Future Of State Run Banks Is Dark

I am afraid to say that if corrective action is not taken to strike at the root cause of bank's sickness, there in no power on earth which can ensure bank's safety and security and which can save probable losses to various public sector banks likely to be caused due to credit risk , legal risk, operation risk and concentration of credit risk .

There is no possibility of real GDP growth until bankers learns to finance for real farming real manufacturing sector . Savings may not increase until there is interest rate more than inflationary rate. When savings does not grow there is no chances of investment to grow.When manpower is not healthy ,happy and comfortable  , banks cannot be healthy. profitable and social service oriented.. 

And the most important is that if banks do not earn adequate profit they may not sanction adequate wage hike for bank employees.

http://importantbankingnews.blogspot.in/2013/03/tough-time-ahead-for-banks.html

Finance Minister has been harping since long to reduce interest rates but RBI Governor has been putting brakes in order to keep inflation under control. But clever bankers reduced interest rates on lending though by 10 or 15 basis points only despite pressure on their margins only to give respect to feeling of Finance Minister. .

Bank executives have to lose nothing from their pocket even if bank incurs lose  , it is ultimately the customers and investors who have to incur loss due to wrong decisions of bank executives and wrong policies of GOI or RBI. It is taxpayer’s money which is introduced in all such sick banks when they face shortage of capital. Executives of banks are now a days very much liberal in waiver of loan or in compromise settlement with recalcitrant borrowers sacrificing hundreds and thousands of crores of rupees

On the one hand volume of Non Performing Assets in books of banks has been rising every quarter (now reached a level of Rs. 200000 crores) , on the other there is very poor credit growth. Still , in order to flatter Finance Minister and in order to remain in good book of FM , heads of banks do not hesitate in playing with bank's fund to please politicians. They reduce lending rates despite high cost of deposit mobilized by them and ignoring the in built risk. They do not hesitate even in lending to even unscrupulous loan seekers .They are unable to mobilize deposit due to falling interest rate and due to other avenues being more attractive than bank deposits. They feel liquidity crisis, they face asset liability mismatch and they face legal constraints in recovering of money from bad borrowers. Still they are bent upon taking unwise decisions to keep ministers happy and to serve their own personal interest.

Further to add fuel to fire there is no growth in deposit in proportion to what is needed for growth in credit and what is needed for growth in the economy as envisaged by Finance Minster in various policy books. In order to attract deposits in their fold and in order to keep asset liability mismatch in control , heads of various  banks have already started increasing interest rate on deposits. 

There is limit to flattery too, top bankers are now facing liquidity crisis only due to the face that they fail to manage asset liability balance. . To cope with problem of liquidity, they are now mobilizing short term deposits by paying higher interest rate and to add fuel to fire they are lending short tern fund for long term projects. Banks are left with no alternative but to increase interest rate short term deposits despite pressure on their margins. Inspite of constraints, they reduce interest rates on credits made by them to abide by dictates received from their political guardians. 

Obviously when deposit rate will increase, banks will have to increase lending rate or face further erosion in their margins and hence in profitability too.

This is not the end of conflicting and confusing trend in movement of interest rates. It was heard from various corners that banks are losing their banking business due to their focus on business related to insurance activities. Banks are meant for lending and for helping farmers and industrialists to produce more and more and contribute maximum to GDP growth. But unfortunately during last decade bankers diluted their focus on core banking activities and diverted their mind on earning revenues from other non banking businesses such as insurance business, demat business, portfolio management etc.

Due to this unwarranted diversion of mind from core banking to non banking activities , quality of assets of these banks have faced severe erosion .Now to add fuel to fire, FM has given them power to sell the products of more than one insurance companies . In this way banks may earn few crores of  non-interest income but they will lose many crores in interest income on fund lent by them when  quality of their assets is poor and  defective, when monitoring of credit is weak and when branch officials fail to discharge their duty to keep control on their credit because of loss of time on their non banking business mobilization. This is called as 'Penny Wise and Pound foolish'

It s pity that non banking companies are doing business by focusing their time and energy on banking activities. They earn huge interest income by lending . Micro finance companies are indulged in high cost lending to exploit poor farmers and poor traders. But public sector banks hesitate in lending to small farmers and small traders .Unfortunately management of most of public sector banks have concentrated their time in bulk lending and have consistently reduced lending for farmers, small scale industries and for middle class business men. It is tragedy of the system that bankers are indulged in non banking and non -banking companies are indulged in banking activities. 

Further banks are busy in spreading their branch network to abide by guidelines issued from Ministry of Finance to compete the task of Financial Inclusion. All PSBs have added hundreds of branches in their branch network during last two three years without adding manpower  to earn profit by exploitation of existing employees.

As a result of which most of branches are not getting time to devote for credit growth. There is acute shortage of skilled persons for quality lending.. Inexperienced officers are now heading the branches and are given the responsibility to head a region or a zone .It is most perturbing to note that seniors and experiences are working under bosses who are less experienced and less skilled. 

As a consequence of this , there have been serious deterioration in quality of work , quality of lending , quality of housekeeping and quality of customer service. This is why customers are gradually moving to private banks.. Business of private banks have been growing on an average rate of 25% per year where public sector banks are unable to achieve a growth of even 10 to 25 %

The most disheartening story of bank is that majority of manpower are working under tense atmosphere. They have to sit late and tolerate firing from bosses for valid or invalid reason. 

When health of manpower will suffer the health of bank is bound to face serious sickness and there is no hope of improvement until the top executive change their attitude, until ministers and politicians stop political use of banks for their vested interest and until RBI like financial regulators decides to adopt uniform interest rate policy applicable for all public sector banks.

Last but not the least , Government has allowed public sector undertakings and departments of government of India or State government to park their surplus fund in private banks too , though upto the extent of 40% only. If Rs.50000/ crores is parked in private banks , it means GOI is giving direct benefit of Rs.5000/ crores to private banks promoters. This is another form of scam and corrupt practices. 

It is worthwhile to mention here that total of cash surplus in public sector undertakings and that in government departments is to the tune of not less than ten lac crores. If 40 % of it i.e. Rs.400000 crores goes to private banks which is parked at zero rate or at savings rate , private banks will gain in profit by thousands of crores of rupees . But who will stop this unhealthy practices and unwise guidelines issued by the government.