Monday, August 31, 2015

Are Public Sector Banks Safe And Sound?

This refers to an article published in Economic Times which reflects how corruption plays a big role in rise in stressed asses in banks. There is no doubt in it that corruption at all levels is root cause of rising stressed assets in banking system and poor recovery of dues from defaulting borrowers. Team of Chartered Accountants, Auditors, Middlemen, Advocates and bank officials all play their role in sanction of loan to unscrupulous loan seekers and then in delayed or non-recovery from a bad borrower or in writing off of loans. First they help in sanction of bad loans and then in helping bad borrowers someway or the other in getting rid of loan or relief in loan.

Politicians have created bad culture in all offices and all departments. Merit is of  little value or of no value in Indian system but flattery and bribery play significant role in all sphere of life. Management of  public sector bank is also victim of this bad culture of flattery and bribery. Honest officers like Ashok Khemka and Durga Nagpal in banks are not only rejected in promotion processes but also posted at far, ineffective, critical  and remote  places. Honesty and good performance result in only disturbance of peace of mind and trouble for family.

Team of Chartered Accountants  who are master in preparation of financial papers needed for sanction of a loan in a bank help borrowers in cheating banks or you say in getting loan in nexus with bank officials , of course with underhand dealings in cash or in kind.  Politicians build pressure on top bankers to favour corporate houses of their choices. Then top officials build pressure on juniors to sanction loans to parties of their choice. Finally a Branch Head sanctions loans to please local musclemen or middlemen to lead a safe and prosperous life. Altogether  , it forms a vicious circle and creates finally a bad culture where good performers think it wise in sitting at back benches and / or keeping them away from all promotion processes or from taking part in credit approval processes or remaining silent spectator of ill-motivated bad decisions of bosses..Quality of credit is often compromised.

Property valuers, architects, chartered engineers , Contractors ,dealers or suppliers in/ of  goods, plants and machineries and various services, all work in nexus with bankers and loan seekers . Bank officials get commission whereas loan seekers get quick disposal and sanction of their loan proposals. Business houses or traders who hesitate in giving money in lieu of loan sanction run from pillar to post and finally get either inadequate loan or get loan after inordinate delay.

When loan accounts turn bad and banks file cases in courts to recover their dues, advocates help bad borrowers in delaying action on cases filed against them by bankers. or else some higher bosses or some political masters recommend writing off of loans or for compromise settlements with bad borrowers thus causing huge loss to banks. When banks face capital shortage , it is Government which provide infusion of capital to sick banks so that real exposure of bank or borrowers or inefficiency of the officers do not take place and all guilty officials are either awarded or exonerated from charges of irregularities  .

Branch Managers who are honest performers will not be provided adequate staff or will be deprived of quality staff. Similarly auditors who write truth about loan accounts and about functioning of branches are either tortured by frequent transfers or their supporting staff are reduced to bare minimum and they are advised to complete audit work in minimum number of days so that they may not go deep into any mal-functioning.

Debt Recovery Tribunals or Certificate offices or Judiciary or CBI or CVC dealing in banks related cases of corruption or court cases related to default are provided with inefficient staff , inadequate number of staff  and inferior infrastructure. Good carpenters have to quarrel with his tools and retire or die. Old proverb 'Bad Carpenters quarrel with tools '  is now changed . In modern era, bad carpenter flourishes by leaps and bounds whereas good carpenters quarrel with his tools.

Lacs of cases are pending in all courts of the country for years and for decades and people are therefore not afraid of court action. Defaulters and criminals are not afraid of law and legal action, rather they use legal procedures to get rid of punishments. Police is not trustworthy like their counterparts in America or elsewhere. Rules and laws and finally, entire legal and administrative set up are moulded, manipulated , managed, misinterpreted , modified to suit defaulters and criminals. This is reality of Great and Lovely India.

Honesty is no more is the best policy. Survival for the fittest is no more a reality. One has to learn the art of cheating with dignity and then only he or she can survive and lead a healthy, wealthy and safe life. One has to learn the art of speaking and delivery of good lectures .One has to learn how to appear to be good and act bad simultaneously. One has to develop expertise in preaching good sermons and then to stab and defraud the system for getting quicker success than ideally good, honest and devoted workers.

I have therefore no doubt that corrupt banking system creates mountain of bad debts and makes the recovery process complicated , delayed and ineffective. It is difficult to single out bankers for such pathetic position of bankers, all related with process of loan sanction and processes for recovery of loan from defaulters are equally and jointly responsible for current mess in banking system. 

Even media men also play their role in adding fuel to fire . They speak the language of  a person or the company who can pay them better for publishing a news. They are least bothered whether published news is correct or incorrect. They can spoil the career of good persons or make a bad person appearing as if He or She is the God. Media men can spoil entire day or week in analysing who murdered and how Indrani was killed. They can publish false news of a company to misguide investors in shares of the company or they can publish a rumour which can tarnish the image of a company or a political party just to get money in lieu of news or to serve the interest of a party whom they like or dislike. They do not understand the implication and complication associated with banking activities or financial discipline of a bank or a company.



The following article published in Economic Times portrays the real picture of bankers and their associates


How corrupt banking system creates a mountain of bad loans & makes recovery process complicated -Economic Times -30th August 2015

In the morning of May 19, 2014, three days after the Lok Sabha poll results were announced, and with a government not quite in place, chaos reigned at the debt recovery tribunal (DRT) in Ballard Estate, the old commercial district of Mumbai. A lawyer, his juniors and his clients were shouting slogans against the presiding officer of what is known as DRT 1, on the 5th floor of Scindia House.

The lawyer wanted to stop presiding officer HV Subba Rao from reading out orders on cases he had already prepared. Subba Rao sat through the din and read out the 10 orders. Then he retired to his chamber and called the police.

In his complaint at the Mata Ramabai Ambedkar Police Station, Subba Rao alleged that a certain lawyer did not want him to pronounce orders in four cases and created a ruckus and made wild allegations to stop him. The police duly arrived, arrested two lawyers and the day ended with little else achieved.

Can’t repay Rs 100 crore to bank? Take 200 crore more, Mr Defaulter -Economic Times 30th August 2015
The fault in our markets, dear reader, is not in China, but in our companies. The government says that India's fiscal and trade deficits are under control; our reserves, over $300 billion, enough to stave off an attack on the rupee.

So, why did Moody's downgrade India's growth projection from 7.3 per cent to 7 per cent last week? Why is lending by banks, a proxy for growth, limping at 8.4 per cent, the lowest in 20 years?

But let that pass. Folks who move billions of dollars ac ..


 
My Opinion On Views Expressed by RBI Governor Mr. R. Rajan-( news given below my write up)

The Reserve Bank of India (RBI) on Thursday 28th August 2015 warned the Government that any delay in reform of the banking system in the country would lead to greater risk in the economy. “The current stress in the banking system suggests that the real economy will not wait for the banking system, and a slow pace of reform could lead to greater, rather than lower risk residing in the banking system,” wrote RBI Governor Raghuram Rajan in his overview of the central bank’s annual report 2014-15.

I am unable to understand for how long Government and RBI will make lame excuses for growing sickness in banking system and simply blame the 'system' or 'so called delay in Reform Process' or' interest rate' or 'global recession'. After all , it is they who have created system during last four to five decades of  their rule since nationalisation. It is they who have taken several reformative steps for banks since 1991 in the name of privatisation, reformation, liberalisation and globalisation.

It is RBI which gave full freedom to banks on Interest rate structure. It is Government which forces banks to reduce Interest rate on various agriculture loans or educational loans or export loans. Further it is they who can apply Uniform Interest Rate regime if they like to curtail and reduce loss caused to banking system due to unhealthy and unwarranted competition among sister banks in setting framework and structure for interest rates. I have advocated uniform interest regime since long through my letters and blogs. But it is policy of reformation which stops RBI in snatching freedom of banks.

RBI want stability in interest rate and sticking to base rate whereas  GOI want concession for various sectors of loans. Why do they blame each other on interest rate, I do not know.

If they like they can fix interest rate for various sectors as per national priorities instead of blaming each other .
If they like they can stop unhealthy practice of various banks offering interest concession to take over a loan from other bank.
If only reduction in interest rate can help banks in coming out of sickness or help banks in achieving credit growth or can help the country in GDP growth , RBI and GOI are empowered to impose their rate structure on banks .
After all freedom to bank is not much significant as it is growth of the country and safety of banks.
It is they who have been claiming since log that Indian banking system is performing well despite crisis in USA or elsewhere or despite economic recession in the country.

While talking on financial sector, Dr. Rajan said that “we need to increase efficiency through greater entry and competition.” I am unable to understand what type of competition he means to advocate for PSBs. Public sector banks are already competing with each other and causing loss in the name of credit growth. They are in competition with new generation private banks since 1991 and they are to face the same with newly branded Payment banks.


Competition could not increase efficiency of PSBs even after all freedom they have been  enjoying since 1991 in the name of reformation. What further reformation RBI mean to further add to banking system?

It is crystal clear to me and many bankers that unwarranted competition only cannot improve the efficiency of bank officers until there is drastic change in the attitude of top officials and top politicians of the country who give  less value to merit in practice but more value to flattery and bribery like values of workforce.

It is ill-motivated management of top bank officials , RBI officials and politicians which have created, irrigated and promoted  a culture of flattery and which promotes torturous transfers to good performers and rejection of good officers in promotion processes. It is absolute untrue, incorrect  and wrong to say that there is shortage of talented manpower in banks or that in middle management or higher management. There is no shortage of talented staff  in any cadre or in an scale in any bank. Need of the hour is to recognise them . Unless there is change in attitude of top officials and political masters one cannot dream of perfect recognition and respect to merit ,honesty and true performance.



According to Rajan, psu banks are in a disadvantages position also because of skilled manpower. "Because PSBs compete in the same market place for talent as do private sector banks and foreign banks, and may skill gaps are increasing tat the middle management levels because of past hiring freezes, they will be unnecessarily hampered if they are unable to pay appropriate compensation to the middle and senior managers as well as board members," said Rajan.

I would like to say here that only upto eighties banks were giving promotions based on seniority and transferring officers strictly as per potential of the worker .People , top bankers used to give value to experience and seniority. People in all scales were motivated . But when bad debts started increasing in banks due to politics based lending in seventies and eighties , clever and shrewd bank management instead of accepting and telling the truth blamed policy of seniority based promotion .

After 1991 reforms in the country , bank management got full freedom to make their own Merit based promotion policy , recruitment policy and transfer policy. Each bank since then framed merit based promotion policy and for last two decades there is no pressure by trade union leaders to give promotion to seniors. Rather it is trade Union leaders and top officials who jointly decide the name of officers to be promoted or to be transferred to remote and critical places . All the exercises like Annual Appraisal System, Interview Process , Group Discussion which are undertaken in the name of so called merit orintd promotion processes to identify and discover merit are farce , false and to commit fraud with honest workers. Entire process is misused by corrupt top officials and top trade union leaders to give elevation to flatterers and to reject honest workers. Otherwise , there is no such a well proved yardstick or pathological test or psychological test which can detect and discover merit in two minute interview of an officer.

Not only this , corrupt bankers sitting at the top recruited officer in higher scales directly. An officer working in the bank for decades are not promoted from scale I to scale II or scale III or scale IV. But an officer who works in another public sector banks and who has experience of only one two years but who have good rapport with some VIP are picked up for recruitment directly in scale II or III. Further to add fuel to fire, top ranked corrupt officers of PSBs recruited officer directly from colleges and educational CAMPUSES directly in scale II or III in the name of merit. In this way the offered higher salary package to directly recruited officers as compared to officers working in their own banks for decades.

Offices and clerks in the same banks are stagnating without promotions for decades whereas persons of little or no experience are picked up from other banks or educational institutes of choice of top officials or top politicians. It is only after 2013 Supreme Court order that PSBs stopped recruitment from campuses  in middle management  . But the are still recruiting officers from other banks in the name of specialist .RBI Governor is therefore not justified in saying that PSBs are constrained to pick talented guys from markets as their peer banks in private and foreign banks are doings. One cannot believe that heaven has fallen during last two years of ban on campus recruitment for which RBI is insisting and for which PSB management is pleading.



The Reserve Bank of India (RBI) has however rightly criticised the promoters of large companies, saying they take undue advantage of banks’ fear of  NPA “Some large promoters take advantage of bankers’ fears about assets turning non-performing to extract unwarranted concessions, without any sacrifice in the value of their stake,” said RBI in its annual report.

I have been writing in my letters and blogs since long that bank management is busy in hiding bad loans . They are least concerned about real recovery , they want to pass their time somehow or the other . There is mad rush for restructure of bad advances near closing  not always at the request of bad borrowers or as per need of the project but to save some corrupt bankers or to achieve target fixed for bad debts. Culture of fixing target for bad debts or for recovery itself is ridiculous and promotes fraud culture . Officers are taught various methods to hide bad debts on phone .

It is also true that legal system , administrative machinery and political culture also do not support a banker in recovery of loan from bad borrowers but it is also true that the culture of delay in telling spade a spade, that is telling a bad loan as bad causes loss to bank to great extent . 

It is undoubtedly true that  bad bank officers get rid of punitive action if bad loans are concealed by using various tools. But it is also true that promoters of bad projects take advantage of this bad culture in bank of hiding bad loans. I fully agree with RBI Governor in this regard. 
 
“The judicial process, despite a variety of creditor-friendly Bills like the Sarfaesi Act, further tends to hamper the ability of creditors to collect their just dues from influential promoters,” .
RBI has also been nudging banks for early recognition of NPAs so that provisions can be made accordingly. Regulatory forbearance, where RBI makes it easy for banks to extend and pretend, is not a solution, it added in the report. I fully endorse the views of the Governor on this score.

But I am unable to understand why lacs of cases filed in various local courts of various states by various banks to recover money from small defaulting borrowers are pending for final disposals for years and decades . Local certificates cases are supposed to be decided in 90 days to six months. I am unable to understand why thousands of cases filed in various Debt Recovery Tribunals in various states are pending for years whereas they are supposed to recover the money in six months. I am unable to understand why banks delay in taking action under SARFAECI act against high value borrowers and if they file , why administrative and police system fail to provide support to bankers in taking possession of properties of defaulting borrowers. Why banks have failed to confiscate the properties of giant borrower like Kingfisher for years and years? Why there is so much complication in treating a default as wilful default? 

Why RBI and GOI failed to take proper  , adequate and timely care of problems faced by banks in recovery of dues from defaulting companies . Banks are to face pathetic position in recovery of dues both from small borrowers and big borrowers , either due to emotions attached to the person or due to pressure from higher offices or due to political reasons or save their own colleagues or to give a safe exit to retiring officer of the bank. What action RBI and GOI have taken to cure such malpractices or modify and activate the defunct legal and administrative system ? Both of them preach sermons to bankers from time to time but never bothered to nail the real culprit or to rectify the fallacies of the system.
 
Further  RBI and, even the government had questioned banks asking them to explain their reluctance in cutting base rate. Bankers say the increase in bad loans has been putting pressure on the margins as increasingly the interest-earning assets are slipping into the non-performing class. This has deterred banks from cutting loan rates. I am strong view that reduction in interest rate is not going to help banks in any way , it will simply reduce their capacity to earn profit . Banks are incurring huge loss due to rise in bad debts and actual yield on advances is falling year after year and volume of provisioning and sacrifice in write off and compromise is on rise year after year.
 

I salute Reserve Bank of India governor Raghuram Rajan who has taken on the government for thrusting the Jan Dhan Yojana on public sector banks and has called for compensating the PSU lenders. RBI Governor says
'. "We should recognise that PSBs undertake public interest activities (like the rollout of accounts under the Pradhan Mantri Jan Dhan Yojana) that are not always fully compensated. Government should endeavor to keep the competitive playing field level by fully compensating banks for activities it wants undertaken in the public interest," the governor said in his review.

I would like to add here that various schemes of various government has played great role in polluting the banking culture . Banks are no more interested in safeguarding banks but more interested in developing relation with ministers and important politicians. IF PM or FM of the country verbally or in written order ask banks to open accounts with zero balance, entire team of ban staff of all banks stand focussed on opening of bank accounts only jeopardising the other important tasks .

Bank are meant for getting deposits and then lending to needy . But banks are more engaged in non-banking activities and not getting time to safeguard their assets.

This is why I usually say that bank officers in general work not for the bank but for their  bosses who can make or mar their career. Untimely and quicker promotion to an ineligible officer in supersession to other senior and better officer give rise to bad culture and demotivate good workers. This give rise to flattery and bribery and this very culture is root cause of many sickness in PSBs in particular or in all PSUs in general.

Jaitley is right, bank NPAs are unacceptably high and so an RBI rate cut won't be of much use. The clamour for another rate cut from the Reserve Bank of India (RBI) has strengthened with Finance Minister Arun Jaitley stepping up pressure on governor Raghuram Rajan to cut rates, citing falling inflation. But will a quarter percentage point rate cut prompt banks to cut their rates further?

The answer is certainly no. Cut in repo rate by RBI from time to time may help in easing liquidity of banks to some extent but does not help in reducing cost of fund to a desirable extent. This is why banks are ignoring the signals given by RBI towards interest rate reduction. If RBI still feels that there is scope of rate curtailment and banks are wilfully neglecting advices given by RBI, they should peep into interest cost of one or more bank  and  particularly big banks like SBI , PNB , BOB to ascertain the real cost of fund and to find out whether there is scope for rate cut for them. If any bank is found to be negligent, the CMD of that banks along with top officials my be brought to sever task.

It is futile to give statement in newspaper from time to time and remain silent spectator of indifference of banks in this regard. After all GOI is big owner of PSBs and RBI is duty bound to take all possible step to protect banks and thus protect the interest of depositors, taxpayers and money of investors.FM of all government of all times promised to save banks from disaster and more emphatically after 2008 sub-rime crisis of America. Similarly Governors of RBI  have committed themselves to protect bank form all risks. But sickness of banks is growing day after day and year after year. No sign of improvement is visible to common man or matured bankers. After retirement or when top officials are on the verge of retirement, they tell the truth of banks. We have glaring examples of SBI chairman of last few years.

Whatsoever may be the reason or whoever may be at fault for present pathetic position of banks, sickness of banks is gradually growing .  Government of India has meged more than half of Rural banks with parent banks,  when parent bank become ill, they are merged with bigger bank , but when banks like SBI will fail , what poor government will do.After all if any bank, private or public sink sinks, it is public who are to face the consequences.

In my opinion, interest rate was never a problem for any bank and neither good borrowers are afraid of any rise in interest rates. It is rather a bitter truth that accumulated bad debts of all banks which appear in current balance sheets of all banks are not creation of a year or two but they are accumulated during one or two decades and  long overdue but surfaced in last few years only because banks introduced Core Banking Solution. Majority of bad debts or stressed assets pertain to period when low interest rate was prevalent in banks in the name of reformation.

I submit below the important news of Today for your ready reference.

RBI asks Govt to speed up reforms in banking system-The Hindu 28th August 2015

 
Need to increase efficiency through greater entry and competition, says Raghuram Rajan.   The Reserve Bank of India (RBI) on Thursday warned the Government that any delay in reform of the banking system in the country would lead to greater risk in the economy. "The current stress in the banking system suggests that the real economy will not wait for the banking system, and a slow pace of reform could lead to greater, rather than lower risk residing in the banking system," wrote RBI Governor Raghuram Rajan in his overview of the central bank’s annual report 2014-15.
 
"Financial sector reforms need to move on many fronts," said Dr. Rajan, adding, "for a country as big and populous as India, reforms cannot be shots in the dark, subjecting the economy to great uncertainty and risk." "Wherever possible, we have to move steadily but firmly, ever expanding the scope of reforms while always limiting the uncertainty they create. The Chinese term this ‘Crossing the river by feeling the stones’. It is an appropriate metaphor to guide our own reforms," he added.

While talking on financial sector, Dr. Rajan said that "we need to increase efficiency through greater entry and competition."

The most appropriate institutions will prevail when the competitive arena is level, so we have to remove regulatory privileges as well as impediments wherever possible, especially those that are biased towards some form of ownership or some particular institutional form.

Dr. Rajan also stressed the need for more participation in the country’s financial markets to increase their size, depth, and liquidity.

"Participation is best enhanced not through subventions and subsidies but by creating supporting frameworks that improve transparency, contract enforcement, and protections for market participants against abusive practices," he added. According to RBI Governor, technology can be very helpful in reducing the costs of supportive frameworks, and can bring hitherto excluded populations into the financial fold. "It is these ideas that guide our medium-term reform strategy."
 
 
Jaitley is right, bank NPAs are unacceptably high and so an RBI rate cut won't be of much use--- First Business
 
 
The clamour for another rate cut from the Reserve Bank of India (RBI) has strengthened with Finance Minister Arun Jaitley stepping up pressure on governor Raghuram Rajan to cut rates, citing falling inflation. But will a quarter percentage point rate cut prompt banks to cut their rates further? The answer is probably no.



Promoters taking advantage of banks in NPA resolution: RBI-Business Standard
 
The report added that apart from the banks, since no other stakeholders are interested in resolving the case, it delays the resolution further 



The Reserve Bank of India (RBI) has criticised the promoters of large companies, saying they take undue advantage of banks’ fear of
"Some large promoters take advantage of bankers’ fears about assets turning non-performing to extract unwarranted concessions, without any sacrifice in the value of their stake," said RBI in its annual report.
The central bank said though it had tried to get the struck projects back on track, certain challenges such as banks' reluctance to label an asset as
NPA leading to a fall in profitability has been an impediment in reaching a speedy resolution. The report also added that apart from the banks, since no other stakeholder promoter, tariff authorities and tax authorities are interested in resolving the case, it delays the resolution further."The judicial process, despite a variety of creditor-friendly Bills like the Sarfaesi Act, further tends to hamper the ability of creditors to collect their just dues from influential promoters," the report stated.
RBI has also been nudging banks for early recognition of NPAs so that provisions can be made accordingly. Regulatory forbearance, where RBI makes it easy for banks to extend and pretend, is not a solution, it added in the report
According to RBI, the overall stressed advances in the system have inched up to 11.1 per cent at the end of March 2015 compared with 10 per cent a year ago. Apart from this, RBI also once again pointed out that there is a mismatch in the rate at which the central bank reduced the key policy rates and banks brought down the base rate. Base rate is the benchmark rate to which all loan rates are linked. "The willingness of banks to cut base rates
whereby they forego income on existing borrowers in order to attract more new business is muted," said the report. In this calendar year, RBI has reduced repo rate (the rate at which it lends to banks) by 75 basis points (bps) whereas banks have reduced the base rate by only 25-30bps.Not only RBI, even the government had questioned banks asking them to explain their reluctance in cutting base rate.

Bankers say the increase in
bad loans has been putting pressure on the margins as increasingly the interest-earning assets are slipping into the non-performing class. This has deterred banks from cutting loan rates.





RBI governor calls for PSBs to be compensated for social initiatives-Times of India 28.08.15
 

 






MUMBAI: Reserve Bank of India governor Raghuram Rajan has taken on the government for thrusting the Jan Dhan Yojana on public sector banks and has called for compensating the PSU lenders.
This observation from Rajan comes in the central bank's annual report which has a new section - 'Governor's overview
'. "We should recognise that PSBs undertake public interest activities (like the rollout of accounts under the Pradhan Mantri Jan Dhan Yojana) that are not always fully compensated. Government should endeavor to keep the competitive playing field level by fully compensating banks for activities it wants undertaken in the public interest," the governor said in his review.
The Jan Dhan Yojana has been trumped as a major achievement by the NDA government. The scheme allowed every unbanked person to open a basic bank account with zero balance requirement and avail of a debit card, Rs 1 lakh accident insurance cover, Rs 30,000 life insurance and an overdraft facility after satisfactory operation of the account for six months. In FY15 public sector banks opened 16.57 crore accounts under this scheme. Over 10 crore of the accounts are in rural areas and 45% of them have zero balance in them. The total deposits mobilized through the scheme was Rs 22647.35 crore. PSU banks have said that zero balance accounts are a drain on their resources but express hope that direct benefit transfers would improve cash balances.



Acknowledging that the JDY had given a fillip to financial inclusion Rajan said that the government needs to ensure activity in these accounts by rooling out DBT for all payments. Also banks need to start rolling out credit products after due diligence and strengthen their business corresponent network and increase awareness through financial literacy drives.
According to Rajan, psu banks are in a disadvantages position also because of skilled manpower. "Because PSBs compete in the same market place for talent as do private sector banks and foreign banks, and may skill gaps are increasing tat the middle management levels because of past hiring freezes, they will be unnecessarily hampered if they are unable to pay appropriate compensation to the middle and senior managers as well as board members," said Rajan. He added that the higher compensation should be with higher accountability and cost rationalization to bring overall costs in line with private banks.

Rajan said that the central bank on its part RBI has stepped away from micromanaging the functions of public sector bank boards through regulations and allowed board to determine how they will carry out their responsibilities for strategic planning, risk management, and accounting. RBI has also liberalised the compensation of private bank Board members, while maintaining some checks, to ensure Board members are properly incentivized," he said in the review



 

 
http://www.business-standard.com/article/finance/promoters-taking-advantage-of-banks-in-npa-resolution-rbi-115082701009_1.html

http://timesofindia.indiatimes.com/business/india-business/RBI-governor-calls-for-PSBs-to-be-compensated-for-social-initiatives/articleshow/48703739.cms

Private banks cannibalising business of PSU banks:
SBI chief...
Arundhati Bhattacharya


MUMBAI: Chairman of State Bank of India(SBI) Arundhati Bhattacharya said that private banks are doing well because they are cannibalising the customer base of PSU banks and warned that they will have to be prepared for a stiff competition from their peers.

"Its a dog eat dog world," SBI chief said while urging the government to provide more capital for growth as private banks are taking away the business they funded in to support the economic growth during 2008-09 boom.

"If we had not been supporting business during 2008-09, boom would not have happened, infrastructure you see today would not have happened if the government did not have PSBs then. Why did the private sector not participate? Because they saw the risk and stayed out," she speaking at a seminar organised by Indian Banks' Association and industry body Ficci.

"Today why is the private sector growing at 22%? Because they are cannibalising the completed projects at low cost (because) risks have gone down. They may not be able to cannibalise me because I am big. But they are cannibalising the smaller banks," she added. Government owned SBI has a market share of 20% in terms of deposits and advances.

Comments from Ms Bhattacharya comes at a time when at least a dozen of new private banks are making entry into the banking system. The Reserve Bank of India has recently given in-principle approval to 11 candidates to start Payments Banks and two banks - IDFC and Bandhan to start full fledge banking operations.

Further 6-7 aspirants are likely to receive approval from the banking regulator to start small bank- where they would offer small ticket loans. She said, "I am not sure how much capital new private banks will have to burn."

She indicated that the payments banks have a better advantage over existing banks as they ' do not have legacy issues' while the full fledged private bank are better positioned since 'they are not held hostage by industry agreements'. At present, wages at PSU banks are decided based on negotiation with unions and not performance linked.

She also warned about PSU banks may face further risk if they do not receive capital for growth. "Risks are back and I think we need to get our understanding very clear as to what the PSU banks are doing. I do not agree that the government has given us enough capital. They should look at the Chinese banks for the kind of capital they have got."

A fortnight ago, government announced that it would give Rs 70,000 crore to PSU banks over the next three years of which Rs 25,000 crore would be given this fiscal year.

Stress loans have risen sharply in the recent years, particularly for public sector bank has been a cause of concerns for investors and regulator. data complied by ETIG shows that the the gross non-performing assets for private banks stood at Rs 34,805 crore, which is one tenth of PSU banks which is at Rs 296321.4 crore as on June end 2015. due to higher level of stress loans, for the first time, private banks outperformed PSU banks for the quarter ending June 2015-16.

SBI Chairman Told a Few Weeks Ago 11.08.2015

SBI sees bad loan pressures easing
State Bank of India (SBI) expects pressure from struggling borrowers to ease as the economy recovers after the strain on India's smaller firms pushed its bad debts higher in the three months to June.
A slightly wider bad loan ratio in the quarter, and a 53 percent sequential rise in new bad loans, hit shares in the country's largest bank by assets, sending them down nearly 5 percent on the day.
Indian banks have been hobbled by their heaviest bad loan burden in a decade as a prolonged economic slowdown squeezed companies' ability to service debt. That also choked new investments, lowering demand for bank credit.
http://www.reuters.com/article/2015/08/11/state-bank-india-results-idUSKCN0QG0KW20150811

High bad debts temporary: SBI-15.12.2014-NDTV
Mumbai:
Attributing rising bad debts to economic slowdown, State Bank of India (SBI) today said high Non-Performing Assets (NPAs) are 'temporary'.  
   
"NPAs continue to be a challenge. But I don't want to put a number to it. I can only tell you that large part of the NPAs is really because of the external economy and I would think that they are temporary only," SBI Managing Director Diwakar Gupta told reporters on the sidelines of the Delhi Economics Conclave here.

SBI's NPAs rose to 5.15 per cent in the second quarter ended September, from 4.19 per cent over the year-ago period because of deteriorating asset quality.
He said the bank has made adequate provisioning norms. 

"We have been providing in excess of the prudential provisions. Whatever Reserve Bank asked us to provide, we have been providing that, plus a little more." Gupta said.
The Reserve Bank recently increased the provisioning for standard restructured assets for banks to 2.75 per cent from 2 per cent.

SBI sees bad debt stress easing-01.07.2014

State Bank of India has said that the bad debt situation is improving, but there is no magic wand to deal with it. The public sector bank’s bad debts rose to ₹61,605.35 crore or 4.95 per cent of total advances at the end of March, from ₹51,189.39 crore or 4.75 per cent in 2012-13.

When asked about the current situation, the Chairperson of the bank, Arundhati Bhattacharya, said, “We are seeing some lessening of stress but...there is no magic wand, we have to work our way through. As the GDP goes up, and demand goes up, the capital market will begin to respond. Once people are able to raise equity, we will see things becoming better.” She was addressing the media after inaugurating SBI’s digital branches.
 
Elaborating on this, Pradeep Kumar, MD and Group Executive (Corporate Banking), SBI, said one of the customers, a power company, came out with a qualified institutional placement (QIP) and it was subscribed twice, while another power company is coming out with a QIP.
 
“A couple of EPC companies are also planning rights offerings and I have talked to some private equity investors in these companieswho are also willing to participate in these offerings. I think the market is slowly beginning to respond to growth. I think this is a big plus for the banking industry,” he said.
 
Bhattacharya said the bank has to work on multiple kinds of solutions. “We will do all we can take. The fact is that we are very much in control; we know what is going wrong and where. We know what is to be done. We are trying to address those issues,” she said.
Interest rates

On interest rates, Bhattacharya said it was stable at this point. Asked about fund-raising plans, she said, “I don’t need it. I will have to check credit growth and then decide (in) another four months. We would need it should there be lot of demand for credit.” Once credit demand picks up, she said, “We have lot of options, including rights, QIP and FPO, so everything is on the table. At this point in time, we have not finalised anything.”
 
SBI raised ₹8,032 crore in January by selling 5.13 crore shares through a QIP.

http://profit.ndtv.com/news/banking-finance/article-high-bad-debts-temporary-sbi-314787

My Observation submitted a few days ago

RBI has advised bank boards to do detailed scrutiny of their quarterly and annual financial results during board discussions. It appears to be nothing more than ridiculous and a clever step by RBI to put the onus of correctness and genuineness of financial result on bank boards .

It is the duty of RBI to ensure correctness of financial results announced by various banks including private banks to avoid repetition of stories like that of Satyam Computers. It is the duty of RBI to carry out random checking of bank financials and internal working from time to time to create good culture and to stop fraud and manipulation in banks. RBI officials used to audit in seventies and eighties but gradually they stopped this culture because they are also not adequately manned to cope with the work load needed to properly audit thousands of branches .It is therefore not surprising they too shake hands with clever bank officials and indirectly favour culture of manipulation. Even politicians do not like exposure of bad health of banks .They all are birds of same feather.

RBI is therefore bent upon avoiding owning the responsibility of fraudulent games played by CEOs of banks in hiding bad assets. RBI officials understand very well that huge volume of stressed assets in Public sector banks is concealed by bank officials in nexus with team of Chartered Accountants who certify the correctness of financial results, correctness of profit , provision and bad assets.

RBI also knows very well that volume of bad assets will continue to rise every quarter and no power on earth can stop it , can reduce the speed of assets turning bad until there is change of hearts and change in attitude of credit officials of banks, change in mindset of dirty politicians who are least bothered of quality of assets but more concerned about vote bank and lending and until there is change of heart of officials and magistrates sitting in various administrative offices, courts, police department, DRTc etc.

Here it would like to add here that it is the team of Charted Accountants who are supposed to be more intelligent and talented and who are the competent and legal bodies to certify the correctness of financials of all companies and banks, certify bad assets as standard assets in nexus with bank officials and in lieu of some costly gifts and red carpet welcome extended to them by bank officials..

It is CAs who guide banks how to conceal bad advances , how to lend money to bad borrowers, how to manipulate financials to inflate profit and reduce provisions against bad loans. It is team of CAs who guide business men how to evade tax and how to use black money in real estate or in business itself. It is team of CAs who sign on balance sheet of branches of banks blindly or in greed of some valuable gifts. It is team of CAs who sell their signature at every point of business , at every point of compliance and certification. Gift culture at all levels make the case of certification easy .

Bank officials have been in habit of concealing bad asses to please their bosses, A Branch Manager of a branch try to please his Regional Head,, a RH may try to please his Zonal Head and all try to keep the Chief of Bank in good mood and for this purpose they all have to conceal bad assets .If any officer or any team of CAs dare declaring bad assets as bad asset truly, their career is sure to be doomed. O the contrary officers and CAs who are clever in concealing bad debts are promoted and their career is brightened.

Every quarter bank Chiefs promise that the health of bank will improve from next quarter . They book good profit in one quarter and show drastic fall in profit in next quarter. This clever hide and seek game of figures has been continuing for last ten years and specially after from the period when bank became technology friendly .

The bitter truth is that neither RBI , nor bank officials, nor team of CAs and nor politicians want to say spade a spade . They all are so called positive-minded and it is their compulsion to show banks as healthy so that evil works are not exposed. It is their compulsion to conceal bad assets and to book more and more false profits and projects banks as prosperous so that investors and customers of banks do not lose trust on PS banks.

If a NPA of a bank rises, investors will avoid investing in share of such banks, business men will not like to park their fund in such banks and will not like to borrower money from such banks, RBI officials will have to face the awkward position before ministers, and finally politicians will have to face the anger of common men whose hard earned money will be at stake in case of bank going weak and finally sink.

It is therefore wrong to believe that bank board will be able to find out or detect the fraud game played by CAs and clever bank officials . After all , if they say bad assets as bad , it will tantamount to digging own grave. When protectors become looters, none can save us from disaster. When team of CAs can be bought , when bank officials are bought, when legal officials are bought ,when politicians are bought and when every good certificate of good health can be bought by every officer , RBI should not expect correctness of financials of any bank in particular and any company in general .

Similarly art of Tax evasion taught by CAs to business community help in creation of black money in the system in nexus with tax officials, Hence it will be wrong to blame business community or any individual for tax evasion or for buying a landed property at higher rate but registering at lower rate using black money. It is a well established culture in India and to stop the same is nothing but hard nut to crack . Even politicians cannot survive without black money , how others will stop playing with powers of black money. Culture of flattery will end as soon as culture of dishonesty is stopped. None will like it from core of their heart . All want others to be his or her yesman .

If RBI officials , to begin with ,make a through scrutiny of all accounts of all borrowers who have been enjoying credit facility of more than 100 or 50 crore , the bitter truth of bad debts will come to surface, provided however that bank officials are kept miles away from the place where scrutiny is taking place and provided talented team of CAs are not allowed to talk to any borrower and any bank officials during the period of audit and inspection and entire task is conducted before CCTV and financially expert team of media men.

If RBI does not have enough manpower even to make scrutiny of Rs.100 crore borrower, they may start the task with scrutiny of books of best five banks . If it is proved that banks considered as best performers are best only due to best manipulation and fraudulent placing of figures only , it will become crystal clear to all concerned that the crisis in public bank is more deep rooted , bad culture is imbibed in DNA of all concerned and to stop the culture of manipulation in PS banks is nothing but wondering in dreamland.

It is worthwhile to mention here that proposals of loans and advances of Rs.50 crore or Rs.100 crore and above are sanctioned by none other than bank boards . It is bank boards which are supposed to monitor the health of high value loans . How it is then possible for such bank boards to doubt financials certified by CAs ? It is just like asking a thief to investigate the act of stealing and punish the culprit. There is invariably an unity among dishonest and corrupt officials . They all try to save each other in their mutual self interest.

If a Branch Head says that loan sanctioned by his predecessor is bad due to bad lending or bribe led lending, he will have to face the same precarious situation when his successor joins his branch after his transfer. As such each officer thinks it better and safe to hide bad loans by hook or by crook to save his colleague from punitive action and to avoid rejection in promotion processes. This culture is well established at all levels of management.
An Appeal to Government of India on Window Dressing
From time to time RBI and Government of India have asked and advised public sector banks to refrain from window dressing in deposits and advances. Still bank officials indulge in window dressing every quarter and this has been happening for decades. Window dressing is nothing but artificial inflating of business and reduction of stressed assets. Bank officials inflate deposits in the last week of quarter or year and the same comes down in the first week of next quarter or year . Similarly they inflate figures of advances in the last week and get appreciation and awards from their bosses and from Ministers. This results in undue award to non performers and unjustified punishment to real performers. Similarly on the front of bad assets and stressed assets, bankers hide bad assets by using the tools of rephrasing, restructuring and through evergreening of loan processes . Due to this timely action is not initiated against defaulters and during this time , defaulters disposes off the assets and then pray for compromise settlement or write off of the dues. In this way Recovery from defaulters is adversely affected. Ultimately it is the government of India which has to suffer. It is taxpayers money which is infused in bank to protect them from falling due to mismanagement of bank officials or due to exploitation of banks by politicians. I add politicians because it is they who have been misusing banks for political advantages during each government in some way or the other. It is politicians who have damaged the banking culture.by their ill motivated advices and by suggesting writing off of loan for political gain. Will you act against who have indulged in window dressing in the quarter ended June 15 despite your instruction not to do so in the same month? It is important to say here that GOI can make real plan based on real figures only and similarly bank can recover bad money only if they take timely action. Lastly I may add here that banking is a service industry and one cannot judge the performance of any individual based on figures. There are several Branch Heads or Bank heads who achieve the targeted figure somehow or the other but the customers of the branch and bank are not happy with the service extended .It may be these achievers who have added major portion of bad assets in their bank. Here I would like to give an illustration TO substantiate my views. Suppose I am Branch Manager of a branch or Chief of a bank. I indulge in bribe based lending and achieve the advance well in advance. Then I use a little part of the ill earned money to buy deposits from government departments and public sector undertakings who have surplus funds and who can keep bulk deposits in my branch or in may bank, I can achieve and surpass even the target set for deposits. In this way I will be considered as good performer by my bosses, I will earn cash incentive and get quicker promotions. On the contrary those who have lagged behind the target or who have contributed lesser business by good means and by extending best services to customers may be rejected in cash incentives and in career. But in the long run, advance made by me may become bad assets and cause huge loss to bank and force bank to arrange for larger capital. Customers may be dissatisfied with services extended from my branch because I focused on only few high value customers and neglected common men .Growth achieved may not be long lasting and stable. On the contrary , a person who did quality lending and who focused on retail business did the best for the health of the bank .His advances may remain standard healthy for years and decades. Bank may earn consistent income from such quality lending . Future of bank depends not on figures but on quality of service it extends. Good culture is more important than good figures a bank achieves. Respect and recognition of real good performers can only help in giving permanent growth and consistent profit to a bank or a branch. Similarly wrong lending to achieve the target may give some temporary relief to political masters for temporary period but in the long run even persons like Devi Lal , V P Singh, Janardhan Pujari or Chidambram who promoted Loan Mela or Loan waivers used for for vote gain were rejected in election by voters. IN the same way bank officials who resort to evil means to achieve the target are trapped in corrupt dealing sooner or later or punished by almighty GOD in later part of life. A Student who passed the examinations of his life by using unfair means may not necessarily get success in real life. A person may get job by using unfair means may be rejected by employer in short period. A bank may book inflated profit and book higher growth in business by using window dressing and by concealing stressed assets but sooner or the later the bank is exposed and subjected to hard medicine and surgical operation to survive or merged with some other bank . Unfair means in any sphere of life has bad outcome . There is no substitute to truth and real growth .
Click Here to Read My Blog on Window Dressing
 
My Blog of 2013 on rising NPA in SBI
 

 
 
 

Friday, August 28, 2015

Who Will Cure Sick Banks

The Reserve Bank of India (RBI) on Thursday 28th August 2015 warned the Government that any delay in reform of the banking system in the country would lead to greater risk in the economy. “The current stress in the banking system suggests that the real economy will not wait for the banking system, and a slow pace of reform could lead to greater, rather than lower risk residing in the banking system,” wrote RBI Governor Raghuram Rajan in his overview of the central bank’s annual report 2014-15.

I am unable to understand for how long Government and RBI will make lame excuses for growing sickness in banking system and simply blame the 'system' or 'so called delay in Reform Process' or' interest rate' or 'global recession'. After all , it is they who have created system during last four to five decades of  their rule since nationalisation. It is they who have taken several reformative steps for banks since 1991 in the name of privatisation, reformation, liberalisation and globalisation.

It is RBI which gave full freedom to banks on Interest rate structure. It is Government which forces banks to reduce Interest rate on various agriculture loans or educational loans or export loans. Further it is they who can apply Uniform Interest Rate regime if they like to curtail and reduce loss caused to banking system due to unhealthy and unwarranted competition among sister banks in setting framework and structure for interest rates. I have advocated uniform interest regime since long through my letters and blogs. But it is policy of reformation which stops RBI in snatching freedom of banks.

RBI want stability in interest rate and sticking to base rate whereas  GOI want concession for various sectors of loans. Why do they blame each other on interest rate, I do not know.

If they like they can fix interest rate for various sectors as per national priorities instead of blaming each other .
If they like they can stop unhealthy practice of various banks offering interest concession to take over a loan from other bank.
If only reduction in interest rate can help banks in coming out of sickness or help banks in achieving credit growth or can help the country in GDP growth , RBI and GOI are empowered to impose their rate structure on banks .
After all freedom to bank is not much significant as it is growth of the country and safety of banks.
It is they who have been claiming since log that Indian banking system is performing well despite crisis in USA or elsewhere or despite economic recession in the country.

While talking on financial sector, Dr. Rajan said that “we need to increase efficiency through greater entry and competition.” I am unable to understand what type of competition he means to advocate for PSBs. Public sector banks are already competing with each other and causing loss in the name of credit growth. They are in competition with new generation private banks since 1991 and they are to face the same with newly branded Payment banks.


Competition could not increase efficiency of PSBs even after all freedom they have been  enjoying since 1991 in the name of reformation. What further reformation RBI mean to further add to banking system?

It is crystal clear to me and many bankers that unwarranted competition only cannot improve the efficiency of bank officers until there is drastic change in the attitude of top officials and top politicians of the country who give  less value to merit in practice but more value to flattery and bribery like values of workforce.

It is ill-motivated management of top bank officials , RBI officials and politicians which have created, irrigated and promoted  a culture of flattery and which promotes torturous transfers to good performers and rejection of good officers in promotion processes. It is absolute untrue, incorrect  and wrong to say that there is shortage of talented manpower in banks or that in middle management or higher management. There is no shortage of talented staff  in any cadre or in an scale in any bank. Need of the hour is to recognise them . Unless there is change in attitude of top officials and political masters one cannot dream of perfect recognition and respect to merit ,honesty and true performance.



According to Rajan, psu banks are in a disadvantages position also because of skilled manpower. "Because PSBs compete in the same market place for talent as do private sector banks and foreign banks, and may skill gaps are increasing tat the middle management levels because of past hiring freezes, they will be unnecessarily hampered if they are unable to pay appropriate compensation to the middle and senior managers as well as board members," said Rajan.

I would like to say here that only upto eighties banks were giving promotions based on seniority and transferring officers strictly as per potential of the worker .People , top bankers used to give value to experience and seniority. People in all scales were motivated . But when bad debts started increasing in banks due to politics based lending in seventies and eighties , clever and shrewd bank management instead of accepting and telling the truth blamed policy of seniority based promotion .

After 1991 reforms in the country , bank management got full freedom to make their own Merit based promotion policy , recruitment policy and transfer policy. Each bank since then framed merit based promotion policy and for last two decades there is no pressure by trade union leaders to give promotion to seniors. Rather it is trade Union leaders and top officials who jointly decide the name of officers to be promoted or to be transferred to remote and critical places . All the exercises like Annual Appraisal System, Interview Process , Group Discussion which are undertaken in the name of so called merit orintd promotion processes to identify and discover merit are farce , false and to commit fraud with honest workers. Entire process is misused by corrupt top officials and top trade union leaders to give elevation to flatterers and to reject honest workers. Otherwise , there is no such a well proved yardstick or pathological test or psychological test which can detect and discover merit in two minute interview of an officer.

Not only this , corrupt bankers sitting at the top recruited officer in higher scales directly. An officer working in the bank for decades are not promoted from scale I to scale II or scale III or scale IV. But an officer who works in another public sector banks and who has experience of only one two years but who have good rapport with some VIP are picked up for recruitment directly in scale II or III. Further to add fuel to fire, top ranked corrupt officers of PSBs recruited officer directly from colleges and educational CAMPUSES directly in scale II or III in the name of merit. In this way the offered higher salary package to directly recruited officers as compared to officers working in their own banks for decades.

Offices and clerks in the same banks are stagnating without promotions for decades whereas persons of little or no experience are picked up from other banks or educational institutes of choice of top officials or top politicians. It is only after 2013 Supreme Court order that PSBs stopped recruitment from campuses  in middle management  . But the are still recruiting officers from other banks in the name of specialist .RBI Governor is therefore not justified in saying that PSBs are constrained to pick talented guys from markets as their peer banks in private and foreign banks are doings. One cannot believe that heaven has fallen during last two years of ban on campus recruitment for which RBI is insisting and for which PSB management is pleading.



The Reserve Bank of India (RBI) has however rightly criticised the promoters of large companies, saying they take undue advantage of banks’ fear of  NPA “Some large promoters take advantage of bankers’ fears about assets turning non-performing to extract unwarranted concessions, without any sacrifice in the value of their stake,” said RBI in its annual report.

I have been writing in my letters and blogs since long that bank management is busy in hiding bad loans . They are least concerned about real recovery , they want to pass their time somehow or the other . There is mad rush for restructure of bad advances near closing  not always at the request of bad borrowers or as per need of the project but to save some corrupt bankers or to achieve target fixed for bad debts. Culture of fixing target for bad debts or for recovery itself is ridiculous and promotes fraud culture . Officers are taught various methods to hide bad debts on phone .

It is also true that legal system , administrative machinery and political culture also do not support a banker in recovery of loan from bad borrowers but it is also true that the culture of delay in telling spade a spade, that is telling a bad loan as bad causes loss to bank to great extent . 

It is undoubtedly true that  bad bank officers get rid of punitive action if bad loans are concealed by using various tools. But it is also true that promoters of bad projects take advantage of this bad culture in bank of hiding bad loans. I fully agree with RBI Governor in this regard. 
 
“The judicial process, despite a variety of creditor-friendly Bills like the Sarfaesi Act, further tends to hamper the ability of creditors to collect their just dues from influential promoters,” .
RBI has also been nudging banks for early recognition of NPAs so that provisions can be made accordingly. Regulatory forbearance, where RBI makes it easy for banks to extend and pretend, is not a solution, it added in the report. I fully endorse the views of the Governor on this score.

But I am unable to understand why lacs of cases filed in various local courts of various states by various banks to recover money from small defaulting borrowers are pending for final disposals for years and decades . Local certificates cases are supposed to be decided in 90 days to six months. I am unable to understand why thousands of cases filed in various Debt Recovery Tribunals in various states are pending for years whereas they are supposed to recover the money in six months. I am unable to understand why banks delay in taking action under SARFAECI act against high value borrowers and if they file , why administrative and police system fail to provide support to bankers in taking possession of properties of defaulting borrowers. Why banks have failed to confiscate the properties of giant borrower like Kingfisher for years and years? Why there is so much complication in treating a default as wilful default? 

Why RBI and GOI failed to take proper  , adequate and timely care of problems faced by banks in recovery of dues from defaulting companies . Banks are to face pathetic position in recovery of dues both from small borrowers and big borrowers , either due to emotions attached to the person or due to pressure from higher offices or due to political reasons or save their own colleagues or to give a safe exit to retiring officer of the bank. What action RBI and GOI have taken to cure such malpractices or modify and activate the defunct legal and administrative system ? Both of them preach sermons to bankers from time to time but never bothered to nail the real culprit or to rectify the fallacies of the system.
 
Further  RBI and, even the government had questioned banks asking them to explain their reluctance in cutting base rate. Bankers say the increase in bad loans has been putting pressure on the margins as increasingly the interest-earning assets are slipping into the non-performing class. This has deterred banks from cutting loan rates. I am strong view that reduction in interest rate is not going to help banks in any way , it will simply reduce their capacity to earn profit . Banks are incurring huge loss due to rise in bad debts and actual yield on advances is falling year after year and volume of provisioning and sacrifice in write off and compromise is on rise year after year.
 

I salute Reserve Bank of India governor Raghuram Rajan who has taken on the government for thrusting the Jan Dhan Yojana on public sector banks and has called for compensating the PSU lenders. RBI Governor says
'. "We should recognise that PSBs undertake public interest activities (like the rollout of accounts under the Pradhan Mantri Jan Dhan Yojana) that are not always fully compensated. Government should endeavor to keep the competitive playing field level by fully compensating banks for activities it wants undertaken in the public interest," the governor said in his review.

I would like to add here that various schemes of various government has played great role in polluting the banking culture . Banks are no more interested in safeguarding banks but more interested in developing relation with ministers and important politicians. IF PM or FM of the country verbally or in written order ask banks to open accounts with zero balance, entire team of ban staff of all banks stand focussed on opening of bank accounts only jeopardising the other important tasks .

Bank are meant for getting deposits and then lending to needy . But banks are more engaged in non-banking activities and not getting time to safeguard their assets.

This is why I usually say that bank officers in general work not for the bank but for their  bosses who can make or mar their career. Untimely and quicker promotion to an ineligible officer in supersession to other senior and better officer give rise to bad culture and demotivate good workers. This give rise to flattery and bribery and this very culture is root cause of many sickness in PSBs in particular or in all PSUs in general.

Jaitley is right, bank NPAs are unacceptably high and so an RBI rate cut won't be of much use. The clamour for another rate cut from the Reserve Bank of India (RBI) has strengthened with Finance Minister Arun Jaitley stepping up pressure on governor Raghuram Rajan to cut rates, citing falling inflation. But will a quarter percentage point rate cut prompt banks to cut their rates further?

The answer is certainly no. Cut in repo rate by RBI from time to time may help in easing liquidity of banks to some extent but does not help in reducing cost of fund to a desirable extent. This is why banks are ignoring the signals given by RBI towards interest rate reduction. If RBI still feels that there is scope of rate curtailment and banks are wilfully neglecting advices given by RBI, they should peep into interest cost of one or more bank  and  particularly big banks like SBI , PNB , BOB to ascertain the real cost of fund and to find out whether there is scope for rate cut for them. If any bank is found to be negligent, the CMD of that banks along with top officials my be brought to sever task.

It is futile to give statement in newspaper from time to time and remain silent spectator of indifference of banks in this regard. After all GOI is big owner of PSBs and RBI is duty bound to take all possible step to protect banks and thus protect the interest of depositors, taxpayers and money of investors.FM of all government of all times promised to save banks from disaster and more emphatically after 2008 sub-rime crisis of America. Similarly Governors of RBI  have committed themselves to protect bank form all risks. But sickness of banks is growing day after day and year after year. No sign of improvement is visible to common man or matured bankers. After retirement or when top officials are on the verge of retirement, they tell the truth of banks. We have glaring examples of SBI chairman of last few years.

Whatsoever may be the reason or whoever may be at fault for present pathetic position of banks, sickness of banks is gradually growing .  Government of India has merged more than half of Rural banks with parent banks,  when parent bank become ill, they are merged with bigger bank , but when banks like SBI will fail , what poor government will do. After all if any bank, private or public sink sinks, it is public who are to face the consequences.

In my opinion, interest rate was never a problem for any bank and neither good borrowers are afraid of any rise in interest rates. It is rather a bitter truth that accumulated bad debts of all banks which appear in current balance sheets of all banks are not creation of a year or two but they are accumulated during one or two decades and  long overdue but surfaced in last few years only because banks introduced Core Banking Solution. Majority of bad debts or stressed assets pertain to period when low interest rate was prevalent in banks in the name of reformation.