It is the first
time that the Secretary ,Department of Financial Services (DFS) ,
Ministry of Finance (MOF) have openly admitted that Volume of Non Performing
Assets (NPA) or bad debts in banks appearing before media is not the creation
of last six months or a year. They are mainly those NPAs which were not
disclosed willfully by clever bankers. Those clever bankers are now holding top
posts such as Executive Director or CMD of a bank or the other.They concealed
all bad debts to avoid provisions and to inflate profit to get the award from
DFS and MOF.
It will not be an
exaggeration to say that only clever bank officials who are master in window
dressing could get quick promotion during last ten years and more taking
advantage of reformatory policies of the government. These clever executives
got a series of monetary incentives from government as well as from bad
borrowers who got hassle free loan and free money from bank without any brake. Loan
account of these bad borrowers were treated as Good and standard till the
government ordered banks to identify bad borrowers by using technology of
CBS. And I do not hesitate in saying that ill-motivated works of all clever
bank officials were indirectly getting support from DFS and MOF. Now the
officials of RBI as well as that of MOF are shedding Crocodile Tears.
I am surprised that
still Top ranked officials have not accepted the bitter truth that major part
of present NPA is due to bad decisions taken by ill-motivated officials of the
bank in nexus with powerful politicians and powerful bureaucrats .And
most painful is that clever officials are continuing their dirty work even now
on some plea or the other. They are still not disclosing entire bad accounts as
NPA. Critical loan accounts are not disclosed by using tools of rephasing or
restructuring or by tapering with the system and by taking certificate from
greedy Chartered Accountants who are sellers of their signature.
Secretary DFS is still unaware how this trend
of bad financing and concealment of bad advances continuing in most of public
sector banks. It is remarkable to say here that rise in bad debts can stop only
if competent, skilled, honest and devoted officers are promoted to higher
level. It s unfortunate that officers who have got almost negligible knowledge
in credit processing and in assessment of credit worthiness of the loan seeker
are getting promotion quickly due to their closeness with higher bosses and it
is they who are getting the post of Branch Head or Regional Head or Zonal Head
. As a consequence advances sanctioned by these inexperienced and dishonest
officials become bad in a year or two. For two to three years these bad loans
are concealed by bad officials to avoid punishment and finally these
accounts are declared NPA at opportune time and that too, giving wrong reasons.
This bad culture is behind all mess banks are trapped in.
Officers getting promotion in two to three years are
head of the branch where 20 to 30 years better staff are working under him.It
is unimaginable that banks will grow in healthy manner under the leadership of
such inexperienced and dishonest officers whose career is decided not
on the basis of their merit but on the basis of flattery and bribery. This
vital point is not yet taken seriously by any higher officials, any minister
and any secretary DFS .
Until banks are able to take care of good, honest
and really performing officers and until they learn to give weightage
and full respect to seniority , one should not dream of any basic reformation
in bank and should not expect in any fall in bad assets. During last twenty
years , though Human resource policy of the bank and promotion policies of
every bank have been made merit oriented , in fact the execution of these
policies is totally fraudulent and dependent on whims of the top officials who
are more interested in personal gain than the growth of the organization they serve.
Officers who are not even acquainted with various processes and policies of the
bank are head of branches ,regions and zones and those officers who know more
are working as humiliated subordinates under them.
Only God can save these banks from corrupt officials.
Secretary may preach sermons and issue guidelines and orders but
until they are followed up in true spirit , it is very difficult to change the
trend of rise in and debts and indifferent attitude of really good officials
who are not at all taking part in promotion process because they know that
without Godfather they cannot succeed.
It is only in banks that promotion process considers
the cases of only those officers who apply for it. If good officers do not
apply for promotion, banks will depend on bad officers who apply for promotion
and who have Godfather behind them to take care of their cases in interview.
This is why I am tempted to say that banks will have
to learn promote those who really work in order of seniority and will have to
kick out or give VRS to those who do not perform even after serving the bank
for two or three decades. I am unable to visualize a situation where an officer
who has served a bank for three year of four years or say ten years may be more
brilliant and efficient and found to be fit for the post of executive in scale IV
r scale V or scale VI than a person who has served the bank for two to three
decades with best appraisal reports every year.
It is
possible only in government banks that officers with 20 years of best appraisal
reports are not promoted whereas officers of two to three years service and
that too with bad appraisal reports are promoted.
It is
possible only in banks that an officer promoted to the rank of General Manager
but not found fit for the post is given the charge of Publicity, or KYC or ATM
or something like that.
It is
possible in banks only that officers who have not worked in branches are made
Regional Head or Zonal Head. Officers expert in agricultural financing are
posted in urban areas and officers who are expert in marketing are made
officers for handling banking routine operation and officers expert in credit
growth or in business growth are posted in remote rural areas. Officers expert
in domestic business are posted at overseas branches or foreign exchange
branches and expert in foreign exchange business are posted in agriculture
potential branches.
It is
possible in banks only that officers who has acquired plenty of banking degrees
to get promotion but who is not fit and who is not interested for taking wise
decision on problems faced by branches.
It is
possible only in banks that an officer promoted to the rank of General manager
but not found fit for the post is given the charge of Publicity, or KYC or ATM
or something like that .It is possible only in PS Banks that officers not found successful in running branches or who have not at all worked in branches are made Regional Head to monitor working of branches and to plan growth of branches.
It is
possible in banks that officer promoted to scale III or scale IV are posted at
scale I or scale II branches and are advised to work as clerk in branches or as
telephone operator in Administrative offices.
It is
possible in public sector banks only that important works are handled by
officers who are rejected in promotion processes and non-significant works are
handled by promoted senior officers.
It is
possible in banks only, that officers who do not know about credit processing
rules are made branch head and who do not know about recovery processes are
made recovery officers.
It is in
banks only that Hindi belt officers are posted in southern states and south
people are posted in North or in east without taking care of his ability to
deal with the situation he is supposed to face. And handle wisely and
effectively.
It happens so
only in banks because top ranked officials mostly act on their whims and merit
oriented policies have been turned into demerit oriented so that they can
perpetuate reign of self satisfaction at the risk of organizational safety.
To add fuel to fire,
banks are unable to recover the money from willful defaulters due to various
legal constraints, which clever Secretary DFS has not admitted as one of the
main reason for poor recovery and for rise in bad debts in banks. Though
Secretary has admitted that there are several willful defaulters where
promoters are wealthy but not repaying dues of banks, he has failed to tighten
the legal system and administrative machinery under their control who have
created more hurdles in disposals of cases filed under DRT or SARFACIA or in
the offices of Certificate officer or DM. It is greedy officials in government
offices, DRT, courts who in collusion with bad borrowers postpone decisions on
cases filed by banks against bad borrowers for years and decades.
GOI has data on all
such litigations pending in various courts, but they do not like to act
sincerely to expedite the disposal of cases to recover the money from bad
borrowers who are categorized as willful defaulters.
I
agree that natural calamities, global recession or some genuine failure of
project which results in loan account going bad are beyond the control of
Secretary DFS or MOF , but I am certain that if they at least control the
controllable reasons behind bad debts there will be drastic improvement in
health of Public sector banks and they will be able to put brake on rising
debts. At least DFS and MOF can take lesson from private banks which are
performing better than PSB under same economic situations and under same global
environment.
Following is the interview published in Economic
Times today.
Times today.
It has been a little under six months after Rajiv Takru took over as secretary, department of financial services, or DFS, which handles state-owned banks, financial and investment institutions such as LIC, besides policies relating to pensions. Takru, an engineer by training and a career civil servant who has worked in ministries such as defence and information & broadcasting recently, cracked the whip on banks for mis-selling products and on the issue of due diligence. He spoke to ET's Sangita Mehtaand Shaji Vikraman on how the government plans to overhaul Life Insurance Corporation of India and smoothen funding for infrastructure projects. Edited excerpts:
One of the biggest worries in the banking sector is the rising level of bad loans, especially reported by state- owned banks. With the continuing economic slowdown, policy uncertainties and governance issues, there are fears that NPAs may rise further. As the largest shareholder, how is the government addressing this problem?
Non-performing loans, or NPAs, are a matter of worry. But the NPAs or bad loans showing today are not just those generated in the last six months. The RBI has introduced a system which now automatically identifies NPAs. In the past, there were bad loans but they were not disclosed. Secondly, bad loans are because of troubled economic conditions and, third, it is a factor of wilful defaulters. Now wilful defaulters also get encouraged at the time of recession. They feel that this is the time when they can sneak across because there are so many genuine guys. They think that their mala fide thing can also get covered.
I don't think one should worry about those loans which the system has dragged out because they were already there. The ones that we need to worry about are those which are by wilful defaulters and those that are generated due to the economic slowdown. Where people are genuinely having problems, banks should do the hand holding and they need to make provisions. Nothing stops banks from recovering money after this period is over.
Banks say that they also have major challenges to overcome in the form of stalled projects, especially in the infrastructure sector, owing to policy standstill. How are you going to sort this out?
The standard line is very clear. Where a project can be restructured and where it is stuck due to systemic problem, or where it can be saved, we must ensure that the project is made functional. But in the case of wilful defaulters, banks have been told to go after them.
During the first term of the UPA government, there was an attempt at consolidation in the state-owned banking segment. Since then it has been put on the back burner. Is there a rethink on this?
This is an item which is on the back burner, but still there. It is high time most of us realise that in an era of globalised economy, you must have a couple of big players. SBI, our largest bank, is way down in global rankings. So there is a case for consolidation. But there are human and operational factors involved.
The process of licensing of private banks will start soon. There has been a debate on the number of licences to be issued and the kind of promoters who should be allowed to open banks. What is the government view?
No numbers. Now there is no doubt that the only way for an economy to grow is to have financial inclusion. But it does not mean that anyone who applies will get a licence. I am sure RBI has no intention of being reckless. Due diligence, super due diligence must be done before someone is given permission. Because the last thing we want is a dicey character coming here and fooling around in the banking sector.
Actually all the major failures have been because banks have gone fooling around and gave loans in wrong places and because of ownerships and connections and lack of firewalls. People were allowed to take money and then siphon it out. This has happened the world over. So why do you think that RBI is going through this elaborate exercise of internal committee and external committee. I have been defending it furiously. An internal committee will first decide if the candidate satisfies the benchmark. Then the external committee will look at it to make sure that no mistakes have taken place and to do some sort of ranking.
And after that we move to the third stage where the overall picture will be considered-who is coming with how many branches, etc. It's not the question of a licence. It's the question of how many branches per licence. It's the question of inclusion. Is that fellow capable of economies of scale? Is he capable of expanding? I can give it to five people and each one opens 1,000 branches and that gives me 5,000 branches. Or I give it to 20 guys and each one opens 100 branches where I will have 2,000 branches. My idea is coverage.
India's financial institutions led by LIC, which have substantial holdings in many listed firms, are hardly known to be pro-active when it comes to taking on managements or promoters for instance on issues of corporate governance. Isn't that disconcerting?
I am on the board of LIC and I have asked LIC to analyse its controls and how they are safeguarding their investments. If LIC has say a 9% stake in some large corporate, I was shocked to see that we don't even have position on that company's board. How is my investment being looked after? Now this is something on which I find LIC very diffident. It is very hesitant. Had a private sector entity been what LIC is today, he would have been a dada.
We are meeting soon to discuss investment strategy and how to safeguard ourselves. How are we making decisions? If suppose I decide tomorrow to buy something, who is doing the due diligence to see that I make some sensible decision. The issue is that there are lots of systems which need to be introduced in LIC, although it is an old established institution. It is a giant. LIC will take all steps to safeguard its investments, including asking for more board seats if necessary.
Chidambaram may back borrowers in July 3 meeting with bank chiefs--Business Line
Banks not passing on RBI’s policy rate cut benefits fully
NEW DELHI, JUNE 23:
Finance Minister P. Chidambaram may come down heavily on public sector bank chiefs for not passing on to borrowers the benefits of RBI policy rate cuts.
The controversial issue of monetary transmission is likely to come up for special attention when Chidambaram meets them in the Capital on July 3.
This meeting was originally slated for June 26, but now stands postponed to July 3 at the behest of Department of Financial Services, it is learnt.
There are annual general meetings (AGMs) of certain big banks clashing with the earlier date of June 26, sources in the banking industry said.
Chidambaram had recently said that he would take up with bankers the issue of benefits of policy rate cuts not being passed on to borrowers.
Although the RBI had reduced the repo rate by 130 basis points since January 2012, the banks had on their part cut their lending rates only by 30 basis points during this period. Repo rate is the rate at which RBI lends money to banks.
“This issue (weak monetary transmission) is very much on the agenda of the meeting. We are gearing up with our defence”, said a public sector bank chief who did not want to be identified.
The central bank had this year cut the repo rate by 75 basis points cumulatively in three different policy review meetings.
It had kept the repo rates unchanged at 7.25 percent at its recent June 17 policy review meeting.
PERFORMANCE REVIEW
The July 3 meeting will also see the Finance Minister review the performance of public sector banks in 2012-13, their lending to the infrastructure sector and their efforts on the direct benefit transfer front.
Financial inclusion and non-performing assets (NPA) situation will also be high on the agenda of the meeting, it is learnt.
The RBI’s recent move to rationalise the risk weightage for banks’ lending to housing sector will most likely be discussed. This move could spur investments in the housing sector.
The other issue that may come up for discussion is the 215 stalled projects involving an investment of Rs 7-lakh crore. The banks are understood to have disbursed about Rs 53,000 crore to these projects.
The Government has recently taken many measures to expedite clearances for these projects.
It has also set up a special cell to regularly meet with stakeholders and ensure speedy clearances.
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