Ta-ta for Air India

With reference to the front-page story ‘Tatas give up Air India bid’ (Dec 7), it comes as no surprise that the Tatas who were the founders of the Air India Corporation, half a century ago, have finally dropped their plans to take over the airline.

It was quite obvious from day one that the motivation for this exercise was emotional rather than rational. The share holders of the Tata Group companies have been saved from wearing this gargantuan millstone around their necks. One can understand Mr Tata craving to see the Tata flag on AI planes but business is business and wisdom has prevailed.

Objectively, the only assets of Air India are its premium properties and landing rights. The first one is an accidental benefit arising from the property market boom, unjustified though it be, over the past decade or so. The second is a largesse from the central government which can easily profit from selling these, possibly by auction, to private or even foreign operators.

On the other hand, the liabilities of this monster are its employees who work only for personal rewards totally oblivious to consumer interest. The second liability is the fact that the airline is looked upon by politicians as a milk cow to be used for freebies. Bureaucrats too benefit from this situation. So we have this nexus which is never going to allow the airline to prosper in spite of its tremendous potential.

Another liability that is almost invisible is the customer ill-will that the airline has generated over the previous 50 years of its existence under babudom. The paying customer comes last in the Air India ethos and while in most businesses, positive word of mouth is an asset, in this case whoever takes over the airline will have to spend a fortune trying to fight the its negative reputation. The only real option left with Mr Shourie is to accept political realities and come up with a hybrid solution by auctioning the landing rights between Air India, Indian Airlines and the other private operators like Jet Air and Sahara. The premium properties that Air India has should be sold off wherever possible to set off the losses over the years. Standing on prestige and protecting these blackmailing tactics is exactly what a market economy is not about. Does this so called forward looking government have the courage?
—Amar Madnani
on e-mail

Increasing CAR

There is a move to increase the Capital Adequacy Ratio stipulation from the present level of eight to 12 per cent so as to meet international standards. In the banking industry, asset creation is subsequent to the mobilisation of deposits/capital.

This being the case, why not come out with asset risk multiples instead of a capital adequacy ratio? Adjusting the capital to suit the risk weighted asset is like cutting the leg so as to suit the shoe to be purchased.

Banks should be permitted to deploy their funds in the form of assets to a certain multiple of the capital. That is to say instead of stipulating eight or 12 per cent capital asset ratio, it would be meaningful to stipulate asset risk multiples of 12.5 times or 8.5 times.

It would be ideal to stipulate asset risk multiples instead of CAR — at least till stabilisation is achieved in the the country’s banking sector. This move would doubtless help in better understanding, improved implementation and effective monitoring of the benchmark.
—R S Raghavan
on e-mail