I had written this one sometime in early 2015 and like many other pieces, it was lying unfinished on my laptop. As I went back to write something else, I realised that nothing much has changed over the last 2 years. Bharat Sarkar is still making the pretension of trying to extradite Mr. Mallya from the UK, Mr. Adani's business is only growing in spite of occasional rumbling in the media, the Supreme Court hasn't given the go-ahead to investigate the Sahara Papers. And so it continues in 2017. I hardly had to edit the piece, not even the title. Indeed, the more things change the more they remain same.
One of the favourite peeves –
with significant justification, of course – of this country’s leftists – who
also happen to be one of the most trenchant critics of the country’s middle
classes – is that while they (the middle classes) get all riled up at the
political or bureaucratic corruption, they hardly ever talk about corporate
corruption – in both private and public sectors. The reason is not very
difficult to fathom simply because the service classes are primarily employed
in these sectors and often complicit, either actively or passively, in the same
acts of omission and commission which they lambast the politicians for.
Talking to my friends in the
financial industry – from rating agencies to banks – is often an education in
itself in how murky things are in this industry in India and how murkier they
are getting with time, how regulatory checks and balances (mostly week to start
with) have failed us again and again and how entrenched and strong the vested
interests are.
A friend who works with a leading
rating agency put it pithily when he said, “You know, Roy, I can clearly see in
front of my eyes how a bubble builds.” From pressures to rate a company higher
than what an honest analysis of their financial statements should point towards
to blatant conflicts of interest in the organization, he has a story to narrate
everywhere. When he contemplated whistleblowing on one particular instance of
conflict of interest recently, he realized how the odds are stacked against him
and how powerful the entrenched interests are. At the end of the day, most of
us have families to support and EMIs to pay, which makes us hold our noses
while we enter our offices in the morning, do our work as honourably as
possible and collect our paychecks at the end of the month. It reminds me of
what another friend once said in a different context, at a time when all of us
had less reasons to be cynical – we all have sold our souls. Some have sold it
cheaper and some dearer.
In this context, when magazines
like The Caravan do investigative stories in the long form on this sort of
corporate hanky panky, to put it mildly, I can’t help but say that more power
to their elbows and not everything is lost even in this age and time when
companies like Reliance control huge chunks of the country’s supposedly
independent media. From stories on how public sector top guns like ONGC have
been steadily milked and undermined including probably leaking of crucial gas
finds in KG basin to how steel, infrastructure companies (the Essars, the
Jindals, the GMRs, the GVKs) have built their ‘too-big-to-fail’ businesses by
taking on impossible amounts of debts, it all makes for depressing reading.
Even though you knew or suspected most of it, it is difficult to fathom the
extent of the rot, how spectacularly our systems have failed us and even more
difficult to imagine the cost to paid when all these are taken to account and
most importantly, who will pay that cost. I am sure all of us secretly hope
that the day of reckoning comes after we are dead because in the long run we
all are as Keynes had famously said.
People can be forgiven to think
that the tricks which Harshad Mehta pulled together – which eventually led to
the setting up of that ineffective and often willfully blind regulator called
the SEBI – in the pre-demat era of stock trading will be impossible in this age
because few people understand how the rules of the game in high finance has
changed over last 2 decades. What Harshad Mehta did in early 90s and what
Jignesh Shah did with commodities market in 2000s differ only in their modus
operandi. If Satyam scam was the first major one which came after the Ketan
Parikh’s in late 90s, it was probably an indication that auditing fraud is more
widespread than most of us would like to believe. I hear that Institute of
Chartered Accountants (ICAI) have got stricter now and they cancel the
membership of any CA found doing auditing hanky-panky. Good for them.
While growing up in a Bengali,
middle class family in the 80s and 90s, we were made to understand that
nationalized banks and post offices and the myriad savings instruments they
offered, were the best place to park your savings even if they grew at the
proverbial Hindu rate of growth. The thing is during those days, they probably
were, if you didn’t understand too much of the stock market or didn’t have the
risk appetite or simply didn’t trust your broker (there were too many stories
of brokers underreporting a trade in the era of paper share certificates).
Now, when we hear a SBI lending a
couple of thousand crores to Vijay Mallya’s by-then-already-doomed airlines
with a collateral which probably didn’t amount to much more than a couple of
phones calls from the Ministry of Finance, Indian Bank lending to Essar Steel
whom the private lenders are not willing to touch with a bargepole, or read
about the CMD of Syndicate Bank being arrested for the ‘bribe-for-loans’
scandal, one wonders about the savings of millions of small and medium
investors like us who trust these wolves with their monies. Are we the
so-called educated lot any different from the gullible poor who park their money
with Ponzi schemes and chit funds like the Sharada? OK, the government will
probably bail these banks out if things come to a crunch but who bears that
cost? These public sector bankers may not be as glamorous as the wolves of the
Wall Street, whom at least everyone knows as wolves. They have been pretty much
like sheeps till like a decade and half back – happy with their salaried
government jobs which they managed to bag in post-bank nationalization era of
early 70s – when they realized that their public sector salaries are probably
not sufficient to take care of their and their families aspirational lifestyles
and simultaneously discovered that their positions, while probably not as
powerful as that of civil servants and politicians who call shots at the level
of policy-making, offer them nice and cozy means of gaining personal
gratification and favours on the side. The gratifications are of course not
always monetary or in form of holiday gifts. The friend mentioned earlier was
recently talking about a public sector banker who after sleeping with a couple
of small time models (quite a normal practice, my friend assures me), paid for
by the client, was still not willing to sanction the loan. On further follow
ups by the intermediary of the loan applicant/promoter, the banker finally
asked to sleep with the promoter – a lady setting up a private hospital –
herself and thus, putting the intermediary in a fix. Honestly speaking, I found
it a bit hard to believe but given the money and sleaze involved in the whole
financial system of this country, there is enough fodder for Madhur Bhandarkar
to make a movie with all the usual elements of his potboilers. Who knows, it
may even clock the now-usual 100-200 crores given the multiplex audiences
fascination for glamour and sleaze.
Underreporting of earnings to
evade taxes is an old trick in the book. Indian promoters have traditionally
depended more on debt than on equity to expand their businesses, with typical
debt-equity ratios often in range of 8.5:1.5 or even 9:1. Companies with large
capex (capital expenditure) outlays often ask suppliers of capital equipment to
over-invoice to get the banks fund their equity portion as well and thus,
putting minimum of their own money. So, it is effectively the public (bank depositors)
who are funding their businesses which have zero accountability to the public
whose money are being deployed. Taking out a public issue to raise money from
the public at least mandates the promoters to make some disclosures. In these
kinds of borrow-and-bust businesses, the downside is all of the banks because
of the old banking adage – if you take a 100 rupees loan from the bank, it is
your problem, if you take a 100 crore rupees loan from the bank, then it is the
bank’s problem. Another friend recently commented that while we have our CIBIL
scores and entire credit history being vetted for a 25-30 lakh rupees home
loan, Mr. Mallya doesn’t even have to keep his yacht as collateral for availing
a couple of thousands crores.
The funny thing is that the
gullible public neither understands this nor wants to understand. The popular
perception is that finance is a highly specialized, heavily quantitative field
meant only for very smart people and those who have an aptitude for numbers.
The insiders – from the currency traders to the petty bank officer in your
neighbourhood SBI – of course, want to keep the public at their ignorant best
while crouching many simple concepts in financial mumbo jumbos. It serves their
own interests.
Also, most people think that the
world of finance is full of glamour and highly remunerative, which is definitely
true during the years of bull runs. They will keep on exhorting their kids to
do MBA Finance and preen in front of their friends and relatives and how their
son/daughter is now a hotshot professional employed in one of the streets with
six figure dollar salaries or eight figure rupee salaries. In some cases, they
also take a perverse pride in the fact that how they routinely work 80 hours a
week and are burning themselves out. The surprising thing is that even the 2008
crisis and its aftermaths and large scale discrediting of the buccaneers of all
streets hasn’t really disturbed the rosy pictures of the world of finance in
the minds of the man of the street.
When I come across people in
their early 20s dreaming of a red hot career in Finance, after possibly an MBA
from one of the IIMs, I think of my friends and their colleagues with similar
academic pedigree who entered this murky and fascinating world almost a decade
back and already want to quit it for good, simply because they had enough of
their fill. They think about all these years spent busting their asses
competing with the CAs who often had a 5 to 8 years of head start over us
engineers, mastering arcane theories of risk management, which are often just
that – theories, learning to read P&L, cash flow statements and balance
sheets, the way one learnt basic math back in school and wonder was it all
worth it.
Finally, we Indians are an
inherently dishonest lot. That coupled with last two and half decades of unbridled
capitalism – some will say crony capitalism – has only made people worship big
money. With any residual pangs of guilt, a hangover from Nehruvian socialism,
fast vanishing, flaunting your wealth is not frowned upon anymore even in face
of one of the most dehumanizing poverty and wretchedness on the planet. Income inequality,
climate change, social unrest nothing matters anymore even in forming public
opinion against capitalism or corporate corruption in this case.
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