Wednesday, March 7, 2018
Write Off Bad Loans Why?
Loans worth Rs 81,683 crore were written-off by public sector banks (PSBs) in 2016-17, Finance Minister Arun Jaitley said in the Rajya Sabha.In a written reply, Jaitley said that writing-off of loans is done for tax benefit as well as capital optimisation and borrowers of such loans continue to be liable for repayment.
It is misleading to say or to admit that banks write off bad loan accounts only for cleaning books or for tax benefits or for maintaining adequate captal ratio. In fact bank officers seldom care for recovery in such accounts.There may be some exceptions to it .They however take credit for natural inflow in such accounts and get awarded .Culture of writing off bad loan is fatal and undoubtedly will spoil banks further. There may be exceptionally few loans which really deserve to be written off but not all.
It is also true that borrowers do not fear legal action . They know the art of managing police and judiciary. As such cases filed by banks for recovery of dues from defaulting borrowers languishes in courts of law for years and decades. In such pathetic position, bank staff are not given much value at the time when they demand or go for realisation of overdues from bank loan defaulters.
Bitter truth is that bank officers ask for their money back from defaulting borrowers as if they are ask for alms as beggars. Thus culture is also gifted to them by politicians who ruled this country for decades simply to enjoy power and earn money through illegal ways and means.
It has become an established culture in banks particularly in Public Sector Banks first to lend money blindly and then write off them after few years.
A few officer really take care of safety of fund at the time of sanction of loans and then monitor such accounts honestly, sincerely and regularly to protect bank's interest . But majority of bank officers lend money for the sake of lending or for earning some illegal gifts either in cash or in kind.
In general , officers give less focus on regular recovery in loan accounts and more focus on achieving targets. Such officers find place in good book of top officials and quicker jump in career. Top officials in general focus on quantity and not quality of loans given by branch officials. They give value to an officer in promotion of an officer not based on his or her skill in lending but how much value they receive from juniors.
On the other hand officers who are real well wishers and protectors of banks find place in bad books of top officials and they are assigned the duty of recovery of money from bad borrowers who were financed by officers placed in good book .Such officer seldom get timely promotion . They are rather tortured and humiliated at all levels.
In brief yesmen officers are engaged in evil works and it is they who commit sins and finally bad book officers are punished for failing to recover money from bad and recalcitrant bad borrowers. Flattery and bribery are two tools for brightening career as well as for becoming wealthy person.
Obviously culture of lending in general in almost all PSU banks is defective and leading to rise in non performing assets and then culture of writing them off without fixing responsibilities on evil doers add fuel to fire. Every year billions of rupees are written off or sacrificed by banks in the name of cleaning of books . In fact this exercise is done to protect bad officials and bad borrowers. More than five lakh crores of rupees in bank loans written off or waived by banks or by governments. About ten lakh crores of rupees are locked in declared bad debts called as Non Performing Assets. Much more is still hidden in the system.
In general top officials are exonerated and awarded for their bad lending and juniors are made scapegoat for evil acts of seniors. It happens so because top officials build verbal and telephonic pressure on juniors for giving loans to bad persons and companies. They do not leave behind any sign on their indulgence in evil work.
It is entirely wrong and misleading to say that bank officers make effort for recovery in written off accounts. In fact they do not care for recovery even in normal and standard loan accounts or NPA accounts. They depend on officers from administrative offices so far as recovery in bad accounts is concerned.
There are of course some good borrowers who repay the dues in time and it is their contribution that some recovery flow in. Otherwise in most of banks, value of money lost in written off accounts is always more than actual recoveries received in in bad accounts. In brief it is "Bhagwan Bharose Banking".
If some recovery comes in , credit goes to bank staff and if not, blame goes to God, like natural calamities, higher bank interest, economic recession, government policies etc.
It is worthwhile to mention here that government of the past is also responsible for prevailing evil culture in banks in process of lending and in conducting loan melas, in target oriented lending, in hiding bad debts, in restructuring bad loans again and again, in evergreening of loans and in finally writing off bad loan accounts or sacrificing money in compromise settlement with bad borrowers. Culture of loan mela and waiver of loans are gifts to bankers given by none other than past rulers of this country.
During government of congress party , they never helped bankers in recovery of money from wilful defaulters, neither through administrative or police help nor through legal action in court of law. It is they who promoted culture of reckless loaning and then waiver of loans. Bank officers gradually got addicted to this culture. Wine woman and wealth became necessary items for some of top bankers and this culture inherited from other government departments and percolated down the level.
Window dressing in all business parameters at all levels is well accepted culture.
Present government has done commendable job in Nirav Modi case and sent a good message in all nook and corners. Still they have to do a lot to change the evil culture at all levels.There are thousands of Nirav Modi like bad borrowers hidden in banking system. There are many black sheep in banks too. There are evil politicians and media men who do not understand intricacies of banking but ready to put hurdles in path of good GOVERNANCE. Snakes are sitting in all corners of the country to bite Narendra Midi like rulers.
Government led by Modi and finance minister like Arun JAITLEY have broken bees nest and opened Pandora's box. Banks are full of worms . Ten lakh bank employees are facing anger of common men due to evil work of hardly 10 thousand bankers.
GOI has to weed out those bad officers from the system and punish them in such a way that in future bank officer cannot dare play with banks money .A clear cut message will go down the line only if top officials of the banks who are at the root of all malady are punished quickly and severely.
GOI will have to make their administrative wing , regulating agencies, auditing team, inspecting team, vigilence team, judiciary and all connected officials active, effective, honest and fast. Putting inefficient persons or corrupt persons at such post have yo produce grave and devastating consequences.
And last but not the least, Government will have to restrain and regulate politicians who are advocating for sanction of loans or for waiver of loans for serving their self and political agenda.
GOI will have to penalise severely all those who directly or indirectly contributed in damaging banks and causing loss to taxpayers money and jeopardizing public deposits. Any softness with evil doers will give adverse outcome. Please for God sake, save banks from devils. If needed, even retired officers should be taken to task.
GDP depends largely on bank credit and bank credit grows with fruitful results only if quality of lending and quality of workforce is given more importance than flattery and bribery or volume of credit offtake..
Risk and reward has to be assessed properly and judiciously. Appraisal system for bank staff for promotions in banks is full of flaws. Loan processing culture has to be improved. Human resources are key to success. If workers are happy and if their good work is awarded and bad workers are punished, there is no doubt that work culture in bank will grow healthier.
Lastly , please ask bankers, how much they have total of written off accounts and out of which how much they have recovered by thrir efforts. Verify all reports and certificates. Do not trust blindly on data's furnished by banks or by auditors. All data's must be cross checked.if data furnished are false and fabricated, policy formulation and execution will also be ineffective and futile.