Pandemonium: The Great Indian Banking Tragedy

Bandyopadhyay

• Publisher: Roli Books
• Year: 2020
• ISBN:
  9788194643364
• Topic: Economics
• Subtopic: Banks & Banking
• Index: Economics

'The Reserve Bank of India would like to assure the General public that Indian Banking system is safe and stable.' – RBI Statement, 1 October 2019 Why did India's central Bank have to issue an unprecedented statement to that effect?In Pandemonium: The Great Indian Banking Tragedy, bestselling author Tamal Bandyopadhyay takes you in search for the answer. It is a definitive insider story on the rot in India's banking system – how many promoters easily swapped equity with debt as bank managements looked the other way to protect their balance sheets, until the RBI began waging a war against ballooning bad loans. The same troubles quickly spilled over to India's mushrooming non-banking financial companies, which were quick to spot the post-demonetisation easy liquidity and banks' reluctance to lend, prompting them to make the cardinal sin of borrowing short to lend long.What really ails public sector banks, the backbone of India's financial system? Is it the government ownership itself, or how this owner actually behaves? And just when many were rooting for privatisation as a way out, powerful bankers such as Chanda Kochhar and Rana Kapoor exposed the soft underbelly of seemingly more efficient and profitable private banks of India.A timely and insider look at dramatic forces reshaping banking in Asia's third-largest economy, this book is a bird's-eye view of Indian banking and also a fly-on-wall documentary. A must-read to understand contemporary India's challenges and economic potential.

Pandemonium

‘The Reserve Bank of India would like to assure the general public that Indian banking system is safe and stable.’

– RBI statement, 1 October 2019

Why did India’s central bank have to issue an unprecedented statement to that effect?

In Pandemonium: The Great Indian Banking Tragedy, Tamal Bandyopadhyay takes you in search for the answer. It is a compelling story on the rot in India’s banking system – how promoters easily swapped equity with debt as bank managements looked the other way to protect their balance sheets, until the RBI began waging a war against ballooning bad loans.

What really ails public sector banks, the backbone of India’s financial system? Is it the government ownership itself, or how this owner actually behaves? And just when many were rooting for privatisation as a way out, powerful bankers such as Chanda Kochhar and Rana Kapoor exposed the soft underbelly of seemingly more efficient and profitable private banks of India.

A timely and insider look at the dramatic forces reshaping banking in Asia’s third-largest economy, this book is a bird’s-eye view of Indian banking and also a fly-on-the-wall documentary. A must-read to understand contemporary India’s challenges and economic potential.

Praise for the Book

‘Tamal has a deep understanding and a broad perspective of the banking and financial sector. His curiosity, willingness to listen, attention to detail and ability to simplify complexity, while posing inconvenient questions, are unique strengths. These are reflected in this book.’

– UdayKotak, MD & CEO, Kotak Mahindra Bank Ltd & President, CII

‘No other financial journalist-cum-author can read the pulse of the Indian banking system as Tamal can. A one-stop narrative of nuances and insights a reader is unlikely to get elsewhere. It’s a compelling read.’

– Deepak Parekh, Chairman, HDFC Ltd

‘Tamal writes with honesty, based on hard facts and with no holds barred. The volume will surely add to his reputation as an astute and insightful observer of, and honest commentator on, banking sector.

‘He has given us a financial sector policy thriller, difficult to put down once one starts the first chapter “Who Killed Indian Banking?” Successive chapters prove the point that investigative and analytical journalism can provide sharper insights than a whole host of heavy-duty essays.

‘Tamal’s real strength is his determination to dig deep, put lesser-known facts on decision making in the sector out in the public domain without being unduly normative or judgmental about the persons involved.’

– Rajiv Kumar, Vice Chairman, NITI Aayog

‘Our national economy has been under siege, aggravated by malfunctioning of the banking sector. This book offers valuable insights on its origin, spread and possible measures for a way out… They [the four distinguished former governors] spoke freely with Tamal because of his formidable reputation as a thoughtful, meticulous and fiercely independent columnist. In fact, these qualities shine throughout this book. I recommend this important book to professionals as well as the general public. It will benefit us all.’

– Vijay Kelkar, Chairman, India Development Foundation

‘The breadth of knowledge and attention to details shown by this veteran economic historian and journalist make fascinating reading for anybody interested in the Indian financial sector. Tamal’s superb storytelling makes the book so gripping that the reader is transported to the scene where the action is taking place. It’s an unbiased and candid account of the role played by the regulator, the investigating agencies, the business community, the bankers and the government. By the time one reaches the end of the book, it becomes clear why banking in India has been a tragedy.

‘My only complaint with the book is that it’s like binge-watching an engrossing TV series – I could not put it down until the end.’

– U.K. Sinha, Former Chairman, SEBI

‘Tamal has an exceptional record as an observer of Indian banking… The interviews with past governors of the Reserve Bank are revelatory because of their different perspectives. Recommended reading for anyone interested in the subject.’

– T.N. Ninan, Chairman, Business Standard Pvt Ltd

‘Tamal Bandyopadhyay’s magnum opus provides insights into the most important question in Indian policymaking today. With a fine understanding of banking, finance and economy and willingness to respect different perspectives, Tamal has woven a compelling tale of what has gone wrong with India’s banking system, starting from the 1990s. In telling this tale, he critically examines the role of governance, management, regulation and especially supervision of banks. In reforming these four pillars lies the solution to India’s most important policy problem and thereby the path to India becoming a $5 trillion economy.’

– Krishnamurthy Subramanian, Chief Economic Adviser, GoI

ROLI BOOKS

This digital edition published in 2021

First published in 2021 by

The Lotus Collection

An Imprint of Roli Books Pvt. Ltd

M-75, Greater Kailash- II Market

New Delhi 110 048

Phone: ++91 (011) 40682000

Email: [email protected]

Website: www.rolibooks.com

Text © Tamal Bandyopadhyay, 2021

Foreword © Bibek Debroy, 2021

All rights reserved.

No part of this publication may be reproduced, transmitted, or stored in a retrieval system, in any form or by any means, whether electronic, mechanical, print reproduction, recording or otherwise, without the prior permission of Roli Books. Any unauthorized distribution of this e-book may be considered a direct infringement of copyright and those responsible may be liable in law accordingly.

Cover Design: Bhavi Mehta

eISBN: 978-81-946433-6-4

All rights reserved.

This e-book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, resold, hired out, or otherwise circulated, without the publisher’s prior consent, in any form or cover other than that in which it is published.

To Tapan Jyoti, my elder brother, an inspiration for many in the small town where I grew up, and my sister-in-law Chhabi, for her love and affection. You know what you mean to me.

Contents

Foreword

Preface

Acknowledgements

Part I

THE CONUNDRUM

1. Who Killed Indian Banking?

2. The War Against NPAs

3. India’s Northern Rock Moment

4. Who will Rate the Rater?

Part II

THE HEART OF THE MATTER

5. What Ails the Public Sector Banks?

6. Whose Money is it Anyway?

7. Is Consolidation a Panacea?

Part III

EVERYTHING YOU WANT TO KNOW BUT ARE AFRAID TO ASK

8. The F Word in Indian Banking

9. Fear Psychosis

10. The Fallen Angels

Part IV

GOVERNORSPEAK

11. ‘It is an economic crisis’

C.R. Rangarajan

12. ‘The problem is how the owner behaves’

Y.V. Reddy

13. ‘PSBs have served a purpose… It is now time to move on’

D. Subbarao

14. ‘I do not see a sense of urgency or clear agenda in this government’

Raghuram Rajan

Part V

CRYSTAL GAZING

15. The Great Indian Asset Sale

16. Does the RBI Need New Clothes?

17. The Way Forward

Part VI

Charting the Ills

Epilogue: Postponing the Inevitable?

Appendix: The Stressed Sectors

List of Abbreviations

Glossary

Index

About the Author

Foreword

In the preface, Tamal Bandyopadhyay refers to Akira Kurosawa’s Rashomon, a metaphor for different, and often conflicting, versions of the same event.

For Indian banking, the metaphor is rather apt. Reams have been written on banking in India, not just research papers, but books too. C.D. Deshmukh, the first Indian to be appointed Reserve Bank of India (RBI) governor and later Union finance minister, did write his autobiography. Subsequent RBI governors also wrote books. Since Y.V. Reddy, it has become almost mandatory for ex-RBI governors (and a few ex-deputy governors) to author books focused on their RBI stints. At best, to use the same metaphor, it is the woodcutter’s story, not the ...

Table of contents

• Pandemonium