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.

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