Lives around a banking crisis

First of all I will share a caricature and a joke shared by me as the rest of the blog post would be serious as it involves what is happening in India right now and the lack of sensitivity to it.

Caricature of me by @caticaturewale on twitter.

The above is a caricature of me done by @caricaturewale. If you can’t laugh at yourself, you can’t laugh at the world, can you ? I did share my thankfulness with the gentleman who created it. It surely must have taken quite sometime to first produce a likeness and then fiddle around the features so it produces somewhat laughable picture. So all the kudos to him for making this gem 🙂

PMC Bank

The other joke of the day, no the week or perhaps the month was a conversation between a potential bank deposit holder and a banker or somebody calling on behalf of bank.

I got a call from bank.
They said: “U pay us ₹ 6000 every month. U will get ₹ 1 crore when U retire”.
I replied: “U reverse the plan, U give me 1 crore now. And I will pay U ₹ 6000 every month till I die.”
The banker disconnected the call. Did I say anything wrong???

Poonam Datta, Maritime and Logistics, IMD, Switzerland on twitter.

Now where is this coming from ? I am sure some of you may have seen my last blog post which shared about the travails of PMC bank last week. There have been lot of developments which have happened since that. What I had forgotten to share that day is that the crisis in PMC Bank has been such that lives are being lost. From last week till date, 5 lives have been lost due to the PMC bank debacle. The latest being Bharati Sadarangani, a 73 year old septuagenarian who suffered a cardiac arrest as she had her life-savings, her daughter and son-in-law’s all life savings in that bank account. Now the son-in-law blames himself and his wife as the wife used to share her uncertainities with her mom. These people and all the others need urgent psychological help and counselling. In fact, while I don’t know them, I had suggested to some people to see if they can reach to these people and maybe some psychologists team can help them. While moneylife foundation is helping the distressed to write writ petitions and provide legal help, there is definitely need of medical counselling so no more suicides, panic attacks or cardiac arrests happen. But this isn’t the end of the story but is beginning of one.

Deposit Insurance and Credit Guarantee Corporation

The above I shared is a stamp by Dicgc which stands for Deposit Insurance and Credit Guratantee Corporation shared by a gentleman on twitter. The stamp claims and I quote that DICGC is liable for only INR 1 lakh rupees. Now many people were surprised where did the INR 1 lakh rupee come from ? While it is aptly documented in many places, I am going to use CNBC News 18 coverage to share the history of the liability of a bank which dates it back to 1993 where it was changed last to INR 1 lakh rupees. While I did my own calculations using the simple formulae of currency exchange, I would submit to Mr. Raghav Bahl’s slightly superior method where he has taken also the Indian GDP growth also into account which comes to INR 1,00,000.

The method I used is below –

The exchange rate of dollar in 1993 was 28.13 INR for 1 USD. For an amount of INR 1 lakh it comes to USD 3,555 at that time. Using just the simplest inflation tool it comes to date at USD 20,380 as of date which comes to INR 14,43,566.35 . This comes with some base assumptions that the tools and calculations I did were and are in-line with what GOI gives. One point to note though is what the GOI declares as inflation is usually at least a percent or two lower than what the real inflation is at the very least. At least, that’s what I have observed for the last twenty odd years or so. On top of it I didn’t even use the GDP multiple which Mr. Bahl did.

As far as the argument which some people have or may have it’s unlikely that many people may have had that much money, that amount was done by GOI using a variety of factors, including one would suppose the average balance of a middle-class salaried person. If one were to take gold or some other indicator I’m sure they probably would be a lot more higher. This is most conservative estimate I made. To have a higher limits in insurance to the deposit, it would need to be a people’s movement, otherwise it could be INR 1 lakh for all eternity, or INR 3 lakhs, IF the government feels it’s ok with that 😦

Why bother with such calculations ?

One could ask the question why bother with such calculations ? The reason is very simple. While the issue came at a co-operative bank, the amount of insurance limitation is not just limited to a co-operative bank but to all banks, whether they are co-operative, National or even private banks. While I live in Pune, and always have made some very basic lifestyle choices, in Mumbai, the same lifestyle choices will set anyone back at least INR 30-40k. Somebody shared that their 1 BHK apartment electricity costs are INR 15-16k/- monthly while it fluctuates between INR 900-1k/- for the same in Pune. So in that context, putting a budget of INR 30 – 40K/- may be probably conservative for a single person, if it’s a family or 2 or 4, which is common would probably be much more. So in any such scenario, it affects all of us. And this is not taking into account any medical emergencies or credit needs for some unplanned event.

The way out

What is the way out ? While those who are stuck in PMC Bank do not have a way out unless RBI takes some firm actions and help the ones in distress , those who are not are equally in distress because they do not know what to do or where to go. While I’m no investment adviser, just don’t put all your eggs in one basket. Put some in different post schemes, some in PPF, some in gold bars or coins certified by some nationalized banker or something. And most importantly of all, be prepared for a loss no matter what you choose. In a recessionary economy, while there may be some winners, there would be lot more loosers. And while people will attempt to seduce you with some cheap valuations, this is probably not the best time to indulge into fantasies. You would be better off spending time with friends and loved ones or into books.

Books

If you want to indulge into fantasy, go buy a book at Booksbyweight or Booksbykilo rather than indulge in needless speculation. At the very least you would have an asset or commodity which will give you countless hours of pleasure and is a tradable commodity with friends and enemies over a lifetime. And if you are a book lover, reader, writer, romantic like me they can be the best friends as well. Unlike friends or loved ones who would demand time, they are for you whenever you are ready for them rather than vice-versa.

Update – 24/10/19 – Few people asked me on social media how you came to the conclusion that we are entering recession. While I’m not sharing any reports or graphs, what I’m sharing can be easily typed by using keywords in your search engine –

1. Savings – Savings in India has been in a downward slide for about 6-7 years now but acutely so in the last 5/6 years. Less savings means either people are consuming more or earning less.

2. Cost Inflation – If you look at the CPI (Consumer Price Index) inflation and real inflation which I have talked about above, that has been rising. Veggies, which a large population of India eats has been costlier, season after season. Even non-veg like chicken and others have skyrocketing. I am sure if one would look at historical charts they would see a much starker inverse relationship between the two.

3. Salaries – If you look at salaries, in many places there has been actually reduction in salaries and even mass layoffs. While you get headlines of billions of dollars of deals signed up for Indian IT, when you look at the figures closely, you find the value and profits have dripped quite a bit. In fact, cases and suits such as happening at Infosys doesn’t inspire as to what may be happening in other mid to high-range IT companies.

4. Demonetization and Badly implementd GST – The real dangerous effects of demonetization and badly implemented GST would never be fully known. While there have been some studies which co-relate the result of two disasters, they will never be fully known. While there are ample of anecdotal evidence to provide the same, let me provide one of a friend/client who used to run an engineering workshop. The gentleman used to do all kinds of work including getting work from Indian Railways. He had a crew about 20-25 odd people who used to work for him and I knew the gentleman for almost 2 decades. Most of his workers had been working with him for almost 10-15 years. When demonetization happened, he was literally stuck for cash. In an engineering workshop you need to keep an inventory fo small bits and bobs all the time . Because of cash crunch, he couldn’t either pay salaries to his men nor could he get any new orders because everybody in the chain was stuck. He tried his level best but had to fire more than half his crew for no fault of theirs. And when GST came, he was again stuck. At the end he sold the land to whatever price he could, fired the remaining crews and is now basically retired or semi-retired. Now that is a loss not just for him and his men but their families and economy as a whole. The people who bought the land were thinking of making a mall or something but haven’t done that either because there is no demand. They did get the land at a steal but aren’t doing anything with it which is again a loss.

Social media, knowledge and some history of Banking

First of all Happy Dusshera to everybody. While Dusshera is India is a symbol of many things, it is a symbol of forgiveness and new beginnings. While I don’t know about new beginnings I do feel there is still lot of baggage which needs to be left I would try to share some insights I uncovered over last few months and few realizations I came across.

First of all thank you to the Debian-gnome-team to keep working at new version of packages. While there are still a bunch of bugs which need to be fixed especially #895990 and #913978 among others, still kudos for working at it. Hopefully, those bugs and others will be fixed soon so we could install gnome without a hiccup. I have not been on IRC because my riot-web has been broken for several days now. Also most of the IRC and telegram channels at least related to Debian become mostly echo chambers one way or the other as you do not get any serious opposition. On twitter, while it’s highly toxic, you also get the urge to fight the good fight when either due to principles or for some other reason (usually paid trolls) people fight, While I follow my own rules on twitter apart from their TOS, I feel at least new people who are going on social media in India or perhaps elsewhere as well could use are –

  1. It is difficult to remain neutral and stick to the facts. If you just stick to the facts, you will be branded as urban naxal or some such names.
  2. I find many times, if you are calm and don’t react, many a times, they are curious and display ignorance of knowledge which you thought everyone knew is not there. Now whether that is due to either due to lack of education, lack of knowledge or pretensions, although if its pretentious, you are caught sooner or later.
  3. Be civil at all times, if somebody harassess you, calls you names, report them and block them, although twitter still needs to fix the reporting thing a whole lot more. Although, when even somebody like me (bit of understanding of law, technology, language etc.) had a hard time figuring out twitter’s reporting ways, I dunno how many people would be able to use it successfully ? Maybe they make it so unhelpful so the traffic flows no matter what. I do realize they still haven’t figured out their business model but that’s a question for another day. In short, they need to make it far more simpler than it is today.
  4. You always have an option to block people but it has its own consequences.
  5. Be passive-aggressive if the situation demands it.
  6. Most importantly though, if somebody starts making jokes about you or start abusing you, it is sure that the person on the other side doesn’t have any more arguments and you have won.

Banking

Before I start, let me share why I am putting a blog post on the topic. The reason is pretty simple. It seems a huge number of Indians don’t either know the history of how banking started, the various turns it took and so on and so forth. In fact, nowadays history is being so hotly contested and perhaps even being re-written. Hence for some things I would be sharing some sources but even within them, there is possibiity of contestations. One of the contestations for a long time is when ancient coinage and the technique of smelting, flattening came to India. Depending on whom you ask, you have different answers. Lot of people are waiting to get more insight from the Keezhadi excavation which may also give some insight to the topic as well. There are rumors that the funding is being stopped but hope that isn’t true and we gain some more insight in Indian history. In fact, in South India, there seems to be lot of curiousity and attraction towards the site. It is possible that the next time I get a chance to see South India, I may try to see if there is a chance to see this unique location if a museum gets built somewhere nearby. Sorry from deviating from the topic, but it seems that ancient coinage started anywhere between 1st millenium BCE to 6th century BCE so it could be anywhere between 1500 – 2000 years old in India. While we can’t say anything for sure, but it’s possible that there was barter before that. There has also been some history about sharing tokens in different parts of the world as well. The various timelines get all jumbled up hence I would suggest people to use the wikipedia page of History of Money as a starting point. While it may not be give a complete, it would probably broaden the understanding a little bit. One of the reasons why history is so hotly contested could also perhaps lie because of the destruction of the Ancient Library of Alexandria. Who knows what more we would have known of our ancients if it was not destroyed 😦

Hundi (16th Centry)

I am jumping to 16th century as it is more closer to today’s modern banking otherwise the blog post would be too long. Now Hundi was a financial instrument which was used from 16th century onwards. This could be as either a forbearer of a cheque or a Traveller’s cheque. There doesn’t seem to be much in way of information, whether this was introduced by the Britishers or before by the Portugese when they came to India in via when the Portugese came when they came to India or was it in prevelance before. There is a fascinating in-depth study of Hundi though between 1858-1978 done by Marina Bernadette for London School of Economics as her dissertion paper.

Banias and Sarafs

As I had shared before, history in India is intertwined with mythology and history. While there is possibility of a lot of history behind this is documented somewhere I haven’t been able to find it. As I come from Bania , I had learnt lot of stories about both the migratory strain that Banias had as well as how banias used to split their children in adjoining states. Before the Britishers ruled over India, popular history tells us that it was Mughal emprire that ruled over us. What it doesn’t tell us though that both during the Mughal empire as well as Britishers, Banias and Sarafs who were moneylenders and bullion traders respectively hedged their bets. More so, if they were in royal service or bound to be close to the power of administration of the state/mini-kingdom/s . What they used to do is make sure that one of the sons would obey the king here while the other son may serve the muslim ruler. The idea behind that irrespective of whoever wins, the banias or sarafs would be able to continue their traditions and it was very much possible that the other brother would not be killed or even if he was, any or all wealth will pass to the victorious brother and the family name will live on. If I were to look at that, I’m sure I’ll find the same not only in Banias and Sarafs but perhaps other castes and communities as well. Modern history also tells of Rothschilds who did and continue to be an influence on the world today.

As to why did I share about how people acted in their self-interest because nowadays in the Indian social media, it is because many people chose to believe a very simplistic black and white narrative and they are being fed that by today’s dominant political party in power. What I’m trying to simply say is that history is much more complex than that. While you may choose to believe either of the beliefs, it might open a window in at least some Indian’s minds that there is possibility of another way things were done and ways in which people acted then what is being perceived today. It is also possible it may be contested today as lot of people would like to appear in the ‘right side’ of history as it seems today.

Banking in British Raj till nationalization

When the Britishers came, they bought the modern Banking system with them. These lead to creation of various banks like Bank of Bengal, Bank of Bombay and Bank of Madras which was later subsumed under Imperial Bank of India which later became State Bank of India in 1955. While I will not go into details, I do have curiousity so if life has, would surely want to visit either the Banca Monte dei Paschi di Siena S.p.A of Italy or the Berenberg Bank both of which probably has lot of history than what is written on their wikipedi pages. Soon, other banks. Soon there was whole clutch of banks which will continue to facilitate the British till independance and leak money overseas even afterwards till the Banks were nationalized in 1956 due to the ‘Gorwala Committee’ which recommended. Apart from the opaqueness of private banking and leakages, there was non provision of loans to priority sector i.e. farming in India, A.D. Gorawala recommended nationalization to weed out both issues in a single solution. One could debate efficacy of the same, but history has shown us that privatization in financial sector has many a times been costly to depositors. The financial Crisis of 2008 and the aftermath in many of the financial markets, more so private banks is a testament to it. Even the documentary Plenary’s Men gives whole lot of insight in the corruption that Private banks do today.

The plenary’s men on Youtube at least to my mind is evidence enough that at least India should be cautious in dealings with private banks.

Co-operative banks and their Rise

The Co-operative banks rise in India was largely in part due to rise of co-operative societies. While the co-operative Societies Act was started in 1904 itself. While there were quite a few co-operative societies and banks, arguably the real filip to Co-operative Banking was done by Amul when it started in 1946 and the milk credit society it started with it. I dunno how many people saw ‘Manthan‘ which chronicled the story and bought the story of both the co-operative societies and co-operative banks to millions of India. It is a classic movie which lot of today’s youth probably doesn’t know and even if he would would take time to identify with, although people of my generation the earlier generations do get it. One of the things that many people don’t get is that for lot of people even today, especially for marginal farmers and such in rural areas, co-operative banks are still the only solution. While in recent times, the Govt. of the day has tried something called Jan Dhan Yojana it hasn’t been as much a success as they were hoping to. While reams of paper have been written about it, like most policies it didn’t deliver to the last person which such inclusion programs try. Issues from design to implementation are many but perhaps some other time. I am sharing about Co-operative banks as a recent scam took place in one of the banks, probably one of the most respected and widely held co-operative banks. I would rather share sucheta dalal’s excellent analysis done on the PMC bank crisis which is 1unfolding and perhaps continue to unfold in days to come.

Conclusion

At the end I have to admit I took a lot of short-cuts to reach till here. There is possibility that there may be details people might want me to incorporate, if so please let me know and would try and add that. I did try to compress as much as possible while trying to be as exhaustive as possible. I also haven’t used any data as I wanted to keep the explanations as simple as possible and try not to have as little of politics as possible even though biases which are there, are there.