Why are there so many bank branches in a tiny town
Here is a quiz question. Which town in India has the maximum number of bank branches and is the favourite destination for public sector banks to launch new products and services? In case you are clueless, the answer is Sivaganga, a little-known district in Tamil Nadu, which happens to be the constituency of P Chidambaram, India’s finance minister, at various times over the past 15 years.
While Amethi and Rae Bareilly, the constituencies of Rahul and Sonia Gandhi, respectively, may be lagging in development and infrastructure, Mr Chidambaram has ensured that his constituency is not lacking in banking services and easy loans. The district has a whopping 200 branches and every bank chairman knows that the best way to attract the FM’s benevolent attention is to open a branch, or launch a mobile banking service at Sivaganga, and to invite Mr Chidambaram to inaugurate it. According to a newspaper report, the finance minister has visited his constituency 95 times in the past four years and is always happy to do a bit of ribbon-cutting during those trips.
Unfortunately, senior bankers also admit that no chairman cares about the branch beyond the grand inauguration and initial lending to impress the minister. Immediately afterwards, the branch begins to languish.
Once Again, Anti-Investor Move, To Revive Investor Sentiment!
How did the capital market regulator react to one of the worst years for the primary market? By scrapping mandatory IPO (initial public offerings) grading and making it voluntary! Chairman UK Sinha’s public speeches are about restoring investor confidence but he clearly does not know how to do it. So, powerful companies and market intermediaries, once again, used a depressed primary market to successfully lobby for a dilution of investor protection measures. IPO grading was advocated by investor activists and associations around 2003 and was reluctantly mandated by the Securities and Exchange Board of India (SEBI) in 2007, only to be dropped six years on.
SEBI’s excuse for scrapping mandatory grading is the reported findings of ‘various studies’ that a large number of investors are ‘not influenced by grades’; that plenty of low-grade IPOs received a big response from retail and institutional investors and, thirdly, that IPOs with high grades yielded more losses. In a clear contradiction of these claims, media reports also say that SEBI’s action was ‘a move to uplift the dormant primary market’. It is also unclear how SEBI rejected yet another study which shows that, over time, IPOs with higher grades yielded better price multiples.
Indian institutions have scant regard for history, so SEBI did not bother to consult investor associations who had fought long and hard for IPO grading. Nor did it bother to examine whether the grading process could be made more meaningful or adequately publicised. Thanks to pressure from powerful corporate lobbies, the IPO grading process was hobbled at the very inception. Investor groups wanted IPO grading to be independent and rating agencies to be paid from the large pool of badly utilised investor protection funds with stock exchanges and the ministry of corporate affairs. This did not happen. Companies were paying for their own rating—leading to charges about shoddy ratings—especially when India’s top rating agency, CRISIL gave Reliance Power a 5-star grade at the peak of the bull run of January 2008.
However, the grading did protect genuine investors, who had no time, or ability, to wade through bulky offer documents to find out what the companies wanted to hide. The simple 5-point grade, based on an expert evaluation of fundamentals by a rating agency, at least, acted as a fact check, even if it did not cover price risk.
By making it voluntary, SEBI has effectively killed IPO grading. But, instead of celebrating their victory, companies and market intermediaries should be really worried at the complete absence of protest. It shows that the investor simply doesn’t care and that is the real reason why only three companies made a public offering in 2013.
How the powerful threaten our basic freedom
It is the Polyester Prince story all over again. In the 1990s, Reliance Industries used the courts to bully a meek publisher and stopped the India release of a book that dissected Dhirubhai Ambani’s path to fabulous riches. In the days before social media or online book distribution options, the stay by a lower court was enough to stop it from getting into shop shelves. Nearly 15 years later, Indian industrialists, especially those in politics or with great political clout, are using the same bullying tactics.
In January, Praful Patel, the powerful minister from the Nationalist Congress Party (NCP) pressured Bloomsbury India to withdraw The Descent of Air India—a tell-all book that exposed how India’s national airline was systematically looted and pushed into the red. Naturally, Mr Patel’s stellar role, as aviation minister, in giving a huge push to the airline’s collapse through venal senior management and reckless purchase of aircrafts is described in detail. When Mr Patel filed a case with the metropolitan magistrate in Mumbai, the author Jitendra Bhargava (for decades, the public face of Air India) decided to fight back, while the publisher, Bloomsbury, chose to issue a public apology and destroy the remaining stock of the book. Mr Bhargava says on his facebook page that this was a unilateral decision without any discussion with him; he has also told the judge that he can substantiate everything he has said in the book. Mr Bhargava will soon self-publish it as an e-book.
In the very same week, the Sahara parivar decided to take the Ambani route. It filed a Rs200-crore defamation suit against journalist Tamal Bandopadhyay for a book that has not even been published and managed to obtain an interim stay against its publication from a Kolkata court. While Sahara claims that the book is defamatory, it has been the subject of innumerable adverse news reports ever since August 2012 when a landmark judgement of the Supreme Court (SC) ordered it to refund a whopping Rs24,000 crore raised through two group companies. In the subsequent months, the group patriarch, Subrata Roy, has been restrained by the SC from going abroad. The group has been rebuked by the apex court for trying to ‘fool’ it and has a contempt petition filed against it by SEBI for calling the market regulator a ‘sarkari gunda’. It will be interesting to see whether Jaico, the publisher of Sahara: The Untold Story also caves in or fights back.
Meanwhile, both Bloomsbury and Jaico would do well to look at what happened with The Polyester Prince. While the publisher chickened out of a fight, photocopies of the book were in great demand and author, Hamish MacDonald, grew in stature. A decade latter, when Anil and Mukesh went to war over the division of the family business, the dirty reputation that they washed in public began to make the revelations in Mr MacDonald’s book seem mild by comparison. More interestingly, Dhirubhai Ambani’s story, warts and all, became a popular Bollywood movie with the blessings of his son. Hopefully, the judiciary will take this into account while deciding on how much credence they should give to the claims of controversial corporates and politicians who want to use their financial muscle to gag whistleblowers and publishers.