In your interest.
Online Personal Finance Magazine
No beating about the bush.
This story should surely be an eye-opener to all the HR guys who think that they know everything
A friend of mine, who is in the business of ‘collecting’ overdue personal loans, has his offices at several locations. He uses it to advantage. For instance, if a defaulter at Mumbai cannot be traced, he passes it on to his other offices, to try and see if something matches. Once, his Ahmednagar (a city near Pune) branch got a list from Mumbai about a large loan outstanding from a gentleman, whom we shall call “Gupta”. Something about the details in the file rang a bell. He knew a Gupta, who was branch manager of a private bank in Ahmednagar. After matching more details and the photograph, it was confirmed that it was indeed the same person.
A fascinating story emerged.
Gupta had submitted a fake resume about his qualifications and experience and got a job as an officer with a private bank, at Panjim, Goa. At Goa, he used his position and salary slip to considerable advantage, borrowing money from other private banks and finance companies. After a year or so, he just upped it and went to Mumbai. There he fudged his resume yet again, landed a job with a foreign bank and went through the same process. After a year, he could no longer face the heat of the overdues at Mumbai and decided to leave for greener pastures. He landed at Pune where he conned yet another private bank with his prize-winning resume. At Pune, he spent a good year, raising a lot of personal loans. Needless to mention, he enjoyed all good things in life and the liberal lenders kept his lifestyle going.
Soon, he decided to leave Pune. He now went to Ahmednagar and joined another private bank, using the same method. He was in his third month at Ahmednagar, when my friend’s network caught up with him. The remarkable thing is that he got the job at Ahmednagar, with the same bank that he quit at Panjim!
This story is interesting. Banks, in prosperous times, are short of people with experience. So much that they do not bother to verify the antecedents. And another remarkable feature was that Mr Gupta used the same name and his PAN number etc in this merry-go-round! All he did was to fabricate a new experience background each time! It was sheer chance that he got caught!
His former employers are too embarrassed to pursue him. He has no money left with him and the loans are beyond recovery. The banks have hopefully learnt a lesson. All they need is for the HR department to keep a database on employees who leave (or are sacked) and cross check. Surely, when a borrower applies, they check with some database. In fact, I always felt that every HR department should not only have this data handy, but also a name/PAN number kind of database of people who apply for jobs and are not employed.
(Gupta is a name of convenience. No offence meant to any Gupta. City names have been changed. Fact or fiction... I leave it to the reader and to the many private banks who rush in to fill vacancies).
The ‘good’ news is that the banking market will be opened up for a few more private players. But how many of these new entrants actually pass muster?
The Budget talks about re-opening the window for letting more private banks in play. Most market participants and commentators have welcomed the move. I have some reservations on this. Of the many hopefuls who the market thinks should be interested, how many are fit to run a bank ethically and professionally without a conflict of interest? Very few names will actually pass muster. Reading the market commentaries, I shudder when I see some names being put forward. Especially in the context of the fact that the Reserve Bank of India never lets any bank go bust, but encourages bank delinquencies by arranging for subsequent adoption and marriage.
If market gossip is to be believed, a couple of industrial houses already own substantial stakes in a couple of small private banks. While the shareholding is not fully transparent yet, management control is apparently with the hidden owners. The informed gossip is that this Budget has re-opened the window of giving more licenses—specially to enable these houses to legitimise their holdings.
India is a large country. Every bank does not have to be pan-India in nature. The regional banks can thrive. It may be a good idea for the government to actually permit takeover of such regional banks by foreign banks, with the proviso that they have to remain listed entities. This would enable infusion of capital and technology into these banks and also increase domestic shareholder wealth. Let the government permit one or two banks in each region to be acquired by foreign banks like HSBC or Standard Chartered. They can increase their coverage and the regional banks can benefit with better management and technology.
The PSU banks are surely headed for disaster. It is a matter of time. Consolidation or mergers between two bad apples will not produce one good apple. Also, I have always maintained the view that creating a large balance sheet merely by merger, will not lead to credit expansion. A better idea would be to offer PSU banks to be taken over by larger private banks or foreign banks. That can enhance the quality of the banking sector and also stem the rot of poor quality lending from domestic banks. Of course, the government will not permit this, since it would mean an end to the business of loan melas and loan-waiver melas.
The political agenda of the government is systematically destroying the fabric of banking. Look at the latest attempt by the government to define the lending rate. It is ludicrous and whilst every PSU banker talks against it in private, none have the gumption to even write a ‘letter to the editor’.
Coming back to the Budget, the move to permit more private licenses is being seen by a few as a resumption of economic liberalisation. I hope they are right. To me, it seems more a case of political expediency to accommodate a few. In the process, a few bad banks will get created and will have to be bailed out in the future. The other favourable spin-off is that more private banks will bring in lots more FDI (if foreign investment is liberally permitted) and FII investments, which is always good for the markets.
While the salaried class got a tax bonanza that will boost consumption, companies will seek to pass on the increase in excise duty or live with lower margins.
The extremely clever Budget unveiled by the FM confirms that the economy has its own momentum in spite of the government. Yes, of course, the stimulus in the form of excise cuts last year, did add a few more rupees into the pockets of the businessman. The NREGA outlay has been enhanced, to ensure rising consumerism. The Budget has been on expected lines and the FM has taken advantage of the fact that most people’s eyes were on the fiscal deficit number.
By curtailing some spending and partially rolling back the excise stimuli in the backdrop of good industrial growth, his task became easy. In fact, the buoyancy in industry has enabled the FM to surprise the small universe of taxpaying Indians to have more money in their pockets. As usual, there is a huge increase in outlays on education and healthcare (from a small base, so it seems large) which one hopes will reach the target audience.
Fiscal deficit (whilst being high) at 5.5% of GDP (due to a higher base than last year, remember) is not very low, but the markets seem to have taken to it kindly.
Non-plan expenditure, thankfully, is only up 6%. The Plan outlay has increased 13%. Of course, we never get to see what actually happens later. Typically, the capital expenditure falls short of estimate to give in to rising revenue expenditure demand. Surprisingly, some government departments show a drop in expenditure allocation (Law & Justice, Mines, Supreme Court, huge drop in Petroleum ministry outlay, etc).
The Budget is high on expectations from industry. Near 15% growth in revenues have to come from excise, and the Budget document shows a near 30% increase in customs duty revenue. The Budget banks on the momentum of economic growth rather than give any thrust to the economy.
The corporate sector does not get anything. Partial withdrawal of stimuli by raising excise duty by two percentage points and increase in MAT by three percentage points is what they have got. Demand continues to be strong and governments for years have not bothered with increasing the supply side. In this context, companies can easily pass on the increases to the buyers or at worst live with slightly lower margins. Of course, there are the usual suspects in the industry basket who seemed to have successfully lobbied overtime and got honourable mention in the Budget speech itself. A reduction of duty on ‘magnetron’, used in Microwave ovens, which may bring down the cost of a microwave by around Rs200; a 5% reduction in duty on medical equipment; a duty cut in Rhodium (a precious metal used in jewellery) and reduction of duty on watches that are imported! These kinds of actions definitely raise questions. The corporate sector appeared relived that the last year’s undeserving cut in excise duty was only partially taken away. For the corporate sector, this Budget does nothing good. Service tax remains undisturbed, waiting for convergence with GST (goods & services tax).
Imposition of MAT should impact some of the infrastructure companies marginally. However, it may not impact earnings severely. The action of putting more money in the hands of taxpayers is good for sectors like automobiles, FMCG, etc. Of course, it is likely that the lowering of income tax may result in higher savings. The introduction of the Direct Tax Code (DTC) and uniform GST now have a deadline (1 April 2011) for implementation. I hope they are not postponed further. A breather for the mutual fund industry gives them another year to continue with corporate and banks’ money.
For the markets, the Budget is a big non-event. Yes, there was a holding of breath in the run up to the Budget. But nothing unexpected has happened to disturb the market. If anything, a few more rupees are available with some stock market investors, who also pay some taxes. This Budget does not give the market any reason to move either way. What happened after the Budget was more of a relief rally. What could happen is that FII money, if it was waiting on the sidelines, anticipating a bad Budget, could come into the market and spark a short-term rally. In my view, our markets are fairly valued, with high growth expectations. No need to go through the Budget to take any investment decisions. Interest rates should stabilise since the borrowing plans of the government do not seem too extravagant.
One interesting development is the opening up of banking licences to the private sector. It would be interesting as NBFCs start to talk with small private banks for M&As (mergers and acquisitions). We could also see some of the ‘hidden’ owners of old-generation private banks breathing a sigh of relief as this will provide the opportunity to legitimise their holdings. The valuation of NBFCs (those perceived by the markets as being desirous of getting into banking) and small private-sector banks will turn volatile. Of course, this is negative news for PSU banks. More competition as well as loss of whatever talent is left, is on the cards.
A cautionary note: I have yet to read and analyse the Budget fine print.