No let-up in year-end window dressing by banks-Hindu Business Line- By NS Vageesh-21.04.15
2015 April 20:
Banks distributed a third of their loans for the last fiscal in the second fortnight of March. While for the whole of 2014-15, banks gave out about ₹7.5 lakh crore as loans, they lent ₹2.6 lakh crore in just 14 days.
That is an alarming skew. For the last three years, banks disbursed roughly ₹6.5-7.5 lakh crore as loans annually. About 10 per cent of the amount was given in the last fortnight of every fiscal. This was probably to maintain the façade of growth, or to window-dress the balance sheet.
No one in the banking industry is surprised at this long-standing practice. A banker stifled a yawn when asked to comment on the issue, though the quantum of the increase did jolt him a bit. Another banker chuckled and said nothing could be done about it.
Why does it happen?
Banks want to show that they have done good business in the year that went by. And branch managers are judged by the deposits they bring in and the amount of loans they give. There is, therefore, an incentive to boost those numbers. This, they ensure by asking corporate clients to draw their sanctioned limits fully. Sometimes, they are told to deposit the same amount in another branch of the same bank — so that the deposit numbers also go up. A veteran banker revealed that there were borrowers who obliged bankers, provided the branch manager gave them good service and was honest with them.
Sometimes, there is pressure from the government to show improved numbers.
Government departments contribute to the last minute surge by drawing their entitlement in the last fortnight and putting the funds into bank deposits. Another senior banker pointed to the practice of erstwhile term-lending institutions that usually made some disbursements to clients at the end of the fiscal even though the project being funded required money only in the next fiscal. But in order to ensure that the promoter did not misuse the money, they were directed to different bank accounts of the company, with the stipulation not to release it without the lending institution’s consent. This may still be happening with some banks, the banker speculated.
A different method
What if branches are judged not by deposits and advances growth but only on profits? That has its downside too. Branches would then refuse to do business that doesn’t fetch them direct benefits. For instance, the remittance business is today a major activity in banks, given the growing level of migrant labour. This will be hit because the branches that facilitate such remittances earn next to nothing; instead, they find their staff and premises fully engaged with such low-ticket items.
So, can this practice of inflating the business numbers artificially be stopped? An experienced banker responded with a huge guffaw. He revealed that his bank tried to stop the practice by fixing a different day (an earlier date than the last day of the fiscal) as the cut-off for the calculation of business targets. But, as you may guess, the window-dressing simply moved to the earlier date!
Finally, a top banker said: “It is like catching a tiger’s tail. Once you have, you can’t get off it.”
Many Finance Secretaries and Ministers have issued dire warnings on the practice of window-dressing. Even that made no difference. No senior banker is able to stop it, having themselves practised such subterfuge in their younger days. To use the biblical analogy, therefore, let him who has not sinned cast the first stone. Meanwhile, let those who look at these numbers be armed with a ton of salt.
Government plans to rate PSU banks for fund infusion-DNA
The government is looking at rating public sector banks going ahead for capital infusion for which these banks will be required to fulfil criteria, which are under discussion, such as the quantum of retail loans they disburse, the number of Jan Dhan accounts opened besides the return on assets and return on equity they earn.
The proposed moved may lead to a big push for retail loans by PSU banks with special offers to woo customers.
The finance ministry is setting up a rating system for public sector banks where their performance will be measured. Still in the planning stage, some of the criteria that are under discussion for the rating are the number of Jan Dhan accounts and financial inclusion programmes that banks have implemented, and the quantum of retail advances undertaken by them against their corporate advances.
http://www.dnaindia.com/money/report-government-plans-to-rate-psu-banks-for-fund-infusion-2079218
Private sector execs give top slots at PSU banks a miss-Hindustan Times 21.04.2015
There have been no takers from the private sector for the top position in leading public sector banks, including Bank of Baroda, Punjab National Bank, Bank of India, Canara Bank and IDBI Bank.
The government, which opened the doors to private sector executives to take over as chiefs in public sector banks, has got a lukewarm response for the same. The finance ministry is now looking to relax the eligibility criteria for applicants, including lowering the age criteria, and even doing away with the requirement for experience as a board member.
“The finance ministry is looking to relax the eligibility criteria soon... the criteria may have been a little stiff, which acted as a dampening factor,” a senior finance ministry official told HT.
The Appointments Committee of Cabinet (ACC), which approved the criteria and method of selection earlier this year, said candidates should have at least 15 years of mainstream banking experience, of which a minimum three should be at the board level.
In a notification, the finance ministry said salaries would be “flexible” and candidates should be in the age group of 45 to 55 years. They would have a fixed tenure of three years, subject to the normal age of superannuation of 60 years.
The government’s move to appoint private sector executives at the top posts in public sector banks comes at a time when the banking sector has seen a surge in non-performing assets — loans that do not yield returns — and slowing credit demand. While state-owned banks have been hiring talent from outside for various other roles, the top slot was always reserved for insiders.
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