The Big Story: Yes men
A major private Indian bank went belly up last week. It didn’t fail – but only because the Indian government did not let it.
Yes Bank, the country’s fourth-largest private lender, had its board suspended by the Reserve Bank of India, which regulates the sector. While the RBI announced a draft reconstruction plan, the bank was put under moratorium: account holders were prohibited from withdrawing more than Rs 50,000.
That proposal is, essentially, government-funded resuscitation. The State Bank of India will invest at least Rs 2,500 crore in the hope of reviving the bank, which had a loan book of Rs 3 lakh crore. Read my quick explainer on what exactly happened here.
What does the failure of such a big bank tell us about India’s economy and financial sector?
“I shall not allow any institution to fall off the cliff,” said Finance Minister Nirmala Sitharaman at a press conference soon after the bank was put under the RBI moratorium. The question, however, is why the institution made its way to the cliff’s edge in the first place.
There are several fears here.
- Financial sector failures:
India’s financial sector seems to be wading through quicksand. The last few years have seen a major case of fraud turn up at a large public sector bank, the collapse of a key Non-Banking Financial Company, another NBFC brought to its knees and “major irregularities” discovered at a large co-operative bank that also had to have withdrawals restricted.
Experts have pointed to the banking sector woes as being the primary reason behind the Great Indian Slowdown. (Read Bad Apples, our illustrated guide to the banking sector crisis, for context). Yes Bank’s depositors might be safe but there will be fears about what this means for the rest of the sector.
- Further contagion:
For starters, Yes Bank’s reconstruction plan involves writing down Rs 10,000 crore worth of instruments commonly referred to as “perpetual bonds”. Court challenges aside, for the moment these bondholders – including some large mutual funds – will have to presume their investments are worth nothing.
That financial hit alone is scary. What’s worse, it will have ripple effects across the industry, with other institutions re-thinking plans to invest in perpetual bonds or indeed in private sector banks in general. More costs and trouble for banks means more difficulties for credit flow in the broader economy.
Disparate reasons might be given for why companies as varied as Jet Airways, Cafe Coffee Day, Essar Steel and Vodafone-Idea were struggling. In a benign economic environment they might have been able to chug along, or get a softer landing. But things look a lot more frightening now.
- Regulatory environment:
Yes Bank’s struggles were on display for everyone to see. The RBI even installed a board member last year, and forced a change of management. Yet it was not enough. Questions are now being asked about why the bank was allowed to carry on for as long as it did.
The regulator may claim it was hoping that a market-based solution would emerge, but the more accurate answer may be a combination of insufficient regulatory capacity coupled with the indecision or unwillingness of authorities when it came to intervention.
Seeing as Yes Bank’s collapse will spread the risks even further, the seemingly belated steps do no inspire confidence about what may lie ahead for the financial sector.
- Sitharaman’s excuses:
Finance Minister Nirmala Sitharaman fell back on a tactic that her government has relied on all too often: blaming the previous lot. Sithraman claimed that the banking sector crisis had been caused by the Congress-led United Progressive Alliance, and even named companies that Yes Bank had made loans to in that era: Anil Ambani Group, Essel Group, DHFL, IL&FS and Vodafone.
There are just two problems here: The UPA was last in power six years ago. And Yes Bank’s loan book expanded massively after 2014, when Prime Minister Narendra Modi and the Bharatiya Janata Party came to power. Sitharaman herself claimed she had been monitoring the bank’s operations since 2017.
The attempt to say it was someone else’s fault may have made political sense. But in doing so is Sitharaman admitting that her government has been unable to fix these problems despite being at the helm for six years?
After last week’s recommendations on understanding communal violence, reader Anu Kumar wrote in with two more book suggestions on the same topic. Kumar, who also writes as Adity Kay, is the author of a number of books, including The Mahatma and the Monkeys and Emperor Chandragupta and a regular contributor to Scroll.in.
- Communalism, Caste and Hindu Nationalism, by Ornit Shani.
Shani studies the 2002 violence by looking at state policies on reservation, and the caste politics that developed from the mid-1980s onward. The anxieties of Gujarat’s upper- and middle-castes, mainly urban, coalesced to seeing the lower castes and Muslims (so-called beneficiaries of quotas) as threats, and the latter posed a more “readily identifiable enemy.”
- When Crime Pays, by Milan Vaishnav.
Vaishnav systematically studies data from elections (state/general) in the last decade to suggest that those with criminal backgrounds have a “social legitimacy” that in turn, assures a competitive advantage vis-a-vis parties and voters. Also, in states where caste divisions are more salient, parties tend to field those with a criminal background; and this itself is a symptom of state-society relations in post-independent India.
Have recommendations for an article, book, podcast or academic paper that deals with Indian politics or policy? Send it to firstname.lastname@example.org. Previous recommendations from the Political Fix are collected here.
The other contagion
Here’s a quiz. Read this quote from RBI Governor Shaktikanta Das and tell me what he’s talking about:
He could have been talking about the banking contagion, as exemplified by Yes Bank’s collapse. But Das was instead talking about COVID-19, which people are referring to as Coronavirus. (If you haven’t heard it enough, read my article reminding you yet again that you need to wash your hands regularly).
The virus is yet to have a major impact on India. Officially there have been less than 40 cases and no deaths. But there are still fears that numbers could suddenly ramp up, the way they did in Italy – or that they are only low simply because of a lack of testing.
If India is fortunate and the virus has limited spread, there will still be an impact on the economy – malls are empty, Holi plans have been canceled and there have been various manufacturing side-effects. Meanwhile, health experts have been warning about the fear that the virus, if it gives India a pass now, might make a big reappearance when flu season comes back around later in the year.
The United Nations Human Rights Commission has petitioned to be included among petitions in the Indian Supreme Court against the discriminatory Citizenship Act amendments.
Afghanistan and Iran, two countries in the neighbourhood generally friendly to India, have strongly condemned the authorities failure to prevent riots in Delhi, in which violence was heavily targeted against Muslims. (We wrote about the violence in last week’s newsletter).
There have been large demonstrations in Bangladesh, another neighbouring country, against Prime Minister Narendra Modi who is set to visit in 10 days time. Without a doubt, India’s diplomats are stuck attempting to explain the country’s Hindu nationalist moves to the world.
When asked if India is losing friends, External Affairs Minister S Jaishankar said, “maybe we are getting to know who our friends really are.”
One journalist had a different reading:
Madhya Pradesh drama
While the Congress’ leadership drama continues, the party also had something of a mini-crisis in Madhya Pradesh, where it has a very slim majority. Former Chief Minister Digvijaya Singh of the Congress claimed that the BJP’s Shivraj Singh Chouhan, also a former CM, was attempting to poach Members of the Legislative Assembly. This led to a “rescue” of some MLAs, while others turned up at a resort in BJP-ruled Karnataka.
But no official attempt has been made to bring down the government. Another theory suggests that the BJP is only trying to fish in troubled waters, as the various factions of the Madhya Pradesh Congress – those loyal to Singh, to Chief Minister Kamal Nath, and to Jyotiradtiya Scindia – squabble over who gets the two Rajya Sabha seats that are up for elections later this month.
Telling the truth, by mistake
The Information & Broadcasting Ministry last week passed an order putting a 48-hour ban on two Malayalam news channels because of their coverage of the Delhi violence. One of the reasons? That they criticised the Hindu nationalist Rashtriya Swayamsevak Sangh, the parent organisation of the BJP. Sruthisagar Yamunan looked at all the problems with the order here.
Why should criticism of the RSS lead to a ban? The government realised its error and I&B Minister Prakash Javadekar had to step in and revoke the ban. “The notice sent to the two media channels should have restricted itself to mentioning only that the code of conduct was not followed,” he said afterward.
Clearly, someone accidentally told the truth on a government document, a cardinal offence.
Scroll.in Ground Report
Arunabh Saikia has an absolutely chilling report this week that you must go read. Saikia spoke to two men who said that they killed Muslims in the violence that took place in Delhi in February. The result is a document that reveals how deep the religious polarisation is in India’s capital:
?At around 10 am, Kumar said he got his first hit. ‘The Mohammadan was running,’ he recalled. ‘The Hindu public was chasing him. I was leading the pack.’
‘I was the first to catch up with him, and hit him with my rod on his head,’ he continued, his voice turning shriller and his hands mimicking the strike. ‘Then he fell down, and the public pounced on him after that…de dhana dhan dhan.’
Kumar said he killed two more people in a similar fashion – striking Muslim men running away from Hindu mobs in the back with his improvised weapon. ‘I had to kill three. I did that.’”
You should go read all of the stories our reporters have done on the violence in Delhi, like this report by Vijayta Lalwani about a toddler reunited with her family after a Scroll.in report on being torn apart from them during the riots.
And remember, this sort of reporting is not cheap or easy to do. You can help ensure Scroll.in is able to bring you more reportage by either contributing to the Scroll Reporting Fund or, if you’re outside the country, subscribing to Scroll+.
“The Indian State, and dare I say, Indian society, has failed India’s Muslims.” Yamini Aiyar, who heads the Centre for Policy Research, writes in the Hindustan Times that the “the ideological project of ‘othering’ the Indian Muslim has now dug its roots deeply in our everyday political and social life”.
Former Prime Minister Manmohan Singh was infamous for not speaking enough. But when he does, people pay attention, which is why this op-ed by Singh in the Hindu will certainly be noticed. Singh says “India faces imminent danger from the trinity of social disharmony, economic slowdown and a global health epidemic.”
Riots were once local, and occasionally regional. Now they’re immediately national. Political scientist Neelanjan Sircar argues in the Print that social media has ensured that “a local communal conflict can be made a national issue in seconds, and a larger communal narrative can quickly be constructed from a patchwork of local incidents”.
What actually happened at Yes Bank? Indradeep Khan, who works in the financial space, has a long Twitter thread offering the big picture context for how he interprets the growth and collapse of the bank.
View from the Right: R Jagannathan argues in Mint that only Modi can end the climate of mistrust that prevails across the country today. Among other things he calls on the prime minister to
“offer a deal so that [the states] stop opposing the humanitarian CAA law in return for accepting their proposals on the National Population Register and the National Register of Citizens”.
Can’t make this up
Less than two weeks ago, Delhi saw horrific violence that left more than 50 dead. A week ago rumours about fresh violence spread through the city because of rumours. So you would imagine that people in and around the capital would be extra careful.
Not Punit Sisodia. The 30-year-old who works as a marketing manager with a private hospital in Noida, was arrested last week for allegedly firing shots at the 17th floor house of a senior Delhi police officer.
At first the police were unsure why this had happened. One theory was that Sisodia may have been the same person whom a family member of the police officer had an argument with over not cleaning up dog poop.
The Times of India offers an even more colourful angle, connected to a Bollywood movie:
“Another theory doing the rounds is the possibility of a fan of Salman Khan’s Tere Naam to have resorted to firing. Additional DCP Ranvijay Singh said some residents had told cops about a youth who keeps listening to sad Tere Naam songs and wanders aimlessly.”
Eventually it turned out that Sisodia was shooting a TikTok video. Here’s India Today’s report:
“Puneet, during questioning, told the police that he fired several rounds to record a TikTok video. The police learnt that Punnet fired bullets while driving a car.
The police recovered the car, 106 live cartridges of a .32 bore gun along with a mobile phone.
Puneet is fond of getting clicked in style, showing off guns and uploading such media on short-form mobile videos platform TikTok.”
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