Deregulation of Interest Rates - Will PS Banks will go Air India Way ?
by
Danendra Jain ( published in www.allbankingsolutions.com)
The war continues among banks on interest rate. After nationalization of banks in 1969, RBI used to decide rate structure for deposits and for lending uniformly applicable for all banks. But after adoption of reformation policy in the year 1991, RBI freed lending rates excepting loans upto Rs.2.00 lacs. In the name of competition, banks started rate war to attract high profile customers into their fold. Social banking concept and mass banking approach initiated through nationalization of banks have now become the history.
Common men are now neglected for all practical purposes. High profile customers have now become the heroes and bankers now run behind these heroes. Profit making has become the sole priority. Priority and neglected sector of the society has became the last option for government banks as well as private banks so far as the growth in business is concerned.. Lending for farmers has slowly been transferred to NGOs and Micro Finance Institute who have gradually started lending at higher rates, even higher than local money lenders. It is also true that in the name of poor, banks open Financial Inclusion branches and only open No Frill accounts to give direct credit of various aids and subsidies to real beneficiaries. I am unable to understand how poor people will get satisfaction and fight with their poverty merely by having a bank account until their real regular income rises.
More or less up to the end of the year 2009, banks offered higher and higher rate of interest to attract bulk deposit in their fold and sanctioned loans at sub BPLR rate. It means banks offered higher rate for deposits and lower rates for advances if there was scope of doing bulk business. In this mad run for target, banks damaged the profitability and almost neglected small depositors and common men who needed small loans for their small businesses.
After all it is not father’s money of any CMD of any bank, it is public money. Banks collect major chunk of low cost deposits from retail depositors but finance major chunk of their money at low rate to big corporate .Banks offer lower rate of interest for big value advances and offer higher rate for big value deposits but charge higher rate on low valuelending and offer lower rate on deposit of low value deposits.
Management of banks works for the pleasure of big corporate and indirectly increases their personal wealth through illegal earning. They do not hesitate to dilute lending principles for high value loans but show strict adherences for rules for low value lending. These classic cultures adopted by banks have already damaged the fundamentals of banks and the basic objective of nationalization of banks has been totally discarded. Banks do not have enough earning to make adequate provisions for bad assets and for terminal benefits for retiring staff and due to this reason government of India is forced to infuse additional capital to banks from time to time so that they can survive and adhere to stricter Basle norms.
Management of banks appear to remain busy in earning profit by resorting to bulk lending and by imposing irrational service charges like cash deposit charges on small and medium class depositors and borrowers. Banks forget making adequate provisions for pension and reduce provisions for bad asset by concealing bad assets for years together to exhibit higher profit to their mentors, ministers, RBI and government of India.
Fraudulent attitude of banks continues till they are exposed by some agency or some honest officer. Banks ignore the main work of monitoring lending done by them and as a result quality of lending deteriorated and monitoring of loans completely stopped in the name of global recession. When the assets become bad they have lame excuses like global recession, rate hike, bad weather, inflation, legal constraints etc.
Due to this unhealthy and mischievous mind set of bank officers, amount of gross Non Performing Assets goes on increasing. Bribe led lending has increased, bribe based write off of loan has increased, vote bank oriented waiver of loan resorted by government has gone up and so on. It has adversely affected not only the quality of loans and deposits but also the culture of working bank employees. Officers in particular and employees in general focus on those work where they find scope of earning through illegal money to become richer and richer and for this evil work they indulge in flattery to bosses and ministers to get rid of punitive action.
To add fuel to fire, Banks have started opening new and new branches to please ministers and to raise business without improving the quality and quantity of manpower. Unprecedented damage has already been caused particularly in public sector banks due to inadequate honest and talented performers.
And now RBI has further added fuel to fire by deregulating savings interest rate. Already unhealthy rate was prevalent in banks in lending rates. Banks will not increase rate on Saving deposits but will not like to increase lending rate .As a result, cost of fund will go on increasing and yield on advances will go on falling down, one due to low lending rate and other due to increasing trend in provisioning due to rising level of NPA as also due to higher coverage ratio.NPA of banks will increase and increase only until drastic actions are taken against top officials who indulge in bribe led lending.
Interest war initiated by RBI in the name of competition will spoil the future of Public sector banks and improve the profitability and overall business of private banks. Not only this , if private banks and then public sector banks start offering higher rate of interest on saving deposits, future of post office deposit schemes will also be jeopardized.
Lastly, it is wise to mention here that if big value loans start becoming bad assets due to real recessionary global pressure or due to some natural mishaps or due to some inherent weakness in the project , banks will suffer unprecedented growth in NPA which will eat their capital and create a crisis similar to subprime crisis which erupted in USA and other European countries a few years ago and which is likely to recur in coming days..
I therefore plead that RBI should prefer and prepare uniform rate structure on deposits and advances keeping in view national and international economic scene dictate the same for all government banks and at the same time regulate private banks which violate discipline and indulge in avoidable competition. Competition among various government banks is altogether unwarranted and undesirable keeping in view the mindset of normal Indians.
Government of India has to suffer loss and citizen of India has to suffer the consequences if any bank fails, it may by Vijaya Bank or United Bank or Indian bank or any other bank. Due to wrong policies of government, BSNL, railways, airlines and many PSUs are suffering loss and it will not be surprising if banks also follow the same path
.
Future OF PSU Banks Will Be Like BSNL, Indian Airlines
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 )
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."
"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."
http://dkjain497091112006.blogspot.in/2013/07/future-of-psu-banks-will-be-like-bsnl.html
Clever Finance Minister and his sycophants Chairman and Managing Directors of banks (CMDs of public sector banks who are part of IBA )) are suggesting cost to Company concept for bank staff in line with what private companies in IT sector are using to tap talented person from Educational campus or to attract employees of other companies .
It may be noted that promoters of private companies think for the betterment of their company and while picking up freshers from educational Institutes they keep in mind only the utility and gain to company from a particular person. They target to earn fifty lac from a person by offering a package of ten lac.
Most of IT companies hire an engineer or an MBA to outsource him or her for a foreign company and in such cases if the foreign company pays ten lacs of rupees to Indian IT company like Infosys or TCS, the employer offers a package of hardly two or three lac to the employment seekers.
On the contrary top officials of public sector companies think only for personal gain sacrificing all interests of the bank or company they represent. While picking up freshers from educational institutes top officers of a bank consider the personal benefits, monetary gain for their family, relation with person who recommend for selecting a particular youth for employment etc and they totally neglect the future of the bank they represent.
Even an inefficient officer from other bank in scale I is selected for scale III post by PS ban employer if his name is recommended by some imp person or some offer of bribe comes from some corner. Top officials of bank for gaining a lac or two in recruitment and promotional process can violate all ethics and moral recruit ineligibles and promote ineligibles.
Same position is in the case of promotion in public sector banks. Top officials seldom keep in view the utility of officer they select for promotion. Rather one who is number one flatterer of big bosses, who is of same caste and community , who is recommended by some VIP officer, who is corrupt and who has earned huge illegal money in credit sanction and shared with the bosses is picked up for promotion neglecting serious, efficient , honest and devoted officers.In the same fashion ED and CMD s are selected by MOF and the same culture flows from top to bottom in all promotion processes and in all cases of recruitment.
This is why private banks are progressing by leaps and bounds , their profit is increasing month by month , their NPA is lowest in banking sector, their CASA is highest, they employ greater number of youth , they create more employment , their customer service is better , their deposit and credit growth is higher , their NIM is more and everything is better compared to their counterpart in public sector under same domestic condition and same global situation. RBI gives all help and infuse capital from time to time , still PS banks are showing sickness and their health is moving from bad to worse whereas private banks are growing without any help from GOI .
CMD of every bank, RBI officials and MOF use to say all the time that banks are healthy and growing and from next quarter position is likely to improve. Politicians use to set committee after committee, suggest several ways for improvement, change rules from time to time and so on but never cares to ensure honest execution of rules and policies.
Top to bottom corrupt officers are in power and they leave no stone unturned to loot the bank from both hands for their personal gain and to help those who are ready to offer costly and costly gifts. Flattery and bribery is given full weight in all cases right from employment to promotion , credit sanction, write off bad loan , supply of goods and service and what not.
As such the concept of cost to company suggested by IBA and MOF is nothing but a tool to postpone wage settlement for indefinite period. It is pity that union leaders are also unable to understand the malicious intention of IBA members and the hidden agenda of MOF and UPA government.
If ‘cost to company’ concept is so much effective and productive, why the government does not apply to other public sector companies like ONGC, NTPC, SAIL , BSNL. Airlines, Government schools and Government colleges, Ministries, Central Services, state government services etc which are directly under control of the government and which are also supposed to produce more and more and which are also supposed to earn profits in addition to serving common men and serve social agenda of the country.
It is well known to all that all central services are governed by a set of scales and there is no stagnation and in most of the cases there is time bound promotion and at least there is value to seniority of staff. Scale of pay has got stagnation of increment as it happens in banks. An officer for the post of Secretary comes from senior IAS officers and not from educational campuses.
It is only in bank that an officer is directly recruited in higher scale .If cost of company concept is made a success in bank , there will be total chaos in banking and no power can stop further deterioration in health of banks.Bank staff who used to serve the bank for decades will have to leave the bank in a year or two if the concept of COST to COMPANY is accepted by Bank unions in Xth Bipartite Settlement.
Bank staff will be kicked out in few months if they do not flatter to their bosses and do not become ready to do even personal and family work of the top officials .It may be noted that in IT sector or in private companies , average length of service of an employee is not more than ten years . Bank staff will similarly change bank from bank and loose the stability as also lose their health in ten years of service as happens with those who are employed in private companies of modern era.
Bank staff will be kicked out in few months if they do not flatter to their bosses and do not become ready to do even personal and family work of the top officials .It may be noted that in IT sector or in private companies , average length of service of an employee is not more than ten years . Bank staff will similarly change bank from bank and loose the stability as also lose their health in ten years of service as happens with those who are employed in private companies of modern era.
I therefore of strong view that brainless and greedy politicians are determined to spoil banks in the same way as they did BSNL and Airlines and other PS undertakings.I hope union leaders will take seriously the dirty game plan of IBA officials and MOF
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