Cleansing of the Indian banking sector is long overdue-HindustanTimes-04.12.2014
(Following article is for positive minded bankers who in the name of positivity cheated , looted and exploited bank and bank staff for self interest) (Read my 3 year old views below)
To say that the challenge before the Narendra Modi government lies in the economy is stating the obvious. Alibis for non-governance, compulsions of coalition politics or other external factors will not be easily available to a government with an unambiguous mandate after a gap of 30 years. Tomorrow’s slogan, already beginning to take shape, will be ‘deliver or perish’.
Democratically elected governments cannot direct their economic entities on when and how to undertake economic activity or where to invest. They can only create an enabling environment conducive for economic activity and for attracting foreign direct investment (FDI). Global capital, whether from the United States or Japan, is unlikely to feel encouraged to invest in a country that slips 10 notches on the Global Innovation Index (GII) — the only one among the BRICS economies to do so and dropping two places to rank 142 in the World Bank’s Ease of Doing Business 2015 report, which ranked 189 nations.
There is also little joy for India in Transparency International’s Corruption Perception Index or in the Global Competitiveness or the Environment Performance Index. The Modi government’s attempts to inject a ‘feel good’ for economic activity are both necessary and welcome. It may not, however, be enough.
The culture of corruption and impunity, at worst and of nonchalance, ‘sab chalta hai’ attitude and inbuilt tolerance for incompetence and mediocrity, at best developed over the past several decades will, unless reversed, prove India’s undoing. It envelops all sectors of the economy — banking, health, transportation, real estate and all others.
The party routed in the May elections, apart from getting its house in order, should draw inspiration from the words of a wise man, the XIV Dalai Lama: “Remember that sometimes not getting what you want is a wonderful stroke of luck.” Equally, the party that feels triumphant might do well to recall a saying in the multilateral system: ‘Beware of what you seek, you might get it.’ The total bad loans or non-performing assets (NPAs) and restructured assets of Indian banks developed over a period of time stand at about $100 billion. Of this around 45% or $42 billion constitute NPAs and the remaining $58 billion restructured loans. The manner in which the NPAs were converted and shown to be restructured loans also raises serious issues.
The restructured assets in the banking system will shoot up by $10-16.6 billion by the end of this financial year. Analysis of the credit metrics of the top 500 corporate borrowers, with an aggregate debt of $477 billion, which constitutes 73% of the total bank lending to the industry, services and export sectors paints a worrying picture. Around 82 of these 500 borrowers have already been formally tagged as financially distressed or identified as NPAs, or their loans have already been restructured. Another 83, that is 17% of these top borrowers, accounted for 9% have severely stretched credit metrics. Within these 83 corporates, operating profitability barely covers the interest required to be serviced in most cases. The limited purpose of pointing to the trends above is to drive home the point that the ‘Swachh Bharat’ campaign for physical cleanliness needs to be extended to cover the banking sector as well.
It is not difficult to distinguish between healthy entrepreneurial capitalism and its distant cousin, nefarious ‘crony capitalism’. The latter, by definition, requires active collaborative connivance by sections of the government and encouragement in the banking system. The NPAs can be created even if due care and diligence is exercised while extending credit. Absent due diligence, the generation of NPAs will most certainly be much faster. The market buzz, not always completely reliable but invariably a good indicator, suggested the asking rates for appointing EDs and chairmen of public sector banks five years ago were Rs. 5 crore and Rs. 8 crore, respectively. Rates reportedly have risen sharply in the last five years.
As in other parts of the system that comprise India’s crony capitalism, the files for appointment come squeaky clean, all the candidates come with outstanding confidential report appraisals, even the ones who subsequently get raided and exposed. It would be instructive to see how often, during the last 10 years, the criteria of eligibility were changed to facilitate the appointment of particular individuals.
The top 15 private groups in the country account for nearly 17% of bank credit and have a cumulative gross debt of approximately $166 billion. Admittedly, the debt of these 15 top business groups also possibly includes external commercial borrowing as well. The BSE 500 companies cumulatively have a gross debt of over $500 billion. A system that generates $100 billion worth of NPAs and restructured loans lies at the heart of the system of crony capitalism that has developed.
Equally, the control the government exerts on top appointments in banks and, possibly, their loan books and the issue of most State-owned banks in India having roughly five times as many bad loans as private ones need to be addressed. The cleansing of the banking sector that the Prime Minister and the Union finance minister have embarked on has been long overdue. We have to stem the rot within if we want India to survive.
(Hardeep S Puri, a retired diplomat, was India’s permanent representative to the United Nations in Geneva and New York. The views expressed by the author are personal.)
Link Hindustan Times
V.A.N. Namboodiri's writes The Public Sector Banks, including SBI, have written off Rs. 34.409 crore of bad of NPA (bad loans)during financial year 2013-14. This includes one time settlements also. This comes to about 34.05 % of the Non-Performing Assets. In 2012-13, Rs. 27,231 crore were written off.
These bad loans are mainly loans given to the corporates and big business and not returned. If common people take any loan and is not paid back, coercive measures are taken and the loan got returned. But, when it is the case with the corporates and big business, it is written off. No action is taken against them. Is this justice? One rule for the rich and powerful and another for the common people? This should be exposed.
The Indian Banks Association is denying the demands of the Bank Employees’ Unions for wage revision with adequate fixation stating that there is no money. But they can simply write off Rs. 34,000 crores and similar amount every year, closing the loans of the rich and powerful without getting it back?
Gujarat HC Restores RBI's Power to Decide NPA Period
The Gujarat High Court today restored the Reserve Bank of India's power to decide the period after which a bad loan can be called a non-performing asset (NPA).
"Section 2(1)(o) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act is held unconstitutional," the bench of Chief Justice Bhaskar Bhattachrya and Justice J B Pardiwala said.
The High Court also observed that the Parliament was wrong in taking the power to decide NPA guidelines away from RBI.
Before the amendment in 2004 to the Act, RBI was the regulator for the banking, non-banking institutions and securitization agencies for deciding the period after which the loans can be treated as NPA. Till 2004, RBI had set the NPA period for banks at 90 days, and at 180 days for NBFCs.
But with the amendment, the financial institutions became free to have their own regulations for NPA. The NPA period was decided separately by each firm.
The High Court's ruling today came on petitions filed by several defaulters of banks and NBFCs who had questioned every institution deciding its own NPA period, calling it violation of right to equality.
I reproduce here what I had written three years ago
Why not General Manager, Executive Directors and CMD of banks and financial institutes are suspended till date even though they were found to be involved in Bribe based lending scam exposed by CBI. Why properties of corrupt officials not seized till date? Why not RBI officials or Finance Minister have been punished for choosing wrong ED and Corrupt CMD for a bank.
On 24th November CBI charged several high rank officers of bank and LIC housing Finance Company of lending huge money to real estate builders after taking bribe. Several banks have been charged of wrong lending in case of 2G spectrum related case .Even Supreme Court has passed adverse remarks against bankers. When top bankers are corrupt there is no doubt that a culture of corruption is wide spread in that bank in particular and in PSU banks in general. Still RBI, Ministry of Finance and government of India as a whole is silent on taking punitive action. Had it a been a clerk or a simple officer, top management could have suspended him immediately.
Is Finance Minister not responsible and accountable for selection of wrong and corrupt ED and CMD for a bank? Why General Manager rank officers alleged to be involved in corruption and charged by CBI are allowed to continue in their post or even promoted is a million dollar question. It speaks how much deep rooted is the cancer of corruption in the banking system in particular and in government departments in general.
Banks ask for equivalent or even more amount of collateral security and guarantors even for financing a few lac or a few crores of rupees to common business men. But they thought it safe to finance thousands of crores of rupees to telecom companies. Why?
Posted 3 years ago
Asset quality in public sector banks have been going from bad to worse for last several years, and it is not a new phenomenon. Unfortunately or fortunately management of all banks have been manipulating the figures year after year in close nexus with team of auditors and officials of Reserve Bank of India and that of Banking Division in Ministry of Finance to conceal bad assets. They have put pressure on field official in branches and taught not to improve the quality and take strong initiative to recover the money from bad borrowers but taught only various tactics to conceal bad assets to reduce provisioning towards bad assets as per RBI guidelines.
At corporate level top officials of banks including CMD and ED have used various false and fake pleas such as global recession, interest rate hikes, bad monsoons, natural calamities etc to give various reliefs to bad borrowers instead of tightening the screws to trap bad officials and bad borrowers. Top management of bank management have never diagnosed the real causes of bad assets whenever it is found to increase due to some reason or the other. Clever bank management do not want to take action against erring official, corrupt sanctioning official because they themselves are part of dirty game of bad lending. This is why bank management have wrongly but willfully and invariably pleaded that if action is taking against credit officers and top executives , credit growth will immensely suffer and they will not be in a position to achieve the target set by Finance Minister.
After complete introduction of Core Banking Solution (CBS) in banks, Reserve bank of India advised banks to calculate bad assets called as Non Performing assets (NPA) on common terminology using advanced technology and not manually . Banks are slowing getting pressure to assess their quality of assets through automated system taking advantage of CBS technology. Since management of banks find now difficult to conceal bad assets under CBS oriented NPA assessment system, total of bad assets is now being exposed in Balance sheet and it has reached a level of 3% of total advances.
It is to be noted here that NPA percentage is still more than what it has been revealed during last few quarters. Still banks have not declared their entire NPA and after taking RBI hidden consent. Of course they are gradually exposing their bad assets and this is why quantum of bad assets has not jumped to highest position in one time but it is rising quarter after quarter. Officials of RBI, top management of each PSB and official of Ministry of Finance all know very well that actual quantum of bad assets in government banks is far more than 5% of total advances. In more than 25% of three year old branches gross NPA is more than 25% of total advances. There are many such branches where gross NPA is even more than 50% of total advances.
Clever bank management are trying their best to show minimum percentage of gross NPA by either manipulating the system secretly or by resorting to fresh lending by opening new branches and resorting to fresh bulk lending to big corporate, to real estate sector and to mutual funds so that total advances in banks increases which in turn reduces percentage of Gross NPA compared to Total Advances. But this story will not help for longer period until there is adequate improvement in quality and moral integrity of credit sanctioning authority , honesty in promotion processes in banks ,improvement in legal machineries which may help in recovery from willful defaulters , tightening of screws on Chartered Accountants , Valuers and official of rating agencies and change in attitude of politicians. Bank management has to increase number of staff in branches, reduce staff at administrative offices and award honest officers by stopping and punishing corrupt officers who were rising in their career through unfair ways and means. Till now bank management has not tried to cure the real disease and at the same time government of India have also not improved the quality of legal system and not tried to inculcate good culture in politicians who are using bank loan to enhance their personal wealth and to increase their vote banks.
It is very sad that all the time when proportion of bad assets increases in banks , management of banks accuse global recession, interest rate hike, bad monsoon, natural calamities etc but not punish the real culprit. It is remarkable here that when most of top official have occupied the top post and come through bad routes and when they have themselves created and accumulated bad assets in their banks they are not in a position to punish the real culprit and hence they are searching always some weak scapegoat , some lame excuses and pleading some irrelevant reasons before MOF for deteriorating quality of bad assets in banks.
Million dollar questions is “Who will bell the cat when even officials in RBI and MOF are equally weak and guilty”. System is not corrupt but corruption has become the system in banks. Not only banks but all other government departments including judiciary are also victim of same disease. It is therefore not surprising that public demand led by Anna for strong Lokpal Bill is gaining momentum month after month, day after day and none can stop this.Government can torture Anna, Ramdeo and their followers but cannot stop public revolt without punishing corrupt officials and corrupt politicians.
Government of India in the year 2008 and 2009 announced numerous stimulus packages to salvage not only banks but also the Indian economy as a whole from crisis erupted in foreign countries. Unfortunately after lapse of three years and huge stimulus packages the country is facing the same crisis as it faced in the year 2008 and before.
It is astonishing and mysterious too that public sector banks in general used to offer higher and higher rate of Interest to attract corporate deposit , bulk deposit and government deposit in their fold upto 2010 and on the contrary they were ready to finance at sub BPLR rate to corporate . Banks were booking higher and higher profit before 2008 and upto 2010 and showing lower and lower Net NPA and Gross NPA inspite of offering higher deposit rates and lower lending rates.
But during last one year or so when RBI has resorted to rate hikes 12 times and when banks are forced to accept base rate to avoid sub PLR lending, almost all banks have raised BPLR and Base rate to their peak level and on the contrary they have stopped almost completely offering higher rate of interest on deposits to corporate, government departments and cash rich PSUs.. Surprising during last four quarters, profit of most of the banks have either come down or started falling quarter after quarter despite the fact that lending rate is increased abnormally and deposit rate increase is stopped and controlled to a great extent.
What mystery and magic lies behind this is beyond my comprehension, but I am very much confident that the dirty game of bankers will be exposed only when thorough investigation is carried out and some of CMDs and EDs and some of CAs are booked to task who are carrying out fraudulent activities just similar to what Raju carried out in Satyam Computers
Bad Assets Hidden in Bank without Action from Bankers
News item collected from Economic Times of 7th December 2011http://m.economictimes.com/PDAET/articleshow/11002693.cms
Big borrowers of India Inc default on Rs 47,000 crore loans
6 Dec, 2011, 0930 hrs IST, Pradeep Thakur, TNN
NEW DELHI: Large borrowers, who took loans of Rs 10 crore or more, have defaulted on payments to the tune of Rs 47,000 crore, with banks not even pursuing cases to recover over half the amount.
Data available with the finance ministry shows that least 700 defaulters who had borrowed Rs 10 crore or more from public sector banks and cumulatively owe over Rs 26,000 crore have gone scot free despite not clearing their dues. In another 3,400 cases where loans are of the order of Rs 1 crore or more, the lenders have moved courts and tribunals to recover Rs 21,400 crore.
But there are still concerns over the way banks are using options such as one-time settlement scheme to recover the dues. Investigations have shown that in several instances, it was not a simple case of default but even cheating was involved. Bank executives failed to attach personal assets of directors of companies that had defrauded the banks, sources said.
In fact, in several cases, defaulters have gone ahead to get a second loan despite not clearing their past dues. These facts were brought to the notice of the Central Vigilance Commission by CBI sometime ago after many of its cases fell in the courts when bankers reached one-time settlements with its big defaulters.
In one such case in Patna, a PSU bank auctioned a mortgaged property at 20% of the valuation made by its experts. Investigation had revealed a conspiracy involving bank officials, valuators and the borrower as the property mortgaged was an agricultural land used as security against a commercial loan.
The finance ministry has now asked these banks to spruce up their balance sheets given the fact that nearly Rs 14 lakh crore of credit has been outstanding against big borrowers - those who have borrowed Rs 10 crore and above. There are over 22,500 borrowers who owe over Rs 10 crore to nationalized banks.
The RBI has refused to divulge the names of the defaulters against whom no suits have been filed, citing secrecy clauses.
To help the banks recover bad debts, the government has also brought in a bill seeking changes in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, and in the Recovery of Debts due to Banks and Financial Institutions (RDBF) Act, 1993.
The new bill seeks to provide mandatory registration of mortgages and is expected to help reduce the cost of funds for banks and also reduce NPAs.
This refers to article published in Economic Times on 7th December captioned as "Big borrowers of India Inc default on Rs 47,000 crore loans "
In light of above news I use to ask following questions from authorities who are supposed to take action:--
When loan of value of a few lacs rupees goes bad , accountability is fixed on junior officers , why not senior officers are booked to task when high value loan goes bad?
Who are ED and CMD (working or retired or in pipeline) who willfully avoided action against big defaulters?
What action CVC, CBI or RBI or MOF has taken against these top bankers?
Who are the GMS, DGMs, AGMs and field functionaries who are directly or indirectly responsible for sanction, monitoring and controlling officials who neglected in performing their duties?
Who will compensate if these high value loans become bad and bank has to suffer loss?
Will government carry out investigation of assets of these top bankers and their kith and kin (even if some of them may have patronage of ministers and powerful officials) and confiscate their property if found disproportionate to their annual income?
Will government conduct unbiased inquiry to find out how much money is paid for getting a berth of ED or CMD?
Will government ask IT officials to compare assets of top ranked banker’s with their actual income, will they conduct raid on bankers, minister who provide patronage to corrupt bankers and vigilance officials who give honesty certificate to such corrupt officials after getting some award in return?
Will government clarify why thousands of cases against bankers are pending for disposal for years in the office of CBI, CVC and Anti Corruption bureau even if more than two thousand crores of rupees are involved in such fraud?
Will government justify why they are not providing adequate manpower to such investigating agencies to ensure timely and quick action against top ranked corrupt officials and to prevent continuance of corruption chain in promotion, transfer and posting?
If all CMD and ED are found to be corrupt, will the controlling authorities punish Finance Minister and officials of Banking Division who oversee banks under public sector and who are supposed to ensure good health of banks?Lastly I dare ask a question directly to learned Finance Minister respected Pranab Mukherjee who is advocating employing young officers for top post to lead the banks:his refers to an article published in esteemed newspaper Business Line of 7th December vide link" http://www.thehindubusinessline.com/industry-and-economy/banking/article2692483.ece. In brief "What the Ministry is envisaging is that an exceptionally bright probationary officer, joining a public sector bank at 22, can become a general manager at 40 if he gets promotion once in three years under the ‘merit channel' and go on to head a bank at 45."
Why he is interested to select young officers as CEO or ED or GM, DGM or AGM of bank superseding seniors?
Does he want to do so on ground of merit?
If yes he should first remove non performing officers from the top and give promotion on the basis of seniority instead of giving whimsical powers to members of Interview Panel to sell the promotion as hitherto happening in Public sector banks.
Does he want to introduce, irrigate and promote tradition of flattery in banks as prevalent in government services?
Message for Chairman and Managing Director of all public sector banks:
One cannot cure disease merely by applying ointment on the skin until they purify and modify the system, bring about u-turn in HR management, avoid direct recruitment in higher scale, and identify experienced officers who have been rejected in Interviews by officers of vested interest.
Abolish Interview system and ensure time bound promotions to motivate and judicious award to senior officers,
Don`t humiliate seniors by forcing them to work under juniors, inculcate work culture and avoid flattery culture, stop visiting branches and offices just to deliver lectures and punish officers who are constrained to spend lacs of rupees from bank account to extend red carpet welcome to visiting officers,
Those who deliver good lecture are not always good for health of bank.
Unfortunately banks have gone in the hands of a few executives who have acquired talent in delivering good speech but who are corrupt in their action.
Flattery to big bosses occurs only in India, not elsewhere in the world. Interview system has been abolished in many central government offices; stagnation word is removed from Central pay rules. Inculcate work culture like private banks.
It is shameful for 100 year old PSBs that in less than two decades business of private banks has gone higher than that of many PSBs and customers preference is not PSB but ICICI, HDFC or Axis bank. This should be clear indicator of some fault in HRM. Whimsical powers of transfer and promotion has adversely affected the work culture and it has gone worse than what existed before 1980.
If you do not believe on what has been said above you may compare the business profile of pre-nationalization, post- nationalization and post reformation and draw results to bring about positive change. Prosperity of any organization depends on pleasure index of workers and customers.
It is not pay structure which can create devotion and loyalty to the organization. Had pay been real motivator, PSBs would have remained in better position than private banks because average pay of employees of PSBs is little more than that of private banks.
I therefore always say that flattery culture has spoilt health of banks in public sector , also in all other government offices. BSNL and Indian airlines are facing the same sickness compared to new generation telecom companies and private airlines.
Ministers like flattery and money and hence they do not like poor and honest persons, they too like rich and corrupt who can earn and share their ill earned money with government officials and politicians.CBI and CVC all are victim of flattery culture. Good performers are allwhere sidelined and isolated from mainstream and hence all PSUs are almost sick.
Discard flattery and keep away flatterers, if you want to make your organization strong enough to compete with global giants. Otherwise you will like MMS and his team also prefers FDI for survival of the economy. Indira Gandhi became victim of flatterers and MMS along with Sonia is also suffering from same disease. This is why, India as a whole is rated worst on corruption index by Transparency International. Image of the country is getting eroded year after year only due to all pervasive flattery culture.