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

Random Reflections – 6                                                                                                       15.03.2017

Why Blame the Arrow instead of the Shooter?

There  is huge hue and cry about the proposed service charges and minimum balance to be maintained by the customers’ of State Bank of India and it is justified.  The only thing forgotten is that SBI is only an arrow and the shooter is the Central Government.

The purpose of Nationalisation was to widen the territorial and regional spread of the branch network, better mobilisation of financial savings through Bank Deposits, reorientation of credit deployment in favour of small and disadvantaged classes all along the production spectrum, removal of control by a few business houses, conferring of a professional bent to Bank Managements and providing of adequate training and reasonable terms of service to Bank Staff.  These goals were achieved to a large extent by 1990.

But after the introduction of the New Economic Policy, the orientation of Banks were totally changed.  Profit became the only motive.  40% credit to Priority Sector is not monitored. 1% loan to the weaker sections of the society at 4% interest rate is forgotten.  Decrease in rural Branches is not talked about. The Chief Economic Advisor to the Govt Dr. Aravind Subramaniam says Nationalisation was a blunder.  The Prime Minister made a statement in Gujarat on 9^th of March 2017, that Nationalisation did not help the poor and only now through Jandhan A/cs he has  made the Banks to reach the poor which is not the correct assessment.  The RBI Dy. Governor’s make statements that targeted credit should stop and Banking expansion should be only with profit motive.

ICICI- a development institution then has become the biggest Private Sector Bank.  Similarly UTI became UTI Bank and then Axis Bank.  HDFC, a development institution has become a private sector HDFC Bank.  Efforts are on to make IDBI, a development Finance Institution converted into a Bank as a Private Sector Bank. 

When the owner of the Bank has changed the goal post, the Chairmen of the Banks follow the instructions.

As per News reports, Bank of Baroda, Bank of India, Punjab National Bank and Canara Bank have already increased the minimum Balance and service charges.  SBI was late but has come into focus.  But why these banks are doing this? Because they want some profit.  They have lost lot in implementing Govt’s schemes. 

Let us see the performance under Jan Dhan as on 8^th march 2017.  Out of 27.97 Crore A/cs, 27.07 Cr A/cs have been opened by Public Sector banks and Regional Rural Banks sponsored by Public Sector Banks.  Only 90 lakh A/cs have been opened by Private Sector Banks.  Out of 21.84 Rupay Cards issued, 21 crore cards issued by PSBs & RRBs and only 84 Lakhs by Private Banks.  The PSBs & RRBs have 6.4 cr Zero Balance A/cs where as private banks have just 3 lakh Zero Balance A/cs.  PSBS & RRBs have done Aadhaar seeding for 17.1 crore A/cs whereas Private Banks have just done for 40 Lakh A/cs.  Out of this SBI group & its sponsored RRBs have 10.6 Cr Jandhan A/cs, issued 7.2 Crores Rupay Cards and have 3.3 cr Zero Balance A/cs and have done 6.64 Cr Aadhaar Seeding.  For this huge expenditure has been incurred but the Govt has not given any compensation.  In addition the Banks are implementing all Insurance Schemes of Govt, MGNREGA A/cs, and provide overdraft to Jandhan A/cs.  Mudra Loan target has been doubled.  Banks are happily implementing.  But what support the Govt gives?

The Govt actions show, We will not give Capital, We will not reimburse expenditure incurred in Jandhan or demonetisation, we will not help in NPA recovery by implementing the recommendations of Parliamentary Standing Committee, we will not pay the Bankers salary at par with Govt employees but Banks must make more profit.  Like a Headmaster reviewing performance of teachers, the Finance Minister reviews Banks’ Chairman’s performance every month.  But their requests and suggestions are not adhered to. There are more than 100 Directors’ Posts vacant in Public Sector Banks including officer / Employee Directors in Banks, and we talk about transparency.   

This has lead to a situation where farmers are dying for want of credit, students are not getting education loan and small credit is almost becoming NIL.  But Corporates get all the credit (11000 borrowers garnered 36.5% of total credit) and they are the ones responsible for 70% of the NPA.  Now Corporate Houses like reliance are entering Banking too.  Digital Banking is being forced on the population of which only 10% can read and write English and you need some knowledge of English to operate digital products and each transaction has a service charge. Who is responsible for all these? The service charges and minimum balance may once again throw away the small people from the Banks. Who cares?  SBI Biggest Bank for the Smallest man will care we believe.  But not the masters.

• Look at Gyan Sangam Recommendations
• Look at Indra Dhanush documents
• Look at the statements of RBI
• Look at the policies announced by Niti Ayog
• All Points to Privatisation and Profit
• Is it profit over people?

Let us not miss the shooter and blame the arrow. 

Franco

ngcfranco@gmail.com

Random Reflections – 5                                                                                       27.02.2017

Bad Loans and Bad Bank

     The economic survey presented by Dr. Aravind Subramaniam, Chief Economic Advisor talked about creation of a Public Sector Asset Rehabilitation Agency (PARA).  The new Deputy Governor of RBI who is a known votary of Privatisation, who has taken leave from Newyork University for 3 years and joined RBI has stated in an interview that there should be two bad banks one in the Private Sector and one in the Public Sector.  The latest report on NPA Published in Business Standard states that India’s bad Loan Problem is getting worse. The gross non performing assets have reached Rs.6.2 Lakh Crores at the end of Q3 FY17, an increase of 56% over the previous years.  The Asset Reconstruction Companies have not made any significant headway. The name Bad Bank itself is bad.  It is nothing but a new avatar of ARCs.

        Where are the Bad Loans? In  a written reply to the Parliament, the Minister of State for Finance has stated that there were 661 NPA accounts about 100 crores amounting to Rs.3.7 lakh crores from Public sector Banks as on March 31, 2016.  He also stated that NPA is high in infra structure, road, textiles, steel etc.  In April 2016, RBI has stated that the top 10 Corporate NPAs amount to RS 56,000 Crores. Supreme Court has obtained list of defaulters owing more than 500 crores from RBI.  But RBI has requested not to publish the list saying that it would dent the fiduciary relationship between RBI and the Banks and between the Banks and customers.  A report of RBI as on March 2015 shows that 42.4% of the total advances of scheduled commercial banks are given to Private Corporates.  The same report shows that there are 11000 accounts with a credit limit above Rs.100 crores which constitutes 36.9% of the total credit limit.  Credit limit above 25 crores to 31965 borrowers constitute 15.9%.  Credit limit above 10 crores and below 25 crores to 41826 borrowers constitute 6.7% of the credit limit.  That means 59.5% of the credits are above Rs.10 crores to just 84791 borrowers.  On the contrary, only 0.5% is given to 20.7 million borrowers with credit limit less than Rs.20,000 and only 7.7% is less than Rs.2 lakhs limit given to 8,12,67,021 borrowers. The NPA in this segment is meagre.  So let us understand for whom this bad bank is and for whom the right offs are helping.  In a country with 127 crores population to catch less than 1 lakh borrowers we don’t have any power, because the Govt not only has the will but also supports these defaulters.  Bad Banks  and ARCs  elsewhere have helped the defaulters to sell of their loans at a cheaper rate and also buy back the assets at cheaper rate using another name.  If the Govt and RBI are really serious let them implement the recommendations of the Parliamentary standing committee submitted on February 24, 2016. The summary of the recommendations are

1.      Accountability of nominee Directors of RBI / Ministry on the Bank Boards as well as the CMDs / MDs of banks should also be annexedin the matter.

2.      The decisions taken to sanction loans in violation of norms/guidelines should also be enquired into, responsibility fixed, adequate penal action taken.

3.      Till such time a project is commissioned as per approved schedule, banks should not hasten to categorise such a project as NPA.

4.      The extent and the quality of the equity that the promoters are capable of infusing into a project, therefore, also needs to be factored in by a lender bank.

5.      The Government should make the necessary structural changes including revival of Development Financial Institutions (DFI) for long-term finance, especially for Infrastructure projects, which will go a long way in nipping the problem of NPAs in the bud.

6.      Urge the Government for allowing Infrastructure Finance Companies (IFCs) to purchase infrastructure projects turning into NPAs and keep them as Standard Assets, as this step would not only provide the much needed relief from stressed portfolio but also create an enabling environment for funding the infrastructure sector facing resource crunch. Besides, the IFCs should also be allowed to participate in equity. The Banks should have equity component built in the loan agreement itself. The Committee desire that the RBI should explore the possibility of developing a mechanism wherein there would be separate norms for NPA classification for infrastructure and non-infrastructure loans.

7.      Each bank must focus on their respective top 30 stressed Accounts involving those categorized as "willful defaulters" and make their names public. Such a step will act as a deterrent for other promoters against wilful defaults.

8.       It will also enable banks to withstand pressure and interference from various quarters in dealing with the promoters for recoveries or sanctioning further loans. On the other hand, promoters will also be cautious before applying for loans. The Committee are of the view that when companies, which have undergone restructuring process for their stressed loans, should be made public, there cannot be any justification for maintaining secrecy on this count.

9.      RBI to monitor and follow it up with the banks and financial institutions on a regular basis till concrete outcomes materialise. Such a pro-active action by RBI will also enable it to review the guidelines, whenever required and plug loopholes, if any. As the Committee would not like the RBI to be a passive regulator, when major lapses occur in banks, it would be in the fitness of things if RBI exercises its regulatory powers vis- a-vis banks to take punitive action in cases of default and to enforce their guidelines. The Committee also believe that RBI as a regulator should have its regulatory role well delineated and thus not have its Director in the Board(s) of the Banks as part of their management, as conflict of interest may lead to avoidable laxity.

10.  Forensic audit of such loans (restructured loans becoming bad debts) as well as willful defaults be immediately undertaken.

11.  . Appropriate system should be evolved and guidelines be prepared to take charge of assets and management of such failed CDR companies, while initiating action against such management. Further, disposal of the assets should be given priority.

12.  Considering the non-efficacy of the CDR mechanism, the Committee believes that the RBI's scheme for Strategic Debt Restructuring (SDR), which empowers banks to take control of defaulting entity and its assets by converting loan into equity, may armor the banks with an additional tool to cope with their NPAs. A change in management must be made mandatory in such cases involving willful default or sheer inability on the part of the promoters, where they have diverted funds and no redemption is possible. The Committee would however like to put a caveat here that the SDR mechanism should be used sparingly so that it does not become a smoke screen for large scale write-offs. It is necessary that even after SDR, the penal consequences for a wilful defaulter should continue to operate.

13.  Bulk of bad loans may be linked to firms that are struck with over-capacity and weak demand and are, therefore, simply unable to service their debt. The prolonged slowdown in the economy has eroded the market for distressed assets so much so that even Asset Reconstruction Companies (ARCs) have found it hard to off load them. The Committee would, however, still suggest that the RBI should consider such a dispensation that allows banks to absorb their write-off losses in a staggered manner, can help them restore their balance sheets to their normal health, while ridding the banking sector of its toxicity.

14.  Time-bound disposal of cases thus becomes the need of the hour. A distinction now needs to be drawn between "wilful defaulters" and other defaulters in the procedures prescribed under the relevant Acts and accordingly, "willfully defaulting" promoters must be dealt with sternly and promptly. Banks must be fully empowered to recover their dues promptly after necessary orders are passed by the Tribunal. The Committee would strongly recommend a thorough overhaul of the legal regime governing debt recovery, which may include stringent provisions to safeguard public money. Furthermore, there is a need for authentic and large Credit data base including posting the Credit Status of "wilful defaulters" in public domain.

For full report refer www.prsindia.org. or  savepublicsector.com   

Out of these recommendations, not even one has been implemented so far.  Is the Govt not even accountable to the Parliament? Whom are we trying to cheat talking about bad banks in a bad taste. Who will provide capital for bad banks and it is going to help whom? It is high time we wake up the Govt and talk about good governance and not bad banks.

Franco

ngcfranco@gmail.com

The economy anarchy of capitalist society as it exists today is, in my opinion, the real source of the evil.. Private Capital tends to be concentrated in few hands..(resulting in) an oligarchy of private capital, the enormous power of which cannot be effectively checked even by a democratically organised political society. – Albert Einstein. 

Random Reflections – 3                                                                             16.02.2017

Banks Board Bureau – Indra Dhanush and ESOP

Business Standard, Editorial of 15.02.2017 titled, ‘Chasing rainbows- Banks Board Bureau is conspicuous by its inaction’, Economic Times article on the same day, ‘ESOPs for star performers at State-run Banks in the Works’ and the Finance Ministry’s news that they will soon announce Indra Dhanush – 2, made me to think.

BBB, Indradhanush and ESOPs are part of the recommendations of P.J. Nayak Committee and endorsed by Gyan Sangam – 1 held at Pune on Jan 2&3, 2015.

The role of BBB are, “Appointment of Board of Directors, advise Govt on appointments, advise Govt on desired structure at Board Level, help Banks to develop a robust leadership succession plan, to build a data bank, to advise Govt on a code of conduct and ethics for Managerial persons in PSBs, to advise Govt on evolving suitable training and development programmes for management personnel and help banks in terms of developing business strategies and capital raising plan etc”. All these by part time shows the intention – Rubber stamp of Govt.

The constitution of the BBB to replace Appointments Committee has not improved the situation in anyway.  BBB is only an interim body and will be collapsed into a Banking Investment Company as per Gyan Sangam.  The Govt share will be transferred to the Company.  It is proposed to reduce the share holding of GOI in Public Sector Banks to 40% in stages. It has not acted where it has to but interferes in areas like wage revision which is not its mandate.

It’s almost an year.  The BBB has only recommended 9 names for Executive Directors.  Many Boards of Banks have vacancies.  Some Banks do not have Managing Directors.  There are more than 40 vacancies of Officer / Employee directors in Public Sector Banks including SBI and though BBB has no role, its told that the recommendations have been sent to the Chairman, Bank Boards Bureau.  

The Chairman, Shri Vinod Rai, retired from Civil Service in 2008 and was appointed as CAG for 5 years.  He did a good job.  IDFC website still has his name as Director.  He is also now incharge of BCCI and a member of a Committee on Public Sector appointed by Kerala Govt.  All the members are also part timers.  Ms. Rupa Kudwa, Member, BBB is also Director in Infosys and Omadayar Group.  Two directors are secretaries in DFS and Dept of Public affairs who do not have time.  One more is RBI Deputy Governor and the RBI is under cloud.  Mr. Anil Khandelwal’s report was rejected by all Trade Unions in the Banking Industry like that of Nayak Committee, and he is also a member of BBB.  Mr. H.M. Sinor was Joint MD of ICICI and he will advice Public Sector Banks as member of BBB.  What a strange coalition?

So there is no way BBB can do justice.  It’s constitution itself is ultra virus.  To avoid Parliament it was constituted.  So it has to be dismantled and further plans for BIC has to be stopped.  Banks require autonomy and not over interference.

The ESOP scheme is being pushed by Gyan Sangam and now by Mr. Vinod Rai.  He has not discussed anything with the Associations, who are stakeholders inspite of our request.  Now this part time, retired officers are being advised by reports of Multinational Consultants like Mckinsey and Boston Consultancy Group, who are guided by IMF & WB.  This is not going to strengthen the Public Sector Banks. 

The objectives announced in Indra Dhanush have not been achieved. They were capitalisation, De stressing PSBs, strengthening risk control measures and NPA disclosures, empowering of Banks, A frame work for accountability and Governance Reforms.  There is no progress in reducing NPA or improving Governance or other objectives.  The new Chairmen and MDs announced by Indradhanush including some from Private Sector have not been able to make any turnaround.

So what is needed for Banking Industry is not ESOP for the so called star performers or variable pay.  Appreciation by this methods have not helped any industry.  Appreciation can be in the form of certificates, promotions, awards etc.

What the Public Sector Banks need are

*  Functional Autonomy

* Appointment of Directors and Chairman nominated by institutions like IIM, IIT, and an   

   Independent RBI. 

*  No interference but policy directions for the country.

*  More staff to provide better services

*  Attractive salary taking into account the risk and responsibility

*  Focus on rural and semi urban network and credit

*Adequate power to recover loans.(Implementation of recommendations of Parliament Standing Committee on NPA)

Public Sector Banks have proven strength.  Please let them function. They have saved this country during demonetisation and during all crisis periods in addition to regular contribution to the economic growth.

Public Sector Banks are like Temples.  Let us respect them.

Franco

ngcfranco@gmail.com