Linking bank loans to external benchmark rate : the good, the bad and the ugly

In an effort to uplift the falling economic growth rate and consumer sentiment, RBI made an announcement regarding external benchmark based lending on 4^th/Sep/19. Though the final guidelines are awaited yet, the details can be read in this circular. However RBI may deny that this announcement has nothing to do with the current state of the economy, but the timing of this announcement and its’ direct influence on reviving the consumer and business sentiment by lowering the cost of borrowing tells the opposite of it.

I attempt to do a quick analysis of this announcement in the Good, the Bad and the Ugly style…!

The Good:

1. Better and faster policy transmission:

Undoubtedly, linking loans to an external benchmark rate seems more effective and faster policy transmission tool. We have come across as a borrower, the propensity of bank to quickly raise the lending rates when there is a rate hike cycle but being laggard when there is rate cut cycle. RBI has been suffering a severe headache due to this reluctance of banks to reflect a rate changes disproportionately and with longer lag. This year so far 110 bps (Basis point) rate cut is made in repo rate by RBI of which very little has been passed on by banks to the customers. For varied reasons, banks were less willing to pass on these cuts.

The Bad: 

1. Time period mismatch:

The external benchmark rates provided by RBI are 1. Repo rate of RBI 2. Three-month T-bill yield 3. Six-month T-bill yield or any other market interest rate as published by Financial Benchmarks India Private Limited (FBIL). As it can be observed, these benchmark rates are there for very short time period instruments. The lending rate for long term business loans to MSEs and home loans to retail borrowers if linked to one of these external benchmark rates, it may lead to interest rate risk as well as asset-liability mismatch due to time period mismatch. (When long term loans are linked to short term rates and not long term rates)

2. Challenges of linking deposits rates to external benchmark:

To take the pressure off from volatile profit margin, banks may eventually introduce linking of deposits (savings account, term deposits etc.) to the external benchmark rate. As per this article, SBI being one of the first movers, has announced the linking of savings deposits to the external benchmark rate. For CASA (current account-savings account) deposits, floating saving rates may not be much of a deterrent but knowing Indian depositors for term deposits, they may show strong reluctance in adoption of floating rate term deposits as they generally crave for stable/fixed rate of interest on such deposits. Banks with higher CASA portion in their total deposits may have a less bumpy ride to migrate to external benchmark linked deposit system but for others (having a higher contribution from term deposits) they can be placed between the devil(keeping the fixed rate on deposits & hurting the profit margin) and the deep blue sea. (Moving to floating deposits rate - facing depositors’ wrath & losing the business) One remedy to this challenge can be if all banks migrate to floating deposit rate system it may mitigate the competition of fixed-rate v/s floating rate deposits but still there will be competition.

3.  Not market –driven rate but RBI governed rate:

It may not be well advised to link commercial rate directly to the monetary policy rate (repo rate) as both rates are set and revised based on different factors.RBI manages the repo rate keeping in mind several factors and repo rate management has multiple objectives to achieve. A floating interest rate of loan benchmarked against repo rate may not be a correct reflection of the market forces.

The Ugly:

1. Volatile profit margin of banks:

The announcement of linking loans to an external benchmark from 1^st/Oct/19 may set the cat among pigeons (banks). For banks maintaining net interest margin may turn out to be a walk on a thin line, especially when lending rates (rates on various loans) are pegged to external benchmark rate which will be reset at least every 3 months while borrowing rates (rates on various deposits) which are mostly fixed/constant for the tenure. If a bank chooses to keep borrowing rates fixed/constant while on other hand lending rates are going to be flexible/volatile then this may exacerbate the interest rate risk problem and reduce the predictability of bank’s profit margin. So, an act of boosting the customer sentiment (by lowering the borrowing cost) may lead to the creation of hindrance for NPA-stricken and already struggling banking sector. 

2. Faster revisions of EMIs or interest payable:

Mandatory linking of floating loans to an external benchmark rate and resetting the rate at least once in three months is going to result into faster revisions of EMI amount or effective interest payable amount. Changing EMI amount which I hope banks will not resort to, can lead to gruesome experience for individual and MSEs borrowers. But borrower’s effective interest payable amount is certainly going to be more fluctuating in nature. A very fine analysis of pros and cons of this announcement is done in this article.

3. For long term borrowers - short term bliss and long term pain:

After a cut of total 110 bps and expecting a few more rate cuts, we may reach at the end of the rate cycle. Cost of borrowing will be fairly lower than the prevailing borrowing cost for various loans from 1^st/Oct/19 for new borrowers and this may lure more and more people to borrow. Fruits of lower borrowing cost will be sustained for short term may be around for next 18 months (as per my expectations) after that interest rate cycle may bottom out and if the economy is reviving the gradual rate hike cycle may commence. Once the hike cycle starts, the long term borrowers be it individuals or MSEs are going to face higher interest cost leading to increased interest payout or larger EMIs. In a nutshell, looking at the interest rate cycle for short term there will be lower cost but in longer term as reversal in cycle kicks in increased cost will be inescapable.

I believe (I can be wrong here) there is a possibility of identifying better external benchmark rate as the currently announced benchmark rates are either not market-driven (repo rate) or having a mismatched time period(T-bill yield) with underlying loan products.

Why RBI should immediately join NGFS?

Recently, an article by Wharton titled as ‘Why central banks are talking on climate change’ , caught my attention. It nicely summed up the reasons for central banks to sit up and notice the imminent impact of climate change for the finance industry.

Network for greening the financial system (NGFS), which is relatively new but supposedly very powerful and crucial organization is going to play increasing pivotal role for the finance industry and climate change. NGFS is a forum created for central banks and financial supervisors to understand and assess the financial risk and also the opportunities emerging from climate change.  NGFS consists of 36 members as of now including central banks and financial supervisors. Unsurprisingly, Reserve bank of India is not part of NGFS (however IDBI bank & Yes bank are mentioned as a part of supporting institutions), while People's Bank of China is part of the steering committee. One of the primary goals of NGFS is carbon risk management. My concept paper(published in 2017)  titled as 'Carbon Risk and Impact Assessment from the Perspective of an Institutional Investor'  which deliberates on the identification of key non-physical carbon risk factors and impact assessment on financial performance drivers of the firm, fits right away into the goal of NGFS.

Why RBI should join NGFS?

Sooner the RBI joins the NGFS, better it is for the Indian financial ecosystem.

Joining NGFS reaps following benefits to us;

1. Not being part of such initiative especially when India is a signatory to Paris agreement only shows lack of focus from financial initiative perspective. 

2. Whatever contribution from Indian finance sector will be by joining NGFS will go long way in building the 'Finance India' image especially when China is being so proactive. (as being part of the steering committee of NGFS) 

3. Joining NGFS may also give us a chance to look into where the world finance think tank is leading in terms of financial regulations & disclosures, upcoming trends in interaction of financial sector and climate change and so on. This shall certainly give chance to smooth transition for Indian financial sector to future changes otherwise, it will be very chaotic to all the stakeholders to make a sudden shift to new regulatory or other changes. Carbon tax, carbon emission disclosure in annual report, carbon footprint exposure by various institutional investors like; mutual funds, insurance companies, banks, AMCs, etc. may become part of regulatory changes as many countries have started implementing these norms.

Indian financial regulatory bodies can afford to be laggards at their own peril and the cost will be paid by all the stakeholders of Indian financial ecosystem!

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Is RBI playing with fire by contemplating to open up exotic currency derivatives to Indian firms?

A few days back a news article on RBI's proposal (in the discussion stage) of uplifting the ban on exotic currency derivatives caught my attention. Since then various opinions on this have cropped up.

I believe the proposal of allowing firms to trade exotic derivatives may create more problems than solutions for the broader financial ecosystem in India due to followings factors;

1. Poor understanding of the majority of Indian corporates regarding usages of exotic derivatives (exotic currency derivatives gets more complicated)

Note: I believe plain-vanilla derivatives are good enough in normal-case scenarios for the purpose of hedging the financial risk, the creation of exotic derivatives is done to cater the complex and customized transaction requirement which may be needed by a small fraction of Indian corporates. And of course, the creation of exotic derivatives is to earn big fat commission!   

2. Mis-selling & burning figures: 2008 financial crisis and post-crisis time period has witnessed many entities burning figures (also by foreign currency convertible bond issuance) with the initial intention of making some cool profit out of currency swings. When the product is exotic mis-selling is rampant. Opening up of exotic currency derivatives to firms will lead to heighten mis-selling from many broking/consultancy/advisory companies. Amidst this hyped mis-selling, hardly corproates realize that they may not need such ‘exotic’ derivatives at all!

3. The greed rules: moving from hedging to speculation: By my own trading experience and losses, I reckon that there is a very thin line between hedging (primarily done to protect the downside risk or loss) and speculation (done with the intention of making a profit by undertaking risk )! It is extremely difficult for the company (decision makers/treasury department) to control the urge to move from hedging to speculation. Companies don’t know when they silently get tilted from hedging to speculation and get addicted to speculation after the initial taste of profit! Many cases such as Barings bank , Metallgesellschaft AG derivative debacle, Sumitomo Corporation more are examples of mismanaged hedging or firm’s entry into speculation without much realization.  

Standard derivatives are forward, futures, options, swaps and so on. Exotic derivatives can be any combination or hybrid of any standard derivatives, differently designed/structured derivatives to meet customized requirements and so on.

My advisory:

1. Strictly NO–NO for MSME & mid-sized cooperates:  Runway ASAP if you hear exotic currency derivatives words uttered by some super formally dressed smart looking executive, trying to convince you how cool it is! Profit-creator! & it has no big risk! Plain-vanilla currency derivatives are suitable enough for the varied requirement, provided cost-benefit analysis is in your favor.

2. Big corporates but not truly MNCs: As you have war chest you may try these exotic currency derivatives (many times pushed by overconfident treasury department and of course ego- boosted by consultants/banks/advisory firms etc.) only to realize later on that this misadventure has burnt the hole in the pocket. Plain-vanilla currency derivatives are suitable enough for the varied requirement.

3. MNC giants: Exotic currency derivatives are more suitable if they have complicated and customized transactions requirements and may have better resources to play in the currency market.  

If only one book you have to read - it is the 'Mindset'

If there is only one book you choose to read in your entire life then it has to be the book: 'mindset' by Dr. Carol Dweck. I’ll add one more book to this list which is  'Thinking Fast and Slow' by Dr. Daniel Kahneman (Nobel prize winner). I’ll talk about that in another blog.

Book name: Mindset the psychology of success

Author:  Dr. Carol Dweck

Publisher: Random House

Reach out to me via tirthanks@gmail.com , if you are interested in reading materials/videos etc. on this book, I’ll be more than delighted to share.

A year or so back I came across some ted videos such as ‘The power of believing that you can improve’ and ‘Growth Mindset vs Fixed Mindset: An Introduction’ and other video Growth mindset V/S Fixed mindset.  These videos caught my fancy after viewing & understanding it. Though I kept reading/viewing some articles and videos on this, I have to admit I was super late in reading the book on this theme. ( A piece of advice read this book ASAP you get your hands on it!)

Why this book is a must read for anyone?
 It makes revelation based on more than 2 decades of research in human motivation and power of belief under the broader domain of psychology. The book is an outcome of this research done by the author.

And the revelation is

• Humans are found to have either a GROWTH mindset OR a FIXED mindset OR both, and switching from one mindset to another is possible.
• GROWTH MINDSET = believes that intelligence/ talent can be developed, by constant learning & efforts one can become smarter, take criticism constructively, accepts mistakes as a part of learning.
• FIXED MINDSET =  believes that intelligence/ talent is fixed or given or unchangeable, efforts are needless/fruitless, hide mistakes, believes success/failure define them, learning/efforts are not required.
• It proves the most essential point that success means constant endeavor for learning & improving & it does not mean proving your smartness or adding trophies/medals for the sake of it.
• It highlights profoundly the impact of GROWTH V/S FIXED mindset for as varied different fields as sports, parenting, relationship, business, teaching, coaching, leadership and so on.

·    For every reader, there is something to gain from this book. In fact, I would go to the extent and say… as long as you are a human being there is no reason for you to not read this book & to not implement it!

I would try to cover here a brief overview of this book with few domains.

Sports: The book elaborates on how mindset shaped the life of many sports celebrities. Sports prodigies labeled with  talented, skilled, genius, ‘you are different/unique’ tags at the early stage of their sporting career have inculcated on their own or conditioned by other (coach & parents primarily) for the FIXED mindset. As the FIXED mindset takes larger control, these likely prodigies have shown sign of least improvement/learning, unacceptability for the slightest failure and confirmation for the belief that their talent is no good. While sports prodigies inculcated with the GROWTH mindset either by on their own or positively reinforced by their parents/coaches go on to develop their games, continuously learn/improve with rigorous training, embraces failure - take feedback & improve. With the GROWTH mindset they go long way with a focus on improving the game & becoming better sports character with a larger sense of fulfillment. With the FIXED mindset success can come with prodigy being super egoist, trophy collector along with the fear of failure/bad image. Here, success may not be long-lasting.

The above context is crucial for all sports enthusiast kinds/adults and pro & also for their parents & coaches. Think of Sachin Tendulkar when you think of a GROWTH mindset.

Business: The book nicely highlights the case of Iacocca as CEO of Ford Motors as how FIXED mindset of him eventually destroyed not only him but also the culture of the company and the company itself. The CEO/Head/ Chairman with FIXED mindset are generally fixated with notion of them being a super genius, talented, intelligent, deserving royal treatment – and being a hero of the company. This mindset leads to significant but absolutely unwanted expenditure for buying fancy cars, charter planes, executive suits etc. on company’s money to feed their FIXED mindset. Many times the business decisions they take are influenced by their FIXED mindset only, with lack of a larger goal of taking important stake-holders of the company into consideration while making such decisions. While the career of Jeck Welch as CEO of GE is highlighted as a case of GROWTH mindset in business. The leader with a GROWTH mindset lives and acts with a belief of him being as good as any other employee of the firm, continuously co-learning & improving, readiness to accept the challenge & failure.

One can easily find an Indian version of CEOs with a GROWTH or a FIXED mindset- may be you don’t have to look far – may be you know them!

Relationship:  The book uncovers how mindset influences the relationship at various stages with the example of some real cases. People with the FIXED mindset take break-up or rejection as a failure with a tag of unlovable. They suffer from constant hunger for revenge. For people with a  GROWTH mindset, the break-up or rejection in a relationship is equally painful but they focus on forgiving and moving on. Among married couples having a GROWTH mindset leads to more mature, evolving, accepting relationship even if there is a presence of conflicts.

Few lines from the books aptly summarize the above theme;

FIXED mindset thinking: “You can believe that your qualities are fixed, your partner’s qualities are fixed, and the relationship’s qualities are fixed—that it’s inherently good or bad, meant-to-be or not meant-to-be. Now all of these things are up for judgment.” – chapter 6, page no: 86, e-book.

GROWTH mindset thinking: “The growth mindset says all of these things can be developed. All—you, your partner, and the relationship—are capable of growth and change.” – chapter 6, page no: 86, e-book.

I feel any reader can sense it from the above few lines from the book that how mindset has a profounding impact on relationships which has gone sour or sweet.

In a nutshell, below image captures the gist of the book;

Source: Mindset by Dr. Carol Dweck

Do read it ! The book may just change you!

Making of curative society – in action

A few months back I wrote a blog titled as ‘making of curative society’ which was talking about how we collectively as a society (and also as a broader culture) always inclined to cure rather than prevent any crisis/phenomenon/attack etc. The blog also deliberated on why we are more curative than preventive.

When I was looking around, I could find some of the glaring examples with an imprint of curative instead of preventive psychology.

Financial/Economic scams & crisis:

In spite of financial/economic history of the world is replete with scams & crisis we cannot boast of designing a better system which can help prevent the next copycat crisis/scam.

IL&FS financial crisis in Indian market is yet another story of reaction/cure after the crisis erupted. However, there were enough warning signs indicating crisis was brewing under the surface which were ignored. IL&FS financial crisis could have been prevented like many other crisis/scams.

The debacle of Jet Airways/ Rcom and other companies prove the same point. If we dig deeper, many of such companies had long journey full of many warning signs hinting towards crisis looming over a horizon. Again instead of preventing or reducing such troubles, our curative mindset allowed it to stretch resulting into full-blown crisis.  

The outbreak of Swine flu or other such incidences: We have been witnessing an intermittent outbreak of swine flu for quite some time now. But every time when honorable court asks municipal corporation/ health ministry to share what measures are taken to control swine flu, under-preparedness and lack of preventive measures got overwhelmingly reflected in response from these bodies. We know better preventive healthcare system is the solution but we tilt towards curative/reactive healthcare system.

It seems our mindset is deeply engraved with the ideology of reaction/cure to any problem rather than prevention of the problem. Why it is so, is the topic for another blog!

Book Summary: David And Goliath-Underdogs, Misfits and The Art of Battling

Title:  David And Goliath- Underdogs, Misfits and The Art of Battling

Author: Malcolm Gladwell

Publication: Little, Brown And Company

To be named among 100 most influential thinkers by TIME -2005, surely has a charm to it which draws enough readers to your books/articles especially when you are a master story-teller. And that is what happened to me as well. I wouldn’t say I was disappointed after reading this book.

The idea of the book:

The book opens up with the recreation of the very famous story of David and Goliath. But the analysis & reasoning behind how David defeated a giant – Goliath is completely contrasting from what we knew (or at least I knew). The broader theme of the book revolves around how underdogs & misfits fight and win consistently (Part-1 & 2 of the book) and how battles be it civil orregulatory ones- are not won despite having huge power(Part-3 of the book).

The book is divided in three parts;

Part 1: The advantages of disadvantages (And the disadvantages of the advantages)

Part 2: The theory of desirable difficulty

Part 3: The limits of power

Part 1: The advantages of disadvantages (And the disadvantages of the advantages)

The first piece of the story under this part covers a person called Vivek Ranadive who is coaching the team of girls (his daughter being part of the team) for basketball which he never played in his life and that to for competing in National Junior Basketball. This team beats hands down more professionally managed teams with best of the team players in it one after another in their very own game of basketball. How they did it?? –By fighting the game completely in an unconventional way – which was opposite of the way professionals were playing with a defined set of skill generally required in basketball. The larger point in this context comes from the study of political scientist Ivan Arreguín-Toft which says only 71.5% of times, ten times bigger populated & more armed countries have won a war against very small countries which are conventionally not very much armed in past two hundred years. Digging deeper Ivan found out when small countries fought wars with bigger counter-part with unconventional warfare tactics (guerrilla tactics) their winning probability increases drastically.

The revealing point: The author emphasizes, underdogs and misfits do not score victory just because they work hard or by some miracle but refusing to fight in a conventional/defined way in which big team is good enough or familiar with. So, identifying an unconventional or alternate way to beat the giants (who are good at only specified skill set conventionally used in that game/war) and working up rigorously to develop that alternative skills set. The event of underdogs beating the giants is not an improbable event actually, (we perceive it as improbable and hence we glorify it) underdogs have consistently won in many battles/games.

“Why do we automatically assume that someone who is smaller or poorer or less skilled is necessarily at a disadvantage?” – Quote from the book.

The second piece of the story covers two running themes 1)Parenting and effect of money 2) Class size and effects on students’ learning.Without getting into specific examples. The discussion dwells on the relationship between the amounts of money with parents have and how that does have an impact on parenting. As money increases, parenting becomes more effective up to optimal points after that ‘diminishing marginal returns’ kicks in. So after that point, richer you are it is more challenging to perform parenting.(ever heard about rich spoiled brats!) Likewise too much of a class-size is badly affecting the learning of the students but important to highlight too less class size also does not optimize the ideal cohort learning.

The revealing point:Targeting premiers schools where class–size is too small on the name of enhanced and engaging teacher-student relationship may not yield the desired results as your beloved ones may never get exposed to ‘peer learning’ orget a diversified learning experience by being part of bigger size class. Same why rich parents have nothing to smile about but to worry about if we go by studies done, beyond a point too much of money works as a spoiler for the kids. So, here seemingly the advantage of having too small a class or too much of money may turn out to be disadvantageous in reality.

The third piece of story questions do getting into most prestigious institutions always works in our best interest. It talks about how the world’s one of the best group of impressionists did great eventually by not getting accepted by Paris Salon – the most important art exhibition in all of Europe around 150 years back. Similarly, getting into Ivy League universities may not effectively lead to super achievements which you dreamt of but it may kill your interest or may induce frustration/depression as you are unable to cope up with the supreme heat of the competition among the students. (this point is well accepted & understood as we have seen many stories around us or in Hindi movies – 3 idiots! OR you may have lived yourself!)

The revealing point:Getting into the Ivy League may not turn out to be as advantageous as it was thought of, many times it may turnout to be disadvantageous. Placed in highly competitive and near burn out environmental settings may lead to higher dropouts, depression/frustration among students and lack of passion. Being part of moderately good, nurturing anda conducive environment where you feel comfortably in your ‘zone’ brings best out of you.

Part 2: The theory of desirable difficulty

This portion of the book was most adventurous, thrilling, eye-opener and also painful. It covers stories of kids with dyslexia and also a quite disturbing description of kids affected by leukemia – blood cancer and the story of Martin Luther King Jr.The theme this part highlights is that more difficult situations one has gone through more alternative skills development happen which is not there with other sets of people who have not gone through that difficult time period. And this leads to some of the time unbelievable success achieved due to the difficulties and the response system one has developed by honing that alternative skill set.  That is the reason author calls it ‘desirable difficulty’.

Part 3: The Limits of Power

This portion throws lights on persistent troubles which were going on between Catholics and Protestants in Northern Ireland during 1970s. With refreshing angle, the author shows how government despite having full of power/authority/ force and all the resources to control such uproar fails miserably. Few other beautiful stories to draw an analogy with the above theme are also covered like the story behind three strike law in California and so on which I’ll not dwell into.  When a section of people sees the entity/government as a source of power which is not perceived as a fair & just, then these people stand up most stubbornly and steadfastly against it. Many freedom fights and civil fights depict this quite convincingly.

Note: My intention was just to summarise some of the important highlights and learning points from this book, so I refrain from criticizing some of the debatable points in this book.

Making of curative society

I was searching something in my bookshelf and serendipitously I found a book – “The Black Swan” by Nassim Nicholas Taleb which I read a few years ago. Now I am re-reading this book. One particular paragraph of this book in prologue has made me ponder over it and it has set in motion chain reaction of thoughts which has resulted into this blog. The lines go like this….

“……Who is more valuable, the politician who avoids a war or the one who starts a new one (and is lucky enough to win)?

It is same logic reversal we saw earlier with the value of what we don’t know; everybody knows that you need more prevention than treatment, but few reward acts of prevention. We glorify those who left their names in history books at the expense of those contributors about whom our books are silent. We humans are not just superficial race (this may be curable to some extent); we are very unfair one.”      Page: XXIV – Prologue, Black Swan

Let’s walk through a simple experiment: Imagine that you ride a two-wheeler but do not wear a helmet.

Situation 1: Mr. X with a lot of persistent efforts eventually convinced you (reminded whenever you were going out) about the importance of wearing a helmet, resultantly you developed a habit of wearing a helmet while riding a two-wheeler. Because of this whenever you met with an accident there was never much of head injury due to which no real pain or trauma faced by you. So, non-occurrence of head injury has almost become un-noticeable.

Situation 2: You were not wearing a helmet & as usual you were riding a two-wheeler. One fine day you met with an accident with severe head injury and Mr.Y seeing you struggling & suffering on the site of the accident, took you to the nearest hospital and admitted you there.

What the above experiment tells you;

Mr. X almost does not exist in your memory as you never went through any tragic accident in your life involving head injury while riding a two-wheeler.

Mr. Y almost made a permanent mark in your memory as he came out as a savior/crisis hero during your tragic accident involving head injury (the pain/agony/struggle during & after this accident made you more remember this incident and hence the person who saved you).

Another analogy can be that we are more thankful to the heart surgeon who made us survive through a heart attack. But we are almost negligent or not enough thankful to the preventive healthcare practitioner who prevented us from having a heart attack in the first place. No wonder why preventive healthcare still grapples with non-acceptance by society at large (but it is changing now) when compared with curative healthcare.

The above experiments and many more surrounding us indicate one thing that as a society we are more curative than preventive. We have been observing through the history that society or broader system showers rewards-recognition-media coverage- glory-awards-accolades on those who have managed or controlled big crisis/damage/attack/natural calamity/ tragedy (Let’s call it ‘tragic event’ collectively)that society was facing. We remember such personalities who did troubleshooting and hence with glory secure permanent name in the history. But we never remember those who prevented or raised enough warning alarms because of which many tragic events never realized and we safely survived.

I hypothesize the alternative theory of making of curative society and share the reasoning behind why we are more curative society than the preventive one!

Ever since the creation of society, we have faced numerous tragic events. The general route society has taken is whenever there was an outbreak of such event people came ahead and provided cure or damage control/crisis mgt. to it. If part of society is smart enough it learns from such incidences/mistakes and starts building a preventive system in order to put down another tragic event before it actually surfaces. Fortunately, some part of society has done that which has established some preventive system. But a larger part of society still goes through curative way only.

But the key question is: why society keeps going back to curative design?

Reasoning: Society has created a feedback loop which keeps on creating the curative design as depicted in the below image;

Once the tragic event occurs it is inevitable for society to face it. Some of the human capital will come out to act as a crisis managers/ damage controller. As the crisis gets over generally significant glory-awards-rewards-media coverage-gratitude is showered on them. Because the society went through the entire incident so vividly and felt the pain/agony/struggle with so much visibility that we want to glorify it and make part of permanent memory for the society. Hence it promotes the mindset for damage controller/crisis manager which leads to the creation of the society which is good at managing crisis but not preventing it. When tragic event is prevented hardly besides few know about it and something which has never happened or felt how much importance or memory space society attach with it, almost zero. This leads to lack of motivation/glory/recognition for those who are working day in & out to prevent another tragic event. So less human capital eventually attracted to this kind of profession. Again that leads back to the status quo for societal mind set for crisis.

By creating the society which worships -troubleshooters/damage controllers/crisis managers, we have made sure that as a society we wait for tragic event to happen & then we see rise of heroes to save the day and If this is what has happened over the history we have successfully & deliberately created such culture and system which never motivates/encourages prevention of any such possible tragic event before it actually takes place because there is near absence (or not as significant as in the case of troubleshooters) of rewards-recognition-media glory-awards-accolades for the preventers. Hence no motivation to shift mindset/culture from curative to preventive.

In Hollywood movie-Reign of fire, Denton van zan says, “Envy the country that has heroes, huh? I say pity the country that needs them” I would re-frame it and say, “Envy the country that has troubleshooters/damage controllers/crisis managers. I say pity the country that needs them”

We are increasingly becoming more competent at curing or managing crisis but dishearteningly incompetent at preventing the crisis!