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
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