Rising Loan Default Will Kill Economy And Make Lives of Bank Staff Miserable. Respectable Wage Hike a Remote Possibility

This refers to news items published in Today's newspaper which says that loan default in farm credit is witnessing uptrend in SBI due to loan waiver culture propagated by politicians. This relates to not only SBI but to all Public Sector Banks. Government of India exerts undue pressure on achievement of lending target fixed for agriculture and then banks compete to each other in quest of admiration from top ranked ministers .

To abide by orders of big bosses, banker from top to bottom disburse credit without taking care of its quality. If Regional Head of a bank asks verbally a branch head in his region to disburse loan of one crore in a month's time in agriculture sector or face transfer to critical place , the branch head is bound to ignore the quality and disburse loan as charity. Similarly if top officials of bank who abide by verbal orders of Ministers are promoted to ED or CMD level , the culture of flattery and bribery cannot stop.

And hence it will not be astonishing and wrong to say that   Farm credit may prove to be a disaster for public sector banks in near future as wholesale and bulk credit provided  to power sector or to big corporates  during last few years under pressure of Chidmabram government  or at the instance of politicians have now disturbed the sleep of  present top bankers .

It is reckless credit made by bankers to win the hearts of ministers and to get quick promotion and incentive from Ministry of Finance which has proved to be major contributor of bad debts in public sector banks,  not to speak of small banks but even in top banks like SBI, PNB, OBC, UBI and so on. Similarly farm credit  is going to be a matter of concern for bankers in near future. Because politicians first build pressure on banks for achieving unachievable target of agriculture credit and then advocate waiver of loan given to farmers to enhance their vote banks.

 In case of bulk credit , top officials get the award for surpassing target and retire and in case of low level or mid management officials, they too sanction smaller loans carelessly to earn some commission or to earn the praise of immediate boss or to get quicker promotion and retire . In both the cases it is banks which has to suffer , it is depositors who have to suffer in interest, it is investors who are given no dividend or less dividend on money they invested. If the culture is bad, both bulk loan and small loan becomes poison in the long run, one is deep poison and the other is slow poison.

Bankers use to hide bad debts by applying various tools available in their clever mind. They are expert in ever greening of loan. They may recover bad debts by sanctioning greater amount of loan to defaulters or may hide bad loans by frequent restructuring of high value loans of big borrowers.

Farm loans given in the name of Kisan Credit Card or to increase agriculture production are considered always standard because banks tend to finance Rs.200 to adjust default of Rs.100 of a farmer. Similarly high value loans are rescheduled and restructured frequently on some plea or the other to keep the account always standard. But how long ?, ultimately they have to accept the ground reality and swallow the poison. Bad debts accumulated during last two decades are slowly surfacing and disturbing not only bankers but also the RBI and the Government sitting at centre.

Politicians and top officials, all are beneficiaries of all reckless financing. When the assets become bad , these clever gentlemen abuse global situation or natural calamity and get rid of accountability. Bankers then demand that CBI and CVC should be kept out and away from banks and they say that if bankers are burdened with inquiry , they will fail to achieve credit target fixed by Ministry of Finance. This evil culture is not new . But the culture has taken deep roots in banking sector .Similarly Politicians will talk of GDP and insist bankers for credit growth . None of them bother of quality and judicious growth.

 This has become fashion of saving skin and for perpetuating corrupt practices in the name of economic liberalisation and reformation. For last two decades and more, bankers are enjoying freedom and complete liberty in making their own loan policy, their recruitment and promotion policy to attract meritorious personnel and in fixation of interest rate and deciding their priorities in financing. Still banks are sick and more surprisingly the banks which were treated as safe and growing bank two decades ago are the worst sufferer of bad debts. Banks which used their whims in promotion and recruitment in the name of merit are now facing the music of bad debts and that of capital crisis in complying with Basel III norms.

But the million dollar question is who will bell the cat?

When ministers and top officials of RBI or that of Ministry of Finance are birds of same feather, who will fax accountability on banker .

Bankers are supposed to be the  backbone of the economy of a country , but unfortunately clever bankers and clever politicians of this country have completely broken the bone of the economy .

 When stock market increase , top bankers as well as politicians will take credit of their policy initiative and take credit for their performance .When the same stock market falls next day , they will blame God for bad monsoon, or abuse global recession or put blame of opposing political parties or blame administrative ineffectiveness. They never try to find out the real cause of the sickness because it will endanger their own existence. 

Malpractices continue to jeopardize the health of bank and all PSUs because none of institute play their role honestly and effectively. After all common men do not understand the intricacies of banking or that of the financial management of a country, they understand the language of price rise and get jobs and houses for their livelihood. Whey common men cry , clever politicians talk of calamities and adverse global situation . They do not want to accept that policy of so called reformation have benefitted only a few lac wealthy families of the country.

 It is top rich class people who have earned billions of rupees due to liberty given to them by clever government in the name of liberalisation, privatisation , globalisation and reformation. It is true that number of billionaires have increased from tens to a few hundreds in India and a few billionaires have also got upper ranking in the list of billionaire in the world. But the painful and bitter truth is that during last two decades , number of poor people have doubled and the intensity of poverty have multiplied.

Income of ninety per cent of population of India may have gone up by a few hundred or a few thousand of rupees , but they are still unable to afford quality food, quality education , quality health care and even pure water for their family. They cannot  dream of electricity , sanitary facility , real justice from police or judiciary or even a respectful life. 

Bankers will have to learn giving credit to real needy persons and stop distributing bank loan as charity . Government will have to learn to make legal and administrative system strong and effective to send the clear message to wilful defaulters .

GOI will have to inculcate good culture of repayment and punish those who avail bank loan and divert the money to some other corners. GOI will have to teach a lesson to bankers who after taking bribe sanction loans and then get rid of punishment .GOI will have to punish those retired bankers who indulged in reckless financing for self interest and got happy retirement. GOI will have to give value of experienced officers available in banks and discard the policy of giving whimsical promotions to youngsters in the name of so called merit .

It is the sin committed by retired bankers and present day top officials that present day bank officers in junior or mid level management are suffering and they are denied their share in wage hike.

GOI will have to stop loan waiver culture and stop building pressure on bankers for achieving credit target or for arriving at compromise settlement with defaulters.

Yes if there are genuine reasons for default, banks should cooperate , but such cooperation should not be used as a tool to conceal one's fault and malicious decision. Yes it is necessary to increase loaning to help the economy grow , but this necessity should not be used to earn illegal money.

GOI will have to learn to take decision based on the merit of the case and the real ground truth of bankers .GOI will have to stop flattery based promotion and bribery based recruitment.

When the credit approval committee or board of directors of bank are birds of same feather ,one cannot dream of healthy decisions and it will be foolish to imagine that such team of corrupt officials will ever take beneficial innovative initiative and exhibit creative performance in the larger interest of banks as well as the country.

When the committee set up for recruitment of judges or bank officers for higher post are constituted of corrupt officers and corrupt politicians, one cannot dream of judicious decision. It is therefore necessary to punish a few real and true guilty officer and guilty politicians to send a message to all others. It is necessary to boost up the morale of good, honest, hard working and performing officers to create an atmosphere conducive for growth and real achievement of target.

CBI, CVC,CVO, IB and all investigating agencies have to be used to gather information about corrupt officials of all departments including banks and then make all concerted efforts to weed out corrupt officers from the system and it is equally necessary that media  also  plays a positive role in exposing the misdeeds of corrupt officers and politicians without any bias towards any caste or community or political affiliation of the guilty person. It is the need of the hour to make all departments effective and performing, and then only common can dream of really 'Achhe din' preached by Modi and his party. 

Rising Loan Default Will spoil not onlybanks but also Kill Indian Economy And Make Lives of Bank Staff Miserable.

 

Respectable Wage Hike is a Remote Possibility. Politicians come and go , it is ultimately the bank staff who are to suffer and who have to remain always in tension either due to  low pay or due to increased work pressure.

SBI's farm credit faces default pressures on debt wavier plans-Business standard-3rd Of July 2014
State Bank of India  the country's largest lender, on Thursday said its farm loan portfolio has witnessed a rise in defaults on plans for an agriculture debt waiver scheme in Telangana and Andhra Pradesh.

"The payment discipline has been vitiated due to plans to waive off loans. At present, defaults are restricted only to these two states and hope it does not spread to other regions. The rise in defaults was not due to drought conditions," SBI Chairperson Arundhati Bhattacharya told reporters after its annual general meeting here on Thursday.

Earlier, Telangana Chief Minister K Chandrasekhara Rao had said the financial liability arising out of the debt waiver scheme would be around Rs 19,000 crore, way lower compared with the promised debt waiver size of Andhra Pradesh.

Commenting on overall pressure on asset quality, the SBI chairperson said stress in the system was less now and overall numbers should start looking better. However, some of the accounts are on edge.

The bank has sold non-performing assets (NPAs) worth Rs 3,000 crore in the quarter ended June 2014. SBI would continue to offload NPAs in each quarter. The amount could be lower as many large accounts had been dealt with, the SBI chief added.

The gross NPAs of the bank stood at 4.95 per cent at the end of March 2014, up from 4.75 per cent a year ago.

The bank posted credit growth of 13 per cent in the first quarter. It expects to grow the loan book 15-16 per cent this financial year.

Asked about capital plans, she said the bank is well capitalised at 12.44 per cent now. It has room to raise additional capital through tier-II bonds as well as use rights issue or institutional placement for equity offering.

In 2013-14, the bank had raised equity capital of Rs 8,032 crore through qualified institutional placement (QIP). The government had also infused Rs 2,000 crore in the bank.
LInk Business Standard

Letter addressed to Ex-FM---Chidambram Was Inclined Towards Merger

THE MERGER MANIA

BY S.SRINIVASAN

PRESIDENT

NUBE

It has been widely reported about the proposal to merge some of the PSU banks (Nationalized banks). These merger has been proposed by the government, specifically our Finance Minister P. Chidambaram. In the annual banking summit, the finance minister reiterated this by saying that banks should not fear consolidation and that for being a world economic super-power or for at least being one of the three largest economies, India would at least need a couple of global banks. 

The centre is nudging the capital infusion demand by the state-run banks with demands for mergers as these mergers would considerably bring down the liability on the centre for capital infusion. Currently the centre has a commitment of Rs 15888 crores of capital infusion towards state run banks to maintain the financial health of the state run banks. Over the next five years it would have to take the burden of another Rs 90000 crores for the same.

 The justification of the need for large global sized banks given by the centre was that these banks could have a larger asset base as their exposure to various sectors would be widened and their scope for financing bigger and larger projects would undoubtedly increase. Certainly the centre is adopting the policy of looking towards the west and drawing some inspiration out their ways. 

In the financial debacle of 2008, the world has witnessed how the so called global banks of USA and Europe are still gasping for breath. Ultimately many of these financial institutions and banks had to be taken over by others or had to be bailed out by the government through the respective central banks by providing grants and soft loans. Even the biggest of banks in the world, Citibank, was not spared by the recession. The state of these banks were as a result their own making and not because of circumstances that they had to bear the brunt. 

Indian banks have a large customer base and undoubtedly large amount of public money is involved. A larger loan exposure would only put the public money in unsafe domains. The more fragmented the banks are, the lesser will be the exposure wrt to size, thus making public money secure. We have already seen how the banks are reeling under pressure because of their exposure to the aviation, power generation, infrastructure, mining and agriculture sector. 

The banking sector is the pulse of the economy and decisions should be taken by keeping the long term implications in view. Even the slightest of jerks in trying times could prove fatal for the economy. Further more in this regard, these proposals are being mulled upon to create 2 or 3 global sized banks. Without doubt, the sizes of banks are being compared by keeping in view their loan books and their asset base.

But what the minister is forgetting is that we got to compare apples for apples. If we are to compare the size of our banks with that of the US, converting our financials in terms of dollars and making a pie to pie comparison would be utter foolishness. With my limited knowledge of economics and with due respect to our finance minister, it isn’t rocket science to understand that what 1 dollar means to an American is not what 1 rupee means to an Indian. We got to factor in the purchasing power of both the currencies in their respective economies for the corresponding average citizen of that country before making any comparison. Appropriate weightage should be given to this aspect in any exercise of comparing size of banks in each of these economies. 

Moreover it will be pertinent to note that the penetration of the Indian banks by their sheer enormity of the reach their customer base is something unparallel world over (SBI being the case in reference). One has to definitely give due consideration and weightage to this fact and not merely be guided by size of loan book and enormity of asset while considering the size of a bank. Thus all these points all the more make it unreasonable and unfavorable for the centre to even think about merger of banks. 

Apart from all this, the points being raised by the respective unions of all these banks are also to be considered before making any commitments. It would amount to nothing but digging our own grave or to put it more bluntly we would be cutting the hands and legs of the workers who built our very own taj mahals upon which our economy is sustaining and I sincerely hope that our finance minister wouldn’t want to take the wrath of being termed as shahjahan who made all this happen.

Another very important point of consideration is the proposal of divestment of the PSUs including the nationalized banks. No doubt it is impertinent that the government meets its fiscal demands and divestment of holdings is one of the most easiest and non-cumbersome ways to meet this end. But the unique, never-before tried out model which the centre plans to adopt in the process of divestment is alarming. 

From what we understood of what was reported in this end is that the centre plans to sell the stakes of these Banking and other PSU stocks to selected Asset management companies (AMC) and mutual funds, and these mutual funds AMCs  in turn would create a special category of securities where in these securities would derive their value from the value of the basket of these PSU stocks. These securities thus created would be issued to the public as units of exchange traded funds (ETFs) listed in the stock market through these mutual funds in the name tradable listed ETF units. 

The fact that the underlying value of these securities would be derived from that of the PSU stocks which are listed in the exchanges would garner a lot of interest in the common public, who are generally unaware of the ways of the market. This would be so because it is generally understood that PSU stocks are considered to be safe havens of investment for the common man and has a huge upside as it linked to the economy. India being projected as the next big economic super-power and a force to reckon with would furthermore add to such an understanding of the public. Keeping the present proposal in mind, the only earnings out of the securities that the mutual funds and AMCs would issue would be out the dividends that the companies (underlying stock/PSUs) declare and the capital appreciation of these stocks. How often would these companies declare dividends is a question which only time can answer and whether these stocks would ever see any capital appreciation is a question which can, to a large extent be answered by us. Such a possibility is certainly shady. Because the catch is that, the stocks of these public sector undertakings most of which are already listed in the exchanges do not reflect their true price. Their values on the exchanges are not reflective of their true value which ideally should be ascertained by market forces. 

It was already very well seen how the market reacted to the offer for sale of a few PSUs which were divested. Even though those stocks were being offered at a discount it did not garner much interest. There was hardly any buying for the better part of the period of the trading window. Towards the fag end of the trading window, it was LIC which took a lion’s share of the offer for sale, thus being a saving grace for the government. Seasoned Market players probably knew about the intricacies of these stocks. And that is why it did not garner much interest even though it was being offered at a discount.  Even in the case of the proposed divestment of PSUs through AMCs it would is highly doubtful that it would see an upside resulting in capital appreciation since the values are already fabricated. The reasons for such artificial prices are the low public holding or free float of many these shares. Probably the government does not want to face the same situation and that is why they have devised this new structure where in a mutual fund AMCs would act as an intermediary between the divesting government company and the common public.

 Ultimately the fiscal needs of the government would be satisfied, the mutual funds would have made their money but it would be the common that would have lost their hard earned money.  The average middle-class and those planning for their retirement would without hesitation enter into such a fund. And after a few quarters of capital stagnation when they decide to encash out of it they are bound to face the road block of not even fetching the face value/ purchase value of the units held by them thereby leading to a downward spiral in the value of these units when these mutual funds face redemption pressure. 

This is the same model which was the prequel leading to the November 2008 financial debacle where the securities, which derived its value from underlying subprime loans, were being issued as highly secure and AAA rated securities to the average American. They innocently entered such funds as a lucrative substitute for pension funds and got trapped.

Furthermore, the next initiative which the government plans to take in the bid to open up the economy and make reforms is the opening up of the pension sector. The dual combination of opening up of pension funds and allowing pension funds larger freedom to invest in equity and equity based securities and the so called seemingly innocent act of offering these ETFs which has the wide acceptance and belief of being safe simultaneously by the government is the most dangerous cocktail which has the potential of leading to catastrophic results which is likely to affect scores of millions of unassuming individuals, especially senior citizens and pensioners, the most vulnerable of any society.

In order to understand the ‘incentive’ driving the ministry of finance to this  merger mania/hysteria  and the various interests pushing it, it is useful to distinguish between the activities of banks as seeding-cum-cultivating agents and as harvesters on the one hand, and the activities of modern banks as over-time seekers of interest from customer activities, and their activities as point-of-time earners of fees. 

Bank mergers, like many other types of liberalization directed at increasing the wealth of rich shareholders has been a tsunami originating in the activities of US financial corporations. Their role has been that of a harvester of fruits of other institutions’ seeding and nurturing activities, and of looking for product lines involving fees for point-of-time services rather than of durable customer servicing activities. They generally provide usual banking services only to an elite band of up-marketcustomers with whom they have sought to build close relationships.……

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THE MERGER MANIA

BY S.SRINIVASAN

PRESIDENT

NUBE