 Ö                                                                                                                                                                                                                              the banks those who have lent money could literally take prompt action they could go to the committee of creditors and they could initiate this action in the NCLT's with a view to recovering their money If a resolution professional, I think I'm going to lose the audience if I get into further technical details. There is an insolvency and bankruptcy board of India called IBVI. They are supposed to look at these cases, just think there are multiple bodies which have been set up under the IBC, Insolvency Bankruptcy Code Law, to bring borrowers to book to a court and if they can't repay then their property that means their company is taken over by the committee of creditors and it is sold suppose they borrowed 100 rupees. The company is taken over and it is sold and you get only 60 rupees. So the lenders will now distribute the 60 rupees as per whatever loans they had given. So they have lost 40 rupees, there is nothing to be done but if you just sit on it for another 20 years that 60 rupees will become 10 rupees because they further siphoned off from that company whatever little value it had. So that is the whole process. The lender will never get back the 100 rupees because that company is already in default it is in trouble. So this is what has happened now and the RBI is trying to take prompt corrective action and under this prompt corrective action 11 public sector banks have been told you cannot lend even one more rupee. You are in trouble? No more lending till your books are healthier. As I have said the public sector banks are in greater trouble. We will not get into the details of net NPAs and so on. For some reason this works, this does not work. We will come to NPA non-bank finance companies in a minute. You do not have to really follow all this because I have already provided this to the university. You can always ask for the slides. It is one email away from you. In fact the university can even put it somewhere where anybody can access it. What do lending institutions do? They get money from the public if you are a bank in the form of deposits. Where do you keep your salary? You keep it in a bank and the rate of interest which they give you is lower than the rate of interest they charge to their borrowers. That is the simple thing and all this is done through something known as maturity transformation. What is maturity transformation? The banks borrow short and lend long and there is obviously a maturity mismatch and therefore risk. How do I mean they borrow short? When you put your money in a savings account, you can take out your money at any time. Suppose there is only one account holder. You put in 10 rupees and you can take it out at any time and the bank lends 10 rupees. And then tomorrow you go back and say give me 5 rupees. The bank cannot give it to you because 10 rupees it has lent to company X. And the company X has invested in some particular business and they have borrowed it for 10 years. So this is what I call maturity transformation. So all banks borrow short but then there are millions of depositors. All of them will not ask for their money right away. That is the whole game. So you don't lend all of it. So this is all that financial. So if somebody tells you I'm a very bright man and I work in a bank and I'm a big shot and I know a lot. That's all there is to it. It is not something very technically difficult to understand. This maturity transformation and riding the yield curve means that if you look at interest rates, most of the time the short term interest rates are lower than the longer term interest rates. What do I mean by that? If you put in a deposit in a public sector bank as all of you know if you put in a one year deposit, you'll get 6% if you put in a 10 year deposit, you might get 8%. I don't know what the rates are right now depending upon senior citizen status or whatever. The rates of interest may be different. So this is riding the yield curve. The yield curve is always upward sloping like that. There are exceptional circumstances when it may not go upwards. There are liquidity issues but we will not get into those technical issues. By and large, shorter term borrowings and loans have lower interest rates than longer term. And that's all banks are doing. By and large, when banks lend, they trust the borrower to repay the money. But the problem happens when the banks don't insist on transparency. So trust, if you see the last bullet point, trust has to be accompanied by transparency. Unfortunately in many situations, not just in our country, in so many countries, trust is not accompanied by transparency. Sometimes it is not trust at all. It's a question of collusion between the banks and the borrowers. The government as the largest shareholder of our public sector banks and from our parliamentarians and from our members of legislative assemblies that they in turn must ask for transparency. We must ask for greater transparency. We must ask for the numbers to be put out in a manner which is readily understandable. So the finance minister must do it in the national parliament over here. In the state assembly, whoever is responsible needs to put those numbers out so that everybody can understand what is going on. It's not difficult once it is broken down into little bits. So that's what the situation is right now between the crisis or the difficulties. Are the differing perceptions of Reserve Bank of India and government between solvency and liquidity? Government is saying that there is not enough liquidity in the market. The government is saying that there is not enough liquidity in the market. The bank is saying that there is not enough liquidity in the market. The bank is saying that there is not enough liquidity in the market. Particularly after demonetization, there is not enough capital in the bank. When you have to give a loan, the bank must have reserves of capital to be able to give a loan. The capital is called risk capital. I will not get into the details of the Basel norms and all that, which the RBI has adopted. You must have some risk capital. Why? Because when you lend and it doesn't come back, you use your risk capital to pay your deposit. So what has happened is that the banks have a lot of liquidity in my opinion. They don't have enough capital. And the government is telling RBI, do something, push some loans out. The SMEs are in trouble. The MSMEs are in trouble and they need more liquidity and there is not enough lending happening. RBI is saying that it is not a question of liquidity. Just as the bank got up. They are saying that there is not enough credit worthiness. What is credit worthiness? The bank is not satisfied that you will repay the money. Suppose I go to the bank and say, please give me 10,000 crores. I am going to set up a huge, huge, huge petrochemical plant. I could say, sorry, thank you, please go. We don't have time to talk to you. 10,000 crores, what for? What do you know about petrochemical industries? What is your track record? That's what I mean by the bank having the money. They could give me 10,000 crores, but I don't have the profile or the ability to convince them that I can service that debt in a timely manner. This is RBI's position. The government's position is, no, no, no, please lend, please allow more lending. Both are right in a way because right now we need more economic activity. It's only when an economic activity will only happen if there is lending because most of the time you may not fully realize this. Economic activity happens through lending, not through people using their own capital. That is the whole thing of capitalism, that they don't use their own capital. They use your and my capital. Whatever we put into banks is what capitalists use to create industries and to create employment and we all want employment. So this is the crux of the dispute between RBI and the other things are not relevant. I'm not going to get into the February of this year's circular under which RBI is saying that moment any entity does not repay a loan, the same day that loan must be recorded as a loan which is tagged, not as non-performing asset or non-performing loan, but at least it's tagged as a loan on which payments are not being made. In a nutshell, Government is lending how RBI is making money. If the banks are not able to make money, then the banks are not able to make money. Will they ever give it back? We are the regulator. We are not going to force banks to lend. Government is saying you should encourage. If not anything else, you should open your own lending window. RBI is lending how RBI is making money. So these are some of the issues which should be discussed on the 19th of November which is only four days away. So watch out for the newspapers on the 20th. I have been requested already by ET now and by CNBC to give interviews on the 19th. I have told them, they just rang me up a little while ago and I said please, please, you know. Well, it is not in our interest for there to be such differences between the regulator and the government very frankly. It is not in our interest as citizens. We want this issue to be resolved in a way that banks lend but do not lend to such people who will never repay the money because that is our money. It is a depositors money. Ultimately the government will provide the money by taxation. By taxation meaning the tax rupees that we give the bank. That is the only way that government can provide it. I have shifted gears now. This is roughly the situation in our domestic financial sector and these are some of the issues on which the government and RBI have differences. I will move on to trade. Please. You are saying that both of them are correct. Government is also correct. Also RBI is correct. Right. In between many things are happening right now. If you see that a lot of money is going out of this country without being paid to the banks who are lending actually. Everybody knows about it. There is nothing to read. Now also since you are saying that these are both correct which are more correct I want to know. You have brought in another element which is leakage of capital out of the country. I didn't even get into that. The issue is that you would not know who is more correct unless you are both in RBI and in government because ultimately these are technical issues. Government is saying that RBI has about 3.5 lakh crores of surplus reserves. Why are reserves held by the central bank of a country? They are ultimately the lender of last resort. So there is a framework which you will only be able to understand if you are running those numbers in a risk model. In a certain scenario if so many banks collapse then RBI has to put in so much money. So RBI has come up with a calculation that it needs about 9-10 lakh crores. Government is saying you only need about 5-6 lakh crores. Now I believe that there will be a presentation made on the 19th of November for government to give its point of view. So this quickly becomes a technical issue. So when I say both are correct, both are correct in the sense of from their point of view RBI is saying I need so much money otherwise I am at risk of not being able to fully perform all my responsibilities in the case of a crisis. Government is saying you have enough. We know you have enough even if there is a crisis. Now this is not something which can be debated at a general level and it has to be then debated between experts. Now your other point in terms of money going outside well money goes outside in a variety of ways and it has less to do with the current situation. That is a constant situation where some unscrupulous elements look to siphon money away from even if you are getting I know of people who have huge houses Delhi who will give their houses on rent to embassies and ask for a part of the rent outside the country and some embassies oblige them because then they reduce the rent a little bit. So what I am saying is that once you go into that business of money going outside then there is all this thing about under invoicing of exports and over invoicing of imports. I am sure the students of economics know what I mean by that. Suppose you are exporting ten dollars worth of something you price it only at eight dollars that external party puts two dollars into your Swiss bank account because what you exported is worth ten dollars. He knows they are important. But what does government do? How does government stop this? Well you say no but I have been only able to find a buyer at eight dollars to selling two shirts for eight dollars when actually they are worth ten dollars and two dollars is given to you into your Swiss bank account or into your Cayman bank account or your Mauritius account I am not getting into that. Those are other issues. There are many complications about how money goes out of the country. We will not go there because otherwise we will be here till tomorrow morning discussing all these issues.