A file photograph of depositors exterior a Sure Financial institution department in Mumbai after the RBI imposed a moratorium on it

By Madan Sabnavis

Dangerous Cash is the story of how Indian banks, or extra notably Indian public sector banks, have transformed good cash from depositors to unhealthy cash by means of a mixture of ineptitude and unsuitable doing. This emotion has usually been expressed by a number of critics and analysts and Vivek Kaul places this along with panache that makes this e-book participating. At instances he might sound a bit too harsh on the PSBs and their functioning, as he has typically stored non-public banks out of the primary discourse, although they do seem on the periphery of arguments. One can name it the author’s prerogative.

Kaul tells us at first that this e-book can be extra like a Quentin Tarantino film with flashbacks and therefore it won’t be a chronology of occasions however actions can be each ahead and backward. This method makes it distinctive as the topic is on NPA of PSBs, and all different points of those banks are thrown in together with the newest rules. The nice individuals and unhealthy ones are recognized from the beginning. Raghuram Rajan and Arvind Subramanian are the great guys; those that run the PSBs and their homeowners are the not so good guys, whereas the crony capitalists are the unhealthy ones.

Kaul is an excellent storyteller and therefore his narration on how this mess took place it’s advised in easy phrases with no jargon in order that the layman can perceive how banks stored lending cash with out due diligence at a time when every little thing seemed nice. Then got here the myriad of scams that put initiatives in jeopardy, as all of the sudden energy firms that began off with some plans couldn’t get coal because of the courtroom instances. Furthermore, the incompetence of PSBs to judge time period loans fast-tracked the method of NPAs being created. The price has been borne by the deposit holders and the coverage holders of LIC, which has needed to spend money on these banks.

PSBs are positively the weak hyperlink right here and the writer offers a number of examples to justify his place. He quotes three successive SBI chairpersons saying the identical phrases of the worst being behind them, solely to have the successor utter the identical phrases after doing the clean-up. So when will the clean-up actually occur? That’s the query. Kaul additionally poses the query of whether or not the RBI ought to take part of the blame. He doesn’t say so in plain language however does convey the view that your entire technique of restructuring of debt had been fostered by the RBI and therefore couldn’t be absolved totally. We have to get out of this enterprise of forbearance because it helps us to kick the can. Underneath these Covid instances, this worry is sort of palpable within the coming years. Right here he’s all reward for Rajan and Subramanian, the previous CEA, and argues that the AQR was the turning level for the system which uncovered every little thing that was unsuitable.

From the perspective of the novice, Kaul explains in easy phrases numerous points just like the scams and even the issue with the DISCOMs which lastly get traced again to the banking system. The flashback to nationalisation is once more very readable as he explains the ideology behind this transfer. Provided that we have now come a good distance after 1969, the concept of PSBs is dated at present. He explains effectively additionally the ideas of recapitalisation of banks, the IBC, PCA and so forth.

There’s a lot written on Nirav Modi and Vijay Mallya in addition to a number of the bigger IBC instances. There may be intrigue concerned in mortgage sanctions right here as some non-public bankers stored their distance whereas the PSBs went in totally. The dearth of ethics in these huge corporates is uncovered effectively, particularly when a few of them attempt to purchase again their firms at a reduction which was plain absurd. We additionally get a sense that a few of these giant names have borrowed with out having any intention of repaying the cash and have leveraged each device obtainable to recreation the system. This was a transparent case of crony capitalism. The soiled dozen of IBC was a manifestation of the identical.

Whereas the writer does discuss of a number of the mishaps within the non-public banks territory, the impression one might get given his inclination for privatisation of PSBs, is that non-public bankers may be sacked which doesn’t occur to PSB heads. Right here one might argue in any other case, as PSB chiefs have a much bigger nightmare of being hounded by the investigative companies for all times whereas non-public bankers have usually gotten away with resignations and a few lack of fame.

In direction of the top he raises broader problems with security of deposits with PSBs, which is one thing all of us take as a right. He warns of the bail in coverage being mentioned on the coverage degree the place deposit holders might must shoulder some losses of loans gone unhealthy. This will likely make readers edgy about placing cash in financial institution deposits.

Kaul’s resolution is to go in for privatisation and in addition enhance governance requirements. He advocates the UTI Financial institution or AXIS Financial institution mannequin the place authorities retains out and let the non-public route work with the stake being positioned with SUUTI.

Dangerous Cash is sort of well timed and places collectively every little thing one must learn about NPAs. Written in his typical simple-to-read model, Kaul makes the problems simple to understand. PSB bashers will discover this a delight and the scholars educative.

(Madan Sabnavis is chief economist, CARE Scores)

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