After Much Delay ,RBI Warns Banks .

Reserve Bank deputy governor SS Mundra today warned banks against their excessive focus on retail lending, saying that the segment cannot be the panacea for growth and that too much of retail lending will also create its own problems. Now Mr Mundra or say RBI appear to have  come out of deep slumber. For a decades and more PSU banks have concentrated more on retail banking than on business loan or corporate loan only  because lending retail loan  is considered by most of bankers as safe ,easy and tension free lending.

During eighties and nineties private banks used to give loan for cars at exorbitantly high interest rates, say 30 to 40 percent per annum. And PSU banks used to avoid lending for buying a car. Ratio of  vehicles loan in PSU banks used to be less than one percent even upto 1990 and a few years later, but now this ratio has gone above 25% in many banks.. 

PSU banks were guided by RBI credit policy which used to focus on business loan, farming loans and loans to traders and these loan were considered as priority sector loans. But in course of time , government discarded social banking and started focusing on commercial banking. Consumption of petrol and diesel started increasing which not only caused huge pollution in air but also  affected trade balance  to a great extent.

From 1991 onwards, period of privatisation, liberalisation and globalisation started. Process of so called reformation put into action.  Banks were liberated from RBI control and RBI too became free of burden to a great extent. Banks were made free to make their own loan policy and earn profit . Banks were forced to come out with public issue and earn profit more and more for investors and government and also compete with new era private banks. This gave birth to unwarranted competition among public banks and a culture of easy methods of earning profit started. Gradually stiff competition started among banks including PSU banks and interest rate for retail lending started falling from around 40 percent and reached upto 10 percent and even below. .

Today you can get a car loan from a PSU bank at rate lower than 20 percent but a pensioner, traders, industrialist, student, doctor, professional will get loan at around 15 to 20 percent. Bank officials are recruiting marketing officers whose work is to market retail loan and compete with peer private banks in retail loan specially car loans and house loans. Huge targets are given to these marketing officers and Branch Managers of branches . They are always busy in searching high class business men and high wage earners for selling car loan and for selling house loan.

Banks are busy in sanctioning even personal loan to wage earners after making tie up with corporate houses to create more and more demands for easy and quick loan .Processing charges are waived by bankers as festival offer to attract more and more car loan takers or home loan takers .They have thus helped in increasing spending capacity of wage earners without increasing their real income . Heavy discounts are offered by car dealers and real estate builders to banks and huge gifts are distributed to financers to sell their vehicles and houses. In this way a few builders and car manufacturers have become billionaire .In modern era, banks give advertisement  to attract customers for loan for car and houses in five days or in five minutes. TAT for retail loan in banks have come down to few days and few hours. Some of banks even started online lending.

But if a small or mid segment business men ask for a business loan, banks may take months and years and ask for huge collaterals. After loitering around banks for months loan proposal may also be declined. But a car loan proposal may be sanctioned in minutes at the door of car loan seeker. I said about torturous treatment by bankers to small and mid segment business houses in sanctioning of loans only because big houses have the capacity to buy bank officials, Chartered Accountants, valuers , government officials, ministers , politicians and all concerned authorities to ensure sanction of loan to the tune of hundreds of crores of rupees , even for fake industry or for fake businesses.

Bad outcome is that roads and houses are full of cars and vehicles and air is full of pollution. Builders have grown multimillionaires and cost of land and flats have gone up 10 to 100 times. Poor and middle-class families now cannot afford buying a house or land. They cannot afford even a loan for it because their repayment capacity does not fit in the framework of banks. Farmers are not given value when they approach for loan for farming because bank officials are found busy in marketing car loan or house loan in nexus with car dealers or house builders. Business men will run from pillar to post and move from one bank to other  for getting sanction of a bank loan for many months and become even ready to please bank officials in their term to avail loan .

This has given rise to culture of flattery and bribery culture in all PSU banks.  Now there is unwarranted and avoidable rate war among PSU banks to snatch retail business from other peer banks, A culture of takeover of loan from one bank to other has started sacrificing quality of loan and sacrificing interest benefit of the bank.

Rich persons who have plenty of black money are now either builder of real estate or invested huge money in booking and buying hundreds of flat and then sell the same at double or triple rates. Landed property has become a safe heaven for parking of black money and has taken the shape of one of best business to earn highest profit in shortest period.

This is why farming land has started  shrinking and farmers have started leaving business of  farming. Industrialist have discarded business of manufacturing and so on. Project cost of all industries have gone up to a great extent , production cost has gone up and finally price of all goods have gone up.

It is very  difficult now for a industrialist to find suitable land at reasonable rate at suitable place to manufacture goods of his choice. Farming land and industrial land are getting converted to commercial land and then sold  to builders at exorbitant high rates. Small houses in all towns are not getting converted and merged to handover the property to builders for construction of flats. Small Traders and small scale industrialists are closing their businesses and handing over their small landed properties  to builders to earn huge money by doing no business. As a result , many apartments have come in the market and now these builders are facing problem in selling them and thus causing bank loan to go bad . This is a vicious circle which has harmed consumers, bankers and all businesses.

All this is due to bad politicians, bad policies and bad bankers who want quick jump in figures without actual growth. I am happy that  at least now RBI has started thinking over bad consequences of retail lending. Very soon they will think about fixing uniform interest rate policy for all banks to avoid unnecessary rate war among sister banks of public sector. They will have to frame uniform loan policy keeping in view the priorities of the country, to feed socially neglected sector and for uniform growth of all sectors. Government will have to take back the freedom given to bank and will revisit the credit policy of seventies and eighties when RBI used to play a key role in framing of credit policy for public sector banks. RBI will have to ban banks giving concessions in retail loans and force them to opt for more and more commercial loan.

Government will have to stop rampant corruption in recruitment , promotion and transfer processes of public sector banks to reform the grass root culture .Government cannot stop rising trend in Gross Non Performing Assets of PSU banks without changing the quality of bank offices and quality of politicians . I say politicians because it is they who have promoted and irrigated loan culture and then loan waiver culture. People think it easy to avail loan and then feel safe even after not repaying loan. As a result , liquidity of banks is adversely affected. They are not in a position to give loan to really needy business houses.

Bad loans are accumulating and volume is growing day by day. Bank management  find it safe to restructure bad loan or to  write it off to keep their balance sheet shining. Hiding of bad loan has become a well established culture in bank. Mr. Mudra has come a bank and have worked in banks for decades and he is well aware of dirty culture prevalent in PSU banks and he knows very well how politicians and ruling party build pressure for doing bad works and in promoting bad culture in banks.

Bank officers  have become clever in window dressing in deposits, in advances in in recovery of bad loans too. Government will have to do a lot to transform banks from sickness growing banks to healthy banks. So called reform process initiated in the year 1991 has damaged the banks to a great extent. Government will have to revisit the policy of pre-reformation era and learn lessons from that to improve the health of banks. Current government and current Finance Minister is wondering in dreamland if they think that by changing a few CMD or ED or by forming Banking Bureau they can change the heart and mind of bankers.


Mundra warns against too much dependence on retail banking -Economic Times 15th December 2015

Read more at:

http://economictimes.indiatimes.com/articleshow/50174217.cms?from=mdr&utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

This is praiseworthy that a whistle blower has taken the name of top officials including CMD who allowed evil work to continue as culture. This is happening in all banks. Banking scam will prove to be biggest scam if one honestly looks into banks. Never trust CA who are master in art of manipulating Balance sheet and certificating goodness.

Whistle blower blows the lid off Rs 20,000 crore UCO Bank scam

Blowing the lids of UCO Bank, an anonymous whistle blower has written an open letter to the Enforcement Directorate (ED), Mumbai exposing the senior most officials of UCO Bank. 

Read Full News on Whistle Blower Here

After spoiling banks for decades , SBI management have now ordered HR audit of all branches .

SBI to audit its HR systems, practices-Business Standard 14th December 2015

For the first time the bank is conducting employee engagement survey

Read full news here

READ Full news on SBI HR audit announcement

My Observation:

Human resource is invariably  mis-utilised , under utilised and exploited in all banks to serve the interest of bosses not to  serve the organisation. Banks frame one after other policy , constitute  various committees to suggest ways to bring about changes, to ensure quality in credit and deposits, to ensure welfare of HR but unfortunately they have always failed to put in use the same in true spirit and in real sense. Bottles always change but same old wine is found in all bottles.

Various Committees have suggested various ways to bring about reform and transform culture in banks. Banks have paid huge money to various consultants during last three decades .

However , I may say here that ,Yes it is right to say that whoever may be the consultant , key point is whether it benefits HR and organization in real sense.

It is important to mention here that all banks have implemented merit oriented promotion policy in their bank and the same is active for last three decades. But in real sense, Only yesman got elevated at all levels .

Consultant companies themselves are unaware of nature of banking work. More over they give their opinion and earn huge money and partly they might have also shared with top officials. But who is to take care of it that their golden opinions are put in effect truly. This is why real quality of work has faced erosion and deterioration year after year despite reports of several committees . 

 Where has merit gone? 

Is it wrong to say that so called merit oriented promotion or recruitment policy in banks has in fact become yesman oriented policy?

This is to be assessed properly. My experience says that seniority linked promotion policy was in effect far better than so called merit linked policy which damaged work culture and which demotivated good workers.

This is why big targets are achieved somehow or the other by clever yesmen but quality never maintained which has resulted in accumulation of bad loans only. Window dressing has become the culture in PSU banks to inflate deposits, to inflate advances , to inflate profits and to inflate recovery in bad loans artificially. There is no one to stop window dressing because it creates a win-win situation for all, for bankers, for politicians, for consumers, for borrowers and so on.Sufferers are only common men and taxpayers whose good money is lost in writing off bad loans.

It has become a culture in all banks and habit of all top officials in PSU banks to act as per their own whims and fancies but always do evil works in the name of a consultant or as per report of a committee constituted by like minded persons as happen with a government.

For last three decades , government has infused lacs of crores or rupees as capital to save sinking banks. Lacs of crore of rupees has been waived to remove bad loans from balance sheet. Thousands of crores of rupees have been lost in ever rising cases of frauds in banks due to total mismanagement and due to flattery culture. More than 20 percent of total advances of PSU banks are now stressed assets. Credit growth takes place but GDP do not grow in the same proportion. Still all are silent spectators or some of them are preaching sermons .

It has become a culture in banks to lend money based on bribe and gifts and then write it off in the name of emotions if loans are small and write off loans in the name of recession if the loan is of high value.

Every quarter , RBI use to give a statement that the health of PSU bank is in not a matte of concern . This has been happening for last ten years. Nothing has improved at ground level inspite of all promises to take appropriate step to stop rising trend in NPA.

RBI pulls up banks for bad loans and wrong classification of assets to reduce provisions falsely. Read following news which has appeared in Times of India today

http://m.timesofindia.com/business/india-business/RBI-pulls-up-banks-on-bad-debt-tags/articleshow/50178932.cms