17/03/2016 Cheapergas:why,how,andwhatsinitforyouTheIndianExpress

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Cheapergas:why,how,andwhatsinitforyou
WrittenbyUditMisra|NewDelhi|Published:October2,20151:44am

Consumersofnaturalgas,includingcommonpeople,willgainfromthecheaperavailabilityof
compressednaturalgas(CNG)andpipednaturalgas(PNG).

Byhowmuchhasthepriceofnaturalgasgonedown?Isthisunusual?Howaregaspricesdetermined?

ThegovernmentannouncedonWednesdaythatdomesticallyproducednaturalgaswouldbepricedat$3.82permillionBritish
thermalunits(mmBtu)ongrosscalorificvalue(GCV)basisforthesecondhalfofthefiscalyear201516,thatis,fromOctober2015
toMarch2016end.Thisisareductionof18%overprevailingprices,whichcameintoeffectonApril1.Pricesoflocallyproduced
naturalgasarerevisedeverysixmonthsaspartofanewsystemofgaspricinginitiatedinOctober2014.Assuch,thisisa
scheduledpricerevision,andisinlinewiththefallinmarketpricesofnaturalgasacrosstheworld.Accordingtothenewformula,
domesticpricesareafunctionofthepricesoflocallyproducedgasinfourkeymarketsoftheworld:NationalBalancingPoint(UK),
HenryHub(US),AlbertaHub(Canada)andFederalTariffoftheRussiangovernment.

AreIndianpricesdifferentfromothercountries?Aretheyhigherorlower?

Indianpricesareaweightedaverageofthefourmainmarkets.Thevolumeofgasconsumedinthecorrespondingmarketsweights
theprices.Assuch,Indianpricesarenotexactlythesameasthoseinanyonemarket.However,thebiannualrevisionensures
thatIndianpricesmoveinsyncwithglobalbenchmarks.

Whogainsfromthelowerprices?Byhowmuch?

Consumersofnaturalgas,includingcommonpeople,willgainfromthecheaperavailabilityofcompressednaturalgas(CNG)and
pipednaturalgas(PNG).AccordingtoIndiaRatingsandResearch,thebenefitfromreducedpriceswillbepartlyoffsetbythenear
6%depreciationoftherupeeoverAprilSeptember2015.Evenso,thenetimpactofreduceddomesticgasprices,inrupeeterms,
wouldrangebetween11%and16%.ThemoveislikelytoresultinacutofRs2.12.3/scm(standardcubicmetre)inPNGprices,
andRs2.83.0/kgreductioninCNGprices.RetailpricesofbothCNGandPNGwerecutonThursday.

Companiesinthebusinessofgasdistributionwillbenefittoo.SharesofthesecompaniesroseonWednesdayIndraprasthaGas
wasup3.7%,GujaratGasgained2.76%,GujaratStatePetronet1.42%andPetronetLNG1.16%ontheBSE.

Impactongovernmentfinancesislikelytobemixed.Thegovernmentwillgainduetoareductioninthesubsidyburdenonaccount
ofurea,butwillloseoutonincomefromstateownedproducersofgas.

Whowillloseoutduetolowerprices?

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17/03/2016 Cheapergas:why,how,andwhatsinitforyouTheIndianExpress

ProducersofdomesticgaslikeONGCLtd,OilIndiaLtdandRelianceIndustriesLtdwillbeimpactedadversely.IndiaRatingsand
ResearchestimatesthatONGCwillseeitsrevenuesdeclinebyRs10.8billion11.5billion,andOILbyRs1.2billion1.3billion.

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17/03/2016 DutydrawbackandtradebasedmoneylaunderingTheIndianExpress

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Dutydrawbackandtradebasedmoneylaundering
WrittenbyShajiVikraman|Published:October20,201512:31am

WHAT:ThedutydrawbackschemehasbeendesignedtorefundtoexportersdutiesleviedbyCustoms&CentralExciseortariffs
paidbythemonbothimportedandlocallyproducedmaterialsorinputsthatgointotheproductionofgoodsforexport.Thesewould
includerawmaterials,components,intermediatesandpackingmaterialsusedatvariousstagesofproduction.Tobeeligibleforthe
refund,thegoodsshouldhavebeenexportedtoaforeignport.Thedutydrawbackschemeappliestoexportgoodsmanufactured
orproducedoutofimportedorindigenousmaterial,andsuchexportgoodsimportedintoIndia.

Drawbackisoftwotypes.One,inwhichtheCustoms&CentralExciseDepartmentrefundsdutypaidongoodsthathavebeen
originallyimportedafterpayingduty,andthenexported.Two,inwhichtheDepartmentgivesrefundsatspecificratesongoods
manufacturedinthecountry,andthenexported.Inorderfordrawbacktobeclaimed,themarketpriceofthegoodsmustnotbeless
thanthedrawbackamount,andgoodsimportedforuseinproductionmustbeexportedwithintwoyearsofthedateofpaymentof
dutyonimports.

WHY:Manycountrieshavethisschemetoensurecompetitivenessofexports.Lackofcompetitivenesscouldbeduetothequality
ofinfrastructure,costoffunds,valueofcurrency,highCustomsduties,orexciseduties/tariffsoninputsorintermediatesthatgointo
productionofgoodsforexports,etc.Schemeslikethis,andtheCashCompensatoryScheme,wereformulatedtoboostearnings,
economicgrowth,andselfreliance,andtofinancethedeficitinthecountrysbalanceofpayments.

HOW:Normally,onJune1(orthreemonthsaftertheunionBudget),theFinanceMinistryannouncesAllIndustryRatesof
Drawbackformanycategoriesofgoods,whosenumbersrunintohundreds.Theserates,fixedbytheDirectorateofDuty
Drawback(undertheCentralBoardofExciseandCustomsintheFinanceMinistry),arebasedonbroadaveragesofconsumption
ofinputs,dutiesimposed,quantityofwastage,etc.DisbursementsaredonebyCentralExciseCommissioneratesorCustoms
Houses.ForgoodsforwhichAllIndustryRatesarenotavailable,abrandrateisfixedonthebasisofreportsofCentralExciseor
CustomsCommissioneratesaftercheckingthedataprovidedbytheexporter.

PROBLEMS:Misuseoftheschemeisreflectedinthelatestcaseofallegedinflatedexportbills.Therehavebeenconcernsover
delaysinrefunds,andcomplaintsoverinterpretationandthetimeinvolved.Exportersthinkaverageindustryratesfor
reimbursementarelow.

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17/03/2016 Explained:MeaningofSection25companyTheIndianExpress

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Explained:MeaningofSection25company
WrittenbyUditMisra|Updated:December11,20154:56am

ASection25companyisregisteredunderSection25oftheCompaniesAct,1956.Thissectionprovidesanalternativetothose
whowanttopromotecharitywithoutcreatingaTrustoraSocietyforthepurpose.Itallowstheformationofacompany,whichwill
existasalegalentityinitsownright,separatefromthepersonpromotingit.Thecrucialbit,however,isthatanycompanyunder
thissectionmustnecessarilyreinvestanyandallincometowardspromotingthesaidobjectorcharity.Inessence,unlikearegular
company,whereownersandshareholderscanmakeprofitsorreceivedividends,nomoneygetsoutofaSection25company.

ASection25companyisoftenpreferredbecauseitiseasiertostartbeingexemptfromstatutoryrequirementsofminimumpaid
upcapital.TheyaremucheasiertorunthanTrustsandSocieties,asboardmeetingsrequireasmallerquorumandrequirements
forcallingsuchmeetingsarelessrigid.Itiseasiertoincreasethenumberofdirectors,itiseasierforpeopledonatingmoneytojoin
orleaveortransfersharestoothers,andsuchacompanyisobligedtofulfillfarlessstringentbookkeepingandauditing
requirementsasagainstaregularcompany.Lastly,aSection25companyenjoyssignificanttaxbenefits.Dependingonhowitis
registeredundertheIncomeTaxAct,companiescouldbenefitfromincometaxexemptions,orfromtheprovisionwhereinpeople
donatingmoneytothesecompaniesreceiveincomedeductionsintheirincometaxliability.Suchcompaniesarealsoexemptfrom
stampdutypayments.Section25ispreferredbyseveralbusinessmenbecausetheyareconversantwiththecompanystructure,
whilebenefitsfromseveralexemptionsmakeiteasyforphilanthropy.

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17/03/2016 Explained:SlashandnotburnTheIndianExpress

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Explained:Slashandnotburn
WrittenbyAnjuAgnihotriChaba,RaakhiJagga|Ludhiana/jalandhar|Published:November6,201512:50am

AfieldonfirenearMogainPunjab.

Everyyear,aroundthistime,vasttractsofagriculturallandinPunjabandtoanextent,Haryanaarelitupbythousandsof
fires,asfarmerstrytogetridofpaddystalksthatremainaftertheharvest.Theproblemislinkedtothewidespreaduseofcombine
harvestersinPunjab,whichleave1214inchstalksoftendescribedasstubbleafterthecrophasbeencut.Thegap
betweensuccessivecropsinthisregionisnomorethan1520days,andasfarmershurrytopreparetheground,theysettheir
fieldsablaze,sendingupthicksmokethatspreadsapollutingshroudoveralargeswatheofnorthwesternIndia,includingthe
nationalcapital.ScientificstudieshavelinkedfineparticulatematterinthehazetothemeltingofHimalayanglaciersandother,
largerclimatechangeconsequences.

Governmentattemptstodissuadethefarmershavelargelyfailed.Asmallbeginning,though,hasbeenmadeatexploringother,
lessenvironmentallydamagingwaystogetridofthestubblewhichalsohavepowerfuladdedadvantages.Insteadofburningthe
paddystalks,hereswhatsomefarmersaredoing.

PRODUCINGPOWER

Punjabhassevenbiomassrunpowergeneratingunits,whichuseabout1milliontonnesofthe15milliontonnesofpaddystubble
thestateproducesannuallytogenerate65MWofpower,accordingtothePunjabEnergyDevelopmentAuthority(PEDA).The
plants,whicharerunbyprivateentitieswithPEDAactingasfacilitator,alsousecottonstalksasfuel,jointdirectoroftheAuthority,
MPSingh,said.

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17/03/2016 Explained:SlashandnotburnTheIndianExpress

FarmerGurdeepSinghofFerozepurdistrictmakespackingmaterialcardboardfrompaddystubbleina
villagefactory.

Theprocessofsettingupthebiomassplantsstartedin2005,andthelastplantwasopenedin2013inMansa.Applicationshave
beeninviteduptoNovember16tosetupnewplantswithacombinedcapacityof200MW,saidSingh.

Headded,however,thatitwasnotpossibleforthegovernmenttosetupenoughplantsthatcouldconsumeallthepaddystubble
generatedinthestate,andfarmersneedtolearnthattheyshouldnotburnthestubble,andcaninsteadploughitbackintothe
land.

ChannubasedfarmerBhupinderSinghsaid,Mostpeopleinourvillagedontburnthestubble.Wegiveittothepowerplant
instead.YoucanseeinthepicturesreleasedbyNASAthattheMalwaregionhaslesssmogthantherestofPunjab.

CARDBOARDOPTION

GurdeepSinghofvillageBukanKhanwalainFerozepurdistrictusespaddystubbleinacardboardfactorythathehassetuponhis
land.Lastseason,Singhcollectedstubblefrom400acresthisyear,hehascrossed500acres.Singhisalsothelocal
environmentalactivist,whospendsconsiderabletimetellingfarmersofthedamagecausedbyburningstubble,aswellasthegains
fromchangingthehabit.

Gurdeepstartedhiscardboardfactorynineyearsago,usingstubblecollectedfrom24acresofland.WemetChiefMinister
ParkashSinghBadaltwoyearsago,andhesaidhewouldvisitourfieldsandaskofficerstofollowuponourinitiative.Butforget
aboutincentivisingourefforts,thegovernmenthasntevenformallyappreciatedourworksofar,hesaid.

AsimilarunitwassetupbyMintuDuggalintheGuruHarSahaiareafiveyearsbeforeGurdeep.SukhdevSinghofthesame
districtfollowedGurdeepwithhisownunit.DuggalandSukhdev,whocollectstubblefrom400acresand350acresrespectively,
however,complainofresistancefromfarmersandlackofsupportfromthegovernment.Thetriosuppliescardboardtogarment
unitsinAmritsar,whereitisusedaspackagingmaterial.

MANUREMAKER

ThePunjabagriculturedepartmenthasreceivedover500applicationsforthepurchaseofchopperandshreddermachinesthat
chopstubblefinely,andwhichcanthenbeusedasmanureinthefields.ThegovernmenthasofferedasubsidyofRs1lakhonthe
machines,whichcostalittleoverRs2lakheach.

Lastyear,over50machineswerepurchasedbyfarmers.Thisyear,wehavereceivedover500applications,DrDRKataria,joint
director,agricultureandfarmmachinery,said.Thebalermachinesusedearlierbyfarmerstoshaveoffharvestedstalksaretoo
expensiveforindividualfarmerstoafford,andarealsonotsufficientlyeffective.

Ifyouweretogrowpotaotesoranyothervegetableinthesamefieldafterharvestingpaddy,therewouldalwaysbesomeresidue
inthesoil,whichisnotidealforthenextcrop,DrKatariasaid.Thechopperandshreddercutsthestubblesmallenoughtobe
readilyabsorbedasmanure.

Usingthismachine,farmerscanhelppreventthelossof1lakhtonnesofnitrogen,0.5lakhtonnesofphosphorusand2.5lakh
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tonnesofpotashoverthe27lakhhectaresinwhichpaddyisgrowninthestate,DrNareshGulatioftheTechnologyManagement
Agencysaid.

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17/03/2016 ExplainingtheBankruptcylawandtheneedtohaveoneTheIndianExpress

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ExplainingtheBankruptcylawandtheneedtohaveone
WrittenbyShajiVikraman|Updated:November5,20159:12am

Thefailureofbusinessesimpactsemployees,shareholders,lenders,andthebroadereconomy.
(Illustrationby:CRSasikumar)

WhydoesIndianeedabankruptcylaw?

Thefailureofbusinessesimpactsemployees,shareholders,lenders,andthebroadereconomy.InacountrylikeIndiaparticularly
becauseofdelaysinmakingdecisionsontheviabilityofbusinesses,tacticsemployedbycompanypromoterstodelay
reorganisationorattemptstoselloffassets,changesofmanagement,orlitigationthatgoesonandonthedragonnewbusiness
units,jobs,incomegenerationandeconomicgrowthcanbesignificant.Indiadoeshavesomelawsincludingoneon
SecuritisationandEnforcementofSecurityandothermechanisms,likeCorporateDebtRestructuringorCDR,toaddressthe
problemofinsolvencyoffirms.Butthefactissomeoftheselaws,suchastheSickIndustrialCompaniesActorSICA,havenot
workedbecauseofinefficientenforcementandcourtdelays.

Sohowcanamodernlawhelp?

LikeintheWest,amodernlawwithafocusonspeedyclosurewillhelpfirmsonthebrinktobeeitherrestructuredorsoldoffwith
limitedpainforallinvolved.Insomecases,ifthisisdoneswiftly,assetscanbeputtogooduseandthefirmcanberevived.
Delayingadecisiononwhethertoshutterafirmortotrytoreviveitcausesdestructionofvalueforallinvolved.Indianpolicymakers
haverecognisedthis.Forbanksorlenders,themoneyrecoveredcanbelentagain,promotingefficientallocationofresources,
besidesdevelopmentoffinancialmarketssuchasabondmarketwithclarityonrepaymentfordebtors.Anefficientandswift
insolvencyregimeensuresgreateravailabilityofcreditorfundsforbusinessesbyfreeingupcapital,andisthoughttoboost
innovationandproductivity.

Whatistheinternationalexperience?

TheUShasaBankruptcyCodethatprovidesforfairlyquickliquidationorreorganisationofbusinesswithwhatispopularlyknown
asChapter7,withcasesbeingfiledinbankruptcycourtsChapter11,whichdealswithreorganisationofbusinessesandChapter
15,oncrossborderinsolvencies.Individualbankruptciesaredealtwithseparately.IntheUK,oncecasesarefiledforbankruptcies,
after12months,thereiseitherdischargewithpartoftheassetsbeingusedtopayoffdebts,or,insituationswherecompaniescan
beturnedaround,courtappointedadministratorshandlecases.TheGermaninsolvencylawisapplicabletobothindividualsand
firms,withindependentcourtappointedinsolvencypractitionershelpinginrealisingassetsorreorganisingthebusiness.

WhatisIndiaplanning?

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AcommitteeheadedbyformerlawsecretaryTKViswanathanhassuggestedatimelineof180daysextendableby90days
todealwithapplicationsforresolvingcasesofinsolvencyorbankruptcy.Duringthisperiod,themanagementofthedistressedfirm
ordebtorcouldbeplacedinthehandsofaresolutionprofessionalanewclassofprofessionalsequippedtodealwithsuch
cases,whowouldbesupervisedbyaproposednewregulator.Theproposalalsoenvisagesthemgettingintotalkstorevivefirms,
andworkoutarepaymentplan.ADebtRecoveryTribunalwillbetheadjudicatingauthorityoverbothindividualsandunlimited
liabilitypartnershipfirms.TheNationalCompanyLawTribunalwillbetheadjudicatingauthoritywithjurisdictionovercompanies
withlimitedliability.ThelawwillhavetobeapprovedbyParliament.

Whataboutfinancialsectorinsolvencies?

TheFinancialSectorLegislativeReformsCommission(FSLRC)hasrecommendedthecreationofaresolutioncorporationto
monitorfinancialfirms,andintervenebeforetheygobust.Theaimistoeitherclosefirmsthatcantberevived,orchangetheir
managementtoprotectinvestorsordepositors.Thisisimportantbecausethefailureoflargebanksorinstitutionsimposescostson
taxpayersintheformofbailoutsorcapitalinfusion.TheproposalistopromotetheDepositInsuranceandCreditGuarantee
Corporaton(DICGC)asresolutioncorporation.

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16/03/2016 FourthIndustrialRevolution:whatitmeans,whyitsbeingdiscussedTheIndianExpress

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FourthIndustrialRevolution:whatitmeans,whyitsbeingdiscussed
By:ExpressNewsService|Published:January22,201612:29am

AccordingtotheWEF,Indiasrecoveryisbasedonimprovementinthescoresforinstitutionsand
improvementininfrastructure.(Source:Reutersphoto)

ThebigbuzzattheWorldEconomicForum(WEF)inDavosthisyearisabouttheFourthIndustrialRevolution,describedbythe
founderandexecutivechairmanofWEF,KlausSchwab,asatechnologicalrevolutionthatwillfundamentallyalterthewaywelive,
workandrelatetooneanother.

ThefirstIndustrialRevolutionbeganinBritaininthelastquarterofthe18thcenturywiththemechanisationofthetextileindustry,
harnessingofsteampower,andbirthofthemodernfactory.Thesecondrevolutionbeganroughlyacenturyafterthefirstand
peakedatthebeginningofthe20thcentury,embodiedinHenryFordscreationofthemovingassemblylinethatusheredinmass
production.FactoriescouldproducecountlessnumbersofidenticalproductsquicklyandcheaplyFordsfamouslinewasabout
beingabletosellcustomerscarsofanycolourtheyliked,solongasitwasblack.

Thethirdindustrialrevolution,beginningc.1970,wasdigitalandappliedelectronicsandinformationtechnologytoprocessesof
production.Masscustomisationandadditivemanufacturingthesocalled3Dprintingareitskeyconcepts,andits
applications,yettobeimaginedfully,arequitemindboggling.

Thefourthindustrialrevolutionisconceptualisedasanupgradeonthethirdrevolutionandismarkedbyafusionoftechnologies
straddlingthephysical,digitalandbiologicalworlds.InapaperonTheFourthIndustrialRevolution:whatitmeans,howtorespond,
Schwabsaysthatthreethingsabouttheongoingtransformationmarkitoutasanewphaseratherthanaprolongationofthe
currentrevolutionvelocity,scope,andsystemsimpact.Thespeedofchangeisutterlyunprecedented,itisdisruptingalmost
everyindustryineverycountry,anditheraldsthetransformationofentiresystemsofproduction,management,andgovernance.

AWEFpaperbyNicholasDavis,headofSocietyandInnovationattheForum,describesthenewrevolutionastheadventofcyber
physicalsystemswhich,whilebeingreliantonthetechnologiesandinfrastructureofthethirdindustrialrevolution,represent
entirelynewwaysinwhichtechnologybecomesembeddedwithinsocietiesandevenourhumanbodies.Examples,Davissays,
includegenomeediting,newformsofmachineintelligence,andbreakthroughapproachestogovernancethatrelyoncryptographic
methodssuchasblockchain.

Whatsinstore?

Therearebothopportunitiesandchallenges.Liketheearlierindustrialrevolutions,thefourth,saysSchwab,canliftglobalincomes
andimprovelivesworldwide,andthesupplysidemiracleduetotechnologicalinnovationwillleadtolongtermgainsinefficiency
andproductivity.Atthesametime,allrevolutionshavelargegroupsoflosersaswellso,saysSchwab,Therehasneverbeena
timeofgreaterpromise,oroneofgreaterpotentialperil.
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MITSloanSchoolofManagementeconomistsErikBrynjolfssonandAndrewMcAfee,quotedbySchwab,havewarnedthe
revolutioncouldincreaseinequalityintheworldasthespreadofmachinesincreasesunemploymentanddisruptslabourmarkets.
Already,Oxfamestimates,just62individualsownasmuchasthepoorerhalfoftheworldspopulation,andthatthewealthofthe
poorest50percentfellby41percentsince2010.AreportbytheSwissbankUBSthisweeksaidthespreadofartificial
intelligenceandrobotswillharmeconomieslikeIndiaandsomeLatinAmericancountriesbycuttingtheircheaplabouradvantage.
Earlier,researchersatOxfordestimatedthat35percentofworkersintheUKand47percentintheUScouldlosetheirjobsto
technologyoverthenexttwodecades.

Indeed,anincreaseininequalityremainsthebiggestsocialconcernaboutthefourthindustrialrevolution.Schwabsaysthat
irrespectiveofthenetoutcomeoftherevolution,heisconvincedthatinthefuture,talent,morethancapital,willrepresentthe
criticalfactorofproduction,givingrisetoajobmarketincreasinglysegregatedintolowskill/lowpayandhighskill/highpay
segments,whichinturnwillleadtoanincreaseinsocialtensions.India,withaverylargelowskilledorunskilledyouthpopulation,
willlikelyfacemajorchallenges.

Whenwillithappen?

Thefourthindustrialrevolutionbuildsuponthethird,whichisprimarilydigitalinnature.Thisalsoexposesittotheunpredictabilities
andinstabilitiesofthedigitalera.Therewerenobubblesduringthefirsttwoindustrialrevolutions,buttherehavebeenfartoomany
inthethird.Alotofthemodelsarejustnotsustainableorarewaitingforabigdisruptortocomealong.Forinstance,themusic
industryturnedonitsheadwiththeAppleiPod,andthechancesarethesmartphoneindustrycouldbewipedawaybythenextbig
thingintech,whichcouldbejustaboutanything.

Withdeviceandproductcyclesbeingsoshort,itisbecomingincreasinglydifficulttopredictanythingwhichhasanythingtodowith
technology.Forallyouknow,thecurrentlybuzzyfourthindustrialrevolutioncouldbeaveryshortinterludebeforethefifthone
comesalong.Thecurrentexpectationisthatdriverlesscarswillbethedisruptorthatwillputmillionsofdriversoutofworkand
changeeverythingfromthetaxisectortotheautomobileindustry.Butwhatiftechnologymakesthedailycommuteitselfredundant?

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16/03/2016 Infact:ChronicleofabankcollapseforetoldandlessonsthatendureTheIndianExpress

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Infact:Chronicleofabankcollapseforetoldandlessons
thatendure
WrittenbyShajiVikraman|Published:March16,201612:59am

In1988,inwhatwasthenMadras,atoplawenforcementagencyraidedtheresidenceofanexecutivedirectorofastateowned
bank.Latethatnight,thereportontheraidwaspulledoutofanewspaperatthelastminute.Twodayslater,theexecutivedirector
becamethechairmanofabankinthatcity.Intheyearsthatfollowed,thedecisionwastohurtthebankaswellasthetaxpayers
whohadtounderwritethebillforrevivingitandafewotherbanksaswell.

HalfwaythroughtheeconomicliberalisationprogrammelaunchedbytheNarasimhaRaogovernment,thecentralbank,following
aninspectionin1992,soundedoutboththePrimeMinistersOfficeandtheFinanceMinistryaboutrecklesslendingbyIndian
Bank,includingdubiousloanmelas.Yet,thebankschief,MGopalakrishnan,managedtosecureseveralextensionsthrougha
sevenyeartenure,asthebank,whichhadoperationsinSingaporeandSriLanka,disbursedfundstoseveralbusinesses,allegedly
withstrongpoliticallinkstotheTamilMaanilaCongress,thebreakawaygroupoftheCongressledbyGKMoopanar.In199596,
IndianBankslossesmountedtoRs1,727crore,wipingoutitsentirecapitalbase.Overthenextcoupleofyears,thelosses
multiplied,asbadloansreachedover40%ofitsloanbook.

Intheeast,UCOBankandUnitedBankofIndiatoohadpiledupbadloans,giventheinherentweaknessintheirregion,withmany
cyclicalindustriesgoingthroughtroubleandoperationalinefficiencies.By1999,whentheAtalBihariVajpayeeledNDA
governmentcametopower,alargeportionoftheloansofbothUCOBankandUnitedBankofIndiatoohadsoured,andthe
performanceofallthreebankshadslidfurthereventhoughinthesevenyearspriortothat,thegovernmenthadsunkatotalRs
6,740croreintheformofcapitalinthem.Foragovernmentstrugglingwithitsfinancesandwithaglobalslowdown,pouringin
morecapitalwasntanoption.Norwasshutteringabank,giventhepoliticalsensitivities.Thatwaswhen,afterdiscussions,RBI
GovernorBimalJalansuggestedtoFinanceMinisterYashwantSinhathatacommitteebeformedtoworkoutarestructuringplan
forweakstateownedbanks.ThemanchosentoheadtheadvisorygroupwasMSVerma,whohadfinishedhistermaschairman
ofStateBankofIndiain1999,hadagoodrapportwithJalan,andwasknowntoSinha,havinggonetothesamecollegeasthe
Minister.AftertheadvisorygroupwasformedinOctober1999,MDamodaran,whohadcompletedhisfiveyeartenureinthe
governmentasJointSecretaryinchargeofbankingoperations,toowasbroughtin.

Theadvisorygroupdidntrecommendanymerger,closureorprivatisationofthesethreeweakbanks.Thecostofrestructuring
wouldhavebeenprohibitive,andraisingcapitalahugechallenge.ACIIgroupsrecommendationthatthebanksbeshuttriggered
strongreactions.Instead,operationalchangesweresuggested:loweringthecostofoperations,resolvingthebadloanmess,
closingdownunviablebranchesincludingsubsidiariesofIndianBank,sellingassetsofoverseasbranchestootherstateowned
banks,governancechanges,pruningstaffthroughgoldenhandshakes,appointingstrongandcompetentchiefexecutives,
inductionoftechnology,financialrestructuringthroughcapitalbasedonconditions,andsigningofagreementsbetweenthe
governmentandbankmanagements,board,staffersandemployeesunionsonthegoalstobeachieved.

AtIndianBank,athreeyearrestructuringplanwasworkedout,andRanjanaKumar,whowasheadingCanaraBank,wasbrought
inwithaclearmandatetoensuretheplanworked.Loanrecoverywaspursuedaggressively,asthebankservedover700notices
onhundredsofborrowers.Evenduringthisphase,thesebanksdidntloseoutondeposits,giventhebackingofthesovereign
rather,overthethreeyearsbeginning1999,depositsswelled.Therewerequiteafewwhothenadvocatedthatthesebanksbe
allowedtoengageonlyinnarrowbankingjustinvestingthemoneytheyraisedingovernmentbondsorsecurities,andlivingoff
it.TheeffortspaidoffnotjustinthecaseofIndianBank,butalsotheothertwolendersandby200102,thesebankswereback
toreportingmodestprofits.(Rs33croreforIndianBank.)IthelpedthatthegovernmenthadprovidedcapitaltoIndianBank,andas
interestratesfellsharplyduringthatperiod,manybanks,includingthethreeweakones,wereabletogainontheportfolioofbonds
ontheirbooks.Moreimportantly,by200304,theeconomyhadrecovered,providingaboosttobanks.

Whilethiscleanupwason,someinstitutionalandstructuralchangestoowerecarriedout.MorebenchesofDebtRecovery
Tribunalswereannounced,andanewSARFESIlawcameintoforce.Forgovernmentsrunningdeficits,oneofthechallengeshas
beeninfusionofcapitalforbanks.Whilethecleanupofthesebankswasunderway,thegovernmentdecidedtointroducealawin
2001toloweritsholdinginstateownedbanksto33%toprovideheadroomforraisingcapitalfromthemarket.Butthemovefailed,

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16/03/2016 Infact:ChronicleofabankcollapseforetoldandlessonsthatendureTheIndianExpress

andinthefaceofpoliticalresistance,theVajpayeegovernmentwithdrewit.

15yearslater,thereisasenseofdjvuthroughitappearstobeafarmoresystemicissuenow.Andthesolutionsonoffer
arentvastlydifferenteither:capitalisation,governancechanges,amorepublicisedcrackdownagainstdefaulters.Duringthat
periodofstressedassets,bankemployeesunionshadputoutalistofdefaulterswhenthegovernmentandtheregulatorhad
declinedtodosocitingconfidentialityclauses.Thentoo,theVermaCommitteehadsuggestedanAssetReconstructionFundor
ARF,ownedmainlybyIndianfinancialinstitutions,whichwouldbuyoutthebadloansfrombankswhichwasntacceptedbythe
government.Aswasthecasethen,thestructuralandinstitutionalchangesnowunderwaywillworkinthemediumterm,butthe
keywouldberevivalofgrowthandanenvironmentwhichfosterslending.

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16/03/2016 Infact:HowIndialearnttotightenbelt,befiscallyresponsibleTheIndianExpress

Print

Infact:HowIndialearnttotightenbelt,befiscallyresponsible
WrittenbyShajiVikraman|Updated:March10,20163:05am

In1999,ayearintoAtalBihariVajpayeesNDAgovernment,asIndiasmountingdebtburdenstartedtoreflectinworsening
indicatorssuchasthefiscaldeficitandthefinancialhealthofstates,theFinanceMinistryunderFinanceMinisterYashwantSinha
bracedforthereturnofaneconomiccrisisliketheoneofthelate80s.Afteraperiodofrevenuesurplusesinthestatesintheearly
80s,anexpansionarypolicybyRajivGandhisgovernmenthadcreatedconditionsthatledtothebalanceofpaymentscrisisof
199091.ThePVNarasimhaRaogovernmentmanagedtorestorethebalancebeforetheimpactoftheFifthPayCommissionand
aslowingeconomyhitthefinancesofboththecentralgovernmentandthestates.

DuringdiscussionsintheMinistry,itwaspointedoutthatmostcountries,includingsomeinsubSaharanAfrica,hadlawstocurb
borrowingsandbudgets.Indiahadbeenanoutlierforthegoodpartofoversixdecades,witharecordofspendingandborrowing
withinadequaterevenuestomeetcurrentexpenditure.AfterFinanceSecretaryVijayKelkardiscussedthismatterbasedonapaper
onfiscalmanagementandglobalpracticeswrittenbyUrjitPatel,thenaneconomicadvisorintheMinistry(andnowRBIDeputy
Governor),Sinhaandhisofficialsdecidedtoformacommittee.RBIGovernorBimalJalanaskedhisdeputy,YVReddy,whetherhe
wouldheadthecommittee,butReddydeclined,giventheroleofthecentralbankandtheperceivedneedtomaintainadistance
fromlegislatingforthestate.

WithKelkarmovingtoWashingtontorepresentIndiaontheInternationalMonetaryFundboard,Sinhaappointed,inearly2000,
EASSarma,thenewEconomicAffairsSecretary,toheadthecommittee.ThepanelhadtheactiveparticipationoftheNational
InstituteofPublicFinanceandPolicyanditsheadAshokLahiri,laterChiefEconomicAdvisorinthesamegovernment.Asthe
committeebeganworkonamediumtermplanaimedatfiscaldisciplineandbindinglegislation,itreceivedbehindthescenes
supportfromRBIDeputyGovernorReddy.

Theconcernwasntjustfiscalprudenceitwasalsotomakethebudgetmakingprocessmoretransparent,andensuremore
discussionanddebateinParliamentandoutside.AnchoringthisexercisewasakeyMinistryofficialinvolvedintheBudget
process,whohadbeenoverseas,andhadpreparedapaperonfiscallegislation.

Thecommitteedebatedtargetstoensurefiscaldiscipline,andwhethertheyneededtobebuiltintothenewlaw.Thenormthenwas
tocapfiscaldeficitthegovernmentsborrowingsfromthemarketat3%ofGDPornationalincomeasincorporatedinthe
MaastrichtTreatyof1992.Someeconomistsfeltthegovernmentwouldbebetteroffwithoutphysicaltargetsforindicatorssuchas
fiscalandrevenuedeficits.ButgivenIndiaseconomictrackrecord,manyinthecommitteeleanedtowardsphysicaltargetsto
achievethebroadergoal.

Sinhainitiallybackedalowerdeficittargetof2%,andgotVajpayeeonboardonthelegislationthatwasproposedinhis200001
budget.InJuly2000,theSarmacommitteerecommendedanoversightbodyheadedbythePrimeMinisterandincludingthe
LeaderofOpposition,RBIGovernorandotherstoensurefiscalresponsibility,butonemember,theCAG,dissentedonthe
groundthatsuchafiscalmanagementcommitteewentagainstthebasicstructureoftheConstitution,andwouldbean
encroachmentontheprerogativeoftheFinanceMinister.Butthetargetofanannualreduction,starting200405,oftherevenue
deficitby0.5%andthefiscaldeficitby0.3%,andtheeliminationoftherevenuedeficitby200708,waswrittenintothenewlaw
aswasatargetforloweringliabilitiesintheformofguaranteesprovidedbythegovernmentonborrowingsbycompaniesitowned,
andanendtoeasymoneyorborrowingsfromtheRBI.Thatwashow,forthefirsttimeinIndia,legislationseekingtoimpose
prudentlimitsforborrowingsandongovernmentdebtwasconceived.

TheFiscalResponsibilityandBudgetManagement(FRBM)BillfoundthegoingtoughinParliament.Thegovernmentworkedhard
toconvincetheStandingCommitteeonFinanceandthePublicAccountsCommittteeofbenefitsoftheBill.Onhisvisitsfrom
Washington,KelkartoldVajpayeeandotherssuchasShivrajPatil,whoheadedtheStandingCommitteeonFinance,thatinthe
eventofanothereconomiccrisis,accesstofundingfrommultilaterallenderssuchastheIMFwouldbetough,especiallyafterthe
1998nucleartests.TheBillwasultimatelypilotedthroughParliamentbySinhassuccessorJaswantSingh.Butitwasadiluted
versionoftheoriginal,astheNDA,attheendofitsterm,hadtomakeseveralcompromises.AcommitteeheadedbyKelkarthen
providedaroadmapforimplementingtheAct.

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Thenewlaw,however,wasnotifiedonlyinJuly2004,aftertheUPAgovernmenttookover.FinanceMinisterPChidambaram,who
presentedthefirstBudget,announcedthatinkeepingwiththeCommonMinimumProgrammeofthecoalitiongovernment,the
revenuedeficitwouldbeeliminatedayearlaterthanplannedin200809andbroughtanamendmenttotheFinanceBill.In
hissecondbudgetin2005,Chidambaramannouncedthathewaspressingthepausebuttonbecauseoftheadditionalburdenof
implementingtherecommendationsofthe12thFinanceCommission.Theeconomicreboundbetween200405and200708
helpedthegovernmentreducedeficitsbelowthebudgetedtargetssubsequently.Moreimportantly,stategovernmentsthathad
adoptedasimilarlawloweredtheirdebtburdensconsiderably,leadingtoimpressiveconsolidatedmacroeconomicindicators.

Thesetbackcamein200809,aftertheglobalfinancialcrisis.NewFinanceMinisterPranabMukherjeefavouredcountercyclical
measuresthatfiscalyeartosupportindustry,cuttingexcisedutyby4%andservicetaxby2%.Bytheendofthenextfiscal
200910fiscaldeficithadrisento6.5%ofGDPfromjust2.5%in200708.Fiscaldisciplinehadtakenablow,andmanyreckon
thatthetroublesofthegovernmentsubsequentlymayhavebeenrootedinthatperiodofeconomicmanagement.

Withacrisisintheoffingandacurrencybattleunderway,Chidambaram,afterreturningtotheFinanceMinistry,spoketoKelkar,
andaskedhimforaquickfiscalconsolidationroadmap.Thiswasdoneinfourweeks.BythetimetheNarendraModigovernment
tookover,withtwoconsecutiveyearsofsubpar5%economicgrowth,thedebatehadshiftedtothepossibleneedforapolicythat
wouldprovideforhigherspendinginyearsofslowdown,andanaggressiveloweringofdebtduringperiodsofrapideconomic
growth.

Inthe2016Budget,FinanceMinisterArunJaitleyannouncedthegovernmentsplantoreviewtheFRBMActtoconsiderwhether
thetargetforfiscaldeficitcouldbeinarange.Butnotmanyhavenoticedhow,overthelastfewyears,therecordoffiscal
consolidationbystateshasbeenfarsuperior.Inotherwords,thecentralgovernmenthasoccupiedthefiscalspacevacatedby
statesafterfiscalconsolidation.

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17/03/2016 InFact:IDBI,IDFCandthestoryofinfrastructurefundinginIndiaTheIndianExpress

Print

InFact:IDBI,IDFCandthestoryofinfrastructurefundinginIndia
WrittenbyShajiVikraman|Published:October28,201512:24am

Lastweek,PrimeMinisterNarendraModiinauguratedIDFCBank,initsavtarasacommercialbank.

SometimeafterNovember1991,whenacommitteeheadedbyformerRBIGovernorMNarasimhamsubmittedits
recommendationsonfinancialsectorreforms,SSNadkarni,thechairmanofIDBI,workedoutaproposalforarevampofIndias
topdevelopmentfinanceinstitution.NadkarniwasquicktorealisetheimplicationsofthemovebythegovernmentandRBItolevel
theplayingfieldbetweenbanksandfinancialinstitutions,promotecompetitiontoboostefficiency,anddeveloplocalfinancial
markets.

TheNarasimhampanelhadrecommendedthetransferofIDBIsdirectlendingfunctiontoaseparateinstitution,retainingonlyits
apexandrefinancingrole,raisingfundsbyfinancialinstitutionsfromthemarketonacompetitivebasis,andputtinganendto
concessionalfinancefromtheRBIandbanks.Bythen,theRBIandthegovernmenthadsignalledinterestratederegulationor
freedomforbanksandlenderstosetinterestratesonloansorborrowings.Withtheprogressivegrowthinthecapitalmarket
startingfromthemid80s,bankshadstartedpromotingsubsidiariesforinvestmentbanking,mutualfunds,factoringandother
activities.Mirroringglobaltrends,thedividebetweencommercialbanking,termloansandinvestmentbankinghadbeguntoblur.

ThankstoawindowopenedbytheRBI,institutionssuchasIDBI,ICICIandIFCIwerethenusedtoraisingfundsatrelativelylow
rates,andforlongtenures.Now,theyhadtoraisemoneyfromthemarkets.ThispromptedIDBItolaunchofferingssuchFlexi
Bondsordeepdiscountbondsatinterestratesofover10%,whichcouldbelentagaintocompaniesatonlyover14%,whilebanks
couldraisedepositsatfarcheaperrates.Theentryofbanksintotermlendingledtomorecompetition.

During199292,atmeetingswiththegovernment,NadkarniapparentlypitchedforretainingconcessionalfinancewithIDBI,given
itsoriginalmandateofpromotingindustriesandfirms.Theotherlargefinancialinstitutionthen,ICICI,hadseenthewritingonthe
wallaswellhavingalsolearntlessonsfromthetroubleithadwithitsshippingfinancesubsidiary,SCICI.\

NadkarniproposedaholdingcompanyfortheIDBIgroupwiththreeseparateunitsacommercialbankingunit,aninvestment
bank,andaninfrastructurearmthatwouldpromotedevelopmentprojects.Butevenbeforethiswasmootedtothegovernment,
staffersatthelowerrungsoftheinstitutionbegananagitationthatwentonforamonthandNadkarnicommittedthatIDBIwould
notseeamakeover.

In1993,Nadkarnicompletedhistenure,andwentontobecomechairmanofSEBInextyearbutnotbeforetheorganisationhad
submittedaproposaltotheRBIforabankinglicence.InJanuary1993,soonafterCRangarajanhadsucceededSVenkitaramanan
asGovernor,thecentralbankopenedupthebankingsector,invitingtheprivatesectortopromotenewbanks.IDBIsecureda
licenceinthefirstround,alongwithHDFC,UTI,andothers.

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In1994,bywhenmanystateownedbankshadbeenlistedonthestockexchanges,theIDBIActwasamendedtoallowlistingand
boostitscapitalbase.Seeingthebroaderstructuralchangesunderway,andthechallengesfacedbyfinancialinstitutions,a
committeeheadedbythethenIDBIchiefSHKhanrecommendedamovetowardsuniversalbanking,orwhatwaslooselyreferred
toasacafeteriaapproachorafinancialservicessupermarketinstitutionswithoutanyboundariesoncommercialorterm
lending,investmentbanking,andotherservices.

TheKhanCommitteerecommendedthatbankinglicencesbegiventodevelopmentfinanceinstitutions,allowthemtoestablish
100%bankingsubsidiaries,andgivethemfullfinancialsupportiftheyweretoassumeanydevelopmentalobligations.

Shortlyafterward,therewerediscussionsintheFinanceMinistryonpromotinganewinstitutionsolelyforfundinginfrastructure
projects,basedonareportbyanexpertcommitteeheadedbyRakeshMohan,whowastolaterbecomeSecretary,Departmentof
EconomicAffairs,andRBIDeputyGovernor.IDBIapparentlypitchedforthisgivenitstrackrecordandexpertisebutthe
governmentdecidedtolaunchanewinstitution,IDFC,withwhatwasin1997agenerouscapitalcontributionofRs1,000crore.

Bythen,ICICIhadalmostvacateditsroleasalongtermfinancinginstitution,mergingitwithitsownbank.Anotherinstitution,
IL&FS,promotedoriginallybystateownedbankssuchasCentralBankofIndia,hadstartedtopromotevariousarmsforspecific
projects,andbringonboardservingIASofficersondeputationsomuchsothattheDepartmentofPersonnelannouncedthatit
wasputtinganendtotheattempttocreateanIL&FScadre.

MidwaythroughtheprocessofsettingupIDFC,theRBIgotoutaftersomeissuesarose.Later,duringthetermoftheVajpayee
government,therewasaconflictbetweenthemanagementandthegovernment.WhentheUPAgovernmenttookoverin2004,
anotherinfrastructurefinancinginstitution,IIFCL,waspromoted,evenasanotheroldentity,theExportImportBank,pitchedfora
conversionintoabank.IDBItoomadethetransitiontowardsabankingentityexceptthatitmadethemistakeofmergingthe
bankwiththefinancialinstitution,unlikeICICI,inwhichcasethetermlendermergedwiththebank.

MostappeartohaveforgottentheexistenceofIFCI,thelastoftheoriginaldevelopmentalinstitutions,whichwasruntotheground
bysuccessivemanagementsdecadesago.Anotherone,IIBIinKolkata,toowasshuttered.

Lastweek,PrimeMinisterNarendraModiinauguratedIDFCBank,initsavtarasacommercialbank.Indianpolicymakersnevertire
offigures:billionsofdollarsneededforfinancinginfrastructureandfancyproductsforfundingsuchprojects.Butwejustsawthe
lastonefundedwithtaxpayermoneyacapitalofRs1,000croredonanewlook.Infrastructurefunding,anyone?

shaji.vikraman@expressindia.com

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17/03/2016 Infact:WhenfinancialinstitutionsevolvedintobanksTheIndianExpress

Print

Infact:Whenfinancialinstitutionsevolvedintobanks
WrittenbyShajiVikraman|Published:December23,201512:48am

Bytheendofthe1990s,afterthefirstfewyearsofopeningupoftheeconomy,theaveragelevelofbadloansreportedbyIndian
banksrosetoninepercent.Companiesthathadborrowedathighratestobuildplantswerehitafterapost1997slowdownandthe
impactoftheEastAsiancrisisaroundthesametime.InApril1998,theVajpayeeledNDAgovernmentreceivedareportofa
committee,headedbyformerRBIgovernorMNarasimham,thathadreviewedbankingsectorreformslaunchedin1991.

Worriedatthelevelofbadloans,thefinanceministryandtheRBIdiscussedhowtherecommendationsoftheNarasimhamII
committeecouldbetakenforward.Besidesbanks,developmentfinanceinstitutionsorDFIs,astheywerecalledthen,suchas
ICICI,IDBIandIFCItoohadahugepileofbadloans.Bythattime,thankstoliberalisation,theseinstitutionsnolongerhadaccess
tolowcostlongtermfundsfromthegovernmentorthecentralbanktofinancelargeinfrastructureprojectsinthecountry.They
wereforcedtoborrowathigherratesfromthemarketwhilebanksbeganfinancinginfrastructureprojects,whichtheywerentdoing
untilthen.

TheNarasimhamCommitteeIIhadsuggestedthattheseinstitutionsshouldeitherconvertthemselvesintobanksornonbanking
financialcompanies(NBFCs).RBIgovernorBimalJalanhadappointedSHKhan,whowasheadingIDBI,tochairacommitteeto
lookatthepossibletransitionoftheseinstitutionsintouniversalbanks,aconceptinvogueintheWest.Thecommittee
recommendedthatDFIscouldevolveasuniversalbanksofferingarangeoffinancialservices.Jalandiscussedthereportwithhis
deputygovernor,YVReddy,andgiventhelattersreservations,soughttheviewsofaretiredchiefeconomistoftheAsian
DevelopmentBankontheKhanCommitteereport.Reddysargumentwasthatthetransitionshouldbeintheformofeitherpure
commercialbanksorasNBFCs.Hispointwasthattheevolutionarypathforeachoftheseinstitutionsoughttobetowards
emergingasbanks.

Afterthat,adiscussionpaperwasunveiledbytheRBIinDecember1999,andapolicyontransitionofFIsintobanksannouncedin
2000.ICICIwasthenatthetopoftheleagueindisbursingfundstoprojectsandfirmsbutlikeotherfinancialinstitutions,ittoowas
feelingthepressure.Oneofitssubsidiaries,ShippingCreditandInvestmentCorporationofIndia(SCICI),whichfundedshipping
firms,hadtobemergedwiththeparentcompany,ICICI,duetodownturninthesector.Asafinancialinstitution,ithadsecureda
bankinglicencejustasIDBIhadin1994,havingformedasubsidiary,ICICIBank.Sensingthedirectionalshiftinthefinancial
sector,ICICIapproachedtheRBIwithaproposaltoconvertintoabankandsoughtawaiveronmandatorynormssuchassetting
asideaminimumportionofdepositsascashreserveswiththecentralbank,knownasCRR,andStatutoryLiquidityRatio,orSLR,
whichrequiredinvestingafixedproportionthen25percentofdepositsingovernmentsecuritiesorbondsbesidesproviding
loanstoprioritysectors.However,thebankingregulatorwasntreadytoeasetherulesthoughitagreedforarethinkonlendingto
prioritysectorssuchasagricultureovertime.OfficialsrecallthatJalanmayhavebeenmorereceptivetotheidea,buthisdeputy,
Reddy,wasntso,sayingthatthedayICICIconverteditselfintoabank,ithadtofollowalltheprudentialrequirementsjustlikeother
banks,insteadofbeinghalfabank.Interestingly,JalanwhohadworkedwithICICIasayoungeconomistinthe70s,backedReddy.

SeveralmeetingstookplaceinNewDelhiin2001atthefinanceministrysbankingdivision,aspublicfinancialinstitutionswerethen
controllingICICI,whichwasheadedbyKVKamathatthetime.Frustratedbydelays,theICICImanagementwouldoftenmeetthe
jointsecretaryinchargeoffinancialinstitutionsintheministry,UKSinha.AmeetingwasconvenedbythenfinancesecretaryAjit
Kumartosortouttheissuebutthecentralbankhadgivenenoughsignalsthatitwasntwillingtoeasetherules,promptingthe
governmenttostepback.Subsequently,atameetinginMumbai,theICICItopbrasswastoldthatissuessuchasSLRwerenon
negotiable.OneoftheworriesexpressedbytheICICIchiefwastherepercussionsofbuyinghugequantitiesofgovernment
securitiesfromthemarket.Reddyhadsuggestedthatthishurdlecouldbesurmountedbyenteringintoadealtoswapbondswith
Indiaslargestbank,theSBI,whichhadexcesssecuritiesonitsportfolio.Meanwhile,otherissueshadtobesortedoutincluding
propertiesforinstance,oneofthebuildingsofitsoldsubsidiary,SCICI,wassoldtotheIncomeTaxdepartment.

InMarch2002,thereversemergeroftheolddevelopmentfinancialinstitutionwithitssubsidiary,ICICIBank,cameintoeffect.
Overadecadelater,thenewentityisnowIndiaslargestprivatebankasprogressively,theownershipofstateownedinstitutions
gotdiluted.Itsotherpeer,IDBI,hadtobefirstcorporatisedgiventhattheinstitutionwasgovernedbyastatute,theIDBIAct,which
hadtoberepealed.TheslowconversionofIDBIintoabankanditstransitionhaveclearlyreflectedinitsrankinginthepecking
orderofIndianbanks.

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AcoupleofyearsafterICICIbecameabank,therewasasignificantwithdrawalofdepositsinsomepartsofthecountry,which
forcedthecentralbanktoissueastatement,endorsingthatthebankwassound.Soonafter,itwastheturnofaseniorbankofficial
toacknowledgetoatopcentralbankerthewisdomofthecentralbanksdecisionnottoeaseprudentialnorms.Thatwaswhenit
trulysunkintheimportanceofsuchcapitalbuffersinacrisis.

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16/03/2016 Infact:WhyaresolutioncorpnforbanksisagoodideawithmanychallengesTheIndianExpress

Print

Infact:Whyaresolutioncorpnforbanksisagoodideawith
manychallenges
WrittenbyShajiVikraman|Updated:March7,20164:44am

IndiahasaDepositInsuranceandCreditGuaranteeCorporationundertheRBI

Sixyearsago,whenthepromoterofalocalprivatebankwasintroubleandunderpressurefromregulators,aninfluentialminister
intervenedtopromotethemergerofthatbankwithanotherprivatebank.Thepromotermanagedtocashoutonhisholdings.But
thenexttimealocalbank,insurancecompanyorfinancialfirmisinasimilarsqueeze,theFinanceMinistry,centralbankorother
regulatorsmaynotbeinvolvedifIndiagoesaheadwiththepromisedCodeonResolutionofFinancialFirms.TheCode,
announcedintheBudgetlastweek,envisagesapowerfulcorporationsteppinginmuchbeforethelenderorfinancialfirmsnet
worth(capitalplusreservesminusliabilities)erodesbysellingassets,changingthemanagement,evenwindingupinanorderly
wayensuringthereislittleimpactonthefinancialsystemortheeconomyintheeventofitsfailure.

IntheUS,thisisroutine.TheFederalDepositInsuranceCorporationorFDIChandled8bankfailureslastyearandasmanyas
157in2010.Overmorethansevendecades,billionsinclaimshavebeensettled.Canadahasasimilarinstitution,buthasnthadto
dealwithafailureoverthelastfewdecades.NewZealandhasanOpenBankResolution,underwhichcreditorsandshareholders
mustbearthelossessothereisnogovernmentbailoutoffailedbanks.Inmanycountries,banksreckonedtobeintroubleare
placedunderstatutorymanagementoveraweekend,fundsaresetasideagainstpotentiallosses,andtheyopenforbusinessthe
nextworkingday.

UnlikeintheWest,thereisnoshutteringofbanksinIndia.Rather,theregulatorandgovernmentworktogethertonudgeorforcea
totteringbanktomergewithanotherlender,perhapspromptingsometoquestionwhetherIndianeedsaresolutioncorporation.

IndiahasaDepositInsuranceandCreditGuaranteeCorporationundertheRBI,whichisexpectedtoevolveasastrongresolution
corporationwiththepowerstoidentifyfirmsinthefinancialsectorthatcouldbepotentialthreatstofinancialstability,superviseor
monitorthem,andtakepromptaction.Thenewstructurehastocoverstateownedbanksandinstitutions,includingthegiant
insurerLIC,whodominatethefinancialsector.Andthisiswherethechallengeslie.Aresolutioncorporationwillsucceedonlyifitis
empoweredtotakeswiftactionovernightinmanycaseswithoutitsorderonwindingupordissolvingofafirmfacinglegal
challenges.Thatwouldmeandraftingalawtogiveittherequisitepowers,andincorporatingchangesinotherlawssuchasthe
BankNationalisationAct,SBIActandLICAct.Thatwontbeeasy,especiallyconsideringhurdlesingettinglawsapprovedin
Parliament.

Definingthetypeorsizeofentitiestobecoveredcouldposeachallengetoo.TheRBIhasalistofdomesticsystemicallyimportant
banks,whichincludesSBIandICICIBankthetoobigtofailentitieswhosefinancialhealthiscriticaltostability,andonwhom
demandsaremadetosetasidemorecapital.Shouldcooperativebanks,manyofwhomareunderthejurisdictionofstate
governments,becovered?OrlargeNBFCs?Thereisacaseforcoveringcooperativebanks,giventhatagoodpartoftheDeposit
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InsuranceCorporationspayoutisfordepositholdersofcooperativebanksthathavebeenshutinmanypartsofthecountry.

Again,oncetheresolutionmechanismisinplace,howwillthegovernmentdealwithatroubledstateownedbank?Canits
ownershipbetransferredtoaprivateinvestororentitieswithouttriggeringthelawongovernmentownershipwhichmandatesa
minimumequityholdingof51%,orwithoutconflictwiththe10%restrictiononvotingrights?

Theresolutioncorporationmustbewellcapitalised,sothatitisinapositiontoinsureandpayofftheliabilitiesofdepositorswhena
bankorfinancialfirmiswoundup,orengageinaholdingoperationuntilabuyerisfoundorassetssold.Inmostcountries,thefund
isbuiltfrompremiumspaidbyfirmsthatareinsuredbytheresolutioncorporation,whichadoptsafourorfivestepapproach,
includingmovingin,independentofaregulator,afterearlywarningsigns.

Shouldthegovernmentimplicitlyguaranteeitwouldgivesupporttothecorporation?TheUSFDICcanborrow$30billionfromthe
TreasuryitalsohasalineofcreditfromtheTreasury.NewZealanddoesnotprovideinsuranceforbankdepositswithapolicy
centredonavoidingtaxpayerfundedbailouts.Initialfiscalcostsmaybehigh,butthiscouldhelppreventcontagioninthefinancial
sectorwhichreliesonpublicdepositsandinvolvesleverage.

ItmaybearguedthatmuchoftheconcernoverbadloansofbanksinIndiacouldhavebeenaddressedbyastronginsolvencylaw
permittingswiftsaleofassets,changeofpromoters,mergersorclosureswithoutaseparatelawforfinancialfirms.Aresolution
mechanismforfinancialfirmscancertainlycomplementtheinsolvencylaw.OneofthepositivesoftheproposedlawisthatIndias
financialsectorregulatorsareonboard.Butasthegovernmentbeginsworkonthismajorreform,ithastobemindfulofthe
institutionalstrengthofanewresolutioncorporationinapoliticaleconomylikeIndia.Stronglegalandpoliticalbackingand
professionalcapabilitiesapart,theleadershipoftheresolutioncorporationwillmakeadifference.Therolewillinvolvehuge
challengesandconflictaswesawintheUS,whereFDICchiefSheilaBairandTreasurySecretariessquaredoffoverdecisions
onwhomtobailout.

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16/03/2016 Licensingforeignbanks:RBIscautionandahardlessonTheIndianExpress

Print

Licensingforeignbanks:RBIscautionandahardlesson
WrittenbyShajiVikraman|Published:January13,201612:21am

In1991,theBCCIcollapsed.Itwasthebiggestbankingscamofthatperiod,withclaimsof$20billion,
andledtomajorlitigation.

In198283,acoupleofyearsafterIndianegotiateda$5billionloanfromtheInternationalMonetaryFund,andastheeconomy
startedtorecovergradually,thegovernmentopenedupinvestmentsinneworexistinglocalcompaniesforNonResidentIndians.
Interestratesonforeigndepositswerethenhigherthanondomesticdeposits,asthegovernmentlookedtoboostremittances.

Aroundthistime,theBankofCreditandCommerceInternational(BCCI)aforeignbankpromotedadecadeearlierbythe
PakistanbusinessmanAgaHasanAbedi,withmajoroperationsintheUKandPakistansoughttheapprovaloftheReserve
BankofIndiatoopenacoupleofbranchesinIndia.Thepowertograntlicencestobanks,bothdomesticandforeign,laywiththe
centralbank,andwerelaidoutintheRBIAct.ButtodeterminethenumberofbranchesforforeignbanksinIndia,andtoensure
compliancewithinternationalruleslikethosespecifiedbytheWorldTradeOrganisation,theMinistriesofFinanceandCommerce
toowereinvolved.

WhentheapplicationforBCCIslicencewassubmitted,ManmohanSinghwasGovernoroftheRBI,andPranabMukherjeewas
FinanceMinisterinPrimeMinisterIndiraGandhisgovernment.Singhspredecessor,IGPatel,hadrecommendedtothe
governmenttorejectasimilarapplicationthatthebankhadsubmittedearlier.Patelhadsaidthattheregulatorwasuncomfortable
aboutgrantingapprovalafterreceivingreportsthatthebankwasinvolvedinmoneylaundering,financingofterrorgroups,and
otherillegalactivities.

BCCIhadbeenallowedtoopenarepresentativeofficein1977.AccordingtoSinghsrecollectionsofthatperiod,recordedinabook
writtenbyhisdaughterDamanSingh,onthelastdayoftheMorarjiDesaigovernmentin1979,ajuniorministerapprovedthe
openingofabranchofthebankinIndia.ButSingh,whowasthentheSecretary,EconomicAffairs,informedPatelwhowasable
togetCharanSingh,whoheadedaminoritygovernmentasPrimeMinisterbetweenJuly1979andJanuary1980,torevokethe
order.

In1983,whencalledupontotakeadecisionasRBIGovernor,Singhtooadvisedthegovernmentagainstgoingahead.The
regulatorsinformalchecksonthebankoverseashadindicatedthatinmanyjurisdictions,thefigurefordepositsandloans
remainedconstant.Therewerealsoallegationsthatthebankwasinvolvedinfinancingarmsforrebelgroups.

ButthegovernmentwantedtheRBItograntBCCIalicence,anddirectedittoapprovetheapplication.Thelawonregulatorsin
IndiatheRBIwastheonlyoneinthefinancialsectoratthetimeallowedthegovernmenttoissuedirectivestothem.BCCI
wasissuedalicence.

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16/03/2016 Licensingforeignbanks:RBIscautionandahardlessonTheIndianExpress

Buttheconflictdidntend.ThegovernmenttooktotheCabinetaproposaltostriptheRBIofitspowertolicenseforeignbanks.
GovernorSinghprotested,andissaidtohavewrittenoutbyhandhisresignation,addressedtoMukherjeeandthePrimeMinister.
ButseniorofficialsinthePrimeMinistersOfficesteppedintodousethefire.

AccordingtoManmohanSinghsaccounttoDamanSingh,helatermanagedtopersuadeIndiraGandhinottoimplementthe
decision.Butduringthisentireepisode,FinanceMinistryofficialspointedoutthatoneoftheDeputyGovernorsintheRBIhad
actuallybackedtheproposalarevelationthatcameasahugeshocktotheBanksmanagement.

Almostadecadelater,in1991,theBCCIcollapsed.Itwasthebiggestbankingscamofthatperiod,withclaimsof$20billion,and
ledtomajorlitigation.TheBankofEnglandwassuedbycreditorsonsupervisoryorregulatorygrounds.InIndia,thefalloutwas
containedafterRBIringfencedthebanksoperationsbythen,SinghhadtakenoverasFinanceMinister.

Interestingly,anotherproposalbyanNRIbackedgrouptostartoperationsoftheFirstIndoInternationalBankLimited,orFIIB,
basedintheUS,toowasturneddowninthelate80sonthegroundsthatitwasincorporatedinthetaxhavenBahamas.BCCIwas
incorporatedinLuxembourg,anothermajortaxhaven.

Muchlater,undertheIndiaSingaporeComprehensiveEconomicCooperationAgreementof2005,thegovernment,thenledby
Singh,agreedto20branchesofSingaporeanbanksatatimewhenthegovernmentscommitmentwastoallow12branchesfor
foreignbanksinIndiaeveryyear.TheRBIrefusedtoplayball,andittooktwoyearsforasolutiontobeworkedoutafter
negotiationsandacommitmentfromSingaporetograntlicencestoastateownedandaprivatebankfromIndia.

shaji.vikraman@expressindia.com

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16/03/2016 Meaning:NonperformingassetsTheIndianExpress

Print

Meaning:Nonperformingassets
WrittenbySandeepSingh|Published:February10,20162:08am

Alladvancesgivenbybanksaretermedassets,astheygenerateincomeforthebankbywayofinterestorinstalments.However,
aloanturnsbadiftheinterestorinstalmentremainsunpaidevenaftertheduedateandturnsintoanonperformingasset,or
NPA,ifitremainsunpaidforaperiodofmorethan90days.

AccordingtoaJuly2014RBIcircular,alladvanceswhereinterestand/orinstalmentofprincipalremainsdueformorethan90days,
wouldbeclassifiedasanonperformingasset.Incaseofoverdraftorcashcredit,iftheoutstandingbalanceremainscontinuously
inexcessofthesanctionedlimit/drawingpowerformorethan90days,itwouldbeclassifiedasanNPA.

Infact,ifanyamounttobereceivedbythebankremainedoverdueformorethan90days,itisclassifiedasanNPA.

WhileTheIndianExpressonMondayreportedonthesharpriseinthewriteoffofbadloansoverthelastthreeyearsamounting
toatotalofRs1.14lakhcrorefor29stateownedbankstheRBIsguidelinessaythatanNPAaccountwillhavetoclassifiedasa
lossasset,andmaybewrittenoffoncetherealisablevalueofthesecurity,asassessedbythebank/approvedvaluers/RBIgoes
below10percentoftheoutstanding.

Itisimportanttonotethatifaborrowerhasseveralfacilitieswithabank,andifoneofthemturnsintoanNPA,thenallthefacilities
grantedbythebankwillhavetobetreatedasNPAs,andnotjustthepartthathasbecomeirregular.

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17/03/2016 MergerofSebiandFMC:Whatitmeansformarket,playersTheIndianExpress

Print

MergerofSebiandFMC:Whatitmeansformarket,players
WrittenbySandeepSingh|NewDelhi|Updated:December25,201511:30pm

Marketplayersfeelthatcommoditymarketswillnowbebetterregulated,withmorestringentprocesses
andwillthusevokegreaterconfidence.

AlittleovertwoyearsafterJigneshShahandFinancialTechnologiespromotedNationalSpotExchangeLimited(NSEL)suspended
tradingofallitscontracts,resultinginapaymentscrisisamountingtooverRs5,600crorethatstillremainsunresolved,the
ForwardsMarketCommission,thecommoditiesmarketregulator,wasmergedwiththeSecuritiesandExchangeBoardofIndiaon
Monday.FinanceMinisterArunJaitley,whohadproposedthemergerinhisBudgetspeechinFebruary,said,Marketsthriveon
confidenceandintegrity.ThesearecrucialtimesforIndia,wecantaffordthrowingawaytheopportunitypresentedbythe
advantages.Thisiswhatthemergermeansforinvestorsandmarketparticipants.

Whatdoesthemergermean?

TheForwardContractsRegulationAct(FCRA)standsrepealed,andtheregulationofthecommodityderivativesmarketshiftsto
SebiundertheSecuritiesContractsRegulationAct(SCRA),1956.SCRAisastrongerlaw,andgivesmorepowerstoSebithan
FCRAofferedtoFMC.Marketplayersfeelthatcommoditymarketswillnowbebetterregulated,withmorestringentprocesses
andwillthusevokegreaterconfidence.

WhyisSebiseentobebetterequippedtomonitorcommoditiestrading?

TheFMConlyregulatedtheexchanges,andhadnodirectcontroloverbrokers.Also,Sebihasafarsuperiorsurveillance,risk
monitoringandenforcementmechanismthatmarketparticipantssaywillgivemoreconfidencetoinvestors,andmayhelp
businessesgrow.Amongotherpowers,Sebinowalsohasthepowertoaccesscalldatarecords.

HowcanSebiexpandthescopeofcommoditytrading?

WhileforeigninstitutionalinvestorsareallowedtoinvestinIndianequitiesanddebtmarkets,theyarecurrentlyrestrictedfrom
participatingincommoditiestradingatexchanges.Accordingtosources,SebimayallowFIIparticipationincommoditiestrading
goingforward,whichwouldprovidemoredepthtothemarkets,andincreaseliquidity,investorparticipationandbetterprice
discovery.BrokersalsofeelSebimayintroduceoptioncontracts(callandputoptions)incommoditiestrading,therebyproviding
betterhedgingtoolstoinvestors.Sebihassaidthatitwilloverseepricedeterminationofcommodities.Pricediscoveryhasbeena
majorissueincommoditiestrading,andiftheregulatoraddressesthatconcern,itwillbeabigconfidenceboosterforparticipants,
saidSugandhaSachdevofReligareCommodities.

Whoproposedthemerger?

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TheNSELepisodeunderlinedtheneedforabetterandstrongerregulatortosafeguardinvestorinterestandrestoreconfidence.
TheFinancialSectorLegislativeReformsCommission(FSLRC)hadearlierstressedontheneedtomoveawayfromsectorwise
regulation.ItproposedasysteminwhichRBIwouldregulatethebankingandpaymentssystem,andaUnifiedFinancialAgency
(UFA)wouldsubsumeallotherfinancialsectorregulatorssuchasSEBI,IRDA,PFRDAandFMC,toregulatetherestofthe
financialmarkets.

WhatchallengescouldSebiface?

Sebihasallnecessaryinfrastructuretoregulatethecommoditiesmarket,butsomefeelitlacksknowledgeofthecommodities
market.However,sinceseveralFMCofficialswillmovetoSebiinlinewiththemerger,suchissuesarelikelytobesortedout.

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17/03/2016 PaymentBankspromisetobeagamechanger:HereiswhyTheIndianExpress

Print

PaymentBankspromisetobeagamechanger:Hereiswhy
WrittenbyShajiVikraman|Updated:August20,20153:39pm

GivenIndiasgeographicalspread,regionaldisparities,reachandconnectivity,thesepaymentbanks
canusethemobileplatformtoprovidebasicbankingtransactions,inparticular,paymentforservices
andsubsidiesthroughmobilephones.

Over20yearsago,whentheNarasimhaRaogovernmentdecidedtoissuelicencestoprivatebanks,fewwouldhavebetonsome
ofthosebankspoweringtheirwaytothetop,displacingafewstateownedbanks.Since1994,thesebankshavehelpedopenup
themarketandpushedstateownedbankstotransformbothoperationallyandtechnologicallyandintheprocessaddtotheasset
baseoftheIndianbankingsystem.Privatebanksnowhaveamuchbiggershareespeciallyintermsofdepositsinurbanareas
andthechangesoverthelasttwodecadesarereflectedinthefactthatHDFCBankisnowthemostexpensivebankfroma
valuationperspective.

Thedecisiontolicencesomeofthecountrysbiggestcorporatesandmobiletelecomfirms(11inallinthefirstround)tostart
paymentbankspromisestobeasimilargamechanger.Hereswhy:

Innovation:Thenewpaymentbankswilloveraperiodoftimechangethewaywehaveviewedbankingtraditionally.Increasingly,
withtheintroductionofproductsornewapplicationsbythesebanks,insteadofcash,peoplewillstartcarryingoutmore
transactionselectronically.Globally,thathasbeenthetrend.ButinIndia,thoughthenumberofusersofcardsbothcreditand
debitareontherise,ithasbeenlimitedbecauseofthecostsinvolvedformerchantsorestablishmentswhichacceptthese
cards.Thatswhymobilephoneplatformsofferthepromiseofalternatemethodsfortransactionswithouttheneedtostepoutof
homewithyourwalletstuffedwithcash.Andpaymentbanksarepositioningthemselvestodothis.

Bankingtobemoreatechnologybusiness:Foryears,bankinghasbeenadistributionbusinessthoughnewprivatebankshave
soughttochangethedefinitionofwhathasbeencalledabrickandmortarmodelbyencouragingcustomerstogoonlineandbank
orusetheAutomatedTellerMachinesorATMsforavarietyoftransactions.Andthesignsarevisible.Evenbeforethe
announcementofthelicencingofpaymentbanks,SBIandHDFCBankhaveannouncednewproductswhichwilladdressthisand
attractmorecustomers.IfprivatebanksinIndiahavesucceededinthelast20years,muchofithasbeenbecauseoftheeaseof
doingbankingbroughtaboutbyinvestingsubstantiallyintechnology.Thatforcedtheirlargerpeersstaterunbankstofollow
suitwithgreatgainstocustomersacrossthecountry.Paymentbankscouldprovidethatpushagaintothesebankstochangetheir
outlookandreachouttonewercustomers,especiallyinacountrywhichhascloseto900millionmobilesubscribers.

Accesstotheunbankedandsmallbusiness:AvastswatheofIndiaisstillunbankedwithmillionswithoutaccesstobasic
bankingservices.GivenIndiasgeographicalspread,regionaldisparities,reachandconnectivity,thesepaymentbankscanusethe
mobileplatformtoprovidebasicbankingtransactions,inparticular,paymentforservicesandsubsidiesthroughmobilephones.

Itisinthehinterlandthatstaterunbankshavehadaheadstart.Closeto40percentoftheirbranchesareinruralareasandover
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17/03/2016 PaymentBankspromisetobeagamechanger:HereiswhyTheIndianExpress

20percentinsemiurbanareaswhileprivatebankslaginreachingouttothissegment.Thisshouldofferagoodbusiness
opportunitytothebanksiftheygettheirtechnologysolutionsright.Whatshouldworkforthemistheirpedigreethefactthatthe
governmentownsthemaddingtothetrustfactor.Butprivatefirmswhichhavepromotedpaymentbanksmaybemorenimbleand
aggressive.

Overall,thecompetitionshouldbenefitthosewhoareontheperipheryaslongasregulatoryoversightisgood.Moreimportantly,all
thisshouldhelpexpandbankingservicestotheremotestcornerofthecountryoverthemediumandlongtermwithhugeeconomic
spinoffs.

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17/03/2016 Simplyput:Dragonnowinbasket,howwillSDRchange?TheIndianExpress

Print

Simplyput:Dragonnowinbasket,howwillSDRchange?
WrittenbySandeepSingh|Updated:December2,20155:10am

FromOctober1,2016,ChinasRenminbiwillbethefifthcurrencyintheIMFsReserveCurrency
basket.

Initsmostrecentfiveyearlyreviewofthebasketthatmakesupits(SDR),theexecutiveboardoftheInternationalMonetaryFund
(IMF)hasdecidedtoincludetheChineseRenminbi(RMB)amongtheworldselitecurrencies.FromOctober1,2016,theRMBwill
jointheUSDollar,Euro,UKPoundandJapaneseYenintheSDRbasket.

WhatisSDR?

ItisaninterestbearinginternationalreserveassetcreatedbytheIMFin1969tosupplementofficialreservesofmembercountries.
Officialreservesintheformofgoldorwidelyacceptedforeigncurrenciesareusedtopurchasethedomesticcurrencyinforeign
exchangemarketssothattheexchangerateismaintained.However,asthesupplyofthetwokeyreserveassets(goldandDollar)
provedinadequateforsupportingtheexpansionofworldtradeandfinancialflows,itwasdecidedtocreateanewinternational
reserveassetbackedbytheIMF.

SDRisneitheracurrencynoraclaimontheIMF.ItisapotentialclaimonthefreelyusablecurrenciesofIMFmembers,which
holdersofSDRscanobtaininexchangefortheirSDRs.Itsvalueisbasedonthebasketofthefourmajorcurrenciescurrently,1
SDRistradingataroundINR91.50.Thefifthcurrency,RMB,willbeaddedtothebasketonOctober1,2016.

SDRsallowmembercountriestocuttherelianceonmoreexpensivedebttobuildreserves.Atotalof$182.6billionwasallocated
to186countriesin2009Indiawasallocated$3.29billion.SDRinterestrateisdeterminedasaweightedaverageoftheinterest
ratesonshorttermfinancialinstrumentsinthemarketsofthecurrenciesintheSDRbasket.AsofNovember30,2015,204.1billion
SDRsequivalenttoabout$285billionhadbeencreatedandallocatedtomembers.

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WhatdoestheadditionoftheRenminbitoSDRmean?

Goingforward,thevalueofSDRwillbebasedonaweightedaveragevalueofthebasketofcurrenciesthatwillalsoincludethe
Renminbi.Chinaistheworldssecondlargesteconomy,anditsshareingobaltradeisrisingtheinclusionoftheRenminbiwill
enhancetheattractivenessoftheSDRbydiversifyingthebasketandmakingitmorerepresentativeoftheworldsmajorcurrencies.
ItwillalsoallowcountriestogetRenminbisinexchangefortheirSDRsincasethatosrequired.

WillitleadtomoretransparencyinthevalueofRenminbi?

Economistssaythatasaprerequisite,ChinawasrequiredtohaveanoffshoreRenminbicentre.OffshoreRMBtradewasopened
inLondon,andtheLondonRMBisexpectedtobecomethebenchmarkforSDR.Whileitsvaluecanstillbemanipulated,thereis
verylittlechanceofthathappeningasthevaluehastobealignedwiththeintegrityofSDR.ItisexpectedthatChinawillbemore
predictableinhowitmanagesitscurrency,asitwillhavetomaintainapolicyframeworkthatfacilitatesoperationsforIMF,its
membersandotherSDRusersintheircurrencies.

Anoffshoreexchangesupportedbythehomecountrycanstillbeinfluenced,butChinesepolicymakershavebeensendingsignals
thattheywillhaveamarketdeterminedexchangerate.Also,withanoffshoreexchange,theRenminbiislikelytobemore
transparent,andonegetstoknowwhoisparticipatinginthetrade.Itisapositivesignal,saidaformerDeputyGovernorofthe
ReserveBankofIndia.

HowwillRenminbisadditionimpactIndiaandothercountries?

SeveralcountrieshaveatradedeficitwithChina,andneedtheYuanontheotherhand,manycountriesinAfricahaveatrade
surpluswithChina,andhavebeenaccumulatingYuan.RenminbisadditiontoSDRwillallowthesecountriestotradeinthe
currency.

Whileitmaynotmeanmuch,India(andothercountries)willhavetheoptionofholdingforexreservesinRMB.Also,theRMBwill
becomeafreefloatcurrency(whichisarequirement)andtradersbuyinggoodsfromChinawillhavetheadditionalflexibilityof
gettingYuanfromthemarket,amarketexpertsaid.

WhiletheimpactoftheRenminbisinclusionmaynotbesudden,IndianimportersmaybeexposedtotheRMBINRexchangerate
risk,anothermarketexpertsaid.Chinaisabigtradingpartnerandwedonothavebargainingpoweragainstthem.Sotheremay
beacasethatgoingforwardtheymayaskIndiantraderstopayinRMBandthatmayexposeIndiantraderstoaRMBINR
exchangerateriskatthesecondarylevel,saidJamalMecklai,MDandCEOofMecklaiFinancialServices.

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16/03/2016 WhybadloansarentgovtbanksonlyproblemTheIndianExpress

Print

Whybadloansarentgovtbanksonlyproblem
WrittenbyPVaidyanathanIyer|Published:February18,20161:40am

Resolvingissuesthathadstalledaplethoraofprojectsininfrastructuresectors,rangingfromcoaland
powertoroadsandports,didnotleavemuchtimetoattendtothecrisisinbanking.(Illustration:CR
Sasikumar)

FinanceMinisterArunJaitleysaidSundaythataseriesofbankingreformswouldbeannouncedinthedaystocome.Hedhave
donewelltosaythisassoonashetookchargeinMay2014.HeandPrimeMinisterNarendraModiknewquitewellaboutthe
loomingbankingcrisis.Andthatthisaffectedpublicsectorbanksthemost.Peopleclosetothenewgovernmentswearthiswasa
priorityfromdayone.Andyet,bankreformsdisappearedfromtheagenda,andreappearedonlywhenbadloansstarted
contaminatingthedomesticenvironment.TheremaybemanyreasonsandthemostplausiblegivenbyModistopmanagersis
thegovernmentspreoccupationwiththepolicyparalysisthattheCongressledUPAhadleftbehind.

Resolvingissuesthathadstalledaplethoraofprojectsininfrastructuresectors,rangingfromcoalandpowertoroadsandports,
didnotleavemuchtimetoattendtothecrisisinbanking.MaybeModiandJaitleyunderestimatedthetimeitwouldtaketoresolve
suchcomplexissues,withmanylandingupincourts.Maybetheyoverestimatedtheirownabilitytoinfuseconfidenceintheprivate
sectorsothatthelattershowedenterpriseandbegantakingrisksandinvesting.Ormaybetheyjustlackedtheconvictiontobite
thebullet.

Whathashappenedinthemeanwhileisforalltosee.(TheIndianExpresspublishedaseriesofreportsonTheGreatGovtBank
WriteOff,ofwhichtheSupremeCourttooksuomotucognizanceonTuesday.)Afewdaysago,Jaitleysaidthatthenonperforming
assets(NPAs)orbadloansproblemwouldsooncomeundercontrol.Butthehighlevelofstressedassetsbadloansplus
restructuredloansofpublicsectorbanksisnottheonlyprismtheFinanceMinistershouldbelookingthroughtounderstandthe
crisis.Yes,itisthemostimmediateandurgentaspectthatneedsattention.At14.1%oftotaladvancesinSeptember2015,the
stressedassetsofpublicsectorbanksissignificantlyhigherthanprivatebanksat4.6%,andforeignbanksat3.4%.Andpublic
sectorbanksaccountforovertwothirdsofadvancesbyallscheduledcommercialbanks,providinganideaofwhatthenumbers
mean.

True,thegovernmentandtheReserveBankofIndiawillneverletabankfail.Aboosterdoseofrecapitalisationisrequired,andthe
governmentwillcertainlydothat.Itmayalsosetupanassetreconstructioncompany,alsocalledabadbank,thatwillbuyoutthe
badloans.TheRBIwillgoadthebankstostopwindowdressingandrevealallbadloans.GovernorRaghuramRajannowbelieves
bandaidwonthelp,anddeepsurgeryisneeded.HehasgivenbanksuntilMarch2017tocleanuptheirbooksofaccounts.But
withhistenureendingthisOctober,itisequallycriticalbanksarenotdeprivedofgoodpostoperativetreatmentandcare.While
NPAsarethemostpressingofproblems,itwontbeeasyforgovernmentbanksanylonger.Anageingworkforce,poortechnology
grasp,intensifyingcompetition,andtheloadingofcostsandlossesofpopulistgovernmentschemesontopublicsectorbanks
threatentomakezombiesoutofthem.

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16/03/2016 WhybadloansarentgovtbanksonlyproblemTheIndianExpress

FallingofftheCliff

Alargenumberofemployeeswillretireintheyearsupto2020.Thebiggestchallengethisretirementdecadewillpresentto
bankswillbethevirtualabsenceofseniorexecutivesatcrucialdecisionmakinglevels.Aftermassivehiringfromthe70sthrough
themid80s,arecruitmentfreezeinthe90shasexposedbankstothemissingmiddleproblem.A2013McKinsey&Cosurveyof
20governmentandpublicbanksestimatedthat87%ofGeneralManagers,65%ofDeputyGeneralManagersand50%of
AssistantGeneralManagerswouldretirein201617.Whiletheentryofprivatesectorbanksofferingbettercompensationresulted
inhighattritioninstateownedbanks,theinabilitytohirelaterallyatmidandseniorpositions,hasleftthegovernmentbanksfacing
anHRcrisis.Despiteearlywarning,publicsectorbanksandtheirowner,thegovernment,havedonepreciouslittletostop
themselvesfallingoffthecliff.

TechIlliteracy

Newapplicationsarebeingdevelopedvirtuallyeveryotherday.Paytm,forexample,thelargestmobilewalletinthecountry,has
about120millionusersitstransactionvolumeislargerthananybank.Asofnow,mobilebills,taxifaresandDTHrechargesare
someofthetransactionsyoucanundertakeusingPaytm.Butthecompany,whichissoonsettingupabrickandmortarpresence,
couldchangethelandscapeofbanking.Governmentbanks,wheretheaverageemployeeageisover40,areyettofathomthe
disruptionthattechnologyiscapableofinflicting.Afewgovernmentbanksarehiringprofessionalsdirectlyfromcampuseson
contract,butmostarejustwatchingascompanieslikePaytmgainmarketsharebytappingintocashbasedtransactions.Speaking
onDisruptioninFinancialServicesataTiELeapfrogevent,InfosyscofounderNandanNilekanisaidthefinancialsectorwason
thethresholdofaWhatsAppmoment,whereaUkranianmigranttotheUSwithjust40engineerschangedthemessaging
scenario.WhatsAppnowcarries30billionmessagesaday,50%morethanthe20billionthatalltelcosacrosstheworldput
togethercarry.WithabillionAadhaars,abillionmobilephonesandabillionbankaccounts,Nilekaniforeseesafuturewherea
smartphonewillreplaceacreditcard,andwillbeabletoofferthetwostageauthenticationthatacarddoes.Assomeofthebest
privatebanksgrapplewithsuchdisruption,governmentbanksremainmilesawayfromputtingtogetheratechstrategytoeven
keepthemselvesrelevant.

IntenseCompetition

Forthelast45years,governmentbankshaveconductedbusinessinabenignenvironment.InJuly1969,IndiraGandhi
nationalisedthecountrys14largestcommercialbanksanothersixwerenationalisedin1980.Till199394,nonewbankswere
allowed.TenbanksthengotlicencesincludingHDFCBank,ICICIBank,UTIBank(nowAxisBank),GlobalTrustBank(merged
withOrientalBankofCommercein2004),IndusIndBank,TimesBank(mergedwithHDFCBankin2000),BankofPunjab
(acquiredbyCenturionBank,themergedentitybeingacquiredbyHDFCBank)andIDBIBank.In200304,twomoreprivate
banks,YesBankandKotakMahindraBank,started.LastSeptember,theRBIandgovernmentpermitted23banks,twoofwhich,
IDFCandBandhan,areuniversalbanks.Insixmonthstime,governmentbanks,alreadyontheirkneesbesiegedbybadloans,will
facethebiggeststormofcompetitionthattheyhaveseeninover50years.

Besidesthetwouniversalbanks,thegovernmentbankswillbeexposedtoanonslaughtby11paymentbankspromotedbythe
likesofVodafone,Airtel,Reliance,MahindraandAdityaBirla,andanother10smallfinancebanks.

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