BBB and Bad Debts

Apropos the news report Interim Mechanism to resolve bad loans in banks (BS Dated 21/05/2016), the need to strengthen the balance sheet of banks with strong credit portfolio devoid of losses on account of bad debts is paramount and the Banks Boards Bureau BBB) is busy in the process of Introducing some measures by the middle of June 2016. According to the BBB Chief “The mechanism in the works would be in the domain of banks and outside the BBB and It would give a lot of comfort to bank decision-makers and would be credible.  Unfortunately, the banks particularly the PSBs are working with lots of social and political compulsions and the commercial considerations are the least giving rise to no professionality in their business approach and this situation has been exploited by one and all to loot banks. Thanks to RBI Governor, the banks real health has been exposed and he wants to fix the problem once for all for bringing in the much needed Financial Stability and deeper credit and bond market in the financial system. The setting up of BBB has added strength and professionalism in the running of banks and with its present approach to find a solution to the burning issue of bad debts, it has added credibility and raised the hopes that the banking system can provide the badly needed financial support at a reasonable cost to industrial, agricultural and all other credit needs to support the economy for its fast and upward journey. The passage of Bankruptcy Code, no doubt would add strength to sort out the recovery of bad loans. The formation of bad debts has got cascading effects on the economy and its stake holders particularly the Government and tax payers and from this angle, any steps to prevent bad debts in banks would be welcome and BBB would make the greatest contribution to the economy and the financial world if banks’ balance sheets are made really strong.   

Dr. T.V.Gopalakrishnan

Uncalled for and unjustifiable demand.

This refers to the editorial Load of Rubbish (et dt 18/5/16).It  is unbecoming of an MP to openly write to PM for the removal of the Reserve Bank Governor ignoring the merits of Dr Rajan, his contribution as Governor in salvaging the wrecked economy and undermining the role of Reserve Bank as a central Bank of the country having perpetual  legal status, thorough  and intimate knowledge of the economy better than the Government and politicians in power. Dr Rajan's contribution in taming the inflation and bringing it under single digit, widening and deepening the capital market, by appropriate policies in strengthening the institutional set ups, improving the payments and settlement system and ensuring financial stability through containing volatility of the rupee, strengthening the balance sheets of banks by bringing in professionalism in the management of credit portfolio despite defiant intervention from the Government,is unparalleled and commendable..Dr Subramanan Swamy being an eminent economist himself and having been in the Ministry in the past should appreciate the fact  the poor performance of the economy is definitely not due to the policies of the Reserve Bank but it is due to the political interference and lack of government initiative in removing several bottlenecks faced by the investors in the ease of doing business and other legal and political hurdles. Interest policy alone cannot wreck the economy is a well acknowledged truth in Indian Conditions though Dr Rajan has done his best to change interest rates within the permissible economic conditions. Dr Swamy's demand for removal of Dr Rajan only smacks of his political arrogance and personal prejudices against Dr Rajan who maintains an unblemished record of achievements both nationally and internationally to his credit. Questioning his Indianness is simply absurd and no Indian can subscribe to such views on Dr Rajan.      

.T.V.Gopalakrishnan

The demand for removal of RBI Governor is unfortunate.

It is unfortunate that Subramaniam swamy has written to the PM to remove RBI Governor ignoring the Status of the Governor, his contribution to the economy, his personal merits as an economist recognised all over the world and above all the supposed autonomy the RBI as a central bank enjoys for its independent views and policies . It is unbecoming of an MP to openly demand sacking of RBI Governor  who has been an Indian and who has been specifically brought to the Country to find ways and means to take the economy out of its bad shape for reasons known to Politicians and  unknown to even veteran economists. As Governor Dr Raghuram Rajan proved his mettle and displayed  his determination, courage, knowledge of economics and love for the country to take it forward and bring it on par with some advanced economies. His out of box thinking and his unique style of functioning keeping the Government under tenterhooks to make the central banks policies work effectively has perhaps irked some political masters and his speeches to drive home the need to have Government policies in tune with his thinking have irritated some Ministers without appreciating his intentions and desire to take the economy forward. All said, his contribution to save the economy from distress is commendable and unparallelled. Definitely, RBI and the Government will have to recognise and record in golden letters as and when RBI History is written for the period Dr Rajan was governor. Hope wiser counsel will prevail and the Government will keep him for another term both in the interests of the Government and the economy.  

Dr T V Gopalakrishnan

Write off of banks Loans.

There are three kinds of write off of loans in Banks.1) Technical write offs: The loans are  not written off in the books of Branches but written off  in the Banks Balance sheets. This is to claim Income Tax benefits and to manipulate recoveries to suit the management.2) The write offs due to total failure of the business and the loans are not backed by any tangible assets.3) The write offs often done with the full knowledge of the Management in collision with borrowers , Auditors and with the support of Boards of Directors. Here the intervention of politicians, bureaucrats and all sorts of pressures are brought in to write offs. Availability of securities is often ignored. Some times one time settlements are also offered meaning write off s ignoring the availability of securities, high networth of the borrowers etc. Several One time settlements have taken past in the last several years. RBI in its limited scope of Inspection due to shortage of staff, more delegation of powers to banks under liberalised approach, switch over to risk based supervision etc does not give much of importance to the write offs and banks  and borrowers are aware of RBI's approach to take full advantage. The fact of the matter remains that Borrowers Outsmart banks in fooling them by not repaying the loans, banks outsmart Reserve Bank in covering up all their lapses in conducting the loan portfolio effectively and the Reserve Bank Outsmarts all in keeping the banks' health under suspense.  This game has been going on and there is no intention to have a professional approach to run the banks commercially with all the discipline  and loan principles. Favouritism plays havoc and the loot goes on unquestioned. Unfortunately when the banks are better of the NPAs become non issues but it becomes noticed when the economy itself fails.  

Dr T V Gopalakrishnan

Surge Pricing and Economic Theory

The article ( The Mint Dated 8/5/2016) reads well but the applicability  of its contents in Indian context is limited. The surge pricing pursued in Indian Cities by cab aggregators is a reflection of their  greed and has nothing to do with demand and supply. Suge pricing by cab aggregators in Bengaluru and other places using the Computer algorithms in the garb of taking care of excess demand over the supply is atrocious and does not speak of the reality. The cab drivers with whom I had interactions informed that they keep their mobiles busy or engaged and create an artificial mismatch between demand and supply. Once the shortage is created in a matter of few seconds , the surge pricing operates and supply position improves.The surge pricing is three or four times or even five times and it cannot be said to be fair by any ethical standards . No economic theory can justify the surge pricing when the intention behind is to loot using technology and ignoring ethics and values. Unfortunately in India the Governance standards have reached their  nadir and markets have been made imperfect.The inequality of income levels has made the surge pricing technically acceptable as many are in the high income brackets with black money and without black money and improved affordability. The surge pricing is nothing but exploitation, day light robbery and outright cheating with the blessings of the authorities. 

What ever is pursued in advanced economies and their economic theories need not be true and applicable to countries like India and emerging economies. The Income levels, the efficiency of  transport system, governance standards,differ from country to country and understanding and application of technologies also varies to think of uniform application of all economic theories.Surge pricing in India cannot be justified based on demand and supply and the pricing mechanism adopted by the tax aggregators and air services are totally unjustifiable especially when the supply is more and demand is less. This can be easily verified if one were to conduct a survey on supply and demand for cab services in cities where these cab aggregators operate. The same is the position in airlines where one can observe lots of empty seats and surge pricing for the occupied. seats. Surge pricing coming out of greed cannot be justified applying the economic theories intelligently exploiting the weaknesses of Governance standards,inequality of income levels,ignorance and helplessness of some people .

Dr T V Gopalakrishnan.