Public sector bank management should be held accountable for bad loans: Jalan--financial Express
(Read My comments below)
Former RBI governor Bimal Jalan on Monday said the managements of public sector banks, and not the finance ministry, should be held accountable for the wrong assessment of credit worthiness to check the rising number of bad loans.
“If you put public sector banks in one bracket and other banks in another bracket, you will find that NPAs in the first sector are higher. So that is a product of not political intervention per se, but that could also be a product of the credit worthiness analysis that the banks do....there is much less of a price to pay if you make the wrong assessment of credit worthiness in a public sector, where accountability is a problem,” Jalan said in an event organised by the MCC Chamber of Commerce and Industry.
He said part of the reason for the piling up of NPAs was the slowdown, but that did not explain the whole problem. “The issue is important and the answer that we have to think about it is to how to make the management accountable, the management of the institution (banks) accountable rather than the ministry of the government,” he pointed out.
According to Jalan, managements of public sector lenders should be free to run the banks without government intervention, but at the same time they should be held accountable for their performance.
“Why government intervention in running the public sector banks? You can appoint, you can decide on rural priorities, small-scale priorities that are applicable to banks,” said the former chief of the central bank. Worried over a further rise in bad loans, finance minister P. Chidambaram recently exhorted the state-run banks to effectively deal with NPAs.
“The biggest challenge facing the public sector banks is NPAs and asset quality,” Chidambaram said.
“We have told them (banks) to focus on recovery and banks are focusing on recovery,” he said.
Without providing NPA data of the public sector lenders for the last financial year, the finance minister said it was ‘likely to be a little higher’ over 2012-13, when NPAs stood at 3.84%.
My Comments:
Learned and experienced Banker Sri Bimal Jalan has come
forward openly to safeguard Ministry of Finance. He says MOF is not responsible
for rise in bad loans though they are key members in process of sanction of any
big loan.
In his opinion, Ministers and politicians may suggest
bankers for making finance to any Tom Dick and Harry for their vested interest
but cannot be held responsible if the accounts go bad.
Sri Bimal Jalan does not like to
understand that when the boss of any officer verbally gives any instruction,
the officers tries to obey it even the advice is wrong. This is India where
flattery is the key to success.
This is just like the story of PM Manmohan Singh who
silently watched Coal Scam happening and failed to stop bribery and flattery as
a devoted Chowkidar. But politicians belonging to Congress Party always say that
Prime Minister MMS is clean and not responsible for any loss caused to the
country due to his silence and indirect permission to evil deeds of his junior ministers
and officials.
Jalan bats for better govt-central bank ties and flexible policy-making-Business Standard
Indicates that there should be no fixation on either growth or inflation
Former Reserve Bank of India (RBI) governor Bimal Jalan said on Monday the priority of a central bank should not be fixated on either growth or inflation. He said central banks need to consider national priorities in their policy decisions.
"I will not comment on RBI but I will make a general point on central banks. The whole perception about the role of central banks across the world is changing. If you go back to history, in the 90s there was a predominant view that central banks' responsibility was inflation (control), while the government would decide on fiscal policies, development, growth, etc,” Jalan said at the sidelines of an event.
“Today, if you look around the world, you will find that central banks are very active in promoting growth. For example, what is the US doing?".
RBI had formed a committee headed by one of its deputy governors, Urijit Patel, to review the monetary policy structure.
The Patel committee advised explicit focus on an inflation target, with the retail price inflation figure seen as appropriate in this regard. It suggested RBI try to keep annual inflation around four per cent.
"I will not comment on RBI but I will make a general point on central banks. The whole perception about the role of central banks across the world is changing. If you go back to history, in the 90s there was a predominant view that central banks' responsibility was inflation (control), while the government would decide on fiscal policies, development, growth, etc,” Jalan said at the sidelines of an event.
“Today, if you look around the world, you will find that central banks are very active in promoting growth. For example, what is the US doing?".
RBI had formed a committee headed by one of its deputy governors, Urijit Patel, to review the monetary policy structure.
The Patel committee advised explicit focus on an inflation target, with the retail price inflation figure seen as appropriate in this regard. It suggested RBI try to keep annual inflation around four per cent.
'Fit & proper' criterion doesn't clash with RBI's inclusion drive: Jalan
Declines to share his views on whether RBI should allow industrial houses to set up banks in India
The Reserve Bank of India (RBI) should not compromise on its ‘fit and proper’ criterion while offering new banking licences to promote financial inclusion, said former RBI governor Bimal Jalan.
The RBI has, in principle, approved banking licences to two —Bandhan and IDFC — of the 25 applicants. The decision surprised many as it was believed new licences were this time offered to expand the reach of financial services to remote corners.
Jalan, who headed a four-member high-level advisory committee that scrutinised the applications for new banking licences, defended the central bank’s decision of granting licences to only two applicants.
“I cannot comment on the policy, it will not be fair. There is no contradiction in the principle of financial inclusion and the ‘fit and proper’ criterion. It is a criterion to make sure other people’s money, which is what banks deal with, is disbursed and allocated in a manner that is appropriate,” he said while responding to queries on why only two new licences were offered by the central bank.
He declined to share his views on whether RBI should allow industrial houses to set up banks. “I don’t want to make a comment. I leave it to the RBI,” he said.
In contrast to a decade ago, when large industrial groups were not permitted to run banks, the RBI had accepted applications from industrial groups for a licence in this around. While corporate houses, including the Ambanis, Birlas and Bajajs, had applied, none of them was granted a licence.
But RBI Governor Raghuram Rajan recently clarified there was hope for some of these groups, as the central bank was evaluating options to offer more licences. “We went through the list. This was the set of applicants the (Bimal) Jalan committee and the RBI felt comfortable with. We have opened up the possibility that will allow applicants to apply again once we start giving licences on tap, as well as create differentiated banking licences. Some of the applicants will be better off applying for a differentiated licence, rather than a full bank licence,” Rajan said at a seminar in Pune last week.
Internationally, it is fairly common for industrial houses to operate banks. Only 12 per cent of countries restrict the mixing of banking and commerce, according to the RBI’s discussion paper on new bank licensing.
The RBI has, in principle, approved banking licences to two —Bandhan and IDFC — of the 25 applicants. The decision surprised many as it was believed new licences were this time offered to expand the reach of financial services to remote corners.
Jalan, who headed a four-member high-level advisory committee that scrutinised the applications for new banking licences, defended the central bank’s decision of granting licences to only two applicants.
“I cannot comment on the policy, it will not be fair. There is no contradiction in the principle of financial inclusion and the ‘fit and proper’ criterion. It is a criterion to make sure other people’s money, which is what banks deal with, is disbursed and allocated in a manner that is appropriate,” he said while responding to queries on why only two new licences were offered by the central bank.
He declined to share his views on whether RBI should allow industrial houses to set up banks. “I don’t want to make a comment. I leave it to the RBI,” he said.
In contrast to a decade ago, when large industrial groups were not permitted to run banks, the RBI had accepted applications from industrial groups for a licence in this around. While corporate houses, including the Ambanis, Birlas and Bajajs, had applied, none of them was granted a licence.
But RBI Governor Raghuram Rajan recently clarified there was hope for some of these groups, as the central bank was evaluating options to offer more licences. “We went through the list. This was the set of applicants the (Bimal) Jalan committee and the RBI felt comfortable with. We have opened up the possibility that will allow applicants to apply again once we start giving licences on tap, as well as create differentiated banking licences. Some of the applicants will be better off applying for a differentiated licence, rather than a full bank licence,” Rajan said at a seminar in Pune last week.
Internationally, it is fairly common for industrial houses to operate banks. Only 12 per cent of countries restrict the mixing of banking and commerce, according to the RBI’s discussion paper on new bank licensing.
Learned and experienced Banker Sri Bimal Jalan has come forward openly to safeguard Ministry of Finance. He says MOF is not responsible for rise in bad loans though they are key members in process of sanction of any big loan.
ReplyDeleteIn his opinion, Ministers and politicians may suggest bankers for making finance to any Tom Dick and Harry for their vested interest but cannot be held responsible if the accounts go bad. He does not like to understand that when the boss of any officer verbally gives any instruction, the officers tries to obey it even the advice is wrong. This is India where flattery is the key to success.
This is just like the story of PM Manmohan Singh who silently watched Coal Scam happening and failed to stop bribery and flattery as a devoted Chowkidar. But politicians belonging to Congress Party always say that Prime Minister MMS is clean and not responsible for any loss caused to the country due to his silence and indirect permission to evil deeds of his junior ministers and officials.