What do we know?

Total corporate loan exposure of banks in India is Rs 5 trillion and 39.5 billion of which 10 companies account for 13%, up from 6% in 2006-7. ET, 13 August. Adani owes Rs 695 billion, Essar Rs 938 billion, GMR Rs 329 billion, GVK Rs 210 billion, Jaypee Rs 454 billion, JSW Rs 402 billion, Lanco 293 billion, Reliance ADAG ( the Anil Ambani group ) Rs 867 billion, Vedanta Rs 935 billion and Videocon Rs 273 billion. All banks have high exposure to these groups although how it is possible for the same company to borrow billions from different banks is hard to imagine. Apparently the loans are for mining and power projects all of which need multiple clearances from various government ministries which work against each other, partly to show their power and partly because ministries are controlled by different parties which resort to cheap point scoring to increase electoral prospects. The State Bank of India has Non Performing loans of Rs 203.24 billion which is 2.22% of total loans. This is after restructuring. Most banks grant new loans to renew old ones, a system called evergreening, to hide the levels of their NPAs. If a company is revealed to be unable to finance its loans its share price will drop. Companies take loans against shares so if the price drops the value of the collateral falls. The bank then has to ask the company to repay part of the loan to adjust the loan amount against the collateral and, if the company is unable to pay, the bank is obliged to sell off shares to get its money back. However, if a bank unloads a huge number of shares the price drops even further and the company may find itself unable to do business. So what is the response of the government to this problem of the loan mountain? The government is trying every kind of trick to entice ordinary people, called " retail investors " in official jargon, to buy shares. The Securities Transaction Tax has been reduced and there will be tax relief on the first Rs 50,000 invested in shares. The Securities and Exchange Board is thinking of making changes to rules of Initial Public Offerings wherein retail investors will be able to buy shares online to reduce paperwork and the price of a portion of purchased shares will be guaranteed for 6 months. Try anything to hook the suckers. Halonix, 66% owned by private equity firm Actis, manufactures lamps for cars and domestic use. In February 2010 the company said that it would hive off the loss making CFL division and acquire its European distributor. Its share price jumped form Rs 63 to Rs 160 but the plan was junked a few months later. Somebody made a packet but small investors lost out. Now they have complained to SEBI and to the Enforcement Directorate. The share market in India is highly manipulated with rampant insider trading, round tripping of shares and false accounting. So why does the government want to snare ordinary people into this quagmire? They are terrified of banks going belly up. Just hang in somehow till 2014.