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The Banker’s Haircut

T R Bhat (bhat_tr@yahoo.co.in) was an activist in a bank officers’ association for nearly three decades and is currently based in Mangaluru. His latest book Reforming the Indian Public Sector Banks: The Lessons and the Challenges was published in April this year.

A former banker is flummoxed by the new meanings and costs of haircuts.

The ubiquitous barber and the profession that provides them their livelihood are traditionally found among the lower strata of the Indian social structure. Although it is an essential service in every society, in many Indian languages—including my own language, Kannada—the equivalent of the word “barber” is often used derogatively. In the towns of coastal Karnataka, Gokarna kshoura, literally meaning “haircut in Gokarna” (a pilgrimage centre on the state’s northern coast where devotees offer their hair to the deity), is a pejorative comment used to imply shabby work done. The phrase Tirupathi kshoura (tonsure in Tirupathi) denotes a situation where a person is made to pay heavily to get simple work done. Indian folklore is replete with stories and anecdotes ridiculing the barber.

When Raghuram Rajan was the governor of the Reserve Bank of India, he used the word “haircut” in reference to bankers. Although I have been a banker for three decades, I was at a loss to grasp the relevance of the word to bankers. When I studied his statements carefully, I learnt what Rajan meant: bankers should be ready to forego (write off) larger parts of their bad loans so as to cleanse their balance sheets of their contaminated loans! “Haircuts” started gaining greater dignity as they were deemed to be a cure for banks’ sickness, particularly when a good “doctor” had prescribed it.

I was pleasantly surprised to find that the word in its new connotation had an entry in Wikipedia as well. Not only that, there was, in January 2009, a thought-provoking commentary on the word in the magazine section of the New York Times. The financial crisis suffered by the United States economy—where bank after bank went for support from the Federal government—had brought respectability to the word “haircut” to indicate measures to reduce losses.

With the new Financial Resolution and Deposit Insurance Bill, 2017 that was introduced last August in the Lok Sabha, haircut has now entered the legal lexicon in India. According to Section 44(2)(b) of the bill, “‘haircut’ means a percentage reduction in the amount that is payable to the creditors.” The bill is yet to be passed by Parliament, though.

What does a haircut have to do with banks? As per Section 52(6)(a) of the bill, when a bank is under loss and its problems have to be resolved, the appropriate authority can “direct the haircutting of
the collaterals and margins” (the securities provided for the loans).

Recently, during a two-month stay with my daughter in Bengaluru, my scarce and graying hair badly needed a trim. She took me to her “hair spa.” Naresh, the young hair stylist attending to me, adorning his attractive uniform and pleasant smile, asked me if I needed my hair to be dyed too. “What will you dye, Naresh, when there is not much left on my head? You just trim them,” I replied. Having done what I bade him to do, he offered me a hair spa treatment. Upon being persuaded by my daughter, I subjected myself to that session too. The bill amount was a four-digit figure, a far cry from the ₹100 I pay for the haircuts I get in my hometown. For a person with thinning shock of hair, this was indeed a “large” haircut. I now realise what “haircuts” have come to mean for individuals and banks in these strange times!

 

Updated On : 15th Jun, 2018

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