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Tuesday, July 30, 2013

How To Bring Down Interest Rate?

Whether it is possible for banks to reduce interest rate on deposits and that on advances or not is a million dollar question which every prudent banker must ponder over .

                                  Keeping in view the current RBI policy rates and the economic situation of the country as also the financial health of banks, I may say with confidence that Banks in public sector or in private sector will have to increase deposit interest rate to survive and to meet the liquidity requirement as also to meet the crisis arising out of asset liability mismatch.

                              It is well known to all that during last few years ,banks in general have  focused on short term deposits and they are committing blunder by investing these short term funds to lend in long term projects like infrastructure or power generation. Banks focused on bulk deposits from government departments and from cash surplus corporate even after spending some money on gifts and after paying some bribe to mobilize such bulk deposits and that too even after paying higher rates of interest. Now the scope of bulk deposit and offering higher rate of interest is almost negligible especially for public sector banks whose cost of fund is already higher than that of private banks.

                             Banks committed mistake of going away from retail depositors in quest of corporate business and in an attempt to achieve targets by window dressing and earn love of Ministers and gain incentive bonus in career. Had they focused on retail deposits, had they offered best service to Saving and Current depositors, they could not have faced the crisis which they are now facing. These bankers are now crying for CASA deposits but it will take time for them to realign the field functionaries with retail customers because most of top officials in banks are product of bulk deposits and that of window dressing.

                              It is true that the private banks which have higher proportion of CASA are running smoothly even now in current critical period from banking point of view and from the view pint of domestic and global recession. For example private banks which are rich in CASA deposits are showing excellent growth in their profit. 

                             It is ironical and condemnable that even government officials who are corrupt and who are greedy of bribe and costly gifts are parking even government funds in private banks and causing loss of interest to none other than our government banks. On the other, Public sector banks are crying for CASA deposits and corrupt government officials are parking even government funds in non government banks.

                             To add fuel to fire government of India is barking on freedom to banks and creating avoidable competition among its own banks on the issue of rate structure. They are not ready to force uniform interest rate regime of all public sector banks due to which public sector banks are fighting among themselves to snatch the business of their sister bank and causing loss to none other than one or the other bank of the same government.

                           In such critical position banks are bound to increase interest rate on deposits to maintain their deposit base and their growth rate in deposits. And more so they will have to focus on long term deposits and not rely fully on short term deposits which they are now doing. They cannot be allowed to remain dependent on borrowing from RBI or other banks at bank rate or repo rate. And as long as they are unable to stop rise in cost of fund they cannot afford reduction in lending rate.

                         Though under pressure of Finance Minister or to flatter the Finance Minister, some of banks have already reduce bas e rate and some others are ready to reduce lending rate even though their financials do not allow doing so. But these flatterer and corrupt top officials of banks will ultimately cause loss to bank and in turn to Government of India only. It is not the CMD or ED of any bank who will suffer due to their ill-motivated decisions; it is always the taxpayer, investors, bank staff and customers of banks who will suffer due to wrong policies and due to wrong execution of good policies by corrupt bankers.

                        I therefore of the strong view that in the larger interest of the banks, the customers, the bank staff and the investors, Government should come out with Uniform Rate structure for interest on deposits as well as advances keeping in view the priorities of the nation, the global recession and the domestic economic conditions like rupee depreciation, Current account deficit or trade imbalances. Otherwise some of the banks will have to increase lending as well as deposit rates and if they do so some bigger banks will enjoy and other smaller banks will suffer.

                          Last but not the least, every bank will have to control rising bad debts so that their interest income does not face erosion and for this purpose government will also have to make all necessary arrangement to help banks in recovery of bad debts from defaulters through legal course of action. Banks will have to change their attitude in recruitment, promotions and posting of officers in branches to ensure quality lending and to stop corrupt practices immediately. 

                           Banks can improve their net interest margin and the profitability only by good quality of lending and by best quality of monitoring. Banks cannot be run only by playing in interest rates or in indulging in non banking products. Banks will have to be kept above control of dirty politicians who have been continuously and relentlessly damaging bottom line of banks through their vote bank politics.

                        I plead for uniform interest rate only because I know out of my experience that leaders of public sector banks are not as loyal to their banks as their counterparts are in private banks because majority of top officials in public sector banks are product of their corrupt practices and their capacity of earning illegal money to share with their mentors sitting in various offices of GOI and MOF. In private banks honesty and sincerity is of much importance whereas in public sector bank, it is the quality of flattery and bribery which matter much for elevation in post of a person or for best posting in a bank.

                        Private Banks honour to their workers who earn maximum business for their bank whereas in public sector banks officers who are number one Yes-man who is number one corrupt  is given preferences in all matters. This is why there is no good culture in state run banks and this is why officers sitting at top post give weightage to those who are good speakers and who are money earners for personal gain and they ignore honest and sincere officers in promotion. And this is why I always plead for seniority based promotion which will at least allow least volume of corrupt practices.

                     In GENERAL  ,   A manager in private banks assess the risk factors in loan proposal of business man whereas a manager in public sector bank assesses how much gifts, cash and other benefits he will get in lieu of sanctioning a loan proposal of a business man. This is the difference between the approaches of two managers. 

                    Similarly while promoting an officer  to higher scale a private bank top officer think the benefits accruing to his bank after giving promotion to an officer whereas an interviewer in general in public sector bank thinks how much he will gain personally in return if he promotes an officer. 

               Government of India has to understand this basic difference while giving rudderless, irrational and reckless freedom to PS bank officials .

Bankers ask RBI for relaxation

Say surge in bond yields will hit balance sheet valuations; turned down on CRR plea
Fearing an adverse impact from the sharp rise in bond yields on their balance sheets, banks approached the Reserve Bank of India on Tuesday with some demands in this regard, including a one-time relaxation in applying securities valuation norms. They also pleaded for restoring the Statutory Liquidity Ratio (SLR) floor to 25 per cent from the present 23 per cent. This ratio specifies how much banks have to invest in government securities as a percentage of their deposits.

RBI on July 15 and 22 put severe restrictions of banks’ borrowings from its daily liquidity adjustment facility and raised the rates for borrowing at the marginal standing facility. The purpose was to curb the trend to use rupee resources for speculating in the foreign exchange market. Bankers, in meetings with the RBI brass, sought a one-time permission to move securities from the Available for Sale to the Held to Maturity bucket. This, they said, should be without marking these to market (revaluing at current values). The exercise should be run on the valuations as on July 15.

1 comment:

  1. Yes of course it looks absurd to have such view about public sector banks . It is absolutely true that a few performing officers are fully devoted and sincere but they are in minority and they are the most frustrated and tortured class of officers.
    Again I may say here that there are exceptions to all observations in all walks of life but the final view is always taken keeping in view the larger happenings and the culture which represents general class. After every promotion process results it is often said that real performers is rejected and flatterer is selected. There may be some exceptions here too that a few of them were really good performer and promoted too. But these cases are to hide the hidden malady , these are ornamental beauties to conceal facial disorders.
    Even hard core terrorist like Verrapan used to have good relation in his society. Even thieves and dacoits use to give some charity to earn name and fame around him. But the prime perception about a person or about a trend or about a practice depends which is automatically generated in public domain.
    Latest example of MS Durga IAS officer may be taken into instance who is suspended under the pressure of Land and sand Mafia for none of her fault in UP. Mr. Khremka like officers are transferred to person like Vadra. There are several Vadras associated with banking too and there are several cases of persons like Khemka posted to remote and critical place or person like Durga suspended on flimsy ground which spoils here career once forever.