Other people's money

Now, when every analyst in town is complaining that there is no capex happening, where is all this credit going?

It is a coincidence that after running our flagship column Think Beyond, Stay Ahead for about a year now, we have featured Uday Kotak in an edition that brings forth the rot at government-controlled banks. Kotak has built a reputation as an astute banker and, as you will read in a bit, he makes a very basic but vital point about banking. Bankers who operate with a humongous amount of borrowed capital often delude themselves into thinking that they own the significantly bloated assets of the bank, not just the equity that truly belongs to them. If they lose that little equity, they just have to go home. 

Kotak is correct in letter, but recent events have shown that the majority will not go home, be it Wall Street or Mint Street. In the Indian context, all the chairmen at the respective public sector bank will complete their tenure and receive their pension, perhaps even board memberships at private companies. They will not be held accountable for any evergreening or red ink that they leave behind nor will the puppeteers behind the curtain. Recapitalisation of corrupt and inefficient capital draining state-run institutions continues, courtesy people like you and I who pay taxes. If that is not enough, let’s bloat the fiscal deficit some more. After all, in the long run, we are all dead.

The current spate of corporate debt restructuring is certainly worrying, although non-performing assets at banks per se are nothing new. Are bankers really exercising due diligence when ‘restructuring’ loans or are they simply deferring the pain and pushing the banking system into a deeper morass, the cost of which will again be borne by taxpayers? Despite apparent pressure, the RBI has to be applauded for being independent in setting monetary policy, but it needs to be stern where credit lines are being extended with little chance of business revival. If that is too much to ask for, it needs to at least ask for a greater level of disclosure so that investors and depositors get a “true and fair” picture of the lending book of banks, both public and private. 

Deputy editor V Keshavdev highlights the mess in banking in our cover story. By the way, even as we complain about asset quality issues, there is something strange happening: if you look at credit growth this year, it has been far in excess of industrial growth. Now, when every single analyst in town is complaining that there is no capex happening on the ground, where is all this credit going? While reporting on this story, Keshav did run into some inconvenient truths, but publishing all of it would surely put him in the bad books of many.