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While all this macro stuff is fun and games, the real news - from our perspective as value managers - was a sting operation by Cobrapost. A reporter who claimed to be a relative of a politician with Rs 10 million went around with a hidden camera and asked banks in many parts of India to help him convert the “black” to “white”. Rather than being shooed away, senior personnel at 49 branches of HDFC Bank, Axis Bank, and ICICI Bank gave him some very clear solutions. It seemed like they had done this before.


Again, to clarify, since there was no Rs 10 million to launder, there was no transaction. And being taped on video describing how to perform a crime is not the same as actually going ahead with the crime. But...

While we were not surprised with ICICI Bank being caught in the sting operation and Axis Bank was a little less of a surprise (the current CEO is ex-ICICI), the inclusion of HDFC Bank has been a blow. We have always maintained that there are 4 things of value in India: HDFC, Infosys, Tata, and gold. The Tata group has lost some of its shine ever since Mr. Ratan Tata’s conversations with lobbyist Niira Radia were made public during the telecom spectrum scandal. Our fear factor has been that, as India continues to operate in murky waters, good companies will be swayed to do “bad stuff” to grow their business. The involvement of an HDFC entity is an “et tu Brute” moment for us.


Ironically, a few months ago the revered Mr. Deepak Parekh, the Chairman of HDFC (the largest shareholder of HDFC Bank) had said that the media was wasting its time fighting corruption and that corruption could not be eradicated. We criticized Mr. Parekh for his comments. Corruption, in our opinion, is the number one enemy and a person of his stature should be leading the charge in such a battle. But, alas, corporate India is really Chicken India and continues to seek favors and grow its business based on being nice to the government in power. Mr. Parekh must be feeling vindicated now that his own company is allegedly a part of the system.


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