Learning by Proxy | Banks

Banks are facing an all out attack and they are required to fend off foes seen and unseen; Indian retail has become a battle ground for Billionaires; US is creating an Anti-China coalition.

When I studied finance, one of the first concepts that they taught was the time value of money. The value of money keeps decreasing with time. In economics its called Inflation. To overcome this depreciation of money there exists another concept called Interest.

I don't know which one came first, but I certainly know life was much simpler before it.


The first Venture Capitalists financed wars. Throughout Europe and then in India and the US from there has been a class of people and kings who have financed wars. If the war was won they would be able to extract high interests or preferential agreements from those they financed and further their interests.

The French would always be known for losing out big time in this game of venture capitalism. They financed the American War of Independence and by the time they could see the fruits of financing America, the French Revolution started and all of those who gave the money ended up under the guillotine.

In the 15th Century, a family that had been engaged in trade and had setup posts in Italy, Spain, France and England started financing wars. At the time they realised since they had so much money at their disposal, they could also make capital available in different places quickly. The alternative at the time was to send the money across from country to country in a carriage. They had amassed wealth in various places and so their clients could give them the money in one city and they could ensure that the same was made available in another by merely sending across a letter. The Medici Family came to be known as the financiers of Europe and were incredibly wealthy. Some of the greatest Da Vinci and Michael Angelo’s were commissioned by this family. Over 300 years they established the basis of the modern banking system and then the family perished in the 18th century for the lack of a male heir.

Incidentally, it was the same family that in the 16th Century created ‘Offices’, called Uffizi to house the banking and legislative activity. Cosimo di Medici was the Duke of Tuscany.

If a company were to do this today, it would be called Money Laundering; in India, we call it hawala. Alternately, if a company is licensed by the government to do this, we call it a Bank.

To me, banks are the hub for the capitalistic wheel. Many like to call America the birthplace of Capitalism, it was most certainly Italy. Once you get on the cycle of charging and paying interest, it is impossible to get off. We can halt the stock market, but we cannot halt the accumulation of interest. This is the fundamental problem that has led to global warming and all the other calamities we have unleashed on ourselves. How do you continue to deliver growth indefinitely on a planet that is at the end quite definite and finite? We can deal with this question another time.

Banks rely on the constant churn of money in their system. For centuries now, they have also been able to protect their bastion through licenses. On the one hand, COVID has delivered a huge blow to the banking system. How do you generate interest during a lockdown with dwindling industrial output? And on the other, the advent of modern technologies has made it challenging for banks to effectively compete.

During the lockdown, many blue-collar workers were forced to take pay cuts and some were furloughed or laid off. The US enacted what can be only called the first scale experiment of Universal Basic Income (UBI). They gave away 2 Trillion in stimulus to support businesses and low wage household. The poor benefited from the USD 600 cheque each week. The results have been marvellous. Business cut cost and showed huge profits. Low wage workers have never seen this kind of money in their lives, even when they were working their skins off.

Bank of America, the country’s second-biggest lender by assets, gives us a window into how households are holding up. Its customers have spent $2.3 trillion this year, which is more than they dished out during that span in 2019, Bank of America CEO Brian Moynihan said in a call with analysts this week. Credit card and mortgage delinquencies were lower in the third quarter than they were a year earlier—which is not what you would expect to see in a country in which around 800,000 or more people make new filings for unemployment support each week.

Executives at Bank of America, like their peers at JPMorgan and Citigroup, credit government stimulus, like the $2 trillion CARES Act, for preventing a meltdown. It remains to be seen whether government support has merely delayed heavy losses, or created a cushion bridge for consumers and business until they to get to the other side of the economic malaise.

Source: Quartz

Have they merely delayed the inevitable? For sure. And the banks will lose money and they will be bailed out. For sure.

India has been struggling with a build-up of Non-Performing Assets (NPA) on the books of several banks for several years now. This was the source of contention between former RBI governor Raghuram Rajan and the Prime Minister. COVID is making this situation worse, although the true gravity of it is not yet known due to the moratoriums that had been offered. Also, a huge part of the stimulus offered by the Indian government was in the form of emergency loans. To a banking system that is stressed, making them offer more loans is not the prescription.

The government is unlikely to extend the Rs 3 lakh crore-Emergency Credit Line Guarantee Scheme (ECLGS) for MSME sector beyond October even though the sanctioned amount so far is only nearly 65 per cent of the target, sources said.

The scheme is meant to provide financial support to businesses, primarily Micro, Small and Medium Enterprises (MSMEs), impacted by slowdown triggered by the coronavirus pandemic.

Source: Economic Times

Fortunately for the banks, there does not seem to be too many takers for these loans and despite multiple extensions, the scheme has not seen an uptick. Businesses are wary of being able to return the money in time.

The Reserve Bank of India’s (RBI’s) loan restructuring scheme for Covid-19-affected borrowers has seen few takers in the corporate world so far, according to bank executives who have seen very little interest in it from their corporate accounts. Under the scheme, borrowers’ accounts will not be downgraded as sub-standard or ‘non-performing’ if their loans are restructured.

Source: Business Standard

Those with loans do not trust the system to not destroy their credit rating sometime in the future. Not too many businesses have sought to restructure their debt obligations with banks. How this will end depends on how soon things can get back to normal.

In the meantime, there have been a whole host of changes that have been brought to the monetary system by the advent of fintech. It began with the blockchain experiment called Bitcoin in 2008. Since then everything from insurance purchase to transactions, to lending has started moving online. Armed with data these startups believe that they can undo the banks.

Just as a digital surge brought on by the pandemic is speeding up a transformation in retail and e-commerce, finance too is being reshaped. The shift from physical to digital payments this year has been dramatic. Pundits canvassed by The Economist reckon that the share of cashless transactions worldwide has risen to levels they had expected it to reach in two to five years. In America, mobile-banking traffic rose by 85% and online-banking registrations by 200% in April.

Source: The Economist

They are starting to bite into the banks’ territories. Google would only be too happy to play its part in disrupting banks. They have the money to get banking licenses in any country that they wish to. It would be a mere formality if they have the users.

Google Pay is already big in India with several thousand users. It uses the UPI system for money transfers, which is possible by providing the UPI code in the apps. One can scan the QR code as well and pay accordingly, besides using the usual method of sending it via by searching him/her in the contacts.

However, now the search giant is expanding the reach of its Pay service to new countries. This time it has brought Google Pay to 23 new countries and 24 new banks, as mentioned by Google in its dedicated page and reported by Android Police.

Source: Hindustan Times

After tasting success as a fintech solution provider in India; Google is looking at a global footprint. Without UPI will it be able to see the same level of success?

While the American behemoths are just waking up to the opportunity, the Chinese have been flexing their fintech muscles for long. One of the biggest mobile wallet apps in India, Paytm, counts Ant Group, an Alibaba subsidiary, as one of its largest shareholders. Ant Group has a huge footprint in China, offering a host of financial solutions. This along with their European partnerships put together means, Ant Group caters to half the human population on earth! Ant Group and is going ahead with its IPO because, why not?

Ant Group Co. has set the price for its initial public offering in Shanghai, paving the way for a blockbuster sale that may give the Chinese fintech giant a valuation higher than JPMorgan Chase & Co.

Billionaire founder Jack Ma, speaking at a weekend conference, said Ant has determined the IPO price, though he didn’t disclose the amount. Pricing details for the China shares are expected by Tuesday, with the Hong Kong price to be announced as soon as Oct. 29, people familiar with the matter have said.

Source: LiveMint

The Chinese Government, on the other hand, is trying to change the game altogether.

China’s experimental $1.5 million (1.16 million pounds) giveaway of digital yuan to Shenzhen citizens ended on Sunday with acclaim from currency analysts - and scepticism from some users saying they preferred existing shopping tools like the ubiquitous Alipay app. […]

Sceptical reactions among some Shenzhen recipients of the giveaway - long used to scanning phones to pay for goods with other systems - showed the central bank and government have work to do in convincing consumers of the benefits of a central bank-backed digital yuan.

Source: Reuters

What China is attempting to do over here is to create a digital currency that will exist outside the conventional banking system altogether. You will not need SWIFT and other such protocols to move money. This will undermine the strength of almost all currencies globally, were it to take off. Given how much we trust China, it seems unlikely.

I also used to think Alibaba's website was garbage back in 2005. You can never tell.

Uncertain Future

Facebook made a huge investment in Reliance Jio earlier in the year. This precipitated a cascade of investments, which ended with Reliance Jio managing to mop up USD 15 Billion from various investors. It made the company debt-free. One of the tentpole offerings that was touted was Retail. Reliance has been on a fundraising spree for Reliance Retail as well. It began with the announcement that Reliance Retail had acquired Future Group (owners of Big Bazaar). Only, Amazon had already invested in Future Coupons back in December 2019, which gave them a minority shareholding in Future Group. I wondered when the Future-Reliance deal was announced what role Amazon would have?

Jeff Bezos is known for his underhanded techniques to squeeze out other, rarely has he found himself getting squeezed. He determined that he will not lie down and take it.

In a big win for Amazon, a Singapore-based arbitration panel has put the INR 24,713 Cr deal between Kishore Biyani’s Future Group and Mukesh Ambani’s Reliance Retail Ltd. on hold.

Reacting to the order, Amazon spokesperson told Bloomberg, “We welcome the award of the emergency arbitrator. We are grateful for the order which grants all the reliefs that were sought. We remain committed to an expeditious conclusion of the arbitration process.”

Source: Inc42

Future Group has a lot of debt on its books. As evidenced above, Reliance has a lot of cash on its books. If the deal does not get consummated Future Group may be forced to sell to Amazon at whatever price the company is willing to offer. They have moved the High Court to seek redressal on the arbitration hearings. This is a fight for the future of the Indian retail landscape.

Amazon Inc. is open to helping debt-laden Future Group bring in a new, financially strong partner or investor if it calls off its ₹24,700 crore deal with Reliance Retail Ventures Ltd, said two people aware of the US e-commerce firm’s plans.

Source: Livemint

Amazon is offering an olive branch to Future Group. Amazon has cash for the fight, but Reliance has an arrow in its quiver as well - Policy.

While this drama plays out, Walmart owned Flipkart has acquired a minority stake in Aditya Birla Fashion Retail. It is a move meant to strengthen its presence in the apparel category which also has robust margins.

The e-commerce group will pay $203.8 million for its stake in Aditya Birla Fashion and Retail, a conglomerate that operates over 3,000 stores, including the Pantaloons clothing chain. As part of the “landmark” strategic partnership, Flipkart will also sell and distribute various brands of Aditya Birla Fashion and Retail. (The Indian fashion retail giant owns rights to sell Forever 21 merchandise in India, for instance.)

Source: TechCrunch

An interesting piece of Trivia. A few years ago, Aditya Birla Group acquired Pantaloons from Future Group. Pantaloons was the brand that got Kishore Biyani introduced to the world of retail and was his stepping stone.

It continues to develop.

Amazon has written to SEBI, NSE and BSE. Reliance has said that their deal is completely in line with Indian law. Amazon is also separately going to the High Court.

Jeff Bezos has not been required to deal with a situation like this ever in his life. If his biography had to be written it would be titled - Always the fucker, never the fucked. This time it seems like he just might get…


Not the election kind but the putting a coalition together kind. American Secretary of State Mike Pompeo has been on an Asia tour to get some agreements in place. While the visit was ostensibly meant to further trade and defence co-operation; statements were made admonishing China and Pakistan. The US is building an axis against China. Last week I had written about the military exercise that was being conducted in India by four countries, that was a precursor to this agreement. From India, Mike Pompeo goes to Sri Lanka and Maldives both countries of strategic importance. The idea seems to be that if China will act to make passage through the South China Sea hard, there would be the option of making it challenging for China to access the Indian Ocean.

China aware and cautious said,

China today urged US Secretary of State Mike Pompeo to "stop sowing discord" between Beijing and countries in the region, undermining the regional peace and stability, amidst his visit to India for a high-level dialogue aimed at further ramping up overall India-US defence and security ties, and boost strategic cooperation in the Indo-Pacific.

Mr Pompeo arrived in India on Monday along with Defence Secretary Mark T Esper for the third edition of the US-India 2+2 dialogue with their counterparts, External Affairs Minister S Jaishankar and Defence Minister Rajnath Singh.

Source: NDTV

After the Middle East, the last thing I want to see is America turning Asia into a theatre of war.


COVID cases are spiking again. As winter sets in, things are looking grim across Europe with case surges far more than what was seen in the summer. Case counts are 4 times to 10 times higher and following Ireland, parts of UK, Germany and Italy are going into lockdown. Given the importance of consumer business during the last quarter of the year, this will be devastating for businesses. Also, while thwarted, all these countries have a strong right-wing ideology thriving within. It is beginning to overflow onto the roads.

Several hundred protesters gathered on Sunday in the southern German city of Konstanz, marking the city's second day of protests against government-imposed coronavirus measures.

A police spokesperson said a total of 12 rallies with up to 11,000 participants were planned for Sunday, adding that 3,500 people had registered for protests in advance. Throughout Sunday, police said about 2,000 people took part in the rallies.

Source: DW

Violence at demonstrations in the northern cities of Milan and Turin, where there were clashes with police and shops were ransacked, has been blamed on extremist groups. Events in 30 other locations, including Treviso, Verona, Rome, Naples, Salerno, Bari and Palermo, were mostly peaceful. Business owners held another demonstration outside parliament on Tuesday and more are planned in the coming days.

Source: Guardian

In Brief

I had written about Russia a couple of editions ago. The country is used to sham elections where the candidate supported by Putin is often put up against someone completely random. In one such local election for Mayor of Povalikhino, Nikolai Loktev looking for a losing candidate to preserve the semblance of democracy ran out of options and asked Marina Udgodskaya to stand-in. Her full-time job - Janitor; cleaning the city hall. She won!

Then the peaceful transition of power took place!

A study published in the journal Environment International shows that Bio-plastics are just as bad as regular plastics. I just guess achieving the consistency of plastic requires undergoing chemical processes that ultimately create something toxic to life. If you want to read more.

How can you be entirely certain what the SARS-CoV-2 does to the lungs? Well grow lungs and infect them! That is precisely what a team of researchers in England and the US are doing. They are growing lung cells and infecting them with COVID to see what happens. Read more.

India slams Turkey, Pakistan for attacks on Macron - Let us just call this Rafale effect!

Funny? It isn’t.

The American campaigning referenced above along with this is starting to feel like the formation of two axes. Not good. Especially in a world that is extremely divided and waiting to erupt.

Europe has a problem with immigrants from the MENA region and the US from South America. Truth is due to climate change the areas around the tropics are not so tropical, it is becoming impossible to cultivate. This is causing local unrest and fights as resources dwindle. Thus resulting in the exodus of those who do not wish to engage in Darwinian selection (with guns). That exodus is fuelling the rise of right-wing groups in the richer countries since they believe these people are migrating to steal jobs, while they are migrating to stay alive.

This is making it possible for the world to align around ideological lines. The US had an ideological stream opposed to Muslims since 9/11. The large stream of refugees coming to Europe is aligning them against Muslims. India with a government based on Hindu Ideology is against Muslims. China and Russia are aligning under the ideology of imperial expansion and communism. Chinese alignment with countries like Pakistan is only because the enemy of an enemy is a friend.

Such divides are not good. The last time there was such ideological divide we did not have a dozen countries with access to nuclear weapons.

How do we get these sides to see eye to eye and acknowledge the real problem now? Instead, we end up with leaders just making 30-year plans.


How did New York Times manage to turn around its business - A slideshow

How did the greeks measure the size of the earth, thousands of years ago?

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What we think, we become ~ Buddha