Random Reflections – 10                                                                                                       27.04.2017

MAY DAY

Save Public Sector, Save Farmers, Save India Day

May Day is celebrated as International Workers Day remembering the sacrifices of the workers and also asserting the rights of workers.  The first May Day was in May 1, 1886 where more than 300000 workers in 13000 businesses across the United States walked off their jobs demanding 8 hour day among other demands. 

May Day is the word used to make distress call via Radio in case of any emergency. Since the Trade Unions feel that we are in an emergency they have called for calling May Day as Save Public Sector, Save Farmers, Save India Day” at the initiative of All India Bank Officers Confederation.

Public Sector which were called modern temples of India by Pandit Nehru is under attack for wrong reasons.  Look at the past.  In 1994, Bombay Plan laid way for Public Sector.  It was prepared by Industrialists like JRD Tata, G.D. Birla, Ardeshir Dalai, Sriram, Kasturbhai Lalbhai, Sir Purshottamdas Takurdas and John Mathai. The plan envisaged that for the development of this country after Independence, we require public sector, we require the Govt to intervene in the Power Sector, Core Sector, Banking Sector, Infrastructure etc where huge investment was needed.  Private Sector only wanted to enter sectors where they could make quick money.  Now the heirs of these neo rich want the benefits of Public Sector and ownership of them. Today the Prime Minister says Govt has no business to be in business.  This is the Chicago School of thought – Milton Friedman school of thought. 

Public Sector has contributed a lot to the growth of the country’s economy.  It is the duty of the Govt to provide it’s citizens goods and services.  For this Govts create Institutions or Companies or Dept.  Today Indian Postal System delivers letters at the cheapest cost. Indian Railways transports 2 crore passengers everyday at the cheapest cost.  The moment BSNL entered mobile services the call charges dramatically came down.  Indian Public Sector Banks serve in the most difficult areas of J&K, North East, Andamans and Chattisgarh.  There are 320 Public Sector Enterprises in the country with a paid up capital of Rs.228334 Cr as on 31.03.2016 and they provided a dividend of Rs.70954 Cr in 2015-16.  The return is 31%.  Look at some interesting statistics for 2015-16.  Total Turnover / revenue from operation was Rs.1854667 Cr.  Profit earned was Rs.144523 Cr.  Loss incurred by PSEs was Rs.28756 Cr.  Net Profit of all 244 CPSES was Rs.115767 Cr.  Contribution by duties and taxes was Rs.278075 Cr.  They employ 12.34 Lakh people.

The market capitalisation of 46 CPSEs itself is Rs.1106766 Cr.  Why the Govt should disinvest these enterprises? Those who are buying are buying for getting profit only.  If that profit comes to Govt, it can be used for the people of the country.

Banks were Nationalised as they were not providing services to the majority.  The objective was to serve the people and not profit alone.  The Banks have done excellently well.  As per SBI Ecoflash, during the period 2006 to 2017, the Banks have received a capital of Rs.1.29 Lakh crores whereas gave dividend around Rs.75000 crores and taxes around Rs.1.50 lakh crores.i.e.2.25 lakh crores against infusion of Rs.1.29 lakh crores.  Is it not a good return? We keep comparing with other countries.  China had injected $127 billion between 2004-2007.  US injected $ 2.27 trillion after 2008 crisis.  India injected $17 billion only.  Is it not negligible?  The deposits, advances and gross profit of all PSBs are steadily increasing but Govt calls them weak.  It is only the NPA of few Corporates for which RBI and Govt are equally responsible along with the top executives of the Bank.  No action will be taken against them but we will sell these Banks to the same culprits?

The Public Sector are constrained by the policies of the Govt.  The policies after 1991 Liberalisation has lead to few corporates cornering large portion of loans and defaulting.  Small borrowers are neglected.  Farmers are neglected. Now after opening 27 Crore Jan Dhan A/cs, after handling demonetisation for which no compensation has been paid,  the RBI and Govt are talking about Privatisation.  A circular sent to Banks by an official of Finance Ministry has instructed Banks to go for Capital from the market. The RBI Governor is talking about merger and privatisation.  This is after getting huge return in terms of Profit (Dividend) Taxes and Services.  Again the same question comes.  When the Private Sector is willing to buy for making profit why Govt should not earn this profit and use it for the people?

Farmers in the country want minimum support price to meet the cost of production, they require processing centres, they require small credits which they are not able to get forcing them to go to money lenders.  They give us our food.  Without them, the country cannot bring food security. But we are not doing enough for them.  The priority sector lending norms have been so diluted in the last 25 years leading to negligence of the real farmers. No improvement in irrigation, preservation, processing and low prices as Minimum Support Price (MSP) are killing them.  We have to come to their rescue. 

So time has come to Save Public sector, Save Indian Farmers and Save our country. 

Franco

ngcfranco@gmail.com

The farmer is the only man in our economy who buys everything at retail, sells everything at wholesale, and pays the freight both ways. – John F. Kennedy

Random Reflections – 8                                                                                                         10.04.2017

Why so much of hue and cry for debt relief to farmers?

There is so much of hue and cry in the press about giving Debt relief to farmers who are under sever crisis.  The Madras High Court judges who gave a favourable order are also being questioned as interfering with the Executive.

Debt Relief is not a panacea.  Debt relief as political strategy for winning elections is mere corruption in a different form.  But is it wrong in helping farmers who give our daily food and are giving up their lives due to the Agriculture Crisis.  The RBI Governor has now come out against Debt waiver for farmers calling it a moral hazard.  He supported demonetisation which affected every citizen of the country except probably the neo rich.  The loss on account of that is not assessed even now.

Let us look at the write offs for the rich first.  In 11 years alone Public sector Banks have written off Rs.2.51 lakh crores.  Out of this Rs.1.73 lakh crores was written off in the last 4 years alone.  There is no hue and cry about it.

Supreme Court judges, Justices M.Y. Iqbal and C. Nagappan had observed as, “RBI is supposed to uphold Public interest and not the interest of the Individual Banks.  We have surmised that many financial institutions have resorted to such acts which are neither clean nor transparent.  The RBI in association with them has been trying to cover up their acts from public scrutiny”

In 2013, Dr. K.C. Chakraborty, Dy. Governor, RBI lamented that we have written off Rs.1 lakh Crores in 13 years and 95% of them are large loans.  But even now no serious action has been taken. 

In the Parliament it was informed that there are 9100 wilful defaulters owing Rs.91155 Crores.  We will not publish their names and we will write off these loans too.

This financial year alone the Banks have sold Rs.35000 Crores to Asset Reconstruction Companies.  They pay only 15% of the debt initially and the rest in the form of bonds which will mature when the loans are repaid by the borrower.  Banks also pay 1-2% as service charge for these loans to the ARCs.  Is it not helping the large defaulters?

Now RBI is recommending that Banks can invest in Real Estate Investment Trusts and Infra structure Investment Trusts.  Why not ask Banks to lend to the small and marginal farmers?  That will increase credit off take and help the farmers who are dependent on money lenders.

The legendry agriculture Scientist Dr. M.S. Swaminathan had stated, “Farm Debt Waiver is not a permanent solution to farmers problems.  When farmers find it difficult to get credit following the failure of the previous crop, the debt waiver will be useful to get them launched in agriculture again”.

Shri Sharad Joshi, Former MP & Kissan leader had written in Business line in 2008, “If one draws a balance sheet of the amount due from the farmers and the loss caused by the Government to the farmers on account of its policies calculated to depress agriculture prices and impose negative subsidies, the Government is net debtor to the farmers”. The task force on Agriculture 2000-2001 estimated that loss to the farmers on this count between 1980 and 2000 was Rs.3 lakh crore.

Farmers actually do not want waiver of loans.  They are not beggars.  They want adequate price for the produce.  They want water; they want infrastructure; they want storage facilities ; they want processing facilities .  They are proud of their land.  When the pride is hurt, when they are abused for not paying the loan they commit suicide.  Has any rich wilful defaulter ever committed suicide?

Yes. There are issues related to repayment culture affecting Banks.  What is needed is waiver of loans to the affected farmers who repaid with great difficulty from other funds, often taken from other family members.  The waiver should be for loans given by all Banks as done in 1990 by Shri V.P. Singh and in 2008 by Shri P. Chidambaram.  (Though both were inadequate).  We have not helped honest borrowers who repaid.  We have not helped those farmers who are indebted to money lenders because banks did not give them credit.

We need a total change in Policy for Agriculture; Policy for Agriculture Loans and policy for Integrated Development.  For now let us not blame the farmers and those who waived their small loans.  Let us honestly look at our own moral. 

Franco

ngcfranco@gmail.com

Random Reflections – 9                                                                                                        18.04.2017

Too many cooks spoil the broth

Three proposals from three agencies related to Banking Sector have become the spotlight in the media.  A MoU for a Turn Around Plan (TAP) for infusing Capital, signed by the Managements of 11 banks, Associations / Unions with Dept of Finance, GOI,  a note GRAF by Bank Boards Bureau (which does not have any statutory rights) and RBI’s announcement of revised Prompt Corrective Action (PCA).  All of them talk about revamping the Public Sector Banks.  Only thing they do not say is that policies pursued by the Finance Ministry, GoI and RBI are the root cause of the problem.

The RBI Circular talks about Revised Prompt Corrective Action (PCA) based on capital, Asset Quality and Profitability.

The BBB talks about  Governance, Reward and Accountability Frame Work (GRAF) and has 5 themes.  They are, Board Composition and vacancies, Human Resources Development, Investment in Technology to reduce cost and enhance efficiency, Stressed Assets Management and Capital Assessment.  It also talks about a code of conduct and ethics, Compensation reforms, Relative Performance Rating, Extension / Termination of a whole time director etc.

The DFS drafted MoU proposing TAP also talks about Capital, Asset Quality, NPA, Improvement in Productivity, Improvement in Business Process and HR policies and Practices.

What is common in all is Capital for Banks, Non Performing Assets, Governance and HR Policies.

The Public Sector Banks have given back to the Government many times the amount of Capital the Government has invested.  The PSBs follow the policies and implement schemes of the Govt.  During Nationalisation nobody talked about profit but spoke about expansion, Credit-Deposit Ratio and Banking for the common man which have been achieved. 

Dr. Soumya Kanti Ghosh, Chief Economist, SBI in an article in Economic Times has quoted that PSBs have given 300% return by means of dividend and taxes.  (Even loss making banks pay taxes.  NPA provisions are also taxed.  There is also a Dividend Tax). But now in the name of Capital there is an effort by the trio to choke the PSBs.It is the duty of the Government to infuse capital.  It is this PSBs who fulfil the objectives of the Govt.  So far no compensation has been paid for opening Jandhan A/cs and Demonetisation expenses.  The same is enough for capital infusion.  Again we need more capital because we have accepted Basel III norms which is only voluntary and not mandatory.  So the Govt which decided to accept the norms should also provide the Capital. 

If the second issue of NPAs is resolved there won’t be any need for additional Capital.  There are no clear efforts for recovery of NPA.  NPA rose because of the policies prescribed by RBI and Finance Ministry.  Who is responsible? Who is accountable? Why Parliament’s own standing committee recommendations are ignored? The standing Committee cites the following as reasons leading to NPAs.

“Main reasons for increase in NPAs of Banks, inter-alia, are sluggishness in the domestic growth during the recent past, slowdown in recovery in the global economy and continuing uncertainty in the global markets leading to lower exports of various products like textiles, engineering goods, leather, gems, external factors including the ban in mining projects, delay in clearances affecting Power, Iron & Steel Sector, volatility in prices of raw material and the shortage in availability of power have impacted the operations in the Textiles, Iron & steel, Infrastructure sectors, delay in collection of receivables causing a strain on various infrastructure projects, aggressive lending by banks in past”.

Without solving this problems which are the root cause how can we find solutions? Without addressing the issue of NPAs no turn around is possible.

The third issue of Governance is again the RBI & the Ministry.  The Chairman, MDs & Directors are appointed by the Govt on the recommendations of DFS.  For 2 years the Govt has not appointed any officer/ Employee Director in the PSBs.  There were many posts of MDs vacant for months.  Even now Directors post are vacant.  RBI nominee is in every Board of PSB.  What was their role? Finance Ministry representative is there in every board.  Then who is responsible for Governance?

The fourth is the HR policies and practices.  PSBs have a robust HR policy and practice evolved through a process after 1969.  They have the most committed staff as appreciated by the Prime Minister and Finance Minister.  But their compensation is inferior to that of Govt and Private Sector. Still they perform with utmost sincerity.  They opened 97% of Jan Dhan A/cs.  They handled the demonetisation.  They have a time tested Bipartite Settlement with Indian Banks Association (IBA).  HR policies should be discussed by IBA only.

Surprisingly IBA is not involved in any of this exercises of  RBI, DFS & BBB.  It is a mute spectator.  The other stake holders are the officers and employees.  They are not involved in any consultations by the trio inspite of repeated appeals.  Instead consultancies like Mckinsey and BCG are involved in the process in many ways paying huge money.  They do not have any practical experience.

Ignoring IBA, Officers Associations and Employees Unions in any Turn Around Plan will lead to peril only. 

Moreover, instead of giving functional autonomy to the Banks with Accountability, too many bosses dictating terms that too without any co-ordination and at times at cross purposes do not augur well for the country.

Franco

ngcfranco@gmail.com

Random Reflections – 7                                                                                                         31.03.2017

Turn Around Plan for Banks – Who is to bell the cat?

In a surprise move, the Govt of India has forced 10 Public Sector Banks to sign an MoU to get small amount of capital.  Many wonder why MoU and why Unions and Associations should sign.  Is it a blank cheque to privatisation? Is it like taking the concern of a sacrificial goat by applying turmeric and water and get it’s nod before sacrifice? The Government is like a parent and Public Sector Banks are like children.  Will the parent take an undertaking from a child? These are questions which has to be answered by the Government.

The Associations and Unions refused to sign unless there is some change in the MoU and their concerns are addressed in due course urgently.  Finally the DFS modified the MoU by inserting a clause that the Employees Unions and Officers Associations  will be consulted to prepare a turn around plan.   

A note was added as, “While finalising the MoU the interests of Bank, the Officers and the employees shall be kept in mind to ensure that the entire workforce is enabled to whole heartedly work for the turnaround of the Bank.

Associations also gave a letter expressing that their concerns on appointment of officer / Employee Director, Implementation of the recommendations of the Parliament Standing Committee on NPA etc.

Will this MoU preclude Associations / Unions from going on agitation on these issues?  No.  MoU is only an understanding.  If the issues are not properly addressed the Associations / Unions will be definitely able to go into agitation.  If the turn around plan is not addressing the real issues, there will not be any final MoU.

What is worrying is the hesitation of the Government in giving capital.  The Capital given by Indian Government is very meagre when compared to other countries.  US had to pump in more than 3% of GDP for the banks to save them because they had failed due to the policies which lead to toxic assets.  Japan has provided huge capital.  China continues to do so because Banking is so important for the Development of the Nation. In India the Government’s investment is not even 0.5% of the GDP. 

Dr. Soumya Kanti Ghosh, Chief Economist of SBI had written in Economic Times that Public Sector Banks have given back 300% return by way of Dividends and taxes.

If the NPAs are recovered there is no need for Capital. 

In China, the Govt has issued an order that wilful defaulters should not be issued any airline / Bullet Train ticket whereas we allow Vijay Mallya (Kingfisher), Jatin Mehta (Winsome Diamonds) and others to fly off and settle abroad.  Their liquor and other business still flourishes and we keep writing off their loan.  See the mafia like collaboration of the rich.  Nobody even attends auction when Mallaya’s mansion is put on the hammer.  

If the Govt takes action and recovers the loans above 1 Crore given to around 2000 persons there is no need for capital for the Banks.

Why there is hesitation to implement the recommendations of Parliament Standing Committee?

Why Infrastructure loans are not restructured? Why DFI’s are not allowed to function?

Why Economy is not picking up?

Why Banks are afraid of giving loans?

All due to Govt policies.  Does the Govt want to touch the big borrowers? It is the policies since 1991 which has lead to massive large NPAs.  NPAs have been there from the day Banks started and write offs have been there.  That did not affect the Banks because the loans were small, given to large number of borrowers.  Now we have few large borrowers garnering the major credit and many of them default.  RBI data as on March 2015 shows that 11000 borrowers have been given a credit limit which is 31.5% of the total credit given by commercial banks.  So it is the Central Govt which has to bell the cat.

The simple ways for turn around plan are

Ø  Strict recovery of NPA’s including personal assets of the big borrowers.

Ø  Change the system of Governance in Banks with a bottoms up approach.  Involve everybody in teams and create a sense of ownership

Ø  Is it not a big contradiction that Banks are saying credit off take is not improving whereas millions of customers are saying they are not getting credit?

Ø  Increase the volume of loans and the borrower base which will reduce the percentage of NPA

Ø  Start lending to the small and marginal farmers, small traders, small industries  etc and reduce Corporate Lending.

Ø  Have a cap on large borrowals where the Banks exposure should reduce.  The Debt of Reliance Industries is Rs.107130 Cr.  Reliance communication Rs.34802 Cr, Reliance Infra Rs.17097 Cr, Reliance Defence and engineering RS.6354 cr, Reliance Power Rs.4496Cr.  If they default you can’t declare as NPA as it will make the Banks go bankrupt.  

Real turn around can take place only if there is a turn around in policies. Is the Govt and RBI ready to change the policies? Where there is will there is way. 

“It’s always the best policy to speak the truth, unless of course, you are an exceptionally good liar”- Jerome K. Jerome.

Franco

ngcfranco@gmail.com