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..

RBI Objects Loan Waiver Scheme

Naidu's loan waiver plan hits RBI wall-Pioneer

Andhra Pradesh Chief Minister N Chandrababu Naidu’s promise of waiving the crop loans has run into unexpected problem with the Reserve Bank of India raising objections to it and questioning the rationale behind it.

While a senior RBI official wrote a letter to the State Government opposing the idea of writing off the farmers' loans, Naidu held a meeting with the State-level bankers committee to discuss the nitty-gritties of the issue.

Waiving of the crop loans was expected to cost Rs 15,000 crore to the State exchequer. RBI Executive Director Deepali Pant Joshi has written to the Government saying the policies like waiving of loans will weaken the banking system in the country and it will be an injustice to the people who repay the loans on time.

RBI official said that it would allow waiver of loan only if the State Government makes the payment in cash and it will not accept any securities from the State Government.

The letter warned that the frequent waiver of loans will hurt the fiscal discipline of the banks. RBI’s letter prominently figured in Tuesday’s meeting, which was also attended by State Finance Minister Y Ramakrishnudu and Agriculture Minister P Pulla Rao. The State Government decided to reply to the RBI letter explaining the circumstances in which the TDP had to make the promise of writing off the loans of farmers.

Sources said that Naidu, during his visit to New Delhi, on June 25 will raise the issue with Union Finance Minister Arun Jaitely and seek his approval.

After the meeting, Pulla Rao told the media that there was no need for any apprehension among the farmers over the issue of waiver of loans as the State Government was committed to it. He said that the committee set up by the Chief Minister to go in to the issue will submit its preliminary report on June 22 and a clarity will emerge by June 30. “We will implement the scheme with the approval of the Central Government and the RBI,” he said.

“If the bankers can accept one time settlement with the industrialists why not now,” Pulla Rao wondered. Soon after he took oath as the Chief Minister Naidu had set up a committee to go in to the issue of writing off the loans. Naidu promised to waive the loan within 45 days after receiving the report.

Naidu to assume office tomorrow Meanwhile, Chandrababu Naidu will assume office on Thursday when he will set his foot in the State Secretariat after a gap of 10 years. He will take the charge in his 8th floor office in the L Block of the Secretariat amid the chanting of vedic hymns by the pundits.

Thursday will be a very hectic day for Naidu as the newly elected State Assembly will also meet on the same day at 11:52 am. Earlier in the morning Naidu will also visit his camp office at the Lake View Guest House which he will be using till his office in the Secretariat is fully furnished.

State Minister for Finance and Legislative Affairs Y Ramakrishnudu, who reviewed the security arrangements at the State Assembly with the top police officials said that the old Assembly hall allotted to Andhra Pradesh was small and had little place for visitors.
“We will not be issuing any visitors passes. We have already requested the Ministers and the MLAs not to seek the visitors passes,” he said. Even the media gallery was also small and media passes will be issued in a limited number, he said.

The AP Assembly Hall is the old building in the same premises where the new Assembly Hall allocated to Telangana is situated. The semi circular hall is a historic heritage building built as Town Hall during the Nizam era. After extensive work its original glory has been restored to a large extent.

On the first day the newly elected members will take oath and the assembly will condole the death of its members. Next day the House will elect the speaker. Senior TDP leader Kodela Sivaprasad Rao was expected to become the Speaker. On June 21 Governor ESL Narasimha will address the joint session of the Assembly and Legislative Council at 8:55 am.
Singapore to help build new capital Meanwhile Minister for Municipal Affairs and Urban Development P Narayana said that the State would take the help from Singapore in building the new capital for the State.

He was speaking after meeting the representatives of the Singapore Government. “Chief Minister Chandrababu Naidu wants the new capital to have world class facilities which can meet the requirements of next hundred years,” he said.

“The capital will be built in a manner that all the facilities are available at one place,” he said. Vijayawada, Guntur, Tirupati and Visakhapatanam will be developed as mega cities, he said.

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