State of the Economy…..
How much is the government of India deficit and how much lower will it go according to PC?
Well it depends on how you look at the deficits, and what bank NPA number are you willing to believe.
Hmmm
When some deals happen you keep wondering ‘How do such deals happen?’ . In a public forum like this I am not willing to mention names, but the NPA number in some of the banks – largely of course PSU – is stunning. The methods used for ever greening is awesome – SPV, off balance sheet funding, vendor funding, equity placement, – the tricks are stunning. Especially in the infra space. You dig deeper and you realize that the problem is not confined to infra alone. It is there all over the place. There is not ENOUGH growth happening to hide all this.
You drive into Pune and you know that people are only buying houses. Luxury houses, ordinary houses…..etc. from Rs. 30 Lakhs to Rs. 300 lakhs. You land in Bengaluru drive into the city and you see houses from Rs. 16 Lakhs to Rs. 5o0 lakhs.
These have ALREADY been funded by banks. Now banks desperately need buyers who will borrow at 11% and buy these houses – so that the CASH can start coming back. If the cash does not come back who is in trouble?
The builders?
Who is in trouble if Kingfisher Airlines cannot put Humpty Dumpty together again? Mallaya?
No. Not the builders. Not Mr. Mallaya.
YOU AND ME.
The banks – led by the biggest public sector bank and the largest private sector bank – have to worry about Rs. 4000 crores. Hmmm..
So you think the REGULATOR would be screaming, harsh and want all of this to be disclosed in the balance sheet, right?
No. Wrong.
If all the NPAs are provided for in all the banks, municipalities, state governments, and of course in the Central Budget, a sovereign down grade is a SURETY. Does the Regulator want this? What a question! Will the FM allow this? No. Never.
So what to do? Securitize all the loans – take a Rs. 5 crore asset and lend about Rs. 500 crores against that – and tell the world ‘Oh we have it all securitized’.
What will all this lead to? Clean bank balance sheets? Hell, no. It will lead to INFLATION.
Who will suffer? the poor will suffer the worst. Then the middle class. Then the Honest Rich. Why?
Simply because We dare not tell the truth. Satyameve Jayate. I am writing this on the eve of our Republic Day.
Jai Hind. Some times you feel Lance Armstrong was better – he atleast admitted to his crime – forced or otherwise.
We keep kicking the can, and letting inflation screw the poor.
babon
Subra sir,
Do you still advocate investment into equity considering the state of economy?
Jayachandran
Subra Sir,
After reading this and the current economy fiasco all around us, i am remembering the below quote
“If you give the Sahara Desert to the XXXXXXXX, there would be shortage of sand in few years. Milton Friedman”
Replace :XXXXXX with any entity you know and still it seems valid 🙂
subra
No babon, not at all. Invest in the equity markets only when you take a dip in the ocean. Take a dip in the ocean only on a day when it has no waves.
hmmmmm?
markets will do what markets will do. You have to do what you have to do. Do it in moderation that is all 🙂
PrAvEen
Builders are in risk!!!! How????
A builder tie-up’s with a land owner and announces a project. In name of pre-launch offer he will sell 25% of it at actual cost to people to whom bank lend. So the money is flown from bank to builder in phases. with this money the builder is will get funding to complete the entire apratment (intrest free). After this he will give 50% of houses to the land owner and can keep the remaining 25% with him. With no even a single rupee invested in the venture the BUILDER had an holding power of UNLIMITED time here to get the price he want for his share of apartments.
subra
Praveen
if a frictionless ball were to roll on a frictionless surface, it will keep rolling forever. This can sadly, happen only in a laboratory.
mangoman
Before rate cut SBI chief was telling to all and sundry about his plans to pass it on the benefits to Aam Aadmi of India. In reality his Aam Aadmi’s are none other than real estate sharks. Simple logic of ‘you save my ass and in return I will save your ass’ concept. The interesting news is that after RBI cut 0.25 % in Repo, SBI cuts 0.05% in base rate.So according to this genius banker, RBI has to cut repo rate by 5% to as low as 2.75, so that we will get 1% reduction in his bank’s lending rate. Really I feel proud that I live in the era of SBI chief Pratib Chaudhuri.