Banks and corporates have entered into a cozy relationship: FM---Business Standard-15.12.2013
Says working capital loans to companies have hit growth of corporate bond market
Finance Minister P Chida-mbaram on Saturday said non-performing loans (NPLs) in the banking system were on the rise, as banks and companies had entered into “a very cozy relationship”. He added lenders had been asked to “get cracking” on recovery and avoid extending loans to companies for working capital needs so that companies tapped the corporate bond market.
“NPLs are high, as the recovery mechanism had stopped. Banks were tardy and, to some extent, soft on recovery. We have failing companies and prosperous promoters. We have to recover these loans,” Chidambaram said at a panel discussion organised by the National Stock Exchange (NSE) on the occasion of its 20th anniversary.
“Now, bankers have been told in no uncertain terms, by both the government and the regulator, that they have to get cracking on recovery,” he added.
The finance minister said the NPL figures appeared exaggerated compared to 10 years ago, as banks had moved to system-based NPL detection. “2004 (NPL) numbers don’t compare with 2013 numbers. These are the true numbers; these are not exaggerated. The earlier numbers were suppressed numbers,” he said. “From the 2004 NPL identified by managements of banks, we now have moved to system-detected NPL. Bank manager can no longer hide NPLs.”
“At least, we now know the size of the problems. We have to tackle these,” he said.
“Banks and corporates have entered into a very cozy relationship. It’s very convenient for corporates to go to a bank, even for working capital. It is unheard of in any other developed economy. It is very convenient for a bank manager to lend working capital to a highly rated corporate...The corporate bond market is not developed because corporates think banks are ready to give money to them. It is only when the banks say no to corporates, will they be forced to go to a bond market. Today, (lenders) are happy to lend,” he said.
The finance minister suggested the existing infrastructure of the stock market be used more effectively to develop the corporate bond market.
Earlier this year, the three stock exchanges in India had set up a separate debt segment for trading in corporate bonds. However, volumes in this segment haven’t seen a pick-up yet.
On whether the government, which is the promoter of several big banks in the country, should be blamed for bank behaviour, Chidambaram said the government didn’t interfere in banks' affairs. “Ask any bank managers whether I have, in eight years of being FM, ever told them to lend to somebody. And, even if I told them, (ask) whether they listened,” he said.
“NPLs are high, as the recovery mechanism had stopped. Banks were tardy and, to some extent, soft on recovery. We have failing companies and prosperous promoters. We have to recover these loans,” Chidambaram said at a panel discussion organised by the National Stock Exchange (NSE) on the occasion of its 20th anniversary.
“Now, bankers have been told in no uncertain terms, by both the government and the regulator, that they have to get cracking on recovery,” he added.
The finance minister said the NPL figures appeared exaggerated compared to 10 years ago, as banks had moved to system-based NPL detection. “2004 (NPL) numbers don’t compare with 2013 numbers. These are the true numbers; these are not exaggerated. The earlier numbers were suppressed numbers,” he said. “From the 2004 NPL identified by managements of banks, we now have moved to system-detected NPL. Bank manager can no longer hide NPLs.”
“At least, we now know the size of the problems. We have to tackle these,” he said.
“Banks and corporates have entered into a very cozy relationship. It’s very convenient for corporates to go to a bank, even for working capital. It is unheard of in any other developed economy. It is very convenient for a bank manager to lend working capital to a highly rated corporate...The corporate bond market is not developed because corporates think banks are ready to give money to them. It is only when the banks say no to corporates, will they be forced to go to a bond market. Today, (lenders) are happy to lend,” he said.
The finance minister suggested the existing infrastructure of the stock market be used more effectively to develop the corporate bond market.
Earlier this year, the three stock exchanges in India had set up a separate debt segment for trading in corporate bonds. However, volumes in this segment haven’t seen a pick-up yet.
On whether the government, which is the promoter of several big banks in the country, should be blamed for bank behaviour, Chidambaram said the government didn’t interfere in banks' affairs. “Ask any bank managers whether I have, in eight years of being FM, ever told them to lend to somebody. And, even if I told them, (ask) whether they listened,” he said.
He said the blame should fall on the bank's board, not on the government. “On the board, the government has one nominee. But there are also independent directors, a chairman and a managing director; there is a regulator. If the banks and bank boards have not performed their duties, the blame should stop at bank boards, not the government.”
http://www.business-standard.com/article/finance/banks-and-corporates-have-entered-into-a-cozy-relationship-fm-113121400500_1.html
In India committees are formed with a good intention to stop misuse of
powers by individuals. Every company has a board of directors so that a group
of intellectuals may contribute their knowledge and skills in best way to
protect the organization. Cabinet of ministers is formed in Parliament and
State Assemblies to support government and suggest best plan, best policies and
best ways to execute the plan in the larger interest of India. Vigilance team
is formed of three or five members so that one man cannot take biased decision.
Indian Parliament is constituted of 542 members elected from different corners
with different knowledge base so that best possible can be done for the
country. And similarly committees are formed at all levels and in all offices
to take wise decision on tenders, contracts, policies, amendment, on
charges of corruption, on irregularities in financial matters of a
company etc.
But unfortunately India is sick of flattery and yesman culture. Due to
this most o f the members of committee think it better to remain silent
spectator and sign blindly on all proposals and endorse all decisions taken by
the head of committee or by High Command. In political party, members of the
party do not apply their mind in most of the cases and they simply say YES to
all line of action what their High Command proposes.
In Parliament too, most of decisions are taken by a few ministers and
cabinet blindly say YES to all decisions. Majority of bills are passed in
Parliament not by discussion or debate by voice vote and in all such cases
members of ruling party are supposed to support the bill and that of opposition
are supposed to protest the passing of the bill. In the recent past at the
instance of Rahul Gandhi , ordinance approved by cabinet and sent to President
of India was taken back just to please the High command of the party.
Similarly in banks, most of the high value loans are passed by Board of
Directors or Management Committee constituted by directors, ministers and
representatives of the government. Two years ago RBI directly all banks to
constitute Credit Approval committee (CAC) or Loan Approval Committee (LAC)
even at all Administrative offices so that all credit proposals are process and
passed after thorough scrutiny by a team of talented persons go through it and
assess the pros and cons of the proposal from all angles of consideration.
But in practice it is again the whims of the Regional Head or
Zonal Head which prevails and other members of the Committee blindly sign and
think it safe not to say anything which may invite anger of the boss or which
may result in critical transfer or his rejection in promotion process.
Obviously it is flattery culture or the fear psychosis or yesman
culture which has damaged the fundamentals of all banks
and similarly all public sector undertakings.
In case any members try to put
forward shortcomings , deficiencies risk of any proposal , he is removed from
the committee and substituted by unskilled officer so that
hurdle in smooth passing of bad proposals are removed. In the same a MP or MLA
is made Minister or removed from Ministry as he or she is found
to be yesman or boss or is found to be straight forward in keeping the matter
in true form without fear of his or her boss.
Even audit teams or investigating committees or CAG or CBI or CVC or CVO
fail to exercise their duties freely in fear of repercussion from top officials
if they dare move against the line of action which the boss dictates in normal
course of business.CVO or CVC or directors of CBI or even judges are
selected as per his or her proximity with powerful persons of when he or she is
recommended by some VIP, Merit of the person never matters much in selection of
persons for creamy post.
As such it is totally unacceptable when Finance Minister put entire blame
on bankers for rise in bad loans. Finance Minister Mr. P Chidmabram is totally
wrong to say that rise in bad debts is due to the fact bankers in having Cozy
relation with corporate.FM is telling a complete lie when he says
that bankers and corporate have entered into a Cozy relationship.
It is rather FM in particular and politicians in general who have
responsible for bad culture prevalent in public sector banks and public sector
undertakings as a whole. ‘Yes Sir’ culture
is the root of all maladies rampant in the system. The habit of extending red
carpet welcome to bosses and ministers and spending lac and crores of rupees
for show Business or to please ministers has damaged the work culture badly. It
is the culture of promoting flatterer at the cost of honest performer which has
ruined the country .I do not want to name any minister , but I do not have
hesitation in saying that politicians or officials who enjoy power in the
country are worshipped like GOD and this culture has badly damaged the mindset
of real workers.
After all it is Finance Minister and his team who selects a bank officer
for the post of Executive Director or Managing Director of a bank. It is
officials of RBI and Ministry of Finance who are supposed to act
as watchdog on functioning of banks and on activities of executives
of banks. It is their duty to stop corruption and break the said cozy
relationship between bankers and corporate in the interest of the nation. But
unfortunately it is officials of RBI or ministers who teach and
who promote bad culture.
If a constable is given cream posting by Inspector taking huge sum in bribe,
it is certain that the constable will indulge in corruption to earn more and
more. If a teacher is recruited or a CVO or ED and CMD or banks are
appointed only when he or she is ready to spend lacs of rupees directly or
indirectly on bosses ( who are empowered to select), it
is hundred percent certain that such executives and officials
will promote only corrupt culture.
It is therefore need of the hour to strike at the root of all corruption.
Process of reformation and transformation will start only when people stop
flattery and yesmanism and public servants are in a position to serve without
any fear of repercussion. Supreme Court in the recent past instructed GOI to
stop whimsical transfers and promotions and adopt transparent policy for
such decisions. Court ordered to have a fixed tenure transfer policy and
have a system wherein aggrieved person can lodge the complain without any fear
of bosses.
Million dollar question is who will bell the cat and when?
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