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Friday, April 22, 2016

Vinod Rai On Public Sector Banks

I have great respect for learned and capable person Sri Vinod Rai who was CAG head a few years ago and who unearthed many high value scams and helped the country in exposing the evil works of the then ruling party.

Now he is given the responsibility to head Bank Board Bureau (BBB) and suggest ways and means to contain bad debts, get rid of capital shortage in PSU banks, ways to merge and consolidate PSU banks and also suggest good names for the post of chief of PSU banks.
Problems faced by Banks are not new . Burden of stressed assets is too heavy to sustain .


NPA is not creation of a few months or of few years but it is even older than a decade in many cases. Banks were caught in inflating profit five to six to seven years ago when it was detected that in order to inflate profits, banks did not even make adequate provision even for terminal benefits like pension payable to bank staff on their retirement. Culture of manipulation and fabrication is well established and deep rooted.

I have however full faith in Sri Vinod Rai and I am confident that with his wisdom and experience he will help banks in coming out of crisis and in improving intrinsic vslue and health of banks with the active cooperation of Central government.


Sri Vinod Rai is right in saying that all defaulters of bank loans are not willful defaulter. But I would like to say that all defaulters are also not due to acceptable reasons like global recession or domestic slowdown or due to natural calamities. Rather I may say here that more than three fourth of total Non-Performing Assets (declared and hidden both) are willful defaulters or due to malicious intention of bankers, politicians and borrowers.


Point is here how to discriminate avoidable default from unavoidable default. Important point is how to stop corruption in lending, how to stop political exploitation of banks and how to stop ill-motivated, wrongful and malicious culture of writing off of loans and sacrifice of considerably huge amount of good money in the name of One Time Settlement with bad borrowers in the name of cleaning balance sheet.

It will not be an exaggeration to say here that majority of written off loans and major portion of sacrificed amount of good money are only to give relief to erring banking officials and protect them from penal action, to cover up ill-motivated politicians who build pressure on bankers and to save borrowers from harassment in courts .


It will not be inappropriate to say that during last two to three decades, it has become habit or rather you may say, it has become the culture of bankers to give credit to good or bad borrowers to serve self-interest, to earn illegal gifts in cash or in kind, to achieve imposed target, to please higher bosses, to win the blessings of bosses and finally to get quicker promotion, to get choice posting and to become wealthier.

Same gang of corrupt officers apply their evil mind when the loan become Non-Performing Assets (NPA) and it is they who hide bad accounts financed by them or by their fellow colleagues for a few years on some plea or the other and finally either write off the loan or sacrifice a major portion of dues in One Time Settlement (OTS) . This happens with majority of NPA accounts; it may be small value or high value NPA.


Small borrowers are freed from repayment in the name of poverty or failure of business of small borrowers and high value borrowers are given relief in the name of economic recession or global slowdown or failure of project due to government fault, non-clearance of statutory requirement or project cost escalation or some other imaginary untrue reasons.


Staff accountability is not fixed in majority of cases to save erring officials or to help dirty politicians. Exercise of fixing of staff accountability in case of NPA accounts has become a ritual and hence a stereo type format is filled up and kept in record. Erring top officials of the bank use to get political patronage for their evil works and junior bank officers similarly get patronage from higher level bank officials.


Evil culture in sanction of credit and in writing off of loans or in OTS has got wide spread acceptance at all levels of officials and in all government department including Ministries.
Employees who do not fall in line with whims and fancies of higher bosses and bosses who do not feel in line with whims and fancies of powerful politicians are posted at critical places and always rejected in promotion processes.


Interview in promotion processes is such a tool which empowers interview takers to select or reject officer in promotion process strictly in arbitrary and non-transparent manner. As a result of this ill-treatment to good employees by higher bosses, majority of good employees have made a habit of discarding promotion processes on false excuse of family or health ground.

Senior and experienced loyal officers do not take part in promotion processes taking place in banks and on the other hand juniors who are expert in flattery and bribery apply for promotion and they get four or five promotions in 10 years. This has created an environment where juniors are king over seniors and experienced officer or workman staff.


Now you may well imagine what type of environment is prevailing in banking industry from top to bottom and what type of work culture and loyalty or flattery culture has been created during last three decades of liberalization and how freedom given to top officials of banks in the name of reforms have been misused.


Here it is proper to say that Bank Boards Bureau (BBB) has been set up last year by present government to suggest names for top posts of the bank and to suggest ways to contain bad loans. I would like to say that BBB may appoint a good person as Chief of a bank but cannot change the intention of politicians who play a big role in making a bank sick and in spoiling work culture or loan culture or repayment culture in banking industry specially Public Sector banks (PSU). Neither can it change the culture at field level which has been polluted by Chief executives of the bank during last two to three decades.

It is heard several times that political masters during rule of Congress Party or UPA or their Yesman officials in Finance Department used to earn lacs and crores of rupees in making an officer of bank as ED or CMD of a bank. I do not know whether it is true or false, but the action of such officials tell about their character. It is they who vitiated and polluted promotion culture during last three decades in the name of merit oriented promotion. Then, it is these top officials who come through corrupt ways and by using dirty means did the same injustice when they got the power to decide fate of their subordinates.

Culture of bribery and flattery for getting promotion is deep rooted in PSU banks at all levels as it is prevalent in other government departments.

As such Vinod Rai and BBB just by changing ED or CMD cannot change the decades old culture and attitude of politicians as also that of Bank officers who in general are equally corrupt and addicted to evil culture and dirty practices injected in their mind by their evil bosses. He cannot change the minds of trade union leaders who instead of protecting the interest of their members become agents of top bosses of the bank.

Here it is proper to say that in seventies, say up to 1980, bank employees used to get promotion strictly as per their seniority. During that period there used to be better loyalty and devotion to their banks compared to what it is today in the name of merit oriented promotion processes and recruitment processes . Now employees think it is safer to loyal to bosses than to be loyal to the institute they belong to.


During that period top officials of banks used to make excuse that they are helpless and they have to give promotion to all in order of seniority. When growth of banks used to below targeted level, they in order to cover up their poor performance or in order to conceal their evil works used to make excuse that they are constrained to handover sensitive work to inefficient persons. They used to make frequent requests to Ministry of Finance to give them power to make merit oriented promotion and recruitment policy overtaking Control of Trade Union Leaders.

When they got freedom to pick employees for promotion based on merit, they started picking up only flatterers and yes-man and fully damaged the fundamentals of Human Resource of PSU banks. In India, power and absolute power is the root of all corruption. Powerful officers in general do not give value to performance, but give value to flattery and bribery, to caste and community and finally to give value to recommendation or VIP or amount of bribe they get in lieu of favour they do to an officer or a borrower or a vendor.


Sri Vinod Rai said: "Banking system has seen considerable stressed assets (accretion) in recent years.... however, not all loan defaults are wilful and not all lending activity can be branded as corrupt practice or criminal misconduct. It is this precaution that we will have to take not to create a larger scare in the sector."


Former CAG and Chairman of Bank Board Bureau Sri Vinod Rai says that all defaulters are not willful defaulters and that the cacophony of uninformed voices should not impact decision making process of bank executives. He says that the Banking sector has seen considerable stress in recent years, but we should not allow the cacophony of uninformed voices to debilitate the decision making capability of bank executives.

It is true that media men and common men sometimes create disproportionately bigger nuisance in some small matters. But it is also true that CAG reports on 2G, CWC or other scam could have been unnoticed and reports could have been thrown in dustbin or could have been modified by another auditor team to obtain better and favourable report if media remained silent on the issue so big as involving fraudulent dealings worth more than thousands and lacs of crores of rupees. Similarly it is only when media men created hue and cry on Mallya issue that various agencies became so much serious on recovery of loan from bank loan defaulters like Mr. Mallya. Otherwise I remember banks could not get success even in tagging the account of Kingfisher Mallya with tag of ‘willful defaulters’. Cases have been languishing in court of law for last four to five years and court is yet to decide whether Mallya is willful defaulter or not.

Similarly loss caused by PSU banks by way of fraud , bad debts, write off and OTS during last few years is not less than sum total of losses occurred in all big scams unearthed by intelligent CAG head Sri Vinod Rai during UPA rule. I would like to say here that majority of hidden or declared defaulters are willful defaulters and sum involved is not less than ten lac crore. If any individual or any authority like (CBI or CBC or BBB) takes initiative to make scrutiny of each account of any branch of any bank, it will understand depth and intensity of evil culture prevalent in PSU banks and it will also understand the volume of stressed assets still concealed in shining balance sheets of each bank.


Similarly if any agency peeps into recruitment and promotion processes which took place during last three decades in a PSU bank, it will surely understand the depth of sickness , the quality of dirty human resource practices in banks , evil culture of politicians and evil culture of officials of other departments who are directly or indirectly associated with credit processes , with recruitment and promotion processes and with processes related to buying of other services through various vendors.


Vinod Rai says that over estimation of defaults or punishment to dirty bank officials or punishment to dirty politicians, will adversely affect the lending culture. He says that bank officers will stop taking decisions and credit growth will be slowed down which will finally badly impact GDP growth. This logic is similar to excuses made by some fundamentalists and ill-motivated politicians who talk of danger to Islam when police officials arrests terrorists or supporters of terrorism. It is always said that Islam is in danger and it is alleged by self-declared leaders of Muslim community that Muslims are willfully and strategically harassed by the government in power. If a Hindu terrorist or Dalit criminal is punished for their evil acts, people will blame police and the government and claim that Government is Anti-Hindu or Anti-Dalit.

As a matter of fact, many times government do not take action against real criminals in fear of political repercussion or Government do not want to punish criminal in fear of erosion in vote bank. And government in general put blame on bureaucracy for non –action and in turn government officials blame politicians for their interference. Both ways criminals get acquitted.


The consequence of this ill-motivated and emotional attack on administrative officers that law enforcing agencies are now afraid of taking action against Muslim or dalit or woman criminals .This culture send wrong message in the minds of law abiding citizens and they say openly that the government is made of criminals , run by criminals for the benefit of criminals .


There are many states in the country or you may say in most of the states, police do not lodge First Information Report (FIR) when a victim approaches to lodge a complaint against a criminal. There exists good relation between crime doers and police officials. Law abiding citizens are afraid of police torture and criminals get full support from police officials. This culture of not putting crime in record register is prevalent in all police stations in the country. This dirty culture is deep rooted in most of police thanas and the state governments claim that law and order situation of their state is very good.

In this way, the state government does not need to punish criminals and they feel easy to extort money from criminals in lieu of exonerating them or politicians use them to take revenge from their rivals. Police officials give unjustified treatments to victims and feel proud in telling people how crime graph has been contained and controlled by their leadership whereas the bitter truth is that criminal activities has been rising day by day in every state.


Similarly every public sector bank is sick of bad assets. In my assessment none of PSU bank is strong and every bank will prove to be weak if honest assessment is done. Only the difference is some of Chiefs of banks are clever in not reporting bad assets as bad assets whereas on the other hand Chiefs of some banks are honest enough to say spade a spade. Government of India says that some of weak banks are to be merged with stronger banks to make banks more effective and productive. I think they are wondering in dreamland if Ministers and government officials or RBI officials think that some banks whose balance sheet appears to be shining are really strong from top to bottom.


In fact, the culture of bad lending and ill-motivated write off and OTS with bad borrowers is prevalent equally in all PSU banks. And this habit is injected in the blood of past politicians. Bad lending and poor recovery of loans has become a normal and accepted practice in all banks .


In fact borrower willfully do not repay the dues in time in anticipation of write off of loan (small borrowers ) or in anticipation of some discount when they go for negotiated settlement with bankers under OTS.


Quality of lending is not important as volume of lending is important for bankers, regulators and ruling party. Similarly for employees, interest of the bank is not important as it is important to take care of interest of higher bosses.


This is why, so called strong banks like PNB, BOB, BOI, SBI, UBI , Canara Bank have all faced either losses or sharp erosion in their profits. Volume of bad assets in each bank is enormous and has reached a dangerous level. Honourable Sri Vinod Rai will face Himalayan Task in containing stressed assets and in transforming and reforming sick banks in Public sector.

Sri Vinod Rai may succeed in getting figure on NPA reduced in declared balance sheet but he may not get same success in stopping slippages from standard to NPA category. It is hard nut to crack if he thinks to modify the culture of bad lending in coming years, modify culture of hiding bad loans on false excuses and then stop the culture of writing off bad loans and sacrificing of bank's money in OTS giving false and unacceptable excuses.


When some students fail due to poor performance in examination, politicians use to say that students are discouraged and school's name is tarnished when large numbers of students are declared fail. They say that teachers will be demotivated and in future, educated persons will not like to accept the job of teaching. They say that if students are declared fail, they will stop study and sit in home or indulge in crime. Some ministers used to say that failing a student forces him or her to discard study or commit suicide or there is possibility of student attracted towards criminal activities. Perhaps this is why that past government decided not to declare any student fail upto 12th standard.


In modern era, every school management has become very much clever that they give more than 75% marks to more than 95% of students. They conduct easy and objective type question based examinations and help students in passing examination by fair or unfair means. In olden days, students had to study hard for securing even 60% marks. Students getting a score of 60% and above used to be more brilliant and intelligent. Now a days, even students scoring more than 95% marks are rejected in various All India competitive examinations taking place for higher education or for job.


Similarly management of PSU banks is very much clever; they do not like to put any bad advance in NPA category. If any officer has to declare a bad account as NPA, he has to seek verbal concurrence from higher officials. Even auditors and inspecting officials do not have courage or will to say bad account as bad. Keeping boss happy and in good mood and/ to earn costly gifts is the target of Chartered Accountants who are empowered to certify the good health of a branch or a bank.

Vinod Rai should not be astonished to know that every branch is victim of bribe based lending and wrongful concealment culture for hiding bad loan and saving provisions to get quick promotion and to win the blessings of top bosses. He will soon understand that majority of officers in banks are loyal to their bosses and not to the organization they serve and the bank from where they earn their bread and butter. Officers engaged in loan processing earn more from illegal means than from salary in legal way.


Vinod Rai is right in saying that all lending cannot be termed as criminal and cannot be tagged as done with malicious intention. It is true. But it is also true that major chunk of lending is based on bribe and or based on recommendation of some higher officials or some powerful politicians. Some of our ruling politicians think that if erring officials are punished, employees in general will avoid taking risk. This logic is not acceptable on any ground.

I would like to mention here speed of recovery has geared up in almost all banks only by announcement by Prime Minister Mr. Narndra Modi , Finance Minister Mr. Arun Jaitley and RBI Governor Mr. Raghuram Rajan that every pie will be recovered from willful defaulters of bank loans. This simple message has activated and accelerated recovery at all level. In the past, Ministers used to be pro-defaulters and against those who used to abide by laws, rules and guidelines.


Lacs of accidents take place in the country every day. Many accidents take place due to rash driving, due to stunt driving, due to driving after drinking wine, due to immature driving, due to poor traffic control mechanism. There are many genuine instances where police actions are needed to take punitive actions against persons who are found to be involved in faulty driving or when traffic rules are violated or when roads are not properly and timely repaired or due to mismanagement of law enforcing agencies or deficiency in laws and guidelines or loopholes in execution of policies and so on.

But if some of clever politicians plead that if police take action against erring drivers, people will stop driving and stop using vehicles, it is their mental bankruptcy and lack of understanding of ground reality why number of accidents are increasing day by day. Crime and corruption, fraud and manipulation, cheating and beating get escalated when they are left unpunished.


Vinod Rai says "Banking activity has become very complex... To transform the present challenges into opportunities for advancement and improvement of our banking capability, we need to innovate on compensation packages for public sector banking executives,"

Vinod Rai may be right in saying that he will think on raising package of executives of PSU banks to make it at par with that of private banks. Vinod Rai is however in wrong impression that executives will not indulge in corrupt activities and become truly loyal to their organization if their package is raised. If it is so, then why should junior employees who process the loan proposal not expect hike in their pay.


Moreover, I would like to mention here that average pay of PSU bank employees is almost same as that of private banks. It is only mismanagement of Human resource and wrongful deployment of Human Resource that PSU banks are having huge load of bad debts and suffering continuous erosion in their profitability whereas on the other hand private banks are booking higher and higher profit and lower and lower under the same economic environment.


I therefore feel that the government is in wrong impression if it thinks that by raising package of executives of PSU banks, they will be able to transform and reform the health and productivity of banks.

If package is so much important, I would like to say here that in seventies and eighties, it used to be said that teaching in government run schools and colleges is very poor only because teaching staff are poorly paid in government schools compared to that in private schools.


Since 1981, Government has given huge jump in salary packages of teaching staff in government schools and colleges and their pay is now many times more than their counter parts in private schools and colleges.


Still, none of parents want their children to be admitted in government schools and colleges and they strive hard to put their child in private reputed schools even if they have to pay higher tuition fee and pay considerably good amount of donations. Because they know very well that standard of teaching in government schools is more often than of worst quality. Teachers in government schools do not bother for study of students even though their package is multiplied many times. They want that students opt for private tuition and coaching classes and they can earn lacs of rupees through such acts in addition to regular salary they get from the government.


Similarly none of the guardians and care takers like their family members patients to be admitted in Government run hospitals for treatment. People in general want that in case of sickness , they are treated in private nursing homes even if they have to pay charges many more times than what they are needed to pay at government hospitals for treatment.

Because they know very well that patient will not come back alive if he is admitted in government hospitals. Poorest of poor also try best to be treated in private hospitals. The reason is known to all and it is no more a secret. Though government doctors get handsome salary, they focus more on private practice than their duty in hospitals.

Politicians during last seven decades have looted this country and looted common men on all matters. They divide people on caste or communal ground, they fight based on region or religion, they provoke emotions for vote bank and cause riots, they cry for reservation for some group or the other, but they never try to perform for the real benefit of common men who voted them to power.


Similarly banks have been used by politicians for enriching their vote banks only. Mr. Janardahan Pujari of Congress Party used to cry for Loan Mela and Mr. Devi Lal , V. P. Singh and Mr. Chidambram like politicians propagated and promoted loan waiver culture. They in general use banks to support their followers, their families and friends and to empower their political prospect in election. Unfortunately none of them could ensure permanent victory for them.


News in Newspaper is as follows


The chief of the newly established Banks Board Bureau (BBB) stressed the need for prudence in commercial banking on Wednesday, but held out reassurances that no witchhunt is intended against legitimate lending.


“Caution and prudence in banking activity can hardly be overemphasized,” BBB chairman Vinod Rai said in his speech at the convocation of the National Institute of Bank Management in Pune.


“However, not all loan defaults are wilful and not all lending activity, even if it is to salvage such stressed accounts, can be branded as corrupt practice or criminal misconduct,” Rai, former Comptroller and Auditor General of India, said.


Rajan has also said that not all defaulters should be tarred with the same brush.Mr Jaitley also said banks must be allowed to resolve stressed loans without fear.

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