Demonetization and the great Indian policy arbitrariness !!!

India wants to be an economic powerhouse and eagerly anticipates domestic and international participation to enable this leap, and yet Indian executive as well as the Judiciary believe they can arbitrarily break the rules set for the participants as and when they deem justified.

Stability of rules is one of the most desirable attributes of an economy, sometimes more important than the tax holidays, and yet the Indian decision makers haven't been able to understand the seriousness of it. And each time the trust is broken, it becomes increasingly challenging to win it back.

Demonetization or de-regularization of large denomination Indian currency is the most recent, jarring policy change, where the rule of "honoring the amount mentioned on the currency" has been flouted without prior warning. This has led to an unwarranted inconvenience for the masses. It is also likely to hurt trade and therefore the economy severely in the days to come if the manufacturing and distribution wheels come to a halt in the absence of sufficient liquidity.

Long queues outside banks and ATMs in India as 80% of existing currency is pulled out from circulation overnight

I have been termed a cynical, who cannot appreciate the huge trade-off of unearthing the black money, however, as an economist with some exposure to policy analysis I find the current decision failing in terms of deliberately ignoring the critical element of stakeholder management, in this case the stakeholder being the public.

For those, who may suspect me to be anti the current regime, they may take heart in the fact that my fundamental issue is with the increasing "arbitrariness" in policy making. So while I detest the BJP's demonetization implementation, I also detest the AAP's odd-even formula and UPA's retrospective taxation.

Let's look at some of the cases of policy arbitrariness and emotional judicial interference in policy interpretation:

1. Retrospective taxation - a number of international companies in India, including Vodafone, were served notices during the UPA regime for paying taxes retrospectively for laws which didn't assess that tax at the time of doing the business. Each company formulates its business plans based on the existing tax structures and changing these arbitrarily at a later date is only likely to spook the investor and so it did.

2. Odd-even formula -  the AAP party that runs the government in Delhi announced a formula to reduce the alarming pollution levels in the city. Termed the odd-even rule, it allowed operation of vehicles with only the odd registration on odd dates and only the even registered vehicles on even days. While the intention was great, insufficient provision of alternative modes of transport, issues of women security, and insufficient cause and effect analysis didn't allow the policy to gain permanence. To me it was a roughshod way of imposing a policy on citizens while not delivering the bare basic means of security and transport that is expected of a government. For a detailed view on this, read my previous blog.

3. Nestle and the food safety rules: India's food regulator FSSAI banned Nestle's popular brand of Maggi noodles in India citing safety concerns but without giving satisfactory explanation. Having lost millions of dollars, the product was cleared and no safety concerns were found. The Swiss Ambassador made it amply clear that it sends a wrong message to investors.
"I think the ban was not justified clearly. It could not be substantiated very clearly. That is something that is disturbing potential investors or investors who want to do something, Swiss enterprises, reliable enterprises, producing all over the world and who want to invest in India are raising questions about the regulatory framework and the consistency and implementation and control by one of these authorities.”

Pepsi CEO, Indra Nooyi also conveyed the message to Prime Minister Modi during his visit to the USA, "there was no need to reinvent food standards when global norms in the form of Codex were available."

4. Cars emitting Oxygen - Chief Justice Thakur asked an emotionally charged question to multinational car makers "Do your cars emit oxyegn?" and subsequently the diesel cars of 2000 cc and above were arbitrarily banned. This was totally unacceptable because the car makers made their investments into diesel engines and diesel cars based on the existing rules. If you feel the need to change the rules due to changing situation, you must follow the due process and notification and not ban vehicles on a smoggy day. Toyota as a consequence was clearly unhappy and started revisiting its investment plans.

And the list can be endless.

Policies need to be designed carefully and once designed need to be honored in letter and in spirit. The government may roughshod the domestic stakeholders with its policies as in the current demonetization case, however, when dealing with international investors it can turn out to be extremely damaging. Devas, for example, dragged India to international arbitration where the government has been recently charged with a huge penalty of US$1 billion.

To conclude, I believe, arbitrary and sudden policy moves in times of peace, make the investor or the citizen an easy scapegoat for the past or current deficiencies or populist needs of the state and may not yield the best outcomes in the long run.

Sleep with your neighbor on odd days!! AC usage needs to be cut due to ozone depletion over Delhi.

I unfortunately get labeled in the set of people that are cynical, pessimistic and who don’t care about the environment and the problem of pollution facing citizens. Whatever is the case I must make my point about why I am not a big fan of the odd-even policy in Delhi.

However, before people pounce on me, here is the 10-point disclaimer:

1. I have been using the Orahi car pool app for about a year now. And trust me configuring rides is not very simple due to time and destination mismatches. Unlike Mr. Kejriwal not everyone has a set of colleagues living nearby and travelling to the same destination. I am amazed at the repeated announcements on radio of this over simplified car-pooling. I wish that like for Mr. Kejriwal there were colonies for private companies e.g. TCS colony, Deloitte Colony etc. that would make car-pooling a piece of cake.
2. Continuously following up with Shuttl for the past 6 months to suggest a relevant bus shuttle route for me in Gurgaon.
3. Used local rail to commute to office in Hyderabad. Always used airport shuttle bus (not cab) to and from Hyderabad airport (such buses don’t exist in Delhi, god knows why?).
4. Used local DTC buses during my school days.
5. When I visited Singapore, I didn’t hire a cab. Didn’t need to. The buses, metro, footpath, cycle paths are awesome and prioritized.
6. Never bought a diesel vehicle.
7. Used Myles to test drive the Mahindra electric vehicle (e2o) in NCR for one complete day. It’s awesome and doesn’t lack power.
8. Stopped using Delhi Metro when I could hardly get down (with just one luggage) at the New Delhi Railway Station even during so called off-peak hours.
9. No public transport goes to my wife’s office and she doesn’t operate in a SEZ setting where car-pooling could even be considered. She has to frequently commute at late hours.
10. I did contract sinusitis during my stay in NCR because of bad air.

I hope the above points do objectively communicate my willingness and pro-activeness to adopt public transport, that I am not in a comfort zone of driving around only in a car, and that I am also a victim of the bad air in NCR and would love a solution to the problem.

However, to me odd-even policy is extremely knee-jerk, looks more like gimmickry not backed by robust analysis, smells of autocracy, dumps what is state responsibility on citizens arbitrarily and is set in a control environment involving exemptions and school closures.

While I strongly believe that over analysis is sometimes the problem, it is not a great idea to first announce the plans and then give a thought to its modalities. I am not sure how great is the "agile" approach of "fail fast fail often" when applied to policy making.

Here are my ten questions for the Delhi government (not only the current government):

1. Why has it failed to provide last mile connectivity? Delhi’s metro feeder buses have never materialized after so many years of metro.
2. Why the roads / streets in Delhi are considered so unsafe, especially for women? Hyderabad / Ahmedabad are not so unsafe.
3. Why do autos not run by meter? Or go to places where you want them to go to? Mumbai doesn’t have this problem.
4. What has been done about the other heavyweight polluters like construction projects, diesel vehicles, burning of conventional fuels etc.? (By the way i am not in favor of knee-jerk, one fine day bans on diesel vehicles too without any warning to users / investors.)
5. What’s your promise to the citizens in return for asking compliance to the odd-even rule? What are your timelines for other initiatives?
6. Once the exemptions are removed, how do such people travel to offices that have no public transport connectivity?
7. Has someone analyzed the kind of adverse behaviors odd-even policy may generate and the actual impact it may have? Do you understand that a badly designed policy can be more problematic than the status quo?
• As per a NYT article, "Estimates of how much vehicles contribute to total levels of P.M. 2.5, particulate matter that is considered the most dangerous because it penetrates deep into the lungs, range from 20 to 40 percent in Delhi. Less than one-fifth of that comes from cars, according to a 2012 study."
8. Why was their no stakeholder management before announcement of the plan? What promise did you share with the citizens?
9. For the long term – When will the traffic from satellite towns like Gurgaon / Noida / Faridabad / Ghaziabad etc. stop using Delhi roads? 
10. When will you have “meaningful” footpaths not the current foot islands?

If odd-even is how the problems of environment are going to be tackled then soon there may be a dictat as to how one must use ACs on odd-even days based on your house number. Sleep with your neighbor on days you can’t run your AC. It will certainly help reduce Ozone depletion and also check electricity consumption.

And soon we may have ads showing Mr. Kejriwal in his pyjamas at his dear friend’s house demonstrating how it is feasible.

Indian Rupee Depreciation - A crisis that was waiting to happen

The context

The Indian Rupee (INR) has depreciated by c.30% against the dollar (USD) over the past six months and it’s not clear if it has already bottomed out. What is really worrisome for global policymakers and businesses alike is that a large portion of the emerging market seems to be affected by this currency crisis. Morgan Stanley has labelled the currencies of India, Brazil, Indonesia, Turkey and South Africa as ‘The Fragile Five.’

At a juncture in global growth story where emerging markets including BRICS were to play a significant role, this development has certainly spooked the markets.

The trigger behind the implosion

Macroeconomic imbalances build up over a long term and are visible most of the time, but myopic politico-economic issues generally lead to these being condoned. Due to the practical difficulty of being able to diagnose the exact tipping point – when the imbalance would explode and what the trigger would be – most decision makers like to think and wish that it would not be now.

The current, ongoing depreciation of the Indian Rupee (and other emerging market currencies) is one such explosion that was waiting to happen and just needed a trigger.

India suffers from high twin deficits (internal – fiscal deficit, external – current account deficit) and high inflation. This precarious position got exposed on account of a number of recent developments emanating mainly in the US. These include an improved US economy, the decision of the Fed to gradually end Quantitative Easing (QE), and possible war in Syria. All these developments have driven global money towards the Greenback making it much stronger and the other currencies much weaker. The figure above shows our currency’s vulnerability. Each time external factors lead to an exodus of FII (Foreign Institutional Investors) the fragile currency generally goes for a dip.

Where does this lead the economy to?

After the first round of currency depreciation this fiscal (May-June), the economy was perceived to have stabilised at the new exchange rate.

Despite the ongoing political paralysis, and impending elections the economy was forecasted to do better than the previous year’s 5% GDP growth. The heady days of greater than 8% GDP growth were nowhere near but at 5.5-5.7% in 2013 and 6-6.5% in 2014 the economy was looking relatively better.

In this scenario, where does the current round of currency depreciation that began in August 2013 lead the economy to?

India is not an export oriented economy so as to benefit from such depreciation. Instead it will be faced with imported inflation and high borrowing costs both of which will hurt the domestic purchasing power. This in turn will slowdown consumer spending as well as investment. While fiscal spend may go up owing to the trend observed before elections, the rating agencies would ensure that would not be easy. Monetary policy, which remained tight under Governor Subbarao in order to check inflation, will have to most likely remain so under the new Governor Rajan to provide some pull to the capital markets.

As far as the fall of the INR is concerned, a regime change, or a revised policy stance will not bring back its value immediately. Other attempts such as controlling import of luxury items or purchase of dollars by Oil Companies from RBI to skip the spot market are temporary and can last for only so long.

There is no quick fix to the current situation, and only long term efforts aimed at reducing supply bottlenecks that bring down inflation in a high-demand economy, exploring ways to reduce exposure to oil price fluctuations that hurt our current account position, a more rational deployment of public funds to check our fiscal deficits and resolving the policy paralysis are the only meaningful ways to reduce instability.

Under such circumstances it would not be surprising to expect a further downgrade of the growth forecast. In fact, BNP Paribas has already trimmed the growth to 3.7% for this fiscal. The only upside to this forecast can be a good harvest on account of sufficient monsoon this year.

What is exceptional corporate performance and what matters for that?

A new book - 'The Three Rules: How Exceptional Companies Think' - has come up with 3 simple rules for corporations to follow in order to have a sustainable superior performance. These rules are ‘Better before Cheaper, Revenue before Cost, and deployment of all means to follow the first 2 rules’.

As the US economy improves leaving the recession behind, a rule such as ‘revenue before cost’ is likely to only help. The test for the book will, however, arrive a few years down the line when the business cycles may bring upon the next recession.

The book is meant for corporations and the rules sound simple. In fact these are so simple that the authors actually had to qualify the simplicity of the rules.

“Better before cheaper and revenue before cost are not “dumbed down” simplifications of our findings, nor mnemonics connected to more elaborate formulations. These rules are the principles we inferred from our research, and so their simplicity does not come at the expense of completeness.” (p.216)

However, while the rules are simple, reading the book is an academic exercise in itself that requires a notepad, a pen, and a lot of time. That investment nonetheless should be worthwhile because this book is not just another one in the ‘business performance’ genre. What fundamentally separates this book is –

a.       Choice of ROA as a parameter for performance as against parameters like stock performance

b.      Scientific selection of top companies as against author nominations

c.       Thorough understanding of each industry and company and triangulation of facts to separate facts from beliefs. This process was based on not just news reports and annual reports but hard facts and numbers from sources not so easily available.

For a book that has 1/3^rd devoted to notes and methodology there is little scope to doubt the robustness of its results. Also, the thickness of the appendices is not just a tacit stonewall deployed by many to avoid a volley of questions it is actually a transparent and open invitation to serious readers to detect and point out the gaps.

Given the confidence in the 3 rules proposed, one begins to think more closely of real life business scenarios and this is where I have a few questions for the authors.

1.      3 simple rules that are difficult to follow? – While we can buy in to the hypothesis and the evidence that ‘Revenue should come before cost’ taking a call with regard to this rule may be difficult. So, for example, should a company lay off its employees and cut costs under changed circumstances or should it reason that re-skilling the employees while focusing on new sources of revenue is a better approach? I guess what the book is trying to suggest in these cases is to focus more of the managerial attention on value generation and less on cost cutting. Is that right?

2.       Rules for companies or for products/services? ‘Better before cheaper’ appears to be a rule applicable more to the product development than to the growth of a company. So, if a company caters to customers from different income groups all its products are not likely to come out true on the ‘better before cheaper’ front.

Putting it differently, in some markets a cheaper product may be the only definition of ‘better.’ In such markets a company that epitomises ‘better before cheaper’ may need to adapt.

3.       Limits to applicability?

a.      With the exception of the Retail industry, we don’t see the example of any service company, especially of the kind reliant on bidding for contracts? How would a service company bidding for contracts from US government, given the current focus on Low Price Technically Acceptable (LPTA) policy, win the contracts if it doesn’t focus on cost? We could reason that the company should move out of such an industry but is that the only answer? Given that services sector is no less than 50% of total global GDP it becomes important to address this sector.

b.     Do the three rules contradict the process of disruptive innovation where the new entrants making a foothold provide relatively low cost and low quality alternatives to gain a foothold?

Is there an Indian ‘BNDES’ bank and should there be one?

The Brazil Development Bank (BNDES) plays an important role in the country’s infrastructure development process especially when the country’s budgeting process leaves little room for discretionary spending.

The word ‘development’[i], however, has a very broad bearing in the case of BNDES since it lends not just for infrastructure development but also to private companies that it perceives to have a strong business model. In fact 60% of the bank’s loan portfolio comprises large companies.[ii]

China similarly has the China Development Bank (CDB) which in fact is much bigger in scale[iii] and size than the BNDES[iv] (see figure below). That left me wondering if there is a comparable bank in India with similar objectives and one that could help the country realise its $1 trillion infrastructure target by 2017.

A close examination, however, suggests that there is no such bank of comparable stature dedicated exclusively to development needs. Sectoral development banks like NABARD try to do the job; however, such banks are present in China and Brazil too in addition to the gigantic development centric banks.

Country	Main Development Bank/s[v]
Brazil	Banco Nacional de Desenvolvimento Economico e Social - BNDES
Russia	State Corporation Bank for Development and Foreign Economic Affairs – Vnesheconombank
India	Trade - EXIM Bank Industrial - IFCI, SIDBI, IDBI Agriculture – NABARD Housing – NHB Infrastructure – IDFC, IL&FS, IIFCL
China	China Development Bank Corporation
South Africa	Development Bank of Southern Africa

The State Bank of India and other nationalised Indian banks do contribute to development lending; however, the scale of such lending cannot compete with CDB or BNDES with the total assets of SBI almost equal to the BNDES.[vi]

That brings us to the question that do we need such a mammoth development bank? From an infrastructure perspective, a report by PwC in 2007[vii] shows that commercial banks (mainly public sector) and the other development banks together finance more than 90% of the total infrastructure financing.

Figure 1- India Infrastructure Finance (PwC/World Bank, 2007)

However, going forward, the capacity of the commercial banks to fund long term infrastructure debt has saturated and there is a need for alternative finance. Infrastructure bonds with tax incentives are now being floated in to the market but their contribution to total debt requirement is limited.

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[i]“Brazil: A bank too big to be beautiful,” FT, September 2012, http://www.ft.com/intl/cms/s/0/983f1bca-0234-11e2-b41f-00144feabdc0.html#axzz2X7C1DtQS

[ii] “Nest egg or serpent’s egg,” The Economist, August 2010, http://www.economist.com/node/16748990

[iii] “(Almost) all you need to know about China Development Bank,” FT, May 2013, http://blogs.ft.com/beyond-brics/2013/05/29/qa-almost-all-you-need-to-know-about-china-development-bank/#axzz2XDln6iEB

[iv] “Brazil’s BNDES and Caixa hit by downgrades,” FT, March 2013, http://www.ft.com/intl/cms/s/0/0a07be4c-924f-11e2-851f-00144feabdc0.html#axzz2X7C1DtQS

[v] EXIM Bank of India, March 2012, http://www.eximbankindia.com/press300312.asp

[vi] “My conflicted heart – the struggle for the soul of India’s largest bank,” The Economist, April 2012, http://www.economist.com/node/21553039

[vii] “Infrastructure Financing in India,” PwC, 2007, http://toolkit.pppinindia.com/pdf/infrastructure-financing-india.pdf

Discovering Dholera !

I had been hearing of this particularly Gujarati name Dholera for the past some time but it caught my attention specifically after the Budget speech by the Indian Finance Minister P Chidambaram in March 2013.

Given the adventurer I am I set out for the place within two weeks to see what it is about and whether the place can be an investment destination for me?

The Ahmedabad Rajdhani that now stops at Gurgaon, dropped me at Ahmedabad station in the morning where I got my first information feeds about Dholera. The auto and taxi guys that are generally the gatekeepers of information about a city and its surroundings were broadly clueless about Dholera. Few that knew about it, knew of it only as a village on way to Bhavnagar.

So, in a way I become the pioneer in exploring Dholera (of course apart from the policy guys and the biggie investors). And in fact when I reached there I couldn’t recognise I was in Dholera for I couldn’t see anything apart from a roadside eatery, few signboards, few huts, and a lot of land of the type where water comes in at high tides.

There were no gigantic machines, or glamorous buildings as seen in brochures and You Tube videos. And the natives in fact looked at me as if I had lost my way. In fact if you have to understand what Dholera is you will have to look at a cluster of villages/towns around it such as – Pipli, Vatanam, Bagodra, Bholad, Dhanduka etc.

Dholera SIR (Special Investment Region) which is supposed to be the new industrial hub in that region is so far just a plan on a piece of paper and so are the other components that are supposed to make the SIR a mammoth hub of economic activity.

The road to Dholera port (see picture above) didn’t even take me half way to the port and there are no signs of the approaching Delhi-Mumbai-Industrial-Corridor (DMIC) or the Dedicated Freight Corridor (DFC) yet. The long distance metro line that is also so regularly flaunted by government as well as the upcoming residential builders is still a dream. As regards the airport, I can say I have seen the grass and the trees that would possibly be uprooted to make way for the project.

But hey, isn’t that how all the big projects or upcoming new cities are supposed to be in the initial stages.

The only difference possibly is that unlike a Noida or a Gurgaon that had visible settlement in the near distance in the form of Delhi, there is no such habitation here. It is also not a Bhiwadi – neither in terms of distance from a big city nor does it have any existing industrial or economic activity apart from agriculture that could eventually drive people in. The commute from Ahmedabad to Dholera, however, will take 1.5-2 hours which is almost similar to the commute from central Delhi to Bhiwadi.

Based on my ground assessment then, here are the few pros and cons for a retail investor.

Pros:

·         The project has commitment from the Gujarat government and Narendra Modi. As mentioned above, it is also on centre’s radar. That Narendra Modi has another 4 years in power is a plus.

·          Japan is a big investor on the DMIC project around which Dholera is coming up

·          It will be one of its kind of project in India and perhaps the world where a city of this size (903 Square kilometres) will be brought up from nothing. For benchmarks, It will be twice the size of Ahmedabad and thrice the size of Lucknow.

·         As per the plan it will be an integrated, modern city that would have been planned from scratch, something akin to Chandigarh but more futuristic

·         Cheap land available –2000 to 3000 per square yard (residential)

·         Inspired by some of the best new city projects globally – Songdo (Korea), Punggol (Singapore), Iskandar (Malaysia), Tianjin City (China)

·         Concept developed and submitted by renowned urban consultant Halcrow (UK), AECOM to programme manage the development
·         Being a SIR, contigous land acquisition not a must (unlike in a SEZ) and this fast tracks the process. Low population density and non-fertile land reduces scope for resistance.

Cons:

·        No builder of national scale, or a builder that we frequently hear of in north India, is providing any projects over there. The only exception probably would be Mahindra Life Spaces but there is no information as to when this project would be launched. Existing builders claim that they have the NOC, NA (approval for Non-Agriculture use) approvals but I am still to figure out how credible these are.

·        Distance from Ahmedabad – the distance angle makes one think whether they should look at Dholera which is on extreme or should one consider a mid-way place between Ahmedabad and Dholera such as Bagodra.

·        Mainly a manufacturing hub unlike the service story of Gurgaon or the Mahindra SEZ near Jaipur. How suitable is such place from a residential perspective may need to be thought of although it is not something too uncommon in India

·        The presence of a number of high-tide areas

·        Absence of drinking water – as per plans water will come initially from the Narmada Canal and later from the upcoming Kalpasar dam

If you have any comments, I would be happy to take them as there is a lot more to be learned about this upcoming city.

There are 13 SIRs planned in Gujarat. The status of these in January 2013 was as follows:

...................................................................................................................
Updates:
July 4, 2913 - DSIRDA looking for new buyers of land forfeited from HCC, Nano Works, and Universal Success Enterprise (USE). The price will also be higher. (Business Standard)
May 29, 2013 - Interarch to invest 150cr in Dholera (Hindu BusinessLine)
May 26, 2013 - Mahindra awaits land from govt for World City at Dholera (Business Standard)
May 8, 2013 - Central Government approves assistance of 17,500 crore for 7 cities including Dholera (BS)
March 12, 2013 - AECOM wins contract to "programme manage" the development of Dholera

On-going or Up-coming projects in the region

1. Four laning of Bagodara – Bhavnagar Road under VGF Scheme of GOI (SH- 1 & SH- 36) Km. 61/400 and Bhavnagar at Km. 189/100

2. Widening & Strengthening of Sarkhej–Dholka-Vataman-Pipli-Dholera-Bhavnagar Road – Km 16/8 to 133/2 (Short Route) - SMS Infrastructure Ltd. Nagpur

3. Widening & Strengthening of Sarkhej–Dholka-Vataman-Pipli-Dholera-Bhavnagar Road – Km 133/2 to 168/2 (Short Route) - Ketan Construction Ltd. Ahmedabad
4. Township Planning 3 & 4 (out of 6) is with Sai Consulting Engineers Pvt Ltd
5. Tender for Consulting for EIA/EMP for power station floated in April 2013

LIBOR cheated! - casts shadow over the sanctity of numbers published by big houses

Well the speculations seem to be over and it is now almost true that London Inter Bank Offer Rate (LIBOR) got cheated and with it the entire world that relies so much on this indicator. Top officials (CEO, COO, and a Chairman) at Barclays resigned this week as an admission of guilt while the Bank agreed to pay a penalty of $453 million[i] to US and UK regulators.

At a time when the distrust is high with regard to everything related to finance and banking reforms are underway in most developed nations this development is likely to further increase the resentment of the layman and the non-finance industry about the ailments in the banking industry.

Here we give you a lowdown on the importance of LIBOR, how it gets determined, and how it got manipulated.

Why LIBOR is important:

It wouldn’t be incorrect to say that each one of us could have been individually impacted by what the LIBOR could be on any given day. LIBOR indicates the rates in terms of ten currencies[ii]  and fifteen maturities at which banks can borrow unsecured money in the market so as to further lend to businesses, government, or households. So the mortgage rates or the education loan rates you are charged do get determined by what the LIBOR is. In macro terms LIBOR serves as “.....the benchmark for $360 trillion of global securities.”[iii]

How LIBOR is determined:

British Bank Association (BBA) publishes the LIBOR each day. The LIBOR, however, is not based on some sophisticated, scientific calculations but on the rates submissions by a panel of leading banks for each of the ten currencies for which the currency is published.

The panel of banks that submits its borrowing rates for GBP for example includes - Abbey National plc, Bank of Tokyo-Mitsubishi UFJ Ltd, Barclays Bank plc, BNP Paribas, Citibank NA, Credit Agricole CIB, Deutsche Bank AG, HSBC, JP Morgan Chase, Lloyds Banking Group, Mizuho Corporate Bank, Rabobank, Royal Bank of Canada, The Royal Bank of Scotland Group, Société Générale, and UBS AG.

What went wrong?

A number of banks allegedly colluded to rig the LIBOR. Barclays has already been found guilty while a number of others are being investigated.

The accused banks deliberately reported lower borrowing costs during the financial crisis to avoid suggesting to the markets that they were struggling and facing tight credit markets. This practice was also found to be commonly used for the benefits of the banks’ traders.

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[i] http://online.wsj.com/article/SB10001424052702304299704577503974000425002.html

[ii] http://www.bbalibor.com/bbalibor-explained/the-basics

[iii] http://www.businessweek.com/news/2012-07-03/diamond-s-exit-shows-libor-only-what-each-bank-says-it-is