Sorry Minister it is a Systemic Failure!

If you have seen 3 scams (big ones) and bribing (rampant) bribing in PSU banks all your life, this so called scam should not come as a shock (or surprise) at all. Once in a while such transactions erupt and the news channels have something to scream about.

See the Minister’s comments to Economic Times:
“It’s an individual case of bribery. There is no large-scale scam. Banking system is sound,” Minister of State for Finance Namo Narain Meena told reporters here.

To a query over tanking of banking stocks today, he said markets are governed by many factors, including global cues.

Now if you give millions or rupees to bank executives who do not have to attend the annual general meetings, have no worry about being caught (probability of something like this current scam happening is so low, you can ignore it) such failures or scams are bound to happen.

Apart from Nair, those arrested are Naresh K Chopra, Secretary (Investment), LIC, R N Tayal, General Manager of Bank of India (Delhi), Maninder Singh Johar, Director (Chartered Accountant) of Central Bank of India, Venkoba Gujjal and Dy General Manager of Punjab National Bank (Delhi).

Rajesh Sharma, CMD of Mumbai-based firm Money Matters Ltd and two of its employees — Suresh Gattani and Sanjay Sharma– were among those arrested.

Well as long as bureaucrats have control over the full banking system – and the government can throw favors – why will it let things change?

A good way out would be to force companies to float debentures, have them listed and allow banks or organisations like LIC housing finance to buy them. This will ensure a decent price discovery mechanism, have 2 people appraising the same project…and that will help.

A few months ago Ajit Dayal had written a nice piece on why realty prices are high. He had hinted about this. He had said how we keep our money in banks – banks give money to real estate companies – real estate companies jack up the prices (in connivance with the large housing finance companies as revealed by the scam) – so we borrow more to buy the same houses, which we funded 🙂

I have also been screaming about the difference between the real estate prices (sticky) in big places like Mumbai…but the price earning ratio of the real estate companies not reflecting that ..NOW YOU KNOW WHY.

The market knows something which we do not. So all the real estate “talking up” by so called experts on television did not help. One kid from the television channel spoke to me…and asked ‘why are real estate companies quoting at such a low p/e given the prices of real estate..and I explained how the two markets are different. Not sure what she did with the explanation 🙂

HOWEVER, if she is reading this, remember the market collectively knows much more than what we know individually.

So one more scam…and one more Chartered Accountant 🙂 …had to take this dig!