Budget Proposes Ways To Kill Banks

Budget Proposal 2014 :--The Narendra Modi government will ask banks to open 200 million accounts in a year from this Independence Day.

The Sampoorn Vittiya Samaveshan Mission aims not just to open bank accounts but to provide people access to other financial services like insurance and pension.Rs 5,000: Instant overdraft for account holders completing a financial literacy programme

Some Important Links on the same issue are given below

As per provisions made in the budget and guidelines to be issued from Government of India ,Public sector banks  will have to open 20 crore accounts  and each account would be sanctioned an overdraft of Rs. 5000.00 without any discreet inquiry about credit history of the account holder cum borrower.

This way, it is quite clear that Public sector banks would end up lending Rs. 100000.00 crores (one lac crore ) to account holders and these forced borrowers will be without any credit history. Moreover, as the accounts of different PSBs are not linked, there is every possibility of account holders opening accounts in different banks and thus getting overdraft from that banks as well.

Its also reported that department of financial services has already budgeted for defaults. Government of India may subsidise banks to some extent but may not stop promotion of bad culture in lending. It will wondering in dreamland if banker or for that matter GOI expect recovery of such loans which will be considered by poor account openers as charity from GOI , not loan from bank.

 Against the above backdrop , it is my question why RBI and IBA do not come in defence of PSBs and protest against any such move which will ultimately result in creation of fresh NPAs for which all the onus will be passed on the bankers for no fault of theirs. Not only this, this year , GOI has tis year suggested a limit of Rs.5000 for all individuals , next year they may ask for increasing the overdraft limit from Rs.5000 to Rs.10000 or Rs.25000 and even more for political advantage. Poor villagers will take it a gift from GOI but banks will suffer the real loss and ultimately bank staff will suffer .

Banks are usually advised to disburse loans as Charity by organising Loan camps and when these loans become bad, same government suggest for waiver of loan or settle these bad loans by offering heavy discounts. All these acts contribute in not only escalation of bad debts but kills the repayment culture and promote bribery culture in bank staff . It is therefore desirable to name these banks as public sector Charity Bank.

Its not hidden from any one that bankers are not legally equipped to recover loans from those whose property is charged in favour of banks, the how come the banks would be able to recover an overdraft given without any credit history and security?

When Bank Management find it difficult to recover the recalcitrant borrowers and wilful defaulters even if they do possess prime and collateral security, how these poor bankers will be in a position to recover small defaulters of Rs.5000/ who have nothing to repay. Obviously such plan as mooted out in above paragraph will prove to be death bell for already ailing banks. GOI may extend some financial help this year or later, but the cannot modify the bad culture they have created and are thus creating in banks to add fuel to fire.

 Isn't it really ironical that bankers are being denied a respectable rise in salaries because of huge NPAs and simultaneously something dangerous is under process to create more NPAs?

It is politicians who build pressure for reckless and careless lending . And when the account goes bad, they do not hesitate in blaming bank officials. They build pressure for lending in agriculture and priority sector, infrastructure projects and some other time for some other projects. Banks in general are having huge volume of Non Performing Assets related to loans made for infra structure projects, to power companies, to electricity distribution companies etc ( bulk poison ) and for government sponsored schemes (slow poison
 
When bad assets increase, profitability falls and when profit falls there is erosion of capital. When this happens , government blames bankers and then GOI through IBA  shamelessly deny respectable wage hike to bank staff. It means politicians commit crime and bankers are punished for none of their fault.

How long Public sector banks s would be treated as political tool that too at the cost of  banks and bank staff?

 Why RBI is silent spectator of this mishappenings and ill-motivated proposals of the government?

Why IBA the forum of Chiefs f public sector bank  has become inactive and ineffective and why United Forum of Banks Union (UFBU) are playing in the hands of Ministers and IBA ?

If such brainless and dangerous proposals are put in force, the future of wage hike will further be jeopardised.

Are bank staff in general are also watching the situation with folded hands and praying GOD for their welfare?

Also read Following Links

Evil Culture in Banks

How to Cure Sick Banks

Are Bankers Afraid Of CBI and CVC


Banks To Open 20 crore New Accounts This Year


 

Utility Of Customer Help Center

I have lodged complaints to BSNL for rectification and repair of defect in internet broadband services or for disturbance in phone. But the response from BSNL is very much casual and ineffective.

Though there is provision of “Customer Grievance Redressal Cell” or ‘Customer Help Center’ or, ‘Feedback’ or boards displaying the attractive terms like ‘contact us’ , “ We solicit your valued suggestions and complains ‘ etc in almost all offices of not only BSNL but also in other departments and Ministry associated with all services. But the bitter truth is that these so called help center are non-functional. They exist only for existence.

Hundreds and thousands of young staff work at these call centers. Officers are posted in all offices who are supposed to look after customer grievances and for quick resolution of problems. But the persons who are posted there are more often than not dishonest and ineffective and they enjoy their job without taking any care of customer grievance. They do not even lift the phone. They keep it busy by putting off wire or by applying some other mechanism. They put so many ads before customer can talk of officer. Even if they lift the phone their response is totally casual and ineffective. This is why call after call is made by consumer and lastly get frustrated with government offices like BSNL.

There are only a few centers where if a complaint is not resolved in specified time or repeated complaints are booked by same client, the matter escalates to higher offices for quicker resolution of the issue. Unfortunately higher officers are in many cases birds of same feather and they also sleep on issues for days and months. Most of employees or officers who man Help center and who are supposed to look into customer’s problems blame consumers or some invisible and unacceptable reasons for delay in solving the issue. It is also true that all problems are solved easily if one is ready to pay costly gifts and tips in cash or in kind. I do no need to explain it , every Indian knows it very well.

In India boards, hoarding, slogans, songs, and various other methods are used to portray good image of government departments but in face the ground reality is totally reverse. Most of offices use false compliance certificates to keep their record better and unblemished.

Not only in BSNL, it happens in all offices, banks and insurance companies all public sector undertakings. People make complain after complain and finally leave the attachment with government services and seek services from private service providers like Airtel or Reliance. If you talk of bank, same culture persists in majority of banks and this is why people are seeking services from private banks even if their service charges are more in some cases. Bad debts are on rise in government banks but not in private banks. Public sector companies like BSNL, Indian Airlines or PSBs are incurring loss or facing capital erosion quarter after quarter whereas Bharti Airtel or Reliance Telecom or ICICI and HDFC banks are earning profit in thousands of crores of rupees under similar circumstances.

Even if a customer writes to higher offices, to CEOs or to Prime Minister’s office or to President of India, there is none to listen customer’s problems, there is none to solve the problems faced by common men and there is none to award real justice to them who are using and who have to depend on services of government departments. Wherever alternatives are available, people discard government departments.

Banks, Insurance companies, post offices, income tax departments, sales tax department, Land registration offices, courts, Insurance companies, Indian Airlines, Public sector undertakings etc all are victim of corrupt culture where bribery and source are important tools which make the department active and effective for a certain class of people only. Officers from a bottom level office to that in the office of President of India have totally failed to serve the common men. In fact they are slaves of money and power centers and they dance only when they are under pressure of higher bosses or when they get attractive gifts in lieu of services they extend.

Common men in general are facing problems from offices run by government directly or indirectly. Under UPA rule, there was no hope for change or improvement. Inactive PM MMS damaged the work culture and added fuel to fire existing in all government offices. Culture of flattery and bribery flourished for years together under the leadership of MMS.

Even the office of President of India has a mechanism of calling public problems and for resolving them, but unfortunately it is also for name sake. All are birds of same feather and hence complains remains unresolved for unreasonably long period in all cases and in all offices.

Let us hope some improvement under Modi Sarkar.

I have cited the indifferent attitude of BSNL employees just to illustrate what I mean to say. Condition prevalent in all departments is almost same. Staffs responsible for redressing consumer’s complains in various offices are either corrupt or inefficient or they do not possess adequate knowledge and skill to deal with the situation they are supposed to handle. More often than not, staffs recruited to help consumers are either rejected lot from general operational desks, or they are kith and kin of powerful officers and ministers or recruited after taking bribe without caring about ability of the person. This is why common men prefer services from private service providers if they are available in market even if they have to pay more for services.

Why Should Govt Inject Fund In PS Banks?

Why should government fund PSUbanks all the time?-By A K Das
Money Life 

At least some of the PSU banks cannot claim to be cash-strapped, especially looking at their cash reserves. By capitalising their reserves instead of seeking fund from the government, they would be rewarding their share holders as well

Press reports indicate that some of the public sector banks (PSBs) are seeking more capital ahead of the budget, which is scheduled to be presented by the second week of July. According to these reports, cash-strapped public sector banks "hit by a higher proportion of stressed assets and global Basel III requirements" have begun listing out capitalrequirements ahead of the budget in July.

In the interim budget, the Congress-led United Progressive Alliance (UPA) government had earmarked Rs11,200 crore as capital for all public sector banks. In 2012-13, the government had, in fact put in Rs14,000 crore. This kind of funding must stop, and thebanks need to be able to generate their required funds from investing public.

Since the last couple of months, all leading newspapers have carried details of the balance sheet of a large number of organisations, including pubic sector banks. The following information has been collected from these announcements:

Name of Bank	Paid up Capital (Rs crore)	Reserves (Rs crore)
Allahabad Bank	544.61	10644.56
Bank of Baroda	430.68	36349.21
Bank of India	643	24629.95
Bank of Maharashtra	839.1	4917.02
Canara Bank	461.26	23660.6
Corporation Bank	167.54	9952.37
I D B I	16.03	202.93
Karnataka Bank	188.42	2863.78
State Bank of India	746.57	146623.96
Syndicate Bank	624.58	11387.25
UCO Bank	1014.71	9624.18
Union Bank	630.31	16544.67

From the above, most of the banks mentioned appear to have healthy cash reserves. If and when they need funds, they should be able to raise it from the investing public either by rights issue or even by capitalising their reserves.

However, in the present situation, specific amounts of assistance appears to have been sought from the government by IDBI and Indian Overseas Bank, and it is likely that some more may join the band wagon to seek capital infusion.

As mentioned above, at least some of the banks cannot claim to be cash-strapped! By capitalising their reserves, they would be rewarding the share holders too.

In the meantime, it is being reported in the press that GS Sandhu, secretary for financial services, has underlined the need for banks to sell off their non-core assets. The companies identified as non-core include rating agencies such as ICRA, CARE, National Stock Exchange (NSE), IL&FS, UTI, Multi-Commodity Exchange (MCX), Stock Holding Corp of India Ltd (SCHIL), Central Depository Services (India) Ltd (CDSL), and asset reconstruction corporations (ARCs). The estimated value of these assets would be around Rs25,000 crore.

As we can see from the details given above, the reserves are huge, compared with the paid up capital of these state-rund lenders. It is pay back time for these banks. Why not buy out the government share in line with the established formula for this purpose and reduce the government holdings?

Years ago, the Atal Bihari Vajpayee government had suggested that the Centre could reduce its stake in public sector banks to 33% but the move did not go through as the law could not be amended. Now this can easily be achieved and Vajpayee's proposal could be implemented!

After doing this, should the banks need any additional capital infusion, they ought to go to the shareholders instead of going back and forth to cash rich Life Insurance Corp of India (LIC) and other similar institutions, which only means that the Government stake would keep rising, instead of being held by the investing public.

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)

Link Money Life

Stop Charging Fees On ATM

Debit card annual fees: Why mostcustomers shouldn't be charged.--By Puneet Kumar Pattar-Money Life

While many appreciate the progress from ATM cards to debit cards, there are many bank customers out there who do not see any real reason for shelling out a hundred rupees every year as annual fees

The banking industry has come a long way and today we are almost at a stage where everyone has a bank account. Those of us living in cities could have two and those living in metros could have even three to five accounts. I remember reading somewhere that the upper middle class has at least six bank accounts per family. From being a privilege for the wealthy and for those working in the Government services, banking has become a basic necessity of life. In fact, most parents get a bank account in the name of their as soon as they get him/her into school. How could they not? After all, a whole bunch of bankers run around them explaining the advantages of opening a child account, how it could help the kid become responsible, how it will help in education, and so on. The moment you open a bank account, a recurring deposit in the name of the kid and a life insurance policy are up next. That's okay. After all, the world is growing.

Banks want to have their cake and eat it too. Guess what, they have been successful at it.

Over the last many years, I have been looking at the changes happening in the banking sector. After computerization of the banking industry, banking has more to do with marketing than with calculations. The computers and software take care of all the calculations and thus, the banks are now better positioned to use human resources to generate revenue. Not so long ago, a bank employee would spend majority of his time in accepting deposits and making payments across the cash counter, making him a cost centre for the bank. Modern bankers (like ICICI Bank, HDFC Bank, etc) aggressively market their products by showcasing their services like ATMs, Internet Banking, Phone Banking, etc, making them a revenue centre.

Inter-bank fund transfers through internet banking attract charges too. Internet banking was supposed to benefit the bank by reducing the cheque clearing work, thereby leaving behind a lot of time for bank employees to work on other fronts. Its a different story that phone banking, which was supposed to help customers on a toll free number, is now offered on a paid line. So, all these services that came up to help customers have helped the banks more than the customers. Of course, no one can deny the many conveniences we enjoy today. The point I want to make is that all that was free, now comes at a cost.

Even an SMS sent to customers are subject to charges now. The SMS initiative came as a measure to ensure safe banking and now it costs the customers to ensure that he banks safely. Somehow, it doesn't convince me that my bank account is not safe with the banks with this paid SMS facility.

Debit Card Annual Fees - A trap?
 

Before declaring charges for their SMS facility, the banks introduced annual fees for debitcards. This one is perhaps the most annoying charge that today's customers pay. I personally had nearly 10 debit cards on my name up till some time ago (the side effects of working in the banking and financial services industry). One fine day, I realised that I had been paying a lot of money in the name of 'Debit card annual fees'. At Rs110 per card, I had been paying almost Rs100 a month. Since I would hardly use those cards I started closing those accounts one by one and yet, I was left with five of them. I was still stuck with paying Rs500 plus taxes for no sensible reason whatsoever.

Banks benefit more in terms of time and cost than the customers

Banks came up with the idea of ATMs in order to save time for customers and more importantly, for themselves. While customers do benefit from these cards, the banks benefit far more. Imagine the bankers sitting around and processing cash withdrawals of Rs100-1,000 to thousands of customers everyday in today's world.

A large number of customers still do not extensively use cards
 

It is a well known fact that a large number of customers who possess these cards, especially the ones in rural areas or the ones in business, seldom use these cards. Sole proprietors and, to some extent, Partnership firms have cash on hand, which they use for their daily expenses and this cash is received by them in the course of daily business. Most of their withdrawals are in the form of payments to third parties by cheques or transfers. So, the card lies in their pockets or lockers and they keep paying the annual fees.

Use of debit cards for shopping is very low
 

Banks promoted debit cards saying that these cards can be used at ATMs of other banks as well as be swiped at merchant terminals. However, the number of customers using debit cards for shopping is very low. Most customers who have a credit card would prefer swiping their credit card, thereby getting more than a month's time to pay the amount, rather than swiping a debit card where the amount goes off immediately. It is only when there are some offers, discounts, cash backs, etc that customers consider swiping their debit cards.

Five transactions only 
 

The banks' promotion of debit cards quoting that these can be used to withdraw cash from any ATM doesn't appeal anymore. After all, only 5 such transactions in a month are free and the customer has to pay for the 6th transaction. However, banks have continued to offer unlimited transactions at their own ATMs even today.

Banks should bring back the ATM card
 

While adapting to technology should be encouraged, banks should also provide for such customers who do not want to use technology that doesn't help them. Its like asking a banker to learn Hadoop or Big Data, as they are the latest technologies. There are some banks who are still issuing ATM cards on request. In fact, I got an ATM card from one of the leading private sector bank on placing a request for the same.

There was absolutely no need for the bankers to do away with an ATM card and make the customers opt compulsorily for debit cards. An ATM card is a boon for those customers who do not use the ATM often or do not intend to shop with it. Banks are making big bucks with these charges but it is time they realize that they focus on tailored solutions instead of making generic products. While many appreciate the progress from ATM cards to debit cards, there are many customers out there who do not see any real reason in shelling out a hundred rupees every year. In fact, there are awkward situations when such charges result in a drop in balance, and such a drop results in a cheque bounce. Online consumer forums are full of such complaints.

Reintroducing ATM cards would be a friendly step to help customers who have too many debit cards, or those who seldom use them. Levying an annual fee on all cardholders could be legally permissible but when you look at it from the ethical or customer service perspective, it may not fly well with customers. Although, abolition of the annual fees in totality would be more of a dream for customers.

Link Money Life

Future Of PSU Banks

PSU Banks may face the same fate as state-run peers in telecom, aviation -ET

11th July 2013   (  Similar opinion express by me in my past blogs , links given below )

Indian banking is experiencing a tectonic shift. Holding a stick to state-run bank chairmen to revive the economy will do more harm than help the nation's cause. PSU banks may face the same fate as state-run peers in telecom and aviation. If the government does not change its way and banks don't focus on service, both may end up as losers.


Finance Minister P Chidambaram might not have directed public sector banks to reduce lending rates citing State Bank of India example if only he had had a detailed look at the deteriorating financial ratios of other banks over the past few years.

There is a transformation which is happening in the Indian banking scene where state-run companies dominate three-fourths of the market. That is the best part of the story. The disturbing factor is that barring State Bank of India, all other state-run banks are staring at a low-cost funding crunch that could change the banking landscape forever.
Corporation Bank's annual analysts' presentation for the last fiscal year tells the story. A few inches at the bottom right of page 16 in the presentation is a diagram which is hard to identify — it is hard to tell whether it is a tree or a stick. That is the space which should have indicated the percentage growth or fall of its lowcost deposits — known popularly in banking circles as CASA (current account savings account).

If 26 entities have applied to own a bank including non-banking Finance companies, the dominant thought was they could get access to CASA which will help them earn more profits.

However, what is plaguing state-run banks is exactly the opposite. Over the last few years the likes of Punjab National Bank (PNB), Bank of Baroda, Canara Ban and Corporation Bank have been losing CASA market share to nimble, technology-savvy private sector peers such as HDFC Bank and ICICI Bank.

The New Delhi-based PNB's CASA has fallen to 39% of its total deposits in 2013, from 46% in 2005, squeezing its profitability. But ICICI Bank's has risen 24% in 2005, to 41% in 2013, helping it raise its profitability.

"If you have low-cost deposits then you don't need to take as much risks on the lending side to make the same amount of profits," says Anish Tawakley, director, equity research,Barclays Capital. "If you start with a high-cost deposit base then to earn a profit you have to lend at a high rate, effectively taking on more risks. These earnings are seen as riskier."

When low-cost deposits for state-run banks in general have fallen to just about a quarter or in some cases even lower, State Bank of India has its CASA at 44.8%. Indeed, it has also improved as it is seen as a proxy for the government and, therefore, considered the safest, even though other state-run banks have similar profiles.

SBI's base rate is at 9.7%, the lowest among the lenders and PNB's is at 10.25% and Bank of India's is at 10%. These banks have since their meeting with Chidambaram reduced interest rates. But one could be sure that their profitability could be squeezed if their low-cost deposits do not rise which looks the most likely possibility.

"Eventually, banks will have to settle for lower NIMs (net interest margins)," says BA Prabhakar, chairman and managing director at Andhra Bank. "But if they can migrate from compliance to business opportunity in rural India, they have a better chance of improving CASA."

Private lenders such as HDFC Bank andAxis Bank have been gaining a higher share of low-cost deposits due to their service offerings to individuals and corporates which many state-run banks have been slow to realise.

Absorption of technology has been an important factor. Taking strides in internet banking, mobile banking, facilitating bill payments, online trading, credit card payments and electronic clearing system payments are some of the features that induce the salaried class to keep cash with private sector banks. Corporates are also lured with facilities such as cash management and portfolio management.

"Given the network and presence that PSU banks have in our country, they should at least have maintained their market share," says Vaibhav Agrawal, vice-president, research, banking, Angel Broking. "Building and maintaining a sustainable CASA profile is easier said than done as it involves significant execution challenges. With a customer-centric approach, right from the branch level, private banks have managed to gain a sizeable market share from state-owned banks." Rising bad loans, the prospect of new banks and the option of keeping surplus money with mutual fund schemes would not help public sector banks improve their positions any time soon.

Although the Reserve Bank of India has cut policy rates in the last one year, many banks have been raising fixed deposit rates. Since companies are defaulting or falling behind on payments, banks have to keep attracting new funds to maintain the assetliability mismatch.

Since low-cost funds are with private sector banks, PSUs such as Bank of Baroda, and Indian Overseas Bank have no option other than to raise rates on fixed deposits. That raises the overall cost of funds, limiting their ability to lower lending rates. Furthermore, attractive rates from liquid schemes of mutual funds are also luring corporates away from banks. "Liquid funds offer 8-9% against the current account balance of zero percent. So, more and more corporates are parking their surplus funds with mutual funds," says Andhra Bank's Prabhakar.

The prospect of lowering lending rates appears to be distant if managers just go by their cost of funds. But if the government coerces banks to do so as it did in forcing them to lend, it would weaken their finances further. For policy-makers who are looking to revive the economy, the choice may be to swallow the fact that the banking system, after years of abuse, is not in the pink of health. So, one might have to wait for the rottenness in the system to be purged before getting back to normal.

http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/psu-banks-may-face-the-same-fate-as-state-run-peers-in-telecom-aviation/articleshow/20995640.cms?curpg=2

My Blogs of the Past are in following links

Average Pay Per employee in Private And Government Banks

RBI DY Governor compares average pay per employee in public sector banks with that in private sector banks. 

( Please also read latest submission dated 28th March 2013 on this subject http://importantbankingnews.blogspot.in/2013/03/pubic-sector-banks-policy-of-branch.html)

In public sector banks, clerks are not given promotion in two to three decades. If clerks are promoted to officer cadre, the promotee officers continue to perform the duty of clerk or that of cashier as he or she used to do before becoming officers. Not only this, there are many scale II, scale III or scale IV officers who are constrained to perform the duty of cashier or a dispatch clerk or front line officer.

http://dkjain4970901092007.blogspot.in/2012/06/average-pay-per-employee-in-private-and.html

Public and Private Sector Banks

Reality of stimulus package is now visible; Fiscal deficit is increasing , trade deficit is increasing, current account deficit is increasing and GDP is coming down, IIP figure is coming down, rating of banks is coming down rating of country is at alarming position and so on ….Borrowing by government has been consistently increasing, public debt has reached to the level of 46 lac crores i.e. around 40% of GDP. Still government is allowing one after other subsidies to big corporates, exporters and importers. 

Total subsidies , interest relief, and tax relaxation provided per year to high profile corporate comes to the tune of ten lac crores which is at least four times more than the total of subsidies provided to common men in the name of fertiliser subsidy or fuel subsidy.How can one dream of good results for common men when the present government continues such pro rich policies in the name of reformation. 

http://dkjain497091112006.blogspot.in/2012/03/public-and-private-sector-banks.html

http://importantbankingnews.blogspot.in/2013/03/pubic-sector-banks-policy-of-branch.html

http://importantbankingnews.blogspot.in/2012/12/psu-banks-are-sick-due-to-poor.html

http://dkjain4970901092007.blogspot.in/2012/05/public-sector-banks-in-crisis.html

http://dkjain497091112006.blogspot.in/2012/05/all-is-not-in-government-banks.html

http://dkjain4970901092007.blogspot.in/2012/05/public-sector-banks-in-crisis.html

Autonomy To Public Sector Banks

PSU banks' autonomy can be a reality-Business Standard

Lowering govt stake in PSU banks is a good step but autonomy to banks will be more prudent

Shishir Asthana  

 

Call it the need of the hour, a desperate move or smart governance, the decision of the finance ministry to allow  public sector banks to raise resources on their own is a step in the right direction. 

 

A tight fiscal position might have caused the finance ministry to say that it might not be in a position to allocate funds for recapitalisation in the coming Budget. In the Interim Budget, a provision of Rs 11,200 crore was made, which is unlikely to be raised in the final proposal. 

 

The ministry has asked the state-run lenders to meet their capital requirements by offloading government equity, hiving off non-core businesses and issuing bonds. 

 

By not recapitalising the public sector banks, the government is walking on the path suggested by PJ Nayak panel  which was set up to resolve the issue of rising bad loans in public sector banks. One of the biggest problems identified by the panel was government and political interference. 

 

Hiving off non-core businesses would mean a profit in the books of the banks which after paying taxes will be transferred to reserves as retained earnings. This forms part of the Tier 1 capital and thus there would be no change in the equity structure of the promoters. 

 

This will help the banks to free their blocked investments which along with the subsequent leverage will be available to grow their business.

 

Interestingly, banks have been given another novel way of raising funds. The government has given them an option to offload its own share, a kind of divestment in the bank. But the proceeds of the sale will then be ploughed back into the bank at prevailing market prices. By doing this, banks will get their necessary capital though there will be a slight addition to its capital base. The government's re-investment will come in at a premium and though the investment will be money neutral for the government, its stake (which was bought at par) will come down since the same money is now reinvested at the current market price. 

 

Another way of recapitalising available to the bank, which the government has surprisingly not pointed out, is by way of raising fresh capital through the preferential route, just as Yes Bank did while raising $500 million recently. Allowing banks to list their subsidiary is also a good way of raising capital, especially since some of them are holding profit-making subsidiaries like insurance and mutual funds ones. 

 

The new government has taken the right step by deciding to lower its stake but it will be more prudent if there is no interference in the operations of the banks. This according to the PJ Nayak report can come when the government's stake in all public sector banks are transferred to a holding company. This investment will be managed along the lines of a passive sovereign wealth fund aimed at ensuring professionalism. It is only then that PSU banks will be able to operate to their full potential. 

Link Business Standard 

Heads Of PS Banks Welcome Nayak Panel Report

Many govt bank heads welcome P J Nayak report-Business Standard-( My Opinion Below)

Though not openly, especially on taking away state control of operations; also point to acute need for more capital, quality of board decisions

 

The recommendations of the P J Nayak committee on why and how the central government should give up its control of public sector banks (PSBs) have stirred a debate among bankers.

The panel, chaired by the former Axis Bank chief, was set up by the Reserve Bank of India (RBI) to look at various governance issues of all banks, including PSBs. For the latter, it has recommended a Bank Investment Company, to act as a holding company, aimed at curbing government’s direct interference and making these more efficient.

A Business Standard poll of 10 public sector bankers show 70 per cent in favour of government giving up its control and reducing equity stake below 50 per cent, also recommended by the Nayak panel. Most of those polled wanted to not be identified, due to the issue's sensitivity.

Bankers not in favour say in many banks the government holding is much above 51 per cent, which could be diluted to bring in more equity. They said there was no immediate need for reducing the government stake below 51 per cent, as the markets are conducive at this point for equity raising. “It is also the right time for a QIP/FPO (qualified institutional placement and follow-on offers) because there is appetite from investors,” said the chairman of a mid-size PSB.

He agreed, though, that proper examination was needed for director appointments and that the board should spend more time on policy issues than day-to-day operations. The Nayak panel had pointed to the lax appointment process and suggested both government and RBI not be part of the appointment process. It also said both RBI and the government should withdraw their director-nominees from PSB boards.

The strongest criticism of Nayak came from Pratip Chaudhuri, ex-chairman of State Bank of India (SBI), the country’s largest lender. “The Nayak panel should have taken inputs from RBI before finalising the report. All the board-level appointments are made after RBI’s approval. The selection committee for appointment of chairmen and managing directors (of PSBs) and executive directors is headed by the RBI governor, though he delegates one of the deputy governors for the interviews. So, RBI is also responsible for top appointments. RBI cannot wash off its hands if there is lack of governance in PSB boards,” said Chaudhuri.

Adding: “So far as reducing stake below 51 per cent in PSBs, it is a question of policy of the government. But I would like to ask, why was Global Trust Bank merged with a PSB and not allowed to fall? Why did PSBs and (government-owned) Life Insurance Corporation bail out UTI and not any private entity?”

Bankers supporting the Nayak suggestions said these would instil more professionalism in decision making, particularly at a time when bad assets are rising and the need for capital will assume critical importance. “Banks will become more efficient, will be able to raise funds. Banks cannot depend on budgetary support perennially, as the govt has constraints,” said the chairman of a South India-based PSB.

On banks’ requirement for Tier-I capital, the Nayak panel estimated that by 2018, government banks would need Rs 5.87-lakh crore of capital infusion. The need for capital is one of the strongest arguments made by bankers who support the suggestions. “It is required as government is short of funds, the need is huge,” said the head of a mid-size PSB.

The panel’s recommendations will also improve the quality of directors in a bank, some argued.

“It will improve governance, especially accountability of independent directors,” said a chief executive of an associate bank of SBI. The panel had suggested doing away with the committee approach of decision making, in which no single person could be held accountable if something goes wrong

Link Business Standard

My Opinion On Nayak Committee Is once again furnished below

In my view Nayak panel has done nothing or suggested no such good idea which may help in the improvement of health of Public Sector banks. Panel has not fixed responsibility of erring officials and erring ministers. What they have suggested is nothing but old wine in new bottle. This is purely an attempt to hide the past mistakes of top bankers and regulators and set up a new governance committee, new board for selection of top management etc. 

It has now become clear to RBI and Government of India that they have damaged the fundamentals of public sector banks and time is ripe now for public revolt against regulators. One crystal clear point which emanates from panel report is that RBI and GOI failed to do their duty in last two decades and it is their sheer negligence which has resulted in current critical sickness of PS banks. They remained silent spectators when CEOs of banks were looting banks in the name of credit growth. They remained deaf and dumb when corrupt bankers were humiliating senior officers and workers of banks in the name of merit oriented policy for promotions, transfers and recruitment. They maintained complete silent when politicians were exploiting banks in the name of revival of economy. They were sleeping when legal set up for recovery failed to recover money from defaulters even after lapse of two or three decades.

I am of strong view that health of PS banks have gone from bad to worse during last two decades only due to bad Human resource policy and due to worst execution of good policies. If one peeps into performance and appraisal reports of all officers of last two decades , it will become crystal clear that good officers have always been neglected in all promotion processes and bad officers who were master in flattery and bribery got one after other elevation. And now gang of bad officers is ruling the banks with unity. They unitedly protect bad officers and sideline really good officers similar to case of Mr. Khemka in Harayana .

As long as workers of any organization do not feel satisfaction after doing devoted duty, there is no chance of bank improving their health whatsoever may be the finding and suggestions of Nayak Panel. It is only in PS banks that 20 year or 30 years experienced good officers are rejected and brand new officers in higher scale are recruited directly to please top bosses and politicians. Juniors are ruling seniors  not because they are more intelligent and talented ( barring some exceptions) but because they used money and powerful bosses for getting quicker promotions and got success in getting new job in higher scales.

It is this dirty game of top bankers that health of banks have deteriorated during last  two decades whereas private banks have improved their health under similar and fully same external situations like global recession or natural calamities, or interest rate freedom or recruitment freedom or government policies or legal set up etc.

Officers of PS banks work to please and protect the self interest of their bosses whereas officers in private banks work for betterment and for protection of their organization.

Anger of investors, bank customers, bank staff and that of all concerned against government is on rise due to relentless rise in stressed assets and due to government failure in containing the same and in recovery of bad loan from defaulters. Before it becomes violent, government as usual set up a panel for suggesting alternate ways and switch over the responsibility of failure to another set of body and get rid of punitive action for their past mistakes. And panel is also manned by such persons who can submit reports as per whims and fancies of the officials who are behind all stories of scams, frauds, bad debts and all types of irregularities.

It is the habit of Government; first they exploit the government organization and government fund for self interest and then change the name of the scheme and name of regulators or merge the maligned schemed to some other schemes. In the past many small banks , big banks , rural bank or cooperative banks or chit funds have failed and then merged with some stronger entity to avoid the consequences of public anger against mismanagement and large scale fraudulent activities perpetuated by the management of the failed bank.

As long as officials and the persons who hold the key post in any organization are bad and ill-motivated, no power on earth can stop misuse and pilferage of government money and no power can ensure good health of any public sector undertaking or any department. When top officials in banks are bad, assets created by them will definitely be bad and no power on earth can stop rise in bad assets of these banks. Nothing is to change if rules for constitution of bank’s board are altered or stake of government is diluted to below 50% in PS banks.

This is why they , corrupt bankers in nexus with corrupt team of politicians and regulating officials either write off the bad loans or keep bad loan evergreen by fresh lending or restructure bad loans or sell the bad loans to ARC to clean the balance sheet. All efforts are to conceal evil works and bad assets .This is a usual phenomenon in banks and in all government offices dealing with finance and money. When a bank become weak or goes beyond control, it is merged with some other stronger banks. 

It is the Habit of the government not to cure the root cause of the disease but to make lame excuses for failures or to put carpet on the malady or carry out little surgical operation to befool innocent masses.

And finally flattery and bribery culture is the root cause behind all mismanagement and all scam stories . Weak and ineffective judiciary adds fuel to fire.