Letter from a banker:
Thank you governor, but what do we do with our police & politicians?-
ET 10th September 2013
Dear Mr Governor,
Hearty congratulations on taking charge at the Reserve Bank of India. As a public sector banker, I haven't felt this enthusiastic in more than two decades of service. Not that I did not like the job or that I did not have superiors who did not appreciate my performance, but rarely have I felt anyone from the central bank sympathising with us.
You have demonstrated that you are there with an agenda and launched a banking blitzkrieg. It is very reassuring that you believe in free-market principles and the market has already got a taste of it you're your decisions to liberalise currency markets.
As a banker, what made me extremely pleased is the way you particularly approached the bad loans issue. The banking industry is crippled because of spiralling bad loans. I dare to write to you because I believe you mean business.
Sir, you said that promoters do not have a "divine right" to continue if an enterprise flops and use the banking system to recapitalise their failed ventures. And how right you are when you said that we need to deal separately with wilful and genuine defaulters.
Banks act as a proxy to the economy and so when the economy isn't doing too well, we are bound to see some rise in NPAs. That's the business risk and, as bankers, we are ready to take such risks. But as custodians of public money, we are depressed to see a class of borrowers diverting funds and looting banks at will, making a mockery of the system.
Your intentions are right, but here are some obstacles. First, let me tell you Sir that banks may see more pains in terms of worsening asset quality as we keep getting loan restructuring requests from borrowers as they face business downswing and irregular cash flows.
We will restructure these accounts by following the RBI rules. But there are many who are wilfully diverting funds to unrelated businesses and getting away with it easily under the garb of economic slowdown as we don't have a system to track them down or create a charge on these assets.
Sir, we will be very happy if you create a mechanism to track down the trail of this diverted money by using your real-time gross settlement, or RTGS, system. A dubious borrower uses more than one banks' network and so it would perhaps be easy for the central bank to track them down.
Second, while the SARFAESI Act has really made us strong in our recovery act, there is a flip side as well to that legislation. We have issued securitisation notices to many errant borrowers and are ready to take possession of their mortgaged properties. But let me tell you Sir, despite obtaining court orders, we are not able to take physical possession in many cases simply because of administrative issues.
We often find that local police officials do not support banks despite court orders because the borrowers keep policemen in good humour. We have issued DO (demi-official) letters in some cases and have informed senior bureaucrats and senior police officers, but people down the line simply refuse to take action, making the judicial process come to a naught.
Sir, there should be some coordinated effort from all the agencies — the RBI, state government, police, Central Bureau of Investigation, and Enforcement Directorate to bring back the diverted money. The system should be efficient to track a bad borrower down and punish him.
If a borrower knows that he wouldn't achieve anything by diverting money, lose the assets created with the diverted fund and runs a risk of being caught, he would perhaps not do it. Let me tell you Sir how they typically divert funds. They borrow the money and then use it for other purposes for two-three-four years and create new assets.
They know very well that after a few years, banks, anxious to get their money back, will be ready to go for compromise settlements. As you know, these people are generally well connected and know how to manipulate the system. The RBI directors in bank boards know what is happening at the ground level. You may consult them.
The committee that you have formed with Dr KC Chakrabarty as its head may look into these issues intensely. Sir, we would also invite your attention to a group of people who syndicate loans for a professional fee. Many a time, they promote a borrower or a project that they themselves are not convinced about.
A banker should be sharp enough to understand this. He should know his job, should be able to distinguish between a good and a bad borrower. As you also know, public sector bankers often face political pressure to lend to influential borrowers.
Ideally, a good banker should be able to withstand such pressures so that these banks are at a par with private sector or foreign banks when they take borrowers on board. But, Sir, you know very well how our system works. I am not writing this mail to request you to address these gaps overnight.
We bankers know any change is a long drawn process and we have to work within the existing framework. But what is most annoying is that defaulters know very well that nothing will happen to them. They use the gaps and get way with murder.
Nevertheless, we have to do our job professionally and sincerely. We are indeed happy that you have already created some noises within a very short span, raising our expectation from you.
Wish you the best
Yours sincerely A banker
Hearty congratulations on taking charge at the Reserve Bank of India. As a public sector banker, I haven't felt this enthusiastic in more than two decades of service. Not that I did not like the job or that I did not have superiors who did not appreciate my performance, but rarely have I felt anyone from the central bank sympathising with us.
You have demonstrated that you are there with an agenda and launched a banking blitzkrieg. It is very reassuring that you believe in free-market principles and the market has already got a taste of it you're your decisions to liberalise currency markets.
As a banker, what made me extremely pleased is the way you particularly approached the bad loans issue. The banking industry is crippled because of spiralling bad loans. I dare to write to you because I believe you mean business.
Sir, you said that promoters do not have a "divine right" to continue if an enterprise flops and use the banking system to recapitalise their failed ventures. And how right you are when you said that we need to deal separately with wilful and genuine defaulters.
Banks act as a proxy to the economy and so when the economy isn't doing too well, we are bound to see some rise in NPAs. That's the business risk and, as bankers, we are ready to take such risks. But as custodians of public money, we are depressed to see a class of borrowers diverting funds and looting banks at will, making a mockery of the system.
Your intentions are right, but here are some obstacles. First, let me tell you Sir that banks may see more pains in terms of worsening asset quality as we keep getting loan restructuring requests from borrowers as they face business downswing and irregular cash flows.
We will restructure these accounts by following the RBI rules. But there are many who are wilfully diverting funds to unrelated businesses and getting away with it easily under the garb of economic slowdown as we don't have a system to track them down or create a charge on these assets.
Sir, we will be very happy if you create a mechanism to track down the trail of this diverted money by using your real-time gross settlement, or RTGS, system. A dubious borrower uses more than one banks' network and so it would perhaps be easy for the central bank to track them down.
Second, while the SARFAESI Act has really made us strong in our recovery act, there is a flip side as well to that legislation. We have issued securitisation notices to many errant borrowers and are ready to take possession of their mortgaged properties. But let me tell you Sir, despite obtaining court orders, we are not able to take physical possession in many cases simply because of administrative issues.
We often find that local police officials do not support banks despite court orders because the borrowers keep policemen in good humour. We have issued DO (demi-official) letters in some cases and have informed senior bureaucrats and senior police officers, but people down the line simply refuse to take action, making the judicial process come to a naught.
Sir, there should be some coordinated effort from all the agencies — the RBI, state government, police, Central Bureau of Investigation, and Enforcement Directorate to bring back the diverted money. The system should be efficient to track a bad borrower down and punish him.
If a borrower knows that he wouldn't achieve anything by diverting money, lose the assets created with the diverted fund and runs a risk of being caught, he would perhaps not do it. Let me tell you Sir how they typically divert funds. They borrow the money and then use it for other purposes for two-three-four years and create new assets.
They know very well that after a few years, banks, anxious to get their money back, will be ready to go for compromise settlements. As you know, these people are generally well connected and know how to manipulate the system. The RBI directors in bank boards know what is happening at the ground level. You may consult them.
The committee that you have formed with Dr KC Chakrabarty as its head may look into these issues intensely. Sir, we would also invite your attention to a group of people who syndicate loans for a professional fee. Many a time, they promote a borrower or a project that they themselves are not convinced about.
A banker should be sharp enough to understand this. He should know his job, should be able to distinguish between a good and a bad borrower. As you also know, public sector bankers often face political pressure to lend to influential borrowers.
Ideally, a good banker should be able to withstand such pressures so that these banks are at a par with private sector or foreign banks when they take borrowers on board. But, Sir, you know very well how our system works. I am not writing this mail to request you to address these gaps overnight.
We bankers know any change is a long drawn process and we have to work within the existing framework. But what is most annoying is that defaulters know very well that nothing will happen to them. They use the gaps and get way with murder.
Nevertheless, we have to do our job professionally and sincerely. We are indeed happy that you have already created some noises within a very short span, raising our expectation from you.
Wish you the best
Yours sincerely A banker
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