Finance Minister met Chiefs of banks on 12th of June 2015 to assess their performance and to discuss the steps to fight against the menace of bad debts and stressed assets. After marathon discussion on all points , only one point has emerged in media .
Media has written in bold letters in headlines of their papers that Finance Minister has expressed hope that public sector banks as well as private banks will curtail interest rate in near future in view of three times cut in repo rate announced by RBI during last few months.
I am not convinced why banks should bring down rate of interest on lending only due to the reason that RBI has announced little cut (by 75 basis point) in repo rate. Every banker knows that role of repo rate is minimum in process of fixing Base Rate.
Repo rate in rate of interest charged by RBI to banks which borrow money from RBI for short period. Here it is proper to point out that banks are supposed to lend money based on the nature and volume of deposit they mobilise from market . Banks are not supposed to borrow money from RBI and lend it in the market.
Click Here To Read Role Of Interest Rate In Credit Growth
Further most of the banks have enough liquidity and enough deposit base to lend. But they are not able to find out loan takers due to various other reasons. Banks are constrained to invest money in mutual fund, various bonds and SLR funds. Banks think it safer to invest money in stock market . Majority of banks have parked money (invested in government securities ) in SLR more than what they are legally bound to. Statutory Liquidity Ratio is currently 21.5 % but this ratio in greater in many banks. This is because banks are not focusing on lending .They are now doing insurance activities to earn few crore of rupees sacrificing the future of hundreds and thousands of crores of rupees trapped in the hands of bad borrowers.
Secondly money lent by banks are not coming back in time and as per scheduled demand raised by banks. This creates asset liability mismatch forcing banks to depend on RBI and borrow money at Repo rate. Banks do not find it necessary to recover the money from borrower in time and take timely action against defaulting borrowers. They want to be in good book of the borrower without worrying about health of bank they serve. They want that they retire from bank without inviting any personal loss.
Base Rate is fixed as per RBI guidelines, depending of cost of fund, establishment expenses and other operational cost . Banks cannot and are not supposed to reduce base rate as per their rates as per their whims and fancies or as per sweet will of Finance Minister. Banks are not supposed to reduce base rate just to please Finance Minister. Some of banks have reduced rate by 10 or 25 basis points merely to please FM without realising the impact of reduction in base rate on health and profitability of bank.
Rate of banks is reduced by bank management not after analysing cost of fund but purely as personal need and greed of Chief of the bank, outcome of flattery to ministers and as per perception of individual who is acting as Chief of the bank. Rates are changed overnight and even by such banks whose assets are severely strained and stressed. Banks are not earning interest on assets and if earning , they are not able to recover the interest from borrower, still they treat such income as per or earning for a year to inflate profit and to win the blessings of ministers so that they may get good incentive in cash or by getting good job after their retirement. Weak banks announce rate cut because they are least bothered of weakness of bank , they are concerned more about their career. Same applied for junior officers . Same culture percolates down.
Here it is also interesting to point out that SBI chairman Mrs Bhattacharya has honestly admitted that despite cut in interest rate there is no proportionate increase in credit growth. It is rather bitter truth that credit growth is not function of interest rate only. Role of interest in growth of credit or in quality of asset is insignificant.
Top officials grant huge concessions in interest rate and processing charges to high value borrowers either to get in return precious gifts for self or to please some other VIPs . There is no denying the fact that majority of high value defaulters have been given interest concessions and still they could not turn loyal to bank. Bank management takeover accounts of other banks by offering unwarranted concessions in interest rates but fail to maintain good standard of assets and fail to increase good quality assets.
Bad borrowers may be loyal to top officials and ministers but are never good for health of the bank they borrow money for business. Character, nature and activities of majority of officials of bankers is not to safeguard bank they are employed , but to brighten their own career , own future and to develop good relation with higher bosses powerful politicians so that they are safe and their family leads a wealth and prosperous life.
I have therefore no doubt in saying that volume of stressed assets in banks will continue to rise and rise particularly in pubic sector banks. Top officials of PSBs are busy in keeping minister happy whereas private banks focus on health of their assets , profit of banks and enjoyment of workforce. This is why credit growth in private banks is around 25 to 35 percent per year whereas in PSBs it is hardly 10 percent. Similarly CASA ( savings and current deposit) in private banks is more than 40 percent whereas in PSBs it is around 20 to 30 percent . On the contrary quality of lending in PSBs is worse and this is why volume of stressed assets in PSBs is more than 10 percent whereas it is around 1 to 2 percent in private banks.
If a Branch Head in a bank sanctions loan of Rs.one crore , he becomes happy not because his branch will earn profit , but because his boss (immediate higher authority) will be happier and help him in getting out of turn promotion. He or she does not bother about future of such loan. A CMD of a bank permits finance of hundreds of crore of rupees to a corporate house not to increase real and quality business but to please some VIP sitting in controlling offices. Pressure of target on each sanctioning authority is tremendous and hence quality of lending is invariably diluted at all stages, in all branches and in all Regional Offices. Even if a loan goes bad, even if there is default and overdues, branch officials or Regional Office think it safe to hide it .
If any official dares to say spade a spade , he has to face the music of his higher bosses either in form of bad transfers or rejection in promotion. Bank officials have neither freedom to treat bad accounts as bad nor to deny sanction to bad person and bad company. This is the most painful story of working culture in public banks.
Finance Minister or Prime Minister may conduct number of meetings with Chiefs of banks or with RBI officials. But they cannot guarantee good health of bank with existing mind-set. Regulating agencies think it safe and pleasant to believe on what Chiefs of Banks say in meetings and remain satisfied after getting written certificates submitted by clever officials confirming compliance of various guidelines. They do not think it necessary to verify the genuineness and correctness of certificates of compliances submitted by various offices including banks. So far as bank Chiefs are concerned , they too are clever, they get false certificates from their juniors by building verbal pressure on juniors and thus keep ministers in good stream.
Every quarter , health of almost all banks in public sector is deteriorating , but RBI and FM still express satisfaction on functioning and health of PSBs, despite the fact they now that there are huge volume of hidden NPA in each bank, that quality of lending by PSB is extremely bad and that there is no repayment culture in the country , there is no legal and administrative support to banks in recovering money from defaulters. Banks are more or less on mercy of borrowers so far as repayment of loan by borrowers is concerned. It is open secret that bank management think it wise to write off bad loans and sacrifice huge principal amount and interest to defaulter .It is ultimately taxpayer's money which Government infuse in banks to save weak banks from collapse.
FM has not talked about window dressing in deposits and evergreening in loans , FM thought it better ti keep mum on risk arising out of improper and unwarranted restructure of loans undertaken by clever bankers to treat bad loans as good loan. FM focused only on interest rate reduction knowing very well that interest cut is not going to create demand for credit in the market unless and until an environment ( political,, social, economical ,pollution, infrastructure etc ) conducive for business growth and for earning profit on capital is created.
There is downfall in business of Tata, Birlas, Mafatlal, Ambanis, and Adani like big giants , There is downfall in auto market, real estate, power generation, textiles etc even though there are many businessmen in these areas who have surplus cash in hand. Many business houses are unable to invest their surplus cash and they do not depend on bank interest rate .
As such , FM , RBI, bank Chiefs and all regulators have to first learn to accept and say the bitter truth , ground reality and true mindset of workforce. They plan growth keeping in view that every ingredients required for growth are placed in ideal position . They do not like to accept that all public servants including bank chiefs and politicians turned ministers do not think for the society , for the country or for the safety of organisation they serve. They think only for self interest .
Hence they have to devise all processes in more transparent way and reduce delegated powers of all individuals to the maximum extent possible . They cannot find good reports from auditors and inspectors if they are forced to complete audit and inspection in specified and negligibly few days and that too they are forced to write in their reports as per whims of bosses. None of higher bosses want that their evil works are exposed. All are birds of same feather and hence all try to protect the interest of colleagues first and then to protect the bank they serve. Similarly politicians first try to protect their post of ministers and then the common men or the country.
My following write up explains how and why Uniform Interest rate Policy is best course of action to cure ailing banks. Click on following links to read more if you are not bored
http://jaindanendra.blogspot.in/2014/03/uniform-interest-rate-regime.html
http://danendrajain.blogspot.in/2015/01/uniform-interest-rate-regime-and-merger.html
http://dkjain497091112006.blogspot.in/2012/04/should-rbi-decide-unioform-interest.html
http://importantbankingnews2.blogspot.in/2015/04/lowering-of-interest-rate-will-prove.html
Conclusion:
If agriculture loan in any bank turn Non Performing Asset , it will be told by bankers that there is monsoon failure , even if the quality of lending was not good or even if there was role of bribery behind sanction of loans to farmers. Similarly if industrial loan goes bad , they will say that there is recession in the market. If traders loan goes bad, they will say that there is no demand in the market. If education loan turn bad , they will say that due to scarcity of employment opportunities students are not getting job. And so on................... There is no one to verify the genuineness of the reason attributed by bankers as cause of loan turning bad .
Politicians say that if interest rate is reduced , there will be credit growth and hike in creation of employment opportunities. They do not think that if a consumer has got no purchasing capacity , how demand will rise. If a salaried class person does not have capacity to repay instalment of even interest free housing loan, he or she cannot dream of buying a house of Rs.40 to 50 lacs. Until there is rise in income level of individuals, demand of any goods cannot rise, may it be auto or houses.
Further ,In the same environment and same economic conditions of the country, private banks make good finances and earn huge profit. GOI never bothers to think why public banks are only sufferer and why there is such huge erosion in quality of lending . Why Human workforce are not happy and why are not enjoying their work?
Politicians never like to introspect and analyse the real reasons resulting in accumulation of bad debts in PSBs and hence until they know the real cause, they cannot prescribe proper medicine to cure the sickness of banks. This is why PSBs are growing sickness year after year and they all are facing problems of stressed assets and shortage of adequate capital. Political exploitation of public sector banks for vote banks is not going to stop despite all promises made by present government and by all governments in the past .
EMIs May Fall Further, After Jaitley Meets Bank Chiefs-NDTV 13th June 2015
Home, auto and other loans are likely to get cheaper further, with Finance Minister Arun Jaitley on Friday saying that banks have promised greater rate cuts in the coming days. Addressing a press conference after his meeting with bank chiefs, Mr Jaitley said he discussed the transmission of Reserve Bank rate cuts by banks, among other issues.
Mr Jaitley expressed hope that banks will be able to further lower lending rates following a series of rate cuts from the Reserve Bank of India (RBI). Many banks have lowered their lending rates this year after the Reserve Bank lowered repo rate or main lending rate by a combined 75 bps this year. But the quantum of rate cuts by banks lag the reduction in the RBI's policy rate. The country's largest lender, State Bank of India, for example, has lowered its base rate by 30 bps this year. It base rate currently stands at 9.70 per cent.
Bankers have blamed tight liquidity and slower credit growth as reasons for not cutting rates aggressively. The loan growth for banks for the fiscal year to end-March was the slowest in 18 years.
Arundhati Bhattacharya, the chairperson of SBI, told NDTV that it has not seen much pick-up in demand since the cutting rates, though it is too early to assess the impact of the rate cut on credit demand.
Banks on their part, Mr Jaitley said, have asked the government to relook at small savings rates.
Many bankers had earlier said that high rates on small savings schemes like public provident fund makes them keep deposit rates high and this holds them from lowering lending rates. (With Agency Inputs
No comments:
Post a Comment