Bad HR Bad Culture Bad Asset Bad Borrower

My Opinion on formation of NAMC  or ARC or Suggestion to Government for take over of bad loans are as follows..

Clever officials of public sector banks are silent on causes of bad debts. They do not want CBI inquiry to find out whether there was any corruption involved. They want that government should take over bad loans so that they may get fresh opportunity of earning bribe and costly gifts in lieu of fresh sanction of loans. If bad loans are takeover by Government or transferred to proposed National Asset Management company or sold to ARC, this will lead to bad culture and bankers will feel exonerated from all future charges and without any hesitation indulge in more and more corruption.

It is remarkable to point out here that after the introduction of loan waiver culture by politicians like Devi Lal and VP Singh and then perpetuated and promoted by all subsequent government , borrowers have willfully and strategically become  careless in repayment of loans . Borrowers willfully delay in repayment in anticipation of loan waiver scheme by the government or settlement offer by management of bank. Borrowers with malicious intention of grabbing bank's money first turn defaulters and then pray for compromise and sacrifice.

Again it is good and desirable  to point out here that businessmen whose trade promotes black money also willfully and intentionally  evade tax payment in anticipation of Voluntary Income Disclosure scheme offer by the government.Once government start punishing tax defaulters and tax evaders , instance of tax evasion and creation of black money automatically get reduced. Once terror is pushed into the mind of evil doers , the habit of indulging in bad practices will end .

As long as government do not take stern action against erring borrowers, erring bankers , erring officials, erring businessmen , erring politicians and professionals, we may not dream of good governance and honest culture. People commit crime and wait for exoneration by manipulation. Honesty is no more a good policy. 

Dishonesy, flattery and manipulatory tactics are the tools which helps in acquisition of power, money and social status which not only helps criminals getting rid of punishment but also ultimately lead to success at the cost of really good performers .

Scam occurs in implementation of almost all schemes , all projects and all departmental works. Whenever scams are exposed, government change the name of policy , set up a committee to suggest new name of policy and finally exonerate all evil doers . Similarly bankers first created and accumulated bad loans and now when they are exposed the want government to takeover bad loans. They suggest government to absolve them from the lens of CBI and CVC.

I do not say all bad loans are due to evil intention of loan sanctioning officials .^There may be some cases of default due to genuine reasons too.  But what I mean to say that whenever there is doubt  of evil motivated loaning, there must be through investigation and if malicious intention is proved beyond doubt  , the officials must be punished to teach lesson to others and to pave way for good governance.

I have no doubt in saying that present and decade long  dirty culture rampant in banking and other government offices helps in further promotion of dirty culture. Therefore government will have to learn punishing evil doers. And once the punishment is awarded to evil doers, none will dare commit crime in future and good culture will replace bad culture for ever. I do not want to promote reign of terror but I want that good performers must be given due respect if India has to grow in real sense.

Bankers seek bad loan takeover-Hindustan Times

India’s top financial sector executives on Tuesday asked the government to set up a national behemoth that would consolidate bad loans to clean up bank balance sheets, more tax breaks to encourage household savings and sale of stakes in Life Insurance Corp (LIC) by listing it on exchanges

"There were some suggestions on setting up of 'National Asset Management Company'," financial services secretary GS Sandhu said after the pre-budget meeting with heads of banks and financial institutions with finance minister Arun Jaitley.

Bankers also asked the government to raise the exemption limit under Section 80C of the Income Tax Act from the current Rs. 1 lakh, which has remained unchanged for a decade and its real value has declined sharply.

The proposed Asset Management Company will take over large non-performing assets (NPAs) of banks and help in reviving companies ridden with bad debts.

Gross NPAs — shorthand for loans that could turn bad — of Indian banks have soared from Rs. 69,000 crore in 2009 to an estimated Rs. 2.8 lakh crore as on March 31, 2014. Between October and March, an estimated Rs. 60,000 crore of bad assets — about 15-20% of overall NPAs of banks — came up for sale, which is almost four-times of last year’s level.

"There was discussion on NPAs. There was also proposal for setting up of National Asset Management Company for improving the performance of DRTs (debt recovery tribunals) to collect loans," HSBC India country head Naina Lal Kidwai said after the two-and-half hour long meeting.

Suggestions were also made for strengthening of present SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act) to ensure fast recovery of bad loans, she said.

Kotak Mahindra Bank managing director Uday Kotak said the government should consider listing of insurance behemoth LIC over the next few years. "Over the next few yeas the government should seriously consider listing of LIC. The kind of money government can raise by listing LIC is significant, it can fund financial needs of public sector banks as well as fiscal deficit," he said.

"This necessarily need not be in July Budget, but over the next few years. Listing of LIC may be a game changer in financial sector."

Public sector banks requested government for capital infusion and long-term instrument for financing infrastructure sector

Link HindustanTimes

How To Stop Rising Bad Debts

Will Setting Up of National Asset
Management Company Solve NPA 
Problems of Banks in India?

Today a news item has appeared in newspapers wherein bankers have suggested to the new FM to establish National Asset Management company to resolve the issue of NPA in banks.  In the following paragraphs I will discussing whether this can serve any purpose in the current scenario.

In my opinion establishment of National Asset Management Company (NAMC) can do nothing to cure the sickness caused by bad debts.

If Modi government is really interested to improve the health of public sector banks , they will have to strike at the root causes of the NPA i.e. poor management in banks and various other departments of government.  Some of the reasons for current NPA and steps needed to improve the scenario can be summed up as :-

(a) In Banks, government needs to ensure judicious promotion opportunity to all , time bound promotion, end of flattery based promotion, end of bribe based recruitment and promotions, end of posting based on recommendation of powerful officers etc.  They will have to modify the corrupt system not only in banks , but also in judiciary, police department, administration etc too.

(b) Lacs of cases against defaulters of the bank and against NPA borrowers have been filed in various local courts, district courts, Lok Adalats, Ombudsmen, High courts, Supreme court, Debt recovery Tribunals, District Certificate Officers, District magistrate’s court , Sub Divisional Magistrate’ court for taking possession of property seized under SERFAECI Act etc have been filed by various financial institutes including public sector banks but due to manpower shortage or due to inefficiency of executives, or due to malicious intention at various levels of judicial administration are lying pending for years together.

(c)   In number of cases, banks have granted loan against fake deed of landed property or financed to many firms against the collateral or prime security of same landed property.   Have government punished any of Sub registrars or deed writer or bankers who worked with negligence and malicious intention? 

(d)  Banks sanction new loans and advances on the strength of prime of collateral security valued by approved valuers or government recognized valuers. But if these valuers give inflated value of any property after taking extraordinary service charges from loan seeker or with some vested interest or with malicious intention and in turn jeopardize the loan disbursed by banks, what remedial recourse lies with bankers or the government. Bankers at most remove the name of such valuers from their panel or the government blacklist such valuers.  Is there any provision to punish such valuers?   If yes, has any authority or any bankers have ever punished such unscrupulous valuers?

(a) It is observed that Chartered Accountants blindly sign on balance sheets or financial reports of banks and borrowers, companies and firms if they are given attractive amount of money as service charges. These CA while conducting statutory audits of various banks more often than not ,simply put their seal and signature and take attractive fees and charges from banks. Wage without work is the suitable slogan of CAs.  It is also true that CAs have to complete audit of two to three branches in a period of five to six days and hence they can neither make honest and through scrutiny of records of branch of the bank they are asked to audit by RBI nor they have the will to do so because there is no deterrent action if they prefer not to do their duty honestly.  Have government taken any action against any of CAs in the past 60 years which could teach a lesson to team of CA?

(b) Bank officials who sanction credit after taking bribe are able to please their bosses and ensure their timely and unusual promotion and get choice posting. Honest and intelligent officers are sidelined and posted at critical place or remote rural centers so that their voice against evil work may be stopped. Good officers are denied their promotion in time and juniors are given change after taking bribe. Has government ever tried to stop such bribe based promotions and transfers. Not only this even direct recruitment of officers in various scales is also undertaken by bank officials to earn bribe , campus recruitment is allowed in a college based on whims of some senior officers to give favour to his own boys and girls , of his own community. Not only in banks but top ranked officials of all state governments and central government resort to mass transfer and earn money in lieu of giving favour to staff who desire choice posting and timely promotions.

(c)  Police officers do not lodge FIR in their registers, do not execute warrants issued against VIPs by various courts ,do not question criminals but tortures the person who wish to lodge complaint against criminals , defaulters and law breakers.  Has government taken any step in last 60 years to change the system and procedure of police department which give them unrestricted powers and which tempts them to take whimsical decisions and arbitrary action against honest and true citizens?

(d) Hundreds of cases filed against corrupt officers related to misuse of power, fraudulent activities, bribe led lending, lack of monitoring, negligence of duty, favour to dishonest contractors, passing of bills of unscrupulous suppliers, passing of fake bills or inflated bills either lie pending for disposal for years together in the office of Vigilance office, CBI,Anti Corruption bureau, or Human resource department for decisive action against erring officers or such files are closed acquitting erring officials . New trend has developed in government offices to burn the loss of files related to corruption of high profile officers. File are made untraceable or declared lost.  Why?  Is there any mechanism or tool in the rule book or almirah of the government to prevent such malpractices which frequently and recurrently occur almost in all offices, departments and Secretariats of various Ministries? 

(e) Political stalwarts spread propaganda that loans of poor farmers or big businessmen will be waived by the government or by the bank.  Such ill motivated propaganda ultimately vitiates the atmosphere of recovery. Government announces waiver scheme from time to time for electoral gain.  As a result borrowers of the bank willfully default in repayment of bank loan. Quantum of Non Performing Assets known as bad assets in public domain continues to rise year after year in all public sector banks. Then process of compromise and write off starts at bank level and again there is unhealthy transaction of money between bankers and borrowers or between brokers and officers who decides to sanction sacrifice loan amount. 

Ultimately culture of non-re payment of loan by borrowers back to banks takes the root and bankers have to suffer huge loss due to high provisioning and due to rising NPA. For this purpose bank officials , union leaders and politicians all are friends and relatives of each other.   Government has not courage, no will, no effective tools to punish bad politicians because government is made of such corrupt politicians only. Government has no courage to punish kith and kin of powerful politicians and bureaucrats who have willfully defaulted in repayment of bank loans and payment of tax dues or other charges due to government.

Thus, I am of the view that setting up of National Asset Management company will simply transfer the bad debts from traditional banks to proposed NAMC or Asset Management Company called as ARC.It remids a proverb "Old Wine In New Bottle"

 Government may force banks to sell bad debts at heavy discounts which will ultimately cause loss to none other than investors and depositors . Because any erosion in profit of public sector bank may reduce the capacity of banks to pay higher interest rate on deposits and reduce the capacity of banks to pay higher dividends to investors.  There is a need to look much beyond the mere setting up of another company for parking NPAs.