Bankers, Politicians And Auditors -All Are To Blame

Monday, July 30, 2012

Present Position of Public Sector Banks

Biggest bank called as State bank has become number one in Gross NPA. Second ranking bank PNB and  BOB have become second in gross NPA and a bank called as best performing  bank which was pioneer in change management and which was targeting to be number one among state run bank other than SBI is now number one in Gross NPA and number one in volume of restructured advances.

 

Root cause of growing sickness is that Human Resource Management department which was originally established to improve quality and to ensure merit based promotion has more or less been converted to Human Resource Manipulation Department. Everyone knows that HR manipulation department has ample power and potential to promote worst officer and reject the best officer. This is called manipulation and a person who is master in manipulation can only get the chance to occupy top post.

Credit recovery department is in fact working as Credit Restructuring Department. Fraud Control Cell is working as if it is Fraud Compilation Cell. Department of Planning Business and Operation in working as Data Pollution & Data Promotion Department and most of the time is busy in working on Power Point Presentation of Budget and Achievement from various angle of consideration. Credit Processing Department is busy in Renewal & Review Management Department to prevent accounts slipping into NPA category.

Department of Priority Sector which was set up for growth of lending for farm sector, industrial sector and for small traders has changed their priorities to government sector and corporate houses.Erstwhile Priority sector has become Non-Priority sector and vice versa.

State run banks are moving from mass banking to class banking, social banking to profit banking , customers satisfaction to officials satisfaction and so on...Trade Union Leaders who formed various Trade Unions and Association to protect the interest of employees are now second side of same coin which is represented by bank management. In other words top executives of banks management are working in nexus with top trader union leaders to serve their mutual interest at the cost of employees. So-called Protectors instead of protecting are threatening members of transfer to remote place or rejection in promotion processes if their dictates are not followed or if anyone goes against the management line of action. 

Customer Grievance Redressal cell is working as Executive Grievance Redressal Cell and Persons assigned the duty of taking care of customer’s grievances with a Board “May I Help You “ displayed in front of the counter are now functioning as helping counter for top executives. Officers in general forget to say ‘May I Help You’ to their valued customers but never forget to say this attractive combination of words to their bosses. Bank officers hesitate in saying ‘Sir’, ‘Yes sir’ to their customers but use these terms frequently for their bosses without any hesitation. Work is worship was treated the key to success in the past but now it is Flattery and Bribery which are keys to success.

Boards of Directors seldom get time to find out the reasons for growing sickness and pitiable health of bank they are associated with, but they have plenty of time to manage RBI and Ministry of Finance and in concocting a story of success to hand over the press. Directors of a bank are ready to sign on all papers containing right or wrong policies provided they are given red carpet welcome and given share in all costly gifts either in cash or in kind.

Similarly Auditors and inspecting officials need red carpet welcome and grand hospitality at every point of place they visit from early morning to late night when then go to bed. Wealth Wine and Woman are three tools which may manage most of top executives and top ranked government officials. 

Any officer who has the capacity to speak nicely and effectively, who can deliver a good speech on banking products and moral of officers are considered the star performer even though they may be the most corrupt and the greatest damager of fundamentals of bank. This is new India where politicians harp on reformation and reformation only. 

Last but not the least, top officials are busy in opening of new branches and new ATMs. The more branches and ATMs are opened the new business will be garnered. They will get an opportunity to call VIPs to attend inaugural and to preside such prestigious functions. Lacs of rupees will be spent on each of such functions. Officers with little experience will become branch head and he will do nothing but add fuel to fire. Old business from older branches will go out to other bank and new business in new branches will be added up. 

There is an old saying that it is easy to market good customers but difficult to sustain them. It is easier to open new branches but difficult to manage existing branches in fruitful and effective way. It is easy to recruit new staff but difficult to make them able and capable to do sound and healthy banking. it is easy to recruit new officers but difficult to keep them in bank for a longer period. 

It is easy to keep bosses happy but difficult to customers happy. It is easy to spend money on big bosses on their hospitality but very hard to spend    on improvement of customer service and in extension of time bound quality service to customers upto the level of their satisfaction and in delightful manner.And the more important is it is easy to enhance quantity of any element but difficult to enhance quality of them.

As a result of such mismanagement and lack of foresightedness, number of loss making branches has been increasing year after after. Volume of NPA in hundreds of branches in all banks has gone above 25% of their total advances and in many it is more than even 50 to 75% of total advances. Obviously new branches are being added and old branches are made facing threat of closure.

A prudent banker can visualize the future of such branches.RBI will go on harping closure of loss making branches and state run banks will continue to add more and more loss making branches to please their bosses sitting in offices of Ministry of Finance .

Now you judge whether banks are improving or deteriorating? 

Officers who get out of turn promotion start flattering top bosses and forget what is needed for health of bank. This is the tragedy which state run banks are facing. Only God can save these banks. It is true that the crowd of officers who are getting out of turn promotion and who are associated with such type of trade unions who may manage anything in collusion with top executives are not raising any voice against growing sickness in the system and there is undoubtedly peace and there is no problem which may disturb Industrial relation in the industry.

But time will tell whether Industrial peace purchased at the cost of overall health of bank will last long or not?

 

Role of auditors in creation of black money and bad assets -written years ago by Danendra Jain

 

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-Danendra Jain

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.

 

When some of CA expressed concern on generalisation of CA, I clarified as follows:(year 2012 when UPA was in powr )

 

I agree that there is good number of CAs in the system and generalization is not justified. There are good person in the administration too, but common men openly say that government is corrupt.

 

There may be a few devoted ministers in Manmohan Singh‘s cabinet but the general impression is that government led by Doctor Manmohan Singh has broken all records of corruption.
There are good leaders in Congress party too, but the movement launched against Corruption by Team Anna is undoubtedly directed against Congress Party.
Actually one or two person do not make the image of any organization.

When majority is indulged in unfair practices, common perception does not count much good work done by good persons. Of course India survives and Indian system survives only due to the fact there are still few good persons left. There are good officers in government banks too but normally lending is done in consideration of quality and quantity of bribe they take in return of their sanction.

There are negligibly and microscopically few government schools in India where teaching is praiseworthy, but the common perception is that government schools are worthless and it will be dangerous to admit our children in such schools.

Similarly people do not want to admit their family members in government hospitals for treatment because doctors in such hospital are in general corrupt and careless.
Scams after scams are surfacing in India. Why?

There should not be any case of scam, fraud or misappropriation of government fund because all books of accounts and all expenses done by all departments and  accounts of all development  funds are normally certified by a team of CAs.

Fraud like that of Satyam Computers could not have taken place if the team of CAs could have exposed the truth in the beginning.

Again I would like to say that balance sheet of most of the companies and firms are prepared after concealing a lot of negative points and after concealing considerable amount of  income so that tax payment may be evaded.

Black money could not have their existence in the domestic system or in Swiss banks if CA would have performed well. Here CA means all types of auditors including CAG.
Bankers sanction loans normally based on audited balance sheet and still lending goes bad in due course of time. It is only because balance sheets are normally prepared as per comfort of bankers and loan seekers.

I agree that even doctors in India are not performing their duty as there are supposed to. But it does not mean to say that all acts of omission and commission be legalized and accepted as way of life. Everyone is thief it does not mean that act of stealing and robbery be legalized by common men and the government.
It is the duty of good persons to expose bad work of bad persons to bring about reformation in the system. We after all cannot accept evil work as good work and praise activities which are not praise worthy. Silence also makes us guilty of the system if we do not raise voice against injustice.