Thinkpad: The Old, The New And The Aspirational
Indian rupee banknotes sit on pieces of fabric at a roadside stall during the festival of Dhanteras in the Zaveri Bazaar area of Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Thinkpad: The Old, The New And The Aspirational

Happy Sunday folks.

It was a busy week. Particularly for those who are tracking corporate earnings in a quarter when the economy is expected to have contracted 25%.

It hasn’t been easy to connect the dots. Britannia appeared to come away unscathed. HUL, excluding GSK Consumer, saw an 8% decline in volumes. L&T saw a sharp fall in profit but some increase in the order book. JSW Steel reported its first loss in six years as revenue fell 41% in a quarter when output fell 30%. Financials remain a black box as they juggle their moratorium and collection books.

Trends have been disparate. And management commentary has covered up jagged edges with nice neat bows. So we will have to wait a bit longer for a clear picture to emerge of the real impact of an economy in lockdown.

Meanwhile, lots of news and views from the financial sector.

The RBI released its financial stability report and cautioned that bad loans may rise 4-6 percentage points by end of FY21. That takes bad loans back to a near 20-year high. The report provides a whole host of insights and you can read our coverage on moratorium loans, the impact of the Covid crisis on NBFCs,and Governor Shaktikanta Das’ assurance that special regulatory dispensations will be rolled back after the Covid crisis.

The over-arching message though is that the financial sector is in for tough times. Remember that light that we thought we spotted at the end of the tunnel sometime last year? It turned into the proverbial oncoming train.

While policymakers think of a new solution to that old problem, they may want to read a book released this week by former RBI governor Urjit Patel.

He drives home the point that limited fiscal space has led successive governments to use banks as a tool of fiscal policy. He calls it the “creeping fiscalisation of banking” and flags off a trilemma. “It’s clear that it’s not possible to: (i) have dominance of government banks in the banking sector; (ii) retain independent regulation; and (iii) adhere to public debt-GDP targets. All three aren’t feasible on a durable basis.”

A separate book by former RBI deputy governor Viral Acharya also flagged fiscal dominance as an issue and said the central bank lost a governor at the altar of financial stability.

How do we break this cycle? One which started 51 years ago with nationalisation. Is privatisation the only real answer? If news reports are anything to go by, the government is thinking about it. Although is there any guarantee of success?

If you are exhausted listening to the same old issues for years on end, try switching focus to the new and shiny world of fintech.

There was a large fintech conference this week, the highlight of which was the promise of the “democratisation of credit.”

An ‘Open Credit Enablement Network’ can potentially bring on a UPI moment for lending. More power to those who are working to ensure that Indian banking tech stays ahead of the curve.

We clearly have a multi-track financial system. The old and rusty, with the new and shiny.

Finally, if neither the old nor the new in the financial world interests you, read this and sigh.

Caribbean resorts have reopened (not for Americans though) for holidays. As has the Maldives and other holiday destinations. Anyone hoping they could hop on a flight and zip off on a summer holiday? If not to one of these exotic locales, then just ...well anywhere!

Happy dreaming.

Till next week.

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