India to tighten screws on banks' 'window dressing' of accounts-Times of India 4th June 2015
Key points are as follows"The whole incentive structure needs to be changed," .
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"We are not going to allow any window dressing."
Central bank Governor Raghuram Rajan last year warned banks against creating a liquidity squeeze at the year-end by ceasing to lend to each other "to build a certain kind of balance sheet".
"It is a matter of culture that runs from the bank branch to the top," said a senior policymaker.
"If one person does it, then it becomes a relative thing when the other person also doesn't want to be left behind."
http://timesofindia.indiatimes.com/business/india-business/India-to-tighten-screws-on-banks-window-dressing-of-accounts/articleshow/47544898.cms
Window Dressing in Banks - Dishonest Officers Get Promotion; CMDs and EDs Get Monetary Benefits BUT Honest Officers / Staff Get Lower Salary Increases - Danendra Jain --- Written three years ago
Senior bank officials working as Branch Head or Regional Head or Circle Head or Zonal Head or Central Head, all have barring some exceptions resorted to window dressing in the past and it is their mastery in art of window dressing that they continued to be blessed with one after other promotions superseding honest performers.
They not only resorted to window dressing for deposits but also for advances.RBI never took notice of it or one may say that they indirectly supported this unhealthy and unethical practice prevalent in public sector banks in the name of achievement of targets.
Bank officers paid abnormal rates of interest for short term deposits and achieved the target of deposits. Bankers then motivated high value borrowers to withdraw their unavailed portion of sanctioned limit on closing days and park the same in their deposit account. In this way they made artificial jump in deposits and advances in last few days of closing year or closing quarter.
This fraudulent method of achieving target jeopardized the career of hundreds of senior officers who did not resort to window dressing and these officers were sidelined, posted at critical places and finally rejected in all promotion processes. There have been hundreds of senior officers who are expert in window dressing of advances too. They arrange short target valued clients to avail short term loan even if the corporate do not need and finally compensate them in different ways.
These corrupt bankers have caused huge loss to banks by paying abnormal interest for short period and by providing sub-PLR rate on advances to big clients who obliged them during closing period. All this caused huge loss to tax payers, investors and those who kept their hard money in saving deposits. Not only this these officers played big role in creation of bad assets in banks and finally writing off of big values loans .Volume of NPA was always concealed by these clever bankers and now on CBS they are getting exposed . Gross NPA of banks has made a new top and gone beyond control.
Finally when bank incurred loss or earned less profit, even wage revision of staff was treated by Ministry in casual manner and ultimately all staff had to bear with nominal or negligible rise in their wages.
Who will after all punish these corrupt officers who have been using their flattery and bribery powers to buy the good wishes of ministers and RBI officials and who have been buying even vigilance officials to close their files related to corrupt activities?
They not only resorted to window dressing for deposits but also for advances.RBI never took notice of it or one may say that they indirectly supported this unhealthy and unethical practice prevalent in public sector banks in the name of achievement of targets.
Bank officers paid abnormal rates of interest for short term deposits and achieved the target of deposits. Bankers then motivated high value borrowers to withdraw their unavailed portion of sanctioned limit on closing days and park the same in their deposit account. In this way they made artificial jump in deposits and advances in last few days of closing year or closing quarter.
This fraudulent method of achieving target jeopardized the career of hundreds of senior officers who did not resort to window dressing and these officers were sidelined, posted at critical places and finally rejected in all promotion processes. There have been hundreds of senior officers who are expert in window dressing of advances too. They arrange short target valued clients to avail short term loan even if the corporate do not need and finally compensate them in different ways.
These corrupt bankers have caused huge loss to banks by paying abnormal interest for short period and by providing sub-PLR rate on advances to big clients who obliged them during closing period. All this caused huge loss to tax payers, investors and those who kept their hard money in saving deposits. Not only this these officers played big role in creation of bad assets in banks and finally writing off of big values loans .Volume of NPA was always concealed by these clever bankers and now on CBS they are getting exposed . Gross NPA of banks has made a new top and gone beyond control.
Finally when bank incurred loss or earned less profit, even wage revision of staff was treated by Ministry in casual manner and ultimately all staff had to bear with nominal or negligible rise in their wages.
Who will after all punish these corrupt officers who have been using their flattery and bribery powers to buy the good wishes of ministers and RBI officials and who have been buying even vigilance officials to close their files related to corrupt activities?
After all why RBI officials and Ministry of Finance maintained silence for decades together is a mystery? Most of senior banks have got blessing of some ministers or some officers in MOF or RBI and this is why they not only get before-time promotion but also get safe exit at the time of retirement even if they committed hundreds of irregularities in their posting at various offices.
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PS by Rajesh Goyal : Mr Jain in the above article has summed up a kind of fraud which is going in banking industry for years. RBI and Finance Ministry have not taken any action against any CMD or top officials during all these years. They are very well aware of these malpractices which breed corruption but they have chosen to remain silent except for issuing a routine circular that banks should not indulge in window dressing. This is similar to our corrupt politicians who give long speeches in the Parliament that we need to root out corruption from the society. RBI and Finance Ministry are part of this scam. Now it is openly being discussed in the public. In an article titled " Public Banks Face Cap On Costly Year End Deposits", it is mentioned that "In the just concluded financial year, banks raised nearly a third of their total deposits in the last month of the year". The article further says
"..It appears that in order to garner deposits and increase balance sheet size, banks tend to raise deposits and certificates of deposits at very high rates....Mobilization of such deposits unsustainably high rates, is not only likely to adversely affect the profitability of banks but also the asset liability management of bank," said a note sent out by finance ministry seeking views of public sector banks on the proposal".
The ET articles also says "The interest rates on certificates of deposits, or CDs, the instrument used by banks to raise bulk or wholesale deposits, rose to a maximum of 11.5% by March, over 150 basis points from the end of December". This kind of window dressing is clearly against the retail depositors, who even on 1 to 10 years deposits get around only 9%. No PS Bank paid more than 9.5% even during the period when rate of interests have peaked. The faithful all-weather customers, including senior citizens are denied the highest rate of interest, which is paid to corporate and some government deposits. To garner government deposits, bribe is paid at various levels even by almost all PS bank officers, as senior officers in government departments are well aware that dishonest bank officers need these to get promotions and such dishonest officers can afford to pay for procuring such deposits.
Can any CMD or ED or GM can say that he / she is not aware of such practices. Rather they openly encourage such practices in meetings and praise such officers who have been able to get such deposits / loans. It is sad commentary on the part of Indian banking. I can only hope that after some cleaning in the promotion policy guidelines recently, RBI and Ministry of Finance will come together and punish those who indulge in such practices to earn monetary benefits and remain in good books of senior officers / ministry officials.
Click Here To Read More On Window Dressing
Former CVC is right: There is a cancerous growth in Indian banks - hidden NPAs-First Post
The comments of former central vigilance commissioner (CVC) that state-run banks were probably suppressing the bad loans on their books by restructuring these loans with easier conditions is highly critical and gives a hint on how frightening the actual bad loan situation can be in India's banking system.
"NPAs (non-performing assets) are getting suppressed-the RBI(Reserve Bank of India) has taken note of it," said Pradeep Kumar, former CVC, in an interview with Time of India on Friday.
What Kumar said is something which every stakeholder in the banking system - the bankers, the companies, the regulator and the finance ministry (which effectively controls 70 percent of the banking industry through public sector banks) knows very well for long, but has conveniently ignored for their own interests.
For several years now, the banking industry, in particular state-run banks, have been subjected to severe, frequent misuse by a nexus of crony capitalists, corrupt bankers, middlemen and politicians.
This typically happened in two stages.
First is when the loan is being sanctioned. The nexus is at work then in the case of companies, which originally didn't merit the loan. The banker is bribed or influenced by the politician or the firm through the expert middleman, who seal the deal for the beneficiaries.
This happens typically in state-run banks, where officials lack accountability, power, autonomy in their functions and are prone to flouting rules when bribed or pressurized by those with money power.
Logically, a company which secures the loan through this mechanism wouldn't be able to honor its repayment obligations for long since in the first place, the firm didn't deserve the loan. If it did, there was no need to trigger the nexus to operate.
Two, when the crores of money thus lent and not repaid by the unworthy borrower are about to turn an NPA, the nexus again returns to work and push the banks to offer additional assistance/ relaxation to the same faulty borrower through some easier terms (slashing lending rates, extending repayment period, offering a moratorium and taking a haircut), commonly known as loan restructuring.
This is something, again, the company doesn't deserve, since loan recast facility is originally intended for companies in genuine trouble not cronies.
As Firstbiz has argued in the past (here and here), there are strong reasons to believe that a sizeable chunk of the current stressed asset mess is attributable to criminals in the banking system.
If one take a closer look at the major bad loan cases that have been now investigated for charges of wilful defaulting/ criminality/ fraud such as Rs 7,000 crore loan owed by Vijay Mallya-led Kingfisher Airlines, Rs 6,500 crore loan of Winsome Diamonds and Rs 40,000 crore of Bhushan Steel, Rs 2,500 crore loan owed by Mumbai-based Tayals and several other similar cases, one needn't take much effort to understand how the current pile of publicly stated bad/ restructured loan happened.
Bankers have been well aware of several cases going into loan recasts without merit but kept silent until recent past for fear of their jobs and for the sake of their own career development/ post-pension vocation programmes.
A change in this scenario happened only in the last 2-3 years, when the lead lenders at the corporate debt restructuring (CDR) forum took up the issue with the RBI seeking change in rules to prevent companies from misusing the system.
But that's about companies. What about banks themselves misusing credit recast facility to rescue a non-meritorious firm? That's what the former CVC has highlighted now.
If indeed banks were honest in stating the actual status of many of their loan accounts and showed the guts to call a spade a spade, the actual figure of bad loans would have been much higher than the Rs 2.5 lakh crore gross NPAs disclosed by them till June.
As RBI governor Raghuram Rajan said in the post monetary policy presser on last Tuesday, banks shouldn't postpone the bad loan problem for tomorrow and instead deal with it today, because "tomorrow will be worse".
But that's precisely what banks have done all these years. The total chunk of loans restructured in the banking system is about Rs6 lakh crore (Rs 3 lakh crore through CDR and the rest through bilateral route).
Only a thorough investigation can reveal how much of this chunk is actually hidden NPAs. Identifying the problem is critical to find remedies. A Firstbiz estimate shows about 14 percent of the loans given by banks until June is under the stressed asset category. That's not a good signal for an aspiring economy like India.
Bad loans make banks weak. If banks fail to detect or pretend not to have them on their books, that can be even more fatal for the whole economy at a later stage. Banks are the backbone of an economy and the managers of public money. Hence, safeguarding them should be the utmost priority of the policymakers.
As Firstbiz noted earlier, the only way out to come out of the current situation plaguing India's private sector banks is to privatise them and change them as better governed institutions.
Putting good money after bad and understating the financial health do not often happen in private sector banks like in the case of state-run lenders.
Hidden bad loans are like cancer. The problem with the cancer is, if left undetected, it lives merrily with the victim for a considerably long period, before manifesting one day with its full might.
That day comes with a cost.
Public sector banks hiding bad loans’ size: Ex-CVC-Times of India Oct 2014
NEW DELHI: Restructuring of loans on easy terms may not be the best solution to tackle the bad loans of public sector banks (PSBs), former central vigilance commissioner Pradeep Kumar said, and expressed concern that state-run banks were probably suppressing the size of the "real crisis involving NPAs (non-performing assets)".http://timesofindia.indiatimes.com/business/india-business/Public-sector-banks-hiding-bad-loans-size-Ex-CVC/articleshow/44146242.cms
Sunday, June 23, 2013
NPA In Banks Are Due to Exposure of Hidden NPA -Danendra Jain -written on 23.06.2013
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.
Click Here to Read Bitter Truth of Banks And Bad Debts
FM to banks: Explain rate cut reluctance-Business Standard-05.06.2015
Jaitley to meet bank chiefs next Friday; move follows lukewarm response to RBI's 75-bp rate cut since January
Finance Minister Arun Jaitley will meet chief executives of public sector banks on June 12 to seek an explanation on why they have been slow in passing on the cumulative 75-basis-point repo rate cut by the Reserve Bank of India (RBI) since January.
Banks have cut base rates by a maximum 30 basis points (bps) so far since then. (A basis point is a hundredth of a percentage.)
Banks have cut base rates by a maximum 30 basis points (bps) so far since then. (A basis point is a hundredth of a percentage.)
27. EX-SERVICEMEN EMPLOYEES:
ReplyDelete Service rendered in Defence, in case of ex-servicemen employees who
are not drawing/eligible for Defence pension, should be added in bank
service for eligibility for payment of pension. can you please let me know what happened to this demand