State Bank of India<\/a>, the biggest Indian lender, no government-controlled institution enjoys a deeper penetration when it comes to acting as the lead cash management bank for India\u2019s largest companies.<\/span><\/p>\nThe U.S. bank isn\u2019t alone. The U.K.\u2019s StanChart is also competitive in signing up top companies. HSBC and Singapore\u2019s DBS Group Holdings Ltd. are the other two foreign banks with significant cash management businesses.<\/span><\/p>\n\u201cThe dislocation over the next few months can be unsettling for both the glocal banks and their cash-management customers,\u201d says Gaurav Arora, Greenwich Associates\u2019 head of Asia-Pacific.\u00a0<\/span><\/p>\nIf the Reserve Bank of India\u2019s move smacks of being an act of desperation, that\u2019s because it probably is. India\u2019s labor-surplus economy can\u2019t afford to keep hemorrhaging precious financial capital to promoters\u2019 private-bank accounts in Singapore or Switzerland. And yet such is the political power of large debtors that every legal tool given to creditors has tended to become blunt over time. The 2016 bankruptcy act, the latest and most promising in the series, saw recovery rates of just 12% in the December quarter. Worse still, after the coronavirus outbreak, insolvency courts have been shut for a year to new cases.\u00a0<\/span><\/p>\nThe pandemic has also brought back loan restructuring, where banks can extend repayment tenures and pretend that accounts are standard and don\u2019t need additional provisions. This, as Fitch Ratings notes, is a reprisal of India\u2019s strategy between 2010 and 2016. Back then, extend-and-pretend exacerbated what would eventually become a $200 billion-plus stressed asset problem.<\/span><\/p>\nThe big idea behind the current-account regulation seems to be this: If taxpayer-funded banks can\u2019t hope to recover much from dead companies, they should at least be able to monitor how living ones use their money. However, just because bankers can see more transactions doesn\u2019t mean they will. Punjab National Bank<\/a> lost nearly $2 billion in a scandal involving an uncle-nephew jeweler duo by running up international liabilities over the Swift messaging network \u2014 and not reconciling them with its core banking software. The scam went on for seven years. Since then, PNB<\/a> claims to have been swindled three more times.<\/span><\/p>\nIndia\u2019s banks need long-pending governance reforms. To thwart bad behavior, the RBI<\/a> needs more muscular supervision. Hijacking customers of Citi or StanChart and redistributing them among those who don\u2019t necessarily have the best expertise is socialist overkill. It will also prove useless. Errant company bosses will be one step ahead, as they\u2019ve always been.<\/span><\/p>\n
![\"\"](\"https:\/\/images.financialexpress.com\/2020\/08\/HSBC.jpg\")
![\"\"](\"https:\/\/images.financialexpress.com\/2020\/04\/telegram.png\")