Public sponsored “HAIRCUT” is worth living for!

Why fight and die with your sweat and earnings? 

Do private banks take a hair cut? When this question was posed to me during a lively late evening discussion with a fellow non-finance friend, I wondered why he asked me that. First of all I love growing hair despite a receding hairline; neither do am I averse to different styles of haircut. On a lighter vein, I am not an expert on finance and banking. I am not an expert on governance and policies, either. So what was he up to?

He said, I read a lot and expected me to know the answer. I’m flattered! He also said he had never ever associated haircut with banking and finance until I opened the subject that evening. He was curious to know, he said, why public banks take a haircut on the defaulted loans. “Besides”, he said, “this is a nice way of use of terminology to write off bad loans, wrap up bad management decisions and present in an acceptable way. Do you call that wordsmithery?” he asked.      

In a matter of extreme perplexity, or perhaps eagerness to show off my network, and perhaps to assure the friend that “I’m here to help you to understand the nuances of financial world, I phoned a friend, taking a clue from “Kaun Banega Karodpati”.   

He had studied economics during the nationalisation of banks, and later on supported it retrospectively. “Nationalisation is good for the poor of the country”, he had said to me, and I had no reason to disagree. “It will help the rural economy to grow, will help the poverty to end, better and effective burrowing and credit facilities for the farmers resulting in enhanced agriculture production, ease of doing business for rural cottage industry”, and so on and on and I don’t remember all the good words he had used to describe the merits of nationalisation. Only the last sentence he had used resonated with me for long: “Private Banks will safeguard the private interests of the industrialists and capitalist society”.  The long lost resonance suddenly erupted resulting in “phoning a friend”.

“Private Banks do not grow hair too long for a political haircut. I don’t have data about private banks' share of haircut in the present circumstances but as a matter of commerce and trade, private banks will have to shut their shops with perpetual haircuts. Who is going to pay and subsidise the haircut for private banks ad infinitum? ”

After a pause, he continued: “An officer in charge of a bad account in a private bank will lose his job, and he would not get one in any other private bank if his resume shows non-performing as his vital assets”.

All this while I had the (loud) speakers on, and as the economist friend stopped to breathe in fresh air, my evening friend introduced himself, and said:”Do you think nationalisation of banks was a wrong decision? What I understand, the perpetual haircuts are being funded by public money”.

“Nationalisation is not the cause nor privatisation is the solution”, still left tilting economics major friend continued: “Why allow the hair grow to be unmanageable? Put clear accountability centres, fix the responsibilities, be guarded-have upper circuit for credit, don’t burn money as if you enjoy burning cash, show the exit door both for the employee and the loan defaulter, enter into a cooperation agreement with other nationalised bank, and circulate the list every quarter.”

“But nationalised banks are controlled by governments ruled by political parties”, my friend was not willing to leave the “privatisation v/s nationalisation” debate in the “haircut” saga. “So as long as political parties with their interest group politics are alive and thriving, nationalised banks will be influenced by political parties. So better privatise the banks!” he yelled in almost in eureka moment.

“Then governments will subsidise the private banks to facilitate the haircut!” the economics friend quipped as a parting volley before the phone call was terminated (or was it call drop?).

I wandered into the dead night dreaming about growing hair and getting a perpetual hair cut:  Nationalised or private, a public sponsored haircut is a luxury worth living for!