UBI Is Sick Due To Management Problems

Rajiv Takru: Situation at United Bank mainly due to management problems-LiveMint

Takru explains the steps taken to put United Bank’s house in order and capital infusion options being explored by government

By  Sri Remya Nair

New Delhi: The various enquiries into what went wrong at United Bank of India have pointed to deficiencies in management and the software used by the lender but have given the lender’s directors a clean chit, said Rajiv Takru, who was on Monday appointed revenue secretary in the ministry of finance. Takru, talks about the steps taken by the government to put United Bank’s house in order, the various capital infusion options being explored by the government to ensure sufficient funds for state-run banks, and the stalemate in wage negotiations, in an interview conducted when he was secretary in the department of financial services. Edited excerpts:

What is the finance ministry’s action plan for United Bank of India?

The appointment of a chairman is in process. We have got the forensic audit report, the RBI (Reserve Bank of India) audit report and the administrative enquiry report. All of these have been looked at. They have all pointed out what they perceive as deficiencies and now they are being addressed. Addressing of deficiencies falls in two parts. There are deficiencies that can be addressed right away which are more or less executive in nature. The rest is part of a larger change, which will take time. But the most important thing is the NPAs (non-performing assets) that are being completely concentrated on. The recoveries in cash and the restructured book have crossed Rs.2,900 crore. It is not whitewashing or fudging of books. What has actually happened is that even cases where the other banks in a consortium had implemented CDR (corporate debt restructuring), United Bank did not implement it and it slipped into NPAs.

This was mainly due to internal management problems, which they could not resolve despite their best efforts earlier. Now they don’t exist any more.

Now such accounts have been restructured in line with the environmental behaviour. We have given them clear instructions that we don’t want window-dressing…no whitewashing. But we would have been much happier of course if all this had come to light earlier and these foolish mistakes had not happened.

What are the deficiencies the reports have pointed out?

One, there was a genuine problem with the software and they have the record to prove it. They say that even a manufacturer in a letter has told them that these are the deficiencies in the software that resulted in some kind of accounting problem in the bank.

It was silly, in my view. If these shortcomings were there, they should have been rectified by the supplier. If it was not falling in the work ambit, the bank should have got it rectified at that time.

But was it only technology at fault or was there a human factor?

Basically, it was a management problem. The decision-making had for one reason or the other got jammed. We tried on our part. The board of directors also tried. The equations reached a point where the only way perhaps to sort it out was to part company. The CMD (chairman and managing director) was of course not keeping well and put in her papers.

Will we see a change in the board of directors or in the executive directors at the bank who were there during this whole period and didn’t probably step in at the right time?

The board meets once in every two or three months where the agenda is six inches thick with many charts. The board is also largely handicapped. Though all reports have not been analysed, I am not seeing much of anything that I would like to pin on the board of directors here. They ultimately have to rely on the management. Although the honourable Supreme Court has said that it is the responsibility of the members of the board to ask questions, but a board member will only ask why the NPAs are going up. He is not going to say bring me every case of NPA and check if it is a proper NPA or not.

Even RBI and government instructions to the banks are to look at the top 30 NPA accounts. The management role cannot be taken over by the board. It is not a good idea to paint everyone with a black brush. I don’t think we should get into this witch-hunt mode. These are problems which happen. In financial institutions, it should not happen. And the executive directors are the guys who are now doing the recovery.

Why has the government not found a long-term solution to capitalize state-run banks? There are various models being discussed, but every year it is a struggle to capitalize banks.

There is no way the government is going to allow public sector banks to default on the capital adequacy norms under Basel III. RBI norms are more stringent than Basel III, which is good and desirable. Capital is required not only because of Basel III, but also because of the stressed environment. As more and more assets fall into the NPA category and RBI asks banks to make more provisions, more capital is needed.

It should not sound ominous, as most of the assets are recoverable. CCI (cabinet committee on investments) is approving projects and major roadblocks have been removed. But the impact will take some time as these are huge projects. The minute the asset comes out of the NPA category, the capital requirement will come down. We just got stuck in a bad time in the economic cycle.

The government is anyway providing capital. We have provided Rs.11,300 crore in the budget. The final budget will come in June. We will know how much we want and we will get it. So this figure is not written in stone.

Also, banks have not adequately explored other ways of raising capital. Either in terms of other forms of Tier I capital like perpetual bonds which PFRDA (Pension Fund Regulatory and Development Authority) has allowed and Irda (Insurance Regulatory and Development Authority) is looking into.

There are other ways also like rights issue, QIPs (qualified institutional placements), employee stock options. Till now, adequate emphasis on some kind of efforts to raise capital from other sources has not happened because there was an unconscious feeling that anyway the government will put in capital.

But the government is only a part shareholder, and what is a better judge of a bank’s credibility than the market acceptability of an equity issue? We will definitely see some of the options being used in the next fiscal.

How are wage negotiations progressing with the bank unions?

Wage negotiations had been going smoothly. But what I am told by IBA (Indian Banks’ Association) is that the unions are asking for a 30% hike. No bank can afford 30%. Negotiation has negotiation positions. If I say ‘X’ and the other party says ‘Y’ and both say this is final, there is no negotiation.

Banks have moved from 5% to 10%. But apparently the union representatives did not see it fit to budge from 30%. Negotiation is with IBA—I don’t have anything to do with it. But as a large shareholder, the government will be very interested in what the banks are going to pay out. You can’t have a situation wherein the entire profit of the bank goes in paying its employees. It’s not an employment agency. The bank has to generate capital through retained earnings. 

http://www.livemint.com/Industry/RLC0rAfBtSKleONeOScxAJ/Situation-at-United-Bank-mainly-due-to-management-problems.html

This refers to interview published in newspaper Today where Mr. Rajiv Takru has given almost clean chit to directors. It  appears that government is trying its best to justify its decision of making and elevating top officials of the bank to the post of ED and CMD of banks. ED and CMD who neglected and damaged the bank are already promoted or given safe retirement. . Obviously they will try to search some scapegoat in junior and middle level officers.

As long as top officials , RBI officials and MOF work hand in glove with each other , no power on earth can save public sector banks . They may give advantage to private banks and when PSBs are damaged, they may merge the same with other banks or infuse capital to keep it healthy . As long as they do not strike at the root of the sickness, mere surgical operations at the cost of public money may simply and undoubtedly give rise to more and more flattery and bribery and more and more bad debts. This is why private banks are rising by leaps and bounds whereas PSBs are going from down to down.

It is inhuman, illogical, brutal and absolutely injustice to blame CMD of United Bank (who resigned) for rise in NPA to more than 10 percent. NPA or stress asset accumulation in the books of accounts of UBI is not creation overnight. It has been allowed to accumulate for last so many years willfully and strategically by clever team of officers, Executive Directors and Chairman of the bank to win the praise and appreciation from their mentors and ministers.

There is no doubt that CMD and EDs of UBI who worked for UBI during last ten years did the same fraudulent act in the bank where they worked before they were given the top post in UBI. The culture of bank is carried from one bank to other by none other than ED and CMD of the bank who are appointed by dirty persons of MOF.

I therefore feel that the Bank especially the bank which is considered most high class performer is actually the worst class performer. None can survive in government bank if he or she is not master in art of manipulation and playing foul game with figures and realities. If an officer tells the truth, he or she is thrown like Ashok Khema in Harayana and Durga Nagpal in UP by their bosses..

It is bitter truth that position of NPA is worse in not only in UBI but in all other public sector banks including State Bank of India. Only the difference is that UBI CMD was innocent and simple hearted that she stood boldly against evil doers of the past and forced auditors to declare NPA strictly as per RBI norms. She did not apply motivating and manipulating tactics to persuade auditors to hide NPA as his predecessor CMD and EDs used to do and CMD and EDs of other banks are still indulged in. She did not like to compromise with principles and hence she decided to step down from top post instead of playing in the hands of her regulators and controllers.

If RBI or MOF is honest and bold enough, it should order similar forensic audit at all other banks including SBI. I am very much confident that more disastrous outcome will surface in other banks. NPA ratio is more than 20 percent in most of banks if they are ideally stopped from concealing bad assets on the plea of global recession or false reasons. Restructuring of bad loans or ever greening of loans is rampant culture in banks and very commonly used to hide bad debts.

Cheating and fraud with system is regular phenomenon in public sector undertakings only because ministers and inspecting officials and police officials are bigger thieves.

Munsi Premchand told rightly that if protectors become destructers, none in India can save the system from disaster. And when entire culture is corrupt crisis like what has surfaced in UBI and what is yet to be surfaced in other banks has to happen sooner or the later. When majority of politicians are lacking good culture and honesty, person like Arvind Kejriwal and Ramdeo Baba have to suffer in India.

Is bad loan menace at United Bank of India a cover-up after serious lapses? -Economic times-13.02.2014

(My comments given below )

Is the bad loan menance at United Bank of India  a cover-up by the bank's management after serious lapses? Sources close to the development say, the report prepared by RBI-appointed forensic audit firm Deloitte suggests serious lapses on the credit appraisal and automated NPA detection system of the bank. 

Sources also say that the report suggests that NPAs were not being detected for past two and half to three years. A senior banker in the know says, "the automated system that detects NPAs was found switched off, whether it was intentional or by mistake remains a big question." The Reserve Bank of India had appointed Deloitte to conduct a forensic audit on the bank. 

United Bank of India sent shock waves across the banking sector when it reported gross NPAs at 10.89% in Q3, increasing its bad loans by nearly three times. However, sources in both the government and RBI maintain that the situation at United Bank of India does not pose a systemic risk. The bank has also been instructed to focus primarily on debt recovery and avoid any fresh loans especially on the corporate side.

Though the bank is dire need of capital, sources indicate that the government will not be in a position to infuse funds immediately, and this will most likely have to wait till the new fiscal starts. 

UBI posted a net loss of 1238 crore rupees in Q3 compared with 42 cr net profit a year ago. Serious questions have also been raised on the bank's capital position. The bank's tier 1 capital has fallen to 5.6% as of Dec, 2013, which is below the minimum capital ratio stipulated by the RBI 

Even in the past questions have been raised on the governance practices at public sector banks. Sources indicate that the RBI had requested the government to appoint a committee on the same, following which P J Nayak committee to review the governance of bank boards in India was set up in January this year. 

Calls to United Bank of India's CMD by ET NOW remained unanswered. 

http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/is-bad-loan-menace-at-united-bank-of-india-a-cover-up-after-serious-lapses/articleshow/30346948.cms

My Comments are given below

It is now detected and well established by Auditors that top officials of the bank used to switch off the button which automatically detect bad debts. Since long, apprehension from many corners have been expressed candidly that bank officials use to hide bad debts to book higher profit by making lesser provisions.

But unfortunately RBI and Ministry of Finance willfully remained silent spectators of all such evil acts so that people cannot point out accusing finger towards them and they continue to use the public applaud for shining banks.

Due to such indifference and killing silence, customers and investors along with bank staff are sufferer and there is none to compensate them .Customers of the banks are not getting loans and adequate services due to demoralized mindset now, Investor shareholders of UBI have suffered loss in share value and staffs of blacklisted bank are denied wage hike.

Auditors say that it is not clear who are behind this menace and this dirty act. Auditors are again managed to write the story of doubt which portrays a soft picture about continuing fraud so that top officials who are mastermind behind tapering of the system are exonerated by giving benefit of doubt.

Some questions arises in my mind which are as follows

First and foremost question is who used to control the technology and the system and are they booked to task?

Who are the officers entrusted to monitor the functioning of the system and how they failed to detect the technological fault for such a long period?

 Were officers not tallying and matching the system generated bad debts from manually detected bad debts?

Whether branch Officials who were in direct touch with bad accounts did not point out the faulty outcome shown by the system? 

Or top officials themselves managed the ill-motivated task at their end i.e. at central office?

Each bank and each branch of the bank used to run and were supposed to run parallel manual exercise for detecting and identifying bad debts to synchronize the mechanized system of detection of bad debts until machine starts giving correct result. 

Why banks failed to do such exercise and who are responsible for such gross negligence?

Was it not a intentional conspiracy of seniors to conceal bad debts?

How the switch remained off for years and prudent officers could not sense it in time? It gives stinking smell of the dirty intention behind such foul game.

It is definitely not controlled by any junior or middle management officer. Without concurrence and guidance of top officials, junior or senior officers do not have courage to play with the well protected system.

Is it not true that top management of the bank willfully reduced NPA to present better balance sheet and then to ensure grand success of public issue which UBI had to bring in the market in the year 2010. 

Will RBI call explanation of ED and CMD of last ten years and also the type of culture they inculcated in the bank and type of culture they inherited from their previous banks to assess the character, knowledge and greed for money and post?

Will RBI also peep into the performance of those banks where from they were elevated to the post of ED or CMD?

RBI has ordered scanning of new loan accounts disbursed by new CMD, But result of such audit may not tell truth of the past loans which has turned NPA this year .

 RBI is trying to cover up the evils of past ED and CMDs who allowed and promoted bad culture for their vested interest?

If RBI punishes all responsible General Managers, EDs and CMDs of last ten years who failed to keep technology working without tapering ,who failed to ensure switch on of Infosys system and software and  who committed irregularities either in sanction or in monitoring, the message will go to other banks too and thing may improve at least from now.

It is open secret that banks are still involved and indulged in bad lending and there is no doubt that bad loan will rise every quarters to come and in all public sector banks. I have no doubt that same position exists in all public sector banks as it is found to be in United bank during forensic audit . Every bank has kept switch off willingly and intentionally to keep NPA low. Only difference is that new lady CMD of UBI has not tried or failed to managed auditors in hiding NPA whereas other ED and CMDs are clever and smart to prevail upon auditors to get the certificate as per their sweet will.

Will RBI order conduct of forensic audit of SBI where volume of bad debts run in lac of crore of rupees.

 If RBI can protect loss arising from such bad assets,I hope bank staff can be paid 1000% wage hike without creating any fall in their future profit.

Second question is whether the top officials of United bank of India were and are so much ignorant about the health of high value loan accounts that they could not think it wise to test the correct working of their machines.

Whether it is not their duty to verify the correctness of the volume of bad debts?

A true banker knows very well the prominent loan accounts which are sick in quality or on the verge of going sick.

Rather it may be said without doubt that it is a well planned way of concealing bad debts and this dirty game has been persisting in almost all public sector banks since long. It is not a story of two or three years as claimed by clever and managed auditors, it used to be there even when machine or core banking solutions were not in place.

When CBS system technology was not in vague and manual working was done in bank to identify bad debts, top officials of banks used to say openly in meeting that none of branch head can declare any account as NPA until they are permitted by top officials on phone. Not only this , if any courageous officer dared defy the verbal guidelines of their bosses and used stick to RBI norms in identification of bad assets , they had to bear the brunt of top management . And without fail such sincere officers were rejected in promotion process and got the most critical remote transfer orders.

Further it is not only a singular case of making less provision to inflate profit of the bank, RBI is well aware how top officials of the banks used to make lesser provision or make no provision for pension and other terminal benefits to inflate profits. 

When this fraud was detected, RBI officials or officials of Ministry of Finance who were from behind the scene working in collusion with top officials of the bank and who used to misguide in banker meeting and who were protecting dirty game of bad bankers, allowed banks to make provision for residual terminal benefits and pension and amortized the same in five years so that huge burden may not adversely y affect the balance sheet of a bank and tarnish the image of the bank. If bad news spreads in the market, the share value could fall sharply and the wealth of many stalwarts could vanish who had invested huge money in shares of the bank.

Obviously there is no doubt that the fraud which has been detected by auditors in United Bank of India was committed by top officials of the bank and it is the duty of regulating agencies and CBI to call for explanation from Head of the bank and that from General Managers and Executive Directors who were mastermind behind the dirty tricks. Further they should try to peep into the balance sheets of other public sector banks so that the greatest scam of the country could come on the floor and people of India may understand the risk ahead.

All guilty, persons, whosoever it may be, heavy weight or low weight officer, must be punished in the larger interest of the customers investors as also staff working in the bank. Management of United bank has cheated investors by hiding bad assets , by making lesser provision and by showing inflated profit. Even  SEBI should  look into this fraudulent game with investors played by UBI  when they came out with public issue in the year 2010..

Exposure of UBI management  will open the eyes of Finance Ministers and politicians who has damaged the fundamentals of the bank by adopting vote bank policies and by pressurizing top bankers verbally to go for all such acts which adversely affects the profitability of the bank.

Especially PC should be made to understand that if bank staffs are not well paid and if bank staffs are not awarded for honesty and sincerity, health of banks has to be bad.

If flattery is the only quality for promotion and respect, volume of fraud and bad debts in government bank will continue to rise and endanger the deposit of innocent common men who keep their hard earned money in government banks only considering them safer than private banks.  

I therefore always say that as long as flattery and yesmanism is the culture in any bank or in any office good workers cannot survive respectfully and only bad officers will prosper and the bank has to suffer in its intrinsic value. Exposure may be delayed by clever team of corrupt officers.