Banking consolidation , Microfinance et al

http://online.wsj.com/article/SB125012112518027581.html
The insightful article on microfinance is a must read. Micro finance is not just about making credit available to the small guys and replace the money lender. It is also about understanding whether money will come back. All was fine till the government introduced this thing called the NREGA (like a dole, but guaranteeing some Rs.100/- per day for 100 days in a year to rural Indians) which has made rural India lazy. A family is quite content with this dole, which is also aided by rice at One rupee a kg (market price 30/- plus, free electricity and housing which is free of any cost.
The rush of people in to microfinance will make rural India undergo a 'credit immunity' syndrome. Very much like in the emergency days of Indira Gandhi, when the nationalised banks were forced to go on a rural lending binge. The borrower ultimately refused to give money back. Bankers who tried to recover were threatened physically and told to buzz off.
Micro finance kind of gives me a 'deja vu' feeling.
I am wary of nationalised banks, since the politicians will use it to get votes and the bank staffing leaves a lot to be desired. Bank chairmen are appointed at the fag end of their careers, where they are reluctant to take decisions, fearing subsequent enquiries, or are so corrupt that they use it as a time to build bases for a corporate life as a director or advisor. No one lasts long enough to give a vision or direction to the bank.
Recently, the ET talked about banking consolidation.
Consolidation in the banking sector, by bringing together banks is a great buzzword and virtually everyone wants it. The argument is that a bigger balance sheet enables you to lend more to a single customer. How true and nice it sounds.
Wait. Let me get the arithmetic right. There are two banks, A and B. Bank A buys Bank B. The cap of A is 500 and of B is 500. So the combined capital, logically, should be around 1000 (Let us not get in to valuation arguments here). So, Bank A, which could initially lend say 75 (if the banks’ single customer limit was 15% of capital) to a single customer, can now lend 150 to the same customer. Does this prove the point?
Let us delve further. Formerly, Bank B was also lending 75 to the same customer. Now it no longer exists. So, what has changed? Instead of two lenders of 75 each, we have created a single lender of 150. Is this what is desirable?
Let us not blindly repeat what everyone says. India is a tiny country, financially, with per capita GDP of less than a thousand dollars. When this rises, the banking sector will grow correspondingly. Global banks have to be large because they operate across borders. Indian banks also can, if they raise capital. By merging two existing banks, nothing changes. Two and two is four, when it comes to counting money. Yes, accountants can make it twenty two, but that does not take you very far.

Indian IPO's--- A great resource

My good friend, Ashok Kumar, runs a great site called www.theipoguru.com.
He has sharp and incisive comments on IPO's hitting the market. The great thing about him is that he calls a spade a spade. Anyone who follows him is very unlikely to go wrong.
He also provides a host of corporate services which you can gleam from his website.
I am delighted to provide a link to his site.

Maytas- A Fish story....

IL&FS takeover of Maytas. Is it good money after bad or just a change in status, with the money already having been lost? Having lent huge amounts to the promoter against shares in Maytas, the ownership was already there. Suspect that there is also huge lending and co-investment in projects by IL&FS and other institutions, which could have gone sour had Maytas been hurled in to bankruptcy. So, this move will perhaps help all to salvage some accounting value rather than real cash flow. One fails to understand how a company like this could have lost a sum of nearly Rs.5 billion in one accounting period. There were also talks that many properties that are supposed to belong to Maytas the company face issues relating to title and traceability. Now, there is a long haul. With IL&FS admitting that the company needs 'recapitalisation' one does not have to read between the lines to figure out that what is gone in to the company now, has perhaps vanished.
These kind of bail outs smell. Do not think that any one would have shed tears if Maytas had folded.

Textiles from India. Dreams of a Scorpion..

Export. India has always had a problem in finding something to export. At each and every level, what happens is that the government subsidises them so much that it is like subsidising the consumer overseas. The textile industry in India is perhaps the finest example of why we cannot go up the value chain. We are happy with exporting grey cloth and some made-ups. Companies like Arvind Mills go through the revolving door of economic fortunes. When they set up a denim making plant, other poor countries were busy setting up a finished denim making plant! Indian textile has yet to put a single bloody brand in any part of the globe, except a Raymond to cater to NRI's in the middle east.! India does not have any competitive edge in textiles or garments. Why make it a big thing? Instead, why not let the big time fashion designers come in to India, give them free space and let them set up design shops here. Maybe they will also use Indian resources and create some jobs. Do not waste tax payers money by letting mills export commodities at below cost.

Companies like Arvind Mills have cost the exchequer hundreds of crores in terms of bad debts written off by banks as well as export subsidies. India would have been better off without such a company. The only benefits seem to have gone to the founder family, who have been living in style generation after generation, while the workers, bankers and other shareholders bled.

Wonder why the government is still coming out with stupid schemes like allowing them duty free import of capital goods. This will only encourage companies to export below cost. And we will end up exporting power .

It is time we recognised that a rethink on what India can really export, profitably, without any subsidies is possible at all. Otherwise, let us stick to the airconditioned sweat shop model of our so called IT industry, which at least brings in dollars, creates jobs and does not rob peter to pay paul.

India cannot be a viable exporter unless there is power at global costs and of gloabal quality. And the capital to put in. It is also impossible for Indian companies to do away with the propensity to cut corners when it comes to quality. They always think that what is good for the domestic market will do for the global market, which is spoilt for choice.

I would rather that the government let me have basmati rice at 40/- per kg instead of exporting it. Why should I pay Rs.80/- per kg as a domestic consumer? I am subsidising the foreigner and the domestic exporter is a parasite who is living off the others.

It is disgusting to see that everyone is justifying free loading. All in the name of vote bank politics.

BJP- The beginning of the end??

With the 'dismissal' of Jaswant Singh, the BJP seems to have axed itself out of contention with a lot of followers who were not with it because of fundamentalism. After the election results in May, LK Advani should have gone. However, he seems to be sticking on like super glue. The party does not have any followers left from outside the Hindu RSS club. At one point, there was great hope that BJP would provide national leadership.
The party has to completely over haul itself. Time to drop the geriatrics like Advani et al and give more power to the likes of Arun Jaitley. Also, the party has to make peace with the RSS, without actually being seen to be fundamentalist. A tough ask, but if the BJP cannot get back to track, it will be a national tragedy.
The Congress is a one (wo)man party. The cabinet is appointed at will and pleasure of the Italian lady. And this party does not have a clear economic agenda, with some of its leaders being seen as reformers (mistakenly so) and the party following a socialist policy apart from dividing the country in to pieces in the name of 'appeasement' of so called minorities. It is the Congress which has used religion as a card, since independence.

Swine Flu

Given the apathy and the total lack of ability in the health ministry, I am afraid that the swine flu is going to take a huge toll on India. One state was mentioning that the health ministry does not have a measly sum of under Rs.20 million to buy diagnostic kits!!
Added to government apathy, the bigger contributory factor is the misery of the human race in india. Poor hygeine standards, 'bugger thy neighbour' attitude and the sheer number of the slum dwellers is mind boggling.
The wimp has 'advised' the Health Minister to take 'suitable' action. Shades of "Yes Minister".
Mera Bharat Kahaan

(B)ailing airlines

Mr Prannoy Roy made an impassioned plea as to why the government should bail out the private sector airlines!!. Then, I realised that if it goes through, the next in line could be media companies!!
What an idea, Sirjee!!