Rajan's 'surgery' uncovers more bad loans-By Shetal Agarwal And Anup Roy-Business Standard 26th May 2016
Reserve Bank of India (RBI) Governor Raghuram Rajan’s insistence on a “deep surgery” to help banks regain health has uncovered that nearly half of the lenders’ stressed assets were not reported.
The review has showed that public sector banks were not alone in under-reporting bad assets. Large private banks were also doing so.
Out of the total slippages in Axis Bank and ICICI Bank in the third quarter (Q3) of 2015-16, 50 per cent and 66 per cent, respectively, were on account of the AQR exercise.
In the fourth quarter (Q4), AQR accounted for 43 per cent of ICICI Bank’s slippages. Notably, Axis had accounted all AQR loans in Q3 itself. ICICI Bank, on the other hand, provided for Rs 30,000 crore towards AQR slippages in Q4.
HDFC Bank, Kotak Mahindra Bank and IndusInd Bank had nothing to account for under AQR, making these exceptions in the Indian banking industry.
Of the total slippages of large banks that have reported their results so far, about 44 per cent were because of the AQR in the second half of FY16.
The country’s largest lender, State Bank of India (SBI), is yet to declare its Q4 results. But in Q3, the bank shocked everyone by declaring 71 per cent slippages towards AQR.
For the rest of the public sector banks, AQR accounted for between 25 and 47 per cent of the total slippages in Q4. But this is not the end of the problem. The banks have time till March 2017 to clean up their balance sheets.
Analysts have said smaller banks were still treating some of the accounts as standard, though their larger peers have shown these as bad debts. Such accounts would inevitably have to be recognised as bad debts in the coming quarters. “On a system basis, if we were to aggregate, the total AQR number is lower than 50 per cent. The bigger problem has come from non-AQR portfolio,”
Additionally, the worry was that even after providing for AQR loans, most private and public banks have disclosed hefty “watch lists” of loans that they fear could turn bad.
For instance, ICICI Bank's watch list stood at Rs 44,000 crore, while that of Axis was Rs 22,600 crore. Among public sector banks, Bank of Baroda topped the list at Rs 15,000 crore, followed by Punjab National Bank and Bank of India at Rs 11,000 crore each. What these banks are going to do about these bad loans is not clear.
“Those loans are bad for a reason and it is not that banks have managed to stop slippages,” said an analyst with a brokerage who did not wish to be named. “When they are not able to protect their standard loans, it would be too ambitious to think of them recovering their old bad loans.”
Bankers have acknowledged that they have not yet managed to close the lid on bad loans.
Union Bank Chairman and Managing Director Arun Tiwari said the situation was improving but he did not commit a time frame for a complete recovery. “I can only say that March 2017 results will be better in all quality parameters than this quarter.”
While a pick-up in economic growth and private capex would lead to lower asset quality stress for banks, such a situation would take time. Till then, investors would be better off staying away from PSU banks,
RBI to come out with more measures to rein in NPA: Subbarao-Business Standard - August 2013
RBI, in the past, has taken some steps in this regard including increase in provisioning norms and tightening norms for restructuring
Concerned over rising bad loans, the Reserve Bank today said it will take more measures to check non-performing assets (NPAs) of the public sector banks.
As an economy, as public policy makers, he said "we are also concerned about credit offered at reasonable rates to economically productive activities like agriculture, education loans and small and medium enterprises."
"We are going to put in more measures to see that NPA level is controlled across the asset quality of banks. It is is very very important for credit to continue to go to productive sectors," RBI Governor D Subbarao said while delivering the 5th R Venkataraman Endowment Lecture here.
RBI, in the past, has taken some steps in this regard including increase in provisioning norms and tightening norms for restructuring.
Subbarao noted that public sector banks have high NPAs than private sector banks.
"It is true that NPA in public sector banks is higher because their decision variables are different and therefore NPAs are higher than private sector banks," he said.
"In the Reserve Bank, we are concerned about it. It is a growing concern. Even on last Tuesday, when we met at the bank, we spoke about this,"
The gross NPAs of the public sector banks (PSBs) were the highest and stood at 3.8% of the system at the end of the March quarter, followed by foreign lenders.
However, the old private sector banks recorded the highest recovery during the period, at 21.2%, followed by PSBs at 9.1%.
As an economy, as public policy makers, he said "we are also concerned about credit offered at reasonable rates to economically productive activities like agriculture, education loans and small and medium enterprises."
"There are several ways of doing it. The government for example, is now giving subvention on agricultural credit," he added.
My Observations Given Long ago
are as follows
NPA - Will Level of NPA Increase In Forthcoming Quarterly / Annual Results? Are Culture of Gifts and Flattery Real Causes? (Dated 17 Oct 2010)
One or two banks in Public sector will adopt online technology to declare their actual bad assets which were hitherto willfully concealed by corrupt executives of the bank.
But result of a few banks will be enough to indicate the extent of sickness growing in Public sector banks. RBI and government of India will no more be able to make excuse of global recession or bad monsoon for level of Non Performing Assets (NPA) reaching to alarming position. They cannot save their face when NPA level in banks is doubled or tripled in coming half years.
Times has come when media men, rating agencies and financial analyst as also Chartered Accountants will be exposed because it is they who are depicting banks as shining and growing.
Now it is the duty of Banking Division, RBI, CBI, Vigilance Department and all other controlling offices to identify the corrupt executives in such banks who promoted culture of gift ( cash and king ) based lending, gift based promotion and gift based banking. Only the officers who flattered big bosses, earned money through bribe and shared with bosses and indulged in reckless lending could get better posting and timely promotion. Branch Head who could earn money through bribe in lending could bribe government officers to mobilize bulk deposit could be elevated to higher and higher level superseding all talented and devoted honest officers.
Now the time has come when government should prepare a list of executives (at least Regional Heads or Circle boss or Zonal heads) of banks who has contributed maximum NPA and whose ill-motivated management, negligence and deficient monitoring caused loss to bank.
Now –a-days bank officers need not be bothered of monitoring of their core assets as much as they need to be bothered of polishing of their bosses. Culture of flattery which was prevalent in all other government offices before banking reformation (since 1991) has taken strong roots in banking too. Now the position of banks has become so much critical that even its survival is at stake.
God knows how long government of India will keep banks alive on ventilation of infusion of capital in PSU banks. But it is very much sure that PSU banks are suffering from incurable cancer. Who is to blame for such chaotic deterioration of health of PSU banks in general and a few bank in particular where CEO of bank is considered as Star Performer is a million dollar question.
by
Danendra Jain <dkjain49709@gmail.com>--Year 2010 ublished in Allbankingsolutions.com
Within a few days and a few months banks will publish their financial results for the half year, for the quarter ending December 2010 and finally for the year 2010-11.
One or two banks in Public sector will adopt online technology to declare their actual bad assets which were hitherto willfully concealed by corrupt executives of the bank.
But result of a few banks will be enough to indicate the extent of sickness growing in Public sector banks. RBI and government of India will no more be able to make excuse of global recession or bad monsoon for level of Non Performing Assets (NPA) reaching to alarming position. They cannot save their face when NPA level in banks is doubled or tripled in coming half years.
Times has come when media men, rating agencies and financial analyst as also Chartered Accountants will be exposed because it is they who are depicting banks as shining and growing.
Now it is the duty of Banking Division, RBI, CBI, Vigilance Department and all other controlling offices to identify the corrupt executives in such banks who promoted culture of gift ( cash and king ) based lending, gift based promotion and gift based banking. Only the officers who flattered big bosses, earned money through bribe and shared with bosses and indulged in reckless lending could get better posting and timely promotion. Branch Head who could earn money through bribe in lending could bribe government officers to mobilize bulk deposit could be elevated to higher and higher level superseding all talented and devoted honest officers.
Now the time has come when government should prepare a list of executives (at least Regional Heads or Circle boss or Zonal heads) of banks who has contributed maximum NPA and whose ill-motivated management, negligence and deficient monitoring caused loss to bank.
Now –a-days bank officers need not be bothered of monitoring of their core assets as much as they need to be bothered of polishing of their bosses. Culture of flattery which was prevalent in all other government offices before banking reformation (since 1991) has taken strong roots in banking too. Now the position of banks has become so much critical that even its survival is at stake.
God knows how long government of India will keep banks alive on ventilation of infusion of capital in PSU banks. But it is very much sure that PSU banks are suffering from incurable cancer. Who is to blame for such chaotic deterioration of health of PSU banks in general and a few bank in particular where CEO of bank is considered as Star Performer is a million dollar question.
God only knows the reason for such devastating erosion in moral values of bankers. But flattery culture is one of the biggest reason for mess in all government offices, banks and insurance companies.
My Blog Written In Current Month
But the fact is that no improvement has actually taken place at ground level during last three decades in culture of lending , in position of recovery and in habit of negligence in monitoring in PSU banks. Situation has rather been deteriorating year after after. Top ranked Officers who are clever in manipulating balance sheet come out with shining balance sheet and get elevation through their mentor Ministers and RBI officials. But sooner or the later, in some quarter or the other , each bank has to book bad results and make false promises that they will deal with problems and try to reduce stressed assets in forthcoming quarters.
In fact ,Officials are in general busy in falsely glorifying their bosses. A Branch Manager glorifies a Regional Head, RH glorify Zonal Head , General Managers glorify ED and CMD and finally CMDs are busy in glorifying Finance Ministers and RBI officials. Most of them are fittest Yesman than real performers. They are good speakers to hypnotise ministers and bank staff both. They are more loyal to their sources of wealth and power than to their bank.
Bank Officials take care of their bosses more than thier banks. They are loyal to their bosses and their clients who make them richer and powerful . They in general do not take care of quality of loans they disburse and do not bother of monitoring loans sanctioned by their prdecessors or in matter of recovery of dues from bank loan defaulters. They are more often than not, busy in extending red carpet welcome to their bosses, their CMD, ED and other senior officials to earn their blessings, to cover up their evil works in lending and finally to get quickest promotion and choice transfers . They learn the art of gifting and polishing auditors for getting a certificate of good health of loan accounts in their bank.
Officals who are not apt in flattery and not expert in earning bribe are languishing in insignificant and critical places . Inefficient officials in general are ruling over efficient officials. Inexperienced are ruling over experiened ofgicers. Majority of branches of each Bank is headed by either corrupt officers or inefficient officials or these branches are facing acute shortage of staff or they are working under prssure of higher bosses or local mafiamen. It is always easier for them to compromise quality to survive in the corrupt system than to assert their knowledge and values.
Politicians are busy in boosting up credit growth in all banks by hook or by crook. They want to see rise in credit figures and they are least bothered whether the loans disbursed are going in the hands of good borrowers or bad borrowers. They are not aware whether considerable chunk of loan amount is distributed in officials, middlemen, CAs and political leaders.
Poltiicans in general want to gain political advantage by announcing one after other loan disbursal schemes and loan waiver schemes . They want that each bank and each branch disburse loans and achieve the imposed target .They make new schemes year after year and allow open loot in the name of achievement of targets fixed for various schemes. Quality is not their headache. They care for reserved and not for deserved.
Politicians are not going to understand that every area and every town is not blessed with same potential for growth. They do not agree that each officer of bank do not have same quality and same knowledge. They do not understand that process of loan sanction is a time consuming process in the same way as it is developing love with opposite sex. They are not ready to accept that understanding credentials of loan seekers is not everybody' s cake.
In such situation and in such an environment where majority of officials from top to bottom are busy in flattery and bribery , where administrative and judicial officers are inefficient and corrupt and where politicians are crazy for enrichment of their vote bank , learned , intelligent and talented Sri Vinod Rai cannot hope for success in real cleaning of balance sheet , neither of PSU banks nor that of private banks. There is however no doubt in honest, integrity, sincerity and loyalty of Sri Vinod Rai.
It is remarkable here to say that it is lastly people of India who will have to face the brunt of falling and ailing banks . It is they who will get lesser interest and lesser dividend on their investment in these banks . On the contrary bad borrowers will get more and more loans at lower and lower interest and more and more discount when their loan account is considered as Non Performing Asset by lending bank. Bad borrowers will get more acceptance and good enterpreneurs will face so many hurdles in getting loans from banks .Dream of better GDP growth will get shattered in hands of evil minded care takers.
Vinod Rai and his team and Finance Ministers Mr. Arun Jaitley appears to be convinced that health of banks is not alarming . They are too much positive minded or they are inclined to appear to be positive minded to save country's image and ratings.
They appear to be busy in dealing with bad assets of banks, but in fact slippages increases faster than upgradation of bad assets almost in all banks . Some banks are considered strong banks in their opinion and some other are weaker in comparision. But their ideas and perception about a bank will continue to change and fluctuate from quarter to quarter. Some time bank 'A' will appear to be strong and some other time same bank 'A' will look like weaker.
I howevr observe that banks like PNB, BOB, IOB, OBC, SBI which were considered as strong banks are having the highest volume of bad assets concealed with the help of technology and several tools of restructuring and evergreening and it is their cleverness that they are exosing their bad debts in slow and gradual manner. Banks which were considered weak two to three decades ago are still weak and their weakness has grown in valuecand volume . No sign of improvement is visible in real sense though government has been making efforts for more than three decades.
Fact is that each and every PSU bank is weak and their weakness have been growing relentlessly. Only point to be appreciated is that they are expert in hiding or exposing bad debts. It is completely their whims and fancies which works in taking decision on helath of a loan account. If they like they can conceal a bad accounts for years and treat it as Standard asset . When their evil works goes beyond control or when some of recalcitrant auditors or some of media men expose the hollowness of a company , these bank officials decides to treat a bad asset as bad asset. None of junior officers otherwise have courage to say spade a spade.
Window dressing in deposits, advances and recognition of bad assets has become the deep rooted culture in all banks and regulating agncies have no option other than to accept the inflated , manipulated and fabricated figures. There are many lames excuses like economic recession, global slowdown and natural hurdles to save their skins.
Government will have to do a lot of hard work for years and decades to get rid of sins of past officials and past politiicians who silently and brilliantly looted banks for their self interest and to gain in wealth and power for decades . It is not as easy to clean them as Mr. Vinod Rai and Mr. Arun Jaitley appear to visualise.
It will take very long period in real cleaning of banks and changing of deep rooted culture of bankers and politicians because still GOI and BBB are collecting opinion and views of those officials and politicians who promoted loot and evil culture of flattery and bribery . Thieves and looters cannot disclose their evil ideas to police . They can be good speakers and expert in flattery to bosses . They can be master in managing bosses . But they cannot give valuable ideas which may translate into real transformation and reformation in health of banks.
For real change, Vinod Rai will have to work personally for a bank for years and then only he will be in a position to understnad ground reality. It is easy to make good policies but it is difficult to execute them in true spirit.
For real change, Vinod Rai will have to work personally for a bank for years and then only he will be in a position to understnad ground reality. It is easy to make good policies but it is difficult to execute them in true spirit.
Public sector banks that declared their results till date in general reported quarterly losses. or sharp erosion in profit , as non performing assets (NPAs) continued to pile on after the Reserve Bank of India's (RBI) asset quality review (AQR).
Bank of Baroda, Central Bank of India , Allahabad bank, UCO Bank and Dena Bank reported a loss for the second consecutive quarter. Union Bank of India was the only exception reporting a small net profit in the quarter ended March 2016, though down 78% from a year ago. Bank of Maharashtra and Vijya Bank also reported little profit.
In near future , we will witness more devastating results from other public sector banks. Hollowness of so called strong banks will also be exposed, if they truely stick to strict prudential norms fixed by RBI for identification of assets and for income recognition. Biggest bank is said to be SBI. I hope sooner or the later this bank will also tell the truth of bank .
A day will come when FM and PM as also BBB will accept the truth and then they will take more effective steps to brighten future of banks.
I have full faith in leadership, caliber and talent of Mr Narendra Modi Prime Minister of India and his team associated with the task of cleaning these banks. I have full faith in ability , knowledge,potential and capability of sri Raghuram Rajan rbi governor.
I hope ,sooner or the later, thing will improve because they all are sincerely working on it.
Click Here To Read How CMD And ED are Selected And Officers Are Promoted
Also Read This blog
A day will come when FM and PM as also BBB will accept the truth and then they will take more effective steps to brighten future of banks.
I have full faith in leadership, caliber and talent of Mr Narendra Modi Prime Minister of India and his team associated with the task of cleaning these banks. I have full faith in ability , knowledge,potential and capability of sri Raghuram Rajan rbi governor.
I hope ,sooner or the later, thing will improve because they all are sincerely working on it.
Click Here To Read How CMD And ED are Selected And Officers Are Promoted
Also Read This blog
Bank of Baroda
It posted a loss of Rs 3,230 crores almost repeating its December 2015 performance when it announced a record Rs 3,342 crore loss.
For the full fiscal year ending March 2016, the bank posted a record loss of Rs 5067 crore.
The bank set aside Rs 6,857 crore as provisions, up 3.5 times from the Rs 1,817 crore in March 2015. Provisions included Rs 1,564 crore for pension liabilities and Rs 300 crore for NPAs in the bank's branches in UAE.
Gross NPAs increased to 9.99% from 3.72% and in actual terms crossed the Rs 40,500 crore mark up from Rs 16,261 crore in March 2015.
UCO Bank
For the full fiscal year ending March 2016, the bank posted a record loss of Rs 5067 crore.
The bank set aside Rs 6,857 crore as provisions, up 3.5 times from the Rs 1,817 crore in March 2015. Provisions included Rs 1,564 crore for pension liabilities and Rs 300 crore for NPAs in the bank's branches in UAE.
Gross NPAs increased to 9.99% from 3.72% and in actual terms crossed the Rs 40,500 crore mark up from Rs 16,261 crore in March 2015.
UCO Bank
It reported a record loss of Rs 1,715 crore because of a near 2.5 time rise in provision to cover for NPAs. The loss was higher than the Rs 1,497 crore loss the bank had reported in the preceding quarter.
Gross NPAs of the bank doubled to Rs 20,907 crore from Rs 10,265 crore it reported last fiscal.
Total provisions more than doubled to Rs 2,283 crore compared with Rs 1,018 crore a year ago hitting profit.
This is the second consecutive quarterly loss for the lender after the RBI directed banks to recognise some loans particularly linked to the infrastructure and metal sectors as NPAs.
Allahabad Bank
Bank reported a loss of Rs 581 crore for the March quarter, compared to a profit of 203 crore a year ago as provisions rose to Rs 2,487 crore.
The bank's gross NPA ratio rose to 9.76% from 6.40% in the preceding quarter and 5.46% a year ago. In absolute terms, gross NPAs rose to Rs 15,385 crore at the end of March from 8,358 crore a year back.
Union Bank of India
The bank's gross NPA ratio rose to 9.76% from 6.40% in the preceding quarter and 5.46% a year ago. In absolute terms, gross NPAs rose to Rs 15,385 crore at the end of March from 8,358 crore a year back.
Union Bank of India
This Bank's net profit fell to Rs 97 crore in the quarter ended March 2016 from Rs 443 crore a year ago. However, provision for NPAs increased to Rs 2008 crore from Rs 833 crore a year ago.
Gross non-performing assets (NPAs) rose 85.49% to Rs.24,170.89 crore at the end of the March quarter from Rs.13,030.87 crore a year ago
The bank's gross NPAs rose to 8.7% in March 2016 from 4.96% in March 2015. Net interest income falls 1.71% to Rs2,084.69 crore, gross NPAs rise 85.49% to Rs24,170.89 crore, while provisions jump 55% to Rs1,564.67 crore
Central Bank of India
Bank reported Rs 898.04 crore loss as gross NPAs doubled and provisions rose four times to Rs 2,287 crore from Rs 617 crore a year ago.
Dena Bank
This bank slumped to a loss of Rs 326 crore in the quarter ended March 2016 compared to a net profit of Rs 56 crore a year ago. Gross bad loans almost doubled to Rs 8,560 crore versus 4,393 crore a year ago.
Central Bank of India
Bank reported Rs 898.04 crore loss as gross NPAs doubled and provisions rose four times to Rs 2,287 crore from Rs 617 crore a year ago.
Dena Bank
This bank slumped to a loss of Rs 326 crore in the quarter ended March 2016 compared to a net profit of Rs 56 crore a year ago. Gross bad loans almost doubled to Rs 8,560 crore versus 4,393 crore a year ago.
Vijaya Bank
Bank's Q4 net drops 26% on higher provisioning.
Gross NPAs as a percentage of advances rose to 6.64 per cent from 4.32 per cent in December quarter. Similarly, the net NPA ratio for the March quarter was up 4.61 per cent.
Provisioning during fiscal 2016 rose 62 per cent to Rs 1,390.51 crore from Rs 859.13 crore in the previous year.
For the year-ended March 2016, Vijaya Bank posted a net profit of Rs 381.80 crore, down 13 per cent, over Rs 439.41 crore in the corresponding period last year.
Gross NPAs as a percentage of advances rose to 6.64 per cent from 4.32 per cent in December quarter. Similarly, the net NPA ratio for the March quarter was up 4.61 per cent.
Provisioning during fiscal 2016 rose 62 per cent to Rs 1,390.51 crore from Rs 859.13 crore in the previous year.
For the year-ended March 2016, Vijaya Bank posted a net profit of Rs 381.80 crore, down 13 per cent, over Rs 439.41 crore in the corresponding period last year.
Bank of Maharashtra
Bank's Q4 net loss at Rs119.84 cr.For the entire 2016 fiscal, the bank’s net profit also saw a fall of Rs. 100.69 crore in comparison to Rs. 450.69 crore in the same period previous fiscal. Total income however, stood marginally higher at Rs. 14,072 crore against 13,671 crore in the previous year.
Gross NPAs and net NPAs stood at 9.34 per cent and 6.35 per cent, respectivel. The stressed accounts portfolio declined to 13.29 per cent from 13.47 per cent during the financial year.
Indian Bank
Bank has posted a 59 per cent drop in its net profit to Rs 84.5 crore for the quarter ended March, from Rs 206.1 crore in the corresponding quarter last year.
The bank’s gross non-performing assets (NPAs) rose to Rs 8,827 crore, from Rs 5,670.4 crore.
In percentage terms, it rose to nearly 6.6 per cent, from 4.4 per cent a year ago.
Net NPA rose to Rs 5,419.4 crore from Rs 3,146.9 crore. In percentage terms, it was increased to 4.20 per cent from 2.50 per cent.
Indian Bank
Bank has posted a 59 per cent drop in its net profit to Rs 84.5 crore for the quarter ended March, from Rs 206.1 crore in the corresponding quarter last year.
The bank’s gross non-performing assets (NPAs) rose to Rs 8,827 crore, from Rs 5,670.4 crore.
In percentage terms, it rose to nearly 6.6 per cent, from 4.4 per cent a year ago.
Net NPA rose to Rs 5,419.4 crore from Rs 3,146.9 crore. In percentage terms, it was increased to 4.20 per cent from 2.50 per cent.
Bank woes: 'When they need surgery, they are using a bandage'-Rediff .com
May 13, 2016 08:53
'The day-to-day control of banks is in the hands of political bosses and bureaucrats who are not answerable.'
'The political system uses the banks as a helicopter to throw money to the sector they want to patronise in order to win the next election.'
dkj
S Muralidharan retired as the managing director of BNP Paribas after serving the bank for 20 years. He started with the State Bank of India and worked there for 12 years.
The banker, bottom, left, tells Shobha Warrier what ails the banking sector and how it can be nurtured back to good health.
Currently, there is panic in India about public sector banks. As a former banker, do you feel there is reason to panic?
There is good reason to panic, but it is not good to panic.
If you want to take calm and collective action, you cannot panic. When you panic, you take bad decisions.
Banking has, over several decades, emerged as the single most important sector in the economy. If something goes wrong with the banking sector, it can cause havoc in all the other sectors.
For example, in the 2007-2008 meltdown, one investment bank failed and the panic resulted in the collapse of many more banks.
As a result, no bank was lending money to another bank even though, earlier, they had been doing it everyday to the tune of hundreds of billions of dollars.
When they stopped doing what is called overnight lending, the entire banking system came to a standstill.
When the banking sector comes to a standstill, everything including small time borrowing and lending or any kind of transaction between any two people comes to a halt.
Panic between banks is a bad thing. It can make the entire economy collapse.
Do you think the Reserve Bank of India is responsible for the present mess in the banking sector?
The short answer is no. As a banking regulator, it is the job of the RBI to regulate banks. It is like holding a parent responsible because the parent pointed out the wrongdoing of the child.
Similarly, because the RBI identified your non-performing assets and bad loans, you cannot say the RBI is responsible for the bad loans you created. The argument of the banks that they had bad loans, but didn't want the RBI to point it out is ridiculous.
Okay, there is some merit in the banks in saying that the RBI can't suddenly come down on them like a ton of bricks.
For the record, the RBI has been saying for a long time that the norms for recognising NPAs is fishy and that they (the banks) should come down from the one year norm to 180 days to 90 days, etc. This has been going on for many years.
So the banks' stand that the RBI is responsible is utterly ridiculous.
Another criticism is that the Indian banking sector is not ready for international norms like Basel 3. Do you agree?
This is what I call Indian exceptionalism. For each and every thing, they say India is different and it will not work in India.
Does India have three legs and two heads? The fact is, we are not different behaviourally from anybody else.
So you feel in a globalised world, at some point or the other, such common norms have to be implemented?
Absolutely yes. For any industry to function, there have to be norms. You can't have a free-for-all system in any business and more so in banking.
Whether you like it or not, the reality is that banking is the most important sector in an economy.
As the importance of money grows in societies, banking becomes inevitable as money has to move. And when money has to move, there have to be regulations.
In 2016, we cannot say that we do not want regulations. We are 5,000 years late for that!
The question is, do we have sensible banking regulations?
Do we?
By and large, I would say, yes. The RBI's role is a bit like parenting. The banking regulator has to regulate the bank.
It is true that we have too many laws. Like (eminent jurist and the late Supreme Court justice) V R Krishna Iyer said, an Indian is violating 137 laws at any point!
There are no clear cut laws that say if you do this, this and this, the banks will be happy and the economy will flourish. You have to do corrections all along.
But, generally, there is a need to minimise the number of regulations so that the regulations that are there can be supervised effectively.
Bankers say it is due to the global economic slowdown that many infra projects got stuck and became NPAs.
It was not recession that put all the infra projects on hold; it was because they could not acquire land. The local, civic government could not help the projects with the necessary permission to complete the process.
Though there are many reasons, I feel this is the first thing they should look at.
Before you sanction a loan to an infra project for a five lane highway, a bank should look at whether the acquisition of land is possible. Without looking into the aspect, if you provide a loan to the project, who is to blame?
You can't blame China or the USA or global recession for projects that are getting stalled.
The government gives sanction to build an airport to a company that has no expertise in the field and then bankers give loans to such projects.
Who is to blame -- the banks that give loans to such inexperienced people or the political system that forces banks to give loans?
All of them have to share the blame.
I would say the biggest problem we face is the moral hazard in the banking system.
Sixty per cent of our banking is under government control. There is a fundamental problem with this.
The day-to-day control is in the hands of political bosses and bureaucrats who are not answerable. The political system uses the banks as a helicopter to throw money to the sector they want to (patronise) in order to win the next election. This has to stop.
It was reported that wilful defaulters owe banks up to Rs 4 lakh crores...
I would blame the moral hazard arising out of political ownership and control on the banks as the main reasons for this.
Another reason is that most of these banks are into everything, from lending Rs 15 to Rs 15,000 crores. And this happened because of political interference.
Is merger an answer to this problem?
Merger is not a solution at all. Nobody should be too big to fail.
The idea to merge all the subsidiaries of State Bank into one is a stupid idea from all angles.
What is needed is questioning the independence of the top management of government-owned banks.
You mean accountability?
Accountability in banking is usually used in the sense of who actually did something wrong? Can you fix it on somebody's head?
The leader of a bank cannot say he didn't know what was going on. He has to be accountable, but everyone is in survival mode. Now, there are committees and committees and nobody is accountable.
You said merger is not a solution. There are talks of downsizing...
Yes, they should keep banks smaller. In fact, the government has already started creating small banks with specific intentions.
For example, the types of skills required for rural lending is different from lending done in an urban area.
What the banks have to do now is to keep the bad loans aside so that new businesses don't get pulled down.
The RBI's decision to ask the banks to find out how bad they (the bad loans) are and then come out with a solution is quite wise.
In India, people think businesses are forever. No, they are not.
Like animals and humans, businesses also die due to various natural causes.
If you take the (top) 100 businesses of the US in the last 100 years, many of them do not exist at all. We must accept that businesses become irrelevant after a while and can fail. It's like people dying.
Do you see a revival of the banking sector?
It has to when there are a lot of good things going for the economy.
When you have an economy that grows at 7 to 8 per cent with 1.2 billion people, adding more and more to the spending population over the age of 18 the size of which is more than many countries, obviously there has to be a revival.
But it depends a lot on political will.
The political reality is that when you need radical surgery, they are using a bandage.
'The political system uses the banks as a helicopter to throw money to the sector they want to patronise in order to win the next election.'
dkj
S Muralidharan retired as the managing director of BNP Paribas after serving the bank for 20 years. He started with the State Bank of India and worked there for 12 years.
The banker, bottom, left, tells Shobha Warrier what ails the banking sector and how it can be nurtured back to good health.
Currently, there is panic in India about public sector banks. As a former banker, do you feel there is reason to panic?
There is good reason to panic, but it is not good to panic.
If you want to take calm and collective action, you cannot panic. When you panic, you take bad decisions.
Banking has, over several decades, emerged as the single most important sector in the economy. If something goes wrong with the banking sector, it can cause havoc in all the other sectors.
For example, in the 2007-2008 meltdown, one investment bank failed and the panic resulted in the collapse of many more banks.
As a result, no bank was lending money to another bank even though, earlier, they had been doing it everyday to the tune of hundreds of billions of dollars.
When they stopped doing what is called overnight lending, the entire banking system came to a standstill.
When the banking sector comes to a standstill, everything including small time borrowing and lending or any kind of transaction between any two people comes to a halt.
Panic between banks is a bad thing. It can make the entire economy collapse.
Do you think the Reserve Bank of India is responsible for the present mess in the banking sector?
The short answer is no. As a banking regulator, it is the job of the RBI to regulate banks. It is like holding a parent responsible because the parent pointed out the wrongdoing of the child.
Similarly, because the RBI identified your non-performing assets and bad loans, you cannot say the RBI is responsible for the bad loans you created. The argument of the banks that they had bad loans, but didn't want the RBI to point it out is ridiculous.
Okay, there is some merit in the banks in saying that the RBI can't suddenly come down on them like a ton of bricks.
For the record, the RBI has been saying for a long time that the norms for recognising NPAs is fishy and that they (the banks) should come down from the one year norm to 180 days to 90 days, etc. This has been going on for many years.
So the banks' stand that the RBI is responsible is utterly ridiculous.
Another criticism is that the Indian banking sector is not ready for international norms like Basel 3. Do you agree?
This is what I call Indian exceptionalism. For each and every thing, they say India is different and it will not work in India.
Does India have three legs and two heads? The fact is, we are not different behaviourally from anybody else.
So you feel in a globalised world, at some point or the other, such common norms have to be implemented?
Absolutely yes. For any industry to function, there have to be norms. You can't have a free-for-all system in any business and more so in banking.
Whether you like it or not, the reality is that banking is the most important sector in an economy.
As the importance of money grows in societies, banking becomes inevitable as money has to move. And when money has to move, there have to be regulations.
In 2016, we cannot say that we do not want regulations. We are 5,000 years late for that!
The question is, do we have sensible banking regulations?
Do we?
By and large, I would say, yes. The RBI's role is a bit like parenting. The banking regulator has to regulate the bank.
It is true that we have too many laws. Like (eminent jurist and the late Supreme Court justice) V R Krishna Iyer said, an Indian is violating 137 laws at any point!
But, generally, there is a need to minimise the number of regulations so that the regulations that are there can be supervised effectively.
Bankers say it is due to the global economic slowdown that many infra projects got stuck and became NPAs.
It was not recession that put all the infra projects on hold; it was because they could not acquire land. The local, civic government could not help the projects with the necessary permission to complete the process.
Though there are many reasons, I feel this is the first thing they should look at.
Before you sanction a loan to an infra project for a five lane highway, a bank should look at whether the acquisition of land is possible. Without looking into the aspect, if you provide a loan to the project, who is to blame?
You can't blame China or the USA or global recession for projects that are getting stalled.
The government gives sanction to build an airport to a company that has no expertise in the field and then bankers give loans to such projects.
Who is to blame -- the banks that give loans to such inexperienced people or the political system that forces banks to give loans?
All of them have to share the blame.
I would say the biggest problem we face is the moral hazard in the banking system.
Sixty per cent of our banking is under government control. There is a fundamental problem with this.
The day-to-day control is in the hands of political bosses and bureaucrats who are not answerable. The political system uses the banks as a helicopter to throw money to the sector they want to (patronise) in order to win the next election. This has to stop.
It was reported that wilful defaulters owe banks up to Rs 4 lakh crores...
I would blame the moral hazard arising out of political ownership and control on the banks as the main reasons for this.
Another reason is that most of these banks are into everything, from lending Rs 15 to Rs 15,000 crores. And this happened because of political interference.
Is merger an answer to this problem?
Merger is not a solution at all. Nobody should be too big to fail.
The idea to merge all the subsidiaries of State Bank into one is a stupid idea from all angles.
What is needed is questioning the independence of the top management of government-owned banks.
You mean accountability?
Accountability in banking is usually used in the sense of who actually did something wrong? Can you fix it on somebody's head?
The leader of a bank cannot say he didn't know what was going on. He has to be accountable, but everyone is in survival mode. Now, there are committees and committees and nobody is accountable.
You said merger is not a solution. There are talks of downsizing...
Yes, they should keep banks smaller. In fact, the government has already started creating small banks with specific intentions.
For example, the types of skills required for rural lending is different from lending done in an urban area.
What the banks have to do now is to keep the bad loans aside so that new businesses don't get pulled down.
The RBI's decision to ask the banks to find out how bad they (the bad loans) are and then come out with a solution is quite wise.
In India, people think businesses are forever. No, they are not.
Like animals and humans, businesses also die due to various natural causes.
If you take the (top) 100 businesses of the US in the last 100 years, many of them do not exist at all. We must accept that businesses become irrelevant after a while and can fail. It's like people dying.
Do you see a revival of the banking sector?
It has to when there are a lot of good things going for the economy.
When you have an economy that grows at 7 to 8 per cent with 1.2 billion people, adding more and more to the spending population over the age of 18 the size of which is more than many countries, obviously there has to be a revival.
But it depends a lot on political will.
The political reality is that when you need radical surgery, they are using a bandage.
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