Public Sector Banks are already in bad health due to continuing reduction in SLR and CRR and due to continuing erosion in quality of lending, recruitment , promotion and overall HR policy execution .
Here it is important to mention that the main objectives for maintaining the SLR ratio are
⦁ to control the expansion of bank credit. By changing the level of SLR, the Reserve Bank of India can increase or decrease bank credit expansion.
⦁ to ensure the solvency of commercial banks.
⦁ to compel the commercial banks to invest in government securities like government bonds.
The RBI can increase the SLR to control inflation, suck liquidity in the market, to tighten the measure to safeguard the customers money. When measured in rupees, such holdings has been decreased from 40% to 21.25 percent. It shows how the power of RBI to control inflation and crdit growth has already been diluted to a great extent during last two decades by reduction in SLR .
Similarly Cash Reserve Ratio is a certain percentage of bank deposits which banks are required to keep with RBI in the form of reserves or balances. Higher the CRR with the RBI lower will be the liquidity in the system and vice versa. RBI is empowered to vary CRR between 15 percent and 3 percent. It is important to point out here that CRR has already been reduced from 15% in the 1990 to 4 percent.
Under CRR a certain percentage of the total bank deposits has to be kept in the current account with RBI which means banks do not have access to that much amount for any economic activity or commercial activity. Banks can’t lend the money to corporates or individual borrowers, banks can’t use that money for investment purposes. So, that CRR remains in current account and banks don’t earn anything on that.
Combination of CRR and SLR is the amount of money which remains blocked for statutory reasons and is not available for investment in various other high earning avenues like loans are securities markets or other bonds. That means it puts a certain amount of pressure on the banks balance sheets. However, at the same time that money remains safe and with that mechanism RBI also offers safety to the depositors who have invested money in the banks.
There is no doubt in it that the health of bank will become more critical and more dangerous if government decides to use surplus but emergency fund of RBI also to save ailing PSU banks. In case of crisis , Government of India and RBI will have lesser tools to cope with problems arising due to liquidity crunch, or cash crisis or inflation.
GOI and politicians in general first cause loss to public sector banks by imposing politically motivated policies on banks and then use taxpayers fund in infusion of capital in such banks to save them from disaster.
GOI and politicians in general first cause loss to public sector banks by imposing politically motivated policies on banks and then use taxpayers fund in infusion of capital in such banks to save them from disaster.
Due to sharp reduction in SLR and CRR, major chunk of fund mobiised by public deposits and available with banks are being used by banks in providing credit support not only to individuals and corporates but also to finance high value infrastructure and real estate projects. A few decades ago , hardly 60 percent to bank's fund used to be available for credit growth . But now banks have crossed to it to a larger extent.
In case of need banks do not hesitate in borrowing money even from RBI and from other tools of collecting bulk deposits like Certificate of Deosits . Banks sometimes collect short term bulk deposits offering higher interest and lend it for long term to corporate at lower rate just to achieve targets fixed for credit growth or for maintianing certaiin benchmark ratios set by RBI for various sectors in credit. This dirty culture has also created asset liability mismatch many times in PSU banks forcing them again to resort to borrowing . This is a vicious circle which banks are finding difficult to come out of it.
To add fuel to fire, repayment culture in banks has been totally polluted by dirty and seflish politicians. Culture of waiver of loan and culture of compromise with big borrowers sacrificing lion's share of dues has prompted many good borrowers not to repay dues in time, willfully force their loan account to become Non-Performing assets and then demand sacrifice through compromise. Banks also do not hesitate in causing loss to bank by sacrificing large portion of bank's fund in arriving at compromise settlement to reduce volume of NPA and then to seek blessing from RBI and GOI to brighten their personal career.
Writing off of bad loans is convenient route not only for politicians to please voters ,but also a easy method for bank officers to clean their balance sheets. It is a win-win situation for borrowers, bankers and politicians but it is a totally lose venture for taxpayers, savers and investors .
Overall working culture is now not to save banks from losses but to please bosses to improve and brighten the post, power and wealth of working staff and to protect erring colleagues.
In such position , it is only RBI which has been making some efforts to put brake on ill-motivated steps of politicians and that of top bank officials. If politiicans and bank officers are given unbridled freedom, they will distribute public fund as charity and become wealthy and powerful by earning bribe at the cost of public fund.
I therefore fully endorse the warning message given by outgoing RBI Governor Mr Raghuram Rajan . Government must stop taking hasty decisions .
It is remarkable to point out here that the outcome of proposed merger of banks will also prove to be suicidal. Obviously mess in banks will grow and get aggravated after proposed merger. There is no doubt in it that consequences of such steps may cause irreparable damage to health of PSU banks and prove to be disastrous in coming days
Raghuram Rajan resists plan to fund banks from RBI coffers-Live Mint-4th of July 2016
The plan, first floated by Arvind Subramanian, involves shrinking the RBI’s balance sheet by as much as 4 trillion rupees, then injecting the cash into state-run banks
Just days after Raghuram Rajan announced plans to a return to academia, he’s battling to preserve the Reserve Bank of India’s (RBI) independence.
The plan involves shrinking the RBI’s balance sheet by as much as Rs.4 trillion rupees, according to a document obtained by Bloomberg. The cash would then be injected into state-run banks, paring the RBI’s equity-to-asset ratio to 19% from 31.5%—still above the median of 11%—at three dozen major central banks.
Link to LiveMint
After all Sri Vinod Rai has understood the gravity of bad loan problem faced by PSU banks.I have been saying since long that merger and consolidation of banks cannot solve the issue of bad loans, rather it may add fuel to fire. NPA has been increasing since long and it will continue to rise .
Banks are not sick but critically sick due to NPA problem and there is no hope that sickness will get reduced until bankers and politicians change their attitude and until they stop culture of flattery and bribery
FM Sri Arun Jaitley and Sri Vinod Rai chief of BBB have to understand root cause of problem lies in bad HR policy and large scale corruption in execution of HR policies. They have to understand that politicians are big exploiter of banks for their self and vested interest.
Government have to ensure that talented,skilled and experienced Bank officers are given due respect and given timely elevation . They have to stop flattery and bribery based recruitment and promotion. Similarly they have to stop target based lending and hocus on need based and quality lending only.
Government has to ensure that bank officials do not sacrifice bank's interest for achieving target of lending or for earning bribe in sanction of loans or in write off of bad loans or in take over of loan from other banks by offering undue concessions and violating normal laws of ethics.
Government has to ensure that cases filed by banks for recovery of bad loan amount from defaulters are disposed off by courts in 30 days to 90 days.
Government has to ensure that politicians do not recommend sanction of loan for any person or corporate and then build pressure on bank officials.From village level staff to top level officers of Ministers use their power to exploit PSU banks and this is why NPA. Creation has been relentlessly rising without any checks and cross checks. Auditing and vigilance officers are also dancing as puppet in the hands of corrupt top officials in greed of quick promotion and choice posting.
Government has to stop unwarranted expansion of branch and ATM network. PSU Banks are competing with among each other and not with private banks. Even government funds are sold by government officials to private banks if they get such opportunities.
Merger and consolidation is not the solution to sickness of PSU Banks. It will rather aggravate the sickness.
I do not agree that rise in bad debts in PSU banks is purely due to poor knowledge or lack of skill of banking oificials who take part directly or indirectly in process of sanction of a loan. Lack of knowledge is definitely one of many reasons causing continuous rise in volume of stressed asset but not an exclusive or significant big reason.
Government is willingly and strategically hiding prominent other reasons and trying to protect corrupt bank officials and ill- motivated politicians who are solely and jointly responsible for causing critical sickness in banks.
As a matter of facts all frauds and bad lending is possible only in PSU banks and have been taking place in banks for years and decades only due to and with the clever mind of talented and clever officials and politicians who apply their brain to loot banks for their self interest at the cost of bank's interest.
I have no doubt that proposed steps to cure banks by Vinod Rai or ministry of finance or by FM Mr Arun Jaitley will not get desired success in reducing sickness.
Government cannot solve the problems faced by banks until they stop flattery and bribery in posting, recruitment and promotions. Government cannot do any good work for betterment of banks until they stop misuse of elected political representatives and their followers who build pressure on bankers for lending to persons as and corporate of their choice. They cannot cure sickness and they cannot stop rise in bad loans until they make legal, political as and police set up active, effective and corruption free. Entire system is defective and they are pro dishonest borrowers, corrupt bankers ,corrupt administrative officials, corrupt judicial persons, corrupt advocates, corrupt chartered accountants, corrupt valuers, corrupt engineers, corrupt vendors and corrupt political leaders. God bless them all.
Title of the site is interact with PM or put your suggestion. PMO site diverts the writer to grievance site. I do not have personal grievance. But the issue related to health of PSU bank is a matter of concern not only for me but for 125 crore people of india. If banks collapse, it will create grievance from crores of Indians.
Is it not wise to bring the issue in the light of government?
For last three decades ,health of banks has been consistently deteriorating. I have great expectation from PM Modi. That is why, it is not wise decision to ignore valid points raised on this subject.
Real reform will take place only when government removes all negative points. Mere preaching positive sermons have caused a great damage to nation .
please take up the matter on topmost priority. Treat this as grievance of crores of common men who are unable to express their resentment in words.
Banks are victim of ill- motivated politicians and bankers . It needs drastic change in culture , not only Chang of policy or change of bottle without change of wine.
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