Meanwhile… issues lost in din and dust 

By Shankkar Aiyar| Published: 28th April 2019 04:00 AM

The sense of ennui is jostling for space with the sense of déja vu. And it is just the halfway mark for Elections 2019—over 240 seats are yet to poll. Rhetoric is ricocheting off the campaign trail.

Meanwhile, issues and events of import that haunt ordinary lives are lost in the din and dust of the polls.
Home buyers across Delhi, Mumbai and other cities increasingly find themselves left with no option but to rescue themselves and their costs cause, get into the nitty-gritty of construction to complete that home they long dreamt of. Another set of buyers, knocking on the doors of courts, hope and pray as they await decisions—on completion and refunds. 

Yes. The Real Estate (Regulation and Development) Act 2016 established RERA and the fear of law to curb malfeasance and malpractices by builders and developers. But what about those who are not covered by RERA? By one estimate, of Anarock Consultants, over 5.75 lakh units—that would be a million plus votes—worth around Rs 4.6 lakh crore are stuck in various stages of non-completion.

This week, the Reserve Bank of India asked banks to declare the details of their exposure to the bankrupt IL&FS—nine months after its sordid bankruptcy was outed by a series of defaults and downgrades. The controversial shadow bank, it is estimated, owes Rs 94,216 crore to creditors—and commentary from the new board suggests over 90 per cent of this will need to be written off. The exposure of banks, and ergo savers and depositors, is around Rs 50,000 crore—of this Rs 35,382 crore is in public sector banks already bleeding red. 

Scientists may have figured out a way to define what a black hole looks like. India’s bankers struggle to identify black holes. The Supreme Court, on April 2, quashed the February 12/2018 circular of the RBI on NPA classification. The result is that an estimated Rs 3.2 lakh crore of public monies extended as loans is now in no-definition-land—neither good nor bad.

Why is this issue? India’s banks hold over Rs 125 lakh crore of public monies in their accounts. Yes, deposits are covered by insurance, but here is the critical factoid—it covers only Rs 1 lakh, the value of insured accounts is Rs 32,75,300 and the money in its kitty of the Deposit Insurance and Credit Guarantee corporation as of March 31, 2018 is Rs 81,430 crore. Yes, there is the implicit government guarantee, but it is critical for regulators to have their say so that systemic safety is not subjugated by whims of expediency. 

Consider this: Jet Airways, grounded last week, has been in the red for over 18 months and owes creditors over Rs 12,000 crore. Public sector banks who own the bulk of the bad loans are yet to call it a bad loan as they await Godot!  

It is not just banks. For some weeks now mutual funds have been informing unit holders about a possible dent in their investments—particularly in fixed maturity plans, a favourite of middle-class savers. The crux of the issue is a structural fault line in India’s financial system—use of short-term funds for long-term lending. When banks, cramped by regulatory action, could not lend, borrowers were served by non-bank-finance companies, who again borrowed from banks, depositors and mutual funds. The question that faces mutual funds and thus savers is whether the monies will come back.

In January this year, rating agency ICRA placed six mutual funds under ratings watch for their exposure to the SPV of IL&FS facing uncertainty—the exposure of mutual funds to IL&FS paper is around Rs 7,000 crore, and the liability of IL&FS would include promised returns. Earlier this month, CRISIL downgraded DHFL, citing “continued low visibility in raising funds”. 

The investment of mutual funds in debt issued by NBFCs, in their debt and hybrid funds, is around Rs 3.2 lakh crore. A Credit Suisse report this week reveals, of this over Rs 1.3 lakh crore falls due in the next three months. Rating actions, redemption pressures and poor liquidity have rendered public savings vulnerable.

Seven of India’s states—Karnataka, Gujarat, Maharashtra, Odisha, Rajasthan, Andhra Pradesh, and Jharkhand—have declared drought in over 90 districts in their states. Experts monitoring and studying weather and hydrology conditions to assess drought conditions estimate that around 40 per cent of India is reeling under drought. Scientists at IIT Gandhinagar managing India’s real-time drought prediction system believe nearly 47 per cent of India is facing drought. The campaign caravans walked past world water day. Yes, farmer distress is mentioned, but neither the redressal of immediate pain nor possible long-term solutions find space on the slogan-ridden walls on the campaign trail.

The length of the campaign period is also an issue impacting lives.  The Election Commission has been justifiably praised across the world for managing scale and complexity. Equally, it must bear the cross for designing a schedule that brings governance across the country to a halt for 73 days. Andhra Pradesh, Arunachal Pradesh and Sikkim voted on April 11 but will not get a government for over 42 days, until after May 23. 

Must it be this way? To paraphrase Henry Adams, must the campaign air be full of speeches and the speeches full of air?

Shankkar Aiyar

Author of Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India

shankkar.aiyar@gmail.com

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