Moody says that India’s banking system outlook is likely to be stable over the next 12-18 months as the pace of formation of bad loans is expected to decrease compared to last five years. They say that under the asset quality recognition (AQR) of the Reserve Bank, bankers have recognised a major portion of their non-performing assets (NPAs) or bad loans.
In their opinion “The pace of deterioration in asset quality over the next 12-18 months should be lower than what was seen over the last five years, especially compared to the fiscal 2015-16, even as we take into account some remaining problem loan under -recognition in a handful of large accounts,” .
I do not agree with the Moody's report on banks predicting lowering of NPA and improvement in overall health of banks. Moody says that creation of Non Performing Assets has slowed down and it expects improvement in asset quality of banks in near future.
Persons associated with these rating agencies are guided by published balance sheets of banks. They do not know that huge volume of bad debts are concealed by clever officers of banks and considered as standard account whereas they are actually NPA if Prudential norms set by RBI for categorisation of assets are honestly adhered to. There is no change in culture of sanction of loan and hence there is no change in quality of loans sanctioned by bank. As such quality of bank's asset will continue to deteriorate and continue to slip into NPA category as usual. But banks will continue to hide bad debts by applying various tools as they have been doing for last three decades. Real health of asset is never reflected in financials published by a bank.
Officers who rate a bank do not bother to peep into each account which is considered as standard by a bank. They rate the bank or a company based on monetary return or gift and hospitality they receive from officials of the bank or for that matter, any company. Officers of rating agencies cannot judge health of a bank merely by analyzing financial of few years of the bank. Since financial published are normally manipulated and fabricated, the results arrived at by analysis of such false and fabricated financials are also misleading and wrong.
Similarly Auditors appointed by banks and teams of Chartered Accountants appointed by RBI to verify quality and quantity of bank accounts submit biased and false audit reports to attract more and more audit fees and costly gifts. They certify accounts as true and genuine even if there are so many lies, shortcomings, deficiencies , violation of rules and guidelines and false figures in the financial report prepared by bank officials provided they are compensated as per their whims and fancies. Government , RBI and all officials of bank trust certificates given by auditors even though everyone of them knows well that auditors are corrupt and sale their signature.
Real picture of banks will emerge only when RBI ensures strict compliance of its guidelines from each bank and start punishing bank officials who are willingly committing fraud with the system to brighten their career and who are cheating with RBI. Not only this , government ,RBI and Finance Minister in particular have to become ready to accept ground reality and become ready to punish real perpetrators of frauds and creators of NPAs in banks. Unfortunately they all have not discharged their duty of monitoring , verifying and regulating functioning of banks honestly and thought it always safe to give unbridled full freedom to banks .
In addition , government and RBI too wants banks to publish good financials because it helps in brightening image of the government and in gaining maximum votes during election. As such manipulation and fraud with system provides a win-win situation for all concerned.
It is ironical that despite enjoying all freedom in recruitment, promotions, lending and other functions for last three decades , management of banks make lame excuses to justify rise in bad debts and they ask for more and more freedom to improve health of banks and want CBI, CVC And ACB away from banks. Besides,they want to be shielded from all punitive action for their evil acts . They do not like to accept that private banks are flourishing quarter after quarter following the same economic principles and same guidelines issued by RBI or GOI.
Unfortunately government is also not understanding that freedom given to banks has only resulted in poor health of bank and hence it always talks of giving more and more freedom to Chiefs of Banks. In brief the cause for sickness are considered as remedy for sickness.
Unless and until we are unable to end the culture of bribery and flattery in Human resource department and ensure seniority based promotions ,we cannot dream of any improvement in health of banks. Process of interviews in promotion processes and recruitments give rise to flatterers and bribe earners only and is indirectly a process to sideline honest workers.
So far as rating agencies are concerned, they never look into ground reality , neither do they have so much time and so much manpower which can verify the veracity of each figure reported by bank management in their financial reports published periodically. They trust more often than not the figures banks disclose before them . Quality of rating is not as good as it is supposed to be in order to mitigate risk. They never saved any country or any company from suffering losses, they usually submit report after occurrence of losses.
India has witnessed several stories of sudden collapse of a company or a bank in the past although rating agencies and auditors always rated the company as the best. WE have seen how Satyam Computer perpetrated fraud for years and how they managed good rating from rating agencies. We have also seen how famous Global Trust Bank was rated best bank of the year just before it incurred huge loss and lost its existence.
There are hundreds and thousands of companies in India which are now in the list of NPA of banks and which were always rated stable and healthy and progressive by various rating agencies. It is possible for a bad company to manage best rating before it approaches a bank for sanction of high value credit. It is also possible for a bad company to get best financial statement prepared by team of CAs before it approaches a bank for sanction of a loan. It is also possible for a bad company to receive patronage from powerful political leaders and favor from powerful bank officials. In India everything is managed by money power. And where money fails to achieve the desired result, muscle power is also used to get the work done.
This is why , I say that it is not important what rating agency has rated banks or what they predict for future health of bank. It is more important what quality is possessed and what portion of it is executed in practice by officers who carry out the task of rating or auditing or lending or regulating.
Policies are usually good but the person who execute the policy misuse it for self interest and tarnishes the image of entire system. As such need of the hour is to give value to good persons and punish bad workers and not to change policies frequently and hide the faults committed.
Policies are usually good but the person who execute the policy misuse it for self interest and tarnishes the image of entire system. As such need of the hour is to give value to good persons and punish bad workers and not to change policies frequently and hide the faults committed.
People say that if all bad assets are exposed, banks will collapse and government may become bankrupt in making effort to save sick banks. But I am of the view that if mistakes of all persons are accepted and put in light, there is scope for rectification of mistake in time and recovery of money from defaulters before it is too late. It will also help in exposure of evil persons whose evil action caused loss to bank and stop others repeating same mistake.
It is possible that some erring officers and politicians are punished during this exercise, but the most positive and long lasting result of such action will be a deterrent for evil doers in coming future. A message will go down the line from top to bottom that if they commit mistake they are liable to be punished .
In USA , people fear police even in violating traffic rules . People are afraid of facing court of law because they impose heavy penalty and punishment to erring persons whoever it may be. But in India senior officers and politicians ,auditors and rating personnels do not fear any government or any court or any police because they know they can manage every system by money or muscle power.
Therefore once we learn to accept bitter truth of banking and expose all black sheep , we will send a crystal clear message to all junior or senior workers that there is no place for corruption or flattery or bribery in public life.
After all , it is public fund which bank officers are supposed to protect and use it for the welfare of people of India, not to incur losses and then demand for capital infusion.
Therefore once we learn to accept bitter truth of banking and expose all black sheep , we will send a crystal clear message to all junior or senior workers that there is no place for corruption or flattery or bribery in public life.
After all , it is public fund which bank officers are supposed to protect and use it for the welfare of people of India, not to incur losses and then demand for capital infusion.
Government has to ensure complete stoppages of all types of window dressing, either in achievement of deposit targets or that in advances or in achievement of terminal NPA target or in getting desired rating from auditors and rating agencies.
Let rating agencies rate what depicts the true picture, let auditors write genuine report and let RBI officer verify banks accounts without fear of transfer or rejection in promotion.
Let rating agencies rate what depicts the true picture, let auditors write genuine report and let RBI officer verify banks accounts without fear of transfer or rejection in promotion.
Government has to introspect to know where the fault lies. Why are policies not executed in true spirit . Government has to make a sincere and deep research to find out why there is always a fear in the mind of good and honest officers that if they do not abide by illegal and ill-motivated verbal orders of bosses, they may be transferred to critical places or /and rejected in promotion processes.
Government should try to find out why officers associated with process of rating a bank or a company fear loss of business or physical assault by musclemen of the concerned company if he assigns bad rating to bank or a private company .
Government should try to find out why good and honest auditors fear loss of business if they reveal all evil actions in financial report they prepare or they certify.
They should find out why cases filed in courts are not decided even after lapse of two or three decades. They should try to know why police officers or IAS officers are transferred frequently when they do not execute wrong orders of their masters. And so on......
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