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Wal-Mart has disclosed that it is investigating allegations of corrupt practices and alleged violations of US anti-bribery law in India. However, Indian Commerce Minister Sharma said there is no probe into corruption allegations
On Board PM's Special Plane: Indian Commerce Minister Anand Sharma on Sunday said there was no probe into corruption allegations against US retail giant Wal-Mart in India, saying agencies could look into violations if any.
The world's largest retailer has disclosed that it is investigating allegations of corrupt practices and alleged violations of US anti-bribery law in India, China and Brazil, expanding similar ongoing investigations in Mexico.
"Allegations are allegations. In a rule-based and rule-governed country, if there is any violation there are agencies who are there to look into it," Sharma told journalists en route to Phnom Penh along with Indian Prime Minister Manmohan Singh, when asked to comment about the allegations involving Wal-Mart.
"I should not comment on the alleged FEMA violations which are yet to be probed and even Finance Minister P Chidambaram has said that he is yet to get any report," Sharma said.
At the same time, he said there would have been no violations since September when the foreign direct investment (FDI) decision was notified with only one change about dispensation of landlocked states which do not have cities with population of five million.
Wal-Mart has not specified specific charges of corruption in any of the countries it has mentioned but said it is probing allegations of potential violations of Foreign Corrupt Practices Act (FCPA) of the US.
The FCPA bars bribing officials of foreign governments.
The allegations have come at a time when the United Progressive Alliance (UPA) government is pushing hard its reform agenda, including FDI in retail.
The opposition Bharatiya Janata Party (BJP) on Saturday termed the graft allegations as a "serious issue", and demanded a probe into the matter as well as a reply by the government.
As bad loans balloon to unprecedented levels, we take a look at why this has happened
Kotak Institutional Equities (Kotak), in its recent report, has voiced its concern over the decline in asset quality in the banking sector, including private banks. Kotak stated, “2QFY13 results of PSU banks showed further increase in their non-performing loans (NPLs) and restructured loans from their already high levels while private banks had a relatively benign quarter with a modest decline in asset quality” Moneylife had already written an extensive cover story on public sector banks’ woes and their structural problems. The cover story can be accessed here. The story revealed that bad loans of public sector banks grew by a whopping 56% during the 2011-12 fiscal and the reason had nothing to do with the economy but the way the banks were managed.
While there isn’t much of a difference in the loan composition between private and public sector banks (PSBs), the former tend to have a much more prudent credit policy to make sure that debtors are solvent and have the capacity to repay the principal. Kotak mentions that there was a steep rise in restructured loans, especially amongst PSBs. The table below illustrates this:
As you can see, restructured loans are fairly stable in private banks, even though numbers have gone up in some private banks. But, by and large, private banks have vastly outperformed PSBs. In fact, the Reserve Bank of India (RBI) had admitted that 15% of PSB restructured assets had become bad debts. The main differences between private and PSBs is the way both are run. PSBs do not have a shareholding mindset to make profits and are often under the watchful eyes of the government. Sometimes, things can get political, even though on paper, a loan can turn bad. A case in point is how inept PSBs had been in bailing out companies like Air India and more pertinently, a private carrier that is Kingfisher, which has begged PSBs to use tax payers’ money for a bailout. The government has simply forced PSBs to throw good money (i.e. tax payers’ money) over bad loans.
Several other reasons explain poor performance of PBSs. They are:
A more detailed analysis of the above can be found in our cover story here.
A Moneylife index comparing returns of public sector banks (PSBs) and private banks threw up some very interesting findings, where investing in private banks would have increased boosted your returns by 50%, over three years—an enormous difference.
Kotak mentions, “The government and regulator may want to ensure better lending practices at PSU banks or enforce better practices (lending and otherwise) of private-sector companies on PSBs.” However, we feel this is just wishful thinking. It will take years for cultural changes to impact PSBs, in a good way. Policy makers and regulators would need to get their act together, now. Our columnist, MG Warrier, had written about banking reforms in detail over here.