What Wrong Finance Secretary Mr. Mittal IS Doing?

This refers to editorial published Today the 27^th July 2102 in Economic Times  titled as “Leave Banking Be”.

It is true that Mr. Mittal has issued many guidelines in last few months against the tradition of his predecessors who were silent spectators of all right and wrongs of bankers.During last two decades and more of reformation era, public sector banks have

• Contributed more and more bad assets,
• caused continuous erosion in capital,
• recruited persons in bank by committing fraud with laid down policies, promoted culture of flattery and bribery,
• promoted corrupt officers to higher scale to perpetuate corrupt practice,
• indulged in fraudulent game to increase profit and banks did not even make provision for terminal benefits of employees,
• did not provide for pension,
• concealed Bad assets to reduce provisioning load and to inflate profit,
• resorted to window dressing to achieve deposit and lending targets set by ministry of finance,
• offered high rate of interest to corporate to acquire bulk deposits even for short term ,
• Credit growth , business growth and profit growth shown by a few banks rightly or wrongly is ranging from 10 to 15 % whereas that of private sector new generation banks is ranging from 25 to 40%. On the contrary Gross NPA has been increasing in state run banks every quarter but that of private bank is coming down.
• sanctioned loans to  corporate even at sub PLR rate at the cost of profitability of banks forcing RBI to prescribe Base rate mechanism,
•  resorted to investment in mutual fund to earn profit by speculative tactics,
• instead of recovering money from defaulters , thought it better to sell bad assets to ARC or subsidiaries,
• resorted to short term unsecured loans to corporate to achieve the target,
• increased deposit by debiting unavailed portion of cash credit account limits to inflate advance as well as advance figure,
• did not sanctioned loan to weaker section,farm sector,industrial sector 
• did not sanctioned loan to agriculture sector to the extent government of India desired,
•  resorted to finance to Micro Finance Institutes to achieve target under Priority sector and MFI in turn sanctioned loan to weaker section at exorbitant high rate of interest.
• .Loan to pensioner at more than 16% and to car purchaser at 11 or 12%
• resorted to frequent restructurings and rephrasing  of loan to keep the same in Standard category despite inherent weakness in borrowers account,
• discarded banking activities and focused on non banking activities like insurance and demat services to earn non-interest income,
• manipulated balance sheet to artificially inflate profit ,
• reduced  NPA by concealment not by recovery and thus saved provisioning to book higher profit in an illegal way and distribute this ill earned profit as dividend among investors and win the heart of Ministry of Fiance and so on.

There is no doubt to me that banks were nationalized by GOI to serve social agenda and in the era of reformation, banks in general have totally discarded the agenda of social welfare and concentrated on making profit by hook or by crook, by good and bad means. Inspite of their all efforts and adopting all evil means they could not raise their profitability, return on equity, per employee business, per employee profit ,failed to  keep bad assets in control and finally to extend customer service to the level of satisfaction and delightment of customers as their counterpart in private sector are doing. On the contrary return on assets, per employee business and profit, net NPA ratio, profit equity ratio, earning per share level of customer satisfaction etc are considered still better in private banks than that in public sector banks despite the fact that PS banks have been given all freedom and autonomy after 1991.

It is a question which every prudent official should introspect and ponder over why image of government banks is still not good in the eye of public and private banks are given preference even though they are charging exorbitant service charges. It is unfortunate that common men are completely disillusioned with the services of government banks and it will not be an exaggeration to say that not only urban but even rural folks have shifted their banking to private banks.

This is bitter truth that not only rich and affluent class of people prefers private banks but poor and middle class do major banking with private banks. This is why that during two decades or so business of private banks have grown rapidly and crossed the level of business of many government banks which have been in banking business for last fifty years and more. Business of ICICI , HDFC and Axis banks are comparable with highest ranked State bank of India and others. There is no doubt that best policies of GOI for government banks have been put in action in worst ways and this is why they failed not only in achieving social agenda but also failed in profit agenda.

If Mittal has tried to bring about certain improvement in banking what is wrong in it?

I think editor of ET should specify circulars which may be considered as superfluous and which put impediments in the path of bank management for doing sound, healthy and ethical business and which hurdles their spirit of competition as envisaged in the policies of reformation introduced in the year 1991.If banks are meant to earn profit and profit only why are they then entrusted the work of financial inclusion, forced to go for waiver of loans etc. Editor of ET should therefore specify the achievement of government banks during last two decades and compare them with previous two decades to come to a conclusion which era proved more fruitful for common men as also for business class people.

When I say business class, I mean to say that there should not be delay in sanction of loan for good projects and there should be through investigation why rate of default is increasing year after year in case of high value loans. Is it always true that global recession is behind growing sickness in government banks? If yes why private banks are not affected by same global recession to the extent their counterpart in government sector are.

Some bankers say that bad assets have grown in agriculture sector. May I ask them what the level volume of bad assets in agriculture is? Is it even more than ten percent of total bad assets?


Of course I do not agree with Mr.. Mittal in pinpointing corruption as the one and only reason behind rise in bad assets in agriculture sector.It is again politicians who have spoiled the recovery culture and it is they who have made a habit of announcing waiver of agriculture loan on the eve of election to serve their vested interest. Frequent waiver of loan to serve political purpose , farmers are habituated not to repay their dues and wait till the election in anticipation of waiver of loan. Not only farm loan , even other loan accounts have also gone bad only because of this wrong culture created by dirty politicians and indirectly supported by other regulating agencies. 


It is again Mr. Mittal who has tried to break the ice.


Not only weaker sector and small borrowers but even high value borrowers do not repay their loans as per terms and conditions of loans and allow the account to be declared as Non Performing Asset in bank's book of accounts so that and they may build pressure for compromise and some relief on pretext of some wrong excuses for their failure in repayment of dues in time.As such not only poor but rich too  are not repaying dues in time and expecting some help through compromise settlement. Ultimately it is always small depositors and small investors who have to bear the brunt of corrupt culture. 

Last but not the least, before the launch of reformation, unemployed youth used to be anxious to join serviced in government banks and now unemployed youth join these banks to leave the job in a year or two. Why even bank staff are dissatisfied with Human Resource Department of the banks. Why attrition rate in government bank is growing? Why quality of bank employee recruited in banks is going from bad to worse? Why good and talented youth prefer not to join banks services? A Youth prefer bank service only when he or she is unable to get other job for survival.

It is unfortunate that neither bank employees nor bank customers are happy with what is happening in government banks. Yes, of course, politicians, trade union leaders and top officials are happier than what they used to be before the beginning of reformation era in 1991, Businessmen with weak financials and inherent sickness in their business model may get chance of credit sanction from government banks because the credit appraisal system of private bankers is very much tight and to the point. 


http://dkjain497091112006.blogspot.in/2012/07/mittal-defends-his-actions.html

Mittal Defends His Actions, Says Bankers Have To Come Out Of Lazy Habits

THERE IS NO DOUBT IN IT THAT DURING LAST FEW YEARS PUBLIC SECTOR BANKS HAVE TOTALLY DISCARDED AGRICULTURE LENDING AND CONCENTRATED MORE  ON BULK LENDING TO BIG CORPORATE AND ON RETAIL LENDING LIKE LOAN FOR PURCHASE OF CAR AND HOME.

IF TOP 200 BORROWERS OF ANY GOVERNMENT BANK IS REMOVED FROM BALANCE SHEET OF THAT BANK, THE REAL PICTURE OF LENDING WILL EMERGE AND IT WILL BE PROVED THAT DURING LAST FEW YEARS DISBURSEMENT FOR FARMING HAS COME DOWN AND THIS IS WHY GDP CONTRIBUTION FROM AGRICULTURE HAS ALSO COME DOWN.

THERE IS NO DOUBT THAT VOLUME OF NON PERFORMING ASSETS HAS SEEN UNPRECEDENTED RISE DURING LAST THREE YEARS AT LEAST AFTER THE USE OF SYSTEM DRIVEN MECHANISM TO IDENTIFY ACTUAL NPA.

http://economictimes.indiatimes.com/opinion/editorial/ias-officials-expertise-is-administration-not-finance-banking-technicalities/articleshow/15176674.cms

HDFC Bank overtakes SBI as India's most valued bank
PTI | Jul 27, 2012, 05.18PM IST
NEW DELHI: Private sector lender HDFC Bank surpassed SBIas the country's most valued bank on Friday with a total market valuation of about Rs 1,37,500 crore.

SBI shares were seen trading under pressure with a fall of nearly 2 per cent this afternoon, despite an overall uptrend in the market, while HDFC Bank shares gained by more than 3 per cent.

The market benchmark sensex was trading more than 200 points higher on broad-based buying among blue chips.


As a result, HDFC Bank's market capitalization rose to Rs 1,37,500 crore, as against SBI's 1,32,700 crore, as per the BSE data.

At close yesterday, SBI was the country's most valued bank with a total market cap of Rs 135,360 crore, followed by HDFC Bank (Rs 133,375 crore), ICICI Bank (Rs 1,04,558 crore), Axis Bank(Rs 41,657 crore) and Kotak Mahindra Bank (Rs 40,178 crore).

At 1415 hrs today, HDFC Bank shares were trading 3.1 per cent higher at Rs 584 after scaling an intra-day high of Rs 588.

On the other hand, SBI was down nearly 2 per cent at Rs 1,977.40 at the BSE, while ICICI Bank was up 2.5 per cent, Axis Bank was up 2.1 per cent and Kotak Mahindra was trading 1.6 per cent down.

In terms of market cap, HDFC Bank and SBI were followed by ICICI Bank (Rs 1,07,221 crore), Axis Bank (Rs 42,541 crore) and Kotak Mahindra Bank (Rs 39,547 crore) at 1420 hours.
http://timesofindia.indiatimes.com/business/india-business/HDFC-Bank-overtakes-SBI-as-Indias-most-valued-bank/articleshow/15204031.cms

Banking stocks drop by up to 8% on concerns of bad debts

However, ICICI Bank's grew 2.35% higher to settle at Rs 928.20 on the BSE

Press Trust of India / Mumbai Jul 27, 2012, 18:49 IS Shares of state-owned banks including Punjab National Bank, Union Bank and Central Bank of India today slumped by up to 8% on concerns of growing bad debts. However, ICICI Bank's grew 2.35% higher to settle at Rs 928.20 on the BSE as the private sectorlender posted a decline in net non-performing asset (NPA) in the June quarter. On the contrary to ICICI, Punjab National Bank declined by 5.34% to settle at Rs 715.85 on the BSE, while shares of Bank of India tumbled by 5.34% to close at Rs 291.35. In addition, the scrip of Union Bank slumped as much as 7.86% to close at Rs 164.05. Besides, Central Bank of India, too, witnessed a surge in bad debts sending its shares down by 6.07% to close at Rs 68.85. The scrip of Dena Bank went down 4.12% to close at Rs 87.30. Most of the PSU banks, which posted their respective quarterly earnings today have witnessed a rise in NPA in the three months ended June 30, 2012. In contrast, ICICI Bank was able to trim its NPA. The PSU banks' quarterly earnings marred State Bank of India's performance, which fell 3.77% to close at Rs 1,941.20 on the BSE, according to market experts. However, SBI is yet to announce its second quarter results. A sharp fall in SBI's share price, placed it below than HDFC Bank in terms of market capitalisation. HDFC Bank's fell by 3.13% to settle at Rs 584.25 as a result, private sector bank's market capitalization rose to Rs 1,37,554 crore as against SBI's 1,30,263 crore, according to the BSE data. The sharp fall in the PSU bank's share prices were in contrast with overall strength in the broader market. The BSE's benchmark Sensex rose 199.37 points, or 1.20%, to close at 16,839.19 points. http://business-standard.com/india/news/banking-stocks-drop-byto-8concernsbad-debts/180500/on Now when the reality of public sector banks is getting exposure by their financial result quarter after quarter and they have understood in the deep core of their heart and mind that they cannot now compete with with their counterpart in private sector specially new generation banks ,  CEOs of Public sector banks led by  State Bank of India Chairman, Mr Pratip  Chaudhuri are demanding a rate cut in Cash Reserve RAtio to increase not  only liquidity but also their profitability prospect in future. ‘Time for CRR cut as liquidity situation is tight’ http://www.thehindubusinessline.com/industry-and-economy/banking/article3693262.ece?ref=wl_industry-and- economy SBI chief Pratip Chaudhuri says repo rate cut won’t be sufficient MUMBAI, JULY 27:  A cut in the cash reserve ratio (CRR) could serve as a mood elevator for the markets, according to the State Bank of India Chairman, Mr Pratip Chaudhuri. CRR, currently at 4.75 per cent, is the slice of deposits that banks have to maintain with the Reserve Bank of India (RBI). “Perhaps there should be a 50 basis points CRR cut (to 4.25 per cent). I don’t know what kind of liquidity signals are being looked at. “I do not agree with this that the total borrowing under the LAF (liquidity adjustment facility) is a ‘measure of the street’. The ‘measure of the street’ is at what price banks are issuing certificates of deposits (CDs),” said Mr Chaudhuri at a press meet to announce the conclusion of the bank’s $1.25-billion five-year overseas bond offering. LAF is a facility extended by the RBI to banks to avail themselves of liquidity in case they face deficit or park funds with the RBI in case they have surplus funds on an overnight basis against the collateral of government securities. Mr Chaudhuri said that if banks are continuing to issue CDs at 9 per cent and 9.2 per cent, it obviously indicates that the liquidity situation is not comfortable. ‘STRONG CASE FOR RATE CUT’ “Last time they (the RBI) skipped CRR cut. So, there is a strong case for it now. Globally, the monetary authorities have taken upon themselves the task of rejuvenating the economy. One thing that they can contribute is by moderating the interest rates,” reasoned the SBI chief. The interest rate differential between Indian and overseas markets opens up carry trade. “Rupee is a good currency for deposits but not-so-good currency for bonds. We think there is case for bringing down the CRR and that will have a cooling effect on interest rates, especially for customers,” said Mr Chaudhuri. In case of a repo rate cut, the benefits (for banks) are little. If there is no benefit, then banks cannot pass on any interest rate cut, he explained. DISADVANTAGE INDIA “Interest rate acts as a signal. It is a necessary but not a sufficient condition (for growth). It is a mood elevator. If interest rate comes down, it will trigger enthusiasm (among various participants in the economy). “To some extent, most markets are a function of sentiments. Market sentiment will turn positive if there is a reduction in interest rates,” said Mr Chaudhuri. Pointing out that Indian companies were at a disadvantage vis-à-vis their foreign competitors, the SBI chief said if the promoter of a power plant buys capital equipment from an Indian manufacturer, then he has to take rupee loan, which will come at 10-11 per cent. If the promoter were to go for foreign gear, say, Chinese equipment, which is very common, the interest cost is 4 per cent. LOW-COST DEPOSITS UP According to Mr Chaudhuri, SBI’s retail deposit growth has been quiet good in the first four months of the current financial year. Low-cost deposits in current accounts and savings bank accounts increased by about Rs 30,000 crore in those first four months. However, loan growth has been muted.