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Why India needs a Bad Bank

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Union Finance Minister Arun Jaitley on arrival to present the General Budget 2017-18 at Parliament House in New Delhi on February 1, UNI

It has now been eight years since the twin balance sheet problem first materialized, and the cost to the government and society is rising

By Sindhu Bhattacharya

Is it just a matter of nerves—this reluctance on the part of the government to set up a Bad Bank which will tackle India’s alarming bad loans’ problem? It is no secret that India’s banks are drowning in bad debt. Ratings agency Fitch had previously expected the stressed-asset ratio for Indian banks to increase to 12% in the financial year to 31 March 2017 (FY17) from 11.4% in FY16. There is now a risk that the ratio will climb higher, thanks to demonetization, it says. Speaking of demonetization, one wonders at a government which has had the nerve to thrust such an economically disruptive measure on a country of over 1.2 billion people but continues to shy away from setting up a Bad Bank to rescue its own banking system from collapse.

The concept of a “bad bank” involves the takeover of assets from public sector lenders, thereby forcing them to focus on their normal commercial activities. It has been tried in some other economies faced with similarly stressed banks. The government’s own Chief Economic Advisor, Arvind Subramanian, has strongly advocated creation of such a bank in the annual report card of the Indian economy presented last week, saying “India has been pursuing a decentralized approach, under which individual banks have been taking restructuring decisions, subject to considerable constraint and distorted incentives. Accordingly, they have repeatedly made the choice to delay resolutions. In contrast East Asia adopted a centralized strategy, which allowed debt problems to be worked out quickly using the vehicle of public asset rehabilitation companies. Perhaps it is time for India to consider the same approach.”

A Credit Suisse report earlier pegged the debt of top 10 stressed corporate houses in India at over Rs 7.5 lakh crore by the end of FY16, up from Rs 7.03 lakh crore at the end of FY15. The debt of these top 10 stressed corporate groups has increased at an extraordinarily rapid rate, tripling in the last six years. Subramanian says in the Economic Survey for 2016-17 “as this has occurred, their interest obligations have climbed rapidly. The aggregate financial position of the stressed companies consequently continues to haemorrhage, with losses now running around Rs 15,000 crore per quarter against a small net profit two years ago.”

Here’s another reminder of how stressed India’s public sector banks, which have the highest exposure to these corporate houses (not the private lenders), are. The Fitch assessment has been given earlier in this piece. And according to the Survey, at its current level, India’s Non Performing Assets (NPA) ratio is higher than any other major emerging market (with the exception of Russia), higher even than the peak levels seen in Korea during the East Asian crisis. In fact, total stressed assets of banks have far exceeded the headline figure of NPAs, he says. Market analysts estimate that the unrecognised debts are around four percent of gross loans and perhaps five percent at public sector banks. In that case, total stressed assets would amount to about 16.6 per cent of banking system loans—and nearly 20 percent of loans at the state banks. So a fifth of all loans at state run banks are stressed.

A banking expert points out that one way to overcome stressed assets of PSU banks is for the government to enhance recapitalization (it is committed to infuse Rs 10,000 crore this fiscal as per the Indradhanush plan) or by selling off some of its stake in these banks. “But PSU banks are facing a chicken and egg problem. If they take hair cut now on corporate loans, then how do they insulate themselves from allegations/scrutiny of corruption? Cutting a deal with private sector guys could create this problem. The government should consider setting up a bad bank because waiting for another upturn in the economic activity which would spur private investment and this improve bad loans’ problem could be a very long wait.” Waiting for economic cycle to upturn may not happen any time soon.

The Fitch report quoted earlier anyway pointed towards demonetisation to say this one step is likely to push back the recovery in Indian banks’ asset quality, given the disruptive impact that cash shortages have had on the country’s large informal economy. ”We still believe that asset-quality indicators are close to their weakest level and will recover slowly over the next few years, but any turnaround is likely to have been pushed back by at least two quarters. The impact of demonetisation on asset quality is likely to only start showing up significantly in data for the January-March quarter. However, most state banks have already indicated publicly that loan recovery has been affected.”

Fitch has also said that Indian banks will require around $90 billion in new total capital by end-FY19 to meet Basel III standards. The government is providing core equity, but its earmarked sum of $10.4 billion—around 70% of which is due to be paid out by March 2017 – may not be sufficient to meet needs.

This is perhaps where Finance Minister Arun Jaitley seems cautious about setting up a bad bank. Recapitalisation or bad bank—both scenarios require investment from the budget proceeds which he is unwilling to shoulder all by himself.

http://www.business-standard.com/article/economy-policy/bad-bank-can-t-be-supported-by-govt-alone-says-arun-jaitley-117020301397_1.html

This piece quotes the FM as saying that a bad bank cannot be supported by government alone. So who else, besides the state, will take a hair cut?

Already, it has been patting itself on the back about saving Indians from a run on the banks despite mounting NPAs. This refers to a situation where banks which are stressed eventually collapse – they do so in other economies but haven’t done so in India despite historic levels of bad debts because the government has been holding their hand and infusing cash, saving the country from imminent disaster. “There have been no bank runs, no stress in the interbank market and no need for any liquidity support, at any point since the TBS (twin balance sheet) problem first emerged in 2010. And all for a very good reason: because the bulk of the problem has been concentrated in the public sector banks, which not only hold their own capital but are ultimately backed by the government, whose resources are more than sufficient to deal with the NPA problem,” the Economic Survey notes.  

The urgency in creating a bad bank—however it gets funded—stems from this: aggregate cash flow in the stressed companies—which even in 2014 wasn’t sufficient to service their debts—has fallen by roughly 40 percent in less than two years. It has now been eight years since the twin balance sheet problem first materialized, and it has not been resolved even as the financial position of the stressed debtors is deteriorating. The ultimate cost to the government and society is rising—not just financially, but also in terms of foregone economic growth and the risks to future growth.

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Happy Birthday Mark Zuckerberg: Social media users wish Facebook co-founder on his 40th birthday

Born on May 14, 1984, Zuckerberg has grown from a Harvard dropout into a billionaire philanthropist, owning many tech ventures over the years. He started Facebook in 2004 and took it public in 2012.

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Mark Zuckerberg, co-founder and CEO of Facebook (Meta), is celebrating his 40th birthday on May 14. Zuckerberg, one of the most influential figures in the tech industry, has had a major impact on how people connect and communicate with each other all over the world.

At 40, Zuckierberg continues to lead Facebook and its parent company, Meta, towards new technological frontiers. Born on May 14, 1984, Zuckerberg has grown from a Harvard dropout into a billionaire philanthropist, owning many tech ventures over the years. He started Facebook in 2004 and took it public in 2012.

In 2021 the social media platform changed its name to Meta to shift the company’s focus to the metaverse. Under his leadership, Facebook has grown into a global platform with over 2.8 billion active users. Apart from this, he has also expanded his influence through the Chan Zuckerberg initiative, which is run by Zuckerberg and his wife Priscilla Chan and focuses on philanthropy in health, education, and scientific research with an investment of 99% of the couple’s wealth over their lifetime.

There has been a rise in the net worth of Mark Zuckerberg over the last few years. According to Forbes, his net worth stands at $177 billion, which makes him the 4th richest man in the world. Since Facebook (now Meta) acquired WhatsApp in 2014 for $19 billion, Mark Zuckerberg’s net worth has grown significantly.

In 2014 his net worth was approximately $26.1billion, which now stands at around $177 billion, which reflects a substantial increase in the net worth due to Meta’s expanding business and strategic acquisitions over the year.

Before Zuckerberg turned 40, he gifted himself a brand-new superyacht, Launchpad in March 2024. According to reports, Zuckerberg purchased $59 million worth of waterfront property on Lake Tahoe in California in 2019. He spends his money on luxury vehicles and owns a Acura TSX, a Honda Fit, and a black Volkswagon Golf GTI.

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Google restores delisted Indian apps after government intervention

Google on Saturday restored all Indian apps it had removed.

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Google has started to restore all the delisted Indian mobile apps on Play Store agian, which they had removed due to a disagreement over service fees. After a discussion between company representatives and IT Minister Ashwini Vaishnaw, the decision was made, according to sources.

The step was taken in response to Vaishnaw’s strong statement in which he said that it is not allowed for apps to be removed from the Google Play Store. The minister had said, India is very clear, our policy is very clear…our startups will get the protection that they need.

Vaishnaw  continued saying that he has already given Google a call. They will be speaking with the app developers who were delisted this week. This is not acceptable. The minister said this kind of delisting cannot be permitted.

Ten Indian companies’ apps were banned by Google on Friday, causing outrage in one of its fastest-growing markets. With 94% of phones running on its Android platform, Google holds a large portion of the Indian market. Popular names like Naukri and Bharatmatrimony were on the list.

The main point of contention is Google’s in-app purchase fees, which range from 11% to 26%. Indian startups have long opposed the US tech giant’s actions, believing them to be unfair.

The founder of Bharat Matrimony, Christian Matrimony, Muslim Matrimony, and Jodii, Matrimony.com, expressed shock at the matchmaking apps’ removal from the Google Play Store.

Shaadi. Com CEO Anupam Mittal described it as a dark day for India’s internet, highlighting the possible broad effects on matchmaking services. He also called Google an evil.

While, Kuku FM Co-founder Vinod Kumar Meena in a statement had said that Google was behaving like a monopoly.

Meanwhile, Google temporarily withdrew the famous Indian payments app Paytm from the Play Store in 2020, claiming a few policy infractions. Due to this decision, the founder of the company as well as the larger startup community came together to build their own app stores and file lawsuits against Google.

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Anant Ambani says he is 100% lucky to get Radhika Merchant in his life

Anant Ambani said he was grateful to get Radhika as his life partner. He said he is 100% lucky to get Radhika Merchant in his life. He said every day he is falling more and more in love with her. He added although he had known Radhika for the last 7 years, it felt he had met her only yesterday. He thanked Radhika for everything.

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Anant Ambani and Radhika Merchant’s grand three-day wedding celebrations began with a glamorous cocktail night on Friday in Jamnagar. During the celebrations, Anant Ambani also gave a speech wherein he thanked his late grandfather Dhirubhai Ambani and grandmother Kokilaben Ambani for inspiring him. Anant Ambani said he was grateful to get Radhika as his life partner. He said he is 100% lucky to get Radhika Merchant in his life. He said every day he is falling more and more in love with her.

He expressed his gratitude to his mother for pulling together the lavish three-day wedding celebrations in Jamnagar. Anant thanked his mother for all she had done. He said all the arrangements had been done by his mother and nobody else. He added his mother had gone all out and she had worked 18-19 hours a day and he was extremely grateful to her.

He also thanked all the guests who were present there at the pre-wedding celebrations. He said everyone had made it to Jamnagar to make him and Radhika feel special. He said both of them were honored and humbled to have all of them present there. Anant said he was sorry if they had caused an inconvenience to anyone. He asked for forgiveness. He hoped everyone is going to enjoy the coming three days. He also thanked his mother, father, sister, brother, his sister-law and his brother in-law for making this event memorable.

Anant said everyone has been sleeping for less than 3 hours a day for the last 2-3 months and he was very happy to share this joy with everyone. The youngest Ambani talked about his personal struggles and how his parents had always supported him. He further added his life had not been entirely a bed of roses. He said he had also experienced the pain of thorns. He said he had faced many health crises.

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