Recapitalisation of PSB in India

On surface this appears to be yet another case of typical Allopathic treatment. Which is to say, treat the symptoms, forget the root.


Take a chronic disease like diabetes or hyper tension. What do you think the medicine you eat does. It just maintains status quo. It has NO INTENTION to cure your disease, That is not even the mandate. The mandate is to subside the symptoms so they don’t screw your body.




What is the problem faced by Indian public sector banks.


You don’t have to be an economist to answer this question. A simple look at misaligned incentives will give it away.


Deep rooted corruption coupled with a back of mind assurance that NO STRICT ACTION WILL BE TAKEN even if caught. In short a NO SKIN IN THE GAME Incentive framework. Heads I win huge incentive, tails bank gets a NPA. coupled with “Forced loans” due to pressure.



I met an uncle who is a Public sector bank’s loan manager. Very respected, sober gentlemen with high ethics. When we had a discussion on bad debts and crony capitalism, he said an interesting thing. He said, Manish, do you think after all these years I cannot tell from a crook and a genuine loan. Problem is not in the skill set or risk profiling mechanism. Problem is in the culture.



When you create a culture where it is OK to cheat, you will find a lot of genuine people end up cheating.


A lot of my friends show disgust and anguish when they come across a news about husband beating the wife, and my point to them always is, you will be surprised how you would react if you had the same wife. (when you get an assurance that no action would be taken against you, the animal in you shows up) but we digress, lets move back to recapitalization.




Disclaimer: I am not a macro analyst and to be honest not a big fan of the art. (with so many moving variables, your chances of getting it right are less than Elliot wavers ;)) But in case you want a macro analyses of the situation, please go through wonderful pieces written by Debashish Basu and Deepak Shenoy



The point I am making is that just like Allopathy is futile and meaningless in resolving chronic diseases, so is radical one move steps for treating chronic character flaws of economy.

This action in itself means nothing, it needs to be backed up by a series of changes amounting to increasing the accountability of employees, going after crony capitalists, punishing the defaulting promoters, merit based promotions etc etc. 


The sucker in you wants to believe that THIS TIME IT IS DIFFERENT, THERE will be a FOLLOW UP. But DEEP DOWN you know you will be KEJR’d yet again.


Mark my words and you can quote this blog 5-10 years from now, PSB will be out with their Katora yet again.’


On a lighter note the below tweet sums it up for me at least.