Monday, April 21, 2014

How To Cure Sick Banks

Ministry of Finance under newly formed Government under the leadership of Mr. Narendra Modi and under the guidance of Finance Minister Mr. Arun Jaitley has once again racked the issue of merger and consolidation to save ailing banks .

It is well known that MOF has  been floating the  idea of merger of public sector banks since long , say for several years to create strong bank which can compete with foreign banks , which can provide big loans to infrastructure companies and power companies and which can absorb shock of global recession .

Merger plan was best suited to Finance Minister Mr. P Chidambram who as a person was a clever person and who   knows how to hide the ill effects of political exploitation of public sector banks carried out by his party since eighties in the name of social welfare or financial exclusion or poverty alleviation. Two decades ago, three banks namely United Bank, UCo Bank and Indian Banks were identified as weak banks and merger plan was suggested by leaders who damaged these banks. They however got success in hiding the malady under the carpet by treating all bad assets as good assets and by only setting up one committee or the other. 

Banks which were really bad in eighties and nineties were falsely and fraudulently projected as strong bank by manipulating their balance sheet just like what promoters of Satyam computers did to attract investors. But now those weak banks are resurfacing as bad banks and many other banks have also become victim of wrong policies of the government or victim of good policies executed by bad persons.Banks Like SBI, PNB, Canara which were considered to be strongest bank among Public sector banks are also not falling in the category of weak banks .SBI has declared more than 5% of its assets ( in fact it is more than 20% ) as bad assets though the bank is still  considered as strongest bank .

Then India under the leadership of Manmohan Singh entered into an era of privatization and globalization and got added opportunity to misuse these banks for political gain. Now again position of many government banks have gone from bad to worse, gone beyond control and beyond repair. And therefore need of merger of weak banks has again been suggested by those clever politicians who are only responsible for the growing sickness in these banks.

In eighties Congress Party under the leadership of Janardan Pujari damaged these banks in the name of Loan Melas. After that banks were damaged by person like VP Singh in the name of Loan waiver and Compromise settlement with defaulters. Then in the name of globalization, persons like Manmohan Singh, P Chidambram, Pranab Mukherjee damaged the banks by building pressure on bankers for lending as per their whims and fancies without taking care of recovery and without caring for security of the assets. 

It is none other than the politicians who have damaged the fundamental of banking by promoting the culture of bribery and flattery in recruitment, promotion and posting. As a matter of fact, none of top banker takes interest in safety and security of banks,but  they take all adequate and absolutely full interest to serve their self interest and in keeping Finance Minister happy , in keeping political mentors happy and in keeping all their bosses happy. Top bankers have to indulge in bad practice to win the heart of politicians ruling this country for last ten years.

In public sector banks, majority of  officers work for the pleasure of top officials whereas in private banks they work sincerely and honestly for the growth of their banks. This is the root cause behind growing sickness in public sector banks. 

Culture of flattery and bribery propagated and advocated by politicians have infected deeply into blood of top officials of banks too which has resulted in bad culture in all banks and which has percolated down the line.  Undoubtedly ,it is this bad culture which in now appearing in the form of Rise IN Non Performing Assets (NPA) and Rise in Stressed assets or erosion in capital . 

Bank officers are ready to sacrifice interest of their bank to please not only minister and senior officials but all those who are friends, relatives and recommended persons of Ministers and Top Officials of various departments. This is why, neither RBI nor Government of India is that much worried to know that 15 to 20 of banks assets is stressed and almost all banks have lost their capital . Birds of same feather flock together and they remain united as leaders of UPA are united in protecting corrupt ministers and corrupt officials indulged in 2G, CWG, Coal Scam or any other big or small scam of the country.

Lacs of crores of public money is at stake and almost each bank needs thousands of crores of rupees as capital support to comply Basel III norms. It is unfortunate that no one has till date filed PIL to stop banks' journey from heaven to hell. None has taken interest to stop political exploitation of banks. None has taken sincere interest and initiative to stop corrupt practices going on unabated and unbridled in recruitment and promotion processes carried out  in these banks for decades and that too in the name of Merit oriented policies. Clever management of these banks do not allow even court cases filed against corruption to move and take a decisive turn.

When so called merit oriented recruitment and promotion policy implemented by top officials of the bank for last twenty years has fully damaged the basics of these banks, government is now left with has no option other than merging weak banks with a little bit stronger banks so that volume of bad debts could be concealed and image of these banks could be protected . They may however simple change the dress of these weak banks to look like gentleman . But the sickness has assumed the form of cancer and hence cannot be treated by changing the apparel or by changing the name of the bank only.Politicians can put carpet on malady for the time being but its stinking gas will explode sooner or the later.

If investors in banks become revolutionary and agitated, entire game plan of ministers and top bankers will be exposed before public just as CAG exposed misdeeds of politicians in 2G, CWG,Coal mining and Iron Mining scams and now ruling Congress Party is facing the consequences of their misdeeds in current Lok Sabha election. It is only investors who are not getting adequate dividend on money they invest. It is depositors who are not getting adequate return in form of interest because banks are forced to lend at lower rate of interest. And finally it is bank staff who are not getting respectable wage hike despite their hard work.

Finance ministry favours merger of smaller PSU banks-Economic Times 22nd April 2014

NEW DELHI: The finance ministry may float the idea of merging smaller state-run banks to create a new bank to the new government once it assumes charge after the elections. The ministry is likely to consider the possibility as part of its assessment of the capital requirement of state-run banks under the Basel-III norms and various strategies to capitalise them while retaining majority shareholding.

"There's no structured proposal as of now to push merger within PSBs. But if the next government is inclined towards it, then we will present viable options," said a finance ministry official, who didn't wish to be named.

The 26 state-run banks under the Basel guidelines will together need about Rs4.15 lakh crore in capital infusion to be able to maintain lending growth, a demand the government is unable to meet because of its own weak fiscal position. This fiscal, the government has allocated just Rs11,200 crore towards bank capitalisation, which is substantially lower than the amount infused in the previous years. A strategic consolidation of state-owned banks could help bring down capital needs apart from creating bigger banks that will have the balance sheet muscle to fund India's infrastructure.

Gross non-performing assets of public sector banks rose to 5.17 per cent of their advances at the end of December 2013, against 4.18 per cent a year before. The highest NPAs, at 7.21 per cent of advances, are in loans to small and medium enterprises followed by agriculture at 5.99 per cent.

Both the national parties - BJP and Congress - are not disinclined to the idea of merger in the banking space. In 2012, the finance ministry had divided banks in seven pools and a large bank was appointed as coordinator for each group to try work collectively on issues such as human resource and internal audit. The move was later discontinued.

"Banks such as the United Bank of India, where the government holds 88 per cent stake, can be easily delisted and merged. Similarly, there are more than three banks where government's stake is close to 90 per cent. If there's a political will, regulatory issues can be resolved," said another finance ministry official.

Mergers in state-run banks have been opposed on the grounds that there are cultural and technological differences in their functioning. In the past, the mergers have not only been opposed by the unions but also by chairmen and executive directors as it will also lead to lesser number of posts available.

"The primary concern is the branding issue. There's fierce customer loyalty among smaller banks and if you merge them with a larger bank, then you have to look at what happens to the brand and how customers respond," the above-quoted finance ministry official said, adding that a new brand can subsume the existing brands and carve out a new identity over a period of time.

"We have to take both Sebi and RBI on board and it may be a lengthy process. In the past, banks such as Axis Bank have successfully transitioned," said the official. Axis Bank was earlier known as UTI Bank and changed its brand in 2007. It had spent around Rs50 crore in the re-branding exercise.

No comments:

Post a Comment