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From Lehman to Demonetization Hardcover – 23 Nov 2017
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An amazing collection of essays. I completely agree with Mr KV Kamath's observation in the foreword of the book, Bandyopadhyay is a "mythical bowler who can bowl left handed, right handed, fast, leg spin, off spin, googly and every variation in between." His sharp eye for details and ability to analyse the developments in the finance space are unmatched. Unlike his previous books, there is no story here but Bandyopadhyay's uncanny ability to combine hard facts with interesting anecdotes and a lucid style keep us hooked. I could not leave the book before reading it from cover to cover at one go. As a bonus we have got more than a dozen profiles of people who have played a key role in Indian banking and finance space during this time. The story telling art of Bandyopadhyay is in full bloom in this segment. --ByAmitabha Roy Chowdhuryon 26 November 2017
About the Author
Tamal Bandyopadhyay, consulting editor at Mint,and adviser, strategy, at Bandhan Bank Ltd, is one of the most respected business journalists in India. He has kept a close watch on the financial sector for over two decades and has had a ringside view of the enormous changes in Indian finance and banking sectors.
His previous books, A Bank for the Buck, Sahara: The Untold Story and Bandhan: The Making of a Bank have been non-fiction bestsellers.
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Firstly, this is not a book. It is simply a compilation of several blogs, most of which (as I understand) have appeared in Mint. But the real issue is not with this. The bigger issue is that the blogs are all very small, so they hardly dwell into the details of the real issue for the reader to get an in-depth understanding. It stays at a very high level, and in some cases, gives so many details about repo rate, CRR etc., that even a well informed reader like myself (I teach finance) got completely lost.
What is the book all about? The decade has been a testing time for banking industry. They have gone through turbulent times. The fall of Lehmann brothers caused tremors across the world. The ever increasing bad assets have presented industry with problems of gargantuan proportions. The RBI has been taking some tough measures. The MFI has been huffing and puffing but still playing a significant role in the economy, especially among lower strata of the society. The government is serious about taking the banking operations to the remote corner of the nation through BC model. They have taken measures to curb the flow of black money in the economy. However, in order to implement government decisions, banks are confronted with unforeseen challenges and unrealistic targets. This book contains published essays written by the author himself that narrates the events of the most defining decade of Indian Banking industry. The snippet of the book is given in next few paragraphs.
The iconic bank Lehmann Brothers filed for bankruptcy in Sep’2008. The fall triggered financial crisis and recession across many parts of the world. Was this confounding problem predicted by the experts? Astonishingly, many seemed to have overlooked it. The events that led to its fall were not at all inscrutable in nature. There are few who have predicted the outcome long before. Now what was its impact on India? Prior to Lehmann Brothers fall, there was lot of high credit growth, economy was growing over 9% , bank credit growth was growing at 30% and lot of investments were taking place. The collapse did not impact India much. The aforementioned impressive growth rate came down for a while.To wriggle out of the crisis, the commercial banks started giving loans aggressively and the RBI flooded the system with liquidity .
The banking system in India is ostensibly good. That’s what the message is delivered to the depositor. However if you dig deeper, the scenario is not that rosy. By relaxing policy rates and flooding the system with liquidity, the RBI has been encouraging banks to issue cheap credits. The RBI has also permitted banks to restructure loans if borrowers are finding it difficult to repay. These developments however have not accelerated bank’s growth in any way. On the contrary, growth has been stymied. The bank has been piling up non-performing assets(NPA) year after year. NPA was 2% of loan ten years back. Now it’s 10% of loan and that too excluding the non-structured loans. The quality of assets are going from bad to worse. Albeit, the banks have been in denial mode, but it has landed itself into an imbroglio. The increase in bad loans have eroded bank profitability. Under normal circumstances, a loan is considered bad when the borrower fails to pay interest on it for ninety days. Once the loan turns sticky, the banks are required to provide for it in the balance sheet. Loan restructuring and loan wave off are destroying credit culture. Loan restructuring is benefiting large industrial houses. Farm loan waivers , declared by political party to keep their electoral promises means that farmers who have the ability to repay gets a respite. There are loopholes in the system which smart borrowers are capitalizing for their own benefits.
The book has given maximum coverage on Micro-finance Industry(MFI). Post liberalization, Indian banks were still reluctant to reach credit starved poorer section of the society. There are impediments like operational constraints and banks’s refusal to relax policies for issuance of credit, in order to cater to such section. Under such circumstances, the MFI started filling up the gap. The MFI is defined as business of giving loans to people who do not have access to formal banking services. What is their modus operandi? MFI usually get loans from commercial banks at 13-14% interest and then they lend it at 10% higher, which covers their operating cost and profit. Just a decade back,the MFI was doing extremely well and the sector soon emerged as the largest in the world, with Andhra Pradesh being the major contributor. However in 2010, a promulgation of a state law in Andhra Pradesh put several restrictions on the activities, which encumbered MFI in the state and adversely affected them in the other parts of the country . The banks also demured giving loans to them. The industry which was growing at a breakneck speed at one point of time was in the brink of being eliminated. However, if the development in last couple of years are considered then for the industry , it’s a tale of resurgence, restraint and maturity. By 2016, eight MFI got the RBI license to become small finance banks. The story line has changed. Presently, the RBI has come up with regulations wherein they have put a cap on interest rate and restricted the quantum of loans and borrowers .
There have been some pertinent questions regarding performance of PSU banks. Why they have failed to keep pace with their private sector counterpart? Is there any chances of revival or it remains a dud? For a change, a very sympathetic stand has been taken by the author. Usually most experts have a merciless viewpoint on the subject. There is one key constraint which hamper decision making. The PSU banks are subjected to investigation by Central Bureau of Investigation(CBI) and Central Vigilance Commission(CVC) . They are under the lens of Comptroller and Auditor General of India(CAG). Apart from these, they are also answerable to Ministry of Finance and politicians too. The top bosses are always under a lot of stress.The PSU banks are considered an extended arm of the government. They have to play a responsible role for the society and the nation, albeit at times reluctantly. They invest in certain sector to boost up the economy. They also revive certain sectors. A case in the point are infrastructure and power sector where they have a substantial exposure. The irony is that the Finance Ministry tell banks where to lend the money and how much. They also fix the interest rate. To completely unsettle banks, there have been loan waivers in the past by UPA government. Though the government promises to compensate banks but vision and target of the banks clearly goes for a toss.The government has been trying to provide banking services to the remote corner of the nation through Banking Correspondent or Financial Inclusion model , or better known to most as Pradan Mantri Jan Dhan Yojhna. Obviously, the PSU banks comes into play to fulfill government’s social welfare dreams. Despite many zero or no-frill account, this has failed to gather desired momentum. If a balanced view is taken then PSU alone is not responsible for such an unpropitious state.
In Nov’2016, the government announced scrapping of Rs. 500 and 1000 note. The objective was to scrap corruption and terrorism. As per the report by RBI, 99% of the notes were deposited into the banks. So it can be concluded that demonetization has failed to flush out black money from the economy. However, mobile money and other forms of financial transactions have increased. Small and medium business traders are increasingly embracing digital payments and technology.
Diversity is the buzzword that defines banking industry in the last decade. There have been paradigm shift from conventional mode of banking. Digitization is in top gears. Banks are competing for customer retention and acquisition. The RBI is coming up with different type of banks. The banks especially PSU ones, are trying to take banking facilities to remote corner of the nation. Pradhan Mantri Jan Dhan Yojana has to be in the fast lane for achieving financial inclusion. Unfortunately, disseminating has not taken place in the desired manner. One major fiasco for the government has been Bharatiya Mahila bank. It was a misadventure and the business never took off. It clearly suggest frivolity at times. Two years back, Bandhan Bank and IDFC Bank fought with lot of contenders including corporate heavyweights to successfully emerge in getting the banking license from the RBI. Bandhan Bank has a deep rural penetration and IDFC Bank has embraced technology for offering tech products for customers. These two banks have become a force to reckon with and have compelled other banks to redraw their strategy. So there is lot happening in Banking industry. The book was definitely an informative ride. Usually, I have seen that journalists make a better author. They know the pulse of their reader. A reader who has less exposure to banking operations may not be aware of many banking terms. So the author here has ensured that if he is using any banking terms in his narration then it’s defined and explained first. For example, Cash Reserve Ratio(CRR) and Statutory Liquidity Ration(SLR) were explained for the benefit of the readers before using it multiple times later. That’s the smart way of taking the readers along with your words. His conversation with Banking industry stalwarts like Raghuram Rajan, K.V Kamath, Deepak Parikh, Arundhati Bhattacharya, Shikha Sharma, U.K.Sinha was worth reading. I have missed out some names here. The subject may look dull at the onset but reading first few pages will definitely push you towards the end. The USP is simplified and interesting narration of facts. On the subject, it’s difficult to find a better book than this. I am so much enamoured by the author’s presentation skill that I’ll lay my hand on another book authored by him in future. The book is highly recommended.
Salute to the author for exposition in an easy to understand way.