The-Accountant-Sep-Oct-2017-Final

Finance and investment
banks were obviously dashing very fast to
financial ruin. Remember banks do not
own the raw materials-deposits. Theirs is
a fiduciary responsibility. Careless, free for
all lending to mint billions in profits and
executive bonuses would eventually snap!
The past attempts to reform the sector,
including the Credit Reference Bureaus
did not yield the desired outcomes.
Desperate situations call for desperate
measures. Using our analogy, the banks
lacked the self-discipline on ‘dieting’ and
‘exercise’, thus calling for a caring parent to
intervene and enforce the same. Capping
of interests was an enforced dieting for
‘in-disciplined’ children for their own
healthy-sustainability.
No more excess fat
Through legislative fiat, interest rate cap
is the equivalent of food rationing action
by John, the loving and caring parent.
For healthy eating, one must abide by the
rule of three: carbohydrates, proteins and
vitamins and stick to prescribed portions.
Banks are now very careful in risk
selection, through thorough due diligence
and professional care. The margin for error
is restricted by statutes. There is no more
free- for- all- hawking of loans on the
pavements and markets with the least care
in the universe! Speculative lending has
come to an abrupt end.
Weight loss healthy for banks
Losing weight has never been a
very pleasant enterprise. It calls for
determination, commitment, selfdiscipline
and personal sacrifice. But at
the end of the day, once the life threating
situation is addressed, a healthier person
emerges. On a healthy body rests a happy
and peaceful mind. As the banks start
adjusting to the new reality, some painful
sacrifices have started to emerge, for
example:
a) Rightsizing: The labor that was lured
to the fast growing sector is the first to be
shed off. It is quite unfortunate that the
junior staff pay the highest price for the
wrong strategic decisions of the ‘visionary’
leaders. This is a healthy re-adjustment
to the equilibrium in resource or factor
allocations.
b) Purposeful growth: Previous growth
that was funded by inefficiencies in the
banking business model is no more.
Actually many banks have started closing
down unprofitable business units. The
market distortions arising from ‘excess fat’
is now being corrected.
c) Innovations: Banks have no choice but
to re-invent the intermediation business
model. Do we still require brick and
mortar to do banking in the era of digital
natives and the millennials?
d) Mergers and acquisition: There is
less ‘food’ to meet everybody’s greed.
Only the most innovative and leanest
will survive and thrive. The weak players
will be ‘swallowed’ up. The customer
is the ultimate beneficiary of the new
reality. Customers do not care about the
number of banks in an economy. What
they care about is the safety and security
of their savings and world class customer
experience in their service points.
Credit squeeze, call off the
bluff!
Historically, no oppressor has ever
relinquished their privileges voluntarily
and cheerfully. In one swoop, and by the
stroke of a pen, interest rate cap snatched
the cheese from banks. Now they are hitting
back by denying credit to households and
the private sector. Their argument can be
termed as the most ludicrous joke in this
decade! That is, at the current rate, (14%
p.a.), they cannot get enough profitable
borrowers. This is hogwash! If individuals
and enterprises were deemed viable
borrowers at the shylock rates of 22-28%,
simple logic follows that the lowering of
the lending (borrowing) rates makes them
even more profitable-given that additional
14 september - october 2017