transaction is  viewed as an egregious transgression.

These are not isolated transactions. There has been a pattern. There have been marked divergences between NPAs disclosed by the bank and those flagged by RBI. Why did Rana Kapoor take to devious ways when the bank was doing well? Or, was the bank doing well only thanks to these difficult-to-justify methods?

Ashok Chawla could not continue as Chairman apparently because there are some allegations of corruption against him. A whistle blower is supposed to have alleged that the bank's CEO had indulged in corrupt transactions. Coincidental charges against both the chairman and the CEO  make Yes Bank more notorious than ICICI Bank. Neither bank was able to deal with the reputation risk adroitly.

Is there a giveaway in names of organisations? Satyam, Global Trust and Yes - all are indicators of qualities these organisations did not possess!

Sunday, November 25, 2018

Chanda Kochhar and Carlos Ghosn

ICICI Bank's Board continued to express confidence in the bank's CEO despite serious allegations against her which were believed to be true by everyone except the wise Board. Nissan's Board threw out its Chairman relying on accusations believed perhaps only by the Board.

As yet, we do not have the response of Carlos Ghosn to allegations of financial misconduct against him. He was taken into custody the moment Nissan reported the findings of an enquiry. The accused in India are lucky to have the kind of police we have here who will not dare to arrest any influential person whatever be the gravity of offense. In fact, greater the gravity, the lesser the chances of arrest !

It is said that the offences that Ghosn is deemed guilty of, namely underreporting of income and personal use of company's assets, are not uncommon even in Japan and therefore do not invite the wrath of law-enforcing agencies. It is further argued that the Japanese do not want a French company, Renault, to dictate to Nissan. This 'nationalistic spirit' has led to the downfall of Carlos Ghosn reputed for his cost-cutting efficiency.

Japanese are known to be loyal to their bosses. It is therefore surprising that Ghosn's protege Saikawa, Nissan's CEO, let him down by propagating the alleged charges. Does it mean that the Japanese are loyal only to Japanese bosses?

Born in Brazil to Lebanese parents, Ghosn is a French citizen leading, among others, a Japanese company. Truly a global citizen, it is ironic that he has come to grief the way he did falling a prey perhaps to 'Japanese jingoism'.

Thursday, November 01, 2018

Viral Acharya's fulmination

Delivering the A.D.Shroff Memorial Lecture in Mumbai recently, Viral Acharya, a Deputy Governor of RBI spoke at length about the importance of independent regulatory institutions. He emphasised that the risks of undermining the independence of a central bank are potentially catastrophic.

He classified economies as either value-enhancing or rent-extracting. Reduced independence of the central bank would promote rent-extraction and thus corrode economic efficiency.

Methods adopted to rob the central bank of its independence include a)appointment of non-technical people in senior management, b)erosion of statutory powers of the central bank, c)preference for discretionary policies over rules-based policies and d)establishment of parallel regulatory agencies.

In order to ensure independence from the government, the central bank needs sufficient reserves of funds and definite rules for apportionment of profits including transfer of profits to government.

Governments that do not favour independent central bank attract market wrath and ignite economic fire whereas others enjoy cheaper funds and support of international investors.

All these are unexceptionable motherhood statements. Acharya  wants the government to desist from seeking higher share of profits (present and past) from RBI and interfering with central bank's guidelines on delinquent borrowers.

Is Acharya justified in expressing his angst in a public forum? Independence of RBI has to be reflected in the strength of RBI's Board of Directors to be unswayed by extraneous influences. Acharya as a member of RBI's Board ought to have taken the Board into confidence and it was for the Board to send a message to the government.