Insensitivity and intolerance

one of our ministers hasoffered Rs.51 crore to anyone who would do away withthe cartoonist.A religious court in U.P.,exercisingits global jurisdiction,has issued a fatwa against thecartoonist.. It may be simple logic that an insane response to aninsane act is an aggravation and not a solution.But,weneeded a Mahatma to remind us that 'an eye for an eye'makes us all losers. Among animals and birds,a deviant is immediatelyisolated and its influence ring-fenced.It is only inthe biologically most-rational species that a rogue iseither deified or demonised to such an extent that hisbehaviour becomes self-sustaining and acquires a largefollowing. Once animals and birds start emulating humanbehaviour,there will be total anarchy.Let us pray thatanimals will remain as animals.

Pedestrian and the car

If the pedestrian moves before the horn is sounded,something is wrong with the car;if he does not move even after the horn,something is wrong with the pedestrian.

Treasury Skills

InFeb,2005, I took charge of treasury function though Ihad no prior hands-on experience.When I entered thedealing room for the first time,I could notdistinguish it from a gamblers'den.Swaps,options,swaptions,derivatives--it was allmumbo jumbo.I had no option but to pretend that Iunderstood all this.Every trader said that he/she wasmaking money ("was in the money")every day.Was freelunch possible in treasury? Soon I realised that when marked to market,ourposition would turn negative.Around the same time,RBImade MTM disclosure compulsory for derivatives also.Istarted sharing such info with others in theorganisation.I was shifted fromtreasury.Transparency,I learnt,is the eighth deadlysin in treasury. In the brief period I was in treasury,I understoodthat multitasking is de rigueur for a trader.Nothaving a conversation on a mobile ,while on twolandlines already,is considered infradig.A trader isnot worth his pay if his attention is not constantlydistracted by his BlackBerry and the Bloombergmonitor. In India,hedge derivatives have a betteracceptance.Speculation is a no-no.The mantra is:"Hedge if you can;fudge if you cannot;but,never admitspeculation."Every trader reflexively claims,"Ihedge;my predecessor was speculating."Once, I heard atrader say,"My predecessor was speculating;mysuccessor will do the same.I do only hedging."How didhe know what his successor would do?"Foresight",boasted the dealer.My takeaway was,"Atrader ,in addition to multitasking,must be capable ofmultisights also." Performance-related bonus is a strong incentive fordressing up figures.Figures don't lie,except intreasury.Given the intense competitive pressures,thetipping point for a normally ethical person to adoptdishonest means is reached faster.The irony is thatprofits/losses are determined more by market movementsthan by trader's skills.It is unfortunate that plaindame luck masquerades as performance.

Digital divide and digital dividend

Mr.Deve Gowda's recent outburst against InfosysTechnologies and its Chairman and ChiefMentor,Mr.N.R.Narayanamurthy indicates that there is aneed for introspection by IT companies regarding theircontribution to society.Deve Gowda has faulted Infosysfor its penchant for owning land and buildings;he isalso not satisfied about employment potential createdby the company.He wonders what can be the worthwhilecontribution from a peripatetic mentor to companies ofwhich he is a director.A dispassionate discussion on(a)how to bridge the digital divide,(b)ways to promotefair distribution of digital dividends among allstakeholders and (c)prevention of degeneration of'overboarding' into 'sinecures' is called for. Digital divide:There is doubtless a politicalagenda behind Gowda's carping criticism.But it is alsoto be recognised that growth of IT industry has notmade any difference to the lives of countless peoplewho feel alienated from the development process.Apartfrom the traditional 3R-s,computer literacy has becomea sine qua non for gainful employment.The haves andthe have-nots have been redefined as thecomputer-literate and the computer-illiterate.Onaccount of higher levels of remuneration in ITindustry,the incidence of relative poverty (thedifferential between the incomes of employed andunemployed)has increased leading to greater socialtension.Apart from the age-old urban-ruraldivide,there is now an intra-urban divide between theIT-savvy and others.With business and communicationturning more and more online every day,thecyber-challenged are becoming increasinglymarginalised.This polarisation is an invitation topoliticians to fish in troubled waters.Therefore,ITcompanies in their own interest and in the greaterinterest of society would do well to provide ITeducation to as many people as possible,be they inurban slums or in the remotest rural areas.Hardwarecompanies can also play a significant role innarrowing the digital divide by introduction ofinexpensive computers and peripherals. Digital divide is defined as the the socialinequity in the access and the opportunities forgaining competencies with information andcommunication technologies.Government and IT companiesought to work together towards amelioration of thisinequity instead of criticising each other. Digital Dividend:Society gains in a variety of wayswhen IT sector grows.Software is a major strength toour economy by virtue of its exportpotential.Employment opportunities are augmentedthanks to outsourcing of IT jobs to India.But equityand even enlightened self-interest of the industrydemand that benefits (dividends)accrue to all sectionsof society.Fair distribution of these dividends is asure way of bridging the digital divide.Instead ofcontinually harping on poor infrastructure,the ITcompanies may make a beginning by helping to construct nearby roads.Corporate socialresponsibility(CSR) is not a fetish.It should beviewed as an essential part of strategy to sustainbusiness growth.N.R.Narayanamurthy rightly points out,"The primary purpose of corporate leadership is tocreate wealth legally and ethically.This translates tobringing a high level of satisfaction to fiveconstituencies--customers,employees,investors,vendorsand the society-at-large.The raison d'etre of everycorporate body is to ensurepredictability,sustainability and profitability ofrevenues year after year."This underscores the factthat society-at-large also is a significantstakeholder in growth of any industry.Sustainedprofitability of IT industry in the long run ispossible only if digital dividend is fairlydistributed.Many IT companies are now admittedlydarlings of the stock market.They need to becomedarlings of society. Though CSR practised by IT industry cannot bebelittled (for example,Infosys contributed Rs.5 croretowards tsunami relief),society expects a lot more.The most prestigious award for excellence in CSR isthe TERI (The Energy and Resource Institute)annualaward established in 2001-02.In the first threeyears,14 Indian companies have qualified for this CSRaward.It is revealing that none of these companies isfrom IT industry.(All Indian registered companies areeligible to apply for this award.) Overboarding:IT industry has produced many capableleaders/managers.Naturally,their service as directorsis desired by many companies.Narayanamurthy'scontribution as chairman of Bangalore InternationalAirport Limited(BIAL) has been questioned by DeveGowda.Gowda's implicit assumption is that such a busyperson cannot devote required time and energy forBoard meetings.While it is likely that a person who isa Board member in several companies may not be able todo justice to all companies,Narayanamurthy's record interms of attendance is good.Albert Brunner,CEO of BIALhas confirmed,"Despite his hecticschedule,Narayanamurthy chaired all the board meetingsof BIAL barring one."Gowda's criticism regarding BIALseems to be misplaced.However,overboarding(thephenomenon of a person serving too many boards hascome to be called as 'overboarding')should be avoidedif the person concerned is not able to perform forwant of time. To sum up,though Deve Gowda's fulmination is undulyharsh,it is a warning signal to IT industry that it isrequired to improve its image as a sociallyresponsible sector.

Deve Gowda on Infosys

It is obvious that there is a political agenda behind Gowda's attack on Infosys.But,his reference to the company's penchant for owning land and buildings is worth analysing.

In 2004-05,the company spent more on capex than on R&D.

It is food for thought that no IT company so far has bagged the TERI corporate social responsibility award.

Article in The Hindu

Date:16/10/2005 URL: http://www.thehindu.com/thehindu/op/2005/10/16/stories/2005101600051400.htm
Open Page
Are small banks viable?
K.R. SRIVARAHAN
AN INTENSE debate is now on in our country regarding the desirability of allowing small banks (either in the private or public sector) to continue as independent entities. Finance Minister P. Chidambaram has been advising the banks to aim at 3-Cs, namely consolidation, competition and convergence.
The basic premise of those arguing for the merger of small banks with large ones is that small ones per se are not potentially viable. It is contended that margins/spreads in banking business keep narrowing and therefore banking has become a "volumes game." Only the big players can survive; smaller banks have either to become big (organically or through mergers) or to go out of the scene.
The counter-argument is that the sustainability of the banking business depends on efficiency and governance; size is not the deciding factor. Banks have gone under not because they were small, but because they were ill-governed. Barings Bank, by no means a small one, collapsed because its systems were leaky and the camouflage of one person (Nick Leeson) was enough to undo a banking behemoth. Nearer home, GTB bit the dust owing to gross irregularities in management. New Bank of India and Nedungadi Bank lost their identity on account of lack of good governance.
There is always some inherent merit and some innate demerit in size. Big banks like State Bank of India and ICICI Bank are certainly able to take advantage of economies of scale, garner low-cost deposits and offer low-interest credit products. They can easily afford to put in place effective risk management systems and thereby avoid, at least theoretically, accumulation of distressed loans. Some large banks are alert enough to securitise and sell their potentially non-performing assets well in advance. It is another debate altogether whether these are desirable or sharp practices.
Empirical evidence
Size, however, is not a guarantee against judgmental errors. Empirical evidence suggests that the proportion of contaminated assets among larger loans is higher. The advantage of large-sized banks is that they can weather the shocks of large loan losses with less strain than the smaller ones. In this context, it is interesting to note that "small versus big banks" debate is taking place in many countries now. For example, Judy Wasylycia-Leis, an MP belonging to the New Democratic Party of Canada, has written to Canada's Minister of Finance, in a letter dated August 12, 2005, as follows: "We do not believe that large size of banks — resulting from bank mergers — improves our economy. Few benefit from Canadian banks such as CIBC losing billions on unproven investments such as Enron, yet permitting more Enron activities abroad is the central goal of current merger talks." This may be an ideologically loaded statement, but this also shows that bigness is not a panacea.
Small banks, on the other hand, ensure `financial inclusion.' They take care of financial needs of many small customers who may get marginalised by larger banks. Social desirability of this aspect is also stressed by Federal Reserve Bank of Chicago in its 2004 annual report. To quote: "On a dollar-for-dollar basis, community banks make nearly three times as many small business loans as the typical large banking company, and they rely more than twice as much on small deposit accounts for funding. These are long-run economic relationships — community banks do not sell off the loans they make to local businesses, and they consider their depositors to be permanent customers, not just sources of funds."
Size is crucial especially in capital-intensive industries. Surprisingly, despite the much talked-about Basel norms, banking is not equity intensive. Public deposits, which are basically debts for the banks, are typically more than ten times as much as the owned funds of banks. With such a high leverage, bigger banks obviously pose a much higher systemic risk. Hence, size can be counter-productive.
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Manmohan Singh and Bhagavad Gita

Justifying India's vote on the Iran issue at theInternational Atomic Energy Agency (IAEA),ManmohanSingh has sought to draw support from the BhagavadGita.He is supposed to have said "One has to do one'sduty unmindful of the consequences" as reported in TheHindu dated 2nd October.Has the prime ministermisinterpreted the 47th stanza of second chapter ofthe Gita? "Karmanyevaadhikaaraste maa phalesu kadaachana" isprobably the most quoted phrase of Bhagavad Gita.Itmeans:"Your right is to work only;but never to thefruits thereof."This does not mean that one must beblind to consequences of one's actions.This stanzaonly exhorts us not to be disappointed in case theexpected results fail to materialise.The Gita does notnegate the Newtonian logic that every action has anequal and opposite reaction.If one desires to preventa particular reaction,one should avoid the action thatleads to that reaction. The next stanza further elaborates the theme ofnon-attachment to rewards (as against'non-consideration of consequences').It says,"Performactions,abandoning attachment,remaining unconcerned asregards success or failure.This evenness of mind isknown as yoga.'Samatvam yoga ucyate'"(2.48)The Gitadoes not preclude consideration of possibleconsequences before commitment of action. The 50th stanza shows how misconceived Manmohan'sinterpretation is."Yogah karmasu kausalam."Thatis,"Yoga is efficiency in action."We can improveefficiency by increasing output or improving outcomefor the same level of input.Our action is theinput.Consequence or outcome is the output.The Gita'smessage is that through yoga,one can maximise outputor rather the expected output.In case the actualoutput is less than the expected output,we should notfeel disheartened,but should carry onnevertheless.Unless we make an upfront appraisal ofpossible outcomes of our various options regardingaction,we cannot improve ourefficiency.Therefore,Bhagavad Gita certainly enjoinsus to weigh,in advance,the consequences of our actionor 'look before we leap'.There is also the ethicalimperative that in case the consequences of our actionare harmful or unwelcome,we are not supposed toindulge in that action.The Gita does not advocatereckless action unmindful of consequences.Through yogawhich is defined as 'equanimity of mind' and'efficiency in action',we can ensure that ourbehaviour is positive and conducive to growth. Unless we are mindful of the likelyconsequences,our actions are likely to bevitiated.Acting unmindful of the consequences isirresponsible;on the other hand,acting without an eyeon the rewards is yogic.The two are worlds apart.Howcan one be mistaken for the other? Performance of duty oblivious of its consequencesis oxymoronic.Voluntary action that heraldsdeleterious consequences cannot be glorified asduty.Such an action is anarchic and cannot attract anyscriptural approval.It is foolhardy to suppose thatdisregard for consequences will result in righteousaction.One only hopes that Manmohan Singh did not meanwhat he said.The prime minister is expected to explainthe justification for our stand in IAEA instead ofdrawing a red herring through a sophisticmisinterpretation of Lord Krishna's utterances.