The Great Indian Banking Pandemonium

Over the last few months, been involved with many firms in GIFT City, who are either operating there, setting up there or are thinking about setting up there – ranging from family offices to funds, to custodians, to robo-advisors, to NBFCs to FMEs, corporate advisors, etc. Few of them are in or have a strong overlap with the banking sector in India, therefore boning up on the rules, regulations, regulators, ecosystem, and the like. During my recent trip to India, I met up with some senior bankers and regulators and one person– earnestly told me over an excellent Chinese lunch, “Dr Bhaskar – you HAVE to read this book if you will be working in this area in India” and gifted it to me. The Great Indian Banking Tragedy Pandemonium by Tamal Bandyopadhyay . Didn’t quite take it seriously but as soon as I landed back in the sandpit, I read it. And then again read it. And still again read it. Today marks the 5th re-read. This is perhaps one of the non-fiction financial books which has made a serious change in my outlook.

This book frightened the brown organic waste matter out of me but filled me with the resolution and determination to do something better in this area in India.

From various angles. First was regulation. Have a rather privileged position to see how various regulators operate from India, the Middle East, India and of course, EU/UK/USA and can somewhat judge what is good/bad/ugly, what makes a great regulator to one who is rule-book bound. At the end of the day, history and the market judge you and your work as a regulator. This Risk-Based Regulation versus the CAMELS framework, the BIS/IOSCO frameworks…the legal underpinning… are substantially different. And it shows up. Given that the banking system is primarily oriented towards resource mobilisation and economic development of the country – banking regulation has a giant impact on economic performance. This book talked about the issues with corporate governance (dire), issues with bad debts (terrible), management (horrible and egotistic), supervision (issues with risk-based supervision and how not physical inspections cause issues), authorisation (wut?), statutory legislation (confused), political pressures (ewww).

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Second was the issues with promoters in India. Good heavens, they sound like absolute disasters, but I wonder if it’s a problem with them or the system – you must be institutionally and instinctively corrupt to navigate Indian business frameworks and milk the banking, private and public markets. If you look at the issues with the NPLs in India, it is crazy. Then the asset recovery programme – the bankruptcy framework isn’t helping either and is still not fixed. Then comes the issue of public sector banks. The sheer amount of scarce capital that has been pumped into these PSBs is mindboggling. This excites me. I see companies being recapitalised and I really hate it, that is terrible value destruction and here – we are seeing massive value destruction. It’s a crime, especially in a capital-constrained country. I spoke about corporate governance and the more I see financial institution boards – the more worried I get. Seriously worried.

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The book has 4 massive very transparent and honest views from 4 Indian RBI ex Governors. This was extraordinary, haven’t seen such honesty before, most regulators would be very reticent, hide behind the rules, and don’t make waves but the amount of courage needed to be a top regulator, take tough decisions, bump heads with politicians, fire CEOs and impose their wills is on show here. Very few regulators are worthy of respect, you can see some of them here. Coming back to the current day, you can see the bubble, you can see the economic challenges, you can see the issues with the deposit base, the ongoing issues in the NBFC sector, and the liquidity and deposit base issues. If you just see the rise in the stock market, you are missing the wood from the trees. If you work in a bank in India or deal with it, this is must reading. Just see what the great and good of Indian banking have to say about this book. Strongly recommended.