'Fousands of voters on the hoof, 'fousands of 'em By Rcmandota - Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=62756441

Indian financial shares have crashed over the past day or two. We’d not normally think of this as being a good sign for the economy as a whole – 2008 didn’t work out that way for the rest of us now, did it? However, it’s possible to make the counterargument. For, if what we thought were entirely sound banks now start to fall over then yes, that’s bad. However, if we have what we’ve long thought were not entirely sound banks now losing their political protections against reality that might be a good thing. It does depend upon your view of the initial state but there are few who would, hand on heart, try to say that Indian banking has been all just ticketty boo in recent years.

India’s bank crash casts doubt on the ‘Modi Miracle’

Well, no maybe not so much.

India’s commercial banks and property finance companies have been savaged in a day of wild trading on the Mumbai bourse, plagued by default scares and a draconian crack-down by regulators.

Shares of Dewan Housing Finance crashed 43pc, while Reliance Home Finance, Bajaj, Gruh, Repco and Indiabulls all plummeted by double-digit figures . The trigger for Friday’s sell-off was fear of spreading distress in the short-term commercial paper market as financial conditions tighten.

Who are the regulators cracking down on and why? If it’s a cleansing of the Augean Stables type thing then this is a good sign. If it were akin to what the Modi (for which read rather more Jaitley in this policy instance) team have been doing to the state owned banks in forcing them to recognise and provide against non-performing loans, well. Well, we’d expect to see the specific banks being told to do this plummet – the reason being they didn’t before is because few thought they would be so forced – while we’d all also agree that it would be good for the economy as a whole over time.

Shares of DHFL ended 45 percent lower, while top losers include Yes Bank, Kotak Mahindra Bank, and Indiabulls Housing Finance, while the gainers include ONGC, Wipro, Bharti Infratel and BPCL.

It’s not a general rout, it’s the financials only suffering. And not even all of them.

The weakness in Yes Bank shares was linked to news that the Reserve Bank of India ordered its chief executive, Rana Kapoor, to step down by early 2019.

There are also concerns in the commercial paper market following a series of debt defaults in the past month by Infrastructure Leasing & Financial Services, a shadow banking entity that accounts for 3 per cent of India’s domestic corporate debt market as of March 31, according to Bloomberg.

Our view of this is going to be coloured – well, determined is perhaps more accurate – by what we thought of the Indian banking system before. Myself my opinion was leaning toward it being a viper pit of crony capitalism and underprovisioning for non-performing loans, the private sector perhaps not quite as bad as the state but then also the private sector not having the same call on taxpayers. Thus my view is that the regulators having a word is a vindication of the Jaitley mode rather than a doubt upon it.

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The “Modi miracle” was never a guarantee of no future mishaps, so mishaps do not “cast doubt” on it; this author brings his own. It was always possible that a bank could fail under the “Modi miracle.” They all fall at the same time only under central regulation where the rules for all can be changed on a whim. The changes might be wise but the effects are going to be system-wide. The “Modi miracle” was aimed toward greater individual achievement but, like the “Trump miracle,” has not made a dent in the bureaucracy.