Government is trying to appoint best officers for the vacant posts of Executive Directors, Managing Directors and CEO or Chief of bank but could not get success . Many banks are without ED and CMD. Bank without head of bank will suffer in many parameters, there is no doubt in it. But if branch runs without Branch Head or with poor quality of officers , volume of loss is bigger and wide spread. History of promotions which took place during last one or two decades will prove that merit is of no use for getting promotions to higher scale and higher post. One needs backing of some VIP and / or need to arrange some bribe for seniors to get elevation in career.
Top officials on the other hand complain of crisis of senior officers for key posts, In my opinion , this excuse is absolutely false and unbelievable. Even now, each public sector bank has many senior officers and senior clerks and this is why average age of public bank is far more than that of private banks. Bitter truth is that talented seniors have been forced to work in junior posts and have been forced to work under the leadership of incompetent and inefficient officers sitting at higher post. This is because only flatterers and bribe earners are promoted to higher scale and posted at higher post. Incompetent and inefficient officers are getting promotion every two or three years whereas officers with experience of two to three decades are working on insignificant post. Good performers think do not participate in Interview because they know that they will not be promoted.
To add fuel to fire ,Government has been imposing various non-productive and economic non-viable works to public sector banks for last few decades. Present government too has imposed additional various schemes on banks which will further destroy future of public banks. Top officials are inclined to please Ministers and for this purpose , they have advised all subordinate officers to focus on quickest completion of task of insurance as directed by FM and PM. As a result , regular customers of bank who provided good business to public banks are being ignored by bank staff. to please their immediate bosses. Self interest is prime objective of bank officials than that of the bank they serve. Outcome will surely affect business adversely, increase volume of bad assets and destroy standard of customer service and finally business will be taken over by private banks.
Government does not think it necessary to assess whether banks have adequate quality manpower . Government has forced banks to indulge in non-banking activities like insurance, demat, stock trading , portfolio management etc which has adversely affected banking activities and bank's profitability . It is true that banks earn a few crore of rupees as non-interest income by doing non-banking jobs like insurance , but it is also true that by such avoidable work, management of bank have caused loss to bank amounting to hundreds and thousands of crores of rupees every quarter due to rise in bad assets and rise in frauds.
I therefore appeal to learned Finance Minister and matured Prime Minister to study in depth the reality of public banks and then impose work like opening of accounts , linking of account to insurance, selling of insurance products etc . It is not prudent, justified and desirable to be "penny wise and pound foolish". There is a proverb " Gau Marker Juta Dan" Bank assets worth lacs of crore of rupees is at stake and bank officials are made busy in works which will further add fuel to fire and which will aggravate the miseries of sick banks. Banks are already burning and government is carelessly sprinkling oil on it.
Branch expansion undertaken by banks during seventies and eighties under the pressure of the then government , banks had to incur heavy losses .Now in the name of financial inclusion , banks are undertaking reckless expansion of branches and ATM and thus causing direct loss to bank. During nineties, in the era of reformation, banks were advised to earn profit and compete with private banks . But government did not take any step to change culture of bankers and politicians did not stop misuse of banks for vote bank. As a result, sickness of public banks grew unabated and it will continue to move from bad to worse.
Government banks could expand their branch network or could spread its ATM network . Mere expansion can help in increasing business for some short period but ultimately it affects profitability of bank in the long run if the expansion takes place without perfect planning and without perfect supporting infrastructure and quality manpower planning. Unfortunately clever bankers could not do real business as private bankers despite disproportionate expansion.
However, to cope with adverse situation, clever bankers manipulated books of account, concealed bad assets , avoided provisions , curtailed staff benefits and did a lot of unfair acts to inflate profit and business by window dressing. But the volume of sins committed by them have been exposed by Technology . Now these banks are facing crisis due to bad debts and due to bad officers. For last five years and more, volume of bad assets and stressed assets and frauds in each public sector bank has been increasing every quarter despite all efforts appear to have been taken by top officials and government of India.
Government will have to strike at the root of sickness and try to cure from the root instead of making surgical operation on the surface by changing ED or CMD of bank or by bifurcating the post of CMD. Bankers who are clever accuse interest rate for poor growth in credit or for poor asset quality and it is funny that even RBI and FM accept their fake excuse wilfully and strategically made to conceal evil deeds of bankers and politicians.
It will be important to point out here that FMs like Pranab Da, Manmohan Singh and Chidambram damaged the fundamentals of public bank during ten years rule f UPA by forcing bankers to use short term fund to use in lending to infrastructure projects, power sector and high value industries of bad corporate houses. They damaged the culture of repayment by waiver schemes and by forcing bank to compromise with bad borrowers. Present government is affecting banks badly by engaging their services in non-productive services like zero balance accounts and insurance activities. It will be better if government declare that public banks are not profit entity and will be used to accomplish social welfare schemes only and there will be no target for profits. And then , it will be also justified to give a good wage hike to bankers to make them loyal and devoted workers in line with employees of central government.
The human resources crisis at public sector banks-LiveMint By Tamal Bandyopadhyay
If the govt isn’t able to identify the chiefs of those banks where the top positions have been lying vacant for months, by end-June, corner offices of seven public sector banks will turn vacant
C.V.R. Rajendran, chairman and managing director (CMD) of Andhra Bank, retired on 30 April. V.R. Iyer, CMD of Bank of India, will retire by the end of this month and M.S. Raghavan, IDBI Bank Ltd’s CMD, will retire at the end of June. If the government, the majority owner of the public sector banks (PSBs), is not able to identify the chiefs of those banks where the top positions have been lying vacant for months, by end-June, corner offices of seven PSBs will turn vacant. Four other banks that do not have occupants in their corner offices for months now are Bank of Baroda, Canara Bank, Punjab National Bank and Syndicate Bank.
A few months back, the government split the top position in the PSBs. It was decided that here would be a non-executive chairman to guide the board of such banks while the day-to-day management would be looked after by a managing director (MD) and chief executive officer (CEO). In sync with this, the new heads of PSBs who have been appointed in past few months (at United Bank of India, Oriental Bank of Commerce, Indian Overseas Bank and Vijaya Bank) are called MD and CEO. When Indian Bank CMD T.M. Bhasin’s term ended last month, he got an extension (as he is not 60 as yet) but his designation has changed.
Top positions at three large banks (Punjab National Bank, Bank of Baroda and Canara Bank) have remained vacant and two more will fall vacant in the next two months (Bank of India and IDBI Bank) simply because the government has not been able to find suitable candidates to fill the vacancies. In other words, there are no serious takers for such posts—not a very happy omen for the PSBs, which have a roughly 70% market share in the Indian banking industry’s assets.
Making a deviation from the normal appointment process, where executive directors are promoted to head banks, being picked up by an appointment committee of the finance ministry, the government is scouting for talent from the open market for the chiefs of the so-called category 1 banks, which have a balance sheet size of at least Rs.3 trillion each.
However, the search is not yielding the desired results. Initially, the government looked for candidates not more than 55 years old and with at least three years of board-level experience, but since the response was muted, the government has relaxed the eligibility criteria. While the age limit has been increased to 57 years, the mandatory board-level experience for the applicants has been reduced to one year. I am told that many junior executives of PSBs who have board-level experience by virtue of heading regional rural banks applied for the top posts in the first round and the government had no choice but to relax the criteria in search of the right candidates. An external head-hunting agency—Hay Group—is believed to be involved in the recruitment process.
The vacuum at the top is the proverbial tip of the iceberg. The talent crunch is evident across the spectrum and, to make matters worse, there will be a large-scale retirement of senior employees over the next few years. Junior finance minister Jayant Sinha, in a written reply in the Rajya Sabha, the upper house of Parliament, recently said that about 25% of the staff would retire by 2020. Going by a 2013 McKinsey and Co. report on the Indian banking structure, 87% of general managers of PSBs will superannuate by 2016-17 and between 60% and 90% of deputy general managers will hang up their boots by that time. General managers, who are placed two levels below the level of the managing director, are a very critical cog in the wheel of the decision-making process in PSBs. The Reserve Bank of India (RBI) has termed 2010-20 as the “decade of retirement” for public sector banks.
These banks went on a recruitment overdrive in the 1980s after they were nationalized but once the massive balance sheet clean-up drive was launched in the mid-1990s following the introduction of income-recognition norms, there was a blanket ban on new recruitments. And, on top of that, early this century, about 125,000 bank employees were shown the door through a voluntary retirement scheme after these banks embraced computerization, albeit reluctantly. New recruitments have started, but they have not been able to keep pace with the growth in business and retirement of old colleagues.
How are the banks filling in the vacancies at senior level? Most have fast-tracked the promotion process and senior executives are now being produced on a conveyor belt. In the absence of proper grooming, many among the over-promoted executives are just not equipped to meet the business exigencies.
Meanwhile, the government has constituted a panel, headed by RBI governor Raghuram Rajan, to select non-executive chairmen in PSBs. Other members of the panel are Usha Thorat, a former RBI deputy governor; Hasmukh Adhia, secretary of financial services in the ministry of finance; and N. Vaghul, former chairman of Industrial Credit and Investment Corp. of India Ltd, the erstwhile financial institution. The panel will prepare the eligibility norms, such as maximum age, qualification and tenure, as well as identify the candidates. Let’s hope and pray that retired bureaucrats do not end up hijacking the posts.
In the second half of the last fiscal year, the entire public sector banking industry threw its weight behind the Pradhan Mantri Jan-Dhan Yojana (PMJDY), the flagship financial inclusion programme of the National Democratic Alliance government, which saw a record 140 million bank accounts being opened. The bankers are once again busy linking health insurance and pension schemes to PMJDY to ensure flow of money into such accounts. When will they have time to recruit staff and groom them? I am also curious to know whether appointment of bank bosses features on the government’s priority list.
http://www.livemint.com/Opinion/jKhWll6Jv6xcZyjpPqCGBI/HR-crisis-at-public-sector-banks.html
My Opinion On suggestion given by RBI to Bank Boards to do scrutiny of financials, asset quality and threats to banks is given below ( copy of news item in this regard is given below)
RBI has advised bank boards to do detailed scrutiny of their quarterly and annual financial results during board discussions. It appears to be nothing more than ridiculous and a clever step by RBI to put the onus of correctness and genuineness of financial result on bank boards .
It is the duty of RBI to ensure correctness of financial results announced by various banks including private banks to avoid repetition of stories like that of Satyam Computers. It is the duty of RBI to carry out random checking of bank financials and internal working from time to time to create good culture and to stop fraud and manipulation in banks. RBI officials used to audit in seventies and eighties but gradually they stopped this culture because they are also not adequately manned to cope with the work load needed to properly audit thousands of branches .It is therefore not surprising they too shake hands with clever bank officials and indirectly favour culture of manipulation. Even politicians do not like exposure of bad health of banks .They all are birds of same feather.
RBI is therefore bent upon avoiding owning the responsibility of fraudulent games played by CEOs of banks in hiding bad assets. RBI officials understand very well that huge volume of stressed assets in Public sector banks is concealed by bank officials in nexus with team of Chartered Accountants who certify the correctness of financial results, correctness of profit , provision and bad assets.
RBI also knows very well that volume of bad assets will continue to rise every quarter and no power on earth can stop it , can reduce the speed of assets turning bad until there is change of hearts and change in attitude of credit officials of banks, change in mindset of dirty politicians who are least bothered of quality of assets but more concerned about vote bank and lending and until there is change of heart of officials and magistrates sitting in various administrative offices, courts, police department, DRTc etc.
Here it would like to add here that it is the team of Charted Accountants who are supposed to be more intelligent and talented and who are the competent and legal bodies to certify the correctness of financials of all companies and banks, certify bad assets as standard assets in nexus with bank officials and in lieu of some costly gifts and red carpet welcome extended to them by bank officials..
It is CAs who guide banks how to conceal bad advances , how to lend money to bad borrowers, how to manipulate financials to inflate profit and reduce provisions against bad loans. It is team of CAs who guide business men how to evade tax and how to use black money in real estate or in business itself. It is team of CAs who sign on balance sheet of branches of banks blindly or in greed of some valuable gifts. It is team of CAs who sell their signature at every point of business , at every point of compliance and certification. Gift culture at all levels make the case of certification easy .
Bank officials have been in habit of concealing bad asses to please their bosses, A Branch Manager of a branch try to please his Regional Head,, a RH may try to please his Zonal Head and all try to keep the Chief of Bank in good mood and for this purpose they all have to conceal bad assets .If any officer or any team of CAs dare declaring bad assets as bad asset truly, their career is sure to be doomed. O the contrary officers and CAs who are clever in concealing bad debts are promoted and their career is brightened.
Every quarter bank Chiefs promise that the health of bank will improve from next quarter . They book good profit in one quarter and show drastic fall in profit in next quarter. This clever hide and seek game of figures has been continuing for last ten years and specially after from the period when bank became technology friendly .
The bitter truth is that neither RBI , nor bank officials, nor team of CAs and nor politicians want to say spade a spade . They all are so called positive-minded and it is their compulsion to show banks as healthy so that evil works are not exposed. It is their compulsion to conceal bad assets and to book more and more false profits and projects banks as prosperous so that investors and customers of banks do not lose trust on PS banks.
If a NPA of a bank rises, investors will avoid investing in share of such banks, business men will not like to park their fund in such banks and will not like to borrower money from such banks, RBI officials will have to face the awkward position before ministers, and finally politicians will have to face the anger of common men whose hard earned money will be at stake in case of bank going weak and finally sink.
It is therefore wrong to believe that bank board will be able to find out or detect the fraud game played by CAs and clever bank officials . After all , if they say bad assets as bad , it will tantamount to digging own grave. When protectors become looters, none can save us from disaster. When team of CAs can be bought , when bank officials are bought, when legal officials are bought ,when politicians are bought and when every good certificate of good health can be bought by every officer , RBI should not expect correctness of financials of any bank in particular and any company in general .
Similarly art of Tax evasion taught by CAs to business community help in creation of black money in the system in nexus with tax officials, Hence it will be wrong to blame business community or any individual for tax evasion or for buying a landed property at higher rate but registering at lower rate using black money. It is a well established culture in India and to stop the same is nothing but hard nut to crack . Even politicians cannot survive without black money , how others will stop playing with powers of black money. Culture of flattery will end as soon as culture of dishonesty is stopped. None will like it from core of their heart . All want others to be his or her yesman .
If RBI officials , to begin with ,make a through scrutiny of all accounts of all borrowers who have been enjoying credit facility of more than 100 or 50 crore , the bitter truth of bad debts will come to surface, provided however that bank officials are kept miles away from the place where scrutiny is taking place and provided talented team of CAs are not allowed to talk to any borrower and any bank officials during the period of audit and inspection and entire task is conducted before CCTV and financially expert team of media men.
If RBI does not have enough manpower even to make scrutiny of Rs.100 crore borrower, they may start the task with scrutiny of books of best five banks . If it is proved that banks considered as best performers are best only due to best manipulation and fraudulent placing of figures only , it will become crystal clear to all concerned that the crisis in public bank is more deep rooted , bad culture is imbibed in DNA of all concerned and to stop the culture of manipulation in PS banks is nothing but wondering in dreamland.
It is worthwhile to mention here that proposals of loans and advances of Rs.50 crore or Rs.100 crore and above are sanctioned by none other than bank boards . It is bank boards which are supposed to monitor the health of high value loans . How it is then possible for such bank boards to doubt financials certified by CAs ? It is just like asking a thief to investigate the act of stealing and punish the culprit. There is invariably an unity among dishonest and corrupt officials . They all try to save each other in their mutual self interest. It may be kept in mind that each bank board is manned by RBI directors also.
If a Branch Head says that loan sanctioned by his predecessor is bad due to bad lending or bribe led lending, he will have to face the same precarious situation when his successor joins his branch after his transfer. As such each officer thinks it better and safe to hide bad loans by hook or by crook to save his colleague from punitive action and to avoid rejection in promotion processes. This culture is well established at all levels of management.
My Opinion On suggestion given by RBI to Bank Boards to do scrutiny of financials, asset quality and threats to banks is given below ( copy of news item in this regard is given below)
RBI has advised bank boards to do detailed scrutiny of their quarterly and annual financial results during board discussions. It appears to be nothing more than ridiculous and a clever step by RBI to put the onus of correctness and genuineness of financial result on bank boards .
It is the duty of RBI to ensure correctness of financial results announced by various banks including private banks to avoid repetition of stories like that of Satyam Computers. It is the duty of RBI to carry out random checking of bank financials and internal working from time to time to create good culture and to stop fraud and manipulation in banks. RBI officials used to audit in seventies and eighties but gradually they stopped this culture because they are also not adequately manned to cope with the work load needed to properly audit thousands of branches .It is therefore not surprising they too shake hands with clever bank officials and indirectly favour culture of manipulation. Even politicians do not like exposure of bad health of banks .They all are birds of same feather.
RBI is therefore bent upon avoiding owning the responsibility of fraudulent games played by CEOs of banks in hiding bad assets. RBI officials understand very well that huge volume of stressed assets in Public sector banks is concealed by bank officials in nexus with team of Chartered Accountants who certify the correctness of financial results, correctness of profit , provision and bad assets.
RBI also knows very well that volume of bad assets will continue to rise every quarter and no power on earth can stop it , can reduce the speed of assets turning bad until there is change of hearts and change in attitude of credit officials of banks, change in mindset of dirty politicians who are least bothered of quality of assets but more concerned about vote bank and lending and until there is change of heart of officials and magistrates sitting in various administrative offices, courts, police department, DRTc etc.
Here it would like to add here that it is the team of Charted Accountants who are supposed to be more intelligent and talented and who are the competent and legal bodies to certify the correctness of financials of all companies and banks, certify bad assets as standard assets in nexus with bank officials and in lieu of some costly gifts and red carpet welcome extended to them by bank officials..
It is CAs who guide banks how to conceal bad advances , how to lend money to bad borrowers, how to manipulate financials to inflate profit and reduce provisions against bad loans. It is team of CAs who guide business men how to evade tax and how to use black money in real estate or in business itself. It is team of CAs who sign on balance sheet of branches of banks blindly or in greed of some valuable gifts. It is team of CAs who sell their signature at every point of business , at every point of compliance and certification. Gift culture at all levels make the case of certification easy .
Bank officials have been in habit of concealing bad asses to please their bosses, A Branch Manager of a branch try to please his Regional Head,, a RH may try to please his Zonal Head and all try to keep the Chief of Bank in good mood and for this purpose they all have to conceal bad assets .If any officer or any team of CAs dare declaring bad assets as bad asset truly, their career is sure to be doomed. O the contrary officers and CAs who are clever in concealing bad debts are promoted and their career is brightened.
Every quarter bank Chiefs promise that the health of bank will improve from next quarter . They book good profit in one quarter and show drastic fall in profit in next quarter. This clever hide and seek game of figures has been continuing for last ten years and specially after from the period when bank became technology friendly .
The bitter truth is that neither RBI , nor bank officials, nor team of CAs and nor politicians want to say spade a spade . They all are so called positive-minded and it is their compulsion to show banks as healthy so that evil works are not exposed. It is their compulsion to conceal bad assets and to book more and more false profits and projects banks as prosperous so that investors and customers of banks do not lose trust on PS banks.
If a NPA of a bank rises, investors will avoid investing in share of such banks, business men will not like to park their fund in such banks and will not like to borrower money from such banks, RBI officials will have to face the awkward position before ministers, and finally politicians will have to face the anger of common men whose hard earned money will be at stake in case of bank going weak and finally sink.
It is therefore wrong to believe that bank board will be able to find out or detect the fraud game played by CAs and clever bank officials . After all , if they say bad assets as bad , it will tantamount to digging own grave. When protectors become looters, none can save us from disaster. When team of CAs can be bought , when bank officials are bought, when legal officials are bought ,when politicians are bought and when every good certificate of good health can be bought by every officer , RBI should not expect correctness of financials of any bank in particular and any company in general .
Similarly art of Tax evasion taught by CAs to business community help in creation of black money in the system in nexus with tax officials, Hence it will be wrong to blame business community or any individual for tax evasion or for buying a landed property at higher rate but registering at lower rate using black money. It is a well established culture in India and to stop the same is nothing but hard nut to crack . Even politicians cannot survive without black money , how others will stop playing with powers of black money. Culture of flattery will end as soon as culture of dishonesty is stopped. None will like it from core of their heart . All want others to be his or her yesman .
If RBI officials , to begin with ,make a through scrutiny of all accounts of all borrowers who have been enjoying credit facility of more than 100 or 50 crore , the bitter truth of bad debts will come to surface, provided however that bank officials are kept miles away from the place where scrutiny is taking place and provided talented team of CAs are not allowed to talk to any borrower and any bank officials during the period of audit and inspection and entire task is conducted before CCTV and financially expert team of media men.
If RBI does not have enough manpower even to make scrutiny of Rs.100 crore borrower, they may start the task with scrutiny of books of best five banks . If it is proved that banks considered as best performers are best only due to best manipulation and fraudulent placing of figures only , it will become crystal clear to all concerned that the crisis in public bank is more deep rooted , bad culture is imbibed in DNA of all concerned and to stop the culture of manipulation in PS banks is nothing but wondering in dreamland.
It is worthwhile to mention here that proposals of loans and advances of Rs.50 crore or Rs.100 crore and above are sanctioned by none other than bank boards . It is bank boards which are supposed to monitor the health of high value loans . How it is then possible for such bank boards to doubt financials certified by CAs ? It is just like asking a thief to investigate the act of stealing and punish the culprit. There is invariably an unity among dishonest and corrupt officials . They all try to save each other in their mutual self interest. It may be kept in mind that each bank board is manned by RBI directors also.
If a Branch Head says that loan sanctioned by his predecessor is bad due to bad lending or bribe led lending, he will have to face the same precarious situation when his successor joins his branch after his transfer. As such each officer thinks it better and safe to hide bad loans by hook or by crook to save his colleague from punitive action and to avoid rejection in promotion processes. This culture is well established at all levels of management.
RBI says bank boards to do detailed scrutiny of financial results-Business Standard-15.05.2015
RBI said bank boards should look at financial reports and their integrity, including NPA management
The Reserve Bank of India (RBI) has said bank boards should do a detailed scrutiny of their quarterly and annual financial results in their board discussions. According to seven critical themes prescribed by the P J Nayak committee, instituted by RBI that reviewed bank boards’ governance, the latter should look at their financial reports, including non-performing assets (NPAs) management and reported NPA and provisioning integrity.
In the first bi-monthly monetary policy statement of 2015-16, RBI had proposed to do away with the Calendar of Reviews and replace it with the seven critical themes. These include business strategy, financial reports and their integrity, risk, compliance, customer protection, financial inclusion and human resources.
RBI said it has been observed that the Calendar of Reviews uses considerable board time and, as a result, the board might not be in a position to give focused attention to matters of strategic and financial importance. The committee had also recommended that discussions in the boards need to be upgraded and greater focus should be given to strategic issues.
According to RBI, business strategy would include development of new products; competitiveness of individual businesses; business reviews in relation to targets. Risks would include policies concerning credit, operational, market, liquidity risks; assessing the independence of the risk function.
Compliance would include regulatory requirements; adherence to the RBI and Securities and Exchange Board of India norms; observations from the annual financial inspection by RBI, among others.
Customer protection would look at mis-selling, particularly third-party products; laying down the appropriateness of products to different customer segments; understanding the broad trends among others. Financial inclusion would look into review of priority sector lending; payments for the disadvantaged; deposit mobilisation from weaker sections; support to microfinance institutions; and other issues.
The theme human resources would look at appointments and approvals of directors, perks and perquisites for employees, incentive schemes for employees, promotion policies for employees, training and skill development of employees.
In the first bi-monthly monetary policy statement of 2015-16, RBI had proposed to do away with the Calendar of Reviews and replace it with the seven critical themes. These include business strategy, financial reports and their integrity, risk, compliance, customer protection, financial inclusion and human resources.
RBI said it has been observed that the Calendar of Reviews uses considerable board time and, as a result, the board might not be in a position to give focused attention to matters of strategic and financial importance. The committee had also recommended that discussions in the boards need to be upgraded and greater focus should be given to strategic issues.
According to RBI, business strategy would include development of new products; competitiveness of individual businesses; business reviews in relation to targets. Risks would include policies concerning credit, operational, market, liquidity risks; assessing the independence of the risk function.
Compliance would include regulatory requirements; adherence to the RBI and Securities and Exchange Board of India norms; observations from the annual financial inspection by RBI, among others.
Customer protection would look at mis-selling, particularly third-party products; laying down the appropriateness of products to different customer segments; understanding the broad trends among others. Financial inclusion would look into review of priority sector lending; payments for the disadvantaged; deposit mobilisation from weaker sections; support to microfinance institutions; and other issues.
The theme human resources would look at appointments and approvals of directors, perks and perquisites for employees, incentive schemes for employees, promotion policies for employees, training and skill development of employees.
Bad loans may not have peaked yet: Raghuram Rajan-By Anup Roy --Livemint
Central bank working with lenders to recognize and resolve non-performing assets, says RBI governor
The quantum of bad loans in the Indian banking system may not have peaked yet, Reserve Bank of India (RBI) governor Raghuram Rajan warned, echoing the concern of analysts and bankers.
Rajan’s comment comes a day or two after rating companies Crisil Rating Ltd and Moody’s Investors Service warned of more pain for the Indian banking system. Crisil on Tuesday said the gross bad debt of the banking system will likely rise to 4.5% of total assets from 4.3% at the end of March 2015.
Moody’s India sovereign analyst Atsi Sheth warned that India’s sovereign rating could be affected if banks do not repair their asset quality.
Rajan, speaking at a news conference after the central bank’s board meeting in Goa, said the central bank was working with lenders to recognize and resolve these non-performing assets (NPAs), news agency Reuters reported.
One such measure the central bank has already taken is introducing a term-loan facility for infrastructure projects where loans can be reset every five years. Informally termed 5/25 for stretching a project loan to 25 years with a reset every five years, this scheme is expected to ease pressure on infrastructure companies.
Since such schemes ease the load on promoters to pay back, it is also a good way to keep banks’ balance sheet healthy. But technically, it is also a good way for banks to hide the bad debt numbers, Crisil fears.
The 5/25 scheme alone could mask bad loans of at least Rs.80,000 crore in fiscal 2015-16, according to Crisil. If banks manage to hide more, the bad debt situation on paper will look healthier than that in 2014-15, Crisil said.
Out of 39 publicly traded banks in India, 29 have reported fourth-quarter earnings so far and the bad debt numbers show no sign of improving, although the pace of accumulating bad debts may have slowed a bit.
In the quarter ended 31 March, gross NPAs of these banks grew 28.8% to Rs.1.81 trillion from Rs.1.4 trillion in the year-ago quarter. They grew 3.3% over the third quarter ended December. Interestingly, slippages, or good loans turning bad in the quarter, came down for some banks.
Banks continue to restructure a large number of loans, though, an analyst said. “This shows the stress is far from over,” said Abhishek Kothari, an analyst with Quant Capital, adding that he expects bad assets to peak in the next two-three quarters.
At least 15% of restructured assets soon fall back to the NPA category.
Infrastructure logjam
According to RBI’s annual report released in June 2014, six sectors account for the majority of bad debt in Indian banks: infrastructure, metals, textiles, chemicals, engineering and mining. The six account for only 30% of the total credit, but 36% of the total bad debts in bank books.
Bankers attribute this to the slower-than-expected recovery in the economy and cheap import of commodities and steel from countries such as China and Russia.
“Domestic companies can’t produce at a cheaper rate than the cheap imports. How can you expect our companies to generate positive cash flow when there is no demand and, at the same time, countries like China dumping finished goods like steel?” asked Bank of Baroda ’s managing director and CEO Ranjan Dhawan, while presenting his bank’s results on Tuesday. “We have only one exceptional client in our bank who wants to set up a power plant, but otherwise I haven’t seen a single greenfield project coming up. Who will want to expand capex in this environment?.”
Moody’s managing director for corporate finance, Philipp L. Lotter, said in an interview on Wednesday that infrastructure projects would take time to generate cash flow even if the government’s efforts to improve coal and gas availability show results.
Issues related to land acquisition, fuel availability and environmental approvals held up projects, but the National Democratic Alliance government that took over in May last year has tried to address some of the issues. However, several analysts and executives maintain that there has been no change on the ground.
RBI’s hand
That may require RBI to play a hand, say analysts.
“Token rate cuts will not help. We need to see at least 100-150 basis points cut from the RBI because interest cost has become a major drain for companies in the infrastructure and manufacturing sectors,” said Vaibhav Agrawal, vice-president (research) at Angel Broking Pvt. Ltd. “Take a manufacturing company with a debt-to equity ratio of 3:1, servicing its loans at a minimum of 12-13%. Now factor in project delays and multiply the cost for a few years more. The damage done by high interest cost will be evident. Now that inflation has fallen and commodity prices have fallen sharply, RBI should take the risk of cutting rates drastically,” Agrawal said.
Agrawal does not see asset quality improving in the next six to nine months at least, but expects companies in metals, power, and minerals to show some greenshoots of recovery in a year’s time as positive reforms in these sectors take effect in the coming months.
Amidst the challenging interest rates and macroeconomic regime, Union Bank of India has been delivering reasonable operating and asset quality performance. The management has guided that fresh NPAs is expected to further moderate in FY16e. However, we expect negative surprise on asset quality front in next two quarters, due to relatively slower pace in economic recovery. Management has also guided that H1FY16e will remain challenging on asset quality front. As a result, we have assigned lower price to book multiple of 0.7x FY17e adjusted book value (earlier 0.9x FY17e ABV) and arrive at revised target price of R204 from R264 earlier.
Mounting NPAs of public sector banks-The Hindu-18.05.2015
While announcing ICICI Bank’s financial results recently, its CEO Chanda Kochhar suggested that the problem of bad loans might have already peaked last year for the lender. And so, Ms. Kochhar said, the current year would be better.
Union Bank’s asset quality may deteriorate over next 2 quarters: Reliance Securities-Financial Express-15.05.2015
Union Bank of India reported profits ahead of both our and street estimates driven by higher treasury and core fee income.
Union Bank of India reported profits ahead of both our and street estimates driven by higher treasury and core fee income. Treasury income grew by 123% y-o-y and 14% q-o-q to R430 crore led by higher profit from bond portfolio. This helped the bank to report 60.9% y-o-y and 4.7% q-o-q growth in pre-tax profit. However, Pat declined by 23.4% y-o-y to R440 crore due to tax write-back of R180 crore in Q4FY14 versus tax pay out of R200 crore in Q4FY15. Asset quality has also witnessed improvement as fresh slippages ratio improved to 2.5% in Q4FY15 versus 2.9% in Q3FY15 and 3.4% in Q2FY15. We recommend buy on the stock.Amidst the challenging interest rates and macroeconomic regime, Union Bank of India has been delivering reasonable operating and asset quality performance. The management has guided that fresh NPAs is expected to further moderate in FY16e. However, we expect negative surprise on asset quality front in next two quarters, due to relatively slower pace in economic recovery. Management has also guided that H1FY16e will remain challenging on asset quality front. As a result, we have assigned lower price to book multiple of 0.7x FY17e adjusted book value (earlier 0.9x FY17e ABV) and arrive at revised target price of R204 from R264 earlier.
RBI tells banks to deliberate on 7 themes prescribed by PJ Nayak panel -Economic Times
MUMBAI: The Reserve Bank of India on Thursday directed bank boards to deliberate on seven critical themes including business strategy, risk, financial report and their integrity, customer protection, financial inclusion and human resources as prescribed by the P J Nayak committee. The central bank in its first bi-monthly monetary policy statement had proposed to do away with the calendar of reviews and instead, replace it with the seven critical themes.
The banks would as part of bus ..
The banks would as part of bus ..
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http://economictimes.indiatimes.com/articleshow/47288996.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
http://economictimes.indiatimes.com/articleshow/47288996.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
Mounting NPAs of public sector banks-The Hindu-18.05.2015
While announcing ICICI Bank’s financial results recently, its CEO Chanda Kochhar suggested that the problem of bad loans might have already peaked last year for the lender. And so, Ms. Kochhar said, the current year would be better.
The outlook of India’s largest private sector bank, however, isn’t reflective of the whole banking industry. A few days back, RBI Governor Raghuram Rajan said that the Indian banking system may not have yet seen the peak in bad loans. Earlier in the week, rating agencies including Crisil signalled a similar sentiment.
This issue of the banking industry has wider ramifications. Bad loans are surely bad for the banks; they are bad also for the economy, which is looking up to these financial institutions to fund infrastructure creation. A worsening problem of bad loans only makes banks wary of fresh lending.
Risky, and how
The problem of bad loans is particularly affecting public sector banks, which account for two-thirds of the country’s banking activity. They don’t seem to have got a grip on it. Out of 17 public sector banks for which the results for 2014-15 have been announced, six have reported gross NPA at an alarming level of more than six per cent.
NPA (non-performing assets) is another term for bad loans. When a borrower’s dues is left unpaid for 90 days, the loan becomes bad or an NPA. Gross NPA indicates the loan outstanding in the bank’s books. But a bank also sets aside monies to cover potentially risky loans, through what is called provisioning. The net NPA figure is arrived at after deducting such provisions.
The six public sector banks with that unenviable number are United Bank of India, Indian Overseas Bank, UCO Bank, Punjab National Bank, Bank of Maharashtra and Central Bank of India. Another four — Allahabad Bank, Andhra Bank, Oriental Bank of Commerce, and Dena Bank — have achieved gross NPA levels between 5 and 6 per cent.
(The State Bank of India associates have clocked gross NPAs in the 3s and the 4s, improving from the comparable period.)
The rise in NPAs in the last few years has essentially coincided with the general economic slowdown, both at home and globally. This has adversely affected corporate performance, leading to a negative impact on credit quality.
The asset quality of public sector banks deteriorated in comparison to private sector banks, as big ticket corporate loans form a larger share of the credit portfolio of the former than they do of the latter. Five sectors in which public sector banks have large exposures — infrastructure, steel, textiles, aviation, and mining — contributed to the worsening of the asset quality.
Sample a few private sector bank numbers. For 2014-15, ICICI Bank had a gross NPA of 3.78 per cent (3.03 per cent in the previous year). Federal Bank’s gross NPA was at 2.04 per cent (2.46 per cent), Lakshmi Vilas Bank’s was at 2.75 per cent (4.19 per cent) while Karur Vysya Bank had the number at 1.85 per cent (0.82 per cent).
The private bet
The bad loans issue isn’t going away. A Crisil report says, “Weak assets are expected to stay high at six per cent (Rs. 5.3 trillion). Worryingly, exposure of banks to vulnerable sectors is expected to remain high, just the way it was in 2014-15.”
In the current fiscal, gross NPAs of Indian banks are seen edging up by 20 basis points (bps) to 4.5 per cent of advances by Rs. 600 billion to Rs. 4 trillion. Bad loans are seen rising mainly because of the “withdrawal of regulatory forbearance,” which had ensured that banks could still categorise restructured assets as ‘standard’ and not as NPAs. Not anymore. Also, there have been high slippages from earlier restructurings.
The RBI had called for better governance in public sector banks to bring down NPA levels, which would otherwise affect the very existence of these banks.
Eventually, a faster growing economy could automatically help better manage this issue. Still, in the near term, private sector banks are all set to outdo public sector ones. Crisil, in fact, says private sector banks could grow at twice the pace of capital hobbled public sector banks in the next four years. That’s because, the Centre is said to have strict norms for recapitalising public sector banks, which are in need of capital.
Some South Indian old private sector banks have rejigged their model toward more profitability and less risk over the last few years, as an Antique report pointed out a few months back. The likes of Karur Vysya Bank, Lakshmi Vilas Bank, South Indian Bank and City Union Bank have started focussing on retail and small and medium enterprises for business. As the report said, “During FY12-14, when state-run banks were struggling with deteriorating asset quality and growth, old generation private sector banks were building a strong base to participate aggressively in the next phase of growth.”
That phase of growth could well begin shortly.
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