And apparently, the realisation is finally dawning on mainstream economists and TV pundits that the Indian banking sector, the corporate sector (a.k.a. India Inc.) and the central government (GoI) are sitting on a mountain of bad debt. (There is a reason for this... which I will come to at the end of this post.)
I am no economist, but with a little research, it was obvious that Kingfisher Airline's crash-landing is just the tip of iceberg when it comes to corporate India's profilgacy.
The following is today's Wall Street Journal online article titled, India's Slowing Growth Will Test Banks' Resilience,
After the peak of the financial crisis in 2009, India's banks opened the floodgates with loans to already over-leveraged companies. Credit Suisse looked at loans to 3,550 non-financial services companies in India with aggregate borrowing of $385 billion at the end of March and found that nearly 30% had net debt more than six times current earnings before interest, taxes, depreciation and amortization.
And the risk is currently spread across several sectors that are ALL expected to do badly in case of a economic slowdown in 2012 - which in itself seems to be a foregone conclusion!
India's private airlines, construction companies, utilities and real estate developers are all notorious for generating non-performing loans. All those sectors will suffer from an economic downturn.
But no matter how illogical it is, the big debtors can look forward to the big banks contorting numbers to restructure the unpayable loans - of course, to keep the sham 'assets' on their account books.
To compound the problem, many companies have borrowed in foreign currency from local banks, taking advantage of lower interest rates overseas. But an 18% fall in the rupee against the dollar since April means they now face significantly higher repayment costs. Struggling borrowers could try to convert foreign debt into rupee-denominated loans or restructuring high risk loans to ease repayment conditions. For lenders, that's better than outright defaults but it will hurt profits.
It's not just the big corporate houses that are essentially 'safe' from the risks of a default. Even the banks don't seem to care if their bad loans are beginning to look like a ticking 'time bomb'.
The Reserve Bank of India's stress test report published earlier this month forecasts 5.8% of non-performing assets in the worst-case scenario...
Since 'assets' are hypothetical numbers (remember, banks hold over 26% of equity in KFA bought at a 60% premium as part of loan 'restructuring' last year) that are leveraged 12-14 times their actual capital funds, 5.8% NPA ACTUALLY MEANS A LOSS OF UP TO 81% OF CAPITAL - in other words, insolvency!
India's top bankers are unafraid for the same reason that India's richest know they cannot lose their assets... because almost all the loses will be transfered to someone else!
This was in the Deccan Herald on 26 Dec...
(Finance Ministry) Officials said PSU banks including SBI may need Rs 40-100 billion capital infusion to maintain Tier-I capital of 8 per cent of their total risk-weighted assets. The government is mulling Rs 10,000 crore extra capital infusion depending on the profits of the banks until March 2012.
Planning Commission recently approved Rs 14,000 crore recapitalisation plan for public sector banks in the current fiscal year 2011-12.
Since Public Sector Banks make up about 70% of India's banking sector, the GoI will eventually 'nationalise' their bad debt as well.
There will be a prolonged play-for-time, but two things will inevitably follow:
1) A sovereign debt downgrade (India's sovereign debt is currently rated just one notch abvove 'junk'), followed by an IMF / World Bank loan.
2) The imposition of 'conditionalities' or 'structural adjustments' that include austerity, deregularisation and privatisation of national assets.
We have been there before... Dr. Manmohan Singh's twin mantras of 'liberalisation', 'economic growth' - and sometimes even his 'foreign policy' - stem from the conditions placed as a result of the 'economic crisis' in 1991.
I strongly believe India, like Greece and Italy, is essentially in bank receivership - and run by unelected technocrats beholden only to a handful of global financiers.
THIS RINSE-REPEAT CYCLE OF PRIVATISING ASSETS AND SOCIALISING LIABILITIES MIGHT END DIFFERENTLY THIS TIME – BUT ONLY IF MAJORITY OF THE PUBLIC STOP TAKING THE OPINIONS OF SO-CALLED EXPERTS FROM THINK TANKs AND NGOs ON MAINSTREAM TV AS THEIR SOLE SOURCE OF INFORMATION. (If these guys were such experts, they should have seen and analysed the crisis before a layperson like me even suspected it.)
I'm afraid the mainstream media is just propaganda dressed-up as entertainment... You'll never (nor are you ever meant to) know the facts till there is ONLY ONE desperate straw to cling onto!
Switch the TV off, people - and switch your mind on before it's too late.
P.S: This goes for the Team Anna Hazare TV jamboree as well... Try seeing through the mainstream and social media hype; question the motives of everyone involved; and ask yourself if the Lokpal Bill - in any form - can really end or control corruption, or will it just add another elite layer of corruptible, power-hungry appointees outside the purview of the general public... Power begets corruption. Always.
I think India's anti-corruption agitation (and the 'Occupy movements') - if they are successful - will accomplish just the OPPOSITE of empowering people... But that's another post.