If government is really interested to know the ongoing fraud in bank in sanction of high value or low value loans for last two decades, CBI should first investigate the wealth of retired CMD and current CMD, ED and all General Managers of all public sector banks and try to compare the same with their total income earned during their entire service. Then only CBI and GOI can assess the volume of corruption rampant in this sector in the name of credit growth or achievement of set targets or to please the politicians especially ministers who hold the key of promotion of bank officers.
Unfortunately Ministers are Godfather of all such corrupt officers who have spoilt the future of banks. When the head of any institute is inefficient, inactive and corrupt, one cannot dream of good governance and similarly when government is formed of corrupt ,inactive and ineffective ministers , one cannot imagine of clean administration.
Until we get success in getting rid of rampant flattery and bribery culture and until we stop whimsical transfers and arbitrary promotions in all government offices and public sector undertakings we cannot imagine of improvement of health of any bank or any PSU or any government office. The culture of flattery is the root of all maladies prevalent and rooted in the entire system.
Bank staff who are wondering in dreamland expecting wage hike of 20 or 30 percent should keep in mind that until they save banks from corrupt executives and corrupt officials they cannot expect earning high profit and when profit is low , banks cannot think of giving respectable wage hike.Politicians have spoilt banks by their dirty vote bank politics and when banks incur losses they will blame bank staff only.
Assets in banks will continue to move from standard to Non performing assets and none can stop it without changing the mindset of rulers. Now stress assets are reflected as 5 to 6 percent and it will move to 20 to 30 percent of total advances if the system is not changed immediately. FM or RBI can prescribe hard dose of medicine but they cannot yield fruitful result without the support of all involved in the process. Dirty politics of vote bank has damaged not only the economy of the country but badly affected the social harmony, regional harmony and communal harmony.
This is why why there is Free Fall of Indian rupee In Free Market despite all efforts made by learned FM, PM and RBI governor.Because the fall is not due to fault occurred in last few days or few months, it is the consequence of bad policies followed by team of economists ruling this country from Delhi. Similarly accumulated bad assets in public sector banks are not due to global recession or due to natural calamities, they are the bad consequences now precipitating due to bad policies and bad execution of good policies by bad officials sitting at top posts in these banks in nexus with corporate and politicians.
http://importantbankingnews.blogspot.in/2013/08/though-late-cbi-smells-fraud-in-rising.html
NPAs of banks could rise on account of slowing economy: PMEAC--ET
NEW DELHI: Prime Minister's key economic advisor C Rangarajan today indicated banks may have to deal with higher non performing assets (NPAs) on account of poor economic performance.
"NPA also increases because of the way economy behaves. If rise in bad loan is beyond control of banks, then banks need to be very careful in identifying NPAs," Rangarajan said.
He was speaking at the 5th Conference of Central Bureau of Investigation (CBI) officials and Central Vigilance Officials (CVO's) of Public Sector Banks.
"While judging increasing NPAs, banks should also take note of what is happening in the environment. Some amount of loan can for a time become NPA," Rangarajan added.
Non-performing Assets (NPAs) of banks have been going up for the last two years due to slowdown in the economy. The gross NPAs of some public sector banks, including State Bank of India and Punjab National Bank have crossed 4 per cent of the total assets at the end of March, 2013.
Pulled down by poor performance of farm, manufacturing and mining sectors, Indian economy slowed to 4.8 per cent growth rate in the January-March quarter of last fiscal year and fell to a decade's low of 5 per cent for the entire 2012-13 fiscal.
Gross non-performing assets (NPA) of public sector banks rose to Rs 1.76 lakh crore at the end of June quarter from Rs 1.55 lakh crore at March 31, 2013.
According to global rating agency Standard & Poor's, India's banking sector's non performing assets (NPA) ratio is likely to surge to 3.9 per cent of total loans in 2013-14 and to 4.4 per cent in 2014-15, compared with 3.4 per cent in fiscal 2012-13.
Recently, Minister of State for Finance Namo Narain Meena, in a written reply in the Rajya Sabha, said the NPAs of banks have shown a rising trend.
The stress on the asset quality is a reflection of the stress in the economy of the country.
Public sector banks had recovered Rs 1,905 crore by filing 97,701 suits in 2012-13 and Rs 1,700 crore through 79,117 suits in the earlier fiscal.
http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/npas-of-banks-could-rise-on-account-of-slowing-economy-pmeac/articleshow/21953894.cms
Yet ad hocism still rules the roost in the selection process, and most public sector bank chiefs have a short tenure of two years or a little more. This means many of them spend the first few quarters cleaning up the balance sheet to prove that their predecessor was not a prudent banker - but as their retirement approaches, they fall into the same trap and stop declaring bad assets to show better profits.
http://importantbankingnews.blogspot.in/2013/09/non-performing-managers-creat-non.html
RBI needs to come out clean on NPAs--Money Life
If NPAs are not curbed effectively, it will not be long before India heads the Greek route. The Ministry of Finance has to necessarily leave micromanagement of the banking sector to the RBI
Dr KC Chakrabary, deputy governor of Reserve Bank of India (RBI) while speaking in the capital on 26th July at an Assocham Conference on Financial Frauds, very rightly rued –
“Many of the frauds are wrong sanctions at the highest level of banks. The problem is, we are not able to take definite action in definite period. Banks are indifferent to monitoring large frauds and whatever fraud reporting was happening, was in silos. Some of the reporting in large transactions happened only after they had been recognized as NPAs (non-performing assets)… While the numbers have not gone up significantly, the quantum has increased manifold… Loan-related frauds are a major concern for the RBI. Over the last ten years, there have been 1.77 lakh frauds, amounting to Rs31, 400 crore. In the last 25 years, 61 fraud cases involving Rs50 crore or more have happened through 208 bank accounts and accounted for a whopping Rs13,000 crore. When the times are good, the rich steal. When the times are bad, the poor also steal. But this means that the rich are stealing more.”
This was amply substantiated by the Hindu Business Line study of companies’ latest balance sheets of top distressed debts of banks (Rupees in crores):-
•Jindal Steel & Power Rs14,372
•Kingfisher Airlines Rs8,030
•Suzlon Energy Rs6,416
•Electrosteel Steel Rs5,232
•HCC Rs4,574
•Bharati Shipyard Rs3,862
•Leela Ventures Rs3643
•GTL Infrastructures- Rs3,190
•Tulip Telecom Rs.2,175
At the meeting of public sector banks and financial institutions on 4 July 2013, the RBI asked the banks to focus on the top defaulters and take action against them. About 30 top non-performing accounts form bulk of bank NPAs – gross NPAs (GNPAs) of banks rose to 39.7% from 34.5% a year ago. For nine public sector banks, GNPAs have gone up by more than 50%, for those of SBI group and PNB have crossed 4%, the GNPAs as a percentage of gross advances has gone up to 3.78% from 2.32%.
In the west, post-Lehman brothers, new financial jargons like bailout for stressed assetshave come up. But here in India, they are termed as Non Performing Assets or NPAs, both meaning the same-bad or irrecoverable loans/ debts by whatever name called.
Moneylife had carried a cover page report and a series of articles on bad loans, done by a veteran banking analyst. I wish to add another angle to the analysis, arising out of my experience of over four decades as a Central Statutory Auditor on RBI’s Panel, auditingmajor banks, both domestic and foreign.
On 16 December 2012, Dr Chakrabarty, the senior most deputy governor in charge of Banking Supervision and a former CMD of a PSB, in an interview to PTI rightly lamented, “Knowingly, you give money to some unviable projects. In many cases, our PSBs have forgotten to say ‘no’, except to small borrowers…The agricultural loans are not as bad as loans to big corporates. The poorer borrowers are subsidizing the rich. It is not the small borrower who is a threat to banking -his track-record is much better than the larger ones. So long as corporates can pay, they all deal with private sector and foreign banks. But when they are vulnerable, they come to the state-run banks. Unfortunately, a combination of factors is responsible for this. Fundamentally, it is a structural and governance issue. The problem of rising bad debts can be attributed to poor administration and low risk management practices.” He cited examples of the PSBs taking bad decisions that resulting in stressed assets and said that lower risk assessment capabilities in comparison to their counterparts in the private sector and foreign banks is their fundamental problem.
In March 2013, the finance minister informed the Lok Sabha that bad loans amounting to Rs68,000 crores were up, to nearly 7,300 accounts by end-March 2012. Leading the pack were SBI, PNB, IDBI Bank and BoI. A financial journalist rightly reported that the data given in support of statements made in the Parliament does not support the statements. The FM’s Parliamentary statement mentioned mechanisms for early detection of signs of distress, prompt restructuring of viable accounts and a loan recovery policy. This includes norms for permitted sacrifice, waiver and other factors like monitoring of write-offs, waiver cases and valuation of securities including collaterals.
It needs to be pointed out that no bank loan goes bad overnight, but happens over a longer period. Some of them commence at the sanction and disbursement stages, to begin with. Loans and Lines of Credit are inadequately and badly appraised, approved by the topmost management and are pushed down to disbursing branches with orders to proceed without proper documentation, securities and guarantees. When they do go sour, inadequacies crop up but it is too late to enforce recovery proceedings effectively. This gives the defaulting borrowers an upper hand.
Next, laxities in monitoring processes followed at the branch level play their role- the incipient bad borrowings arise more out of the branch officials’ negligence towards acting promptly to the red signals, leading to irregularities- borrowers exceeding drawing powers and not submitting inventory or debtors security statements, being one example. If only the branch had curbed them and also reported to the controlling authorities, all these could have been taken as warning signals of impending NPAs. Branches tend to take such operational irregularities lightly, only to wake up when the outstandings mount.
The RBI Panel under its executive director, B Mahapatra, in its report, observes that restructuring amounts to an ‘event of impairment’ irrespective of whether it is asset classification or not, undergoes a downgrade. It has rightly recommended that all loans that are subjected to restructuring should be classified as NPAs, since they are alreadySub-standard. This is particularly true when restructuring requires banks to grant concessions like substantial reductions in interest rates, moratorium or elongation of repayment schedule, part waiver of principal and/or interest or converting debt into equity at inflated values a la Kingfisher. There is absolutely no valid justification to make any such distinction that obfuscates the underlying problem of mounting bad debts!
When internationally accepted accounting standards treat restructured advances as impaired, there is no reason for the Indian banking system to deviate from the internationally accepted prudential accounting practices, primarily from the transparency perspective.
The RBI’s suggestion of a two-year “Regulatory forbearance” for withdrawing standard classification benefits has had a change for the better. By recognizing these loans as NPAs, we have kept up with prudent and accepted international accounting practices.
The banks’ statutory auditors, in helping the bank managements to window dress their annual accounts to overstate the profits for the year, have, in my considered opinion, wrongly misinterpreted the RBI guidance for deferrals. This is equally applicable to the RBI guidelines for recognizing and providing for the accrued gratuity and pension liability.The bank auditors are under a wrong impression that they can get away by merely stating in their auditors’ report - “Without qualifying our opinion/report, we draw attention to Note...” This is no qualification, as it does not explicitly state that the liability did and does exist on the date of the balance sheet and that not providing for it impacts the profits for the current year. The RBI’s advisory merely directs them to defer it over a period of time and in no way absolves them from providing for and disclosing the liability from subsisting and existing. The RBI, the banking regulator and the Institute of Chartered Accountants of India (ICAI), the accounting regulator, ought to review this unhealthy practice of window dressing that only results in overstating the profits. The regulatory forbearance certainly cannot exceed its brief!
In the two years between March 2009 and March 2011, the gross NPAs of our banks shot up from around Rs68,000 crore to Rs94,000 crore. By bringing in so-called restructuring, NPAs had wrongly been classified as standard. They have actually soared from just over Rs60,000 crore to almost Rs1.07 lakh crore. According to a statement laid on Lok Sabha in March 2013, gross NPA in 7,295 accounts rose to over Rs1 crore in March 2013 from Rs68,262 crore in March 2012. In March 2011, the figure for 4,589 accounts has risen to Rs34,633 crore from Rs26,629 crore for 4,099 accounts in March 2010.
The Sick Industrial Companies Act (SICA) has been on the statute books for long. Companies are invariably rendered sick by the promoters who themselves continue to remain hale and hearty having skimmed the cream from bank funding. Bankers have been dealing with them with kid gloves, hesitating to make demands on large industrial chronic defaulters. The Securitization & Reconstruction of Financial Assets & Enforcement of Security Interest Act 2005 (SARAESI) empowers lending banks to seize mortgaged assets of recalcitrant borrowers to realise the best prices without having to resort to court sanction. It is most commonly applied to small-time borrowers, who have defaulted on EMIs for home loans, vehicles loans and small time traders-it tantamount to using a sledge hammer to swat a fly and not touch the large chronic defaulters like Kingfisher Airlines.
The big-ticket defaulters manage to keep out bank attachment orders by obtaining court stay orders. This is simply because the banks and the RBI are found to be speaking with forked tongues. They blow hot and cold at the same time and are caught pussyfooting – a case of willing-to-push-but-afraid-to-hurt attitude, not touching big guns, but attaching tiny factory owners or traders. This proves right the good old Hindi adage – Hathi janey dega, magar doom pakad ke baitega - translated letting the elephant pass through only to cling on to its tail.
The standard of toughness of recovery proceedings are high with small retail borrowers, where flats and vehicles are attached with ease. The banks’ attitude generally signifieswhen one small entity borrows a couple of lakhs from a bank, the borrower will be in trouble, but when one big ticket borrows crores, it is the bank which is in trouble. Banks mollycoddle the big time borrowers to collect their dues.
To minimize NPAs, the RBI needs to direct the banks to put in place, tough measures of going for the defaulters’ jugular. Personal guarantees and not dud corporate guarantees should be insisted upon and the promoter-directors of public companies should also be called upon to sign personal guarantees, similar to what is followed for private unlisted entities. This is because the promoter clan takes the company stakeholders and bankers for a ride after collecting money from IPOs. They should be required to bring in margin money in hard cash and not by pledging shares of group companies and/or providing their equally dud corporate guarantees. They should be asked to cough up not less than 25% of the value of the diminution in the value of securities and/or 10% of the sanctioned limits, before considering any rescheduling / rescue act. The end use of the borrowed money has to be strictly monitored to ensure there is no misuse thereafter.
The rising NPAs call for strong arm-twisting. The RBI should call upon all banks to furnish a listing of their top 100 defaulters with a brief on their ages, causes and steps initiated to effect recoveries. The banks and RBI should make available the listing along with the progress report on the reduction or otherwise, on their websites. Most of the defaulters would be big names with strong pull, right up to the Ministry of Finance, capable of pulling all strings to keep action at bay. The banks should not stop short of opting for strong coercive proceedings under the securitization laws rather than yield to the mirage of corporate debt restructuring.
If NPAs are not curbed effectively, it will not be long before India heads the Greek route. The Ministry of Finance has to necessarily leave the micromanagement of the banking sector to the RBI.
This oversight task is best assigned to Dr YV Reddy, the tough acting former RBI Governor!
(Nagesh Kini is a Mumbai based chartered accountant turned activist.)
http://www.moneylife.in/article/rbi-needs-to-come-out-clean-on-npas/33966.html