Wednesday, February 15, 2017

"Need" is not always "demand"

"But I don't want to go among mad people,' said Alice. 'Oh, you can't help that,' said the cat. 'We're all mad here."
Lewis Carroll (English, 1832-1898)
Word for the day
Bonzer (adj)
Remarkable; wonderful.
Malice towards none
How many of those who are challenging Sasikala's claim to Tamil Nadu CM post, on the grounds of competence and probity, did actually speak against appointment of Rabdi Devi as CM of Bihar?
First random thought this morning
I may be alone in this; and I may be wrong in this. But somehow I am getting this feeling that the government strongly believes that all BJP leaders, including those who have joined the party from other parties, have been absolutely clean in their economic, social and personal conduct.
While, we have seen cases and inquiries on grounds of economic, social and personal impropriety on many opposition leaders, BJP leaders have been mostly spared.
Seems PM Modi does not believe in the maxim that any cleansing must necessarily begin from home.

"Need" is not always "demand"


The problem of non-performing asset is not merely a financial problem. It has a distinct moral hue.
Usually, broad based non-performing asset occur when the economic cycle turns down, and businesses that had added capacities to cater to the rising demand during the up cycle fail to service their debt as the capacities remained unutilized due to lack of adequate demand.
In conventional ways, these bad debts are managed by banks through (a) extending the repayment time; (b) easing the payment terms by lowering interest rates and waiving the late payment penalties etc.; (c) waiving a part of the interest and/or principal amount where the borrower's appears to be severely damaged; and/or (d) converting the debt wholly or partly into equity.
In some cases, especially where the interest of relatively poor people is involved, the State comes to rescue of the beleaguered borrowers by subsidizing their borrowing, either by making complete repayment on their behalf (e.g., farm loan waiver) or by providing interest subvention.
On lenders' part, normally, these are business decisions, taken keeping in view the sustainability or otherwise of the borrowers' business ability of the incumbent management to navigate through the tough times. Given that most meaningful lenders are publically owned and accountable to their shareholders, usually management of bad debt should not involve the question of morality and political expediency.
However, it has not been the case in Indian context.
In my view, the investment cycle that started in early 2000s was mostly 'hope' driven and not demand driven. To ward off the impact of economic sanctions post 1998 nuclear tests and the bust of dotcom bubble, the government had given up control on many sector, more notably energy (oil & gas, coal and power) roads, and telecom.
Many private players jumped into the fray, probably without assessing the demand scenario. Many, including the bankers and government, mistook the "need" of infrastructure (power and road etc.) for "demand" of infrastructure and structured their business models accordingly. Built on weak and faulty foundation, these businesses were doomed to fail from very inception.
Ideally, in the given condition of Indian economy, the task building infrastructure should have been done by the government itself, as it was in a position to borrow at 6% for 30-40yrs.
To make the matter worst, it opened the sectors like coal, power and roads to private sector without preparing any conceptual framework. The sustainability concerns were mostly disregarded; and so were commercial and financial viability.
Public sectors banks were perhaps forced to fund - disregarding the financial and commercial viability criteria. The outcome is that about 80% of all NPAs are concentrated in PSBs, where NPA ratio has reached 12%, almost same as the capital adequacy.....to continue

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