Loan Waiver Culture

My Opinion And Observation on trend of Loan waiver, compromise, restructure to conceal Non Performing assets----

Since there is no full proof and time bound legal machinery which can ensure recovery of loan from defaulters and since there is intolerable and unrealistic pressure for achievement of target fixed for lending, bankers think it better and wise to lend recklessly and carelessly  and let it become NPA and then go for either evergreening or writing off of loan or sacrificing some amount and then relending . In this way they achieve the target of lending as well as that of recovery and in return they not only get admiration from bosses but also get early elevation in career. 

But the said trend of playing with assets gives alarming signals for existence and future of public sector banks. Some banks have given i.e. delegated huge volume of powers to Branch manager , majority of whom are neither well versed in principles and processing of loan sanction nor they do know how to monitor and safeguard the interest of the bank and nor they know the processes applicable for recovery of dues from defaulters. Power to sanction loan and then power to compromise with borrowers and extension of heavy discount by same person will give ample scope of corruption.

Branch Manager and Regional Head or Zonal Head  think it better to adopt evergreening process to survive and to remain in good books of their bosses . This is why volume of frauds and stressed assets in banks is going out of control day by day. None can stop until and unless the culture of banking is entirely changed and rejuvenated. Inexperienced and incapable officials have become Head of branch or the Region and they simply learn easy tools to survive and get rid of torturous treatment from bosses. Very few persons are really serious about interest of the organization they serve. And it is also true that such devoted persons are rejected and shunted lot in the banks. None can deny this bitter reality of public sector banks

 Banks are taking suicidal steps to reduce load of stressed assets. They are subjected to frequent tortures by their bosses. Finance Minister pulls CMD, CMD rebukes General Manager and GM then humiliates their juniors. In result it sends terror wave below the line. To overcome this, many banks, you may say almost all PS banks have framed a policy of giving heavy discount to loan defaulters on repayment of loan.  They are offering heavy discounts to persons who repay the loan at the cost of investors and depositors of banks.

Bankers are ready to write off and sacrifice huge volume of loan to reduce volume of stressed and bad assets. They have given huge power to head of branches to sanction the loan and when loan goes bad, they can compromise with defaulters giving huge discounts. Obviously , banks are first distributing bank's fund as charity in  form of loan and then sacrifice bank loan either by write off or by giving huge discount. Their steps will prove to be disaster in long run. They are digging grave for them. Culture of repayment has already been adversely and critically affected by three decades long wrong policies adopted by previous governments of Congress Party. Such unhealthy discounts and waiver of loan will finally end repayment culture and people will learn not to repay the dues and wait for loan waiver scheme. There are tax consultants in India who guide black money earner businessmen how to evade taxes in nexus with IT or ST officials. In short run, people may find brokers in all bank areas who will in nexus with bank officials help in getting sanction of  loan from branches of banks and then another team or same team of brokers will help in getting rid of repayment or getting heavy discounts and that too in collusion with bank officials of the branch concerned or bank concerned.

For last three decades politicians of the country used banks for their political advantage. Politicians like Devi Lal and V P Singh master minded loan waiver culture and then other politicians followed the suit for their political advantage. These politicians not only advocated loan waiver culture but also built pressure on banks to grant fresh loan to loan defaulters so that total credit of the bank does not fall short of allotted targets. Politicians came out with loan write off scheme in nexus with RBI and now management of banks are themselves indulged in such suicidal acts in some form or the other. 

Now only God can save these Public Sector banks. Top officials of PS banks are taking such suicidal steps to brighten their own career. But the million dollar question is who has given them right to sacrifice bank's money which is public property. Is there anyone who can stop it? It is public money which is being sacrificed by selfish bankers to make their own wealth and own career.

If you are a banker or an official to regulate and monitor banks  or an auditing or inspecting official or an investor in bank shares ,you should  read the article which appeared recently in Reuters,

There is an established practice in almost all coooperative banks to keep the loan account EVERGREEN. To Illustrate and to make it more clear :   say a bank  disburse a loan of  Rs10000 to a farmer and the account become overdue after a year or two , the same bank sanction a loan of Rs20000 or Rs.30000 which enable farmer to repay first loan and avail only extra loan . In the same way banks use to sanction inflated loans to same defaulting borrowers year after year which keep the account always standard.

During the course of time, public sector banks have also learnt the art of keeping  the loan account evergreen. They have many tools in their clever brain to keep assets of bank always standard.

First and foremost is the  restructuring or rephasing of loan on flimsy ground and second to give additional loan to repay overdue loan.

If even after such self deceptive acts ,banks fail to keep the account in standard category they feed wrong information in CBS system so that such accounts may not be identified as NON performing asset in the exercise of identification of the system driven NPA.

Then they try to prevail upon team of auditors to help them in hiding bad assets from the balance sheet.

Next better option is to sell the bad loan to ASSET RECONSTRUCTION COMPANY known as ARCs at discounted rate without caring for loss bank has to suffer and ultimately investor has to suffer by such unhealthy actions.

Lastly they have option to write off the loan or sacrifice major portion of overdue loan which again adversely affects the bottomline of the bank and is indirectly a cheating treatment with investors and employees whose earnings depend on health of bank.

Bankers seldom make efforts to strike at the root cause of rising volume of bad assets. And neither owners of banks have got time to nip in the bud.

Prudent bankers who are apt in art of keeping assets evergreen and standard , who know the art of managing auditors and concerned officials at various offices may only become ED or CMD of a bank .One who preach sermons to others but do not follow, one who can deliver good speech , who can manage boss and keep him happy by hook or by crook may only get the chance in promotion.

In our country none is bothered of real health of the system, real health of the organization and real welfare of common men ,but everyone is busy is dressing and decorating the outer appearance attractive .And this is the root cause that an institution or a country all of a sudden lands in unmanageable crisis.

Only CBI inquiry and deep rooted investigation of what is going on in these banks for last several years and then punishment to those who propagated bad culture of serving self interest at the cost of bank’s interest may only help in correcting the evil culture. 

Otherwise government will continue to cry and bank officials will continue to put lame excuses for growing sickness and weakness in the system. They may change the name of policy or frame new policy but fail to executing them in true spirit. I can say that Old wine in new bottle will continue to rule and ruin the country as well as these banks.

Ultimately bank staff, depositors, investors and finally Indian citizen will face the losses in form of taxes or deficiencies in services..

Branch Manager Should Learn To Say NO

I am submitting below an article published in the newspaper The Economic Times Today, 6th November 2012.. This true Story of Mr. Aditya Puri has many lessons to learn not only for Manager of Public Sector Banks but for  all individuals and Managers of all organisations and all political parties too.

Specially Manager of public sector banks should introspect and try to discover 

Why private banks like HDFC can achieve such grand success in only two decades of their existence which hundred year old banks could not do?

Why bad assets have accumulated in such large volumes on PS banks , not in private banks?

They should at least stop making lame excuses of economic slowdown or high rate regime or natural calamities for all their faults, their lack of vision , their misinterpretation of economic situation of the country  their weakness in assessing the demand of Indian loan seekers and finally their lack of understanding the demand, nature ,capacity and character of loan seekers.

I may say in brief that majority of Manager of state run banks became victim of not only their own greed and ambitions but also that of trader union leaders and politicians during pre-reformation era. And During Reformation era , they became not only victim but also puppet in the hands of big corporate houses in nexus with their mentor politicians and their antagonist trade union leaders( who are considered as protector of interest of working class have become booster of corruption perpetuated by corrupt bank officials ) . 

It is Trade Union Leaders in these banks who helped bank management in converting Human Resource development Department into Human resource destruction Department.It is they who for their vested interest joined hands with top officials of bank and created wrong culture of flattery and bribery which during the course of time has resulted in such critical illness of these banks.I say so because as soon as union leaders join hands with bank management , IR problem is avoided and Ministry of Finance do not hesitate in concluding that all is well in banks.

Ultimately under both the circumstances , sufferers always remained and sufferer always  are non other than staff of banks, customers of banks and investor of banks.

Government and politicians never own the responsibility  of ailing status of public sector banks, they always point out their accusing fingers towards others as per their comfort and as per need of the hour.Politicians are very much clever and they know the art of How to befool innocent and illiterate  Indian mass and Indian media people by placing concocted data and spreading misinformation.They have power in their hands, they can award non performer by giving him promotion and they can punish performers by posting them at critical places.

But it is undoubtedly true that officers in bank who are holding key posts in various banks have themselves created and concealed bad assets for last two decades , sometimes in the name of positivity, sometimes to please ministers and sometimes in the name of achievement of credit targets or in the name of social welfare schemes and sometimes in the name of customers and investors.

In the name of HR policies they have always misused sound policies for their vested interest and created bad culture in state run banks which has resulted in negativity among serious performers and which has contributed in continuous erosion in bank's profitability .

6 NOV, 2012, 05.00AM IST, ET BUREAU 

ET’s company of the year 2012: We followed pretty much a philosophy like Apple, says HDFC Bank chief Aditya Puri

MUMBAI: (Published in Economic Times today  6th November 2012)

The 61-year-old chief executive of HDFC Bank who has managed the impossible in 18 years does not draw on management gurus Philip Kotler orMichael Porter to explain his success. He just digs into the age-old Hindu wisdom of Karma Yoga.

Aditya Puri guided HDFC Bank to become the most sought-after bank for investors across the world. Though he cut his teeth in a Western financial school, Puri has done everything to prevent his bank from becoming one of those that mindlessly chased growth.

The hallmark of HDFC Bank is that it has achieved probably what no other listed company has achieved in the country or anywhere else in the world - delivering a 30% growth for 52 quarters, stripping off the impact of the acquisition of Centurion Bank of Punjab in 2008.

So, the jury of the ET Awards for Corporate Excellence adjudged HDFC Bank the Company of the Year, 2012 - the year it surpassed the 206-year-old State Bank of India in market value.

What is the secret formula and the guiding principle that led to its consistent performance when the entire world was riding the rough seas?

"Hindu dharm nahin malum? Tum apna karam karo. Fal ki icha mat karo," says Puri, sipping hot water on the 6th floor board-room of the bank in mid-town Mumbai. (Do your duty and don't look at the fruits of labour).

The dharma is the foundation and the management principle is not complicated either.

"Don't try to do too many things. We followed pretty much a philosophy like Apple. It is more important to know when to say no. Don't try and do everything. We knew what we were doing."

HDFC Bank today has a market value of Rs 1.49 lakh crore, assets of more than Rs 3 lakh crore. It has 2,620 branches and 10,316 automated teller machines in 1,454 Indian towns and cities. It is walking into many more towns.

Almost every lender is talking about exploiting the growth in tier-2 and tier-3 cities. Puri talks even about tier-6! HDFC Bank offers almost every product that a billion-dollar corporate wants and has something to provide a daily-wage earner - gold loan. But, there is nothing exotic in any of the things that HDFC Bank does.

Is the extraordinary success of the last two decades possible given the shaky economy?

"The demand for financial services exceeds supply and it still holds. If you had the right brand name which stood for the right values, the right product and the right customer focus, the right people, the right technology... sky is the limit in the next to five-10 years," says Puri.

The atmosphere is not as gloomy as is being projected. Corruption is prevalent, but it is not all-pervasive. There is an opportunity to grow and profit without indulging in any corrupt practices. Indeed, he destroys the myth that people in government need to be bribed for business.

"I can tell you, it is a fallacy that dealing with the government necessarily requires you to have bad ethics," says Puri. "I can name 20 governments that we deal with where the reason we got business is that we are clean. I think there are a lot of fallacies here."

Unlike most CEOs who spend nearly two-thirds of their day in office, Puri returns home at 5.30 pm. He would keep doing it, because the institution is on auto-pilot and the systems and people are in place.

"Instinctively, everybody knows corporate governance. The problem is if you don't institutionalise it. Water and money... you can't control

He is in control.

Link Economic Times