Unfortunately ,RBI and Government of India never took concrete steps to strike at the root cause of rise in bad debts, rise in losses and erosion in capital. They never punished the real culprit behind losses . They never tried to improve the quality of legal set up and never tried to stop politicians exploiting banks for political purpose or self interest. They never tried to ensure improvement in quality of fresh lending and quality of monitoring of existing advances. Bankers recovered Rs.10 core bad advances and added thirty crore new bad advances in the basket of NPA.
This is why and this is how banks continued to commit mistakes willingly or unwillingly , rightly or fraudulently and RBI continued to fire paper bullets threatening and GOI continued to infuse capital and continued making promises after promises for taking corrective action. But the results of all instructions remained and so called initiatives to curb growth in stressed assets in PSBs always remained dismal and erosion in quality of advances continue to go up and up. Those who commit blunders in bank willingly to earn money in lieu of sanction of loans get promoted to higher level and get safe retirement and even get lucrative job after retirement. On the contrary , those officers who take adequate care to save banks from bad borrowers are punished and rejected socially.
During last three decades of so called reformation era,
- many irregularities in sanction of big loans in almost all public sector banks have been detected ,
- many instances of hiding bad debts wilfully by bank management to save some top officials have been pointed out by auditors including RBI inspectors ,
- many cases of wrong write off of loans have come to light, many cases of giving unethical loan by banks to unscrupulous businessmen in greet of bribe has been discovered ,
- many cases of illegal and unethical relief granted to bad borrowers in compromise settlement has been pointed out by CBI and other agencies including team of Chartered Accountants CA ,
- many cases of interest concession given to big borrowers to favour business men as per choice of top officials of a bank have come to light,
- many cases of fraud involving hundreds of crores of rupees have ben detected , many cases of advances made on fake titles have been found out,
- many cases of fake advances by branch heads to achieve high targets or to earn bribe have come to light,
- many cases of window dressing done by bank officials have been detected where bank officials fraudulently inflated deposits and advances , manipulated profits, booked wrong income , did not make proper provisioning
- Many senior officials have been found and trapped to be taking bribe for loan
- Many auditors have found to be involved in hiding negative points of corporate in their balance sheet to enable them getting bigger loan from bank
- Lacs of bank cases filed against defaulters in courts are pending for decades in various courts and due to which recovery processes get unduly delayed
- CAs more often than not, prepare financial statements of a business entity not based on reality but to enable a business men to avail additional loan even if it is detected that existing advances is misused and diverted
- Banks are concealing bad loans and their evil works by restructuring loans or by giving additional loans to already defaulting borrower.
- and so on.
And each time Government of India and RBI have come forward, promised to take corrective action and appear to take proper punitive action against erring officials of banks indulging in unlawful practices. They have always promised to stop unhealthy practices. But in fact nothing so happened. Culture of committing fraud with system has not changed.
RBI always threatened a particular bank when it got exposed and issued a guideline in general to alert them or to caution them, or to caution all banks . But unfortunately majority of top officials of all banks considered all these RBI guidelines fit for filing and never bothered to abide by such guidelines in true spirit. And even RBI never bothered to cross check whether their guidelines to stop corruption and to stop bad lending are seriously taken by bankers or not. As soon as any bank scam comes to light. a committee is set up and then a thick carpet is put on it to close the chapter for ever and to protect the guilty officer or guilty politicians.
One after other banks get exposed but RBI never take generalised step to stop recurrence of bad debts or to nip in the bud. RBI last year also promised to conduct forensic audit of three banks but nothing in fact improved at field level because RBI did not take any effective step in practice. To err is humane , but if errors are repeated again and again , there is something seriously wrong in the approach , attitude and integrity of auditors, regulators, inspectors, vigilance officials.
It is important to note here that every bank spends crores of rupees every year on audit departments . Hundreds of auditors are on job to carry out periodical audit of every branch of the bank , at least once in a year. Crores of rupees are spent on Team of CAs appointed for carrying out Statutory Audit, Concurrent Audit , Revenue Audit , special audit and several other variety of audits .Crores of rupees are spent by RBI in carrying out special audit, forensic audit and usual RBI audit. It is surprising that none of these clever auditors could nip in the bud, it means none of them were so honest and sincere in their job that bank management could be constrained and conditioned to reveal all bad loan as NPA in time. Bank management could not dare hide bad debts and could dare treat bad debts as standard assets without the evil support of auditors.
If auditors would have been honest and sincere in their job in our country , volume of Non Performing assets in each bank could cross even 25 percent of total advances. Unfortunately all these auditors are more or less working in nexus with officials of bank, they write report as per whims and fancies of bank officers or else they have to lose their job in future. They are not supposed to declare any advance NPA strictly as per prudential norms defined by RBI in this regard. But they can treat only those accounts as NPA which are permitted verbally by bank officials and for this purpose they are separately paid in addition to their normal fees and charges.
In a country when police reports are written on choice of thieves and dacoits or as per choice of criminals, statistics of crime cannot go up. In a country where even FIRs are accepted or not accepted in a police station as per whims of police officials or as per choice of culprits , we can reduce crime number in statistical reports but cannot eliminate or reduce actual crime from society. Government can claim that crime in their area of work is decreasing but the real pain of crime is experienced by citizen of that area.
Similarly if any bad advance in a branch or a bank cannot be considered as bad by auditors without permission of their makers ,mentors, promoters and protectors , figure of real and true value of NPA cannot be reflected in financial statement by any bank . Quality and quantity of sickness cannot be assessed and ascertained by common men or investors or real regulators only by looking at NPA figures appearing in Balance Sheet of a branch or a bank .
RBI and top management of very bank has been using various tools like restructuring of bad loan, evergreening of bad loan or writing off of bad loan to conceal bad loans from public view.
Now it is astonishing and painful to note that RBI has begun to treat a certain but dangerous ratio of Gross NPA to total advances of a bank as normal . To quote latest guidelines in this regard, RBI has initiated a Prompt Corrective Action (PCA) on the bank, which is triggered if bad loans rise above 10 per cent, capital adequacy ratio slips below 9 per cent, and return on assets falls below 0.25 per cent.
Obviously RBI has indirectly given a hint to bank management that they need not worry till Gross NPA remains below 10% of total advances which is very much worrisome for a prudent banker as also for those who are worried for economic stability and health of bank. Similarly return on assets for private bank is more than 1 percent but RBI says it will initiate Prompt Corrective Action only when return on assets falls below 0.25%.
It is just like police officials who reach the spot when criminal finishes his act of crime like dacoity or theft. If people complain to thana on phone about any mishappening like loot, fire, rape or threat to life , police will not reach the spot to save the society from mishappning till the act of loot or rape is finished and culprit run away. Fire brigade will reach the spot only after fire has fully exhausted the property and people are burnt to death. Similarly RBI will initiate PCA only after the bank has become too weak to survive. It is just like when a chit fund company cheat crores of rupees from innocent depositors and run away from the scene, RBI will come to picture to prescribe medicine for depositors ,that is for looters , not to catch hold of all culprits and all cheaters in one lot.
RBI has initiated PCA against Indian Overseas bank and likely to start against other two three banks too in line with above mentioned criteria fixed by it. Two years ago , when the scam of some banks like Syndicate Bank, Allahabad bank ,Central Bank had come, RBI had promised for forensic audit of them. But the sickness instead of reducing got increased to not only on or two bank but to all banks in public sector. And again RBI has prescribed the same old medicine , old wine in new bottle of PAC.
I once again say, as I said earlier on too many occasions that internal true health of each PSB is almost same. Only the difference is that when a clever top official take charge of a bank, he manipulates the figure as per his choice and others fail. Some other time other bank get clever CMD who is master in manipulation and position of that bank gets improved artificially.
I therefore appeal to RBI not to touch weak bank, rather they should thoroughly inspect the strongest one or two bank to ascertain whether so called stronger bank is really intrinsically strong or strong only in published balance sheet. Last fortnight new appeared in newspapers when top officials of PSBs have requested RBI to give them time upto March 2018 to match NPA with that detected by RBI inspectors. This is enough to indicate the volume of hidden NPA and quality of monitoring by regulators.
After IOB, RBI may pull up Allahabad Bank, Central Bank of India and Andhra Bank -
Economic Times 7th October 2015
Read more at:
http://economictimes.indiatimes.com/articleshow/49268058.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
Prompt Corrective Action! RBI may levy PCA on three other bankshttp://economictimes.indiatimes.com/articleshow/49268058.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
With their dodgy loans and provision for loan losses nearing to that of Indian Overseas bank (IOB) that has RBI-imposed restrictions on its branch expansion, Allahabad Bank, Central Bank of India and Andhra Bank could be pulled up by the Reserve Bank of India, says an ET report.
The central bank had initiated Prompt Corrective Action (PCA) on Indian Overseas bank which is triggered if bad loans cross the 10 per cent mark capital adequacy ratio slips below 9 per cent, and return on assets falls below 0.25 per cent, as informed by the Chennai-based bank to Bombay Stock Exchange.
IOB cannot open new branches, declare dividends and hire new employees without getting a go-ahead from the banking regulator. Post RBI’s inspection of the bank during which several irregularities were found, the move to impose PCA on Indian Overseas bank was made, the report stated.
United Bank of India (UBI) too has been pulled up by the central bank in the past, when imposition of PCA was due to the finding that the bank’s bad loans were much more than declared. However, the restrictions were removed after seeing the bank improve its performance in the following years.
Read my old blog here
http://importantbankingnews2.blogspot.com/2015/02/perform-or-perish-this-is-message-to.html
One after the other all Banks are following the disclosures. One may wonder what we are to hear tomorrow? What prompt action the RBI wish to take? When? How? Doe not RBI know its role in inspecting,examination of the functioning of the Banks? Does the RBI Governor thought the Inflation Index is the only graph he has to study and get obessed with Bank Rate? At this rate all Premier Public Sector Banks deteriorating who can tell what will happen to Banking Industry. Todays Times of India publishes a more startling news of Mother of all Scams. Why it finds no mention any where? Who are involved in it? Doesn't RBI Deputy Governor who was once a CMD of that Bank owe a moral reponsibility and get himself relieved of the office because of the conflict fof interest and in the interest of true investigation and for Truth.
ReplyDelete