Financial Services Secretary DK Mittal defends repeated directives to banks
NEW DELHI: DK Mittal, the finance ministry official whose detailed instructions to banks have drawn rebukes from Reserve Bank Governor Duvvuri Subbaraoand his predecessor YV Reddy, has strongly defended his actions on the ground that his intention was to jolt state-owned banks out of their "lazy banking" habits and force them to lend more to farmers and small businesses.
In the last 12 months, the department of financial services in the finance ministry has sent as many as 36 directives to state-run banks, setting new rules as well as reiterating old ones, leading to accusations of micro-management.
But the man responsible for the blizzard of directives, Financial Services Secretary DK Mittal, refused to comment on the criticisms while sticking to his guns in an interview to ET, arguing that banks need to lend to sectors such as farming, which the government considers a priority, rather than focus only on large companies.
Read the full interview
State-run banks, according to Mittal, are merely raising bulk deposits from large businesses and lending the money back to them. "Some banks were raising high-cost deposits and lending out at high interest rates. How would they compete with private banks if they are lending at 14% when private banks are lending at 11%," he asks.
Mittal recently sent a directive to state-run banks capping the bulk deposit they can raise so that they would have to raise deposits from retail consumers and diversify their lending. "Public sector banks have to realise that loans to education, agriculture, housing, and small and medium enterprises will always be a priority for our country," he says.
The secretary is also critical of the NPA management by banks, asserting that the new system set up by the finance ministry has helped recover money. "We have achieved recoveries of around Rs 5,000 crore, the highest ever. In the first six months when there was no such system, it was only about Rs 1,500 crore," he says.
Mittal says for long, the state-run banks had not seen the larger picture and someone had to drive them. "Somebody has to examine with a dispassionate view and see what is our national priority. Certainly, integration between 26 national banks is a difficult task and somebody has to take care of that as well," he says, adding that the banking regulator cannot do this given its regulatory functions.
Mittal is convinced that all these are not short-term measures but ones that will be the base for the next level of reforms. "So it is a unique combination when regulator regulates and we push the banks towards achieving the common goal which is in the larger interest of the country," he says, justifying his decisions, some of which could be seen as stepping into the regulatory domain.
My Views as as follows:----------------------------------------------------
THERE IS NO DOUBT IN IT THAT DURING LAST FEW YEARS PUBLIC SECTOR BANKS HAVE
TOTALLY DISCARDED AGRICULTURE LENDING AND CONCENTRATED MORE ON BULK
LENDING TO BIG CORPORATE AND ON RETAIL LENDING LIKE LOAN FOR PURCHASE OF CAR
AND HOME.
IF TOP 200 BORROWERS OF ANY GOVERNMENT BANK IS REMOVED FROM BALANCE SHEET OF
THAT BANK, THE REAL PICTURE OF LENDING WILL EMERGE AND IT WILL BE PROVED THAT
DURING LAST FEW YEARS DISBURSEMENT FOR FARMING HAS COME DOWN AND THIS IS WHY
GDP CONTRIBUTION FROM AGRICULTURE HAS ALSO COME DOWN.
THERE IS NO DOUBT THAT VOLUME OF NON PERFORMING ASSETS HAS SEEN UNPRECEDENTED
RISE DURING LAST THREE YEARS AT LEAST AFTER THE USE OF SYSTEM DRIVEN MECHANISM
TO IDENTIFY ACTUAL NPA.
AS
A MATTER OF FACT IN MAD RUSH TO INCREASE PROFIT EXECUTIVES OF BANKS DICTATED
THEIR JUNIORS WAYS TO CONCEAL NPA AND TAUGHT HOW TO PUBLISH ATTRACTIVE BALANCE
SHEET.
THERE IS NO DOUBT THAT CORRUPTION IN GOVERNMENT BANKS HAS INCREASED AT ALL
LEVELS but IT IS invariably POLITICIANS WHO PROTECT THEM.
I SALUTE FINANCE SECRETARY MR. D K MITTAL FOR HIS RELENTLESS EFFORT TO AWAKEN
THE SLEEPING BANKERS AND FOR HIS GUIDELINES FOLLOWED BY MONITORING HAS RESULTED
IN AWAKENING BANKERS TO GREAT EXTENT AND THEY HAVE NOW
UNDERSTOOD THAT THEY CAN NO LONGER MANIPULATE BALANCE SHEET AS PER THEIR WHIMS
AND FANCIES.
THEY
HAVE TO SERVE COMMON MEN, PARTICIPATE IN SOCIAL WELFARE SCHEMES AND AT THE SAME
TIME MAINTAIN QUALITY OF LENDING AND RECOVER MONEY FROM DEFAULTERS
IT IS FORTUNATE OR UNFORTUNATE THAT MR. MITTAL HAS TILL NOW NOT TAKEN ANY
PUNITIVE ACTION AGAINST ANY OF TOP EXECUTIVES. HE HAS SIMPLY PREACHED SERMONS
TO BANKERS. LET US SEE HOW FAR HE IS SUCCESSFUL IN FORMING THE HABITS OF
BANKERS.
AS
LONG AS THE TOP RANKED OFFICERS ARE TAKEN TO TASK FOR THEIR CORRUPT PRACTICES
IN RECRUITMENT, PROMOTION AND POSTING, NONE CAN DREAM OF ANY CHANGE IN CORRUPT
CULTURE. THIS IS MY STRONG CONVICTION AND INDISPUTABLE VIEW.
QUALITY OF OFFICERS HEADING THE BRANCHES IS SO POOR THAT THEY CANNOT BE
EXPECTED TO DO SAFE LENDING AND PROTECT BANK FROM GROWTH IN BAD ASSETS AND FROM
DETERIORATION IN CUSTOMER SERVICE.
State-run banks, according to Mittal, are merely raising bulk deposits from large businesses and lending the money back to them. "Some banks were raising high-cost deposits and lending out at high interest rates. How would they compete with private banks if they are lending at 14% when private banks are lending at 11%," he asks.
Mittal recently sent a directive to state-run banks capping the bulk deposit they can raise so that they would have to raise deposits from retail consumers and diversify their lending. "Public sector banks have to realise that loans to education, agriculture, housing, and small and medium enterprises will always be a priority for our country," he says.
The secretary is also critical of the NPA management by banks, asserting that the new system set up by the finance ministry has helped recover money. "We have achieved recoveries of around Rs 5,000 crore, the highest ever. In the first six months when there was no such system, it was only about Rs 1,500 crore," he says.
Mittal says for long, the state-run banks had not seen the larger picture and someone had to drive them. "Somebody has to examine with a dispassionate view and see what is our national priority. Certainly, integration between 26 national banks is a difficult task and somebody has to take care of that as well," he says, adding that the banking regulator cannot do this given its regulatory functions.
Mittal is convinced that all these are not short-term measures but ones that will be the base for the next level of reforms. "So it is a unique combination when regulator regulates and we push the banks towards achieving the common goal which is in the larger interest of the country," he says, justifying his decisions, some of which could be seen as stepping into the regulatory domain.
THERE IS NO DOUBT IN IT THAT DURING LAST FEW YEARS PUBLIC SECTOR BANKS HAVE TOTALLY DISCARDED AGRICULTURE LENDING AND CONCENTRATED MORE ON BULK LENDING TO BIG CORPORATE AND ON RETAIL LENDING LIKE LOAN FOR PURCHASE OF CAR AND HOME.
IF TOP 200 BORROWERS OF ANY GOVERNMENT BANK IS REMOVED FROM BALANCE SHEET OF THAT BANK, THE REAL PICTURE OF LENDING WILL EMERGE AND IT WILL BE PROVED THAT DURING LAST FEW YEARS DISBURSEMENT FOR FARMING HAS COME DOWN AND THIS IS WHY GDP CONTRIBUTION FROM AGRICULTURE HAS ALSO COME DOWN.
THERE IS NO DOUBT THAT VOLUME OF NON PERFORMING ASSETS HAS SEEN UNPRECEDENTED RISE DURING LAST THREE YEARS AT LEAST AFTER THE USE OF SYSTEM DRIVEN MECHANISM TO IDENTIFY ACTUAL NPA.
THERE IS NO DOUBT THAT CORRUPTION IN GOVERNMENT BANKS HAS INCREASED AT ALL LEVELS but IT IS invariably POLITICIANS WHO PROTECT THEM.
I SALUTE FINANCE SECRETARY MR. D K MITTAL FOR HIS RELENTLESS EFFORT TO AWAKEN THE SLEEPING BANKERS AND FOR HIS GUIDELINES FOLLOWED BY MONITORING HAS RESULTED IN AWAKENING BANKERS TO GREAT EXTENT AND THEY HAVE NOW UNDERSTOOD THAT THEY CAN NO LONGER MANIPULATE BALANCE SHEET AS PER THEIR WHIMS AND FANCIES.
IT IS FORTUNATE OR UNFORTUNATE THAT MR. MITTAL HAS TILL NOW NOT TAKEN ANY PUNITIVE ACTION AGAINST ANY OF TOP EXECUTIVES. HE HAS SIMPLY PREACHED SERMONS TO BANKERS. LET US SEE HOW FAR HE IS SUCCESSFUL IN FORMING THE HABITS OF BANKERS.
QUALITY OF OFFICERS HEADING THE BRANCHES IS SO POOR THAT THEY CANNOT BE EXPECTED TO DO SAFE LENDING AND PROTECT BANK FROM GROWTH IN BAD ASSETS AND FROM DETERIORATION IN CUSTOMER SERVICE.
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