Archive for the ‘Indian Economy/Financial Markets’ Category

How the Archives of India are actually destroying History

May 25, 2017

This is a very depressing piece. For someone who has been closely associated with Archives business in India, state of Archives here is just plain pathetic. The kind of importance the higher authorities give to the state of these places speaks volumes.

The piece is on National Archives but applies to most other Archives in India:


The curious case of NPA underreporting in India: Role of auditors…

May 25, 2017

As I have argued before, the recent NPA mess is just inexplicable given wide-scale inspection powers the regulator has on banks. But there are more players in the game whose role has to be explored.

One of them is auditors whose role in reporting any such issue has been found wanting for so many years now. It is not any different this time as well.

Hemindra Hazari of Wire reports:

Recently, Axis Bank and Yes Bank jolted the Indian banking community while releasing their annual results. Both banks disclosed a staggeringly large divergence between the banks’ audited accounts and the Reserve Bank of India’s (RBI)  findings regarding bad loans on the books of these banks for the year ended March 31, 2016.

Against this background, the role of the auditor needs a closer look.

Surprisingly, in FY’2016, both Axis Bank and Yes Bank were audited by the same person, one Viren H. Mehta (membership number 048749). Mehta is a partner at Batliboi and Co., which in turn is a member firm of Ernst & Young. Some would call it strange for the same auditor to audit competing banks in the same year. What is even more unusual is that the accounts certified of both the banks by the same, individual statutory auditor have been found misleading by the statutory regulator. 


It is all such a complex game of multiple stakeholders:

The new private sector banks, unlike government banks, regularly seek additional  global financial capital and prefer, for international credibility, to be audited by the ‘Big Four Audit Firms’: Deloitte, Pricewaterhouse Coopers (PWC), Ernst  and Young and KPMG. However as PWC was the auditor of scam-tainted Satyam Computers and the erstwhile Global Trust Bank, the RBI had for a period of time effectively blacklisted the firm from auditing Indian banks. Therefore, only the remaining three can audit, via rotation, the new private sector banks. The preference for the remaining ‘Big Three’ is ostensibly to provide greater international credibility to the accounts of the new private sector banks.

For an Ernst and Young member auditor to simultaneously certify not one but two of such divergent banks is quite peculiar. Despite the RBI divergence being known by December 31, 2016, the Axis Bank senior management reaffirmed their faith and permitted the same auditor to continue to audit FY’2017 accounts as well.

When this writer reached out to Axis Bank with a questionnaire, the bank replied that it had made “true, fair and full provisions on said dates in accordance with the RBI guidelines in force”.

“However, the RBI being entitled to call its charges to take such further steps as may be necessary, called Indian banks to make new disclosures as per RBI circular dated 18th April, 2017. The ‘divergence’ that you aver is the outcome of RBI’s annual assessment of all banks. For a better understanding of the matter, and to draw meaningful conclusions, may we advise you to please observe similar disclosures of rest of the banking system,” Axis Bank said in a statement.

The “similar disclosures” in other banks in the private sector, so far reveals only Yes Bank has surpassed Axis Bank in the percentage divergence in NPAs and both banks have been audited by the same auditor. The regulators – RBI, Securities and Exchange Board of India, Company Law Board and the ICAI – need to evaluate the conduct and quality of the audits of Axis Bank and Yes Bank in FY2016 by Batliboi and Co. in order to restore public confidence.

Authoring an article on December 23, 2012 , Viren H. Mehta had argued for the disclosure of risk-related measures as a means to improve corporate governance in banks and as an “obligation to stakeholders.” More than four years later, a similar disclosure by the RBI on NPA divergence has cast him in the spotlight.


The dangers that lurk beneath India’s IT layoffs

May 24, 2017

Prof Maitreesh Ghatak just nails it:

You can spin a web of statistics and say all izz well when people are hurting. You can use catchy phrases like ‘the digital economy’ and ‘Make in India’ to raise aspirations of global domination, or blame it all on past government policy. The problem, though, is that you can only do it for so long without actually delivering on job creation.
The Sensex can hit the skies, our growth figures can beat China’s, and it may keep those whose fortunes are tied to either our protected corporate sector or the bloated public sector happy and willing to wait for achche din.
However, these are not meaningful indicators of economic development unless accompanied by the creation of jobs, and rising wages and salaries enabling ordinary citizens to enjoy a better quality of life. Being laid off or struggling to find jobs while being told of wonderful times to come or that unemployment is a choice tends to make people very upset.
And even though they command a small fraction of wealth or income in our highly unequal economy, they have strength in numbers. They can vote. And at some point, may be a few years down the line, they may well choose to make some politicians and their economic advisers voluntarily unemployed.

102 years of Statistical Tables Related to Banks in India..oldest running annual database/publication in India?

May 24, 2017

I have mentioned this publication/database few times in previous posts and even said will write a post on this in future.

It is fascinating to note that Statistical Tables Related to Banks in India, an annual publication released by RBI is running into 102nd year! I would guess this would make it the oldest running publication/database of India.

The first volume was released in 1915 and was published by Department of Statistics by order of Governor General in Council. The publication was printed by Superintendent Government Printing in Calcutta.

The need to have a publication assessing banking conditions was needed due to multiple banking failures in early 20th century. The British Government finally decided to collect and publish data following large banking failures in Punjab in 2015. Between Nov-13 and Dec-14, around 57 banks had failed with 22 of them from Punjab.

Thus, we see the Government collecting data on failed banks right at the beginning. Infact that is the focus as introductory memorandum suggests:


At proposed ‘Sholay’ park in Ramnagara, the fight is between movie memories and vulnerable vultures..

May 23, 2017

Superb piece from Archana Nathan of Scroll. One was excited to read earlier of an upcoming Sholay Park in Ramnagara, a town about 50 kms from Bangalore. This place was the iconic Ramgarh where the iconic Hindi movie Sholay was shot and made history.

However, the Park has run into difficulties with environment authorities:

Off the highway between Bengaluru and Mysuru, a patch of land surrounded by hills comes alive when Ramesh Sippy’s Sholay is mentioned. The 1975 blockbuster was shot there and curious tourists, especially from outside Karnataka, continue to visit the area to search for markers of the vendetta drama. There are none, but there soon might be. Early this year, the state government’s tourism department proposed a Sholay inspired theme park at Ramanagara, which is depicted as Ramgarh in the movie.

The theme park will include virtual reality recreations of key moments from the movie, adventure games and a crafts hub over a 120-acre stretch. The location seems perfect: packed with giant yet scaleable boulders and hills, Ramanagara is an ideal pit stop between the cities. But the proposal has been opposed by the state Forest Department, which has pointed out that it is illegal to construct a tourist hub in a reserved forest area. The parts of Sholay that fans remember – Gabbar Singh’s lair, Thakur Baldev Singh’s house, and the sequence in which Gabbar chops off Thakur’s hands – are part of the Ramadevara Betta vulture sanctuary at Ramanagara.

A case which makes for the eternal debate on growth vs environment..

Reserve Bank of India will be utilising Army’s services…

May 23, 2017

An interesting update on how central bank uses armed forces to guard itself:


Will Indian Railways charge more for lower berths?

May 23, 2017

Missed this news which came  a few days ago.

Apparently, the Indian Railways is mulling charging an extra Rs 50 for the lower berths:


Why India needs another statistical revolution..

May 22, 2017

Recently a trio of economists had deplored the decline in Indian statistical system.

Pramit Bhattacharya in this superb piece writes more on the issue:


Time for passive investing in India is coming…

May 22, 2017

I have always wondered this aspect of mutual funds in India. If Indian equity markets have indeed become more efficient over the years, why is it that active mutual funds continue to do better than passive funds? Why are active funds preferred over passive funds? After all if markets are getting efficient, then information asymmetry is becoming lesser. The fund managers should be knowing as much as entire markets and no advantage can be drawn from any analysis.

Dhirendra Kumar of Valuresearch feels time for passive funds is coming in India:

So should you invest in index funds? So far, the answer has been no. However, I can see symptoms that tell us the time for passive investing is well on its way. So far, index investing has not succeeded because the market was not heavily institutionalised and large chunks of companies were not owned by professional fund management. This is now changing.

Another huge factor which points towards the impending rise of passive investing–the main one, I feel–is rising costs. Fund management costs have now gone through the roof. Actively managed funds charge up to three per cent of total assets. This is something that will now start impacting returns in a way that is noticeable to investors.

The next factor is the size of the funds. Indian equity funds have been seasonal and small. A small fund can opportunistically try many investments in midcap and smallcap companies that can yield returns that have a big impact on the portfolio. This is not possible for large funds. The Indian equity fund universe is now dominated by big funds. There are now more than fifteen funds that have more than Rs 10,000 crores. Seven-eight funds are close to Rs 20,000 crore. Such funds have no choice but to be large cap funds. They’re finding it hard to beat the index consistently. They have a compelling performance track record over a long period and they have beaten the indices by a big margin. However I visualise that going forward, because of their size, because of the expenses they charge, and because of the growing institutionalisation of the market, they won’t find it easy to outperform.

So does that mean that if you are starting an SIP for ten years, you should do so in an index fund? Well, the case is not that strong yet. Over the last five years, the top five actively managed funds would have earned you one and a half times more than a Nifty fund and that’s a big difference.

However, it’s something that an investor should keep a watch on. At some point in the coming five years, there will likely be a time when it will make sense to stop your SIP in an actively managed fund and turn to an index fund. We’re heading in that direction, slowly but surely.


Will be interesting to watch this space. Another interesting aticle says we need more broad based indices before passive funds can kickoff in India..

Who should create jobs in India? Government or private sector?

May 22, 2017

I am quite amazed by recent debates on 3 year anniversary of the Indian government. On one hand ,our experts want Government to get out of most economic activities. But on the other hand, they hold government responsible for every economic activity under the sun.

The Government has got a thumbs up for most such economic activities barring one: jobs. Lack of job creation is seen as a major deficiency of the current government. So much so, the experts say this one deficiency does away with whatever good work the current government has done.

This leaves one to question: How is it that Government can create jobs?


Despite all the criticism, RBI Board still remains empty..

May 18, 2017

It is really puzzling. Despite much criticism on role of RBI Board in recent demonetisation, the board still remains empty.

Just to reiterate, the decision to demonetise the notes was taken by RBI Board. RBI Board comprises 21 members but just 10 were appointed on the eve of demonetisation. Out of the 10, only 8 were present to take a decision as momentous as this one. Imagine any Corporate Board taking a decision at that kind of magnitude with around 40% Board members being present.

So, on 8-Nov-2016 table looked like this:


Why does it cost more to cross platforms in railway stations compared to crossing the city by taxi?

May 16, 2017

There have been some appreciable changes in Indian railways especially its immediate responses to complaints sent via twitter while traveling. However, somethings have not changed at all.

One of them is the luggage transportation system within the station. It is highly ironical that one pays more to just cross a few meters of platforms compared to a taxi which travels many a kilometres within the city.

This is all because there is just no alternate to the porter/coolie system which charges all kinds of prices. The services are hopelessly monopolised with no other alternate but to pay crazy fares. One can only negotiate so much. There is also a kind of cartel which means if you reject someone’s services, other will not pick it up. So you have little choice.

It is even more ironical that you pay more to hire those trolleys which are available for free at airports (though in west they charge you for trolleys as well). I remember how one asked for hefty price just to cross one platform on Mumbai Central Station saying after all we are moving your luggage on the trolley.

Compare this to the taxi system. There was a time when taxis would cost as much well as it was all unionised. But thanks to introduction of competition and multiple players, inter-city taxi prices have come down. One is now travelling from and to various places at a fraction of a price compared to a few years. If one is lucky and there is less traffic, the fare could be less than half of what one paid when there was no competition. With many discount etc offers, the trip could be free as well.


Why does financial media give such weird posing pictures of economic advisers/policymakers?

May 15, 2017

As rightly said: A picture is worth 100 or more words.

I have been noticing this for a while. Though while writing the previous post and seeing a full related articles, I decided to wrote this post finally.

Why does financial media give such weird pictures of economic advisers/policymakers? It has become habit of our media to report some lecture/comment from economic advisers/policymakers as if they are issuing some kind of sermon. The reporting usually comes with that person’s picture with expressions which are just so dumbfounding.

This has been especially true of portrayal of current Chief Economic Adviser. See his pictures here, here, here (who in the right mind will give a picture like this?), here, here. here and so on. It is not just the current CEA, but previous ones as well (see this,this for previous advisers).

I hope you get the point. If the comment is especially hinted against government the picture could put our Lord Nataraja to shame.

Why is this being done? It is obviously the portrayal of “the economic adviser” as “the pope/priest” who knows it all. The idea is to over glorify the role of the economic adviser as this person whose wisdom and advise will make all of us “developed” in one magic wand. So you put up pictures which back this theme.

Nothing could be more contrarian than this image portrayal…

Why don’t our economic experts/CEOs/analysts/media speak their minds on Indian economy?

May 15, 2017

After a long time, one gets to read a speech which talks about one of the most fundamental problems facing Indian economy: lack of healthy criticism (not negative) of government/RBI policy. It is unbelievable to see these days how often the view of all so called independent minds is similar to the government. Pick the newspaper post any budget or monetary policy and you see so called independent minds praising the policy. Thankfully I am not the only one saying this.

Most do not even mention that their view  before policy was very different from what happened in the policy and just shamelessly switch sides. Those few that admit the divergences call the policy prudent and cleverly shift to other side. There are just very very few who are willing to question the move. But then some of them remain silent fearing trolling. All in all, there are just a handful who are willing to speak their minds and they are not liked.

So it is interesting that the Chief Economic Adviser has raised issues about this behavior in a recent much talked about speech. The speech is provocatively titled as: Competence, Truth and Power: Macro-economic Commentary in India. He says:


India’s Private banks under reporting NPA data..

May 15, 2017

Well there are very few things economics analysts get right. But on this issue, this blog almost gets it right.

More than an year ago this blog wondered and asked the question: how come NPAs accrue only at the public sector banks and not private ones? The post said:

The blogger got into a very interesting discussion with friends who are financial market professionals and very savvy ones at that.

One question that cropped up was how is it that losses in banking are limited mostly to the public sector banks and not the private sector ones? If we have the same set of corporates, why is it that corporates choose to default with public banks and not private ones?  Before viewers think this was some left oriented socialistic leaning group, it was just the opposite. The views of the discussants had emerged after seeing the way banking has been working in India and globally.

This question is going to be dismissed by most as a worthless discussion. Public sector banks make losses as they are owned by govt, have governance issues etc. Obviously, this answer chooses to ignore the kinds of malfeasance we are seeing in global private banks. But this issue of public vs private banks cannot be easily dismissed now with huge losses showing in a foreign bank which actually believes itself as an Indian player.

So what exactly is going on?

In the discussion, one was enlightened on how banking actually works between public and private banks:

  • Most big companies which need big loans first approach public sector banks given latter’s large scale.
  • Those who approach the private sector first usually require smaller loans and are not really so called great companies. So we have an issue of borrower quality with private sector banks which is puzzling.
  •  Contrary to what most imagine, the loan practices of public sector banks are far more stringent and cautious. This is because of fear being caught in some state audit and so on. So you approach a public sector bank, it will sit on the loan for some days/months verifying things before sanctioning the loan. What is termed as a slow and inefficient banking is actually a case of prudent banking.
  • Whereas in private sector, loans are approved as quickly (sorry efficiently) as possible. Very little paper work and formalities are needed. The whole idea is to sell off the loan and look for the next one. This practice has made the private sector more popular with the corporates. However, given they remain smaller than public banks, corporate sector’s choices are limited.
  • Even more interesting was this supposed fact that when public sector banks reject a big loan on the basis of dubious quality, the corporates have little choice but to approach private sector. So, instead of one public sector bank, they might approach 2-3 private sector banks for arranging the loans.
  • Another issue which was raised is with respect to loan sizes being handled by people in the two banks. In public sector banks, it takes years of experience before one starts handling the amount which one handles within few years in private banks. This whole issue of private banks doing better because of young employees is overstretched and overhyped. Banking is all about experience and seeing through multiple business cycles. The more you are experienced, the more cautious and prudent you will be while giving loans. Banking is all about history …
  • Then there is this huge problem of how politicos interfere with bank loan policies and swindle money to their cronies. One was told this is how things are even at private sector banks as well with loans going to those who know the top management. One major objective of bank nationalization was to dismantle this relationship between banks and top companies.

Given all these advantages with public sector banks, why is it that NPAs and losses only accrue in them? The answer given was more interesting. It is because the public sector banks are more transparent with their operations! PSBs are disclosing all these NPAs whereas private sector is just postponing the losses. Latter keeps  giving you more loans to pay off previous loans and the game goes on. It is a ponzi scheme which is actually attributed to PSBs. Why hasn’t this bust so far? It is a matter of time..

It seems the time has come.

Recent news reported how some of the leading private banks have been under reporting NPAs.

Though the Reserve Bank of India (RBI) has mandated banks to disclose the full extent of asset quality stress in their books, some private banks, it seems, continue to under-report their bad loan data.

On Friday, YES Bank’s stock price fell six per cent to Rs 1,483.85 on the BSE after a disclosure in its 2016-17 annual report, which said the RBI audit had pegged its total gross non-performing assets (NPAs) at five per cent for financial year 2015-16 (FY16), against the bank’s own assessment of only 0.76 per cent for the same year. 

Analysts also say the under-reporting of numbers is not a phenomenon restricted to YES Bank. Foreign brokerage firm Credit Suisse said Axis Bank’s NPAs, according to the RBI audit, were higher at 4.5 per cent of loans versus 1.78 per cent reported by the bank in FY16, while ICICI Bank’s reported numbers at 5.85 per cent were lower than the RBI’s figure of seven per cent.

These two banks are yet to come up with their annual reports, but disclosed the numbers in a conference call with analysts after their March 2017 quarter results.

The RBI had asked banks to conduct an asset quality review in the third (Q3) and fourth quarter (Q4) of FY16, which resulted in a 70 per cent jump in their gross NPAs between September 2015 and March 2016. 

On April 18, the RBI introduced a rule that mandated banks to disclose the RBI-assessed bad debt numbers, if the divergence between the central bank’s assessment and the bank’s actual reporting was more than 15 per cent. 

Interesting times..

ECB member admits to lobbying for abolishing cash…

May 9, 2017

It does not get clearer than this. Yves Mersh who just a few days ago argued why cash still matters in Europe. makes another speech.

He makes a case for how various players are lobbying for abolition of cash:


Is Indian central bank still counting notes?

May 9, 2017

It has been more than 4 months since India’s demonetisation drive got over. We have had 2 monetary policy meetings in Feb and April along with Union Budget where analysts anticipated policymakers to release data on demonetised notes. In particular the question that how many old notes came back to the system is vital to knowing what went during demonetisation.

But there is still no data on the currency notes. With shocking silence on RBI front all this while, the government keeps giving us some random data here and there. But there is nothing concrete from the authority whose word finally matters in the debate. The central bank even released a paper assessing demonetisation but it did not have any such data. Moreover, it had stuff which most of us knew from multiple articles written by other experts.

It was also surprising to note how RBI earlier called the exercise Withdrawal of Specified Bank notes. From Feb-2017 meeting onwards, RBI started calling it  demonetisation specifically. It was thought that RBI has changed its classification as it believed some % of notes had indeed not returned to the system. Thus it was demonetisation and not just currency withdrawal.

But 3 months have gone by since the Feb-2017 meeting and we still don’t have any figure whatsoever.

Like all economics action, the demonetisation drive also divided the experts into two camps: for and against.


Amendment to Banking Regulation Act is just a political signal: Some insights from history..

May 8, 2017

Under the Ordinance, the Central Government .. empowered, at any time, to direct the Reserve Bank to undertake an inspection of the books and accounts of any banking company incorporated under the Indian Companies Act and to make a report to the Central Government. If, after considering the Bank’s report of inspection, the Central Government were of the opinion that the concerned bank’s affairs were being conducted to the detriment of the interests of its depositors, the Government could prohibit the bank from receiving fresh deposits or refuse its inclusion in the Second Schedule or, if it had been so included, direct its exclusion from the Schedule. The Ordinance further prescribed penalties for contravention of its provisions and empowered the Central Government to publish the whole or any part of the inspection report after giving reasonable notice to the concerned bank.

One might be thinking that this Ordinance is the recent amendment to Banking Regulation Act 2017, which has been much in news. But this Ordinance was passed 70 years ago in 1946! Though, the ordinance was defective as it only gave RBI powers to regulate banks in British India and not Princely States. But still it is not as if RBI did not have powers over banking.

Further the Ordinance gave sweeping powers to RBI:


Battle over lands in Jharkhand: Traditions vs Development ..

May 8, 2017

This story has every bit of masala (spice). Jharkhand State Government is trying to undo old tenancy laws which will allow companies to ire/purchase lands from tribals. The tribals are obviously opposing the move:

Ulihatu is the birthplace of Birsa Munda, a tribal hero elevated to godlike status. He fought against the British in the late 19th century, leading to the enactment of the Chhotanagpur Tenancy Act of 1908, which prohibits the sale of tribal land to non-tribals. In fact, there had been several revolts even earlier, all of which had forced the British to enact the Santhal Pargana Tenancy Act. Later amendments gave the Indian government power to take over the land for public welfare projects, as well as industrial and mining purposes.

In November last year, it was reported that the Jharkhand Assembly okayed more changes to the two laws, which are commonly referred to as the CNT Act and SPT Act. The government had first tried the Ordinance route to push through the changes, similar to what the Centre had attempted earlier with the Land Bill. (In 2015, the Modi government promulgated an ordinance thrice to implement its Land Bill, but allowed it to lapse subsequently following protests by the Opposition.)

The tribals are clearly not buying the promise of ‘development’ that these amendments are supposed to usher in. There are other worries too.

Karma Oraon is a prominent leader of the Jharkhand Adivasi Sangharsh Morcha, the organisation spearheading the joint protests by 40 different groups. The Morcha even organised a rally in March. According to Oraon, only 23 per cent of the land in Jharkhand is being used for agriculture, a livelihood on which nearly 90 per cent of the tribal population is dependent. A professor of anthropology at Ranchi University, Oraon likened the amendments to vajrapat, a body blow. “They have absolutely no care for the interests of the Adivasi,” he had said during an earlier meeting at his well-appointed office in the university. “How will an ordinary tribal ensure that he remains the actual owner of the land once he leases it to a mighty company? Will he be able to drive it out if he wishes? Moreover, the local tribals are not well-versed in the ways of the market economy and will not utilise the money they get in a proper manner.”

I ask the young tribal hunting for rabbits if the prospect of a job at one of the new factories or power plants that’s likely to come up on acquired land, interests him. “They will ask for a degree for a job and we do not have them,” he says matter-of-factly. “Even with a degree, there is no guarantee of a job as they will mostly hire their own people,” he adds. His companions nod.

An old man, who was listening in silence, speaks up at this point. “In 2013, the Supreme Court gave gram sabha the power to decide whether land can be acquired by the government. The same will be followed here.”

Indore’s rise as cleanest city of the country…

May 8, 2017

Nice story from Pretika Khanna of Mint. In three years Indore has risen from 149th ranking to top ranking:

From being placed 149th in a cleanliness ranking of India’s cities in 2014, Indore Municipal Corporation climbed to the 25th position in 2016, and to the top of the heap in 2017.

This swift progress was aided by the corporation’s efforts to improve garbage collection, and turn open-defecation free (ODF).

Needs a detailed case study..