Editorail: Sensible banking-Financial Express-15.05.2014
It would call for a radical change in the mindset of any government to accept and implement the suggestions of the PJ Nayak committee, tasked by RBI to recommend ways to improve governance of banks. Governments of all hues, encouraged by bureaucrats, have tended to treat state-owned lenders as their fiefdoms and letting go would be hard. However, a sensible government would realise it has a lot more to win if these banks are better run. Much of their potential remains unrealised simply because the government interferes way too much in their running.
Without dwelling too much on the past—why public sector lenders are poorly supervised, why they have become so inefficient and financially fragile—it is more than evident that boards of banks need to be revamped, professionalised and made more accountable. But for this to happen, there needs to be a drastic overhaul of rules and regulations. Which is probably why the committe believes the way out is for banks to be incorporated under the Companies Act and for the government to transfer its holdings to a Bank Investment Company (BIC). The BIC, will over a period of time, say, three years, pass on several of its powers to the boards of banks; that way banks cam be spared the damage being caused by dual regulation—by RBI and the finance ministry.
The best way to tackle the several hurdles to good governance, the committee correctly argues, would be to let the government drop its stake in the banks to less than 50%. That will free banks from the purview of the CVC, the RTI Act and since they will no longer be PSUs, this will also allow them to pay their employees in the manner private players do. Even otherwise, given that the government is in no position to contribute to the capital that banks need in the next few years—the committe estimates they will need some R5.8 lakh crore over the next four years—this might be inevitable. Without the capital, state-owned banks will be even more handicapped, which is why the government would do well to recognise how serious the issue is and shed its stake to levels of 33% in a phased manner—as once recommended by Finance Minister Yashwant Sinha during the NDA years. That way, the government could still retain control and enjoy a big share of the returns. Once there is less government control of banks and bank boards are empowered, institutional investors too would be more encouraged to pick up bigger stakes in these lenders. Allowing a new class of Authorised Bank Investors—pension funds, provident funds, PEs including sovereign wealth funds (SWFs)—to buy up to 20% of equity will bring in necessary capital; allowing PEs and SWFs to take a 40% controlling stake in distressed banks is also a good idea since such banks can’t raise capital otherwise.
My Coomments :
I fully disagree with the views of editor of Financial Express .
Banks
were nationalized in the year 1969 with a sole purpose of extending
banking services and loan facilities to poor villagers, farmers,
small industrialists and traders who were not getting adequate
support from the then set of private banks. Local money lenders used to exploit
poor people when they used to approach for finance.
Smt Indira Gandhi took the bold step of
converting private banks into public sector banks so that social welfare motive
of the Constitution enshrined in Directive principles could be achieved. If
government of India decides to earn profit only by banks, then they should not
cry for social welfare schemes, or financial inclusion or equitable growth of
all sectors for all sections of people in country.
In a country
like India where 90 percent of population are poor and where unemployment
problem has become the most painful and dangerous problem of the country, India
cannot afford to handover the banking sector to private sector and thus again
force the common men to dance and die as per dictates of promoters of
these banks.
Here it is
important to mention that despite full freedom given to public sector banks and
new private banks after launch of 1991 reformation era, these banks did not
participate whole-heartedly and sincerely to social welfare scheme launched by
the government during last two decades and did not extend desirable finance to
poor people. Private Banks specially did not participate at all in financial
inclusion and neither in poverty alleviation schemes.
Obviously
All these banks Private as well as public sector banks during last
two decades exerted all their mind and energy to earn more and more profit
by bulk lending and by ignoring small traders, small farmers and small scale
industrialists. Though private banks earned profit and grew by leaps and bounds
in earning profit and in raising business during last two decades ,
public sector banks neither could protect their assets and nor could
earn desirable profit.
As a result
of this hunt for profit, public sector banks started competing with private
banks without preparing necessary ground for it and without keeping in view the
mindset of bank employees as well as politicians. They had to face ministers
and politicians also not only to serve social objective but also to serve self
interest of politicians.
Management
of these banks could not reform Human Resource who are supposed to be backbone
for healthy growth but they took unwise initiative and bold step to indulge in
bulk lending to book highest profit in shortest period. They fully lacked
in knowledge, skill and monitoring and they did not get legal support in
recovery of loans from defaulters. Due to this, banks failed to keep banks
assets in standard category.
As a
consequence of this mismatch in mindset of public servants vis-a-vis
private bankers and due to their blind and dreadful effort to compete
their private counterparts, PS banks failed to serve not only social motive
of nationalization but also miserably failed to protect the health of
assets of the banks. Such mismanagement of assets created out of mismanagement
of Human Resource jeopardized the interest of small depositors, small
investors and small borrowers who reposed faith in banks because most of
public sector banks are now sick of bad debts. Majority of PS banks are facing
profit erosion and capital erosion.
As such it
is not the issue of who are in the board or what the share of government in
bank’s capital is. It is the question of quality, honesty, sincerity and integrity of
workers and managers of these banks. It is the question of mindset of
corrupt politicians who are ruling this country. It is rulers who can make or
mar the basics of this country.
Not only
banks, even judiciary, police system and administrative machinery all have
become inactive, ineffective and corrupt only due to
political intervention and political exploitation, and not
due to faulty constitution of controlling body or board .
If privatization is
the panacea and solution to all problems
, then Government should first handover the administration to
private sector and slowly and gradually judiciary, police , CBI and other
crucial regulating set up should also be handed over to private sector .
As such
only privatization of banks may not prove to be fruitful unless and
until administration machinery, judiciary and all other government
departments are under the control of corrupt politicians.
It is therefore
ridiculous to imagine that banks can serve the desired purpose with safety and
security of all merely by diluting government stake or by changing the rule for
constitution of boards. Even if smaller banks are merged to make stronger big
bank, the problem will not end as it has not ended in BSNL or in Air India or
in Indian Railways.
Big borrowers of India Inc default on Rs 47,000 crore loans
NEW DELHI: Large borrowers, who took loans of Rs 10 crore or more, have defaulted on payments to the tune of Rs 47,000 crore, with banks not even pursuing cases to recover over half the amount.
Data available with the finance ministry shows that least 700 defaulters who had borrowed Rs 10 crore or more from public sector banks and cumulatively owe over Rs 26,000 crore have gone scot free despite not clearing their dues. In another 3,400 cases where loans are of the order of Rs 1 crore or more, the lenders have moved courts and tribunals to recover Rs 21,400 crore.
But there are still concerns over the way banks are using options such as one-time settlement scheme to recover the dues. Investigations have shown that in several instances, it was not a simple case of default but even cheating was involved. Bank executives failed to attach personal assets of directors of companies that had defrauded the banks, sources said.
In fact, in several cases, defaulters have gone ahead to get a second loan despite not clearing their past dues. These facts were brought to the notice of the Central Vigilance Commission by CBI sometime ago after many of its cases fell in the courts when bankers reached one-time settlements with its big defaulters.
In one such case in Patna, a PSU bank auctioned a mortgaged property at 20% of the valuation made by its experts. Investigation had revealed a conspiracy involving bank officials, valuators and the borrower as the property mortgaged was an agricultural land used as security against a commercial loan.
The finance ministry has now asked these banks to spruce up their balance sheets given the fact that nearly Rs 14 lakh crore of credit has been outstanding against big borrowers - those who have borrowed Rs 10 crore and above. There are over 22,500 borrowers who owe over Rs 10 crore to nationalized banks.
The RBI has refused to divulge the names of the defaulters against whom no suits have been filed, citing secrecy clauses.
To help the banks recover bad debts, the government has also brought in a bill seeking changes in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, and in the Recovery of Debts due to Banks and Financial Institutions (RDBF) Act, 1993.
The new bill seeks to provide mandatory registration of mortgages and is expected to help reduce the cost of funds for banks and also reduce NPAs.
Data available with the finance ministry shows that least 700 defaulters who had borrowed Rs 10 crore or more from public sector banks and cumulatively owe over Rs 26,000 crore have gone scot free despite not clearing their dues. In another 3,400 cases where loans are of the order of Rs 1 crore or more, the lenders have moved courts and tribunals to recover Rs 21,400 crore.
But there are still concerns over the way banks are using options such as one-time settlement scheme to recover the dues. Investigations have shown that in several instances, it was not a simple case of default but even cheating was involved. Bank executives failed to attach personal assets of directors of companies that had defrauded the banks, sources said.
In fact, in several cases, defaulters have gone ahead to get a second loan despite not clearing their past dues. These facts were brought to the notice of the Central Vigilance Commission by CBI sometime ago after many of its cases fell in the courts when bankers reached one-time settlements with its big defaulters.
In one such case in Patna, a PSU bank auctioned a mortgaged property at 20% of the valuation made by its experts. Investigation had revealed a conspiracy involving bank officials, valuators and the borrower as the property mortgaged was an agricultural land used as security against a commercial loan.
The finance ministry has now asked these banks to spruce up their balance sheets given the fact that nearly Rs 14 lakh crore of credit has been outstanding against big borrowers - those who have borrowed Rs 10 crore and above. There are over 22,500 borrowers who owe over Rs 10 crore to nationalized banks.
The RBI has refused to divulge the names of the defaulters against whom no suits have been filed, citing secrecy clauses.
To help the banks recover bad debts, the government has also brought in a bill seeking changes in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, and in the Recovery of Debts due to Banks and Financial Institutions (RDBF) Act, 1993.
The new bill seeks to provide mandatory registration of mortgages and is expected to help reduce the cost of funds for banks and also reduce NPAs.
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