News item collected from Economic Times of 7th December 2011
http://m.economictimes.com/PDAET/articleshow/11002693.cms
Big borrowers of India Inc default on Rs 47,000 crore loans
6 Dec, 2011, 0930 hrs IST, Pradeep Thakur, TNN
NEW DELHI: Large borrowers, who took loans of Rs 10 crore or more, have defaulted on payments to the tune of Rs 47,000 crore, with banks not even pursuing cases to recover over half the amount.
Data available with the finance ministry shows that least 700 defaulters who had borrowed Rs 10 crore or more from public sector banks and cumulatively owe over Rs 26,000 crore have gone scot free despite not clearing their dues. In another 3,400 cases where loans are of the order of Rs 1 crore or more, the lenders have moved courts and tribunals to recover Rs 21,400 crore.
But there are still concerns over the way banks are using options such as one-time settlement scheme to recover the dues. Investigations have shown that in several instances, it was not a simple case of default but even cheating was involved. Bank executives failed to attach personal assets of directors of companies that had defrauded the banks, sources said.
In fact, in several cases, defaulters have gone ahead to get a second loan despite not clearing their past dues. These facts were brought to the notice of the Central Vigilance Commission by CBI sometime ago after many of its cases fell in the courts when bankers reached one-time settlements with its big defaulters.
In one such case in Patna, a PSU bank auctioned a mortgaged property at 20% of the valuation made by its experts. Investigation had revealed a conspiracy involving bank officials, valuators and the borrower as the property mortgaged was an agricultural land used as security against a commercial loan.
The finance ministry has now asked these banks to spruce up their balance sheets given the fact that nearly Rs 14 lakh crore of credit has been outstanding against big borrowers - those who have borrowed Rs 10 crore and above. There are over 22,500 borrowers who owe over Rs 10 crore to nationalized banks.
The RBI has refused to divulge the names of the defaulters against whom no suits have been filed, citing secrecy clauses.
To help the banks recover bad debts, the government has also brought in a bill seeking changes in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, and in the Recovery of Debts due to Banks and Financial Institutions (RDBF) Act, 1993.
The new bill seeks to provide mandatory registration of mortgages and is expected to help reduce the cost of funds for banks and also reduce NPAs.
MY COMMENTS ARE AS FOLLOWS
This refers to article published in Economic Times on 7th December captioned as "Big borrowers of India Inc default on Rs 47,000 crore loans "
In light of above news I use to ask following questions from authorities who are supposed to take action:--
When loan of value of a few lacs rupees goes bad , accountability is fixed on junior officers , why not senior officers are booked to task when high value loan goes bad?
Who are ED and CMD (working or retired or in pipeline) who willfully avoided action against big defaulters?
What action CVC, CBI or RBI or MOF has taken against these top bankers?
Who are the GMS, DGMs, AGMs and field functionaries who are directly or indirectly responsible for sanction, monitoring and controlling officials who neglected in performing their duties?
Who will compensate if these high value loans become bad and bank has to suffer loss?
Will government carry out investigation of assets of these top bankers and their kith and kin (even if some of them may have patronage of ministers and powerful officials) and confiscate their property if found disproportionate to their annual income?
Will government conduct unbiased inquiry to find out how much money is paid for getting a berth of ED or CMD?
Will government ask IT officials to compare assets of top ranked banker’s with their actual income, will they conduct raid on bankers, minister who provide patronage to corrupt bankers and vigilance officials who give honesty certificate to such corrupt officials after getting some award in return?
Will government clarify why thousands of cases against bankers are pending for disposal for years in the office of CBI, CVC and Anti Corruption bureau even if more than two thousand crores of rupees are involved in such fraud?
Will government justify why they are not providing adequate manpower to such investigating agencies to ensure timely and quick action against top ranked corrupt officials and to prevent continuance of corruption chain in promotion, transfer and posting?
If all CMD and ED are found to be corrupt, will the controlling authorities punish Finance Minister and officials of Banking Division who oversee banks under public sector and who are supposed to ensure good health of banks?
Lastly I dare ask a question directly to learned Finance Minister respected Pranab Mukherjee who is advocating employing young officers for top post to lead the banks:
This refers to an article published in esteemed newspaper Business Line of 7th December vide link"
http://www.thehindubusinessline.com/industry-and-economy/banking/article2692483.ece.
In brief "What the Ministry is envisaging is that an exceptionally bright probationary officer, joining a public sector bank at 22, can become a general manager at 40 if he gets promotion once in three years under the ‘merit channel' and go on to head a bank at 45."
Why he is interested to select young officers as CEO or ED or GM, DGM or AGM of bank superseding seniors?
Does he want to do so on ground of merit?
If yes he should first remove non performing officers from the top and give promotion on the basis of seniority instead of giving whimsical powers to members of Interview Panel to sell the promotion as hitherto happening in Public sector banks.
Does he want to introduce, irrigate and promote tradition of flattery in banks as prevalent in government services?
My Message for Chairman and Managing Director of all public sector banks:
One cannot cure disease merely by applying ointment on the skin until they purify and modify the system, bring about u-turn in HR management, avoid direct recruitment in higher scale, and identify experienced officers who have been rejected in Interviews by officers of vested interest.
Abolish Interview system and ensure time bound promotions to motivate and judicious award to senior officers,
Don`t humiliate seniors by forcing them to work under juniors, inculcate work culture and avoid flattery culture, stop visiting branches and offices just to deliver lectures and punish officers who are constrained to spend lacs of rupees from bank account to extend red carpet welcome to visiting officers,
Those who deliver good lecture are not always good for health of bank.
Unfortunately banks have gone in the hands of a few executives who have acquired talent in delivering good speech but who are corrupt in their action.
Flattery to big bosses occurs only in India, not elsewhere in the world. Interview system has been abolished in many central government offices; stagnation word is removed from Central pay rules. Inculcate work culture like private banks.
It is shameful for 100 year old PSBs that in less than two decades business of private banks has gone higher than that of many PSBs and customers preference is not PSB but ICICI, HDFC or Axis bank. This should be clear indicator of some fault in HRM. Whimsical powers of transfer and promotion has adversely affected the work culture and it has gone worse than what existed before 1980.
If you do not believe on what has been said above you may compare the business profile of pre-nationalization, post- nationalization and post reformation and draw results to bring about positive change. Prosperity of any organization depends on pleasure index of workers and customers.
It is not pay structure which can create devotion and loyalty to the organization. Had pay been real motivator, PSBs would have remained in better position than private banks because average pay of employees of PSBs is little more than that of private banks.
I therefore always say that flattery culture has spoilt health of banks in public sector , also in all other government offices. BSNL and Indian airlines are facing the same sickness compared to new generation telecom companies and private airlines.
Ministers like flattery and money and hence they do not like poor and honest persons, they too like rich and corrupt who can earn and share their ill earned money with government officials and politicians. CBI and CVC all are victim of flattery culture. Good performers are allwhere sidelined and isolated from mainstream and hence all PSUs are almost sick.
Discard flattery and keep away flatterers, if you want to make your organization strong enough to compete with global giants. Otherwise you will like MMS and his team also prefers FDI for survival of the economy. Indira Gandhi became victim of flatterers and MMS along with Sonia is also suffering from same disease. This is why, India as a whole is rated worst on corruption index by Transparency International. Image of the country is getting eroded year after year only due to all pervasive flattery culture.
Blog written by me three years ago
The Institute of Chartered Accountants of India (Icai), the apex body of accounting professionals, wants the Reserve Bank of India (RBI) to appoint statutory auditors in state-run banks. The accountants’ body has sought the government intervention on this. Till 2005, RBI was directly involved in the appointment of auditors, but now the boards of public sector banks (PSBs) appoints auditors in consultation with the central bank. Until 2005, the appointment of auditors in state-run banks was overseen by an appointments committee with representation from RBI, Icai and the Comptroller and Auditor General of India.
“If appointments are left to bank managements, there may be a tendency to take short-cuts in these regards with possible ultimate deleterious effects on the financial health of the PSBs,”
“This process compromises the independence of auditors and gives an incentive for promotion of vested interest in the appointment of auditors.”
Bankers, experts and consultants criticized Icai’s move, saying this is unlikely to make any major difference in the quality of auditing. Also, any changes in these aspects should equally apply to private and foreign banks as well, as they also deal with public money
“In many cases, auditors do not see eye-to-eye with bank managements (on issues such as) like NPA (non-performing assets) provisioning, implementation of prudential norms, etc., and this is the reason auditors are at all appointed. There must always be somebody who will not look at the business from the point of view of the management, and who will look and act at it from the point of view of good governance,”“The real issue is not independence, but the quality of auditing, which has seen deterioration in many cases in the recent past,”
I submit my views on above mentioned opinion of ICAI
I fully agree that RBI should appoint auditors for conducting statutory audit of various banks and CA should be held responsible, accountable and punishable if they fail to point out the fraudulent and illegal behavior of bank management. Auditors least bother of faults or fraud committed by banks because it is ultimately banks who will appoint them and pay them charges and extend comforts as per their desire.
Similarly in case of audit of private businessmen and service class people, auditors prepare good balance sheet ignoring all bad points so that they may be paid attractive fees. The more fees they charge, the more auditors will guide ways of tax evasion, concealment of facts related of violation of laws, avoidance of statutory provisions etc.
In brief I can say that auditors are best blackmailers and they can go to any extent against the interest of the government if they are adequately compensated for their advices. It is seen that auditors prepare balance sheet as per need of the businessmen who are inclined to avail higher amount of loans from banks. CA almost works as agent of businessmen and it is they who motivate bank officials for inflated lending in return of attractive bribe money.
As of now none is held responsible for the act of omission and commission. Banks blame auditors and auditor s blame banks for ongoing and perpetual fraudulent activities undertaken by bank management. Auditors are paid huge amount for auditing but they seldom check into records of banks and try to complete statutory audit even at big branches in a day or two even though they claim the bill for three or four days..
It is only when Branch Manager of a branch fails to give best quality of hospitability to auditors or fail to give precious gifts to some corrupt and greedy auditors that auditors try to teach lesson to bank officials and mention even non-mentionable irregularities in their audit report. Similarly at regional or zonal or corporate level various officers of the bank are entrusted the duties of entertaining, hotelling, visiting picnic spots and gifting the team of auditors to get best rating and best reports ignoring all vital information. I have seen many auditors even calling branch officials in hotel with money and gifts and signing financial reports blindly.
Unfortunately RBI officials also do not want to have headache of process of appointment and then controlling of auditors. Banks are violating important rules and laws in concurrence with RBI officials. Assets are not classified as per RBI norms of assets classification and income is booked against income recognition norms set by RBI and for this purpose auditors, bankers and regulating agencies dance as puppet of businessmen who spend money for getting illegal benefits from bank, from government and from RBI.As such even if duty of appointment of auditors is restored to RBI, corruption is not going to end. As long as actions are not taken against evil doers, there will not be any fear in the mind of neither bankers nor auditors.
Million dollar question is who will bell the cat? All are birds of the same feather. Money and only money play the role. The more the bribe is offered, the shorter becomes the eyes and ears of auditors, and also that of all regulating and investigating agencies.
Auditors do not perform auditing to safeguard rule of law and ensure following of accounting principles or for tax compliance in true spirit but play the role of mediating between borrowers and bankers, between tax officials and tax evaders and between law makers and law breakers.
It is auditors who prepares financial statement suitable for sanction of certain amount of loan and who motivates bankers for sanction of the same. It is auditors who teaches businessmen how to avoid payment of taxes and who motivate tax assessing authority to put their signature on assessment orders.
Bankers similarly do not care for safety of their bank but work for self interest. Tax officials do not work for collecting maximum revenue in line with prevalent laws but to help tax evaders so that he or she can get his share through backdoor.
It will not be an exaggeration to say that it is auditors who help in creation of black money in the country in nexus with tax officials and it is again auditors who in nexus with bankers and businessmen help in creation and accumulation of more and more bad assets in bank’s loan portfolio.
Role of Auditors in Creation of Bad assets
http://www.caclubindia.com/forum/role-of-auditors-in-creation-of-black-money-and-bad-assets-171395.asp#.VE22WefrbIU
http://www.caclubindia.com/forum/role-of-auditors-in-creation-of-black-money-and-bad-assets-171395.asp#.VE22WefrbIU
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