Bad Money review: Yet another reinforcement of the ills plaguing the banking system in the country

By Madan Sabnavis

Unhealthy Cash is the story of how Indian banks, or extra significantly Indian public sector banks, have transformed good cash from depositors to unhealthy cash by way of a mixture of ineptitude and incorrect doing. This emotion has typically been expressed by a number of critics and analysts and Vivek Kaul places this along with panache that makes this e-book participating. At occasions he might sound a bit too harsh on the PSBs and their functioning, as he has typically saved personal 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 firstly that this e-book could be extra like a Quentin Tarantino film with flashbacks and therefore it won’t be a chronology of occasions however actions could be each ahead and backward. This strategy makes it distinctive as the topic is on NPA of PSBs, and all different features of those banks are thrown in together with the most recent rules. The nice individuals and unhealthy ones are recognized from the beginning. Raghuram Rajan and Arvind Subramanian are the nice guys; those that run the PSBs and their house owners 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 happened it’s instructed in easy phrases with no jargon in order that the layman can perceive how banks saved lending cash with out due diligence at a time when every little thing regarded nice. Then got here the myriad of scams that put tasks in jeopardy, as all of the sudden energy firms that began off with some plans couldn’t get coal due to the court docket circumstances. 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 put money into these banks.

PSBs are positively the weak hyperlink right here and the creator 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 means 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 occasions, 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 incorrect.

From the standpoint of the novice, Kaul explains in easy phrases varied 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. On condition that we’ve come a great distance after 1969, the thought of PSBs is dated right this moment. He explains nicely 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 few of the bigger IBC circumstances. There’s intrigue concerned in mortgage sanctions right here as some personal bankers saved their distance whereas the PSBs went in totally. The dearth of ethics in these large corporates is uncovered nicely, 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 massive names have borrowed with out having any intention of repaying the cash and have leveraged each device out there to sport the system. This was a transparent case of crony capitalism. The soiled dozen of IBC was a manifestation of the identical.

Whereas the creator does discuss of a few of the mishaps within the personal banks territory, the impression one may get given his inclination for privatisation of PSBs, is that personal bankers may be sacked which doesn’t occur to PSB heads. Right here one might argue in any other case, as PSB chiefs have an even bigger nightmare of being hounded by the investigative businesses for all times whereas personal bankers have typically gotten away with resignations and a few lack of repute.

In direction of the tip he raises broader problems with security of deposits with PSBs, which is one thing all of us take without any consideration. He warns of the bail in coverage being mentioned on the coverage stage the place deposit holders might should shoulder some losses of loans gone unhealthy. This will make readers edgy about placing cash in financial institution deposits.

Kaul’s answer is to go in for privatisation and likewise enhance governance requirements. He advocates the UTI Financial institution or AXIS Bank mannequin the place authorities retains out and let the personal route work with the stake being positioned with SUUTI.

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

(Madan Sabnavis is chief economist, CARE Ratings)