NaMo. DeMo. NiMo. We can’t deal with this NoMo.

It is absurd, the rapidity at which scams are unfolding in the banking sector. We barely have time to catch our breath from the NPA scam, when NiMo hits us. Followed rapidly by Rotomac. God knows what else lies hidden in the vast mess that is is our banking system. Short of capital, short of management talent and very very short on integrity.

One of the more ironic jokes that crossed my whatsapp, was the picture of a cheap pen chained to the tellers grill to prevent it from being pilfered by a customer. And talking about pens,  how does a banking system justify an exposure of Rs 3000 crores to a single pen manufacturer, when the size of the entire writing instruments (as pen manufacturers prefer to be called) market in India in 2014 was less than 250 crores.

And the diamond trade in India, as everyone knows is mostly a money laundering and havala operation..and now banking products have been devised to enable and facilitate this. You can get both pre shipment and post shipment credit for illegal money transfers now. You can hedge the currency risk with forward contracts or options, on all of which banks make a nice commission, thank you very much. And let’s not even go into letters of undertaking. For those of you who are curious on how this works, here you go:

If you are a worthy customer, you can walk into your friendly neighbourhood bank in India , and request them to guarantee a loan of a couple of billion dollars from a bank in let’s say Hong Kong. Your friendly neighbourhood banker types up something on a typewriter which you present in Hong Kong and presto you have a couple billion dollars in your bank account. One would think, that there would be some sophisticated verification processes in place in both banks to make sure that the letter of undertaking is properly authorised, executed and accounted for. But no. They are mere details.

What happens when the loan of a couple OD billion dollars falls due for repayment. No problems. You go back to you friendly neighbourhood bank in India and ask them for a fresh letter of undertaking and you are off again.. it is simple, and it works. Or at least worked till NIMO shit hit the proverbial fan.

Now w e don’t know how much of this is there. And where?

Smoke, mirrors and the stimulus..

This Tuesday our honourable Prime Minister hogged the prime time , a time usually reserved for the likes of Arnab Goswami. The nation had wanted to know many things. Such as, was the lockdown going to be extended? If so what would it’s restrictions be? When can businesses start? What about the migrant labour ( God, how I hate the word. As if they are some kind of transient slaves, who come and go according to our wishes and command)? He spent half an hour on prime time basically to inform the nation that his finance person would get back to us.

Well true to the PMs word, the Finance minister showed up on TV the next day. This time at 4 PM so as to not cut into either the Ramayan broadcasts in the morning or Arnab’s TRP ratings in the evening. From then on there has been a steady slow drip of disjointed drivel masquerading as reform/stimulus.Whatever happened to the Big Bang theory of reforms. Someone forgot to inform the FM that reforms work ideally when they shake the foundations of conventions and traditions. Incremental, marginal reforms are doomed to failure at the starting gate.

I am not sure if the FM was briefed on how many zeroes there are in 20000000000000.? Not sure if I got that right..but what is a zero, here or there. I know my phone calculator can’t  handle it. Neither can our FM, it seems. Maybe her brief, was something very brief, like make it sound like 20 lakh crore in 2020. The theme is not Covid, it is 2020.

Anyway, from Wednesday onwards we have been exposed to never ending episodes of the equivalent of watching paint dry. What our FM lacked in content, she was unable to make up with oratorial or sartorial skills unlike her master. So here we are, with no clue as to where we are and where we are headed. To be fair, it is hard to come up with a number like 20 lakh crores and expect someone to come up with the math. There are two approaches to budgeting, planning and stimulus’s..bottoms up or top down..but never to a slogan like 20 lakh crores in 2020. Imagine, if she takes 20 days to unravel her stimulus plan? Just to stick to the theme?

Smoke and mirrors cannot make watching paint dry, exciting. How is refunding income tax to people who have paid more than their share, to be considered a stimulus? And what is it going to stimulate? Also how is stuffing an absurd amount of potentially bad MSME loans onto Indian bank balance sheets a stimulant? All that will stimulate is the forced euthanasia of Indian banks. Cutting advance tax rates by 25% when most people are trying to figure if they will have any income to pay tax on. Is that a reform. Or is it a stimulus? And old schemes, freshly dusted, inflated and sold as brand new stimuli. And she still has a long way to go. She may run out of old schemes to re present. Like I said 20 lakh crores has a lot of zeroes.

I can’t wait for the next instalment of watching paint dry. 

Banks are too big to fail, and bankers are too big to jail

A couple of months ago, a young friend of mine was trying to remit a couple of thousand pounds to pay for her tuition and living expenses in the UK. She was given a run around for a whole day, and asked to produce documents starting from her birth certificate to current rent receipts. Yesterday the story of a scam involving $1.8 billion involving the Punjab National Bank and Nirav Modi broke. It is obviously much easier to spirit larger amounts with no documentation  than a few thousand pounds against your own cash.

Apart from the obvious disproportionate intensity of scrutiny, should we not be asking why are banks and bankers so gullible and unable to learn any lessons from past mistakes. We are quick to blame politicians and then businessmen, but act as if banks and bankers are innocent victims of corrupt politics and greedy businessmen. Of course many of our politicians are corrupt and all businessmen are trained to be ambitious and greedy. But what about our bankers? Don’t they have any responsibility in such massive failures? Are they negligent, greedy or just plain stupid? Or all three?

In the early nineties, when the Harshad Mehta scam happened, it was spun out as an elaborate scheme planned and executed by one man and his family. He paid a heavy price for it, and there is nothing wrong with that. But what about the Reserve Bank and it’s outdated security settlement system that allowed this scam to thrive? What about the many banks which had no settlement reconciliation systems in place, and the many bankers who were either blind or stupid? They all pretty much got away scotfree, barring a few minions who were sacrificed by the ‘too big to jail’ bankers.

Then came Ketan Parekh. Another scam. Again a leaky system and a regulatory environment and banking network that was a fertile ground for milking the system. But when the proverbial shit hit the already dirty ceiling, we were bloodthirsty for Mr Ketan Parekh’s blood. But the regulators, the banks and the complicit bankers? All were poor innocent victims of one mans evil machinations.

Vijay Mallya? A crooked businessman who cheated innocent banks and bankers of a billion dollars. Who do we blame? Vijay Mallya of course. We want his blood. And politicians. We want their blood too. But what about the banks? Innocent bystanders who got duped. Who lends hundreds of crores to already broke and failing entities without asking some basic questions?

The entire trillion dollar NPA problem was caused by greedy businessmen and corrupt politicians as far as we are concerned. But the banks and bankers? Lily white innocent victims. Who need to be protected from businessmen and politicians.

And now Nirav Modi. $1.8 billion in unsecured foreign currency loans? No questions asked. But when my friend tries to pay for and send two thousand pounds to pay for her studies, they need everything in duplicates and triplicates. But when Mr Nirav Modi walks in and asks for $1.8 billion in unsecured loans, they hand him the keys to the vault.

But the banks are too big to fail and the bankers too big to jail.

winds of change?

the winds of change,
inverts the image
of the strands of age,
in  the gilded cage..

police states
traps and baits,
fate awaits
at the pearly gates..

recurrent throb
of the agitated mob
that does the job
of a nuclear bomb

good times
for rhymes
load, shoot
and then aim...

A short cut to financial inclusion

A short cut to financial inclusion:

The Central Governments ambitious plan for financial inclusion under the Sampooorn Vittiya Samaveshan (SVS) targets the inclusion of 100 million unbanked households. Is this achievable with the present banking network and mindset? Or is there a short cut?

Consider this. In the 67 years of independence despite the best efforts of the Reserve Bank through regulation, persuasion and coercion, banks have managed to penetrate barely 40% of all households. Even where they have supposedly opened bank accounts a very significant number of the so called “no frills accounts”, have remained dormant, with customers finding no sense in operating these accounts due to lack of access, benefits and products.  It is time to realize and accept that banks have neither the will nor the ability or indeed the technology to achieve the financial inclusion mission. Policy makers need to understand and acknowledge that the current banking infrastructure may not be the most optimum way to reach the unbanked. The brick and mortar model that banks employ is slow and expensive.

Cell phone companies have managed to accomplish a 60% penetration of the total population in one third the time that the banks took, through a mindset that values customers, technology that is cheap to deploy and a product that customers want. It is important to note here that the documentation that is required to get a cell phone account is not a lot different from the set that is prescribed by the RBI for the opening of no frills accounts. They already have developed capacity to handle micro payments, money transfers, and have the data to create sensible credit products that can be delivered cheaply. Most importantly, customers are very used to going to the nearest recharge outlet to load up their phones with airtime.

The communication architecture, the network and technology that these companies have put in place can easily be adapted to achieve the Governments financial inclusion targets. What it only requires is a change in the mindset of policy makers that banks are not the exclusive or effective option for delivery of financial products. Why not consider using the more efficient and effective infrastructure that is already in place.

In practical terms many prepaid customers already consider their airtime as storage of value. A few more sophisticated customers already use it as a payment mechanism. The track records of cell phone usage and bill payment cycles can form an excellent proxy for structuring credit products. Banks starting afresh with new customers will legitimately have concerns about extending credit to newly acquire customers.

Policy makers should seriously consider allowing cell phone companies to either act as full fledged banks. in the alternative allow them to operate as front end with customers ,with banks providing the back end processing and balance sheet support.

The Government and the RBI may have the greatest opportunity here to accomplish a policy goal by simply marrying the credit, capital and balance sheet strengths’ of banks with the marketing, distribution and technology capabilities of cell phone companies.

 

Campa Cola Cocktail

Recipe:
Take prime property in the island city of Mumbai, add some unscrupulous builders, a liberal sprinkling of corrupt city officials and politicians, and a privileged upper class who believe that anything in the city can be fixed for a price, shake and stir,  and you have a molotov cocktail waiting to explode in our face.

The hypocrisy of democracy
The Campa Cola cocktail that hit the headlines and all media channels with politicians from all sides taking the side of the residents ( as if the politicians take any  side other than their own ), lays bare the hypocricy of our democracy. If the affected residents did not belong to the privileged and connected class, they would be homeless today. Every day in the city of Mumbai slum dwellers are rendered homeless in conscious disregard of their right to shelter. In this city only the privileged and connected have an unwritten right to shelter, and when that is threatened the media descends and the ensuing photo ops attract politicians of all hues and leanings to make grand statements of their commitment to set things right. In the ensuing free for all we tend to lose sight of all facts, ignore all city planning rules ,and even the Supreme Court judges lose sleep and wake up in a cold sweat in the middle of the night to give them more time to find a solution. Where were the honorable judges when thousands of slum dwellers are thrown out of their hovels with not so much as decent notice? Did they forget that the Campa Cola residents had lost their case in every court of law, and were given a last extension based on their own undertaking to vacate peacefully? If anybody else had gone back on their written undertaking to the supreme court, it would be contempt of court.

The audacity of the connected
The power of the visual media to influence our judicial process should be a matter of great concern to all law abiding citizens. Why go to court when you can go to Arnab Goswami or Barkha Datt instead, who can out shout anyone and plead your case more effectively than any supreme court lawyer? And probably cheaper too? They have the ability to rouse sleeping judges from their slumber and change their minds Try getting your lawyer to do that.

Whatever happened to the concept of caveat emptor, one of the first concepts taught in law school. Buyer Beware. You are supposed to do some due diligence before you buy property. If the residents case is that they were unaware that the apartment they bought was illegal, and that they were duped by the builders, maybe they deserved to be duped either because they were lazy to do their homework, or they were greedy ( because there has always been a difference between the per square foot rate in campa cola vs any comparable property in a similar location). They were confident in their ability to get everything fixed eventually. And they were right. They may actually succeed.

We paid taxes, they say. As if it is a favour. Everybody who lives in this city pays taxes, including slum dwellers. Every time you buy a product or service, you pay taxes. You cant pay taxes on an illegal product or service and make it legal. You pay your taxes to use the city services like water, roads, security, sewage.

The builders are going scotfree they claim. And that is right. They should be made to pay, both by the authorities and by each individual owner who has been duped. That is a right the residents always had and continue to have. So should all city officials and who colluded with the builders in allowing this to happen and for turning a blind eye for so long.


The asymmetry of sympathy
There is an obvious asymmetry of sympathy here. For the connected few the public, the media, the judiciary, the politicians, all come together. For the dispossessed slum dweller, no tear is shed.

This cocktail has the potential to blow our city into complete disarray, as this becomes a precedent to regularize the over 50000 illegal constructions that have come up in the city over the last few years. We may as well give up the fig leaf of town planning, in this city that is already bursting at its seams.

Think 2022 Goa.

2000 thinkers..75 speakers, 25 performances, 10 artists..a forum for thought, provocation and hopefully some solutions at the end of three days.

Goa, in the beginning of November, an overcast day, with the prospect of rains, and a flood of ideas in multiple fields of inquiry.A proud legacy and an uncertain future.

Into the second year now, the festival to celebrate thought and ideas, in Goa, got off to a subdued start, in the sense, that the Afghanistan issue is hardly THE issue on top of the mind of the assembled thinkers. But the whole idea is to keep an open mind and see if we can learn from afganistans mistakes..

Fauzia Koofi talked about the other Afghanistan where people live, learn, love and learn to love..the war left scars, but emerging out of the ashes is the possibility of a lasting peace. Where women like fauzia show the way to what is possible.

On American involvement in afghanistan , she says that they came without being invited, and left without being asked to leave, and all they left behind was a mess. According to her the situation there is not exclusively an afghan issue, but a regional and global conflict being fought in her backyard.

Jason Burke is the journalistic incarnation of Jason Bourne. He has been in some of the toughest spots in the world. He has been close to the action, sometimes in the thick of it, a way with words to describe it, but most importantly he has a perspective that lays bare the futility of this war.