Bank Crisis Watch
- The roots of the current banking crisis Manas Chakravarty says "The roots of the current crisis in our banks lie in the great boom of 2003-08, which was then prolonged in India by a fiscal and monetary stimulus". And that is true. When we are in phase of high growth all credit expansion seems good. It is only tested during downturns. Even now if India starts growing broadly at 10% the bad debts will soon go away. [Rather their materiality to the balance-sheet will diminish]
- But Manas Chakravarty refuses to blame anyone further. The boards of banks - PSU and private sector, also companies too, are not functional. There a substantial level of checks and balances just dont work. Unless you have functioning boards which uphold the shareholders interest banks will continue to pander to political will. There is also substantial corruption - both at RBI and Finance Ministry- that has corrupted the banking top management of all PSU banks.
- Fault lines in the Indian banking industry - Rajrishi Singhal asks the right questions. This seems to be the first part of his analysis. Must read. One quote
One trend is unmistakeable: money is diverted out of the banking system with the active connivance of either the bank’s senior management or a couple of rogue officers. This is what makes both the PNB and BoB cases incredulous: with Reserve Bank of India (RBI) putting so much emphasis on anti-money laundering mechanisms, and with an increasing number of prosecutions against either money laundering or diversion of bank funds, it is indeed curious how both the banks persisted with lax risk mitigation and supervision frameworks.
- SBI chief Rajnish Kumar hits back at critics seeking PSB privatisation. The SBI chief is not wrong. If you look at the accounting books of most of Indian companies - Public sector units have cleaner books than many private-sector listed companies. Sometimes I really don't know what these companies are hiding in those books. PSU is more wyswyg-types.
Reforms
- T. V. Mohandas Pai and S. Krishnan complain about unfairness of taxation - View: Every year the same old story — Punish the honest, let the dishonest make merry. They are not wrong. The incentive system in India is stacked against the honest. I had earlier written about this somewhere. In India, the cost of complying with the law is quite high and punishment on breaking the law is not great and certainty of getting caught is almost zero. It is exact opposite of what it should be - cost of complying with law should be low, punishment should be substantial and certainty of getting caught should be almost 100%.
- Two Governments, Parliament And An Expert Body - How ICAI Is More Powerful Than All Of Them, Menaka Doshi highlights how ICAI is trying to scuttle creation of "National Financial Regulatory Authority". It is a must read. Government should get cracking on this.
- In the article Menaka Doshi highlights MCA's reply with statistics
Of the 1,972 cases taken up by the Disciplinary Committee/Board of Discipline of the ICAI, only in the matter relating to Satyam Computers have the members been permanently removed.
Penalties of one year or more have been imposed on members in only 14 of these cases. In a majority of the cases, the members have been found as not guilty.
Further, in majority of the cases where members have been found guilty, they have been merely reprimanded or cautioned.
Astonishingly, the MCA noted that the ICAI has not moved even on complaints made by the Ministry.
- Most of the financial scams in this country including tax evasion and money laundering are product of the Chartered Accountants. They are hand-in-glove with tax authorities and Finance Secretariat in leaving huge loopholes in the law. NFRA will be a significant development. Staff it with clean officers and you will start cleaning the system.
- Airlines Are Backing a Startup That Could Fix the Overbooking Problem
- They are trying to solve the problem of overbooking. In the process the article states they want to collect more data.
- This has been another pet peeve of mine. The airline booking systems, to my mind, are unnecessarily complex. The variety of factors are being unnecessarily tampered with to create opaque complexity. And whenever there is opaque policy there is fleecing of customers. I recently read an article about the different fare categories and it is complex. CNN Travel asked the question why airlines do not go flat-fee? They also have another article explaining airline pricing secrets.
- My suggestion to get lower prices on your tickets is search for tickets in "private mode". Using cookies airlines know you are searching for specific flight and hike up the prices for the same. It is my suspicion and based on my experience.
- The confusion over rural electrification in India Dipti Jain explains the problems in rural electrification.
- A village is considered electrified if at least 10% of its households are electrified, among other conditions. Intensive electrification, on the other hand, refers to deepening the electricity infrastructure to provide access to the remaining un-electrified houses.
- While progress is being made on the rural electrification front, proper accountability and monitoring is critical if the government is to set a date for achieving universal electrification.
- Fred Wilson has an excellent post called VC Funnel where he links to another article from CB Insights. Read the CB Insights article and Fred Wilson's comment too. The chart is quite interesting though so here it is.
- Student Loan crisis by Gaius Publius is a must read - though it is only the first part.
- This chart is easily explained by the "bargaining power" logic I used in Subverting Capitalism and Democracy. Whenever there is an opportunity to grant loan so that the loan is difficult to be waived (student loan does not get waived by bankruptcy) and the bargaining power is favorable then you can increase the exposure. The rate of growth is increasing because lenders are keen to lend any amount (higher the better) and colleges keep hiking fees (because students have no bargaining power). The logic worked for the top courses like say Harvard MBA where pay-off from salary was quite substantial. But it hurt the lesser courses where the pay-offs were not as high.
- Dont forget to read Yves' comment right at the start of the article.
- Next year, we may have a market crash, says eminent economist Andy Xie. I agree with some of his points and disagree with others. But worth a read.
- HAL carried out hot-refuleing trial on Tejas. Tejas is quite important aircraft for India. Lower cost of purchase, low operating costs and supersonic fighter will be a baseline for large capacity deployment for India. Hope it functions well.
- View: Why India should not delay its fighter jet procurement. This article argues that India will need a 5th generation fighter aircraft. India has invested in design of Su-57 but India is not happy with the engine and stealth characteristics of the aircraft. The choice is going all in for either Su-57 (we have good equation with Russia) or with F-35 one of the costliest aircraft as on date though they have now achieved lower prices with scale F35 cost is about 80million. With Su-57 having improved the engine to Saturn 2, I think Su-57 makes a better bet than F-35. It will need a super deal to tilt scales in favour of F35. (The order book for F35 is quite full). My sense is India will have to maintain both F-35 and Su-57 fleet. My vote for workhorse aircraft still goes to Gripen E and Tejas. In air, there is superiority in numbers.
- Germany's armed forces are not quite ready says Judy Dempsey in Germany: From Machine Guns to Broomsticks. The article highlights how German army is ill-equipped. Two quotes are relevant
- Back in 2014, a year after Ursula von der Leyen became defense minister, the armed forces were lacking such essential equipment that the aircraft that was supposed to take 150 German soldiers home from Afghanistan broke down. There wasn’t a back-up one available. That same year, at one stage during a NATO exercise, because they lacked machine guns, tank commanders instead used broomsticks. They had them painted black. This was not a joke.
- As for the Eurofighter and Tornado fighter jets and the CH-53 transport helicopters, they can only be used on average four months a year. They are in constant need of repair. And by the way, there’s a shortage of spare parts for maintenance. Just to add to the miserable state of the armed forces, the troops lack night-vision equipment and automatic grenade launchers.
- India’s regional power status under a cloud, Harsh Pant encourages the government to act decisively in the neighbourhood. I think his criticism of the government is valid. There are worrying trends. India must act fast.
