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Journalism of Courage
The war between the Ambani brothers has turned extremely ugly8212;the Anil Ambani Group8217;s decision to cut off broadband connectivity we won8217;t get into justifications and charges on both sides to Mukesh8217;s companies nearly crippled the business empire a couple of weeks ago and it is still struggled to stay afloat and reset links through other broadband service providers. Almost in retaliation, the Petroleum Ministry rejected the oil price agreement between the Ambani brothers. Everybody knows that Petroleum Minister Murli Deora was a close buddy of the late Dhirubhai Ambani, so his sudden rejection of the Ambani oil deal set tongues wagging over the timing and motivation of the decision. We now learn that Mukesh Ambani has set up a special internal team to deal with and respond to all issues/attacks by his younger sibling. Reliance had a similar core team handling issues only during its bitter war with Nusli Wadia of Bombay Dyeing and The Indian Express. It is a sad irony that two decades later, Reliance has to adopt similar strategies to fight an Ambani vs Ambani war8212;an indicator that things have moved far beyond blocking each others employees from using canteen, parking and ATM facilities or using the campus temple. Reliance watchers believe that we will now witness a series of encounters in the capital market and in bidding for big ticket infrastructure projects.
Backward, forward
Contrary claims
Since the Finance Ministry is more sophisticated, it dismisses charges of coercion and says that it only exercised rights as a majority shareholder and asked banks to consult its board of directors and that its directive was issued before State Bank of India SBI, its associates and other public sector banks hiked their rates. That is indeed strange. Most times, even a phone call from the Ministry would have stopped banks from raising rates, but this time we are told that they dared to ignore a circular from the Finance Minister and let a committee decide the rate hikes. A bigger inconsistency is the Finance Minister8217;s claim on majority shareholding. The government does not own a single share in SBI, it is the Reserve Bank that holds 67 of SBI8217;s equity; so what was the justification for issuing SBI a directive? Will we soon see interference in RBI8217;s autonomous functioning as well? Interestingly, ICICI was the only big Indian bank that did not hike interest rates and is looking very savvy today. CEO K.V. Kamath, taking a cue from the 10-year bond rates preferred to 8216;8216;wait and watch where interest rates are headed8217;8217;, rather than hike rates in a hurry and harass borrowers.
Economics lessons
An interesting aside to the interest rate roll-back is the emergence of Congress MP Sanjay Nirupam as an advocate for middle class borrowers. Last weekend, Nirupam was busy studying the reason for interest rate hikes and the difference between fixed and floating rates. It was pointed out to him that government could not dictate interest rates after India opened its economy to global fund flows; also that borrowers who opted for floating rates by their very nomenclature were aware that they could float up or down as they had in the past. Nirupam still went ahead and demanded a cap on the interest rate and even alleged that investors were unaware that interest rates could fluctuate. One speculated about the reason for Nirupam8217;s sudden activism on behalf of borrowers and expected him to be educated by his Party; instead the Finance Ministry stunned everybody with a controversial directive to banks to reconsider their rate hike. Simple arithmetic shows that the rise in Equated Monthly Instalments EMIs for the bulk of middle-class borrowers is hardly more than the cost of a pizza and not unexpected either. However, over-leveraged builders and industrialists who have been speculating in realty with borrowed funds are badly hurt by the hike.
