Saturday, July 26, 2014

Sickness In Public Sector Bank

Inspite of all efforts said to have been taken by Reserve bank of India and Ministry of Finance, stress assets in public sector banks are relentlessly increasing. Every quarter some bank of the other exhibit rise in bad debts and fall in profit. In the quarter ended June 14 some banks like PNB, Indian Bank, Allahabad bank have already declared bad results. 

Only difference is that some officials of some banks are clever and some are less clever. Some banks get success in concealing bad debts in March Quarter and some others in some other quarter. Some banks are expert in art of hiding Non Performing Assets by adopting the process of evergreening of loan and some other are apt in process of restructure, reschedule and rephasing the bad loan so that it remains in standard category. Some other banks are selling bad debts to Asset Recovery Companies and some other banks are sacrificing good money of banks by giving extraordinary discounts to bad borrowers to recover the money and some others think it wise to write off bad loans.  

None of the bankers are interested in real improvement of quality of lending and effective steps for recovery of dues form bad borrowers,  , I say none because majority of top officials are bent upon simply hiding the bad loans by applying easy tools so that they may win the heart of clever politicians. Government of India or governments of states are little interested in recovery of loans from bad borrowers because they focus only on credit growth, rightly or wrongly. Politicians are themselves beneficiary of bad loans directly or indirectly and hence they do not like to have strong legal action against bad borrowers. 

This is why officials in judiciary and in administration or in Debt Recovery Tribunals show casual approach towards recovery and hence cases against bad borrowers do not result in real recovery. There is sharp rise in bank cases for recovery pending in various courts. Officials believe in peace process or you may say postponement of remedial measures so that they may retire from banks peacefully without facing any penal action. Bad borrowers who have taken crores of rupees in loan and who are not willfully repaying the dues lead luxurious life, change their firm's name or start business and lastly declare them bankrupt. 

Bank officials or RBI officials do not like to nip in the bud , they willfully and strategically delay the process of recovery and during this delay period , borrowers manage their assets and discover ways to safeguard them from bank's action. Two to three decades ago United bank, Indian Bank and UCO bank were identified as bad banks and there news of merging them with other stronger bank. But clever politicians in nexus with clever bank officials manipulated Balance sheet of these banks and kept the bank as standard. Now after two decades symptom of sickness are again surfacing not only in these three banks , but almost in all banks, even in so called strong banks like State Bank, Punjab National Bank, Bank of India and so on. 

If forensic audit of all these banks are carried out honestly, I think greater scam will come on the surface. Fraudulent activities are persistently and consistently going on in recruitment, promotion, lending, developing infrastructure, opening of new branches, opening of new ATM etc will come to light and people of India as well as bank staff who are denied wage hike for less profitability of banks will also understand the ground reality of banks.

There is not only mismatch in assets and liabilities of public sector banks but also in Human resource of these banks. Liquidity problems of these banks are self created problem. They mobilize short term fund to lend in infrastructure projects. They lend money to write off or to sacrifice bank’s fund in compromise. It is only public money which is sacrificed on the altar of self-oriented motives.

Some banks although book profit but they are unable to earn profit which they should earn in real sense. Profitability is on continuous downfall trend.

Similarly these banks recruit bank staff sometimes in scale I and sometimes in scale II and scale III. It means they are using liberty to give benefits to some officers and deprive others of rise in career. 30 years experienced officers are paid same salary as three year old officer. This happens in these banks only. Officers are not getting promotion in thirty years and some officers are getting promotion in three years. This mismatch has damaged the fundamental work culture and promoted flattery and bribery culture and this bad culture as a matter of fact forms the root cause of downfall of these banks.

RBI conducted forensic audit of United bank and that of Allahabad bank a few months ago, but the outcome is not known to common men of India. Every report is managed and manipulated as per whims and fancies of politicians. This is why system does not change; only new rules and policies are framed. Old wine in new bottle has become the working style of bank, politicians and Government as a whole. Neither judiciary nor administration nor police officials nor CBI and CVC nor auditing officials can function honestly and devotedly for the sake of growth of India.

It is quite evident from news appearing in Newspaper pertaining to United Bank and ongoing forensic audit , that health of United Bank of India is now critical and RBI has thought it better to keep it in ICU (Intensive Care Unit) by stopping new loans. 

It is though too late for RBI and Ministry of Finance to understand and realize the deep rooted mess prevalent in United Bank in particular and in all public sector banks in general. Still RBI is not ready to understand that health of almost all banks is almost similar to United bank .They do not want to attract the displeasure of corrupt ministers who appointed corrupt officials as ED and CMDs of the past.

 Only difference is that case of UBI is exposed by unbiased and bold CMD of the bank whereas CMDs of other banks are still hesitant and timid to declare their real volume of bad assets .It is because majority of them know that it is only the top officials of these banks who sanctioned high value loans to serve their vested interest willfully sacrificing the interest of the bank as also that of bank staff.

 RBI should at least now call the explanation of past EDs and CMDs of United Bank to know why they failed to stop rise in bad assets and why they continue to loot or allow the loot in the bank in the name of credit growth and to please the ministers and politicians. 

Will RBI now at least  fix accountability on top officials as also on ministers and RBI officials who  were indirectly involved and indulged in reckless lending and careless monitoring of credit made by them. 

Will RBI now ask retired ( or those who are posted in other bank now)  EDs and CMDs why they concealed bad debts for years together? 

It is to be noted here that NPA which are now coming on the floor are not newly created NPA but simply exposure of NPA hidden willfully for years and decades. 

Even now it is open secret that majority of bankers are unethical evergreening process to keep bad debts in standard category. By their dirty tools CMD and EDs of every band used to project attractive balance sheet and win the hearts of Minister but spoil the future of all including bank staff, bank customers and investors in the bank.

It is very easy to penalize junior and middle level officers of the bank and deny bank staff their right of respectable wage hike but it is very hard to accept the truth and punish the real guilty top officials of the banks as also of the government. I condemn FM who holds bank staff responsible for rise in bad debts and for fall in profits of the banks and then deny bank staff a respectable wage hike saying that entire profit of banks cannot be given in wage hike. FM should introspect to find out who are real culprits for fall in profits of the banks.

Last but not the least 

Are politicians not responsible for polluting and damaging the credit discipline and repayment culture in banks by using Loan Melas and then by advocating write off and compromise to enhance their vote banks? 

It is only politicians who are primarily responsible for the current poor health of banks. When protectors become destructers ,none can save banks from further damage.

Great writer late Munsi Presmchand said long ago   

"jab rakshak hi bhakshak ban jaye to vinash nischit hai"

Also Read

RBI fines 12 banks Rs 1.5 crore for Deccan Chronicle default-Times of India

MUMBAI: Reserve Bank of India has fined 12 banks Rs 1.5 crore ​​for not following proper guidelines in advancing loans to the Deccan Chronicle group which has defaulted to the extent of Rs ​4000 crore.

​The Reserve Bank had carried out a scrutiny of the loan and current accounts of Deccan Chronicle Holdings Ltd., in certain branches of these banks in late 2013. Based on the findings of the scrutiny, the Reserve Bank issued show cause notices to these banks in March 2014, to which the individual banks submitted written replies. " After considering the facts of each case and the individual bank's reply, as also, the personal submissions etc., by some of the banks before its Committee of Executive Directors, the Reserve Bank came to the conclusion that some of the violations were substantiated and warranted imposition of monetary penalty," said RBI in a statement.

The 12 banks that have been fined are Andhra Bank (Rs 10 lakh), Axis Bank (Rs 15 lakh), Canara bank (Rs 10 lakh), Corporation Bank (Rs 10 lakh), HDFC Bank (Rs 5 lakh), ICICI Bank (Rs 40 lakh), IDBI Bank (Rs 15 lakh), IndusInd Bank (Rs 10 lakh), Kotak Mahindra Bank (Rs 10 lakh), Ratnakar Bank (Rs 5 lakh), State Bank of Hyderabad (Rs 10 lakh), and Yes Bank (Rs 10 lakh)as determined above.

What was unusual about the loans was that these advances were not backed by enough security. The mortgaged assets are expected to fetch a third of the loan exposure. Secondly, most of the lenders were unaware of the extent of leverage by the company and the exposure of other lenders to the group. Sources said that RBI was shocked that advances were made by lenders without speaking to each other.

​T​his action is not intended to pronounce upon the validity of any transaction or agreement entered into between the concerned bank and the borrower the central bank said.​

​In July, Canara Bank, which has an exposure of Rs 350 crore to Deccan Chronicle, said that the company's promoters had approached the bank for restructuring. However the bank had asked for a one-time settlement as the promoters might not be in a position to meet the huge funding requirement.
Last year the Central Bureau of Investigation had filed a case of cheating, fraud and criminal conspiracy against Deccan Chronicle Holdings chairman T Venkattram Reddy, vice-chairman and managing director T Vinayak Ravi Reddy , vice chairman PK Iyer as well as the company's auditors CB Mouli & Associates.

Bad loans take a toll on AllBank net--The Telegraph

Calcutta, July 25: Public sector Allahabad Bank has reported a 72.71 per cent dip in net profit at Rs 112.7 crore in the first quarter ended June.

Net profit stood at Rs 413.09 crore in the same period a year ago.
The city-based lender’s bottomline was dragged down by a sharp rise in provisioning to offset an increase in bad loans.

Profit from treasury operations was also lower at Rs 203.31 crore against Rs 206.54 crore in the same period a year ago.

The bank’s total provisioning during the quarter stood at Rs 851.94 crore against Rs 445.50 crore in the year-ago quarter.

Gross non-performing assets (NPA) increased to Rs 7,619.06 crore from Rs 6,164.47 crore a year ago. Gross NPA, as percentage of advances, was 5.48 per cent against 4.78 per cent a year ago.

Net NPA stood at Rs 5,271.74 crore against Rs 4,921.74 crore. Tax expenses increased to Rs 254.87 crore from Rs 163.33 crore in year ago period.
Net interest income — the difference between interest earned and interest spent — increased 22.7 per cent to Rs 1,609.7 crore from Rs 1,312 crore in the corresponding year-go quarter.

As a result, the capital adequacy ratio under Basel II norms declined to 10.25 per cent from 11.07 per cent a year ago. According to Basel III norms, the ratio fell to 9.99 per cent from 10.60 per cent.

At the end of the quarter, the bank’s total business grew 4.24 per cent to Rs 3,22,231.19 crore.

There was a rise in credit to both agriculture as well small scale industries. Credit to the agriculture sector grew 30.54 per cent to Rs 23,243 crore from Rs 17,805 crore a year ago. Loans to the retail sector stood at Rs 19,635.72 crore against Rs 17,757.87 crore .

Chairman and managing director Rakesh Sethi had identified these sectors as the focus areas in the absence of lack of appetite for loans from the corporate sector.
The bank is planning to achieve a total business of Rs 3,80,000 crore by March 2015, a growth of 14.54 per cent.
The Allahabad Bank scrip today ended at Rs 118.75, an increase of 1.28 per cent over the previous close on the BSE

No comments:

Post a Comment