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
No comments:
Post a Comment