A news item had appeared in newspapers more than a year ago wherein bankers had suggested to the new FM to establish National Asset Management company to resolve the issue of NPA in banks. In the following paragraphs I will discussing whether this can serve any purpose in the current scenario.
In my opinion establishment of National Asset Management Company (NAMC) can do nothing to cure the sickness caused by bad debts.
If Modi government is really interested to improve the health of public sector banks , they will have to strike at the root causes of the NPA i.e. poor management in banks and various other departments of government. Some of the reasons for current NPA and steps needed to improve the scenario can be summed up as :-
(a) In Banks, government needs to ensure judicious promotion opportunity to all , time bound promotion, end of flattery based promotion, end of bribe based recruitment and promotions, end of posting based on recommendation of powerful officers etc. They will have to modify the corrupt system not only in banks , but also in judiciary, police department, administration etc too.
(b) Lacs of cases against defaulters of the bank and against NPA borrowers have been filed in various local courts, district courts, Lok Adalats, Ombudsmen, High courts, Supreme court, Debt recovery Tribunals, District Certificate Officers, District magistrate’s court , Sub Divisional Magistrate’ court for taking possession of property seized under SERFAECI Act etc have been filed by various financial institutes including public sector banks but due to manpower shortage or due to inefficiency of executives, or due to malicious intention at various levels of judicial administration are lying pending for years together.
(c) In number of cases, banks have granted loan against fake deed of landed property or financed to many firms against the collateral or prime security of same landed property. Have government punished any of Sub registrars or deed writer or bankers who worked with negligence and malicious intention?
(d) Banks sanction new loans and advances on the strength of prime of collateral security valued by approved valuers or government recognized valuers. But if these valuers give inflated value of any property after taking extraordinary service charges from loan seeker or with some vested interest or with malicious intention and in turn jeopardize the loan disbursed by banks, what remedial recourse lies with bankers or the government. Bankers at most remove the name of such valuers from their panel or the government blacklist such valuers. Is there any provision to punish such valuers? If yes, has any authority or any bankers have ever punished such unscrupulous valuers?
(a) It is observed that Chartered Accountants blindly sign on balance sheets or financial reports of banks and borrowers, companies and firms if they are given attractive amount of money as service charges. These CA while conducting statutory audits of various banks more often than not ,simply put their seal and signature and take attractive fees and charges from banks. Wage without work is the suitable slogan of CAs. It is also true that CAs have to complete audit of two to three branches in a period of five to six days and hence they can neither make honest and through scrutiny of records of branch of the bank they are asked to audit by RBI nor they have the will to do so because there is no deterrent action if they prefer not to do their duty honestly. Have government taken any action against any of CAs in the past 60 years which could teach a lesson to team of CA?
(b) Bank officials who sanction credit after taking bribe are able to please their bosses and ensure their timely and unusual promotion and get choice posting. Honest and intelligent officers are sidelined and posted at critical place or remote rural centers so that their voice against evil work may be stopped. Good officers are denied their promotion in time and juniors are given change after taking bribe. Has government ever tried to stop such bribe based promotions and transfers. Not only this even direct recruitment of officers in various scales is also undertaken by bank officials to earn bribe , campus recruitment is allowed in a college based on whims of some senior officers to give favour to his own boys and girls , of his own community. Not only in banks but top ranked officials of all state governments and central government resort to mass transfer and earn money in lieu of giving favour to staff who desire choice posting and timely promotions.
(c) Police officers do not lodge FIR in their registers, do not execute warrants issued against VIPs by various courts ,do not question criminals but tortures the person who wish to lodge complaint against criminals , defaulters and law breakers. Has government taken any step in last 60 years to change the system and procedure of police department which give them unrestricted powers and which tempts them to take whimsical decisions and arbitrary action against honest and true citizens?
(d) Hundreds of cases filed against corrupt officers related to misuse of power, fraudulent activities, bribe led lending, lack of monitoring, negligence of duty, favour to dishonest contractors, passing of bills of unscrupulous suppliers, passing of fake bills or inflated bills either lie pending for disposal for years together in the office of Vigilance office, CBI, Anti Corruption bureau, or Human resource department for decisive action against erring officers or such files are closed acquitting erring officials . New trend has developed in government offices to burn the loss of files related to corruption of high profile officers. File are made untraceable or declared lost. Why? Is there any mechanism or tool in the rule book or almirah of the government to prevent such malpractices which frequently and recurrently occur almost in all offices, departments and Secretariats of various Ministries?
(e) Political stalwarts spread propaganda that loans of poor farmers or big businessmen will be waived by the government or by the bank. Such ill motivated propaganda ultimately vitiates the atmosphere of recovery. Government announces waiver scheme from time to time for electoral gain. As a result borrowers of the bank willfully default in repayment of bank loan. Quantum of Non Performing Assets known as bad assets in public domain continues to rise year after year in all public sector banks. Then process of compromise and write off starts at bank level and again there is unhealthy transaction of money between bankers and borrowers or between brokers and officers who decides to sanction sacrifice loan amount.
Ultimately culture of non-re payment of loan by borrowers back to banks takes the root and bankers have to suffer huge loss due to high provisioning and due to rising NPA. For this purpose bank officials , union leaders and politicians all are friends and relatives of each other.
Government has not courage, no will, no effective tools to punish bad politicians because government is made of such corrupt politicians only. Government has no courage to punish kith and kin of powerful politicians and bureaucrats who have willfully defaulted in repayment of bank loans and payment of tax dues or other charges due to government.
Thus, I am of the view that setting up of National Asset Management company will simply transfer the bad debts from traditional banks to proposed NAMC or Asset Management Company called as ARC. Government may force banks to sell bad debts at heavy discounts which will ultimately cause loss to none other than investors and depositors . Because any erosion in profit of public sector bank may reduce the capacity of banks to pay higher interest rate on deposits and reduce the capacity of banks to pay higher dividends to investors. There is a need to look much beyond the mere setting up of another company for parking NPAs
In June 2013 ICRA a rating agency had said taht the non-performing loans in the banking system are set to double by June 2015 from 3.3% in March once the Reserve Bank of India's revised guidelines on bad asset classification come into force,
On 13.05.2013 it was reported in newspaper that Gross non-performing assets of banks could almost double to R4 lakh crore at the end of fiscal 2016 from levels of R2.6 lakh crore reported at the end of FY14.
I am submitting below my article dated 26 .12. 2014 to refresh the memory of readers as well as that of regulators of banks
Regulators like RBI and SEBI and owners like Government of India were sleeping for decades. They never bothered for what was going on in pubic sector banks. Officials of RBI , Team of Chartered Accountants, Team of vigilance officers and teams of bank's internal auditors mostly used to be victim of bribery and gifting culture extended to these high profile persons when they used to visit their banks for audit , inquiry and inspection.
Post of ED and CMD used to be auctioned in lacs of rupees and these EDs and CMDs then used to promote such culture in their banks. Large scale corruption in loaning , large volume of frauds and lacs of public complains against banks could not pull out these dignitaries from hibernation . All officers who have been assigned the task of protecting banks normally used to sleep and enjoy. It will not be an exaggeration If one say so.
Draupdi Chirharan used to take place and protecting agencies used to sleep or preach sermons. Banks continued to be looted by bank officials, business men and politicians in nexus with all these regulating agencies who are supposed to be watchdog for banks and who are supposed to be protectors of bank.
I salute Chairman of United Bank who boldly resigned from the post of CMD of United Bank when she found foul game being played in all higher offices and that in her own bank . It is she who scarified the lucrative post of CMD and ignited fire in banking arena. It is she who could speak about volume of NPA in UBI and awakened the officials of RBI and CBI and ministers from their deep slumber and opened the eyes of media pesonnels.
Still there is no doubt to me that all so called big banks are having volume of bad debts concealed and they continue to get blessings from their mentors. It was for the first time that RBI, to get rid of public revolt and media questions ordered forensic audit of United Bank. It is different and Unfortunate that under pressure of senior officials, ministers and politicians , they somehow or the other , again put carpet on findings of forensic audit and just made mockery of word "Forensic Audit" .??Since then RBI has ordered forensic audit against Allahabad Bank, Syndicate Bank, Dena Bank, Oriental Bank and now against U Co Bank. Very soon they will order forensic audit of Central Bank, Punjab National Bank, State Bank and gradually to all public sector banks. But ultimately perhaps nothing will happen to real culprits.
??
Because if all culprits are exposed, then they will unite together and call for forensic audit of RBI, Government of India, CVC , CVOs, CAs who used to give good health certificates to all these banks every year despite existence of volume of serious irregularities and deep rooted corruption in almost all banks and in almost all branches.
Not only this they will stop credit growth and puncture dream of GOI of achieving GDP growth of 8 to 10 percent in India. In the past also clever bankers pleaded to keep banks above CVC and CBI and outside the jurisdiction of CVC and CBI. Clever bank officials never accept the ground reality but put entire blame on Global recession and blame the system to hide their evil tasks and they plead so cleverly that no one doubts .??
India is great in culture of certificates and culture of banners and hoardings. Whenever there is any complain from media or public or from customer or shareholders , regulators will ,as a rhetoric and to follow a well established culture issue a letter to the concerned bank and ask for certificate that there is no merit in public complain.
When cobra Post exposed fraud in KYC compliance, all these so called protectors flocked together to put carpet on findings of Cobrapost. One can find numerous hoarding in bank speaking about corruption less banking and saying as if "Honesty is really the best policy" for bankers.
They as a ritual take oath in every November on Vigilance Day and publicise it in newspapers to earn false name and fame in public domain.??In the same way , whenever people of India writes against corrupt officials of any bank, a team of corrupt top officials will join together to provide shield to brother trapped and leave no stone unturned to free him from charges of corruption.
They will manage all certificates and destroy all files, papers and documents which may harm them in future to prove that charges of corruption against alleged officers are not founded, biased ,false and baseless.
This is why none of top officials have ever been punished during last two decades though starting from Harshad Mehta scam several stories of bank scam have come to light It is the culture not only in banks but in all departments of Government that a most corrupt officer or the most inefficient and unskilled officer is entrusted task of investigation whenever pressure comes from above to inquire into charges of corruption levelled against senior officer of the bank. ??
Now CBI have boldly come out against corruption in banks ( not against politicians )after getting powers from Supreme Court. It is CBI which has unearthed the story of bribery in Syndicate Bank and then taken action against other banks too. Before that GOI never gave permission to CBI to proceed against any corrupt officer as if banks are free of corruption.
The obvious reason is that entire government run by Congress Party and UPA was made of corrupt politicians. And hence action was never taken against any corrupt official or any politician despite so much hue and cry made by Team Anna , Ramdeo Baba and other social wings against Coal scam, CWG scam, 2G scam or several other such serious nature scam. Even in coal scam and 2G scam , the then ruling party never accepted that there was any illegality. They thought it better to order hundreds of inquiry against people associated with Team Anna or Team Ramdeo.
Now Supreme court has proved and accepted that there was no legality in allotment of coal mines. Similarly CBI and Supreme court in coming days will prove that there is hardly any loan ,specially in high value loans which are without game of bribery.Not only role of bribe and gift is behind all corrupt dealings, but role of woman and wine have also played big games.
I had several times written in blog that great Prime Minister Manmohan Singh will prove to be disaster for the country and corruption will never end as long as Congress Party will remain in power. I hope now under NDA government led by Mr. Narendra Modi , level of corruption will come down to a great extent . I am fully confident that Mr. Modi , PM and Mr. Jaitley FM will not provide shield to any corrupt top official and politician and allow CBI to perform without any hurdle and without any fear of action from GOI. I however suggest GOI to put CBI also under surveillance of ROW or IB or CVC or some other powerful agencies.
It is not enough for RBI to order Forensic audit, it is the duty of RBI and GOI to ensure time bound action against all erring officials and all erring politicians who promoted bad culture in banks even if persons like Mr. Chidambram or Mr. Mukejee are found on wrong track and required to be punished for giving illegal orders on phones to various ED and CMDs of banks and other PSUs. Once actions starts pouring on top guns, there is no doubt that corruption in lower level will gradually come down.
Last but not the least , To save banks from disaster ,GOI and RBI will have to stop loan waiver culture . They will have to stop culture of bribery and flattery in recruitment and promotion to strike at the root of all malady. GOI will have to completely separate loan and Charity from each other. Charity game from bank which is basically a lender has damaged the culture of lending and to a great extent responsible for rise in corruption and rise in bad debts in PS banks. Act of loan and act of charity can go together.
I like to reiterate here that case of S K Jain CMD syndicate bank trapped by CBI in bribery is only tip of the iceberg. There are hundreds of senior officials who are still away from CBI net . There are several officials who have reached top position only by using wealth, wine and woman. It is proper to point out here that Mr. Jain was trapped by CBI for accepting bribe for sanctioning a loan of Rs.100 crore to Bhusan Steel, a company which got success in getting sanction of loan amounting to Rs.40000 crore by not one or two banks but by 35 banks. Further is not isolated cases of Bhusan Steel only whose Rs.40000 crore is likely to be bad , but there are several such cases which either already turned NPA or are almost on the verge of it.
It is not isolated case of S K Jain whose marks were inflated by Interview panel and who got full marks in Annual appraisal Reports b his appraiser and by reviewing authority despite several cases of irregularities and corruption associated with Mr. Jain as because name of Mr Jain was recommended by some Minister for the post of CMD. In public sector banks . all promotions right from scale I to III or from II to III or from III to IV and so on takes place on the basis of recommendation on officer possesses and on the basis of power of lobby he or she is associated.
There are many trade union leaders in many banks who act as middlemen between Interview panel members and promotion aspirants. Culture of changing marks in Annual Interview marks and giving full marks in Interview is nothing new in banks. This is normal phenomenon in all promotion processes taking place in banks. 'Ye mera admi hai' , 'ye netaji ka admi hai', 'ye GM or DGM sir ka najdiki hai' etc are common terminology which are tagged with flatterer officials and people predict success of such officers in promotion process much before result is out. For higher post, officers use the services of ministers, IT bigwigs,RBI big bosses etc.
Bank management always talk of merit oriented policy but in fact they never give respect to merit. There are hundreds of thousands of officers who have been sidelined like Ashok Khemka by Harayana government. There are many officers who have left taking part in promotion process and decided to lead a peaceful life in remote centres and spend time at corner tables kept for such officers who do not follow the current of corruption. Many officers decide to resign when torture and injustice cross the limit. Frequent transfers of such officers is not new phenomenon in banks as Mr. Ashok Khemka was subjected to by state government in Haryana to keep High command Sonia Happy.
I therefore always say that power of promotion and transfer is the root of bribery and flattery.
Click On following link to read more
http://importantbankingnews2.blogspot.in/2015/02/loss-by-frauds-and-loan-defaults.html
9th Fab 216
Latest position on rising trend in bad assets in almost all public banks and rise in write off of loan year after year which has come out in newspaper is not astonishing and unnatural . In the wa bank is being managed by our political masters for last few years and decades, it was likel to happen and the way prresent government is moving ahead to stop rise in bad assets of banks, I do not have much hope that sickness of banks can be controlled . Rather it will cotinue to deteriorate , if banks contineu to be mismanaged as it is mismanaged for ears and decades under the government run by Congress Party.
Net bad assets of government banks is as much as one third of their net worth.
In response to an RTI query by The Indian Express, the Reserve Bank of India disclosed that 29 public sector banks wrote off a combined Rs 1.14 lakh crore of bad debt between 2013 and 2015
The net non-performing assets (NPAs) of state-owned banks is equal to gross NPAs less provisions,
In other words, if banks have to fully provide for all their bad debts, it would wipe out 33 per cent of their paid-up capital plus reserves and surplus.
Reserve Bank of India has disclosed in reply to a RTI inquiry by Indian xpress that 29 public sector banks wrote off a combined Rs 1.14 lakh crore of bad debt between 2013 and 2015. This is more than one-third of the total gross non-performing assets of Rs 3.06 crore for public sector banks.
In Indian banking system, banks need a certain amount of capital to lend. If a large portion of its equity capital and reserves are wiped out in writing off bad loans , then a bank will not be able to lend freely, or it will have to wait for capital infusion from the government.
It is painful that capital infusion is also not easily forthcoming in times of a fiscal squeeze.
It is more painful that banks have been able to reduce their NPA numbers by not only writing off assets, but also by restructuring or refinancing them. While this strategy saves them temporarily from being classified as bad loans, they might turn irrecoverable if investment demand doesn’t revive and if bankers continue to turn their blind eyes towards loan defaulters or if administrative and legal machinery continue to be lazy and ineffective.
It is also reported by rating agencies that Loan write-offs by banks in India have shown a rising trend in the last few years. They reached a level of Rs 50,000 crore for the public sector banks in 2014-15.
Another Rs 25,000 crore were written off in the first half of the current financial year, 2015-16.
While the pressure on banks to write-off will continue, the extent of write-offs is unlikely to rise significantly due to two reasons
Firstly, PSBs usually write-off to the extent of cash recoveries that they have made during a year, and the recoveries are unlikely to be impressive due to continued stress in the corporate sector.
Second, ability of these banks to put in action large write-offs will also be constrained by their weak profitability.
"With bad loans increasing over time, banks have been working towards lowering the same. While better credit practices and economic stability helps in controlling incremental NPAs, banks have also been writing off bad assets to strengthen their books.
Rs 1.14 lakh crore of bad loans have been written off by 27 public sector banks (PSBs) during FY 2012-15, with the last fiscal alone which indicates 53 per cent rise in write-offs as part of the balance sheet clean-up.
For the fiscal ended March 2015, public sector banks have written off loans amounting to Rs 52,542 crore, an increase of 52.6 per cent over the previous fiscal.
These 27 banks had written off Rs 34,409 crore in 2013-14 while Rs 27,231 crore in 2012-13. So in total a sum of Rs 1.14 lakh crore were written off in the last three fiscals.
Aaam Admi Party today termed this gigantic write off as a ploy to siphon off the tax payers' money. "Writing off bad loans is not a new thing. It is a part of financial planning. But the way these loans have been waived is alarming.
"More alarming is that the bad loans of SBI have risen from 3 per cent to 7 per cent, which is not a healthy sign
Also read my old blog
http://importantbankingnews2.blogspot.in/2015/02/loss-by-frauds-and-loan-defaults.html
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