But public sector banks in general use various tools to hide bad loans and show them as standard to avoid higher provisioning and to inflate profit of the bank. Banks restructure bad loans to treat bad loan as standard or give fresh loan to defaulters or write off to reduce burden of bad loans. In this way they are able to protect corrupt bankers who in greed of bribe and costly gifts sanction loans and cause loss to banks.
It is open secret that top officials of bank work in in nexus with corrupt politicians snd corrupt business men , sanction huge loan and when accounts turn bad , the same bankers write off loan to save corrupt bankers from punitive action . In this course of action these clever bank officials blame economic recession or higher interest rate of natural calamities. This foul game has been continuing for years and decades.
Similarly politicians , specially ruling party build pressure on bankers to sanction loans to various companies and individuals whom they like for serving their individual or political interest. And it is they who build pressure for compromise settlement with bad borrowers or for restructure of bad loans to hide bad loans or finally write off bad loans to clean balance sheet. It is they who impose unachievable targets to bankers and award those bankers who by hook or by crook , rightly or wrongly achieve the target . It is they who support and promote auditors who help in hiding bad assets. Culture of hiding bad loans is not new in banking and it has been allowed to perpetuate for years and decades.
Various agencies, auditors, inspecting officials,, rating agencies and even RBI officials have exposed public sector banks and told huge volume of loans are in NPA category and greater volume of bad assets are concealed by bankers to hide their misdeeds under the cover of economic recession. It is admitted in various forum and various reports released by RBI that gross NPA of banks have crossed 5% and that of stressed assets have crossed 10% and it is also apprehended that there are much more hidden .RBI is facing accusing fingers from many corners and even Ministry of Finance have several times warned RBI and management of public banks to refrain from window dressing in bad debts.
Unfortunately none of bank officials give much importance to these preaching or warnings and they think it wise to resort to window dressing in not only deposits , advances and profits but also in classification of assets as per their whims and fancies.
For years and decades., RBI has been warning banks and threatening them of taking action against erring officials , but none of top officials have ever been taken to task , rather these evil officials who are expert in manipulation and committing fraud with system are elevated to higher level. This culture of favouring bad officials has become the well established culture and they all get indirect support from RBI officials and Ministry of Finance.
In June 2010 it came to light that some financial institutions were allegedly flouting its norms in compromise settlement or in writing off of bad loans , the Reserve Bank had directed banks to carry out the settlement of non-performing assets (NPAs) in a transparent manner. RBI advised so in view of the face that certain serious concerns had been expressed in different quarters and by Debt Recovery Tribunals over the manner compromise settlements had been effected by banks. In the same year RBI had pulled up State Bank of India for poor NPA management when it observed sharp rise in NPA in SBI.
Concerned over rising bad loans, the Reserve Bank Governor Mr G Subarao had said it will take more measures to check non-performing assets (NPAs) of the public sector banks.
Concerned over defaults by big borrowers, Ex- Finance Minister P. Chidambaram had said in the month of October 2013 that the government was monitoring the top 30 NPA accounts in each public sector bank, and asked the lenders to set up separate verticals to recover money from written-off accounts. But no improvement took place .
In August 2015 , RBI Governor Mr. Raghuram Rajan said that "We also supervise banks and go through their portfolios to see whether they have declared all the NPAs (non-performing assets) they should. We examine divergences, and bank management is hauled up if there are divergences," . "Increasingly, we are turning towards taking action over such divergences. It's not that these things get done with impunity."
In financial stability report released in the month of December 2015 ,The Reserve Bank singled out state-run banks in a survey of the financial sector's woes and told them to ensure they didn't overpay dividends since they are at risk from bad loans surging further in the event of a deterioration in the economy. RBI in its report pointed out that worsening asset quality and sluggish profitability show that risks to banking stability have increased in the past six months.
At least 17 of the 39 listed Indian banks have their gross non-performing assets (NPAs) more than 5 percent of their loan book, six banks have their GNPAs over 7 percent and one (Indian Overseas Bank) has it in double digits. For the banking system as a whole, at least 12 percent of the total loans given by Indian banks are estimated to be in the stressed assets category. In simple words, chances of getting 12 rupees back out of every 100 rupees lent is less.
Though the bad loans have emerged from all segments, the biggest chunk of sticky assets for the Indian banking system has come from large corporate defaulters
Keeping in view various promises made by RBI Governor and by various Finance Minister during last five years , I may say that there is no doubt to me that RBI has completely failed to impose and ensure discipline in banks, they have failed to ensure hundred percent compliance of prescribed norms for classification of assets and norms of income recognition, they have failed to stop window dressing, they have failed to stop rising trend in loss due to fraud and they have failed to stop deteriorating quality in loan processing before sanction of a loan and monitoring of loan after its disbursement.
RBI during their random checking of few banks branches has detected 150 high value standard loan accounts which are in their view of substandard nature but the concern banks still consider them as Standard.
RBI has advised concerned banks to treat these 150 accounts as NPA and immediately start process of recovery from these bad borrowers. But inspite of several advices by RBI, banks are not ready to declare these bad accounts as bad though they involve thousands of crores of rupees , on the plea that if the classify these accounts as bad , they will have to make higher provisions which will eat away their entire profit or they will incur loss. It proves that clever banks are hiding bad assets and it is known to RBI and MOF too. They all are birds of same feather.
Thieves now say that if they expose their act of stealing , the will be taken to task and their banks will face a lot of RBI restriction in lending as banks like Indian Overseas Bank and United Bank of India are facing. It is not a matter of 150 bad accounts identified and detected by RBI officials, it is a matter of lacs of bad accounts which are still considered as Standard.
RBI is not in a position to inspect each and every branch of each and every bank. They are not able to verify the correctness of accounting of each branch . They are not able to detect hidden bad loans of every branch. They carry out random checking of hardly 1 out of 1000 branches and they can check hardly 200 accounts out of two crore loan accounts. This is why RBI is focussing at only 150 bad accounts detected by them .
Now when concerned banks expressed their problem in considering 150 bad accounts as bad ,, RBI has come out with a Voluntary Disclosure Scheme which is worse than that of black money disclosure scheme. RBI has now promised bankers that RBI will not put any restriction on them on them if their banks incur loss or if profits of banks goes down or gross NPA ratio of their bank goes beyond alarming level set by RBI.
This is as good as providing protection to bad officials of banks and bad borrowers who jointly caused great loss to bank to serve their self interest. RBI is acting as if the are Super Judge to decide the justifiability of any act of bankers.
I am unable to understand why and how top corrupt officials are exonerated and acquitted in each case of bad loan accounts whereas junior officers are taken to task if small value loans goes bad due to fault of officers. As a matter of fact ,even in case of small bad loans , officers are not taken to task in majority of cases , because these small loans are written off under various loan waiver schemes or loan compromise schemes.
In brief, there is no culture of fixing accountability and responsibility on erring officers and erring businessmen. There is a culture of providing protection to bad officials in the name of economic recession and awarding them for their evil works.
On the contrary , there is a culture of punishing honest officers who do not fall in line with corrupt top officials. This is why quality of loan sanction does not improve in any branch or nay bank. Officers sanction loan blindly to achieve the target and to get quick promotion and then another batch of officer come forward with write off scheme and close the chapter of crime for ever.
RBI Won't Act Against Banks If NPAs Rise Due to Cleanup of Books -Times of India -28th December 2015
The Reserve Bank of India has given an informal assurance to commercial banks that it will not place restrictions against these lenders if their stressed loans increase sharply on account of cleaning up their books as it has directed.
RBI had earlier this month identified a list of 150 truant borrowers and directed banks to downgrade these companies by the end of this financial year. The directive implied that the banks would have to classify some standard loans as substandard loans and make higher provisions on them.
In order to discipline banks, RBI initiates prompt corrective action (PCA) on banks that either have bad loans above 10% of total loans or whose return on assets falls below 0.25% and capital adequacy ratio drops below 9%. In such cases, several restrictions are placed on banks on opening new branches, hiring new employees and giving dividend. “RBI has conveyed that it will not initiate PCA on banks for at least one year if banks bleed on making high provisions on list of borrowers it has asked each bank to downgrade by the end of this fiscal,“ said one of the offi cials cited earlier.
This is a special measure taken by RBI to encourage banks to clean up their books. The move comes at a time when RBI governor Raghuram Rajan has set a deadline of March 2017 for banks to clean up their balance sheets.It is estimated that earnings of a number of banks -particularly mid-sized state-run banks -will be hit if they downgrade all the accounts listed by RBI as they would be required to set aside more money as provisions.
In an informal meeting with senior RBI officials, top management of banks had expressed the fear that the performance of banks would slip if 150 truant borrowers were to be downgraded. “Already poor demand for loans and growing number of defaults by borrowers has dented banks' earnings,“ said another official.
“An unexpected mandate to downgrade some accounts from RBI will now put more pressure on banks' profitability,“ he said. In recent months, RBI has placed PCA on Indian Overseas Bank after its share of bad loans crossed 10%. The bank is restricted from opening new branches or recruiting new staff. Stressed loans, including restructured loans and those on which borrowers defaulted, swelled to 11.1% of all loans in March 2015 from 9.2% a year ago.http://epaperbeta.timesofindia.com/Article.aspx?eid=31816&articlexml=RBI-Wont-Act-Against-Banks-If-NPAs-Rise-28122015018033
Banking business has been under pressure in the first half of the year. The banking stability indicator of the RBI shows that risks to this sector increased mainly on account of deteriorating asset quality, lower soundness and sluggish profitability. Some of the highlights are presented below.
- Further decline in both deposit and credit growth. - Asset quality o Gross NPAs as percentage of gross advances increased to 5.1% from 4.6% between March and
September 2015. o The restructured standard advances as percentage of gross advances declined to 6.2% from 6.4%, while the stressed advances ratio increased to 11.3% from 11.1% during the same period. o PSBs recorded the highest level of stressed assets at 14.1% followed by PVBs at 4.6% and FBs at 3.4%. o
Sectoral data as of June 2015 indicates that among the broad sectors, industry continued to record the highest stressed advances ratio of about 19.5%, followed by services at 7% and retail 2%. In terms of size, medium and large industries each had stressed advances ratio at 21%, whereas, in the case of micro industries, the ratio stood at over 8%. o As of September 2015, 34 SCBs with 12% share in advances showed very low stressed advances ratio of less than 2%, whereas, 16 banks with 27% share in advances had high stressed advances ratio of over 16%. o
Five sub-sectors viz. mining, iron & steel, textiles, infrastructure and aviation, which together constituted 24.2% of the total advances as of June 2015, contributed to 53.0% of the total stressed advances. o Stressed advances in the aviation sector increased to 61.0% in June 2015 from 58.9% in March, while those of the infrastructure increased to 24.0% from 22.9% during the same period. The performance of these sectors and their impact on the asset quality of banks continue to be a matter of concern. o Net NPAs increased to 2.8% from 2.5% during the same period.
At the bank group level, the NNPA ratio of PSBs increased from 3.2% to 3.6%, whereas, in
the case of PVBs and FBs it remained unchanged at 0.9% and 0.5% respectively.
CAR registered some deterioration during the first-half of 2015-16. o Public sector banks (PSBs) continued to record the lowest CRAR among the bank groups. The capital to risk-weighted assets ratio (CRAR) of SCBs at the system level declined to 12.7% from 13.0% between March and September 2015, whereas, Tier-I leverage ratio increased to 6.5% from 6.4%
during the same period. -
during the same period. -
Profitability of SCBs deteriorated further. o Both RoA and RoE declined further to 0.7% and 8.5% respectively as of September 2015 from 0.8% and
9.3% as of March 2015. o Bank-wise distribution of RoA shows that 9 SCBs with a share of 7% in the total assets recorded negative RoA during first half of the financial year 2015-16. o 6 banks with a share of 9% in total assets recorded RoA in the range of zero to 0.25% o
9.3% as of March 2015. o Bank-wise distribution of RoA shows that 9 SCBs with a share of 7% in the total assets recorded negative RoA during first half of the financial year 2015-16. o 6 banks with a share of 9% in total assets recorded RoA in the range of zero to 0.25% o
Net profit declined by 4.4% during the first half of FY16, due to lower growth in earnings before provisions and taxes (EBPT) and higher provisions and write-offs. o Among the bank groups, PAT declined by 22.7% for PSBs, while it increased by 11.5% for PVBs and 4.6% for FBs during the same period. - Other financial institutions o Asset quality of both scheduled urban co-operative banks (SUCBs) as well as non-banking financial companies (NBFCs) deteriorated during the first-half of 2015-16. -
Corporate debt situation - The proportion of companies in a sample (2711), either with negative net worth or DER >=2 (termed as
‘leveraged’ companies) increased over last three half years from 18.4% in September 2014 to 19.4% in
September 2015, whereas their share in the total debt of all companies in the sample marginally declined
to 30.5% in September 2015 from 33.8% in March 2015. o The proportion of companies among the leveraged companies with DER>=3 (termed as ‘highly
leveraged’ companies) increased from 13.6% in September 2014 to 15.3% in September 2015,
while the share of debt of these companies in the total debt increased from 22.9 to 24.9%. - An analysis of the current trends in debt servicing capacity and leverage of weak companies was
undertaken where ‘weak’ companies were defined as those having ICR <1. Companies with DER >= 2 were
classified as ‘leveraged’. The ‘leveraged weak’ companies are those with DER >= 2 or negative net worth
among the weak companies.
‘leveraged’ companies) increased over last three half years from 18.4% in September 2014 to 19.4% in
September 2015, whereas their share in the total debt of all companies in the sample marginally declined
to 30.5% in September 2015 from 33.8% in March 2015. o The proportion of companies among the leveraged companies with DER>=3 (termed as ‘highly
leveraged’ companies) increased from 13.6% in September 2014 to 15.3% in September 2015,
while the share of debt of these companies in the total debt increased from 22.9 to 24.9%. - An analysis of the current trends in debt servicing capacity and leverage of weak companies was
undertaken where ‘weak’ companies were defined as those having ICR <1. Companies with DER >= 2 were
classified as ‘leveraged’. The ‘leveraged weak’ companies are those with DER >= 2 or negative net worth
among the weak companies.
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