Finally, action on bad loans? Empowering managements and strengthening governance at public banks can resolve the bad loan problem
t.t. ram mohan
After nearly three years of dithering on the part of the National Democratic Alliance government, there is hope now that we will see action in respect of Indian banks’ bad loans. The Finance Ministry and the Reserve Bank of India (RBI) have recently sent out signals to the effect that they are determined to take the bull by its horns. If they follow through, it will brighten the prospects of India’s growth rate moving to 8% in the medium term. Bad loans — or non-performing assets (NPAs) — were 9% of total loans of all Indian banks in September 2016. At public sector banks (PSBs), bad loans were 12% of all advances. Another 3% of loans in the aggregate (and 4% at PSBs) have been restructured. The Economic Survey (2016-17) quotes market analysts as saying that 4-5% of loans are bad loans that have not been recognised as such. Thus, total stressed assets — NPAs, restructured loans and unrecognised bad loans — would amount to a staggering 16% of all loans and nearly 20% of loans at PSBs. The lending boom Today’s bad loan problem has arisen from the lending boom that India’s banks embarked on in the period 2004-08, a period that saw economic growth reach the 9-10% range. However, that by itself did not create a problem of the current magnitude. NPAs, which are 9% of all loans today, were only half that level a year before. It is the failure to resolve the bad loan problem over the past several years that has exacerbated the problem. Why has the bad loan problem remained unresolved for so long? Put it down to bad luck and serious policy errors. The best solution to a bad loan problem is to simply grow your way out of it. This can happen in two ways. One, banks keep financing projects that are not making repayments in full and would qualify as NPAs. They do so in the hope that, once growth revives, cash flows in the projects will improve. Two, banks grow their loan portfolio at a brisk rate. As the denominator in the ratio of bad loans to total loans grows, the bad loan problem automatically diminishes in significance. That’s how India’s banking sector came out of the bad loan problem in the early 2000s. Rapid growth in the world economy and the Indian economy provided a painless solution. This time around, however, luck has not favoured the Indian banking system. The global economy has been in a prolonged slump consequent to the financial crisis of 2007-08. The “financing” strategy of continuing to make loans to unviable projects has come unstuck. Serious policy errors have compounded the problem. The big policy error was the belief among policymakers that bad governance, bad management and even corruption at PSBs were primarily responsible for the problem. A committee appointed by the RBI and headed by P.J. Nayak argued as much in a report it submitted in late 2014. The committee seemed to think that majority government ownership of PSBs was the root cause of the bad loan problem as it meant political and bureaucratic interference with commercial decisions. Such an inference, which has been duly echoed by the media, is patently incorrect. As the Economic Survey of 2016-17 point outs, the bad loan problem is “an economic problem, not a morality play… the vast bulk of the problem has been caused by unexpected changes in the economic environment: timetables, exchange rates, and growth rate assumptions going wrong.” In other words, factors extraneous to bank management and governance are primarily responsible for the problem. Plodding towards a solution How the bad loan problem is understood has crucial implications for policy. If you believe that majority ownership by the government is the primary cause, you would focus on reducing government ownership in banks to below 50%. You would seek to distance the government from making appointments to PSBs, as proposed by the Nayak committee. You would decide that some PSBs were hopelessly weak and seek to merge them with healthier ones. You would judge that PSBs were incapable of resolving bad loans on their own and set up a “bad bank” to which bad loans would be moved. These proposals are all politically difficult to handle, time-consuming or (as in the case of a “bad bank”) make impossible demands on financial and human resources. The NDA government seemed to have bought the faulty diagnosis but could not act on most of the prescriptions that followed. It chose to muddle along. The government appointed a Bank Board Bureau (BBB) as suggested by the Nayak committee and tasked it with appointing Chairmen and Managing Directors of PSBs. The BBB was also assigned the role of advising banks on restructuring and raising capital. The BBB has made little headway. Very few top appointments have happened. The bad loan problem and recapitalisation of PSBs remain unaddressed. This was only to be expected. The government cannot distance itself from key decisions on PSBs while being accountable for their performance. Creating the BBB has only added another layer to decision-making and slowed it down. Had the view now propagated by the Economic Survey (and articulated much earlier by the writer) prevailed, the government might have acted swiftly to resolve bad loans, provide the necessary capital to PSBs and strengthen governance at PSBs by revamping their boards. It would have judged that corrections must be made within the existing framework, not by overturning it. Realisation that the bad loan problem is not the result of some special villainy at PSBs but a matter of factors extraneous to management has finally dawned, if somewhat late in the day. The initiative has moved away from the BBB and back to the Finance Ministry and the RBI where it rightly belongs. Empowerment and oversight There is clarity now that banks must be empowered to resolve the relatively small number of bad loans that account for a big chunk of the total in terms of value. In many cases, this would mean that banks write off a portion of the loans owed to them. Managements at PSBs have been reluctant to do so for fear of inviting action from the Chief Vigilance Commissioner, the Comptroller and Auditor General, the Central Bureau of Investigation and other bodies. To stiffen their spine, we need to put in place an authority that will vet loan settlement proposals put up to it. The BBB has constituted a two-person oversight committee but reports suggest that the committee will not take a view on write-offs. This is not helpful at all. We need a larger oversight committee or, as the Finance Ministry has proposed, multiple oversight committees to speedily vet loan write-offs. It makes sense to constitute a Loan Resolution Authority by an Act of Parliament. This must be complemented with other measures. Banks must develop the discipline of keeping thorough minutes of the proceedings related to resolution of bad loans. The rationale for particular decisions along with the pros and cons must be properly articulated. This will serve to give bank management a measure of protection. The government must provide adequate capital to the banks to cover write-offs and also facilitate fresh loan growth. It must end the delays in appointing Chairmen and Managing Directors of various PSBs. It must also revamp the boards of PSBs by bringing in independent directors of high quality. The solutions should have been clear enough long back. It is the misplaced condemnation of PSBs that has held up resolution of the bad loan problem. Doing away with majority ownership of government, mergers, creation of a bad bank — all these are non-starters. The way forward is to empower management and strengthen governance at PSBs. T.T. Ram Mohan is a professor at IIM Ahmedabad. E-mail: email@example.com
Back to the Bahujan model? To retain relevance, the BSP will have to return to the early investments in constructing a Bahujan ideology and organisation that it lost along the way
With only 19 seats in the U.P. Assembly in 2017, and repeated losses in parliamentary and Assembly elections in the last 10 years, the Bahujan Samaj Party (BSP) is fighting for its life. The plunge in seats is not accompanied by a similar plunge in votes. But in a ‘first past the post’ electoral system, minor shifts in votes can cause massive shifts in seats. The BSP’s survival crisis is about something more than the party: it is about the nature of identity-based politics that the BSP represents. To understand why, consider the way in which the two main alternatives, the Congress and the Bharatiya Janata Party (BJP), appeal to Dalits. Appeals to Dalits The Congress appeals to Dalits by promising assimilation into a national mainstream. Its most prominent Dalit leader, Meira Kumar, personifies this promise. The soft-spoken Ms. Kumar, who rose to become India’s first woman Speaker, has opposed a caste census on the grounds that it would deepen caste divisions. “We must mainstream them,” she says of Dalits in her election speeches. In referring to Dalits as “them” rather than “us”, she distances herself not just from some attributes associated with a Dalit identity, but from the identity itself. Moreover, this statement implies that the mainstream is already defined, and that Dalits are passive subjects who must be “brought into” it by more autonomous others. The BJP appeals to Dalits by promising immersion in a Hindu mainstream. This does not imply passivity as the Congress model does. It calls for self-transformation on the part of all members of the emergent Hindu nation. But in the past, self-transformation has for many Dalits in the BJP taken the form of self-sanitisation. As one BJP regional leader previously told me: “I am neat and clean, not dirty like many other SCs. We are the caste that is nearest to Savarna (upper caste) Hindus. We do clean work.” He had, in his many years in the Bharatiya Jana Sangh and BJP, internalised stereotypes about both Dalits and upper castes, and come to accept that the model Hindu was an upper caste Hindu. The BSP’s form of identity-based assertion, by contrast, is based on pride in Dalit identity as it exists in the present, not on the promise of assimilation or transformation in the future. The contrast was spelt out by Mayawati in her 1985 by-election campaign against Ms. Kumar when she declared flatly, “Main Chamar ki beti hoon (I am the daughter of a Chamar).” This has been a recurring refrain in her election campaigns although she sometimes switches to calling herself a “Dalit ki beti (daughter of a Dalit)”. There is no transformation required to claim this identity. The only transformation that she and Kanshi Ram called for is for Dalits to become more vigilant in the defence of their interests. When I once asked her if she had ever experienced discrimination herself, she said no: “Main to hoshiar thi (I was vigilant).” The implication was clear. In order to be treated better, fellow Dalits must become vigilant too. This did not require them to alter something fundamental about their identity. In fact, many Dalits who attended BSP meetings in the early years told me about the thrill of self-recognition that they experienced in these meetings. They did not have to become someone else in order to take pride in themselves. The BSP is not the first to articulate this form of Dalit assertion — it has been voiced earlier, and more consistently, by social reform movements, in a large body of Dalit literature, and by parties and organisations including the Republican Party of India and the Dalit Panthers. But because the BSP repeatedly won control of government, it has had a deeper and wider impact in challenging discrimination against Dalits and in reshaping public discourse. Altering the public discourse When the BSP first came to power, Dalits in most parts of India were called Harijans. The BSP focused attention on the patronising assumptions hidden behind the use of that word, popularising the term “Dalit”, once restricted to Maharashtra and parts of the south, nationwide. When the BSP first came to power, B.R. Ambedkar was still portrayed primarily as a Dalit leader. The BSP stimulated a rewriting of history that recognised him as a national, and not only Dalit, icon. When the BSP first came to power, the practice of naming thousands of roads and bridges and airports and buildings and government schemes after a single family — the Nehru-Gandhis — had become so routine as to be unremarkable. But when the BSP began erecting statues to Kanshi Ram and Ms. Mayawati, any criticism of this as a self-aggrandising move had to acknowledge also the older forms of self-aggrandisation that had become acceptable in democratic politics. When the BSP came to power there were only the beginnings of awareness about the upper caste bias in the English-language media. But when the BSP began to ignore the English media altogether — and to win elections despite that — it brought the question of media bias front and centre. The BSP’s form of Dalit assertion, in other words, changed the mainstream discourse rather than simply “being brought into it”. So why did the BSP lose, especially when its healthy vote share suggests that it likely retained much of its core, predominantly Dalit, vote base? The answer lies in its failure and the BJP’s success, in crafting the right caste-based combinations. For the BSP, the winning of elections has always depended on what its workers call the “plus” factor. In every constituency, it counted on the votes of Dalits plus some section of others (backward castes and Muslims initially, and upper castes eventually). For the BJP, it has depended on what could be called the “minus” factor. As one party worker in U.P said to me: “Hum Muslims ko minus karke chaltein hain (We proceed by subtracting Muslims).” The BJP aimed to build a winning vote by cobbling together the support of Hindu upper castes, backward castes and Dalits — everyone but the Muslims. This is an old strategy for the BJP, taken to a new, more systematic, level in 2017. But a substantial difference has emerged over time in the terms in which both parties construct these combinations. Weakened infrastructure In the beginning, the BSP sought to construct these combinations through painstaking ideological mobilisation. Under Kanshi Ram’s leadership, the BSP held regular cadre camps, study sessions and political rallies in which it propagated a vision of the Bahujan Samaj as a rainbow coalition of subaltern groups. The BSP’s cultural pantheon has from its inception included important figures from across these groups: in addition to Ambedkar, it includes Jyotiba Phule, Narayana Guru, Chhatrapati Sahuji Maharaj, and Periyar. It also built a second- and third-line leadership from among backward castes and other Bahujan categories through the allocation of posts in the party organisation. Electoral arithmetic — alliances and tickets — was always an important part of this effort. In fact, Kanshi Ram chose the name “Bahujan”, or “majority”, for his new party, not only because of its association with non-Brahmin social movements but also because the name signalled that this party had the numbers to be a viable winner. The arithmetic was backed by an ideological and organisational infrastructure. Over the years, the BSP stopped investing in this infrastructure, relying on the promise of power to compensate. But a party that depends only on winning cannot withstand repeated losses and that is why the party is now in such dire straits. BJP outreach, Modi resonance The BJP and the Sangh Parivar, by contrast, back their appeal to Dalits and backward castes by a strong ideological and organisational infrastructure. This infrastructure has become stronger and more innovative at a time when the BSP’s infrastructure has weakened. The Sangh Parivar has also begun to redefine the model Hindu in a way that incorporates Dalit and backward caste cultural symbols. In 1983, the Rashtriya Swayamsevak Sangh created the Samajik Samrasta Manch (Social Assimilation Platform), with the goal of harmonising “the Phule-Ambedkar thought with the Hindutva philosophy”. In 1989, the Vishva Hindu Parishad ensured that it was a Dalit who laid the first brick for the Ram temple at Ayodhya. The Sangh Parivar also has a large network of service organisations for Dalits and other subaltern groups. The BJP also has a strong organisation which has produced a credible second- and third-line leadership from these groups. And then there is Prime Minister Narendra Modi, who has become a transformative figure in the knitting together of these coalitions. Mr. Modi claims his backward caste identity proudly. “The next decade,” he has said repeatedly, “will belong to the Dalits and the backwards.” This is a remarkable statement for the leader of India’s largest upper caste-dominated party to make. It is responsible in no small measure for the BJP’s success in crafting coalitions between subaltern castes and upper castes that would have been unthinkable 20 years ago. At the same time, Mr. Modi’s public persona reinvents the notion of self-transformation embedded in BJP ideology. He acknowledges his caste identity without being defined by it, illustrating by example a way to transcend caste without denial or distancing. Further, the narrative of his own transformation from a tea seller’s son to Prime Minister suggests that it need not mean self-sanitisation, or a disowning of identity, but self-realisation: an honouring of the deepest aspirations associated with that identity. It is a powerful appeal especially in the new economy. And Ms. Mayawati’s persona does not have the same power against it that it did against Ms. Kumar in the pre-liberalisation India of 1985. If the BSP is not to become just another blip in the political landscape, it will have to return to the early investments in constructing a Bahujan ideology and organisation that it lost along the way. What is more, it will also have to adapt its ideology in the face of a new political opponent. This is difficult, maybe unlikely. But, given the small shift in votes required for a large shift in seats, it is not impossible. If the BSP preserves a space in the political arena, the gainer will be not just the BSP but a healthy democratic discourse. If it does not, the loser will also be not just the BSP, but that discourse and all of the rest of us. Kanchan Chandra is Professor of Politics, New York University, and the author of ‘Why Ethnic Parties Succeed’ (Cambridge University Press, 2004)
Schrï¿½dinger’s Cat Quantum mechanics To highlight the flaws of the ‘Copenhagen interpretation’ of quantum mechanics, which states that a particle exists in all states at once until observed, Erwin Schrï¿½dinger came up with a hypothetical experiment. In this, a cat is placed in a sealed box along with a radioactive sample, a Geiger counter, and a bottle of poison. If the radioactive material decays, the Geiger counter will detect it and the bottle of poison will be smashed and the cat killed. If the radioactive material can simultaneously be decayed and not decayed (as the Copenhagen interpretation presupposes), then the cat too can be both alive and dead until the box is opened.
The magic sieve A method to efficiently get potable water from seawater
Author: R. Prasad
Producing potable water through desalination may become more efficient and less energy-intensive if researchers at the University of Manchester are able to successfully use graphene oxide (GO) membranes to filter common salts in seawater on a commercial scale. The use of GO as a molecular sieve to filter common salts from seawater while allowing water to pass through it is already known. But GO membranes have a tendency to slightly swell when immersed in water and this results in increased spacing between successive sheets (akin to increasing the pore size of a sieve). The increased spacing allows smaller salts to flow through the membrane along with water without being filtered. A team led by Professor Rahul Raveendran Nair from the National Graphene Institute, University of Manchester, has addressed this problem by developing GO membranes that do not swell when immersed in water and are able to sieve common salts. In a paper titled “Tunable sieveing of ions using graphene oxide membranes” published on April 3 in Nature Nanotechnology, the researchers write that they were able to achieve a certain interlayer spacing by storing the membranes in high humidity and then physically restraining them from swelling by embedding them in epoxy. This altered the rate at which water permeated through the membranes. The researchers also tried an alternative technique of adding graphene flakes to GO to prevent the membranes from swelling. Though the epoxy coating gives better control over swelling, large area membrane fabrication may be difficult and time-consuming. Producing scalable membranes for desalination application will be possible by adding graphene flakes to GO instead. The water molecules that get strongly bound to common salts increase the diameter of salt ions and are hence unable to pass through the tiny space between the sheets; water molecules with weak hydrogen bonding are easily able to pass through the membrane. The membranes developed by the team can be used for waste water treatment even when no energy is supplied. Preliminary experiments by the team found clogging of the membranes with salt was negligible and the membrane can be recovered to the original state by a simple washing process. They do not anticipate any significant fouling due to the inertness of graphene surface. More studies are needed before the membranes can be commercialised.
Defence Ministry nod to buy Barak missiles Council meet, led by Jaitley, clears various proposals
Author: Special CorrespondentNEW DELHI
The Defence Acquisition Council (DAC) of the Defence Ministry on Monday approved the purchase of Barak surface-to-air missiles (SAM) for the Navy among other proposals estimated at ₹860 crore. This was the first DAC meeting after Finance Minister Arun Jaitley took additional charge as Defence Minister following the sudden exit of Manohar Parrikar to take charge as the Chief Minister of Goa after the Assembly elections. Navy warships Israeli-built Barak short-range SAMs are installed on most of the front-line warships, including the aircraft carrier INS Vikramaditya. The new missiles are urgently needed to replace the current ones which have completed their shelf life. A Ministry source said the procurement of Barak missiles was approved with a categorisation of “Buy Global” under the option clause from Rafael Advanced Defense Systems Ltd. The other deals include procurement of expendable Bathy thermograph systems for the Navy to detect temperature changes under water through the foreign military sales route from the U.S. and procurement of equipment to counter mines in the sea, a repeat order, worth ₹311 crore.
PM’s Israel trip may see UAV deal Negotiations for the Heron TP models have been under way for several years
Author: Dinakar PeriNew Delhi
Prime Minister Narendra Modi is likely to get a display of the Heron TP armed Unmanned Aerial Vehicles (UAV) during his visit to Israel later this summer. These would be India’s first armed drones, significantly expanding the aerial offensive capabilities of the military. Sources said the armed UAVs for the Indian Air Force (IAF) are already being manufactured in Israel and did not rule out the possibility of them being handed over to the IAF in the near future. Talks under wraps The deal is expected to cost around $400 million for 10 drones. The discussion for the Heron TP drones has been going on for several years but the exact status of the deal is unclear as the progress is strictly under wraps. India currently operates a large number of Israeli-built Heron and Searcher UAVs, which were inducted since the late 1990s, and the three services have been quite pleased with their performance. With the indigenous efforts to build UAVs delayed, India has expanded its arsenal of Israeli drones. India also procured a small number of Harpy loitering drones in the past which can destroy targets by direct hits. However the Heron TP would be the first true armed UAV in the arsenal. UAVs have become routine tools for surveillance and the armed variants would give decision makers a new and safe option in planning short and swift strikes on terrorist camps. The manufacturer Israel Aerospace Industries (IAI) stated on its website that Heron TP is a Medium Altitude Long Endurance (MALE) drone which can fly upto an altitude of 45,000 feet, has an endurance of over 30 hours and can carry a mission payload of 1,000 kgs. Additional AWACS Prime Minister Narendra Modi is expected to visit Israel in July this year, the first visit ever by an Indian Prime Minister, signalling a major turnaround in the bilateral relationship. The other defence deal expected during the visit is for two additional Phalcon long range Airborne Warning And Control Systems (AWACS) which would join the three systems in service with the Air Force. The radars are mounted on Russian IL-76 transport aircraft and Russian industry officials have earlier stated that India has already ordered aircraft for the purpose.
IT firms get set to pamper moms-to-be Companies initiate policies in sync with new maternity law
Author: Pradeesh Chandran BENGALURU
Leading IT services companies and BPOs have initiated steps to implement policies compliant with the Maternity Benefit (Amendment) Bill. This follows the President giving his nod for the legislation which provides 26 weeks of paid maternity leave for women employees. India’s fifth-largest IT exporter Tech Mahindra said it would revise its existing policy on maternity leave.“Yes, we will be implementing this policy,” said Sucharita Palepu, Global Head — People Practices, Tech Mahindra. “We already had an extended maternity policy where women could opt for longer leave up to one year. Hence, we don’t see the need for any specific planning, since several of our associates opted for it earlier,” she said. Many IT companies had already been providing maternity leave of 9 months which typically comprised 3 months’ paid leave and 6 months’ extended leave without pay. However, with the new bill becoming a law, most players have revised their maternity leave policy with 26 weeks’ paid leave and 3 months’ leave without pay. Reaching out India’s third-largest IT exporter Wipro has revised its leave policy with effect from March 28. Women employees are now eligible for 26 weeks of maternity leave. It also extended the benefit to employees who had been on maternity leave till March 28. Apart from providing paid leave for young mothers and mothers-to-be, IT companies are also reaching out to women employees to keep them engaged with the company. Mindtree, which introduced 6 months’ paid maternity leave in September, unveiled ‘Mi Lady,’an application,to engage with women who are on maternity leave. Through the app, employees on maternity leave can upgrade their skills before they rejoin. “We believe that providing long maternity leave itself was not enough for any working woman,” said Chitra Byregowda – Head of Diversity and Sustainability at Mindtree. “Our aim is to support her before delivery, post-delivery and then, also at the time of returning to work. Through the app, our employee can access e-learning modules to upgrade her skillsets.” When the employee is ready to return, the app also allows the user to find projects with open positions. “This will help her in an easy transition back to work,” she said. Infosys has also increased maternity leave from four months to six months of paid leave from April 1. Mothers who are already on maternity leave can also use this. BPO firms which have employees working the night shift have also rolled out new maternity leave policies. Genpact had increased its maternity leave to 26 weeks in January this year.