Ai is not going to disrupt the Indian economy in the next 36 months. But the real estate bubble and bank financing of that bubble could. Three Indian private sector banks – HDFC, ICICI and Axis – could potentially experience business failure or be a victim of cyber attacks and cyber frauds. These banks now control close to Rs 100 lac crores of public funds – leak out private data and have cyber unsafe systems.
It is now imperative that the country revisit deposit taking institutions and their possible impact on both our economy and our sovereignty – given their abject failure is diverting public funds for productive use. These banks do not fund legitimate businesses, projects or job creation. Instead they divert the money to funding real estate, luxury cars, foreign education and profiteering NBFCs who exploit the poor.
The only way out in the interim is for the public to keep their fixed deposits, SIPs, mutual funds and bonds/debentures with the stable government banks – SBI, PNB, BoB etc – and not get swayed by freebies and aggressive marketing techniques used by these banks.
A real estate bubble of unprecedented magnitude is being created in hotspots like Gurgaon because of five reasons – the builder mafia, the three real estate banks, the real estate investment trusts, high salaries led by liberal pay commission increases and CIBIL – a foreign owned and controlled credit rating bureau. The National Housing Bank statistics are highly misleading on numbers as they only consider housing loans to be those specifically given for purchasing a house. In reality, almost all kinds of loans are real estate backed – whether it is an education loan for a foreign degree or a business loan to set up a project.
The end of a real estate bubble is in sight when the current cost of real estate is 2x or more of the sum total of construction cost and land cost. There is just no way that REITs can give 8.25% pa return from rentals and less than 5% capital appreciation pa. Rental returns should be in the region of 3% and capital appreciation should be (as per the bubble or) close to 30% pa. REIT returns imply that the returns are coming for high interest loans given to builders and then the property is being transferred to the REIT at substantially above market prices. The entities doing the tens of thousands of crores valuation of these REIT assets are a joke.
And if the regulators don’t act, then the public at large must be wary and move their deposits to the Government banks. Whilst the government banks are both inefficient and corrupt – they represent the lesser evil – especially in times of war and related uncertainty.
The ideal step though would be to ban these banks from accepting any new deposits and make them reduce their total book size.
