BOOK
REVIEW
TITLE:
FROM LEHMAN TO DEMONETISATION-A Decade
Of Disruptions, Reforms And
Misadventures
AUTHOR:
TAMAL BANDYOPADHYAY
PUBLISHER:
PENGUIN RANDOM HOUSE INDIA, PORTFOLIO, 2017
PRICE: Rs. 599/- IN HARDBACK
Taming
the Bucking Bronco of Bad Debts
Tamal Bandyopadhyay, the author of this book composed of
selections from his columns from 2008 onwards, writes for The Hindustan Times
Group’s pink paper Mint. This book is divided into two sections- the first on
banking and its concerns ex 2008.
Bandyopadhyay chronicles the various dilemmas
and conundrums of a banking sector trying to stay solvent despite regulatory
constraints like the non-interest earning cash reserve ratio (CRR), tiny deposit retail
banking which loses money, being besieged by wilful defaulters, and the
pressures of politically dictated but massive loan waivers.
The second section has engaging pen portraits of some of
the larger figures in the banking space that he encountered over a 20 year
career. The point of the latter is probably a thank you from the author for the
goodwill he experienced from many of them. But, as a reader, one is left wondering
why the Indian banking sector is not bigger and much better than it is, given
all this apparently stellar leadership. They all seem to be propped up by the
relative size and stature of their office, with the exception of the Goldman
Sachs India chief written up in the back of this section. In the end, size
matters.
In turn, Tamal Bandyopadhyay has
long been recognized by the movers and shakers in section two of this book, as
one of the country’s finest business journalists.
Bandyopadhyay has also worked in Business Standard earlier,
and has written books on both the Sahara Group and Bandhan Bank. He brings his
university degree in English literature to bear on complex financial matters,
albeit with the help of good research assistants. This makes his columns not
only interesting and readable, but clear and lucid to the layman.
And thanks to his selection, most of the content of this
book remains relevant, even though the
reader is looking at essays in the rear
view mirror. These range from the 2008 financial crisis, India’s response to it,
subsequent events right up to the 2016 demonetization , which he thinks did hit
black money hard, but for how long?
Indian banking today
appears to be paying the price of the low interest rates, exuberant lending,
and lax regulatory systems, including
the expedient of loan recasting, over the last decade.
Climbing steadily, the discovered gross non-performing
assets were, in 2017, already at 9.6% or around Rs.10 lakh crores, dwarfing
most union budget allocations.
With even stricter prescriptions imposed, against rolled-over
loans, bad loans under Rs. 100 crores, regulatory breaches, runaway scamsters,
this percentage could climb well into double digits, and stay there for a while.
This won’t destroy the banking system by itself, particularly
because it receives regular doses of recapitalization using tax payer money,
but it does cast a pall over its functioning .
But, too much regulatory and supervisory caution in the
aftermath, will also cripple lending. And this flies in the face of the growth
necessary to lift India out of emerging nation status.
The government’s recent and unprecedented efforts to access
untroubled and unencumbered assets and businesses of willful defaulters, via a
clutch of new and strengthened laws, will certainly yield results, and haul in
some of the monies owed.
But, a lot of the bad debt is not wilful default. This
particularly applies to the power and infrastructure sectors, where borrowers
are in the soup because of governance related blockages including environmental
objections, adverse litigation, non-payment of contractors, and land
acquisition. And remedy means the rescue and resuscitation of various projects
into economic viability and completion by untangling all this. Again, the
government is on the job, and getting results, but not as fast as one would
have liked.
At least one devil in the detail, that of inflation, as
high as 13% in 2009, has been tamed to under 5% today. Provided oil prices do
not skyrocket afresh, low inflation should prevent any increase in interest
rates.
The fiscal deficit too, for all the challenges this
government is facing, is stubbornly being held down to under 4%. And the Indian
economy is the fastest growing major economy in the world, at around 7.5% GDP growth,
projected in fiscal 2018. It is also about to become the 5th largest
economy in absolute terms, overtaking, if only just, Britain and France, to
secure its spot.
Bandyopadhyay expects, in his epilogue to the book, the
only bit that talks of the future, for PSU banking to shrink to 60% of the
market share, down from 70%, by 2025.
But is there not a case for privatization of the entire
sector, given that government owned banks seem to have become a free source of public
money via a nexus between crooked businessmen
and politicians?
Bandopadhyay expects the non-banking finance companies (
NBFCs), regulated “lightly”, to concentrate on financing affordable housing
going forward. Well, at least there is a tangible asset to hypothecate in this!
Very interestingly, he points out that the
Indian mortgage market is small yet, accounting for just 9% of GDP at Rs. 12
trillion, growing at about 19% per annum.
This is in contrast to the US and the UK where it is 81%
and 88% of their GDP. China is at double
of India, and in small countries such as
Denmark has a mortgage market at 104% of
GDP.
As for technology becoming all pervasive, Bandopadhyay
holds out the argument that “Bharat” if not India, will still need interactive
banking with human interface for a period much beyond 2025.
This is a collector’s item of a book, as YV Reddy, the former RBI Governor put it,
and well worth a read, both for its historicity and its prescience.
For:
The Sunday Pioneer BOOKS
(939
words)
February
23, 2018
Gautam
Mukherjee
.
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