To PSU Banks - With Love

Published: Fri, 10/27/17

They should have met up with Indian Financial heads. We have just figured out how to take the depositors money without taking it outright. No haircut for Indian depositors. But still deposit money sitting in SLRs or otherwise will be used to buy Recap bonds and then that money will be given back to the bank as Capital. Now you meet CAR requirements and the haircut to depositors is invisible. When so much financial engineering is possible in Ponzi finance why worry about risks at all?
In fact if the banks had the cash then why were they considered capital inadequate in the first place? Why not just capitalise the reserves or cash in hand. All the round tripping with the government could have been avoided. The bank recap scheme so far is an invisible depositor haircut. There is no cash involved yet. But technically they have a better rating and can raise funds from investors like Mutual funds that can now buy them on the grounds of good ratings and use public funds for the real bailout without being questioned about it.QIPs infinity for PSU banks to follow [with analyst buy ratings]. That means nothing for profits yet, as the equity dilutions will reduce profit potential for a while. And till the economy is sufficiently inflated returns on equity will not pick up. But it puts a possible floor on the downside risk unless the business cycle remains in a downtrend. All Research Analysts have been forced to write a Buy on PSU banks with targets that are meagre in the meantime. This shifts the focus from banking related problems to the economy directly from a market perspective. Banks will live but will the economy turnaround is anybody's guess. The economy is a social animal and social trends cannot be dictated they develop on their own. But of course there is always the economic stimulus intervention, and when all else fails that will come too.

Rohit Srivastava

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