Sunday, October 4, 2015

Predicted DA From November 2015

30 DA slabs i.e. 3 % increase is expected in November 2015 as per July and August 2015 CPI - Ashwani Rana, NOBW

Following RBI's decision to cut its repo rate by 50 basis points from 7.25 percent to 6.75 percent on Tuesday, many banks have decided to pass on the benefits to customers by cutting their base rates.
So far, nine banks both public and private including the largest lender of the country State Bank of India, have joined this club. The above chart  provides with quick information on the new base rates of these banks.

Pannvalan had forecasted DA on August 31
On 31.08.2015, I had forecast that the anticipated hike in D.A. for November, 2015 is 3.00%. At that time, only the consumer price index for July, 2015 was out. Now, the index for August, 2015 has been published (only this morning - not yesterday, as per the advance release calendar). For July, 2015, the index was 263 and for August, 2015, it has touched 264. So, my forecast of 3% hike in D.A. for Nov.2015 may become true.
However, let us remember that the Index for Sep.2015 will be known only on 30.10.2015. So, until then, this is only a forecast.

Medical insurance scheme clarification by Sh Hariharan DGM united insurance HO. Chennai

Attended a meeting organised by AIBOA (Maharashtra) to discuss the health insurance scheme for retiree employees . The gathering of retired employees was addressed by:

 1. Shri Hariharan, DGM , United India Insurance, HO, CHENNAI
2. Shri Manek Dastoor of Dastoor & Co., advisors to IBA.

Take-away from the discussions included:
1. The scheme is to be implemented from 01.11.2015.
2. Even though the banks have stipulated cut-off date for exercising option, a time window of 90 days (from the date of implementation) will be available for a retiree to exercise his option in case he failed to do so within the cut-off date.
3. Once an employee opts out of the scheme, he/she will not be eligible to be covered under the scheme.
4. Spouse of a deceased retiree is eligible to be covered under the scheme.
5. Even though the scheme talks of "dependent" spouse, it was clarified that there is no income restrictions. Spouse is covered.
6. Sum assured cannot be increased by individuals.
7. In case the retiree expires, the spouse will be eligible for coverage under the scheme till his/her death.
8. All types of retirees are covered under the scheme.
9. Pre-existing diseases are covered.
10. In case both husband and wife are in the bank(s), both can opt for the scheme. For each of them coverage will be for the spouse also. Total coverage for the two together
will be the sum of their eligible coverage.(if both are officers, total cover will be Rs 8 lacs.
11. No age limit for being eligible for the scheme.

Sri From:  Ramachandran Suryanarayanan

 Ref: GS:127 23rd September, 2015

Shri R.R. Mohanty,
General Manager (HR),
Union Bank of India,
239, Vidhan Bhavan Marg,
Nariman Point,
Mumbai - 400021

Dear Sir,
Sub: Implementation of Medical Insurance Scheme for retired Officers / Employees – Staff Circular No. 6243 dated 18/09/2015
We invite your kind attention to Staff Circular No.6243 dated 18th September 2015 issued by you on the above subject. We had, in the recent past, demanded that the Retirees should not be burdened with the payment of premium and to meet the same out of allocation for Retirees from Staff Welfare Fund. We reiterate our demand and request you not to insist payment of premium by the Retirees, as all of them have been burdened with galloping inflation, falling interest rate on deposits and the spiraling medical expenses. However, we welcome this initiative and thank you very much for the same.

While on the subject, we note that Retiree Officers have to pay annual premium of Rs.7493/- and Retiree Award Staff members to pay Rs.5620/- per annum. We have today received a communication that the Board of Directors of Punjab & Sind Bank has approved a similar scheme with subsidized premium of Rs.3750/- for Officers and Rs.2760/- for Award Staff members. We, therefore, request you to kindly consider substantial reduction in premium payable by all the Retirees indicated in Staff Circular cited above. It may not be out of place to draw your attention that in terms of Khandelwal Committee recommendations, 25% of the funds allocated for Staff Welfare activities should be ear-marked for Retirees. With the introduction of Medical Insurance Scheme, the allocation of Staff Welfare Fund for Retirees will be very meager and the Bank may, therefore, consider subsidized premium for the Retirees, if not, altogether waiving payment of the same.

After carefully going through the Circular, we have observed that you have advised the retirees to submit the consent letter to join the Medical Insurance Scheme to the AGM (HR), Terminal Benefits Division, UBIREMAS, Central Office, Mumbai so as to reach his office latest by 20th October 2015. You may kindly note that not even a month’s time has been given to the reitrees to join the scheme. We may bring to your notice that many of the Peer Banks who have introduced similar scheme in their respective banks, have given 2 months time for the Retirees to join the scheme.

You may realise that retirees of our Bank, numbering several thousands, are scattered all over the country, some being placed in remote villages. Further, many retirees stay abroad with their children. Most of the retirees normally do not visit their pension drawing branches; since they are in a position to draw money through ATMS of our Bank and other banks situated near to their place of residence. As such even if the Circular is displayed in the Bank’s notice board, many retirees may not have a chance to see the circular.

In the consent letter to join the Medical Insurance Scheme, the retiree is required to declare that he has gone through the terms and conditions of the Joint Note dated 25.05.2015 on Medical Insurance Scheme extended to the existing retirees. This is untenable as the retiree is not expected to know all the terms of the Joint Note dated 25.05.2015, in view of its non-availability to the retiree.

In the staff Circular referred above, Branch Managers have been advised to bring the contents of the Circular to the notice of all the existing retired officers / employees of our Bank. However it is our experience that the compliance of such advices has been found to be far from reality, especially, in view of various practical and operational reasons.

Further we note that as per Staff Circular in question, the Bank will be debiting the retirees’ account for the amount of annual premium along with service tax decided by the Insurance Company as and when due / demanded, without any prior intimation / information to the Optee. In this connection kindly note that retirees are aged persons who may not remember correctly the due dates for renewal of the policy. Moreover, the amount of premium with service tax may vary from year to year. Therefore, we request that the retirees may be given prior intimation about the renewal date and also about the amount to be maintained in the account.

Taking into account all that are stated above, we request you to consider the following options in the matter.
(i) Extension of date of submission of consent letter, at least, up to 22nd November 2015
(ii) Arrangements to be made by branches to send a copy of the Staff Circular No.6243 (with annexure) dated 18th September 2015 to all retirees whose addresses are available with their pension drawing branches.
(iii) Giving prior intimation / information / notice to the retirees about the renewal of the policy and the premium due in every year.
(iv) Provision may also be made for the Retirees to send the consent letter duly signed, electronically, with photographs of the Retiree and his/her spouse scanned.
Thanking you,

Yours faithfully,

Friday, September 25, 2015

Rate CUT And Competition In Banks

I fully  concur with opinion of RBI governor Mr. Raghuram Rajan who says that reduction of interest or giveaways to corporates are not the only tools for Credit Growth or for growth in economy . There is limit for RBI or for any Government to give relief to business houses in interest and if we go beyond it, or if we cross the limit , it will be disincentive to silent savers and it will have adverse affect on savings and investment environment in the country . High value savers have already shifted their savings from banks to other pockets like real estate, gold, stock markets , commodity market or in Swiss Banks. 

But the bitter truth is that business houses are not leaving any stone unturned to build pressure on RBI for lowering of interest rate. Politicians of all colour and creed who do not understand the intricacies of the economic principles or who do not want to understand it wilfully to serve their political agenda are time and again putting pressure on RBI to lower interest rate. Finance Ministers during UPA rule or now in NDA rule are thinking in the same fashion that only lowering of interest rate may cure the sick banks and may give a boost to economy. As if interest is panacea for all ailments.

Politicians do not try to understand that if banks are forced to reduce interest rate on loans and advances, they will have to lower interest rate they pay o deposits which they receive from savers. And if savers particularly pensioners or person whose livelihood depend on interest will face greater difficulty if interest rates are lowered on their savings. They will be forced to put money for higher interest with local money lenders or Chit fund companies or NBFC . This will definitely erode the deposit base of lending banks and hence deplete their lending capacity. When their resources will shrink, they will naturally will not lend or try to borrow money from RBI or other costlier sources. This will further cut their capacity to lower rate or cut their net interest margin and finally cut their profits.

Further , continuous rise in bad debts is causing banks greater pain and erosion in their interest income. Volume of bad debts has been consistently increasing in all banks due to various reasons. Banks are constrained to write off loans and interest . Again their profit and capital gets eroded. If their profitability get eroded further by interest cut , health of banks will further deteriorate.  RBI Governor is therefore perfectly right in not lowering interest rate . He is right in saying that only Stimulus to business houses cannot help in giving a boost to economy.

After 2008 financial crisis is USA , India claimed that US crisis had not impacted Indian economy. Still the then UPA Government gave away hundreds of crores of rupees to Corporate houses in various forms of subsidy.  Government advised banks to give all relief to business houses without ascertaining  the fact whether the business houses were affected by US crisis or not. GOI allowed Public Sector Banks to give interest concessions as per their whims and fancies and allowed them to restructure bank loan if the same was irregular to stop slippages in NPA category.

Previous Government inculcated a wrong culture in minds of bankers who used this tactics to conceal all bad loans . This is one of prime reasons that ratio of gross NPA and that of stressed assets in PSBs have grown to such a large extent. Stimulus allowed by banks and GOI to corporates after 2008 crisis were as good as Jugaad tools used by UPA government , but they did not yield an fruitful result , rather they damaged the sound economic health of the country. This happened despite opposition by the then RBI Governor Mr. Suba Rao.

It is good luck that RBI Governor Mr. Rajan has understood the main problem public sector banks are facing and hence he is trying to prescribe proper medicine and not sticking to 'Jugaad' tools as suggested by clever politicians .He does not believe in temporary solution and neither does he believe in artificial or manipulated growth of banks. He does not want window dressing . He does not want bankers to book higher profit by window dressing . He does not want that banks should hide bad loans , he does not want banks to reduce provisions by fraudulent measures and he does not want banks to boost profit by fraudulent methods.

Let us see how far Mr. Rajan gets success in his Utopian ideas. I say Utopian because I know the nature, attitude and character of Indian politicians.

Also read my Blog "RBI Governor Does Not like Jugaad"

Why Raghuram Rajan Believes Low Rates Aren't the Only Growth Pill-NDTV-20th September 2015

When it comes to interest rates, mum is the word for any central banker ahead of the credit policy. And the RBI Governor is no different.

But he is one central banker who is known to speak his mind. Every word he says makes policymakers sit up and take notice.

"I know these cameras are here not to see me speak on core competencies but on interest rates - so let me offer my standard disclaimer," RBI Governor Raghuram Rajan told a hall packed with industry captains, economists and mediapersons while delivering the CK Prahlad Lecture in Mumbai today.

"For any hints of what we may do in the upcoming policy, please read the guidance in our last policy."

The timing of his lecture today was key for two reasons - the RBI Governor was speaking hours after US Federal Reserve Chief Janet Yellen decided not to hike interest rates, coming as a relief to economies like India that have seen stock markets rallying as a response to Fed's decision. Plus, ten days from now the RBI has to take a call on whether or not to cut interest rates at a time when inflation in India has touched historic lows and pressure is mounting from all sides to deliver a rate cut to boost growth.

Despite his assertion not to draw any veiled inferences from the contents of today's speech, he did give three useful insights into why he thinks low interest rates alone cannot spur the growth of any economy. And why he believes sustainable growth needs a lot more that just low rates and giveaways for the industry.

For one - he says, reforms (and not rates) hold the key to India's sustainable growth. "We have to expand the sustainable growth potential. That means continuing to implement reforms that government and regulators have announced that is the only way to get sustainable growth potential up," he said. A crystal clear message to the government - walk the talk, implement the reforms.

His second assertion was to learn from the experience of Brazil - an economy that was delivering an impressive 7 per cent plus growth rate just a few years ago and is now likely to shrink over 3 per cent. He says Brazil's central bank was "pressed to lower rates" fueling a credit spree that now overburdened customers are struggling to pay.

Third, the Governor today made a key distinction between the interests of the "vocal borrower" and the "silent saver." So while low interest rates benefit borrowers - be it individuals or the industry, we forget that they hurt the depositors. The Governor felt it was important to keep the silent saver in mind while taking a call on rates.
"For us at RBI, key task is to keep inflation low - not just today, but well into the future so that we get nominal modest rates that satisfy not just the very vocal borrowers but also the silent saver," he said.

Click Here To Read My Blog of 13th June 2015 Interest Rate is Not medicine to cure sick banks

 Many of his critics will strongly disagree with his views arguing that if historically low inflation rates don't merit a rate cut, then what does? Shouldn't we be worrying about "deflation" rather than "inflation" as the Chief Economic Adviser Arvind Subramanian so clearly articulated recently.

But Dr Rajan's message is clear - he isn't succumbing to any pressures and will lower rates only when he feels the timing is right.

What's true is that Dr Rajan can be credited with putting India on a much stronger footing in his two years of Governorship. The Fed decided against a rate hike, but today India was far better prepared and a much stronger economy to deal with any global shocks than it was two years ago when he took over as the RBI Governor. In 2013, the taper tantrum sent Indian markets and the rupee into a tizzy putting us among the worst performing markets worldwide. Today, as Dr Rajan himself says - "India is an island of calm in an ocean of turmoil."

Dr Rajan, we're not taking any hints from today's speech. But for those who are taking a September rate cut for granted, be prepared for some surprises.

What Type of Competition It is?- I ask
Following is my opinion

It seems ridiculous to me when RBI or Government of India or any other economist or writer or any banker talk of competition in banking industry. What type of competition after all it is? In the recent past ,Reserve Bank of India and Government of India have given license to many business men for opening of new banks, differentiated banks or payment banks, or opened Mahila Bank or Mudra Bank and claiming that these banks will create competition among banks.

About 100 year old public sector banks or you may say that four decades old nationalised banks are said to be competing with new generation private banks , banks which took birth about two decades ago. Giant PS banks with old infrastructure, with mind set of secured government job and with responsibility of shouldering the task of social welfare agenda of government are competing with private banks run by perfectly new generation technology, by youth crazy of jobs and afraid of loosing jobs and run with absolutely profit motto without taking care of any social objective. What type of competition it is, God knows.

There are 28 public banks and they are competing with each other. One PSB is taking over business of other PSB giving interest concession or by giving relaxation in service charges. One PSB sacrifices interest or processing charge to snatch credit business from other PSB and offer higher interest rate on deposits to snatch deposit business from other bank. Is it called competition?

One PSB losses and another PSB gains. Such types of competition is like hand of a person is competing with other hand, one leg is competing with other leg , ears of the same persons are competing eyes of the same person. You may imagine .the fate of a body when different parts of the body competes with each other, act against each other and work in conflict with each other. Or you may say that there is no harmony among different parts of the same body. Perhaps government is forcing such competition on various public sector banks and causing loss ultimately to people of India, to taxpayers and to investors in different PS banks. Number of weak banks has been increasing year after year and talk of merger and consolidation to hide weakness of banks is going on for last three decades and more. Government has to infuse thousands of crores of rupees to these banks to survive and to compete with private banks . Not only this, PSBs have already sacrificed lacs of crores of rupees in writing off of bad loans or in compromising with bad borrowers. This is the cost of competition for PSBs have to bear and still their shares are not choice of investors. In other words, one may that Private banks are allowed to spoil the future of PSBs in the name of so called competition..

Secondly, Different PSBs are competing with private banks like Axis Bank, HDBC bank or ICICI bank as if normal trains are competing with Metro rail. Normal and old chain of trains are to carry an number of passenger running from village to village causing discomfort to all whereas Metros are meant and designed to serve passengers of big towns and confined to big cities only. Fare of normal trains cannot be increased  keeping in view  the pain of poor people even though quality of service get eroded and deteriorate day by day.

Further Private banks are set up purely to earn profit whereas PSBs are made to serve social agenda and national agenda of the country. Competition imposed on PSBs  is like competition between government hospitals and private nursing homes. Private nursing homes charges are extraordinarily higher  and theyvhsve option to choose patients and charge as per their whims whereas charges of government hospitals cannot go up and cannot be discriminatory keeping in view the possible protest from common men and from politicians of opposition group. Competition is like that between private schools and private colleges for higher educations on the one hand who charges lacs of rupees as tuition fee per year from student with government run schools and colleges on the other hand which cannot increase tuition fee to that extent. Similar is the quality of teachers in government schools and that of Doctors appointed in government hospitals. On the other hand Doctors appointed in private nursing homes or teachers in private colleges are of high quality and have scope to earn much higher income compared to their counterparts in public hospitals and public schools. Appointment , promotions and transfer in public banks takes place based on flattery and bribery whereas that in private banks based purely on merit and quality of performance and potential of  the worker.

Obviously if PSBs with different supporting hands and infrastructure are forced to compete with entirely a different set of supporting staff and infrastructure , it will cause much damage to former only . Private banks will not take any such step or undertake any project for lending which may cause loss to them in future whereas officials working in PSBs can cause all losses to their bank only to achieve the target or to please their bosses or to please their political masters. There is heaven and hell difference between the two sets of bank and between two set of workers. As such the idea of competition is totally unjustified, deceptive and suicidal .

During last few months , RBI has given license for opening of new private banks like Bundhan Bank or IDFC bank , given license for opening of payment bank or for opening of banks to deal in small and micro finance . RBI says that these new banks will further increase competition among banks. Such competition is like a Adult or matured person is said to compete with a newly born baby. Or more clearly you may say that a passenger train is forced to compete with Rajdhani train and inviting accidents and losses to passengers. To make it crystal clear, such type of competition is likev asking a boy admitted in extremely poorly maintained village level school to compete with a boy admitted in high standard costly private school.

I am unable to understand what type of competition these newly born banks will create or generate for old generation public banks. But one thing is certain  to me that these newly born private banks, payment banks or small finance banks will grab quality business of old PSBs and cause erosion in business volume and cause loss to existing banks. PSBs will have to pay a lot and face huge damage in competing with these new generation banks and obviously such losses  accumulated together will lastly come on the shoulder of Government of India and that on people of India only.

It is true that as number of new banks increases, customers will get new option of banks and they may get better option of services in some towns and cities Rich customers who can afford paying higher service charges may shift to best serving private banks or new generation banks. But there is no doubt that old set of PSBs will gradually grow in weakness and turn from bad to worst , become non-performer or less performer and will slowly be thrown in waste box by new generation youth .WE have seen how Regional Rural Banks during last two three decades have been growing weakness and gradually they are merged with parent bank. We have seen how various cooperative banks are sitting on bomb of bad debts and facing chances of closure. Similarly few PSBs have become too weak to survive and government is contemplating to merge them with stronger PSBs. Government is unable to change the wine , but they are changing bottle frequently . But it is sure that Government cannot increase the sale of wine by changing bottles only. One stock of old bottles will go in the back racks and new set of new bottle may be keep in front rack . Ultimately it is the quality and cohesive policy which work for long period.

Until contents changes, sale of bottle cannot increase. New generation banks which have fresh and quality materials to serve in their banks will grow and old banks which are constrained to stick to old contents and old tools cannot dream of increasing their sale.

To conclude , I may say that entire talk of competition in bank is farce, ridiculous, deceptive and harmful too. And last but not the least, I am unable to understand what purpose is going to be served by such mismatching and ill-conceived competition. It is absolutely unimaginable that PSBs will be getting good outcome and better results in competing with private banks. As a matter of fact , even various branches of the same Public bank cannot dream of competing with other branch of the same bank. This is because each branch has got some locational advantages and disadvantages. A branch situated in remote village cannot dream of competing with a branch situated in a town or in metro city. Not to speak of branches at various location, even branches situated in same town cannot dream of competing with other branches of the same bank in the same town because each mohalla or ward has some merits and some demerits.

A branch situated in the premises of a good school, or a good college or good PSU or a reputed institution can capture business in hundreds of crores of rupees in a year without making any special effort. On the contrary a branch situated in remote village, or in a critical area, or in a naxal affected area or even in dry industrial area cannot dream of capturing good business or earning considerably good profit at par with that in a town or in a city. There are some places in Industrial areas, where credit expansion in hundreds of crores of rupees is possible every year whereas in some other places , it is difficult to increase credit even by a crore or two in a year.

Potential of business for any branch or for any bank in any area depend on many locational factors such as local area, local politicians, local inhabitants, business potential , administrative support ,infrastructural support in the area, local climate ,availability of natural resources ,quality and quantity human resources etc . As such the very thought of competition among various branches or various banks is faulty and misleading.

I want to ask a question to all  , are such competition meant for giving better service to customers or for earning higher profits?

Are such competition to fulfil task of the social objective and completing social welfare plans mooted by GOI with available resources , building better infrastructure , growing more and more crop, manufacturing best product, increasing exports and increasing comfort of common men or ..........for giving an opportunity to private banks to earn greater profit at the cost of that of Public sector banks?
People of India, politicians ,great economists and planners of the country have to ponder over it and assess what type of competition is going on in banking industry and what type of it is necessary to save sinking banks. Banks in public sector are meant to distribute charity or to earn profit only.

Is Government forcing competition among looters of banks to loot maximum in the name of business or in the name of competition?

Bankers are freely giving credit ,freely writing off loan and then again giving fresh loan and again writing off and so on . Sometimes they hide bad loans by restructure and sometimes by selling to ARCs and sometimes by writing off them. This is an open secret that public sector banks are competing with each other in increasing stressed assets , in increasing Gross Non Performing assets, in writing off loans , in causing loss due to frauds and in boosting the size of balance sheet by manipulation and by fraudulent methods.

Is it the purpose of competition suggested by RBI and GOI?

Banking industry to brace itself for competition-DNA 23.09.2015

The banking industry landscape is set for a salutary change. So far the industry has endured the public sector banks’ patchy performance interspersed with the recent breezy spell of private banks’ entry on a limited scale. The Reserve Bank of India is aiming to foster competition and innovation in order to promote efficient service delivery to end-users.
In June-July this year, the RBI gave licenses to IDFC Limited, a non-banking finance company (NBFC) and Bandhan Financial Services Pvt Ltd, an NBFC-cum-microfinance institution (MFI), to carry out banking services across the country. Subsequently, in August, licenses were granted to 11 payments banks which are ‘niche’ or ‘differentiated’ banks with the common objective of advancing financial inclusion. The RBI announced its ‘in-principle’ approval to 10 applicants for setting up Small Finance Banks (SFBs).

Read in detail by clicking on following link

Saturday, September 19, 2015

What Is Jugaad In Banking ?

My Observations and comments on views expressed by R. Rajan is as follows.

RBI Governor Mr. Raghuram Rajan has rightly pointed out yesterday in plain words that  economy of the country cannot improve by applying 'Jugaad' type tools  and real  GDP can grow and give sustainable and ever increasing growth only by improving the system and by improving the quality of functioning of various institutions.

I would like to add here that system or the Institutions can improve in functioning only when the workforce allotted various assignment perform the same with due diligence, with absolute honesty and with full devotion.

And to enable officers and staff work honestly and devotedly for nation, politicians will have to change their mind-set first and  they will have to start thinking and acting for growth and for welfare of human being only. They will have to first discard their vote bank or caste based policies and concentrate on work which will improve the lifestyle and standard of living of all Indians without any discrimination based on caste , community, region or religion.

It is politicians only who make or mar the work culture in any office in particular or in the country in general. For this purpose, leaders of  ruling as well as opposing party have to start thinking purely for benefit of Indian citizen and for entire country .

Unless and until there is phenomenal change in attitude of politicians , the culture of flattery and bribery cannot stop. And as long as rulers and administrators of this country continue to give weightage to Yesman, to flatterers and to bribe earners, one cannot imagine of any change in work culture . Politicians and officers in general are self-centred, their all efforts are focused on how to earn and accumulate  wealth and power for themselves , for their family members and close friends. 

Majority of workers more often than not work for their bosses not for the organisation or for the system or for the country . They know the art of keeping their bosses happy by hook or by crook,  sacrificing the interest of common men and that of Institution they are closely associated with. Honest and devoted performers cannot survive with peace of mind until they also follow the culture of flattery and bribery. This is why number of flatterers and yes-man are increasing in all offices and that of good workers getting eroded day by day. The power of transfers and giving promotions to anyone as per whims and fancies delegated to higher bosses is the root cause of evil culture in all offices and in all system.

This is why I use to say that  until loyalty of workers and politicians shifts from self to Institution and to the country, one cannot dream of dramatic change in work culture in any office or improvement in quality of functioning of system or that of any institution. There are very few in India who give value to persons  like Raghuram Rajan . Persons like Rajan are in fact considered as fool and impractical .

Even in Parliament and various State Assemblies where important work of legislation takes place and where control on various institutions is supposed to be discussed and debated , bills and proposals are normally passed or rejected based on the whims and fancies of leaders of the ruling or opposing parties without going for any discussion or valid debate to ascertain merits of the proposals placed in Parliament or state Assemblies.. 

If High Command of any political party says , Mr. X is wrong, or such and such policy is faulty , all members of that party will blindly oppose the policy without thinking pros and cons and merit and demerits of the issue.  This is called sheep mentality. Similarly  in any office , if any boss advocate any line of action, all subordinates have to follow the same blindly , even if the consequences of such action may prove fatal in future. Obviously systems and institutions in our country run not for betterment for Indian citizen or for the country but purely, fully  and perfectly for the sake of bosses and for serving the self interest .

Even media men who are supposed to expose evil persons and project good performers are busy in flattery to one party or the other , they too are paid agents of various powerful and wealthy persons . Voice of true men is suppressed from all sides and from all powerful persons. TV media is busy in spreading negativity only. Fourth pillar of democracy has also become too weak and selfish for TRP to think for betterment of India and Indian citizen. 

Last resort is judiciary, audit and inspecting teams, vigilance offices  and police departments who are supposed to give justice to victim and punish to culprits . But unfortunately they are also inflicted with same bad culture as their brothers in administrative and political fields are.

Obviously  Mr. Rajan has to collide with mountain of Yesmen and gang of flatterers to execute his plan of reformation , to execute his idea of growth and to implement his line of action to control inflation and to achieve sustainable real growth without applying 'Jugaad' technology which politicians often suggest .He has to fight a long and tough war with SHEEP mentality ,system is inflicted with. He has to change DNA of politicians ,workers and subordinates .

In our country , everyone is preaching positivity to all but in fact most of them are engaged in negativity only.

Person who knows the art of delivering good lectures  become a point of attraction for all. And then such person get huge opportunity to exploit this false popularity and he starts stabbing persons and the system to serve self interest . Height of such preachers is that these preachers become saint in social and national  domain and using this mask , they become big looters and cheaters but none doubt his honesty and integrity. In words of Munsi Prem Chand, when protectors become damagers, destruction become inevitable.

RBI Governor Raghuram Rajan talks of strong institutions, slams 'jugaad' -Economic Times-17th September 2015
( Read My Opinion which is given above)

MUMBAI: Coming down hard on quick fixes like 'jugaad' way of working, Reserve Bank Governor Raghuram Rajan today did some plainspeak, saying the key to sustainable growth is strong institutional mechanisms that allow businesses to flourish.

"Jugaad, or working around difficulties by hook or by crook, is a thoroughly Indian way of coping, but it is predicated on a difficult or impossible business environment. And it encourages an attitude of shortcuts and evasions, none of which help the quality of final products or sustainable economic growth," Rajan said while delivering the fourth CK Prahalad memorial lecture here.

"We must have the discipline to stick to the strategy of building necessary institutions and creating a new path of sustainable growth where jugaad is no longer needed," he said.

Emphasising on the need to salute businesses for operating in tough environment, he said "we need to change the system for the better, and while doing so, the business community will have to cooperate," Rajan, the former IMF chief economist, said.

"We need the understanding and cooperation of the business community, not impatience and pressure for quick impossible fixes. Only then, I believe would we realise the true potential as a nation," the academic-turned-central banker said.

Referring to the late marketing guru Prahalad's seminal work around letting businesses find their core competencies, Rajan posed a question on whether nations need to discove ..

Sunday, September 13, 2015

Top Officials Of Bank Speak Truth

I have been writing for several years that internal position of bank's assets is not at all good and real volume of bad debts is on an avrage more than 25 percent of total advances and may go even  beyond 50 percent. In many branches of many bank NPA is more than 50 percent of total advances . Still banks are considered as healthy and none of auditors and regulating agencies are worried in reality.
But quarter after quarter CEO of each bank will firmly speak to media and say that they will reduce Gross NPA ratio in forthcoming or next quarter. In the same way ,RBI and Finance Minister say and vlaim good health of bank because they also believe on such clever and shrewed bank officials and give them promptest promotion and even give them job after retirement.
Banks as well as Government of India function based on certificates. Banks get Certificates of good health from branches and from auditors and RBI in turn gets the certificate from CEOs of each bank. Finance Minister have full trust on RBI and CEOs of bank. This is why , officers are habituated in submitting false certificates. They know and they are cent percent sure that no power on earth can take punitive action against their misdeeds or for submitting false certificates. This is the reason that quality of assets in banks is going from bad to worse every quarter and every year. But learned FM says that quality of assets in banks are matter of concern but not worrisome.
But now when a secret survey has been carried out by Earnst & Young , Majority of top officials interviewed or who responded on questions submitted by EY India to them have admitted the bitter truth of bank's asset quality and admit that future of bad debts is alarming keeping a condition that their names will not be disclosed. In brief, bankers without disclosing their names have accepted following bitter truths in a survry conducted by E & Y
1. that problem of bad debts is likely to go up in coming two-three years.
2. that steps taken by RBI are not going to help bankers in stopping slippages to NPA category .
3. that Diversion of fund is very common with companies. They do not use the fund for which they avail from banks and  diversion of borrowed fund  to stocks, real estate is very common.
4. that Borrowers borrow money beyond their repayment capacity and bankers sanction the same for reasons best known to them.
5. that they do not accept the stress on face value but they want forensic audit of companies to ascertain intent of the borrrower.
6.that bankers resort to outsourcing of vital functions knowing very well that outsourcing of due-diligence activities by banks to various entities, such as surveyors, financial analysts and other verification agencies is risky .
7. That Lenders rely significantly on the inputs issued by such third parties. Reports are made as a routine with little scrutiny. In some situations the report may be drafted under the influence of unscrupulous borrowers.
8.It is therefore important that the selection of such third parties is independent, done in a transparent manner and is based on their capability and credentials,"
9.that banks often send their sales force instead of credit officers to do credit appraisal activities, such as in-person verification, background checks, and factory visits, which is inherently conflicting to their role of loan origination.
10.that in most large proposals, the due diligence or credit appraisal done by the consortium leader is accepted by the member banks. This is applicable in multiple bank lending relationships, where the lenders with low exposure rely on checks done by the lenders with higher exposure, it added.
11. Even after noticing warning signals, bank officials in general try to hide it and suggest juniors ways how to keep the account in Standard category by using wrong and improper tools to save their colleagues . Borrowers take advantage of banker's constraints and compulsion of sticking to NPA target fixed by higher authorities. They seek more and more fund to divert the same to other field like stock, real estate or other business activities or even misuse the excess fund for consumption and for leading a life of highest standard for which he is not capacitated.
One can imagine the quality of bank's assets and what is going to happen in near future . I need not enlighten elaborately on this issue now. There exists a unlawful relation and partnership between borrowers and bank officers directly and indirectly with various VIPs sitting outside.



Most bankers expect bad loans to worsen: Survey-Times of India 9th September 2015

MUMBAI: The banking sector's prospects do not look all that good with a majority of lenders expecting the bad loan situation to worsen in coming years. There is lack of faith in stressed borrowers who, bankers believe, are misusing the restructuring facility and are responsible for the problem in bank loans.

Describing the bad loan situation as a 'crisis', management consultancy firm Ernst & Young said that 72% of the respondents in a lender survey feel the situation was set to get worse, while only 15% feel that the slippage of loans into default category would get arrested due to measures taken by the Reserve Bank of India.

The findings gain significance considering that the total size of bad loans in the country is estimated to be over Rs 2.6 lakh crore with the top 30 defaulters accounting for close to Rs 95,000 crore. This does not take into account restructured loans. Stressed loans, which are a combination of bad loans and restructured loans, now account for over 11.1% of all bank advances.

Speaking to TOI, Vikram Babbar, executive director (fraud investigation & dispute services) at Ernst & Young, said that in 87% of the cases where the loans had gone bad, the borrower had diverted funds. "In diversion, there are two situations. One where the borrower's business has turned unviable because of the global situation and he has to change his line to stay as a going concern. There are other borrowers with aggressive growth aspirations who start looking at alternate businesses like stocks and real estate to make a quick buck. In both cases, banks are not involved and it can be an issue even if bets made by the promoter pays off because it is not the intent of the banker to pick up an exposure in a new area."

An overwhelming 91% of lenders are unwilling to take stressed borrowers at face value and feel that an forensic audit is needed to ascertain the intent of the borrower. "The defaulter always blames the global situation and slowdown for stress in the business, yet until the banker does a 'deep dive' and investigates the account, he cannot ascertain whether the default was on account of global situation or the borrower using leveraged funds for speculative activity," said Babbar.

According to him, one of the biggest tell-tale sign of a wilful default is the sudden surge in related-party transactions. "In eight cases out of ten, I have seen a pattern of relative parties being used to divert money or siphon off money. The wilful defaulters create a web of companies and within this web they build up sales and purchase transactions. They raise funds against these make-believe transactions, passing them off as high turnover and the borrowed money again goes out to these related parties," said Babbar.

"Some of the red flags are very common, you can look for them before the loan is given. Today, key issue is that there is no monitoring after the money is given. Monitoring has to be very critical," he said.

Banks must outsource due-diligence activities with care: EY report -Hindu Business Line
Mumbai, September 8:  

Outsourcing of due-diligence activities by banks to various entities, such as surveyors, financial analysts and other verification agencies, is an Achilles heel for the banking sector, according to an EY report.
“Lenders rely significantly on the inputs issued by such third parties. Reports are made as a routine with little scrutiny. In some situations the report may be drafted under the influence of unscrupulous borrowers.
“It is therefore important that the selection of such third parties is independent, done in a transparent manner and is based on their capability and credentials,” the report said.
Vikram Babbar, Executive Director – Fraud Investigation & Dispute Services, EY, said in many cases banks often send their sales force instead of credit officers to do credit appraisal activities, such as in-person verification, background checks, and factory visits, which is inherently conflicting to their role of loan origination.
Discretion needed

Various checks need to conducted done discreetly while visiting the factory premises of a prospective client, says Babbar.
These include speaking to employees on whether their salaries are paid on time, doing a random check on whether inventory actually exists, talking to their suppliers and service providers about concentration of their business, besides the behaviour of the company towards doing business.
Information on negative issues, such as raids by the officials of excise/ customs/ income tax/ provident fund departments are also an important part of the due diligence process, according to Babbar.
On what stops banks from talking to their peer banks where the prospective client has a banking relationship, Babbar says such checks should be independent and the borrower should not refer the bank to his banker.
This is because there are chances of the referral being directed to someone in the branch who is not authorised to speak on the borrower’s account. On banks often blaming their software vendors and core banking implementation partners for glitches in their CBS (core banking solution platform), Babbar said that the onus of the CBS rests on the bank. It is up to the bank to decide on how to capture the data, and the type of reports that are required.
Closely monitoring exceptions, especially related to NPAs (non-performing assets), are an imperative, as the first early warning signal on an account turning NPA is thrown up by account behaviour — data for which rests within the CBS, Babbar said.
Bad loans mainly due to diversion of funds, says EY report
Mumbai, September 8:  

Diversion of funds to unrelated business or fraud, lapses in initial borrower due diligence, and inefficiencies in the post-disbursement monitoring process are the main reasons for the bad loans predicament of banks, according to an EY report.
Around 87 per cent of the more than 110 respondents from the banking sector believe that the rise in NPAs/stressed assets is due to diversion of funds to unrelated businesses or frauds.
Sixty four per cent of the respondents felt that a major reason for every stressed asset/NPA is lapses in the initial borrower due diligence (pre-sanction). Around 54 per cent attributed this to the inefficiencies in the post-disbursement monitoring process.
Credit appraisal

The EY report has observed that in most large proposals, the due diligence or credit appraisal done by the consortium leader is accepted by the member banks.
This is applicable in multiple bank lending relationships, where the lenders with low exposure rely on checks done by the lenders with higher exposure, it added.
Stressed asset percentages have consistently been a cause of concern over the last few years. As on March 2015, gross NPAs of the banking sector stood at 4.6 per cent of advances as compared to 4.1 per cent in the previous year.
Further, gross NPAs of public sector banks stood at 5.17 per cent of advances as of March-end 2015 while the stressed assets (NPAs and restructured loans) were 13.2 per cent.
While corporate borrowers have repeatedly cited the economic slowdown as the primary factor responsible for rising NPAs, periodic independent audits on borrowers have revealed diversion of funds or wilful default leading to stress situations, the report said.

Thursday, September 10, 2015

Safety Of Banks And Merger Of Banks

Friday, July 10, 2015   Danendra Jain  expresses his views as under ( Read news given below which reports that top officials now accepts the real truth without disclosing their name that restructure is used as a tool to hide NOA only )

Which Bank Is First In NPA ?

It is reported in newspaper Today that United Bank of India has been placed at Top in the list of banks having more stressed assets compared to their total advances and in comparison to private banks

If a person read news about banks regularly , he is aware that banks like State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, Union Bank, Oriental bank are considered as stronger banks whereas banks like United Bank of India, Central Bank of India , Uco bank, Indian Bank, Dena Bank, Vijya Bank are considered as weaker bank. Even two to three decades ago, banks like United Bank of India, UCo Bank, Indian banks were considered as weak bank and were on the verge of merger with so called stronger banks.

Government of India has been making promising year after year and quarter after quarter that health of public sector banks is good and regulating agencies like RBI and Ministry of Finance is closely watching the performance of these banks. As a matter of fact , actual health of these banks never improved by virtue of any change in policy or change in controlling offices. It is the art of manipulation which helps some banks to show good performance in some quarters and bad performance in some other quarters. Some of Chiefs are purely looters and some are less looters. Some banks have been exploited by politicians to greater extent and some are to lesser extent due to some reason or the other. Some of Chief are blind flatterer of Ministers and some are less Yesman. In fact there is no improvement in work culture and no change in attitude of politicians in using bank for vote purpose.
Unfortunately , Government of India has never taken any step to improve the health of PSU banks. On the contrary , ruling party has always tried to exploit these banks for political advantage. Sometimes they prescribe Loan Mela for growth of bank and sometimes they build pressure for write off of bad loans. Sometimes they build pressure on banks for priority sector lending and sometimes for lending for growth in infrastructure in the country. Sometimes the prescribe brainless expansion of branch network or ATM network and sometimes they ask for opening of accounts or doing insurance business.

It is they who have damaged the banking culture from grass root level and injected corruption and malpractices in PSU banks. It is they who use banks to garner votes and then it is they only who accuse banks for lesser profit compared to banks. When Financials of PSU banks reflect signs of weakness compared to peer private banks, they prescribe certain change in policy or change in Chief of banks, but dirty culture of exploitation of bank never stops.

Due to continuous exploitation of PSU banks by politicians , health of these banks have consistently moved from good to bad and bad to worse. GOI has to provide capital support from time to time. Even then the health of banks do not appear to be improving, rather it is deteriorating quarter after quarter. Volume of stressed assets in weakest bank United Bank is reported to be 21.5% and that in strongest bank SBI is more than 15%. This is the statistics which is published by these banks and which is accepted by RBI too.

If correct assessment of quality of assets of all PSU banks is done by an unbiased agency without any fear of repercussion or punitive action, I am very much sure that volume of stressed assets will be around 50 percent of total advances or approaching it.

And the matter of concern is that no concrete step has been taken by any agency to stop this uptrend in stressed assets. Quality of lending has not improved. Quality of workforce promoted to higher level is not based on ability to perform or based on seniority and experience but purely based on flattery and bribery. Similarly quality of recruitment in PSU banks has faced erosion year after year during the regime of reformation launched since 1991. So called merit oriented promotion policy or recruitment set up has failed to ensure merit at any level, rather it has promoted demerit.
Obviously , on the one hand banks are appearing to recover bad loan , on the other they are adding many more times of it as new bad loan. They are unable to control loss caused by frauds and stressed assets. It is all because neither management of banks are honestly doing corrective and reformative work, nor are government officials or ministers taking any concrete step to stop further deterioration in quality of assets and quality of work force.

Unless and until there is change in culture and mindset of people who work in bank and who monitor and regulate them ,there is no hope for improvement in health of ailing PSU banks. GOI will have to decide whether banks are to be used as tool to fulfil social objective or to be left free to earn profit and profit only. Similarly , bank officials have to decide whether they are meant to serve their organisation or they are to served their bosses and bosses only.

Sunday, August 30, 2015 Danendra Jain writes as under

Role Of Corrupt System In Rising NPA In Banks

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.

Fundamentals strong, global events won't impact India: Jaitley--Hindustan Times 8th September 2015
Finance minister Arun Jaitley said on Tuesday India will be among the lesser impacted countries by the global economic turmoil but the government needs to take steps to strengthen the economy.
Jaitley was briefing the media after the high-level meeting on global economic scenario chaired by Prime Minister Narendra Modi where bankers and billionaires talked about how India can manage global economic turbulence, including opportunities for Asia's third-largest economy in China's market and growth woes.

"Most participants felt that we are going through a phase of volatility which might turn to some turmoil on the market. Volatility is the norm of the moment and will result in turmoil in the markets and rupee," said Jaitley.

"By and large, a major crux of the entire discussion was that in terms of its economy India is relatively untouched. It was suggested that we should take steps to strengthen India's economy," he said.
Jaitley said the impact of the global turmoil will be far lesser on the Indian economy as its fundamentals are reasonably strong.
The meeting in New Delhi was attended by tycoons including the country's richest man, Mukesh Ambani, Jaitley, Reserve Bank of India governor Raghuram Rajan, economists and state and private bank chiefs.

The minister said issues of ease of doing business, cost of labour and capital and stalled projects were also raised by participants at the meeting. Participants specifically emphasised on two steps - bankruptcy code and anti-corruption - and many of them wanted monetary policy easing by RBI, the minister said










 Bankers expect NPA crisis to worsen in next few years: EY survey-LiveMint-8th Sember 2015

EY stated that 72% of the respondents felt that in the current scenario, the RBI’s debt restructuring norms are being misused by borrowers
Mumbai: The issue of non-performing assets (NPAs) in Indian banks is going to worsen in the next few years, according to a majority of bankers surveyed by consulting firm EY.
The EY survey asked respondents about various issues relating to rising bad loans, including the reason and ways to contain the problem.

In its report titled ‘Unmasking India’s NPA Issue’ released on Tuesday, EY stated that 72% of the respondents, a majority of whom were bankers, felt that in the current scenario, the Reserve Bank of India’s (RBI) debt restructuring norms are being misused by borrowers.

According to the report, the overall level of stressed loans—or the sum of gross NPAs and gross restructured assets—went to over 11% in March 2015, from 9.2% in March 2013. Similarly, gross NPAs rose to 4.6% from 3.4% in the same period.

At 39 listed banks, gross NPAs rose 27.69% to Rs.3.21 trillion on 30 June 2015 from Rs.2.51 trillion in the year-ago period.

The report noted that about 40% of the loan accounts restructured between 2011 and 2014 had turned bad.

“The pace and quantum with which restructuring of loans were being undertaken, implied that restructuring of accounts was being resorted to avoid classification of accounts as NPA and thereby enable lower provisioning in the bank books,” EY said in the report.

As many as 87% of the respondents stated that diversion of bank funds to unrelated businesses or fraud by borrowers directly resulted in the steep rise in the level of bad loans. Also, 64% of the respondents believed that lapses in the initial due diligence was a big reason for increased NPAs, said the report.

Only 15% of the respondents were optimistic that recent regulatory changes by the RBI and increased supervision would be productive in controlling the rising NPAs.

Most of the respondents said that forensic audit of accounts instead of the present practice of doing a general audit of accounts of the borrowers before taking a call on the debt restructuring will help. About 91% of the bankers who responded to EY’s queries agreed that forensic audit prior to approval of restructuring plans was essential to control incidences of default. Further, 54% of the respondents believed that a forensic audit would help in weeding out wilful defaulters from genuine borrowers.
The survey noted that 68% of the respondents felt that enhancing their internal skill sets on credit assessment and evaluation was essential in fighting the NPA issue, while 56% said that independent borrower checks was essential in ensuring that the situation does not worsen.

EY said that the survey recorded responses from 110 participants, largely from public sector, private sector, foreign and co-operative banks. Most bankers surveyed belonged to credit operations in their respective banks. Other bankers were from the legal and compliance, loan recovery, auditing and vigilance departments.

I am reproducing below my blog of November 2009 .This is due to recent news when Finance Minister Mr. Arun Jaitley has again suggested merger of some weak banks with strong banks. This merger medicine had been prescribed by FM six years ago too . Since then sickness of bank has grown quarter after quarter and none of succeeding FM could succeed in executing their merger plan. More than three decades ago also, the then government had planned to merger banks like United bank, U Co Bank, Indian Ban with other stronger bank. But all government of the past failed to execute their merger plan.

Even now possibility of merger is remote and even if this suicidal step is taken , it is not going to give permanent relief to sick public sector banks and neither will it help in increasing GDP of the country. It may however help Government in hiding evil works of politicians and top bankers of last one decade and more who looted banks to serve their self interest more than serving Nation and common men. Faulty policies of past governments and faulty attitude of bankers are jointly responsible for present state of affairs and merger plan at best may help in hiding the malady of evil officials and saving the real culprits.

Merger plan suggested by various governments may give temporary relief only and in no case it is a permanent solution to critical and deep rooted disease . It is a case of absolute mismanagement of public banks for political gain . It is a case of lack of understanding of real cause of growing sickness in banks. FMs of past have resorted to merger of Regional Rural banks with parent bank or merger of weak banks like Global Trust Bank or New bank with some bigger banks , but could not change the mind-set of neither bankers nor politicians who are at the root of all sicknesses.

Government will have to first decide whether  they want to use PSBs  to fulfil National Growth and Poverty alleviation agenda or to allow these banks to function as total commercial entity at par with private banks. Both agenda cannot run parallel. And even if Government want to use banks for both the purposes, they will have to a full proof  and perfectly documented plan in this regard and stop comparing these banks with private banks. Arbitrary and whimsical treatment to cure banks will not help in curing sick banks , rather aggravate sickness.

Private banks have been created by various private promoters with sole objective of earning profit whereas public sector banks are formed solely for fulfilling social welfare agenda. There is heaven and hell difference between the nature of two types of banks. PSBs cannot dream of competing with private banks . But the most painful and disheartening is that these PSBs are not only competing with private banks but also competing with their own sisters banks, i.e. one PSB is competing with other PSB, knowing very well that loss to any PSB is direct loss to Indian Government and to people of India only.

Since my six year article still has got the same relevance now, I am reproducing the same for my friends. Merger of weak banks with so called stronger banks can alter the shape and size of public sector banks but cannot modify the attitude , mindset, working style and intention of bankers or that of politicians or that of administrative and legal officials. Until GOI , RBI , Bank management and all auditing and vigilance officials learn to say spade a spade and punish real culprits instead of awarding them, we cannot dream of healthy banks in public sector at least.

Friday, November 20, 2009

Needless mergers of banks

Central Government has been building pressure on banks to make best efforts for merger and acquisition. But I am unable to understand the motive behind it in Indian perspective. Finance Minister has said that through consolidation, financial powers of banks will improve and they will not only be able to augment efficiency and help in GDP growth but also get success in competing with International big banks.

Here the million dollar question arises whether Late Indira Gandhi had nationalized banks to compete with International banks, whether banks are meant to extend credit in thousands of crores to a few hundred merchants or manufacturers only?

Have government forgotten the social objective of banks completely?

Is it possible for a government to survive by discarding the interest of common men, farmers, small traders in India?

Is it necessary for India to have bigger banks to extend credit to farmers and small traders who together constitutes 95% of population and without whose support even economic viability of large projects would be at stake?

It is important to mention here that there is sharp rise in loan portfolio or visible growth in advances of banks in general is not due to financing made by banks to small traders and farmers but only due to bulk financing made to big corporate houses, to real estate developers and to infra structure developers.

Does any one in the government or in RBI mean that by merger and enhancing powers of banks, there will be equitable GDP growth in country like India?

Even in America where big banks are many, one out of every seven Americans starves and struggle for earning their bread and butter for at least survival. In India the position is worse than that in USA. In India nine out of every ten Indians are unable to earn sufficient money even for respectful living. Considerable large proportion of Indian population is suffering from mal-nutrition; they die of curable diseases in want of proper medical assistance and they remain unemployed in want of adequate opportunities. This is India where even federal structure of the country is at stake due to largely growing unemployment and where person like Raj Thakre has been trying hard to disallow Non-marathi to seek employment in Maharashtra and Shiv Raj Chouhan CM says he would not employment to Biharis and North Indian in the state of MP. Besides in majority of villages, small towns and cities there is no proper sanitation facilities, acute scarcity of water and electricity, crisis for medical treatment and what not. This is why I reiterate that Indian environment is different from other developed nations and hence need unique treatment.

It is worthwhile to add here that USA government have realized after fall of big banks and financial Institution during last year that management of big banks is very difficult compared to smaller ones. Still there are about 8000 smaller banks functioning in USA to serve common men. It is also true that 125 banks became bankrupt or closed their shutters during the current year in USA.

If we talk of India we have less than 30 public sector banks and they are said to be in better health position. They are well scattered in every nook and corner of the country to serve Indians in general. They have to be encouraged to extend maximum help to small borrowers. They cannot extend any better help to poor person after merger of banks. Then what is the need of merger and acquisition? Why is government bent upon merger Need of the hour is to make them able to cater to the needs of common men.

Even if government feels the necessity of having large banks with huge capital to compete with foreign banks, they can choose to have one or two like SBI or PNB (after merger of SBI with associate banks I think capital size of SBI will be comparable with their foreign counterparts and similarly after merger of PNB with some suitable bank),At least other banks should be left untouched to serve common men and forget big projects, bulk financing, corporate borrowers completely and concentrate only on small and mid size borrowers i.e. credit upto ten lacs.

Even if we leave aside the social objective, it is not commercially proposition to build pressure (frequent request by FM or RBI is enough to build pressure) on banks to go for merger and acquisition especially when government have granted economic freedom to individual banks in the era of economic reformation , liberalization and globalization When need will arise banks will themselves strive hard to grow bigger to survive. As of now banks in India are said to be safer than foreign banks. Even government has admitted it repeatedly.

Inspite of all ,if government still consider it better to go for merger , I would like to suggest our Finance Minister to merge all PSBs including SBI and make them one entity like Income Tax department and other departments of Government of India so that there be no unwarranted interest rate war, no case of multiple financing, no case of take over at the cost of bank’s interest and no unhealthy competition as prevalent in banking industry. There will be unified effort to recover the money from recalcitrant borrowers. Banks will be able to check money laundering in a better way .People will not get opportunity to park their black money in different branches of different banks.

Need of the hour is to strengthen the existing structure of banks, make them more and more efficient and enthusiastic. Government should make efforts for repayment of loan and for this purpose make water tight laws to ensure cent percent recovery of loan from willful defaulters so that proportion of dead money in bank’s balance sheet comes down and they can afford and generate will to make finance to common men. Present scenario is that branch manager of every bank’s branch is afraid of extending credit to small borrowers in fear of account going bad and lastly added to Non Performing Asset. Need of the hour is to avoid political intervention in banking affairs and to resort to healthy norms for financing without any fear of target achievement. To add fuel to fire every banks are suffering from staff shortage and as a consequence there is no monitoring on existing borrowal accounts and gradually service quality in banks at many branches is deteriorating in want of adequate staff. Banks are even unable to redeploy the existing surplus staff at Metro branches due to protest from powerful employees union.

Last but not the least; bitter truth is that big business houses are getting all sorts of help from the government, from the banks and from all corners but all at the cost of poor and middle family. Rich business houses are producing, hoarding and realizing maximum profit on their products and it will not exaggeration to say that the present trend of rising price is caused by these profit makers only. Government has been making promises and promises to control price, but always fail on this front because they have given undue freedom and undue privileges to these business houses. I hope government will make all best efforts to give relief to general mass who are subjected to unbearable pain on account of sharp price rise in all commodities without proportionate rise in their monthly income.

India is said to be suffering from naxalism due to increasing poverty and due to the fact that they are denied their legitimate right and they are even deprived of justice in proper time. Can merger and acquisition by banks help in ameliorating their problems of poverty ridden Indians? I would like to draw the attention of learned FM and PM that late Indira Gandhi (Congress Party) had nationalized banks because private banks were hesitant to extend credit to common men, villagers were deprived of banking facilities and common men was afraid of even entering in to bank. Private Banks were exploiting not only staff working in the banks but were also exploiting business houses. It will not be exaggeration to predict and say that the same Congress Party under the banner of UPA is dragging banking industry in pre-nationalization era.

Please keep in mind that during reformation era 23 banks were forcefully merged to bigger banks by government of India because they succumbed to malady and irregularity they accumulated , and not because they were small banks. Giant banks ,Lehman Brothers, AIG failed not because they were big but they followed wrong policies and committed misadventure in delivery of credit and in making investments.

In India I doubt the honesty and integrity of government in their efforts for merger, acquisition and consolidation of banks because they know the quantum of malady and bad assets hidden behind the rosy balance sheets of PSBs. Otherwise there is no reason for providing capital infusion to various weak banks from time to time. It is their political agenda to save the banks from exposure of their reality when the misdeeds increases to such a large extent that it punctures the tyre of running banks. They are trying to divert the attention of public from inherent weaknesses of PSBs and this is why they are not agreeable to respectable wage revision of bank employees even after two year long dialogue with union leaders. Exodus of talented employees and non entry of well qualified person in PSB banks is also a vital reason behind growing weakness of Banks. On the contrary private banks like ICICI and HDFC banks have grown to such a large extent in last 15 years of their existence that even 100 year old PSBs are facing challenge for survival.

Danendra Jain

21st November 2009
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Fragile State-Run Banks to Merge With Strong Peers if Worries Persist: Jaitley-NDTV 9th September 2015

New Delhi: Finance Minister Arun Jaitley on Wednesday said consolidation of weaker state-run banks with stronger ones will be the next step if some of the lenders continue to remain fragile despite steps to strengthen them.

Speaking at an event organised by The Economist here, Mr Jaitley also said that though non-performing assets (NPAs) in the banking sector was a cause of concern, there was no ground to "panic".

He said the government was taking steps to strengthen the public sector banks and highlighted the measures, like capital infusion and hiring of professionals, including from private sector. Bringing down government stakes in these banks to 52 per cent would further augment their capital.

The government's first objective was to strengthen fragile public sector banks (PSBs), he said.

"After this (measures) if there is a fragile bank we are looking at consolidation with stronger banks. So it's not that banks don't get a priority. In fact, after inheriting the banks in a fragile situation, we are systematically trying to address each of these problems," Mr Jaitley said.

On NPAs, he said: "It is (banking system) a matter of concern. It's not the main worry. There is no ground to panic.

The banking system that we inherited primarily, the public sector banks, was actually very challenging.

"When the economy slowed down, and when you inherit the economy at sub-5 per cent level, it has an impact on the banking system as well... primarily three or four sectors... (have) added to the NPAs of the public sector banks," he said.

He said the NPA was mainly in sectors like highways, steel, state discoms and textiles.

Mr Jaitley further said the government has addressed the highway issue in a "big manner", large investment is going in highways and it has "started moving".

"As far as the discoms are concerned, I am in touch with each of the states where the discoms need to be reformed," he said, adding government was looking at more steps to check dumping of steel in the country.

Gross NPAs of the state-run banks at the end of March quarter stood at 5.2 per cent compared with 5.63 per cent in December.

Out of Rs 1.80 lakh crore capital requirement estimated by the Finance Ministry for state-run banks, the government would be providing Rs 70,000 crore -- Rs 25,000 crore each in the current and the next fiscal, and Rs 10,000 crore each in 2017-18 and 2018-19 fiscal.