Monday, January 5, 2015

How IS Banking Reformation Possible?

In 1991 Country stepped into Reformation era by launch of policy based on liberalisation, globalisation and privatisation in tune with policy dictate given by World Bank, International forums and under pressure of US linked lobby.

In unison with policy of liberalisation, privatisation and globalisation (LPG), bankers got freedom in many areas and bolts tightening the body of bank were slowly and gradually made looser. Process of Determination of Interest rate for various deposits and advances left completely free to individual banks. Process of recruitment were totally made free for each bank. Various restrictions on promotions of bank employees from one cadre to other and from one scale to other were removed and each bank made free to decide its own promotion policy discarding  seniority based on promotion.
 
It was pleaded by chiefs of all banks that due to seniority based promotion policy , they were unable to promote meritorious officer to higher post and growth of the bank was hampered due to inefficient persons getting promotion. Bankers resorted to campus recruitment and started offering higher pay of scale II or scale III to new recruitees to attract talent. They did all their best to focus on so called merit but in fact  under the mask of merit they chose to recruit and promote only inferior employees for higher post to serve their own vested interest.

Similarly ,It was argued by bankers that due to uniform interest rate regime imposed on them by RBI, they are unable to ensure quality and quantity of credit growth .Unfortunately , they financed in general to bad business men at sub prim rate, gave exorbitant concessions only to those business men who filled their pockets and thus caused rise in bad assets and caused only loss to bank by writing off loans of their close friends to fill their own pockets. They purchased bulk deposits at higher rate by bribing government officials. In this way clever bank officials sitting at top post inculcated a bad culture in public sector banks , fruits of which are now termed as sour.

Top Officials in reformation era used to plead  that if they are given absolute freedom to decide their own rate structure and own recruitment and promotion policy , there will be inter bank competition and banks will run for talented employees. But everyone knows that absolute freedom and absolute power produce absolute freedom , flattery and bribery only. Obviously outcome of freedom is now visible to all and GOI have called for Gyan Sangam.
 
Banks were nationalised in 1967 by late Indira Gandhi to serve poor mass (new term used today for it is Financial Inclusion ). Banks were taken over by the then government to fulfil social agenda and to implement various social welfare schemes through state run banks. Private banks of that period were accused by the then government that they were not serving poor people of India and hence GOI took decision to nationalise  banks. Poverty did not end but banks became poor and sick.

After 24 years of nationalisation, again GOI found that banks were not fulfilling the task of growing economy and hence policy of reformation in the name of LPG put into force. After 24 years again  , it is thought by so called well wishers of the country that the agenda of Social welfare and that of growth of the country remains unfulfilled and hence they have called banks Chiefs at  Gyan Sangam. 
 
Unfortunately after lapse of more than two decades, say after 24 years of reformation, bankers find that health of their banks is again worse than what used to be in pre-reformation era. Assets of almost all public sector banks is full of non performing assets and stressed assets or restructured assets. Volume of frauds have gone up many fold. Bank employees in general are unhappy, demotivated , frustrated and depressed. .Profitability of each PS bank has been  sharply coming down year after year   due to inter bank competition and inter bank take over of assets . It is important to mention here unhappy lot of workers cannot think of betterment of banks they serve.
 
Medicine which was considered and prescribed as Ramvan (panacea) by Pandits of banking and by so called Gurus of Reformation of period of eighties and  nineties proved as cause of all ailments banks are now suffering. Borrowers took full advantage of  this inter bank competition and banker's run for achievement of target and they became millionaire and billionaire during this period an banks became sick. Similarly top officials grew in their personal wealth but bank staff in general became poorer and exploited mass. Medicines which were prescribed  from 1991 onwards for curing so called sick banks upto the year 1990 has made banks sicker than they were during pre-reformation era.
 
It is a matter of coincidence , that after 24 years again, Chief of Banks have gathered together at Gyan Sangam (knowledge confluence)  in Pune under call of Prime Minister Mr. Narendra Modi to debate and discuss the modalities of reformation in banking and to plan strategies for success in Financial Inclusion , to grow in priority sector and to motivate Human Resource of banks.
 
In 1991 bank officials , RBI officials and the then government blamed policy of socialism for poor health of public sector banks and after 24 years the same officials and present government are blaming policy of reformation as launched, adopted, promoted and propagated in banks after 1991 in the name of reformation. And the greatest fun and irony is that Private banks which took birth in reformation era have been growing and flourishing, year after  year, quarter after quarter and day after day, that too , under same economic conditions and same global economic scene and same government
 
I reiterate here that these clever top officials of public sector  banks , clever government officials and clever ministers cannot do any good for banks and neither for the economy of the country until they are dishonest in integrity , dishonest in execution of best plan and policy framed by them. None of the plan can achieve desired success until the implementing agencies and enforcing officials are honest. and sincere to their task.  They can preach sermons on all points , they can have well worded banners, hoardings and well acted TV shows on fabricated and concocted  success stories of banks and they can falsely and fraudulently furnish figure of achievement of targets to fool government and to fool their juniors. But They cannot hide their sins for ever, bitter truth surfaces sooner or later. Sins of bankers and government officials surfaced during nineties and eighties are resurfacing in more dreadful but different shape. Assets of private banks is healthier but that of Public sector banks is moving from bad to worse and worse to worst. 
 
Now in Pune , bankers will put entire blame on Global recession, economic slowdown all over the world, adverse political situation and lastly  RBI which is not prescribing low rate of interest. I am very much sure that clever government officials and clever political masters who gathered at Pune will also admit their ill-motivated logic given for their failure and for rise in bad assets because they are equally responsible for country level loot through banks going on for decades. They will not accept that under same circumstances and same environment of global recession and economy slowdown, private banks have booked excellent rise in profit every quarter.
 
There is not doubt that old wine in new bottle will come out of marathon exercise, debate, discussion on agenda of reforming and transforming banks at Pune. Bankers , officials and politicians will get another brand name of schemes ,policies  and plans and resume their loot in new style. I may be termed negative minded , but the ground reality does not change even if clever officials and bankers crying loudly for positivity standing at Red Fort in Delhi.
 
At  most , bankers or GOI may prescribe medicine of merger and consolidation to cure ailing banks and to conceal weakness and sickness of banks. But I am fully sure that this medicine will prove more harmful and suicidal step in banking industry. Culture does not change by merger only, this has to be kept in mind. They as usual may postpone the death and dreadful disaster in banks for a very short period if they decide to change only the bottle , not the contents.
 
India is reputed for making best plans in the world but equally accused of worst in execution of plans .Every year we make plan and every year we accuse others and extraneous factors if we do not get desired success in our goal. Even if hundreds and thousands of crores of rupees are lost by ill-motivated decisions of  ED or CMD of a bank in nexus with ill-motivated political masters or business houses., none will get the punishment . This freedom given to all and this culture of excusing all faults of omission and commission in the name of credit growth and in the name of social welfare have proved suicidal for banks. Culture of punishing the honest and good performers and awarding the corrupt and non performers have resulted in growth of Non Performing assets and Non Performing Banks.
 
Let us wait what types of magic Bankers  learn from Gan Sangam  and which magic stick GOI distributes among corrupt bankers to cure ailing banks , to RBI officials to serve social agenda and finally to  ministers  to serve the country. Ultimately it is taxpayers , stake holders, shareholders, bank staff who have to suffer the pain of their evil works and it is they who have to shoulder the burden .
 
Bank staff will be denied wage hike, depositors will be denied interest rate hike, Tax payers are denied relief in tax ,share holders will be denied dividend on their share in banks , but defaulting borrowers ,will get relief in interest rate, will get relief in taxes and relief in repayment period to pay bank loan they took from banks. Health of Public sector banks will continue to deteriorate , but they will learn new tools to conceal bad debts and their evil lending .Old wine in newly branded  bottles are like to come in Market very soon.  

There appears no decline in Pain of Poor people of India and neither there appears any considerable fall  in unemployment though for last fifty years various banks as also various governments have formulated various poverty alleviation schemes and launched and implemented various unemployment eradication programmes. In the name of social welfare government prescribed targets for banks for financing to priority sector and neglected sector. But actual growth took place in non-priority sector like real estate sector, infrastructure or retail lending only benefits of which is more often than not directed towards rich class of the society. Poor have grown poorer despite all claims b previous governments that they are involved in "Garibi Hatao Abhiyan" only. 

Policy after policy for Reform has come in the market but real reforms are yet to usher in. Poverty and unemployment are still cancerous disease for the country. Water, pure food, affordable house, affordable education, affordable health care,Power, roads, cleanliness, affordable and comfortable transportation facilities are still scarce commodity for poor and downtrodden class of society.

Even bank staff who work day and night are fighting for justice in their wag hike, but there is none to listen their grievance on the ground that banks are not earning adequate profit. But when we talk of what regulating agencies and vigilance departments are doing , why bad debts are rising, why corruption is at its peak in banks, RBI says that bank in India are safer than their counterparts in other countries.
 
 Please wait.    .... Do not Lose Patience......Be Positive, Don't Lose hope ....
 
There is one silver lining. Mr. Narendra Modi PM cannot become fool so easily and Mr.Arun Jaitely , Finance Minister cannot understand wrong prescription even if it emerges and evolves after Pune Gyan Sangam.
 
Danendra Jain--3rd January 2015

 

Six areas of reforms to expect from Modi's banking retreat-Business Standard 03.01.2015

The meeting will be attended by all heads and EDs of public sector banks
It’ll be the biggest Gyan Sangam (knowledge confluence) for public sector bank (PSB) chiefs, who will be able to interact with some celebrated names in India’s financial sector and present a blueprint for the next generation of banking reforms to Prime Minister Narendra Modi.

The finance ministry, which has organised the retreat in Pune on Friday and Saturday, has ensured the participants, comprising all heads and executive directors of PSBs, apart from the finance minister and the Reserve Bank of India (RBI) governor and deputy governors, are physically and mentally charged up for the big event. That explains a ministry statement saying the second day of the retreat would begin with yoga, as well as a talk on leadership and change management by Swami Sukhbodhanand.

Not that the bankers need any stimulus to put their best foot forward. Most city-based bankers have decided to start the ‘knowledge confluence’ much before the event, deciding to hire a bus to go to Pune together.

On the first day, sector experts, including RBI Director Nachiket Mor, former UTI Bank chairman and managing director (CMD) P J Nayak, HDFC Bank deputy chief executive Paresh Sukhtankar and Bandhan CMD C S Ghosh will meet the bankers and make separate presentations on six areas — financial inclusion, technology, priority sector lending, risk management, people strategy and governance. On the second day, these groups will present recommendations, following which ICICI Bank Chairman K V Kamath will talk on the financial architecture of medium and small enterprises. At the concluding session, the groups will present the final blueprint to the prime minister.

Sources familiar with the event proceedings said a reforms blueprint was expected to be drawn for the following six areas:

Banking structure & consolidation
Though the United Progressive Alliance (UPA) government had mooted a holding company structure for PSBs, not much progress was made on this. The idea was to enable these banks to raise capital more efficiently as the government, the majority owner of such banks, is constrained in infusing fresh capital every year due to its fiscal consolidation commitment.

If the government wants to maintain its shareholding in PSBs, these banks will need Rs 2.4 lakh crore of capital till 2018. Consolidation among PSBs was pushed by former finance minister P Chidambaram. The UPA government had supported the idea, but said it would not force banks to merge, adding such proposals should come from the bank boards concerned.

Asset quality & recovery
For the sector, the biggest concern is asset quality, which has declined sharply in recent years. According to RBI data, gross non-performing assets (NPAs) in the banking system rose to 4.5 per cent of gross advances in September 2014, against 4.1 per cent in March. During the same period, total stressed assets in banks (gross NPAs + restructured advances) rose from 10 per cent to 10.7 per cent. One way to reduce bad loans is to have an effective recovery mechanism, as the current system seems inadequate.

According to latest data, for 1.86 million cases, banks approached Lok Adalats and debt recovery tribunals and used the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act in FY14 (a 78 per cent increase over the previous year). While these cases accounted for Rs 1.74 lakh crore, banks recovered only Rs 31,100 crore (18 per cent). The government is planning to make laws more stringent by amending the Sarfaesi Act, as well as laws pertaining to debt recovery tribunals, to effectively deal with bad loans, especially those being created by suspected wilful defaults.

Financial inclusion
Banks have already opened about 100 million accounts under the Pradhan Mantri Jan Dhan Yojana. However, 75 per cent of these accounts don’t have any money yet. The retreat in Pune will discuss ways to take the initiative forward and plug the loopholes in this segment.

Human resources
With a large number of middle-level staff set to retire, the central bank has termed the decade a “human resources decade”. With banks opening a huge number of accounts under the Jan Dhan scheme, they will need more branches and personnel for those.

Priority sector lending
Currently, there are uniform priority sector lending norms for all banks. It has been suggested priorities should depend on a bank’s strengths. For instance, a PSB with predominantly rural presence can have direct agriculture as the main priority. Some clarity on the issue is expected at the retreat.

Technology
While most banks are on the core banking platform, some regional rural banks are yet to adopt core banking solutions (CBS). Also, it is virtually impossible to reach the vast un-banked population in the country through a brick-and-mortar structure; technology will play a key role in expediting financial inclusion.

A multi-channel approach, through hand-held devices, mobiles, cards, micro-ATMs, branches, kiosks, etc, should be used by banks, while ensuring the transactions through such front-end devices should be seamlessly integrated with banks’ CBS. In addition, alternative channels such as social media can help banks understand customers better. These can also be used for marketing campaigns. A detailed road map on this is expected at the Pune meeting.
 

Banking reforms not restricted to mergers, says financial services secretary-Live Mint

Reforms will look at ways to improve functioning of banks and make it easier for them to raise capital, says Hasmukh Adhia
 
A blueprint of reforms across state-owned banks will not be restricted to mergers and acquisitions and will look at ways to improve the functioning of these banks and make it easier for them to raise capital, financial services secretary Hasmukh Adhia said on Friday.
 
“If we have to give better support to banks, if the banks have to play a complementary role, can we think of some other structures by which it is easy for the banks to manage their affairs, it is easy for them to get capital from the market and it is easy for them to improve the balance sheets,” Adhia said while talking to reporters at the banking retreat called Gyan Sangam being held at the National Institute of Bank Management in Pune.
Gyan Sangam is hosting chiefs of all public sector banks, along with other bankers from the industry.
 
The lenders will discuss various issues starting from financial inclusion, profitable priority sector lending (PSL), effective risk profiling and loan recovery mechanisms to consolidation and restructuring of these banks for better governance and capital efficiency.
 
“We would like to generate ideas on what could be the priority sector prescription for the banks in view of the present state of the economy. The economy has had a major shift from 1969 till now. Now we are into a different era. For example, food processing would be very important for agricultural growth, but does not feature on the PSL items,” Adhia said.
The two-day banking summit will see Prime Minister Narendra Modi interacting with bankers on Saturday. Finance minister Arun Jaitley, minister of state for finance Jayant Sinha, Reserve Bank of India (RBI) governor Raghuram Rajan are also expected to be present at the retreat.
 
At his pre-event briefing, the financial services secretary also raised the issue of high levels of stressed assets across state-owned lenders and low credit growth.
 
Stressed assets at public sector banks, which include bad debt and restructured loans, rose to 12.9% of total loans as of 30 September, according to RBI’s financial stability report released on 29 December. The ratio stood at 4.4% for private sector banks. Loan growth at state-run banks fell to 8% in the 12 months to September, 2 percentage points lower than the country’s banking system, according to a Bloomberg report on 1 January.
 
In his press briefing at the end of the first day’s sessions, the financial services secretary stated that the government was close to completing its financial inclusion agenda of opening at least one bank account for every household.
 
“As per the census, in all we have got 25 crore households in this country. With the help of banks we have divided the country in sub-service areas in rural locations and wards in urban locations. The problem is that banks have been able to survey only 21.9 crore of the households that are there,” Adhia said.
 
He said that the households left out are largely in gated communities and affluent areas, which will be away from the government’s reach. However, in case of rural households, state-owned banks have been careful in opening accounts.
 
“Out of the areas they surveyed, they have been able to cover 98.4% households,” he said.
Those who still have not had a chance to open a bank account are free to approach government banks to one now, he said.
 
http://www.livemint.com/Industry/PYbf6VtVbdqOl5q0C5pQCI/Banking-reforms-not-restricted-to-mergers-says-financial-se.html

If We stop loss caused by big 100 bank loan defaulters involving more than Rs.one lac crore of rupees  , we may not only can give a loan of Rs.50000 to one crore poor people , we may give grand wag hike to at least ten lac bank staff and we may keep the banks healthy too. I submit example of one borrower named Bhusan Steel which has been given a loan by all banks totalling to Rs.40000 crores and now they are perturbed when the account is turning bad and top officials are now shedding Crocodiles Tears.

Clever bankers caused loss in Kingfisher, Zoom Developers and many big corporate giants whose promoters are leading the most luxurious life but bank staff are crying for wage hike and poors are crying for bank loan.

Banks fret over Rs 40,000 crore loan to Bhushan Steel-DNA

Lenders to the troubled Bhushan Steel called an emergency meeting in Mumbai on Wednesday to step up pressure on the company to bring in promoter's equity of Rs 1,000 crore, so that the restructuring process can go on stream and prevent the account from turning a bad loan.

Heads of all major public sector banks participated in the meeting. A senior banker who attended the meeting told dna: "Bank chiefs have reiterated to the company to sell off all its marketable assets so that there are cash flows into the company. Banks have asked the company to sell off its Khopoli plant, near Pune, where the company converts flat steel to finished auto components part. The company will have to explore selling all assets it has, so that operating costs are minimised and cash flows generated."

With close to Rs 40,000 crore of bank money at stake, lenders have formed a steering committee with representations from State Bank of India, Punjab National Bank, Bank of India, Bank of Baroda and IDBI Bank to closely monitor the functioning of the company. Two bankers from SBI and PNB are already on the board of the company.

Another banker, who is also in the consortium, said the company sold off its oxygen plants but the money still is yet to come from the buyer."

However, bankers fear that the loan may slip into a default with Bhushan posting a net loss of Rs 141.63 crore in the quarter ended June 30 as against a net profit of Rs 76.26 crore in the same period a year ago.

A banker, who is part of the consortium, said, "The company needs to co-operate with bankers to take whatever steps are required to ensure cash flows. The company went on an aggressive expansion, so they also have to sell off these power plants, which are not captive."

The company blames the fire at its steel plant in Odisha's Dhenkanal district in November last year for its present state of affairs. After the fire, Bhushan Steel had to devise corrective action plans along with bankers to get out of stress.

Bhushan Steel was sanctioned around Rs 6,900 crore by banks for restarting operations at its Odisha plant which caught fire. The company has received Rs 3,000 crore, and the remaining portion of the funds are expected to be disbursed.

As per the restructuring plan, company was asked to sell its non-core assets and lease them back, or raise funds through qualified institutional placement, which would have led to reduction in promoter holding.

Out of the three plants, its Khopoli (Maharashtra) and Sahidabad (Uttar Pradesh) plants are running at 90% capacity. The third plant at Dhenkanal was shut for 6-7 months and is currently running half its capacity.

As on January 1, the company's market cap has shrunk nearly one-sixth to Rs 2,001 crore as its share price tanked from Rs 480 levels to Rs 88.35 over the last one year. The promoters, Singal family, holds a 63.24% stake with Brij Bhushan Singhal, founder chairman, holding 19.31% stake, as on quarter ended September 2014

Bhushan Steel is India's third-largest secondary steel producer company with an existing capacity of 2 million tonnes per annum.

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