Banking Formulae in India

Yesterday I met the head of banking placements for a leading bank.

For some time have I been chasing banks to get dough to fund the rising sales of the company. Alas our business model does not fit the bank formulae set out by various committees in days of yore.

For many years did I, as a venture capitalist, bemoan the lack of modern banking analysis, a la the US;). For years did we mutter about a lack of understanding of business etc.

The banking wallah yesterday was apologetic because he did not think he could get us money because the business fell out of the banking box for the following reasons:

1) No net profit (but as defined by the payment of income taxes). The reason? Indian banks are correctly scared that reported income is fiddled. Unfortunately an insistence on paid taxes merely means that not only will the books be fiddled more, but also that money not already stolen by the entrepreneur will go to the government. Poetic justice since the government owns most of the banks.
2) A low sales to asset ratio. For a manufacturing business growing organically at 35% to 40% that is a given because one is always adding stuff, but the plant is always unbalanced. The only way to get around that is to 1)flog the plant for all its worth to show numbers; 2) borrow like hell for a 3:1 expansion; 3) suck pond water while you absorb that sort of growth and bury all start up problems in working capital and fixed assets; 4) restructure debt and 5) back to 1 again.

Ah, if I had only known all this when I was investing.