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Journalism of Courage
I had walked into a PSU bank to pay my gas bills. The man at the counter asked me if I had an account with them. This was a PSU bank that was tottering near default, only a few years ago, until its enterprising chairperson turned it around. I said that I did not, and on his asking where my accounts where, I told him the names of the private sector banks with whom I bank. He sternly advised me that these banks are weak, and in troubled waters, and that I should open an account with his bank. His simple logic was that his was a PSU bank and that it would not fail. I was appalled at the disservice to private enterprise that seems to be happening at even the lowest levels. Sonia Gandhi8217;s views apart, most will agree that Indian banking would have reached greater heights if not for nationalisation. Some of the finest officers and staff that the PSU banks recruited in their heydays have been constrained to work with limited scope to demonstrate their abilities. We had only begun to undo the damage by allowing private sector banks to operate. We know that efficiency in operation, treasury, and customer service have improved on account of competition. Banking is about size, efficiency and risk taking, and we have examples from both public and private sector banks of those who have achieved these. Should ownership supersede the quality of staff and balance sheet?
NBFCs, not banks, could be in trouble
Next trouble spots
When the global meltdown manifested itself, there was the hope that the Middle-East and its sovereign wealth funds would be insulated. Turns out that may not be the case. The sharp drop in oil prices has increased the risks in many of these economies. There is a real estate meltdown in these economies, defaults are expected to increase, and much of the activity created around fantasies of oil price at 250 a barrel are being grounded. Investments made by SWFs and households in the US Fannie and Freddie was favourites at one time, and investing with the erstwhile investment banks was most sought after and developed countries have lost considerable value. The next strains of the global meltdown will be seen in emerging markets in the Middle East, Russia, and China, as exports slow down, and commodities continue to crash. 2009 may see this story unwind, and those that still romanticise decoupling and revival may have to watch out.
Builders may turn to smaller-sized flats
The stimulus package announced by the government has added housing loans up to Rs 20 lakh to the priority sector lending of banks, raising the eligibility amount from Rs 5 lakh. In an environment where most fear losing their jobs, my sense is that measures targeted at consumption may not work immediately. Our households have been large savers, and the downturn would make them more cautious. But builders will use this opportunity. They are likely to announce new projects with one- and two-bedroom flats, available at a reasonable cost read less than Rs 20 lakh. This would enable them to push for the sale of such houses, and use the money to complete the now stalled high-margin luxury flats that they had been building. Look out for new announcements.
Bailouts will widen deficit
It is the season of bailouts. Lobbying by industrialists will only grow louder and stronger, and an eager government in an election year, is vulnerable. The large budget deficit leaves very little scope for handing out doles, but a few have succeeded, encouraging many more sectors to ask for a bailout proclaiming that their survival is essential to 8216;keep the confidence of the public in the economy8217;. At the root of the problem of several of the sectors seeking bailout is the mindless expansion with an eye on a large margin. Add to that the arrogance that led many to expand into unrelated businesses, using the early profits of some businesses. If many of them are now cutting back their expansion plans, so be it. If these lobbies succeed, as I fear they may, we will be left with a large fiscal deficit and a weakened economy, the burden of which will fall on everyone, hurting the weakest the most, while many businesses will manage to get away with privatising the profits and socialising the cost the most used clicheacute; of the times. n
The writer is managing director, Centre for Investment Education and Learning
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