Thinkpad: Get On With It

Happy Sunday.

India reforms best in a crisis“; “Don’t let a crisis go waste” — we heard a lot of that when the Covid pandemic hit. It may have taken a good eighteen months for that message to hit home. While “reforms” is a generous (and inaccurate) description of what is going on, we certainly are seeing some long-pending decisions being taken.

A “get-on-with-it” mood, if you will. Some of these decisions will do good, others will look good, but do little good.

Given Thinkpad’s financial sector bias, we’ll start with the government’s decision to provide a partial guarantee to a bad bank being set up by, well, banks.

The discussions around a bad bank started soon after the asset quality review in 2015. At that time, the leadership believed that the government should stay out of the mess and let a private sector solution emerge. But we all know what they say about best laid plans…

Six years later, banks still hold a majority of the bad loans of the past credit cycle, although the hard work of provisioning against them is mostly done. Yet, somehow the government sees the bad bank as a magic wand and so it will be soon operational.

About Rs 2 lakh crore in loans will be sold to this National Asset Reconstruction Company. The government will guarantee about Rs 30,000 crore in recoveries over a five-year period against the security receipts issued.

Analysts have raised a few concerns here. Suresh Ganapathy of Macquarie asked the philosophical question: Banks own this bad bank, banks will provide the capital, then banks will sell their bad loans to this entity and book a profit? Ganapathy sees this as egregious.

There are also questions of how the accounting will work and whether this set of assets can really lead to any meaningful recoveries. You can get a gist of these views here.

Broadly, the bad bank falls in “looks-good-but-does-little-good” category.

An unavoidable decision to come to the rescue of the telecom sector was also taken this week.

Unlike the bad bank, this set of announcements has come just in time. Still, there are questions over whether the country will be able to avoid a duopoly in the telecom sector and whether we’ll be back to square-one in four years when the moratorium offered on government payments runs out. You can catch the expert speak here.

The divestment of Air India also moved a step forward, with two financial bids being received. Just ahead of this, a small but important change had been made, allowing the carry forward of losses by PSUs even after a change in ownership. This could help the Air India divestment process along.

Someone, somewhere in government will say a prayer when this one is done.

For monetary policy watchers, we’d like to flag-off a notable speech by Reserve Bank deputy governor Michael Patra. Amid much hand-wringing in the bond markets, Patra said that the RBI intends to follow a glide path back towards 4% inflation only by 2023-24 to minimize the growth sacrifice. He defended the RBI’s use of the reverse repo rate outside the MPC’s purview, and tried to draw a line in the sand between liquidity policy and normalisation.

“We don’t like tantrums; we like tepid and transparent transitions—glide paths rather than crash landings,” Patra said.

Is the stance taken by the deputy governor in-charge of monetary policy justified or are we seeing the beginnings of a mistake? BloombergQuint will explore this further next week. But it’s something to think about.

We’ll leave you with some art instead of music this week.

Wanna own a piece of your favorite Amitabh Bachchan song or dialogue? Now you can with an NFT! Bachchan may be first off the block but artists, young and old, think they can monetise their talent better using NFTs, reports Shivam Vahia.

So maybe the next time Bachchan asks: “Mere paas ghar hai, bangla hai, gaadi hai…Tumhare paas kya hai?”, you can say: “Mere paas iss dialogue ka NFT hai”.

Till next week.

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