How to win a race to the bottom and influence people
4 min read 30 Jan 2014, 03:43 PM ISTThis is the winter snowing good ideas. Some more humble contribution from this author
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Bad money drives good money out of circulation. Likewise, bad ideas drive away good ideas. But this principle, usually ascribed to Thomas Gresham, seemingly dates back to 5th century AD Greece. So even by our present standards of regression, this is antediluvian and needs to be amended. And hence the amended version is—bad ideas become good over time. How? Because they are more infectious than good ideas, and once the infection reaches the majority, it is no longer a pandemic but a standard, a way of life.
So here are some good ideas.
Create a power pool: Now that the electricity law has been notionally repealed, we need a power pool. It has been found that power companies are fleecing hapless consumers because miners are fleecing hapless power producers who in turn are fleecing hapless distributors. Coal India Ltd, NMDC Ltd, NTPC Ltd and Neyveli Lignite Corp. Ltd will be made to contribute amounts regularly to a power pool account that will be used to subsidise power distributors, including Tata Power Ltd and Reliance Power Ltd. Timing of disbursement of the subsidy will be a random variable, with a mean of two years. The power distributors’ receivables will in turn be pooled into a special purpose vehicle from which securities will be issued, subscribed by women investors who will be financed by Bharatiya Mahila Bank as loan against securities. Provisioning requirements on these loans will be waived.
IOUs against bank recapitalization: The law ministry has opined that banks can be recapitalized by a deferred recapitalization guarantee (DRG) issued by the government. The basic feature of this is that recapitalization kicks in when core capital falls below 8% or June 2014, whichever is later. At that time, another DRG with similar characteristics will be issued. Who is this global Basel III suggesting that this cannot be considered core capital? Look, Switzerland is only for Alpine holidays—a nondescript town there cannot dictate how we run our banks. And if we deign to listen to them, we can hit the pause button and ensure conformity by 2050 instead of 2018. Since we have hit the stop button on the Fiscal Reform & Budget Management Act, this is small change, sorry, small pause.
Convert the tripartite wage negotiations to bipartite: Of the bank unions, bank managements and Indian Banks Association, delete the latter two and replace by the government. Then lo and behold, what is currently a negotiation to bring down the unions’ 30% wage increase demand will become a statement signed by the financial services division and initialled by the unions. The only condition in the agreement will be that male employees have to wear ties to office.
Real estate SOS: Why on earth is the whole world against this sector? They have been our cash cows. Now they may have not any cash, but they still are cows, holy cows, so simple and pure, afflicted with a strange bovine ailment called surplus inventory. Why blame them for raising prices by 20% each year—even onion traders do. Banks’ risk weight for lending to them should be reduced from 100% to 25%, loans restructured within a 15-day timeframe, and against restructuring there should be no sacrifice provision but a pragmatism premium.
Show the rating agencies their place: Who are these meddlesome busybodies threatening to downgrade the country? Don’t they realise that the country has already downgraded itself, rendering them behind the curve? These foreign types need to be taught a lesson. There should be strict reciprocity: if they downgrade us based on fictional concepts like fiscal deficit, they have to downgrade US as well. That will take care of the current account deficit.
Ask the asset reconstruction companies to behave: We created these institutions for parking bank bad loans and now they have the temerity to assert themselves! They complain about lack of transparency and banks not giving them a good price. How can they get their good price when banks can do a better job of recovering these defaults? And what lack of transparency—there are fat tender documents accompanying bad loan sales, just that they state that banks are not responsible for anything at all and reserve all the rights. So ARCs must buy at 100% of the loan value, no discount permitted. If they don’t, slap an SMT (simple misbehaviour tax) on them, surcharge waived for provision of marginal relief.
After Mint: I got a sharp rebuke by the patents office when I approached them for a copyright on the above ideas. They claimed that I have plagiarised from files already circulating within ministries. I have decided not to contest that claim. After all, originality is relative. Even Manmohan Singh did not invent the trademark deafening silence or policy paralysis, Narasimha Rao did both (the latter feature those days was called the middle path).
The author has been a senior research analyst on financial services as well as other sectors at various investment banks, and is currently an independent consultant focusing on banks and financial services.
