This is with regard to the Cover Story published in Moneylife
(28 November 2013) about how an investor won his arbitration case against a broker.
While the story is, indeed, laudable, it does dent my confidence as an investor in the Indian stock markets. And, my impression is not only based on some brokers cheating the investors; it is actually due to a plethora of systemic issues like:

(a) companies defrauding investors by giving incorrect information about their current state of business; (b) manipulation of stock markets by brokers, companies and other entities; (c) SEBI acting merely as a messenger of a complaint (in the case of  small retail investors), but, more importantly, believing the accused more than the complainant, in spite of the complainant having all the data; (d) government destroying investors’ wealth by offloading stake through FPOs (follow-on public offers) at a substantial discount to the market price; and (e) lack of corporate governance even in the top blue-chip companies and with no follow-up action by government or the regulators.

I was very active in raising several issues bringing them to the regulators’ notice; but the lack of action from their side has put to rest my activism. Instead, I have started wondering whether it is worth it to invest money in stock markets, tracking the markets which are prone to huge manipulations (lot of information asymmetry), following up on complaints to regulators and companies, and then having an endless wait for the ‘right’ action.

I feel it is much better to explore other investment avenues, or rather not invest at all. At least, there would be some personal time with one’s family and friends rather than seeing one’s money getting wiped off due to Indian markets. I don’t think Indian markets are meant to be small-investor-friendly. They are designed to benefit businesses, manipulators and other influential entities who know what to trade and when to trade. Small investors are like ‘donkeys’ whose backs are used to ride upon and jump off when the objective has been met. It is not about lack of action, but rather NO action by government and the regulator.

I don’t think we need a lot of analysis on stocks, companies, mutual funds, etc, because

no amount of analysis can achieve the systematic correction required in the whole set up. I doubt whether this is the way the system is meant to be. No correction would happen, no matter what happens in the system. I might sound like a huge pessimist, but let me support the above argument with one personal example.

I had invested in tax-free bonds through ICICI Direct. These bonds, after getting listed on the NSE and the BSE, are tradable like any other stock. ICICI Direct, on its own, increased the brokerage for these bonds to 1% against a flat brokerage of 0.55% that it charges for stocks.

In another instance, the tax-free bonds that I invested were supposed to be listed on both the NSE and the BSE, as per offer document. I had invested in the IPO through ICICI Direct after going through the offer letter which clearly indicated that these would be listed on both the exchanges. However, once the bonds were listed, the risk department of ICICI Direct did not allow the securities to be listed on the NSE and allowed them to be tradable only on the BSE. I wanted to sell the bonds one day on the NSE at a price which was Rs20 higher than that on the BSE. This did not happen (as the system did not allow me to trade on the NSE) and I could not trade. Currently, the bonds are trading at Rs120 lower than the price I had wanted to exit three months back, giving me an unrealised loss of Rs12,000 from the allocation price.

In the first case, after registering a complaint on SCORES, ICICI grudgingly refunded the excess brokerage but cautioned me that it would be 1% for any subsequent trades. In the second case, in spite of having all the data in my favour, ICICI chose not to respond to the complaint, even until now, with absolutely no follow-up by the NSE and SEBI.
I think this settles my case.
Tarun Agarwal, by email

RISING NON-PERFORMING ASSETS IN BANKS
The gross non-performing assets (NPAs) of commercial banks are mounting.  The trend observed in the case of public sector banks (Government of India is the major shareholder) is alarming. The quantum of bad loans in all the banks (including foreign and private banks) is now over Rs2.25 trillion. Moody’s Investors Service expects further deterioration of the asset quality of banks by March 2014. They estimate that gross NPA level will go up to the extent of Rs2.70 trillion to Rs2.90 trillion. 
 
The provisioning norms, based on the age and availability of security of the NPAs, impact the profitability of the banks. Banks’ NPAs do not earn any income for banks from the date they are classified as NPAs, to the date of their realisation. In turn, provisioning for NPA leads to erosion of bank profits. United Bank of India and Central Bank of India incurred losses to the tune of Rs490 crore and Rs1,500 crore, respectively, for the quarter ended September 2013.  This was due to huge provisioning requirement for bad loans. Media have reported that banks made provisions to the tune of Rs1.40 trillion between 2008 and 2013.  

Of late, restructuring of accounts is done to show them as performing accounts. These accounts are ‘dressed accounts.’ Most of the restructured accounts pose a danger to the banks in a short span of time. These accounts will also come under NPAs, in the subsequent quarters.  

The banks source funds from the public for lending to various sectors. The trust and confidence reposed in by depositors will be gradually eroded as NPAs pose a threat to banks.  

At this critical situation, bankers should monitor the advance accounts very closely and avoid further slippages to NPA category. This should be the foremost aim of bankers. While selecting new borrowers, banks should exercise greater care in their appraisal. Besides verification of the financial reports of the borrowers, bankers should make discreet enquiries on the creditworthiness, past performance and financial discipline of the promoters. Most bankers miserably fail in this area.

The selection of borrowers and close monitoring of the accounts will certainly reduce the number of accounts turning into non-performing ones.
RM Ramanathan, by email

QUITTING OF VETERANS
This is with regard to “V Balakrishnan the ‘keen anchor-builder’ of Infosys resigns”. The quitting of so many veterans, more particularly of the Bala variety, in quick succession, indicates that there is certainly something wrong—something much more than meets the eye. Dal mein kuch to kala hai.
Nagesh Kini

IS IT INDIA’S NATIONAL PRIDE?
This is with regard to “Who is Devyani Khobragade?” To the best of my knowledge, there are stringent and all-encompassing vigilance and intelligence enquiries as well as background checks done on people heading out for diplomatic posts in sensitive locations. Had it not been for this unconnected episode of the servant issue snowballing into something that is big in the US, the rest of us Indians would not have come to know about the assets and other aspects of this officer’s performance. It would be interesting to know how those background checks were handled in the ministry of external affairs and other government departments. Presumably, these are also in public domain and available through Right to Information, or could they be placed on public record? The larger benefit to the nation, hopefully, is that some sort of fear would be stalking the minds of the corrupt and arrogant. This can only be done with more such articles. And it is a totally different issue from India’s national pride in the way that diplomats are treated.
Veeresh Malik

KEEP UP YOUR GOOD WORK!
This is with regard to “Enforcement action accelerates against Ponzi and MLM schemes” by Sucheta Dalal. I am very glad that you have taken the initiative. Also, I understand that it is a long process. SpeakAsia is a closed unit now. But QNet, etc, are still working. More people are getting sucked into these schemes. Those who are stuck are eager to leave. What is the government’s plan of action to curb all these schemes? Keep up your good work!
Ramila

‘NOT CUSTOMER FRIENDLY’
This is with regard to “RBI’s inflation index bonds better than bank FD for retirement savings” by Raj Pradhan. These inflation index bonds of RBI (Reserve Bank of India) are neither attractive nor acceptable for the saving community from middle class and lower middle class including retired category and pensioners. The reasons are: (a) the return assured is only 1.5 % above the inflation index which is flexible and not reflecting the ground realities of retail prices in the market; (b) the money is locked up and interest income is cumulative in nature; (c) the interest income is taxable; (d) the procedure involved is not customer friendly.
TV Gopalakrishnan

RBI DOESN’T GO BY MARKET GOSSIP
This is with regard to “Has RBI realised the limitations of monetary policy measures in taming inflation?” by Vivek Sharma. It may be too early to come to conclusions about RBI’s intentions, while leaving the rates untouched this time. Perhaps, this may be just to give a signal to speculators that RBI doesn’t go by market gossip. RBI has never claimed that changes in base rates alone, or even a combination of traditional monetary policy measures in the central bank’s armoury, can manage inflation.
MG Warrier