[SmartCat]

Originally Posted by carboy

Why don't private banks not lend? Is it because they don't expect the loans to be paid back?

No. Private banks are lending and taking away marketshare from PSU Banks. But there is only so much lending your HDFC Bank and Kotak Bank can do. Remember that PSU Banks have 60% share of deposits, thanks to gazillion branches all over India.

Then when those loans become NPAs, then Govt has to recapitalise the PSU banks gain. And so on and so forth.

Sure, NOT recapitalizing PSU banks and letting things unfold seems like the "right" thing to do. That is, let private banks take away marketshare from PSU banks slowly on both assets (loans) and liabilities (deposit) side. But if you do that, you lose out on short term growth. You do this and you condemn the country to slowish growth for atleast 10 years.

OR

You recapitalize PSU banks so that they can start lending again. And figure out how to avoid future NPA issues. Easier said than done though because the sector needs lots of reforms. Merging all chota mota PSU banks into two or three large banks might help. They have to figure out how to eliminate political interference in loan sanctioning though. The easiest way to do it is complete privatization.

[PGA]

I don't think liquidity is an issue or cause of the problem, if the projects look viable funds will will flow in, if not in house than from foreign shores. Its not only economic viability that we need to see but other angles as well. For eg what is the ability of the law which can be enforced to obtain what is rightfully yours in a reasonable time frame, or is it that I will have to approach a local chieftain to get my clearances or dues, if so then will I invest my money very hesitantly. We have also seen the ability of lenders to recover their dues, virtual impossibility inspite of IBC.

The other civilisations have moved on, even a mango man in the street knows that, whereas our governance/ administrative systems are still archaic and over the last decade or so they have distinctly become personality driven than being institutional in nature. On top of it all thanks to media revolution which can put such a spin to any situation that one doesn't even come to know what is right or wrong. So till the time this situation improves I feel we are in for a slow march.

If I feel confident of tomorrow I will invest and if I don't I will invest in some place else where I feel confident enough or I will just sit tight for the times to tide over and start investing when situations/ policies become stable or coherent. I also feel if there is one person who can set right the political economy of the country its the present incumbent provided he is guided by the people of ability as the need is not to be incremental but leap frog.

[carboy]

Originally Posted by SmartCat

The easiest way to do it is complete privatization.

So there are 3 options, not two?

[Samurai]

Originally Posted by SmartCat

Merging all chota mota PSU banks into two or three large banks might help... The easiest way to do it is complete privatization.

Does it really help? It created a very different kind of monster in USA, which only has private banks and really large ones. About 30 years ago, USA had lots of small regional banks in every state. Then the merger spree started in the 90s and now there are only a few mega banks. Lots of free services are now charged. There are plenty of articles describing the adverse impact on customers.

[SmartCat]

Originally Posted by PGA

I don't think liquidity is an issue or cause of the problem, if the projects look viable funds will will flow in, if not in house than from foreign shores.

For PSU banks, this is a capital adequacy problem. RBI fiddling around with repo rate etc will not help PSU banks (other than its treasury operations because of g-sec holdings). Because of BASEL norms, you need to have certain level of equity reserves for lending.

For NBFCs, depending on foreign funding is risky because of currency risk. You can't go beyond a certain percentage. You can hedge currency risk, but there are hedging costs involved.

Originally Posted by carboy

So there are 3 options, not two?

If you privatize now, you get Rs. 1 for what is actually worth Rs. 10. It is better to recapitalize all PSU banks, let it run operations for 5 years, ensure that there is no political interference (hence NPAs) during these 5 years, let the profits roll in and then privatize.

Originally Posted by Samurai

Does it really help? It created a very different kind of monster in USA

Atleast in Indian context, large PSU banks like SBI and Bank of Baroda have fared reasonably well in terms of NPAs.





PNB too, if you ignore the Nirav Modi scam.

[carboy]

Originally Posted by SmartCat

If you privatize now, you get Rs. 1 for what is actually worth Rs. 10.

I am not sure that's true. But even if true, it's better than sinking 1000s of crores every year for recapitalisation as they have been for ages

Originally Posted by SmartCat

It is better to recapitalize all PSU banks, let it run operations for 5 years, ensure that there is no political interference (hence NPAs) during these 5 years, let the profits roll in and then privatize.

Since they haven't been able to do that in the last 5 years, what I see happening is recapitalising every year forever like they have been doing.

[Samurai]

Originally Posted by Ithaca

And the Democratic Socialists of America strike again.
This time it is the Amazon New York Headquarters

And you should be thankful for it.

Follow this twitter link, to end up in this WSJ article.

[SmartCat]

Refreshingly different take on this subject. But I'm not convinced though

Why wealth concentration in the hands of richest 1% may not be a bad thing - Inequality between the very richest and the rest correlates with greater innovation.
https://www.business-standard.com/ar...1500439_1.html

The French economist Philippe Aghion points out that there’s a direct correlation between high levels of inequality in favour of the top 1% and innovation (the creation of new technologies). Given that every country is eager to foster innovation – because it brings huge economic benefits – might there be an argument that a concentration of wealth at the top isn’t necessarily a great evil?

[carboy]

Originally Posted by SmartCat

Why wealth concentration in the hands of richest 1% may not be a bad thing - Inequality between the very richest and the rest correlates with greater innovation.

This much disparity mostly happens because of rent-seeking & not because of innovation.

[SmartCat]

Originally Posted by carboy

I am not sure that's true. But even if true, it's better than sinking 1000s of crores every year for recapitalisation as they have been for ages. Since they haven't been able to do that in the last 5 years, what I see happening is recapitalising every year forever like they have been doing.

Looks like you were right. Govt has sunk in lots of cash into PSU banks over the past few years, and they have nothing much to show for it.

[alpha1]

Originally Posted by SmartCat

Refreshingly different take on this subject. But I'm not convinced though

Why wealth concentration in the hands of richest 1% may not be a bad thing - Inequality between the very richest and the rest correlates with greater innovation.
https://www.business-standard.com/ar...1500439_1.html

The important point in the article is this which everyone forgets in a while:

The main priority for governments should be to ensure that the top strata of the wealthy isn’t allowed to remain a closed shop – that is, new innovators must be free to challenge and replace incumbent companies. Given the entrenched positions of giant technology companies such as Alphabet Inc., Apple Inc. and Microsoft Corp., this is going to need a bit of work.

Yesterday’s innovators are enjoying a quietly untroubled and lucrative life today, which may well be down to the barriers to entry they themselves have erected.

Originally Posted by carboy

This much disparity mostly happens because of rent-seeking & not because of innovation.

[PGA]

https://data.worldbank.org/indicator...960&view=chart

The chart traces out the savings rate of our country over a period of time. I think the boom time or the consumption story moving at the scorching pace can be attributed to this factor. So unless this improves or atleast stablises we are in for sedate times.

Well, perhaps its too simplistic to attribute the whole narrative to one cause but the under laying factors of savings rate are complex, both psychological and material. Also savings rate captures the essence and feel of our consuming class. A nice small article appeared in The Tribune illustrating reasons for our falling rate.

https://www.tribuneindia.com/news/co...ng/803141.html

No doubt our banks are now ill prepared to support the desired progress of our economy but pumping liquidity may not propel consumption unless supported by so many other things at personal and national levels with majority leading upto increased savings rate.

A comparison of savings rate across the world with a little knowledge of history of the specific country will give us a very good idea of the road ahead.

https://www.ceicdata.com/en/indicato...s-savings-rate

[V.Narayan]

John Connally Jr, Richard Nixon’s treasury secretary, once said in 1971 that the US dollar was “our currency, but your problem”. He meant that the rest of the world had to live with whatever the US did for its own reasons. And that pretty much has been the scene since 1945 where currencies, global trade and international capital flows go. For a brief time before 2008 we thought that maybe the Euro will become a reserve currency like the US$. Alas not so. Then we dared to wonder if the Renmimbi could ever become a junior partner to the US$ in international currency matters but this week's drop of the Renmimbi by the Bank of China is a clear signal that the rule of the $ continues unopposed with no other currency likely to come within shouting distance of it for some or maybe a lot of years.

In between all this global excitement it seems that our economic slowdown is of our own making.

Would love to hear the views of experts on this trade war and its off-shoot for us other than the fact that we are dealing with our own economic slowdown the likes of which we used to see only as long ago as the early-1990s.

[Samurai]

Originally Posted by Samurai

The business schools pound this into the brains of every MBA graduate, so they end up believing that shareholder is above customers, vendors, creditors, family, other citizens and even god.

Ooh... Did the sun rise from the west this week?

The CEOs of nearly 200 companies just said shareholder value is no longer their main objective.

https://www.youtube.com/watch?v=3VsNoVvRiTU

[SmartCat]

"Generating shareholder value" is euphemism for short-sighted decisions like -

- Using company cash or equity for making rash large acquisitions or mergers
- Using company cash for buying back shares at higher and higher prices. Some "activist" shareholders even force management to take debt on company's books to buyback shares
- Splitting the company into 3 or 4 parts (demerger) so that "value" is unlocked in each business

All these corporate actions might increase "shareholder value" over the short term (which helps hedge fund managers, activist shareholders etc). But over the long term, these actions will weaken the company (like termites damaging a tree).

However, I'm not sure if CEO announcements like this will help. Most American corporations are owned by shareholders - not promoters. There have been instances where CEOs have been replaced by the Board members (controlled by activist shareholders/ hedge fund managers etc) if they don't try to increase "shareholder value" (via corporate actions I mentioned above).