THE HINDU EDITORIAL : FEBRUARY 26, 2018
THE HINDU EDITORIAL : FEBRUARY 26, 2018
a) A relationship adrift: on India-Canada ties
The red flags had gone up long before Canadian Prime Minister Justin Trudeau arrived for an eight-day state visit to India. For some time now, New Delhi has been sending messages of protest to Ottawa — especially after his Liberal Party shepherded a resolution in the Ontario provincial legislature calling the 1984 anti-Sikh violence “genocide”; he went on to attend a rally in Toronto organised by Khalistani groups. More recently, Mr. Trudeau’s office and the Ministry of External Affairs differed over the details of the visit. While New Delhi would have preferred a shorter, more business-like itinerary beginning with the official engagement in Delhi, Ottawa opted for a five-city tour, with a bilateral meeting with Prime Minister Narendra Modi on the penultimate day. New Delhi would have also liked the delegation to exclude Canadian ministers suspected of sympathising with extremist Sikh groups in Canada, especially as they had already been in India controversially in the past few months — but Ottawa was adamant they be included. Finally, the government wanted Mr. Trudeau to reach out to Punjab Chief Minister Amarinder Singh well ahead of the visit, as the latter had been denied a trip to Canada in 2016 and was understandably offended. But till his arrival, Mr. Trudeau’s office did not confirm a meeting with the Chief Minister. As a result, the controversies that followed the Canadian Prime Minister through the visit had gathered their own momentum. The responsibility lies on both sides, on Ottawa for its tone-deafness to Indian sensitivities, and on New Delhi for failing to press its concerns or have the visit discreetly put off until the differences were resolved. Mr. Modi’s decision to stick to protocol, and not welcome Mr. Trudeau as effusively as he has tended to do for many foreign visitors, was a signal. The final straw in a visit steadily turning icy was the appearance of Jaspal Atwal at an official reception, which had an embarrassed Mr. Trudeau left explaining how a man who attempted to assassinate an Indian minister in 1986 had slipped into his entourage. In turn, the Indian government was left scrambling for answers on how Mr. Atwal was even allowed into the country. The real casualty amidst all the controversies was the India-Canada bilateral relationship, which has turned frosty after a decade of excellent progress. In this period, the two sides had forged close cooperation on energy and trade, including a civil nuclear cooperation agreement and a commitment from Canadian pension funds to invest in India. India and Canada have much in common as two pluralistic, diverse democracies with very strong people-to-people ties: there is an Indian Diaspora of 1.3 million in Canada, besides 100,000 Indian students. The handling of Mr. Trudeau’s visit by both Ottawa and New Delhi doesn’t do justice to these ties; both countries must work to repair the rupture.
b) Can banking recover?
The bank frauds involving Punjab National Bank (PNB) and the companies associated with businessmen Nirav Modi and Mehul Choksi as well as the Rotomac case couldn’t have come at a worse time. The Indian banking system is already reeling under the pressure of growing NPAs, or non-performing assets (less politely known as loans that are not going to be repaid), which will touch nearly 10 lakh crore by March this year. This does not include the 6 lakh crore already written-off. This has already caused a slowdown in disbursal of bank credit, in turn affecting productive investment.
Failure at many levels
What has been revealed so far could be only the tip of the iceberg. The sheer ease with which fraudulent practices have been carried out and the length of time over which they continued suggest that the rot is much deeper. Other banks could have provided large loans without due diligence, which other companies then received without intent to repay; this means that many more loans gone bad could soon surface. These revelations cannot bode well for the ruling party or for a Prime Minister who had promised to be the nation’s “chowkidar” to prevent any such loot. But let us step away from the politics. It is now clear that the scams are fundamentally and overwhelmingly a failure of regulation. This failure has occurred at many levels. At the level of the bank, it is impossible to believe that only a handful of employees (the current fall guys) have been implicated. Senior management and auditors did not track these problematic transactions for years. The Reserve Bank of India (RBI) did not monitor banks properly and created opacity with new financial instruments. The Finance Ministry failed in its oversight and regulation. And successive Central governments, including the present one, did and have not done anything to address the obvious problems that were festering, and made them even worse.
The PNB scam relied on the existence of an unusual financial instrument, the letter of undertaking (LoU). This is a bank guarantee that enables a bank’s customer to raise short-term credit from another Indian bank’s foreign branch. It has to be another Indian bank, because the LoU as a form of underwriting other borrowing does not exist in other countries and is not even recognised by foreign banks. It was created by the RBI as an additional incentive to importers who could then avail of cheaper credit abroad, even though import credits already exist. These LoUs — which are equivalent to providing credit and should be recorded as contingent liabilities — were not so recorded. When loans are not repaid — in this case vast amounts borrowed from other banks based on these LoUs were apparently siphoned off to shell companies controlled by the Modi-Choksi combine — the buck stops with the issuing bank. What was intended to be trade credit was misused, with no record and monitoring of the spending from those loans. There is talk of sums in excess of 20,000 crore being involved in this case as these businessmen were alleged to be so influential that they were even able to game the SWIFT system for foreign exchange transactions. This case involves pure criminal fraud, but there is a thin line between fraud and the many large defaults that plague the system. Commercial bank lending is massively skewed: according to the RBI, in March 2016, 11,643 borrowers accounted for 38% of all bank loans; large corporate borrowers had the overwhelming share (84%) of bad loans. Just 12 large outstanding NPA accounted for as much as 250,000 crore. The issue of crony capitalism that was much criticised during the United Progressive Alliance government is alive and well under this government. Finance is one of the many ways in which concessions and advantages are distributed. Some favoured companies are not declared wilful defaulters even when the government’s own investigating agencies find that they are diverting funds. Those declared as wilful defaulters are neither punished nor prevented from leaving the country. In fact their names are not even made public, so they can continue to access loans from other banks. Some insolvent companies are made to sell their assets which are then purchased at throwaway prices by relatives or associates of the defaulting owners. Despite claims to the contrary, shell companies held by influential people continue to enable the siphoning of assets and money laundering in various forms.
Privatisation no answer
Many analysts within and outside government have responded to these scams by pointing the finger at public sector banks, claiming that they are more vulnerable to influence peddling and crony capitalism. The current mess has also become an excuse to demand the privatisation of state-held banks. This completely misses the point since privatisation would actually make things much worse for Indian banking. The key issue is one of poor regulation, and not ownership. Indeed, the reason why the current scam has not led to a widespread run on the PNB and other banks is precisely because of the sovereign guarantee that, despite everything, still generates trust in the public banking system. Poorly regulated private banks are even more prone to scams and failure as the financial sector is rife with information asymmetries and market imperfections. Private profit orientation generates incentives for managements to exploit loopholes in the rules and engage in risky behaviour, as examples by U.S. and European bank behaviour leading to the great financial crisis of 2008-09 show. The bailouts they then require tend to be even more expensive for the public exchequer because bank runs have to be prevented. In India, in the decade before the nationalisation of banks in 1969, there was an average of more than 35 private bank failures every year. After the liberalising reforms of the 1990s, the collapse of the private Global Trust Bank and Centurion Bank (among others) resulted in mergers, with the losses being borne by public sector banks. Private banks such as Axis and ICICI also face large NPAs, often with the same companies that are defaulting on public banks. Kotak Mahindra Bank and several others have been found guilty of providing unsecured loans and ever-greening, practices that the PNB is now accused of. In fact, because of the opacity of banking practices, public banks are actually easier to regulate. So why has banking regulation in India failed to this extent? It is not only mala fide intent and corruption but also an overall approach to economic policy. The RBI may have been too occupied in counting old currency notes and dealing with the other damaging consequences of demonetisation to pay enough attention to its real job — of bank regulation. But more significantly, this government, like the previous one, has created incentives for all banks to privilege large high-profile corporate borrowers and be relatively lax on their repayment in the mistaken belief that this would encourage sustained income growth. This context makes it easy for some players to game the system. Recovering from this will require stricter adherence to sound banking rules and more transparency and accountability from both public and private players. But most of all, these would apply to the regulators themselves and the government that frames all this.
Meaning: Guide or direct in a particular direction.
Example: “I shepherded them through the door”
Synonyms: Guide, Conduct
Meaning: Last but one in a series of things; second last.
Example: “the penultimate chapter of the book”
Meaning: The action or process of delegating or being delegated.
Example: “the delegation of power to the district councils”
Synonyms: Assignment, Devolution
Meaning: A person who holds extreme political or religious views, especially one who advocates illegal, violent, or other extreme action.
Example: “right-wing extremists”
Synonyms: Fanatic, Radical
Meaning: Refusing to be persuaded or to change one’s mind.
Example: “he is adamant that he is not going to resign”
Synonyms: Immovable, Inflexible
Meaning: The state of being unwilling or unable to hear or pay attention to something.
Example: “the deafness shown by political leaders”
Meaning: in a careful and prudent manner, especially in order to keep something confidential or to avoid embarrassment.
Example: “he discreetly inquired whether the position was still available”
Meaning: Expressing welcome, approval, or pleasure in a way that shows very strong feeling.
Example: They gave us such an effusive welcome it was quite embarrassing.
Synonyms: Excited, Interested
Meaning: Very unfriendly; hostile.
Example: “her voice was icy”
Synonyms: Unfriendly, Unwelcoming
Meaning: The way in which a person or group of people reacts to someone or something.
Example: “the election budget got a stony reception in the City”
Synonyms: Response, Reaction
Meaning: A group of people attending or surrounding an important person.
Example: “an entourage of loyal courtiers”
Synonyms: Retinue, Escort
Meaning: Move hurriedly or clumsily from or into a particular place or position.
Example: “she scrambled out of the car”
Synonyms: Struggle, Scurry
Meaning: Cold and unfriendly in manner.
Example: “Sebastian gave her a frosty look”
Synonyms: Unfriendly, Unwelcoming
Meaning: People who have spread or been dispersed from their homeland.
Example: “the Ukrainian Diaspora flocked back to Kiev”
Meaning: A breach of a harmonious relationship.
Example: “the rupture with his father would never be healed”
Synonyms: Rift, Estrangement
Meaning: Lose one’s balance and stagger or lurch violently.
Example: “he punched Connolly in the ear, sending him reeling”
Synonyms: Lurch, Stumble
Meaning: To accept that an amount of money has been lost or that a debt will not be paid.
Example: The World Bank is being urged to write off debts from developing countries.
Synonyms: Borrowing, Lending
Meaning: Pay out (money from a fund).
Example: “$67 million of the pledged aid had already been disbursed”
Synonyms: Spend, Expend
19) Tip of the iceberg
Meaning: A small, noticeable part of a problem, the total size of which is really much greater.
Example: These small local protests are just the tip of the iceberg.
Synonyms: Difficult things
Meaning: Unjustifiably claiming or being credited with particular accomplishments or qualities.
Example: “fraudulent psychics”
Synonyms: Dishonest, Corrupt
Meaning: Careful and persistent work or effort.
Example: “few party members challenge his diligence as an MP”
Synonyms: Assiduity, Rigour
Antonyms: Laziness, Carelessness
Meaning: Stolen money or valuables.
Example: “the gang escaped with their loot”
Synonyms: Booty, Plunder
Meaning: A dishonest scheme; a fraud.
Example: “an insurance scam”
Synonyms: Fraud, Swindle
Meaning: A small number or amount.
Example: “only a handful of people were in the pub”
Synonyms: Small, Some
Meaning: Show (someone) to be involved in a crime.
Example: “he implicated his government in the murders of three judges”
Synonyms: Incriminate, Compromise
Meaning: The quality of being obscure in meaning.
Example: “the difficulty and opacity in Barthes’ texts”
Synonyms: Obscurity, Density
Meaning: (of a wound or sore) become septic; suppurate.
Example: “a festering abscess”
Synonyms: Suppurate, Discharge
Meaning: Undertake to finance or otherwise support or guarantee (something).
Example: “they were willing to underwrite, in part, the construction of a ship”
Synonyms: Support, Insure
Meaning: Occurring or existing only if (certain circumstances) are the case; dependent on.
Example: “his fees were contingent on the success of his search”
Synonyms: Dependent, Conditional
30) Siphoned off
Meaning: To dishonestly take money from an organization or other supply, and use it for a purpose for which it was not intended.
Example: He lost his job when it was discovered that he had been siphoning off money from the company for his own use.
Meaning: Make biased or distorted in a way that is regarded as inaccurate, unfair, or misleading.
Example: “the curriculum is skewed towards the practical subjects”
Meaning: Very great in amount.
Example: “his party won overwhelming support”
Synonyms: Profuse, Enormous
Meaning: The action of conceding or granting something.
Example: “this strict rule was relaxed by concession”
Synonyms: Admission, Acceptance
Antonyms: Denial, Retention
Meaning: Denoting or relating to products that are intended to be discarded after being used once or a few times.
Example: “a throwaway camera”
Synonyms: Disposable, Careless
Meaning: Promote (an idea or view) persistently or widely.
Example: “the giant con that has been peddled in the Conservative press”
Synonyms: Advocate, Suggest
Meaning: A close friend or companion.
Example: “he went gambling with his cronies”
Meaning: Lack of equality or equivalence between parts or aspects of something; lack of symmetry.
Example: “there was an asymmetry between the right and left ears”
Meaning: An ambiguity or inadequacy in the law or a set of rules.
Example: “they exploited tax loopholes”
Synonyms: Escape, Ambiguity
Meaning: Take responsibility for.
Example: “no one likes to bear the responsibility for such decisions”
Synonyms: Sustain, Carry
Meaning: Grant a privilege or privileges to.
Example: “English inheritance law privileged the eldest son”
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