Ethical principles that banks need to follow
Ensuring the safety of, returns for depositors’ money is the first and foremost----The Hindu Business Line November 18, 2012:
Banking is no ordinary business. Banks are “special” business units which, as financial intermediaries, borrow money from savers to on-lend for productive ventures.
Thus, the underlying is one of the riskiest things in the world — money and money alone.
Banks run on public trust which, in turn, is a function of ethical principles and moral values they follow. The world is witness to numerous bank failures, small and large, which could not withstand the rigour of public trust. The ethical principles that banks follow ought to be of a higher order than those followed by any other businesses.
DEPOSITORS
A depositor saves his hard-earned money in a bank, first and foremost, for ‘safety’ and then ‘return’. By ‘safety’ we do not mean from theft or burglary alone but also safety of the intrinsic value of money. For example, if a depositor puts Rs 100 in his bank, he will definitely get back his nominal Rs 100 plus some interest after the contractual period.
However, economically speaking, does the value of money, in real terms, remain same over time? No. Due to inflation its real value erodes. Hence, the first ethical principle that a bank should follow with respect to its depositors is to protect the ‘real’ value of money by providing an interest rate which would eventually neutralise the impact of inflation and give a positive ‘real’ return over the contractual period.
Are Indian banks doing this at present? The answer is an unequivocal ‘no’. Recently, an RBI Deputy Governor proposed inflation-indexed bonds as a hedge against inflation. Why not inflation-indexed deposits?
The second ethical question is the protection of small depositors’ money from bank failures. In our country, up to Rs 1 lakh is insured by the DI&CGC (Deposit Insurance and Credit Guarantee Corporation).
The limit, which was revised in May 1993, has remained stubbornly static despite rise in per capita income and inflation.
NET INTEREST MARGIN
Our bankers are ‘programmed’ to be obsessed with targets. To achieve the ‘agreed’ level of profits, they artificially keep deposit rates low and lending rates high so that NIM is maximised. Is it ethical to penalise both depositors and borrowers like this?
The RBI Governor D. Subbarao in his speech “Five Frontier Issues in Indian Banking” at BANCON 2010 had argued for “a balanced approach to bring down NIM…”
SUB-PLR LENDING
Until July 1, 2010, banks had got into the unfair practice of sub-PLR lending to certain borrowers. Fortunately, the RBI constituted a Working Group on BPLR (Chairman: Shri Deepak Mohanty) and Base Rate system came into being. Since then the administration of lending rates has become transparent, an essential quality expected from entities like banks at all levels.
CUSTOMER SERVICE
Ethics should dominate customer service rendered by banks. Business etiquette should be an integral part of ethical customer service. Bankers need to be trained in this line. Fundamentally, banks should not differentiate customer service rendered to a small customer and a large customer.
Whether it is a depositor, borrower or simple service seeker there should not be any hidden charges cropping up from time to time because of the ‘fine-print’.
ACCOUNTING, DISCLOSURES
Banks’ balance-sheets and profit and loss accounts along with other statutory disclosures must reflect the true scenario of banks. Data purity and integrity are of paramount importance for banks from the viewpoint of all stakeholders. Corporate governance holds the key here.
EMPLOYEES
If employees are demoralised by unethical policies relating to their service conditions, their frustration would be reflected in a bank’s businesses, howsoever ethical it may be to its customers.
http://www.thehindubusinessline.com/industry-and-economy/banking/ethical-principles-that-banks-need-to-follow/article4108854.ece?homepage=true&ref=wl_home
Problems pile up for banks as bad loans rise sharply
n a worsening trend of companies failing to meet their financial obligations, the country's domestic banks have witnessed an increase of up to 85 per cent in their bad loans since the beginning of the current fiscal.
The sharp rise in bad loans for the banks comes at a time when the number of corporate debt restructuring (CDR) cases has also grown to record-high levels.
In the first two quarters of the current fiscal 2012-13, the banks referred a record number of 74 CDR cases, involving a total debt amount of Rs 40,000 crore, for restructuring.
At the same time, at least 35 banks have already reported an increase in their gross NPAs (Non-Performing Advances) from the levels recorded at the end of last fiscal, 2011-12, as per an analysis of the latest quarterly results announced by them.
The increase in gross NPAs has been as high as 60 per cent for lenders like PNB, Allahabad Bank and Lakshmi Vilas Bank, while the surge has been even higher for South Indian Bank (86 per cent) in the first half of current fiscal.
A few others like Bank of India, Indian Overseas Bank and Corporation Bank have also seen their bad loans grow by over 50 per cent in this period.
Collectively, these 35 banks have seen their gross NPAs grow by over 28 per cent or over Rs 32,000 crore in the first half of current fiscal, taking their total bad loans to Rs 1.47 lakh crore as on September 30, 2012, as per an analysis of financial results announced by the listed banks for the first two quarters of the current year.
The analysis does not include the foreign banks and unlisted domestic banks, as their figures were not available.
Incidentally, the collective gross NPA of these 35 banks at the end of first half of 2012-13 is higher than the total gross NPA at the end of last fiscal for the entire banking system, including foreign banks and unlisted domestic banks.
As per RBI data, the gross NPA for all the banks together in the country stood at Rs 1.42 lakh crore at March 31, 2012.
The Reserve Bank recently said the banks need to strengthen their due diligence and credit appraisal system along with overall monitoring mechanism to contain the rising bad assets seen in the banking system.
"Banks need to, not only utilise effectively, the various measures put in place by RBI and the government for the resolution and recovery of bad loans, but also have to strengthen their due diligence, credit appraisal and post-sanction loan monitoring systems to minimise and mitigate the problem of increasing NPAs," the RBI said in its report on 'Trend and Progress of Banking in 2011-12'.
The sharp rise in bad loans for the banks comes at a time when the number of corporate debt restructuring (CDR) cases has also grown to record-high levels.
In the first two quarters of the current fiscal 2012-13, the banks referred a record number of 74 CDR cases, involving a total debt amount of Rs 40,000 crore, for restructuring.
At the same time, at least 35 banks have already reported an increase in their gross NPAs (Non-Performing Advances) from the levels recorded at the end of last fiscal, 2011-12, as per an analysis of the latest quarterly results announced by them.
The increase in gross NPAs has been as high as 60 per cent for lenders like PNB, Allahabad Bank and Lakshmi Vilas Bank, while the surge has been even higher for South Indian Bank (86 per cent) in the first half of current fiscal.
A few others like Bank of India, Indian Overseas Bank and Corporation Bank have also seen their bad loans grow by over 50 per cent in this period.
Collectively, these 35 banks have seen their gross NPAs grow by over 28 per cent or over Rs 32,000 crore in the first half of current fiscal, taking their total bad loans to Rs 1.47 lakh crore as on September 30, 2012, as per an analysis of financial results announced by the listed banks for the first two quarters of the current year.
The analysis does not include the foreign banks and unlisted domestic banks, as their figures were not available.
Incidentally, the collective gross NPA of these 35 banks at the end of first half of 2012-13 is higher than the total gross NPA at the end of last fiscal for the entire banking system, including foreign banks and unlisted domestic banks.
As per RBI data, the gross NPA for all the banks together in the country stood at Rs 1.42 lakh crore at March 31, 2012.
The Reserve Bank recently said the banks need to strengthen their due diligence and credit appraisal system along with overall monitoring mechanism to contain the rising bad assets seen in the banking system.
"Banks need to, not only utilise effectively, the various measures put in place by RBI and the government for the resolution and recovery of bad loans, but also have to strengthen their due diligence, credit appraisal and post-sanction loan monitoring systems to minimise and mitigate the problem of increasing NPAs," the RBI said in its report on 'Trend and Progress of Banking in 2011-12'.
http://businesstoday.intoday.in/story/bad-loans-indian-banking-system/1/189936.html
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